Canning Co. v. Bank

Full title: BUTLER PRODUCE CANNING CO., APPELLEE v. EDGERTON STATE BANK CO., APPELLANT

Court: Supreme Court of Ohio

Date published: Apr 29, 1953

112 N.E.2d 23 (Ohio 1953)

112 N.E.2d 23

Opinion

No. 33171

Decided April 29, 1953.

Negotiable instruments — Employee forged employer-payee's name to checks — Primary and secondary obligation to repay — Employee and bank cashing check — Employee's contract of restitution — Bank released from liability — Ambiguous language of written contract — Preliminary draft admissible to explain.

1. Where a bookkeeper forges the endorsement of his employer upon checks payable to such employer, and a bank cashes such checks relying upon such endorsement, the obligation to make restitution to the employer is a primary obligation of the employee and any liability of the bank to make restitution to the employer is a secondary obligation.

2. Where an agreement is executed between a bookkeeper and his former employer, which recites defalcations of the bookkeeper in an undetermined total amount and which provides for restitution by him, and is in such form as to constitute an accord and satisfaction between them, it effects complete release of a bank which is secondarily liable to the employer because of the cashing of checks in reliance upon the forged endorsement of the employer placed upon such checks by said bookkeeper.

3. For the purpose of explaining ambiguous language in a written contract, a preliminary draft of the contract, which was rejected by the parties, is admissible in evidence.

APPEAL from the Court of Appeals for Williams county.

The plaintiff is a corporation which operates a canning factory at Butler, Indiana. At all times involved Jacob H. Walz was its secretary and treasurer. For many years one Earl L. Brant was employed by plaintiff on a part-time basis as a bookkeeper. A short time prior to September 1949, it was discovered that Brant had, over a period of years, embezzled large sums of money from plaintiff, largely through placing forged endorsements upon checks payable to plaintiff.

In September 1949, plaintiff undertook to procure a written agreement with Brant which would state the amount of his defalcations and provide for repayment by Brant. Plaintiff's attorney prepared a draft of agreement which recited that Brant admitted abstractions and illegal withdrawals totaling $35,000; that plaintiff believed the defalcation to be in excess of that amount and was not to be bound by that sum; and that, if the total amount of the defalcations should exceed $35,000, Brant would pay the greater amount. This draft of agreement was rejected. The final draft which was executed September 27, 1949, by plaintiff and Brant does not contain the two last-mentioned provisions contained in the former draft. As executed, the agreement recites that the plaintiff believes the defalcations to be in excess of $35,000 but that Brant "admits the abstractions and illegal withdrawal * * * of the said sum of $35,000, and agrees to pay said sum." The agreement then provides for methods of payment by Brant, the giving of mortgages on both real estate and chattels as security and waiver by Brant's wife of her interest in the mortgaged property. No obligation of Brant to pay more than $35,000 is suggested.

On February 28, 1950, a supplemental agreement was executed, reciting certain items of indebtedness found to exist from the plaintiff to Brant, amounting to $8,000. This supplemental agreement provides that Brant should be given credit for this $8,000 toward satisfaction of the note executed under the original agreement of September 27, 1949. It contains no acknowledgment of, or reference to, any liability of Brant in excess of the $35,000 to which this item of $8,000 might be credited.

Subsequent to February 28, 1950 — either in April or June of that year — plaintiff learned that Brant had cashed three checks at the defendant bank which checks were dated in 1946, were payable to plaintiff and on which Brant had forged the endorsement of plaintiff "by Jacob H. Walz, Treas." The three checks were for the total face amount of $5,005.57, and this action was brought on September 28, 1950, to recover that amount on those checks.

Defendant's answer sets up four defenses.

The third defense is that the plaintiff and Brant entered into an accord and satisfaction thereby compromising and settling all claims of plaintiff against Brant; that, as to any liability to plaintiff arising out of the claims set out in the petition, the liability of Brant was primary and that of the defendant was secondary; and that the defendant was, therefore, discharged of any liability to plaintiff.

Along with the other defenses, the trial court submitted the third defense to the jury. No interrogatories were submitted. The jury rendered a general verdict for the defendant and judgment was so entered.

On appeal on questions of law, the Court of Appeals reversed the judgment of the trial court, finding error in several respects but particularly as to rulings on evidence relating to the agreement of September 27, 1949, and in the charge as to the effect of that agreement.

The cause is in this court upon an allowance of a motion to certify the record.

Messrs. Newcomer, Newcomer Shaffer and Messrs. Woods Woods, for appellee.

Messrs. Gebhard Hogue and Messrs. Ohlinger, Koles, Wolf Flues, for appellant.

MIDDLETON, J.

It is unnecessary to discuss any of the defenses or asserted grounds of error other than the defense of accord and satisfaction.

With respect to liability to the plaintiff, the obligation of Brant was primary and that of the defendant bank was secondary. The plaintiff was entitled to be reimbursed but once on account of Brant's defalcations. If Brant made full restitution any liability of the defendant was discharged. Likewise, settlement made between Brant and the plaintiff enured to the benefit of the bank and effected its discharge.

The controlling question then is: Did the defendant present competent evidence to prove the execution of an agreement between Brant and plaintiff such as would constitute an accord and satisfaction?

The defense of accord and satisfaction was properly and sufficiently pleaded. Contrary to the apparent opinion of the Court of Appeals, we consider that the defense was supported by competent evidence and that no error prejudicial to the plaintiff was committed in the rulings of the trial court with respect to such evidence or in the charge on that subject.

The agreement of September 27, 1949, was drawn by the plaintiff's attorney. Brant was not represented by counsel in the negotiations preceding the drafting or at the time of the execution of the agreement. The defendant did not know of the agreement until long after its execution. Hence the agreement must be construed against the plaintiff. For the purpose of determining the meaning of the parties and of explaining ambiguous language in the final contract, the preliminary draft was admissible in evidence. (12 American Jurisprudence, 757, Section 234.)

The agreement recites that the plaintiff believed that the defalcations exceeded $35,000. The proffered testimony of Frank Walz, rejection of which was held by the Court of Appeals to have been error, was that on the day the agreement was executed Brant stated that he did not know the amount which he had taken but that it was in excess of $35,000. The form of the agreement demonstrates that it was contemplated that defalcations would be discovered after the agreement was executed. The probability of such discoveries was inherent in plaintiff's insistence that the total amount of defalcations exceeded $35,000. Notwithstanding such conviction and such probability, the plaintiff struck, or consented to have stricken, from the final draft the provision obligating Brant to pay any defalcations thereafter discovered which would create a total in excess of $35,000. Instead of the provision so stricken, and presumably as a consideration for eliminating it, new and additional provisions were inserted which would better guarantee and secure payment of the flat sum of $35,000, including a provision for the execution of a mortgage on a farm of 120 acres and a chattel mortgage on livestock and machinery, and the joining of Brant's wife in the agreement, thereby releasing her rights in the mortgaged premises. That agreement was never repudiated by plaintiff. On the contrary, it was recognized as effective and was enforced after discovery of the cashing of the three checks in question. When, a few months after its execution, a counterclaim of Brant against the plaintiff amounting to $8,000 was discovered, the supplementary agreement of February 28, 1950, providing for the crediting of that amount was executed. It was entirely silent as to any obligation of Brant to make good any defalcation in excess of $35,000 — which plaintiff said it believed existed. On the contrary, the entire $8,000 wass credited against the note which had been executed in partial discharge of the $35,000 obligation. Furthermore, after the plaintiff discovered the defalcation with respect to the three checks in question and had full knowledge with respect thereto, the chattel mortgage was satisfied and the mortgage on the real estate was foreclosed.

On this record, the jury was amply justified in finding that accord and satisfaction was effected by the agreement of September 27, 1949, as to all of Brant's defalcations, known and unknown.

When and to what extent defalcations were discovered subsequent to the execution of the agreement had no effect upon the obligations of Brant as fixed by the agreement. Therefore, it was immaterial that the defalcation with respect to these three checks was not known when the agreement was executed. Error was not committed by the trial court in rejecting the evidence as to the date of discovery of the cashing of the checks by defendant.

Accord and satisfaction, if established, was a complete defense. It was submitted to the jury without error. The evidence was sufficient to support a verdict for the defendant on the issue of accord and satisfaction. No interrogatories were submitted and there was a general verdict for defendant. The verdict for the defendant must, therefore, be approved and the judgment thereon affirmed. It is unnecessary to consider or pass upon other assignments of error.

The judgment of the Court of Appeals is reversed and the judgment of the Court of Common Pleas is affirmed.

Judgment reversed.

WEYGANDT, C.J., TAFT, MATTHIAS, HART, ZIMMERMAN and STEWART, JJ., concur.