Court Opinion

ID: 8814546
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:14:04.748713+00
Date Added: 2024-06-11T17:04:25.067410
License: Public Domain

MANTON, Circuit Judge
(dissenting). The defendant in error had money of the plaintiff in error on-deposit. It was subject to checking in withdrawals. The relation existing between the bank and depositor was that of debtor and creditor, and the bank can justify the payment on the depositor’s account only on actual direction of the depositor. Critton v. Chemical Bank, 171 N. Y. 218, 63 N. E. 969, 57 L. R. A. 529. In the case under consideration, payment was made without actual direction of the depositor, because of forgeries. The bank can only escape liability by affirmatively establishing (1) negligence of the depositor directly relating to and facilitating the forgeries; (2) omission of the depositor to use ordinary care in the examination of return, vouchers to the prejudice of the bank, thus estopping the depositor in making claim; and (3) by the bank establishing that it was guilty of no negligence in paying the forged checks. Leather Mfrs.’ Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811; N. Y. *275Produce Exchange Bank v. Houston, 169 Fed. 785, 95 C. C. A. 251; Morgan v. U. S. Mortgage & Trust Co., 208 N. Y. 218, 101 N. E. 871, L. R. A. 1915D, 741, Ann. Cas. 1914D, 462.
Unless the case be a plain one, whether each or any of these defenses has been established was a question of fact for the jury, and not one of law for the court. When the fraudulent alteration of the checks was proved, the liability of the bank for the amount was made out, and it was incumbent upon the defendant in error to establish affirmatively negligence on the part of the plaintiff in error to relieve it from the consequences of its fault or misfortune in paying on forged orders. Critton v. Chemical Nat. Bank, 171 N. Y. 224, 63 N. E. 969, 57 L.R.A. 529.
The question of negligence cannot arise unless the depositor has, in drawing his check, left blanks unfilled, or by some affirmative act of negligence facilitated the commission of the fraud by those into whose hands checks may come. Crawford v. West Side Bank, 100 N. Y. 50, 2 N. E. 881, 53 Am. Rep. 152. While it is true that the drawer of a check may be liable when he draws the instrument in such an incomplete state as to facilitate or invite fraudulent alterations, he is not bound, under the law, to so prepare the check that nobody else can successfully tamper with it. Belnap v. National Bank of Mass., 100 Mass. 380, 97 Am. Dec. 105.
Reading the prevailing opinion leads me to the conclusion that the court has decided the questions of fact which are presented by this evidence as questions of law, rather than permitting the submission of such questions of fact to the jury. The evidence is disputed, and the inferences to be drawn therefrom are in dispute. Reasonable minds might differ as to the conclusions to be drawn legitimately from such evidence, and such are typical questions for a jury’s solution. The leading authorities, which are binding upon us, and which áre considered in the prevailing opinion, illustrate the necessity for us to pronounce that a jury question is presented by the evidence here. The forgeries here were committed by an employe of the plaintiff in error who occupied the position of head bookkeeper and trusted executive. The forgeries in each instance consisted in the raising of the amounts of checks drawn by the plaintiff in error to “Bearer, Account Exchange,” after the checks had been drawn and were completed and duly signed. The checks were prepared by Hooper in his own handwriting, and thereafter signed by an officer of the plaintiff in error, and were presented to the bank by Hooper. After the signature, he committed the alterations resulting in the forgeries. The alteration of the check was made by the use of Collins’ ink eradicator. Some of the checks were stamped by a protectograph. In these instances, the stamp of the protectograph was obliterated by restamping. This alteration was plain and quite visible to the naked eye. This was also true of the change in the color of ink used.
The checks were drawn on voucher form and were numbered consecutively. It was not the practice of the officers of the company to examine the books; but this was left to its bookkeepers, including *276Hooper. He devised a system of keeping the accounts in the books of the plaintiff in error which covered up his forgeries and thefts. At the end of each month the returned vouchers, with the bank’s statement, were checked up and reconciled by Hooper, and also by an auditing accountant employed by the plaintiff in error. Because of this ingenious scheme of Hooper, they were found correct by the auditing accountant and were not detected. In issuing the checks to “Bearer, Account Exchange,” a method was pursued by which the officers of the company reimbursed plaintiff in error for petty cash taken as needed in the management of the business.. The plaintiff in error’s method of bookkeeping and method of checking up the accounts cannot be said to be antiquated, much less a negligent method. Hooper was shrewd and clever enough to deceive his colaborers in the plaintiff in error’s employ, including the auditing accountant. But there was sufficient indication to a prudent paying teller at a bank to put him on notice of the alterations made by the protectograph stamp, if, indeed, the alteration in the figures should not have been discovered. This is not the case as should be disposed of by the court as a question of law.
In Critten v. Chemical Nat. Bank, 171 N. Y. 224, 63 N. E. 971, 57 L. R. A. 529, Judge Cullen said:
“In the present case the fraudulent alteration of the checks was not merely in the perforation of the additional figure, hut in the obliteration of the written name of the.payee and the substitution therefor of the word ‘Cash.’ Against this latter change of the instrument the plaintiffs could not have been expected to guard, and without that alteration it would have no way profited the criminal to raise the amount. Apart, however, from that consideration, the question was clearly one of fact, to be determined largely by an inspection of the checks themselves.”
The bank cannot be excused from its negligence upon the theory that there was neglect by the depositor in examining the returned vouchers. If the bank’s officers, before paying the altered checks, could, by proper care and skill, have detected the forgeries, then it cannot receive a credit for the amount of those checks, even if the depositor omitted all examination of his account. Leather Manufacturers’ Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811. This doctrine enunciated in Leather Manufacturers’ Bank v. Morgan et al., supra, was accepted by this court in New York Exchange Bank v. Houston, 169 Fed. 785, 95 C. C. A. 251, and was so interpreted by the Sixth Circuit in the First National Bank v. Fourth National Bank, 56 Fed. 967, 6 C. C. A. 183. In the New York state court, the general rule is that a bank may pay and charge to its depositor only such sums as are duly authorized by the latter, and, of course, a forged check is not authority for such payment. The bank may escape liability for the repayment of amounts paid out on forged checks, by establishing that the depositor has been guilty of negligence which contributed to such payment and that it has been free from any negligence. Morgan v. U. S. Mortgage & Trust Co., 208 N. Y. 222, 101 N. E. 871, L. R. A. 1915D, 741, Ann. Cas. 1914D, 462. But as Judge Harlan said, in Leather Mfrs.’ Bank v. Morgan, supra:
*277Where there is “fair ground for controversy as to whether the officers of the bank exercised due caution before paying the altered checks, * * * it was not proper to withdraw the question from the jury.”
Of course, the depositor owed a duty of some examination and verification of its account with the bank when the passbook and vouchers were returned. In this they guarded against a continuation of subsequent forgeries and thefts; but such examination means the exercise of ordinary care, either personally or by some authorized agent. The bank cannot justly complain, after such examination, if forgeries were not discovered by such examiner until it was too late to retrieve. Leather Mfrs.’ Bank v. Morgan, supra; Frank v. Chemical Nat. Bank, 84 N. Y. 209, 38 Am. Rep. 501.
When, having obtained from the bank a list of vouchers and balanced passbook, which were intended to give and did give them a correct basis for comparison and verification, the plaintiff in error, by its agents, made an examination and reconciled the accounts, the care with which such examination is made, and whether it was ordinary prudent vigilance, is a question for the jury. Morgan v. U. S. Mortgage & Trust Co., supra. The following language was quoted with approval in Leather Mfrs.’ Bank v. Morgan, supra:
“The alleged duty, at most, only requires the depositor to use ordinary care; and if this is exercised, whether by himself or his agents, the bank cannot justly complain, although the forgeries are not discovered until it is too late to retrieve its position or make reclamation from the forger.”
In National Bank v. Tacoma Mill Co., 182 Fed. 1, 104 C. C. A. 441 (C. C. A. 9th Dist), there was an examination of the bank’s' balance. The deposit slips and checks upon such examination did not reveal the forgeries. Accounts were reconciled, as in the case at bar, and there the court approved a direction of the verdict fastening liability on the bank, saying:
“If those statements tally with the deposit slips made up by the depositor and the checks drawn against the bank, and if the balances agree one with the other, the depositor is not obliged to look further, nor to bear in mind some irregularity that may appear elsewhere in his general books, although a searching inquiry might lead to a discovery of the fraud. T|he present case is illustrative of the principle. The mill company was unable to ascertain what had happened, until it sent out to its customers for statements of their accounts and called in experts to determine the condition of its books. It was then discovered that the Mandan Mercantile Oompany credit was given on April 5th, which gave a clue to the line of inquiry, and led to a discovery of the fact that that item did not appear in the bank deposit, as it should have done; and it was found that, if the items in the mill company’s cash account had been checked with Ote deposit account, it would have shown that this item had not been deposited, although it is probable the cash had been drawn from the bank, in this particular instance, and put in the cash drawer of the mill company. The iuqtiiry which the defendant would have had the plaintiff pursue to discover the fraud is collateral to an examination of the passbook and the record of checks drawn against the bank account, and it does not seem to us that the plaintiff was guilty of such negligence in relation thereto as that the question should have been submitted to the jury.”
In both the leading authorities considered and approved by the prevailing opinion (Leather Mfrs.’ Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811; Critten v. Chemical Bank, 171 N. Y. 219, 63 *278N. E. 969, 57 L. R. A. 529), the courts held the question of negligence of the bank and depositor in each case should be submitted to the jury.' Even though the depositor in the present case could be said to be es-topped because of negligent conduct or method of examination of the returned vouchers, this does not exempt the bank from liability for such forged checks as were paid before the depositor had an opportunity to examine the returned vouchers, and the plaintiff in error should prevail at least as to these sums.
In my opinion, upon this record, we should not decide as a question of law whether the plaintiff in error or defendant in error was negligent. Plainly they are questions of fact for the jury. The judgment should be reversed.