Town of East Hartford v. American National Bank

P, as treasurer of the plaintiff town, made sundry notes as treasurer without authority from the town, which were discounted by the defendant bank and the avails placed to his credit as treasurer of the town. Funds properly in his hands as treasurer were from time to time deposited in the same account and finally the notes made by him were, after sundry renewals, paid by checks drawn by him as treasurer. He after-wards became a defaulter and fled. The money drawn out by him as treasurer and used to pay the notes, would have made good his defalcation. The bank discounted the notes in good faith supposing that he had authority to make them and that the proceeds were used for the benefit of the town, but in fact a large amount of the money drawn out on his checks as treasurer was used for his own purposes. He was at the time in good repute for integrity. Held— 1. That the bank must be held to have known that P had no power as treasurer" to make the notes ifi the name of the town, and no power without” special authority from the town, as to which it was its duty to inquire. 2. That the notes must therefore be treated as the private notes of P, and the loans as made to him individually. 3. That when P as treasurer drew out the town money to pay the notes, he was doing what the bank must be taken to have known that lie-had no right to do, and that the bank could not retain the money against the demand of the town.

Assumpsit, to recover of the defendant bank money deposited with it by the treasurer of the town; brought to the Superior Court in Hartford County. The following facts were found by the court:— Leonard T. Pitkin was elected and qualified as treasurer of the plaintiff town in October, 1872, and was. annually thereafter re-elected and continued in the office until the 9th day of September, 1878, when he was removed and his successor appointed, he having previously absconded, a defaulter to the town in the sum of $3,878.92. This sum is the difference between receipts and payments by Pitkin, after the last audit of his accounts as treasurer. Pitkin gave a bond at the time of his first appointment as treasurer, which expired the first year. No other bond was afterwards given. On the 4th day of November, 1872, Pitkin opened an account with the defendant bank as treasurer of the town of East Hartford, and deposited therein the money received by him from his predecessor, to the credit of “ L. T. Pitkin, Treasurer.” This account was continued during his term of office and was closed on the 31st of July, 1878, after he had absconded. During this time he also had two other accounts in the bank in the names of “ L. T. Pitkin, Executor,” and “L. T. Pitkin.” On the 27th of November, 1872, Pitkin began drawing on the treasurer’s account for his private purposes. The amount so drawn was $25,314.67. Seven of the checks so drawn by him, payable to himself, amounting to $7,332.58, were upon the same day they were drawn deposited to his individual credit in the bank. Cheeks drawn by him as treasurer, and payable to him as executor, were at the same time placed to the credit of his executor’s account in the bank. Except in the_ case of a cheek of $600 dated October 14th, 1876, payable to him as executor, which was made merely to correct an error, all the moneys thus transferred or taken from the bank upon his checks as treasurer, were the property of the town and were thereby misappropriated. There were sundry checks drawn upon Pitkin’s individual . account and upon Ms account as executor, and payable to Mm as treasurer, wMch were deposited to the credit of Ms treasurer’s account in the bank, from time to time, during all the period covered by his treasurer’s account; whereby Pitkin kept Ms account as treasurer good until December, 1875, although for much of the time it did not represent the amount which would have stood to his credit had it not been for such misuse of the funds of the town. On December 7th, 1875, his account as treasurer was overdrawn for the first time, and continued so overdrawn until December 31st, 1875. The overdraft on December 30th, 1875, was $3,209.80. The attention of the president and officers of the bank was directed to this overdraft and the condition of Pitkin’s account as treasurer, and on the 31st of December, 1875, the bank, preferring to lend upon a note rather than in the form of an overdraft, arranged through its president with him to make a note as treasurer for the sum of $4,000, payable to Ms order, and endorsed by Mm only, which note was discounted by the bank, and the avails placed to his credit as treasurer. The overdraft which without this discount would have amounted on that day to $3,679.20, was thus apparently extinguished, and a balance of $225.14 was left to his credit as treasurer. This note was paid on the 2d of May, 1876, by a check drawn by him upon the treasurer’s account. On the 12th of July, 1876, Pitkin’s account as treasurer was overdrawn $1,219, and'on the 13th of July, 1876, a note for $3,000, made by him as treasurer, payable to and endorsed by Mm only, was discounted, and the avails placed to the credit of his account as treasurer, and the overdraft apparently extinguished. TMs note became due November '20th, 1876, and was renewed and became due again the 1st of December, 1876, and was again renewed and became due January 18th, 1877. On the 25th day of August, 1876, Pitkin made another note, as treasurer, for $2,000, of the same tenor, which was discounted, and the avails were placed to his credit as treasurer. This note became due December 28th, 1876, and was renewed and again became due January 18th, 1877. On that day a new note for $5,000, made by Pitkin as treasurer, was discounted by the bank, and the avails placed to the credit of his treasurer’s account, and the notes for $3,000 and $2,000 respectively, were paid from that account by a treasurer’s check. This $5,000 note became due March 21st, 1877, and was renewed and became due again April 24th, 1877, when it was paid by a check upon the treasurer’s account, and a new note for $4,000, of Pitkin treasurer, was discounted, and the avails placed to the credit of his treasurer’s account, thus practically renewing $4,000 of the $5,000 note. This note became due August 27th, 1877, and was renewed and became due again December 27th, 1877, when it was again renewed for the last time, and was finally paid from the funds standing to the credit of Pitkin treasurer in the bank, on the 2d of May, 1878, by a treasurer’s check. On the 9th of October, 1876, another note was made by Pitkin, as treasurer, for $4,000, and the avails thereof credited to his treasurer’s account, which, previous to such credit, was overdrawn $500.31. This note became due February 12th, 1877, and was then renewed and became due again April 15th, 1877, and was then paid by a treasurer’s check. On the 18th of December, 1877, another note made by Pitkin, as treasurer, for $2,000, was discounted by the bank, and the avails thereof placed to the credit of his treasurer’s account. This note became due April 20th, 1878,-and was paid from the treasurer’s account, by a treasurer’s check. On the 22d of January, 1878, Pitkin made another note, as treasurer, for $500, which was discounted by the bank and the avails credited to his treasurer’s account. This note was paid April 10th, 1878, by a treasurer’s check on the treasurer’s account. On the 21st of January, 1878, the treasurer’s account was overdrawn $1,034.65, which overdraft was made up in part on the 22d of January, 1878, by the avails of the $500 note. All the foregoing notes were made without the knowledge or consent of the town, or its agents, and were unauthorized. The bank made no inquiries and took no steps to ascertain whether Pitkin had authority to execute the notes, except that at some time after the first note was executed the president of the bank inquired of and was informed by Mm that he had authority to borrow money for the town. The attention of the president and officers of the bank was called to Ms treasurer’s account, and to its condition, whenever any overdraft of the same occurred. The plaintiff, its officers and agents, had no knowledge or suspicion of any of the overdrafts, or that the account of Pitkin as treasurer was at any time overdrawn. The proceeds of the notes would not have been needed for the use of the town, or to keep the account good in the bank, if Pitkin had not drawn against the, treasurer’s account for his own uses. The use t>f the notes enabled Pitkin to conceal from the town, its auditors and other officers, the true state of his account as treasurer during the entire period covered by them. The pass-books issued by the bank to Pitkin contained these discounted notes. These pass-books were never shown to the town auditors. No other treasurer’s bank account was shown to the auditors except those contained in counterfeit pass-books hereafter described. Pitkin’s account as treasurer was annually audited by the town auditors. For the purpose of deceiving the auditors, Pitkin, by means unknown, procured pass-books from the bank and caused a fictitious bank account, purporting to be Ms account with the bank, but wlfich did not contain the discounted notes, to be written in them, and exhibited these books to the auditors, and thereby misled them as to the state of his account with the town as treasurer, and also as to the state of his bank account as treasurer, and prevented the discovery of the misappropriation of money by him and the existence and use of the notes. On the 2d of February, 1878, his account as treasurer was audited with reference to its condition on the 22d day of December, 1877. At this time there was apparently a balance due from the town to Mm of $415.70; but there was outstanding and unpaid the note of $4,000 mentioned above as having been paid on the 2d of May, 1878, and also the note of $500 paid April 10th, 1878, and the note of $2,000 paid April 20th, 1878. After January 1st, 1878, Pitkin received from the town of East Hartford and deposited to his credit in the bank as treasurer, $16,603.85. Against this amount he drew checks on account of the town of $6,535.35, which would have left a balance, at the time of his flight, to the credit of his treasurer’s account of $10,068.50; but, on the 10th of April, 1878, he paid from this account the $500 note, and on the 20th of April, 1878, the $2,000 note, and on the 2d of May, 1878, the $4,000 note, as above mentioned. The money thus taken would have made good Pitkin’s default to the town. The amount charged for discounting the notes was $842.62, which was taken directly from his treasurer’s account. At the close of Pitkin’s account as treasurer he was indebted to the town more than $8,000, and had in bank to his credit, as treasurer, a balance of $4,987.53. This balance was by the plaintiffs reduced to $3,877.07, which, on September 12th, 1878, was taken from the bank by Pitkin’s successor in- office. The attention of the president of the bank was not called to the state of the account, except at times when it was overdrawn or notes were discounted or paid. The defendants offered evidence to prove that it was not the practice in the bank for the president or cashier to inspect the items of the accounts of its customers, unless in consequence of overdrafts, or for some other particular reason, their attention was called to them. Such evidence was received subject to the objection of the plaintiffs. If the evidence be admissible, the fact is found in accordance with such evidence. In December, 1875, shortly after the first overdraft, the president of the bank called Pitkin’s attention to the fact, and Pitkin then gave the reason therefor that the town needed the money, as taxes were delayed, and the bank would be repaid as they came in. Similar statements were subsequently made by Pitkin to the president as a reason for allowing overdrafts and discounts. These statements of Pitkin were untrue. All the overdrafts, loans and discounts were permitted and made by the bank in good faith, relying upon the representations of the treasurer above stated, and with, the belief, on the part of the bank, that the same were needed by the town for its accommodation. During all the time of Pitkin’s transactions with the bank he was publicly reputed to be a man of integrity, and was so regarded by the officers of the bank. Interest was allowed by the bank upon the deposits in the treasurer’s account, but to what extent did not appear. Neither the plaintiffs nor the bank had any knowledge or suspicion of Pitkin’s frauds or of any misapplication of moneys by him, until after he left the state in 1878, unless upon the foregoing facts such knowledge is to be imputed to the bank. Upon these facts the case was reserved for the advice of this court. '