US SUPREME COURT DECISIONS

EMPIRE TRUST CO. V. CAHAN, 274 U. S. 473 (1927)

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U.S. Supreme Court

Empire Trust Co. v. Cahan, 274 U.S. 473 (1927)

Empire Trust Co. v. Cahan

No. 318

Argued April 29, 1927

Decided May 31, 1927

274 U.S. 473

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

Where an adult son, under an unlimited power of attorney given by his father, drew checks on his father's account in two banks, to his own order or the order of a third bank, signing them with his father's name by himself as attorney, and deposited them to his own private account in the third bank, and subsequently (the checks having been honored by the drawee bank) drew out the fund from the third bank and applied them to his own use, and these transactions went on for over two years, the notice gained from the form of his checks was not sufficient to charge that bank with knowledge of the misappropriation. P. 274 U. S. 479.

9 F.2d 713 reversed.

Certiorari (271 U.S. 653) to a judgment of the circuit court of appeals which affirmed a judgment of the district court, recovered from the petitioner by the respondent. chanrobles.com-red

Page 274 U. S. 477

MR. JUSTICE HOLMES delivered the opinion of the Court.

This is a suit brought by the respondents to charge the petitioner with liability for the proceeds of checks drawn upon the Agents of the Bank of Montreal or the Guaranty chanrobles.com-red

Page 274 U. S. 478

Trust Company, in New York, and deposited with the petitioner by the respondent's son. The respondent, a Canadian lawyer, had accounts with the two banks named, and, in 1916, gave to his son powers of attorney to draw checks upon them, both powers being general and with no qualification as to the purposes for which such checks might be drawn. Beginning in July of that year and from time to time down to October, 1918, the son drew checks signed with his father's name by himself as attorney against his father's two accounts, payable seventeen to his own order, three to the order of the petitioner, and deposited them to his own private account with the petitioner. All the checks but two were certified by the Guaranty Trust Company or accepted by the other bank, as the case might be. Subsequently the son drew out these funds and applied them to his own use. The respondent did not discover the fraud until the end of 1919, at which time his son absconded. The petitioner had no knowledge that the son was misappropriating his father's money, and no notice other than what was given by the form of the checks. The district court and the Circuit Court of Appeals for the Second Circuit held that notice sufficient to charge the petitioner as matter of law and gave judgment against it, the circuit court of appeals adding interest on the several items from the date when they were credited to the son. 9 F.2d 713. A writ of certiorari was granted by this Court. 271 U.S. 653.

No doubt the question is, as was said by the circuit court of appeals, a question of degree, like most questions in the law, but we are of opinion that the Court below applied too strict a rule to an ordinary business transaction. The Court itself pronounced it "a hard rule as business is ordinarily conducted," and seemingly adopted it as much because of authority by which it felt bound as because it confidently thought the rule right. chanrobles.com-red

Page 274 U. S. 479

The petitioner had notice that the checks were drawn upon the respondent's account, but they were drawn in pursuance of an unlimited authority. We do not perceive on what ground the petitioner could be held bound to assume that checks thus lawfully drawn were required to be held or used for one purpose, rather than another. In the case of checks drawn by a corporation not likely to disburse except for corporate purposes, there might be stronger reasons for requiring a bank to be on its guard if an officer having power to draw them deposited checks for considerable sums to his private account; but it recently has been held otherwise by the Judicial Committee of the Privy Council. Corporation Agencies, Limited v. Home Bank of Canada, [1927] A.C. 318. And when the two parties are father and son, both of mature years and in good standing, secret limitations of the power are a pure matter of speculation into which it seems to us extravagant to expect the bank to inquire. The person reposing confidence in the son was not the petitioner, but the respondent, National Safe Deposit, Savings & Trust Co. v. Hibbs, 229 U. S. 391, 229 U. S. 397, and he himself tells us that his confidence was unlimited. He put his deposits absolutely into his son's power, and the son, if he drew currency, as he might, could do with it as he saw fit. The notice to the bank was notice only of this relation of the parties. The petitioner, in permitting the son to draw out the money, was permitting only what it, like the respondent's banks, would have been bound to allow even if the deposit had been earmarked as a trust. The form in which the withdrawals took place does not appear. They might have been, like the deposits, in checks to the son's own order. All that is known is that the respondent did not get the benefit of them. But we do not place our decision upon that narrow ground. For, in addition to what we have said, the transactions went on for over two years, and the petitioner fairly might expect the respondent chanrobles.com-red

Page 274 U. S. 480

to find it out in a month or two if anything was wrong. Careful people generally look over their bank accounts rather frequently.

It is very desirable that the decision of the Courts of the United States and that of the highest Court of the state where the business was done, should agree, as was recognized by the circuit court of appeals. The result to which we come restores that agreement, at least when the checks are certified or accepted by the banks upon which they are drawn, as was the case here with all but two. Whiting v. Hudson Trust Co., 234 N.Y. 394. The certification did not import a statement by the certifying bank that, beside the right of the son to draw, established by the power of attorney, the purposes for which the checks were drawn were lawful and were known by the bank. As the Court remarks in the case cited: "The transactions of banking in a great financial centre are not to be clogged, or their pace slackened, by over-burdensome restrictions." 234 N.Y. 406.

Judgment reversed.



























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