Court Opinion

ID: 5369774
Source: CourtListenerOpinion
Date Created: 2022-01-08 08:06:43.122817+00
Date Added: 2024-06-11T08:29:59.482798
License: Public Domain

Bliss, J.
(dissenting). Plaintiff’s assignor Behan carried a checking account in the National City Bank of Troy in the name of “ Joseph C. Behan, Jr., Special Account.” On April 21, 1931, he drew his check on this account payable to the order of Hanora Kennedy for $5,347.17 and delivered it to William J. O’Connell, a real estate agent of Watervliet, to deliver to Mrs. Kennedy. O’Connell had the check certified on April 23, 1931, and then instead of delivering the check to the payee, he indorsed her name thereon and deposited it in an account of his own at the National Bank of Watervliet in the name of “ The O’Connell Agency.” The check was then indorsed and presented by the Watervliet bank to the defendant National City Bank of Troy which paid it and charged the amount against Behan’s account. The forgery was not discovered until November, 1937, and in April, 1938, this action was brought by Sweeney as the assignor of Behan to recover)'the amount of the check and interest. The complaint alleges- a cause of action based upon the foregoing facts. By way of defense the National City Bank of Troy alleged that the moneys in Behan’s special account did not belong to him but were the property of the Troy Savings Bank and also that O’Connell had on April 23, 1931, paid over to Hanora Kennedy $5,133.67 of the amount he collected on the check on which he had forged her indorsement and that the remaining $213.50 of the proceeds of the check had been retained by O’Connell with the knowledge and consent of Mrs. Kennedy in payment of services rendered by *425him to her. Upon the trial it developed that the alleged defenses arose out of these circumstances. O’Connell, a real estate agent, had permission from Hanora Kennedy to sell her Watervliet premises for $10,000 and he was to receive a $200 commission in case of sale. He arranged a sale to a Mr. and Mrs. Shay. O’Connell forged a deed of the property from Kennedy to the Shays and by means of this deed obtained from the Troy Savings Bank a loan of $6,000 to the Shays secured by their mortgage on the property. Behan was the attorney for the savings bank. Instead of the $6,000 proceeds of the mortgage being paid over to the Shays, it was by their order placed with Behan upon his understanding with the Shays that he was to pay certain taxes and expenses connected with the mortgaged premises and transaction and pay the balance over to Hanora Kennedy in their behalf. The savings bank gave Behan its check for $6,000, which on April 21, 1931, he deposited in his special account in the appellant bank. Out of this he paid $652.83 for taxes and other expenses and gave to O’Connell his check for the balance of $5,347.17 payable to Mrs. Kennedy. On April 23, 1931, O’Connell closed the true sale to the Shays at which closing the Shays, Mrs. Kennedy, her attorney and O’Connell were present. At that time Mrs. Kennedy gave to the Shays a true deed of the. premises, took back from them a $4,000 mortgage and received from O’Connell on their behalf the Watervliet bank cashier’s check for $5,133.67. O’Connell retained $213.50 as his commissions and accounted for the remainder of the $6,000 by the payment of taxes and other expenses which had in fact been paid by Behan. Hanora Kennedy and the Shays were innocent parties in these transactions. The Troy Savings Bank then believed that it had a first mortgage for $6,000 on the Shay premises and Hanora Kennedy then thought that she had a first mortgage for $4,000 thereon. O’Connell’s forgeries were not discovered until early November, 1937. Hanora Kennedy died in November, 1937, but before she died she brought action against the savings bank and others in which it was adjudged that her $4,000 mortgage was superior to the $6,000 savings bank mortgage, the $4,000 mortgage was foreclosed and the premises were sold for less than enough to clear it so that the savings bank lost its entire loan. Both Behan and the savings bank have assigned their claims against the defendant bank to the plaintiff Sweeney.
There is no question but that the plaintiff is entitled to recover from the defendant bank the amount which it improperly paid out upon the forged indorsement unless he is estopped by O’Connell’s payment to Hanora Kennedy of the proceeds of the check. (Shipman v. Bank of State of N. Y., 126 N. Y. 318; Prudential Ins. *426Co. v. National Bank of Commerce, 227 id. 510; Strang v. Westchester County Nat. Bank, 235 id. 68; National Surety Co. v. Manhattan Co., 252 id. 247; City of N. Y. v. Bronx County Trust Co., 261 id. 64.) It was the bank’s contractual duty to pay out the money on deposit in Behan’s special account only to a person designated by him and when it paid upon a forged indorsement of that person it was not fulfilling its contract. The only question here then is whether plaintiff is now estopped from recovering damages for defendant’s failure to perform its contract because the proceeds of the check were actually paid by O’Connell to Hanora Kennedy. This equitable defense of estoppel must be based not upon the theory that the order of Behan was actually carried out but rather upon the proposition that Behan has already been benefited to the extent of the payment by O’Connell to Kennedy and, therefore, may not recover again this same amount as damages. He may not have a double recovery. Or, to put it the other way, he has not been damaged, because the amount of the benefit accruing to him from the payment of O’Connell to Kennedy is equal to the amount of damage which he claims by reason of the bank’s breach of its contract.
It is obvious that O’Connell’s two forgeries were all part of one plan or scheme and that each was necessary to the accomplishment thereof. They were so closely related as to be part of a single transaction. When Behan, out of an abundance of caution, made his check payable to Hanora Kennedy it was with the intent that it be actually delivered to and indorsed by her. His order was that the moneys which were thus being paid by the Troy Savings Bank as a loan to the Shays upon their mortgage should go direct to their grantor and become a part of the purchase price. Unquestionably the payment of these moneys direct to Mrs. Kennedy by the bank or its attorney, would have affected the result of the action in which Mrs. Kennedy sought to have her mortgage declared superior to that of the savings bank. The savings bank would have been in a much better position and who can say what would have been the result of direct knowledge on the part of Mrs. Kennedy that the $6,000 which she was receiving as the cash portion of her sale to the Shays was coming from the Troy Savings Bank or its attorney? The fake deed from Kennedy to Shay and the mortgage from Shay to the savings bank were then on record. Discovery of these facts would have stopped the entire transaction and prevented the loss to the savings bank. Delivery of Behan’s check to Mrs. Kennedy would have revealed the source of the money which she was then receiving. I recite these possibilities only to show that each forgery by O’Connell contributed to and *427made possible the acceptance by the savings bank of a mortgage based upon a forged deed and the payment by it of $6,000 therefor. The basic fault with the defense of estoppel in this instance lies in the fact that neither Behan nor the savings bank received any benefit from the payment by O’Connell to Hanora Kennedy of the proceeds of the check. At that time neither Behan nor the bank was indebted to Hanora Kennedy or the Shays. The first deed from Kennedy to the Shays was a forgery. There was no enforcible obligation from the bank to either the Shays or Kennedy and the bank owed them nothing. Thus when O’Connell paid Mrs. Kennedy the moneys which he had obtained by forging her name to the deed and check, Mrs. Kennedy was getting the bank’s money without giving anything for it in return. O’Connell conferred no benefit whatsoever on either Behan or the savings bank by such payment. The payment by O’Connell to Hanora Kennedy not only did not benefit Behan or the savings bank but it was a part of the consummation of his plan whereby the savings bank loaned its money on a worthless mortgage. It made the loss possible. Therefore, this payment does not prevent a recovery by the plaintiff of damages resulting from the bank’s failure to carry out its contract with its depositor. Behan has had no double recovery.
That there must be an equivalent benefit to the depositor before he is estopped from recovering the amount of his damage by reason of the bank’s failure on its part of the contract, is the reason for the following language of Judge O’Brien in Shipman v. Bank of State of N. Y. (supra): “ As it was not shown that such payment was made at the expense or to the injury of the defendant, or that the plaintiffs were benefited by it, beyond their whole loss, the cause of action stated in the complaint was not affected by the fact. It is, no doubt, true that payment or indemnity to the payees of checks diverted as these were, made by the wrong-doer, might, under certain circumstances, constitute a basis for equitable relief in an action of this kind, but the proof did not go far enough to warrant it in this case.” (See, also, La Montagne v. Bank of N. Y., 94 App. Div. 219; modfd., 183 N. Y. 173; S. C., 141 App. Div. 250; affd., 205 N. Y. 621.)
The appellant further contends that it was error to admit the evidence of the fraud upon the savings bank as not within the pleadings and that such error led to a judgment on a cause of action not sued upon and based wholly on the alleged unrelated loss of the savings bank. However, it was the defendant which, by its pleadings first alleged that the money on deposit in Behan’s special account belonged to the savings bank and not to Behan and that the payment of these moneys by O'Connell to Kennedy prevented *428a recovery here. Proof of the entire transaction was, therefore, not only competent but was made so by the defendant’s attempt to establish these defenses. The plaintiff made out a prima jade case when he showed that the defendant bank had charged Behan’s account with the amount which it had paid out on the forged indorsement. The remaining facts related to defenses and it was competent for the plaintiff to show all of the facts surrounding the payment by O’Connell to Kennedy. Only by so doing could he establish the insufficiency of the defenses claimed.
The judgment should be affirmed, with costs.
Judgment reversed on the law and facts, with costs, and complaint dismissed, with costs.
The court reverses the following findings of fact contained in the decision: Numbers 16, 17, 19, 21, and any findings of fact contained in the portion of the decision captioned “ Conclusions of Law,” and the conclusions are disapproved.
The court makes the following finding of fact: That the primary cause of loss of plaintiff’s assignor’s client, the savings bank, was the latter’s negligence in failing to discover that the deed dated April 17, 1931, was a forgery, and the negligence of appellant in cashing the check with the forged indorsement did not make it legally responsible for the secondary negligence, if any.