REPUBLIC LIFE INS. CO.
HUDSON TRUST CO.
Appeal from Trial Term, New York County.
Action by the Republic Life Insurance Company against the Hudson Trust Company. From a judgment for plaintiff, defendant appeals. Reversed, and new trial ordered.
[115 N.Y.S. 504] Victor
E. Whitlock, for appellant.
Isaac H. Levy, for respondent.
Argued before PATTERSON, P. J., and McLAUGHLIN, LAUGHLIN, HOUGHTON, and SCOTT, JJ.
This is an action to recover the sum of $5,000, the proceeds of a check drawn by one E. R. Thomas on his account [115 N.Y.S. 505] with the defendant to the order of the Central Life Securities Company, and deposited with defendant to the credit of that company on the 10th day of December, 1906, pursuant to an agreement between Thomas, the securities company, and the defendant, by which it was not to be subject to the check of the securities company or to become its property until the happening of a certain event which has not transpired. Thomas was an officer of the defendant and the securities company had no other account with it and no other funds were deposited to its credit. On the 22d day of April, 1907, the securities company drew a check to the order of the plaintiff on the defendant for the amount of this fund. The check was signed for the securities company by Birch F. Rhodus, its president, and by its treasurer, and at the same time it was indorsed for the plaintiff by Rhodus, its president, to the order of defendant for the purpose of opening an account with defendant in the name of the plaintiff. Rhodus then inclosed the check with a letter to defendant, signed by him as president of the securities company, with which he also inclosed authorized signatures of the plaintiff for the purpose of opening the account, and stated that he had requested one Sutherland to call on defendant and open an account and deposit funds in the name of plaintiff. The letter closed with this statement:
" If your custom in crediting interest on daily balances is satisfactory, I have no doubt that the account of the Republic Life Insurance Company will be a very satisfactory one."
An officer of the defendant, who had no knowledge of the original transaction or of the fact that the fund on which the check was drawn was not subject to be checked out, received the check and inclosures on the 24th day of April, 1907, and Sutherland called on that day and made out a deposit slip for the amount of the check, whereupon the same officer of defendant made out a passbook in the name of the plaintiff, crediting it with the amount of the deposit, and delivered the same to Sutherland, who forwarded it to plaintiff. Before transferring the account from the securities company to plaintiff, or opening any account in the name of plaintiff on the books of defendant, it was discovered that this deposit was not subject to be checked out, and the account was not transferred, and no account was opened in the name of plaintiff. The day after the passbook was issued, the defendant wrote Rhodus, addressing him as president of the securities company, drawing attention to the fact that this fund constituted a conditional deposit, and inclosing a copy of the letter of the securities company delivered to defendant at the time the account was opened, which was addressed to defendant and signed in the name of the securities company by E. T. Rhodus, its vice president. The body of the letter was as follows:
" Please pay over to our company five thousand dollars ($5,000), which we hereby deposit for that purpose upon notification from us that our subscriptions of the Central Life Securities Co. have reached the amount of five hundred thousand dollars ($500,000) and been paid in to that amount."
Rhodus wrote a reply to this letter under date of April 27, 1907, which he signed as president of both companies, and in which he presumes [115 N.Y.S. 506] to explain the letter, a copy of which the defendant transmitted to him, as follows:
" We presume it must have been the idea of Mr. E. T. Rhodus in giving you such a letter, to obtain for this company the favorable influence and good will of your institution until such time as the Republic Life Insurance Company was ready to itself receive funds: but, now, in view of the fact that the funds are being turned over of the Republic Life Insurance Company, and in further view of the fact that it expects to transact considerable business with you, it should have the benefit of your favorable influence and good will from this time on."
It is manifest that this was no explanation for filing the letter with the defendant, and it is perfectly clear that the purpose was, as claimed by the defendant and as will be presently seen, to preclude the securities company from checking out this fund until the happening of the event specified in the letter. The defendant replied to this letter, again calling attention to the fact that the deposit was conditional, and that for that reason the account had not been transferred, and returning the check drawn against the account and upon which defendant had issued the passbook. There is no evidence that the defendant received any reply to this letter. On the 11th day of November thereafter Thomas elected to reclaim the fund upon the ground that the event upon which it was to become the property of the securities company had not transpired, and that a reasonable time for compliance with the conditions had elapsed, and at his request it was credited to his account and a countercharge was made against the securities company to balance its account. On the flit day of the same month plaintiff drew a draft on defendant for the account indicated by the passbook delivered to it by defendant, which, on being forwarded for collection through the usual channels, was dishonored by defendant on the 23d day of November, 1907, on the ground that there were no funds on deposit with it to the credit of the plaintiff.
I am of opinion that the cases of Oddie v. Nat. City Bank, 45 N.Y. 735, 6 Am. Rep. 160, and Kirkham v. Bank of America, 165 N.Y. 132, 58 N.E. 753,80 Am.St.Rep. 714, relied upon by respondent, are not controlling. In those cases the intention to give the credit and create the relation of debtor and creditor was regarded as clear. In the former case the check was credited to a customer in the usual course of business, and the customer relied upon it to his prejudice. As the check was upon itself, the bank could readily have ascertained whether or not the account upon which it was drawn was good and the account was in fact good after the presentation of the check and on the same day, and the bank carelessly paid out the money on other checks subsequently presented. The court decided that it was better to hold that the bank intended to credit the one customer and to hold the other liable as for an overdraft. The court concedes in the opinion that the rule would have been different had the check been drawn upon another bank and been deposited to the credit of the customer. The check in question was neither drawn nor deposited by a customer, nor in the ordinary course of business. It was drawn against a conditional deposit of a single item, and presented for deposit as the sole item upon which a new account was to be opened. [115 N.Y.S. 507] It did not constitute an overdraft. The fund against which it was drawn was not yet available. The intention of the drawer, fully known to the payee, as shown by a statement made by Sutherland to one of the officers of the bank when he came there representing the plaintiff and to open the account with the check, was to have this account consisting of this fund transferred to the credit of the plaintiff. An officer of defendant, ignorant of the fact that the deposit was conditional, was thus induced to issue the passbook. In these circumstances, it would be most inequitable to hold defendant estopped from declining to be bound by the credit indicated by the issuance of the passbook when within 24 hours, and, as soon as the error was discovered, it gave notice to the plaintiff by communicating with the president of the securities company, who represented it in attempting to thus open the account, and, on finding a disinclination to rectify the error, returned the check and refused to transfer the account on its books or to give plaintiff credit on its books. Here the defendant pleaded, and endeavored to prove, that the plaintiff received the check with knowledge of all material facts, tending to show that the securities company had no right to transfer the fund, and that with such knowledge, in thus inducing the defendant to accept the check and transfer the credit to plaintiff, it perpetrated a fraud on the defendant, on the discovery of which it elected to and did rescind the transaction and return the check, and there is no evidence that plaintiff was either a bona fide holder of the check or that its position had changed to its prejudice between the issuance of the passbook and the notice given by defendant that the account had not been transferred.
It is fairly to be inferred from the evidence that Thomas was induced to subscribe for capital stock in the securities company, and that he agreed to do so provided capital stock of the par value of $500,000 should be subscribed for and the subscriptions paid in cash. The promoters of the company evidently desired to use the name of Thomas to obtain other subscriptions, and to that end he delivered his check for $35,000 to E. T. Rhodus, who was the vice president of the securities company, on the agreement, which was communicated to the treasurer of the defendant to whom the check was delivered by Rhodus and by or in his presence both orally and by letter of the securities company written Rhodus and delivered to the defendant by him, that it was given as a subscription for capital stock of the securities company, and was not to be paid over to the company until defendant received notice from it that subscriptions to the capital stock had been made and paid in cash to the amount of $500,000, and that, until such time, the deposit was not to be deemed to belong to the securities company or to be available to it, but was to remain the property of Thomas. The court received evidence of these facts, and, on motion of counsel for plaintiff, struck it out upon the theory that the evidence failed to show that plaintiff had notice or knowledge thereof. To this ruling counsel for defendant duly excepted. The courts excluded evidence of ...