The opinion of the court was delivered by: SUGARMAN
John Dunaif, trustee for the above-named bankrupt (hereinafter referred to as the petitioner), moves 'for an order' against the Atlantic Bank of New York (hereinafter referred to as the respondent) 'directing the said Atlantic Bank of New York to restore to the account of your petitioner in the said bank the sum of $ 24,631.50, or if the said bank shall fail to restore the said sum, for an order directing the Federal Reserve Bank to sell sufficient securities now on deposit with the said Federal Reserve Bank for the purpose of restoring the sum of $ 24,631.50 to your petitioner's account and to deposit to the credit of the petitioner's account out of the proceeds of said sale the sum of $ 24,631.50; and for such other and further relief as to this Court may seem just and proper.'
The facts, as admitted by the respondent in its answer to the petition and as developed by testimony at hearings ordered herein and held on November 23, December 5 and December 14, 1956, which gave rise to the petition, are found to be as follows:
On September 26, 1949, Bank of Athens Trust Company (hereinafter referred to as Athens) was appointed a depository by this court for moneys of estates under the Bankruptcy Act, 11 U.S.C.A. § 1 et seq. Athens was represented on its application for appointment as such depository by the law firm of Reich, Peller & Devaney, of which firm A. Alan Reich was a partner. At that time and for the succeeding seven years Reich, Peller & Devaney, or a successor firm of which Reich was a partner, represented Athens and respondent in litigation for the collection of past due obligations due Athens and the respondent.
On December 30, 1949, Parry Lines, Inc., a corporation engaged in the business of shipping, was adjudged a bankrupt upon its voluntary petition. On January 24, 1950, petitioner was appointed trustee for the bankrupt and A. Alan Reich was appointed attorney for the trustee. Petitioner is a member of the New York Bar of 30 years standing. Except for one small estate his appointment in the instant bankruptcy was his only experience of that nature.
As such trustee, on February 10, 1950, petitioner opened an account with Athens in the name of the bankrupt by an initial deposit of $ 42,428.62. Petitioner had been referred to Athens by Reich, the latter being at that time either trustee or attorney for the trustee in other bankrupt estates whose accounts were maintained with Athens. The mechanics of opening the account were either that petitioner accompanied Reich or one of Reich's associates to the bank, or the signature cards were presented to petitioner by Reich or one of his associates elsewhere. In either event, petitioner executed two signature cards. Upon the back of each there was printed, among other things:
'Depositor's Contract * * * the statement of account and cancelled vouchers shall be mailed to depositor monthly; that depositor will examine the monthly statement and returned vouchers accompanying same promptly and notify the bank at once of any error in the account or of objection for any reason to any returned voucher being charged against the depositor; that unless the depositor shall notify the Bank in writing within fifteen days of the delivery or mailing of any statement and cancelled vouchers of any claimed errors in such statement, or that depositor's signature upon any such returned vouchers was forged, or that any such voucher was made or drawn without depositor's authority, or that it was raised or otherwise altered, or unless the depositor shall have notified the Bank in writing within three months after the delivery or mailing of such vouchers that any endorsement thereon was forged or made without authority of the endorser, the statement of account shall for all purposes be considered correct and the Bank shall not be liable for any payments made and charged to the account or for any other errors in the statement of account as rendered to depositor; that no legal proceeding or action shall be brought by the depositor to recover payment of any instrument upon which any signature or endorsement has been forged or which was drawn, made, accepted or endorsed without the authority of the depositor or the endorser, or which was raised or altered, unless the depositor shall have given written notice to the Bank as provided in the preceding clause and unless the same shall be commenced within one year of the date when such statement and cancelled vouchers were delivered or mailed to the depositor; * * *'
Petitioner did not write upon or see the back of the signature cards and did not read the 'Depositor's Contract.'
At the time the account was opened, Athens supplied petitioner with a book of printed blank checks in form substantially in compliance with Rule 34 of the General Bankruptcy Rules of this court then in force.* Each check blank in said book, in addition, had imprinted thereon 'PD 20,' which was the bank's legend that the account was a 'public deposit,' i.e., a trust account. The petitioner at all times herein involved kept the checkbook of the bankrupt in his office.
On March 6, 1950, an increase of the bond of Athens to the sum of $ 500,000 as a depository was approved by this court.
On much testimony addressed to whether Athens and respondent sent out a statement of the bankrupt's account at the close of business each month I am satisfied that they did so. However, the statements to the close of business on April 30, 1953, were all sent to the petitioner, whereas those for subsequent months were all sent to Reich. On May 20, 1953, without the petitioner's knowledge or consent, Reich instructed Athens to send the bankrupt's statements and cancelled checks to him at the business address of his law firm. Some months later the petitioner learned of this change when, in the process of preparing a trustee's interim report, he noticed that the then recent statements were not in his possession. He spoke to Reich or one of his associates and was informed that Reich had undertaken to change the mailing address in order to expedite the preparation of trustee's interim reports. The petitioner never countermanded Reich's instructions to the bank after he learned of it.
On November 20, 1953, Athens and another bank having been merged into the respondent Atlantic Bank of New York, an order was entered in this court providing that the designation of Athens be 'continued in full force and effect, and deemed to be the order of designation of Atlantic Bank of New York as a depository for the money of estates under the Bankruptcy Act' and 'that the bond heretofore filed herein by Bank of Athens Trust Company * * * be and the same hereby is continued in full force and effect, and deemed to be the bond of and filed by Atlantic Bank of New York * * *'
In January of 1955, Reich had a conversation with one Eugene W. Flister, an Assistant Treasurer of respondent. Flister was in charge of the small and installment loans department of respondent. In that conversation Reich suggested to Flister that the latter subscribe to stock in Concord Supplies & Equipment Corp. (hereinafter referred to as Concord), a company in which Reich was interested. Reich indicated to Flister that the company was seeking a listing on one of the exchanges and needed 1,000 subscribers to its stock. Flister was the only one at the respondent bank to whom Reich made this proposal. Without discussing it with any other person at the respondent bank, without asking Reich any questions about Concord, without ascertaining where it did business, what its business was, what assets it had, or how much it expected to raise by the sale of the stock, Flister agreed to subscribe for 200 shares of its stock.
Shortly thereafter Flister received a questionnaire from a brokerage house, which he answered, signifying his interest in purchasing the Concord stock when it became available.
On March 1, 1955, the respondent was continued as a depository for bankruptcy funds of this court upon its simultaneously giving a renewed bond in the sum of $ 500,000. In each instance, in lieu of sureties on the bond, Athens and respondent deposited United States securities with the Federal Reserve Bank. Thus, in the bond of respondent, filed March 1, 1955, the bank bound itself to
'well and truly account for and pay over all moneys deposited with it as such depository, and (to) * * * pay out such moneys only as provided by the Bankruptcy Act and applicable general orders and court rules, and (to) * * * abide by all orders of the said Court in respect of such moneys, * * * and (to) * * * otherwise faithfully perform all duties pertaining to it as such depository * * *'
Thus also, the bond recites that, in lieu of a surety the respondent deposited with the Federal Reserve Bank of New York
'subject to the orders of the several Judges of the said Court, bonds and notes of the United States of the par value of Five Hundred Thousand Dollars ($ 500,000.), to be held as security for the faithful performance of the conditions of this undertaking. It is agreed that the said Court, upon order, may collect or sell such bonds or notes of the United States in case of any default in the performance of any of the conditions or stipulations of the within bond.'
In March of 1955, Flister received a telephone call from the brokerage house that his 200 shares of Concord stock 'was coming through.' This call was followed by a bill for $ 200 from the brokerage house, which Flister received by mail. Although Flister had maintained a checking account for 17 years at one or another bank, he did not pay for the Concord stock by check. I cannot believe Flister's story that he went to his safe deposit box in the respondent's bank and withdrew therefrom $ 200 in cash which he had saved out of his salary and sent this $ 200 in cash to Reich for Reich to transmit it to the brokerage house. Although this was the only stock that Flister had ever acquired, the claimed method of payment is ...