Sweeney v. National City Bank of Troy

Hill, ,P. J. Plaintiff-respondent, Sweeney, has recovered a judgment for $5,347.17, with $1,208.49 interest and costs, against defendant-appellant, The National City Bank of Troy. The basis of the action was that the bank on April 23, 1931, paid a check for $5,347.17 drawn by Sweeney’s assignor, Joseph C. Behan, Jr., to Hanora Kennedy, whose purported indorsement was forged by O’Connell, a real estate dealer. In discussing the somewhat involved events connected with this transaction, the surnames of individuals will be used, the appellant bank will be called the “ National Bank,” the National Bank of Watervliet, a defendant against whom a judgment was not found, the “ Watervliet Bank,” the Troy Savings Bank which enters into the discussion the “ Savings Bank.” This action followed one wherein it was determined that a $6,000 mortgage which purported to be a lien upon premises located on Nineteenth street, Watervliet, N. Y., dated April 17, recorded April 21, 1931, was junior to a $4,000 mortgage upon the same premises dated April 23, recorded April 24, 1931. Kennedy was the owner of the premises when the transactions began. She authorized O’Connell to negotiate a sale for $10,000, payment to be made $6,000 in cash and $4,000 a first mortgage. He arranged a sale of the premises to Norbert B. Shay and Ethel M. Shay, his wife. They had no money with which to make the cash payment. On or prior to April seventeenth, O’Connell forged a. deed which purported to convey the premises from Kennedy to the Shays. A $6,000 loan was negotiated with the Savings Bank. Behan, its attorney, took the forged deed and the mortgage executed by the Shays, and caused them to be recorded. The Shays directed the Savings Bank to pay the $6,000 proceeds of the mortgage to Behan, which he deposited with the appellant National Bank, and drew checks aggregating $652.83 to pay taxes, and the check in suit to Kennedy for the remainder of the fund, and delivered it to O’Connell, who forged the name of Kennedy as indorser, deposited it in the Watervliet Bank in which he had an account, received a cashier’s check indorsed payable to Kennedy for $5,133.67 which he delivered to her, and retained $213.50 commissions to which he was entitled. These proceeds, irrespective of the forgery, were received by the persons to whom Behan wished payments to be made. The cashier’s check was delivered to Kennedy on the day she executed the genuine deed to the Shays and received the mortgage drawn by them for $4,000, which, with the proceeds of the check, made up the $10,000 purchase price, less the tax payments. O’Connell’s forgery of the deed and the indorsement on the check did not become known until about November, 1937. [420] Behan’s assignee has recovered from the National Bank because of its negligence in paying out his funds on a forged indorsement. The Watervliet Bank was relieved from liability because of the Statute of Limitations, six and a half years having elapsed after it cashed the check with the forged indorsement. Appellant National Bank argues that it has a defense because payment was made to the persons legally entitled to receive the money and to whom Behan intended that it should be paid. (Sundail Const. Co. v. Liberty Bank, 277 N. Y. 137; Lynch v. First Nat. Bank of Jersey City, 107 id. 179.) Respondent was permitted to recover upon the theory that appellant’s negligence in failing to detect the forgery of the Kennedy indorsement caused the long delay before exposure, thereby causing loss to Behan’s client, the Savings Bank, it being assumed that disclosure of the facts on or shortly after April 23, 1931, would have permitted the Savings Bank to have bettered its position as the holder of a mortgage of questionable validity, and possibly for Behan to have stopped payment, of his check or to have recovered the money from Kennedy. The measure of damage and the liability of appellant National Bank was fixed by the trial court in the same amount as though Behan had suffered loss through the payment of his check to persons not legally entitled thereto. The Savings Bank suffered the loss incident to having a mortgage junior to the Kennedy mortgage, through its negligence and failure to ascertain that O’Connell had forged the name of Kennedy to the deed dated April seventeenth. The only basis for argument that appellant was in any way liable therefor is that the Savings Bank might have received notice of its own negligence and have been given an opportunity to recoup had appellant National Bank detected the forged indorsement on Behan’s check to Kennedy. This is speculative and tortious. O’Connell’s motive for forging the Behan check to Kennedy is not clear. Had he delivered it, she would have paid his commissions therefrom. The fact that what she believed to be a cash payment made by the Shays came in the form of a check from Behan would not have disclosed the source of the money or that there was a forged deed. O’Connell was the only person with knowledge who was present at the time of the closing of the genuine transaction, as the Shays assumed that they were to obtain a deed of the premises by giving two mortgages and without a cash payment. The appellant National Bank was the debtor of Behan and, under its obligation as a depository, was required to pay out his funds as he directed. Under the ruling of the trial court, it is held responsible for a loss to Behan’s client, caused primarily by the [421] client’s negligence in failing to discover O’Connell’s forgery of the deed, and not because of its failure to discover the forged indorsement on the check. Behan suffered no damage. His assignee has no cause of action against appellant. (Sundail Const. Co. v. Liberty Bank, supra; Lynch v. First Nat. Bank of Jersey City, supra; Yanowe & Co., Inc., v. American Exchange Irving Trust Co., 226 App. Div. 530.) Crapser, Heffernan and Schenck, JJ., concur; Schenck, J., concurs with a separate opinion, in which Hill, P. J., Crapser and Heffernan, JJ., concur; Bliss, J., dissents, with an opinion.