First Nat. Bank of Portland v. U.S. Nat. Bank of Portland

• Decision Date: 19 April 1921
• Citation: 100 Or. 264,197 P. 547
• Parties: FIRST NAT. BANK OF PORTLAND v. UNITED STATES NAT. BANK OF PORTLAND.
• Court: Oregon Supreme Court

197 P. 547

100 Or. 264

FIRST NAT. BANK OF PORTLAND v. UNITED STATES NAT. BANK OF PORTLAND.

Supreme Court of Oregon

April 19, 1921

Department 1.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Action by the First National Bank of Portland against the United States National Bank of Portland. Judgment for defendant, and plaintiff appeals. Affirmed.

This is an action brought by the First National Bank of Portland against the United States National Bank of Portland for the recovery of $532.80 paid on 18 forged checks drawn upon the First National Bank of Portland. The cause was tried, with the consent of the parties, by the court without the intervention of a jury. There was a judgment for the defendant, and the plaintiff appealed.

The two banks are, as their names imply, national banking corporations and are engaged in doing a general banking business in Portland. Each bank is a member of an association known as the Portland Clearing House. The object of this association is said to be the effecting, at one place, of the daily exchanges between the several associated banks and bankers, and the settlement of the balances resulting from such exchanges.

The Willamette Iron & Steel Works, hereinafter called the steel works, is a corporation doing business in Portland. The steel works pays its employés by delivering to them every Saturday pay checks. The steel works had funds on deposit with the First National Bank, and it also had moneys on deposit with the United States National Bank. However, all the pay checks issued by the steel works and delivered to its employés were drawn on the First National Bank. The steel works used a printed form of pay check, which was designed for its own exclusive use. All checks drawn by the steel works were required to be signed by B. C. Ball, its president, and by M H. Insley, its secretary treasurer. For convenience the signature of Ball was lithographed upon the pay checks used by the steel works, but Insley was required to write his signature upon each check. The First National Bank had in its files the genuine signatures of Ball and Insley, and the United States National Bank likewise had their genuine signatures in its files.

The steel works caused a supply of pay checks to be printed with the lithographed signature of Ball on them. According to the testimony of M. H. Insley, a person going under the name of W. M. Rose learned "that these checks were going through" and "got a job at the printer's," and told a person who went under the name of Martin Shea "that these checks were going through." Insley says that "they" (Rose and Martin) conceived the idea of Shea "going down to our plant and getting a job" in order to obtain a pay check, and thus "procure the signature of the officer whose name was not printed on the check." The plan was carried out and Shea got a job at the steel works; he worked one day only, and for that day's work received a pay check having on it the lithographed signature of Ball and the written signature of Insley. Rose stole some of the blank checks from the printer. Using the pay check received by Shea from the steel works as a sample of Insley's genuine signature, the persons, whom we shall call Rose and Shea, forged the name of M. H. Insley as secretary treasurer of the steel works to each of the stolen blank checks. Some of these forged checks passed through other banks before reaching the First National Bank as drawee; 18 of the151 forged checks passed through the United States National Bank; and none but these 18 checks are involved in this action. Each check was dated December 21 1918, and purported to be drawn for the sum of $29.60, and appeared upon its face to be regular. The forged signature of Insley was a good imitation of his genuine signature. Some checks were made payable to the order of W. M. Rose, but a majority of them were made payable to the order of Martin Shea. On the back of each of the checks made payable to the order of W. M. Rose the following indorsement appears "W. M. Rose, 246 1/2 Yamhill," and on the back of the Martin Shea checks the following was written "Martin Shea, 49 1/2 Ninth N." These 18 checks were negotiated to as many different merchants in Portland. Each of these 18 merchants was a client and a depositor of the United States National Bank. Each of the 18 merchants took his check to the United States National Bank, and after indorsing his name on the back of the check delivered it to the United States National Bank and received credit for the amount of the face of the check. These 18 checks were received by the United States National Bank on and between December 24 and 28, 1918.

The United States National Bank stamped on the back of each of the 18 checks an impression of its clearing house stamp, and then on and between December 24th and 28th presented them through the Portland Clearing House, to the First National Bank for payment, and the First National Bank paid to the United States National Bank the amount of the 18 checks, aggregating $532.80, and at the same time the First National Bank charged this amount against the account of the steel works. The defendant's clearing house stamp contained its name, the number of its membership in the association, the date, and the following words: "Pay through clearing house."

On January 2, 1919, the steel works received from the First National Bank a bank statement together with the 18 checks "as returned vouchers." On or about January 13, 1919, the steel works discovered that the checks had been forged, and the steel works immediately returned them to the First National Bank with the information that all the purported signatures of Insley were forgeries. The First National Bank credited the steel works with the amount of the face of the forged checks and then took them to the United States National Bank, "claiming that one of the maker's signatures thereto was a forgery, and also claiming that the signatures of the payees were forgeries"; and at the same time the First National Bank "requested defendant to collect for and pay over to plaintiff the amounts of said several checks from said merchants who had indorsed said checks and deposited them with defendant."

The United States National Bank admits that it notified the merchants of the request made by the plaintiff. However, the defendant explains that the plaintiff had asserted a right to a return of the moneys paid to the defendant on the forged checks, and that because of the claim asserted by the plaintiff and in order to protect itself the defendant notified the merchants of the claim which had been made by the First National Bank and the United States National Bank also says that it requested the merchants to take steps to protect it. Thirteen of the eighteen merchants delivered to the United States National Bank the amounts of their checks, aggregating $384.80. Apparently five of the eighteen merchants did nothing. According to the answer:

"Certain of said merchants, depositors with the defendant, did, in order to, and solely for the purpose of, protecting the defendant, place in the hands of the defendant the amounts represented by said checks, which amounts defendant is holding solely and only for the purpose of protecting the defendant in the event it should be determined that the demands and claims of plaintiff are rightful, but as the moneys of said merchants deposited for said purposes only."

One of the rules of the clearing house requires each member of the association to have a clearing house stamp, and this rule further declares that--

"The clearing house stamp used by the members in clearing items through the clearing house should be understood to guarantee previous indorsements on all items cleared except certificates of deposit."

Another rule (article 16, § 2) provides:

"All negotiable paper deposited for clearance by the members of this association shall bear the stamp of the depositing bank, which shall clearly indicate the name of the bank, its clearing house number, and the date of clearance. The stamp shall be for clearing house purposes only, and shall guarantee the validity and regularity of all prior indorsements on the paper so cleared, except the indorsement of an original payee of a certificate of deposit, and it shall not be construed to supply a missing indorsement."

The last two mentioned rules are relied upon by the plaintiff.

The defendant relies upon the rule known as article 14, § 2, which reads as follows:

"Errors in the exchanges and claims arising from the return of checks, or from any other cause, are not to be adjusted through the clearing house, but directly between the members who are the parties to them; all checks and drafts in the exchanges not found good, or missent, shall be returned without intentional mutilation, or notice of dishonor, given directly to the members from whom they were received, not later than 3:30 o'clock p. m. of the day in which said returned vouchers were exchanged, except Saturday, when the hour shall be 12:30 o'clock p. m and the said member shall immediately refund to the bank returning the same the amount for which it had received credit through the clearing house for the said checks or drafts so returned to it; in case of the refusal or inability of any member to promptly refund to the bank presenting such checks or drafts so returned, the bank holding them may report to the manager of the clearing house the amount of the same, and it shall be the manager's duty, with the approval of the clearing house committee, to take from the settling sheet of both members the amount of such checks, drafts, or other items so reported, and to readjust the clearing house statement and declare the correct balances in...