Southern Trust Company v. American Bank of Commerce & Trust Company

• Decision Date: 18 April 1921
• Docket Number: 282
• Citation: 229 S.W. 1026,148 Ark. 283
• Parties: SOUTHERN TRUST COMPANY v. AMERICAN BANK OF COMMERCE & TRUST COMPANY
• Court: Arkansas Supreme Court

229 S.W. 1026

148 Ark. 283

SOUTHERN TRUST COMPANY v. AMERICAN BANK OF COMMERCE & TRUST COMPANY

No. 282

Supreme Court of Arkansas

April 18, 1921

Appeal from Pulaski Chancery Court; J. E. Martineau, Chancellor affirmed.

Decree affirmed.

S L. White, for appellant.

At the time garnishment was served on appellee it had money in its hands for the purpose of paying Smith and it had never been paid out on his check or order and Smith had a right of action against the bank. 69 Ark. 43; 216 S.W. 717; 5 Cyc 548; 92 Tenn. 154; 183 S.W. 684. See, also, 70 Penn. S.Ct 34. The exact question here has been settled by this court. 98 Ark. 1; 100 Id. 537; 133 Id. 498. Appellee is indebted to Smith and (2) between Smith and appellee there was and is privity. Smith could maintain suit against appellee, and appellant acquired this right against appellee. Appellee still has in its hands money deposited to pay Smith. This was a trust fund for Smith against which it issued its own checks or obligations, which have never been paid Smith but paid some one else on forged indorsements, and appellee has recourse on the banks that cashed them.

Moore, Smith, Moore & Trieber, for appellee.

The transmittal of the telegraphic orders to and the receipt by the bank in no way operated to create any relation of privity between the bank and Sam Smith or Sam W. Smith. The bank paid the money to the party designated and charged it to him. The fact that the order was sent direct to the bank, instead of the payee, created no difference in legal effect. 130 P. 29. The precise question here has been determined by this court. 98 Ark. 1; 100 Id. 537; 133 Id. 498. The giving a check upon a bank is not assignment pro tanto to the payee upon which he can bring suit against the bank for payment, there being no privity between the drawee bank and the holder or owner af the check until the check is accepted. 133 Ark. 498 and cases supra. See, also, 136 P. 935; 79 S.W. 968. This case is ruled by 100 Ark. 537 and 133 Ark. 498.

MCCULLOCH C. J. HART, J., dissenting.

OPINION

MCCULLOCH, C. J.

Each of the parties to this appeal is a banking corporation doing business in the city of Little Rock. Appellant obtained a decree in the chancery court of Pulaski County on October 11, 1920, for the recovery of the sum of $ 9,655.55 against Sam W. Smith and Arthur Nicholl, and later sued out a writ of garnishment directed to appellee commanding the latter to answer what funds and property of Sam W. Smith it held in its possession. Appellee answered that it had no property or funds of Smith in its possession, and appellant filed a reply, which framed the issue tried by the lower court, resulting in a decree of the court discharging appellee as garnishee.

The primary question in the case is whether or not Sam W. Smith had a right of action against appellee, for appellant's right to recover from the garnishee is dependent upon the right of Smith, one of the defendants in the judgment. The material facts are undisputed. Nicholl was the Little Rock agent of Shepherd & Gluck of New Orleans, and Smith had dealings with Shepherd & Gluck through Nicholl whereby Shepherd & Gluck became indebted to Smith on January 9, 1920, in the sum of three thousand and fifty-six dollars and fifty-six cents. Shepherd & Gluck had a checking account with appellee, and on the date last mentioned they sent to appellee from their office in New Orleans a code telegraphic message directing appellee to pay to Sam Smith the sum of $ 3,056.56, and charge the same to their account. The telegram also stated that they were transferring to their credit at appellee's bank the sum of $ 3,000 from another bank in Little Rock to cover the draft. Before the receipt of this telegram by appellee, Nicholl telephoned to appellee's assistant cashier, who handled such matters, stating that he (Nicholl) was expecting that appellee would receive a wire that day from Shepherd & Gluck to pay Sam Smith $ 3,056.56 and asked that he be informed by telephone when the message came, and when the message came the assistant cashier telephoned the information to Nicholl, who replied that he would send Smith around to the bank at once to receive the money. This employee of the bank was a witness in the case and testified that he did not know Smith and so informed Nicholl, but that the latter described Smith to him, and a few minutes afterward a man came into the bank representing himself as Sam Smith and produced a note from Nicholl identifying him as Sam Smith and directing that the sum be paid to him. The assistant cashier, not doubting that the individual who presented himself was Sam Smith, gave him what is termed a cashier's check for said amount, i. e., a check signed by the cashier on that bank for the amount specified. The individual who received the check was not, according to the testimony, the Sam W. Smith who was entitled to receive it, but he afterward deposited the check with another bank in Little Rock, who presented it to appellee, and it was collected, the check having been properly indorsed by someone under the name of Sam Smith.

There was another transaction of precisely the same kind which took place on February 19, 1920, involving the sum of four hundred twenty-nine dollars and seventy-two cents. In this instance the man presenting himself as Sam Smith was sent around to the bank by Nicholl with a note identifying him, directing the payment of the sum to him, the same as in the former instance. Sam W. Smith testified as a witness in the case, and it is shown by his testimony that he had never received either of the amounts specified above, which were due him originally by Shepherd & Gluck, and which sums were specified in the two messages above.

The telegraphic message from Shepherd & Gluck can only be treated either as a private direction from the former to the latter as their agent, or as the equivalent of a written check or order for the payment of the money. In neither event was there any privity between Smith, the payee, and appellee, the drawee of the check, so as to give Smith a right of action against appellee for the recovery of the amount. We think that the message was the equivalent of a written check for the payment of the money, and that its effect was the same as if it had been delivered to Smith, instead of being sent direct to appellee. Treating it in this way, the check did not operate as an assignment of the funds, so as to empower Smith to sue for the amount. It has become the settled doctrine of this court, announced in repeated decisions, that the payee of an unaccepted check can not maintain an action upon it against the bank on which it is drawn, and that the unauthorized payment by the bank on a forged indorsement does not constitute an acceptance. Sims v. American National Bank, 98 Ark. 1, 135 S.W. 356; Rogers v. Farmers' Bank, 100 Ark. 537, 140 S.W. 992; State v. Bank of Commerce, 133 Ark. 498, 202 S.W. 834. In thus holding to this rule we have followed the Supreme Court of the United States in the case of First National Bank v. Whitman, 94 U.S. 343, 24 L.Ed. 229, and what appears to be the great weight of American authority. The case of Schaap v. First National Bank, 137 Ark. 251, 208 S.W. 309, is in no wise against this rule, and the facts of that case are distinguished from the facts of the other cases now cited. In the Schaap case a bank other than the drawee bank cashed checks upon unauthorized endorsements and collected the same from the drawee bank. We held that the owner of the checks had a right to repudiate the endorsement without repudiating the collection, which was for his benefit, and that he could recover from the collecting bank the amount received on the checks from the drawee bank.

In reaching that conclusion, we said with reference to the other decisions and the Whitman case, supra, this "In that case the court held that payment to a stranger upon an unauthorized indorsement does not operate as an acceptance of the check, so as to authorize an action by...