Jordan Marsh Co. v. National Shawmut Bank

• Decision Date: 06 March 1909
• Citation: 87 N.E. 740,201 Mass. 397
• Parties: JORDAN MARSH CO. v. NATIONAL SHAWMUT BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

201 Mass. 397

87 N.E. 740

JORDAN MARSH CO. v. NATIONAL SHAWMUT BANK.

Supreme Judicial Court of Massachusetts, Suffolk.

March 6, 1909

COUNSEL

Chas K. Cobb and Wm. D. Whitmore, Jr., for plaintiff.

Johnson Clapp & Underwood and W. T. A. Fitzgerald, for defendants.

OPINION

KNOWLTON C.J.

These are seven suits, brought against seven corporations doing a banking business in the city of Boston. In each of these banks or banking companies the plaintiff was a depositor. The suits are all of the same character, and the opinion in the first of them will be equally applicable to all the others. The declaration contains two counts, one for money had and received, to recover the balance of the plaintiff's deposit after a demand, and the other setting forth the contract between the plaintiff and the defendant, and that the plaintiff made sundry checks, payable in part to the order of fictitious or nonexisting persons, which fact as to these persons was not known to the plaintiff, and in part to the order of one A. L. Sefton, and that the defendant paid these checks upon forged indorsements of the names of the payees. The cases were submitted to the superior court upon the report of an auditor who found for the defendants. The judge found pro forma for the defendants, and reported the cases to this court.

It appears by the auditor's report that the plaintiff was conducting a very large business in selling goods in a department store. In the store there were about 80 separate departments, each in charge of an employé known as a buyer. There was in the store an elaborate system for buying receiving, checking off, registering and inventorying all goods brought to the store for sale, and for dealing with the bills for these goods and authorizing payment for them, and for making and transmitting checks to vendors. There were certain variations from the usual method of dealing with bills and checks when a buyer was in a hurry to get the goods upon the shelves for sale, or when a large discount could be obtained from a bill by immediate payment of it, or when a bill was presented by a seller in person who was eager to be paid at once. One of the plaintiff's employés, who was hired as a checker of the goods received, devised a scheme of fraud, whereby, with the assistance of a confederate, he was able to obtain the plaintiff's checks in payment of fictitious bills for goods supposed to have been bought by heads of departments and received at the store. Many of these checks were drawn on the defendant bank, and were paid by the defendant through the clearing house. The defendant did not verify or attempt to verify the signatures of the payees on the checks, but the checks were examined to see that the signature of the plaintiff was genuine, that there was nothing irregular or suspicious on their face, that they were indorsed with the payee's name, and that they bore the indorsement of the bank sending them through the clearing house. On the checks, or on most of them, were stamped the words: 'Indorsement guaranteed. Pay only through the Boston Clearing House. The Commercial National Bank of Boston, B. B. Perkins, Cashier.' The payments were made by the defendant from moneys belonging to the plaintiff. The auditor found 'that there was no actual negligence on the part of either of the defendant banks or trust companies in paying the checks.' 'If negligence of any kind can be imputed to them,' he says, 'it was constructive negligence, and not the result of their doing or failing to do anything which could reasonably be expected of them.' This finding, in connection with the facts stated in the report on which it is founded, is erroneous in law. The implied contract between the banker and his depositor in regard to the depositor's checks is that the banker will pay them from his deposit to the persons to whom he orders payment to be made. When a definite order is made in the check, the duty of the banker is absolute, as a general rule, to pay only in accordance with the order. If payment is to be made to the order of a person named in the check, and if he orders the payment to be made to another person, it is the duty of the banker to see that the signature of the payee is genuine. Murphy v. Metropolitan National Bank, 191 Mass. 159-164, 77 N.E. 693, 114 Am. St. Rep. 595; Greenfield Savings Bank v. Stowell, 123 Mass. 196, 25 Am. Rep. 67; Dedham National Bank v. Everett National Bank, 177 Mass. 392-395, 59 N.E. 62, 83 Am. St. Rep. 286; Critten v. Chemical National Bank, 171 N.Y. 219-228, 63 N.E. 969, 57 L. R. A. 529; Hardy v. Chesapeake Bank, 51 Md. 562, 34 Am. Rep. 325; Harter v. Mechanics' National Bank, 63 N. J. Law, 578-580, 44 A. 715, 76 Am. St. Rep. 224. This rule of law applies as well to payments made by a banker through the clearing house as to payments made over the counter. The duty is the same and the performance of it is as important in one case as in the other. If the methods of the clearing house are a convenience to bankers in the transaction of their business, and the bank on which a check is drawn chooses to pay on a guaranty of the indorsement of the payee's name by another responsible bank, this does not affect the duty of a paying bank to its depositor. It simply indicates a willingness of the bank to disregard and neglect the duty, upon the guaranty of a responsible party that the duty has already been perfectly performed for it by a preceding party from whom the check has been received.

The term 'constructive negligence' is not properly applicable to the failure of a banker to look to the interest of his depositor in such a case. In National Bank of North America v. Bangs, 106 Mass. 441, 8 Am. Rep. 349, when the payees of a check had indorsed it in blank by writing on the bank their names, 'E. D. & G. W. Bangs Company,' and deposited it in their bank, whence it was transmitted to the plaintiff bank on which it was drawn and was there paid, the failure of the bank to detect the forgery of the drawer's name was called, as between the parties, a constructive fault. In that case the payees indorsed the check in the usual way of indorsing commercial paper to transfer the title to it, and if the check had been transferred to a purchaser instead of deposited for collection, they would have been bound as guarantors of the genuineness of the drawer's signature. When, subsequently, it turned out that the signature of the drawer was forged, it was said in the opinion of this court: 'The check had not gone into circulation and could not get into circulation until it was indorsed by the defendants. Their indorsement would certify to the public, that is, to every one who should take it, the genuineness of the drawer's signature. Without it the check could not properly be paid by the plaintiff. Their indorsement tended to divert the plaintiff from inquiry and scrutiny, as it gave to the check an appearance of a genuine transaction, to the inception of which the defendants were parties. Their names upon the check were apparently inconsistent with any suspicion of a forgery of the drawers. If the suit were between the bank or drawee and a party who took the check in the usual course of business, finding it in circulation, or even by first indorsement by a payee, the loss would fall upon the bank.' Under similar circumstances and as between similar parties, a distinction between actual fault or negligence and constructive fault was restated in Danvers Bank v. Bank of Salem, 151 Mass. 280, 24 N.E. 44, 21 Am. St. Rep. 450. But the difference between such a case and that of a suit between a bank and its depositor, founded on a payment of the depositor's check upon a forged indorsement of the name of the payee, without inquiry by the bank as to the genuineness of the indorsement, is obvious. The facts reported by the auditor show an entire neglect of legal duty on the part of the defendant. If there was or could be any attempt to perform this duty on its behalf by any prior holder of a check, under such circumstances that the defendant, upon the facts of this case, can take advantage of the effort, there is nothing in the report to show it. We have a naked case of payment of the plaintiff's checks in reliance upon a responsible guarantor of the indorsement, and without doing anything to perform the duty which the defendant owed the plaintiff in reference to his order for the payment. If the case stopped here the defendant's liability for the payment would be unquestionable.

The auditor has found that the plaintiff, in the method of doing its business and in the conduct of its officers and employés was negligent in not discovering and preventing the fraud by which it was induced to draw checks payable to fictitious persons, and to another person who was not entitled to payments. The auditor has also found that this negligence induced the defendant to pay these checks. The facts are pretty fully stated in the report, and the question arises whether there was any evidence of negligence which was a direct and proximate cause of the payment of these checks upon forged indorsements, or whether the negligence only produced conditions which were followed by criminal acts of forgery by a third person, which acts were not discovered by the defendant through its failure to make investigation as to the pretended indorsements by the payees. Assuming that, under some circumstances, negligence of a depositor inducing an unauthorized payment of a check by a banker may be availed of in defense of a claim by the depositor for the money paid, it seems plain that only negligence which is a direct and proximate cause of the payment can be effectual in making such a defense. Some of these checks were made payable to A. L. Sefton, a woman, and were indorsed...