Appeal from the District Court of the United States for the Northern District of Illinois, Western Division; Charles Edgar Woodward, Judge.
Before EVANS and MAJOR, Circuit Judges, and LINDLEY, District Judge.
In this suit plaintiff seeks to recoup itself for a $56,610.58 loss suffered through its bookkeeper's embezzlements. It asserts a liability on defendant's part because of the bank's unauthorized payments of cash to said bookkeeper when he made deposits of checks payable plaintiff.
The District Court entered a decree for the plaintiff and the defendant appeals. The case is here on an agreed statement of facts.
Plaintiff was the sales agent for two local Rockford Companies. They were engaged in manufacturing non-competing machine tools. Their businesses were large, and plaintiff, as the selling agent of both companies, transacted business which ranged from $750,000 to $3,000,000 a year. Plaintiff received many commission checks which its bookkeeper Charles W. Beach deposited to its credit in defendant's bank, using a rubber stamp endorsement, which was as follows:
"Pay to the order of "The Manufacturers Nat'l Bank of Rockford, Ill.
"Mattison-Greenlee Service Corp.
"(or Machinery Methods, Inc.)"
Beach's authority was limited to endorsing and depositing the checks. The bank was notified that he could endorse only for deposit to the account of plaintiff.
Beach accomplished his embezzlements in three ways: (1) Presenting for deposit, for example, a $100 check, obtaining the payment to him of $50 cash and depositing the balance; (2) cashing a check and taking the whole proceeds; (3) depositing a check and receiving a draft for its full or partial value. The company failed to detect the employee's abstractions for ten years - only after the discovery of a forgery in a second bank of deposit did the nefarious transactions come to light.
The failure to discover the thefts earlier was due partly to the nature and volume of plaintiff's business. It had annual audits made throughout the period of embezzlement by an accountant employed in an affiliated company, but the embezzlements were never discovered.
Beach's course of business is described in the agreed statement of facts as follows: Upon the receipt of checks from purchasers of goods Beach "would take the checks to the bank, write out a single deposit slip, put the total amount of checks offered for deposit and below that footing insert an item representing the proposed withdrawal. He carried that item under the total of the checks offered for deposit and subtracted the amount of the proposed withdrawal from the total of the offered checks, leaving a net amount. Opposite the item representing the proposed withdrawal was written the word 'cash' or 'draft.' The bank then accepted the checks offered for deposit, paid to Beach in cash, draft or cashier's check, as the case might be, the amount of the item deducted from the total of the checks offered. No order or voucher of any kind other than this single deposit slip was given to the bank representing the withdrawal by Beach. A pass book, furnished by the bank, was presented by Beach, and in all instances of these gross deposits there was entered at the time of deposit the net amount only of the deposit, the amount shown after deducting the withdrawal item. The total amount of check or checks actually deposited in no instance appeared in the pass book. The bank then carried into its own record of the plaintiff's deposit account only the net item - the same as was entered in the pass book. After the deposit was completed and the entry made, the pass book was delivered to Beach and kept in plaintiff's files. Duplicate deposit slips were not made. All deposit slips were retained by the bank."
Beach began his embezzlements October 13, 1926, and continued them until June, 1931, when the bank closed. There is no dispute as to dates or amounts. The plaintiff thereafter opened an account in another bank. It was on the discovery of a forged item by the second bank in 1936 that the disclosure of Beach's embezzlements came about and that plaintiff began an investigation and ...