Lowndes v. City Nat. Bank

• Decision Date: 04 March 1909
• Citation: 72 A. 150,82 Conn. 8
• Court: Connecticut Supreme Court
• Parties: LOWNDES et al. v. CITY NAT. BANK.

72 A. 150

82 Conn. 8

LOWNDES et al.

v. CITY NAT. BANK.

Supreme Court of Errors of Connecticut.

March 4, 1909.

Appeal from Superior Court, Fairfield County; Alberto T. Roraback, Judge.

Action by Abbie S. Lowndes and others, administrators of Theodore S. Lowndes, against the City National Bank of South Norwalk. Judgment for plaintiffs for a portion of the amount claimed, and both parties appeal. Judgment set aside, and cause remanded, with directions.

Action to recover a claimed balance of a deposit account, brought to and tried by the superior court in Fairfield county. Facts found and judgment rendered for the plaintiff to recover a portion of the amount claimed, and an appeal by both parties.

Clarence Lexow and James H. Webb, for plaintiffs. Edward D. Robbins and John H. Light, for defendant.

PRENTICE, J. Jacob M. Layton, the cashier of the defendant, and its principal executive and managing officer, was on March 31, 1905, appointed and qualified as administrator of the estate of Theodore S. Lowndes, deceased, and continued to act in that capacity until his removal in June, 1906. As such administrator he on April 5, 1905, opened a deposit account with the defendant on behalf of said estate and in the name of "estate of Theodore S. Lowndes." To this account he thereafter at various times down to May 31, 1906, deposited moneys of the estate to the amount of $122,858.75. It is conceded that the checks of Layton, as administrator, against these deposits, were properly honored to the amount of $64,858.75. The balance of $58,000 the plaintiff claims has never been properly accounted for by the defendant, and, having been demanded, is now sought to be recovered as money still due as a withheld deposit. Upon the trial the defendant showed that the whole of this sum had been paid out, by transfers of account or otherwise, upon the checks of Layton, as administrator. The plaintiff, however, contends that the circumstances attending these several payments were such that the defendant was not justified in honoring the checks upon which they were made and charging them to the deposit account of the estate. The circumstances, which in the main are not the subject of dispute, differ somewhat in respect to several classes of the payments. The court, as the result of these differences, held that the circumstances surrounding payments amounting to $39,842.36 were such that the plaintiff was entitled to recover the amount thereof, and that those surrounding the remaining payments were such as justified the bank in paying them upon the checks presented. Both parties have appealed.

The facts disclose that the fiduciary character of the deposits in question was known to the defendant from the beginning. The account was in the name of the estate. Layton's relation to the estate was also known. He was known to be a stockholder in, and director and manager of the financial affairs of, the United States Foundry & Sales Company, and personally interested in supporting its credit. The directors provided for the active conduct of the bank, in addition to Layton, the cashier, a teller and a bookkeeper, the latter of whom acted as teller a portion of each day. During a period of about two months prior to May 23, 1905, the teller, and the bookkeeper when acting as teller, had paid all the checks and notes of the foundry company that were presented to the bank for payment, irrespective of whether or not that company had sufficient funds on deposit to its credit with which to meet them. Had the checks and notes thus paid been charged against the deposit account of the company, it would have been largely overdrawn. They were not so charged, but were carried as cash items, entered up as a part of the teller's cash, and kept in his drawer. On May 23, 1905, a large number of checks and notes of said company so paid, and amounting in the aggregate to $8,560.55, were being so carried as cash. Layton thereupon drew a check payable to himself as cashier for that sum, signed it, "Estate of Theo. S. Lowndes, Jacob M. Layton, Adm.," indorsed it as cashier, delivered it to the teller, and took out of the cash drawer the package of checks and notes therein. The action of the teller and bookkeeper involved in these transactions was taken in conformity with the orders and directions of the cashier, and they were each fully cognizant of all that was done. The same course of procedure was thereafter, by the direction of Layton, and with the knowledge of his two associate officers, followed with the paper of said company and to a limited extent with the paper of two individuals until May 19, 1900. During this time the checks and notes so paid temporarily carried and finally from time to time taken up by Layton by eight checks drawn against the account of said estate carried the total of their number up to about 500 and the total of their amount to $26,842.86. These eight checks were in due course charged against the deposit account of the estate. The checks and notes which were taken up by them were at the time dishonored and of no substantial value. Upon presentment to the bank they had in part been paid in cash over the counter, and in part paid by credits upon the books to the correspondents forwarding them for collection. The latter were never charged back to the correspondents. At various times during this period checks and notes of the foundry company, which had been similarly paid by the bank upon presentation, and were being similarly carried as cash, were taken up by Layton by checks upon his personal account or upon the special account hereafter referred to or with other funds of his own.

The effect of the several transactions thus briefly recited, if permitted, would be that upon the presentation and acceptance of Layton's checks, upon the fiduciary funds on deposit in the defendant bank to the credit of his estate, there would result a transfer of the amount represented by them from those funds into the assets of the bank in substitution for dishonored checks and notes of an equal face value, which, with such rights of action as existed in favor of the bank by virtue of them or of the circumstances which surrounded them, were among its assets. It is of little importance how little or how much promise of return these rights of action held out. They could not be regarded as the legal equivalent of cash in hand. It does not help the situation to say, as the defendant contends, that, in view of the manner in which the transactions were conducted and the dishonored checks and notes carried upon the teller's blotter, they were never owned by the bank, but by the teller, and simply represented a shortage in his cash. In this aspect of the matter the bank had only a right of action against the teller, and the money, when received upon Layton's checks upon the estate's deposit, wiped out the shortage and became substituted for the right of action against the teller—a result beneficial to the bank surely. The trial court was quite right therefore in holding that these attempted transactions would result in a benefit to the bank and a corresponding Injury to the estate whose funds were in its keeping, and in further holding that, such being their character, equity and good conscience would not permit them to be carried into effect, so that the defendant could receive and retain the fruits of them. Fairfield v. Southport National Bank, 80 Conn. 92, 102, 67 Atl. 471; Northrop v. Graves, 19 Conn. 548, 555, 50 Am. Dec. 264. The defendant had knowledge of all that its teller and bookkeeper knew, and that was all the facts of the situation. Farmers' & Citizens' Bank v. Payne, 25 Conn. 444, 450, 68 Am. Dec. 362; Piatt v. Birmingham Axle Co., 41 Conn. 255, 264. It had this knowledge when these checks were presented by Layton. It knew that they were drawn upon a fiduciary deposit account. It knew that they were drawn in respect of matters which did not concern the estate whose funds formed that account. It knew that they were presented to take up dishonored paper, which it had volunteered to pay, and which appeared among its assets, or, as the defendant would say, to extinguish a right of action against its teller arising from official irregularities. It knew the benefit to it and the injury to the estate which would result from their acceptance. Its agents, through whom it acted, in fact knew all this. Its board of directors constructively knew it. The acceptance of the checks as authority for the transfer to the general assets of the bank from the deposit funds of the estate of the amount represented by them, and the attempt to carry that transfer into effect, was therefore to make it a partaker in the fruits of a known fraud, and that, too, the fraud of its own agent. This the most elemental principles of the law forbids, and there is no need for the sustaining of the action of the trial court in rendering a judgment covering those items to resort to any imputation to the bank of knowledge by reason of such knowledge being possessed by Layton, or to any constructive knowledge on its part by reason of the negligence of the directors, in their oversight of the affairs of the bank, which the court has found, or to the principle stated in Fairfield v. Southport National Bank, 80 Conn. 92, 103, 67 Atl. 471, 475, that, "when an agent * * * accepts on his principal's behalf money belonging to and fraudulently obtained from another with knowledge of the fraud, that principal, in treating this money as his own and retaining it as against the true owner, cannot claim as his own the act by which the money was accepted, without also admitting as his own the knowledge with which the act was done"; that "he cannot receive the benefit of the fraud and reject the resulting duty." Town of East Hartford v. American National Bank, 49 Conn. 539, 553.

Two transactions involving the use of checks drawn by Layton upon the estate's deposit in the same general course of...