Rensselaer County NyArchives Court.....Ouderkirk, Jacob Vs. Central National Bank Of Troy 1889
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Source: Reports Of Cases - N Y
Written: 1889

CASES DETERMINED IN THE THIRD DEPARTMENT AT GENERAL TERM, MARCH, 1889

Jacob Ouderkirk, Respondent, v. The Central National Bank of Troy, Appellant.

Liability of a bank for bonds deposited with it and disposed of by its cashier—
when it will be held to be a mandatary and not a depositary.

The plaintiff, in 1884, deposited certain bonds with the defendant, a bank, as 
collateral security to notes discounted by it for him, the last of which notes 
was finally paid on January 26, 1887. The plaintiff being on that day ill his 
son-in-law, Mr. Face, went to the bank for the note, and the cashier gave him 
the note, to which there was attached what looked like bonds. These the cashier 
did not give to him, but gave him a paper, dated on that day, which certified:

"That Mr. Jacob Ouderkirk has had deposited in this bank, as collateral security 
to any and all loans made to him direct, $1,500 par value U. S. 4 per cent 
coupon bonds; that all said loans thereon having been paid and canceled said 
bonds are left for future like use or safe-keeping, subject to the order of said 
Ouderkirk. Coupons to be collected when due and return made to him as 
heretofore. A. W. WICKS."

The bank having refused to deliver the bonds to the plaintiff upon a demand made 
in February, 1888, this action was brought to recover for the wrongful detention 
of the said bonds. The answer denied the conversion, alleging that the bank had 
not the bonds; that it never authorized the cashier to receive them, and that 
the cashier converted them to his own use.

Held, that as the bonds were in the custody of the bank, as pledgee, in the 
first instance, and so continued until the last note was paid, and Mr. Face, 
agent of the plaintiff, saw what purported to be the bonds attached to the note 
at the time when the note was delivered to him and the receipt was given, it 
must be assumed to have been proved that the bank then had the bonds.

That the contract was quite different from a deposit, strictly so-called; that 
the bank was a mandatary rather than a depositary, and was, to a certain extent, 
an agent of the plaintiff in collecting the coupons.

The defendant, to justify its not returning the bonds, proved that such bonds 
were kept in a steel safe in the vault; that such safe had a lock of which only 
the president and cashier had the combination; that the president did not take 
the bonds, nor did the clerks or bookkeepers. The cashier was not called. The 
president spoke of the cashier's defalcation as occurring about December 20, 
1887, but no proof of such defalcation was given. It was also shown that up to 
the date last mentioned the cashier was a man of good reputation.

The court charged that the plaintiff was entitled to recover unless the 
defendant could show that the loss was not caused by any act of neglect on the 
part of the defendant; that the defendant was not only liable in case of gross 
neglect, but liable where the loss was occasioned by any neglect on its part. 
The court also charged that the defendant had undertaken to show that it did all 
which it reasonably could to protect these securities.

Held, that this latter part of the charge must be considered as explanatory of 
the meaning of the judge in the use of the words "any neglect."

That, under the circumstances of this case, which were not inconsistent with the 
careless surrender of the bonds to some person by the cashier or their possible 
sale and the receipts of the avails of their proceeds by the bank, the charge 
was not erroneous.

Quoere, whether the bank would be liable in case a willful taking of the bonds 
by the cashier were proved.

Appeal by the defendant from a judgment entered, upon the verdict of a jury 
rendered at the Rensselaer County Circuit, in the office of the clerk of the 
county of Rensselaer, on October 11, 1888.

The plaintiff, being the owner of certain bonds, in question in this action, 
gave them to the defendant, a bank, in 1884 as collateral security to a note of 
his discounted by it. This note, after having been renewed, was finally paid. 
Subsequently the plaintiff had another note discounted by the bank, and these 
bonds remained as collateral to that note, which was finally paid January 26, 
1887. On that day the plaintiff was ill, and his son-in-law, Mr. Face, went to 
the bank for the note. The cashier gave him the note, and there were attached 
what looked like bonds. These the cashier did not give him; but he did give Mr. 
Face a paper as follows:

"Troy, N. Y., January 26, 1887. "This certifies that Mr. Jacob Ouderkirk has had 
deposited in this bank, as collateral security to any and all loans made to him 
direct, $1,500 par value U. S. four per cent coupon bonds; that all said loans 
thereon having been paid and canceled, said bonds are left for future like use 
or safe-keeping, subject to the order of said Ouderkirk; coupons to be collected 
when due and returns made to him as heretofore. "A. W. WICKES."

Subsequently, in February, 1888, the plaintiff demanded the bonds and the bank 
did not deliver them, alleging they were not then in its possession. The 
complaint alleges the receipt of the bonds by the bank and its wrongful 
detention. The answer denies the conversion ; alleges that the bank has not the 
bonds; that it never authorized the cashier to receive them, and that the 
cashier converted them. The jury rendered a verdict for plaintiff, and the 
defendant appealed.

Orin Gambell, for the appellant.

Nelson Davenport, for the respondent.

Learned, P. J.:

The bonds were certainly in the custody of the bank, as pledgee, in the first 
instance, and so continued till the last note was paid. If, by the giving of the 
receipt of January 26, 1887, the bank became a gratuitous bailee, still it had 
authority so to act (Pattison v. Syracuse National Bank, 80 N. Y., 82); and the 
plaintiff was not chargeable with knowledge of any directions given by the bank 
to its cashier in that respect. The bonds must be considered to have been 
deposited with the bank, not with the cashier individually. Mr. Face, the agent 
of the plaintiff, at the time when the note was delivered to him and the receipt 
was given, saw what purported to be the bonds attached to the note. Therefore, 
there is no reason to think that the bonds were not then in the possession of 
the bank. If they had been converted or lost previously to that time, another 
question might have arisen; but the receipt, not being disproved, must be held 
to show that the bank then had the bonds.

If a creditor, holding a pledge, assent, after payment of the debt, to hold the 
pledge for the benefit of the debtor, it becomes a deposit. (Story on Bail., § 
55.) That rule has reference, of course, to a gratuitous holding, from which the 
holder is to derive no benefit. In the present case we must judge from the 
receipt what was the nature of the holding by the bank. It was to be not only 
for safe-keeping, but "for like use," that is, for use as a collateral to loans 
which might be made in the future. The bank also was to have the right to 
collect the coupons and make returns as heretofore, This collecting of coupons, 
payable in another place, was a regular part of banking business. It was a 
slight benefit to the bank, giving it funds in New York. And it is plain that 
the arrangement was somewhat different from the ordinary care of keeping, in a 
bank vault, a locked box, to the contents of which the bank has no rightful 
access. Deposit, as it is accurately called, is entirely gratuitous, and because 
there is no benefit whatever to the depositary, the general rule is that he is 
liable only for gross negligence. (Dig., Book 13, 6. 5, 2.) But here, to say 
nothing of the anticipated profit in making a loan on this collateral, there was 
the distinct benefit of collecting the coupons and making returns to the 
plaintiff. The bank was employed by plaintiff to collect from time to time the 
sums payable for interest, and for that purpose it had the custody of the bonds, 
with the right to receive payment of such interest and to surrender the interest 
coupons, and thus it was plaintiff's agent.

It seems to us that this is a contract quite different from a deposit, strictly 
so-called. For instance, in the case of Foster v. Essex Bank (17 Mass., 479), a 
case which has some analogy with the present, Foster left a case of gold coin 
for safe-keeping. The court said it would have been a breach of trust to open 
the case or inspect its contents. When the bank, in fear of danger, removed its 
own specie to another town, it did not feel authorized to remove this without 
the owner's consent. It is evident that in the present case the bank had other 
authority and right in respect to these bonds, and other duties also. And, 
without entering on the disputed point whether a mandate must be gratuitous, we 
might probably say that, as something was to be done by the bank, it was a 
mandatary rather than a depositary. It was, to a certain extent, an agent of the 
plaintiff, that is in collecting the coupons.

In Pattison v. Syracuse National Bank (ut supra) it is said that as "the 
plaintiff's securities were received on deposit by the bank, it was bound to 
return them or show some sufficient cause for not doing so." In that case the 
bank claimed that they were stolen by some person other than employees of the 
bank, and the question was whether the theft was suffered through the gross 
negligence of the bank.

In the present case the defendant, to show cause for not returning the bonds, 
proved that such bonds were kept in a steel safe in the vault, which safe had a 
lock, of which only the president and cashier had the combination. The defendant 
proved that the president did not take the bonds, nor did the clerks or 
bookkeepers. The cashier was not called. The president spoke of the cashier's 
defalcation as occurring about December 20, 1887. No direct proof of such 
defalcation was given. The president testified that, if the cashier was away, 
this safe was not opened. It is also shown that up to the date last-mentioned 
the cashier was a man of good reputation. The court charged that the plaintiff 
was entitled to recover unless the defendant could show that the loss was not 
caused by any act of neglect on the part of the defendant; that the defendant 
was not only liable in case of gross neglect, but was liable where the loss was 
occasioned by any neglect on its part. To this part of the charge the plaintiff 
excepted. The question then is whether, on the facts of this case, the defendant 
was liable only for gross negligence; or, more accurately, whether the defendant 
might excuse itself for not returning the bonds by showing that they were lost 
without gross negligence. In another part of the charge the judge said that the 
defendant had undertaken to show that it did all which it reasonably could to 
protect these securities; and this must be considered as explanatory of the 
meaning of the judge in the words "any neglect." If this had been a case of 
merely gratuitous bailment, then probably the exception would have been well 
taken. But under the circumstances of this case we think the charge was not 
erroneous, as above explained. Whether the bank would be liable for a willful 
taking of the bonds by the cashier is a question not distinctly presented. The 
facts of the case are consistent with the careless surrender of the bonds by the 
cashier to some person other than plaintiff. It is even possible, under the 
proof, that the bonds were sold by the cashier and the avails received by the 
bank. For no proof is given by defendant as to the time when, or the manner in 
which, the bonds passed from its possession. The examinations occasionally made 
by the directors and by the United States officials did not include such 
deposits as that of the plaintiff.

We are of opinion that the judgment and order should be affirmed, with costs.

Landon and Ingalls, JJ., concurred.

Judgment affirmed, with costs.

Additional Comments:
Reports of Cases Heard and Determined in the Supreme Court of the State of New 
York. Marcus T. Hun, Reporter. Volume LIX, 1889, HUN 52. Banks & Company, 
Albany, NY. 1901.

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