Hammerschlag Mfg. Co., Inc. v. Importers' & Traders' Nat. Bank

• Decision Date: 10 December 1919
• Docket Number: 46.
• Court: U.S. Court of Appeals — Second Circuit
• Parties: HAMMERSCHLAG MFG. CO., Inc., v. IMPORTERS' & TRADERS' NAT. BANK.

262 F. 266

HAMMERSCHLAG MFG. CO., Inc., v. IMPORTERS' & TRADERS' NAT. BANK.

No. 46.

United States Court of Appeals, Second Circuit.

December 10, 1919

The plaintiff is a corporation organized and existing under the laws of the state of New Jersey and has its principal office in the town of Garfield, in that state. The defendant is organized and existing under the laws of the United States and is a resident and citizen of the state of New York, and has its principal office and place of business in the Southern district of New York. At the times hereinafter mentioned the plaintiff was a depositor in the bank owned and conducted by defendant.

The plaintiff, between August 1, 1913, and October 21, 1914 inclusive, deposited with defendant $659,815.40; and on August 1, 1913, the defendant was indebted to plaintiff in the sum of $21,036.84 upon an account for money deposited with it. Between the dates mentioned the defendant paid to the plaintiff upon its order the amount of $675,702.24. The plaintiff demands in this action the difference between the amounts which defendant received and the amounts paid out to it or on its order, to wit, the sum of $5,150. It appears that checks payable to 'Bearer a/c Exchange' were presented to defendant by the plaintiff's accredited representative and were paid by it, which had been raised by the said accredited representative. It also appears that the increase to which these checks had been raised equaled the balance for which the plaintiff sues.

At the conclusion of the plaintiff's case defendant moved to dismiss the complaint and for the direction of a verdict upon the ground that plaintiff failed to show liability on the part of the defendant bank, and that from plaintiff's own evidence it appeared the defendant bank was free from any liability or fault respecting the raised checks. The motions were granted and a verdict was returned under the court's instructions in favor of defendant.

Louis S. Posner, of New York City, for plaintiff in error.

Henry W. Baird, of New York City, for defendant in error.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

The question which this case presents relates to the right of a bank which has paid raised checks to escape liability for repayment of the amounts so paid by establishing the negligence of the depositor in not examining the passbook and vouchers returned to him by the bank, and in not reporting to the bank without unreasonable delay the errors discovered or which might have been discovered.

In the present case there was no forgery of signatures. It is admitted that the signatures were all genuine. The forgeries consisted in raising the amounts for which the checks were originally drawn, and the alterations were all made by the plaintiff's confidential bookkeeper. He had exclusive charge of the preparation of the checks for signatures, and exclusive charge of the presentation of the checks for signatures. After the signatures were affixed, the bookkeeper would raise the amount of the check and present it to the bank for payment. The alteration of checks by him began in August, 1913, and in June of that year the plaintiff had written the following letter and given it to the bookkeeper, William H. Hooper, who presented it to the paying teller of the bank:

'New York, June 6, 1913.

'Importers' & Traders' National Bank, Broadway and Murray Street, City--Gentlemen: Please accept this letter as authority for payment to our Mr. W. H. Hooper of checks presented by him, drawn to the order of bearer-- signature below.

'Respectfully yours,

(Signed) Hammerschlag Mfg. Co., 'J. D. Goldberg, Vice President.

'Dic. J. D. G/K.

'(Signed) William H. Hooper.'

Each one of the altered checks was altered by Hooper, presented by him, and to him the money on all of them was paid. The amount of the check as originally drawn was erased by an ink eradicator preparation, and as the raised amount was in the handwriting of the one party who wrote the original check there was nothing in the appearance of the check to challenge attention. The protectograph was not used, with a possible exception of one or two of the checks, until after the alteration in amount was made. No book containing checks and stubs was used. The checks were drawn on voucher forms, which were padded, and the amounts were entered in the book as the book of original entry.

A depositor who sends his passbook to be written up, and receives it back with his paid checks as vouchers, is under an obligation to the bank to examine and verify his passbook and vouchers, and report to the bank the errors disclosed.

In Weisser's Administrators v. Denison, 10 N.Y. 68, 61 Am.Dec. 731 (1854), the court declared that a depositor owes the bank no duty which requires him to examine his passbook or vouchers with a view to the detection of forgeries. It also declared that where checks forged by the confidential clerk of the depositor were paid by the bank, charged to the depositor in his bank book, the book balanced and with the forged vouchers, among others, returned to the clerk, who examined them and reported them correct, and the principal did not discover the forgeries until months afterwards, when he immediately informed the bank, the bank could not retain the amount of the forged checks. The more recent authorities in New York, soon to be considered, lay down a quite different doctrine.

In Leather Manufacturers' Bank v. Morgan, 117 U.S. 96, 6 Sup.Ct. 657, 29 L.Ed. 811 (1886), the rule is laid down that the depositor is bound personally or by an authorized agent and with due diligence to examine the passbook and vouchers, and to report to the bank without unreasonable delay any errors that may be discovered; and if he fails to do so, and the bank is misled to its prejudice, he cannot afterwards dispute the correctness of the balance shown by the passbook. It is also held that, if the duty of examination is delegated by the depositor to the clerk guilty of the forgeries, he does not so discharge his duty to the bank as to relieve himself from loss.

In Critten v. Chemical National Bank, 171 N.Y. 219, 63 N.E. 969, 57 L.R.A. 529 (1902), the rule is laid down that a bank depositor owes to the bank the duty of exercising reasonable care to verify returned vouchers by the record kept by him of the checks he has issued, for the purpose of detecting forgeries or alterations; and in that case the court held a bank depositor chargeable with the knowledge of the fraudulent alteration of checks possessed by his clerk to whom he intrusted the examination of the vouchers, and with his negligence or failure in the verification of the accounts, although the clerk happened to be the one who made the alterations, where the comparison of the checks with the stubs in the check book would have disclosed such alterations to an innocent party previously unaware of the forgeries.

In Morgan v. United States Mortgage & Trust Co., 208 N.Y. 218, 101 N.E. 871, L.R.A. 1915D, 741, Ann. Cas. 1914D, 462 (1913), a trusted clerk in the employ of the trustees of an estate, and who was their immediate agent in dealing with the bank, forged 28 checks, aggregating a large sum, which the bank paid. Checks drawn on the account of the estate were signed by a rubber stamp imprinting the words 'estate of David P. Morgan,' and were authenticated by the actual signature of one of the trustees. The clerk who made the deposits filled out the body of the checks, obtained from the bank the passbook and vouchers and check list whenever the account was balanced, and employed in his forgeries the simulated signature of the trustee Morgan. An action was brought to recover the amount paid by the bank on the forged checks. The court held that there could be no recovery; the rule being that a bank is permitted to escape liability for repayment of amounts paid out on forged checks, if it establishes that the depositor has been guilty of negligence which contributed to such payments and that it has been free from any negligence. The negligence which the bank relied upon was the negligence of the trustees in not examining their passbook and list of vouchers, and thus discovering within a reasonable time what they were being charged with. The depositors were in the habit of making an examination, but the examination was incomplete and ineffective. The court declared that if they had examined the check list and passbook, and compared them with their own books, they would have discovered at once the payment and debit to their account of checks which they had not drawn, and the forgeries would have been uncovered. The trustees had relied for verification merely on a comparison of vouchers, without any effort to verify them by comparison with the check list or passbook.

In Myers v. Southwestern National Bank, 193 Pa. 1, 44 A. 280, 74 Am.St.Rep. 672 (1899), the court recognized the duty of the depositor to verify the settlements of his bank book, and held that he could not recover from the bank the loss which he sustained by not doing so. In that case the depositor intrusted to the confidential clerk, who committed the forgeries, the duty of verifying the passbook, and the court held the depositor clearly responsible for the acts and omissions of his clerk in the course of the duties with which he was intrusted.

So in First National Bank of Birmingham v. Allen, 100 Ala 476, 14 So. 335, 27 L.R.A. 426, 46 Am.St.Rep. 80 (1893), it is held to be the duty of the depositor, who has his passbook written up by the bank and receives it back with his paid checks as vouchers, to examine the passbook and vouchers either personally or by an authorized agent, and report to the bank without...