United Security Life Insurance & Trust Co. v. Central National Bank ( 1898 )

Opinion by

Mb. Justice Mitchell,

The plaintiff was a depositor in the defendant bank and brought this action to recover a balance claimed to be due on its deposit account. The defense was a denial of any such balance, the money having been paid out on two checks drawn by the plaintiff. The reply was that the payments were wrongfully made upon forged indorsements of the names of the payees.

The learned 'referee found that the indorsements were forgeries ; that they were committed by one Williams, an employee of the plaintiff company, but that they were committed by Williams outside the scope of his employment. The referee therefore held that the defendant bank had violated its contract duty to the plaintiff by paying to the wrong persons, and would have been liable to the plaintiff, except for the latter’s negligence. On this subject he found the further facts that the first check in question was drawn on December 6,1893, for 11,800 in favor of one Grant, and duly charged in Grant’s account as a payment to him, but his indorsement as payee was forged and the money embezzled by Williams; that on March 27,1894, a second check was drawn to Grant as payee, for the same amount, also charged to Grant’s account, and in this instance actually paid to him, that the entries in the plaintiff company’s books showed that this second check was a duplication of the first, and that examination would at once have disclosed the fraud; that the duty of making the inquiry was on Williams and that being thus in the angular line of his employment his failure to discover and report the forgery was chargeable to plaintiff. “ It is not sought ” says the referee “ to charge the plaintiff with the knowledge which Williams, the forger, had of his own wrongful act in making the indorsement ‘ Ralph H. Grant.’ If this were the defendant’s proposition it could not be affirmed. The forgery of the name of Grant was not committed by Williams in the course of his employment. The plaintiff corporation was therefore not chargeable with any knowledge which rested within the breast of Williams that he, outside of the line of his duty, had wrongfully written the name of Grant on the check of December 6,1893. . . . The entries if they had been examined by the president or any other competent person, would, on and after March 27, 1894, have shown clearly that two checks of like amount for the same transaction had been drawn and made payable to Ralph H. Grant. Of these entries the referee is of opinion that the plaintiff must be taken to have had knowledge. The fact that Williams, their settlement officer, was the only person who in truth may have known’of these entries, is no answer. The knowledge of the entries possessed by Williams was knowledge obtained by him in the course of his agency. He was the person trusted by the corporation to know the contents of those books. If he knew it and wrongfully concealed it, it does not relieve the plaintiff from the consequences of actual knowledge. The legal proposition that a corporation is chargeable with all the knowledge which its agents, intrusted with the conduct of its business, obtain in the course of that business is one for which it would not be proper to multiply authorities.” The forgery was not in fact discovered until May 17, 1894, when immediate notice was given to defendant, but the referee held that plaintiff being chargeable with constructive knowledge on March 27, the notice was too late.

The other check involved in the suit was drawn on May 9, 1894, the name of the payee forged and the money embezzled by Williams in a similar way. The referee again on the basis that the plaintiff was chargeable with knowledge on March 27 that Williams was a forger, held that it was negligent in continuing him in his position and thus enabling him to commit the second fraud.

The learned referee therefore decided the case entirely on the negligence of the plaintiff in acting on its knowledge of the fraud, and based his' finding of such knowledge on the legal rule that knowledge or notice to an agent in the course of his employment is notice to the principal. Of the general rule there is no question. But in this case the agent, through notice to whom knowledge is to be imputed to the plaintiff, was himself the author of the fraud, and the question therefore arises whether the legal rule is applicable under such circumstances. On this question the cases are not entirely in harmony. We had occasion in Gunster v. Scranton Power Co., 181 Pa. 327, to review and consider them, and we then held that the weight of authority, as well as of sound reason, was against the application of the rule to such a case. The rule, as there said, is founded on the duty of the agent to communicate all material information to his principal and the presumption that he has done so, but no agent who is acting in his own antagonistic interest, or has committed a fraud by which his principal is affected, can bo presumed to have disclosed such fraud. It would be contrary to all experience of human nature, on which presumptions are founded. The learned and able arguments now presented have only confirmed our confidence in the soundness of the view there expressed, and they are decisive of this case. It is only fair to the learned referee to note that G mister v. Scranton Power Co., supra, was not decided until after he had made his report.

Of course it is to be noted that this is not the case of an act done by an agent authorized, or apparently held out to the world as authorized, to do it, such as the illustration in the argument of appellee of the receipt of a depositor’s money by the receiving teller of a bank. There the act being within his authority is the act of the bank which would therefore be responsible though the teller subsequently embezzled the money. Such cases stand on entirely different ground. So far as plaintiff was concerned the present was a case of breach of duty on the part of its officer which it was not bound to presume or anticipate.

The plaintiff’s implied knowledge being thus taken out of the ease there is no negligence and therefore no bar to its recovery. The referee rightly held that the banker’s contract with his depositor is to pay the latter’s checks only to the payee or one who claims through a genuine indorsement. He also held rightly that on the settlement of his bank book and the return of his checks the depositor is not bound to examine the latter to see that the indorsements are correct. He may assume that the bank has ascertained their genuineness before paying. A bank book settled, balance struck and checks returned to the depositor, will of course become an account stated if not promptly examined and errors of amount pointed out for correction, but the depositor is under no obligation to follow up and ascertain the genuineness of the indorsements that carry the title after the check has left his hands: Leather Manufacturer’s Bank v. Morgan, 117 U. S. 96; Welsh v. German Am. Bank, 73 N. Y. 424.

Judgment reversed and judgment directed to be entered for the plaintiff.