City Bank of Houston v. First National Bank

Gould, Associate Justice. This suit was brought by the First National Bank of Houston, to recover of the City Bank of Houston the sum of $1,980, alleged to have been paid by mistake. A brief history of the transaction will be necessary. On February 19, 1872, the Texas Banking and Insurance Company of Galveston issued to a stranger, claiming the name of D. J. Wallace, the following check: — 212 — “ $20. The Texas Banking and Insurance Company, Galveston, Feb. 19, 1872. ' Pay to the order of D. J. Wallace, in current funds, twenty dollars. . Alphonse Lauve, Cashier. No. 364. To First National Bank, Houston.” After its issuance this check was fraudulently altered, so as to read as follows: “$2,000. The Texas Banking and Insurance Company, Galveston, Feb. 17, 1872. Pay to the order of D J. Wallace, in current funds, two thousand dollars. Alphonse Lauve, Cashier. No. 364. To First National Bank, Houston.” In this altered condition the check was, on February 25 or 26, presented to plaintiff; but the party presenting failed to identity himself satisfactorily as the payee Wallace, and payment was refused. At the time, Wallace was accompanied by Mr. Gray, assistant teller of the City Bank, who said: “This is Mr. Wallace, or a man of that name, who keeps an account with us; that is, under that name.” This was deemed insufficient; and Gray, refusing to indorse for him, payment was refused. On or about March 4 the altered check was purchased by C. B. Johns & Co., a banking firm at Austin, Texas, of a ■ party who was introduced to them by a person known to them as D. J. Wallace, and who in that name indorsed to them the check. They indorsed it to their 'correspondents and agents, the City Bank of Houston for the purpose of collection. On the morning of March 6 the check thus indorsed was presented by the City Bank to the National Bank, and was by the latter pronounced goodj and on the evening of that day, in accordance with the custom of these banks, the City Bank indorsed the check and received credit for the amount — 213 — as so much cash. When the check was pronounced good, the City Bank gave Johns & Co. credit for the amount, and notified them of the fact. It was the custom of the Texas Banking and Insurance Company and the First National Bank of Houston to transmit to each other, between the 1st and 3d of each month, an account current, showing the transactions between them for the preceding month. This account for February had been transmitted and received by the First National Bank, and entered up by its book-keeper before "the presentation of the check on March 6, and showed check No. 364 to be for $20 and of date February 19, and of course did not show any check corresponding to the one paid. The check was examined at this time by the officials of both banks, who detected no evidences of its having been altered. On the 3d day of April, on the interchange of accounts for the month of March, the alteration of the check was discovered, or at least was suspected; and, after inquiry of and hearing from the drawer, was made known at once to the defendant. The facts seem only to have been fully ascertained some days afterwards, after a trip by the president of the National Bank to Galveston, made for the purpose, and formal demand for the return of the money was not made until April 9. The defenses set up were: That the plaintiffs had notice that no such check had been drawn on them at the time of the payment; that the check, prior to any indorsement by defendants, had been submitted to the plaintiffs and pronounced by them to be good, thereby virtually accepting the same; and that, upon the faith of that acceptance, defendants indorsed said check and credited their correspondents with the amount thereof; that, by the negligence of the plaintiffs in failing to inform defendants that the check was raised, all remedy against Wallace had been lost; and that by this negligence and by its acceptance plaintiffs were estopped. — 214 — It was also alleged that the drawers of the check had been guilty of negligence in failing to use a perforating instrument then used by bankers. The evidence developed the facts already stated. There was no evidence that the interchange of monthly accounts was adopted for the purpose of detecting forgeries or alterations, or that there was any custom of bankers to refer to such accounts before paying the checks of their correspondents, though one witness says, as a matter of prudence, he could do so. On the other hand, there was evidence that .such a use of these accounts by the paying teller would be unusual, and that they were used for the purpose of correcting errors, striking balances, and seeing that books agree. The book-keeper examined them, compared them with the books, and reported to the cashier. The same book-keeper entered up each night the chocks paid that day. The bookkeeper who entered up the payment of $2,000 on check No. 364, on the night of March 6, had already examined the account current, which showed that check to be for $20, but testifies that he did not detect the discrepancy until the next monthly account was received. The evidence showed that it was customary to collect checks between the banks by presenting them in the morning for recognition; and if they were pronounced good or all right, they were considered as paid. The transaction was consummated on the afternoon of the same day, when the checks were indorsed and treated as so much cash. Everitt, a member of the firm of O. B. Johns & Go., testified that they were first advised of the check being raised, by letter from the cashier of the City Bank, on April 11th; that he at once commenced search for Wallace, but did not find him. Had he been promptly advised of the forgery, thinks he could have overtaken or found Wallace. If he had been telegraphed ahead twenty-four hours, don’t think Wallace could have got out of the State without his catching him. Considers his recovery from Wallace entirely lost. There — 215 — is no other evidence whatever as to damage resulting from the delay to discover and give notice of the forgery, unless it be the statement of the cashier of Johns & Co. that he paid Wallace ten thousand dollars for the check; that Wallace was introduced by a person whom he believed responsible. Thought they would have recourse on him, but did not know that the money could be made out of him. It does not appear to be seriously contended that the Texas Banking and Insurance Company was guilty of any negligence in the manner of drawing the genuine, check No. 364, though there is some evidence in regard to the utility of a perforating instrument in preventing the successful alteration of checks. So much of the charge of the court as is material is as follows: “ 2. If you believe from the evidence that the check in evidence was, without negligence in the manner of its drawing, drawn by the Texas Banking and Insurance Company of Galveston, in favor of D. J. Wallace, for twenty dollars, ($20;) wan-, after it came to the possession of Wallace, raised by him so as to make it a check for two thousand dollars, ($2,000;) and after such material alteration, sold and indorsed it to C. B. Johns & Co., for value, and without notice to Johns & Co. of such alteration; and if Johns & Co. sent it through their correspondents, the City Bank of Houston, who, in due and usual course of dealings, collected same from the First national Bank of Houston, and passed the same up to the credit of Johns & Co. on the books of the City Bank; if you further believe from the evidence that within a reasonable time after discovery of the alteration the First national Bank notified the. City Bank of such alteration, — find for the plaintiff $1,980 and eight per cent, per annum interest thereon from date of notice to the City Bank against City Bank, and find over in favor of City Bank against Johns & Co. “ 3. If satisfied from the evidence that when plaintiff paid the check it knew that the same had been altered and raised, — 216 — then it cannot recover — you to ascertain from all the evidence whether in fact plaintiff, when it paid to the City Bank the $2,000, knew of the forgery. “4. If from the evidence you are not satisfied that there was any alteration in the check after its delivery, to the drawer, find for defendant. “ 5. If the indorser took the check from the payee after its alteration, in a material respect from a stranger, without inquiry, although in good faith, for value, and gave it currency and credit by indorsing it before receiving payment of it, the drawee may recover back the money paid.” The defendant, amongst other instructions, asked the following, which were refused: “ 3. When one of two innocent parties must suffer, he must sustain the loss who has been most negligent; and if in tins ease you find that either one of the parties to the suit has contributed more than the others, by negligence or failing to use the information in his possession, to delay the exposure of the forgery, you will find a verdict against that party. “ 7. If the plaintiff had notice at the time of paying the check that its correspondent’s check for that number was for but twenty dollars, it is nó excuse for the plaintiff that its officers had forgotten or failed to look at the information at the time of paying the check. Notice to the bank is binding upon the bank, no matter how the duties of its subordinate agents may be arranged. “ 8. If the First National Bank of Houston was advised on the day (or before) of the payment of the check that their correspondent’s check for that number was a twenty-dollar, and not a two-thousand-dollar check, and neither the defendant nor intervenors had such notice, then the plaintiff' cannot excuse itself in delaying for more than a month to advise the holder of the forgery; and such delay is negligence ■which entitles the defendant to recover. “ 9. If you believe from the evidence that the defendant, before indorsing the check, had the same presented to the — 217 — plaintiff for recognition and. credit, and was induced by the declarations of plaintiff that the check was good to credit G. R. Johns & Co. with the face of the check, and to indorse the name of the defendant on the check before payment to defendant, then the plaintiff is estopped from now recovering the amount from defendant, and you will find for defendant. - “ 10. That if you believe that the plaintiff, at the time of paying said check, had information from the drawer of the same that the check having the number of the one described in the petition was but for twenty dollars originally, and defendants obtained the check in good faith and had no such information, then plaintiff cannot recover, and you will find for the defendant.” It should be remarked that Johns & Go. intervened in the case and assisted in the defense. There was a verdict and judgment for the plaintiff, from which the defendant appeals, the errors assigned and urged being in the charge of the court as given, and the refusal of the charges asked. tinder the evidence, we think that the plaintiff was entitled to recover, and that there is no error in the instructions given or refused requiring a reversal of the cause. The indorsement of the check by Johns & Go. and by defendant amounted to a representation and warranty that it was genuine. (2 Pars. on Notes and Bills, 589, and ref.) The plaintiff might well rely on tins responsibility of defendant, and make payment when demanded, secure in being reimbursed if the check should prove to have been raised. (Morse on Banks, 310; Ellis & Martin v. Ohio Life and Trust Company, 4 Ohio, 628.) The payment being made under a mistake, and to a party who substantially contracted that there was no such mistake, the bank, being under no such obligation and not being otherwise estopped, is entitled to recover the money. The general rule is that money, paid under a mistake of fact,-may be recovered back, and that, too, although the party may have had the means of knowledge. (1 Story on — 218 — Cont., secs. 410, 422, and ref.; Kelly v. Solari, 9 Mees. & Well., 54; Waite v. Leggett, 8 Conn., 195; Bell v. Gardiner, 4 Mann. & Grang., 11; see also Kerr on Fraud and Mis., 415, and ref.) In the recent case of National Bank of Commerce v. National Mechanics’ Banking Association, (— New York Court of Appeals, 1874,) the court say: “On general principles,^ mere negligence in making the mistake is not sufficient to preclude the party malting it from demanding its correction. ( Such negligence does not give to the party receiving the I payment the right to retain what was not his due, unless he \ has been misled or prejudiced by the mistake. If the loss I had been incurred and become complete before the payment, f he should not, in justice, be permitted to avail himself of the j mistake of the other party to shift the loss upon the latter.” In this case it is evident that the loss had been incurred by Johns & Co. when they purchased the raised check from an irresponsible party. The subsequent mistake of the plaintiff, in paying this altered check to the defendant, the agent of Johns & Co., should not serve to shift the loss, unless defendant or Johns & Co. have been damaged in some way by the laches of plaintiff, or unless there is some rule of law prohibiting the latter from setting up the mistake. If the forgery had been in the signature of its correspondent, it is well settled that there'is a rule of law forbidding the bank from setting up such a mistake. (Morse on Banks, 295, and ref.; Price v. Neil, 3 Burr, 1355; Bank of United States v. Bank of Georgia, 10 Wheat., 333.) In such a case the mistake is covered by a failure on the part of the bank to fulfill its acknowledged duty; -that is, to know tire signature of its correspondent or customer. (Id.) "But it is now also settled that this rule does not apply to altered or raised checks, as to which the acceptor or drawer is not presumed to be better able than the indorser to detect the alteration. (Bank of Commerce v. Union Bank of New York, 3 Comst., 230; Espy, Heidelbach & Co. v. First — 219 — National Bank of Cincinnati, 18 Wall., 604; National Park Bank v. Ninth National Bank, 55 Barb., 87.) If, then, the plaintiff is estopped in tins case, it is not because of any rule peculiar to the mercantile law, but because the facts bring the case within the general principles of estoppel. It is true that there are early authorities which hold a party paying a forged draft to great diligence in giving notice. The modern doctrine is believed to be that, as against one who passes a raised bill or check, and especially in favor of a drawee who pays to such a party on the faith of his indorsement, and in so doing violated no obligation or duty, reasonable diligence is all that can be required; and where that is exercised, and no damage has resulted from the delay, the right to recover is not lost. (2 Pars. on Notes and Bills, 598, and ref.; National Bank of Commerce v. Mechanics' Bank N. Y., 18 Wall., supra; 3 Comst., supra.) In this case there is no evidence which would support a verdict to the effect that the delay in detecting and giving notice of the forgery after March 6th has deprived defendant, or Johns & Co., of any remedy, or has in anywise injured either of them. It is not shown that Wallace remained in Austin, or in reach of Johns & Co., for a single day after the sale on the fourth. The opinion of Everitt that he could have overtaken him, if he had received notice, in twenty-four hours, is not evidence which would support a verdict of damage. Because, then, there was no evidence of damage to defendant or Johns & Co. from the alleged negligence and delay of plaintiff, the refusal of the court to give the instructions asked becomes immaterial. Under the evidence it satisfactorily appears that the presentation of the check for recognition as good was not for acceptance, but was really a mode of payment, adopted for the convenience of the banks. The payment was consummated on the settlement of the day’s transactions. Certainly there was no evidence to justify the charge asked on that sub — 220 — ject, becausé there is nothing to indicate that the presentation, if not for payment, was intended or understood to be for any other purpose than to be informed as to the signature of the drawer and the state of his account. (18 Wallace, supra.) Because we find no error, the judgment is affirmed. Aeeirmed.