Summary
In Commercial Bank of Albany v. Ten Eyck, 48 N.Y. 310, the Court say: " I do not, however, assent to the claim of the counsel for the appellant, that a cashier, in all cases, becomespersonally liable when he permits an overdraft.
Summary of this case from Oakland Bank of Sav. v. WilcoxOpinion
Argued September 27, 1871
Decided January term, 1872
John H. Reynolds for the appellant. Lyman Tremain for the respondent.
The defendant, as cashier, was a financial agent of the plaintiff, entrusted to some extent with the management of its affairs. As such agent he was bound to exercise reasonable skill and ordinary care and diligence in the discharge of his duties. (Story's Agency, § 182, etc.) If he failed in such skill or omitted such care and diligence, and in consequence thereof the plaintiff suffered damage, he is liable to respond. And much more is he liable to respond if he caused any damage to the plaintiff by any illegal, fraudulent or tortious act
It is not claimed, on the part of the plaintiff, that the defendant was guilty of any fraudulent act, or that he made any personal profit out of the transactions of which the plaintiff complains. But his liability for the damages claimed is sought to be enforced on the ground that he omitted or violated some duty of skill or diligence which he owed to the plaintiff.
For some time previous to June, 1860, Schoolcraft was the president and chief financial officer of the plaintiff, receiving a large salary, and the defendant was his subordinate; and he made to Wilson the loan of $14,000 January 4, 1860, and took from him the Reynolds mortgage and other collaterals, and delivered Wilson's note and the collaterals to the defendant to be placed by him in the cashier's chest. With this loan the defendant had nothing whatever to do; and as Wilson was a man of high character and undoubted credit, he had no reason to suspect that it was in any way improper. About a month after this loan Schoolcraft informed him that Wilson could permanently "place" Reynolds' mortgage (meaning thereby, doubtless, that Wilson had found a place where he could dispose of the mortgage and realize the money for the same), and directed him to give the same to Wilson that he might thus dispose of it and this the defendant did. In doing so, it is impossible to perceive how he incurred any liability. He acted under the direction of his superior, and the object was, as we must infer, to enable Wilson to raise the money upon the mortgage and pay his loan. There is no proof or finding that there was any improper collusion between Schoolcraft and Wilson; and when we consider that Wilson was supposed to be perfectly responsible and honest, and that the bank had other collateral security to the nominal amount of $12,500, which was not known to be worth less, the delivery of the mortgage to him, under the circumstances, does not show the absence of that care and diligence which the defendant owed the plaintiff. The whole transaction was not an extraordinary one, and might well have occurred between the vigilant officers of any bank and a person of the standing and position occupied by Wilson.
The learned counsel for the appellant claims that, in delivering up this mortgage, the defendant did an illegal act, as he violated the law (1 R.S., 591, § 8) which provides that no conveyance, assignment or transfer of any of the real estate or effects, exceeding in value $1,000, of a moneyed corporation shall be made, which is not authorized by a previous resolution of the board of directors of such corporation. To this claim there are two answers, both quite satisfactory: First, this mortgage was not, within the meaning of the law, assigned or transferred to Wilson; he was simply entrusted with it, that he might raise the money on it and pay his loan to the bank; second, the bank held the mortgage as pledgee, and it would be an unreasonable construction of this law to hold that in such a case the financial officers of a bank cannot, without a previous resolution of the board of directors, sell the property pledged, whether it be bonds, stocks or mortgages, to realize the money secured by the pledge.
Hence, I can see no reason for holding the defendant liable on account of this loan of $14,000 or the surrender of the Reynolds mortgage to Wilson, and I will proceed to examine the other and more important claim made against him.
In September, 1860, the State owned $100,000 of stock, which it had loaned to the Auburn and Rochester Railroad Company, and which was payable January 1, 1861, and it held, as security for such stock, ninety-two New York Central railroad bonds of $1,000 each, and accrued interest. Wilson was treasurer of the railroad company, and feared, if the State should suddenly place these bonds upon the market, it would depreciate their value. He therefore applied to the defendant for a loan to take up the bonds, and it was arranged that he should draw his check for the amount, $93,073.33, and that he should go to the comptroller of the State and get the bonds and deposit them with the plaintiff as collateral security for the loan, and that the plaintiff should hold them until they could be gradually disposed of. The check was drawn, payable to the order of the comptroller, and certified by the defendant to be good. Wilson delivered it to the comptroller, and within one hour thereafter delivered the bonds to the defendant. So far, no harm was done to the bank. It had made the loan, and had ample security for it; and it was an advantageous loan, as the bank was to receive seven per cent, and the check was to be deposited in the bank by the comptroller, the bank paying but four per cent. There seems to have been no want of prudence in this transaction on the part of the defendant. The check was drawn to the order of the comptroller, so that it could not be diverted from the use intended, and the only risk was that Wilson might take the bonds and keep them instead of bringing them to the bank, and this risk, in the case of a man of his character and standing, was no greater than it would have been if any officer or clerk of the bank had been entrusted with them.
While this was in form an overdraft, as Wilson did not, when he drew the check, have the funds in the bank, yet it was really a loan, and the check was taken as a mere voucher to be held by the bank. I do not, however, assent to the claim of the counsel for the appellant, that a cashier, in all cases, becomes personally liable when he permits an overdraft. It is not an uncommon thing for bankers to permit overdrafts, with an understanding that the account should be made good before the close of banking hours on that day, or soon after; and whether such overdrafts are prudent or not depends upon the character and standing of the drawer, and upon the circumstances of each case. Hence, if nothing more had been done as to this loan and these bonds, the plaintiff could not well have complained that the transaction was imprudent, and that the defendant had in any way incurred any liability. Within ten days, ten of these bonds were sold, and the proceeds placed in the bank. In about three months the defendant urged Wilson to close up the loan, and he then gave the defendant a sight draft for $70,000 on Seyton Wainwright, brokers, of New York, and directed him to forward the bonds to them to protect the draft. This the defendant did, by express, taking a receipt from the express company. Wilson informed the brokers by letter, first submitted to the defendant, that the bonds would be thus forwarded, and that they should sell them at par and accrued interest, and that they should hold the proceeds, beyond the $70,000 subject to the order of the defendant, as cashier. They sold thirty-two of these bonds from time to time up to March 2d 1861, and on the 20th of April they sold the remaining fifty of the bonds, under the instructions of Wilson, for $50,000. Wilson died on the 3d day of July, 1861, and never until after his death did the defendant make any inquiries after the bonds or their proceeds.
There certainly was no want of prudence or proper care on the part of the defendant in sending the bonds to the brokers. They were sent through a responsible express company to a responsible firm of brokers that they might be sold, and the money realized to pay the balance of the loan. But the referee found that the defendant was negligent in omitting for so long a time to inquire of Seyton Wainwright as to the bonds, for the purpose of getting the balance due the bank; and if the bank had suffered any loss from this negligence, it may be that the defendant would have been liable.
But the bank did not suffer any loss from this negligence. The brokers are perfectly responsible, and able now to respond to the bank. The bonds belonged to the bank as pledgee, and they were ordered to sell them and hold the balance of the proceeds, subject to the order of the bank. And they had no right, upon the facts found by the referee, to make any other disposition of this balance. They wrongfully applied it upon their claims against Wilson; but they gave him no new credit, and incurred no new liabilities upon the faith of these bonds, and nothing appears showing that they have any defence whatever to the claim of the bank for this balance. The bank has not even claimed this balance of them. I do not, therefore, perceive how the bank can claim that they have suffered any loss which can be cast upon the defendant. The defendant was guilty of no wrong in sending the bonds to the brokers. The only omission of duty with which he can be charged is in not looking after them and calling for the balance. But this omission caused no damage. The balance due the bank is in the hands of the brokers and can be procured. For this balance the defendant is no more liable than he would have been if there had been an overdue note for the same amount against the brokers, which he had for an unreasonable length of time neglected to collect, the brokers remaining perfectly responsible.
The brokers were notified by Wilson that he had given a draft to Ten Eyck as cashier for $70,000, and that the bonds would be sent by him to them by express, and that they could sell them and pay the draft, and hold the balance subject to the order of Ten Eyck, plainly meaning Ten Eyck as cashier. The bonds were sent by express in a package marked and sealed as from the bank. Here were facts sufficient at least to put the brokers upon inquiry as to the interest of the bank in the bonds, and the right of the bank to the surplus; and they must be held to have acquired all the knowledge they would have received if they had made the inquiry. Hence they must be held as dealing with this surplus, with full knowledge of the rights of the bank, and I am unable to see how they could claim or dispose of it so as to defeat the claim of the bank.
Having thus given this case the careful consideration which its importance demands, I have reached the conclusion that the judgment should be affirmed, with costs.
All concur.
Judgment affirmed.