Swift & Co. v. Bankers Trust Co.

Decision Date28 February 1939
Citation280 N.Y. 135,19 N.E.2d 992
CourtNew York Court of Appeals Court of Appeals
PartiesSWIFT & CO., Inc., v. BANKERS TRUST CO. et al.

OPINION TEXT STARTS HERE

Action by Swift & Co., Inc., against the Bankers Trust Company and others, to recover amount wrongfully paid on forged indorsements of checks. From a judgment of the Appellate Division, 254 App.Div. 666, 3 N.Y.S.2d 923, which affirmed a judgment of Special Term granting summary judgment and dismissing the complaint, plaintiff appeals.

Affirmed. Appeal from Supreme Court, Appellate Division, First department.

Lewis A. Ackley and Franklin Malone, both of New York City, and E. B. Kixmiller and Thomas H. Long, both of Chicago, Ill., for appellant.

Chester Bordeau, of New York City, for appellant and respondent Bankers Trust Co.

John A. Garrity, of New York City, for respondent I-C Bank & Trust Co.

Charles B. McGroddy, Jr., of New York City, for respondent Central Hanover Bank & Trust Co.

LEHMAN, Judge.

The plaintiff, an Illinois corporation, maintains a deposit account in the defendant bank and in other banks in the city of New York. The defendant bank paid checks drawn upon the plaintiff's deposit account to the order of John R. Turley.’ Duly authorized officers of the plaintiff corporation were induced to sign the checks, so drawn, by a clerk in the Voucher Department at the plaintiff's Chicago office. It was the duty of this clerk to approve vouchers or requests for checks received from other departments and to send such vouchers or requests, when properly initialed and approved, to the plaintiff's banking department which would then issue checks in accordance with such approved vouchers or requests. By fraud and trickery this clerk altered some used vouchers by inserting the name John R. Turley in place of the payee originally named and procured checks issued in accordance with the altered vouchers. He indorsed these checks in the name of the payee John R. Turley,’ deposited them in a deposit account, which he controlled, in a bank in Chicago, and collected the proceeds. The plaintiff claiming that the defendant bank paid the checks upon forgedindorsements and wrongfully debited its account with the amounts so paid, has brought this action against the bank.

The facts are undisputed, and both sides moved for summary judgment. The motion of the defendant was granted and the complaint dismissed. The defendant was authorized to disburse moneys standing to the plaintiff's credit only upon the order and direction of the plaintiff. Shipman v. Bank of State of New York, 126 N.Y. 318, 27 N.E. 371, 12 L.R.A. 791, 22 Am.St.Rep. 821. The plaintiff's direction to the defendant was to pay the amount of the checks only upon the order of John R. Turley. The plaintiff was induced to believe that an actual person named John R. Turley was in existence and, acting under that belief, it named him as payee. It had no intention to vest title to the checks in any person other than the payee so named or to authorize any other person to indorse or collect the checks. Intending to name an existing payee, the plaintiff failed in its intention. The defendant bank, believing that it was paying the checks in accordance with the plaintiff's authorization, upon the order or indorsement of the payee named by the plaintiff, has in fact paid the checks upon the order of a person not named as payee. The defendant, challenged by the plaintiff to show its authority to make such payments and to charge the payments against the moneys in plaintiff's deposit account, can justify the charge only if the checks drawn by the plaintiff to a named payee may, contrary to their terms and contrary to the intention of the drawer, be treated as if drawn payable to bearer, because the payee named is a mythical, nonexistent person.

This court has said that ‘the maker's intention is the controlling consideration which determines the character of such paper. It cannot be treated as payable to bearer, unless the maker knows the payee to be fictitious and actually intends to make the paper payable to a fictitious person.’ Shipman v. Bank of State of New York, 126 N.Y. 318, 330,27 N.E. 371, 374, 12 L.R.A. 791, 22 Am.St.Rep. 821. The Negotiable Instruments Law, Consol. Laws, ch. 38, has, in this respect, codified the common law rule: ‘The instrument is payable to bearer: * * * 3. When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable.’ (§ 28.) In Illinois where the instrument was executed, the same rule was applied until 1931. Cf. U. S. Cold Storage Co. v. Central Mfg. Dist. Bank, 343 Ill. 503, 175 N.E. 825, 74 A.L.R. 811. After that decision was rendered, the Negotiable Instruments Law of Illinois was amended so that it now provides that an instrument is payable to bearer ‘when it is payable to the order of a fictitious or non-existent or living person not intended to have any interest in it, and such fact was known to the person making it so payable, or known to his employee or other agent who supplies the name of such payee.’ Illinois Revised Statutes 1931, ch. 98, § 29. The checks executed in Illinois were, under the law of that State, payable to bearer, could be transferred without indorsement, and constitute authorization to a bank to pay the checks to its bearer without indorsement by the non-existent payee named therein. If the rights and obligations of the parties to the instruments are regulated by the law of the State of New York, where the checks were payable, the instruments were not payable to bearer and payment without indorsement of the person named as payee was unauthorized by the drawer. The problem presented upon this appeal is whether the rights and obligations of the drawer and the bank are to be measured by the law of the State where the instruments were drawn or by the law of the State where they were made payable.

This court has said: ‘Authorities are not needed to show that in general every contract is to be expounded and enforced by the law of the place where it is made. * * * But this general rule admits of an exception, as where the parties at the time of making the contract had a view to a different kingdom.’ Hibernia Nat. Bank v. Lacombe, 84 N.Y. 367, 376,38 Am.Rep. 518. Thus where the contract is to be performed in a foreign State or country the parties are deemed to have intended that performance should be rendered in accordance with the law of the country where the contract is to be performed.

Parties to a contract may, subject to limitations not important here, agree that the extent of their obligations are to be measured and the sufficiency of performance determined by the law of either jurisdiction. Where the parties have not in terms provided with law should be applied, the courts have attempted to formulate general rules defining the separate fields governed by the law of the place where a contract is made or by the law of the place where the contract is to be performed. In Union Nat. Bank v. Chapman, 169 N.Y. 538, 543,62 N.E. 672, 673,57 L.R.A. 513, 88 Am.St.Rep. 614, this court stated ‘some general principles which appear to be settled beyond controversy, * * * (1) All matters bearing upon the execution, the interpretation and the validity of contracts, including the capacity of the parties to contract thereto, are determined by the law of the place where the contract is made; (2) all matters connected with its performance, including presentation, notice, demand, etc., are regulated by the law of the place where the contract, by its terms, is to be performed.’ More recently we have said that ‘as a general rule, the validity of a contract is determined by the law of the jurisdiction where made, and if legal there is generally enforcible anywhere.’ Straus & Co. v. Canadian Pacific R. Co., 254 N.Y. 407, 414, 173 N.E. 564, 567. That law governs, we have also said, ‘in matters bearing upon the capacity of the parties to contract and upon the execution, the interpretation and the validity thereof.’ United States Mortgage & Trust Co. v. Ruggles, 258 N.Y. 32, 38, 179 N.E. 250, 251, 79 A.L.R. 802. Cf. American Law Institute, Restatement of the Law of Conflict of Laws, §§ 332 and 358.

The formulation of these general principles has not removed uncertainty and doubt in their application. ‘Interpretation’ of a contract and its manner of performance are so intertwined that the courts often determine pragmatically the question whether the law of the place where the contract was made or the law of the place where the contract by its terms is to be performed regulates particular matters which ‘bearing upon the interpretation’ of a contract are at the same time ‘connected with its performance.’ Perhaps pragmatic determination may in such cases be indicated by the nature of the problem, and the test whether one rule or the other produces the best practical result may be the safest guide in the...

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