City Bank of Houston v. First Nat'l Bank of Houston

• Decision Date: 01 January 1876
• Citation: 45 Tex. 203
• Parties: CITY BANK OF HOUSTON v. FIRST NATIONAL BANK OF HOUSTON.
• Court: Texas Supreme Court

45 Tex. 203

CITY BANK OF HOUSTON

v.FIRST NATIONAL BANK OF HOUSTON.

Supreme Court of Texas.

1876.

APPEAL from Harris. Tried below before the Hon. James Masterson.

This suit was brought by the First National Bank of Houston against the appellant, to recover the sum of $1,980 alleged to have been paid through mistake to the latter on an altered check originally drawn for $20 and altered to $2,000.

The plaintiff and appellee, a banking association, alleged that on the 19th day of February, A. D. 1872, the Texas Banking and Insurance Company of Galveston issued the following check, drawn on the plaintiff, viz:

+------------------------------------------------+
                ¦“$20.¦The Texas Banking and Insurance Company.  ¦
                +------------------------------------------------+
                

GALVESTON, Feb. 19, 1872.

Pay to the order of D. J. Wallace, in current funds, twenty dollars.

+-----------------------------------------+
                ¦To First National Bank,¦)¦ALPHONSE LAUVE,¦
                +-----------------------+-+---------------¦
                ¦No. 364. Houston.      ¦)¦Cashier.  ”    ¦
                +-----------------------------------------+
                

That said check or draft was, after its issuance, fraudulently altered, so that it read as follows, viz:

+---------------------------------------------------+
                ¦“$2,000.¦The Texas Banking and Insurance Company.  ¦
                +---------------------------------------------------+
                

GALVESTON, Feb. 17, 1872.

Pay to the order of D. J. Wallace, in current funds, two thousand dollars.

+-----------------------------------------+
                ¦To First National Bank,¦)¦ALPHONSE LAUVE,¦
                +-----------------------+-+---------------¦
                ¦No. 364. Houston.      ¦)¦Cashier.  ”    ¦
                +-----------------------------------------+
                

That said check was presented to the plaintiff on the 6th day of March, 1872, by the City Bank of Houston, and plaintiff being deceived by the alteration, the check was paid as a check for $2,000.

The application of C. R. Johns & Co., bankers, of Austin, who purchased the check in its altered form from Wallace, to be admitted as defendants, was refused by the court, and they intervened.

The City Bank of Houston, by amended answer, denied that payment of the check was induced by its indorsement, and charged that its indorsement was not made until after it had been submitted to the plaintiff and pronounced by it to be ““good.” That the First National Bank, by thus virtually accepting and giving credit to the check, induced the City Bank to indorse the same, and to charge the plaintiff and credit their correspondents, C. R. Johns & Co., with the sum of $2,000 on their books; that the First National Bank was concluded and estopped by its acceptance of the check, by its laches, and long silence after payment thereof, and by its negligence in not sooner informing the City Bank of the alleged forgery, from recovering in this action.

Defendants also pleaded that at the time of the payment of the check, the drawee had notice from the drawer that no such check had been drawn; and though the check was paid on the 6th of March, 1872, no notice of the erroneous payment was given by the First National Bank until April 9, more than a month after its payment.

The evidence disclosed that on the 19th day of February, A. D. 1872, the Texas Banking and Insurance Company of Galveston drew its check, No. 364, on the First National Bank of Houston, payable to the order of D. J. Wallace, for $20. That check was afterwards altered as to its date, which was changed to February 17, and as to amount, which was changed to $2,000, the number (364) identifying the check, remaining unchanged. Being thus altered, it was first presented by a man calling himself D. J. Wallace, about the last of February, at the counter of the First National Bank, but was not paid, because there was no sufficient identification of the holder. It was presented by a man claiming to be D. J. Wallace, at the banking house of C. R. Johns & Co., at Austin. To them Wallace was identified by Mr. Blackman, a person believed to be responsible, and well known to C. R. Johns & Co. After his identification, Wallace indorsed the check, and C. R. Johns & Co. purchased it as a check for $2,000; and Wallace was heard from no more.

It was the custom of the Texas Banking and Insurance Company of Galveston and the First National Bank of Houston to render each to the other, between the 1st and 3d of each month, an account current, embracing the transactions between them for the month preceding. In pursuance of this custom, the drawer of the altered check forwarded, between the 1st and 3d of March, 1872, its account current to the First National Bank of Houston, designating the check as “Check No. 364, for $20.” After its receipt, the bookkeeper of the First National Bank had entered up on the books of that bank check No. 364 as an outstanding check of the drawer for twenty dollars, before the same was presented and paid, on the 6th of March, A. D. 1872, as a check for two thousand dollars.

C. R. Johns & Co., after purchasing the check, forwarded it at once to their correspondents, the City Bank of Houston, to be entered by them to their credit when paid. It was presented by the defendant to the First National Bank on the morning of March 6, 1872, for recognition, and was there pronounced by the drawee “good.” After being thus recognized by the drawee in the morning, and pronounced “good,” it was indorsed by the City Bank of Houston, and in the evening of the same day paid to appellant, and C. R. Johns & Co. credited by the City Bank with two thousand dollars. The teller of the First National Bank testified that “when a draft comes up to us from the City Bank for our recognition, it is not indorsed until our recognition is obtained; they would be foolish to indorse the paper without our recognition.” Other points of evidence will be found referred to in the opinion. Verdict and judgment for appellees. The instructions, the giving of which was assigned as error, will be found in the opinion.

Terrell & Walker, for appellant.--When the check was presented to the First National Bank for recognition by an innocent party about to indorse it, the teller saw that it bore date February 17, 1872; he then knew (as every officer of the bank did) that the drawer of the check had rendered his account current for the month in which it was drawn, and had designated it (if it was a genuine check) by its number and amount. It is not pretended that this fact was forgotten. Here was a source of information known to no one but the drawer and the First National Bank of Houston. Why was such a source of information, then in their pockets, which would in an instant disclose the fraud, not explored, when the City Bank, then about to buy the check--an innocent party--applied to the appellee for information!

Messrs. Redfield & Bigelow, in their leading cases on Bills of Exchange and Promissory Notes, page 746, say:

“By the law-merchant of this country, the certificate of the bank that a check is ‘good,’ is equivalent to acceptance. It implies that the check is drawn on sufficient funds in the hands of the drawee, and that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an undertaking that the check is good then and shall continue good; and this agreement is as binding on the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money. The transferee takes it with the same readiness and sense of security that he would take the notes of the bank. It is available also to him for all the purposes of money. Thus it continues to perform its important functions, until, in the course of business, it goes back to the bank for redemption, and is extinguished in payment.”

Such has been held to be the law everywhere outside of New York, except in one case. The first innovation upon a doctrine so reasonable and just was made in New York, in Bank of Commerce v. Union Bank, 3 Comst., 230; and Redfield and Bigelow, in the edition of their work just quoted from, issued in 1871, twice dissented from the doctrine announced in that case. (Pp. 62, 662.) True, Mr. Bigelow recently, in his work on estoppel, indicates a change of opinion, which is neither instructive nor interesting when made in opposition to so much authority.

In addition to the other authorities opposed to Bank of Commerce v. Union Bank, we cite Byles on Bills, 323; Ward v. Allen, 2 Met., 53, (decided in 1840;) Langton v. Lazarus, 5 Mees. & W., 629, in which it was held that a fraudulent alteration of the day of payment, made before acceptance, is no defense to the acceptor in an action by a bona fide holder.

Whatever is notice enough to excite the attention of a man of ordinary prudence, and call for further inquiry, is in equity notice of all facts to the knowledge of which an inquiry suggested by such notice, and prosecuted with due and reasonable diligence, would have led. (Gallatin v. Erwin, 1 Hopk., 48;Roberts v. Anderson, 3 Johns. Ch., 371;Pitney v. Leonard, 1 Paige, 461; Bingerman v. Hyatt, 1 Smedes & Marsh., 437; Peters v. Goodrich, 3 Conn., 146.) If a man has actual notice of circumstances sufficient to put a man of ordinary prudence on inquiry as to the particular point, the knowledge of which he might, by the exercise of reasonable diligence, have obtained, such knowledge will be imputed to him by a court of equity. (Kerr on Frauds, 236; Davis v. Bigler, 62 Penn., 242;Hinds v. Vattier, 1 McLean, 110;Cotton v. Hart, 1 A. K. Marsh, 56.) Now, if it did not have actual knowledge that the check was raised, then of what circumstances did the First National Bank have actual notice, which should have put a prudent man on inquiry at the time it pronounced the check good? They are as follows:

1. It knew--for the teller swears it--that the...