American Surety Co. of New York v. Citizens' Nat. Bank of Roswell, N.M.

• Court: U.S. Court of Appeals — Eighth Circuit
• Citation: American Surety Co. of New York v. Citizens' Nat. Bank of Roswell, N.M., 294 F. 609 (8th Cir. 1923)
• Decision Date: 03 December 1923
• Docket Number: 6366.
• Parties: AMERICAN SURETY CO. OF NEW YORK v. CITIZENS' NAT. BANK OF ROSWELL, N.M. [1]

294 F. 609

AMERICAN SURETY CO. OF NEW YORK v. CITIZENS' NAT. BANK OF ROSWELL, N.M. ^[1]

No. 6366.

United States Court of Appeals, Eighth Circuit.

December 3, 1923

Francis C. Wilson, of Santa Fe, N.M. (Harold C. Perry, of Santa Fe N.M., on the brief), for appellant.

R. D Bowers, of Roswell, N.M., for appellee.

Before STONE and LEWIS, Circuit Judges, and KENNEDY, District Judge.

LEWIS Circuit Judge.

On demurrer the bill of complaint was dismissed, and plaintiff below has appealed from that order. It was surety on the statutory bond required of one Davisson, as treasurer and collector of Chaves County, New Mexico, for the faithful performance of his official duties, and on his failure to account for all public moneys that came into his hands, it made the shortage good and then sued appellee to recover of it $6,156.05, included in that shortage, on the claim that appellee bank was liable to the county for it, and by subrogation to the right of the county it was equitably entitled to recover from the bank. If the bank was not liable to the county on the facts pleaded, or if those facts do not raise the equitable right of subrogation, in either contingency the surety's case falls. Bearing in mind the applicable statute, the case as made out by the complaint is this: Three banks, the First National, the American National and appellee, Citizens' National, all at Roswell, Chaves County, were designated, in accordance with the State statute, as depositaries of public funds, and they each qualified as such by giving the statutory bond for safe keeping of public funds deposited with them, and that they would pay out those funds on the order or check of the officer authorized to withdraw them. As public funds came to Davisson they were deposited by him in the depositary banks and they could then be paid out and withdrawn only on his official order or check. In July, September and October, 1920, Davisson gave four checks all signed by him in his official capacity, one on appellee bank for $750.80, one on American National Bank for $1,500.00, and two on First National Bank for $2,800.00 and $1,105.25, and in each check appellee was named as payee. These four checks appear to have been the official form in use by Davisson, each carrying this over-inscription, 'Ben C. Davisson, Treasurer and Collector Chaves County,' each numbered, and they made up the $6,156.05. At different times, as the checks were dated, Davisson went to appellee bank and with the $1,500.00 check and the $2,800.00 check, procured from appellee its two cashier's checks for like amounts, one payable to A. F. Crumm and the other to A. C. Ground, and with the other two checks he procured from appellee its two bank drafts on the National Park Bank of New York, one for $750.80 payable to A. A. Anderson, and one for $1,105.25 payable to A. K. Crumm. Davisson indorsed, without authority to do so, the names of the payees on the cashier's checks and drafts and converted them to his own use. Appellee paid its two cashier's checks on presentation in due course. One of the checks bore Davisson's indorsement also. It came to appellee for payment through another bank. The other check did not have his indorsement but another individual indorsement. The two drafts each passed through two other banks before they were paid by the National Park Bank. One of them bore Davisson's indorsement, the other did not, but each bore other individual indorsements. The New York bank, of course, charged the drafts on payment to account of appellee bank; but it is not alleged when, if ever, they were returned to appellee bank.

On these facts counsel for appellant argue that payments of the checks and drafts containing forged indorsements of the names of the payees rendered appellee liable to the county for the amounts for which they were drawn; and they cite Morse on Banks and Banking (5th Ed.) Secs. 462, 474; U.S. v. National Bank, 205 F. 433, 123 C.C.A. 501; National City Bank v. Third National Bank, 177 F. 136, 100 C.C.A. 556; Jordan-Marsh Co. v. National Shawmut Bank, 201 Mass. 397, 22 L.R.A. (N.S.) 250, 87 N.E. 740; Gallo v. Savings Bank, 199 N.Y. 222, 92 N.E. 633, 32 L.R.A. (N.S.) 66; Harter v. Mechanics' National Bank, 63 N.J.Law, 578, 44 A. 715, 76 Am.St.Rep. 224; McNelly Co. v. Bank of North America, 221 Pa. 588, 70 A. 891, 20 L.R.A. (N.S.) 79; Western Tel. Co. v. Bi-Metallic Bank, 17 Colo.App. 229, 68 P. 115, and other like cases. But these are all instances of checks drawn on banks by those having deposits in the banks on which the checks were drawn, and the checks were drawn against those deposits. A bank and its depositor stand in relation of debtor and creditor, and the contractual relation between them binds the bank by implication to honor only genuine checks of its depositor and those having genuine indorsements of payees named in those checks. As between it and its depositor it is burdened with the duty of not paying forged checks, or genuine checks with forged indorsements. If it pays such checks, as between it and its depositor it must stand the loss, and cannot debit the depositor's account with the amount so paid. Neither the county nor its authorized agent drew the two cashier's checks or the two drafts, and when they were paid they could not be and were not debited against the county or its account in appellee bank. They were charged to the bank and debited against and taken out of the bank's general balance. The cases cited and the principle which they declare have no application to the facts here. The relation of bank and depositor and the duty and rights of each are stated in Leather Manufacturers' Bank v. Merchants' Bank, 128 U.S. 26, 34, 9 Sup.Ct. 3, 4 (32 L.Ed. 342), thus:

'The specific money deposited does not remain the money of the depositor, but becomes the property of the bank, to be invested and used as it pleases; its obligation to the depositor is only to pay out an equal amount upon his demand or order; and proof of refusal or neglect to pay upon such demand or order is necessary to sustain an action by the depositor against the bank. The bank cannot discharge its liability to account with the depositor to the extent of the deposit, except by payment to him or to the holder of a written order from him, usually in the form of a check. If the bank pays out money to the holder of a check upon which the name of the depositor, or of a payee or indorsee, is forged, it is simply no payment as between the bank and the depositor; and the legal state of the account between them, and the legal liability of the bank to him, remain just as if the pretended payment had not been made.'

See also 2 Michie, Banks and Banking, Sec. 148. There is, then, no basis here for the principle contended for and it must be put aside.

But it is further alleged in the complaint that appellee was familiar with the handwriting of Davisson, and that it was negligent in not discovering that he had forged indorsements of the payees' names on the cashier's checks and drafts and in not refusing on that account to pay them. It is not alleged that appellee knew the genuine signature or handwriting of any of the payees, nor whether the four payees were real or fictitious persons, and if real whether the county was indebted to any of them for the amounts named in the checks and drafts, or for any amount. There being no allegation that any of the payees were real persons and creditors of the county and that the cashier's checks and drafts were properly procured as means of paying them, we see no substantial reason for the complaint that the payees named did not get the money on the checks and drafts. If they were not creditors and had gotten the money the county would have been in no worse plight, barring its right to go after them, than it was. In that event, or if the payees were fictitious, it has suffered no loss or damage on account of the forgeries or the alleged negligence in not discovering the forgeries, and negligence without damage is not actionable.

We think the situation plain and it cannot be confused by argument. Appellee knew that Davisson had a right in his official capacity to check out the funds in the three depositaries and that they had bound themselves under the statute and their bonds to honor his check when presented. It had no knowledge or intimation of his purposes and intention when he procured the two cashier's checks and two drafts, to unlawfully convert their proceeds to his personal use. There was nothing about any of the four transactions which could arouse suspicion. As it turned out, there is every reason to believe now from the facts stated that all of the payees were fictitious, and the transactions were all planned beforehand to facilitate and cover up the embezzlements. It is apparent that the cashier's checks and drafts remained in the hands of Davisson until he disposed of them to third parties. He got the money on them and accomplished the embezzlements before the two cashier's checks came back to appellee for payment and its alleged negligence in not discovering the forgeries on them cannot be regarded as the proximate cause of any loss suffered by the county. National Surety Co. v. State Savings Bank, 156 F. 21, 26, 84 C.C.A. 187, 14 L.R.A. (N.S.) 155, 13 Ann.Cas. 421; American Bonding Co. v. Welts, 193 F. 978, 980, 113 C.C.A. 598. That loss had been sustained already. As to the two drafts on the New York bank it was absolutely bound, without negligence under the doctrine first noted, to drawer, appellee bank, for damage on account of the forgeries, but the county was neither drawer, payee or indorser on those drafts. That doctrine rests on implied obligations arising out of contractual relations. Neither the county nor its agent Davisson bore any such...