Shipman v. Bank of State York

• Citation: 126 N.Y. 318,27 N.E. 371
• Parties: SHIPMAN et al. v. BANK OF STATE OF NEW YORK.
• Decision Date: 28 April 1891
• Court: New York Court of Appeals

126 N.Y. 318

27 N.E. 371

SHIPMAN et al.

v.BANK OF STATE OF NEW YORK.

Court of Appeals of New York.

April 28, 1891.

Appeal from supreme court, general term, first department.

Wm. Allen Butler, for appellant.

Elihu Root, for respondents.

O'BRIEN, J.

This appeal brings here for review a judgment of over $223,000, recovered by the plaintiffs against the defendant, upon a state of facts fully found and stated by the referee in his report, and in regard to which there is little, if any, serious dispute between the parties. The form of the action is for the recovery of a sum of money which it is claimed the defendant undertook, when accepting the plaintiffs' deposits, to pay to them, or upon their order and direction. It has been found and is admitted on both sides that on the 7th of April, 1884, the plaintiffs had upon deposit to their credit with the defendant the sum of $14,499.08. That from this date to the close of business on the 3d day of October, 1888, the defendant had and received to and for the use of the plaintiffs various other sums of money, deposited from time to time, between these dates, by the plaintiffs with the defendant, amounting in the aggregate to $6,213,586.71. That between the 7th day of April, 1884, and the close of business on the 3d day of October, 1888, the defendant paid to the order of the plaintiffs, on their checks drawn against the balance above stated and the deposits subsequently made, various sums of money, amounting in the aggregate to $6,030,040.29. This would leave a balance due to the plaintiffs by the defendant of $198,045.50, which, with interest, is the sum that constitutes the subject of this controversy. The defendant alleged in its answer that all moneys deposited with it by the plaintiffs were fully paid upon their order, and by checks drawn upon it by them; and, in order to meet and disprove the plaintiffs' claim that there was due to them from the defendant, at the close of business on the 3d day of October, 1888, the sum of $198,045.50, the defendant produced 27 checks, all signed by the plaintiffs and drawn upon the defendant, directing the payment of sums respectively aggregating the total balance above mentioned, and to recover which the plaintiffs brought the action. That the defendant actually paid these checks is not disputed, and the case is thus made to turn upon the question whether they are available to the defendant as lawful vouchers, establishing the fact that the moneys claimed by the plaintiffs were paid out by the defendant upon these checks according to the order and direction of the plaintiffs.

A clear understanding of the question involved requires a brief statement of the facts and circumstances under which these 27 checks were signed by the plaintiffs and presented to and paid by the defendant. The plaintiffs are a well-known law firm in the city of New York, engaged in an extensive business, which, in its organization, had a department known as the ‘Real Estate Department.’ In this branch of their business they examined titles for clients who were lenders of money on bond and mortgage, carried out and completed such loans, and occasionally examined titles for clients who were purchasers of real estate. One of the members of the firm had general charge of this department, but the details of the business and the execution of the work were intrusted to subordinates. One James E. Bedell, a lawyer who had been admitted to the bar in the year 1868, and had been in the employ of the plaintiffs since 1873, assisting in the real-estate department, was, in the year 1881, practically put in charge of the work of this department, under the direction of the member of plaintiffs' firm who had the general charge. Bedell was an experienced and capable lawyer. The plaintiffs believed that he was honest and trust worthy, and, prior to the discovery of the very extraordinary crime in connection with these checks, they had no reason whatever to suspect or distrust him. During the period covered by the transactions in question the plaintiffs employed one Dodge, a competent expert book-keeper, who took charge of the plaintiffs' books, and acted as cashier. He kept the account between the plaintiffs and defendant. He filled out all the checks and made all the entries in the check-books, and the checks, when paid by defendant, came to him with the pass-book, which was balanced by the defendant, and the vouchers, including the checks in question, returned with the book, from time to time, at frequent intervals. The course of the business in which the checks in question were issued was substantially as follows: The plaintiffs' client, who wished to make a loan through them, furnished the money, which went directly into the plaintiffs' general bank account with the defendant. Against the sum to be loaned, and thus put to the plaintiffs' credit, checks were filled up by Dodge, the cashier, from a written statement made by Bedell, showing the amount required to pay liens or charges on the property to be mortgaged, the amount of the plaintiffs' charges, and any other items entering into the transaction, and the balance to be paid the borrower. After filling up the checks, Dodge would take the check-book, with the filled-up checks, to a member of the firm for signature, showing him the entries in the checkbook of the deposit of the client's money, and the statement of Bedell as to the payments to be made; and thereupon the checks would be signed by the plaintiffs, in the name of the indivisual partner to whom it was presented by Dodge, the firm name being engraved on each check and the individual signature underwritten. Dodge would then take away the check-book, and deliver the several checks to Bedell. In this manner the 27 checks in question were intrusted by the plaintiffs to Bedell, their clerk, for delivery to the payees, respectively, therein named, who were in good faith believed by the plaintiffs to be real persons entitled to receive the amount of said checks, respectively, from them or their clients. The defendant paid the checks to a third person, upon an indorsement thereon of the payees named, forged by Bedell, who converted the proceeds to his own use. The names of the payees written in 16 of the 27 checks, drawn for sums aggregating $112,818.72, were not the names of real, but fictitious, persons. The remaining 11 checks, drawn for sums aggregating $85,227.08, were made payable to the order of real persons, whose indorsements were in every case forged by Bedell. Only three of the checks, drawn for less than $2,400, were paid to Bedell by defendant. All the others were deposited, from time to time, in various other banks in the city of New York, and the money thereon received by Bedell from these banks, and the checks all ultimately paid by defendant through the exchanges in the clearing-house, in the due and regular course of business. As to the 16 checks payable to the order of fictitious persons, the plaintiffs were led by fraudulent contrivances and representationson the part of Bedell, the details of which appear in the record, to believe, and they did in fact believe, until the discovery of the forgeries, that such payees were real persons; and as to all the checks the plaintiffs did not intend that any of them should go into circulation, or should be paid by the defendant, otherwise than through a delivery to and indorsement by the payee named therein. The checks were paid in every case by the defendant without any inquiry as to the genuineness of the indorsements, and in reliance upon the responsibility of the parties presenting the same, and not in reliance upon anything done or forborne by the plaintiffs, except that they were signed by them. There is no claim that, at the time the defendant paid the checks, it had any knowledge or suspicion or reason to suspect that any of the indorsements were forged, or that any of the names were fictitious, or that there was any fraud or irregularity in respect to any of the checks, or any indorsement or writing thereon. The plaintiffs' confidence in Bedell, and his representation of them in all their dealings with clients, concerning loans on real estate, continued without interruption until one of these clients, upon examining a fabricated mortgage sent to him by Bedell, had his attention arrested by the faintness of the impression of the seal of the register on the certificate of record, so that he sent the mortgage to the register's office for a better sealing. This led to the discovery of all the frauds, forgeries, fabrications of documents, attestations, and official certificates carried on by him in the plaintiffs' office for more than four years. The plaintiffs did not discover that the indorsements on the checks had been forged, or that the amount thereof had not been paid to them or their order, until nearly four months after May 22, 1888, which was the date of the last check so forged. On the discovery of the facts, and before the commencement of this action, the plaintiffs tendered the checks to the defendant, and demanded that the amount of the same should be paid to them or credited in their account by the defendant, which tender and demand were refused.

The various deposits of money, made from time to time by the plaintiffs with the defendant, created the relation of debtor and creditor, and the law implies a contract on the part of the defendant to disburse the money standing to the plaintiffs' credit only upon their order and in conformity with their directions. The defendant is not entitled to charge against the plaintiffs' account any sums as payments, unless they have been made to such persons as the plaintiffs directed. Such payments as were made without the order of the plaintiffs of their funds by the defendant afford to it no protection, when called upon by the plaintiffs to account for the money deposited. Payments made upon forged indorsements are at the peril of...