Town of Fairfield v. Southport Nat. Bank

• Court: Connecticut Supreme Court
• Writing for the Court: HAMERSLEY, J.
• Citation: Town of Fairfield v. Southport Nat. Bank, 67 A. 471, 80 Conn. 92 (Conn. 1907)
• Decision Date: 30 July 1907
• Parties: TOWN OF FAIRFIELD v. SOUTHPORT NAT. BANK et al.

67 A. 471

80 Conn. 92

TOWN OF FAIRFIELD

v. SOUTHPORT NAT. BANK et al.

Supreme Court of Errors of Connecticut.

July 30, 1907.

Case reserved from Superior Court, Fairfield County; Edwin B. Gager, Judge.

Action by the town of Fairfield against the Southport National Bank and others. The court made a finding, and reserved the cause for the advice of the Supreme Court. Judgment for plaintiff advised.

The complaint contains, in substance, the following allegations: (1) Prior to April 21, 1903, the plaintiff owned 14 bonds of the denomination of $500 each and value of $7,000, which bonds the plaintiff delivered to the defendant, and the defendant received the same as bailee of the plaintiff. (2) On April 21, 1903, one Oliver T. Sherwood, without plaintiff's knowledge or assent, took said bonds from defendant's safe, and by pledge of said bonds as collateral security for his demand note of $6,000 obtained a check for that amount payable to his order. (3) Said Sherwood acted as cashier of the defendant and on behalf of the defendant in taking and pledging said bonds and in obtaining said check. (4) On April 21st said Sherwood indorsed said check and delivered it to defendant, and defendant then indorsed said check and deposited it to its credit in the National Park Bank of New York, and said check was paid and the avails thereof ($6,000) went to the use, credit, and benefit of the defendant. (5) Upon default of payment of Sherwood's said note, said bonds were sold by the pledgee thereof on May 21st. (6) Prior to May 25th the defendant bank became insolvent, and a receiver was duly appointed and qualified, of whom the plaintiff, on August 18th, made demand and claim for said bonds, or their value in money, which claim was on October 5th disallowed by the receiver. The defendant's answer admitted the sixth allegation, denied the first, third, and fifth allegations, and denied the second and fourth allegations coupled with the averment that the deposit of said check to the credit of the defendant bank was without authority from or knowledge of said bank and was for said Sherwood's own use and benefit and said deposit was forthwith withdrawn by said Sherwood and used for his own benefit and the defendant did not have the use or benefit of any part thereof.

The finding shows, among other facts, the following: The defendant bank was and for many years had been a national banking association, with a capital of $100,000 and a surplus of $40,000. Oliver T. Sherwood became cashier of said bank in 1884 and continued as such until May 12, 1903, when he absconded. He was subsequently arrested, and is now serving a sentence in the state prison. The duties of said Sherwood as cashier were those usually appertaining to that office. He received in the bank's behalf all commercial papers, notes, drafts, checks, or other papers payable to said bank, or its order, and indorsed the same for deposit with its name, and deposited the same to its credit with the National Park Bank of New York. During the time he was cashier said Sherwood was by permission of the directors of the bank the active managing officer and actively directed the business and affairs of said bank. The board of directors had never authorized said cashier to exercise any powers or duties other than those usually incident to said office. For a period of about seven years prior to May, 1903, said Sherwood was engaged in continuously misappropriating the funds of said bank, and by false entries and accounts in its books and by falsifying the accounts of its depositors he concealed such misappropriation from the knowledge of all the other officers of the bank. The funds of the bank so unlawfully misappropriated amounted in May, 1903, to more than $150,000. On May 19, 1903, Ellis S. Pepper was appointed by the United States controller of the currency as receiver of said bank, and has ever since been engaged in winding up its affairs as an insolvent bank. The capital and surplus of the bank were found completely wiped out, and an assessment of 83 per cent. has since been made against the stockholders.

The 14 bonds mentioned in the complaint were negotiable bonds and were owned by the plaintiff and had been placed and kept by its agent, Francis P. S. Sherwood, who was also an employé of the bank, in the safe of the defendant for his own personal accommodation; the plaintiff's said agent well knowing a standing rule in the bank that the bank would not act as a custodian for the safekeeping of negotiable securities, and that any securities left in the bank's safe was at the risk of the owner. Said Oliver T. Sherwood and one of the directors knew that said bonds were in said safe. The evidence did not disclose whether the other directors had knowledge or not. In respect to the second and fourth allegations, the finding is as follows: On April 21, 1903, said Oliver T. Sherwood took from the safe of said bank said 14 bonds and pledged them with N. W. Harris & Co., brokers, of New York City, as collateral security for a loan of $6,000, evidenced by the promissory note or said Oliver T. Sherwood (a demand note for $6,000, reciting the deposit of the bonds as collateral security, and containing agreements as to the deposit on demand of additional security, and authorizing the sale of the bonds on default of payment or breach of agreement). Said Sherwood thereupon received from N. W. Harris & Co., a check of which the following is a copy, viz.: "No. 2888. N. W. Harris & Company, Bankers. New York, April 21, 1903. Pay to the order of Oliver T. Sherwood, $6,000, six thousand dollars. To the National Bank of Commerce, New York. N. W. Harris & Co." Said check is indorsed on the back thereof as follows, viz.: "Oliver T. Sherwood." "Pay National Park Bank, or order. Southport National Bank, Oliver T. Sherwood, Cashier." "Received payment through New York clearing House, April 21, 1903. The National Park Bank of New York." Said Sherwood, on April 21, 1903, deposited said check in said National Park Bank, to the credit of said Southport National Bank. Said deposit was placed by said National Park Bank to the credit of said Southport National Bank, according to its ordinary course of business, and became subject to the call of said Southport National Bank. Said check was duly collected by said National Park Bank from the bank on which it was drawn, through the New York clearing house, in the usual manner, on the day upon which it was drawn. Said deposit in the National Park Bank of $6,000, the avails of said note to Harris & Co., was made without the knowledge or authority of any officer of the bank except its cashier. When the receiver was appointed, the defendant bank had to its credit in said National Park Bank more than $6,000, and the receiver has since his appointment used the same in the administration and settlement of the affairs of the bank. Said 14 bonds were on May 25, 1903, sold by said Harris & Co. for the sum of $6,938, because of default in the payment of said note, and after applying the proceeds to the payment of said note the balance remaining in their hands, amounting to $938, was paid to the plaintiff.

In respect to the defendant's averment that the proceeds of the bonds deposited to the defendant's credit in the National Park Bank was so deposited without the defendant's authority or knowledge, and was forthwith withdrawn by Sherwood and used for his own benefit, and the bank did not have the use or benefit of any part thereof, the following additional facts are found. (Upon the trial the court admitted evidence as offered by the defendant as to the plan, purpose, and intention of Sherwood in doing the acts which it is found he did, against the objection of the plaintiff, who duly excepted): On the 30th of March, 1903, said Oliver T. Sherwood was administrator upon the intestate estate of Burr Perry, deceased, and as such administrator he had a deposit account with said bank. Prior to said March 30, 1903, said Oliver T. Sherwood, as administrator, had been ordered and required by the court of probate to make a partial distribution of said estate to the heirs at law of said deceased, and in pursuance of said order it became necessary to pay to each of the five following-named persons the sum of $2,000 each, viz.: Susan D. Perry, Sarah J. Perry, Loretta B. Perry, Alfred S. Perry, and Francis B. Perry. On said 30th day of March, 1903, said Oliver T. Sherwood drew a cashier's check upon said bank to the order of each of said five named persons for $2,000, and indorsed upon the face of each of said checks the words "certificate of deposit," and indorsed upon the back of each of said checks the following: "This certificate bears interest at the rate of 4 1/2 per cent. per annum and is payable upon ten days' demand"—and signed each of said indorsements, "O. T. Sherwood, Cashier," and delivered the same to each of said five named persons. Said certificate of deposit in favor of said Alfred S. Perry was exchanged at said bank on April 3d for cashier's check by said Oliver T. Sherwood for said sum, and collected through the Connecticut National Bank April 4th, and on that date charged to the estate of Burr Perry, in the account of that estate with said bank. After payment of said check, there was produced an overdraft of $131 against said account. On April 6, 1903, said Sherwood received and deposited to the account of said estate the sum of $3,500. Said certificate of deposit in favor of said Francis B. Perry was exchanged for a cashier's check for the same amount, which check was collected through said Connecticut National Bank and charged to the account of Burr Perry on April 9th. This left a balance to the credit of said estate of $1,358.97. Said certificates of deposit in favor of Sarah J. Perry, Loretta B. Perry, and Susan D. Perry were each exchanged at said bank for three cashier's checks payable to the order of said named persons, and collected through the...