Court Opinion

ID: 5399774
Source: CourtListenerOpinion
Date Created: 2022-01-08 10:35:00.610713+00
Date Added: 2024-06-11T08:30:25.743094
License: Public Domain

Breitel, J.
(dissenting). The only serious question on which there is disagreement in this case is whether a depositor in a commercial bank can recover for negligence of the bank in the performance of its contractual duties.
It is argued, in general terms, that one who negligently breaches Ms contract is liable in contract and not in tort, at least usually. I know of no such rule. In fact, for years, it has been stated to be otherwise. Thus, Wharton wrote: “ Where a contract creates a duty, the neglect to perform that duty, as well as the negligent performance of it, is a ground of action for tort. Hence it is at the election of the party injured to sue either on the contract or the tort. ’ ’ (Wharton on Negligence [2d ed. 1878], p. 364.)
Our Court of Errors, as early as 1834, had tMs to say, speaking not only of intentional torts but of negligence: “ Not only in cases of implied, but also in cases of express contracts, if they create a duty, case will lie; for although there be an express contract, a party is not bound to resort to that contract — he may declare on the tort, and say that the party has neglected his duty.” (Butts v. Collins, 13 Wend. 139,154.)
Moreover, to attempt to analyze the instance case in terms of “ tort ” or “ contract ” is to engage in unprofitable pursuit, for the distinction in concepts is not so facilely drawn. “ Mere breach of contract, generally speaking, is not a tort. Yet the distinction between torts and breaches of contract is, ofttimes, so dim and shadowy that no clear line of delineation may be observed and no accurate or satisfactory defimtion of either may be formulated. [Citations.] Under each cause of action, whether framed in tort or on contract, default or breach of duty involves an injury. At times the same facts may warrant procedure ex contractu or ex delicto. At such times recovery is not conditioned on defimtion nor measured by a determination of whether it is grounded in a violation of a duty owing to another or in a breach of a contractual obligation.” (Greco v. Kresge Co., 277 N. Y. 26, 33-34; cf. Prosser on Torts [1941], pp. 6-10.) It should be noted here, too, that the court was not limiting its remarks to intentional torts, and the case involved negligently caused death.
The books are filled with cases where, although the relationship, the duty, and the breach of the duty arose in contract, there is liability in tort for the proximate and consequential *189damages, especially where, as here, the damages may not be encompassed by the scope of the contract. (See, generally, Prosser on Torts, supra, pp. 202-205 and cases cited therein.) Thus, for example, where a physician agrees to correct a physical condition and is unsuccessful, he may be liable to his patient for breach of contract (Colvin v. Smith, 276 App. Div. 9) or in tort for negligence in the performance of his undertaking (Colvin v. Smith, 275 App. Div. 1018), albeit the measure of liability is different. (See, also, Frankel v. Wolper, 181 App. Div. 485, affd. 228 N. Y. 582; Conklin v. Draper, 229 App. Div. 227, affd. 254 N. Y. 620, and Monahan v. Devinny, 223 App. Div. 547.) So, also, a common carrier may be liable in tort, as well as contract, to its passenger for harm resulting from violence and even insult. (Gillespie v. Brooklyn Heights R. R. Co., 178 N. Y. 347; Green Bus Lines v. Ocean Acc. & Guar. Corp., 287 N. Y. 309, 312.)
Even outside the fields of physical and mental harm and injury to reputation, namely, in the area of business relationships, entered into solely for pecuniary gain, the law has recognized the coincidence of tort and contract liability. Thus, a telegraph company which fails to accurately transmit and deliver a message is liable to the sender for the loss sustained by reason of his failure to gain a price advantage on a contract. Although the action may be in contract, the gravamen lies in negligence. (Pearsall v. Western Union Tel. Co., 124 N. Y. 256; cf. Western Union Tel. Co. v. Krichbaum, 132 Ala. 535, where it was held that a cause of action may be alleged in contract or tort.)
When the cases speak of tort being independent of contract they, obviously, do not mean total nonrelation to a contract in the sequence of events. They mean that the elements of the tort cause of action must be supplied independently of the contract, except insofar as the contract is necessary to establish the relation, and, perhaps, the scope of the duty, in which the tort is alleged to have occurred. None of this is strange. The fact is that, historically, the remedy for breach of promise originated in action on the case, and the more specialized remedy in assumpsit arose later.
It is also urged that, in the field of banking, the concept of negligence has been limited to the rule of defensive estoppel, that is, to preclude a depositor from recovering from a bank for breach of its contract, or to the special instance of the savings bank (Kummel v. Germania Sav. Bank, 127 N. Y. 488), where the courts have relieved the depositor of the harshness that *190would result from applying strictly the waiver provisions of the bank’s contract with its depositor. Again, I know of no such narrow restriction as a matter of policy or precedent.
There are many instances where a commercial bank has been held liable to its depositor in tort, as well as contract, for the proximate and consequential damages resulting from a breach of its contractual duty. There is the line of cases based upon the bank’s refusal to honor a properly-drawn check at a time when the depositor has a sufficient credit balance. (Wildenberger v. Ridgewood Nat. Bank, 230 N. Y. 425; Citizens Nat. Bank of Davenport, Iowa, v. Importers & Traders’ Bank, 119 N. Y. 195; Glennan v. Rochester Trust & Safe Deposit Co., 209 N. Y. 12, 17; Burroughs v. Tradesmen’s Nat. Bank, 87 Hun 6, affd. 156 N. Y. 663; Clark Co. v. Mount Morris Bank, 85 App. Div. 362, affd. 181 N. Y. 533; Wahrman v. Bronx Co. Trust Co., 246 App. Div. 220; Davis v. Standard Nat. Bank, 50 App. Div. 210; Allen v. Bank of Amer. Nat. Trust & Sav. Assn., 58 Cal. App. 2d 124.) The theory underlying the causes of action in these cases — whether in tort or in contract — rests upon the implied obligation of the bank to pay in accordance with the depositor’s order. A breach of this obligation resulting in damage to the depositor’s credit gives rise to either a tort or contract action. These cases are distinguishable from this case only in form; in the one, there is a wrongful refusal to pay, whereas in the other (the instant case), there is a wrongful payment. There is no difference in substance, for, in either event, the depositor is injured in his credit relations. His credit standing is the protected interest, an injury to which should motivate the court to prescribe a remedy in this case, as was done in the wrongful-refusal-to-pay cases. It may be that, as matter of proof, the consequences of the allegedly negligent payments were not foreseeable or that the causation will not turn out to be proximate, but remote. Before us, however, is not the proof but the allegations of a pleading which we are bound to accept as true for the purposes of this motion.
There are also other cases in which depositors have recovered in tort for breach of the contractual duty by the bank, for harm not clearly within the scope of the contract. One of these is Collins v. City Nat. Bank & Trust Co. of Danbury (131 Conn. 167,169). In that case, plaintiff opened a checking account with defendant bank. He cashed one of the checks at another bank which forwarded it to defendant for collection. Defendant returned the check with a slip marked “‘no account ’ ”. On its return, the bank which cashed it procured plaintiff’s arrest on *191a criminal charge of obtaining money by false pretenses. After acquittal, plaintiff instituted a tort action to recover damages for his arrest. The court sustained a verdict for plaintiff, holding that defendant bank owed him a duty to exercise reasonable care in ascertaining whether he had an account, and that a jury could find that it was foreseeable that the breach of that duty would result in exposure to criminal prosecution.
Admittedly, there are cases holding that a commercial bank which honors a check bearing a forged indorsement is liable in contract to the depositor, to the extent that his account has been drawn down, despite the fact that it acted in good faith and with utmost care. (Los Angeles Inv. Co. v. Home Sav. Bank, 180 Cal. 601; McCornack v. Central State Bank, 203 Iowa 833.) But this rule is no different from that which obtains generally in the law of contracts. This is, however, far from establishing the further principle that a contract obligation precludes the existence of a tort standard of care and remedy for its breach. No case involving a forged indorsement has been cited for that proposition.
Now, as noted earlier, it has been asserted that the word “ negligence ”, when used in a number of New York cases involving actions by depositors to recover payments made on forged indorsements by commercial banks, has merely been a reference to defensive estoppel or the conditions under which the bank is enabled to avoid its contractual liability, that is, it is not a reference to .an independent tort. The cases do not bear this out. Defensive estoppel, an extension of the general rules applicable to estoppel, is distinct from cause of action for negligence. It has been held that, even where the tests of estoppel are not met, the bank may have a cause of action in negligence against the depositor. (National Sur. Co. v. Manhattan Co., 252 N. Y. 247; Potts & Co. v. Lafayette Nat. Bank, 269 N. Y. 181,189.) In the National Sur. Co. case (supra), the depositor instituted a contract action against its commercial bank to recover payments made on forged indorsements. The bank, for its defense, asserted that plaintiff was estopped by its carelessness and was liable in negligence as an offset to any recovery by plaintiff. The court held that, since the checks were paid prior to plaintiff’s discovery of the forgery, in which plaintiff did not participate, there could be no application of the doctrine of estoppel by carelessness. It also held, however, that, upon discovery, a depositor owes his bank a duty to make prompt disclosure of the forgeries, for the breach of which duty he is liable in negligence, provided, as in all negligence cases, the *192bank could establish that this breach of duty caused harm. Manifestly, if the bank may sue in negligence, so may the depositor. For reciprocal duties there should be reciprocal opportunity for redress, in kind. Certainly there is no artificial barrier between tort and contract wreaking injustice and inequality of remedy on the depositor.
England has developed a rule which goes even further than that of the National Sur. Co. case (supra). There, it has been held that a depositor owes to his bank a duty to anticipate and obviate forgery. Thus, where the depositor-drawer negligently permitted a forger in his employ to raise a check, the court held that he was liable for the loss caused the bank, namely, the difference between the amount as originally written and the amount of the raised check. |(London Joint Stock Bank v. Macmillan [1918], A. C. 777; Paget’s Law of Banking [5th ed. 1947], pp. 168-171; Falconbridge, Banking & Bills of Exchange [4th ed., 1929], pp. 582-585.) Paget sums up the duties of the bank and its depositor, thusly: ‘ ‘ Of course the banker must not be negligent; it is as much a part of his contract to take care as it is of the customer’s, and it is true that as a general rule he has himself to bear loss accruing from his negligence.” (Paget’s Law of Banking, supra, p. 166.)*
The relationship of depositor and bank is not a philanthropic or gratuitous one. There is profit to be gained, albeit indirectly sometimes, by both parties to the relation. Where the breach of contract, in the form of payment on a check bearing a forged indorsement, arises from negligence, with proximate and foreseeable harm beyond the scope of the contract and the contract measure of damages, the logic of the law and the sense of justice dictate the existence of a tort cause of action in favor of the depositor. I know of no rule or precedent that frustrates that logic, or should. It is shocking to me that a bank can be negligent, cause foreseeable gross harm to a depositor, and yet escape liability therefor, without even a stipulation for limited liability in its contract with the depositor. Yet that is the rule the majority would innovate, without sanction in authority or justification in policy.
*193The attacked cause of action is most inartfully pleaded. Certainly I would prefer a pleading more exact and more clear in spelling out the nexus of the ground for relief. But it is not necessary to discuss the formal infirmity of the pleading, for the majority has declared that no cause of action can he pleaded, and it is with that assertion that there is emphatic disagreement.
Accordingly, the order appealed from should be affirmed.
Peck, P. J., and Callahan, J., concur with Bergan, J.; Breitel, J., dissents and votes to affirm in opinion in which Bastow, J., concurs.
Order modified so as to grant defendant’s motion to strike out as insufficient the third cause of action and, as so modified, affirmed, with $20 costs and disbursements to the appellant. [See post, p. 871.]

In England, however, it should be noted, by express statutory provision (Bills of Exchange Act, § 60), the bank is relieved of liability to its depositor where, “in good faith and in the ordinary course of business,” it pays out on a check bearing a forged indorsement, even though it was negligent. (Paget’s Law of Banking, supra, p. 166; Falconbridge, Banking & Bills of Exchange, supra, p. 581.)