WASHINGTON MECHANICS'SAV. BANK v. District T. Ins. Co.

• Decision Date: 29 May 1933
• Docket Number: No. 5759.,5759.
• Citation: 62 App. DC 194,65 F.2d 827
• Parties: WASHINGTON MECHANICS' SAV. BANK v. DISTRICT TITLE INS. CO. et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

62 App. DC 194, 65 F.2d 827 (1933)

WASHINGTON MECHANICS' SAV. BANK v. DISTRICT TITLE INS. CO. et al.

No. 5759.

Court of Appeals of the District of Columbia.

Argued April 7, 1933.

Decided May 29, 1933.

Rehearing Denied June 12, 1933.

Guy Mason and Robert A. Littleton, both of Washington, D. C., for appellant.

Hugh H. Obear and Jo. V. Morgan, both of Washington, D. C., for appellees.

Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, HITZ, and GRONER, Associate Justices.

MARTIN, Chief Justice.

An appeal from a judgment against a collecting bank for the proceeds of a check collected by it upon a forged indorsement.

It appears that on March 27, 1929, the appellees, who are title insurance companies acting conjointly, and are hereinafter called the title companies, had occasion in the ordinary course of business to pay to one Johnson the sum of $1,576.84 in settlement of a note. They were informed that one De Veile held the note for collection as agent for Johnson, and that payment should be made to him. They accordingly prepared and signed a check for the amount in question, payable to De Veile, and placed it in the hands of a messenger for delivery to him upon receipt of the note. The messenger at once called at the office of De Veile for the purpose of delivering the check and receiving the note. Upon reaching the office he was informed that the note was no longer in De Veile's possession but had been returned to Johnson.

The messenger thereupon returned the check to the companies' settlement clerk, who placed it in the "settlement jacket," which was put in the clerk's desk until closing time, and then with its contents was placed in the companies' safe. The settlement clerk did not look for the jacket again until in September 1929, when the companies were called upon by an attorney to pay the note for which the check had been written. Thereupon the settlement clerk opened the settlement jacket in order to find the check which he supposed was in it. After an extensive search he reported to his superior officer that he was unable to find the check, and he was told to draw a new check to the holder of the note for the amount thereof, which was done.

It is the unmistakable effect of the testimony that one Hagerty, then employed in the office of the title companies, had stolen the check; that one Crowley had received it from Hagerty, and had deposited it for credit with the appellant bank where be kept an account. When so deposited the check bore a forged indorsement of the name of De Veile, the payee named in the check. The appellant bank deposited the check in its account with the District National Bank of Washington, which in turn indorsed the check and sent it through the clearing house of Washington for collection from the National Bank of Washington, which was the drawee bank. The latter bank paid the check and charged it to the account of the title companies on August 17, 1929. The appellant bank, accordingly, thereby received the proceeds of the check, and credited the same to the account of Crowley.

After the check was paid by the drawee bank and charged to the account of the title companies, it was returned to them as a canceled check bearing the forged indorsement of De Veile.

Thereupon the title companies, as plaintiffs in the lower court, sued the appellant bank for the conversion of the proceeds of the check. The defendant bank filed a plea which in effect denied the allegations of the declaration for want of information concerning the truth of the same, and charged neglect upon the part of the plaintiffs because of their delay in making known the forgery to the defendant.

The case went to trial upon this issue, but in the course of the trial it was conceded by the plaintiffs that they had been fully reimbursed for the amount of the check by the bonding company which was surety upon Hagerty's bond as employee of plaintiffs. This fact did not appear in the pleadings in the case, nor did either party request leave to amend its pleadings in the course of the trial. The trial court, however, charged the jury in part as follows: "The fact that the plaintiff has been reimbursed by a bonding company which bonded the employee Hagerty and has made some agreement with the bonding company about bringing this suit does not prevent the plaintiff from recovering. It might if it chooses sue in its own name; and what it may do with the amount received does not concern us here at all."

The jury returned a verdict for the plaintiffs; judgment was entered by the court upon the verdict; and this appeal was taken.

In our opinion it is clear that, when the appellant bank collected the check bearing the forged indorsement, a right of action accrued to the title companies against it for the recovery of the proceeds, as for money had and received or for conversion.

In Merchants' Bank of Washington, D. C., v. National Capital Press, Inc., 53 App. D. C. 59, 288 F. 265, 266, 31 A. L. R. 1066, it appeared that the bookkeeper of plaintiff extracted certain checks from the mail, indorsed the checks without authority in plaintiff's name, cashed them at defendant bank, and appropriated the proceeds to his own use. The checks were collected by defendant from the respective banks on which they were drawn. A judgment against the collecting bank for the amount of the checks was affirmed by us. In the opinion, written by Mr. Justice Van Orsdel, we said: "The checks, when received and collected by defendant, were the property of plaintiff, and plaintiff's title therein could not be defeated by a forged indorsement. Plaintiff's title remained the same as it was before the forgery was committed; hence, when defendant received the money on the checks, it had no more title to the money than it had to the checks, and plaintiff could recover the amount collected on the checks in an action for money had and received. This rule is sustained generally in the states, and we have not been cited to any federal authority to the contrary."

In Morse on Banks and Banking, vol. 1, § 284, p. 491, it is said: "If a negotiable instrument having a forged indorsement comes to the hands of a bank and is collected by it, the proceeds are held for the rightful owners of the paper and may be recovered by them although the bank gave value for the paper, or has paid over the proceeds to the party depositing the instrument for collection."

This rule applies in the case of a check which is stolen from the drawer before it has passed to any other person. In Morse on Banks and Banking, vol. 2, § 424, p. 1069, it is said: "If, before the title to a check has passed to any other person than the drawer it be dishonestly or fraudulently obtained from him, and the money collected on it through a forged indorsement, even though the party who finally actually collects the money is an innocent holder for value, the drawer may maintain his action to recover the...