
    Henry H. Isham, as Trustee, etc., Resp’t, v. Mary E. Post, as Adm’rx, etc., App’lt.
    
    
      (Court of Appeals,
    
    
      Filed January 23, 1894.)
    
    1. Bankers—Diligence.
    A banker, where a loss results from his failure to exercise ordinary skill and knowledge, is liable, though the services are gratuitously rendered by him.
    3. Same—Burden.
    After proof of delivery of money to.be loaned and returned on demand, and refusal to return on proper demand, the burden is upon the banker of affirmatively establishing that the loss was without his fault.
    3. Same.
    Where a loan is made by him for a customer upon certificates, on whibh the number had been raised, he is liable for an omission to inquire as to the solvency of the borrowers, who were reputed to be solvent and responsible, if there is no proof that such inquiry could or would have developed1 any different information from that which he already had.
    4. Same.
    In ordinary cases, at least where the official signatures are genuine, and nothing in the body of the certificates reasonably awakens suspicion, it is not evidence of negligence that the stock was taken as collateral without verification at the company’s office.
    
      5. Same.
    If a fair and reasonable examination of the papers will disclose the fraud to the skilled eye of an experienced banker, or awaken a suspicion which will lead to a verification, a finding of negligence is justified.
    6. Evidence—Bbokeb.
    In an action against a broker for negligence in loaning money upon forged certificates, an offer on his part to show that he lent §50,000 of his own money on similarly raised certificates as collateral, and that the certificates in question had deceived the skill of a large number of bankers and brokers who took and held them as collateral without suspicion, is competent.
    Appeal from judgment of the general term of the supreme court in the second judicial department, entered upon an order made July 28, 1893, which affirmed a judgment in favor of plaintiff entered upon a decision of the court on trial at special ■ term.
    This action was brought by plaintiff, as trustee, to recover of Augustus T. Post the sum of $25,000 alleged to have been placed in his hands to be loaned for plaintiff and to be returned on demand. After the death of Post the action was revived and continued against his administratrix.
    The facts, so far as material, are set forth in the opinion.
    
      Alfred My, for app’lt; Frederic A. Ward, for resp’t; Clarence D. Ashley, for cestuis que trustent, resp’ts.
    
      
      
         Reversing 54 St. Rep., 232.
    
   Finch, J.

The relation between the parties to this controversy must be regarded as that of principal and agent. Post was a banker; not a member of the Stock Exchange and so bound by its rules, but familiar with its customs and usages and controlled by them to some extent whenever dealing with stocks in the "Wall street market. He held himself out to the business world in that character. By his circulars he advertised himself as dealing in “ choice stocks ” and promised his customers “ careful attention ” in all their financial transactions. Those who dealt with him contracted for and had a right to expect a degree of care commensurate with the importance and the risks of the business to be. done, and a skill and capacity adequate to its performance. That care and skill is such as should characterize a banker operating for others in a financial center, and different in kind from the ordinary diligence and capacity of the ordinary citizen. The banker is employed exactly for that reason. Without it there might cease to be motives for employing him at all.

Isham was the trustee of an express trust, but in this dispute must be regarded simply as an individual, and without reference to his trust character. For the trial court has found as a fact that, in employing the banker to loan for him twenty-five thousand dollars, he gave no notice of the trust character attaching to the money, contracted apparently for himself, and left Post to believe and be justified in believing that the money was his own. The evidence on the subject admits of some difference of opinion, but on this appeal the finding must control.

In the same way the question whether Post’s services in making the loan were or were not to be gratuitous must be deemed settled. The finding is that those services were to be without compensation ; and on that ground the appellant claims that Post . was a gratuitous mandatary and liable only for gross negligence. But, while no compensation as such was to be paid, it does not follow that the banker was freed from the obligation of such diligence as he had promised to those who dealt with him, or was at liberty to withhold from his agency the exercise of the skill and knowledge which he held himself out to possess. Nothing in general is more unsatisfactory than attempts to define and formulate the different degrees of negligence, but even where the neglect which charges the mandatary is described as “gross,” it is still true that if his situation or employment implies ordinary skill or knowledge adequate to the undertaking, he will be responsible for any losses or injuries resulting from the want of the exercise of such skill or knowledge. Story on Bailments, § 182a ; Shiels v. Blackburne, 1 H. Black., 158; Foster v. Essex Bank, 17 Mass., 479; First Nat. Bank v. Ocean Nat. Bank, 60 N. Y., 295. In the latter ease it was said that ordinary care as well as gross negligence, the one being in contrast with the other, must be graded by the nature and value of the property and the risks to which it is exposed. Post, therefore, was required to exercise the skill and knowledge of a banker engaged in loaning money for himself and for his customers, because of the peculiar character and scope of his agency, because of his promise of careful attention, and because the contract was made in reliance upon his business character and skill.

We should next consider upon whom rested the burden of proof. The plaintiff alleged and proved that he put into Post’s hands, as his banker and agent, to be loaned upon demand at the high rates of interest prevailing and in the mode approved by custom and usage, the sum of twenty-five thousand dollars, which sum Post had not returned, but refused to return upon proper demand, and so had converted the same to his own use. That made out plaintiff’s case. Judgment for him must necessarily follow, unless Post in answer has established an affirmative defense. That which he pleaded and sought to prove was that the money was- lost without his fault and through an event for which he was altogether blameless. In -other words, he was bound to show that he did his duty fully and faithfully and without negligence or misconduct, so that the resultant loss was not his, but must justly fall upon the plaintiff. Marvin v. Brooks, 94 N. Y., 75; Ouderkirk v. C. N. Bank, 119 id., 267; 29 St. Rep., 573. With that burden resting upon him, we must examine his defense and the evidence given in its support, and determine whether or not it is our duty to sustain the adverse conclusion, to reverse which he brings this appeal.

The trial court has found that Post was negligent in making the loan upon the security of the certificates of stock taken as collateral, which had been raised by a forgery to indicate a larger number of shares than was the actual truth. Negligence is usually a mixed question of law and fact, and is never purely one of law unless the facts are wholly undisputed and admit of no conflicting ing inferences. Filer v. N. Y. C. R. R. R. Co., 49 N. Y., 47. In the face of the finding referred to we cannot reverse this judgment unless it clearly appears that upon no possible view of the facts, and upon no inferences deducible from them, can proof of negligence be found, or unless, in reaching the result, some material error in the admission or exclusion of evidence has affected the judgment rendered.

The finding of negligence, by its terms, rests upon three omissions. The admitted cause of the loss was a forgery of the number of shares of the stock given as collateral on the loan by raising that number in one certificate from seven shares to seventy, in another from eight to eighty, and in the third from three to ninety-three. The certificates were the genuine and lawful certificates of the company when issued, signed and attested by the proper officers, and defective only in the forgery which raised the number of the shares. The loan was made to Mills, Robeson & Smith, who were in good repute and standing at the time, but failed two days later for a very large amount. The trial court asserted Post’s liability upon the ground that he took the certificates without examination, without presenting them for verification at the office of issue or of registry, and without inquiry as to the solvency of the borrowing firm.

Assuming, as the court held, and as the facts of the agency appear to justify, that Post was bound to exercise in making the loan ordinary care, such as belonged to his business, as a banker, and to the duty he attempted to perform, we must consider the alleged omissions upon the facts disclosed in the record. In so doing we may dismiss the claim of negligence as inferred from the omission to inquire as to the solvency of the borrowers. There is no proof that inquiry would or could have developed any different information from that which Post already had. There is no hint of any unfavorable rumors preceding the failure, or of any doubt in any quarter of the solvency of the borrowing firm; but, on the contrary, the undisputed evidence is that they were reputed to be solvent and responsible when the loan was made. There is no indication that inquiry would have yielded to Post any different information from that vrhich he already possessed, or would have furnished the slightest reason for refusing the loan. There was certainly no negligence in omitting a new and further inquiry.

Nor do I think that ordinary care required Post, before accepting the certificates, to have presented them for verification, if there was nothing on their face calculated to arouse suspicion. They had been issued, as appears by their dates, more than six years before the loan was made, but had been issued directly to Smith, who was one of the borrowing firm, and of course knew that they were genuine when the stock was transferred to him on the company’s books. He had executed the usual blank assignment which enabled them to pass from hand to hand, and which had been attested by his firm, and no suspicion could attach to them except upon a doubt of Smith’s integrity, which no known fact warranted. There is no proof that it was ever a habit or custom for bankers or brokers to present such certificates for verification, and it is quite obvious that the business methods of Wall street do not admit of such a custom, suggest no necessity for its existence, and would be badly hindered and hampered by such a regulation; so that I am of opinion that, in ordinary cases, and at least where the official signatures are genuine, and nothing in the body of the certificates reasonably awakens suspicion, it is not evidence of negligence that the stock was taken as collateral without verification at the company’s office. Where there is nothing in the surrounding facts or on the face of the paper to create a doubt, it would be an instance of great and extraordinary care to present them for verification, and much beyond the degree of diligence required of Post in the present case.

There remains only the alleged omission' to give the certificates a reasonable examination. I am inclined to regard that question as sufficiently debatable to prevent our treating it wholly as a question of law. And that is true partly because of some serious conflict in the testimony, but mainly because of the inherent character of the inquiry, which is much more one of fact than of law. The evidence fairly indicates that Post personally never saw the certificates when the loan was made. In all his correspondence with Isham and when standing on his defense he made no such claim, but himself said he trusted too much to his clerks. Isham in one of his letters reminds Post of his having made that remark, and the latter does not dispute it. And as matter of fact the loan was negotiated and consummated by his managing clerk, Shephard, who was fully examined as a witness, and did not claim or pretend that he showed the certificates to Post at all. But Shepard was not incompetent. Enough appears in the evidence to indicate that he possessed the necessary skill and knowledge to properly perform the duty assigned to him. He held a responsible position in Post’s office, had an extensive and valuable experience, succeeded to Post’s business on his death, and testifies that he was familiar with and had handled very many of the certificates of the company whose stock was taken as collateral. We are not justified in saying that he did not examine the forged certificates at all, and the finding of the trial court cannot mean that. What it must mean in view of the facts is that he gave them no close and careful scrutiny. He does not pretend that he did. He says only that they were brought to him by the messenger of the borrower, and that he took them and gave Post’s check in exchange. Undoubtedly he recognized the familiar signatures and noted the number of shares represented; but there was nothing like careful scrutiny or examination, but unhesitating trust in the honesty of the borrowers. I cannot say, as matter of law, that such was the full measure of his duty, and that he did not hastily withhold more or less of the very skill and knowledge upon which Isham relied in selecting Post to loan for him the money. The answer made would be sufficient if it had been proved. The answer is that the forgery was so skillfully and deftly executed that no ordinary skill, exercised upon a reasonable examination, would have disclosed the fraud or even aroused suspicion. But we do not know that. The certificates themselves were before the trial judge, and what inference he drew from their inspection we cannot say. What we do know is that one of them, raised from three to ninety-three, was so skillfully changed that when Shephard and Isham examined it critically, after knowledge of the forgery, the latter thought it genuine. What Shephard thought he did not tell us, and omitted to say that what would have deceived the inexperience of Isham would also have deceived him.

But at this stage of the case the defendant realized the necessity of proof that the forgery was deft enough to deceive the skill and knowledge of any ordinary banker dealing in such securities. As I look at it the point had become vital to the defense. If a fair and reasonable examination of the papers, in the room of a hurried and momentary glance would have disclosed the fraud to the skilled eye of an experienced banker, or awakened a suspicion which would have led to a verification, then I think a finding of negligence would be justified. But if, on the contrary, the forgery was such as to deceive any reasonable scrutiny of a fairly prudent banker, knowing the signatures, but not suspecting fraud in the body of the instruments, then scrutiny would have done no good and the deception suffered would be excusable. Just that the defendant sought to prove in two ways. He offered to show, first, that he himself had loaned $50,000 of his own money to the same borrowers, accepting in part similar raised collateral; and, second, that for several years the same identical raised certificates had been given and received on the street as collateral for loans, and deceived the skill and care of a great number of bankers and brokers, who took and held them without suspicion. Both offers of proof were refused and the evidence excluded. I think that was error. The proof would have shown, at least, the character of the forgery, and that Shephard was not in fault for not discovering it. It would have established Post’s absolute good faith in the transaction and that he took the same care of Isham’s money as of his own. Of course it was not admissible to show merely that some others were no more prudent than Post, or that his own fault was less because they did the same, but it was admissible to prove that Shephard was deceived by a forgery so perfect and skillful that it escaped for years the vigilance of the street. With that fact in the case added to what already appears, I should deem the defense sufficiently established. It was objected to this offered evidence that it might involve an examination of each separate transaction with others. That was not proposed or necessary. The witness testifying was Watson. He had been the.clerk of Mills, Bobeson & Smith for eleven years, and had charge of all their loan business. The offer was to prove by him that for years these raised certificates had been used on the street as collateral for loans without a suspicion on his part, and baffling the skill and knowledge of banks, brokers and business firms of experience and reputation. It seems to me, if that is the truth, that no fact could more conclusively establish the perfection of the forgery and more completely excuse and justify the failure of Shephard to discover it. What was permitted to be proved makes the existence of such a fact quite probable. The certificate raised from three to ninety-three was well enough done to have deceived Isham, and, as to the others, it was much easier to change seven to seventy and eight to eighty without attracting notice. If this occurrence has disclosed a new danger in the business methods of the stock market, it may serve at least as a warning, and tend to make more deliberate inspection and closer scrutiny an ordinary duty.

■ The judgment should be reversed and anew trial granted, costs to abide the event.

All concur, except Babtlett, J., not sitting.

Judgment reversed.  