First Nat Bank of Philadelphia v. Farrell

• Decision Date: 04 January 1921
• Docket Number: 2562.
• Citation: 272 F. 371
• Parties: FIRST NAT. BANK OF PHILADELPHIA v. FARRELL et al.
• Court: U.S. Court of Appeals — Third Circuit

272 F. 371

FIRST NAT. BANK OF PHILADELPHIA v. FARRELL et al.

No. 2562.

United States Court of Appeals, Third Circuit.

January 4, 1921

Rehearing Denied April 25, 1921.

Joseph S. Clark and Owen J. Roberts, both of Philadelphia, Pa., for plaintiff in error.

Henry A. Rubino, of New York City, and J. Howard Reber and Percival H. Granger, both of Philadelphia, Pa., for defendants in error.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY Circuit Judge.

The judgment brought here by this writ of error was entered by the District Court for want of a sufficient affidavit of defense upon pleadings drawn to state a case of undisputed facts and to present only issues of law. We shall speak of the parties as they stood in the court below, and shall give only the main facts of the case in an endeavor to avoid the confusion which has arisen from the number and complexity of their details.

The plaintiffs had for many years been engaged in the business of selling commercial paper. They operated from a main office in Boston through branch offices in other cities, one of which was in Philadelphia. The Philadelphia office was opened in March, 1910, with M. T. Snyder as their agent.

The course of business was briefly this: The plaintiffs sent Snyder commercial paper to sell to local banking institutions. When Snyder made a sale he was required immediately to report the same by telegraph or telephone to the plaintiffs at Boston and deposit the proceeds-- invariably the purchaser's check or draft drawn to the plaintiffs' order-- to the credit of their account with the Girard National Bank of Philadelphia. Such deposit was required to be made by two deposit slips, an original and duplicate; the original, giving the name of the maker of the check, the amount thereof, and the total, if the deposit included several checks, to be retained by the bank; the duplicate, showing the same entries, to be stamped by the receiving teller and returned to Snyder for transmission to the plaintiffs, thereby showing that the proceeds of the sale previously reported had been deposited. Snyder had no power to draw on this account.

Later in 1910, the plaintiffs opened an account with the Merchants' National Bank of Philadelphia. A short time afterward this bank merged with the First National Bank of Philadelphia, the defendant in this action, the latter bank at the same time taking over the account. This account standing always in the name of Weil, Farrell & Co., was a petty cash account opened by the plaintiffs upon a deposit of $1,000 for the use of Snyder in meeting the expenses of the Philadelphia office. Against this account Snyder was authorized to draw checks for limited sums under a power of attorney made by the plaintiffs and lodged with and accepted by the defendant bank as the terms on which it carried the account. The power of attorney, so far as it is pertinent to this case, is as follows:

'Know All Men By These Presents, That we, Weil, Farrell & Co., do make, constitute and appoint M. T. Snyder our true and lawful attorney for us and in our name--

'(1) To draw checks against our account in the Merchants' National Bank of Philadelphia, Pa., in no event to draw in excess of $1000 at any one time * * * and to have full authority to manage and make settlement of said account.'

'(2) To endorse notes, checks, drafts, or bills of exchange, or other instruments of writing for deposit as cash, or for collection, in the Merchants' National Bank of Philadelphia, Pa.'

It thus appears that in the conduct of the plaintiffs' banking business, Snyder, their agent, had authority to deposit without limit to the credit of, but not to draw in any amount upon, their account with the Girard National Bank; and that he had authority to make deposits in any amount to the credit of their account with the First National Bank, the defendant, and to draw against the same as often as he chose in an amount not in excess of $1,000 at any one time. Under this arrangement Snyder conducted in an orderly way the plaintiffs' business with the two banks until April, 1915, when, desiring to embark in speculation, he conceived a scheme whereby he could obtain the use of his principals' money for short periods as it flowed from purchasers of commercial paper through the banks to the plaintiffs in Boston.

Snyder's scheme was this:

When his principals sent him commercial paper, Snyder had to account for it either as unsold or sold. If sold, he was required to account for the proceeds by sending to the plaintiffs the stamped duplicate deposit slip of the Girard National Bank, evidencing deposit of such proceeds with that institution. Having no power to draw on this account, Snyder, in order to use the plaintiffs' money, had to get it before it reached this account. Therefore, instead of depositing the proceeds of sales of negotiable paper to the credit of the plaintiffs' main account with the Girard National Bank as he should have done, he deposited the same, or much of them, to the credit of the plaintiffs' petty cash account with the First National Bank, the defendant. Having authority under the power of attorney to draw against this account by as many checks as he chose, but never at any one time for a sum in excess of $1,000, he could have drawn from the defendant bank by checks within that limit all the money he there deposited to the credit of the plaintiffs. But, as his speculative transactions were large and as his deposits made to meet them were correspondingly large, drafts by a great number of checks for small amounts would inevitably have excited suspicion. He therefore drew against the plaintiffs' account with the defendant bank (thus augmented) by checks substantially larger in amount than those authorized by the power of attorney. These checks the bank honored.

By this means Snyder drew for his personal use large sums of money from the plaintiffs' account with the defendant bank. But money thus obtained had to be used quickly and had to be restored or replaced by other money, because in the plaintiffs' method of doing business the proceeds of negotiable paper which Snyder had reported as sold were required presently to appear by duplicate deposit slip to have been deposited in the Girard National Bank. Such deposit was imperative upon Snyder. To make it he had to have money. He found the money by appropriating the proceeds of later sales, and, depositing them with the Girard National Bank, he reported such deposits as the proceeds of earlier sales. He did this in one of two ways, and, when under the necessity of forcing figures, he did it in both ways. They were these: First, he deposited with the Girard National Bank the check of a purchaser in a later transaction, drawn as always to the order of the plaintiffs, properly noted as to name and amount on the original deposit slip, making the duplicate deposit slip show the same money entries as the original but leaving it blank as to the name of the maker of the check. Such duplicate, showing correctly the amount deposited but being mute as to the maker of the check deposited, the paying teller of the Girard National Bank stamped in evidence of the deposit made, and on its return to Snyder he falsified it by filling in the blanks with the name of the purchaser of a previously reported sale. Or second, Snyder drew a check for an amount in excess of $1,000 on the plaintiffs' account with the defendant bank and deposited it to the credit of the plaintiffs' account with the Girard National Bank. By the latter move Snyder would, of course, get none of the plaintiffs' money, but he would thereby be able to make the necessary deposit to cover earlier sales, or to force the figures properly to correspond.

Transactions of this character carried Snyder over for only a few days at a time, but during such short periods he was able to use the plaintiffs' revolving funds in an amount which remained constant at between $90,000 and $100,000. Obviously he was required to repeat these transactions again and again in order to keep himself in speculative funds and to keep a few days ahead of exposure.

These transactions, running from July, 1915, to May, 1917, grew in bulk to 382 checks, each in excess of $1,000, honored by the defendant bank in violation of the plaintiffs' power of attorney, and aggregated the astonishing sum of $3,161,981.74.

After discovery the plaintiffs brought this action against the bank to recover a book balance of $751.96 admittedly due, and the sum of $92,750, the amount which they claimed should have remained to their credit had the defendant bank observed their power of attorney and had not honored checks in excess of the authority there conferred and limited; first, however, giving the defendant bank credit for all moneys paid on checks unlawfully honored in excess of $1,000 which had ultimately reached them through redeposit with the Girard National Bank. On these items with interest, less a small credit not in issue, the trial judge, sitting without a jury, entered judgment for $94,445.26. 263 F. 778. To this judgment the instant writ is directed.

Of the several questions involved the first arises out of a defense made to the whole action. By the power of attorney under which the plaintiff depositors opened and the defendant bank carried the account, Snyder, the plaintiffs' agent, in addition to the power to draw checks in limited amounts, was given 'full authority to manage and make settlement of said account. ' Pursuant thereto the bank rendered monthly statements to Snyder, who, under the authority thus conferred, examined and approved the same without submitting them to the plaintiffs. Had they been received and examined by the plaintiffs they would have disclosed...