State v. Bank of Commerce

• Decision Date: 15 April 1918
• Docket Number: 299
• Parties: STATE v. BANK OF COMMERCE
• Court: Arkansas Supreme Court

202 S.W. 834

133 Ark. 498

STATE v. BANK OF COMMERCE

No. 299

Supreme Court of Arkansas

April 15, 1918

Appeal from Pulaski Circuit Court, Third Division; G. W. Hendricks Judge; affirmed.

Judgment affirmed.

John D Arbuckle, Attorney General, and T. W. Campbell, Assistant for appellant.

The demurrer should have been overruled. The complaint stated a good cause of action. A bank must ascertain at its peril that a person presenting a check is authorized to receive the money and endorse the check. If the endorsement is a forgery the bank becomes liable. 5 R. C. L. 566; 7 C. J. 693, § 422. Zane on Banks, etc., §§ 1460-7; Morse on Banks, etc., (5th ed.) § 474; Magee on Banks, etc., (2d ed.) 351; 2 Daniel Neg. Inst., § 1663. The cases in 94 U.S. 343, and 98 Ark. 1, and § 198 of the uniform Negotiable Instrument Act, 1913, do not sustain appellee's contention. It is conceded that the mere giving a check is not an assignment of the amount to the payee, until accepted, yet when the bank received it and paid it and charged the amount to the drawer it was an acceptance and the bank was liable for the amount of the wrongful payment. Where a bank pays a check to other than the payee on a forged or unauthorized indorsement and charges it to the account of the drawer, the bank is liable. 6 Hun, 124; 73 Pa.St. 483; 3 McArthur 54; 114 Minn. 85; 92 Tenn. 154; 41 Conn. 421; La. Ann. 481; 47 S.W. 234; 88 Tenn. 380; 46 Mo. 186; 109 Minn. 440; 52 Id. 223; 74 Id. 41; Van Schaack on Bank Checks, 114; Michie on Banks, etc., 1215; 5 R. C. L. 566, and many others. See Morse on Banks, etc., (5th ed.) § 474, 1215; 14 La.Ann. 481, etc.

Morris M. & Louis M. Cohn, for appellee.

This case falls within the rule of 98 Ark. 1, and 94 U.S. 343, 346. See L. R. A. 1916, C. 164-171; Kirby & C. Dig. § 7072. The cases cited by appellant do not apply.

OPINION

SMITH, J.

The complaint in this cause contained the following allegations:

"That on November 27, 1916, Landauer Brothers Cotton Company of Little Rock, Arkansas, executed its check upon the defendant, the Bank of Commerce, in the sum of $ 5,000, payable to the order of the Arkansas State Penitentiary, said check being in part payment of certain cotton sold to the said Landauer Brothers Cotton Company by the State Board of Penitentiary and Reform School Commissioners. That on said date said check was delivered by said Landauer Brothers Cotton Company into the hands of R. G. Anderson, who was at that time the clerk of the said State Board of Penitentiary and Reform School Commissioners. That on said date the said R. G. Anderson, wholly without any authority or right so to do, endorsed said check and presented it to the defendant, the Bank of Commerce, and the said defendant then and there wrongfully and without any right or authority whatsoever paid to the said R. G. Anderson the $ 5,000 in cash and then and there charged said check against the account of the said drawers thereof, the said Landauer Brothers Cotton Company.

"That the said R. G. Anderson wholly failed to pay over the said $ 5,000 or any portion thereof to the State Board of Penitentiary and Reform School Commissioners, or to the State Treasurer, but that the said Anderson appropriated said money to his own use. That the said State Board of Penitentiary and Reform School Commissioners and the State of Arkansas have wholly failed to receive any portion of said money.

"That the said endorsement of said check by the said Anderson was a forgery. That the said Anderson as clerk of the said Board was not empowered or authorized by law to endorse said check nor to receive the money thereon, nor was the said Anderson authorized by the said Board nor any member thereof to endorse said check nor to receive the money thereon. That by reason of the premises aforesaid, the plaintiff, the State of Arkansas, for the use of the Arkansas State Penitentiary, is entitled to recover from the said defendant, Bank of Commerce, the said sum of $ 5,000 together with interest thereon at six per cent. per annum from November 27, 1916."

A demurrer to this complaint was sustained, and the State having elected to stand upon the complaint, the cause was dismissed and this appeal has been prosecuted.

Counsel for the State concede that the point in issue was decided by this court in the case of Sims v. American National Bank of Fort Smith, 98 Ark. 1, 135 S.W. 356. It is argued, however, that the opinion in that case, insofar as it appears to be decisive of the point at issue in this case, is dictum. The point decided in the Sims case was responsive to the following question asked in the opinion: "Can the payee of a check or draft whose indorsement was forged, after payment by the bank upon which it was drawn upon such forged indorsement, maintain an action against the drawee to recover the amount of it?" The court treated that question as stating the point there in issue and made its answer to that question decisive of the facts of that case. Therefore, the answer to this question can not be treated as dictum. The court recognized the question as one of first impression and after a review of the authorities, as is indicated both by the opinion itself and the abstract of the briefs filed in that case, took a position based upon the decision of the Supreme Court of the United States in the case of First National Bank v. Whitman, 94 U.S. 343, 24 L.Ed. 229. The case cited and relied upon presents the exact question which we have here, and this court quoted with approval the following language from that case: "We think it is clear, both upon principle and authority, that the payee of a check, unaccepted can not maintain an action upon it against the bank on which it was drawn." The doctrine of the Sims case, supra, was reaffirmed by this court in the case of Rogers Commission Co. v. Farmers' Bank of Leslie, 100 Ark. 537, 140 S.W. 992, where it was said: "That the giving of a check upon a bank is not an assignment of the amount of it to the payee upon which he can bring a suit against the bank for its payment, there being no privity between the drawee bank and the holder of the check until the acceptance by it." The point there decided, under the facts of that case, can not be said to be dictum.

The opinion of this court, in the Sims case, is vigorously assailed by learned counsel for the State upon the ground that this doctrine as applied to the facts of that case is dictum, and it is also assailed upon the ground that it is contrary to the weight of authority and is against the sounder reason.

In reply to this argument it may be said that the point at least has been decided by this court, as the doctrine of the Sims case, supra, was reaffirmed in the Rogers Commission Co. case, supra, and for the reason stated the language quoted was not dictum. Learned counsel are mistaken in the statement that these decisions are contrary to the weight of authority upon this subject. The contrary appears to be the case, as is shown by the exhaustive note on the subject which is appended to the case of Ballard v. Home National Bank, 91 Kan. 91, L. R. A. 1916C, 161. The author of this note sets out the reported cases upon this subject and states the majority rule to be that announced by the Supreme Court of the United States in the case of Bank v. Whitman, supra. The opinions of this court in the cases mentioned, in 98th and 100th Arkansas Reports, are cited along with the other's as comprising the majority rule. According to this note, there can be no question that the rule as approved by this court in the cases cited accords with the majority rule on the subject. This question was thoroughly considered by this court in the Sims case, supra, and this court took its position after a review of the leading authorities upon the subject. We do not therefore feel at liberty to overrule our cases simply because it might appear (which we do not decide) that the minority rule is based upon the sounder reason.

This court gave in the Sims case, supra, the following reason for the position which it then took: "In such matters it is important that uniformity should obtain...