City of St. Paul v. Merchants' Nat. Bank

• Decision Date: 31 March 1922
• Docket Number: No. 22710.,22710.
• Citation: 151 Minn. 485,187 N.W. 516
• Parties: CITY OF ST. PAUL v. MERCHANTS' NAT. BANK.
• Court: Minnesota Supreme Court

151 Minn. 485

187 N.W. 516

CITY OF ST. PAUL

v.MERCHANTS' NAT. BANK.

No. 22710.

Supreme Court of Minnesota.

March 31, 1922.

Appeal from District Court, Ramsey County; Olin B. Lewis, Judge.

Action by the City of St. Paul against the Merchants' National Bank, and from a judgment for the plaintiff, and from an order denying its motion for new trial, the defendant appeals. Affirmed.

Syllabus by the Court

As between a bank and its customers, the general rule is that, in order to charge the account of a depositor, a bank must pay a check only to the payee named, or his order, and payment made otherwise is at its peril, unless it can claim protection upon some principles of estoppel or negligence chargeable to the depositor.

It is the duty of a bank, when a check drawn by a depositor and payable to order is presented by one claiming under an ostensible indorsement by the payee, to ascertain at its peril that the indorsement is genuine.

A depositor has the right to assume, when checks are returned to him by a bank, that it has ascertained the genuineness of the indorsement thereon.

Where by the fraud of a third person a depositor of a bank is induced to draw a check payable to a nonexisting person or order, the drawer, being ignorant of the fact and intending no fraud, does not authorize the bank to pay it and charge the amount to the account of its customer, although it appears to have been indorsed by the party named therein as payee. Such indorsement is, in effect, a forgery. C. D. O'Brien and J. D. Armstrong, both of St. Paul, for appellant.

Arthur E. Nelson and Carlton F. McNally, both of St. Paul, for respondent.

QUINN, J.

Appeal by defendant from an order denying its motion for a new trial. The action was brought for the recovery of $8,222.01, paid by defendant upon vouchers issued by the plaintiff against its deposit account with the defendant, upon which the payees' names were forged, and which were spurious when issued. The Merchants' National Bank, during the years 1917 to 1920, both inclusive, was a depository of city funds of the city of St. Paul. The city kept a large account with the bank, subject to check during that time. Frank F. Roeller was, and for a number of years prior thereto had been, employed as chief clerk in one of the bureaus of the department of public works of the city. He had charge of a large number of men employed by the city. It was his duty to make out the time slips for the men. He conceived of the idea of padding the pay roll to his own advantage. To this end he issued time slips in the names of persons not then in the employ of the city, and included them with the regular slips. The pay rolls were made up from the slips and signed by the commissioner of public works, then sent to the comptroller who made out the pay checks or vouchers, which were signed by the commissioner of finance. Roeller would then receive the checks for delivery to the men, and in this manner obtain the spurious checks issued in the names of nonemployés. He would indorse the name of the payee on each of the spurious checks and get them cashed at business places about the city, when in turn they were passed through various banks, finally reaching the defendant bank where they were paid and charged against the plaintiff's check account. This manner of business was carried on during the four years mentioned. All checks paid by the bank and charged against the plaintiff's check account were returned to it at the end of each month. At the close of the trial the court directed a verdict in favor of the plaintiff for the amount of the spurious checks so paid and charged to its account.

Plaintiff bases its right to recover squarely upon the proposition that it was the duty of the bank to account for all funds received by it as such depository, and that the city is not limited or controlled by the fact that it might also look to the officials who issued the checks, or to their bonds; that the bank is liable for the amount so paid, and that its negligence in failing to ascertain whether the indorsements of the payees' names upon the checks were genuine was the proximate cause of the loss, the same as though the checks had been properly issued. Upon the other hand, it is contended by defendant that the burden is upon the plaintiff to show that it did not negligently suffer or permit any course of conduct upon its part or that of its officials...