Novak v. Greater New York Sav. Bank, 30 N.Y.2d 136 (1972)

A savings bank has a duty to exercise due care and diligence in verifying the identity of a person seeking to withdraw funds using a passbook, and the scope of this duty is defined by the specific withdrawal transaction.

Summary

Novak sued Greater New York Savings Bank to recover funds withdrawn from his account by someone using his stolen passbook. The bank argued it was discharged from liability due to a by-law allowing payment to anyone presenting the passbook. The Court of Appeals held that the bank had a duty to exercise due care in verifying the identity of the person making the withdrawal. The court found that the large cash withdrawal shortly after the bank opened on a Monday morning was a significant factor. The Court reversed the Appellate Division’s ruling and remanded the case, holding that the evidence presented a jury question as to whether the bank had exercised due care.

Facts

Novak, a merchant marine officer, opened a savings account with the bank in 1965, providing his signature and personal data. His passbook was stolen from his hotel room on August 7, 1967. He reported the theft to the bank that morning, only to learn that $12,000 had already been withdrawn from his account. The withdrawal slip and a related check were signed with a forged signature. The bank’s tellers, Mackie and Cain, who authorized the withdrawal, were no longer employed by the bank at the time of the trial.

Procedural History

The trial court initially ruled in favor of Novak. The Appellate Division reversed and ordered a new trial due to the exclusion of business records showing signature similarity. After the second trial resulted in a verdict for Novak, the Appellate Division reversed again, finding no evidence of negligence as a matter of law and directed judgment for the bank for the remaining balance.

Issue(s)

Whether the bank exercised due care and diligence in ascertaining the identity of the person to whom it paid $12,000 upon presentation of Novak’s stolen passbook, considering the circumstances of the withdrawal.

Holding

No, because the circumstances surrounding the withdrawal transaction, including the large cash withdrawal shortly after opening on a Monday morning, presented a question of fact for the jury as to whether the bank’s verification procedures satisfied its duty of care.

Court’s Reasoning

The court emphasized that the case was governed by common-law principles of debtor-creditor relationships, not the Uniform Commercial Code rules for negotiable instruments. The bank, as the debtor, had the burden of proving that it exercised due care in paying out the funds. Quoting Gearns v. Bowery Sav. Bank, 135 N.Y. 557, 562, the court stated, “If at the time a fact or circumstance was brought to the knowledge of the defendant’s officers [or other employees] which was calculated to and ought to have excited the suspicion and inquiry of an ordinarily careful person, it was clearly their duty to institute such inquiry, and their failure to do so presented a question for the consideration of the jury.” The court distinguished Appleby v. Erie County Sav. Bank, 62 N.Y. 12, and Kelley v. Buffalo Sav. Bank, 180 N.Y. 171, noting that those cases involved situations where the signature comparison was the only relevant factor. Here, the large cash withdrawal soon after opening on a Monday morning, coupled with the bank’s procedures (or lack thereof) for handling such transactions, created a jury question as to whether the bank met its duty of care. The court determined that the specific facts of the withdrawal defined the scope of the bank’s duty and that a mere comparison of signatures was insufficient under these circumstances. The court reversed the Appellate Division’s decision and remanded the case for review of the facts, allowing a jury to determine if the bank’s actions constituted negligence.