Case ID: misc_93/html/0541-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Bijur, J. Guy, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Jacob Siegel, Respondent, v. Harry Kovinsky, Appellant.
    (Supreme Court, Appellate Term, First Department,
    February, 1916.)
    Negotiable instruments — indorsement of check—conversion — action for goods sold and delivered — when checks not regarded as payment.
    A check, for judicial purposes, cannot be regarded as having been paid unless the amount therein called for has been paid either to the payee or to one authorized by him to indorse his name thereon.
    Where a wrong-doer, in the absence of such an indorsement, appropriates a check, the payee may either recover from the maker as his debtor or from the bank upon which the check is drawn as for conversion of the check or of its proceeds by their payment to one other than the payee.
    On the trial of an action for goods sold and delivered brought by a liquidating partner defendant who had pleaded payment testified that one S, representing the partnership, sold him three lots of goods for which he received three separate bills which he paid by three separate checks drawn to the order of the partnership and given on three different occasions to S, who marked the bills “ paid,” and gave two of the cheeks to plaintiff's assignors who accepted, deposited and collected them and converted the third cheek to his own use. Held, that a judgment in favor of plaintiff will be affirmed on the principle that the checks in controversy could not be regarded as payment.
    Appeal by defendant from a judgment of the Municipal Court of the city of New York, borough of Manhattan, second district, in favor of plaintiff, after a trial by a judge without a jury.
    Loeb, Bernstein & Ash (Max Ash, of counsel), for appellant.
    Samuel Hoffman, for respondent.
   Bijur, J.

Plaintiff sued for goods sold and delivered. Defendant pleaded payment. Plaintiff is the liquidating partner of the partnership of Siegel & Scheinbaum, which was doing business under the name of the S. & S. Silk Mills.

Defendant testified that one Schrager called upon him representing the S. & S. Silk Mills and sold him three lots of goods. Defendant received three separate bills for these goods and paid the bills by three separate checks drawn to the order of the S. & S. Silk Mills and given on three different occasions personally to Schrager, who then marked the bills “ paid.” The first two of these checks Schrager gave to plaintiff’s assignors, who accepted, deposited and collected them. The third check Schrager converted to his own use by forging ■ the payee’s endorsement. One of plaintiff’s assignors testified, without contradiction, that Schrager was merely a salesman on a twenty per cent commission basis with a drawing account of five dollars a week, without authority either to collect money or endorse checks, and he added, speaking of the time when Schrager brought in the first two checks, “ I told him distinctly that I did not want him to bring me down these checks any more. I said '1 do not want you to collect money for me, I can go myself. ’ ” Defendant, however, was never notified not to pay Schrager.

On this appeal, nothing but a question of law is- involved. We may start with the principle laid down by Rapallo, J., in Thomson v. Bank of British North Am., 82 N. Y. 1, 8: The case then presents the simple question whether a party paying his own debt by a check to the order of his creditor, or of a party nominated by his creditor, can be called upon to pay it again, in case the creditor loses or is defrauded of the check and it is paid to the finder or fraudulent holder, on a forged endorsement. "We think this ques-' tion should be answered in the affirmative, unless in some very special case, if such a case can be supposed, where the check was taken in absolute payment and extinguishment of a debt.” See also Smith v. Miller, 43 N. Y. 171, 173.

It being settled, therefore, that a check will not be regarded (except under extraordinary circumstances) as payment until it is actually paid, the question arises what significance is to be attached to its payment. To answer this question, it is .first necessary to determine what we mean by payment. For judicial purposes at least, a check cannot be regarded as having been paid unless the amount therein called for has been paid either to the payee or to one authorized by him to receive the proceeds, or to put it in a more popular phrase (almost invariably applicable) to one authorized by the payee to endorse his name thereon. In the absence of such endorsement, it has been held repeatedly by our highest court that where a wrong-doer has appropriated a cheek, the payee may either recover from the maker as his debtor (Thomson v. Bank, supra; Talbott v. Bank of Rochester, 1 Hill, 295) or from the bank upon which the check is drawn as for conversion of the check or of its proceeds by their payment to one other than the payee. Robinson v. Chemical Nat. Bank, 86 N. Y. 404 (which expressly approves the opinion in the court below, reported in 10 W. Dig. 315). See also Johnson v. First Nat. Bank, 6 Hun, 124; Burstein v. Peoples Trust Co., 143 App. Div. 165.

There are, it is true, a number of expressions in the opinions in some cases which intimate a contrary rule, but when the cases are examined it will be found that they actually proceed upon the accepted general principle, but that the agent in those cases who endorsed was one who held the principal’s adequate general or special authority in the premises. Thus it is said in one of the cases that if the agent ‘ ‘ was authorized by the plaintiffs to receive this check from the defendant, any misappropriation of its proceeds by him is at the risk of the party who set him in motion and put it in his power to perpetrate the wrong; such party must suffer rather than the party who is in nowise accountable for, and has no control of the perpetration of the wrong ” (from Sage v. Burton, 84 Hun, 267), and again, that “ there is no reason why the maker of the cheek should be subjected to expense and the hazard of a law suit to rectify the fraud committed by' the payee’s agent ” (from Morrison v. Chapman, 155 App. Div. 509, 515, quoting from Burstein v. Sullivan, 134 id. .623). There is language of the same import in Allen v. Tarrant & Co., 7 App. Div. 172 and Morris v. Hofferberth, 81 id. 512. On examination of the facts in these cases, however, it will be found, for example, that in the Morrison case, at page 510, it is said that the agent was authorized among other powers “ to collect money from customers and transmit such moneys to defendants (payees) in checks or cash as the case might be.”

In the Sage Case (supra), “ The plaintiff (payee) did not say that Cook (the agent) was not authorized to receive or endorse them (namely, the checks).” Indeed, it was pointed out that plaintiff, the payee, had prior to the institution of the suit brought a criminal proceeding in which he charged his agent with grand larceny of the proceeds of the check — a charge which necessarily proceeded upon the theory either that the agent had been previously authorized to endorse and collect the proceeds of the check, or that his action in so doing had been ratified by the payee. In the Morrison case it is mentioned that the learned trial judge left it to the jury to say whether “ this general and sweeping authority ” was given to Abbott (the ag’ent). In other words, in these cases, and others to the same effect, the agent was either a general manager with general authority to do the payee’s entire business, or had specific authority to indorse checks, and no doubt it was this authority to which the opinions in these cases refer when they use expressions like “ authority to receive checks,” etc. For surely no greater authority to collect, or receive the proceeds of a check is to be presumed in favor of one who merely goes from the payee’s place of business to physically gather in the debtor’s checks than in a bookkeeper or other employee who remains at the payee’s place of business and physically secures control of these checks by opening the mail. Yet, in cases disclosing the latter state of facts, it has been invariably held that the bookkeeper’s forging the payee’s name does not relieve the maker of the check as upon payment. Bernheimer v. Herrman, 44 Hun, 110; Dowdall v. Borgfeldt & Co., 113 N. Y. Supp. 1069.

Whether an agent, other than one in general charge of the payee’s business, having authority merely to collect money, is thereby impliedly authorized to endorse checks in the payee’s name, does not seem to •have been passed upon directly by the Court of Appeals. The decision in Prochowick v. Boyd, 15 N. Y. St. Repr. 809, affd., 119 N. Y. 641, does not go so far. But there is no pretense in the instant case that the employee, Schrager, had authority even to receive or collect money on behalf of plaintiff’s assignors, and certainly none to endorse plaintiff’s name on checks. Since, therefore, he was not authorized and does not claim that plaintiff held him out, expressly or impliedly, as having had such authority, there is no room for the application of the doctrine of estoppel. As is pointed ont in Schmidt v. Garfield Nat. Bank, 64 Hun, 298, 306-307, this principle would apply only in the event of a holding out of the payee that the employee has that authority, and cannot be invoked merely because, or even if, the payee were careless in the transaction of his business. Nor can a judgment in favor of defendant be justified by mere reasons of convenience, namely, that, it would be unjust that the defendant should be subjected under these circumstances, first, to a suit by the plaintiff (his creditor) to pay the amount of the original indebtedness, and then compel him to bring another suit against his bank to have re-credited to his account the amount of the check improperly charged against him. It is no defense to the claim of a creditor whose debt has not been paid to assert that he must consider it, as paid because otherwise the situation will cause trouble and embarrassment to his debtor. Moreover — although I am not clear that such embarrassment need really exist,

I cannot see why this same argument should not be applied if the maker of the check handed it directly to his creditor, the payee, and then some other person by fraud or accident secured the' check and realized thereon by a fraudulent endorsement. The maker would certainly in that case suffer the same inconvenience, yet it is clear upon every precedent that he could not successfully plead payment of the debt. The same consideration prevents our regarding the mere receipting of defendant’s bill as paid upon delivery by him of the check to the agent as sufficient evidence that the check was received as payment. That conclusion certainly would not follow if the payment were made to, and the receipt given by, the principal himself, and no greater significance can attach to the same acts on the part of the agent. Thomson v. Bank, supra.

There remains then but one case which requires consideration, Burstein v. Sullivan, supra, 134 App. Div. 623, in which the payee, under similar circumstances, was not permitted to recover from the maker the amount of the check which had been fraudulently endorsed, but was, in Burstein v. Peoples Trust Co., supra, 143 id. 165, permitted to recover the proceeds as upon conversion from the bank that had paid the proceeds to the fraudulent endorser (a dishonest employee of the payee). It seems to me, although it is insisted in the latter case that, the remarks to that effect in the opinion in the earlier case were obiter, that the first case proceeded on the assumption that the employee was authorized to do the payee’s general business and that his endorsement on the check was therefore substantially that of the payee. Indeed, in distinguishing the Bernhevmer and the Dowdall Cases, supra, the opinion in Burstein v. Sullivan says in neither was the agent who made the endorsement on the check a general manager,” and also “ a payment to Mille (the employee) in cash would have been a payment to plaintiff, though he had stolen the money.” See also Cluett v. Couture, 140 App. Div. 830', 833.

On the whole, therefore, I think that the case at bar has been properly decided in favor of plaintiff on the simple principle that the checks in controversy cannot be regarded as payment of the debt from the maker to the payee until or unless the checks have been paid to the payee or one duly authorized either expressly or impliedly to receive the proceeds thereof on his behalf.

Guy, J.

(concurring). I concur with Mr. Justice Bijur in believing that the higher court could not have meant to-lay down the general rule that a mere naked authority to collect or receive checks carries with it power to endorse the principal’s name on such checks and convert them into cash. In the case at bar there is no proof of general authority in Schrager as agent, and only an implied authority to receive checks. The rule that if one of two innocent parties must suffer through the misconduct of another it should be the one who reposed trust in him and thus empowered him to act is not applicable. The defendant has parted with nothing: He is entitled to be paid, upon demand, the full amount deposited by him in bank, less all payments authorized by him. The payment of the check in controversy, on a forged endorsement, was not a payment authorized by'defendant, who only authorized payment to the payee or upon his genuine or authorized endorsement. He stands exactly where he did before. Plaintiff’s rights cannot be affected by the bank’s refusal to perform its obligation to defendant.

Judgment affirmed, with twenty-five-dollars costs.