Land Title & Trust Co. v. Northwestern National Bank
| Decision Date | 21 May 1900 |
| Docket Number | 285 |
| Citation | 196 Pa. 230,46 A. 420 |
| Parties | The Land Title and Trust Company v. Northwestern National Bank |
| Court | Pennsylvania Supreme Court |
Argued January 16, 1900
Appeal, No. 285, Jan. T., 1899, by defendant, from judgment of C.P. No. 2, Phila. Co., June T., 1898, No. 748, on verdict for plaintiff, in case of the Land Title and Trust Company v Northwestern National Bank. Reversed.
Assumpsit to recover the amount paid on a check, the indorsement of which was forged.
The facts appear by the opinion of the Supreme Court.
The court gave binding instructions for plaintiff.
Verdict and judgment for plaintiff for $5,376.74. Defendant appealed.
Error assigned was in giving binding instructions for plaintiff.
The judgment is reversed.
Richard C. Dale, with him Alfred Moore, for appellant. -- A bank cannot be presumed to have knowledge of the handwriting of indorsers, and the liability of the bank is a liability arising out of the implied terms of the contract between the bank and its depository: Robarts v. Tucker, 16 Adol. & Ellis (N.S.), 560; United Security, etc., Co. v Central Nat. Bank, 185 Pa. 586; Bank of England v. Vagliano Brothers, L.R. 1891, Appeal Cases, 107.
While we do not question that as between the depositor and the bank paying the check, the bank is not permitted to charge against the account of the depositor the amount of a check paid upon a forged indorsement when issued and presented in the regular course of business, and also that the bank so paying such checks is entitled to recover from the party presenting it the amount thereof it the claim be made with due diligence, it is equally well settled that in either of these cases the right of recovery may be barred by proof of negligence in the plaintiff, or such act outside of the ordinary course of business as to take the case out of the ordinary rule. The facts connected with the issue of this check do take it out of that ordinary rule: Iron City Nat. Bank. v. Fort Pitt Nat. Bank, 159 Pa. 46; Myers v. Southwestern Nat. Bank, 193 Pa. 1; Rick v. Kelly, 30 Pa. 527; Ritchie v. Summers, 3 Yeates, 531.
John G. Johnson, for appellee. -- Money paid by a bank upon a forged indorsement of a check to order, can be recovered by it if it proceeds promptly upon discovery of the fact of the forgery: McConeghy v. Kirk, 68 Pa. 200; Chambers v. Union National Bank, 78 Pa. 205; Iron City Nat. Bank v. Fort Pitt Nat. Bank, 159 Pa. 46; Onondaga County Savings Bank v. United States, 64 Fed. Repr. 703; Turnbull v. Bowyer, 40 N.Y. 456; State Bank v. Fearing, 16 Pickering (Mass.), 533; Howe v. Merrill, 5 Cushing (Mass.), 80.
The check upon the appellee was not indorsed by the party in whose favor it was drawn.
The action of the appellant was not induced by anything known to it, done by the appellee.
Before GREEN, C.J., MITCHELL, DEAN, FELL, BROWN and MESTREZAT, JJ.
The fraudulent transaction which gave rise to this litigation may be briefly stated. Dr. Herman S. Bissey was the owner of premises No. 2352 North Broad street, Philadelphia, which he wished to sell. A man who gave his name as Ashley called on Dr. Bissey and under the pretense of desiring to purchase the property got possession of the title papers, and took them to a responsible conveyancer to whom he applied for a loan of $5,000 to be secured by a mortgage of the property. The conveyancer, believing the man to be Dr. Bissey and the owner of the premises, negotiated the loan. The mortgagee, desiring title insurance by the Land Title and Trust Company, deposited with it the amount of the loan to be paid to the mortgagor when a valid mortgage should be executed. When the matter was ready for settlement Ashley went with his conveyancer to the office of the company and was there introduced to the settlement clerk as Dr. Bissey. He signed the mortgage, Herman S. Bissey, acknowledged it before a notary connected with the company, and received from the clerk the company's check drawn on itself to the order of Herman S. Bissey. This check, indorsed Herman S. Bissey, was deposited in the Northwestern National Bank by a person who had opened an account with it as G. B. Rogers, and was collected by the bank of the trust company in the usual course of business; whether Ashley and Rogers were the same person, or different persons who had conspired to defraud the trust company and had opened an account with the bank as a means to that end, or whether Rogers was a person who was innocent in the matter, did not appear at the trial. Dr. Bissey had no knowledge of the mortgage until called on six months later for the interest. All of the parties to the transaction except Ashley and possibly Rogers, if he were a different person, acted in good faith and in that reliance on the good faith of others which is usual in such matters. Ashley by some means induced a well known and reputable conveyancer to believe that he was Dr. Bissey. The business followed the usual routine by which hundreds of such transactions are carried on every day, and nothing occurred during its course to put the other parties on their guard. On discovering the fraud which had been practiced upon it, the trust company notified the bank and demanded the return of the money paid on the check, and on the refusal of the bank brought this suit. At the trial a verdict was directed for the plaintiff.
The case as presented by the plaintiff's declaration is that of the payment by the plaintiff of a check drawn on it by a depositor to the order of a third person whose indorsement was forged, the payment having been made in reliance upon the subsequent indorsement of the defendant, the ground of liability being that the defendant by its indorsement and presentation warranted the genuineness of the indorsement of the payee, Herman S. Bissey. While by this statement of the case the trust company is considered as a banker only, whereas in fact it was both the banker and the drawer of the check, it fairly presents the fundamental question involved. A recovery must be had on the ground alleged or not at all.
Generally a bank is not bound to know the signature of the indorser of a check, and if it pays a check on a forged indorsement it can recover the money of the party to whom it was paid if it proceeds promptly on discovery of the fraud. This is upon the principle that the indorsement of a check is an implied warranty of the genuineness of the previous indorsements. But in order that a bank may recover it must appear that it has sustained a loss. If it can charge the payment to the account of the depositor, it has lost nothing, and has no cause of action. The question is then the same whether we consider the check as having been drawn by an ordinary depositor in the trust company or as having been drawn, as it was, by the real estate department of the company on the banking department. While as between the bank and the trust company as a banker, the former is bound by its implied warranty of the indorsement, still there is no cause of action unless the payment of the check was not as against the drawer of the check a good payment. The reason of the rule that when a bank pays a depositor's check on a forged indorsement, or a raised check, it is held to have paid it out of its own funds and cannot charge the payment to the depositor's account, is that there is an implied agreement by the bank with its depositor that it will not disburse the money standing to his credit except on his order. The rule applies where a check has been lost or stolen and the payee's name has afterward been forged; but it does not protect a depositor who is in fault, as in entrusting a check to one who he has reason to suppose will make a fraudulent use of it, or in so carelessly filling up a check that it may readily be altered, or in issuing a check to a fictitious person. It is confined to cases in which the depositor has done nothing to increase the risk of the bank. It should not apply when the check is issued to one whom the drawer intends to designate as the payee; first, because in such a case the risk is not the ordinary risk assumed by the bank in its implied contract with its depositor, but a largely increased risk, as it follows that a check thus fraudulently obtained will be fraudulently used; the bank is deprived of the protection afforded by the fact that a bona fide holder of a check will exercise care to preserve it from loss or theft, which are the ordinary risks; there is thrown upon the bank the risk of antecedent fraud practiced upon the drawer of the check, of which it has neither knowledge nor means of knowledge; secondly, because in such a case the intention with which the drawer issued the check has been carried out; the person has been paid to whom he intended payment should be made; there has been no mistake of fact except the mistake which he made when he issued the check, and the loss is due not to the bank's error in failing to carry out his intention but primarily to his own error into which he was led by the deception previously practiced upon him.
It is somewhat surprising that the question presented by this case has not arisen more frequently. There are but few decisions upon it, and none in this state. But the views which we have expressed are in entire harmony with the principles which we have recognized as governing the decision of cases arising from the forgery of notes and checks and involving kindred questions. Among the more recent of these is Iron City Nat. Bank v. Fort Pitt Nat. Bank, 159 Pa. 47, in which the cases are reviewed by our Brother MITCHELL, and it is said by him: "It is always a good defense that the loss complained of is the result of the complainant's own fault or neglect, and it would require a statute in...
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