Court Opinion

ID: 3630889
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:10:28.566674+00
Date Added: 2024-06-11T07:45:36.175712
License: Public Domain

Upon forged endorsements the drawee banks have paid checks drawn by the plaintiff upon its bank accounts. By fraud of its assistant treasurer the plaintiff was induced to draw the checks to the order of the payees named therein. The guilty officer of the plaintiff then forged the names of the payees and appropriated the proceeds. If the plaintiff had used better methods of bookkeeping and had exercised greater vigilance in guarding against dishonesty of its employees the dishonesty of the assistant treasurer, in whom, it appears, the other officers of the corporation had great confidence, would have been discovered and he could not have obtained the checks and would not have had opportunity to forge *Page 336 
the endorsements upon them. Negligence in that respect would not, I agree, constitute a defense to an action brought by the depositor for breach of the bank's contract to pay out the moneys in the plaintiff's bank account, in accordance with directions of the depositor. Nor would such negligence give rise to a cause of action in favor of the bank (which the bank might interpose as a counterclaim) for damages consequent upon such negligence.
The cases cited in the opinion of Judge FINCH constitute decisive authority for that rule. Here there is more than mere failure by the depositor to use care in protecting itself against dishonesty of its employees. Here the evidence is sufficient to justify the finding of the jury that the plaintiff had notice that an employee was dishonest and the finger of suspicion pointed directly at the dishonest assistant treasurer. As the Appellate Division has pointed out in its opinion, one of the plaintiff's customers informed the plaintiff that it would discontinue business relations with the plaintiff because of the suspicious behavior of the delinquent officer in handling his account and manipulation of checks to his order and, as the Appellate Division also points out, other clerks in the accounting department strongly suspected that the depositor's bookkeeping accounts were seriously wrong. Closing its eyes to such notice, the plaintiff harbored a thief, though investigation would have disclosed previous thefts. The plaintiff, upon the representations of the thief, continued to issue checks to payees to whom it owed no moneys and then failed to examine the endorsements on the checks so issued to determine whether they were genuine.
In such case elemental principles of fair dealing place upon the depositor a duty to do more than merely examine the signature of the drawer on returned vouchers. Having notice that an employee was manipulating accounts and checks it was bound in its transactions with the bank to exercise care commensurate with the notice of the danger to which the bank would be subjected in carrying out its contract with the depositor. That might require a check-up *Page 337 
of returned checks with the entries of such checks in the depositor's book of account. Such a check-up would have shown that a large proportion of the checks were drawn upon misrepresentations of the depositor's dishonest officer and diverted by him. It might require, too, examination of the endorsement. (Prudential Ins. Co. v. National Bank ofCommerce, 227 N.Y. 510.) The facts in that case are strikingly similar to the facts in the case we are reviewing. There, too, checks to the order of named payees were delivered by a depositor to its agent, to be delivered by him to the payees, and the agent forged the name of the payee to the check and deposited the same to his personal account. There, too, the depositor received a complaint from a payee sufficient to give the plaintiff notice that its agent was dishonest, and the depositor would have discovered the forgery "if it had made any reasonable investigation of the check and documents in its possession" (p. 516). In that case a recovery by the depositor from the bank was reversed and a new trial ordered because the court had not submitted to the jury the question of fact whether the depositor was negligent and whether such negligence was a contributory cause of the bank's payment of the checks without discovery that the endorsement was forged. The court pointed out that under the circumstances of that case the jury might find that it was the duty of the depositor even to examine the endorsement of checks returned by the bank, citing Morgan v. U.S. Mortgage  TrustCo. (208 N.Y. 218). We have not in any later case departed from the rule there stated.
In this case these questions of fact were submitted to the jury. It found in favor of the defendant and, in my opinion, the Appellate Division correctly held that the defendant was entitled to the entry of judgment upon the verdict in its favor. Judgment should be affirmed, with costs.
LOUGHRAN, RIPPEY, LEWIS and CONWAY, JJ., concur with FINCH, J.; LEHMAN, Ch. J., dissents in opinion in which DESMOND, J., concurs.
Judgment accordingly. *Page 338