United States Cold Storage Co. v. Cent. Mfg. Dist. Bank

• Decision Date: 23 April 1931
• Docket Number: No. 19647.,19647.
• Citation: 175 N.E. 825,343 Ill. 503
• Parties: UNITED STATES COLD STORAGE CO. v. CENTRAL MFG. DIST. BANK.
• Court: Illinois Supreme Court

343 Ill. 503

175 N.E. 825

UNITED STATES COLD STORAGE CO.

v.CENTRAL MFG. DIST. BANK.

No. 19647.

Supreme Court of Illinois.

April 23, 1931.

Error to Third Branch Appellate Court, First District, on Appeal from Circuit Court, Cook County; John R. Caverly, Judge.

Action by the United States Cold Storage Company against the Central Manufacturing District Bank. A judgment on an instructed verdict for defendant was reversed by the Appellate Court, which rendered judgment for plaintiff (251 Ill. App. 279), and defendant brings certiorari.

Judgments of the Appellate Court and the circuit court reversed, and cause remanded for a new trial.

Winston, Strawn & Shaw and Litsinger, Healy & Reid, all of Chicago, for plaintiff in error.

Eugene P. Kealy and Floyd E. Thompson, both of Chicago, for defendant in error.

Barber & Barber, Brown, Hay & Stephens, Edward F. Irwin and Carl A. Sorling, all of Springfield (Logan Hay, of Springfield, of counsel), amici curiae.

DUNN, C. J.

The question to be determined in this case is whether a bank which has paid a check drawn upon it by one of its depositors, a corporation, payable to the order of a named person upon the forged indorsement of the payee, can successfully defend against the reimbursement of the depositor upon the ground that the check, after being prepared for execution under the direction of an employee of the corporation who furnished the name of the payee and the information for the voucher attached to the check, but who was not authorized to sign the check separately or jointly with any other person, was presented by such employee to two other employees of the corporation who were authorized to execute the check by signing it jointly, and did so execute it in reliance upon the information furnished by the first employee, and where it further appeared that the depositor was not indebted to the payee, and the check was not delivered to or indorsed by the payee, but was cashed by another bank than that on which it was drawn, upon a forged indorsement of the payee's name, and was subsequently paid by the bank on which it was drawn. The action was assumpsit in the circuit court of Cook county by the United States Cold Storage Company against the Central Manufacturing District Bank to recover the amount of fifty checks drawn by the plaintiff on and paid by the defendant and charged to the plaintiff's account. At the close of the plaintiff's evidence the court instructed the jury to find a verdict for the defendant, upon which judgment was rendered. The plaintiff appealed to the Appellate Court, which reversed the judgment and rendered judgment against the defendant for $6,148.97, the amount of the checks, with interest. The record has been certified to this court as a return to a writ of certiorari.

The plaintiff, a depositor in the bank, did an extensive business, had many customers and employees, and issued many checks. The regular course of business with regard to drawing checks on the bank was that the checks were made out on a typing machine according to instructions given to the typist by the voucher writer. This was usually Arnold P. Meister, who was the plaintiff's chief clerk and had charge of the office. A carbon copy of each check was made, and this copy was initialed by the department head, and on this initialing or O. K. the check was signed by the officials having authority to sign it. The checks that went through the office department came under Meister and on his initial or O. K. were signed. No further investigation was made by those signing except to see that on the voucher there was a memorandum of some sort showing who O. K.'d it. The information on the voucher was taken from the books of the company. Meister was in the employ of the plaintiff from 1920 until October, 1924. The first of the checks involved in this suit was dated June 3, 1923, and the last, October 25, 1924. They were all prepared in the usual course of business by the typist under the direction of Meister, and were presented by him, with the voucher attached furnishing the information upon what consideration the check was based, to officers or employees of the plaintiff who were authorized to sign the check jointly. There were four officers or agents of the plaintiff who were authorized to sign checks, and the signatures of two of the four were required upon each check. The checks were not signed unless accompanied by the duplicate voucher bearing the proper O. K. None of the agents signing the check had anything to do with its preparation or usually knew anything about it or the consideration for it except what appeared on the face of the voucher attached to it. When the check, with the voucher so attached, bearing the O. K. of the proper person, was presented, the agents were authorized to execute the check. The fifty checks in question here were drawn payable to seven different customers of the plaintiff, and the plaintiff at the time was not indebted to the respective payees. After the indorsements of the payees had been forged the checks were cashed through other banks than the defendant and were subsequently paid by the defendant, on which they were drawn. After the checks had been paid by the defendant, Meister disappeared, and, so far as the record shows, has not since been seen.

It is well settled that the obligation of a bank to its depositor is to pay his checks, up to the amount of his deposit, according to his direction, and if that direction is to pay to a person named, or to his order, the bank must ascertain at its peril the identity of the person named as payee or the genuineness of the indorsement if the check is presented by an alleged indorsee. The defendant does not question this legal proposition, but bases its defense on the claim that the checks were all payable to bearer because, as it says, they were payable to living persons not intended to have any interest therein, and, so under paragraph 3 of section 9 of the Negotiable Instruments Law (Smith-Hurd Rev. St. 1929, c. 98, § 29, par. 3), were payable to bearer; and for this proposition it cites in its brief Bartlett v. First Nat. Bank, 247 Ill. 490, 93 N. E. 337, and in its argument many other authorities. The foundation of its whole defense is that the intent of Meister, the chief clerk, who presented the checks for signature and presumably received the money for them, was the intent of the plaintiff. These checks were all made payable to living persons, and, if such living persons were not intended by the drawer to have any interest in them, the checks were legally payable to bearer. Meister had nothing to do with drawing any one of these checks. He was simply one of the agents of the plaintiff in collecting the information upon which the check was based and caused the check to be prepared for signature. His intention in regard to the check was of no importance, for he had nothing to do with giving it vitality. Even if he was expected, as a messenger, to deliver the check to the payee, his intention to deliver or not to deliver it could not affect the character of the check. If there still remained the duty for him to perform of delivering the check to the payee by mail or otherwise, his intention to betray his employer, disregard his duty, steal the check, and forge the payee's name would not become the intention of the plaintiff, whose agent he was only for certain limited purposes, which did not include the drawing of checks.

The case of Bartlett v. First Nat. Bank, supra, has no resemblance to this case. There Walsh, the faithless agent who drew the draft payable to a third person, to whom he never intended to deliver it, not intending that the payee should ever have possession of the draft or any interest in it, had complete authority to draw the draft against his employers, who were acquainted with his method of drawing drafts and getting the cash on them and had the benefit of his acts in their business, knowing how he was conducting the business. The drafts, after being drawn by the plaintiffs' agent, were indorsed by him in the name of the payee and paid to him by the State Bank of Reddick, in Kankakee county, which indorsed and delivered them to the defendant, the first National Bank of Chicago, and the latter bank collected them of the plaintiffs, on whom they were drawn. The declaration consisted of the common counts, the general issue was filed, and the liability of the defendant was based upon its guaranty, by its indorsements of the drafts, of the genuineness of the payees' indorsements. The judgment in favor of the defendant was affirmed on two grounds: First, that the negligence of the employers was so great that they ought not, as a matter of law, to be permitted to recover from the bank the amounts of the drafts upon which the names of the farmer payees were forged by the agent, Walsh, the drawer of the drafts, who they knew was drawing drafts against them with which to obtain money from the bank to pay for grain which he was buying for their account and was wrongfully indorsing the names of the payees in whose favor the drafts were drawn, upon such drafts. They knew he was short upon grain which he had purchased for them, and they also knew that he persisted in drawing drafts and indorsing them in the names of the payees after they had forbidden him to do so, and knowing these things they retained him in their employ and permitted him to continue drawing and indorsing such drafts without informing the banks which were handling such drafts of the fact that Walsh was wrongfully indorsing them. The employers were therefore held responsible for the drafts so drawn and indorsed, on the principle that, when one of two innocent parties must suffer loss by reason of the wrongful acts of a third person, the one who by reason of his negligence has made it possible for the third party to commit the wrong must stand the loss. Second, the drafts were drawn by the plaintiffs at...