Lafayette v. Merchants' Bank

• Decision Date: 14 January 1905
• Citation: 84 S.W. 700,73 Ark. 561
• Parties: LAFAYETTE v. MERCHANTS' BANK
• Court: Arkansas Supreme Court

84 S.W. 700

73 Ark. 561

LAFAYETTE v. MERCHANTS' BANK

Supreme Court of Arkansas

January 14, 1905

Appeal from Sebastian Circuit Court, Fort Smith District, STYLES T ROWE, Judge.

Reversed.

STATEMENT BY THE COURT.

LaFayette & Brother, merchants and dealers in live stock at Checotah Ind. Ter., in June, 1898, entered into an agreement with one Boudinot Whitlock by which, under certain conditions, they were to advance money to Whitlock for the purchase of cattle. These conditions were that Whitlock, when he purchased cattle, should give the vendor of the cattle a draft on LaFayette & Brother for the price thereof, on the back of which draft there should be indorsed a bill of sale conveying the cattle to LaFayette & Brother. When this draft was presented with a proper bill of sale indorsed on the back and signed by the seller of the cattle, then LaFayette & Brother were to pay the draft, and hold the cattle as security for the money advanced by them. The evidence is not very clear as to what profit LaFayette & Brother were to receive, but it is said that the expectation was that they would afterwards purchase the cattle from Whitlock if they could agree on the terms, and that the bill of sale was intended only as security.

In pursuance of this agreement, a printed form of a check with the bill of sale printed on the back was prepared, and these forms were delivered to Whitlock to be used when he purchased cattle. Whitlock afterwards drew twelve of these drafts with bills of sale printed on the back, which, on being presented to LaFayette & Brother, were paid by them, but it turned out that the names of the payees indorsed on six of these drafts and signed to the bill of sale thereon were forgeries. The fact was that the payees' names thereon had been forged by Boudinot Whitlock, and the drafts then discounted or sold to third parties. Four of these drafts, with the forged indorsements thereon, were taken by Whitlock to the Merchants' Bank of Fort Smith, Ark., which paid him the face value thereof in due course of business without notice that the indorsements of the payees' name of the drafts and to the bill of sale were forgeries. All of the drafts were in the same form, but made payable to different persons and the following is a copy of one of them at the time it was presented to the Merchants' Bank:

"$ 156.

Checotah, I. T., July 25, 1898.

"LAFAYETTE & BRO.,

"General Merchants and Live Stock.

"Pay to the order of S. A. Smith one hundred and fifty-six dollars.

"No. 11.

"BOUDINOT WHITLOCK."

Upon the back of the draft was the following:

"Know all men by these presents, that, for and in consideration of the sum of one hundred and fifty-six dollars to me in hand paid, the receipt whereof is hereby acknowledged, I, S. A. Smith, of Lena, Ind. Ter., do hereby bargain, sell and deliver unto LaFayette & Brother, of Checotah, Ind. Ter., all the following described property namely [here follows description of ten head of cattle]. I covenant that I am the absolute owner of the property aforesaid, and have the lawful right to dispose of the same; also that I will warrant and defend the title hereby conveyed against whomsoever claiming or to claim the same.

"In witness whereof I have hereunto set my hand this 25th day of July, 1898.

"S. A. SMITH."

In addition to the signature of S. A. Smith to the bill of sale, his name was also indorsed on the back of the draft. And after the bank had paid for the draft it made the following indorsements thereon:

"Pay First National Bank or order.

"Merchants' Bank, C. S. Smart, cashier.

"R. L. Martin, Cas."

The Merchants' Bank then forwarded the drafts to the First National Bank of Muskogee, Ind. Ter., and it in turn presented the drafts to LaFayette & Brother, who, not knowing or having any notice that the signature of the payees signed to the bills of sale and indorsed on the drafts were not genuine, paid the amount of the drafts. Some four or five months afterwards, when they went to gather up the cattle described in the bills of sale, they found that the signatures of the payees were forged. S. A. Smith, the purported payee, made affidavit that he had never sold Boudinot Whitlock any such cattle, and had never seen or heard of such a draft, and that his signature, indorsed thereon and attached to the bill of sale, was a forgery. The payees to the other drafts made affidavits to the same effect.

Soon after the discovery of the forgery, LaFayette & Brother notified the Merchants' Bank, and demanded a return of the money. The bank at first denied that the signatures of the payees were forged, but after the affidavits were obtained the forgeries were admitted, but the bank declined to return the money, and LaFayette & Brother brought this action to recover the same.

The circuit court, after hearing the evidence, held that the defendant was not liable, and directed a verdict for the defendant, and the plaintiffs appealed.

Judgment reversed and cause remanded for new trial.

Hill & Brizzolara, for appellant.

An indorser is liable for preceding forged indoresements. 39 Ark. 47; 57 Miss. 663; 31 P. 491; 40 N.Y. 456; 2 Rand. Com. Pap., § 752; 1 Dan. Neg. Inst., § 672; 4 Am. & Eng. Enc. (2d Ed.), 481, 482; 7 Yerg. 310; 12 S.W. 16; 71 N.W. 162; 27 Kans. 728; 50 N.E. 723; 30 N.E. 808; 106 Mass. 441. Payment of the forged paper does not prevent recovery against an indorser. 31 P. 491; 1 Hill, 287; 3 Rand. Com. Pap. §§ 1486, 1487; 10 Wheat. 333; 2 Dan. Neg. Inst., §§ 1372, 1361; Chitty, Bills, 431, 485; 14 La.Ann. 458; 12 S.W. 716; 4 Ohio St. 628; 1 Dan. Neg. Inst., § 534. The draft in question is commercial paper. 1 Dan. Neg. Inst., §§ 59, 60. If not commercial paper, indorser is liable. 28 S.W. 156; 92 U.S. 447; 42 N.J.L. 421. The statute of limitation of five years applies. 68 Ark. 423; 59 Ark. 86; 4 Am. & Eng. Enc. Law (2d Ed.), 477; 1 Dan. Neg. Inst., § 669; Sand. & H. Dig., § 4827; 3 Rand. Com. Pap., §§ 1591, 1608. Whitlock was not the agent of plaintiffs. 127 Mass. 516. The holder of collateral is not required to exhaust the same. 2 Rand. Com. Pap. 671.

Ira D. Oglesby, for appellee.

While an indorser warrants the genuineness of prior indorsements, the doctrine has no application where no right of the indorsee or payee is involved. Rand. Com. Pap., § 161; 12 Wall. 181; 15 P. 240; 15 P. 240; 15 Pet. 393; 11 How. 177; 1 N.Y. 113.

Hill & Brizzolara, for appellant in reply.

The drawee may recover of the drawer money paid upon a genuine check, which was presented and paid to him, when at the time of such presentment and payment the name of the payee was written in and indorsed upon such check. 36 A.D. 112; 19 Pick. 99; 3 Hill, 227; 126 N.Y. 318; 1 N.Y. 113.

RIDDICK J. HILL, C. J., not participating.

OPINION

RIDDICK, J. (after stating the facts).

This is an action to recover money paid under mistake or fact. And the facts, briefly stated, are that one Boudinot Whitlock had an agreement with the plaintiffs, LaFayette & Brother, by which LaFayette & Brother agreed to pay drafts drawn by Whitlock on them for the purchase price of cattle, provided that a bill of sale signed by the vendor conveying the cattle to LaFayette & Brother should be indorsed on the back of the draft as security for the payment of the draft. To enable Whitlock to have these drafts with bill of sale in proper form, blank drafts with bills of sale printed on the back, with spaces for description of cattle purchased and for signature of the owner, were prepared and given to Whitlock. The intention was that he should buy these cattle in the Indian Territory, where he lived, and where the firm of LaFayette & Brother was in business. He afterwards drew drafts in favor of certain parties living in the Territory without their knowledge, and then without their knowledge or consent indorsed their names on the back of the drafts, and signed their names to the bills of sale on the back of the drafts, and then delivered the drafts to the Merchants' Bank, of Fort Smith, which paid him full value therefor. The bank indorsed the draft, and sent it to a bank at Muskogee, Ind. Ter., which presented it to LaFayette & Brother for payment, and they paid it. Neither the Merchants' Bank nor LaFayette & Brother had any notice of the forgery, and both supposed that it was a legitimate transaction on the part of Whitlock. On the discovery of the fraud, LaFayette & Brother demanded that the bank repay the money, and upon its refusal to do so they brought this action to recover it.

It is a general rule that money paid under a mistake of fact may be recovered. The right of recovery proceeds upon the theory that the plaintiff has paid money which he was under no obligation to pay, and which the party to whom it was paid had no right to receive or to retain. The law therefore raises an...