Central Law Journal.

ST. LOUIS, MO., APRIL 30, 1920.

LIABILITY OF BANK FOR FAILING TO DETECT FORGERIES WHEN DEPOSITOR DOES NOT VERIFY BANK STATEMENT.

Does the fact that a depositor fails to verify his bank statement each month and examine his cancelled checks release a bank from liability for forgeries committed by an employe? The U. S. Circuit Court of Appeals (2nd Cir.) recently held that it does. Hammerschlag Mfg. Co. v. Importers and Traders Nat'l Bank, 262 Fed. Rep. 266. In this case it appeared that defendant permitted its bookkeeper to make out all checks which were then signed by the vice president. Some of these checks were payable to bearer and intended to compensate the bookkeeper for petty cash. items. These checks, after signing, were raised by the bookkeeper to larger figures and cashed at the bank. This practice continued for more than a year before it was finally discovered, upon which the plaintiff company sought to hold the bank liable for paying the checks which had been so raised. The bank claimed that since plaintiff corporation had made no complaint of the improper payment of checks on receipt of its monthly statements and cancelled checks, defendant was relieved of liability for checks paid more than a year previous to plaintiff's demand. The trial court took the case away from the jury, first, on the question of fact, whether the alteration was discoverable by reasonable care on the part of the bank; and second, on the question of law, whether plaintiff was not guilty of laches in failing to complain to the bank within 30 days after receipt of cancelled checks in accordance with the rule of the bank. The Court of Appeals, in affirming the trial court's decision, decided both these questions in favor of the bank.

It is difficult to understand on what ground the trial court felt bound to take the

case from the jury on the question of fact as the evidence set out by the Court was conflicting. On the second point respecting plaintiff's negligence in failing to examine its cancelled checks, the position of the Court of Appeals, in sustaining the trial court's action, raises an interesting question. The Court said:

"When the plaintiff sent its passbook to defendant to be balanced, it in effect demanded to be informed as to the condition of its account, and, when the balanced passbook and the vouchers were returned, the silence of the plaintiff respecting the returned vouchers and the entries in the passbook amounted to an admission on its part as to their correctness. The rigid responsibility imposed on banks must be maintained. It is equally important, however, that depositors who make negligent examinations of the accounts rendered to them by their banks should themselves sustain the losses which result from their own and not the bank's carelessness, and which would have been prevented if they themselves had exercised reasonable care. The plaintiff seeks in this case to hold the bank responsible for the payment of checks raised by its own employe, who was authorized by it to prepare the checks and to obtain the money on them, and over whose conduct no reasonable supervision was exercised."

There are several decisions to the effect that the depositor is bound personally or by an authorized agent, and with due diligence, to examine the passbook and vouchers, and to report to the bank without unreasonable delay any errors that may be discovered; and if he fails to do so, and the bank is misled to its prejudice, he cannot afterwards dispute the correctness of the balance shown by the passbook. It is also held that, if the duty of examination is delegated by the depositor to the clerk guilty of the forgeries, he does not so discharge his duty to the bank as to relieve himself from loss. Critten v. National Bank, 171 N. Y. 219, 63 N. E. 969, 57 L. R. A. 529; Leather Mnfrs. Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657; Meyers v. Southwestern Nt'l Bk., 193 Pa. 1, 44 Atl. 280, 74 Am. St. Rep. 672; Morgan v. Trust Co.,

208 N. Y. 218, 101 N. E. 871, L. R. A, 1915 D, 741; First Nat'l Bank v. Allen, 100 Ala. 476, 14 So. Rep. 335, 27 L. R. A. 426, 46 Am. St. Rep. 80.

The Court, however, goes further in its decision and holds that there can be no recovery even upon checks forged prior to the first balancing of the bank book after the forgery. The rule in New York and many states makes a bank liable for forged checks paid before the balancing of the pass book although as to subsequent forgeries of the same character, they are not liable. The only limitation on this rule is that the bank shall not have lost any opportunity to obtain, restitution. Critton v. National Bank, supra.

Our objection to the decision of the Court in the principal case is not to its statement of the law, but because it saw fit to take the case from the jury. The failure of the plaintiff to examine his checks did not, of itself, release the bank from liability for its own negligence. The question in such cases is a question of fact, to-wit, whether plaintiff's failure to examine his checks was a contributing cause of the forgery. Thus in Leather Manufacturers Bank v. Morgan, supra, the Supreme Court of the United States distinctly declared, that "if the defendant's officers, before paying the altered checks, could by proper care and skill have detected the forgeries, then it cannot receive a credit for the amount of those checks, even if the depositor omitted all examination of his account."

In other words the question is always one for the jury, for the reason that when the plaintiff makes out a prima facie case of forgery (as he did in this case) the bur'en of proof is on the defendant to establish his defense that plaintiff's negligence in failing to examine his passbook contributed to the forgery. Under such circumstances. there is no conceivable reason why the Court should take the case from the jury and give judgment for defendant as a matter of law. If the burden were on the plaintiff to show

that his negligence did not contribute to the forgery, it is easy to understand that the Court might take the case away from the jury but with the burden resting on the defendant this can hardly be justified. In the case of Leather Manufacturers Bank v. Morgan, the Supreme Court remarked, that "the question of the depositor's negligence in examining his returned passbook and vouchers was a question for the jury."

Moreover, as we understand the law on such cases the bank must prove not only that the negligence of plaintiff contributed to the forgery but that the forgery itself was of such a character as not to be easily detected. For, if the bank's officers, before paying the altered checks, could, by proper care and skill, have detected the forgeries, then it cannot receive a credit for the amount of those checks, even if the depositor omitted all examination of his account. Leather Manufacturers' Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811.

The mistake of the Court in this case is in deciding a question of fact as a question of law. The question whether the forgery was discoverable or not by the exercise of reasonable care and the question of the effect of plaintiff's negligence were questions which must go to the jury after plaintiff has made out a prima facie case by proving that the paper paid by the bank was not its paper and therefore not properly charged to its account.

NOTES OF IMPORTANT DECISIONS.

LIABILITY OF ELECTRIC RAILWAY FOR INJURY TO BOY COMING IN CONTACT WITH LIVE TROLLEY WIRE.-Electric railways are not insurers; nor can they be required to do the impossible. So long as the state grants permission to a street railway to use overhead trolley wires for power there is certain to be a risk to the public against which no foresight can provide. In the first place,

such a wire cannot be insulated as in the case of electric light wires. In the second place, the expense would be so great that no possible guards could be provided that would prevent someone somewhere along the line touching the wire with an iron pole or throwing a wire over it. That under such circumstances no liability attaches to the railway company is the effect of the decision in the recent case of Adams v. Bullock, 125 N. E. 93.

In this case the plaintiff, a boy, 12 years old, was given a verdict against the defendant, receiver of an electric railway, because of an injury which resulted from a wire thrown over the railing of a bridge crossing the electric road, coming in contact with a trolley wire. In reversing the judgment of the lower court, the Supreme Court called attention to the fact that the use of an overhead trolley system was itself not so inherently dangerous as to amount to negligence; otherwise its franchise would be defective as authorizing that which was not lawful. Dumphy v. Montreal, etc., Co., 1907 A. C. 454.

Of course the highest degree of care is required of those who make use of such a dan gerous agency as that of electricity. But it would be difficult, as the New York Court said, to so guard a trolley wire as to prevent the possibility of an accident of the kind coming before the Court in the principal case.

The great weight of authority sustains the Court in its decision in this case. See Vanatta

v. Lancaster Co., 164 Wis. 344, 159 N. W. 940; Parker v. Charlotte R. R. Co., 169 N. C. 68, 85 S. E. 33; Kempf v. So. Ry. Co., 82 Wash. 263, 144 Pac. 77, L. R. A. 1915 C, 405.

RIGHT OF HEIRS TO LAND DEVISED FOR PARTICULAR CHARITABLE PURPOSES, NOT CARRIED OUT BY TRUSTEE-Is a devise of real property to a trustee for a particular charitable purpose an estate on condition so that if the trustee fails to carry out the trust in a reasonable time, the estate will revert to the heirs? It is so held by the Supreme Court of Tennessee in the recent case of Nolfe v. Byrne, 219 S. W. Rep. 1.

In this case the testatrix devised to Rt. Rev. Thomas S. Byrne, Bishop of Nashville, and to his successors in office a tract of about five acres near the City of Memphis, upon which

to build a home for indigent Roman Catholics. The testatrix further declared that "my sole aim and desire in making the foregoing request is to assist in an humble way in the founding of an institution for the aged and indigent." This devise was received by the defendant in 1898. In 1916 the plantiffs, heirs of the tes tatrix, complained that the devise had not been carried out, but were told that the devise was not sufficient for the purpose of erecting a home and that other money would have to be raised. The plaintiffs then brought suit alleging that the devise was an estate on condition subsequent and that since the condition of the devise had not been performed, the property should revert to the heirs. The lower court sustained a demurrer to the petition, but the Supreme Court reversed the decision and sent the case back for trial. The Court said:

"In the present case it appears that the tes tatrix did not provide for a completed trust. She did not establish a trust, but rather made a contribution toward the establishment of a charitable trust.

"The devise consisted of a lot with several old houses on it. $1,000 in money was provided by item 6 of the will "to assist in the maintenance for the first year" of the home projected. It was furthermore provided in the will that the home be established or erected on said lot, but no fund was provided for the support of the home beyond the first year, and indeed no means were provided for the building of any home, unless it was contemplated by the testatrix that part of the lot would be sold and the proceeds of the sale used fer that purpose. We have no way of estimating the value of the lot from the record before

"Nevertheless it is manifest from the record that the testatrix did not intend that this devise should be used either by Bishop Byrne or by the Catholic Church for any purpose other than founding the home for the aged which is described. The testatrix says that the founding of this home is 'my sole aim and desire,' and that the gift is made for the sole and only purpose of founding a home as hereinabove stated.'

"We are therefore of opinion that Bishop Byrne took title to this property upon condi

tion subsequent. The substance of the condition was that the home described be erected and maintained on the lot devised, and, ac cording to our present lights, it seems that the raising and the appropriation of additional funds for this project were necessarily contemplated by the maker of the will."

It is the general rule that conditions subse quent are not favored in the law because of the forfeiture that results from the failure to comply with the condition. In such cases the courts will, as Mr. Tiffany states, (Real Prop erty, p. 163), "construe language not as creating a condition, but rather as creating a trust." In Sugden on Powers (8th Ed.), page 106, the author says that "what by the old law deemed a devise upon condition would now, perhaps, in almost every case, be construed a devise in fee upon trust, and by this construction, instead of the heir taking advantage of the condition broken, the cestui que trust can compel an observance of the trust by suit in equity."

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In the Nolfe case, the trust is not for the benefit of an individual and there is therefore no cestui que trust to enforce the trust. Charitable Trusts it is usually the duty of the Attorney General to enforce the trust, but in the Nolfe case the Court held that the Attorney General would have no right to seek to enforce a trust which is not self-executing, but which to enforce would require an order on the trustee to raise the necessary funds to carry out the trust. If this is the law then any devise toward a fund to be created is an estate upon condition, and the failure to raise the fund is a breach of the condition entitling the heirs to re-enter and take the property so devised.

But how long may a trustee delay in carrying out a trust. The defendant in the Nolfe case contended that he had his whole lifetime in which to carry out the trust. That is indeed the general rule. Washburn on Real Property, § 978. But the Supreme Court of Tennessee holds that this rule is not applicable where the devise is to a Bishop and his successors in office, such a devise being to a "succession in perpetuity." In such cases the Court holds the trust must be performed in a reasonable time. See also Upington v. Archbishop Corrigan, 151 N. Y. 143, 45 N. E. 359, 37 L. R. A. 794.

THE WELTER OF REPORTS AND COURT OPINIONS.

In 1826 Chancellor Kent estimated the number of English reports, excluding those pertaining to admiralty, elections, settlement cases and Irish reports, at 364; and American reports, textbooks and digests over 200.1 Story complained of the number of reports in 1831. What would he say now? In 1832, one year after Justice Story complained of the multiplication of reports, the American reports were estimated at 536. In 1845 it was estimated that there were 1,608 American and English reports. On April 1, 1882, there were 2,944 American State and Federal reports and 1,433 English (excluding 3 series of duplications), making a total of 4,377. By including the Irish, Scottish and British Colonial reports, the number was estimated at 5,232. In 1916 the number in England, Ireland, Scotland and all the British Colonial countries was 6,836; and in America 9, 621; a total of 16,457. Counting the West system of reports of 1,015 volumes of that date, and the 914 volumes of selected cases, there was in America alone 11,650 volumes. From 1885 to 1916, a period of thirty years, over 6,000 reports were published, about 1,600 more volumes than had been published in America down to 1882.

In 1914 there were published in America over 150,000 printed pages of opinions. No lawyer can read that many in a year; not even a law professor in a university who devotes his whole time to teaching students the law. No lawyer can give shelf room for them; and if he attempted to he and his stenographer would probably be compelled to keep their desks out in the hall. From 1909 to 1914, inclusive, there were printed 65,376 opinions in America, filling 630 volumes. Well did a committee of the

American Bar Association say, in 1914, "That the increasing volume of the reported cases is a burden for which some relief must be found."

Reports are a necessity and cannot be dispensed with. The editor of Law Book News has well said:

"So long as the publication of the courts are a part of the law of the commonwealth, they must be made accessible to the administrators of the law. To suppress them does not do away with their force. It simply removes them from the light, where they can be studied, mastered and used, to to the shadowy realm of uncertainties, where they become dangerous in proportion as they have become unknown. The time has passed when men can believe that safety lies in ignorance. Safety lies in knowledge, and with every advance of the race the demand is made that knowledge shall become accurate and be used more comprehensively. Neither accurate nor comprehensive knowledge of the law would be possible without law reports. This fact is clearly comprehended and tersely expressed by Lord Bacon in his Advancement of Learning (book 863): 'Above all, let the judgment of the supreme and the principal courts be diligently and faithfully recorded; * * * for judgments are anchors of the law, as laws are the anchors of the state.'

What is the relief? Several suggestions have been made, none of which has met with universal approval. One is that only selected opinions be published, when no constitutional or statutory provision is in the way of the pursuit of that course. Such is the course in England where a committee of lawyers appointed for that purpose make the selection. Another is that the Court itself direct what shall be published. And still another that the official reporters make the selection. Publishing only selected cases would greatly reduce the number of reports.

What rule should be pursued in making the selection of cases to be published? Lord Justice Lindley, of the High Court of Jus

(4) 1 Law Book News 162.

tice of England, has thus stated the rule that should control in the selection of cases for publication in that country, and it is applicable to this country as well as to that.

"The subject reported," says he, "should include all cases which introduce, or appear to introduce, a new principle or new rule, or which materially modify an existing principle or rule, or which settle a question of law on which the law is doubtful, or which for any other reason are peculiarly instructive. If these principles are not attended to, the reports will be unmeasurably bulky, and time and labor will be wasted. Practically the great difficulty is to decide what ought to be done with cases of written turning on the construction of documents, and with what are called practice cases. As regards cases on the construction of documents, they should be excluded, unless there is some good reason for including them. Cases turning on obscure sentences in wills, contracts or letters, which sorely puzzle those who have to put a meaning on them, are absolutely valueless for future guidance, and should not be reported at all. At one time there was a tendency, especially in the Chancery Couris, to try and construe one will by means of decisions on other wills more or less like it; but the tendency has been checked of late years, and there is not now any excuse for reporting decisions on wills simply because they are difficult to construe. Similar observations apply to other documents."

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But there are difficulties in the way of the selection of cases. If the Court makes the selection then there will be a trading of opinions in all likelihood, just like it is sometimes rumored that one judge proposes to another "If you will vote the way I want to decide the case I have in hand, I will vote for the way you want to decide the case you have in hand." No judge will vote to suppress his fellow judge's opinion. when the latter wants it published because

(5) Lord Justice Lindley, 19 Irish L. T. 217.