Liberty Mutual Insurance v. Kleinman

Liberty Mutual insured Dietzgen Company against loss suffered through the dishonesty of its employees. Los Angeles Blue-Print Company, a subsidiary of Dietzgen Company, was covered by the policy. Leon Tanner Eddy, manager of Blue-Print, took 80 checks payable to his employer, stamped the employer’s endorsement, added his name as manager, cashed the cheeks and appropriated the proceeds to his own use, in the total amount of $7,446.19. Plaintiff paid this amount under its policy. Defendants Kleinman and Hertz-berg cashed 54 of the cheeks in the total amount of $4,556.51 and the present action against Kleinman and Hertzberg is by the insurer, claiming as subrogee of Blue-Print. At the conclusion of the trial the court made findings in favor of plaintiff and entered judgment in its favor. Upon motion for a new trial the court vacated the findings and conclusions, made new ones, and entered judgment for defendants. Plaintiff appeals.

When we are urged to hold that a material finding is unsupported by the evidence we look to the opening brief of the appellant expecting to find a statement of the evidence bearing upon the issue. There is no statement in either of appellant’s briefs as to the relations between Eddy and defendants over a period of more than three years nor as to the circumstances under which defendants cashed the checks. However, the facts are simple and we have decided to consider the point, notwithstanding the failure of counsel to obey the rule.

For some nine years Eddy served as manager of Blue-Print under appointment by Dietzgen, using cards furnished him which designated him as manager. He was manager in fact as well as in name and had full control over all normal operations. His maximum salary was $325 per month. In 1950 he became a customer of defendants’ liquor store. He made purchases at least once a week for several years and was extended credit. He was generally lmown about the store as the manager of Blue-Print. He introduced other employees to defendants, paid his bills regularly and came to be regarded as a responsible business man. In 1951, after he had been a customer of the store for a year, he cashed the first of the checks that were payable to Blue-Print. During the ensuing 27 months he cashed 53 other checks with defendants, receiving the full amounts in money and merchandise. Defendants did not question his authority or make any inquiry of his employer. All the 80 or more checks cleared without incident.

In its first findings the court did not make a finding whether defendants were negligent. Upon motion for new trial, as we have stated, the court found that defendants were not negligent. The court also found that Blue-Print was negligent “in not checking or auditing defendant Leon Tanner Eddy, and permitting the misappropriation of checks to continue over a period of 27 months.” It also found that Blue-Print employed Eddy as its manager and “by said act, created an actual agency” and caused Eddy “to believe himself to possess an actual authority,” and “by want of ordinary care, caused defendants to believe that defendant, Leon Tanner Eddy, was an agent of the Los Angeles Blue-Print Company

Although defendants made repeated efforts to prove that Blue-Print did not cause an audit to be made of Eddy’s accounts, they were prevented from proving that fact by plaintiff’s objections, which were sustained. It nevertheless appeared without question that Eddy’s defalcations continued over a period of 27 months before they were discovered. The' court could properly have inferred that Blue-Print had no system of auditing Eddy’s accounts or checking upon his activities, and that if the accounts had been audited the defalcations would have been detected at an early date. In the balancing of the equities as between plaintiff and defendants the question of defendants’ negligence was the critical one. The fact that for 27 months the checks cashed by defendants cleared without incident was a circumstance of considerable weight in the decision'of that question. And it was a fact which defendants would naturally take into consideration whether it came about by reason of Blue-Print’s negligence or despite the use of diligence. We, therefore, construe the findings to mean that the failure of Blue-Print to discover the defalcations was one of the reasons for the confidence defendants reposed in the integrity of Eddy. We, therefore, attach no importance to the finding that Blue-Print was negligent.

Our conclusion is that the question of defendants’ negligence was one of fact as to which the determination of the trial court is based upon reasonable inferences and that the finding is controlling upon appeal. The court concluded

We have limited our discussion of the principles of subrogation to the issues that were tried and the points argued in the briefs.

There are several findings which, if taken literally, would be absurd. Among them was a finding that the action was barred by the statute of limitations. They are contrary to other specific findings, to admissions of the pleadings and to the evidence. Errors of this sort are frequently found when broad findings are made by reference to the pleadings. We must attribute the conflicts and inconsistencies in the present findings to carelessness of the author and inadvertence on the part of the court.

The judgment is affirmed.

Wood (Parker), J., and Vallée, J., concurred.

A petition for a rehearing was denied April 19, 1957, and appellant’s petition for a hearing by the Supreme Court was denied May 22, 1957.