National Surety Co. v. State Trust & Savings Bank

VAUGHAN, J. Appellant issued its surety bond to the city of Dallas to protect said city against forgery on its cheeks and warrants. Said bond was executed on the 15th day of February, 1924, indemnifying said city against loss through the payment by its depository bank of any check or draft drawn by said city against such bank upon which the name of the payee or any other person, firm, or corporation, as indorser thereof, shall have been forged. Appellant’s cause of action rests upon it being subrogated to the rights and remedies of the city of Dallas. Therefore appellant stands in the same relation to this suit as the city of Dallas would if the plaintiff. As to the pleadings of the parties, it is only necessary to state that same were sufficient to present the issues upon which the case was tried in the court below and are reflected in the propositions upon which this appeal is predicated, and counter propositions. Judgment was rendered in favor of appellee upon an instructed verdict. Following are the material facts we find to have been established: That prior to and during the transactions out of which arose this litigation, the city of Dallas had in its employment one A. M. Lyles as superintendent of .maintenance in its sanitary sewer department, his duties being to look after the labor and report all broken and bad sewer lines and stopped sewers; that the number of employees under him varied from six to thirty; that for said department he was authorized to hire and discharge laborers; that he was required to and did make out daily time sheets containing the names of the employees of said city working under him and the amount of money each was entitled to; that said- time sheets were delivered at the close of each day to the assistant engineer of said 'city at his office; that same were filed away until the end of the week, when the pay rolls would be made up from said time sheets; that it was no part of said Lyles’ duty to make out the pay rolls for the workmen in said department, and he did not do so; that the pay rolls so made up were forwarded to the city auditor, and in turn by said auditor sub [500] mitted to the water commissioner, who had supervision of the department for which said pay rolls were made out, and when approved by said commissioner the warrants were issued thereon and delivered to the foremen of the respective departments to be delivered by them to the employees for whom issued; that on different dates between July 24, 1925, and April 23, 1926, said A.- M. Lyles placed upon the time sheets prepared and delivered by him to the proper official of said city the fictitious names of A. 0. Roberts and M. Hall, and that in conformity with said time sheets the names of said Roberts and Hall and the amount of money each was shown thereby to be entitled to were included in the pay rolls made up therefrom; 'that said pay rolls were in the regular way approved by the chief office clerk of said sanitary department by the water commissioner and by the city auditor, and warrants were drawn payable to said Roberts and Hall as the actual employees of said city by its auditor on the treasurer of said city; that all of the parties dealing with said pay rolls and issuing said warrants were in the service of the city of Dallas; that the city treasurer by contract was one Percy Davis and by appointment an officer of said city on salary; that said warrants were drawn in the regular way and routine of business by the proper officers of the city, all of whom believed the said A. 0. Roberts and M. Hall to be real persons working in said department and to receive the amounts shown in the respective pay rolls as prepared from time to time upon said false time sheets ■showing said Roberts and Hall to be in the service of the city and entitled to the respective sums of money as reported in said pay rolls; that A. M. Lyles represented to the ■assistant auditor of said city, whose duty it was to deliver said warrants, that said A. C. Roberts and M. Hall worked on small jobs in isolated locations not more than fifteen or twenty minutes at a time, making personal delivery to them of said warrants very uncertain and inconvenient; that under these conditions the warrants in question were •delivered to said Lyles, to be by him delivered to said Roberts and Hall; that, after said warrants had been delivered to said Lyles, he then forged the indorsement of the fictitious employees, Roberts and Hall, upon the back of the warrants issued to them respectively, took said warrants to the defendant bank, where he was well and personally known and maintained an account, indorsed said warrants with his. own name, and by reason of such indorsements obtained the respective amounts of said warrants for his own use and benefit; that the defendant bank, then being the owner and holder of said warrants, presented same to toe city treasurer •of the city of Dallas, with whom said city maintained its account, out of which warrants drawn by it were paid; that the city treasurer, relying solely upon toe indorsement of the defendant bank, which was the last indorsement shown on said warrants, and believing that all indorsements thereon were genuine and had been made by the proper parties, and that said employees were actually existing persons in the employ of the city of Dallas, and entitled to receive said amounts, and that said warrants were worth the amounts shown thereon, cashed them and surrendered the respective amounts for which said warrants were issued to defendant bank, which still retains the same; that, except for said indorsements and the belief above stated, said city treasurer would not have paid the defendant bank the respective amounts of said warrants totaling toe sum of $1,020.80; that defendant collected from said city the respective sums called for by said warrants as each was acquired by it in due course of banking; that during the period of time from July 1, 1925, to April 1, 1926, inclusive, the city had probably about 1,300 employees; that no one of the officers or employees representing the city in the preparation of the pay rolls or drawing of the warrants involved in this suit knew said Lyles by any other name toan that of A. M. Lyles, and never heard of him going under or assuming in any respect toe name of M. Hall or A. O. Roberts, or knew that he had said warrants so issued in the name of A. O. Roberts and M. Hall for the purpose of collecting the money thereon for his own personal use and benefit; that appellee, on account of the indorsement of the payees therein placed thereon by said Lyles, the indorsement of Lyles, and because he had an- account with appellee, cashed each of said warrants, paying the amount thereof to said Lyles without making an investigation to ascertain whether or not the payees in the warrants had in fact indorsed same or to ascertain whether or not said Lyles was a holder of said warrants in due course; that said Lyles was convicted and sentenced to the penitentiary for forging the indorsement of toe fictitious employees, Roberts and Hall, on said warrants. Appellant, on demand of said city, viz., November 30, 1926, paid the sum of $1,020.80, under its said surety bond, and obtained from the city of Dallas and Percy Davis, its treasurer, proper assignments by which it succeeded to all of the rights, titles, and causes of action held by said city and Davis and against defendant. No evidence wás offered to prove that Lyles’ offer to refund to the city of Dallas the amount of $1,020.80, obtained by him through the forged indorsements of said warrants, was accompanied by the tender of said sum in cash, or its equivalent. Following are appellant’s propositions in support of its appeal: “No. 1: Defendant, State Trust & Savings Bank, by endorsing and delivering- said warrants and obtaining the cash from Percy Davis while it was the owner of said warrants, guaranteed the genuineness of all pre [501] vious endorsements including tliat of A. 0. Roberts and M. Hall, and by tbe acceptance of said money guaranteed that they were valuable to tbe extent of tbe respective amounts thereof. “No. 2: Tbe said Percy Davis having surrendered tbe amounts of said warrants to defendant under tbe belief that they were worth tbe amounts therein shown, that all the endorsements weire genuine, that the payees were existing, persons in the employ of the City of Dallas and entitled to receive said money, paid same under mistake of fact, and the defendant having thus received said money is bound to return the same. “No. 3: The defendant, State Trust & Savings Bank, who knew the impostor and cashed the warrants upon his purported honesty without inquiry or investigation as to the endorsements appearing thereon when, they had ample opportunity to do so, was guilty of negligence by 'virtue of which the ultimate loser is entitled to recover. “No. 4: Percy Davis, as City Treasurer, occupies the same position and possesses the same rights as any other depositing bank, and such rights having been assigned to appellant it is entitled to recover the amount sued for. “No. 5: Even though the said A. M. Lyles had been known under the assumed name of A. C. Roberts and M. Plall, which is wholly contrary to the evidence, the endorsement of a name other than his own for the purpose of obtaining money would nevertheless be forgery and would in no way excuse the negligence of defendant who knew him by the name of A. M. Dyles and no other, in paying the money to him. “No. 6: The evidence definitely showing that defendant took the warrants from A. M. Lyles because he was known at the bank and had his account there, the negligence alleged by defendant on the part of the city could have no bearing on the case, as it in no way contributed to or induced the act of the defendant bank in paying said money to A. M. Lyles or in obtaining re-imbursement from Percy Davis. “No. 7: The proposition of imputed knowledge of fictitious payees to the City of Dallas through Lyles as its agent, mentioned in defendant’s answer cannot be sustained because it was not alleged, and could not have been proven that the act and knowledge of Lyles with reference thereto was within the scope of such agency if any existed.” By the following counter propositions ap-pellee contends that said judgment was properly entered' and should not be disturbed: “No. 1: The undisputed evidence being that A. M. Lyles, as foreman of the sanitary sewerage department of the City of Dallas, placed on the payroll of his department the names of A. C. Roberts and M. Hall, thereby padding the same with the intention of using the vouchers issued in said names as his own, and assuming for such purpose the name of A. C. Roberts and the name of M. Hall, the said Lyle’s endorsement of the vouchers in the name of A. C. Roberts and in the name of M. Hall, were not forged endorsements, and, accordingly, said vouchers were good, valid and subsisting obligations, and the guarantees of the defendant bank by virtue of its endorsement upon the same, were fulfilled; and the payment of said vouchers by the City Treasurer, was not under mistake of fact.' “No. 2: This being a suit by the National Surety Company, the appellant, on a right of subrogation by virtue of an alleged loss that said company incurred under a bond which it had written for the City of Dallas, protecting the said City against forgery, and there having been noi forgery under the undisputed evidence of any endorsement on any city vouchers, the National Surety Company stands in no better shoes than does the City of Dallas, and there was no caused loss on the part of the National Surety Company. “No. 3 : Because the vouchers for which recovery is sought, were issued one each week for a period of nine months by the City of Dallas, through its own channels, and were so issued at the instance of its own employees, and because there was no legally constituted office of paymaster of the City of Dallas through whom these checks would be distributed to the payees thereof, the City of Dallas, and the National Surety Company, which stands in the same shoes as the City of Dallas, was negligent and cannot now be heard to complain of the defendant bank cashing these vouchers so issued, which appear Regular in every way, and of which vouchers, the defendant bank was a bona fide purchaser.” Applying the rules of law announced by the following decisions and statutory provisions to the above facts, we are of the opinion that appellant’s propositions should be sustained and appellee’s overruled. City Bank of Houston v. First Nat. Bank of Houston, 45 Tex. 203; First Nat. Bank of Quitman v. Wood County et al. (Tex. Civ. App.) 294 S. W. 324; First Nat. Bank of Winnsboro v. First Nat. Bank of Quitman (Tex. Com. App.) 299 S. W. 856; Farmers’ Nat. Bank of Augusta v. Farmers’ & Traders’ Bank of Maysville, 159 Ky. 141, 166 S. W. 986, L. R. A. 1915A, 77; State v. Merchants’ Nat. Bank of St. Paul, 145 Minn. 322, 177 N. W. 135; Wells Fargo & Co. v. Simpson Nat. Bank, 19 Tex. Civ. App. 636, 47 S. W. 1024; Miller v. Stewart (Tex. Civ. App.) 214 S. W. 565; United States v. Nat. Exchange Bank, 214 U. S. 302, 29 S. Ct. 665, 53 L. Ed. 1006, 16 Ann. Cas. 1184; State v. Broadway. Nat. Bank, 153 Tenn. 113, 282 S. W. 194; Shipman v. Bank of State of New York, 126 N. Y. 318, 27 N. E. 371, 12 L. R. A. 791, 22 Am. St. Rep. 821; Guaranty State Bank & Trust Co. v. Lively, [502] 108 Tex. 393, 194 S. W. 937, L. R. A. 1917E, 673; articles 979, 986, 988, 989, 990, 992 and 1003, Texas Penal Code 1925. We therefore hold that the instructed verdict and judgment rendered thereon in favor of appellee was not authorized, but, to the contrary, verdict should have been instructed in favor of appellant and judgment rendered thereon accordingly. It is therefore ordered that the judgment of the trial court be, and the same is hereby, reversed, and judgment is here rendered in favor of appellant for the amount of $1,020.-80, with interest thereon from the 30th day of November, 1926, at the rate of 6 per cent, per annum, together with all costs incurred in the court below and this court. Reversed and rendered in favor of appellant.