Boston Note Brokerage Co. v. Pilgrim Trust Co.

• Decision Date: 07 May 1945
• Citation: 61 N.E.2d 113,318 Mass. 224
• Parties: BOSTON NOTE BROKERAGE CO., Inc. v. PILGRIM TRUST CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

318 Mass. 224

61 N.E.2d 113

BOSTON NOTE BROKERAGE CO., Inc.

v.PILGRIM TRUST CO.

Supreme Judicial Court of Massachusetts, Suffolk.

May 7, 1945.

Exceptions from Superior Court, Suffolk County; Hammond, Judge.

Action of tort or contract by Boston Note Brokerage Company, Inc., against Pilgrim Trust Company to recover damages from defendant because of its conduct with respect to a check payable to plaintiff. There was a finding for plaintiff, and defendant brings exceptions.

Exceptions sustained and judgment for defendant.

Before FIELD, C. J., and LUMMUS, DOLAN, RONAN, and SPALDING, JJ.

R. F. Roach and T. H. Mahony, both of Boston, for plaintiff.

F. T. Leahy, of Boston, for defendant.

LUMMUS, Justice.

This is an action of ‘tort or contract’ to recover damages from the defendant banking corporation because of its conduct with respect to a check payable to the plaintiff corporation. The facts appear in statements of counsel, which they agreed were to constitute a statement of agreed facts submitted as evidence, but not a case stated. Scaccia v. Boston Elevated Railway, 317 Mass. 245, 249, 57 N.E.2d 761;King Features Syndicate, Inc. v. Cape Cod Broadcasting Co., Inc., 317 Mass. 652, 59 N.E.2d 481.

One Leventhal, a depositor in the defendant bank, lent $10,000 to the plaintiff corporation upon its note, dated August 20, 1941, payable with interest on December 20, 1941, signed in its behalf by Henry Reimers, its treasurer, who was expressly empowered ‘to sign the corporate name, cash, sign and indorse checks, negotiate loans and in general, to do and transact any and all business which may be properly done and transacted in the name of the company.’ The plaintiff corporation had no deposit with the defendant bank. Leventhal made the loan by giving to Reimers his (Leventhal's) check for $10,000 upon the defendant bank, dated August 20, 1941, payable to the order of the plaintiff corporation.

On August 21, 1941, Reimers personally presented the check for payment at the defendant bank, with the indorsement of the plaintiff corporation upon the check signed by him as its treasurer. Apparently mindful of the duty of the defendant bank to its depositor Leventhal not to pay to a person unauthorized by the payee to receive the money (Dana v. Old Colony Trust Co., 245 Mass. 347, 139 N.E. 541;Barmby v. Merrimack Cooperative Bank, 285 Mass. 37, 40, 188 N.E. 378, and cases cited), a paying teller of the defendant bank refused to give Reimers cash for the check, and referred him to vice-president Miley, who had authority on behalf of the defendant bank to decide what to do. Miley did not know either Reimers or his authority to indorse the check on behalf of the plaintiff corporation. Consequently Miley telephoned Leventhal's office and talked with Leventhal's secretary, who was well known to him. The secretary described Reimers in such a way as to identify him, advised Miley that Leventhal had just lent $10,000 to the plaintiff corporation, and said that Reimers as treasurer had authority to cash the check, all of which was true.

Reimers asked Miley for a check of the defendant bank payable to him personally. Miley refused to give such a check in payment of Leventhal's check, but said that he would give Reimers the cash, and then Reimers could take the cash to another officer of the defendant bank at another window and buy the defendant bank's check for $10,000 payable to himself. Reimers took the $10,000 in cash, went to the other officer at another window, and bought the defendant bank's check for $10,000, dated August 21, 1941, payable to the order of Henry Reimers.

Reimers deposited that check in an account that he opened in his own name in a bank in Medford, and it was collected by that bank from the defendant bank. The proceeds of that check never reached the plaintiff corporation, but were wrongfully used by Reimers for his private purposes.

In the Superior Court, on October 24, 1944, a judge made a finding for the plaintiff in the sum of $11,905, which evidently was composed of the sum of $10,000 with interest thereon from August 21, 1941. The case is here on the exceptions of the defendant bank.

The defendant bank was under no contractual duty to the plaintiff corporation, as distinguished from its depositor Leventhal, to see that the check was paid to the plaintiff, the payee, or to someone authorized by the plaintiff to receive payment. Blacker & Shepard Co. v. Granite Trust Co., 284 Mass. 9, 12, 187 N.E. 53. See also 137 A.L.R. 874. Any liability on the part of the defendant bank must be based on tort. See Banks v. Everett Nat. Bank, 305 Mass. 178, 182, 25 N.E.2d 177. In the Blacker & Shepard Co. case a bank was held liable to the corporate payee of a check where it paid the check to a vicepresident who had authority to receive the check for the corporation but not to indorse or collect it.

The present case differs from the Blacker & Shepard Co. case primarily in that Reimers as treasurer had authority to indorse and collect the check. He had authority to receive payment of the check in cash. Doing so was not such a badge of fraud as to impose upon the defendant bank a duty to interfere to prevent an apparently intended embezzlement. An honest treasurer may at times keep substantial sums in the form of cash. Neither did the conversion of the check into a bank or cashier's check payable to Reimers personally constitute such a plaintiff indication of an intended embezzlement that the defendant bank became bound to interfere to prevent such a crime. In some situations an honest treasurer might desire to convert a check payable to his corporation into a bank or cashier's check payable to himself. He might reasonably do so if on behalf of his corporation he should contemplate buying goods for cash in a distant city where he could be identified but where proof of his authority to indorse a check payable to his corporation would be at least difficult. A bank that is merely the drawee of a check ought not to be made liable to the payee for anything short of participation or assistance in a known or apparent misappropriation of funds. In this Commonwealth, and by the weight of authority elsewhere, a bank upon which a check is drawn is not liable for the embezzlement of the proceeds by a payee who is a fiduciary, or by an agent of the payee authorized to collect the check, merely because the fiduciary or agent causes the check or its proceeds to be deposited in his personal account, much less because he collects the check in cash.¹

Cases are distinguishable in which a bank has been held liable for accepting in payment of the personal obligation of a fiduciary or agent funds which it knows are not his own, or for assisting him in a known or apparent misappropriation of funds.²

There was error in denying the defendant's request for a ruling that upon all the evidence the law required a finding in its favor. Since the case was tried...