Opinion
December, 1896.
Wales Wilber (Mr. Hitchcock, of counsel), for plaintiff.
Carver, Deyo Jenkins (Mr. Collin, of counsel), for defendant.
This is an action to recover the sum of several deposits, and interest thereon, held by the Chenango Valley Savings Bank, under a contract with the plaintiff and his assignors, for moneys deposited by them in that institution.
The defendant is a duly organized savings bank institution, incorporated and doing business under the laws of the state of New York, in the city of Binghamton.
There are three classes of deposits which this action is brought to recover:
First. One belonging to the estate of Freelove J. Wilcox, a lunatic, of whose estate Darwin Howard was duly appointed a committee, and subsequently, upon her death, he was duly appointed as her administrator. This claim is alleged to be owned by the plaintiff, under an assignment, in writing. This claim was formerly represented by two pass-books; one known as the "black pass-book" of the defendant, the deposits in which commenced August 4, 1873, and continued to January, 1889.
The balance of the account was represented by what is now known as the "white pass-book," opened at some later date, and both accounts came into the hands of Darwin Howard as a part of the estate of said Wilcox.
Second. Another claim arose out of a deposit made by the plaintiff in 1886 or 1887, originally of the amount of $205, in the name of Miss Hannah Watts, in a black pass-book. This deposit appears upon what is known as the "white pass-book," under date of September 29, 1892. N.E. Kelley, the plaintiff, was authorized to draw this fund.
Third. Also an account, dated January 3, 1891, belonging to the plaintiff and standing in his own name, originally in a black pass-book, which account is now shown on one of the white pass-books, claimed to have been issued by Tracy Morgan, the treasurer of the defendant, commencing on the 29th day of September, 1892.
The plaintiff now claims to own each of these accounts; the Wilcox-Howard account by an assignment; the Watts account by having advanced the whole amount of said account to her, paying her in full therefor; and his own by virtue of direct deposits with the defendant.
The evidence shows that practically since the organization of the defendant corporation, Morgan has been its treasurer, and acting as its cashier. The savings bank was located in the office of, and doing business in the same room with, the National Broome County Bank, of which Mr. Morgan was also the cashier.
What is known as the "Chenango Valley Savings Bank" was located on the east side of a common entrance hall, which was the approach to both the banks. The National Broome County Bank was located upon the west and northerly side of the room. Between these two banks, and in the rear of the savings bank compartment, was what is known as the treasurere and cashier's room, occupied by Mr. Morgan. Upon the east and northerly side of this room was the bank vault, used by each institution.
The savings bank had an assistant clerk, or cashier, Miss Robbins, who did some of the business of receiving money, over the savings bank counter, and assisted the treasurer in the performance of his duties in connection with the savings bank only.
Morgan had occupied these positions for many years, and, until the failure of each of these banks, he was regarded as a safe and competent business man, standing very high in the community in which he lived and having the confidence of all who knew him.
The National Broome County Bank, at the time when that institution was closed, was taken charge of by the comptroller of currency, and O.U. Kellogg, Esq., of Cortland, N.Y., was appointed as its receiver. The defendant was in some manner reorganized, a new treasurer was elected and the business of that institution continues in the same building.
The plaintiff and his assignors had done business with the Chenango Valley Savings Bank for many years, and, so far as any evidence discloses the fact, none of them had any actual account with the National Broome County Bank, properly speaking.
The savings bank issued what has been called the "black pass-book." This contained the by-laws of that institution, printed on the first page.
The plaintiff claims that all of these deposits, which have been made and entered upon these several pass-books, were actually made with the Chenango Valley Savings Bank, and also claims that institution no matter what became of the money so deposited, is liable to the plaintiff upon these several causes of action.
The defendant claims that the "white pass-books," and the deposits made therein, were deposited on account of the National Broome County Bank. So far as the evidence presents any question of fact, practically, the only dispute in this case is, in which one of these two institutions were these deposits actually made? It is undisputed that Morgan was in charge of both of these institutions, that he issued what is known as the "white pass-books," and that he opened a white pass-book journal and ledger. To these books large sums of money were carried, under a system of deposits and checks, and it is out of those transactions that this controversy has arisen.
It is contended, on the part of the defense, that the treasurer, acting as cashier, could not deal with a depositor by handing to him a book containing his deposits, which book was not a savings bank book; and that one dealing with a corporation is chargeable with notice of its powers, and is bound to know the extent of the authority of its agents. Jemison v. Citizens' Sav. Bank, 122 N.Y. 135.
In the case at bar, the treasurer and Miss Robbins had the power to receive and credit deposits made in the savings bank. Having received them in the due course of business, was the depositor bound to know, when he was informed otherwise by the treasurer, that he had no authority to deliver the white pass-book with the deposits entered therein?
In other words, was the plaintiff chargeable with notice of the fraud that Morgan was committing, without any explanation? Should he have known that the white pass-book was one which was not used by the savings bank, notwithstanding what Morgan and Miss Robbins said?
Having power and authority to receive the moneys upon deposit, and having so received them, as between the bank and an innocent party, how can the bank escape responsibility for the acts of its treasurer and cashier? Bennett v. Judson, 21 N.Y. 238; Rumsey v. Briggs, 139 id. 323.
These frauds were continued for several years. The method of keeping the books was undoubtedly concocted by Morgan. They were in the vault on the savings bank side, and the savings bank was responsible to the plaintiff for the conduct of its cashier and treasurer in receiving the deposits. It was not a single fraud, but a series of frauds which was perpetrated. Cutting v. Marlor, 78 N.Y. 460; Fishkill Sav. Inst. v. Nat. Bank, 80 id. 162; People's Bank v. St. Anthony's R.C. Church, 109 id. 512; Phillips v. M.N. Bank, 140 id. 556; Goshen Nat. Bank v. State, 141 id. 379; Oakes v. C.W. Co., 143 id. 436.
The trustees ought to have been more watchful, and they ought, by frequent examinations, at least to have known what was going on in that institution. The bank became liable the moment the deposits were made in the savings bank as savings bank deposits. Smith v. Anderson, 57 Hun, 72; Willard v. Denise, 50 N.J. Eq. 482; S.C., 35 Am. St. Rep. 788, and note; L'Herbette v. Pittsfield National Bank, 162 Mass. 137; 33 N.E. Repr. 368; S.C., 44 Am. St. Rep. 354, and note; First Nat. Bank v. Allen, 46 Am. St. Rep. 80, and note.
Morgan had been in the employment of the bank and had been its treasurer for many years. The plaintiff and his assignors had done their business solely with the savings bank.
If the directors had confidence in Morgan, taking his statements for the situation and condition of the bank and its affairs, and for the business which he was doing, is it strange that a depositor should rely upon his word, without questioning his veracity? The defendants claim that the plaintiff and his assignors were bound to know that the money was not being deposited in the savings bank, from the fact that the pass-books which they received had upon their outside cover, the name "National Broome County Bank."
The plaintiff and his assignors claim that they did see the name of the bank on the outside cover, at least after some of the deposits were made; they also claim that when they called Morgan's attention to it, or the clerk's, Miss Robbins', attention to it, they were put at ease by the explanation which was made, that it was a part of the same management; that those books, or that system of books, were a part of the savings bank management.
The black pass-books, upon their face show a fact which might have been misleading to depositors. At the bottom of the outside page, the savings bank deposit books read: "Office in National Broome County Bank, Corner of Court Chenango Streets, Binghamton, N.Y."
There is no pretense that these books were ever a part of, or in any manner used in connection with, the National Broome County Bank. Page v. Krekey, 137 N.Y. 307.
If they made the inquiry and were misled, it is the same as though they had been unable to read, within the cases cited by counsel for the defense.
If their version of the case is true, the receipt of the deposits was plainly within the delegated authority of its cashier and treasurer. The white pass-book dealings were transactions between the treasurer and the bank; it was an attempt on the part of the treasurer to absorb the funds of the depositors of the savings bank.
How could the plaintiff protect himself against the fraud being perpetrated? What other inquiry was he bound to make, within the case of Higgins v. Crouse, 147 N.Y. 411?
Was he bound to make inquiry of anyone else except Morgan and Miss Robbins, who were in charge of the business of the bank, when their explanation had quieted him and explained the transaction to be a reasonable one; one apparently within Morgan's authority?
It was the duty of the savings bank, through its officers, to exercise due care to guard and protect its depositors. Their votes put Morgan in the bank as its cashier and treasurer. They had opportunity to examine and make searches to test the genuineness and validity of the transactions of the bank; they had unlimited power and authority to examine books, vouchers, and everything connected with the transactions of the bank. And where this man Morgan was running two banks, in the same general offices, it was their business to see that the accounts of the bank were kept separate, and by such examinations detect fraudulent transactions, if there were any. Allen v. Williamsburgh Sav. Bank, 69 N.Y. 314; L'Herbette v. Pittsfield Nat. Bank, 162 Mass., supra; Fishkill Sav. Inst. v. Nat. Bank, 80 N.Y. 169.
The fraud, if any were perpetrated, was not an outside transaction, but the funds were taken from the bank and put outside by its treasurer, for the purpose of defrauding the bank. It is not a question of good faith between the person injured, the depositor and the bank, within the case of Goshen Nat. Bank v. State, 141 N.Y. 379, supra.
The evidence, on the part of the defendant, showing that the credits were not entered in the books of the savings bank, is not binding upon the depositors, if the funds were there deposited. The fact that the treasurer embezzled the moneys does not effect the bank's liability, and the savings bank books cannot be used to show a want of deposits entered, for the purpose of raising the presumption that the money was deposited with the National Broome County Bank, or that it was a personal transaction with the treasurer, in his individual capacity. L'Herbette v. Pittsfield Nat. Bank, 162 Mass., supra.
The case at bar does not fall within the rule laid down in Commonwealth v. Reading Sav. Bank, 135 Mass. 16.
This case consists of transactions in which the depositors directed that the funds be deposited with the Chenango Valley Savings Bank. The plaintiff and his assignors had the right to designate the place of deposit; the acceptance of the deposits by the savings bank made that bank liable, that fact having been found with the plaintiff. Coleman v. First Nat. Bank of Elmira, 53 N.Y. 388.
The statements made with reference to these deposits and the "white pass-books" were made in the course of the transactions of depositing, and whatever was said, or done, at that time is admissible within the case of Merchants' Nat. Bank v. Clark, 139 N.Y. 314. It was upon this case that the evidence of the first transaction with Morgan, in reference to what Judge Edwards told the plaintiff, was excluded, the court holding that Morgan "had no authority to bind his principal by statements as to bygone transactions, unless expressly authorized to make them," the balance of that transaction is competent and must stand. Pierson v. Atlantic Nat. Bank, 77 N.Y. 304; Merchants' Nat. Bank v. Clark, 139 id., supra.
If the white pass-books delivered to the plaintiff and his assignors were delivered to and accepted by them in good faith, in the honest belief that they were the obligations of the savings bank, showing the amount of their deposits, they relying upon what Morgan and Miss Robbins said with reference to the transaction, the bank is liable within the cases supra, and West v. First Nat. Bank of Elmira, 20 Hun, 408; Fishkill Sav. Inst. v. Bostwick, 92 N.Y. 564.
The white pass-books were the evidences of the indebtedness to the depositors and it is competent to show the nature of the transaction, for the purpose of showing with whom it was intended the money was to be deposited. Hotchkiss v. Mosher, 48 N.Y. 478; First Nat. Bank v. Clark, 134 id. 368.
It was not a contract within these cases with the National Broome County Bank.
As between himself and the bank, while Morgan had no right, probably, to use the white pass-books, after receiving money from the depositors, the evidence shows that he did use them only in connection with the savings bank deposits, for the purpose of covering up a series of frauds which he was perpetrating against the depositors in the business of the savings bank. The proof is that the white pass-book ledger, journal and white pass-books were kept in the bank, on the savings bank side; either upon the counter, or in the savings bank side of the vault.
What excuse had the other officers of the bank for not knowing something of these transactions, under those circumstances? It is true that they swear that they never knew of them and had never seen them; but the treasurers, clerks and bookkeepers in both banks did know it, and that these books were used only in reference to that class of deposits taken through the savings bank. None of these transactions were ever transferred to, or in any way mixed up with, the National Broome County Bank's office or its books; while at least one of the deposits is traced directly to the savings bank books, and the balance of the deposits are found upon the "white pass-book journal and ledger," belonging to and used in the savings bank part of the building.
There is no question about Morgan's or Miss Robbins' agency for the defendant, and that they had the right to receive and credit money from these depositors. The plaintiff and his assignors were told that it was all under one management; the regular savings bank book discloses the fact that the savings bank office was in the National Broome County Bank.
The plaintiffs had the right to rely upon the fact that it was all under one management, especially when they deposited their money with that understanding. White v. Miller, 71 N.Y. 118; Alexander v. Cauldwell, 83 id. 481; Wait v. Borne, 123 id. 592; Merchants' Nat. Bk. v. Clark, 139 id. 314.
At the time the money was deposited it is shown that the savings bank had no right to pay a greater rate of interest than three and one-half per cent., and under the rules and by-laws of that institution clearly, Morgan had no power to agree with the plaintiff and his assignors for a greater rate of interest.
The regular savings bank book, or what is known as the "black pass-book," provides by section 4: "That the depositor shall be bound by the by-laws and rules of this corporation on receiving a book in which the same are printed." Section 1 provides: "All money shall be deposited and invested in the name of the Chenango Valley Savings Bank."
None of these instructions were in the "white pass-book," and while it is true that the black pass-book was surrendered, the receipt of the white pass-book in its place did not make the by-laws of the savings bank institution a part of the new contract with the depositor. It was only when he received a book in which those by-laws were printed that the depositor was bound.
Many of the vouchers put in evidence disclose the fact that Morgan understood where the plaintiff and his assignors intended to and did deposit their moneys, since when each check was given upon the National Broome County Bank, where the plaintiff had no account, the check was laid aside and Morgan took it up with a savings bank check; thus showing that the treasurer of the Chenango Valley Savings Bank, and the cashier, teller and bookkeepers of the National Broome County Bank understood that each transaction was a transaction with the Chenango Valley Savings Bank, and not with the National Broome County Bank.
Mr. Morgan and Miss Robbins were not called upon the trial. They knew what the real transactions were, and the presumption is that they would not have corroborated the defendant's version. Milliman v. Rochester R.R. Co., 3 A.D. 109; S.C., 3 N.Y. Anno. Cases, 29, and note; Gordon v. People, 33 N.Y. 501; Bleecker v. Johnston, 69 id. 309; Kenyon v. Kenyon, 88 Hun, 221; Wennerstrom v. Kelly, 7 Misc. 173; 27 N.Y.S. 326; Wilson v. Broadway, etc., R. Co., 8 Misc. 450; Horowitz v. Hamburg Am. Packet Co., 18 id. 24.
If the transactions were honest and fair ones, the defendant should have called its agents, or should have accounted for their absence, within the line of authorities supra.
The well-known reputation of Mr. Morgan as the treasurer and cashier of these two institutions, easily led the unsuspecting depositor to readily give credit to all he said and rely upon that implicitly, without further examination or inquiry into the method of doing business with the defendant.
Under ordinary circumstances, it might seem plain that the plaintiff and his assignors ought to have known that their accounts upon the white pass-books were intended to be transactions with the National Broome County Bank; and had that business been transacted with a stranger, instead of with an officer so much trusted by the depositor, so high above reproach, and apparently beyond the reach and need of investigation on the part of the bank officials, the plaintiff could not have been excused for not knowing that fact. A further investigation would have been necessary. When his curiosity was aroused by the transaction, by the change in the form of the pass-books, his suspicions were quieted by the assurance on the part of the treasurer, Morgan, and by Miss Robbins, that the transaction was the ordinary one, and that his credits by the savings bank were shown upon the pass-book given to him, in whatever form. Hess v. Culver, 77 Mich. 598; S.C., 18 Am. St. Rep. 421, and note.
After an exceedingly careful review of all of the evidence given upon the trial, making full allowance for the rigid cross-examination of the plaintiff and his assignors, it seems to me that justice demands that judgment be directed in favor of the plaintiff for the several sums deposited in the defendant bank, with interest thereon, to be computed under the rules of that institution, at three and one-half per cent., then authorized to be paid to depositors; and judgment is ordered accordingly.
Judgment accordingly.