National Bank of Rolla v. First Nat. Bank of Salem

• Decision Date: 07 February 1910
• Citation: 141 Mo. App. 719,125 S.W. 513
• Parties: NATIONAL BANK OF ROLLA v. FIRST NAT. BANK OF SALEM.
• Court: Missouri Court of Appeals

125 S.W. 513

141 Mo. App. 719

NATIONAL BANK OF ROLLA v. FIRST NAT. BANK OF SALEM.

Springfield Court of Appeals. Missouri.

February 7, 1910.

1. BANKS AND BANKING (§ 149) — PAYMENT OF FORGED CHECK — RECOVERY OF PAYMENT.

Where the drawee bank pays a check to another bank, which is a bona fide holder, such drawee cannot recover the money back on discovering such check to be a forgery.

2. BANKS AND BANKING (§ 149) — PAYMENT OF FORGED CHECK — RECOVERY OF PAYMENT.

Defendant bank cashed a forged check drawn on plaintiff bank, purporting to be made by L., and after indorsement sent it to its correspondent for collection. Plaintiff paid the check when presented, relying on defendant's indorsement, knowing that the signature was not that of L. Held, that plaintiff could not recover the amount of the check from defendant after repudiation thereof by L., in the absence of any negligence by defendant.

3. BILLS AND NOTES (§ 439) — DISCHARGE OF INDORSER — PAYMENT BY DRAWEE.

Negotiable Instrument Act 1905 (Laws 1905, p. 251 [Ann. St. 1906, § 463-62]) § 62, provides that: "The acceptor by accepting the instrument engages that he will pay it according to the tenor of its acceptance; and admits the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument, and the existence of the payee and his capacity to indorse." Section 188 provides that: "Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon." Held that, where a bank pays a forged check drawn on it, the indorser thereof is released from liability.

4. BILLS AND NOTES (§ 292) — EFFECT OF INDORSEMENT — COLLECTION.

The indorsement on a check by a bank which has cashed it, "Indorsement guaranteed. Pay any national or state bank or order," is only an indorsement for collection, and does not transfer the title to the check to the indorsee.

5. GUARANTY (§ 36) — INDORSEMENT — EXTENT OF LIABILITY.

The guaranty of an indorsement on a check only applies to the indorser, and does not protect the payee against the risk of cashing a check to which the maker's name is forged.

6. BANKS AND BANKING (§ 147) — PAYMENT OF FORGED CHECK.

A bank cannot cash a check drawn on it knowing that the signature thereof is not that of its purported maker, and then hold the indorser for collection for the amount.

Appeal from Circuit Court, Dent County; L. B. Woodside, Judge.

Action by the National Bank of Rolla against the First National Bank of Salem. Defendant had judgment, and plaintiff appeals. Affirmed.

Watson & Holmes, for appellant. W. P. Elmer and G. C. Dalton, for respondent.

GRAY, J.

On September 23, 1907, one Martin L. Chambers, representing himself to be one J. B. Ragan, presented to defendant a check for the sum of $42, purporting to have been drawn on plaintiff in favor of said J. B. Ragan, by one H. W. Lenox, depositor of the plaintiff. The bookkeeper of defendant did not know any of these parties personally, but cashed the check without requiring any identification of Chambers. The defendant then sent the check to its correspondent, the Third National Bank of St. Louis, and through that bank presented the same to plaintiff for payment. When the check was presented to the plaintiff, the cashier thereof knew that the signature thereto was not the signature of H. W. Lenox, but knowing Ragan and Lenox, and knowing that they dealt a great deal in live stock together, and noticing that the defendant had guaranteed the indorsement thereon to be the indorsement of Ragan, concluded that the check was genuine, and remitted the amount thereof to the Third National Bank of St. Louis, and the same was placed by that bank to the credit of the defendant. Soon after the 1st of October, the plaintiff's cashier sent to Lenox his paid checks for the month of September, included among which was this check. Lenox discovered that this check was a forgery, and returned same to plaintiff with notice of that fact, and he was given credit for the amount of this check. The plaintiff then wrote defendant that this check was a forgery, and that inasmuch as plaintiff had honored the same on the strength of defendant's indorsement and guaranty that the indorsement of Ragan was genuine, the defendant should refund the amount of said check to the plaintiff. After several days' delay, defendant notified the plaintiff that the amount of the check would not be refunded, for the reason that it considered it was not liable. Plaintiff brought this action before a justice of the peace to recover the amount of the check. The plaintiff appealed from the judgment of the justice, and on the 29th day of October, 1908, the cause was tried in the circuit court of Dent county, and judgment was rendered for defendant, and plaintiff appealed to this court.

The plaintiff's petition alleges that both parties, at the dates mentioned in the petition, were banking corporations, and on the 26th day of September, 1907, defendant, through its correspondent, presented to plaintiff for payment a check for the sum of $42, purporting to be drawn on the plaintiff by one H. W. Lenox, in favor of one J. B. Ragan, and purporting to be indorsed by the said Ragan, and which said check had been duly indorsed by the defendant, and previous indorsements thereon in writing, guaranteed by the defendant, and relying upon the indorsement of said check by the defendant and defendant's said guaranty, and believing that by reason thereof it was genuine cashed said check and paid the amount thereof to the defendant; that after it had cashed said check and paid the proceeds to defendant it discovered that the said check was forged, and thereupon it caused due notice to be given to defendant in writing, and demanded of it the payment of the amount of said check, and that defendant refused to pay the same, and asked for judgment for the amount of $42. It will be noticed that no allegation of negligence on the part of the defendant in cashing the check for Ragan is made in the petition, and the instruction asked by the plaintiff and refused by the court presented the issue as alleged in the petition. In other words, the question of the negligence of the defendant in cashing the check for Ragan was not submitted either in the petition or the instruction. There are but two reasons alleged for a reversal of the judgment, and they are: Because the court erred in refusing an instruction asked by the plaintiff; and, because under all the evidence in the case, the judgment should have been for the plaintiff.

The question presented here may be submitted in the following language: If B. representing himself to be A. presents to C.'s bank a check purporting to be signed by D., payable to A., and drawn on E.'s bank, of which D. is a customer, and C.'s bank cashes the check and sends it for collection to E., who, when it is presented, pays the same and charges it to D.'s account, and at the time of said payment E. has reason to believe that the signature to the check is not D.'s, can E. sue C. for the amount of the check, upon learning that D.'s name was forged to the check, and showing that C. had sent the check for collection, and that the money paid by E. at the time it cashed the check had been received by C.? The question has been answered in the negative many times in the courts of this country. Since the case of Price v. Neal, 3 Burrows, 1355, decided by Lord Mansfield in 1762, the general rule has been that when the drawee of a check or bill pays the same to a bona fide holder, such drawee cannot recover the money back upon discovering such check or bill to be a forgery. Many of the text-writers on negotiable instruments declare that when a bank, upon which a check is drawn, pays it upon the forged signature of the drawer, the money can be recovered as paid under mistake of fact. Story on Promissory Notes, §§ 379-529; 2 Parsons on Notes and Bills, 80. Others, while recognizing a different rule, incline to the opinion that the one just cited is the most equitable. 2 Daniel on Negotiable Instruments, c. 48, § 13. Whatever the text-writers may think and declare the law to be, a long line of cases sustain the proposition that as between the drawee and the holder of a check the drawee bank is to be deemed the place of final settlement where all prior mistakes and forgeries can be corrected and settled at once, henceforth and forever more; and, if overlooked and payment is made, the chapter is closed and there can be no recovery over. Price v. Neal, 3 Burrows, 1355; Redington v. Woods, 45 Cal. 406, 13 Am. Rep. 190; Bank v. Ricker, 71 Ill. 439, 22 Am. Rep. 104; First National Bank of Chicago v. Northwestern National Bank, 152 Ill. 296, 38 N. E. 739, 26 L. R. A. 289, 43 Am. St. Rep. 247; National Park Bank of New York v. Ninth National Bank, 46 N. Y. 77; Ellis v. Trust Co., 4 Ohio St. 628, 64 Am. Dec. 610.

Judge Allen, in Bank v. Bank, 46 N. Y., loc. cit. 80, states the rule in the following clear language: "For more than a century it has been held and decided, without question, that it is incumbent upon the drawee of the bill to be satisfied that the signature of the drawer is genuine; that he is presumed to know the handwriting of his correspondent; and, if he accepts or pays a bill to which the drawer's name has been forged, he is bound by the act, and can neither repudiate the acceptance nor recover the money paid." In Price v. Neal, which was a similar action, Lord Mansfield stopped the counsel for the defendant, saying that it was one of those cases that never could be made plainer by argument; that it was incumbent upon the plaintiff to be satisfied that the bill drawn upon him was the drawer's hand, before he accepted and paid it. In the case of Ellis v. Trust Co., supra, the doctrine as announced in Price v. Neal, is reviewed, approved, and a long list of authorities cited in support thereof, and among these...