Farmers' & Merchants' Bank v. Bank of Rutherford

• Citation: 88 S.W. 939
• Parties: FARMERS' & MERCHANTS' BANK v. BANK OF RUTHERFORD.
• Decision Date: 03 June 1905
• Court: Supreme Court of Tennessee

Page 939

88 S.W. 939

FARMERS' & MERCHANTS' BANK v. BANK OF RUTHERFORD.

Supreme Court of Tennessee.

June 3, 1905.

Appeal from Chancery Court, Gibson County; John S. Cooper, Chancellor.

Suit by the Farmers' & Merchants' Bank against the Bank of Rutherford. From a decree for complainant, defendant appeals. Reversed.

Deason, Rankin & Elder, for appellant. W. S. Coulter, for appellee.

WILKES, J.

The bill was filed by complainant bank against the defendant bank to recover from it the amount of a forged check, which was drawn on complainant bank, for $54.75, and, after being indorsed by the defendant bank and others, was presented to, and paid by, complainant bank.

The check was in the words and figures following:

                           "Dyer, Tenn., Octo. 28, 1903
                

"Farmers' & Merchants' Bank:

                "Pay to J. L. Freeman, or bearer, fifty-four
                75/100 dollars.    For cotton
                                   "Johnston Merc. Co."
                

The ground upon which the recovery was sought was that the Bank of Rutherford was negligent in cashing this check for a stranger without identification, and thereafter indorsing it, so as to give it circulation, and to mislead complainant bank, the payee, to presume it was genuine, and pay it to the holder.

The check, after being indorsed in the name of J. L. Freeman, was cashed by the Bank of Rutherford, and indorsed by it, and passed to the Jackson Banking Company, then to the St. Louis Trust Company, Continental National Bank of Chicago, and Fourth National Bank of Nashville, and by the latter bank was sent by mail to complainant as the drawee bank, and paid by it. The complainant bank at the time of payment wrote or stamped on its face the words: "Paid Nov. 7, 1903. Farmers' & Merchants' Bank, Dyer, Tenn."

The cashier of complainant bank states that, when the check was presented for payment, he did not examine the signature closely, and, if he had, he would have detected that it was a forgery, but that he was thrown off his guard by the indorsements of the defendant bank and others.

It held the check, thus cashed and marked "Paid," some 30 days, when the forgery was discovered, whereupon it entered up a credit upon the account of the mercantile company to balance the charge made against it when it was paid, and thereupon brought suit against the Bank of Rutherford for the amount of the check.

The chancellor gave judgment for the amount, and the Bank of Rutherford has appealed and assigned errors.

It is insisted that the case is governed by the principles announced in People's Bank v. Franklin Bank, 88 Tenn. 299, 12 S. W. 716, 6 L. R. A. 724, 17 Am. St. Rep. 884.

In that case it was held that a bank that negligently cashed a forged check, purporting to be drawn upon another bank, and had upon its indorsement of such check received payment of the drawee bank, is liable for the amount paid by it upon discovery that the check is forged, and the fact that the indorser bank is unable to give the name of the person who presented the forged check, to whom it was paid, or to positively identify such person, is sufficient evidence of negligence to make it liable, and that the drawee bank will not be precluded from recovery by the fact that, relying upon the indorsement of the indorsing bank, it paid the check without investigation as to its genuineness.

If this case is not distinguishable from that in some essential feature, and that is affirmed as sound, it must be considered as determinative of the present case.

As an original proposition we would not assent to the correctness of People's Bank v. Franklin Bank, and think the great weight of authority is against it, and that it is contrary to one of the most important rules regulating the law of negotiable instruments, to wit, that the drawee of the check should be held to know the signature of its customers, and to pay only such paper as has a genuine signature.

But we think there are two important distinctions between People's Bank v. Franklin Bank and the present case.

The first is that in that case the payment was made direct by the drawee bank to the bank that negligently cashed the check, and, after indorsing it, put it...