Gould v. Central Trust Co.

Ch. 168; Story Eq. Jur. § 638; Broadbent v. Barlow, 3 De G., F. & J. 570; Cheeseborough v. Millard, 1 Johns. Ch. 409, 413).

Plaintiffs are also, as is well urged by their counsel, entitled to relief arising from the relation of suretyship between them and the defendant Marlor, for through their stock and bonds pledged by Bonner & Co. to the trust company, they were to that extent, in substance, sureties for the debt, and are interested upon conditions, with rights of subrogation with all its incidents (Delaware & Hudson Canal Company's Appeal, 2 Wright, 512, 516; see also Barnes v. Mott, 64 N. Y. 397, which was applied in Green v. Milbank, 3 Abb. New Cas. 138, 155). The rule of general average, in maritime law, is founded upon the same general principle.

The plaintiffs, being in ignorance as to with whom Bonner & Co. had pledged their stock, were unable to give notice in season to prevent a sale, or adequately protect themselves, but that does not defeat their right of subrogation, and to subject the defendant's bonds, even now, to their just proportion of a common burden. Nor is it a good answer to plaintiffs' claim, that Bonner & Co. had wrongfully pledged the defendant's bonds; he had done the same with the plaintiffs' stock. The title of the trust company, who was a bona fide holder, attached to all the securities alike, and it is through such legal title and claim, as it originally existed, that the plaintiffs are entitled to relief.

And it must be adjudged that the Wabash bonds, and the Bankers' and Brokers' Association stock, still in the hands of the trust company, should be sold, and that the proceeds should be divided between the plaintiffs and the defendant Marlor, according to their interests, and in such proportions as is equitable, with reference to the amount realized on the sale of the

Cutting v. Marlon.

plaintiffs' stock, which has already been made, and the total proceeds of the sale now ordered to be made.

Under the facts of the case, I do not think that the assignees of Bonner & Co. are entitled to any of the proceeds. The stock and bonds did not belong to that bankrupt firm, and were pledged in fraud of the rights of the true owners.

The claims of the Brokers' and Bankers' Associ ation, who are not parties to the action, cannot be now determined, and if they have any claim or right, they are not to be prejudiced by the judgment to be entered herein.

CUTTING v. MARLON.

N. Y. Supreme Court, First Department; Special Term, 1879.

BANKING.-LIABILITY OF BANKING CORPORATION FOR MISAPPROPRIATION OF DEPOSITOR'S PROPERTY.

A banking corporation, whose president, by taking advantage of the negligent system of management of its directors, converts to his own use securities pledged to it by a customer for a loan, is liable

to the customer therefor.

Trial by the court.

This was an action by Robert L. Cutting, Jr., as receiver of the Bankers' and Brokers' Association, against Thomas S. Marlon, to recover from the defendant the sum of $6,000, loaned to him by the associa tion.

The defendant admitted the loan, but the evidence adduced on his behalf showed that he deposited with the association, as collateral security for the loans, twelve bonds of the Wabash Railway Company of the par value of $1,000 each, and fifty shares of the stock

Cutting v. Marlon.

of the Metropolitan Bank, of the par value of $100 each; that, before the commencement of this action, he tendered to the plaintiff the principal and interest of the loans, and demanded the return of his stock and bonds, and the plaintiff replied that he was unable to return the same. The facts in regard to the stock and bonds were, that Bonner, the president of the Bankers' and Brokers' Association, had taken and converted the same to his own use. He had pledged them, together with other property, to bankers and others, as security for loans made to himself, and they were lost thereby, as well to the Bankers' and Brokers' Association as to the defendant.

John McKeon (Gray & Davenport, attorneys), for plaintiff.

William H. Arnoux, for defendant.

VAN VORST, J.-[After stating the facts.]—The question arises, under these circumstances, Can the plaintiff recover the amount of these loans to the defendant and this involves a determination of the principal subject litigated, as to whether the Bankers' and Brokers' Association is liable for the tortious act of its president with respect to defendant's stock and bonds. The plaintiff's counsel claim that they are not so liable, and that the defendant must pay the loans, although his securities are lost to him, through the wrongful act of Bonner.

If that be so, the entire loss falls upon the defendant, although it was occasioned by no act or omission of his own, and the association will sustain no damage through the act of its president.

In support of this view, the plaintiff's counsel contend that the Bankers' and Brokers' Association were mere bailees, and liable only for ordinary care; that they are not responsible for the fraud or felony of Bonner, unless bad faith be shown against them, or such negli

Cutting v. Marlon.

gence as amounts to fraud. Numerous cases are cited by the counsel, in which bailees, with whom property was left on deposit, have not been held liable for the loss of the subject of the bailment, through thefts of their agents, servants or employees.

It is claimed that this immunity extends to banking corporations, and that they are not liable for securities held as collateral for the payment of notes discounted by the bank, and which have been stolen without negligence on the part of the bank itself. Some of the cases cited are of gratuitous bailments, others for hire (Foster v. Essex Bank, 17 Mass. 479; Jenkins v. Nat. V. Bank, 58 Me. 275; First Nat. Bank of Lyons . Ocean Nat. Bank, 60 N. Y. 279; Giblin v. McMullin, L. R. 2 P. C. Cases, 318; First Nat. Bank v. Boyd, 44 Md. 47; Schwerin v. McKie, 51 N. Y. 180).

I do not deem it important to enter into a close analysis of these cases. The general principle upon which they rest is that in bailments of the nature of the one under consideration, in order to charge the bailee for loss occasioned by the tortious act of its officers or agents, there must have been negligence on the part of the bailee.

Absence of all supervision and care, on the part of the bailees, with respect to the subject of this bailment, would of itself be such negligence as to render them liable.

The Bankers' and Brokers' Association was a corporation, and was authorized, among other things, to receive stocks and bonds on deposit, and to make loans on the same. They were entitled to charge commissions for all services other than the loaning of money.

The management of the concerns of the corporation was, by its charter, committed to a board of trustees, who were authorized to make by-laws directing its affairs, and for carrying out its object. The board of trustees consisted of thirteen persons, which, by the

Cutting v. Marlon.

by-laws, was to meet on the first Friday of each month. Now, to advert more particularly to the defendant's stock and bonds, held as collateral security for the loans, and which, in value, were largely in excess thereof, it appears that the president of the association, Bonner, either personally took them from the office of the bank, or that they were delivered to his messenger at his request. He left nothing in place of them. Mr. Oley was the ostensible manager of the affairs of the association, and had the nominal charge of its property and securities. But Bonner, who was a broker, and a large borrower of money, was accustomed to take its securities to his own office, and use them without apparent let or hindrance. His habit was to visit the office of the association whenever it pleased. him, and inquire of the officer in charge what securities they had, and take them. This practice prevailed largely for a period of six months before he finally failed and absconded. In this way, with other illegal practices, he despoiled the corporation of its property and wasted its capital.

Mr. Oley, the manager in charge, did not consent to his taking the securities. He made objection, but he could not resist Bonner, who was his superior officer, nor prevent his taking the property.

The defendant's stock and bonds were taken by Bonner in this way. No entry was made on the books of the corporation of the delivery of this property to its president; but, in the books of Bonner's firm, the stocks taken from the association were entered in a loan account. Whenever Mr. Oley wanted a return of stock or bonds taken by or delivered to Bonner, he would send over for them and they would be returned.

I conclude that a system of management of a banking house in which such conduct of its officers was permitted, was a breach of duty, and grossly negligent