Bank of Proctorville v. West, 184 N.C. 220 (1922)

Oct. 25, 1922 · Supreme Court of North Carolina
184 N.C. 220


(Filed 25 October, 1922.)

1. Banks and Banking — Cashier—Principal and Agent — Deposits—Overdrafts.

Where a cashier of a bank, in his individual capacity, and for his own private use, purchases an automobile and promises to deposit the purchase price to the seller’s credit at the bank, to meet his draft therefor; but the cashier fails to make the deposit and carries the amount on the books of the bank as an overdraft of the seller, and this is done without the knowledge of the directors or other proper officers of the bank: Held, the seller is responsible, on the failure of the cashier to make the deposit as promised, for the amount of his overdraft in an action by the bank.

2. Same — Want of Authority — Knowledge Imputed.

Knowledge of a transaction by a cashier of a bank made with a depositor for the cashier’s sole benefit against the interest of the bank will not be imputed to the bank, and the bank will not be bound thereby in the absence of actual knowledge.

8. Banks and Banking — Overdrafts—Notice—Knowledge of Depositors— Notice Imputed — Principal and Agent — Antagonistic Interests.

A cashier of a bank cannot bind the bank by permitting a depositor to overdraw his account for the sole personal interest of the cashier, for the agent’s interest is antagonistic to that of his principal. The depositor is affected with knowledge of the status of his own account with the bank and the fact that the bank fails to notify him of the overdraft cannot defeat the latter’s recovery upon the overdraft, even if there is no fraud.

Appeal by plaintiff, from Connor, at April Term, 1922, of ROBESON.

*221 E. J. Britt and McIntyre, Lawrence & Proctor for plaintiff.

McLean, Varser, McLean & Stacy and 8. Brown Shepherd for defendant.

Glare, 0. J.

A jury trial was waived, and tbis case was submitted on facts agreed: On 28 May, 1920, N. 0. Blue, cashier of tbe plaintiff bank, in bis private capacity as an individual, and for bis individual uses and purposes, purchased an automobile from tbe defendant at tbe price of $540. Blue instructed West, who was a customer of tbe bank, to draw a check upon tbe bank for tbe purchase price, and promised that when it was presented be, Blue, would deposit sufficient funds to tbe credit of tbe seller in tbe said bank to make tbe draft good. Pursuant to tbis agreement, West drew bis check upon tbe plaintiff bank, which was duly charged to bis account, but Blue failed to place funds to tbe credit of West to meet tbe same when presented and paid, but simply charged up tbe amount on West’s account, creating an overdraft for tbe whole amount.

Tbis action is brought by tbe bank to recover said overdraft of $540. None of tbe officers or directors of plaintiff bank bad any knowledge whatever of any of tbe transactions. In October, 1920, about four months after tbe above transaction, on an examination of tbe bank by tbe officers of tbe State Banking Department, it was discovered that cashier Blue was a defaulter for a large amount, and be was removed. No notice was given to West of tbe overdraft until after tbe removal of Blue as cashier, because tbe other officers and directors of tbe bank bad no knowledge of tbe overdraft. Upon ascertaining tbe fact, a demand was made upon tbe defendant for payment of tbe overdraft, and refused, and tbis action was brought. Blue was insolvent when be purchased tbe automobile, and is still insolvent. He was tbe only salaried officer connected with tbe bank.

Independent of tbe purchase of tbe automobile, and tbe other circumstances mentioned, tbe defendant is liable to tbe bank for payment of tbe overdraft by him. Tbe fact that tbe cashier bad promised to put a sum there to meet it, which was not done, does not affect tbe fact that tbe defendant has gotten $540 in money from tbe bank by tbe overdraft, and bis liability therefor. If tbe promise bad been carried out by tbe cashier actually putting tbe money of tbe bank to tbe credit of West, tbe cashier would have been guilty of embezzlement in applying $540 of tbe money entrusted to bis care and custody and converting it to bis own use, an offense for which tbe doors of tbe penitentiary would have swung open. As be failed to so place tbe money, either bis own or of tbe bank, it was simply a ease where tbe cashier promised, as any other person could have promised, to place a sum to tbe credit of tbe drawer of tbe *222check and did not do so. Tbe liability of tbe drawer to tbe bank is due to tbe fact tbat be bas gotten $540 of tbe bank’s money by means of an overdraft, for wbicb tbe drawer is responsible to tbe bank, and it was bis misfortune tbat be accepted tbe assurance of Blue tbat be would place tbat much money to bis credit.

West knew, as a matter of course, tbat tbe transaction in effect was tbat tbe cashier, without any authority from the bank, was to loan him $540 without any note or security given by him to tbe bank, and without payment of interest. He knew tbat tbe cashier bad no authority to make such transaction, and be sold tbe automobile to him for tbe sake of tbe profit in such sale, relying upon -the promise of Blue to place money in tbe bank to tbe defendant’s credit, wbicb promise tbe cashier did not keep. Tbe failure to do so was tbe loss of tbe defendant, and not tbe loss of tbe bank, for tbe cashier bad no authority to use tbe bank’s funds for bis own purposes. Even if, as cashier, be bad actually paid tbe check of tbe bank in tbe utmost good faith, it was none tbe less an overdraft, for wbicb West was indebted to tbe bank. Tbe cashier’s promise to West to make it good in no wise released West from payment of tbe overdraft when tbe cashier failed to place tbe money to tbe credit of tbe drawer. This case is almost identical with that of Grady v. Bank, ante, 158.

In Dowd v. Stephenson, 105 N. C., 467, tbe Court held tbat when tbe president of a bank authorized a transaction to pay debts due by himself, though with tbe knowledge of tbe cashier of tbe bank, it was no defense, tbe Court saying tbat tbe president and officers of tbe bank other than tbe directors, have no authority to appropriate its moneys. As said in tbat case; “Tbe defendant got tbe benefit of tbe bank’s money in a way not authorized or intended by it, and very certainly it can recover tbat money by proper action,” citing Moss on Banking, sec. 360, and cases.

Tbe agreement between tbe cashier, Blue, and tbe defendant West was a fraud upon tbe plaintiff bank, and it can recover tbe amount of an overdraft created as tbe result of such fraudulent agreement.

In Hier v. Miller, 68 Kansas, 258; S. c., 63 L. R. A., 952, it was held: “Tbe cashier of a bank bas no implied authority to pay bis individual debts by entering tbe amount of them as a credit upon tbe pass-book of bis creditor, who keeps an account with tbe bank, and permitting tbe creditor to exhaust such account by checks wbicb are paid, tbe bank having received nothing of value in tbe transaction. If tbe cashier of a bank, without actual authority to do so, should undertake to pay bis individual debts in tbe manner stated, tbe bank may recover of bis creditor tbe amount of money it paid out upon tbe faith of tbe unau-' tborized pass-book entries. Tbe fact tbat tbe cashier is personally in*223terested in a transaction of tbis character is sufficient to put the creditor upon inquiry as to the actual extent of the cashier’s powers.” In Cobe v. Hardware Co., 31 L. R. A. (N. S.), 1126, it was said: “Devlin and the cashier, acting in connivance with him, could no more appropriate the funds of the bank to pay the individual debts of Devlin without the sanction of the board of directors than could the cashier of the bank in the cited case, and it was incumbent upon the appellee, as it was upon the creditor in that ease, to inquire whether the officers of the bank were acting within the scope of their authority.”

In Bank v. Wilson, 124 N. C., 568, it was said: “The alleged agreement was beyond the scope of the agency of the cashier, and without consideration, and therefore void. ... A cashier cannot, without express authority, take in payment of a note a mere verbal assignment of an intangible interest in another note already held by another bank as collateral.”

The decision in Dowd v. Stephenson, supra, is fully sustained by the following authorities: Notes to 1 A. L. R., 699; notes to 31 L. R. A. (N. S.), 1126, supra; Bank v. Gunhus, 9 L. R. A. (N. S.), 471; Bank v. Otterbach, 131 Iowa, 160; Langlois v. Gragnon, 123 Louisiana, 453; Campbell v. Bank, 67 N. J. L., 301; Bank v. Drake, 29 Kansas, 311; Bank v. Bank, 95 U. S., 557; Bank v. Lemon, 170 N. C., 10.

The agreement was a fraud upon the plaintiff bank, and the knowledge of Blue, the conniving cashier, will not be imputed to the bank. Roper v. Ins. Co., 161 N. C., 157, where it is said: “The rule that notice to an agent is notice to the principal being based upon the presumption that the agqnt will transmit his knowledge to his principal, the rule fails when the circumstances are such as to raise a clear presumption that the agent will not perform this duty, and, accordingly, where the agent is engaged in the transaction in which he is interested adversely to his principal, or is engaged in a scheme to defraud the' latter, the principal is not charged with the knowledge of the agent acquired therein. . . .

This principle of imputed knowledge does not apply when it would be against the interest of the agent to make the disclosure.” To the same purport, Commission v. Bank, 164 N. C., 358; Brite v. Penny, 157 N. C., 110; Bank v. School Committee, 118 N. C., 383; Bank v. Burgwyn, 110 N. C., 267.

The fact that no notice was given to the defendant West of the existence of the overdraft until some time after the draft was cashed does not prevent the plaintiff from recovery. It would not have this effect even in cases where there was no fraud, for the liability to the bank for the overdraft arises upon the obligation to pay money had and received, but in this case it is admitted in the facts agreed that none of the officers or directors of the plaintiff bank, except the guilty cashier, had any *224knowledge or notice of tbe transactions between tbe cashier and tbe defendant West until some four months after tbe draft was cashed, and that immediately upon discovery of tbe facts, notice was given to tbe defendant and demand for payment made. Even when there is tbe utmost good faith, there is no authority nor principle which sustains the proposition that unless the bank promptly notifies a depositor of the existence of an overdraft that it cannot recover the amount thereof from the customer. The customer is fixed with knowledge of the condition of his account as fully as the bank, and has the same knowledge that he has overdrawn his account.

As was said by us at this term, upon a similar statement of facts, in Grady v. Bank, ante, 158, citing Hier v. Miller, 63 L. R. A., 952, supra, the mere fact that the cashier was personally interested in the transaction was sufficient to put the creditor upon inquiry.

Upon the facts agreed, judgment should have been entered in favor of the plaintiff.