National Bank of Sanford v. Marshburn

Ervin, J. The case at bar is somewhat novel in origin. Fundamentally, however, it presents for decision the perplexing problem constantly recurring in various guises as to which one of two innocent parties must bear a loss occasioned by some third person. It is well to note here the circumstances under which the defendant, C. II. Cobb, Trustee, acquired and collected the check. Since the paper was a negotiable instrument, and since he took it in payment of an antecedent or pre-existing debt, he purchased it for value within the meaning of the negotiable instruments law. G. S., 25-30; G. S., 25-192; Manufacturing Co. v. Summers, 143 N. C., 102, 55 S. E., 522; Mauney v. Coit, 80 N. C., 300, 30 Am. Rep., 80; Reddick v. Jones, 28 N. C., 107, 44 Am. Dec., 68. He acted in the utmost good faith in taking, presenting, and collecting the check. His status as a bona fide holder was not altered in any way by his knowledge that there were no funds on deposit with the plaintiff to meet the check at the time he accepted it. The check was to be presented for payment at a time when it was represented that such funds would be available in the plaintiff bank. Johnson v. Harrison, 177 Ind., 240, 97 N. E., 930; 10 C. J. S., Bills and Notes, section 331; 8 C. J., Bills and Notes, section 720. The case agreed shows that the defendant, C. H. Cobb, Trustee, was not guilty of any fault causing or contributing to the plaintiff’s mistaken belief as to the identity of the drawer of the check. And, finally, he received the money in suit without any reason to know that its payment was made by the plaintiff bank under a mistake. When all is said, our case comes to this : Should a drawee bank be permitted to recover back from an innocent holder for value money paid by it to such holder upon a check because of its mistaken belief that the signature of the drawer on the check was that of a depositor bearing the same name? The plaintiff insists that this question should be answered in the affirmative because of the general principle of law that money paid under a mistake of fact may be recovered from the payee by a payer who was under no legal obligation to make the payment. Harrington v. Lowrie, 215 N. C., 706, 2 S. E. (2d), 872; Sparrow v. Morrell Co., 215 N. C., 452, 2 S. E. (2d), 365; Morgan v. Spruill, 214 N. C., 255, 199 S. E., 17; Simms v. Vick, 151 N. C., 78, 65 S. E., 621, 24 L. R. A. (N. S.), 517, 18 Ann. Cas., 669. The plaintiff’s position finds support in cogent arguments. Nevertheless, our study of the conflicting considerations involved leads us to the opposite conclusion. Consequently, we hold that the question at issue ought to be answered in the negative. *107 The case agreed contains no intimation that the debtor, James Marsh-burn, drew the check giving rise to this litigation with any intent other than the honest one of having funds on deposit with the plaintiff bank to cover the check on its presentation for payment on or after 1 March, 1947. Yet, the factual situation is in essence the same as it would have been if the drawer, James Marshburn, had deliberately forged the signature of the depositor, the other James Marshburn, upon the check. This is true because the plaintiff bank paid the money in suit to the defendant, C. H. Cobb, Trustee, on account of its mistaken belief that the signature of the drawer, James Marshburn, appearing on the check was the genuine signature of its depositor, the other James Marshburn. Hence, it seems that in the absence of an exact precedent to guide us this case ought to be governed by the rule regulating the right of a drawee bank to recover back money paid by it upon a forged check to a bona fide holder for value and without fault. As the textwriter in 7 Am. Jur., Banks, section 576, has so well said, it “has been established beyond dispute that a drawee of a check upon which the signature of the drawer is forged cannot recover the amount paid thereon to a bona fide holder for a valuable consideration who is without fault in taking or negotiating the paper.” See, also, the following authorities to the same effect: 12 A. L. R., 1089-1116; 14 A. L. R., 496; 71 A. L. R., 337-345; 121 A. L. R., 1056-1062; 9 C. J. S., Banks and Banking, section 357; 7 C. J., Banks and Banking, section 417; Restatement of the Law of Restitution, section 33. This Court has recognized the soundness of this rule. Bank v. Trust Co., 168 N. C., 605, 85 S. E., 5, L. R. A. 1915D, 1138; Woodward v. Trust Co., 178 N. C., 184, 100 S. E., 304, 5 A. L. R., 1561. It has been said that the rule here considered is an exception to the general principle allowing recovery of money paid under mistake, and that it is “eminently fair and just, in the absence of fault or neglect on the part of the holder of a check to require the bank on which it is drawn to determine at its peril whether the signature of the maker is genuine, for it always has, or is supposed to have, knowledge on that subject and means of determining the question with reasonable certainty and safety, while the holder . . . may be, and often is, an entire stranger to the maker, having no knowledge or information as to the genuineness of the signature, and no convenient means of obtaining it.” Williamson Brink v. McDowell County Bank, 66 W. Va., 545, 66 S. E., 761, 36 L. R. A. (N. S.), 605. Often the “suggestion is made that the rule arises out of considerations of convenience as well as of commercial necessity; for it is said, throughout the entire business world bills of exchange and checks in large part serve as currency in each day’s business transactions, and it is not only convenient but necessary that there shall be a definite time and a fixed place for final settlement, and that *108 the best time and most appropriate place for such final settlement is the time and place when and where an instrument is presented to the drawee for payment.” First Nat. Bank v. United States Nat. Bank of Portland, 100 Or., 264, 197 P., 547, 14 A. L. R., 479. As the writer of the annotated article in 12 A. L. R., 1089-1116, has aptly declared, this rule “is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. Conditions would be intolerable if the retiring of commercial paper through its payment by the drawee did not close the transaction, but it was possible at an indefinite time in the future to reopen the matter, and recover the money, if the paper proved to have been forged. No one would dare handle it, and it would pass out of use regardless of its convenience or necessity as a part of the life of business.” These reasons apply with equal compulsion to the payment of a check by the drawee bank under the circumstances disclosed by the record here presented. The judgment of the Superior Court is reversed and the cause is remanded to such court for judgment in accordance with this opinion. Reversed.