Stella Flour & Feed Corp.
National City Bank of New York
APPEAL from an order of the Supreme Court at Special Term (DI FALCO, J.), entered July 13, 1954, in New York County, which denied a motion by defendant for a dismissal of the third cause of action in the second amended complaint or for alternative relief.
Charles C. Parlin, Jr., of counsel (Herman E. Compter with him on the brief; Shearman
& Sterling & Wright, attorneys), for appellant.
Henry E. Otto of counsel (Otto & Easterday,
attorneys), for respondent.
Plaintiff was a depositor with the defendant bank and the question presented by this appeal is the extent to which a bank may incur a tort liability if it breaches its contract obligation to charge drafts against an account only in accordance with a depositor's directions.
The complaint alleges that plaintiff issued four checks drawn on the defendant bank in the total amount of $11,241.67; that each was drawn in favor of a specific payee; that an employee of plaintiff altered the checks by changing the named payee thereon; and that after alteration the defendant paid the said employee of plaintiff the amount of such checks and deducted the amounts from plaintiff's account.
The portions of the complaint resting on contract are not challenged here and follow the usual pattern in the statement of causes of action based on a balance due and on the general responsibility of the bank to its depositor for making payment on materially altered or forged checks drawn upon it.
The third cause of action, which has been sustained at Special Term, sounding in tort, pleads a 'duty' arising from the depositor-banker relationship 'to use active vigilance' in paying checks drawn by the plaintiff on the bank 'to protect plaintiff from larceny and forgery' and to use 'sound and proper banking procedure' in paying plaintiff's checks drawn on it; and it is alleged that the defendant bank 'negligently and carelessly omitted and failed to use any vigilance, care or diligence' in paying the checks specified and that payments were not made in accordance with sound banking practice.
The acts of negligence as set forth may be summarized by saying that they consist of failing to 'properly examine' the checks before paying them and failing to 'discover' the alterations and changes made on the checks. Other specifications of 'negligence' seem to be stated in the form of breaches of contract, such as negligence 'in failing to pay said checks in accordance with the directions of plaintiff' and 'in failing to pay the proceeds' of the checks to the payees or their transferees.
Besides the damage which would flow directly from the payment of the checks as a result of the forgeries and the debiting of plaintiff's account in the sum of $11,241.67, it is alleged that as a result of the 'negligence' involved in the payments, plaintiff's credit and business have been injured additionally by the resulting reduction of its bank balance in the account with defendant and that it has suffered loss in the sum of $30,000 beyond the amount of the checks themselves.
We are of opinion no cause of action grounded on tort under the facts pleaded arises separately and beyond the obligations contract which governs the depositor-banker relations of the parties. If a man negligently breaches his contract he will usually be answerable on the contract and not in tort. The
theory of tort liability may be discovered to overrun into breaches of contract in a very limited area; but the payment charged to a depositor's account by a bank on forged or altered drafts certainly does not come within that area.
A high standard of contractual responsibility has been imposed on banks in paying money chargeable against their depositors' accounts; and where there have been forgeries or alterations in drafts or checks it has been a long and consistent judicial policy in New York to require the bank to assume the loss. This has been so even in cases where the depositor's own employee, as here, made the alterations and obtained the money. An early statement of this policy was announced a century ago in Weisser
v. Denison (10 N.Y. 68 ), where the depositor's clerk committed the
But if to this old and well-settled rule of high contractual responsibility we were now to add a responsibility in tort for a bank's failure to discover the forgeries of the depositor's employee and require the bank to pay consequential damages besides making good the amounts paid out on the forged paper, we would push a banker's responsibility to a point far beyond the area in which the banking and commercial community have been led to believe that responsibility ended.
Since the term 'negligence' does appear in judicial opinions addressed to the obligations of a depositor whose account has been charged by a bank with forged or altered drafts; and since it appears also in relation to the obligations of banks arising from payment of such drafts; and since plaintiff's argument to sustain this pleading rests on quotations from opinions, it will be helpful to examine the context of this use, and the place 'negligence' occupies in the depositor-banker relation.
The basic obligation of the bank to its depositor is that of 'debtor and creditor' and 'the law implies a contract' by the bank to disburse the money standing to the depositor's credit only upon his order. (Shipman v. Bank of State of N. Y., 126 N.Y. 318, 327.) 'Payments made upon forged indorsements are at the peril of the bank unless it can claim protection upon some principle of estoppel or by reason of some negligence chargeable to the depositor.'
The general rule is that when payment has been made by a bank on forged paper 'it is considered that the bank has paid out its own funds rather than those of the drawer.' (9 C. J. S., Banks and Bankings, § 356, subd. c., par. .) As to the ...