Emerado Farmers Elevator Co. v. Farmers Bank of Emerado
| Decision Date | 28 June 1910 |
| Citation | 127 N.W. 522,20 N.D. 270 |
| Court | North Dakota Supreme Court |
Appeal from District Court, Grand Forks county; C. F. Templeton, J.
Action by Emerado Farmers Elevator Company against The Farmers Bank of Emerado, to recover a balance alleged to have been received by it upon deposit. Plaintiff had judgment, and defendant appeals.
Affirmed.
Eangs Cooley, and Hamilton, for appellant.
When an agent has been guilty of fraud for his own benefit by which he intended to and did defraud his principal, and possibly others, and the perpetration necessarily involved concealment from his principal, the latter is not chargeable with constructive notice of facts so concealed. 2 Pom. Eq. Jur § 675; United Secur. L. Ins. & T. Co. v. Central Nat. Bank, 185 Pa. 586, 40 A. 97; Benedict v Arnoux, 154 N.Y. 715, 49 N.E. 326; Produce Exch. & T. Co. v. Bieberbach, 176 Mass. 577, 58 N.E. 162; Knobelock v. Germania Sav. Bank, 50 S.C. 259, 27 S.E. 962; National Bank v. Munger, 36 C. C. A. 659, 95 F. 87.
The determination of this case should be controlled by Gunster v. Scranton Illuminating, H. & P. Co. 181 Pa. 327, 59 Am. St. Rep. 650, 37 A. 550.
Scott Rex, for the respondent.
Bank's knowledge that money paid by it was to be misappropriated would prevent a recovery. Zane, Banks & Bkg. §§ 136, 143; First Nat. Bank v. New Milford, 36 Conn 93; Manhattan Bank v. Walker, 130 U.S. 267, 32 L. ed. 959, 9 S.Ct. 519; Lamson v. Beard, 45 L.R.A. 822, 36 C. C. A. 56, 94 F. 30.
Notice to its cashier is notice to the bank. Chase v. Redfield Creamery Co. 12 S.D. 529, 81 N.W. 951; Willard v. Monarch Elevator Co. 10 N.D. 400, 82 N.W. 996; Sykes v. First Nat. Bank, 2 S.D. 242, 49 N.W. 1058; Wyckoff v. Johnson, 2 S.D. 91, 48 N.W. 837; Stebbins v. Lardner, 2 S.D. 127, 48 N.W. 847; Union Nat. Bank v. Moline, M. & S. Co. 7 N.D. 211, 73 N.W. 527; Farmers' & T. Bank v. Kimball Mill. Co. 1 S.D. 388, 36 Am. St. Rep. 739, 47 N.W. 402.
Where the cashier is the sole managing agent, his knowledge is the knowledge of the bank that he represents. First Nat. Bank v. New Milford, 36 Conn. 93; Morris v. Georgia Loan, Sav. & Bkg. Co. 109 Ga. 12, 46 L.R.A. 506, 34 S.E. 378; Wiggins v. Stevens, 33 A.D. 83, 53 N.Y.S. 90; Daniels v. Empire State Sav. Bank, 92 Hun, 450, 38 N.Y.S. 580; National Bank v. Munger, 36 C. C. A. 659, 95 F. 87; Holden v. New York & E. Bank, 72 N.Y. 286; Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 9 Am. St. Rep. 698, 17 N.E. 496; First Nat. Bank v. Dunbar, 118 Ill. 625, 9 N.E. 186; First Nat. Bank v. Blake, 60 F. 78; Niblack v. Cosler, 74 F. 1000; Bolles, Bkg. § 14, pp. 416 & 422; Hobbs v. Boatright, 195 Mo. 693, 5 L.R.A.(N.S.) 906, 113 Am. St. Rep. 709, 93 S.W. 934; Cook v. American Tubing Co. 28 R. I. 41, 9 L.R.A.(N.S.) 193, 65 A. 653.
The complaint in the action in which this appeal is taken alleges that respondent, who is a corporation engaged in the grain elevator business at the village of Emerado, North Dakota, had carried for two years and more prior to the beginning of the action, an open account on deposit with appellant, which was, during that period, engaged in a general banking business at the same place; that during said period appellant had paid out for respondent on checks drawn on its said account portions of its moneys, and that at the beginning of the action there still remained to respondent's credit the sum of $ 3,044.02, which balance was payable on demand; that demand had been duly made and payment refused. The answer of appellant admits the allegation of an open account on deposit by respondent, but denies that there remains a balance of such deposit to respondent's credit in any sum whatever; and further alleges, as a counterclaim, that during the continuance of the account between appellant and respondent as aforesaid, appellant honored checks of respondent duly issued by it to an aggregate amount of $ 3,257.97 in excess of all sums received from respondent, by deposit or otherwise; and prays judgment for the recovery of the amount of such overdraft in the sum alleged.
By undisputed facts shown upon the trial, it appears that on June 19th, 1907, there stood to respondent's credit on the books of appellant bank a balance of $ 6,660.98; that between that date and October 3d, 1908, there were further sums deposited by appellant, which, including such balance, aggregated the sum of $ 146,682.49; and that during said period there was paid out for respondent upon checks duly drawn and presented to appellant sums aggregating $ 143,638.47, leaving a balance of $ 3,044.02, the sum for which suit is brought.
It further appeared that at all times from the fall of the year 1905 until his death by suicide, on or about the first day of October, 1908, one John Hempstead was secretary and treasurer of respondent corporation, and as such had authority, and it was a part of his official duties, to receive its moneys and deposit them with appellant to respondent's credit. It also was his duty as treasurer of respondent upon presentation to him of proper vouchers therefor to pay its debts and obligations, and he was duly authorized to draw checks upon respondent's bank account with appellant for that purpose.
It also appeared that from December, 1902, until the time of his death, Hempstead was one of the directors and cashier of appellant bank. On August 15th, 1907, Hempstead, as treasurer of respondent Elevator Company, drew two certain checks, one in the sum of $ 2,000 and the other in the sum of $ 1,768, on which checks appellant, under the designation of "Farmer's Bank," was named as payee, and on August 17th, 1907, charged the amount of said checks against respondent's account on the books of the bank. On May 8th, 1908, Hempstead, as treasurer, drew another check for the sum of $ 2,333.99, in which also appellant was the payee named, and on May 9th charged that sum against respondent upon the books of the bank. All three of these checks bear the bank's stamp, "paid" upon their face as of the date of their issuance. On the quality of these three checks depends the entire issue between appellant and respondent in this case. If they were properly chargeable against respondent's account, then the claim of the Elevator Company against appellant is fully paid, and appellant is entitled to recover as an overdraft the amount prayed for in its counterclaim. On the other hand, if the checks are worthless and their aggregate amount is not a legitimate charge against respondent, appellant concededly is indebted to it in the amount claimed in its complaint.
It was shown to have been the usual practice of Hempstead during the period that he was acting as treasurer for respondent to receive over the counter of the bank grain tickets issued by the operating agent of the Elevator Company at Emerado, and to pay them in cash with the moneys of the bank. During these seasons of the year when grain was being marketed in considerable quantity, a number of such tickets would be presented in the course of a day; and at the close of the day's business in order to adjust accounts between the Elevator Company and the bank, Hempstead would draw a check for the aggregate amount of the tickets issued during the day, payable to the bank, and sign the same as treasurer of the Elevator Company. A large number of checks drawn in this manner were shown upon the trial. It appears, however, that the three checks in question, although drawn in the same form as the others, were not placed by Hempstead with the checks of the Elevator Company, but were kept in a separate drawer, and were not noted by him in any manner upon respondent's books of account. The existence of these checks was therefore unknown to the Elevator Company until after Hempstead's death and a consequent examination of the bank's books and papers.
It further appeared at the trial that at the time the three checks in question were drawn, marked paid and charged against the Elevator Company upon the books of the bank, there was no indebtedness due from the Elevator Company to the bank in that sum or in any sum whatever. It also appeared that after the time of Hempstead's death, upon an examination of his account with the bank, there was a cash shortage of $ 800 or more; that false certificates of deposit aggregating several hundred dollars had been issued by Hempstead to certain depositors. Shortages and irregularities also appeared in the accounts with other banks during the period in which Hempstead was cashier, and in his account with a school district, of which he was treasurer. During his lifetime these shortages were covered by false entries or by some means not clearly shown, which prevented their disclosure upon the books of the bank. It seems apparent from the facts shown that for a period of at least two years before his death, Hempstead had dealt fraudulently with several of the different funds intrusted to him, and manipulated his accounts in such manner as to present a fair showing while he misappropriated and used for his own benefit very considerable sums.
Upon the trial appellant introduced the testimony of Hempstead's successor, as cashier, to the effect that so far as shown by the books and papers of the bank it had received no benefit from the three checks issued by Hempstead and charged against respondent's account upon its books that the books of the bank, at the dates on which these entries were made, balanced exactly, a status that would not have existed if the cash account of the bank was intact at those dates and had been increased by the receipt of the amount of money shown by the checks or of any sum whatever. It also appeared that at all times prior...
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