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not charge the bank with the loss if it was Mr. Martin A. Schenck, with Messrs. not negligent in paying the checks.
Lexow, Mackellar, & Wells, for appel
lants: (April 22, 1913.)
The question of plaintiffs' negligence in A PPEAL by plaintiffs from a judgment of the examination of their accounts was for
the jury. the Appellate Division of the Supreme Court, Fourth Department, affirming a judg. Dec. 731; Critten v. Chemical Bank, 171
Weisser v. Denison, 10 N. Y. 68, 61 Am. ment of a Trial Term for Jefferson County N. Y. 219, 57 L.R.A. 529, 63 N. E. 969; in defendant's favor, and from an order Frank v. Chemical Nat. Bank, 84 N. Y. 209, denying a motion for new trial, in an action 38 Am. Rep. 501; Clark v. National Shoe brought to recover an amount paid by de- & Leather Bank, 32 App. Div. 316, 52 N. Y. fendant on certain forged checks drawn in Supp. 1064, affirmed in 164 N. Y. 498, 58 plaintiffs' name and charged to their ac- N. E. 659; Wilmerding v. Postal Teleg. count. Affirmed.
Cable Co. 118 App. Div. 685, 103 N. Y. The facts are stated in the opinion. Supp. 594. I. Scope.
great weight of judicial opinion. National The present note is not concerned with Dredging Co. v. Farmers" Bank, 6 Penn. the duty generally of a depositor to notify Rep. 158, 69 Atl. 607 (or order” in checks
(Del.) 580, 16 L.R.A.(N.S.) 593, 130 Am. St. the bank of errors, or charges to his account upon forged checks, independently of fraudulently altered to "or bearer”); Ishis duty to examine his pass book and rael v. State Nat. Bank, 124 La. 885, 50 vouchers. That is, the rights and liabili- So. 783 (series of forged checks); McKeen ties of the parties in case the depositor has
v. Boatmen's Bank, 74 Mo. App. 281; Brown discovered some error or irregular charge
v. Lynchburg Nat. Bank, 109 Va. 530, 64 and has failed to notify the bank thereof S. E. 950, 17 Ann. Cas. 119 (employee of
bank fraudulently charged depositor's acare not discussed.
As to loss or prejudice to bank resulting count); Leather Mfrs. Nat. Bank v. Morfrom negligent failure on part of depositor gan, 117 U. S. 96, 29 L. ed. 811, 6 Sup. Ct. or correspondent bank to give prompt notice ! Rep. 657 (checks altered in amounts and of forgery, as a condition of its right to in names of payees); National Bank v. Ta
coma Mill Co. 104 C. C. A. 441, 182 Fed. 1 charge forged checks to latter's account, see note to McNeely Co. v. Bank of North (unauthorized payments made to an emAmerica, 20 L.R.A.(N.S.) 79.
ployee of depositor). A fuller and more Neither is the duty of the depositor to complete statement of this duty appears examine his account apart from an examina- infra, II. a, 3. tion of the pass book and vouchers con
A corporate depositor is under obligation sidered. This class of cases is illustrated to examine its pass book and returned by Laborde v. Consolidated Asso. 4 Rob. vouchers, and to discover a defalcation of (La.) 190, 39 Am. Dec. 517, where the fail. him of a part of the money represented by
an employee resulting from the deposit by ure of the depositor to at once investigate checks and the taking of the balance in the state of his account with his bank when cash, where a very slight examination of he was informed that it was overdrawn, either accounts or book would have disclosed where it appeared manifest from the bank book that the overdraft was not occasioned Co. v. Germania Bank, 90 Minn. 478, 97
the defalcation. Scanlon-Gipson Lumber by the payment of the forged .check, was
N. W. 380. held not to preclude the depositor from recovering of the bank where, within a few upon the depositor is held impliedly by all
That such a duty of examination rests hours from the time his pass book was the cases discussed below in this 'subdivi. balanced and handed to him, together with the canceled check, he returned them to the sion, since if no examination is necessary
the character thereof is immaterial, bank and pointed out the spurious check. As to the payment by bank of checks in Weisser v. Denison, 10 N. Y. 68, 61 Am.
The doctrine first announced in New York fraudulently raised by employee of drawer, Dec. 731, that a depositor is under no duty see note to Otis Elevator Co. v. First Nat. Bank, 41 L.R.A.(N.S.) 529.
to examine his pass book and returned
checks for the detection of forgeries in orII. In general.
der to protect the bank, while nominally approved in Frank v. Chemical Nat. Bank,
84 N. Y. 209, 38 Am. Rep. 501, where a. Doctrine that an examination is re
it is stated that the recovery by the dequired.
positor was sustained by the decision in the I. In general.
Denison Case, is really modified in the
Frank Case, and it is there held that the That a duty rests upon a depositor to depositor is under no duty to the bank so make at least some examination of his to conduct the examination that it will account as shown by the pass book and necessarily lead to the discovery of the vouchers, to detect forgeries, alterations, fraud. Consequently, where the depositor or fraudulent charges, is sustained by the i conducted an examination, but was deceived
Defendant's negligence presented a ques. | the occasions when the pass book was baltion of fact for the jury.
anced were sufficient to discharge the duty Kelley v. Buffalo Sav. Bank, 180 N. Y. which they owed the bank. 171, 69 L.R.A. 317, 105 Am. St. Rep. 720, Critten v. Chemical Nat. Bank, 171 N. Y. 72 N. E. 995, 17 Am. Neg. Rep. 337; Squire 219, 57 L.R.A. 529, 63 N. E. 969; Leather v. Ordemann, 194 N. Y. 394, 87 N. E. 435; Mfrs. Nat. Bank v. Morgan, 117 U. S. 96, Parks v. Knickerbocker Trust Co. 137 App. 29 L. ed. 811, 6 Sup. Ct. Rep. 657; Hardy Div. 719, 122 N. Y. Supp. 521; Niagara v. Chesapeake Bank, 51 Md. 562, 34 Am. Woolen Co. v. Pacific Bank, 141 App. Div. Rep. 325. 265, 125 N. Y. Supp. 1035.
Plaintiffs failed to exercise reasonable Messrs. Davies, Stone, & Auerbach, care in verifying their account with defor respondent:
fendant. The facts being undisputed, it was a ques- Leather Mfrs. Nat. Bank v. Morgan, 117 tion for the court to determine whether U. S. 96, 29 L. ed. 811, 6 Sup. Ct. Rep. 657; such examinations as the plaintiffs had made Critten v. Chemical Nat. Bank, 171 N. Y. of their returned checks and account on 219, 57 L.R.A. 529, 63 N. E. 969; Myers v. by the skilful character of the forgery, his to the treasurer showing the balance, but omission to discover the forgery was held the vouchers were not received by the treas. not to shift upon him the loss, which in Time was counted from the date of the first instance was the loss of the bank. the receipt of the pass book by the treas
That a duty rests upon a depositor to urer, but as both that date and the date of make some examination of the pass book the receipt by the president were more than and vouchers is finally determined in Critten a year before the notification of the bank, v. Chemical Nat. Bank, 171 N. Y. 219, 57 | this is immaterial. L.R.A. 529, 63 N. E. 969. That the depositor owes a duty to exam
3. Sufficiency of examination. ine his pass book and vouchers to discover alterations, as distinguished from forged In the case of forgery it has been held checks, is the theory of Cincinnati Nat. that after the lapse of a reasonable time Bank v. Creasy, 10 Ohio Dec. Reprint, 121. without objection being made, the presump
tion arises that the account as balanced and 2. Time of examination.
the checks charged therein are correct. But
this presumption is only prima facie in its The examination must be made within effect, and is liable to be repelled by showa reasonable time. Janin v. London & S. ing that the error or fraud was not disF. Bank, 92 Cal. 14, 14 L.R.A. 320, 27 Am. coverable by the exercise of reasonable care St. Rep. 82, 27 Pac. 1100.
and diligence, or that there was no such Ten days is a reasonable time in which appearance of things as to excite the susto make an examination where the deposi- picion of a reasonable man. Hardy v. Chestor resides in the town in which the bank apeake Bank, 51 Md. 562, 34 Am. Rep. 325. is situated. Kenneth Invest. Co. v. Na- Reasonable care is the test applied in tional Bank, 103 Mo. App. 613, 77 S. W. Critten v. Chemical Nat. Bank, 171 N. Y. 1002; McKeen v. Boatmen's Bank, 74 Mo. 219, 57 L.R.A. 529, 63 N. E. 969. After App. 281.
stating that, when a depositor has in his In McKeen v. Boatmen's Bank, supra, possession a record of checks he has given, the receipt given by the depositor to the with dates, payees, and amounts, a combank contained a clause that all claims of parison of the record with the returned reclamation should be made in ten days. checks will necessarily expose forgeries or
The negotiable instruments law provides alterations, the court continues: “Considerthat no bank shall be liable to a depositoring that the only certain test of the genfor the payment by it of a forged or raised uineness of the paid check may be the check, unless within one year after the re- record, made by the depositor of the checks turn to the depositor of the voucher such he has issued, it is not too much, in juspayment, such depositor shall notify the tice and fairness to the bank, to require of bank that the check so paid was forged him, when he has such a record, to exercise or raised. Under this statute a corporate reasonable care to verify the vouchers by depositor which had failed to notify the that record.” bank of a forgery until after the expiration It is stated in Leather Mfrs. Nat. Bank of a year from the time the vouchers were v. Morgan, 117 U. S. 96, 29 L. ed. 811, 6 returned to it was held to be precluded Sup. Ct. Rep. 657, that the depositor's duty from recovering of the bank. Shattuck v. to the bank is discharged when he exercises Guardian Trust Co. 204 N. Y. 200, 97 N. E. such diligence as is required by the circum. 517. The checks in this case were to be stances of the particular case, including the signed by the president and countersigned relations of the parties and the established by the treasurer. The president's name was or known usages of banking business. signed to the checks in question, but the In Brown v. Lynchburg Nat. Bank, 109 treasurer's was forged. The pass book and Va. 530, 64 S. E. 950, 17 Ann. Cas. 119, vouchers were receipted for by the presi- | where the account of a depositor was frauddent, and the pass book was afterward given ulently charged up by employees of the Southwestern Nat. Bank, 193 Pa. 1, 74 Am. returned vouchers as a protection against St. Rep. 672, 44 Atl. 280; First Nat. Bank the payment by the bank of forged checks. v. Allen, 100 Ala. 476, 27 L.R.A. 426, 46 Am. The action was brought to recover a large St. Rep. 80, 14 So. 335.
amount paid by the respondent on a series No negligence on the part of defendant of forged checks drawn in the name of apcan be predicated upon the mere payment pellants and charged to their account. The of the first four forged checks drawn to forgeries were conceded, but the respondent the order of Hennessey. Critten v. Chemical Nat. Bank, 171 N. Y. amounts by it paid out on said checks, with
defended against the repayment of the 219, 57 L.R.A. 529, 63 N. E. 969; Myers v.
the exception of four subject to special conSouthwestern Nat. Bank, 193 Pa. 1, 74 Am.
sideration, on the ground that appellants St. Rep. 672, 44 Atl. 280.
had contributed to such payment by their Hiscock, J., delivered the opinion of negligence in not examining their pass book the court:
and vouchers, and that it had not been The important question presented on this guilty of any negligence in paying the appeal concerns the obligation of a depositor checks. The court ruled with the respondin a bank to examine his pass book and 'ent on this defense as matter of law, and bank with amounts not withdrawn by him, and was given credit therefor in his pass a monthly statement was rendered to the book; he saw the entry made, but did not depositor consisting of his canceled checks observe that it was not in the proper place for the past month, a machine-made slip in the book, but was on a page where the represented to contain a list of these checks, account had been fully settled and bala statement showing the totals of debits anced; subsequently a debtor of his de and credits, and the balance to the credit posited in the bank a sum equal to that of the depositor. The depositor did not for which he had previously given his note, keep a pass book, but relied solely on these and this amount was credited in its proper statements rendered by the bank. His ex place on the pass book. He, however, did amination of these statements consisted of not know of this payment by his debtor, seeing that his checks as drawn were re- and was told by the president of the bank turned to him as vouchers, that his signa- that no such payment had been made. In ture to the checks was genuine, and that his settlement with the bank he received the checks returned corresponded with the credit for only one of these sums. Under stubs from which they were taken, and of these facts it was held for the jury to say verifying the total debits and credits. He what knowledge an examination of the did not check the individual checks with pass book and vouchers would have or the items on the machine-made list of should have conveyed to the depositor. checks, but assumed that this list corre- The finding of facts that the depositor sponded with the checks returned with it, was not guilty of any negligence in regard and correctly represented his withdrawals to the discovery of the forgery, and that from the bank. He did not examine it to he was, in so far as the bank was concerned, see if it contained any item of charge reasonably prudent and careful, and that against his account not represented by a the payment of the checks was not caused check. The defalcation could have been by any negligence on his part, a finding discovered by a comparison between the which was supported by evidence, was held machine-made slip and the checks which he conclusive in Shipman v. Bank of State, 126 had drawn. Under this state of facts the N. Y. 318, 12 L.R.A. 791, 22 Am. St. Rep.
821 jury. The failure of the depositor to take The depositor involved in Clark v, Nathe simple procedure necessary to discover tional Shoe & Leather Bank, 164 N. Y. 498, the error was treated as not negligence bar- 58 N. E. 659, caused his pass book and ring a recovery from the bank as a matter returned checks and the bank slip of checks of law.
paid to be examined soon after their return In Leather Mfrs. Nat. Bank. v. Morgan, from the bank by an expert, who reported supra, a
case involving the payment of the account to be correct. It was held, how. checks which had been altered to ever, in this case that a finding of fact had amounts and also the names of the payees been made that the depositor was not negli
. by a confidential clerk of the depositor, gent, and therefore this question was not where there
controversy to before the appellate court. The forgery whether the officers of the bank had exer- involved in this case consisted in raising cised due caution before paying the altered the amounts for which checks had been checks, and whether the depositor omitted, drawn. to the injury of the bank, to do what ordi- From the foregoing discussion it appears nary care and prudence required of him, that the depositor is not at all events reit was held to be a mixed question of law quired to discover the forgery or alteraand fact for the determination of the jury. tion. But the duty to examine requires
In Cole v. Charles City Nat. Bank, 114 him, within a reasonable time from the reIowa, 632, 87 N. W. 671, a depositor exe- turn of his pass book and vouchers, to make cuted and delivered his note to the bank an examination thereof with care which is
refused to submit either proposition thus, May 18, 1904, and May 20, 1905, he forged stated to the jury.
twenty-eight checks, aggregating a large The important facts which gave rise to sum, and employing in his forgeries the simthe controversy are as follows: Prior to ulated signature of the trustee Morgan. May 18, 1904, the appellants had opened These checks were paid by the bank, and and maintained with the respondent a de together with the genuine ones drawn durposit account with considerable credit bal- ing the same period were charged to the ances. Checks drawn on this account were appellants on the books of the bank. Five signed by means of a rubber stamp imprint-times during the period the former's pass ing the words, “Estate of David P. Morgan," book was written up and balanced, and on and authenticated by the actual signature each occasion the checks paid by the bank of either trustee. The appellants had in since the last balancing, together with an their employ a trusted clerk who was their itemized statement or list thereof, and the immediate agent in dealing with the bank. pass book, were returned to appellants by He made deposits, filled out the body of delivery to their agent Hennessey. The latchecks, and obtained from the bank the ter withdrew from the bundle of vouchers pass book and vouchers and check list when and destroyed the checks forged by him and ever the account was balanced. Between also the check list, and then, after delaying reasonable under the circumstances of the the bank with checks drawn by it upon particular case. The exact examination other banking houses payable to the dewhich is required of a depositor is one fendant bank. See fuller statement of this which cannot be stated in a general way, case supra. but depends upon the facts of the par- The exact examination which was made ticular case. In the following cases par- by the depositor does not clearly appear ticular situations have been discussed: from the report of Frank v. Chemical Nat.
A depositor who, on each occasion after Bank, 84 N. Y. 209, 38 Am. Rep. 501. It is the return of his pass book and checks, ex. stated that the depositor, on each occasion amined the account as rendered, with the after the pass book had been written up assistance of a clerk who had been guilty and the vouchers returned, made an examiof forgery, and who in the examination of nation of the account by comparing the the account covered up the forgery, was checks returned to him by his confidential held to have notice of such forgery, on the clerk with the memorandum of checks in theory that notice to the agent is notice the margin of the check book, and the balto the principal, and therefore to have been ance in the pass book with the balance apnegligent in not discovering the forgery, pearing in the check book, and on each ocso that he could not recover from the bank casion they were found to correspond. He the amount paid out on the forged checks. then compared the checks with the entries First Nat. Bank v. Allen, 100 Ala. 476, 27 in the pass book by having the confidential L.R.A. 426, 46 Am. St. Rep. 80, 14 So. 335. clerk read the entries while he had the
A depositor who personally signs all his checks, and no discrepancy appearing the checks, which are written either by himself account was deemed to be correct and was or by his clerk, is bound to discover, upon not further examined. It appeared that the return of the pass book and canceled the confidential clerk, who was guilty of checks to him, forged checks which are forgery, by abstraction of the forged written in a strange handwriting, although vouchers and by false balances and read. the signatures are so well imitated as to ings, deceived the depositor and prevented defy detection. Israel v. State Nat. Bank, him from ascertaining by means of the ex. 124 La. 885, 50 So. 783.
amination as conducted the true state of The failure of a depositor to compare the the account and the facts of the forgery. returned checks with the stubs in the check This was held to relieve the depositor from book, which would have exposed alterations any liability for the loss. made in the checks, is negligence. Critten A depositor has fulfilled its duty in this v. Chemical Nat. Bank, 171 N. Y. 219, 57 regard when it has examined the pass book L.R.A. 529, 63 N. E. 969. The examination as written up and returned by the bank, was intrusted by the depositor in this case checking the statements over with the deto the clerk who had committed the forger positor's books to verify their accuracy, ies, and, while not imputing to the depositor and not pursuing the inquiry further when the knowledge which such clerk possessed, the bank's statements correspond with the it is stated that there is no reason why the cash book and check book, and no irregulardepositor was not chargeable with such in- ities appear. It is not the duty of the formation as a comparison of the checks depositor in this regard to pursue the inwith the check book would have imparted to quiry further so as to discover the fact an innocent party previously unaware of that an employee of the depositor, instead the forgeries.
of depositing certain items, received the It would have been necessary in Scanlon- same in cash, a transaction that nowhere Gipson Lumber Co. v. Germania Bank, 90 appeared in the statement of the account Minn, 478, 97 N. W. 380, in order to have with the bank. National Bank v. Tacoma discovered the fraud, for the corporation Mill Co. 104 C. C. A. 441, 182 Fed. 1. After to have compared the amounts deposited in stating that this could have been discovered as long as convenient, delivered the pass, he knew was returned by the bank when the book and the genuine vouchers to Kissell, pass book was balanced up, and never examwho understood that the rules of respondent ined the balances shown by the pass book, required that the pass book should be bal- and which were struck after payment of the anced every month or two months, and that, forged checks. He contented himself during after balancing, it was returned with the the period in question with comparing the paid checks as vouchers and with a detailed genuine vouchers permitted by Hennessey to list thereof.
come into his hands with the check book The estate, through Hennessey as its book- and with the other books of the estate, and keeper, kept a journal and ledger containing which comparison, of course, disclosed no an account with the bank, and from which signs of Hennessey's forgeries. The other there were drawn off once or twice during trustee, in whatever examinations he made, the period in question trial balances. It also never examined the pass book or the check had a regular check book upon the stubs list. On opening their account the appel. of which were entered the genuine checks lants had arranged for the payment of inpresented to and paid by the bank. Kissell, terest thereon at a considerable rate, and the who seems to have been the more active amount of this interest, as credited on the trustee, never asked for the check list which pass book, indicated much smaller balances by sending out to customers for their state-, part of a depositor who has received from ments of account, the court continues: “We the bank a pass book and canceled checks think, however, the duty of a depositor to- showing the state of his account upon a wards his bank in relation to the examina- balance thereof amounts to an admission of tion of the bank statements made in con- the correctness of the entries of debits and nection with its writing up and balancing credits in the pass book. In such a case the the depositor's pass book does not reach to account is presumed to be correct until that extremity. The statements, as we shown otherwise. Benton County Bank v. have shown, are rendered for the purpose of Walker, 85 Iowa, 728, 51 N. W. 241 (notes advising the depositor of the state of his given by depositor charged to his account); account. If those statements tally with Schoonove v. Osborne Bros. 108 Iowa, 453, the deposit slips made up by the depositor 79 N. W. 263 (interest charges by bank); and the checks drawn against the bank, and Des Moines Nat. Bank v. Sisson, 143 Iowa, if the balances agree one with the other, 191, 121 N. W. 533 (accounting for colthe depositor is not obliged to look further lateral claimed incorrect); Weisser v. Deni. nor to bear in mind some irregularity that son, 10 N. Y. 68, 61 Am. Dec. 731 (forged may appear elsewhere in his general books, check); Harley v. Eleventh Ward Bank, although a searching inquiry might lead to 76 N. Y. 618 (contest over
an item of a discovery of the fraud.” But see Scan- credit); August v. Fourth Nat. Bank, 13 lon-Gipson Lumber Co. v. Germania Bank, N. Y. S. R. 956, 1 N. Y. Supp. 139 (forged supra.
indorsement); Nodine v. First Nat. Bank,
41 Or. 386, 68 Pac. 1109 (failure to credit 4. Delegation to agents.
deposits). See Janin v. London & S. F The examination of the pass book and Bank, 92 Cal. 14, 14 L.R.A. 320, 27 Am. St. vouchers may be delegated to an agent.
Rep. 82, 27 Pac. 1100, and Hardy v. ChesaShipman v. Bank of State, 126 N. Y. 318, peake Bank, 51 Md. 562, 34 Am. Rep. 325,
infra. 12 L.R.A. 79, 22 Am. St. Rep. 821, 27 N. E. 371; Leather Mfrs. Nat. Bank v. Morgan, evidence, the account stands. McLaughlin
If the incorrectness is not shown by the 117 U. S. 96, 29 L. ed. 811, 6 Sup. Ct. Rep: v. First Nat. Bank, 71 lll. App. 329. (The 657; National Bank v. Tacoma Mill Co. 104 claim here was that some deposits had not C. C. A. 441, 182 Fed. 1. The depositor may intrust the examina
been placed to the credit of the depositor,
double charges of interest had been made, tion of the pass book and vouchers to an
etc.) Clark v. Mechanics' Nat. Bank, 11 agent, provided he used ordinary care in
Daly, 239. selecting such gent. Kenneth Invest. Co. v. National Bank, 103 Mo. App. 613, 77, S: such cases merely places on the depositor
The failure to examine the pass book in W. 1002; National Bank v. Tacoma Mill the burden of showing that the balance as Co. supra.
See First Nat. Bank v. Allen, returned is not correct; it does not estop 100 Ala. 476, 27 L.R.A. 426, 46 Am. St. him to show error in the account. Rettig Rep. 80, 14 So. 335, supra. As to the depositor's right to recover the 193 (depositor claimed certain items to
v. Southern Illinois Nat. Bank, 147 Ill. App. amount of a forged or raised check paid by have been improperly charged against her); a bank, as affected by the fact that he in. Farry v. Farmers' & M. Bank, N. J. Eq. trusted the examination of vouchers to the employee who was guilty of the original items were improperly charged to her ae
58 Atl. 305 (depositor claimed certain fraud, see note to First Nat. Bank v. Rich-count); Shipman v. Bank of State, 126 N. mond Electric Co. 7 L.R.A.(N.S.) 744.
Y. 318. 12 L.R.A. 791, 22 Am. St. Rep. 821,
27 N. E. 371 (forged indorsement); Hutch5. Doctrine of account stated.
inson v. Market Bank, 48 Barb. 302 (disIt is sometimes held that silence on the i pute as to credit).