Mut. Assur. Co. of City of Norwich v. Norwich Sav. Soc.

• Decision Date: 09 January 1942
• Citation: 24 A.2d 477,128 Conn. 510
• Court: Connecticut Supreme Court
• Parties: MUTUAL ASSUR. CO. OF CITY OF NORWICH v. NORWICH SAV. SOC.

24 A.2d 477

128 Conn. 510

MUTUAL ASSUR. CO. OF CITY OF NORWICH

v. NORWICH SAV. SOC.

Supreme Court of Errors of Connecticut.

Jan. 9, 1942.

Rehearing Denied Feb. 17, 1942.

Appeal from Superior Court, New London County; Dickenson, Judge.

Action by the Mutual Assurance Company of the City of Norwich against the Norwich Savings Society for a balance alleged to be due plaintiff on its deposits with defendant. Judgment for plaintiff after trial to the court, and defendant appeals.

Error, judgment set aside, and case remanded, with direction.

Before MALTBIE, C. J., and JENNINGS, ELLS, BALDWIN, and FOSTER, JJ.

Robert P. Anderson, of New London, for appellant.

Arthur T. Keefe, of New London, for appellee.

MALTBIE, Chief Justice.

The plaintiff had on deposit in the defendant savings bank on April 18, 1933, the sum of $20,000, which was properly entered in a deposit book issued to it. No further deposits were made, but interest was from time to time credited upon the book. There were entered in it one large and a number of small withdrawals. On October 1, 1939, the balance on deposit as shown by the book was $10,062.50. The plaintiff brought this action to recover this amount and obtained judgment therefor, with interest. The entries of the account on the books of the bank, however, showed other withdrawals and the bank claimed that the balance due on the account was $3,777.47 plus certain dividends which accrued after October 1, 1940.

The discrepancy between the entries in the deposit book and those upon the books of the bank was due, as the trial court has found, to the following circumstances: Harold P. Hull was, throughout the period in question, secretary and treasurer of the plaintiff and also assistant treasurer of the bank. The deposit book was in his charge and possession except for short intervals when it was delivered to the plaintiff's auditors. The withdrawals not appearing on the book were made by Hull either in cash or by checks of the defendant signed by him as assistant treasurer and made payable to himself, the plaintiff or one of two banks other than the defendant, in one of which the plaintiff carried a commercial account. Hull placed in the defendant's files, to represent these withdrawals, receipts signed in the name of the plaintiff by himself as treasurer. His purpose in making the withdrawals as he did was to cover misappropriation of moneys to his own use. While the last finding is attacked in the assignments of error, it was a reasonable inference which the trial court might properly draw from all the facts in evidence. No material change can be made in the finding.

When Hull took from the defendant's bank cash representing withdrawals or when checks of the bank representing withdrawals were paid by it, if Hull had the authority as an officer of the plaintiff to make them and if they were not improper in view of the purpose and manner in which they were made, the indebtedness of the defendant to the plaintiff was pro tanto discharged; but if Hull lacked authority to make the withdrawals or they were improperly made, the bank, in the absence of ratification or estoppel, remained liable to pay the plaintiff their amount. Graham v. Southington Bank & Trust Co., 99 Conn. 494, 502, 121 A. 812; Goodwin v. American National Bank, 48 Conn. 550; Town of East Hartford v. American National Bank, 49 Conn. 539; Eaves v. People's Savings Bank, 27 Conn. 229, 71 Am.Dec. 59.

There is nothing in the facts proven upon which to base a conclusion that the defendant is chargeable with knowledge of Hull's fraudulent purpose except as that might be imputed to it from his position as its assistant treasurer handling the transactions. The general rule is that knowledge of an agent will not ordinarily be imputed to his principal where the agent is acting adversely to the latter's interest. Resnik v. Morganstern, 100 Conn. 38, 42, 122 A. 910; MacKay v. Aetna Life Ins. Co., 118 Conn. 538, 549, 173 A. 783. Whether Hull in fact intended to misappropriate funds of the bank rather than those of the plaintiff does not matter. Had the bank known of his purpose, he could not have effectuated it. He had every incentive to conceal from it his fraudulent scheme, and his interests were adverse to it within the rule we have stated. There is, however, a situation where that rule is not given effect, even though the agent is acting adversely to the principal. We have had a number of cases where, as in the situation before us, the same person was acting as agent for two principals and sought to benefit himself illegally in a way to affect their interests; and from these cases the rule is deducible that if either party knowingly receives and retains a benefit from the transaction which is tainted with fraud, he cannot claim that benefit and disavow knowledge of the fraud; but, on the other hand, if a party receives no benefit from the transaction, he will not be charged with knowledge of the fraud. First Nat. Bank of New Milford v. Town of New Milford 36 Conn. 93, 101; Town of Fairfield v. Southport National Bank, 80 Conn. 92, 101, 67 A. 471; Davis-Scofield Co. v. Agricultural Ins. Co., 109 Conn. 673, 682, 145 A. 38; First National Bank & Trust Co. v. Manning, 116 Conn. 335, 339, 164 A. 881; and see Restatement, 1 Agency § 282(2) (c), and comment and illustrations pp. 629, 630, one of the latter of which, 11, was apparently based on First Nat. Bank of New Milford v. Town of New Milford, supra; Maryland Casualty Co. v. Queenan, 10 Cir, 89 F.2d 155, 157; Tremont Trust Co. v. Noyes, 246 Mass. 197, 207, 141 N.E. 93; Knobley Mountain Orchard Co. v. People's Bank, 99 W.Va. 438, 129 S.E. 474, 48 A.L.R. 459; note, 111 A.L.R. 665.

The case of Lowndes v. City National Bank, 82 Conn. 8, 72 A. 150, 22 L.R.A.,N.S., 408, is not at variance with this principle. One Layton was cashier and managing officer of the bank, financial director of a foundry company whose credit he was personally interested in supporting and administrator of an estate the funds of which he deposited in its name in the defendant bank. By means of checks on this account payable to and indorsed by him as cashier, he used its funds to take up worthless checks and notes of the foundry company which the tellers of the bank, under instructions from him, had paid, and carried on the books of the bank as cash items. Administrators of the estate subsequently appointed brought an action to recover the moneys so used and we sustained a judgment in their favor. There were circumstances present in that case which might serve to differentiate it from the one before us, as, for instance, that not only Layton but also tellers of the bank knew all the facts, and the latter were not participants in the fraud. But that aside, the situation was that the bank had expended funds of its own in taking up the worthless checks and notes; its coffers were replenished from the funds of the estate; and when sued by the administrators it sought to avoid payment of funds which had been used for its own benefit. We said (page 13 of 82 Conn, page 152 of 72 A, 22 L.R.A.,N.S., 408): "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 couldreceive and retain the fruits of them. Town of Fairfield v. Southport National Bank, 80 Conn. 92, 102, 67 A. 471; Northrop's Ex'rs 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. * * * 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...