Deposit Bank v. Fayette Nat. Bank

• Decision Date: 08 March 1890
• Citation: 90 Ky. 10,13 S.W. 339
• Parties: DEPOSIT BANK OF GEORGETOWN v. FAYETTE NAT. BANK. SAME v. SECOND NAT. BANK OF LEXINGTON.
• Court: Kentucky Court of Appeals

13 S.W. 339

90 Ky. 10

DEPOSIT BANK OF GEORGETOWN v. FAYETTE NAT. BANK.

SAME v. SECOND NAT. BANK OF LEXINGTON.

Court of Appeals of Kentucky.

March 8, 1890

Appeals from circuit court, Fayette county.

"To be officially reported."

A Duvall, Breckinridge & Shelby, and Wm. Lindsay, for appellant.

J. D Hunt and Beck & Thornton, for appellees.

PRYOR J.

These two cases involve similar questions, and have therefore been considered as one case. The Deposit Bank of Georgetown, the appellant in this court and the plaintiff below, paid a number of forged checks purporting to have been drawn on that bank by one of its depositors, Thomas J. Burgess. The checks were successively presented through a period of four or five months, there being eighteen in number, and were all paid by the Georgetown bank in good faith, and before any discovery of the fraud had been made. All the checks were drawn in the name of Thomas J. Burgess, who was a regular depositor and customer of the bank; the first check having been paid early in December of the year 1883, and the last check paid in April, 1884. The name of Burgess was discovered to be a forgery on the 8th of May, and notice given to the appellees the two banks to whom these checks were presented and paid on the 9th of that month. John R. Wolfe, who had committed all these forgeries, had at one time been a clerk in the bank of the appellant, and was in that way familiar with the account and deposits of Burgess. The checks were drawn by Thomas J. Burgess, whose name was forged in favor of Williamson & Wolfe, on the appellant, and were presented to the two Lexington banks by John R. Wolfe, the payee, and payment asked of these banks. The Fayette National Bank, before advancing the money on the first check, made inquiry as to the account of Burgess, and, receiving a satisfactory response, upon the indorsement made by Williamson & Wolfe, paid over the money. Wolfe was identified, and no reason on the part of the Fayette National Bank existed for indulging a suspicion as to the bona fides of the transaction. There were 16 checks in all taken up by this bank, and forwarded to the drawee, the appellant. They were taken in the usual course of business, and when sent to the Georgetown bank charged to the account of its depositor, Burgess. There was in fact no such firm as Williamson & Wolfe, but the fictitious firm name used by Wolfe in the perpetration of his forgeries. Both the appellant and the appellees acted in good faith; the former be lieving that Burgess was in fact the drawer of the paper, and the latter advancing its money on the checks supposing (Wolfe having been identified) that it would be paid, as it was, by the Georgetown bank, and charged to the account of the drawer.

Which of the banks should lose the money The bank at Georgetown where the depositor, Burgess, whose name had been forged deposited his money; or the banks at Lexington, where the money was paid to Wolfe under the belief that the checks were genuine, and Burgess in fact the drawer? It is evident that the bank at Georgetown honored the checks drawn upon it by Burgess, for the reason that its officers believed the name of the drawer was genuine; and, if the liability of the Lexington banks to refund this money is to be determined by the well-known rule of law applicable to the payment of money through a mistake of fact, the judgment in this case is erroneous. It is insisted, however, that it is a rule of commercial law long since recognized, and now firmly established, applicable at least between parties equally innocent of fraud, that the bank or its officers must know the signature of its depositor; and if such a doctrine is made to apply in this case, the appellant is the loser, and the judgment dismissing its petition was proper. The rule laid down by LORD MANSFIELD is that, if the banker or drawee makes a payment or gives credit upon the strength of a forged signature, the loss must be his, as between himself and the holder. "He has not known what he is bound to know." Price v. Neal, 3 Burrows, 1355. This doctrine of commercial law has been followed and recognized by nearly all the courts of the country, and as said by Mr. Justice STORY in the case of Bank of U.S. v. Bank of Georgia, 10 Wheat. 333, delivered in 1825, has never been departed from, and, in the earlier cases on the subject, able jurists, in alluding to this rule, regarded it as essential as a rule of justice, and right between business men. Mr. Morse, in his work on Banking, has collated the authorities, and presented what he terms the modern doctrine on this subject; but after a careful examination of the authorities referred to, it will be found that the decided weight of authority is with LORD MANSFIELD, and the rule laid down in Price v. Neal is criticised only as being too sweeping in its character. Nor is it just to say that the rule adopted requiring the bank to know the signature of its depositor is without an exception; for it is undoubtedly true that the neglect or knowledge of intervening parties who come into the possession of the check, and receive the money on it from the bank where it is payable, will in some instances be of such a character as to enable the bank to recover back the money. This doctrine is recognized by Mr. Daniel in his work on Negotiable Instruments; and, while doubting the justice of the rule recognized by nearly all the authorities, under which the bank is required to know the signature of its depositor, he proceeds to say that when one knows that it is a forgery, or takes it "under circumstances of suspicion, without proper precaution, or whose conduct has been such as to mislead the bank," the money may be recovered back. Volume 2, p. 669. The case of National Bank v. Bangs, reported in 106 Mass. 441, and relied on by counsel for the appellant in this case, was where a stranger giving his name as "William D....