
    Hermann Deri and Karl Klemperer, Composing the Firm of Moritz, Kalmus & Neffen, Respondents, v. Union Bank of Brooklyn, Appellant. Actions 1 to 5.
    (Supreme Court, Appellate Term,
    January, 1910.)
    Appeal — Decision — Modification and correction of error — Modification as to amount — Reducing amount.
    Conversion (tortious) — What constitutes — In general.
    Saving question for review — Objections and exceptions in general—■ Necessity — Pleadings — Variance and establishment of causes not pleaded.
    Where an agent had authority to indorse checks payable to a firm in a specified form, for the purpose of depositing the same to the credit of the firm in the bank where it kept its account, and the bank had knowledge of the extent of the agent’s authority; and where the bank received the checks payable to the firm indorsed by the agent and passed them to the credit of the agent and he checked out the money for his own use, held, that, as the bank had the right to receive the checks and collect the proceeds, the firm could not maintain an action for conversion against it for its unauthorized act in giving credit for the amount of the checks • to the agent.
    But as to certain checks not indorsed in the manner authorized but as to most of them in such manner as to make the indorsement of the firm a general indorsement, the bank wrongfully took such checks from the agent and passed the proceeds to his credit and is liable for the conversion thereof.
    And where it appears that although part of the moneys received upon the checks thus indorsed without authority may have been paid out for plaintiffs’ benefit, yet where the amount thus paid out is not shown nothing can be deducted from the damages that appear to be the amount of such checks.
    And, since the question of the form of the action was raised for the first time upon appeal, the judgments in plaintiffs’ favor will not be reversed on that account, but will be modified so as to conform to the rule in actions of assumpsit by computing interest from the date of the service of the summons, only, instead of from the date of the deposit of the checks, and, as modified, affirmed.
    Lehman, J., dissented.
    
      Appeals by the defendant from five judgments of the Municipal Court of the city of ISTew York, borough of Manhattan, seventh district, rendered in favor of the plaintiffs, after a trial before the court without a jury.
    Edward M. Grout and Paul Grout (Chauncey E. Tread-well, of counsel), for appellant.
    Walter J. Rosenstein, for respondents.
   Goff, J.

Eive appeals from as many judgments entered in the Municipal Court for the conversion of checks. The five actions were tried as one, under a stipulation by which it was also agreed that the oral testimony given might apply to all.

Plaintiffs are importers of, and dealers in, certain small articles, having their main office in Vienna, with a branch in Yew York city. In December, 1906, they opened an account in defendant’s bank, then known as the Mechanics and Traders’ Bank. Plaintiff Klemperer remained in charge of the Vienna office, his partner, Beri, looking after the Hew York branch, but spending most of his time in Vienna. While absent from Hew York, the firm’s office there was in charge of a clerk, Wilhelm, whose duties it was to attend to sales, keep the books and deposit checks received from customers to the firm account. It was his practice and he was authorized, in making such deposits, to indorse them by means of two rubber stamps, the imprint of one reading: “Pay to the order of Mechanics & Traders Bank,” and that of the other: “ Moritz, Kahnus and Keffen.” He had no authority to sign the firm’s name by pen or to sign his individual name to any firm check, or to indorse checks in any other manner than as above stated.

In June, 1907, plaintiff Deri being about to leave for Vienna and wishing to arrange for payment of small expenses of the business through Wilhelm, opened an account for him in the defendant bank, subject to Wilhelm’s check, and deposited, for that purpose, the sum of $200, at the same time explaining his purpose to the officers of the bank and saying that he would send small checks to Wilhelm to keep the account up to about the figure at which it was opened. From this time, until about December 3, 1907, when Deri returned from Europe, Wilhelm made reports to the firm of his receipts and disbursements. Wilhelm left his employment soon after Deri’s return and has not since been heard from. It was then found that his reports were not accurate. It was also found that the bank had received thirteen checks drawn to the firm’s order and now claimed to have been converted, and had placed them to Wilhelm’s account. ¡Nine are indorsed: “Pay to the order of Mechanics and Traders Bank, Moritz, Kalmus & ¡Neffen, Pay to the order of Mechanics & Traders Bank, Bobert Wilhelm.” Three are indorsed: “ Moritz, Kalmus & Neffen, Pay to the order of the Mechanics & Traders Bank, Bobert Wilhelm;” and one, “Pay to the order of the Mechanics and Traders Bank, Bobert Wilhelm.” Some of these indorsements were partly made by the rubber stamps, or one of them, and some were entirely indorsed by pen; but the name “ Bobert Wilhelm ” was written on each check. The aggregate of these checks was about $2,000. The bank received them, so indorsed, and credited them, as shown by statements received in evidence, not to the firm account, but to that of Wilhelm; collected the proceeds, and, as appears by the bank statements in the record, paid out the proceeds, except for a trifling amount, on Wilhelm’s order. None of the proceeds was received by plaintiffs except that some part of the entire amount, in an amount which is not shown, was used in payment of firm expenses. It does not appear that such amount was in excess of $200 which was kept on deposit in Wilhelm’s name, in addition to the amount of the checks converted. Judgment has been entered against the bank for the full amount of these checks, with interest from the time of deposit, and costs in five actions. In crediting these deposits to Wilhelm’s account, there can be no question but that the bank was in error. The question to be considered is the nature of that error and whether it was a wrongful conversion of plaintiffs’ property, or whether it merely created the relation between the parties of debtor and creditor. An analysis of the relations of the parties to this action may he begun by considering, first, the checks indorsed: Pay to the order of the Mechanics and Traders Bank, Moritz, Kalmus & Ueffen, Pay to the order of the Mechanics & Traders Bank, Robert Wilhelm,” the indorsement having been made, except the name of Wilhelm, by rubber stamps. If the name “ Robert Wilhelm ” had not appeared, that indorsement, by Wilhelm, would have been in an authorized form; and we will assume, for the present, that it did not appear. Making that assumption, Wilhelm had authority and it was his duty to deposit these checks, and the bank had authority to receive them and to collect the proceeds. Upon receipt, title to the checks vested in the bank, as well as title to the proceeds. Thereafter the relation of the parties was that of debtor and creditor. It is immaterial whether or not some employee of the bank made an entry on its books placing them to the credit of the plaintiffs. The relation came into existence at the moment of dejDosit, just as it would have done had these deposits been made by plaintiffs in cash. The checks and their proceeds, being upon deposit, the property of the bank might lawfully be credited by the bank to any person it saw fit, without altering its relations with the depositor. Matter of Franklin Bank, 1 Paige, 249. How was this relation changed by the additional indorsement “ Pay to the order of the Mechanics and Traders Bank, Robert Wilhelm ? ” The direction of Wilhelm to the drawee to pay these checks to defendant bank was precisely that of the plaintiffs. In obeying Wilhelm’s instructions in this particular, the bank was obeying the firm’s instructions; and the instructions of both Wilhelm and the firm to the bank were to take the check, present it for payment and receive the proceeds. However well calculated the second indorsement might have been to arouse the bank’s suspicions, or whatever entries or payments it made after receipt of the check, it was authorized to receive it and present it for payment, and there was no unlawful interference with plaintiffs’ property in so doing. If there was a conversion of these checks by the bank, when did it begin? Uot upon credit of the amounts paid or payable thereon to Wilhelm’s account, for the bank was entitled to make any credit that it thought best, irrespective of deposits from anybody; not upon payment of any checks drawn by Wilhelm on his own account, because it was entitled to pay any cheeks which he presented, whether an overdraft or not. It did not begin upon receipt of the firm’s checks, because it was authorized to receive them; and not upon refusal of the firm’s demand for the amount of these checks, because, at that time, the plaintiffs had no property or ownership in the proceeds of the checks. Innovation Trunk Co. v. Platt, 56 Misc. Rep. 645. Respondents cite as precedents to sustain their contention that the proof sustains judgment in conversion (Rosenberg v. Germania Bank, 44 Misc. Rep. 233 ; Schmidt v. Garfield Nat. Bank, 64 Hun, 298; affd., 138 N. Y. 631; Johnson v. First National Bank, 6 Hun, 124; Salomon v. State Bank, 28 Misc. Rep. 324, and Adler v. Broadway Bank of Brooklyn, 30 id. 382) ; but in none of these cases does it appear that the bank had authority to receive the check presented. In all of them it appeared that checks had been paid under forged or unauthorized indorsements by which title could not be acquired, and that the plaintiffs were suing stranger banks with whom their relation was not that of debtor and creditor. Three of the checks in suit are indorsed, Moritz, Kalmus & Reffen, Pay to the order of Mechanics & Traders Bank, Robert Wilhelm,” the firm and individual signatures being written and the rest of the indorsements stamped. One of these checks, for $189, is in suit in action Ro. 3; and two in action No. 5, one for $201.19 and one for $75.95, Wilhelm had no authority to indorse in blank or otherwise by the use of the two rubber stamps. The bank had no authority to receive checks indorsed as these were; yet it did receive them, did not credit the amounts to plaintiffs, did pay the amounts to Wilhelm and has refused to pay the amounts to plaintiffs or to return the checks. There was, in those acts of the bank, that unauthorized appropriation which constitutes conversion. The appellant points out that there is no evidence when the indorsements were made, or that the signatures were made by Wilhelm. Whoever made those signatures made them without authority; and, if no indorsements were on these checks when received, the hank had no authority to receive them. The hank treated these irregularly indorsed checks precisely as it did those indorsed in the authorized -manner, hut the effect was different. In the one case, the bank obtained title; and in the other it did not obtain title, until the plaintiffs exercised their election to treat the unauthorized act as a conversion. That election having been made by these suits, it is now impossible to treat the relation between the parties, created by receipt of these checks, as that of debtor and creditor. There is also a check in suit in action No. 1 for $38.05, which is indorsed by a rubber stamp “ Pay to the order of Mechanics & Traders Bank ” and in writing “ Robert Wilhelm.” The indorsement being unauthorized, receipt for deposit was likewise unauthorized, the result being that an action for conversion of this check is well founded.

Appellant contends that the award of damages is excessive. It points out that there is some evidence that money from Wilhelm’s account was used to pay firm expenses, the exact amount of which is unknown and argues that, as it has not been ascertained what that amount is, nor how much of it came from the converted checks, it was error to award damages in any but a nominal amount; Prima facie, the measure of damages for conversion of a check is its face value. The burden of proof to show facts in mitigation of damages is on defendant. Atkinson v. Rochester Printing Co., 43 Hun, 167; Griggs v. Day, 136 N. Y. 152. If some mitigation be shown, but the amount be indefinite, no sum can be deducted from the amount established prima facie.

But, though judgments in conversion cannot be sustained on nine of the thirteen checks in suit, it does not follow that they must be reversed or must be modified by deducting the amounts of those checks. Appellant has questioned the form of action for the first time on appeal. It was not raised in the trial court, except that defendant moved to dismiss as to the three notes indorsed in blank which are the three of the four notes now held to have been converted, the ground of its motion being that no cause of action had been shown. The appellate court will not entertain questions as to. the pleadings, when no objection has been made thereto at the trial, but will consider the cause of action disclosed by the evidence. Knapp v. Simon, 96 N. Y. 284, 292; Moffatt v. Fulton, 132 id. 507. The evidence discloses causes of action on implied contract, in the case of the nine notes held not to have been converted. The judgment entered and the measure of damages adopted are appropriate to actions in assumpsit; and the question of the nature of the relations of the parties, created by deposit of all the checks, becomes material here only as bearing upon the question of interest, which has been awarded from the date of deposit, and rightly so as to the four checks which were converted, because the conversion took place at the moment of deposit. But it is conceded that, if the bank had honored plaintiffs’ demand at the time it was made, no interest would be due. Witness Deri said, in answer to a question by the court, that plaintiffs made demand for their checks or the proceeds “ before this action;” so that interest on the nine checks should be computed only from date of service of summons and the judgments should be modified accordingly.

Judgment in action No. 1 is modified by reducing the same to the sum of $464.05 and, as modified, affirmed, with costs of the appeal.

Judgment in action No. 2 is modified by reducing the same to the sum of $474.57 and, as modified, affirmed, without costs.

Judgment in action No. 3 is modified by reducing the same to the sum of $433.87 and, as modified, affirmed, without costs.

Judgment in action No. 4 is modified by reducing the same to the sum of $386.26 and, as modified, affirmed, without costs.

Judgment in action No. 5 is modified by reducing the same to the sum of $398.37 and, as modified, affirmed, without costs.

Giegerich, J., concurs.

Lehman, J. (dissenting).

The plaintiffs herein are suing for conversion of checks by the defendant bank. The issue tendered by the pleadings was whether the defendant bank had title to these checks. The plaintiffs’ bookkeeper had no authority to use the proceeds of these checks, but, concededly, he not only had authority but it was his duty to deposit these checks to the plaintiffs’ credit in the defendant bank. Ooncededly, too, he had authority and it was his duty to indorse these checks to the bank by means of two rubber stamps. When he did so the bank received title to these checks and became a debtor to the plaintiffs for the amount received upon them, but failure to credit' this amount could not make the defendant liable for conversion. While this is more clearly true of the checks which were indorsed by the bookkeeper by means of the rubber stamps, I think that it is also true of the cases where the bookkeeper signed the indorsement in the firm name in his own handwriting instead of with a rubber stamp. The bapk knew that the bookkeeper was in charge of the plaintiffs’ office and that he was permitted to indorse checks and deliver them to it, although not. permitted to indorse checks to other persons. In indorsing these checks he was acting within the scope of his authority; and the fact that he signed the plaintiffs’ name with pen and ink, instead of with a stamp provided for that purpose, is immaterial. He was authorized and directed to transfer title to the defendant; and, in receiving the checks, the defendant committed no tort and in no wise failed in its duty to the plaintiffs. It certainly had no right, however, to credit these checks to any person other than the plaintiffs; and the plaintiffs are in no wise bound by such unauthorized credit. The defendant has received the money and is bound to return this money to them, and the plaintiffs are entitled to bring an action against the defendant for money had and received.

They have, however, not brought this action, but they have tendered the issue of title to these checks and they have failed to sustain this issue and the complaint should have been dismissed. Even if the defendant had not raised this point in the court below, I am doubtful of our right now to amend the pleadings to conform to the proof, where such an amendment would change the nature of the cause of action from tort to contract. I think, however, that the defendant raised this point in its motion to dismiss, although its attorney has not stated this ground as clearly as he might have done. It was certainly stated sufficiently clear to bring the matter before the trial justice. His opinion begins with the words: “ These actions are properly brought for conversion,” and he then proceeds to discuss the question of whether there has been a conversion in an argument that is so careful and clear that I have only reluctantly reached the opposite conclusion. Having, however, reached this conclusion, I feel that we are bound to reverse the judgment and order a new trial.

The judgments should be reversed and a new trial ordered, with costs to appellant to abide the event.

Judgments modified, and, as modified, affirmed.  