Bank of Williamson v. McDowell County Bank
| Decision Date | 21 December 1909 |
| Citation | 66 S.E. 761,66 W.Va. 545 |
| Parties | BANK OF WILLIAMSON v. McDOWELL COUNTY BANK. |
| Court | West Virginia Supreme Court |
Submitted February 17, 1909.
Rehearing Denied Jan. 11, 1910.
Syllabus by the Court.
If the drawee of a forged check or bill of exchange pay it to a bona fide holder, who is without fault, he cannot recover the money from the person to whom payment was made.
In the absence of negligence or misconduct on the part of the holder of forged paper contributing to the fraud by which the person on whom it purports to be a check or acceptance is induced to part with money on the faith of it such person must determine at his peril whether the signature is genuine.
The immunity so accorded the holder being an exception from the general rule of law, allowing recovery of money paid under a mutual mistake of fact, does not extend to one who has omitted some precautionary act or duty, usual and customary among bankers.
In taking a forged check from an unknown person for collection without inquiry as to his identity, and forwarding it for collection, after having taken the indorsement thereon of the reputed payee and placed its own unrestricted indorsement on the same, a bank omits a precautionary duty which the law merchant devolves upon it for the protection of the drawee and makes a warranty of the genuineness of the signature of the payee, which it cannot afterwards deny; wherefore it is liable to the drawee for the money paid on the check by the latter in ignorance of the forgery, unless the latter, by omitting some duty resting upon it, is likewise in fault.
If, in such case, both parties have been guilty of negligence, the drawee in failing to have in its possession any means of testing the genuineness of the signature of the drawer, and the paying bank in failing to have the payee identified, when he is unknown, the former cannot recover of the latter.
Error from Circuit Court, Mingo County.
Action by the Bank of Williamson against the McDowell County Bank. Judgment for defendant, and plaintiff brings error. Affirmed.
Stokes & Bronson, for plaintiff in error.
Anderson Strother & Hughes, for defendant in error.
POFFENBARGER P.
The Bank of Williamson, doing business at Williamson, Mingo county, sued the McDowell County Bank, located at Welch, in McDowell county, in assumpsit, laying the damages at $900. The purpose of the action was the recovery of money paid by the plaintiff to the defendant on a forged check for $800, purporting to have been drawn on the plaintiff by D. B. Young, one of its depositors, in favor of George Horner, and collected at the request of some unknown person by the defendant. Trial by jury having been waived and the case submitted to the court, there was a judgment for the defendant of which the plaintiff complains. at the time of the forgery of the check, Young had $1,000 on deposit in the Bank of Williamson on which he had never drawn any checks. He resided in Kentucky, several miles from Williamson. His testimony imports that he had never had any other account or transaction with the bank as a depositor. In September, 1907, the forged check was presented to the McDowell County Bank by a stranger, who wrote the name George Horner on the back of it, and delivered it to one of the defendant's agents. For some reason the bank did not give him the cash or place the amount to his credit. It took the note for collection, and, after stamping the following indorsement upon it: --sent it to its correspondent at Williamson, W. Va., the Mingo County Bank, which indorsed it as follows: On the 18th day of September, 1907, the Bank of Williamson paid the amount thereof to the Mingo County Bank, which, in turn, paid it to the McDowell County Bank, where it was deposited to the credit of the person calling himself George Horner, who afterwards withdrew it from the bank. Some time in November, 1907, the forgery was discovered upon the appearance of Young at the Bank of Williamson for the purpose of withdrawing his money, and his disavowal of any knowledge of the check that had been paid out of it. The money was replaced to his credit, and a demand made upon the defendant for reimbursement. The person who delivered the check for collection, and who afterwards received from it the money, was wholly unknown to the officers and agents of the McDowell County Bank, and they required from him no identification. It seems that no inquiry was made as to who he was. On the face of the check, there was a recital to the effect that it had been given for land. Failure to make inquiry or require identification, together with the indorsements and guaranty stamped on the back of the check, are the circumstances relied upon by the plaintiff as fixing the liability upon the defendant.
It is hardly necessary to observe that there has been a payment of money under a mistake of fact. Ordinarily money so paid may be recovered back. This is a general rule of law not peculiar to transactions between bankers. Simmons v. Looney, 41 W.Va. 738, 24 S.E. 677; Haigh v. United States B. & L. Ass'n, 19 W.Va. 792; W.Va. Transp. Co. v. Sweetzer, 25 W.Va. 434; Burton v. Burton, 10 Leigh (Va.) 597; Richmond v. Judah, 5 Leigh (Va.) 305. Like all other general rules, however, it has its exceptions. Circumstances are sometimes such as to impose upon one of the parties a higher duty and the exercise of greater care and diligence to know the facts than upon the other, to the end that wrong, injustice, and hardship may be avoided. It is eminently fair and just, in the absence of fault or neglect on the part of the holder of a check, to require the bank on which it is drawn to determine at its peril whether the signature of the maker is genuine, for it always has, or is supposed to have, knowledge on that subject and means of determining the question with reasonable certainty and safety, while the holder, who may be a purchaser for value, may be, and often is, an entire stranger to the maker, having no knowledge or information as to the genuineness of the signature, and no convenient means of obtaining it. The unequal footing on which the parties stand amply justifies the exception of such transactions from the operation of the general rule allowing recovery of money paid under mistake, and denial of such right to a bank for money paid on a forged check or other instrument. And so it has been uniformly held. Johnston v. Commercial Bank, 27 W.Va. 343, 55 Am.Rep. 315; Price v. Neal, 3 Burr. 1354; Smith v. Mercer, 6 Taun. 76; Mather v. Maidstone, 37 Eng. Law & Eq. 339; Levy v. Bank of U. S., 4 Dall. 234, 1 L.Ed. 814; U.S. Bank v. Bank of Georgia, 10 Wheat. 333, 6 L.Ed. 334; Gloucester Bank v. Salem Bank, 17 Mass. 33; Bank of St. Albans v. F. & M. Bank, 10 Vt. 141, 33 Am.Dec. 188; C. & F. Bank v. First Nat. Bank, 30 Md. 11, 96 Am.Dec. 554; National Park Bank v. National Bank, 46 N.Y. 77, 7 Am.Rep. 310; 5 Am. & Eng. Ency. Law, 1071; 5 Cyc. 546; Dan. Neg. Instr. § 1657; Morse on Banks & Banking, § 466.
Aside from the justice and fairness of this exception, referable to the superior position of the drawee, it facilitates commercial transactions by giving stability to commercial paper. It relieves the purchaser of checks, drafts, and notes of risk and hazard to the extent of requiring care and scrutiny on the part of him who is in the better position to know whether the signature is genuine or not. It favors the outside commercial world as against the drawee by excepting them from the operation of the general rule. The law thus accords to them a protection and right which citizens generally do not have--immunity from the return of money paid to them under a mutual mistake. The allowance of this advantage or favor does not imply the grant of anything additional. It does not relieve the purchaser of commercial paper of any duty or obligation resting upon him in the acquisition or purchase thereof. In other words, it does not bestow upon him the additional right to omit the care, prudence, and diligence by which he ought to be governed in his conduct as a means of safety to himself and other parties to the paper. Accordingly it is generally held that any negligence, omission of duty, misconduct, or act, the tendency and effect of which is to prejudice the drawee, will deprive him of the benefit of this exception, and compel him to resume his place under the operation of the general rule applicable to the recovery of money paid under mistake of fact, and return the money.
The reason for this becomes more apparent by observing that the purchaser of commercial paper by the act of purchase established a relation between himself and all the other parties thereto, and assumes, to a limited extent, the performance of duties which otherwise would devolve upon the drawee himself. But for the intervention of the purchaser the payee of a check would himself bring it to the bank on which it is drawn and personally receive the money. There the drawee would have an opportunity of taking precaution to ascertain whether he is the payee or a mere impostor, as well as the genuineness of the signature of the maker. Upon failure of the person applying for payment to prove his identity to the satisfaction of the bank, payment would be refused, and the matter would end there whether the check was genuine or forged; and, if it were a forged check, the bank by that inquiry would prevent the fraud. If the transaction passed beyond this stage, resulting in the payment of a forged...
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