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

*463 Ethridge, J., delivered the opinion of. the court. These two cases are governed by the same principles, and largely by common facts. The case of Philip Gruner & Bros. Lumber Co. v. Citizens’ National Bank et al., No. 25235, was a suit against the bank and J. L. Hart as indorsers and guarantors of a draft drawn by J. Gr. Roy on the appellant in favor of Burkes Bros. Lumber Company in the following words: “The Central National Bank of St. Louis. “St. Louis, Mo., 9 — 16—1920. “At sight pay to the order of Burke's Bros. Lbr. Co., Forest, Miss., R. F. D. No. 1,'$500.00, five hundred and no/100 dollars, value received, and charge to the account of J. Gr. Roy. “Philip Gruner & Bros. Lbr. Co., “St. Louis, Mo.” Written across the back of the draft were these words: “We accept this draft as an advance payment on car 21348 M. K. T. By Burkes Bros. Lbr. Co., per E. G. Burkes.” The draft was presented by Roy to the bank for payment, and the bank agreed to pay the draft, if J. L. Bart wpuld indorse it. Roy then indorsed the draft, secured Hart to O. K. and indorse it, and presented it to the bank, who paid the money to Roy. The bank indorsed the note as follows: “Pay any bank, banker or trust company (all prior indorsements guaranteed). September 16, 1920. Citizen’s National Bank, Meridian, Miss. 85 — 21. Paul Brown, Cashier, 85 — 21.” The draft was forwarded to the correspondent of the Meridian bank at St. Louis, was presented to the appellant, and paid. As a matter of fact, the draft was a forgery; no lumber having been bought from Burkes Bros. Lumber Company on this occasion and Burkes Bros. Lumber Company being a stranger in fact to this transaction. The *464 appellant discovered this about September 27, 1920, but did not immediately make any demand on the Meridian bank or on Hart for payment. Such demand was made of them in the latter part of November or the first of December, 19201. Philip Gruner & Biros. Lumber Company notified the collecting* bank of St. Louis of the forg’ery promptly. The appellees refused to pay, and this suit was brought. While these suits were pending, some negotiations took place between the appellant and Mrs. Boy, the wife of J. G. Boy, and about six hundred twenty-five dollars was paid by Mrs. Boy to the appellant. There was some dispute about the application of this sum. of money received from Mrs. Boy; the appellant, contending it was applied on the other indebtedness owing the appellants by Boy, while Mrs. Boy contended that the amount paid was to be applied to the payment of these drafts. The circuit court gave a peremptory instruction in favor of the banks and J. L. Hart. In the other case, Philip Gruner & Bros. Lumber Co. v. First National Bank, et al., No. 25247, a similar draft was made out by Boy payable to G. W. Luke Lumber Company, of Noxapater, Miss., for four hundred forty-five dollars, which was indorsed: “We accept this draft as an advance payment on car No. 17665 W. P. By G. W. Luke Lumber Co., per G. W. Luke.” It was indorsed: “O. K. J. L. Hart, J. G. Boy. Pay to the order of any bank, banker, or trust company. (All prior indorsements guaranteed.) Aug. 6, 1920. First National Bank of Meridian, Miss., and the money thereon paid to J. 85 — 20. ’ ’ This draft was presented to the First National Bank of Meridian Miss., and the money thereon paid, to J. G. Boy, and the draft was forwarded, with the above indorsement, to the bank’s correspondent in St. Louis, Mo., where it was paid on presentation. Luke had sold the *465 carload of lumber through Boy, and the lumber in this case was actually shipped by the G. W. Luke Lumber Company, but Luke knew nothing] of the draft, ’and the forgery in this case was not discovered until several months later, when the Gruner Bros. Lumber Company sent a statement of the transaction to Luke, and included in that statement the amount paid on the draft here involved. Luke contended he had never received such money, and insisted on payment for the car of lumber shipped, which payment was made after discovery of the forgery of the drafts herein referred to. It appears further, that J. G. Boy had been buying-lumber from Burkes Bros. Lumber Company under an arrangement between him and the Gruner Bros. Lumber Company whereby he was authorized to send a proposed sale to the St. Louis' office of the Gruner Bros. Lumber Company, as to which, when approved by them, he was permitted to make out a draft upon the Philip Gruner Bros. Lumber Company in favor of. the sellers for eighty per cent, of the purchase money. Such draft was to be indorsed on the back by the seller of the lumber and the car number of the car of lumber in the manner above indicated and signed by the buyer acknowledging receipt of the money in part payment of the purchase money for the lumber. Boy did not have power to draw drafts generally or to buy without the approval of the appellant according to the appellant’s evidence of Boy’s authority, which was the only specific evidence relating to such authority in the record. As stated above, the court granted a peremptory instruction in favor of the appellees. It is familiar learning that parties dealing- with an agent must know the extent of his authority. It was evidently the theory of the court below that the failure to promptly notify the banks at Meridian and the indorsers on the note of the forgery constituted negligence, releasing the banks of their obligations arising- from their indorsement and guaranty. *466 We think that, when the indorsements of the payees of the draft were guaranteed by Hart and by the banks, it constituted a contract under which they were not entitled to a notice of forgery. They undertook to guarantee that the indorsements of all of the parties on the draft were genuine, and that the parties dealing with it after such guaranty were entitled to rely upon that contract, and that there was no such duty devolving upon the appellant to give notice of what they had expressly guaranteed to be genuine was not so in fact. Furthermore, if appellant was under any duty in that regard, the time was not unreasonably long, and no change of situation or detriment to- the bank and Hart is shown to have resulted from delay in giving such notice. It further appears that another draft had been forged by Buy and sold to one- of the banks, and, when that forgery was discovered, the appellant wrote to the bank involved in that draft notifying it of the discovery of the forgery, and stating: “We, of course, have paid this draft and taken care of it, so your bank is out nothing.” We do not think this other transaction affected the present one. If the appellant had insisted on the payment of the other draft, without a waiver of his' rights, it could doubtless recover thereon. Appellee insists that1 under the Negotiable Instrument Act, par. 9 (Hemingway’s Code, section 2587), an instrument is payable to bearer when it is payable to the order of a fictitious or nonexistent person, and that such fact was known to the person drawing the same so this controls here, and makes the draft here payable to the fictitious person, and, therefore, to bearer under this section. The record shows that the appellant was buying, and had bought, lumber from the payees of the draft here involved on prior occasions, and the indorsements required under these drafts were not intended to be fictitious, but to be actual transactions in payment for actual lumber bought, and were not, therefore, pay *467 able to a fictitious person within the rule above provided. Therefore, the cases of Snyder v. Corn Exchange National Bank, 221 Pa. 599, 70 A. 876, 128 Am. St. Rep. 780; Hortsman v. Henshaw, 11 How. 177, 13 L. Ed. 653, and other eases holding in accordance with them, are not here applicable. We therefore think the judgment of the court below was erroneous, and the cause is reversed and remanded. Reversed and remmided. Anderson and Cook, JJ., dissent.