Philip Gruner & Bros. Lumber Co. v. First Nat. Bank

• Citation: 143 Miss. 454,109 So. 274
• Decision Date: 07 June 1926
• Docket Number: 25235,25247
• Parties: PHILIP GRUNER & BROS. LUMBER CO. v. FIRST NAT. BANK et al. [*] SAME v. CITIZENS' NAT. BANK et al
• Court: United States State Supreme Court of Mississippi

109 So. 274

143 Miss. 454

PHILIP GRUNER & BROS. LUMBER CO. v. FIRST NAT. BANK et al. ^[*]

SAME v. CITIZENS' NAT. BANK et al

Nos. 25235, 25247

Supreme Court of Mississippi

June 7, 1926

Suggestion of Error Overruled July 22, 1926.

APPEAL from circuit court of Lauderdale county HON. C. C. MILLER, Judge.

Actions by Philip Gruner & Bros. Lumber Company against the First National Bank and others, and against the Citizens' National Bank and others. Judgment for defendants, and plaintiff appeals. Reversed and remanded.

Cause reversed and remanded.

R. M. Bourdeaux, for appellant.

Philip Gruner & Brothers Lumber Company is a corporation domiciled at St. Louis, Missouri, and having its principal business office at that place. During the years 1920 and 1921, and some four or five years prior thereto, it was engaged in the business of buying lumber in East Mississippi and West Alabama. For this purpose they employed one J. G. Roy as agent to buy lumber for it and the said Roy maintained an office in Meridian, Mississippi.

The method of doing business was for Roy to get in touch with the small mills in East Mississippi and West Alabama and buy lumber from said mills for appellant; and when the lumber was shipped by the small mills, Roy had authority to draw a draft in favor of the seller of the lumber on the appellant for eighty per cent of the invoice value of the lumber. The remaining twenty per cent was remitted after receipt of the lumber and inspection.

Burkes Brothers Lumber Company operated a saw mill at Walnut Grove in Scott county, Mississippi, and prior to September 16 1920, had sold to the appellant a good many cars of lumber through Roy by the method above set out. At this time; to-wit, September, 1920, Burkes Brothers Lumber Company had an order through Mr. Roy for two cars of lumber, and appellant was expecting these two cars to be shipped at any time, and were anticipating draft on it for eighty per cent of the invoice price of same.

On September 16, 1920, Roy drew draft in question on Philip Gruner & Brothers Lumber Company, payable to the order of Burkes Brothers Lumber Company for five hundred dollars. The said Roy never delivered said draft to the payee at all, but the drawer himself presented the same to the Citizens' National Bank of Meridian after the said draft had received the O. K. of J. L. Hart. The Citizens' National Bank paid the amount of the draft to J. G. Roy, the drawer of same.

Burkes Brothers Lumber Company never shipped to appellant any such car of lumber as indicated on said draft, and the Burkes Brothers Lumber Company never received said draft, nor authorized Roy to endorse its name thereon. The truth of the business is that Roy forged the name of the Burkes Brothers Lumber Company to said draft and appropriated the proceeds thereof to his own use and Burkes Brothers Lumber Company never received any part of the same; in fact, this company did not know of any such draft until long after the forgery was discovered.

Appellant herein discovered the forgery of the name of the payee on September 27, 1920, and had its attorney to notify the Citizens' National Bank and make demand on it the latter part of November or first of December, also immediately notifying the collecting bank in St. Louis. After the Citizens' National Bank refused payment, appellant instituted this suit against the Citizens' National Bank.

The trial court refused a peremptory instruction for the plaintiff and granted a peremptory instruction for the defendant, judgment being entered accordingly, from which judgment this appeal is prosecuted.

We feel that we can confidently state that the following facts are undisputed:

(1) The payee's name, Burkes Brothers Lumber Company, was forged and the negotiation of the draft by Roy was wholly unauthorized by the payee therein.

(2) The Citizens' National Bank cashed the draft when it knew that it was cashing the draft for the drawer and not for the payee.

(3) The draft on its face clearly indicated that the drawer of same had no funds of his own account in the hands of the drawee, and further that the draft was given to the payee for goods to be delivered by the payee to the drawee.

(4) The Citizen's National Bank not only generally endorsed said draft, but said draft came to the drawee with a special and explicit endorsement of the Citizens' National Bank that it guaranteed the genuineness of all prior endorsements, which, of course, included Burkes Brothers Lumber Company. This guarantee was absolute and unconditional. This contract should be enforced like any other. Second National Bank of Pittsburgh v. Guaranty Trust Co., 56 A. 72; Yalesville Banking Co. v. Fourth Nat'l Bank, 72 S.E. 528.

(5) At the time the drawee paid this draft it had no notice or knowledge that the endorsement of the payee's name was a forgery.

(6) Within a reasonable time after the discovery of the forgery, that is, about two months--"from September 27, 1920, to the latter part of November or first of December, 1920"--the drawee demanded payment from the Citizens' National Bank.

With these undisputed facts before the court, we shall not burden our brief with the citation of numerous authorities, but shall content ourselves by simply referring the court to 3 R. C. L., p. 1296, and the leading and well-considered cases therein cited.

The Citizens' National Bank was negligent in cashing a draft for the drawer instead of the payee. The drawee had the undoubted and absolute right to presume that its customer, the Burkes Brothers Lumber Company, had received the proceeds of the said draft and that if the said payee had not so received the proceeds, the Citizens' National Bank stood between the drawee and any loss.

The drawee was in St. Louis, Missouri. The Citizens' National Bank and the payee were in Mississippi. The drawee was expecting a draft in favor of the payee under their contractual relations. The Citizens' National Bank guaranteed to the Philip Gruner & Brothers Lumber Company that its customer, Burkes Brothers Lumber Company, had endorsed said draft.

Baskin, Wilbourn & Miller, for appellees.

We submit that under the facts of this case appellant cannot recover. The draft in this case was payable to bearer, as a matter of law, and it is immaterial that the signature of Burkes Brothers Lumber Company on the back of the draft, which appellant contends was an endorsement, was a forgery.

The Negotiable Instruments Act distinctly specifies that an instrument is payable to bearer "when it is payable to the order of a fictitious or non-existing person and such fact was known to the person making it so payable."

Burkes Brothers Lumber Company, under the facts in this case and the authorities bearing on the question, was clearly a fictitious person within the meaning of the above provision of the Negotiable Instruments Act. The point is clearly and definitely ruled in the following cases: Snyder v. Corn Exchange Nat'l Bank, 221 Pa. 599; Phillips v. Mercantile Nat'l Bank of New York, 140 N.Y. 556, 35 N.E. 982; Hortsman v. Henshaw, 13 L.Ed. (U.S.) 653.

As additional authorities to show that this instrument was payable to bearer and the endorsement of Burkes Brothers Lumber Company was mere surplusage, and did not affect the proposition one way or the other. See the following authorities: Bank of England v. Vaglianao Bros. (1891), A. C. 107, 60 L. J. Q. B. N. S. 145, 64 L. T. N. S. 353, 39 Week Rep. 657, 55 J. P. 676, 3 Eng. Rul. Cas. 695; Trust Co. of Am. v. Hamilton Bank, 127 A.D. 515, 112 N.Y.S. 84; Snyder v. Corn Exchange Nat'l Bank, 221 Pa. 599, 128 A. S. R. 780, 70 A. 876; Bartlett v. First Nat'l Bank, 140 N.Y. 556, 23 L. R. A. 584, 37 A. S. R. 596, 35 N.E. 982; Clutton v. Attenborough & Sons (1897), A. C. 90, 66. L. J. Q. B. N. S. 122, 75 L. T. N. S. 556, 45 Week. Rep. 276; Coggill v. American Exchange Bank, 1 N.Y. 113, 49 Am. Dec. 310; Phillips v. I. M. Thurm, 18 C. B. N. S. 694, 144 Eng. Reprint, 617, 11 Jur. N. S. 489, 13 Week. Rep. 750; Kohn v. Watkins, 26 Kan. 478, 47 Am. Rep. 501, 2 P. 580; Farnsworth v. Drake, 11 Ind. 101; Blodgett v. Jackson, 40 N.H. 21; Re: Pendleton Hardware Co., 24 Ore. 330, 33 P. 544; American Homing Co. v. Millikin Nat'l Bank, 273. F. 550; Norton v. City Bank & Trust Co., 294 F. 839.

Appellant made the perpetration of fraud possible, by trusting J. G. Roy to draw drafts on it and it would be highly inequitable to allow appellant to recover of Citizens' National Bank for the fraud of its own agent.

In this case it is clear that the draft was forwarded to a bank in St. Louis for collection only. Therefore, Citizens' National Bank did not transfer this draft to any one who became the holder and owner of it for value in due course.

There was clearly a failure to notify the bank of the fraud or forgery in this transaction within a reasonable time. The tendency of the modern decisions seems to be that where there has been an unreasonable delay in discovery of forgery and giving notice, it will bar a recovery by the payer. First National Bank v. Ricker, 71 Ill. 439, 22 Am. Rep. 104; Continental Nat'l Bank v. Metropolitan Nat'l Bank, 107 Ill.App. 455; McCall v. Corning, 3 La. Ann. 409, 48 Am. Dec. 454; Bank of St. Albans v. Farmers & M. Bank (1838), 10 Vt. 141, 33 Am. Dec. 188; Glouster Bank v. Salem Bank (1820), 17 Mass. 33.

In case of an unreasonable delay in discovering the forgery, the holder is not bound to show that he has been injured. The delay itself imports injury, and the law presumes it. Deposit Bank v. Second Nat'l Bank (1888), 10 Ky. L. Rep. 350, the same ruling being made in the supreme court in 1890 in 90 Ky. 10, L. R. A. 849, 13 S.W. 339.

There is no proof of either actual negligence or bad faith attributable to the...