159 N.E. 720 | NY | 1928
The action is on a bond made by one Alexander M. Holden as principal, and the defendant as surety. By this bond, the surety bound itself to the plaintiff, the obligee, to make good "any and all losses sustained by the obligee of moneys, securities, or other personal property in possession of the principal, or for the possession of which he is responsible, by any act of fraud or dishonesty upon his part in the discharge of his duties amounting to larceny or embezzlement." The question is whether there has been a loss within the meaning of the contract. *54
Alexander M. Holden, the principal named in the bond, was for many years the treasurer of the plaintiff, Genesee Wesleyan Seminary, a school at Lima, New York. Holden was a private banker at Honeoye Falls, only a few miles away from the Seminary's home. He did business under the name "Bank of Honeoye Falls, A.M. Holden, Banker." When money was collected by him as treasurer, he placed it on deposit with himself as banker. This was known to the Seminary. Indeed, the Seminary's principal made out deposit slips, and left them often at the banking office. So, when money was paid out, the treasurer disbursed it by checks signed by himself as treasurer and drawn on himself as banker. This practice continued during all the years of his service. As far back as 1906, we find a statement in the application for the bond that the Bank of Honeoye Falls is to be the place of deposit. Without greater elaboration, we assume that the treasurer was expected to keep the money where he did.
How he was to keep it there, involves another question. What he did was to mingle it with the money of other depositors, and to use the entire fund indiscriminately as if it were his own. He did not even maintain a cash reserve equal to the fund that he received as a fiduciary. His average cash on hand was from $5,000 to $10,000. In May, 1919, for illustration, it was about $7,000; in May, 1920, about $4,000. The latter sum was only about a fifth of his average deposits during those years for the account of the Seminary alone. There were hundreds of thousands of dollars of deposits from other sources, not to mention other debts. The crash came in May, 1921, though it must have been threatening long before. Holden, then ill in the hospital, instructed his cashier to file a petition in bankruptcy. He died a few days later. At the date of the bankruptcy there was $23,743.86 on deposit to the plaintiff's credit. The deposits from all sources were $345,516.38. The cash on hand was only $6,957,98, A large part of the deposits had been loaned *55 to corporations in which Holden was a stockholder and an officer. Most of these loans turned out to be worthless. When he closed the doors of his "bank," he was insolvent beyond redemption.
We think the plaintiff's deposits should have been kept apart from others and held by the treasurer as a fund subject to a trust. Deposits in a bank or with a banker are classified often as general or special. The presumption is said to be that a deposit is general. The relation then created is that of debtor and creditor as upon any other loan. A special deposit is sometimes said to be equivalent to a bailment. It is not always of that order. Such a deposit may exist where the duty of the depositary is to hold, not the identical bills or coins, but an equivalent sum, to be kept intact, however, for the use of the depositor (Woodhouse v. Crandall,
The question remains as to the terms, express or implied, upon which deposits were received. We think the evidence supports the finding that they were received, not as loans, but as a fund burdened with a trust. The Bank of Honeoye Falls was not a corporation. It was not even a partnership. It was Holden under another name. When moneys belonging to the Seminary were paid to Holden, treasurer, they became subject on the instant, as he took them, to a trust imposed by law. No one would doubt this if in the moment of the taking he had spent them for himself, without the form of a credit for the account of his depositor. They were not freed from the trust because he left them in his counting house where *56 he wore the title banker. He was the same person, bearing the same relation to those who had put faith in him. His duties were not changed any more than they would have been if he had collected the money with his right hand and turned it over to his left. The Seminary might consent, if so it pleased, that its treasurer should cease to be a fiduciary, and become a borrower and owner. Something more should be proved to effect that transformation than a deposit of the moneys upon the counter of his "bank." A trust imposed by law is not to be divested at the instant of its creation, and silently, as if by sleight of hand, converted into a loan. The presumption is a strong one that a fiduciary is not to deal for his own profit with the moneys of a trust, expending and even wasting at his own uncensored pleasure. If consent so sweeping is intended, there must be more than the naked fact of a deposit to bespeak the understanding. To say that a treasurer is free to use as his own the funds committed to his care is to say that a bond, securing his fidelity, and kept alive through annual premiums, is in truth an idle form. Business, seriously conducted, becomes a mere vagary.
We cannot find consent to so anomalous a relation. The Seminary knew that the treasurer was a banker. It knew that he had facilities for keeping at his place of business the money subject to the trust and of disbursing it thereafter. The form of a deposit at the so-called bank would thus offer itself at once as a convenient expedient. The evidence does not show that more than this was understood to be the effect of the transaction. At all events, it does not show a different understanding with such clearness and precision as to exact the finding of a loan as an inference of law. We may assume in favor of the defendant that conflicting inferences are possible. We may even assume that upon a prosecution of Holden for the crime of embezzlement a jury, appreciating the possibility that he had misinterpreted the *57
arrangement, might not unreasonably have absolved him of felonious intent (People v. Meadows,
We conclude that Holden, treasurer, was subject to a continuing duty to keep the fund intact. If this be so, the evidence sustains a finding that his use of it for himself was fraud and dishonesty "amounting to embezzlement" within the meaning of the bond (cf. Mitchell Grain Co. v. Maryland Cas. Co., supra).
The judgment should be affirmed with costs.
POUND, CRANE, ANDREWS, LEHMAN and O'BRIEN, JJ., concur; KELLOGG, J., not sitting.
Judgment affirmed, etc. *58