Foutch v. Alexandria Bank & Trust Co.
| Decision Date | 05 April 1941 |
| Parties | FOUTCH v. ALEXANDRIA BANK & TRUST CO. |
| Court | Tennessee Supreme Court |
Error to Circuit Court, DeKalb County; R. W. Smartt, Judge.
Action by W. L. Foutch against the Alexandria Bank & Trust Company to recover a sum of money. To review a decree of the Court of Appeals reversing a judgment of dismissal and giving judgment against defendant, defendant brings certiorari.
Decree of the Court of Appeals reversed and judgment of the Circuit Court affirmed.
McAllen Foutch, of Smithville, and Henry C. Foutch, of Nashville, for plaintiff.
R. L Turner, of Smithville, and Bass, Beery & Sims, and W. W Berry, all of Nashville, for defendant.
On December 31, 1938, W. L. Foutch purchased a cow from B. W Foutch for $18, for which he gave a check to B. W. Foutch payable to his order. In accordance with a practice which W. L. Foutch testifies he followed of having checks which he gave filled out by the parties to whom his checks were made, this check was written wholly by the payee. It was drawn on defendant, where W. L. Foutch did his banking. He testifies that the figures "18.00" were so placed in the blank provided on the check for that purpose that ample space was left between the figures and the dollar mark for the insertion of an additional figure. On the line lower down on the check provided for that purpose, and beginning at a point about midway of the line, were written the words, "Eighteen and no /100," just before the printed word, "Dollars." On the left-hand corner, lower down, the words were written, "For cow." When this check was presented to the Bank for payment by B. W. Foutch, the payee, the figure 4 appeared between the dollar mark and the figures 18. And on the line below, in front of the word "Eighteen", appeared the words, "Four Hundred", the check thus calling for $418; and following the words, "For cow", in the left-hand corner, appeared the words, "¬e." All of the figures and writing on the check, as it was presented to the Bank, except the signature, were in the same handwriting, that of the payee.
The Bank paid to B. W. Foutch the sum of $418 called for by the check, and charged it to the account of the drawer. This amount over-drew the account of W. L. Foutch, the testimony showing that a special arrangement had been made between Foutch and the Bank for protecting his over-drafts. The Bank at once notified W. L. Foutch that his account was overdrawn, and he advised the Bank that this check had been raised without his knowledge or consent to the extent and in the manner above indicated. B. W. Foutch was thereupon arrested and prosecuted and, meanwhile, a note was executed to the Bank for a sum which made good the account, pending disposition of the question as to whether the loss would be borne by the Bank or the depositor, in the event it was not recovered from B. W. Foutch.
Some months later this action was brought in the Circuit Court by W. L. Foutch, seeking to recover from the Bank this sum of $400.
The Bank defended, relying upon estoppel, insisting, first, that W. L. Foutch had ratified the payment of the check by the Bank by making good the over-draft, and failing promptly to disaffirm; and, second, that the Bank had been induced to pay the amount called for by the face of the check by the affirmative inducing negligence of the maker in its preparation and issuance, the Bank being without negligence.
The trial Judge, sitting without a jury, adjudged that the plaintiff was guilty of negligence which proximately caused the loss, and that the defendant was not guilty of any negligence that contributed to the loss and was, therefore, not liable to plaintiff.
The case was accordingly dismissed and plaintiff appealed. The Court of Appeals reversed and gave judgment against the Bank. This Court granted certiorari and has heard argument.
The Court of Appeals found a conflict in the authorities, but expressed the opinion that "the weight of authority is that the Bank must bear the loss where it cashes a check which has been altered." The correctness of this as a statement of the general rule may be conceded, but we find that the great "weight of authority" recognizes an exception where the drawer of the check has been guilty of such negligence in its issuance as to facilitate and induce its alteration so as proximately to cause its payment in its altered form.
The Court of Appeals apparently approves and applies the criminal instrumentality rule that, "where the wrong was accomplished by a criminal act, the crime, and not the negligent act of the party which made it possible, is the proximate cause," citing 21 C.J. 1170, § 175, and our case of State v. Broadway Nat. Bank, 153 Tenn. 113, 128, 282 S.W. 194, 198. This opinion, by Chief Justice Green, is quoted from at length and treated as applicable here. We do not think so. That case involved forged indorsements on State warrants, and the defense was negligence in handling the warrants, which was the remote not proximate cause of the loss. The case is not only thus utterly dissimilar on its facts--and the language used therein must be treated as having been used with reference to the facts of the case--but the portions of the opinion quoted quite clearly suggest distinctions which are important, particularly the emphasis put upon the fact that the negligence of the State official who issued the warrants was "remote", and was not "a part of the issuance and delivery of the warrants." The principle announced was that, "Where an estoppel is sought to be based on negligence [as is true of the instant case], such negligence must be the proximate cause of leading the complainant party into the mistake," citing authorities, and adding, "also the negligence must be in the transaction itself."
These statements emphatically distinguish that case from this. Here we have a clear case of direct, immediate, as distinguished from remote, proximate cause, and negligence "in the transaction itself."
It is true that in that case, proceeding beyond what was seemingly necessary, the Court did mention the rule of law applied by the Court of Appeals here, that where the wrong was accomplished by a criminal act, the crime and not the negligence is the proximate cause of the loss or injury. Suffice it to say that there is nothing in the opinion of Chief Justice Green in the Broadway National Bank case that warrants the application of this criminal act intervention rule to the facts of a case such as this.
The reasons adduced from the authorities supporting the rule that the loss resulting from the payment of a raised check must fall on the drawer, when the alteration in amount has been facilitated by the drawer's negligence, may be thus summarized:
1. That the true proximate cause of the loss is the negligence of the drawer in issuing the check in such form that it may readily be so altered that the alteration cannot be detected by the use of ordinary care.
2. That where one of two innocent persons must suffer, the loss should fall on the one whose negligence has facilitated the loss.
3. That the negligence of the drawer implies an invitation or authority to fill out blanks which estops the drawer as to a drawer who has, while exercising due care, honored the instrument in its thus altered amount.
4. That the relationship of a depositor with his banker imports an obligation to exercise reasonable care in the preparation and issuance of his mandate order on the banker to pay, a breach of which obligation renders the depositor liable for a loss.
Just here we call attention to a distinction of essential importance recognized generally, but apparently overlooked by the Court of Appeals, between bank checks and negotiable instruments of the note and bill class. This distinction is strongly emphasized in many of the leading cases, one reason therefor being that one who purchases a note, or like negotiable instrument, is under no manner of compulsion and acts purely at his option or election, under which circumstances it is not inappropriate to apply, by analogy, the caveat emptor rule; whereas, the Bank is under a direct and peculiarly delicate obligation, which requires prompt discharge, usually with little opportunity for investigation, to pay the check of its depositor, upon presentation, or subject itself to the risk of damages. Furthermore, the depositor, on the other hand, owes to his bank the duty to exercise care in drawing his checks in order to avoid probable loss. Greenfield Savings Bank v. Stowell, 123 Mass. 196, 25 Am.Rep. 67; Holmes v. Trumper, 22 Mich. 427, 7 Am. Rep. 661; Burrows v. Klunk, 70 Md. 451, 17 A. 378, 3 L.R.A. 576, 14 Am.St.Rep. 371; 1 Paton's Digest, 54, Sec. 345.
The Annotator, in 22 A. L. R. at page 1149, quotes Viscount Haldane as saying, in London Joint Stock Bank v. Macmillan (1918; H.L.) A.C. (Eng.) 777; 9 B.R.C. 720, that:
"What I wish to make plain is that in the case of a check drawn by a customer on his banker there is a special duty to exercise care in the framing of what is a mandate--a special duty which does not exist in the same fashion in the instance of the accepter of a bill of exchange, where the instrument is drawn for circulation among the members of the public generally, and is not a direction to a designated person to pay out of a balance for which he has to account--a person who has a right to insist that the direction he receives, to be acted on without any delay, shall be so drawn as not to require exceptional consideration and to impose delay."
We quote further from this Annotator:
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