Van Buren County Savings Bank v. Sterling Woolen Mills Co. , 125 Iowa 645 ( 1904 )

Sherwin, J.

1. Banks and acceptance of worthless checks. The facts found by the referee are substantially as set'forth above, and are practically conceded; the contention being over the legal principles applicable thereto. The referee and the district court both found the defendant entitled to credit for the amount of the check drawn by the defendant, and that the $9,000 check was illegal, and not a valid charge against the defendant. The acceptance of the defendant’s check by the plaintiff, through its cashier, Lapsley, was expressly conditioned upon the agreement that the actual credit created thereby should be only the difference between that sum and the sum of $9,000, represented by the check drawn by Sharp as treasurer. In other words, while Lapsley consented to credit Sharp’s account as treasurer with the amount due the defendant from him, it was done only upon the condition that a check for $9,000 in favor of the old bank be deposited at the same time, and as a part of the same transaction, to be entered as a charge against that credit. It -was presumed that this method of handling the transaction would fully protect the plaintiff, and at the same time assist Sharp in longer concealing his appropriation of the defendant’s funds. Lapsley, as the plaintiff’s cashier, had no right or authority to accept a worthless check on another bank, and charge the plaintiff with the amount thereof. Zane on Banking, section 160; Clarke Nat. Bank v. Bank of Albion, 52 Barb. 592; Bank v. Bank, 16 N. Y. 125 (69 Am. Dec. 618). Had he done so, he would not only have acted without authority, but would have been practicing a fraud upon his principal. Nor was the defendant, or Sharp, as its treasurer, entitled to credit for the full amount of the check. Neither the old bank nor Sharp had funds against which it could be charged; hence whatever right accrued to the defendant on account of the transaction arose from the agreement between Sharp and the plaintiff’s cashier, Lapsley. It should be borne in mind in this connection that this was not a deposit of money, against which an unauthorized check was drawn, but a credit agreed upon by Lapsley and Sharp. If it be true, then, that the defendant’s rights are based solely upon the agreement made at that time, and are to be measured thereby, it seems to follow as a sound proposition of law that the defendant cannot claim the benefit of that part of the agreement which is favorable to it and reject the rest. Anderson v. Walker, (Tex. Civ. App.) 49 S. W. Rep. 931; Key v. Nat. Life Ins. Co., 101 Iowa, 446. The defendant had no direct account with the bank. Its account was with its treasurer, who, as such, opened the account with the bank. The defendant drew all checks on its treasurer, as it was required to do by its by-laws. True, these checks were made payable through the bank, and were in fact paid by the bank in the first instance, but they do not appear to have been charged to Sharp’s account as treasurer until he gave his check for the amounts so paid. The $10,380 check was drawn in favor of Sharp as treasurer and delivered to him, and it was he who negotiated with the plaintiff the amount of credit he should receive on account of the transaction. That he and Lapsley deliberately and fraudulently deceived the defendant admits of no doubt; but there was no misappropriation of funds by the plaintiff, for the reason that no money was deposited by the defendant or by Sharp for its benefit, and no credit was given the defendant or Sharp as its treasurer beyond the amount agreed upon by Sharp and Lapsley. The passbook delivered to the defendant (by whom does not certainly appear) was evidently intended to deceive, for, while it showed the true amount which Sharp owed the dcfendant, it did not show the true condition of his account with the bank. Sharp was not to receive a salary as treasurer, but it was. the understanding that he should have the use of the defendant’s money in his banking business; and under such an agreement it could not be expected that he would always have the entire fund on hand, either in cash or as a credit in the bank. But, however this may be, the credit in the passbook could only operate as an estoppel against the bank if it were found responsible for the deception, and no estoppel is pleaded or relied upon. It tliere'fore follows that the judgment cannot be sustained on the theory advanced by the referee and adopted by the trial court.

2. Application of FUNDS. But, notwithstanding this, the plaintiff is not entitled to a judgment against the defendant. By the terms of the agreement between Sharp and Lapsley, when the former’s account as treasurer was transferred from the. old to the new bank Sharp was to make good the $9,000 shortage by deposits from his private funds from time to time. The defendant, having no knowledge of the shortage or of the true condition of its treasurer’s account' with the bank, checked on its account as represented by its passbook, which resulted in frequent overdrafts. The referee found as a fact that Sharp undertook to protect these overdrafts by depositing his own funds from time to time as they occurred, until the total of such deposits amounted to $11,350. Of this sum $7,600 was deposited in different sums and at different times prior to and on the 29th day of September, 1894, $750 on December 31, 1894, and $3,000 March 30, 1895. From the 7th of November, 1894, to the 19th day of November, 1895, inclusive, Sharp drew checks amounting to $9,300 on his account as treasurer in favor 'oi the appellant bank to reimburse it for money páid. out on his account. Therefore at the time of the March 30, 1895, deposit of $3,000 he had drawn from his treasurer’s account for his private use $950 more'than his deposits from his private funds. On the 10th of October, 1896, he' executed notes as defendant’s treasurer aggregating the sum of $5,000, which were given to the appellant to cover a part of the shortage in his account as treasurer, and this sum was placed to his credit. He afterwards drew $3,000 more from this account for his private use. It appears, then,' that his total deposits from private funds, treating the $5,000 credit of October 10, 1896, as such, aggregated $16,350, and the aggregate amount drawn therefrom for private use was $12,-300. Conceding that the defendant has had the benefit of the difference between these two sums, $4,050,' the shortage of $4,661 found by the referee and trial court is not too large. If Sharp deposited the various, stilus specified, for the payment of the' defendant’s overdrafts, as found- by the referee, we think the defendant was and is entitled to the benefit of such deposits. They were made to reimburse the bank for the money it had paid out for the defendant, and it could not thereafter, change the character of the transaction, and rightfully ask that such sums be applied elsewhere for its benefit.

The execution of the notes by Sharp- as firéhsurér was wholly.unauthorized, and did not bind the defendant; nor does it appear that the defendant was benefited by the credit given Sharp on account thereof; hence the referee and the trial court rightly excluded them from consideration in determining the state of the account between the parties.

We reach the-satisfactory conclusion that the judgment in this case should be and it is affirmed.