National Union Bank v. Miller Rubber Co.

Oeputt, J., delivered the opinion of the Court. This appeal presents two questions, one, whether the ap^ pellee has thei right to recover from the appellant the proceeds of cheeks drawn to the appellee’s order, which were deposited by the appellant toi the credit of the appellee’s agents upon their unauthorized endorsements, and second, whether if such a right exists it can be enforced in a court of equity; and these questions are presented by the action of the Circuit Court of Baltimore City in overruling a der murrer to< a bill of complaint filed by the appellee against the appellant to require it to pay over to the appellee the proceeds of checks alleged to have been “fraudulently and wrongfully” diverted from its account by the concurring acts of its agents and the appellant. The bill of complaint alleges that the appellee is engaged in the business of manufacturing and selling automobile ⁴⁵² tires, tubes, and accessories, aud kindred products, having its principal factory located at Akron, Ohio, and that it sells and distributes its products through agencies located at different points throughout the country. That on January lst; 1920, it entered into- a contract with G-.

R. Schumann and R. Oator Robinson, trading as Schumann & Robinson, whereby they became the distributing agents at Baltimore for its products; and that they continued as its distributing-agents until January 1st, 1923, when Robinson retired, and that thereafter Schumann continued as its sole distributing agent until January 1st, 1924. That in the early part of February, 1920, the appellee -opened a deposit account with the Rational Union Bank of Maryland at Baltimore, Maryland, “one of the defendants herein, into which aceoiint, as was then fully explained to the said hank, and the said bank then well knew, all checks were to be deposited by the said Schumann & Robinson, given by purchasers of the manufactured products of your orator, drawn to the order of your orator, sold -and distributed, and to- he sold and distributed, through and by the said distributing agents, Schumann & Robinson, to all of which the said bank then 'agreed, and at which time, signature cards of your orator were given to the said hank, together with certain extracts from the by-laws of your orator with reference to the authorization of officers of your orator, to open hank accounts, and to withdraw therefrom the funds deposited therein.” That thereafter the distributing agents Schumann & Robinson daily deposited many checks draiwn to the appellee’s order to its account in the appellant hank, 'and the firnd-s so deposited were withdrawn from time to time by the appellee by check duly signed by its officers in accordance with the signature cards given to the appellant, until January 1st, 1923, when Robinson withdrew from the agency and thereafter the same practice was followed by Schumann until January 1st, 1924; that early in January, 1920, Schumann & Robinson opened an account in the 'same batik under the name of “Schumann & Robinson” and that account was continued until the early ⁴⁵³ part of January, 1923, when it was closed and an account opened in the name of Schumann alone. The bill then states: “That your orator lias recently discovered that beginning on or about the- 4th of Janoary, 1920, and continuing thereafter until on or about January 1st, 1923, the said Schumann & Robinson fraudulently and for the purpose of diverting and misapplying funds of your orator, deposited in the said deposit account of Schumann & Robinson in the said Rational Union Bank of Maryland, opened as -aforesaid, instead of depositing in the said deposit account of your orator in the said Rational Union Bank of Maryland, opened as aforesaid, many checks given by purchasers of manufactured products -of your orator, drawn to the order of your orator, for manufactured products sold and distributed through and by the said Schumann & Robinson agency at Baltimore-, the said checks so- diverted having been fraudulently and without authority endorsed hy the -said Schumann & Robinson for deposit in their said bank account before- the said checks were presented to the said Rational Union Bank of Maryland to be so fraudulently deposited and notwithstanding the said checks, and all of them, at the time- they were- presented to the said Rational Union Bank of Maryland by the said Schumann & Robinson, contained the endorsement of Schumann & Robinson fraudulently, and without authority made by the said Schumann & Robinson, the- said Rational Union Bank of Maryland negligently and without exercising ordinary care and prudence, and in violation of the rights of your -orator, and in disregard of the duty -and obligation it owed to your orator, participated in and took p-art in, tbe fraudulent conversion and misapplication by depositing said cheeks in the hank account of the said Schumann & Robinson instead of in the hank account of your orator, where the said Rational Uni-on Bank of Maryland should have deposited said checks; and that on and after January 1st, 1923, the practice as aforesaid was continued by the said G. R. 'Schumann and the said Rational Union Bank of Maryland until on or about January 1st, 1924, tbe funds so fraudulently ⁴⁵⁴ diverged and misapplied being in excess of $30,000, the exact amount thereof being unknown to your orator.” It then goes on to allege “that the said checks of purchasers of manufactured products of your orator, drawn, to the order of your orator, were received by the said Schumann & Robinson and/or G. R. Schumann in pursuance of an employment which reposed in them special trust and confidence, and imposing upon them and the said National Union Bank of Maryland specifically the duty of. depositing all of said checks in the said deposit account of your orator with the said National Union Bank of Maryland, the funds so represented by said checks, being impressed with a trust for the benefit of your orator.” And finally it alleges: “That the said National Union Bank of Maryland by its gross negligence, in depositing in the hank accounts of Schumann & Robinson and/or G. R. Schumann, cheeks given by purchasers of manufactured products of your orator, sold and distributed through the distribution agency at Baltimore, drawn to the order of your orator and fraudulently and without authority endorsed by Schumann & Robinson and/or by G. R. Schumann before the said checks were presented to said bank for deposit, thereby cooperating with the said Schumann & Robinson and/or the said G. R. Schumann, participated in and took part in the wrongful and fraudulent conversion of yonr orator’s funds, which wrongful and fraudulent conversion could have been prevented by the exercise of ordinary care and prudence by the said hank in declining and refusing to deposit the said checks in the deposit accounts of the said Schumann & Robinson and/or the said G. R. Schumann, at the time the said checks were presented to. the said bank by the said Schumann & Robinson and/or the said G. R. Schumann.” The appellant denies that it is liable to' the appellee either at law or in equity for the proceeds of the checks drawn to the appellee’s order and deposited to the account of Schumann & Robinson, because it says there is no privity of contract between it and the Miller Rubber 'Company, and in ⁴⁵⁵ support of that contention it relies mainly upon the ease of Tibby Bros. Glass Co. v. Bank, 220 Pa. 1 .

The decision in that ease rested, as the appellant’s contention here rests:, upon a supposed analogy between the rights of a payee of a check against a drawee bank which has paid it on a, forged endorsement, and the rights of such a payee against a collecting hank which has paid a check on a forged endorsement and collected it from the drawee bank. That case undoubtedly supports the appellant’s contention, but it cites no authority in support of its conclusion that the payee cannot recover against the collecting bank because of a want of privity between them; it has not been followed in other states, and is opposed to whatever authority there is. on the question. In this State a cheek does not operate as an assignment of the fund upon which it is drawn, and gives the payee no lights against the drawee. Moses v. Franklin Bank, 34 Md. 574 .

And if the analogy between such a case and the one