People's Bank v. Franklin Bank

• Decision Date: 31 December 1889
• Citation: 12 S.W. 716,88 Tenn. 299
• Parties: PEOPLE'S BANK v. FRANKLIN BANK.
• Court: Tennessee Supreme Court

12 S.W. 716

88 Tenn. 299

PEOPLE'S BANK v. FRANKLIN BANK.

Supreme Court of Tennessee.

December 31, 1889

Appeal from chancery court, Montgomery county; GEORGE E. SEAY Chancellor.

Stark & Stark, for appellant.

Leech & Savage, for appellee.

FOLKES J.

Young was a depositor of the complainant bank. His name was forged to a check drawn on the complainant, payable to the order of one Morgan. Morgan's name was also forged as an indorser on the check. This check, with the forged name of Young, the maker, and of Morgan, the indorser, was presented to the defendant, the Franklin bank, and was cashed, or purchased by the defendant, and transmitted, after indorsement, by the defendant to the complainant bank by mail. The complainant bank had and kept an account with the defendant bank, and upon the receipt of the check passed the amount thereof to the credit of the defendant bank. The complainant bank was located and did business at Springfield, in the county of Robertson; the defendant bank was located and did business at Clarksville, in Montgomery county. The check which had been received by the complainant bank and passed to the credit of defendant bank, as above stated, on December 8, 1888, was ascertained 19 days thereafter to be a forgery; this discovery being made by the depositor, Young, when he came to examine his passbook, together with the checks returned therewith. Thereupon the complainant bank canceled the charge against Young, the depositor, and at once notified the defendant bank of the forgery, and demanded that the same be made good by the defendant bank. Upon refusal, complainant filed this bill to recover the amount of the check, as having been paid by it through mistake upon the forged check charging in the bill the facts above stated, and also the further fact that when presented the check bore the indorsement of the defendant bank, and that upon the faith of such indorsement the complainant's teller accepted the check, and gave credit to the defendant bank, with less careful scrutiny of the genuineness of the drawer's signature, by reason of the confidence reposed in the genuineness of the paper, as evidenced by the indorsement of the defendant bank. The defendant answered the bill, admitted that it had received and cashed the check as charged, and stating that it was unable to furnish the names of the party or parties by whom the check had been presented, and to whom it had been paid by it, but presumed that it had required identification; but of this they do not remember. The allegations of the bill were sustained by the proof; but the chancellor, being of opinion that the plaintiff should, at its peril, know the genuineness of the signature of its depositor, refused the relief prayed for, and dismissed complainant's bill, from which complainant has appealed assigning errors.

The general rule undoubtedly is that the bank has, at its peril to know the genuineness of the signature of its depositor; and if it pays a forged check, the loss must fall upon the bank, and not upon the depositor, except in cases where the negligence of the depositor has induced or brought about the payment by the bank. This duty with reference to the bank may be said to be an exception to the general rule that money paid by mistake can be recovered, and to the general statement of another equally well-settled rule, that payment of a forged paper conveys no title; for it is well settled that the deposit of a forged paper conveys no title, for it is well settled that the deposit of a forged bill or base coin created no indebtedness, although credited to the depositor's account, for the reason that payment in such material could not discharge a debt, and cannot create one. The bank is not only responsible to the depositor where the check, with the depositor's signature forged, is paid by the bank, except where the depositor has been guilty of negligence sufficient to mislead the bank, but the bank is precluded from recovering from a party to whom the forged check has been paid, where such party, being without fault, would be prejudiced by being required to refund to the bank, upon whom rests the duty of determining the genuineness of the depositor's signature. Notwithstanding some conflict of authority upon the subject, a careful investigation of the adjudged cases and the text-books leads us to the conclusion that the bank can recover of a party to whom payment is made on a forged check, indorsed by the party to whom paid, where the party to whom paid has been guilty of negligence in receiving and indorsing the check; for, notwithstanding the negligence to some degree that the paying bank has been guilty of in paying the forged check without detecting the forgery of its depositor's signature, it often happens, or may happen, that the party to whom payment is made has been guilty of the first negligence in purchasing and indorsing the forged paper. The bank upon whom the check is drawn, in the practical administration of banking business, may well be lulled to a less careful scrutiny of its depositor's signature of a check, where the same is indorsed by another bank with which it is in correspondence or interchange of business, than it would exercise in accepting and paying the same check, not so indorsed, to a stranger. The indorsement of the check by the payee may be said ordinarily to be a guaranty of the genuineness of the indorsements theretofore on the paper, and also of the genuineness of the drawer's signature; subject, perhaps, to some exception in particular cases, as, for instance, where the indorsement is made after the genuineness of the preceding signature has been approved by the paying bank.

Applying these principles to the case at bar, we are of opinion, and so adjudge, that the first fault was with the defendant bank. This bank accepted and cashed a check drawn on a bank in another county, to which the name of the drawer and the payee had both been forged, and, so far as the record discloses without requiring any identification of the parties to whom such payment was...