
    EMIL JUSTH and ALEXANDER FRANCK, Plaintiffs and Appellants, v. THE NATIONAL BANK OF THE COMMONWEALTH, Defendant and Respondent.
    I. Banks.—Fraud.
    1. Liability of a bank to the lender for money or cheeks lamed to one of its depositors, and by him deposited in the bank, such loan having been obtained on the faith, of forged securities.
    
    
      1. When the bank receives the checks as so much money, immediately charges itself with the amount thereof, credits the depositor’s account accordingly, other deposits being made and charged and credited in like manner, and pays the check of the depositor out of the general balance to his credit, and delivers up to the depositor certain securities held for advances made by it to the depositor, neither the check, nor the amount represented thereby, can be recovered from the bank by the person who loaned them to the depositor, although such loan was made on the faith of forged securities, the bank having received the same in good faith, and having no notice of, or connection with the fraud.
    Before Freedman, Curtis, and Vau Vorst, JJ.
    
      Decided June 28, 1873.
    II. Evidence.—Admissions by Officers of Corporations, when not
    admissible.
    1. After rights of parties have become fixed, statements by officers of corporations are immaterial.
    Appeal by plaintiffs from judgment dismissing the complaint.,
    The facts sufficiently appear in the opinion.
    Burrill, Davidson & Burrill, attorneys, and John E. Burrill, counsel for appellants.
    
      Hammond & Pomeroy, attorneys, and James Emott, counsel for respondent.
   By the Court.—Freedman, J.

This action was brought by the plaintiffs to recover the sum of $40,000 loaned by them to William E. Gray & Co., and deposited by the latter with defendant, on the ground that the loan was made on the security of certain collaterals which proved to be forged. On the trial, the following facts were established.

William E. Gray & Co. kept an account with defendant, and* on the morning of December 10th, 1869, they commenced the business of the day by borrowing $30,000 from said bank. The loan was made in the ordinary manner of doing business with brokers, on call, upon collaterals, and on condition that it should be repaid during the day. The collaterals consisted of three New York State "bounty "bonds of $10,000 each. During the day Gray and Co. made deposits and drew checks. Between 12 and 2 o’ clock they paid by their check upon said bank $10,000 on account of the loan, and took up one of the bonds.

At about 2.10 p. m. on the same day, plaintiffs’ firm loaned Gray & Co. $30,000, and about ten minutes thereafter, $10,000 upon the pledge of securities purporting to consist of New York State bounty bonds, U. S. 5-20 bonds registered, and U. S. 5-20 coupons. Each of these loans was made in the form of a check, drawn by plaintiffs upon the National Bank of the State of New York, and certified by the latter to be good. The checks thus certified were separately deposited by Gray & Co. with the defendant in the usual way, and collected by said bank.

At or shortly after three o’ clock on the same day, Gray & Co., by their check of $20,000 upon defendant’s bank, repaid the balance of the loan obtained from said bank, and demanded the remaining two of their bonds. These were at this time in the hands of the cashier, who had gone out to make inquiries concerning them. The inquiry resulted in the discovery that the two bonds had originally been issued for $1,000 each, and had been altered to represent a value of $10,000 each. Upon such discovery Gray & Co. assented that the said bonds should be turned over for their account to the Manhattan Company, which acted as the transfer agents of the State, and the bonds were turned over by defendant accordingly.

William E. Gray, who had made the transaction with the plaintiffs, absconded on the 11th day of December, 1869. About a month thereafter plaintiffs ascertained that most of the securities upon which they had made the two loans above referred to were forgeries, and upon such discovery they immediately tendered to the defendant the said securities, and demanded payment of the $40,000 collected by defendant on plaintiffs'' checks, which demand was refused.

There was no evidence that the defendant had taken plaintiffs’ money in bad faith, or with any notice of the fraud perpetrated by Gray & Co. upon the plaintiffs, and the proof was wholly insufficient to sustain the theory that the defendant delivered to Gray & Co. the same forged bonds that were received by plaintiff as collaterals, with a view or for the purpose of enabling Gray & Co. to raise money from the plaintiffs on them to make good a deficiency in their account with the- defendant. On the contrary, it appeared that plaintiffs’ checks were received on deposit by defendant in the ordinary course of business, and that their respective amounts were credited to Gray & Co. in the usual way. There was no evidence that the first bond that was taken up and surrendered between 12 and 2 o’clock was not a perfectly valid instrument, nor was it shown that it ever went to the plaintiffs. It was shown that the other two bonds never went to plaintiffs at all.

Upon this state of facts it is difficult to see how the action can be maintained. Although the fundamental principle of our law of personal property is that no man can be divested of his property without his own consent, and that consequently even a bona-fide purchaser from a person in the possession of property, who has no title to it and no authority whatever from the owner to sell or dispose of it, cannot acquire any title against the true owner (Williams v. Merle, 11 Wend. 80; Ely v. Ehle, 3 Comst. 509; Everett v. Saltus 15 Wend. 474; S. C. on error 20 Wend. 69 ; Wilson v. Nason, 4 Bosw. 155; Grand Trunk Railway Co. v. Edwards, 56 Barb. 408 ; Decker v. Matthews, 12 N. Y. 313; Boyce v. Brockway, 31 N. Y. 490), there are numerous exceptions to the general rule, which are founded on the obvious policy of human affairs. Thus the law will in many cases imply an authority from the owner to sell,, and where the owner has conferred an apparent right of property upon the vendor, or an apparent right of disposal, where he has furnished the vendor with the external indicia of such right, and the vendor has sold the goods and delivered the possession thereof, the law will protect a purchaser who has acquired the property for a fair and valuable consideration in the usual course of trade, and without any notice of any conflicting claim, or of suspicious circumstances calculated to awaken inquiry, or to put him on his guard, although the goods were in fact obtained by the vendor from the true owner fraudulently. The same exception applies with still greater force to a case of negotiable paper. In the present case, plaintiffs made their checks payable to the order of Gray & Co., and delivered them without restriction as to their use. They intended to part, and did part, not only with the possession of them, but also with their right of property in the money, which the checks represented. Gray & Co. therefore were not limited as to the manner of the use of the checks, and a subsequent bona-fide holder for' a valuable consideration could acquire a good title to them.

As has been pointed out in Philbrick v. Dallett (43 How. 419, S. C. 12 Abb. N. S. 419), the doctrine as to what constitutes a person.a bona-fide holder of negotiable paper for value varies with the facts peculiar to different classes of cases. In the case of commercial paper obtained by fraud or fraudulently put in circulation, the rule undoubtedly is, as claimed by plaintiffs, that the mere receipt of such paper as payment or security for a precedent debt, no new credit or other things of legal value being given on the faith thereof, .and no security being relinquished or discharged, nor any new responsibility incurred on the credit thereof, is not parting with value such as to enable the holder to enforce such paper against an accommodation party, or to hold it against the true owner, or to hold it free of equities existing upon it against the transferrer at the time of the transfer. But this rule is not broad enough for several reasons to enable plaintiffs to recover back their money. The defendant is no longer the holder of checks. It received them as so much money, and immediately charged itself with the amount thereof,, and credited Gray & Go.’s.account accordingly. The-, relation of banker and depositor being that of debtor and creditor (Ætna National Bank v. Fourth National Bank, 46 N. Y. 82; Oddie v. National City Bank of New York, 42 N. Y. 735 ; Bank of the Republic v. Millard 10 Wallace, 152), the defendant on receipt of the certified checks became the debtor of Gray & Co. for so much, money, and the title to the deposit passed to the defendant. Gray & Co. made other deposits, and it was from, the general balance standing to the credit of Gray & Co. that defendant afterwards paid a check drawn by Gray & Co. to the order of Brown & Loveridge for $24,362.50, and the checks taken by the defendant in payment of the loan made to Gray & Co. in the morning. By these various transactions, and the surrender of Gray & Co.’s securities, the relations of all the parties were so changed that the defendant musf be deemed to have acquired the usual rights of a bona-fide holder for value (Market Bank v. Hartshorne, 3 Keyes, 137).

But even if the question were with the defendant as actual holder of the checks, neither the National Bank of the State of New York, on which they were drawn, and which had certified them, nor the plaintiffs, could resist their payment or collection, for the defendant not only discharged upon its books the indebtedness of Gray & Co., but it also surrendered the bonds pledged as collateral security. The validity of one of these bonds has not been disproved, and the other two, 'as the evidence shows, were still good for $1,000 each. This ’ would constitute the defendant a bona-fide holder for a, valuable consideration within the rule above cited (Bank of Salina v. Babcock, 21 Wend. 499 ; Bank of Sandusky v. Scoville, 24 Wend. 115; Mohawk Bank v. Corey, 1 Hill. 513 ; White v. Springfield Bank, 3 Sandf. 223; N. Y. Marbled Iron Works v. Smith, 4 Duer, 362 ; Youngs v. Lee, 12 N. Y. 551; Boyd v. Cummings, 17 N. Y. 101; Brown v. Leavitt, 31 N. Y. 113; Pratt v. Coman, 37 N. Y. 440 ; Chrysler v. Renois, 43 N. Y. 209).

The rights of the parties having become fixed on the 10th of December, 1869, the testimony offered by plaintiffs as to the verbal statements made by certain officers of the defendant in January, 1870, was rightfully excluded on account of its immateriality (Baptist Church v. Brooklyn Fire Ins. Co., 28 N. Y. 153).

The complaint was properly dismissed, and the judgment appealed from must be affirmed, "with costs.

Cubtis and Van Vobst, JJ., concurred.  