CENTURY BANK v. ST PAUL FIRE MARINE INSURANCE COMPANY

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Court of Appeal, Second District, Division 1, California.

CENTURY BANK, a corporation, Plaintiff and Respondent, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant and Appellant.

Civ. 35252.

Decided: June 25, 1970

Dillavou & Cox and C.C.Dillavou, Los Angeles, for defendant and appellant. Goodstein & Moffitt, John P. Moffitt and Stuart S. Barnett, Los Angeles, for plaintiff and respondent.

General Mutual, Inc., desired to borrow $200,000 from plaintiff bank. As security for the loan the borrower supplied the bank with a document entitled ‘Treaty of Reinsurance’ by the terms of which Manhattan Casualty Company of New York in effect guaranteed payment of the loan should the borrower default. The loan was made, the borrower defaulted and Manhattan Casualty Company of New York disclaimed any liability because the ‘Treaty of Reinsurance’ was signed on behalf of the casualty corporation by a person not authorized to do so.

The bank had purchased from defendant a banker's blanket bond insuring the bank to the extent of $99,500 against loss from a loan ‘on the faith of * * * documents or other written instruments which prove to have been counterfeited [or] forged’. Plaintiff sued defendant and in a nonjury trial recovered judgment against the defendant in the sum of $99,500 plus interest. Defendant appeals.

We are met at the outset with the questions of whether there is any difference between a ‘counterfeited’ document and a ‘forged’ document and, if so, whether plaintiff pleaded that the ‘Treaty of Reinsurance’ was ‘counterfeited’. The questions arise because the court in its conclusions of law concluded that the ‘Treaty of Reinsurance’ was both a ‘forged’ document and a ‘counterfeited’ document.

The complaint does not characterize the ‘Treaty of Reinsurance’ as either forged or counterfeited. By innuendo, however, the complaint seeks recovery because of a forged document. For example, the allegation is made that ‘plaintiff made claim upon defendant for payment pursuant to the bond coverage mentioned above for the loss sustained by plaintiff by reason of the allegedly forged Treaty of Reinsurance.’ At oral argument in the trial court the judge said that the question was whether there is ‘a forgery within the meaning’ of the bond. Plaintiff's counsel responded: ‘I think that's true, your Honor’. In response to a question about what the complaint alleged, plaintiff's counsel responded: ‘Forgery. * * * This was a claim based upon a forged instrument.’ The judge stated: ‘Well, I guess we will have to go along with you on that because we have tried this case for two weeks. * * * The case has been tried on the theory that this was the issue.’ We think that if there is any difference between a ‘forged’ document and a ‘counterfeited’ document, plaintiff is precluded by the statements of its counsel in the trial court from urging on appeal, as it does, that the judgment should be sustained if the ‘Treaty of Reinsurance’ was counterfeited even if it was not forged.

The bond contains no definition of ‘forged’ or ‘counterfeited’. This raises the question of whether the words carry the definitions which they do in the criminal law or whether, by dictionary definition or by common usage, they encompass documents which would not be considered forged or counterfeited under the criminal law. This court in Pasadena Investment Company v. Peerless Casualty Company (1955) 132 Cal.App.2d 328, 282 P.2d 124 held that the word ‘forged’ is used in its criminal law sense in a bond of the type involved in the case at bench. It follows that the word ‘counterfeited’ is used in the same sense.

The criminal law in the various jurisdictions is not uniform so that a document which is considered forged in one jurisdiction is not necessarily considered a forged document in another jurisdiction. In most jurisdictions, however, it is not forgery for a person to affix his own signature to a document as the agent of another even though he has no authority to do so. (See 41 A.L.R. 229, 46 A.L.R. 1529, 51 A.L.R. 568.) This is the interpretation of the California forgery statute (People v. Bendit (1896) 111 Cal. 274, 43 P. 901, 31 L.R.A. 831, 52 Am.St.Rep. 186) and is the interpretation of a federal forgery statute. (Gilbert v. United States (1962) 370 U.S. 650, 82 S.Ct. 1399, 8 L.Ed.2d 750.) We need not be concerned about which jurisdiction's statute governs because plaintiff tried its case on the basis that the applicable statute is section 470 of the Penal Code of California.

In the respect here pertinent, section 470 of the Penal Code remains today as it was when enacted in 1872: ‘Every person who, with intent to defraud, * * * forges, or counterfeits, any * * * contract * * * or utters * * * as true and genuine, any of the above named * * * forged, or counterfeited matters * * * is guilty of forgery.’ Thus a person who makes or utters a counterfeited contract is guilty of forgery within the meaning of section 470 of the Penal Code. Since Bendit held that a defendant who signs his name to a document purportedly on behalf of another when he has no authority to do so is not guilty of forgery, the document necessarily is neither forged nor counterfeited.

In the memorandum by which the trial court announced his intended ruling, he stated that the “Treaty' was a spurious document, not having been executed by Manhattan Casualty Company or anyone authorized to act for it. * * * It is the signature of Manhattan that is false'. The casualty corporation, being an artificial person, could not ‘sign’ anything. Only a natural person could sign the ‘Treaty of Reinsurance’ on behalf of the corporation. As we have seen, if a natural person signs his own name on behalf of another person (natural or artificial) when he has no authority to do so, he does not violate section 470 of the Penal Code. Since the document is neither forged nor counterfeited, one who utters the document therefore does not utter a forged or counterfeited document.

The trial court cited in support of its conclusion People v. McKenna (1938) 11 Cal.2d 327, 79 P.2d 1065 but that case was known to and cited by this court when it decided Pasadena Investment Company. The trial court also cited Quick Service Box Co. v. St. Paul Mercury Indemnity Co. (7th Cir. 1938) 95 F.2d 15 which does indeed support plaintiff's position. That case does not represent California law as was noted by the court in Torrance National Bank v. Aetna Casualty & Surety Co. (9th Cir. 1958) 251 F.2d 666 which expressly rejected Quick Service and followed Pasadena Investment Company as being the law of California.

Plaintiff attempts to distinguish Pasadena Investment Company and Torrance National Bank from the case at bench, but we find no distinction compelling a different result. In Pasadena Investment Company accounts receivable were sold on the strength of receipts signed by Victor Linden which acknowledged that Linden had received services of a designated value whereas in truth Linden owed nothing because he had never received the services described. Although Linden signed his name to the receipts, the content of the documents was totally spurious. If Linden had signed receipts purportedly on behalf of a corporation which did not receive the services described, the receipts would have been no more spurious than the receipts as they were signed. But despite the fact that the receipts were false, this court held that there was no forgery. In Torrance National Bank Joseph Alden without authority signed a check on behalf of a credit union. The content of that document (indicating that the credit union was drawing funds when in fact it was not) was totally spurious. Plaintiff here argues that although the purported agent of the casualty corporation signed his own name, the ‘Treaty of Reinsurance’ was forged because the content of the document was spurious. The same can be said of the documents in Pasadena Investment Company and Torrance National Bank, but the courts there did not so hold.

The judgment is reversed with directions to the trial court to enter judgment for the defendant.

I dissent. Respondent purchased a contract of insurance from appellant which purports to insure against loss from loans made ‘on the faith of * * * documents or other written instruments which prove to have been counterfeited [or] forged.’ Respondent suffered the loss which is the subject of the case at bench by reason of a loan made on the faith of a guarantee which proved void because it was executed by a person who had no authority to bind the corporate guarantor. From the evidence before it, the trial court could properly have found that the person executing the void document knew it was not binding upon the guarantor and that he was acting in concert with the borrower in a scheme to use the false document to defraud respondent. The trial court was, in my judgment, justified in finding that the purported guarantee was a forged or counterfeit written instrument as that term is used in the policy of insurance.

The majority opinion correctly states the holding of People v. Bendit, 111 Cal. 274, 43 P. 901, 31 L.R.A. 831 that in 1896, when that case was decided, a person who affixed his own signature to a document as the agent of another could not be guilty of forgery although he had no authority to do so. I cannot, however, accept the majority's conclusion that the rule of Bendit lived past the year 1905. Prior to 1905, Penal Code section 470 which defines the crime of forgery read: ‘Every person who, with intent to defraud another, falsely makes, alters, forges, or counterfeits, * * * is guilty of forgery.’ In 1905, the section was amended to read: ‘Every person who, with intent to defraud, signs the name of another person, or of a fictitious person, knowing that he has no authority so to do, * * * is guilty of forgery.’ We deal in the case at bench with an instrument signed with the name of another (the purported guarantor corporation) by a person who possessed the requisite intent to defraud and who knew he did not have authority so to sign. In my judgment, that instrument was a forgery and counterfeit at the time it was used to obtain the loan. That conclusion is confirmed by language of our Supreme Court. That Court states: ‘The crime of forgery consists either in the false making or alteration of a document without authority or the uttering (making use) of such a document with the intent to defraud.’ (People v. McKenna, 11 Cal.2d 327, 332, 79 P.2d 1065, 1068.)

Neither Pasadena Investment Company v. Peerless Casualty Company, 132 Cal.App.2d 328, 282 P.2d 124, nor Torrance National Bank v. Aetna Casualty & Surety Co. (9th Cir. 1958) 251 F.2d 666, upon which the majority opinion is based, is contrary to the conclusion here reached. Pasadena Investment Company does not deal with an unauthorized signature. It involves a scheme to defraud using a document falsely reciting that its signator had received services for which he had been invoiced. Nothing in that case remotely indicates that the signator of the document did not have authority to sign his name to it. Pasadena Investment Company is authority for the proposition that a false recital in a document executed with an authorized signature cannot be the basis of a forgery charge. It is, however, not pertinent to the issue presented by the case at bench.

Torrance National Bank, while similar to the case at bench, is also distinguishable from it. Torrance National Bank involves a suit upon a forgery bond. Alden, an officer of Enesco, a credit union, was authorized to sign its checks. He also operated a check cashing business on his own account. He financed hes personal business by ‘a long standing arrangement’ with Torrance National Bank. Pursuant to the arrangement, Alden each Thursday drew an unnumbered post-dated check upon the Enesco account. The bank gave cash in the amount of the check to Alden but held the check in a drawer and did not clear it. Each Friday, at the close of business, Alden covered the Enesco check with payroll checks cashed by him with the cash he had obtained from the bank the preceding Thursday. The check was returned to him and not reported on the bank's statement to Enesco. Torrance National Bank charged Alden a fee for its ‘services.’ Alden's personal check cashing business foundered when he was robbed. The bank then sued upon its forgery bond, claiming that while Alden was authorized to sign checks in general for Enesco he was not authorized to execute checks for his own rather than the corporation's benefit. The Federal Court of Appeals found that, under the circumstances, Alden's conduct was not forgery.

The facts of the case at bench are materially different from those present in Torrance National Bank. In the case at bench, the signator of the guarantee was without authority to bind the purported guarantor corporation. In Torrance National Bank, the signator of the check purporting to charge Enesco was authorized in general to sign checks of that corporation. His lack of authority was due to the breach of fiduciary obligation which inhered in the particular transaction. In the case at bench, respondent is the innocent victim of the unauthorized signature. In Torrance National Bank, the bank which sought to recover on the insurance policy, while it had no specific actual knowledge of Alden's lack of authority, knew of his scheme and was profiting from it by charging a fee for ‘services.’ The holding in Torrance National Bank that the forgery bond did not cover the bank's loss thus by no means impels a similar conclusion in the case at bench.

While Torrance National Bank indicates that the rule of People v. Bendit controls the California definition of ‘forgery’ as that term is currently used in insurance policies, the language of the Federal Court of Appeals is not binding upon this court. Nor is that language consistent with principles of interpretation of insurance policies that have become the law of California since Torrance National Bank was decided. Of recent years, it has become apparent that an insurance policy must be interpreted with relation to the reasonable expectation of the insured. (See discussion in Gray v. Zurich Insurance Co., 65 Cal.2d 263, 269, 54 Cal.Rptr. 104, 419 P.2d 168.) The insurance policy in the case at bench insures against loss from reliance upon forged instruments. The literal definition of forgery contained in Penal Code section 470 covers the precise conduct which caused the loss for which respondent seeks reimbursement from its insurance carrier. It cannot be said that the trial court erred in holding, in effect, that the reasonable expectation of the respondent was that it was insured against the loss.

Rehearing denied; Thompson, J., dissents.

GUSTAFSON, Associate Justice.

LILLIE, Acting P.J., concurs.