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District Court of Appeal, Third District, California.


Civ. 5085.

Decided: April 03, 1934

M. D. Andrews and Lewis M. Andrews, both of Los Angeles, for appellant. Edmund Nelson and G. L. Berrey, both of Los Angeles, and Louis Ferrari, of San Francisco, for respondent.

This is an appeal by plaintiff, who prior to her marriage was known as Emma Martha Storz, in an action to recover money paid by defendant and charged against the account of plaintiff upon an order which plaintiff claims was not authorized by her.

One Arthur Palmer held a general power of attorney from plaintiff. He executed a deed of trust on plaintiff's property for $8,000 and out of that amount paid off a $2,000 existing incumbrance and certain other deductions and procured a cashier's check for the remainder of $5,654.91 from the United States National Bank, which handled the escrow. Palmer first presented this check to the Bank of Italy, indorsing the same with plaintiff's name, by himself, as her attorney in fact. The bank refused to cash the check upon this indorsement. Palmer withdrew the check and subsequently again presented the same for payment which then bore the indorsement, “Pay to the Order of Arthur Palmer Company,” and under that indorsement appeared the name of plaintiff, whereupon the Bank of Italy accepted the same and paid to Palmer the amount of the check. This indorsement and the signature of plaintiff were not in her handwriting, but were written by Palmer. It is the contention of plaintiff that the indorsement by Palmer of her signature was unauthorized and defendant bank was liable for payment made thereon.

It is suggested by defendant that this court is without jurisdiction to consider the appeal herein because of the failure of plaintiff to give sufficient notice thereof. Plaintiff filed with the clerk of the superior court an instrument entitled: “Notice of Appeal to District Court of Appeal * * * and Request for Transcript.” It then proceeds: “Please take notice that the plaintiff in the above entitled action desires to appeal from the judgment * * * to the District Court of Appeal * * * and requests that a transcript be made up and prepared. * * *” Reviewing courts have on several occasions been called upon to pass upon notices of appeal containing language very similar to that set forth above, but have almost uniformly held the notice a sufficient compliance with the requirements of the statute. Purity Springs Water Co. v. Redwood Ice Delivery, 203 Cal. 286, 263 P. 810; Anderson v. Standard Lumber Co., 60 Cal. App. 445, 213 P. 65, 67; Wright & Hogan, Inc., v. Heide, 72 Cal. App. 16, 236 P. 219; In re Forthmann, 118 Cal. App. 332, 5 P.(2d) 472; Estate of Faber, 168 Cal. 491, 143 P. 737; Estate of Nutt, 180 Cal. 419, 181 P. 661. The original line of cases, of which Michelson v. City of Sacramento, 173 Cal. 108, 159 P. 431, is illustrative, hold to the contrary, but an amendment to section 940 of the Code of Civil Procedure has liberalized the requirements of the notice of appeal and we believe the cases cited above in support of the notice are indicative of the judicial trend. Here respondent was not misled. Briefs were submitted on the questions raised by the appeal and the cause is now before this court for consideration on its merits. As was said in Anderson v. Standard Lumber Company, supra, in denying the motion to dismiss the appeal on the ground no actual notice of appeal had been given: “Of course, the disposition of the courts is to hear appeals upon their merits, and the sections of the Code relating to the subject should be liberally construed with a view of promoting such purpose.”

Turning now to a consideration of the appeal, the first question that confronts us is whether or not the indorsement was a forgery. Respondent insists that it was not because Palmer, holding an unrevoked power of attorney, was expressly authorized to so indorse.

It is further urged that respondent was entitled to rely upon the indorsement because Palmer was authorized as attorney in fact to execute the indorsement of appellant. The power of attorney by its terms appointed Arthur Palmer as plaintiff's attorney “for me and in my name, place and stead, and for my use and benefit, to ask, demand, sue for,” etc., and also “for me and in my name, and as my act and deed to sign, seal, execute, deliver and acknowledge such deeds, leases * * * bills, bonds, notes, receipts, evidences of debt, * * * and such other instruments in writing of whatever kind and nature as may be necessary or proper in the premises.” However, nowhere is found a power to execute bills of exchange, promissory notes, checks, drafts, or any form of negotiable instrument. The word “bill” found in the power cannot, standing alone, be inferred to cover a bill of exchange or other negotiable instrument, nor does a “note” refer to a negotiable instrument without being so designated. The authority of a general attorney is not unlimited and while its apparent authority is not to be restricted by undisclosed limitations it must, however, be confined to such transactions as are incident and appertain to the business of his principal and that part thereof intrusted to his care. Strained and unnatural constructions are to be avoided and limited to those which are reasonable and ordinary. The scope of the general agent's authority is not a matter of conjecture or surmise (Mechem on Agency [2d Ed.] vol. 1, § 740), and particularly must one scrutinize the act of an agent when the agent assumes to make or indorse negotiable instruments (2 Cor. Jur. “Agency,” § 205, p. 564; Brown v. Rouse, 93 Cal. 237, 28 P. 1044).

“Commercial paper, such as bills, notes, and checks, passes current to a limited extent like money, and accordingly power to an agent to execute or indorse it is to be strictly limited, and will never be lightly inferred, but ordinarily must be conferred expressly. The most comprehensive grant, in general terms, of power to an agent conveys no power to subject the principal to liability upon such paper unless the exercise of such power is so necessary to the accomplishment of the agency that such intent of the principal must be presumed in order to make the power effectual. Thus such power is ordinarily not to be inferred from * * * a general authority to manage a business, unless such authority is necessarily implied from the peculiar circumstances of the particular case and is indispensable to the proper execution of the authority granted.” 2 Cor. Jur., § 280, pp. 636, 637; Golinsky v. Allison, 114 Cal. 458, 46 P. 295.

We do not believe, therefore, that the authority conferred upon Palmer gave him power to indorse negotiable instruments in general nor the check here involved in particular. Furthermore, the bank was placed upon notice by the attorney in fact being named the beneficiary in the indorsement and the power being expressly for the use and benefit of plaintiff should have caused the bank to have made inquiry in regard thereto. Sections 2229 and 2232, Civ. Code.

Neither do we believe the evidence supports the claim that the bank relied upon a power in Palmer to indorse for plaintiff. The record discloses the first indorsement was––

“Emma Martha Storz

“By Arthur Palmer, Attorney in Fact

“Arthur Palmer.”

This indorsement the bank refused to accept and the check was returned to Palmer who had presented it. That indorsement was then canceled by drawing lines across and the word “Cancelled” was written over it and the check was again presented, indorsed, “Pay to the order of Arthur Palmer Company” and below was what appeared to be the genuine signature of “Emma Martha Storz.” This signature had been placed there by Palmer and in fact was a tracing of an original signature of plaintiff and upon representation the check was paid by the bank. It seems apparent, therefore, that the bank did not pay upon the authority of the power of attorney, as it had rejected that indorsement, but did pay upon the signature of Emma Martha Storz, believing it to be her true and genuine signature. The bank, having no actual knowledge of an existing or outstanding power, cannot now shield itself from an unauthorized payment of plaintiff's funds by asserting the existence of this unknown power. If the first indorsement was knowledge to the bank of an outstanding authority in Palmer, they failed to investigate the scope thereof or restrictions thereon and did not require an inspection of the power itself. The bank could not have been misled by the power, for Palmer did not purport to act under it nor the bank purport to pay by virtue thereof. In the absence of negligence on the part of the depositor inducing such payments, when a bank pays a check on a forged indorsement of the payee's name it does so at its peril. Los Angeles Investment Co. v. Home Savings Bank, 180 Cal. 601, 182 P. 293, 5 A. L. R. 1193.

We find no support in the evidence of a ratification of Palmer's acts by plaintiff. It does not appear that plaintiff had knowledge of the forgery by Palmer and the payment by the bank until some ten months thereafter, and any dealings she may have had with him prior to a knowledge on her part of his misdeeds cannot be charged against her.

Neither do the facts bar plaintiff's action by reason of laches. The check in question, which was a cashier's draft and therefore returned to and retained by the bank, was cashed November 16, 1927. Plaintiff did not discover that Palmer had used the power of attorney or borrowed money on her property until about April 15, 1928, and she did not know of the forgery of her name to the check until August 6, 1928, when the check was for the first time produced by defendant at Palmer's preliminary hearing on charges of forgery of the indorsement of this check and grand theft. It was probably on August 6, 1928, also, that defendant herein learned for the first time that the indorsement in question was a forgery. The present action was commenced February 24, 1930, after negotiations between the parties hereto in an endeavor to adjust their respective rights.

In support of the contention of respondent that it was justified in relying upon the act of Palmer as the attorney in fact of appellant, it cites several cases, the first being Flat Top National Bank v. Parsons, 90 W. Va. 51, 110 S. E. 491. In that case Benton and Parsons were partners. Benton signed the latter's name as maker to a promissory note payable to himself, indorsed it and gave it as collateral security for his own $15,000 note to plaintiff bank. It appeared that prior thereto Parsons had given Benton a power of attorney, expressly authorizing him to sign and execute negotiable instruments. The court found that the proceeds of this transaction were turned over to Parsons and were ultimately used for his benefit. and the court held it was his duty upon repudiating the note in the hands of plaintiff bank to refund the money received thereon. In the instant case plaintiff did not give her agent Palmer express authority “to sign and execute negotiable instruments,” nor did she receive anything either directly or indirectly from the transaction involving the forgery on the indorsement of the check. The next case referred to by respondent is Indiana Flooring Co. v. District National Bank, 51 App. D. C. 391, 280 F. 522. In that case the agent of plaintiff had complete charge of the Washington office of the plaintiff corporation and accepted and refused credits, made all collections, received payments in cash, notes, or checks payable to the order of plaintiff or himself. He also indorsed, cashed, or deposited checks and bought merchandise for which he paid by check or in cash. Blank checks signed by an officer of the company were delivered to him to countersign, fill in the nec essary amounts, and cash them at the bank. It is conceded he had authority to indorse for deposit the checks herein involved, but the authority to cash them is challenged. It is apparent that in this case the agent had authority to indorse checks and that it was necessary and incident to his employment and the nature of his business. The next case cited by respondent is Salen v. Bank of State of New York, 110 App. Div. 636, 97 N. Y. S. 361. The plaintiffs therein granted full power to their agent to indorse checks in blank without any restrictive words, but they restricted the use which he should make of the check after he had indorsed it by requiring it deposited in the bank to their credit. This he failed to do, but a departure by the agent of such authority and instructions was a mere diverting of a negotiable instrument from an authorized use, in which case the loss would fall upon the principals rather than upon a bona fide holder for value and without notice. In other words, the unauthorized diversion of the checks would not make the original indorsements forgeries. In the case at bar the power of attorney of the agent Palmer did not authorize him to indorse for deposit or for any other purpose. In the case of Otis Elevator Co. v. First National Bank, 163 Cal. 31, 124 P. 704, 41 L. R. A. (N. S.) 529, the agent had been intrusted with the duty of filling out checks to be signed by his principal and presenting them and having them cashed at the depositary bank over a period of several years. The agent on certain checks changed the designation from a third person so as to be made payable to bearer and raised the amounts, and in other checks payable to bearer raised the amounts, all of which the bank paid. It was there held where the principal holds out the agent as competent and fitted to be trusted he thereby in effect warrants his fidelity and good conduct within the scope of his agency and when checks are regular in appearance and nothing appears to raise suspicion as to their validity, the loss falls upon the depositor where the agent forges or alters them. This case differs from the case at bar in that the agent had express authority to perform the acts complained of. The acts of the agent were customary in the business of the principal and the agent had been so acting in depositing and cashing checks for his principal over a period of years and was held out over a considerable time as a trusted employee. Respondent also cites the cases of Cluett v. Couture, 140 App. Div. 830, 125 N. Y. S. 813, McCabe Hanger Mfg. Co. v. Chelsea Exchange Bank, 183 App. Div. 441, 170 N. Y. S. 759, and Substantial B. & L. Ass'n v. Real Estate Title Ins. & T. Co., 82 Pa. Super. Ct. 211, all of which may likewise be distinguished.

We therefore believe from the foregoing that respondent was not authorized in honoring the check in question, and the judgment should be and is hereby reversed.

Mr. Presiding Justice PULLEN delivered the opinion of the court.

We concur: R. L. THOMPSON, J.; PLUMMER, J.