The sun., 1910-05-23
A FINE POINT or LAW CONCERN-
ING BANK CHECKS.

4
By the Court Of Appsals In the Havana Cen
tFAl Railroad Company w. the knickeF-
booker Trust Company. which reversas q
decision By the Appellate Division Oi the
| First Department e. 20 the extent 20 which
q bank OF trust company must 30 20 assure
itself that a check drawn BY an Oliicer Of Z
corporation who has power 70 draw oheohs
and deposited 10 hls Individual account is
not a mlsaDprOpriAtiOn Of funds Of the cor
DOrati0R. especially Il tho corporations own
banking agent has already passed tbs check,
The Appsllats DivisiOn's ruling caused
the American Bankers Association. the
New YOgk State BanksrS Association and
the Trust COmpAhiss Association Of New
York 10 ask permission Of the Court of Ap-
pSals 10 interviews and put In briefs In the
case. which vas granted 70 the two former
associations. Upon the argument Of The
caas the court suspended the rule Of twenty
minutes for each counsel and allotted all the
time desired. since counsel for the banks
had declared that the-TeasoninE Of the Ap-
pellAts Division and the dootrtns snuncl-
ated In the cass a. bar. n logically applied.
would subvert established usagos and prin-
ciples Applicable 10 dealings between banka
and hdUclariss.
The direct question At issue had never
been determined By the Court Of Appeals
Of this STATE before. although ~ ruling
sustaining q demurrer lnterp09od By the
defendant trust company waa IN limo with
decisions n other States. The knicker-
booker Trust Company elected 10 demuF
In order that other banking institutions
might have the courts ruling for future
guidance. when II might have dispoeed %
the casa with les eKpsnss By anawering
the complaint and declaring that II u had
made the inquiry demanded BY the com-
plant Il could have gone only 10 the oiiicer
Of the corporation Who drew and deposited
tho checks, since he was the treasurer
and the Ofioial In charge Of the corpora
tiOn's once In this city.
The Havana Central Railroad Company h
q New Jersey corporation and operates
railroad In Cuba. It's only Ofhcial In this
city was c. W Van vOorhis. tho treasurer
On February ~. 1909. he opened a deposit
account With the Central Trust Company
Of New York In the name of the railroad
company under an arrangement BY which
checks drawn upon said account we're 10
bear the signature Havana Central Rail-
road Company, c. W. Van YOOrhis. Treas
urer RetWeen April p and June IS.
ipOa. without the knowledge Of any other
oficer or employees Of tho railroad COM
pany, Van VooFhis drew and signed three
checks upOn this account With the Central
Trust Company. dated about a month apart,
for so. t0i. e3i .a44 and Oh. 900 respectively,
each payable 70 the order Of W ~, Green
wood. the purchasing agent of the com
pany, or 10 G W. Van VooThis Each was
signed Havana Central Railroad Company.
e " Van VOorhis. Treasurer D; was indorsed
nv Van voorhis and deposited by him In
his individual account with the knicker-
booker Trust Company.
The first and third checks we're accepted
and certified by the Central Trust Company
and the amount Of each check was paid by
the Central Trust Company 10 the defendant
and credited by the defendant TO c. W. Van
voorhis In his individual account. The
Central Trust Company charged such paw
ments to the plaintiff corporation. van
voOrhs drew upon his account with the
KnickerbOckeF Trust Company for about
month afterWRrd. and no question was
raised a. 70 the checks until long after the
treasurer had closed his indlv dual account
with the KnickerboCker Trust Company.
In its complaint the plaintiff alleged that
Van vOorhis had deposited the checks and
used the proceeds without authority: that
hs had no right 10 nae the company's funds
except for the purposes % the plaintiffs
business. and that notice or inquiry by the
defendant 10 and Of the plaintiff would have
revealed these facts and would have shown
that by drawing the cheeks In the form de-
scribed and depOsitlnG them 10 his individual
account with the defendant. Van VOorhis
was misappropriating and converting 20 hs
own Use The checks. The defendant did
not make such inquiry. and AccOrdingly the
plaintiff demanded of the trust company
The money represented BY the checks
In overruling the demurrer of tho de-
Division said
II vas money held By the defendant which be.
Ion aud 20 the plaintiff and of which fact the De.
fendant had kn0viedEe Was the defendant dis
charged from this liability hecause II had paid
Van voorhiss indiyid1A checks upon II with the
plaintiffs money! u world not have been iusti.
ned In paying ths money out ~ dischArEe ihe
individual debu Of the plaintiffs treasurer Al.
though the plaintiffs treasurer hal 70 ordered
IL was not alleged or claimed that The money was
paid for the benefit Of OF for me account Of the
nlslnun. The allegation. Whirh Is admitted Is
that this Treasurer having thus placed with ne
defendant hank a sum oi money whirh bel0nyed
70 the plsinun. Of which fact ne defendant vas
chArreable win enouiedge ordered ne defend.
ant 70 pay ont 70 third persons hy his individual
check and for hts own nenehL Itseerns 70 me clenr
that such a payment dld not discharge The Ohllra.
ton Of ne defendant 70 repay 20 the piaintin its
money That the defendant asd rrceived. and nat
therefore a cause Of action i alleged.
In his dissenting opinion Justice Scott
Judgment appealed from seems 70 me 90
extend the responsibility % persons deal
ing With trustees not only beyond anything
that has yet been judicially decided but
also beyond practicable limits.- Justice
Scott concluded.
The rule Of liability sought 20 he fastened
upon defendant Who bore no oontractual obll-
cation 10 the plaiutin. Il much more stringent
than could he applied 20 plaintiffs depOsltor,
bank for Van Noorhls might have drawn the
money In cash without imposing any legal obA-
cation Of Inquiry upon the depository hank,
or could Without necessarily Awakening suspi-
clOn have drawn checks 70 the order Of any
one except hlTn-elf even 20 pay his Individual
debts The defendant was q mere conduit
through which the money passsd. and the iudg
ment beioW In my opinion holds II 70 q quite
unreasonable responsibility and one which nnds
no direct support In any case 70 WhicA our atten.
lion has been called. In Ell Of thoss relied upan
by plaintiff there has been present the important
fart witch Il absent here that the bank or
individual 20 whom the diverted money was paid
received Il In pasmeni os dsot or IN some other
way reaped benefit from the payment
The counsel for the Knickerbocker Trust
Company IN their brief pointed out. ar.t
that the trust company got the checks for
deposit In good faith and under circum.