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Security National Bank of Durand v. Fidelity and Casualty Co.

July 8, 1957


Author: Swaim

Before MAJOR, LINDLEY and SWAIM, Circuit Judges.

SWAIM, Circuit Judge.

The plaintiff bank brought this action against the defendant insurance company seeking to recover pursuant to the provisions of a bankers blanket indemnity bond for a loss sustained by reason of a fraud committed on the bank by one of its customers.

The cause was submitted to the District Court on an agreed statement of facts and the plaintiff prevailed. 145 F.Supp. 667. The facts, as stipulated by the parties, are as follows:

"The plaintiff is a national banking corporation, with its banking house in the City of Durand, Pepin County, Wisconsin.

"The defendant is a New York insurance corporation.

"That on or about the 17th day of November, 1951 the defendant issued to the plaintiff its bankers blanket bond * * *. Clause (E) of the bond is relied upon by plaintiff as the basis of this action.

"That thereafter the bank had engaged in the business of loaning money to Chain-O-Lakes, Inc., a corporation, with its principal place of business at Waupaca, Wisconsin. Chain-O-Lakes, Inc. was engaged in the business of buying and selling cheese, eggs and other merchandise. Its president and managing agent was Irving G. Koren of Waupaca, Wisconsin. There were a number of cheese factories in Wisconsin which sold their entire output to Chain-O-Lakes, Inc. Chain-O-Lakes, Inc. then in turn sold the cheese to National Tea Company, Armour & Company, Swift and Company, and a number of other nationally known dealers. The sale of the cheese and eggs to a purchaser was evidenced by the usual invoice describing the goods shipped and sent to the customer. In order to finance the business a duplicate of the invoice was taken to the Security National Bank of Durand and an assignment to the bank was stamped thereon and signed by Irving Koren for the Chain-O-Lakes, Inc. The bank then advanced 80% of the face of the invoice to the Chain-O-Lakes, Inc. When the purchaser of the merchandise paid the amount of the invoice the proceeds were paid to the Security National Bank. This gave the Chain-O-Lakes, Inc. operating funds with which to continue buying merchandise and selling merchandise to its customers. * * *

"On or about November 10, 1954, Irving Koren of the Chain-O-Lakes, Inc. presented to the Security National Bank a number of invoices with the assignments endorsed thereon to the Security National Bank. The Security National Bank in good faith and in the course of business thereupon released the funds to the Chain-O-Lakes, Inc. as had been the practice on previous occasions. Shortly thereafter Chain-O-Lakes, Inc. became financially involved and ceased doing business. Some of the purchasers of the merchandise upon being notified by the bank to pay their indebtedness to the bank, denied having received or ordered any such merchandise. Upon investigation it was found that these invoices which had been assigned to the Security National Bank in fact did not represent merchandise sold, as no shipments of cheese or eggs had been made and no original invoices had been sent to the alleged consignees. The invoices purported to represent shipments of merchandise and obligations of the purchasers, but in fact did not represent any shipments or indebtedness. The only signature on the assignments is that of Irving Koren and the only documents signed by him are the assignments on the invoices attached hereto. It is his genuine signature and the only one involved in the transaction. Irving Koren admits that he made out these invoices without having any orders and without making any shipments. He committed these acts and made these representations for the purpose of defrauding the bank out of the money loaned in reliance on such conduct.These invoices aggregate $21,476.29.The amount loaned by the plaintiff thereon was the sum of $17,341.52. The limit of the defendant's liability on the blanket bond under clause (E) is $10,000.00."

The pertinent provision of the bond, describing the coverage upon which plaintiff relies, indemnifies plaintiff against

"(E) Any loss through the Insured's having, in good faith and in the course of business, whether for its own account or for the account of others, in any representative, fiduciary, agency or any other capacity, either gratuitously or otherwise, purchased or otherwise acquired, accepted or receive, or sold or delivered, or given any value, extended any credit or assumed any liability, on the faith of, or otherwise acted upon any securities, documents or other written instruments which prove to have been counterfeited or forged as to the signature of any maker, drawer, issuer, endorser, assignor * * *."

The controversy herein centers around the meaning of the language "forged as to the signature." The defendant argues that since the signatures of Koren on the assignments were genuine no forgery is present because "forgery" is the making of a writing which purports to be the act of another, and that a false statement of fact in the body of an instrument by which a person is deceived and defrauded is not a forgery - the false statement in the instant case being that the invoices represented goods actually sold and bona fide indebtedness. The plaintiff insists that forgery is not confined to the false writing of another's name, that the essence of forgery does not so much consist in counterfeiting as in endeavoring to give the appearance of truth to a deceit and falsity, which can be accomplished by making a man's own act appear to have been done under circumstances which would make it valid, when in fact it is false.

Although our disposition of this cause is governed by Wisconsin law, no Wisconsin decisions have been found which cast any light on the problem presented for adjudication. Both parties in arguing for their respective definitions of forgery have referred the court to numerous decisions of other jurisdictions and statutes defining the crime of forgery. We shall not discuss in detail the many decisions defining forgery which, with minor variation, fall essentially into two groups.

Pasadena Investment Co. v. Peerless Cas. Co., 132 Cal.App.2d 328, 282 P.2d 124, 52 A.L.R.2d 203, is typical of the view contended for by the defendant. In that case the bond indemnified the plaintiff against "any loss * * * through having * * * purchased or otherwise acquired, * * * or given any value, extended any credit * * * upon any * * * securities, obligations or other written instruments which prove to have been forged * * *." The plaintiff had purchased certain purported accounts receivable evidenced by invoices representing goods sold. In addition, the plaintiff received written receipts signed by the person who allegedly had received the services covered by the invoices. The signatures of the assignors were genuine as were the signatures on the receipts, but the invoices and receipts were false and did not represent any bona fide indebtedness. The only factual differences between Pasadena and the instant case are that there the person to whom the ...

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