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[Vol. 125.

Fourth Department, March, 1908. tude with the defendant commencing in March, 1903. The plaintiff Kissel was the more active trustee and the business of the estate with the defendant was largely conducted by one Hennessey, a trusted employee of the plaintiffs. Hennessey had been for some time in the employ of Kissel on a farm in Morristown, N. J., where the latter resided, and shortly before the deposit was first made in the defendant bank Kissel transferred him to the office in New York, committing to him the charge of the books of this estate. The plaintiffs had unlimited confidence in the integrity of Hennessey, and apparently gave very little inspection or oversight to the work with the performance of which he was charged. Certainly they never attempted any examination for the purpose of testing the accuracy of the accounts which he kept or the honesty of his transactions with the defendant.

The account with the defendant was interest bearing, and yet subject to check. In July, 1905, it was discovered that Hennessey had been depleting the account by forged checks purporting to be signed by the defendant Morgan, as trustee. These inroads on the account aggregated $34,671.84, which the defendant refused to pay.

Hennessey commenced uttering the forged checks May 18, 1904, and from that time until June 22, 1905, twenty-eight of these checks were presented to the defendant and charged against the plaintiffs' account. The deposits in the bank were made by Hennessey for the plaintiffs. He had the custody of their pass book, and it was first written up after the forgeries began August 11, 1904, or to that date, and the canceled checks with the book and check list were delivered over to Hennessey and he receipted for the vouchers and gave the pass book and genuine checks to the plaintiff Kissel. At that time three forged checks had been paid, aggregating in amount $2,092, and on the twelfth of August there was another one of $981.33 honored, making at that time $3,073.33, and the defendant conceded its liability to that extent. After this the pass book was balanced in October, 1904, and in January, April and June, 1905, and the same method was adopted of delivering over the pass book, the typewritten list and canceled vouchers to Hennessey, taking his receipt therefor. The genuine checks during this period were numbered consecutively from 24 to 89 inclusive.

App. Div.]

Fourth Department, March, 1908.

They were of two colors. They bore the rubber stamp of the estate and were signed by one of the trustees. Hennessey forged the name of the trustee Morgan to the checks which he used and impressed the name of the estate on them with the rubber stamp to which he always had access.

The bank did not itemize the checks on the pass book, but entered the total amount with the explanatory statement, "Less cks ret'd per list," giving to Hennessey a separate typewritten list of all these checks. Hennessey removed from the package the forged checks and the typewritten list, delivering to Kissel simply the pass book and the genuine checks. The only verification made by Kissel was to compare the checks delivered to him with the stubs and, of course, they corresponded. Kissel was an experienced business man. He kept a personal account with the defendant during this time and knew the methods adopted by it. The failure to return the check list apparently did not attract his attention. He did not call for it or even compare the total of the sums represented by the checks and stubs with the balance to the credit of the trustees on the pass book. The defendant had furnished abundant evidence to enable the accuracy of the account to be tested, but the trustees failed to avail themselves of it.

In the first place, if they had looked at the pass book they would have observed that the credit balance did not tally with that disclosed by the checks and stubs. In the second place, if they had inquired of their agent for the typewritten list of entries the forgeries would have been discovered. Again, it is to be noted that this was an interest-bearing account, part of the time at two per cent and part of the time at three per cent. Any computation made would have disclosed that the proper amount of interest was not in fact credited. Hennessey had charge of the ledger book of the plaintiffs and apparently credited the interest items as if there had been no improper depletion of the account. The proof shows that the checks which were forged were not numbered and of different color from the genuine ones, although the latter were of two different colors; but the forged checks with the genuine ones were returned in August and October to the agent of the plaintiffs and no suggestion was made of any irregularity. The defendant had a right to assume from the course of dealing adopted that the whole

[Vol. 125.

Fourth Department, March, 1908. account was satisfactory to the plaintiffs, and that the checks of different color were genuine as well as the others. It does not seem to me that the plaintiffs exercised reasonable care in inspecting this account. They were trustees and were called upon to be vigilant and active in taking charge of the trust estate committed to them. Until the first balancing of the account in August the plaintiffs had no evidence which would have enabled them to discover the forgeries. The defendant, therefore, conceded its liability for the three forged checks honored before that date, and also for one accepted on August twelfth for the same reason, as the pass book was not actually delivered to Hennessey until the sixteenth. On the twenty-fourth another forged check was honored by the bank.

The court charged the jury that the plaintiffs were required to make a reasonable examination of the bank book, and that such an examination would have revealed the discrepancies in the deposit account, and he allowed them to determine whether negligence could be attributed to the plaintiffs for failing to discover the shortage before the issuance of the forged check of $480 August twenty-fourth. We think the court was correct in this instruction, and the jury having found with the plaintiffs on that proposition, the sum of $480, with interest, should also be added to the sum confessedly chargeable to the defendant. Whatever examination Kissel made after the pass book was balanced and returned with the vouchers in August was made before September tenth, and such examination was so incomplete that the fraud was not discovered, and the plaintiffs are chargeable with negligence as matter of law for their remissness.

There is another more important and also more difficult proposition. On the 5th of January, 1905, the plaintiffs issued their check against this account for over $14,000 for the purpose of transferring it to a bank in Morristown, N. J., and delivered it to Hennessey to have the account transferred. This was on Thursday. Hennessey did not deposit the check on that day, and on the next day he was asked about it by one of the trustees, and made some excuse, but deposited it on Friday. On Saturday it went through the clearing house, and did not reach the defendant until about noon of Monday, the ninth, as I think the evidence fairly discloses. That check would overdraw the account about $13,000. On Mon

App. Div.]

Fourth Department, March, 1908.

day morning Hennessey went to the bank, stating that the account would be overdrawn that day, but that it would be made good before the bank closed for the day. Later in the afternoon one of the plaintiffs executed his check to the defendant's order on another bank, bearing date the tenth, for over $14,000, and which was to be deposited with the defendant. Hennessey changed the date of this check to the ninth, leaving it at the bank that afternoon, and the plaintiffs were credited for it, which made the account good. The check was subsequently paid by the bank on which it was drawn. While a close inspection might possibly have discovered the change in this date, I do not think the defendant is to be charged with negligence either for not discovering it or for assuming that it was fraudulently made even if discovered. A change in the date of a check is not so infrequent as to call for investigation or create suspicion by an officer of a bank.

It does not seem to me that the fact that the payment of the check of January fifth might have resulted in causing an overdraft is sufficient to establish negligence on the part of the defendant. As already suggested, the account was a large one. It had been running for some time. Hennessey had been the active man in attending to it, and he came promptly on Monday stating frankly that an overdraft might occur, but advising the bank that it would be adjusted during the day.

It is a circumstance also in favor of the defendant that the check on which the date was altered was not against the account of the trustees with the defendant. It was merely the payee and the check was paid by the drawee. If any criticism had been made at all by the officers of the defendant on account of this possible overdraft very naturally it would have been made to Hennessey for he was representing the plaintiffs. There was no need of making any statement to him for he already knew it and agreed to make it good that day, which was done. This conduct on his part, instead of exciting suspicion, would be quite likely to confirm in the minds of the officers of the defendant that he was the trusted responsible representative of the plaintiffs and that the account was honestly overdrawn.

In commenting upon this phase of the case the court prefaced his remarks to the jury with the statement that the plaintiffs were Fourth Department, March, 1908. [Vol. 125. chargeable with negligence in failing to make an examination which would have disclosed the condition of the account prior to January. The only question submitted to the jury as to this alleged overdraft and its connecting circuinstances was whether the defendant was guilty of negligence, and the jury must have so found.

At the outset, therefore, in the consideration of this branch of the case, we start with the negligence of the plaintiffs established as matter of law. In other words, by the exercise of ordinary prudence they should have discovered the fraud of their agent long prior to the transaction in January. Banks are held to a strict liability in the payment of forged checks. (Shipman v. Bank of the State of New York, 126 N. Y. 318; Citizens' Nat. Bank v. I. & T. Bank, 119 id. 195.) Where, however, the drawer of a check has been guilty of negligence, the bank is ordinarily relieved. (Cases cited.) In the present case the defendant is not liable at all for receiving for collection the altered check in January unless negligence can be imputed to it as to that particular transaction.

The court allowed the jury to found its verdict ascribing negligence to the defendant on four circumstances, to wit: The fact that the forged checks were not numbered; that in color they did not correspond with the genuine checks; the change in the date of the check of January tenth, and the overdraft. I do not think that these circumstances taken together, in view of the method in which the account was carried along, were sufficient to excite suspicion as to the genuineness of the checks. None of these circumstances are unusual in the banking business. There is no uniformity in the color of checks. The check on which the date was altered was on another bank, and certainly the officer of the defendant who accepted it could not be expected to know just the shade of the checks used by that bank, especially when those of varying colors were in common use.

It is also to be remembered that the check on which the date was changed and the one of January fifth transferring the account to the New Jersey bank were both genuine, and the latter was numbered in proper sequence and corresponded in color with those theretofore drawn by Kissel. The fact that the forged checks were not numbered or varied in color from the genuine could not

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