Reynolds v. Kenyon

By the Court, Bacon, J. The substantial facts of this case are not controverted, and admit of no complication whatever ; and the principle of law adapted to them ought to be obvious, and of very easy application. On the 1st of June, 1857, the plaintiff had in deposit in the bank, of which the defendant was and is the president, the sum of $8000 in [596] cash. The bank also, at the same time, had in deposit, and for collection, in behalf of the plaintiff, a note of $2000 made by Grosvenor, the cashier. On that day the plaintiff, being then at the west, wrote to Grosvenor, enclosing his check on the bank for $2000, for which he desired him to remit to him two drafts on New York for $1000 each. He also requested Grosvenor to forward to L. S. Benton, by the 23d of June, three drafts, in all amounting to $2000, and apply the same on his note then held by the bank, and past due. The two $1000 drafts were accordingly forthwith sent; and on the 23d of June, Grosvenor transmitted by mail to Benton the three drafts desired by the plaintiff. They were duly received, and the avails at once invested in real estate, which was bestowed as a gift upon his daughter. Instead, however, of applying the $2000 upon the note of Grosvenor, as instructed, and thus cancelling that indebtedness, Gro'svenor, in direct violation of his instructions, charged the $2000 to the account of the plaintiff on the books of the bank. This he did, too, with the knowledge of the defendant, who was president of the bank, and who saw the letter of the plaintiff, which contained the only direction in respect to the $2000. He says, indeed, that he did not consent to Grosvenor’s sending the drafts, but he was cognizant of all the facts and uttered no protest, and ventured on no remonstrance. If it were of any consequence, this conduct would be held to be a tacit consent to the transaction, binding upon him as an officer of the bank. In sending the money, Grosvenor gave no intimation of the manner in which he had disposed of, or attempted to dispose of, $2000 of the plaintiff’s money ; but the latter received and parted with the drafts as so much paid upon the note of Grosvenor, leaving his account undiminished, except to the extent that he had directly drawn upon it. And it was not until the 12th of August, subsequently, that he learned of the transaction, when he at once repudiated it, and "demanded the $2000 [597] from the bank. Payment being refused, this suit is brought to recover the amount, with interest. It results from this statement that the defendant’s bank had on the 23d of June, 1857, $2000 of the plaintiff’s money, which it was bound to pay at any time on demand. Has it paid that money ? The defendant’s counsel insists that it has ; or, to state the proposition in other words — because the cashier of the bank violated the instructions of the plaintiff, and took the plaintiff’s money, with the knowledge of the president of the bank, to purchase the drafts remitted, instead of taking his own money in the vaults, of the bank and discharging his own debt, therefore the bank is to escape all liability, retain that $2000, and turn the plaintiff over to recover of an insolvent debtor a probably outlawed debt. The principle on which it is claimed that the bank has not only discharged its obligation, but. can even follow and recover the funds it has parted with, is that (treating Gfrosvenor as the factor or agent of the bank, his principal) he could not bind or affect the property of the principal by tortiously pledging or otherwise disposing of it in satisfaction of his own debt; and that property thus pledged or disposed of may be recovered back by action of trover against the pawnee, without any tender of the sum for which it is pledged, although the latter was ignorant of the fact that it was held in a fiduciary capacity. It seems to me there are several satisfactory answers to this proposition, as attempted to be applied to this case. In the first place, it can not very well be claimed that Grrosvenor took these drafts tortiously, and fraudulently converted them. The bank has never so ti'eated the transaction, or, before this suit, attempted to reclaim them upon any such ground. It knew perfectly well how they had been procured, and how they were sent. It knew, or was bound to know, that G-rosvenor had to his- credit in the bank a sum sufficient to make good the amount of the drafts ; and if the bank desired to repudiate the use made of the drafts, it [598] should have been done promptly, and the plaintiff should have been advised that, unless he consented to such an appropriation of his funds, the amount should either be restored to his account, or the application made to the extinguishment of Grosvenor’s debt. In the second place, the principle may have its appropriate application to personal property capable of transfer by delivery and of identification, but can have no application to money, or that which represents money, which, “ having no ear-marks, can not be identified, and which is used as money ; ” a bank draft, employed as a medium for the transmission of funds, is not personal property, as that term is used and understood. It is not even commercial paper, with the incidents and equities which the Law Merchant, as expounded in this state, applies to such paper. It may not be employed, in the strict and technical sense, as a circulating medium, but it passes freely from hand to hand, and, for most commercial purposes, is used as money. I can not perceive any difference in principle between the case as it stands, and that which might have existed if the plaintiff had presented himself at the bank and demanded payment on his note, and Grosvenor, instead of drawing upon Hew York in the name of the bank for the funds, had taken the circulating notes of the bank, of which he was the custodian, and paid them to the plaintiff, professedly in compliance with the demand of the plaintiff and in discharge of his note. Could the defendant; in such a case, have reclaimed the bills ? Above all,, could it have done so when the plaintiff received them in good faith as a payment upon his debt, and had already parted with them for property, of which, by a lawful and voluntary gift, he had dispossessed himself ? To ask these questions is, it seems to me, to answer them, and the answer effectually disposes of the assumption upon which the claim of the plaintiff in this case is resisted. [599] There is another principle still, alluded to by the referee in the opinion accompanying his report, (a) which demonstrates that the loss in this case, if one or the other party is to suffer, should fall upon the defendant, and not upon the plaintiff. The latter received the money, or that which was its equivalent, without any suspicion that it was not a lawful appropriation of funds belonging to Grosvenor, or which he had applied with the full knowledge and approbation of the bank. If Grosvenor obtained them improperly, and by an act which, as between him and the bank, could be esteemed and treated as fraudulent, still the loss should fall upon the party who has put the person in a position to per [600] petrate a fraud, and constituted him the apparent owner of the money. The teller of a hank has no authority to certify that a party has funds in the bank, except the fact is as the paper represents ; and yet if he does thus certify in violation of his duty, for the mere accommodation of a party, and the certified check falls into the hands of a bona fide holder, the latter can enforce it against the bank. This precise proposition is decided in the Farmers’ and Mechanics’ Bank of Kent County v. Butchers’ and Drovers’ Bank, (16 N. Y. Rep. 125.) That principle is applicable to this case. Grosvenor was the' financial officer of the bank, with power to draw drafts and appropriate its funds in all matters fall [601] ing within the apparent scope of his authority. Such, at any rate, was the power with which, as to outside parties, he was clothed by the bank; and whenever, by comparing the act done with the power, the act is warranted by the terms of the power, the principal is bound as to all persons dealing in good faith with the agent. Such persons are not bound to inquire into facts aliunde: the apparent authority is the real authority; North River Bank v. Aymar, (3 Hill, 262;) a case which, from its alleged reversal in the court of errors, may have seemed heretofore to be somewhat shaken, but the principle of which has been often since reaffirmed, and is now firmly established by [602] the judgment of the court of appeals in Exchange Bank v. Monteath, (26 N. Y. Rep. 505.) In the words of Lord Holt in Ham v. Nichols, (1 Salk. 269,) “ Seeing somebody must be a loser by the deceit, it is more reasonable that he that employs and puts confidence in the deceiver should be the loser, than a stranger.” It is not necessary, for the protection of the plaintiff, that he occupy in all respects the position of a bona fide holder of commercial paper without notice of any defect in his title, although it is true that, before he had any knowledge of the real transaction and of the claim set up by the bank, he had parted with the drafts and disposed of the money, which, without any benefit to him, had passed out of his reach, and formed no part of his estate. He acted in perfect good faith, and on the presumption that G-rosvenor and the bank had fulfilled his commission and not misappropriated his funds. I think, upon well-settled principles and the strongest equity, he is entitled to recover, and that the judgment should be affirmed. [Onondaga General Term, April 4, 1865. Judgment affirmed. Mullin, Morgan, Bacon and Foster, Justices.] Footnotes [(a)] The following is the opinion of the referee, (Hon. William F. Allen:) “ The claim of the defendant in substance is, that a creditor receiving money from his debtor is bound to know the claim or title of the payer to the money, and if it in truth is the money of a third person which is held as trustee or which in any manner has come to the possession of the payer, but which he has no authority to use for his own purposes, the receiver can be made to answer for it in an action for money had and received to and for the use of the rightful owner at any time before the statute of limitations runs against the demands. If a cause of action exists at allf it springs from the receipt of the money which it is said ex cequo et bona belongs to the claimant, and exists from the time of the receipt, and of course can only be barred as other actions are barred. This is a startling proposition, and if true places the creditors in an awkward and critical position in receiving moneys from their debtors when such debtors may occupy a fiduciary relation to others in which they may have the control of the funds of their principals or wards as cestuis que trust. It would put them to an inquiry as to the source of title to the money offered in payment, and to learn the truth upon peril of being compelled to account to some third person for money received as their own, long after the debtor may have become solvent, or perhaps died. If the true owner of money thus appropriated chances to be a feme covert or an infant, it may be that very many years will elapse before the least intimation will be given to the party receiving the money that he has involuntarily .become a debtor to a stranger. For the claim is that scienter, knowledge by the creditor of the source of the title to the money at the time of the receipt, is not essential to his liability to account. In the transfer of commercial paper the rule in this state is that the taker, unless he parts with value at the time, receives and holds it subject to any equities existing against it in the hands of the transferer in favor of any party to it or any third persons claiming title to it. In others states and in the United States the. rule is [600] different, and gives a. good title to commercial paper to any one taking it upon a good consideration in good faith in the usual course of business. It is not material to inquire which is the best rule. It is enough that even in this state the rule has not been applied to money, that which having no earmark can not' be" identified or that which is used as money. Now a bank draft is not in any sense commercial paper. It is the means of remitting money from one place to another. It may not be used technically as a circulating medium, and yet passes from hand to hand and is used as money for commercial purposes. It represents so much money paid by the payer to the drawing bank, and is a direction to the drawee to repay that amount to the holder of the draft. It matters not whether coin or bank notes are transmitted directly to the plaintiff, or the coin or bank notes paid to the defendant in exchange for their request to their correspondent in New York to pay the like amount there. In neither case could the plaintiff trace the title-of Grosvenor to the money, and in both cases it is a payment of money ;by Grosvenor to the plaintiff. The case is not at all different from what it would have been if the plaintiff had personally applied to Grosvenor at the bank for the payment of his debt and the debtor had paid him in the circulating notes of the bank or any other current money. The plaintiff could •not have known whether he was taking money which was rightfully his, or whether he was abstracting it from the bank. If the plaintiff had then used the same money for the purchase of a bill on New York it would have been on all fours with the case in hand. But it would hardly be claimed I think .that the bank could, under these circumstances, recover the money thus paid, of the plaintiff. The fact that Grosvenor claimed to be cashier of the defendants does not affect the plaintiff or touch the question of his liability. Suppose that he had not been such cashier, but had been an executor or trustee having, trust money in his hands,-and.upon being applied to, as in this case, had with those funds purchased the drafts, could the parties whose [601] money was used in the purchase of the drafts reclaim them 1 I think not. A party receiving not negotiable paper but money or that which is used for and passes as money, in good faith, is without notice of any defect in the title of the payer, or any thing to cause a suspicion of such title, and in the usual course of business, is entitled to protection, and the loss, if any, must fall upon him who with or without fault has put the person in a position to perpetrate a fraud, if he has not the right to use the money as his own, who has put him in position of apparent owner of the money. A teller of a bank has no authority to certify checks or give certificates of deposit, except when funds are actually on deposit. Nevertheless his certificates are good against the bank as to every bona fide holder, and this is the result of commercial necessity as well as of the rule which holds the principal liable to the extent of the apparent authority of the agent, and for the fraud of the agent in the business of the agency. By whom the drafts were drawn in behalf of the bank does not appear. It may be assumed that they were drawn in the usual way and by the authorized agent of the bank. The bank, therefore, by its authorized agents certified to the plaintiff that it had been paid $2000, and directed that amount to be paid to him, and gave that certificate to his debtor to be used by him in the payment of his debt to the plaintiff, and it was so paid. Who shall suffer 1 Certainly not the plaintiff, but the defendant if any one, whose president and cashier thus placed in the hands of the debtor this money or the usual representatives of and substitutes for money, to be appropriated to the payment of his debt. In another class of actions stress is laid upon the fact that the party receiving property from his debtor in payment of his debt knows at the time that it is partnership property which the debtor can not lawfully use for his individual purposes. (Dob v. Halsey, 16 John. 84.) Without examining cases in detail, I will only say that I know of no case charging the plaintiff with this money, and that I can net reconcile it with equity or justice, or any principle of law to hold him liable.”