E. Trust & Banking Co. v. Cunningham

• Citation: 103 Me. 455,70 A. 17
• Parties: EASTERN TRUST & BANKING CO. v. CUNNINGHAM.
• Decision Date: 20 February 1908
• Court: Supreme Judicial Court of Maine (US)

70 A. 17

103 Me. 455

EASTERN TRUST & BANKING CO.

v. CUNNINGHAM.

Supreme Judicial Court of Maine.

Feb. 20, 1908.

(Official.)

Report from Supreme Judicial Court, Penobscot County.

Action by the Eastern Trust & Banking Company against Andrew W. Cunningham. Case reported to the law court. Judgment for plaintiff.

Action on the case for deceit brought by the plaintiff bank against the defendant in his individual capacity to recover a certain amount of money alleged to have been lost by the plaintiff bank on account of checks deposited in the plaintiff bank, drawn upon the Gardiner National Bank by the defendant in his capacity as treasurer of the Harmon Produce Company against a fund which, it was alleged, did not exist in the said Gardiner National Bank, with the alleged intent on the part of the defendant to deceive and defraud the plaintiff bank. The plaintiff's declaration contains 17 counts and fills 40 printed pages of the size of this page. Plea, the general issue.

The action came on for trial at the April term, 1907, of the Supreme Judicial Court, Penobscot county. At the conclusion of the evidence, it was agreed that the case should be reported to the law court, and that upon so much of the evidence as was legally admissible the law court should "render such judgment as the law and the evidence require."

The case fully appears in the opinion.

Argued before EMERY, C. J., and WHITEHOUSE, SAVAGE, CORNISH, and KING, JJ.

Charles A. Bailey and Matthew Laughlin, for plaintiff.

George W. Heselton, for defendant.

SAVAGE, J. Action on the case for deceit. The case is before us on report. The particular transactions complained of are these: The Harmon Produce Company, a corporation doing business and having stores both at Bangor and Gardiner, on October 6, 1905, deposited in the plaintiff bank in Bangor its check dated October 5th, signed by the defendant as its treasurer on the Gardiner National Bank at Gardiner for the sum of $764.58. This deposit, with other cash items amounting in all to $800, was received by the plaintiff and credited to the account of the produce company. The check in the regular course of business was forwarded for collection through Boston, and reached the Gardiner bank on October 9th. The latter bank declined to honor it, but caused it to be protested. Information of the protest reached the plaintiff by telegram from Boston October 10th, and the formal notice was received the following day.

Meanwhile, on October 7th, a like check for $1,042.21, with other cash items, was deposited by the company in the plaintiff bank, was received and credited, was forwarded for collection through Boston, was received at Gardiner, and protested for nonpayment October 10th, of which the plaintiff had notice October 12th. Still another check for $961.95, with other cash items, was deposited and credited October 9th, went through the same channels, and was received at Gardiner and protested October 11th. Notice of the protest was received by the plaintiff October 13th. Thus the plaintiff had credited to the account of the produce company on account of these checks the sum of $2,768.74 before it had any information of the nonpayment of any of the checks. While these checks were severally proceeding along their course to final protest, the plaintiff honored and paid the produce company's checks drawn on itself, including three which had been deposited in the Gardiner bank, amounting to $2,649.10, to the extent that on October 11th, when the first protested check came back, there was standing to the credit of the company only $440.79. This amount was appropriated towards that cheek. The balance, $323.79, of the first check, and the amount of the second and third checks and the protest fees, being $1,042.21, $901.95, and $4.56, respectively, amounting in all to $2,332.51, the plaintiff seeks to recover in this action.

It appears that the balance to the credit of the produce company on the books of the Gardiner National Bank on October 6th, the date when the first of these checks was deposited in the plaintiff bank, was $69.28. October 7th it was $24.89. October 9th, the day when the first check was received at the Gardiner bank, it was $771.34. This last amount included, however, the company's check for $728 drawn on the plaintiff bank, and that day deposited. The Gardiner bank did not regard the check as available funds out of which to pay the company's checks until it was collected, and for that reason declined to honor the $764.58 check in question. As a matter of fact, the $728 check on the plaintiff was never collected, but was protested by the plaintiff bank for nonpayment. The company's balance on the books of the Gardiner bank continued in the same condition through October 10th and 11th, and on October 12th, it would seem from an inspection of the balances, that the $728 check was charged back, or in some other way taken out of the account. It appears, then, neither on the days when these three checks in question were severally deposited in the plaintiff bank, nor on the days when they were presented for payment to the Gardiner bank in the regular course of business, did the company have available funds in the latter bank to meet them.

But the defenses set up, which we shall presently consider, make it necessary to state with considerable detail the previous history of the dealings of the Harmon Produce Company with the plaintiff bank. It appears that the produce company for two years or more previously had been engaged in the practice of what is known in banking parlance as "kiting" checks, and that the checks in question were drawn and deposited in pursuance of that practice. It had an account in the plaintiff bank and one in the Gardiner National Bank. It was doing a large business on seemingly insufficient capital. For the express purpose of getting the use of more money in its business, it adopted the following method: It would deposit its check on the Gardiner bank in the plaintiff bank. By the usual methods of collection through Boston, the check would reach Gardiner in two days or three, if Sunday intervened. On the day when it would be expected at the Gardiner bank the company would deposit in the Gardiner bank a check on the plaintiff bank of sufficient size, with the other deposits, to pay the first check. Then in two or three days the Gardiner check would be due to reach the plaintiff bank, and the company would deposit there another check to meet that, and so on ad infinitum. By starting a check each day from each end of the route they were enabled to keep six checks in the air all of the time, to pay none of which were there available funds in either bank, unless new kited checks should be accepted and credited. The scheme could continue only as long as both banks were either ignorant or indulgent, or one ignorant and the other indulgent. The plaintiff claims that it was ignorant and the Gardiner bank was indulgent. The defendant claims that both banks had knowledge, and were indulgent. It was inevitable that, if either bank chanced at any time to stop payment on these checks, the other would stand to lose the amount of three checks.

The defendant was treasurer of the Harmon Produce Company. He lived at Gardiner. He did not personally deposit any of the checks in the plaintiff bank, and perhaps none in Gardiner; but he was well aware of the practice of kiting checks which was being followed, and of the purpose of it. His custom was to sign checks in blank and give them to the bookkeepers in the two stores. They filled out the signed blank checks from day to day as exigencies required and deposited them in the banks, having ascertained by correspondence between themselves daily the amounts which would be necessary to meet checks to arrive. The defendant so signed in blank the three checks in question and sent them to the Bangor store, intending them to be used in the kiting practice. He made the Bangor bookkeeper his agent for the purpose of filling out and depositing the checks; so that his responsibility is the same as if he personally had deposited the checks and procured the credit in the plaintiff bank.

It is incumbent upon the plaintiff to show that the defendant intentionally made false representations to it, with the intent that it should act upon them, or in such a manner as would naturally induce it to act upon them, that the representations were material, and that they were known to the defendant to be false, or, being of matters susceptible of knowledge, were made as of a fact of his own knowledge; that the plaintiff was thereby induced to give credit to the produce company; that it was deceived; and that it was injured. These principles are well settled. In the recent case of Atlas Shoe Co. v. Becliard, 102 Me. 197, 66 Atl. 390, 10 L. R. A. (N. S.) 245, this language was used: "Where a person states of his own knowledge material facts which are susceptible of knowledge, and the statement is made with an intent that another party should act upon it, or in such a manner as would naturally induce him to act upon it, the statement so made, if false, is fraudulent both in morals and law." And if the other party is induced thereby to act, and is deceived and injured, he has a cause of action for the deceit. A fraudulent purpose may be inferred from a willfully false statement in relation to a material fact. Wheelden v. Lowell, 50 Me. 499; Braley v. Powers, 92 Me. 203, 42 Atl. 362. And, when the necessary consequences of a transaction is the defrauding of another, fraud may be inferred, and the transaction held to be fraudulent. Gardiner Sav. Inst. v. Emerson, 91 Me. 535, 40 Atl. 551; Whitehouse v. Bolster, 95 Me. 458, 50 Atl. 240.

The false representation relied upon here is the representation, which ordinarily is implied by the drawer of a check when he delivers it to the payee, that it is drawn against available funds, or that there are funds in the drawee bank...