Critten v. Chemical National Bank

O’Brien, J.: The referee correctly disposed of the issues, and were it not for the strong insistence made that the plaintiffs were guilty of such negligence as precludes their recovery, supported as the argument is by authorities in other jurisdictions, we should not deem it necessary to add anything to the reasons assigned by the referee for holding the defendant liable. Each side endeavored to show upon the trial that it was the negligence of the other that was responsible for the loss, it being conceded that the loss should fall on the one through whose fault or negligence the withdrawal of the money from the bank by Davis was successfully accomplished. The law which fixes the relations and rights between a bank and its depositors is well settled, and it is unnecessary to do more than state the same as summarized by the referee in his opinion in the following language : “ Money deposited in a bank * * * becomes the property of the bank and the bank becomes a debtor to the depositor for the amount of the deposits, and agrees to pay its indebtedness as and when demanded by the creditor. (Etna Bank v. Fourth National Bank, 46. N. Y. 86; Com. Exchange Bank v. Nassau Bank, 91 N. Y. 80; Phoenix Bank v. Risley, 111 U. S. 125.) It can charge the depositor in account only with payments 1 made at the time, to the person and for the amount authorized by him.’ (Crawford v. West Side Bank, 100 N. Y. 53; Shipman v. Bank of the State, 126 N. Y. 327.) Payments made on a check that is forged (Frank v. Chemical Bank, 84 N. Y. 209), or the endorsement of which is forged (Welsh v. German American Bank, 73 N. Y. 424; Shipman Case, supra), or the amount of which is fraudulently raised (Clark v. Shoe & Leather Bank, 32 App. Div. 316; Crawford v. West Side Bank, supra), are not chargeable to [246] the depositor.” The money having been paid upon checks fraudulently raised, therefore, the defendant would be liable, unless it was able to absolve itself by showing that the plaintiffs’ negligence was such as bars recovery. Upon this latter question we do not agree with the appellant that the plaintiffs were guilty of negligence in respect to the checks before they were put into the mailing drawer to be sent to the payees. The checks were prepared by Davis, payable to certain particular- persons of firms to whom the plaintiffs' owed bills, and each check was presented to Mr. Critten with the bill which it was intended to pay. He signed the check and put it with the bill into an envelope, which he sealed and placed in the mailing drawer. It is true that when that had. been done Davis could' steal the Check, and, having left spaces where the amount was punched and written, could alter it; but in the absence .of some reason to suppose that the mailing drawer was to be -robbed, it cannot be said that the maker of the check was called upon to take any particular pains to prevent it-; and the spaces left by Davis upon the check were not such as would attract the attention' of a careful man. The theft of the check by Davis and its alteration by raising the amount as he did and by erasing the name of the payee and substituting “ Cash ” were not acts for which the plaintiffs were responsible, and the payment by the bank of the checks thus raised was not excused by any negligence on the part of' the plaintiffs, nor was the bank thereby discharged of its liability to the depositors for the money to their credit. "While the defendant’s liability does not depend on negligence (Crawford v. West Side Bank, 100 N. Y. 50), yet as the case was tried and is now presented on the subject of the negligence of the bank, it appears that the check showed signs of alteration. The red ink was written over the black, instead of vice versa, the punched figures were crowded and uneven, and the paper bore marks of i erasure to such an extent in one instance that the cashier refused to pay without Davis’ indorsement and would not have paid many of-the checks had he not known that Davis was in- plaintiff’s employ.. Moreover, the suspicions of the bank were aroused in three instances by the large amount demanded and at these times Davis was required to indorse the checks. There is nothing to show that the [247] plaintiff had authorized Davis to indorse the checks nor that he was in the habit of presenting its “ cash ” checks. The plain inference from this evidence is that not only was the bank put on its guard, but that it assumed to give a personal credit to Davis, and that it was negligent in thus cashing the checks presented. It is contended, however, that there was subsequent negligence on the part of the plaintiffs which discharged the bank from its liability or made the amount rendered from time to time when Davis received the balance bank book a stated account. In this connection the question is presented as to the duty of the depositor when his bank book with the vouchers is returned by the bank. The settled law of this State is that there is no duty upon the depositor to examine his bank account and vouchers thus returned to him unless he wishes to do so. That was the rule laid down in the case of Weisser v. Denison (10 N. Y. 68), and has since been asserted to be the law of this State. (Shipman v. Bank of the State of N. Y., 126 N. Y. 318; Welsh v. German American Bank, 73 id. 425; Bank of British Worth America v. Merchants' Nat. Bank, 91 id. 106; Clark v. Wational Shoe & Leather Bank, 32 App. Div. 316.) The last-mentioned case was affirmed by the Court of Appeals (164 N. Y. 498), but not upon any question that is involved in the case at bar. That the return of the account with the vouchers made an account stated need not be disputed; but the effect was simply to put upon the plaintiffs the burden of showing that there was a mistake or error in the account, and the mere fact that the account was not examined did not raise any estoppel as between the plaintiffs and the bank. (Shipman v. Bank of the State of New York, supra) But it is urged by the appellant that the plaintiffs did examine the account through their clerk, Davis, and thus became aware of the error, and that if reasonable diligence had been exercised by the plaintiffs to advise the defendant of the fact that an altered check had been presented, no subsequent loss would'have occurred. It is not disputed that Davis received the bank account and vouchers when returned, and he must be assumed to have examined the account, at which time he learned, what he already knew, that several of the checks had been altered and that the altered checks had been paid. Can it be said, however, that Davis, in examining [248] the account as to its correctness, acted as the agent of the plaintiffs- and that they are presumed to have the knowledge of the forged checks which Davis, being acquainted with before he examined the account, because he committed the forgeries, might again have-become acquainted with upon such examination ? . It is quite true that ordinarily when an agent acts within the scope of his employment, the knowledge. which he thereby acquires-is tiie knowledge, of his principal and the principal is bound by it,, although as matter of fact he never knew anything about it. Here,, however, Davis acquired no knowledge as to these forged checks by the examination of the account. He forged the checks and he knew all about them, and although the examination of the account-was not necessarily connected with the forging of the checks, but'might have been done by any other clerk, in which case the knowledge acquired would unquestionably have been the knowledge of the plaintiff, yet, as matter of fact, in the examination of the forged checks, Davis acquired no knowledge, and it was just as much to-his interest then to conceal the fact that the checks had been altered and the altered checks paid, as it was to conceal that fact in the first instance before the vouchers were -returned. In such a case, we think, the general'rule of law as to imputed knowledge does.not apply. When the agent is engaged in committing a fraud upon his principal, it is just as much to his interest to conceal the commission of the fraud and his felony after he has received the proceeds as it. was before. If, therefore, in what ordinarily would be his duty, he has an opportunity to conceal the fraud which he has committed,, and which, if not concealed, would result in his detection and conviction, it cannot be said that he acts as agent of his principal in. concealing the fraud which an innocent man would have discovered and which it is for his interest to conceal. In such a case the principal cannot be charged with the presumption of knowledge. As said in Henry v. Allen (151 N. Y. 1, 10), when an agent “is-engaged in a scheme to defraud his principal the presumption does-not prevail, because he cannot in reason be presumed to have disclosed that which it was his duty to keep secret or that which would, expose and defeat his fraudulent purpose. * * * When an agent abandons the object of his agency and acts for himself by committing a fraud for his own exclusive benefit he ceases to act249 within the scope of his employment .and to that extent ceases to act as agent.” And in Bienenstok v. Ammidown (155 N. Y. 60), a partnership case, it was said: “ The principle intervenes to destroy the basis of an imputed knowledge, as before observed, that a member of a firm will not be permitted by conduct amounting to a fraud upon his copartners, to bind them as in some transaction within the sphere of the partnership. The communication of the facts concerning the transaction will not be presumed in such a case. * * ’ * Where an agent commits an independent fraud for his own benefit he ceases to act as an agent for his principal, and, as it is essential to the very existence or possibility of the fraud that he should conceal the real facts from the latter, the ordinary presumption of a communication between them fails. To the contrary, the presumption is that no communication was made and, consequently, the principal is not affected with constructive notice.” (See, also, Benedict v. Arnoux, 154 N. Y. 715, 729; Cave v. Cave, L. R. [15 Ch. Div.] 639.) As matter of fact the plaintiffs here did not discover the fraud, nor were they ever put in a position where any innocent party could have discovered it. In this latter connection it appears that to Davis was assigned the clerical work involved in handling the checks, and he had for years been employed and trusted. It was attempted to show that the plaintiffs were not'warranted in employing him for such work. All that appears, however, is that he had absented himself at different times and was suspected of intemperance ; but that alone would not indicate or suffice to show that he would commit a crime. Having no cause to suspect or doubt his honesty, the plaintiffs were justified in intrusting to him the duty of examination of the checks. (Clark v. National Shoe & Leather Bank, supra.) We think, therefore, that the judgment appealed from is right and should be affirmed, with costs. Rumsey, Patterson and McLaughlin, JJ., concurred; Van Brunt, P. J., dissented.