Graham v. Southington Bank & Trust Co.

• Decision Date: 27 July 1923
• Citation: 99 Conn. 494,121 A. 812
• Parties: GRAHAM v. SOUTHINGTON BANK & TRUST CO.
• Court: Connecticut Supreme Court

121 A. 812

99 Conn. 494

GRAHAM v. SOUTHINGTON BANK & TRUST CO.

Supreme Court of Errors of Connecticut.

July 27, 1923

Appeal from Superior Court, New Haven County; James H. Webb, Judge.

Action by Charles E. Graham, receiver of the Rowe Calk & Chain Company, against the Southington Bank & Trust Company. Judgment for defendant, and plaintiff appeals. Reversed with directions.

Beach J., dissenting.

The last clear chance doctrine is not applicable to the law of equitable estoppel by conduct based on implied knowledge.

The finding discloses the following facts, among others: The plaintiff, in April, 1920 was appointed receiver of a corporation. He appointed one W. D. Chase as his managing agent of the business and notified the defendant of this fact. The receiver carried deposit accounts in the Merchants' National Bank of New Haven and with the defendant. He conferred authority on Chase to sign checks upon these accounts, and notified the defendant of this fact. About June 1, 1920, Chase appointed one Herman Eyring auditor and head of the accounting department. It was the duty of the accounting department to take care of the posting of the books of the company, to indorse all checks received from third parties, to see that deposits were made in the various bank accounts of the receiver and to make out deposit slips in connection therewith, to procure the cash necessary for pay rolls and for petty cash from the defendant bank, upon checks of plaintiff or Chase made payable to Eyring's order, to fill out the body of all checks to be signed by the plaintiff or said Chase, and to get the monthly statements rendered by the banks and check same up with the books.

Eyring indorsed all incoming checks for deposit, and determined whether such checks should be deposited in the defendant bank or in the Merchants' National Bank of New Haven; Eyring determined when funds should be transferred from one bank to the other and made out the checks for such transfer.

At no time prior to February 27, 1922, did the plaintiff or his managing agent, said Chase, notify the defendant of any limitation on the authority of Eyring with relation to his dealings with the defendant, other than that Eyring had no authority to sign checks in behalf of the plaintiff.

From time to time during the receivership, various amounts were drawn from the receiver's account with the Merchants' National Bank of New Haven and deposited to the credit of his account with the defendant. The transfer of funds from the Merchants' National Bank of New Haven to the defendant was made by drawing a check, signed either by the plaintiff or said Chase, upon the Merchants' National Bank, made payable to the order of the defendant. Between March 29, 1921, and August 9, 1921, eleven checks so drawn from sums averaging about $200 each were duly presented to the defendant by Eyring for deposit and were accepted by the defendant and credited to the account of plaintiff as deposits. From July 20, 1921, to February 23, 1922, fifty-six checks, drawn by the plaintiff upon the Merchants' National Bank of New Haven and made payable to the order of the defendant, were presented by said Eyring to the defendant and cashed by it. Eyring had no express authority from plaintiff or Chase to procure cash on any of these checks or to procure cash on any checks except those made payable to his own order. these checks were indorsed by Eyring on the back thereof before he presented same to defendant and requested the cash thereon. Prior to July 20, 1921, the defendant had never cashed for Eyring any check signed by the plaintiff or Chase, made payable to any one other than to Eyring.

The first of the checks thus fraudulently cashed by the plaintiff's agent, Eyring, was dated July 20, 1921, and was for the sum of $50.

The plaintiff was not indebted to the defendant on July 20, 1921 or at any other time from July 20, 1921, to February 27 1922. There was no circumstance apparent to the defendant or existent in fact requiring any transfer of funds from the plaintiff's account in the Merchants' National Bank of New Haven to the plaintiff's account in the defendant bank.

The check for $50 dated July 20, 1921, did not indicate on its face the purpose for which it was intended, and was accompanied by no deposit slip or other written memorandum indicating such purpose; the sole information given to the defendant as to the purpose of the check was given orally by the plaintiff's agent, Eyring, with whom alone the defendant customarily dealt in all matters affecting the plaintiff's account. This check, when returned by the Merchants' Bank plainly showed both the cash stamp on its face and, by the personal indorsement of Eyring on its back, that the defendant had cashed the same and delivered the cash to the plaintiff's agent, Eyring.

Subsequent to the cashing of the check dated July 20, 1921, the first statement rendered by the defendant to the plaintiff was a statement rendered on or about Sept. 1, 1921, which was the statement of the plaintiff's account with the defendant for the months of July and August, 1921.

No instructions as to these checks were ever given to the defendant except the oral instructions given by the plaintiff's agent, Eyring. Each of the fifty-six checks, with two exceptions, when returned by the Merchants' Bank plainly showed that all the fifty-six checks were cashed by the defendant without any direct inquiry being made of the plaintiff personally or of Chase personally as to the authority of Eyring to so cash them.

On or about the 1st of every month from July 1, 1921, to March 1, 1922, monthly statements and vouchers setting forth the checks debited and the deposits credited to the account of the plaintiff were sent to the plaintiff by the defendant.

None of the monthly statements were ever seen or examined by the plaintiff personally or by said Chase personally until shortly prior to February 27, 1922.

Even a very casual comparison of the checks thus signed by the plaintiff or his managing agent (or of the stubs for the same) to effect a transfer of funds from the plaintiff's account in the Merchants' National Bank of New Haven to the plaintiff's account in the defendant bank, with the deposits credited to said account in the defendant bank during any month, would have disclosed that many of the fifty-six checks had not been deposited to the account. Even a casual examination of the canceled checks returned monthly by the Merchants' National Bank of New Haven would have disclosed that the fifty-six checks were being cashed by Eyring.

Neither the plaintiff nor his managing agent, Chase, prior to said February, 1922, ever examined or made any effort to examine any of such bank statements rendered by the Merchants' National Bank of New Haven or by the defendant, or any of the canceled checks returned by either of the banks, but left the examination of the same wholly to Eyring, and in no manner supervised or attempted to supervise such examinations by Eyring.

On or about February 5, 1922, Chase, as a result of reports that he had heard as to Eyring's spending large sums of money, made an attempt to discover if there was any way in which Eyring had been getting money to which he was not entitled.

On March 31, 1922, the plaintiff made demand in writing upon the defendant for the payment to him by the defendant of the sum of $6,395, the total of the fifty-six checks, but the defendant refused to pay and never has paid the same to the plaintiff.

The court below drew the following conclusions from the facts:

(1) The course of conduct between the plaintiff and the defendant prior to July 20, 1921, as set forth in the finding, justified the defendant in the conclusion that said Eyring was a trusted employee of the plaintiff, charged with the performance of all duties in connection with the plaintiff's bank accounts except that of actually signing checks.

(2) Under the circumstances as set forth in the finding, the amount of the first check presented by said Eyring to be cashed would not indicate that it was designed to prevent or make good an overdraft or to transfer funds from the bank upon which it was drawn to the plaintiff's account with defendant.

(3) Because of the continued course of conduct established prior to July 20, 1921, between the plaintiff and the defendant as set forth in the finding, defendant was not negligent in cashing the first check presented on Eyring's request.

(4) Defendant was not negligent in cashing any of the checks set forth in Exhibit A.

(5) Eyring's irregular conduct in conducting the financial affairs of the plaintiff would have been disclosed by an examination by the plaintiff of the canceled vouchers returned from the Merchants' National Bank of New Haven.

(6) Eyring's irregular conduct in conducting the financial affairs of the plaintiff would have been disclosed by an examination and comparison by the plaintiff of the disbursements and receipts cash books of the plaintiff.

(7) The exercise of ordinery prudence and reasonable oversight by the plaintiff ought to have disclosed Eyring's frauds long before they were disclosed.

(8) The loss arising from Eyring's dishonesty did not result in any degree from the defendant's negligence.

(9) The loss arising from Eyring's dishonesty resulted solely from the unbounded confidence reposed in him by the plaintiff, and the failure of the plaintiff to exercise such prudent oversight of his conduct as would have exposed his wrongdoing.

Ralph H. Clark, of New Haven, for appellant.

Ralph O. Wells, of Hartford, for appellee.

CURTIS, J. (after stating the facts as above).

The plaintiff is a receiver of a manufacturing corporation which was doing business in...