First Nat. Bank of Hastings v. Farmers' & Merchants' Bank of Platte Ctr.

• Decision Date: 23 September 1898
• Citation: 56 Neb. 149,76 N.W. 430
• Parties: FIRST NAT. BANK OF HASTINGS v. FARMERS' & MERCHANTS' BANK OF PLATTE CENTER ET AL.
• Court: Nebraska Supreme Court

56 Neb. 149

76 N.W. 430

FIRST NAT. BANK OF HASTINGS

v.FARMERS' & MERCHANTS' BANK OF PLATTE CENTER ET AL.

Supreme Court of Nebraska.

Sept. 23, 1898.

Syllabus by the Court.

1. An indorser of a negotiable instrument guaranties the genuineness of prior indorsements.

2. Accordingly, where a check is drawn payable to the order of a named payee, one who takes the check on the forged indorsement of the payee, and himself indorses it, is liable to the bank on which the check is drawn, if that bank pays it in ignorance of the forgery, in the absence of circumstances estopping the drawer from setting up the forgery.

3. There was presented to a trust company by its local correspondent an application for a loan, offering certain land as security. The application was signed “B.,” and an abstract also tendered showed title in B. The loan having been accepted, a bond and mortgage were tendered, purporting to be executed by B. The company sent to the correspondent a check payable to the order of B. This check was presented to a bank, bearing the indorsement “B.,” and also the indorsement of the correspondent. The bank paid the check to the correspondent, and itself indorsed it, and the bank on which it was drawn paid it. B. did not own the land, and the abstract was false and forged. Held, (1) that if the application was made and the bond and mortgage executed by a third person, and that person indorsed the check, the indorsement was genuine, whether or not his real name was B., and although he did not own the land; (2) if the correspondent himself signed the application, bond, and mortgage, and indorsed the check, the indorsement was a forgery.

4. Evidence examined, and held not to sustain a finding that the indorsement was genuine.

5. A principal is not estopped to deny the authority of his agent to perform a particular act, on the ground that it was within the agent's apparent authority, unless the authority to perform it was apparent to the person dealing with the agent, and by him relied on.

6. Evidence examined. and held not to show apparent authority in the correspondent to receive the money on the check.

7. A custom, special to a particular class of business operations, to be availed of, must be pleaded, and, if put in issue, proved.

Error to district court, Platte county; Sullivan, Judge.

Action by the First National Bank of Hastings, Neb., against the Farmers' & Merchants' Bank and the United States National Bank. Judgment for defendants, and plaintiff brings error. Reversed.

J. A. Casto, J. B. Cessna, and A. M. Post, for plaintiff in error.

T. J. Mahoney, McAllister & Cornelius, and Lake, Hamilton & Maxwell, for defendants in error.

IRVINE, C.

In 1892 one A. M. Swartzendruver lived in Columbus, and occupied certain relations with the Nebraska Loan & Trust Company of Hastings. The precise character of these relations is one of the questions in controversy, but it suffices for present purposes to say that he had authority to receive and transmit to the trust company applications for loans on real-estate security, and bonds and mortgages securing such loans, and in some cases, at least, to deliver the instruments, transmitting the money to the borrower. He transmitted to the company an application for a loan, purporting to be made by one John Baughman, and offering certain described land in Platte county as security. An abstract was also sent, purporting to be made by Becher, Jaeggi & Co., and showing title in Baughman, clear of incumbrance. The loan was accepted by the company, and Swartzendruver transmitted to it a bond and mortgage; the bond purporting to be executed by Baughman, and the mortgage by Baughman and wife. The signatures were in each instance by a mark. The loan company sent to Swartzendruver its check on the First National Bank of Hastings for $1,136, the net amount of the loan; the check being drawn payable to the order of John Baughman. Schwartzendruver presented this check to the Farmers' & Merchants' Bank of Platte Center, indorsed as follows: “John his X mark. Baughman. Witness: A. M. Swartzendruver. A. M. Swartzendruver.” The bank paid him the amount of the check, and, having indorsed it, sent it to the United States National Bank of Omaha, which in turn indorsed it, and sent it to the First National Bank of Hastings, which paid it. The trust company afterwards discovering that, as it supposed, the indorsement of Baughman was forged, the Hastings bank credited back to the trust company its amount, and brought suit against the Platte Center and the Omaha banks on their respective indorsements. Among other facts clearly established are that the land described in the mortgage did not, and never did, belong to Baughman, that the abstract was forged, and that the certificate of recording of the mortgage was also forged.

A large portion of the voluminous briefs is devoted to a discussion of the law with reference to negotiable instruments drawn to the order of fictitious payees, and whether the fictitious character of the payee depends upon the nonexistence of the person named, or the drawer's knowledge of his nonexistence. An examination of the instructions against which this argument is directed convinces us that they really conform to the plaintiff's theory of the law in this respect, and that they are not open to adverse criticism. On this branch of the case the essential issue made was whether the Baughman indorsement was genuine or forged, not whether such a person as Baughman existed or did not exist. After stating the issues, the court gave the following instructions: “(7) From the evidence it conclusively appears: That the loan and trust company on the 10th day of August, 1892, had in its possession a bond for $1,200, and a mortgage to secure the same, covering real estate in Platte county, both of which instruments purported to have been executed by John Baughman. That the said loan and trust company believed that said Baughman was a real person; believed that he had executed the bond and mortgage aforesaid, and that in consequence thereof they were indebted to him in the sum of $1,136. That they executed the check in question, intending thereby to pay him such supposed indebtedness. It thus appears that the loan and trust company, when it issued said check, intended it for a real person, named John Baughman, who it supposed had executed the bond and mortgage aforesaid. No other person, under those circumstances, could indorse said check, or, without Baughman's true indorsement, rightfullyreceive the money therein directed to be paid. Neither the defendants nor any other bank was authorized to pay or cash said check without the genuine indorsement thereon of the payee,--the person for whom it was intended by the loan and trust company. Therefore, if Baughman was a fictitious person, and his name indorsed on the check a mere forgery, the payment thereof by the Farmers' & Merchants' Bank was unauthorized, and...