Salen v. Bank of State of New York

This action was brought to recover about $6,000 damages for the conversion by the defendant of a number of checks, and of the proceeds thereof, belonging to plaintiffs. Plaintiffs reside and do business in Paris, France, as general commission merchants. In 1901, and for some time prior thereto, they had an agency in the city of New York, and one Martin Cassidy was their agent in charge, receiving and forwarding orders from their customers, and making sales and collections under written agreements defining his authority. The agreement contained this clause:

“(6) The bank account of the said agency shall be kept with the Fifth Avenue Bank, unless otherwise arranged by said firm, and in the name of

Salen & Schroeder. The said Cassidy shall be authorized to endorse checks tor deposit to the credit of the said account, and to draw checks as attorney for the said firm against the said account.”

Plaintiffs executed and delivered a power of attorney to said Cassidy, "for us and in our names * * * to make, sign or draw checks on the Fifth Avenue Bank of New York, and to endorse notes, checks, drafts, and bills of exchange for deposit in said bank for collection or for credit.” By a subsequent writing "it was agreed that Messrs. Schroeder, Cassidy and Ryan shall visit the Garfield Bank and endeavor to arrange a plan by which New York will have the power to secure accommodation when required, this account to require the signature of Messrs. Cassidy and Ryan”; and thereafter plaintiffs made and delivered another power of attorney to Martin Cassidy and Thomas Ryan “jointly to sign checks, notes, drafts, bills of exchange and other commercial papers, to deposit in or draw from the Garfield National Bank of the city of New York, and to perform such act jointly in my name or the name of Salen & Schroeder as my said attorneys deem advisable in any transactions had with or through the said Garfield National Bank.” Cassidy received from plaintiffs’ customers from time to time checks in payment of their accounts, made payable to Salen & Schroeder, among which were the checks mentioned in the complaint. These checks Cassidy indorsed in the firm name of the plaintiff, followed by his own name, and delivered them to the firm of E. H. Norton & Co., who indorsed and deposited them with the defendant for collection. Defendant collected the checks and paid over the proceeds to Norton & Co. Norton & Co. were bankers and brokers in the city of New York, and Cassidy had with them a speculative stock account, like any other “customer who speculated in securities.” His margins in these speculations consisted of whatever credit balance there was in this, account. There can be no doubt from the evidence that E. H. Norton & Co. knew that Cassidy was the agent of plaintiffs. Nor can there be the slightest doubt, irrespective of any knowledge of the limitation of the terms of the agreement of employment or the powers of attorney, that Norton & Co. had knowledge that Cassidy had no right to-use the checks made payable to the order of the plaintiffs for his own speculative stock account. Being made payable to plaintiffs', prima facie they belonged to plaintiffs, and could only be transferred by proper indorsement by them or their duly authorized agent. It appears that the first of these checks came in indorsed only in the name of plaintiffs in the handwriting of Cassidy; which Norton & Co. knew; and that, some question being raised, he indorsed his own name under that of Salen & Schroeder. • It appears from the testimony of several of the clerks' of Norton & Co. that these checks were the subject of question and doubt in that office. Norton & Co. were thus put upon their inquiry; first by the signature, second by their knowledge that Cassidy was an agent. It was their duty to inform themselves of the character of this agency, and its powers and limitatións. It does not appear that they made any inquiries. It is claimed that, as Salen & Schroeder resided in Paris, it would have been useless to have inquired of the only person, Cassidy, who was available. But the cable extends under the Atlantic, and the post is reliable. An inquiry by either means

Is the bank which received these checks for collection from Norton & Co., and returned to them the proceeds thereof, likewise liable to the plaintiffs as for a conversion ? Plaintiffs’ counsel states in his brief:

“The bare truth of the case is that the defendant bank has taken plaintiffs’ checks on the faith of a forged indorsement, guarantied by Norton & Co., but that Norton & Co. took the checks with every reason to understand just what Cassidy was doing.”

The learned trial court, in directing a vedict for the plaintiffs, said:

“The act of Cassidy in indorsing or signing the firm name upon the checks in question and turning the same over to E.. H. Norton & Co., for the purpose of having the same applied to his own use and benefit, was ultra vires, and hence did not divest the plaintiffs’ title thereto, nor was this title affected by the deposit of the checks by Norton & Co. with the defendant bank, although it received the same in good faith. It results from these views that the signatures or indorsements of the plaintiffs’ firm name upon the checks in suit were forgeries. In this view, such indorsements or signatures under section 42 of the negotiable instruments law were wholly, inoperative as against the plaintiffs.”

Section 43, c. 613, p. 737, of the Laws of 1897 (the negotiable instruments law), is as follows:

“Where a signature is forged,® or made without authority of the person whose signature it purports to be, it is wholly inoperative, and .no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such fight is precluded from setting up the forgery or want of authority.”

It is clear from the record that Cassidy had the right to indorse the plaintiffs’ name to checks for purposes of collection, and to deposit the same to the credit of plaintiffs in the Fifth Avenue National Bank. It is equally clear that he had no such power to indorse their name and divert said checks to E. H. Norton & Co. for the purpose of carrying on therewith a speculative stock account. Did the diversion, after indorsement, make the original indorsement a forgery ? Is the defendant, who, without knowledge of any of the facts known to Norton & Co., in good faith received the checks for collection, collected the sums due thereon, and paid said sums over to Norton & Co., liable as for a conversion ?

We proceed to consider the cases cited and relied upon by the plaintiffs. Schmidt v. Garfield Bank, 64 Hun, 298 , 19 N. Y. Supp. 252 , affirmed 138 N. Y. 631 , 33 N. E. 1084 . In this case one Lingard was the bookkeeper of C. A. Schmidt. There was testimony that Schmidt kept his account in the Chemical National Bank, and that he had a rubber stamp, “For deposit in the Chemical National Bank,” and that Lingard had authority to use this stamp upon the back of checks, and to write plaintiff’s name thereunder for the purpose of depositing the

“Pay to the order of H. K. Leonard, Thoinas M. Beare per H. B.. Leonard, attorney for deposit, Chemical National Bank. H. K. Leonard.”

He deposited the check in the Chemical Bank, which collected the amount thereof .from the Manhattan Company, and placed it to the individual credit of Leonard, who subsequently checked out the same for his own use. The court said:

“The authority which Leonard had, as agent, to collect the rent and transact other business for Beare, gave him no legal authority to indorse this check, and his indorsement thereof was just as ineffectual to pass any title as if he had forged Beare’s name. * * * That an action for conversion will lie in such a case has never been doubted.”

Here, again, the action was against the bank which dealt with the wrongdoer. Citizens’ National Bank y. Importers’ & Traders’ Bank, 119 N. Y. 195 , 23 N. E. 540 . The plaintiff, an Iowa bank, had funds on deposit with defendant sufficient to meet certain bills of exchange which it drew on defendant in favor and to the order of Wadsworth & Co. Wadsworth & Co. indorsed these, drafts to certain creditors in payment of their accounts, and delivered them to their bookkeeper to be sent off. He erased the indorsements, forged others, and used the paper for his own purposes. It thereby came into other hands and through the Fourth National Bank was presented to and paid by the defendant. After the forgeries were discovered, and upon return to the plaintiffs of the drafts from the defendant, Wadsworth & Co. demanded and obtained them back from plaintiff and indorsed them to one W. for collection. He was refused payment of them by

In People v. Bank of North America, 75 N. Y. 547 , one Phelps was a clerk in- the State Treasurer’s office. Ten drafts payable to the order of the Treasurer had been delivered at his office. It was no part of Phelps’’ duty to indorse drafts. He had no authority to do so, expréss or implied. He did indorse eight of these drafts, and diverted them from their proper use. The defendant took these drafts with the forged indorsements from persons in the wrongful possession of them,- collected the money upon them, and surrendered them up to the drawees. Judge Earl said “that, under such circumstances, it can be sued for a conversion of them is well settled in this state.” Two other of the drafts were indorsed in blank by the deputy treasurer, who had authority to indorse them, and delivered to Phelps for deposit in one of the legally designated deposit banks in Albany. Phelps filled up the blanks in the indorsements with the name of Hudson, the cashier of a firm of private bankers in New York, and delivered the drafts to that firm,' and from it the defendant took them. “The general principle that when an agent is intrusted with negotiable paper for a 'particular purpose, and fraudulently diverts it to , another purpose, a person taking such paper or dealing in it in good faith will be protected, is not disputed by the. .plaintiffs. * * * To conclude the whole discussion, in the final analysis of this case, the claim of the defendant to the sight drafts may be answered by

Considering these authorities together, and applying them to the case at bar, I reach these conclusions: Cassidy was in lawful possession of the -checks as the agent of the plaintiffs. He had a clear right to indorse them ,in the name of the plaintiffs. After he indorsed them he diverted them unlawfully to his own use by delivering them to E. H. Norton & Co., to be credited to his own speculative stock account. Norton & Co. are chargeable with responsibility for their participation in this wrongful act. Upon the evidence as it appears there is not a suggestion in the 'case that defendant had notice, knowledge, or suspicion tending to impeach the checks. Norton & Co. in the regular cpurse of business transmitted the checks to defendant for collection, defendant collected the proceeds thereof, and long before any demand from plaintiff, and without notice, paid over said proceeds to Norton & Co. As to the defendant bank, these checks were negotiable instruments, having been received without notice, in good faith, and for value, the bank not owing any duty to the plaintiffs as depositors, not being in possession of the proceeds at the time of demand, and having had no dealings with Cassidy, the wrongdoer, this action for conversion will not lie. As said by Mr. Justice Hatch in Bank of America v. Waydell, 103 App. Div. 35 , 93 N. Y. Supp. 666 :

“Where there were general indorsements carrying perfect title, and no knowledge of the limited title of the person making the transfer was brought home to the party or bank receiving it, the transactions assumed the form of dealing with instruments payable upon presentation, without notice of any limitation or defect in the title. Under such circumstances the courts have supported these actions in favor of the party dealing upon the faith of the instrument mainly upon the ground that it was essential to protect such right in order to give stability to business methods as a necessary element of commercial law.”

The exceptions to the direction of the verdict for the plaintiff, and to the refusal to direct one for the defendant, are sustained. The order denying the motion to set aside the verdict and for a new trial is reversed, and a new trial granted, with costs to the appellant to abide the event. All concur.