Opinion
No. 18,438.
Decided November 23, 1959. Rehearing denied December 21, 1959.
Action by receiver of insurance company to recover amount of deposit made in savings and loan association. Judgment for plaintiff.
Reversed and Remanded With Directions.
1. BANKS AND BANKING — Corporations — Officers — Deposit — Withdrawal — Authority. Where a certificate of deposit in a savings and loan association was surrendered and discharged on an authorized signature, there being no element of forgery involved, the only issue is that of the authority of the officer making the withdrawal.
2. CORPORATIONS — Officers — Authority — Ownership of Stock — Deposit — Withdrawal. The ownership and control of the stock and of the officers of a corporation by the president thereof amounts to actual authority to surrender a certificate of deposit for money deposited by him in the name of the corporation in a savings and loan association, and to receive the money represented thereby.
3. BANKS AND BANKING — Corporations — Deposit — Officer — Apparent Authority — Withdrawal. Where an officer of a corporation had created an account by depositing a sum of money in savings association, had signed the signature card in blank and had possession of and surrendered the indicium of ownership, he had apparent authority to receive payment thereof.
4. Deposit — Surrender of Certificate — Payment — Check. Where an officer of a corporation had created an account by depositing a sum of money in a savings association, had signed the signature card in blank and had possession of and surrendered the indicium of ownership, he had apparent authority to receive payment thereof.
5. Deposit — Surrender of Certificate — Payment — Check. Where a savings and loan association could have discharged its indebtedness by payment in currency, the fact that it made payment by check payable to the officer of the corporation who had actual authority to receive payment was immaterial.
Error to the District Court of the City and County of Denver, Hon. M. T. Hancock, County Judge, sitting as District Judge.
Messrs. YEGGE, BATES, HALL SHULENBURG, for plaintiff in error.
Messrs. IRELAND, IRELAND, STAPLETON PRYOR, Mr. JOHN S. KELLOGG, for defendant in error.
THE plaintiff in error was defendant in the trial court. The defendant in error as plaintiff instituted this action for the recovery of the proceeds of a certain deposit in the amount of $10,000.00. Judgment was in favor of the plaintiff and the defendant seeks review and reversal.
On August 4, 1954, the sum of $10,000.00 was deposited in the defendant association to the credit of International Fire Insurance Company. This deposit was made by one Larry Schwab, who was then President of that corporation. About a year later, on August 2, 1955, the defendant association as notified of a change of name of the depositor, International Fire Insurance Company to International Indemnity Insurance Company. This change was requested by Larry Schwab and the change made on the ledger card of the defendant.
The deposit in question was evidenced by a certificate issued by the defendant acknowledging the company to be a member of the Colorado Federal Savings and Loan Association and acknowledging that it holds a $10,000.00 "investment share account." This certificate is transferable on the books of the defendant company. The signature on the card held by the bank was not that of the insurance company, but was merely that of "Larry Schwab."
On January 3, 1956, Larry Schwab, also known as Lawrence M. Schwab, appeared at the defendant association's office and surrendered the certificate to the association, signing it "Larry Schwab, Pr." The certificate was thereupon cancelled and the check of the defendant was issued payable to Larry Schwab in the amount of $10,000.00. Attached to this check was a voucher declaring: "The attached certificate is in full settlement as stated hereon." The check was signed by the Secretary-Treasurer of the defendant association.
According to the evidence, payments to depositors are made in cash or by check as requested and in case of investment deposits such as the present one, the certificate is the sole evidence of the indebtedness.
Larry Schwab testified by means of written interrogatories. He stated that he was President and Treasurer of the International Indemnity Insurance Company and that his wife was Vice President and secretary of the corporation. He also testified that he and his wife owned all of the stock of this company and that they were the only members of the board of directors during the times in question. He further testified that he invested the $10,000.00 proceeds of the account in United States Government Bonds. There is no evidence to substantiate this assertion and it was assumed at the trial that he converted the proceeds of the check to his own use.
Sam N. Beery was appointed receiver of the International Indemnity Insurance Company on May 24, 1956, and William B. Naugle was appointed as his assistant. Following an audit of the books of the defunct company, a demand was made on the defendant association for $10,000.00 which was refused. Thereupon the receiver filed a complaint alleging that the International Indemnity Insurance Company had deposited $10,000.00 with the defendant association and that the receiver, as the successor in interest of the insurance company, was entitled to this amount. The defendant association admitted the deposit and alleged that the account was paid to the International Indemnity Insurance Company on January 3, 1956, by delivering the sum in question to Larry Schwab, "the president, General Manager and duly authorized Agent of said * * * company."
Following trial to the court, judgment was entered in favor of the plaintiff in the amount of $10,000.00, together with interest and costs. In reaching its conclusion that the plaintiff receiver was entitled to recover, the trial court stated:
"* * * The rules of the Colorado Federal Savings and Loan Association were that the certificate should be endorsed. The teller said she thought it was endorsed because that was a rule of the company and she didn't see the gentlemen sign it. Unfortunately the name appears where the assignment should be but no president — no nothing. The record is not clear why the check was made payable to Larry Schwab only but it was made payable to Larry Schwab. The Court feels it should not have been made so because the certificate should have been endorsed by the International Indemnity Insurance Company — Fire Insurance Company — and I feel if endorsed by the International Fire Insurance Company by Mr. Schwab it would have been justified in making the check to Mr. Schwab. It was not so done. The Court feels there was negligence on the part of the teller and also negligence on the part of the Secretary-Treasurer because at the bottom of the certificate which she signed put her on notice that it was a certificate of the International Indemnity Insurance Company and not Mr. Schwab.
"The Court feels that plaintiff in this case is entitled to recover the sum of $10,000.00 from the Colorado Federal Savings and Loan Association, and that is the order of the Court."
In seeking a reversal of this judgment, the plaintiff in error argues:
1. That Larry Schwab had full authority to receive payment of the account on behalf of the International Indemnity Insurance Company and consequently the delivery of the check payable to Larry Schwab and the surrender of the certificate discharged the obligation.
2. That the so-called Scrivener's Rule applies and that the obligation was discharged by reason of the fact that Schwab opened the account, had possession of the certificate, the indicium of ownership of the account, and surrendered this certificate upon receipt of the money.
The case was tried and decided on the theory that the title to the deposit remained in the insurance company because the certificate at the time of its surrender was not signed in the proper place, and that the check was made payable to the agent instead of the principal, and that the plaintiff as successor of the insurance company was thus entitled to collect it on the theory of money had and received.
If there had been something here in the nature of a forgery this title or property argument would be tenable, but the element of forgery is not present. Here the certificate of deposit was surrendered and was discharged on an authorized signature and for that reason the only issue is that of authority of Schwab. If he had the legal power to collect these proceeds the judgment must be reversed.
The exact terms of the certificate are of some importance. It is a large document suitable for framing, the dimensions of which are 12" x 8". It is similar in appearance to a stock certificate in color and make-up. It certifies that the person named is a member of Colorado Federal Savings and Loan Association "and holds a ...... dollar investment share account of said association subject to its charter and by-laws and to the laws of the United States of America." It is signed by an officer of the association. On its reverse side are spaces for the assignment or transfer to third persons. The assignee, according to the terms there set forth, must transfer the title on the books of the association and must himself apply for membership and execute a signature card. It is thus apparent that the document is a non-negotiable certificate of indebtedness, and that it can be surrendered by the owner or holder for cash without completing the spaces devoted to assignments. The rules of the company, according to the testimony, require the holder to indorse the document so that his signature may be compared with that on the signature card. In this instance Schwab indorsed the document by signing his name on the reverse side of the assignment space. This signature was in accordance with that on the signature card and as satisfactory to the defendant association and consequently it cannot be here questioned in support of a contention that title did not pass. This is especially true in view of the fact that the certificate was surrendered and stamped "cancelled." There was substantial compliance with the association's formal requirements for surrender and discharge of this certificate from the standpoint of its character both as a contract and as a piece of intangible property. It follows that the certificate as the indicium of ownership is itself important. 7 Am. Jur., Banks, Sections 497, 501. pp. 354-357.
The decisive issue in the case is therefore whether Schwab possessed authority to collect the proceeds of this account or debt owed to his principal and thus to discharge the obligation. The undisputed evidence is that he had actual authority to make the collection and to discharge the debt. Schwab was President, Treasurer and General Manager of the company. His wife was Vice President and Secretary. There were no board members other than the Schwabs, and there were no other shareholders. When asked whether he had authority from the insurance company to cash the account, he answered: "I had complete and absolute authority of the corporation to cash this said certificate in that I had the authority of my wife and myself."
Even though there was no formal resolution of the Board of Directors, in view of Schwab's ownership and control of the stock and his control of all of the offices, it would seem that he had actual authority to surrender the certificate and receive the money. See 19 C.J.S. 472, Corporations, Sec. 1004. In 2 Fletcher Private Corporations, p. 852. Sec. 666, part 5, the author concludes that a sole shareholder is to be treated as a general manager having all of the broad powers described in Sec. 667 of that volume. In 5 Fletcher, supra. Sec 2099, the author states:
"* * * However, the modern weight of authority seems to support the proposition that the contracts of the sole shareholder, or all the shareholders, will bind the corporation, although not made by authority of the board of directors, since they are the only persons beneficially interested aside from corporate creditors. * * *"
See also Fuller, The Incorporated Individual: A Study of the One-Man Company 51 Harv. L. Rev. 1373 (1938) and see Renault v. L. N. Renault Sons (1951), 188 F.2d 317, and see Mutual Assur. Co. v. Norwich Sav. Soc., 128 Conn. 510, 24 A.2d 477, where it was said:
"* * * There can be no question that it was within his authority to draw funds from the defendant bank and to that power the waiving of the bylaw requiring presentation of the deposit book and the signing of an order was but an incident. Had he not been connected with the defendant bank but, representing the plaintiff, had been permitted by the bank to withdraw the money from the account without presenting the deposit book, there would be no question that the requirement that it be presented was waived and the withdrawal would have pro tanto discharged the indebtedness of the defendant to the plaintiff. * * *"
Considered from the standpoint of the defendant association, Schwab also had apparent authority to receive payment. He had created the account, had signed the signature card in blank and he had possession of and surrendered the indicium of ownership. See Restatement of the Law of Agency, 2nd Ed., Sec. 72.
The fact that the check of the defendant association was made payable to Schwab personally rather than to the insurance company is not important in the light of our holding that Schwab had actual authority to receive payment. This is merely a question of what constituted the authorized medium of payment. Undoubtedly, the defendant association could have discharged its indebtedness by delivery of currency. Had this course been followed, neither the insurance company nor its successor could have raised any objections whatsoever since this is generally regarded as a proper medium of payment. Therefore, the issuing of a check payable to the agent Schwab cannot be objected to in view of the fact that the check was ultimately paid. See Restatement, supra. Sec. 72 and see also 2 Am. Jur. 133, Sec. 165. Agency. A note in 94 A.L.R. 784 explores with some thoroughness the legal effect of payment to an agent by check, which check is ultimately paid. At p. 786, the author states:
"The view that a principal is bound by the act of his agent in taking something other than cash where cash is actually realized on the thing taken has been quite generally adopted in cases where the thing taken was a check. While it is generally recognized that an agent having authority to collect a debt has no authority to receive a check in payment, it is nevertheless held that, where he cashes the check and receives the money thereon, the principal is bound."
Representative cases which are there collected and which support the view which we here approve are the following: Harbach v. Colvin (1887), 73 Iowa 638, 35 N.W. 663; Zummach v. Polasek (1929), 199 Wis. 529, 227 N.W. 33, and International Sponge Importers v. Andrew Watts Sons (1911), A.C. (Eng.) 279, and Potter v. Sager (1920), 228 N.Y. 526, 126 N.E. 920.
In the Harbach case an attorney had possession of his client's mortgage and received a check in payment of the indebtedness. This check was deposited in his bank to his credit and was subsequently paid by the bank on which it was drawn. The attorney failed to remit the proceeds to his client. The Iowa Court said:
"* * * We have no occasion in the present case to determine whether such agent would have authority, where the usage was to pay by check, to accept a check in payment, but for the purposes of the case, it may be conceded that he would not have such authority. If, however, he receives the money on a check which he has taken in payment, there can be no question that that would amount to payment. If the debt should not be satisfied by the acceptance of the check, it clearly would be by the receipt of the money thereon. Now, while the money was not actually delivered to Creighton on the check, what was done was equivalent to that. The bank in which he deposited it gave him a credit for the amount, and paid it to him when he chose to drawn it out, and the bank upon which the check was drawn paid the amount when the check was presented."
In the Zummach case the agent also converted his principal's money and it there appeared that the payments were made to him by checks. The Wisconsin Court said:
"* * * The trial court correctly held that payments made to Biersach by check payable to his order, which checks were cashed by Biersach, were no different than payments made in cash or in checks payable to 'cash' so far as the legal effect of the transaction was concerned. It is true that ordinarily an agent to collect has power to receive nothing but cash unless a general custom that something else may be taken in lieu of cash is shown, yet, where the checks are in fact cashed by the agent, the principal is bound. Griffin v. Erskine, 131 Iowa, 444, 109 N.W. 13, 9 Ann. Cas. 1193."
In the International Sponge case the English High Court upheld a payment to a faithless agent notwithstanding that the debtor had been expressly advised that the Sponge Company required payments in checks made out to itself. This decision was based upon a course of dealing which deviated from the express instructions.
In Potter v. Sager, supra, the Court there said:
"Where a person is an agent, with authority from his principal to collect principal and interest, the general rule is that a payment by a debtor to such agent, to constitute a good payment, must be made in cash. The reason for this rule is that a payment in any other medium is not as good as cash — is not the exact equivalent of cash. Thus it has been held that the giving of a note, mortgage, postdated check, property, etc., does not constitute a payment, because the acceptance of those things by the agent exceeds his authority, and constitutes the exercise of a discretion by the agent not vested in him by his principal.
"It would seem, however, that this court should take judicial notice of the fact that checks and drafts are usual and ordinary means of transacting business and transferring money in all business transactions; that, where an agent is given authority to collect money, the authority granted implies that he shall do so in the usual and ordinary way, and, where a check is given by the debtor, not postdated and payable at a bank in the same city, the giving of such check, payable to the agent, constitutes payment from the time that such check is cashed in due course."
See also Bartholomew v. Emerson-Implement Co., 68 Colo. 244, 187 Pac. 538.
In view of our conclusion that Schwab had authority to receive the money and that the check payable to him was a proper medium or means of payment, it follows that the money that Schwab realized from the deposit in his own account was the money of the International Indemnity Insurance Company rather than the money of the defendant association. Therefore, the conclusion of the trial court that the payment to Schwab was not justified and that the account remained intact was erroneous.
The judgment is reversed and the cause remanded with directions to vacate the judgment and dismiss the complaint.
MR. JUSTICE HALL and MR. JUSTICE FRANTZ dissent.