Cragie v. . Hadley , 99 N.Y. 131 ( 1885 )

The general doctrine that upon a deposit being made by a customer, in a bank, in the ordinary course of business, of money, or of drafts or checks received and credited as money, the title to the money, or to the drafts or checks, is immediately vested in and becomes the property of the bank, is not open to question. (Commercial Bank of Albany v. Hughes, 17 Wend. 94;Metropolitan Nat. Bank v. Loyd, 90 N.Y. 530.) The transaction in legal effect is a transfer of the money, or drafts or checks, as the case may be, by the customer to the bank, upon an implied contract on the part of the latter to repay the amount of the deposit upon the checks of the depositor. The bank acquires title to the money, drafts, or checks, on an implied agreement to pay an equivalent consideration when called upon by the depositor in the usual course of business. The further rule that one who has been induced to part with his property by the fraud of another, under guise of a contract, may, upon discovery of the fraud, rescind the contract, and reclaim the property, unless it has come to the possession of a bona fide holder, is equally well settled, and does not at all depend upon the character of the wrong-doer, whether a corporation or natural person.

A corporation may be in a legal sense guilty of a fraud. As a merely legal entity it can have no will, and cannot act at all, but in its relations to the public it is represented by its officers and agents, and their fraud in the course of the corporate dealings, is in law the fraud of the corporation. There is more difficulty in establishing a fraud against a corporation, than against an individual. This arises from the difficulty in many cases of determining whether the fraud charged is imputable to the corporation. There may be knowledge of a fact by an agent of a corporation, which if brought home to the corporation itself, would create responsibility in a given case, but as to which, notice will not be imputed to the corporation merely from the fact that it was known by the agent. We need not enter into the distinctions upon this subject. But the general rule is well established that notice to an agent of a bank, or other corporation intrusted with the management of its business, or of a particular branch of its business, is notice to the corporation, in transactions conducted by such agent, acting for the corporation, within the scope of his authority, whether the knowledge of such agent was acquired in the course of the particular dealing, or on some prior occasion. (Holden v. N Y Erie Bank, 72 N.Y. 286; Bank of U.S. v. Davis, 2 Hill, 452.) The drafts for the proceeds of which this action is brought, amounting to $14,793.37, were deposited by the plaintiffs in the usual course of business, with the First National Bank of Buffalo, between two and three o'clock in the afternoon of the 13th day of April, 1882, and were credited in the plaintiffs' pass-book and on the books of the bank to their account. The bank closed its doors at the usual hour on that day and never opened them afterward. It turned out that the bank was irretrievably insolvent, owing debts to the amount of $1,300,000, with assets not exceeding in value forty per cent of its debts, and had been so insolvent for months before its failure. It does not admit of question that the condition of the bank was such that if it was known to its officers or agents charged with the direction and management of its affairs, a gross fraud was perpetrated on the plaintiffs in permitting them, in reliance upon its supposed solvency, to make the deposit in question. The bank was not only irretrievably insolvent, but it had apparently given up the struggle to maintain its credit before the deposit was made. Its drafts had gone to protest on the 12th, and it was manifest that a condition of open insolvency must immediately ensue. The acceptance of the deposit under those circumstances constituted such a fraud as entitled the plaintiffs to reclaim the drafts or their proceeds. (See Anonymous Case, 67 N.Y. 598. ) The presumption that the managing officers and agents of the bank had notice of its condition, arises from the circumstances. They could not have been ignorant without imputing to them gross inattention to its affairs. It was, moreover, admitted on the trial that the entire control and management of the bank was in fact intrusted to and conducted by its president, and it is clearly shown that he was familiar with the desperate condition of the bank at the time of, and for many weeks before the deposit was made.

It is claimed that the right of the plaintiffs to reclaim the drafts or their proceeds, is precluded by sections 5234 and 5242 of the Revised Statutes of the United States, which forbid all preferential payments or transfers by an insolvent bank, and provide for a ratable distribution of its assets among its creditors. The answer is that the plaintiffs do not claim under a transfer from the bank, but under their original title. They are not seeking to enforce any right as creditors of the bank, but to reclaim their own property obtained by fraud. Their relation as creditors terminated when they elected to rescind the contract. The right to a restoration in such case may be defeated by the acts or acquiescence of the defrauded party, or because the property has lost its identity and cannot be traced, or other persons have innocently acquired interests in ignorance of the fraud. But neither the creditor of an insolvent bank, nor its assignee in bankruptcy, has any equity to have the plaintiffs' property applied in payment of the obligations of the bank, and the statute does not sanction so palpable an injustice.

The judgment should be affirmed.

All concur.

Judgment affirmed.