Havana Central Railroad v. Knickerbocker Trust Co.

The complaint alleges'that the plaintiff is a foreign corporation and the defendant a trust company "organized under the laws of the state of New York and doing business in the city of New York; that prior to February, 1906, one Van Voorhis was the treasurer of the plaintiff corporation; that prior.to the 33d of February, 1906, an account was opened by the plaintiff corporation with the Central Trust Company of New York'under, an arrangement by which the checks drawn upon such account were to be signed by Van Voorhis as treasurer of the plaintiff corporation; that between' the 31st of April, 1906, and the 15th of June, 1906, Van Voorhis drew three checks upon the deposit account of the plaintiff corporation with the Central Trust Company payable to the order of “W. M. Greenwood or C. W. Van Voorhis,” signed “Havana Central Railroad Company, C. W. Van Voorhis, Treasurer,”'aggregating over $59,000; that at the same time Van Voorhis, the treasurer of the plaintiff corporation, had an individual deposit account with the defendant upon which he drew checks signed by himself individually; that Van Voorhis indorsed these three checks in blank, and deposited them with the defendant trust com-pany to the credit of his individual account, and the checks were presented to the Central Trust Company by the defendant, and duly paid, and the proceeds thereof received by the defendant; that the Central Trust Company charged these checks against the plaintiff’s deposit account; that subsequently the defendant permitted the said Van Voorhis to draw upon! his said account to which these checks were credited until the 17th of July, 1906, when the account was closed by the presentation to and payment by the defendant to the said Van .Voorhis of checks to the full amount appearing to his credit, which included the amount that the defendant had received from the Central Trust Company on account of these checks. The complaint then alleges that the said Van Voorhis deposited the said checks and each of them in his bank account with the defendant, and used the said checks and the proceeds thereof for his own uses and purposes without any right or authority so to do, and that the said checks and each of them were without any consideration whatever moving from said Van Voorhis to the plaintiff herein; that said Van,Voorhis had no right or authority to draw upon the said account of the plaintiff or to use its funds except for the purposes of plaintiff’s business, and that plaintiff was not at any of the times mentioned indebted to Van Voorhis in any sum whatever; that notice or inquiry by the defendant to and of the plaintiff would have revealed and disclosed these facts, and further revealed that said Van Voorhis by drawing the said checks and each of them, and depositing them in his individual account with the defendant, was wrongfully misappropriating and converting the money of the plaintiff to his own use; that he was guilty of such misappropriation and conversion both in offering said checks for deposit with the defendant and in thereafter drawing from his aforesaid account the proceeds of the said checks, and appropriating the proceeds to his own use; that the defendant did not at any time make any inquiry of the plaintiff or any one else concerning the said checks or the transactions had therewith, and did not at any time-give notice to the plaintiff concerning the said

Defendant by the demurrer concedes that Van Voorhis, the plaintiff’s treasurer, having power to sign checks upon plaintiff’s deposit account with its bank, signed checks in the name of the plaintiff to his -own order without authority and deposited these checks with the defendant to his own individual account; that the defendant received these checks for the defaulting treasurer’s individual account, collected the proceeds thereof and placed the same to the defaulting treasurer’s individual credit, and subsequently paid out on Van Voorhis’ the amount of such deposits. It had been for many years established in this state that, if a person holding money or property in a fiduciary capacity pays or transfers such money or property to a third party with notice-■of his relation to it for a purpose foreign to the trust, such third party cannot hold such money or property as against the true owner, and that, in the case of money, an action for money had and received will lie in favor of the true owner against the person who has received it with notice of its real ownership. If the defendant had knowledge that, by drawing these checks, Van Voorhis was misappropriating the -corporation’s money without its consent, and that the use to which Van Voorhis was putting the money was not the corporate uses, an action would lie.

We therefore come down to the question as to whether this defendant received this money with notice of the fact that it was being mis.applied or misappropriated by Van Voorhis to his own use. Van Voorhis took to the defendant for deposit to his individual credit checks drawn in the name of the plaintiff by Van Voorhis as its treasurer to Van Voorhis’ own order, and offered those checks to the defendant for •deposit to his (Van Voorhis’) individual account. On its face this is clearly a transaction by which Van Voorhis was abstracting money from the treasury of the company to be credited to his individual account with the defendant. Certainly any bank oificer looking at this check would see that Van Voorhis had drawn or was attempting to •draw from the plaintiff’s deposit account the sum of money there named to be paid to his own order. A person with a claim against the plaintiff corporation receiving such a check would necessarily have notice that the corporation was paying its debt with its own check. A person having an individual claim against Van Voorhis, and receiving in payment such a check to pay Van Voorhis’ individual debt, would clearly have notice that Van Voorhis was using the funds of the plaintiff to pay an individual debt for which the plaintiff was not responsible. In this case Van Voorhis went to the bank, presented the check drawn by the plaintiff, acting through himself as treasurer, payable to his own •order, and, indorsing it, deposited it with the defendant, which defendant accepted and received the proceeds. By that transaction the defendant became the owner of the check and its proceeds, and became personally indebted to Van Voorhis individually for the amount of the check. The effect of this transaction of which the defendant must ■ be chargeable with notice was that the plaintiff’s money had been taken from its possession and control and transferred to the defendant cor

In Gerard v. McCormick, supra, the plaintiffs owned a building in Wall streét known as the “Glass Buildings.” One Boswell was the agent, having authority to receive and deposit the rent for the buildings and to draw on that account sums due for repairs, insurance, taxes, interest on incumbrances, his own commissions, and for the usual expenses of such buildings, and then to divide by checks on the account the remainder among the plaintiffs according to their respective interests. The checks were signed by “William Boswell, Agt. Glass

“The evidence was abundant to authorize the jury to find that the amount standing to the credit of ‘William Boswell, Agt. Glass Buildings,’ in the Corn Exchange Bank belonged to the plaintiffs, and that by means of the check the sum represented by it was, by the fraud of Boswell, withdrawn from the account and paid to and received by the defendant.”

The facts that the account upon which the checks in this action were drawn belonged to the plaintiff, that Van Voorhis by drawing the checks and depositing them to his own credit misappropriated the plaintiff’s money, and that the checks were drawn without authority are alleged in the complaint and admitted by the answer. So that we have the same facts presented in both cases. And the court then in the Gerard Case, supra, continued:

“The remaining question is whether the evidence authorized the court to submit to the jury the question of good faith, or was sufficient to authorize the jury to find that the defendant had, notice that the check was drawn against an account not owned by Boswell,”

0 And, after calling attention to the fact that there was nothing in the case which tends to raise any question about defendant’s personal good faith except that he received a check from Boswell in payment of his individual debt signed “William Boswell, Agt. Glass Buildings,” without inquiry as to the right of Boswell to so use the fund, the court said that the question presented was “whether the form of the check was sufficient to put the defendant upon inquiry as to the authority of Boswell to use the money in payment of his debt.” And, after a review of the authorities, it was held that the form of the signature to the check was sufficient to put the payee on inquiry as to the right of the agent to pay his personal debt out of the fund, and that, if a person having notice that money or property is held by another in a fiduciary capacity receives it without inquiry from the agent in satisfaction of his personal debt, the sum or property so received may be recovered by the true owner unless the agent was authorized to so dispose of it. We have in the case at bar all the facts presented in the Gerard Case upon which a recovery was sustained; the only difference being that in one case the check was received in payment of an individual debt, and in the other case was received as the consideration for the defendant assuming a personal obligation to the agent individually. It is upon this latter distinction that the defendant claims that it is relieved from liability. But it seems to me that this distinction has no real bearing upon the question as to the liability of the defendant. The defendant received the check drawn by plaintiff’s treasurer on plaintiff’s bank account payable to the plaintiff’s treasurer individually and received the money. The receipt of this check was notice to the defendant of those facts. And thus, when this defendant received the money chargeable with notice of the fact that this money was the plaintiff’s money, con

We are met in this case by an appeal to protect the financial institutions of this city from the liability that will be imposed upon them by charging them with notice of the form of all checks received on deposit. But, if an exception is to be made in favor of large institutions because of the impracticability of examining all checks presented'to them, it must be made by either the Legislature or the court of last resort, as this court has merely to administer the law as it finds it.

It follows, therefore, that the judgment appealed from must be affirmed, with costs, with leave to the defendant to withdraw the demurrer within 20 days and answer on payment of costs.

PATTERSON, P. J., and LAUGHLIN, J., concur.

I dissent. The judgment appealed from seems to me to extend the responsibility of persons dealing with- trustees, not only beyond anything that has yet been judicially decided, but also beyond practicable limits. Of course, there can be no doubt that if the defendant had received the checks in payment of an obligation due to it from Van Voorhis, whether by reason of overdraft or otherwise, it would have been chargeable from the form of the checks, with notice that Van Voorhis was using plaintiff’s money to pay his individual obligations, and was thus misappropriating plaintiff’s funds. Ward v. City Trust Co., 192 N. Y. 61 , 84 N. E. 585 . In such a case the misappropriation would have been complete when the money was paid'over,

The judgment should be reversed.

McLaughlin, j., concurs.