Cutting v. . Marlor

78 N.Y. 454, 1879 N.Y. LEXIS 936

Opinion

Church, Ch. J.

The action is to recover a loan by the Bankers and Brokers’ Association, a banking corporation, to _the defendant. The defendant admitted and offered to pay the amount of the loan, but demanded certain securities which had been "delivered as collateral security, and the plaintiff being unable to deliver them, the defendant seeks to counter-claim the amount of their value in this action. ‘The securities were taken from the bank by one Bonner, its president, and converted to his own use by hypothecating them in his own business as a stock dealer and broker, and the plaintiff claims that the association is not liable for his acts.

We have carefully examined the questions involved, and the authorities cited, and we do not deem it necessary to •enter into an elaborate discussion of them. We concur with the result arrived at by the trial judge that, upon his findings of fact, the corporation is liable for the conversion of the ■securities in question, and we concur mainly with his opinion. He finds, among other things, that the trustees left the entire management of the association with the president and one Oley, who was styled manager, and who • was also a trustee; that the trustees took the statements of Bonner without question or examination, that the securities were taken from the bank without objection or resistance on the part of the trustees or the officers of the institution, that no meetings of the trustees were held pursuant to the by-laws, that no examination was made by the trustees of the securities, and no care or vigilance was used by them in respect to ■such securities. It also appears that the president had been in the habit of abstracting securities and using them in his private business, for six months prior to the failure of the bank, but that most of the securities had been returned to the bank when called for; that Oley' the manager had knowledge of this habit of the president, and took no means to prevent" it or notify the other trustees.

The bailment was for the mutual benefit of both parties, and in such a case the bailee is bound to exercise ordinary care at least; and in determining what constitutes such care, the nature and value of the property, and the means of protection possessed by the bailee and the relation of the parties .and other circumstances must be considered. The securities were negotiable and valuable, and the corporation possessed ample means of keeping them safely and securely. Besides the association was under an implied obligation or contract hy the transaction itself, to return the securities to the . defendant when the debt was paid, The failure to do so, rendered the corporation presumptively liable for conversion. The onus was upon it to relieve itself from that, liability. (Story on Bailments, § 339.) The trial judge has found expressly that the association did not exercise reasonable diligence m respect to the care and custody of these securities, and we think that the evidence fully justified the finding. The authorities relied upon by the plaintiff’s counsel are not applicable to' the facts found in this case. Foster v. Essex Bank (17 Mass., 479) was the case of gratuitous bailment upon a special, deposit of a quantity of gold.

The rule of liability in such a case is quite different, and is condensed in the syllabus as follows : “A mere depositary without any special undertaking, and without reward, is not answerable for the loss of the goods deposited, but in case of gross negligence, which is equivalent to fraud in its effect upon contracts.”

No fault or negligence was shown, on the part of the bank. The gold was feloniously taken by the cashier. In Jenkins v. Bank of Bowdoinham (58 Me., 275), the only question decided was whether the receipt stating that the securities were to be returned upon the payment of the debt, increased the common law liability "of the bank, and it was held that it did not. In that case the securities were stolen by a burglar, and the action was not based upon fault or "negligence.

Giblin v. McMullen (L. R. [2 P. C. Appeals], 318, was like the case of Foster v. Essex Bank (supra), which it cites, • and the point of the decision is that a depositary of a special deposit is not liable for the felony of an employee, without fault on. his part.

Scott v. Bank of Cherry Valley (12 Penn. St., 471), holds the same doctrine. These are the principal authorities relied upon by the plaintiff. It will be observed that Foster v. Essex Bank, Giblin v. McMullen and Scott v. Cherry Valley Bank, were cases of special deposit without contract or , reward. -With the doctrine of these cases no fault can be found. If a loss occurs even through the larceny of agents or employees, the depositary is not liable unless gross negligence is shown. The distinction between those cases and this, is manifest. This was not a special deposit. The corporation occupied at least the position of bailee for hire, and was under obligation to exercise at least ordinary care. The finding that such care was not exercised was justified by the evidence. Bonner was a notorious dealer and speculator in stocks. He had been engaged for many months in abstracting securities held by the bank for his private purposes, and he had done this not secretly, but openly and publicly. The manager who -was also a trustee knew that these acts were being done, and it is difficult to see why his knowledge and neglect are not imputable to the corporation itself. If all the trustees or a majority had known of these transactions, and had not at once removed Bonner, or prevented their recurrence, they would have been guilty of culpable deriliction of duty. A corporation is represented by its trustees and managers ; their acts are its acts, and their neglect its neglect. The employment of agents of good character does not discharge their whole duty. It is misconduct not to do this, but in addition they are required to exercise such supervision and vigilance as a discreet person would exercise over his own affairs. The bank might not be liable for a single act of fraud or crime on the part of an officer or agent, while it would be for a continuous course of fraudulent practice, especially those so openly committed and easily detected as these are shown to have been. Here were no supervision, no meetings, no examination, no inquiry. There was actual knowledge on the part of the managing trustee, and his silence and inaction without adopting any measures of prevention amounted to acquiescence in the wrong, and it would not be a strained inference from the business of Bonner, and the ¡publicity of the acts, and other circumstances, that the other trustees either had reason to suspect what was going on, or if not that they were grossly negligent of their duties. We concur with the learned trial judge, “that a system of management of a banking house, in which such conduct of its officers was permitted, was a breach of duty, and grossly negligent towards its dealers, and persons having stocks and bonds in its keeping.”

It is argued that the negligence shown was not the proximate cause of the loss, and that with the utmost vigilance it would have been possible for the president who had access to the vault, to have abstracted the securities. This may be true, but the position is not tenable. The exercise of ordinary care would have discovered the wrongful practices, because they were not secret, and were actually known to the managing trustee, and if known, the trustees had the power, and it would have been their duty to have effectually prevented it, and the presumption is that they would have done so. The negligence related to the cause of the loss, viz. : the abstraction of collaterals for private use, which ordinary vigilance would have .discovered and prevented. This is unlike the negligence urged in the Scott Case (supra). There it seems that the teller’s accounts were fraudulently kept, and had been for two years, and the court held that the bank owed no duty to examine the teller’s accounts for the benefit of a gratuitous special bailment. Here there was £L duty owing to the defendant to safely keep the securities, and the exercise of care, points directly to the prevention of the fraudulent acts of Bonner in respect to this duty. It is no answer to say that he might have done the same thing .secretly. It could as well be said that he might have done it by a burglary or other crime. The point is whether care and vigilance would have prevented what was done. It is said that this is a hard case for the stockholders who have also been robbed by the acts of Bonner. This is doubtless "true. It is a question as to which among innocent persons is to bear the loss of fraud and crime. The stockholders established an institution, chose their officers, and invited the public to deal with them. The defendant was a dealer, and had a right to rely upon the vigilance and good faith of those whom the stockholders had entrusted with the management of the corporation, and while regretting the common misfortune we think under the circumstances of this case as proved, and found, that both upon legal and equitable principles, the position of the defendant is superior to that of the stockholders.

The judgment must be affirmed.

All concur.

Judgment affirmed.