Before SCHNACKENBERG, CASTLE and KILEY, Circuit Judges.
SCHNACKENBERG, Circuit Judge.
Ohio Casualty Insurance Company, an Ohio corporation, plaintiff, has appealed from a judgment of the district court against plaintiff, entered upon a directed verdict for Ruth L. Smith, Richard Lowell Smith, Donna Gene Smith and John C. Smith, defendants, at the close of plaintiff's evidence.
This action was brought by plaintiff, a bonding company, to recover a part of $81,315.64 embezzled by Magdalen Morenc, head of the savings department of the St. Joseph Bank and Trust Company, South Bend, Indiana, the loss to the bank having been made good by plaintiff.
Ruth L. Smith, Richard Lowell Smith, Donna Gene Smith and John C. Smith, defendants, are described by plaintiff's counsel as the persons who received a major portion of the embezzled funds directly from the embezzler.
The evidence showed that Morenc had been head of the savings department for many years prior to 1956 when it was discovered that she had been embezzling dating back possibly to 1942. She became acquainted with Ruth L. Smith, defendant, in 1949, according to Morenc, or in 1951 or 1952 according to Mrs. Smith, who met her when Mrs. Smith was selling merchandise from door to door. Some time thereafter Morenc embarked upon a long series of purchases of pillowcases, towels and other merchandise from Mrs. Smith, some of which, for quick service, was delivered to the bank during working hours, but most of which was delivered to the Morenc home. Morenc told Mrs. Smith that she was selling the merchandise. In their operations, Mrs. Smith delivered a sales slip to Morenc and kept a copy. When Morenc paid for merchandise, she gave Mrs. Smith a list of merchandise sold. The larger deliveries were on consignment to Morenc, which she would take to her club, making payment to Mrs. Smith for whatever the ladies there bought.
Mrs. Smith would go to the bank and ask Morenc if she had sold the things and she would put the money in Mrs. Smith's account, and return some things. Morenc received merchandise periodically from Mrs. Smith until 1956.
1. Plaintiff relies on Porter v. Roseman, 165 Ind. 255, 74 N.E. 1105, in support of its propositions that one who feloniously converts money acquires no title thereto, that one who receives money thus feloniously converted acquires no better right to it than the one converting it as against the lawful owner, and that this is true whether the recipient is a bona fide holder for value or not.
It appears that in Porter v. Roseman, supra, stolen funds were used to pay a pre-existing debt. Subsequently, Porter was followed in Peoples State Bank v. Kelly, 78 Ind.App. 418, 136 N.E. 30, where also the proceeds of converted money were used to pay a pre-existing debt.
Even so, Porter, as thus applied to its facts, stands against the weight of authority in the United States and against a recognized public policy that money must be permitted to flow freely in our economy.*fn1 The general rule is that one who receives money in good faith for valuable consideration prevails over the victim.*fn2
A well-considered statement of the general rule applicable here is to be found in Merchants' Loan & Trust Co. v. Lamson, 90 Ill.App. 18, which involved a suit by appellant, a banking corporation, to recover money alleged to have been wrongfully taken from appellant by Van Bokklen, one of its tellers.
Van Bokklen received $2,000 from his father's estate and began trading through appellees' firm. E. R. Shaw, an employee of appellees, was aware of the position held by Van Bokklen in the appellant bank. Van Bokklen took from the moneys of appellant large sums, which were lost in deals in grain, stocks and provisions made through appellees as his brokers.
"The theory upon which appellant sought to recover from appellees these moneys, thus embezzled by its employe, is, first, that appellees were in possession of knowledge of facts which should have put them upon inquiry which would have led to knowledge of the source from which Van Bokklen obtained the money thus paid by him to appellees as his agents and brokers; and second, that these sums were lost upon gaming transactions, and hence the owner of them, appellant, can recover them ...