Morgan v. United States Mortgage & Trust Co.

• Decision Date: 22 April 1913
• Citation: 208 N.Y. 218,101 N.E. 871
• Parties: MORGAN et al. v. UNITED STATES MORTGAGE & TRUST CO.
• Court: New York Court of Appeals Court of Appeals

208 N.Y. 218

101 N.E. 871

MORGAN et al.

v.UNITED STATES MORTGAGE & TRUST CO.

Court of Appeals of New York.

April 22, 1913.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by J. Hewitt Morgan and Rudolph H. Kissell, as trustees under the will of David P. Morgan, deceased, against the United States Mortgage & Trust Company. From a judgment of the Appellate Division (151 App. Div. 898,135 N. Y. Supp. 1128) affirming a judgment for the defendant, plaintiffs appeal. Affirmed.George M. Mackellar, of New York City, for appellants.

Julien T. Davies, Jr., of New York City, for respondent.

HISCOCK, J.

The important question presented on this appeal concerns the obligation of a depositor in a bank to examine his passbook and returned vouchers as a protection against the payment by the bank of forged checks. The action was brought to recover a large amount paid by the respondent on a series of forged checks drawn in the name of appellants and charged to their account. The forgeries were conceded, but the respondent defended against the repayment of the amounts by it paid out on said checks, with the exception of four subject to special consideration, on the ground that appellants had contributed to such payment by their negligence in not examining their passbook and vouchers, and that it had not been guilty of any negligence in paying the checks. The court ruled with the respondent on this defense as matter of law and refused to submit either proposition thus stated to the jury.

The important facts which gave rise to the controversy are as follows: Prior to May 18, 1904, the appellants had opened and maintained with the respondent a deposit account with considerable credit balances. Checks drawn on this account were signed by means of a rubber stamp imprinting the words, ‘Estate of David P. Morgan,’ and authenticated by the actual signature of either trustee. The appellants had in their employ a trusted clerk who was their immediate agent in dealing with the bank. He made deposits, filled out the body of checks, and obtained from the bank the passbook and vouchers and check list whenever the account was balanced. Between May 18, 1904, and May 20, 1905, he forged 28 checks aggregating a large sum and employing in his forgeries the simulated signature of the trustee Morgan. These checks were paid by the bank and together with the genuine ones drawn during the same period were charged to the appellants on the books of the bank. Five times during the period the former's passbook was written up and balanced and on each occasion the checks paid by the bank since the last balancing, together with an itemized statement or list thereof, and the passbook were returned to appellants by delivery to their agent Hennessey. The latter withdrew from the bundle of vouchers and destroyed the checks forged by him and also the check list and then, after delaying as long as convenient, delivered the passbook and the genuine vouchers to Kissell, who understood that the rules of respondent required that the passbook should be balanced every month or two months, and that, after balancing, it was returned with the paid checks as vouchers and with a detailed list thereof.

The estate, through Hennessey as its bookkeeper, kept a journal and ledger containing an account with the bank and from which there were drawn off once or twice during the period in question trial balances. It also had a regular checkbook upon the stubs of which were entered the genuine checks presented to and paid by the bank. Kissell, who seems to have been the more active trustee, never asked for the check list which he knew was returned by the bank when the passbook was balanced up and never examined the balances shown by the passbook and which were struck after payment of the forged checks. He contented himself during the period in question with comparing the genuine vouchers permitted by Hennessey to come into his hands with the checkbook and with the other books of the estate, and which comparison, of course, disclosed no signs of Hennessey's forgeries. The other trustee, in whatever examinations he made, never examined the passbook or the check list. On opening their account the appellants had arranged for the payment of interest thereon at a considerable rate, and the amount of this interest, as credited on the passbook, indicated much smaller balances than appeared on the books of the estate or than would have appeared on the passbook except for payment of the forged checks .

[1] The general rule of law is that a bank may pay and charge to its depositor only such sums as are duly authorized by the latter, and of course a forged check is not authority for such payment.

[2] It is, however, permitted to a bank to escape liability for repayment of amounts paid out on forged checks by establishing that the depositor has been guilty of negligence which contributed to such payments and that it has been free from any negligence. That is the nature of the defense urged in this case.

I shall not consider in detail the evidence by which is to be decided the appellants' claim that the bank itself was negligent . Several reasons are assigned why the question of its negligence at least should have been submitted to the jury. These assignments of negligence involve a consideration of the particular facts disclosed in this case rather than a controversy concerning any principles of law, and I shall therefore content myself with simply stating that, after an examination of all of the evidence, we do not think that there was any which would have justified the jury in deciding that the respondent was negligent in paying the forged checks which are in dispute. It conceded its liability on the checks which were paid by it before and at the date when the passbook was first balanced and returned to the appellants, and the jury determined on a special submission of that particular question that the time which elapsed between the return of this passbook and the payment of the next check thereafter was of sufficient length to give the appellants a reasonable opportunity for an examination and ascertainment of the condition of the account which disclosed the payment of the forged checks.

[3] There then remains the single question already outlined, and which will be discussed, whether the appellants were guilty of negligence, after the lapse of a reasonable time, in not examining their passbook and list of vouchers and ascertaining what they were being charged with and thus discovering the existence of the forged checks. It will be remembered that on five occasions when their account was written up all they did was to compare the genuine vouchers, which their dishonest clerk permitted to...