RICHARD LIVINGSTON v. BANK OF AMERICA NAT TRUST SAVINGS ASS (1935)

This is an appeal from a judgment in favor of the plaintiff against two defendants. The defendant Hyman, who has not appealed, was employed by the plaintiff as its clerk and bookkeeper. He had the authority to stamp the name of the plaintiff by use of a rubber stamp on the back of checks received for rentals and to deposit them to the account of the plaintiff in the defendant bank where the plaintiff had its account. During the course of his employment Hyman so indorsed many checks, but instead of depositing all of them to the credit of the plaintiff, he so indorsed forty-three of them and then persuaded the bank to credit them to his own account after indorsing on said checks with a rubber stamp the words, “R. T. Hyman, Agent.” The trial court found the facts to be as alleged by the plaintiff, but it concluded further that the defendant bank was guilty of conversion and applied a three-year period of limitation in assessing the amount of the recovery.

It is the first contention of the defendant bank that the plaintiff's cause of action as pleaded was not one sounding in trover for conversion which would be governed by the three-year limitation of section 338 of the Code of Civil Procedure, but was an action in assumpsit for money had and received which is governed by the two-year limitation under subdivision 1 of section 339 of said Code. The pleadings are very voluminous, the complaint containing more than forty counts. It will be unnecessary to attempt to summarize the plaintiff's complaint. It will be sufficient to say that (1) the complaint abounds with such phrases as these: “That plaintiff became and was and ever since has been entitled to the possession of the funds represented thereby” (the checks), and that “said sum was collected for the use of plaintiff,” and that “defendant bank became indebted to plaintiff in the sum specified in the check”; (2) there is no allegation in terms of conversion; (3) there is no allegation as to the value of the property when taken by the bank; (4) there is no allegation that the plaintiff was the owner of the checks at the time they were received by the bank; (5) there is the averment that the defendant bank was expected to receive and collect the checks. It is obvious from a reading of the complaint that it is not “an action for taking, detaining, or injuring any goods or chattels, including actions for the specific recovery of personal property,” using the language of said section 338. The constant reiteration as to each check that the plaintiff is entitled to the “funds represented thereby” is utterly hostile to an action sounding in conversion, because if plaintiff relies upon conversion it is entitled to damages and not to the proceeds. Neither may the affirmative allegations sounding in assumpsit, which we have mentioned above, be treated as surplusage. They are the essence of the plaintiff's action, and taken in connection with the absence of allegations essential to conversion they characterize the complaint unequivocally as one in assumpsit.

The plaintiff relies upon the rule that pleadings are to be liberally construed with a view to promoting justice. Such is the rule; and pleadings will be liberally construed to state the cause of action plaintiff has attempted to state, especially on appeal; but this does not mean that the pleadings, and the facts as well, are to be strained out of all due proportion for the purpose of defeating a statute of limitations which obviously applies to the plaintiff's cause of action. The two-year rather than the three-year limitation should have been applied by the trial court. This will reduce the plaintiff's judgment in the sum of $5,269.66.

The plaintiff's tenants often paid Hyman their rent in cash and Hyman should have deposited it to the account of the plaintiff. Instead he embezzled more than $6,000 of these cash funds. It also appears that throughout the period of his employment he often paid for janitor services, repairs, and various other small charges against plaintiff by his personal checks. These payments amounted to $1,997.65. After his defalcations were discovered, he produced his canceled checks for these amounts and claimed credit therefor, but the auditors in checking these items back against Hyman's books found that contemporaneously with a large number of these items he had reimbursed himself by withdrawals from the cash receipts, so that as a matter of fact the plaintiff received no benefit from these payments because equal amounts of cash were withdrawn from the cash account. The court, with the aid of the auditor's report, credited the bank with $925.45 on these items, which sum represented all that plaintiff actually received above the simultaneous withdrawals of cash. These so-called petty cash transactions were no part of the embezzlements upon which plaintiff's cause was founded, but they were independent transactions. The plaintiff contended in the trial court that this credit of $925.45 should have been applied on the cash defalcations for which the bank was not being sued; but the plaintiff has not appealed from the judgment. The bank contends that all these items amounting to the said $1,997.65 should have been applied to its credit. We see no merit in the bank's contention.

The next contention of the bank is that it is not liable on any of the checks for the reason that it received them “under a valid indorsement lawfully placed upon the checks from a person in lawful possession of them who was therefore a holder, and the defendant having given value in due course for the checks, without notice of any defect in the title of the person negotiating them.” The weakness in the above contention lies in the fact that the bank did have notice of the defect in the title of the defendant Hyman. The court found upon substantial evidence that the bank “well knew that defendant Hyman had not the authority to collect the proceeds of the checks or to have the same deposited to his personal account.”

In this regard the plaintiff contends that “the representatives of the defendant bank deliberately ignored the universally acknowledged custom among bankers that checks indorsed with a rubber stamp are for deposit to the payee only, and that all banks are charged with the duty of requiring evidence of authority of persons indorsing checks payable to a corporation before payment of any such check other than for the account of the corporation itself.” But it is not necessary for us to decide these matters.

It is the final contention of the defendant bank that the plaintiff's recovery is barred by laches. It is sufficient to say that the doctrine of laches has no application under the facts of this case. The limit within which the plaintiff might bring its action against the defendant is fixed by the statute of limitations. Neither is there any merit to the defendant's contention that the trial court erred in appointing a referee to make an accounting and in taxing the costs thereof. Such matters are within the sound discretion of the trial court and this discretion was not abused.

The judgment is reduced in the sum of $5,269.66 and otherwise it is affirmed. Each party to pay its own costs on appeal.

CRAIL, Justice.

We concur: STEPHENS, P. J.; FRICKE, Justice pro tem.