World Exch. Bank v. Commercial Cas. Ins. Co.

• Decision Date: 18 November 1930
• Citation: 255 N.Y. 1,173 N.E. 902
• Parties: WORLD EXCHANGE BANK v. COMMERCIAL CASUALTY INS. CO.
• Court: New York Court of Appeals Court of Appeals

255 N.Y. 1

173 N.E. 902

WORLD EXCHANGE BANK

v.COMMERCIAL CASUALTY INS. CO.

Court of Appeals of New York.

Nov. 18, 1930.

Action by the World Exchange Bank against the Commercial Casualty Insurance Company. Judgment of Trial Term in favor of plaintiff was reversed on the law and facts by the Appellate Division, and a new trial granted (229 App. Div. 458, 242 N. Y. S. 821), and plaintiff appeals, with stipulation for judgment absolute.

Order of Appellate Division affirmed, and judgment rendered.Appeal from Supreme Court, Appellate Division, First Department.

Max E. Greenberg and Meyer Greenberg, both of New York City, for appellant.

Colley E. Williams and Allan C. Rowe, both of New York City, for respondent.

CARDOZO, C. J.

The plaintiff, a bank in the city of New York, received from the defendant a bond or policy of insurance indemnifying it against certain described losses suffered in its business.

Martin Katz, trading as Tunney Rooters, opened a depositor's account with the plaintiff on September 14, 1926. Between that time and September 23 he deposited a number of checks and drafts, some genuine, some forged. The checks, when forged, were drawn on banks in the far West. The drafts were drawn on the Metropolitan Mortgage & Securities Company, which was merely a tradename for Katz himself.

There was a rule of the bank that payments were not to be made to a depositor against uncollected items of deposit without the consent of the president, or, at times, another officer. During the days when the fictitious items were in course of collection, Katz drew his checks on the account, handed them to the paying teller, and received the cash over the counter. The teller, Castellano, paid them believing them to be good, but mindful of the fact that they were drawn against uncollected items of deposit. On the presentation of the first check, one for $600, he received the approval of the president before paying out the money. When the other checks were offered, he paid them without inquiry. On September 23, 1926, about a week thereafter, the fictitious items of deposit were ruturned uncollected. A loss had then been suffered in the sum of $22,824.50, for which the bank has had judgment upon the contract of indemnity. The Appellate Division, reversing this judgment, has ordered a new trial. The case is now here upon an appeal by the plaintiff with a stipulation for judgment absolute. The reversal being on the facts as well as on the law, the plaintiff, to prevail, must satisfy the court that the loss as a matter of law is within the coverage of the bond. Goodman v. Marx, 234 N. Y. 172, 136 N. E. 853. If there is any question of fact from which opposing inferences can be drawn, the Appellate Division was free, in the exercise of its discretion to order a new trial.

The plaintiff points to three subdivisions of the policy, designated A, B, and D, as covering the loss. They will be considered in succession.

Subdivision A gives indemnity to the bank for ‘any loss through any dishonest or criminal act of any of the insured's officers, clerks or other employees * * * wherever committed and whether committed directly or by collusion with others.’ The plaintiff says that Castellano was guilty, as matter of law, of a dishonest or criminal act when, mindful of the state of the account, he permitted a depositor to draw against uncollected items of deposit without the president's approval.

We think the equality of the act is not so obvious and determinate as to exclude opposing inferences. First Nat. Bank of Edgewater, N. J., v. National Surety Co., 243 N. Y. 34, 152 N. E. 456, 46 A. L. R. 967. Criminal the act was not, unless done with criminal intent. People v. Baker, 96 N. Y. 340;People v. Flack, 125 N. Y. 324, 26 N. E. 267,11 L. R. A. 807;People v. Wiman, 148 N. Y. 29, 42 N. E. 408. The presence of that intent is not, in the setting of these circumstances, an inference of law. The question is perhaps closer whether the act within the meaning of the policy must be said to be ‘dishonest,’ for dishonesty within such a contract may be something short of criminality. City Trust Safe Deposit & Surety Co. v. Lee, 204 Ill. 69, 68 N. E. 485;Mitchell Grain & Supply Co. v. Maryland Casualty Co. of Baltimore, Md., 108 Kan. 379, 383, 195 P. 978, 16 A. L. R. 1488;AEtna Casualty & Surety Co. v. Commercial State Bank of Rantoul (D. C.) 13 F.(2d) 474;United States Fidelity & Guaranty Co. v. Egg Shippers' Strawboard & Filler Co. (C. C. A.) 148 F. 353;Genesee Wesleyan Seminary v. United States Fidelity & Guaranty Co., 247 N. Y. 52, 57, 159 N. E. 720, 56 A. L. R. 964. The appeal is to the mores rather than to the statutes. Dishonesty, unlike embezzlement or larceny, is not a term of art. Even so, the measure of its meaning is not a standard of perfection, but an infirmity of purpose so opprobrious or furtive as to be fairly characterized as dishonest in the common speech of men. ‘Our guide is the reasonable expectation and purpose of the ordinary business man when making an ordinary business contract.’ Bird v. St. Paul Fire & Marine Ins. Co., 224 N. Y. 47, 51,120 N. E. 86, 87, 13 A. L. R. 875;Silverstein v. Metropolitan Life Ins. Co., 254 N. Y. 81, 84, 171 N. E. 914.

If this standard is to govern, we think the quality of the teller's act is for the triers of the facts. He was not acting lucri causa, to gain some benefit for himself. He was not acting with the thought of giving anything to any one, or so the triers of the facts might say. The money was due if the uncollected checks were good. He believed them to be good, for, with or without sufficient reason, he believed them to be certified. He ought, even them, to have consulted his superior instead of venturing to act alone. None the less, his only object was the furtherance of the business without useless fuss and pother. The act was a wrongful one, very likely a technical conversion, certainly a departure from instructions, but in the common speech of men there would be reluctance to describe it as flagitious or dishonest. A different question might be here if payments against uncollected items had been forbidden always and to every one, had been excluded altogether from the business of the bank. Here they were not excluded altogether but were permitted if made with a superior's approval. The situation is much the same as if the teller had been required to verify the state of the account by reference to the ledger, and had chosen to take a chance and trust to recollection. The act, even if prohibited, was not so radical a departure from the general business of the bank or the functions of the actor as to exact an imputation of dishonesty when there was innocence of motive.

Subdivision B gives indemnity for any loss ‘through robbery, burglary, larceny (whether common law or statutory), theft, hold-up, misplacement or destruction * * * while the property is actually within the offices of the insured.’ This clause might apply to the loss suffered by the plaintiff if it were not for a subsequent exception. By subdivision 2(a), the ‘bond does not cover any loss effected by means of forgery, except when covered by insuring clauses A and D.’ The loss in question was one effected by means of forgery (Trade Bank of New York v. United States Fidelity & Guaranty Co., 249 N. Y. 546, 164 N. E. 578), and, unless covered by A or D, must be held to be excluded.

Subdivision D gives indemnity for ‘any loss through the payment * * * of forged checks * * * or the establishment of any credit to any customer on the faith of such checks.’ Part of this loss was caused by the establishment of a credit on the faith of forged checks, but part only. Most of the loss came through a credit, not for checks, but...