Eastern Mut. Ins. Co. v. Atlantic Nat. Bank

• Decision Date: 05 July 1927
• Parties: EASTERN MUT. INS. CO. v. ATLANTIC NAT. BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

260 Mass. 485

157 N.E. 520

EASTERN MUT. INS. CO.

v.ATLANTIC NAT. BANK.

Supreme Judicial Court of Massachusetts, Suffolk.

July 5, 1927.

Report from Superior Court, Suffolk County; J. H. Sisk, Judge.

Suit in equity by the Eastern Mutual Insurance Company against the Atlantic National Bank to declare that defendant received proceeds of checks deposited with it subject to a trust for plaintiff. On report on case stated. Decree for defendant dismissing the bill.

1. Banks and banking k130(3)-Banker, paying out deposit on fraudulent order of person having right to draw on account, is liable only when privy to fraud.

A banker having no interest in the matter, who pays out money on deposit on fraudulent order of the person, who under terms of deposit had right to draw on the account, is liable only when privy to depositor's fraud.

2. Banks and banking k154(6)-Burden of proving banker privy to fraud of drawer on deposit account is on party asserting it.

Since banker, who pays out money on deposit on fraudulent order of person having right to draw on an account, is liable only when he is privy to depositor's fraud, burden of proving him privy thereto is on party who asserts it.

3. Banks and banking k154(8)-That checks were payble to depositor's treasurer, were reversely numbered, and marked ‘Securities,’ held not to show bank privy to depositor's fraud (G. L. c. 175, s 64).

Where the treasurer of an insurance company was authorized to sign its checks as treasurer, and fraudulently appropriated its funds by signing checks payable to himself, which he deposited with defendant bank and checked them out from time to time for his own purposes, fact that checks were payable to treasuer's own order, were reversely numbered, and marked ‘Securities,’ held not to show bank's privity with its depositor's fraud, in view of presumption that bank acted honestly and form of checks with marking thereon of ‘Securities' was insufficient, in view of G. L. c. 175, s 64, to show bank had knowledge of facts that its action amounted to bad faith.

4. Banks and banking k154(8)-Form of checks held insufficient evidence of infirmity to show bank had knowledge of facts imputing bad faith to it (G. L. c. 107, s 79).

Where treasurer of insurance company authorized to draw checks on its bank deposit, drew checks payable to himself which he deposited with defendant bank, where only infirmity in checks was treasurer's intent to fraudulently appropriate funds, form of check, in view of G. L. c. 107, s 79, held insufficient evidence of infirmity to show defendant had knowledge of facts such that its action in dealing with them amounted to bad faith, especially where there was no evidence that defendant bank was other than bona fide holder in due course.

R. G. Dodge, and P. G. Carleton, both of Boston, for plaintiff.

F. H. Nash, of Boston, for defendant.

WAIT, J.

The plaintiff, a mutual insurance company, seeks to compel the defendant, a national bank, to account for and pay over to it the amount of twenty checks drawn on the Boston Safe Deposit and Trust Company by one Jackson, the then treasurer of the plaintiff, payable to his order as an individual and deposited by him in his personal account in the bank. It is agreed that:

‘Throughout the year 1924 and for several years before the plaintiff had a deposit account subject to checks drawn by Jackson as treasurer in the Boston Safe Deposit & Trust Company of Boston. Throughout 1924 and for several years before, Jackson had a deposit account of his own with the defendant. He appropriated funds of the plaintiff to his own use by drawing as treasurer from time to time 20 checks on the bank account of the plaintiff with the Boston Safe Deposit & Trust Company, each of which was made payable by him to his own order, indorsed by him, ‘For deposit, C. S. Jackson,’ and deposited by him on his personal account with the defendant. The proceeds were then checked out by him from time to time for his own purposes and benefit. There was no limitation known to the defendant upon Jackson's authority to draw checks as treasurer, except such as the law would impose. * * * The defendant in the ordinary course of business credited the checks in the above list to Jackson's personal account and promptly presented them through the clearing house to the drawee which immediately paid them and charged them against plaintiff's account and once a month sent them to plaintiff with a statement of account in an envelope addressed to Jackson, who concealed these checks from the plaintiff's other officers and employees. Jackson also deposited on his personal account with the defendant from time to time other funds not derived from checks drawn on plaintiff's bank account. The defendant never received any part of the proceeds of the checks in the above list for its own use or in payment of any indebtedness to it but paid out the amounts from time to time upon Jackson's checks. Jackson's account was never overdrawn and defendant never made any charge to him for banking privileges. The defendant acted throughout in good faith and had no konwledge or notice of any want of authority or improper conduct on the part of Jackson unless chargeable with knowledge or with want of good faith from the form of the checks and the other facts' which are referred to in this opinion.

The checks were deposited at various times: Two in each of the months January, February, April, June, and July; one in May, September, and November; four in August; and three in October, 1924. Nine of them were for $1,000 each; four for $2,500 each; three for $1,500 each; two for $2,000 each; one for $5,000; and one, the first, dated January 3, 1924, for $13,500. They bore consecutive numbers from A 1981 through A 1996, and from A 2474 through A 2477; but those bearing the higher numbers were deposited before those bearing the lower ones. Each check bore on its face at the left-hand side a ruled space for an account with the heading, ‘By indorsement this check is accepted in full payment of the following account,’ and, at the foot, the words, ‘If incorrect please return. No receipt necessary.’ In this space Jackson had written the word ‘Securities.’ A transcript of Jackson's account with the bank was in evidence. His wrongful misapplication of the plaintiff's funds to his own purposes was discovered in December, 1924.

[1] The law is settled that:

‘A banker having no interest in the matter, who pays out...