Trustees of Elon College v. Elon Banking & Trust Co.

Decision Date26 October 1921
Docket Number333.
Citation109 S.E. 6,182 N.C. 298
CourtNorth Carolina Supreme Court

Appeal from Superior Court, Alamance County; Devin, Judge.

Action by the Trustees of Elon College against the Elon Banking & Trust Company. Case heard on facts agreed. Judgment for defendant, and plaintiff appeals. Reversed and remanded.

Clark C.J., dissenting.

Whether there has been negligence in the performance of any legal duty is generally a composite question of fact and law.

This action was brought to recover the value of certain bonds of the United States, known as Liberty Bonds, which were deposited with the defendant for the purpose of being exchanged for the new bonds to be issued in their stead under the act of the Congress. The exchange was effected by the defendant and the bonds received by it and deposited in its bank, which will hereinafter more fully appear. They were stolen by burglars. Hence this action for their loss. A more detailed account of the facts and incidents of the case seems to be required.

The following is a substantial statement of the facts, as they appear in the record:

Plaintiffs are the Trustees of Elon College, and the defendant is a corporation of Elon College, N. C., engaged in the business of banking and writing, as agent, contracts of insurance. On March 15, 1920, defendant received from plaintiffs $5,850 in United States Liberty Bonds (of which only $4,400 is here involved) belonging to plaintiffs, to be transmitted by defendant through the Federal Reserve Bank at Richmond, to the United States Treasury Department at Washington, and converted into bonds of the permanent issue and returned to plaintiffs. Plaintiffs offered to pay any expenses incident to the service, but the bank agreed to handle the transaction, as it was its custom, as a matter of accommodation, and further agreed to notify plaintiffs' agent, T. C. Amick, treasurer of the college, upon the return of said bonds. Plaintiffs requested that the shipment be protected by insurance, and the defendant procured such insurance upon the transmission of the bonds from Elon College to Richmond. Of the bonds $4,400 were duly returned arriving at the post office at Elon College on March 24 1920, and on that date were receipted for by defendant's cashier, and taken into defendant's safe, where they remained until stolen, as hereinafter set out. On the night of April 19, 1920, defendant's safe was blown open by persons unknown to the parties, and said $4,400 in bonds as well as other property, were stolen and have not been recovered. It had been the custom of plaintiffs to keep their bonds and other valuables in a safe in the main building of the college, and not in defendant's safe. At the time of the burglary the college bonds were deposited in the defendant's safe, where the bank kept its own government bonds (which were also stolen), but not in the part thereof where the bank kept its cash and currency. That by the terms of certain insurance policies carried by the defendant, the bank could recover 100 per cent. of any loss from the money chest (or burglar-proof compartment), but could recover only 10 per cent. of any loss from other portions of the vault.

T. C Amick, treasurer of the college, resides at Elon College, and is a teacher therein, and was at all times a director, vice president, and local auditor of defendant bank; that on April 2, 1920, he checked up the books of the bank and found $5,800 in Liberty Bonds in there, but the books seen by him did not show that any of the bonds belonged to plaintiffs. A certificate or affidavit made by Amick, as auditor of the bank, showing that the bank had $5,800 Liberty Bonds in the vault on April 2, 1920, was later used by the bank to induce the insurance companies to include the $4,400 of college bonds in the total appraisal of loss sustained by the burglary, a copy of which affidavit is set out in the record. At the time of the burglary, the defendant carried two policies of burglary insurance; and in proof of the claim for loss under said policies the converted bonds belonging to plaintiffs, amounting to $4,400, were listed by the defendant as property, or money for which the defendant was liable and defendant has received and now has 10 per cent. of the said sum, or $440, which it thus received from the insurance companies. If said bonds had been in the burglar-proof compartment where defendant kept its money, the bonds would not have been stolen, or, if stolen, the defendant would have received the full value of the same, or $4,400.

The defendant has tendered the sum of $440 to plaintiffs in full of plaintiffs' claim against it, but the offer has been declined. Defendant still tenders and offers to pay plaintiffs said sum of $440.

The case was heard on facts agreed submitting the controversy without action to the judgment of the court.

The court gave judgment for the defendant, and plaintiff appealed.

D. R. Fonville, of Burlington, and Brooks, Hines & Smith, of Greensboro, for appellant.

E. S.W. Dameron, of Burlington, for appellee.

WALKER, J. (after stating the facts as above).

The plaintiffs' counsel contended that, in the consideration of the questions presented herein, certain material facts, which they contend have been admitted, should be kept in mind and control our decision. We will state, as briefly as possible, the grounds upon which these contentions are laid, in discussing the prominent features of the case.

The bank solicited the business, and by reason of the bank's offer the plaintiffs did forego other safe and convenient methods of transmitting the bonds. The bank held itself out as having safe means of preserving the bonds, plaintiffs asked for insurance that would protect them, offered to pay any expense incident thereto, and defendant is an insurance agent. The bank, being in the insurance business, was in a position to know just how fully it was protected, and but for its negligence in acquainting itself with the terms of its own insurance policies might have been, and doubtless would have been, fully protected, instead of being protected only to the extent of 10 per cent. The bank agreed to notify plaintiffs upon return of the bonds. It negligently failed for 26 days to do so. If it had done so, the plaintiffs would have taken them from the bank and placed them in the safe of the college, "where it was the custom for the college to keep its bonds." The college safe was not robbed. The bank did not keep these bonds where it kept its money, and if it had, they would not have been stolen, or, if they had been stolen the bank would have recovered from the insurance company 100 per cent. of such loss. The bank at the time of the loss, acknowledged its liability, and recovered $440 insurance money by solemnly declaring it liability. It still has this money. It has never offered to return the money to the insurance company, but instead offers it to plaintiffs, and avers that it is liable only to this extent. These are some of plaintiffs' contentions: It is thus well said, in an interesting note by the late Judge Freeman, to be found in 38 Am. St. Rep. 773:

"A very important part of the business of every bank, whether private or incorporated, consists of acting as an agent or bailee for its customers."

It was at one time held by some courts that such services were outside the scope of authority of banking institutions, but all doubt about their propriety has been removed by such well-considered opinions as First National Bank of Carlisle v. Graham, 100 U.S. 699, 25 L.Ed. 750, and Third National Bank v. Boyd, 44 Md. 47, 22 Am. Rep. 35.

While it is a general rule that an accommodation bailee is liable only for gross negligence, the courts in nearly all recent cases have held that a stricter degree of care is required of banking institutions receiving articles of more than usual value, and holding themselves out as having special facilities for their transmission and safe-keeping. In fact, they are not accommodation bailees, for while a bank "may not receive any direct compensation for its service, it obtains advantages therefrom in attracting and retaining clients." Note, Isham v. Post, 38 Am. St. Rep. 781. In the case of Levy v. Pike, 25 La. Ann. 630, the court, discussing a case somewhat similar to this, substantially said:

"Their object was doubtless to increase their deposits, and, of course, enhance their profits; and to accomplish it they held themselves out to the business community as prepared to take care of their valuable boxes. The taking care * * * of these boxes was a part of the business of the bank, by which they doubtless induced cash deposits and made considerable profits. We, therefore, do not regard the deposit in question as only a gratuitous one. Something more than no gross negligence or fraud was expected from the defendants. * * * They were bound to exercise such diligence as prudent bankers would exercise in taking care and preserving a thing of that character deposited with them."

Since banks hold themselves out as having unusually safe and convenient means of transmitting and keeping Liberty Bonds and other valuable securities as well as money, and since such institutions at such small cost can obtain indemnity that will absolutely protect them, the courts have come to apply to them a measure of liability which has been invited by them, to wit, the rule of the ordinary prudent man in like circumstances; or, to be more specific, the care that a prudent and diligent banker would give his own property or securities of like value and importance. As has been said the assertion that banks are liable for gross negligence only is well calculated, if generally accepted as...

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