Prudential Ins. Co. of America v. Nat'l Bank of Commerce in New York

• Citation: 227 N.Y. 510,125 N.E. 824
• Parties: PRUDENTIAL INS. CO. OF AMERICA v. NATIONAL BANK OF COMMERCE IN NEW YORK.
• Decision Date: 06 January 1920
• Court: New York Court of Appeals Court of Appeals

227 N.Y. 510

125 N.E. 824

PRUDENTIAL INS. CO. OF AMERICA

v.NATIONAL BANK OF COMMERCE IN NEW YORK.

Court of Appeals of New York.

Jan. 6, 1920.

Action by the Prudential Insurance Company of America against the National Bank of Commerce in New York. From a judgment of the Appellate Division (184 App. Div. 891,170 N. Y. Supp. 1107), affirming a judgment entered upon a directed verdict, the defendant by permission appeals.

Judgments reversed, and new trial granted.

See, also, 177 App. Div. 438,164 N. Y. Supp. 269; 178 App. Div. 898,164 N. Y. Supp. 1110.Appeal from Supreme Court, Appellate Division, First Department.

Frank Parker Ufford, of New York City, for appellant.

R. Dulany Whiting, of New York City, for respondent.

CHASE, J.

The plaintiff is an insurance corporation having its principal place of business in Newark, N. J. In 1912 and prior to that time, one Eaton was its manager and agent for the states of Maine and New Hampshire, and had his office at Portland, Me. In the course of the plaintiff's business, and on March 18, 1912, it sent to Eaton at Portland a check drawn on the defendant bank to the order of Rena C. Phipps for $1,983.26, dated on that day, which stated on the face of the check that it was ‘in full for all claims under policy No. 164, 163’ (being a policy in which said Phipps was the beneficiary), and on the 24th day of March, 1912, another check on said bank to the order of Ella M. Wade for $1,633.70, on the face of which was a similar statement to the effect that it was in full of a specified policy. Said checks were sent to Eaton to be delivered by him to the payees thereof, but, instead of delivering the checks in accordance with his instructions, he in each case forged the name of the payee to the check, and deposited the same to his personal account with the Fidelity Trust Company of Portland, Me., and converted the proceeds thereof to his own use. The Phipps check was paid by the defendant on March 20, 1912, and the Wade check on March 28, 1912. The plaintiff demanded of the defendant that it return the amount so paid on said checks to it, but the defendant has neglected and refused to do so. This action is brought to recover the amount of said checks with interest. The trial court directed a verdict in favor of the plaintiff, and the judgment entered thereon has been unanimously affirmed by the Appellate Division.

[1] The Negotiable Instruments Law (chapter 38 of the Consolidated Laws) provides:

‘Where a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party, against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority.’ Section 42.

It is conceded that the name of the payee in each of said checks was forged thereon by Eaton, and that he also personally indorsed said checks, and that they were paid by the defendant as stated.

The defendant claims that the plaintiff is precluded from asserting in this action the forgery of the payee's name on said checks, respectively, because Eaton, the manager and agent of the plaintiff, as stated, by his indorsement of the checks guaranteed the genuineness of the indorsement of the payees, and that the plaintiff is bound thereby.

The defendant's claim, in substance, is that Eaton by personally indorsing the checks in legal effect said to the trust company and all subsequent holders of the checks and to the defendant that the signatures of the payees on the checks and each of them was the genuine signature of such payee, and that he guaranteed the same, and also that, as Eaton was the representative of the plaintiff at Portland, his representation and guaranty was the representation and guaranty of the plaintiff company.

The defendant bases its claim in large part upon the reasoning and conclusion stated in London Life Insurance Company v. Molsons Bank (5 Ont. L. Rep. 407), which is a report of a case at a trial of the issues therein before a judge without a jury. The decision in that case, so far as it supports the contention of the defendant, is not in accord with the decisions of this court.

The court in Welsh v. German-American Bank, 73 N. Y. 424, 29 Am. Rep. 175, says:

‘The fact that the plaintiff intrusted checks to his clerk, * * * who forged the indorsements, made him no more responsible than if he had intrusted them to an expressman * * * and the expressman had forged the name of the payee.’

And in Henry v. Allen, 151 N. Y. 1, 45 N. E. 355,36 L. R. A. 658, this court says:

‘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 act within the scope of his employment, and to that extent ceases to act as agent.’

See Shipman v. Bank of the State of N. Y., 126 N. Y. 318, 27 N. E. 371, 12 L. R. A. 791, 22 Am. St. Rep. 821; Frank v. Chemical National Bank of N. Y., 84 N. Y. 209, 38 Am. Rep. 501. Eaton had no apparent authority as an agent of the plaintiff to acquire the checks for deposit in his personal account.

We are of the opinion that Eaton, in forging the names of the payees of the checks and his indorsement of the checks following such forged indorsements, was acting independently of his agency, and wholly in violation of the same, and that the plaintiff is not responsible therefor. The guaranty of the genuineness of the indorsement of the payees by reason of Eaton's subsequent indorsement of such checks was the personal guaranty of Eaton, and not that of the plaintiff.

It is also claimed by the defendant that the plaintiff is precluded in this action from setting up the forgeries by Eaton of the checks under consideration because of its negligence in sending such checks to Eaton after knowledge of his previous forgeries and misapplication of its money or of facts which required the plaintiff to have made further inquiry and investigation into his acts before sending him such further checks.

It is also claimed by the defendant that the record discloses such conduct on the part of Eaton of which the plaintiff had knowledge, or ought to have had knowledge, before the checks under consideration were paid, as required it in good faith and fair dealing to have informed the defendant not to pay such checks or at least which required the plaintiff to disclose to the defendant the possibility of irregularities or forgeries by Eaton in connection with checks sent by it to its Portland office that the defendant might have had an opportunity for special investigation of the indorsement of such checks before paying them.

Eaton had held his position with the plaintiff at the time of the forgeries of the two checks under consideration for about four years. Such forgeries were among the last of a long series of fraudulent and criminal acts in connection with his position as a district manager and agent of the plaintiff. As long prior to 1912 as the early part of 1910 one of the plaintiff's policy holders made application to Eaton for a loan by the plaintiff. An application therefor was forwarded to the plaintiff and passed upon favorably, which resulted in a check for the amount of the loan payable to the policy holder being sent to Eaton. He forged the name of the payee on that check, and deposited it in his personal account in the Fidelity Trust Company. Some time thereafter the policy holder who had not received the amount of the loan wrote to the plaintiff, making complaint because of the delay. The plaintiff wrote to Eaton, sending him a copy of the latter of the policy holder. Eaton forwarded his personal check to the policy holder, and wrote the plaintiff that payment had been made. The check of the plaintiff bearing the forged indorsement of the payee's name must have been in its possession when the letter of complaint was received, and the plaintiff, with the genuine signature of the policy holder on the application for the loan in its possession, could have known of the forgery by Eaton, if it had made any reasonable investigation of the check and documents in its possession. Similar forgeries by Eaton continued thereafter from time to time, and became more and more frequent until during the six months prior to March, 1912, Eaton forged the payee's indorsement on substantially every check that was forwarded to him for delivery to policy holders. It appears that Eaton forged the signature of the payee on 100 or more of such checks.

Eaton collected the premiums on the plaintiff's policies in the states mentioned. A 30-day period of grace was allowed the policy holders after the premiums were due. Eaton took advantage of this fact to use the premiums promptly paid for himself. He not only persistently used such premiums during such period of grace, but frequently upon excuses to the plaintiff continued to use such money even after the 30-day period had expired. His use of such premiums was in effect called to the plaintiff's attention at different times by letters from policy holders, saying, in substance, that they had not received a receipt for the premiums paid by them. When Eaton's attention was called by the plaintiff to such complaints, he would reply with some feigned excuse for his failure to deliver such receipts.

The plaintiff inspected Eaton's office every six months, and the defendant claims that it knew, or should have known, at each of such times that Eaton had misappropriated some of the premiums collected by him. In November, 1911, an examiner for the plaintiff was at Eaton's office. At that time he had misappropriated premiums collected to the extent of about $4,000. After the inspector arrived, and while he remained at the office, Eaton from day to day deposited in an account kept by the plaintiff in its name in said trust...