
    The Goshen National Bank, App’lt, v. The State of New York, Resp’t.
    
      (Court of Appeals,
    
    
      Filed February 27, 1894.)
    
    1. Bills and notes—Fraudulent drawing by cashier.
    Where the state has no knowledge of the fraud, a hank cannot compel it to refund the proceeds of a draft, fraudulently drawn by its cashier for taxes received by him as tax collector.
    2. Same—Notice.
    The fact that the draft was drawn directly to the order of the state and sent to it by the cashier, does not constitute notice of fraud.
    Appeal from an award of the board of claims, made September 13, 1893, which awarded the claimant nothing.
    The nature of the claim and the facts, so far as material, are stated in the opinion.
    
      Henry Bacon, for app’lt; T. B. Hancock, attorney-general, for the state.
   Peckham, J.

In the month of May, 1892, and for several months prior thereto, one William M. Murray was county treasurer of Orange county. He had received the taxes collected from that county for state purposes in January and February, 1892, and had neglected to pay over the amount thereof at the time fixed by law, and on the 5th of May, 1892, the comptroller of the state had demanded payment from him of the balance due for such taxes, which amounted to the sum of $2,567.37. At the time of this demand Murray was, and for ten years prior thereto had been, cashier of the claimant bank. For the purpose of paying such taxes Murray, on the 7th of May, took a blank draft addressed to the Importers and Traders’ National Bank in the city of New York, filled it up for the above amount, and making it payable to the order of the comptroller of the state of New York, signed his name to the draft as cashier. The bank had funds in the New York bank upon which the draft was drawn. Murray then, in response to such demand, forwarded the draft by mail to the comptroller as payment for such taxes. The comptroller received the draft, indorsed it as payable to the order of the state treasurer, who then indorsed it and procured it to be forwarded to the bank upon which it was drawn in New York, and that bank paid the same upon presentation, and on the 9th or 10'th of May charged the amount thereof to the Goshen National Bank as the drawer of such draft. The draft was taken by Murray when he filled it up out of a book containing a large number of other blank drafts of the same form and which were used as occasion demanded by the claimant in drawing upon its funds on deposit in the Importers and Traders’ Bank in New York. When Murray drew and signed the draft he paid no money to the claimant therefor and made no entry upon its books showing the drawing of the draft or his use of it, and he had not then and never has had since any money to.his credit on deposit with the claimant. He was largely insolvent and a debtor to the bank at the time independently of this transaction, and in June,'1892, he absconded and has ever since remained a defaulter. He kept the fact of his drawing this draft concealed from the other officers of the hank until he absconded, and that fact was unknown until it was discovered in July following.

Notice of these facts was then given the comptroller, and he was requested to refund the moneys, thus collected by him upon the draft, which he declined to do, saying that he had no power without legislative authority. The officers of the state applied the proceeds of the collection of the draft to the uses of the state, and in payment of its obligations and expenses. There is no claim that the comptroller, or any state officer, had any actual knowledge of the wrongful acts of the cashier before the comptroller was informed thereof in July, 1892. The board of claims has found that the comptroller received the draft in good faith, and without actual knowledge that it was issued by Murray wrongfully or without authority of the claimant. It was also proved on the trial that the cashier had the custody and possession of the blank drafts for the claimant, and that he had the right to sign drafts drawn by the claimant on its corresponding banks, and that he had the right to draw a draft on the corresponding bank of the claimant for himself upon the same terms that he had to draw a draft for a stranger.

The claimant upon these facts founds the legal liability of the state to pay back the moneys which it has received as payment of the taxes as above stated. It is alleged that the state was not a holder of the draft for value, inasmuch as it was received upon a precedent debt, and no value was parted with by the state when it received the same. It is also contended that the form of the draft was itself notice that the cashier was using the funds of the bank to pay his individual debt, and as the state had such notice it could not be a bona fide holder of the draft, and was, therefore, liable to refund the moneys received in payment of it.

First. We think the question as to whether the state was a holder of the draft for value or not does not arise in this case. Murray, as county treasurer, was behind in his payment of the taxes due from Orange county to the state. In order to discharge his obligation he transmits the draft in question. The state, through its officer, receives it and presents it to the bank upon which it is drawn, and that bank pays it, and the state having received the money thereby discharges the obligation of Murray, and the taxes due from Orange county are thereby paid. The transaction is plosed, and it cannot be that the drawer of the draft that has thus been paid can open up the whole matter, and claim to recover back the money which the state received in payment of the taxes due it. If the cashier, instead of sending this draft, had taken the money directly from the bank and paid the same to the state in satisfaction for the amount due for the taxes, I think no one would contend that the bank could recover it back from the state on the ground that the act of the cashier in taking the money was a fraud upon it or even a felony, and that the state had parted with no value at the time of the receipt of the money. I do not see that in this respect the case is altered by' the interposition of the draft instead of the payment of money in the first instance. The state receives in good faith (as we must assume on this point) the written direction of the claimant to a third party to pay the money to the state upon demand, and the state makes the demand accordingly, and the money is paid and the debt extinguished. The interposition of the draft makes no difference in principle after it has been paid. It is then the same as if the money had been originally paid instead of an order given for its payment. The order having been complied with and the original debt thereby satisfied, the transaction is closed, and may not be reopened on this ground. This general principle may be gathered from the cases here cited. Justh v. National Bank, 56 N. Y. 478 ; Stephens v. Board of Education, etc., 79 id 183, 187; Southwick v. First National Bank, 84 id. 420, 436, 437.

This is not the case of the diversion of commercial paper signed by one for the accommodation of another. In such case where accommodation paper has been diverted from the particular purpose for which it was made, the accommodation maker or indorser can defend when sued upon it by one who took the paper as security or to apply upon an antecedent debt without parting with any value at the time, by showing that the paper had been diverted from its intended purpose. The holder of the paper brings his action upon it, and the accommodation maker or indorser shows that the plaintiff is not a holder for value, and that as to him the defense of dirversion is available. Here the paper was not diverted, and in addition it has been paid according to its terms, and the payment has extinguished the debt for which the draft was given. No action is brought upon it and no defense is interposed. It has been paid and canceled, Nor is this like the case of Comstock v. Hier, 73 N. Y. 269, cited by the counsel for the claimant. In that case the defendants had become the holders of a note upon which plaintiff was an accommodation indorser, but they became such under circumstances which showed they were not bona fide holders for value. Before the maturity of the note, the defendants sold it to one who by his purchase became a bona fide holder for value, and by reason of that sale the plaintiff was compelled to pay the note. He commenced his action against the defendants to recover the amount which he had thus been, compelled to pay, and he obtained a judgment therefor which was affirmed in this court. The right to recover was based upon the fact that the defendants, by the sale of the note to one who became a bona fide purchaser, thereby wrongfully converted the note, and so became liable to the plaintiff for the amount of damage he sustained by reason of such conversion. And it was held that defendants could acquire no title to the proceeds of the note by the sale and transfer of it to a third person. And this upon the principle that a wrongdoer cannot better his title to property by a sale, for the proceeds of the sale will be the same as the property before the sale.

In this case the state was no wrongdoer, and in forwarding the draft for payment and receiving the money upon such payment, committed no wrong, was guilty of no conversion and created ho cause of action against it for the recovery of the money it thus received. There is nothing in the case of Comstock v. Heir which affirms in any degree the right of the claimant to treat the money received by the state in payment of the draft as if it simply represented the draft and the state were endeavoring in some form to-enforce payment of the draft itself.'

Second. Upon the question whether the form of the draft constituted notice to the state or its officers that the funds of the claimant were being used by the cashier to pay his private debt, .we think that no notice of such fact was conveyed to the comptroller by this form of draft.

It is the right and duty of the cashier of a bank to sign the-drafts drawn in its behalf upon its corresponding bank. This is-part of the ordinary duties of such an officer, and affirmative evidence of his power to sign drafts appears in this record, and it-also appears that he had the right to draw such draft for himself upon the same terms that he would have had in case of a third party, which means, I assume, upon payment to the bank of the-amount of the draft.

There was an apparent authority to draw the draft; it appeared-to have been drawn in the course of the employment of the cashier, and it was an act which was within the scope of his general powers.

We do not think, in the case of a bank draft so drawn, the party receiving it would be charged with the duty of inquiry or-with notice of the fact that the cashier had not paid for the draft, and that he was, therefore, using the funds of the bank to pay his private debt. He would only be so using them in case he did not pay for the draft, and its form might be the same even if he-had paid for it in full. We think there is nothing unusual or suspicious in this form of making the draft payable direct to the-creditor of the cashier, nor any notice that in so doing the bank’s-funds have been improperly used. Bank or cashier’s drafts are used so enormously at the present time in the payment or settlement-of debts and in other commercial transactions that they have almost acquired the characteristics of money. So long as they are drawn on behalf of a solvent bank and upon a solvent drawee, and signed by one of the officers usually signing such instruments, they are regarded by the commercial community as so much cash, and the fact that the draft was drawn by a cashier directly in favor of his own creditor and sent to that creditor by him, would not naturally give rise even to the suspicion that there was anything irregular, fraudulent or wrong in the conduct of the cashier. The presumption would be that he had performed his duty and paid for the draft, and that it, therefore, was his property.

In Phillips v. The Mercantile National Bank, 56 St. Rep., 499, we held the bank represented by the plaintiff responsible for the drafts drawn by its cashier and duly paid by the defendant, although the cashier drew them for his own purpose and made them payable to the order of certain customers of the bank, whose names he forged, and who in truth were in no manner connected with the drafts and whose names were thus inserted by the cashier in order to give more semblance to the drafts as business paper. They were treated as fictitious payees, and the drafts were held good as against the bank because drawn by an officer who had apparent authority to sign them and in the usual course of business.

If this draft had been made payable to the order of one of the customers of the claimant and signed by the cashier and the customers’ names forged by the cashier and the draft then sent to the comptroller (the customer never having any connection with ■the paper and his name being used the same as if it were a fictitious name) we should have here the case of Phillips.

That no fictitious name was used and that the draft was made payable directly to the comptroller and was sent him by the cashier, does not in our judgment call for a different decision. The ease of Claflin v. Farmers & Citizens Bank, 25 N. Y. 293, was nothing like this case. In that the president of the defendant bank certified his own check and negotiated it. In an action upon such certification this court held that the by-law gave the president no right to certify his own check, nor was there anything in the position of a president of a bank which could be supposed to give any such authority. Judge Selden said the acceptance was void irrespective of the fact whether the drawer of the check had or had not funds ; the certification was nothing more than an acceptance, and from the nature of the case the president could not occupy the antagonistic position of accepting as agent of the bank his own check drawn upon it. When the comptroller.received this draft he had the right, in the absence of any other notice than its form, to regard it as the property of the cashier, regularly in his possession, and proper to be used in the payment of the taxes due at that time.

We think the decision of the board of claims was right and it should be affirmed, with costs.

All concur.

Award affirmed.  