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COFFIN v. FIDELITY-PHILADELPHIA TRUST COMPANY (06/26/53)

June 26, 1953

COFFIN, APPELLANT,
v.
FIDELITY-PHILADELPHIA TRUST COMPANY



Appeal, No. 177, Jan. T., 1953, from judgment of Court of Common Pleas No. 5 of Philadelphia County, Sept. T., 1950, No. 5750, in case of Roy R. Coffin, George W. Betz, Jr., Harry D. Brown, Jr., Owen O. Freeman and Edward H. White, Jr., trading as Coffin, Betz & Co. v. Fidelity-Philadelphia Trust Company. Judgment reversed.

COUNSEL

Charles J. Biddle, with him John Ames Ballard and Drinker, Biddle & Reath, for appellants.

Thomas B. K. Ringe, with him Clinton W. Frontz and Morgan, Lewis & Bockius, for appellee.

Before Stern, C.j., Stearne, Jones, Bell, Chidsey, Musmanno and Arnold, JJ.

Author: Chidsey

[ 374 Pa. Page 380]

OPINION BY MR. JUSTICE CHIDSEY

The plaintiffs in this assumpsit action sought to recover from the defendant bank the amount of ten checks totaling $75,948.62 drawn by certain predecessor partnerships (in which certain of the plaintiffs were partners) on an account in the defendant bank, on which checks the payees' names were forged by one Neil J. Sullivan. At the time of these events Sullivan was a partner in the firms on whose behalf the checks were drawn. The checks were deposited by Sullivan in his personal account which was also in the defendant bank. This matter came on for trial and the issues were submitted to a jury resulting in a verdict for the defendant bank. The plaintiffs have appealed from the action of the court below in refusing their alternative motions for judgment non obstante veredicto and for a new trial.

[ 374 Pa. Page 381]

On January 1, 1937 the brokerage firm of Rakestraw, Betz & Co., in which Edward H. Rakestraw and George W. Betz, Jr. were the partners, was formed and continued under that name with certain changes in both general and limited partners until October 1, 1945 when Neil J. Sullivan and Edward H. White, Jr. were admitted as general partners. The firm then consisted of Roy R. Coffin, Betz, Sullivan and White as general partners and Rakestraw as a limited partner. A checking account was opened in the defendant bank on January 2, 1937. The business continued under the name of Rakestraw, Betz & Co. until September 3, 1946 when the name was changed to Coffin, Betz & Sullivan; the name on the bank account was also changed on September 3, 1946. When Sullivan withdrew from the firm on March 31, 1949, following the discovery of some of his forgeries, the business was continued by its successors under the name of Coffin, Betz & Co.

Prior to October 1, 1945, from 1940 or 1941, Sullivan was employed as a salesman by the brokerage firm and had several customers of his own. On and after October 1, 1945, when he became a general partner, he shared in the general supervision of personnel, including the cashier, R. J. Smith.

When Sullivan became a general partner he was required to post a capital contribution of $10,000 and at that time he apparently did not have such sum of money available. Accordingly, on October 1, 1945 he took a check in the sum of $11,973.20 drawn to the order of Mary M. Rafferty by the firm, signed by R. J. Smith, their cashier, and forged the endorsement of her name, added his own name as an endorser and deposited the check to his own account in the defendant bank. He then drew a check on his own account to the order of Rakestraw, Betz & Co. to pay for his capital contribution to the firm. At the same time he drew another

[ 374 Pa. Page 382]

    check for $1,325 to the order of the firm in reimbursement for withdrawals which he had previously made from the firm's petty cash account.

On March 20, 1946, another check drawn by the cashier of the firm in the sum of $3,500 to the order of Mary M. Rafferty was given to Sullivan for transmission to her. He forged the endorsement of her name as payee and deposited it in his personal account with the defendant bank on March 22, 1946. On March 29, 1946, from the funds so acquired, Sullivan reimbursed the firm in the amount of $1,200 for petty cash previously withdrawn. On June 4, 1946, another check signed by the cashier, payable to Mary M. Rafferty in the sum of $5,000 was given to Sullivan for delivery to the payee, but he again forged her name and deposited it in his personal account. The proceeds of this check were used to meet a check dated May 31, 1946, payable to the firm in the amount of $1,500 due by Sullivan to the firm's petty cash account.

On August 27, 1946, Sullivan was given a check for transmission to Claire M. Mair as payee, in the sum of $5,334.08. He forged her endorsement and deposited the check to his own account of the same day. On August 29, 1946 Smith delivered to Sullivan a check in the sum of $30,366.47 payable to the order of Mary M. Rafferty for transmission to her. He forged her name and deposited the check to his own account at the defendant bank. Sometime prior to August, 1946, Sullivan had engaged to purchase a home on which settlement was to be made on August 21, 1946. In order to effect settlement, Sullivan obtained a certified firm check in the sum of $32,275 and left there his personal check dated August 21, 1946 which was to be made good the next day. Sullivan had discussed this certified check with George W. Betz, Jr., one of his partners, and had explained that he could not draw such

[ 374 Pa. Page 383]

    certified check on his own account at that time because he had not yet received certain funds. Sullivan's personal check for $32,275, payable to the firm, remained in the petty cash drawer until August 26th when Smith, the cashier, returned from his vacation and found it there. Smith brought the check to the attention of both Betz and Coffin who demanded that the check be cleared immediately. The check was not deposited, however, until August 30, 1946.

Following the $30,366.47 Rafferty forgery, Sullivan refrained from his depredations for almost a year. In May, 1947 he resumed. On May 20, 1947 Smith, the cashier of the firm, (then trading as Coffin, Betz & Sullivan), drew a check to the order of Mary M. Rafferty in the sum of $1,397.91 and delivered it to Sullivan to transmit to her. He forged her endorsement and deposited it to his own account in the defendant bank. On May 26, 1948 he likewise forged the endorsement of Ann Turner White on a check drawn to her order in the sum of $223.74 and deposited it in his personal account. He also withdrew all of the securities in the White account at that time by means of a receipt on which he forged her name. Some of these securities were later returned and the rest were sold and predicated further forgeries.

On July 16, 1948 he similarly forged the endorsement of Claire M. Mair to a check for $1,898.31 and deposited it in his own account on the same day. Checks dated November 4, 1948 and November 23, 1948, for $9,633.05 and $6,621.86 respectively, were delivered to Sullivan for transmission to Ann Turner White, the payee; he forged her endorsements and deposited each check on the same day in his personal account at the defendant bank.

On March 28, 1949 Philadelphia counsel was retained by Ann Turner White's Washington attorneys

[ 374 Pa. Page 384]

    to investigate her claim that the firm owed her certain securities. An investigation followed, on March 29, 1949, which disclosed the withdrawal of her securities by Sullivan on a receipt forged in her name, the subsequent sale of the securities and the drawing of the three checks payable to her order and the forgeries of her endorsements and deposit to Sullivan's account. Sullivan, when confronted with these facts, admitted that he had forged the signatures.

There followed an immediate investigation into all of the accounts handled by Sullivan. Notice that there was a shortage in firm capital was sent to the New York Stock Exchange, the Philadelphia Stock Exchange, the Federal Securities and Exchange Commission, the Pennsylvania Securities and Exchange Commission and the National Association of Security Dealers. Auditors from the New York Stock Exchange and firm accountants conducted a complete audit on the Sullivan accounts and each customer, including those whose accounts were closed, was requested to confirm the accuracy of his account. Sullivan denied that there were any forgeries other than as to the White checks totaling $16,478.65 and the auditors did not discover his other forgeries. Sullivan's resignation was demanded and received on March 31, 1949 and a new partnership agreement was drafted for continuation of the business by the remaining partners. The firm, by April 5, 1949, purchased on the market the stocks improperly sold on Mrs. White's account and reimbursed her for lost dividends and $500 for her expenses and legal fees.

The initial audits conducted by the Stock Exchange and the firm accountants failed to disclose any further wrongdoing on Sullivan's part. However, on or about April 4, 1949 it was discovered that Sullivan had misappropriated five B. & O. bonds from the account of his aunt, Claire M. Mair. These bonds were replaced

[ 374 Pa. Page 385]

    by the firm on April 6th and nothing was said to Mrs. Mair. The members of the firm did not wish to tell Mrs. Mair that her nephew was dishonest since she had brought him up since his childhood.

The Rafferty forgeries were not discovered until on and after April 12, 1949. In the period from March 29th to April 12th the plaintiffs were of the opinion that the losses would approximate about $20,000 and they felt that they could handle such loss without presenting any claim against the bank on account of the forgeries. The plaintiffs specifically and intentionally withheld notice from the bank because they anticipated reimbursement by Sullivan and desired to close the matter without further adverse publicity. During this period the firm applied Sullivan's $10,000 capital contribution toward restitution and on April 7th and 8th the firm received two $5,000 payments from one J. H. Rowbotham who advanced these funds on Sullivan's behalf to help him out of his difficulties. It was anticipated by the partners that they could look to the home owned by Sullivan and his wife to make up any balance which might be due.

On April 12, 1949 the Rafferty forgeries were discovered*fn1 and on April 13, 1949 the firm gave notice of the White and Rafferty forgeries (8 checks) to the bank. The forgeries on the Mair checks were not discovered*fn2 until July 7, 1949 and notice was given to the bank as to these two checks on July 8, 1949.

[ 374 Pa. Page 386]

After the forgeries were uncovered it was discovered that Sullivan had misappropriated about $20,000 in securities from his sister's (Mrs. Coonley) account in the period 1941 to August, 1944, while he was still a salesman. This loss was covered in part by a surety bond. Sullivan handled this account as though it were his own by virtue of a power of attorney on which he had forged her signature. On one occasion Mr. Coffin had criticized his manner of handling this account because he was depleting the principal; but there was never raised any question as to his authority to handle the ...


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