Smith v. Mechanics & Traders' Bank

The judgment of the court was pronounced by Eustis, C. J. The plaintiff is a broker in this city; his business is that of discounting bills and notes. He kept an account with the Mechanics and Traders’ Bank; the banking house is opposite his office in Canal street. On tho 7th of November, 1850, the plaintiff discounted a forged bill, offered for discount by a person unknown to him. It purported to have been drawn by W. C. Ventriss on Payne and Harrison, a well known house in the city. The acceptance of Payne and Harrison was forged, and the forgery was a very bad imitation of their signature. The name of the drawer was forged. Of Garland, the payee and endorser of the bill, no account whatever is given, and the presumption is, that he is a fictitious person. The plaintiff gave a check on the bank, for the net proceeds of the bill, to the unknown person offering it for discount. It was drawn in favor of Payne and Harrison. Thej' kept no account with the bank, nor is any relation established by the evidence between them and the plaintiff, except that resulting from their forged acceptance of this bill. The check was paid, on demand, at the bank; the endorsement of Payne and Harrison having been forged. This forgery was also a very bad one; the name of Horrin was put in the endorsement, in the place of that of Harrison, which made it read Payne and Horrin. The payment of this check must be coneeded to have been gross negligence on the part of the clerk of the bank. The liability of the bank to Payne and Harrison, for having paid their'forged check, would be unquestionable, had they an interest in it. But they are entire strangers to the whole transaction ; they have no interest in the check, and no claim against the bank growing out of it. The plaintiff brings his action against the bank for money deposited, and the bank sets up this payment of the plaintiff’s check, with the forged endorsement of Payne and Harrison, as a defence to his action. As a general rule, it is undoubtedly true, that the banker is bound to pay on his customer’s order, and if, unfortunately, he pay a forged order, he alone must bear the loss. It is conceded, however, by the learned counsel, in their printed argument, that proof of extraordinary neglect on the part of the plaintiff, calculated to mislead the bank and facilitate the commission of the forgery, would justify the reversal of the judgment appealed from, which is in their favor. We think, that the current of decisions fully justifies this admission. Indeed, to exonerate the banker who pays a forged check, gross negligence, on the part of the customer, does not seem to be required. In the case of Young v. Grote, although the plaintiff was found to have been guilty of gross negligence n leaving blank checks with his wife, and depending on her to fill them up in such sums as his business might require, and in her delivering one of them filled up in such a manner that the sum could be easily altered, yet the chief justice, in — 617 — conceding the general rule, that the banker who pays a forged check is bound to pay the amount again to his customer, states, though that rule be perfectly well established, yet, if it be the fault of the customer that the banker pays more than he ought, he cannot be called upon to pay again. In support of this opinion, he cites the authority of Pothier, in commenting on the case put by Seacchia, and, in conclusion, adds, “we decide here on the ground, that the banker has been misled by want of proper caution on the part of his customer.” The evidence establishes nothing of neglect on the part of the plaintiff; on the contrary, it is urged, by counsel, as establishing great caution or prudence on his part, and a strict conformity with his course of business with the bank. It is not assuming, therefore, more than the evidence justifies, to consider that what was done by the plaintiff, he did from caution and with a view to protect his interests. There is no intimation of any want of correct conduct on his part in this affair, nor any evidence whatever to that effect. It must be considered as unimpeached, and that he acted according to his own views of his rights. It was admitted, on trial, that the plaintiff has, during several years, had large sums of money deposited in the bank, which he draws from time to time. Cazenave, who has had charge of the plaintiff’s books for four or five years, testifies, that in taking notes, it is the habit to draw checks for the proceeds to the order of the persons for whom they are discounted, as it often happens that clerks of commercial houses with whom he deals, call for the proceeds of paper discounted for their employers. The teller of the bank testifies, that the plaintiff does a large business with the bank. He generally draws his checks to order; in some instances, they have been made payable to bearer. There is no particular understanding between the plaintiff and the bank, as to their mode of doing business. As the light of the plaintiff to recover, depends upon his conduct in the business for which the check was given, it is necessary to consider it in relation to those rules of law, which must always control the acts of merchants and bankers, in their dealings with each other. That the relation between a bank and its customers requires perfect good faith, is conceded; and, we conceive, that the caution required from the customer, in his transactions with the bank, is established by the decisions of the highest authority in mercantile matters, which have been cited by counsel. It is admitted, that the person who passed the forged bill to the plaintiff, was a stranger and unknown to him. Let us examine how the law considers the' taking of a bill under these circumstances. The rule may be considered established, that a discounter, or man whose business it is to buy bills, is not in the same situation as a bank, whose business it is to pay, and greater caution is required from the discounter than the bank. Snow v. Peacock, 12 English C. L. Rep., 98. Byles on Bills, 85. In Gill v. Cubitt, 10 Eng. C. L. Rep., 216, Abbott, Chief Justice, says: “It appears to me, that no person should take a security of this kind from another, without using reasonable caution. If he take such security from a person whom he knows, and whom he can find out, no complaint can be made of him. In that case, he has done all any person could do. But, if it is to be laid down as the law of the land, that a person may take a security, of this kind, from a man of whom he knows nothing, and of whom he makes no inquiry at all, it appears to me, that such a decision would be more injurious to commerce than convenient to it,, by reason of the encouragement it would afford to the purloining, stealing, and defrauding persons of securities. The interest of commerce requires, that bond fde and real holders of bills, known to be such by those — 618 — with whom they are dealing, should have no difficulties thrown in their way in parting with them. But it is not in the interest of commerce, that any indiv^ua^ sh°uld he enabled to dispose of bills or notes, without being subject to inquiry.” Bayley, Justice, states: “I agree that the way in which my lord chief justice put this case for the consideration of the jury, by asking what would be the case, if a man were to put over his shop, ‘ bills discounted for strangers, if they have good names on them, without any questions being asked,’ was a very strong way of putting the case for their consideration.” The opinion delivered by the chief justice was fully concurred in by the other judges. In Snow v. Peacock cited, in the Common Pleas, the rule in Gill v. Cubitt, was recognized and acted upon as the only safe rule. The question was, whether the defendants were liable to the owner of a bank note, they having taken it from a stranger, without any further inquiry than merely asking his name, — Best, Chief Justice, said to the jury : “The question for your consideration is, whether the defendants, in this case, took the note in the usual course of business; for the course of business must require, in the usual and ordinary manner of conducting it, a proper and reasonable degree of caution necessary to preserve the interests of trade.” In the case of Vairin v. Hobson, 8 L. R. 55, Mathews, Judge, in delivering the opinion of the court, states: “As to the second question, it has been ruled by late decisions in the tribunals of England, that the payment of a valuable consideration is not alone sufficient evidence of good faith and fair dealing in the purchaser of such an instrument. In addition to this fact, he must show that due diligence was used by him, to ascertain the character and standing of the person who offers it for sale or discount. He must examine into probabilities as to the means by which the person got possession, and if there exist any circumstances in relation to the manner of bringing a paper of this nature into market, calculated to raise suspicions in the mind of a man of ordinary prudence and discretion, the purchaser or acquirer, although for a valuable consideration, will obtain no better title than that which his immediate transferrer had. Gill v. Cubitt and Doun v. Halling, 3 and 4 Barnwell and Cresswell, pp. 466 and 330. The principles recognized in these decisions, we believe to be just and reasonable, when the vendor is unknown to the purchaser, and imposes no improper restraints calculated to impede a fair and honest circulation of negotiable paper in furtherance of trade and commerce.” In the case of Nicholson v. Patton, 13 L. R. 216, where the clerk of a notary took a note from his office and pledged it to a broker, Rost, Judge, said: “The fact of the loss being proved, the defendant must show that he came into possession of the note in the regular course of trade, and that he acquired it in good faith and for a valuable consideration, for we take the rule, as settled in England, in the case of Gill v. Cubitt, as our guide.” We do not understand this rule at all relaxed, by the decision in the case of Beale v. Wilcox, 3d Ann. 405. We think it has been universally acquiesced in and acted upon by our courts, in cases of lost or stolen bills, and that its operation has been most salutary in preventing frauds, by imposing proper obstacles to their circulation. C. C. 3473. Little v. Citizens' Bank, 2d Ann. 978. That article of the code provides, that if the possessor of the thing lost or stolen, bought it at public auction, or from a person in the habit of selling such things, the owner cannot obtain restitution of it without returning to the purchaser the price it cost him. — 619 — There is nothing in evidence respecting the person from whom the plaintiff bought the bill, or what passed between them at the time, so that the case rests on the naked fact admitted, that the person was unknown to the plaintiff, and a stranger, and that he took the precaution of requiring the signature of Payne and Harrison on his check. Had the bill been lost or stolen, we do not think the plaintiff couldstand justified in law in discounting it. Under these decisions, we think, he would have been liable to the real owner of the bill. We think, therefore, that the plaintiff cannot be considered as taking this bill in the usual and ordinary course of business, not having exercised a proper and reasonable caution respecting the person offering it. In relation to tho plaintiff’s conduct in taking the bill as a matter of business, it can make no difference whether the bill was lost, stolen or forged; in all the cases the standard is the same. It is proper to observe, that the check was not drawn according to the usual habit of the plaintiff, as testified to by Cazenave, his book-keeper; that is, it was not made payable to the order of the person for whom it was discounted. He was a person unknown, and no relations are proved to have existed between Payne and Harrison and the plaintiff, except that growing out of their forged names as acceptors of the bill. It is said, however, that the plaintiff, in making his check payable to the order of Payne and Harrison, did what he had a right to do, and that the defendants have no right to complain of it. But it being conceded, that extraordinary neglect on behalf of the plaintiff, calculated to mislead the bank and facilitate the commission of the forgery, would absolve the bank from responsibility in paying the forged check; an act, deliberately done, having the same effect, ought to carry with it the same consequence, unless in conformity with the usual course of business between the customer and the bank. The making his check payable to parties whose names are forged as acceptors^on the bill discounted, was not, as we have seen, in conformity with the plaintiff’s mode of doing his own business, still less has it been shown to have been in conformity with the usual course of business between him and the bank. We think it cannot be denied, that this check was the implement of fraud, placed by the plaintiff’ in the hands of a party who had every interest to make use of it against the bank. The genuine signature of the plaintiff to the check, was calculated to mislead the bank, and it certainly facilitated or provided the means of the commission of the forgery. The unknown person, who got the check, was the forger of the bill, or his accomplice- The only obstacle to the accomplishment of the object of the crime, was the required signature of Payne and Harrison, which had been already forged on the bill. Would he, who had forged their names once and imposed them on the plaintiff, hesitate an instant in repeating the act? We look in vain for any plausible ground, on which the act of the plaintiff in giving the check in this form, can be held to be consistent with his relations with the bank. There is a great difference between the merchant who pays his bills or acceptances, and the discounter who pays them in market. The former gives such a direction to his money, by drawing his check to the order of another person, as may ensure its reaching the real creditor. He draws his check in favor of the payee of a bill, or of a known third person, when the person presenting the bill is unknown. The responsibility of determing the genuineness of the signatures, is thrown upon the bank who undertakes to pay checks to order. But very different is the situation of the discounter, upoii whom the law imposes more caution, in his relations with the bank. What — 620 — bank would deal with one who should assert the right of buying bills from unknown persons, without inquiry, and throw upon the bank the responsibility of determining the genuineness of the signature, he should interpose between himself and the loss by forged bills,? The signature interposed, is the protection he makes use of to save himself from the consequence of the neglect of that care and caution, in taking bills from strangers, which the law imposes on him. It seems to us obvious, that he, being bound to exercise caution in the first instance, is not permitted to impose any responsibility on the bank, by any signature he interposes, to save himself from a loss which ordinary caution might have prevented. This mode of drawing his checks, is stated in the printed argument of the counsel for the plaintiff, as a matter of usual precaution on his part, and it is said that the evidence establishes extreme and usual caution, which along course of business had made familiar to the bank. We have looked in vain for the proof of any recognition on the part of the bank, of any mode of dealing like that in the present case. The plaintiff required the signature of Payne and Harrison, as a matter of precaution; against what? Against the forgery, loss, or theft of the bill. But is a discounter to be heard, when he avows that he buys bills under circumstances which induce him to take precautions against their being forged ? If a doubt exist in his mind as to its genuineness, can he take the bill and impose the responsibility resulting from its being forged, on another party with whom he deals. We think this mode of doing business, would be fatal to the best interests of commerce, and destructive of those principles upon which alone it can be maintained. If there was any necessity for precaution, why was it not exercised before the bill was bought. If the title of the holder, or genuineness of the bill was questionable, or not recognized, why were not Payne and Harrison applied to in order to ascertain it? The delay of a few minutes could have removed the doubt. The making the check payable to Payne and Harrison, is entirely umnercantile and irregular. Had they been applied to, to endorse the check of a broker, their impression would have been one of surprise, and the request would be scarcely heeded. Why should they put their names out to a person they did not know ? Or guarantee the payment of a check, which in no way concerned them? In conclusion, we think that, notwithstanding the gross neglect of the bank in paying the check, the first fault was committed by the plaintiff, in taking the forged bill. Whenever a forged bill is in circulation, the loss must fall on some one, and, we think, that in law and in conscience, the plaintiff ought to bear it in the present case. It is therefore ordered, adjudged and decreed, that the judgment of the court below be reversed; and judgment is rendered for the defendants, with costs in both courts. Preston, J. Smith discounted a supposed draft of Ventriss, of Donaldson-ville, on Payne and Harrison, merchants of New Orleans, and purporting to be by them accepted. It turned out that the name of the drawer, a planter, as well as the name of the acceptors, was forged. It was presented by a stranger, no doubt the counterfeiter, to whom he gave a check on the Mechanics and Traders’ Bank, in favor of Payne and Harrison for the proceeds. By a forged endorsement of their name, the amount of the check was drawn from the bank, and Smith sues for the-balance of his account, without deducting the check. — 621 — If the defendants are liable at all, it is either for negligence in paying out the plaintiff’s money on a forged endorsement, or absolutely, whether negligent or not, because they paid out his money deposited with them, to other persons than those to whom he ordered payment. ~ On the score of negligence, Smith was more in fault than the defendants. He gave out his check on the forgery of the name of the drawer and of the acceptors of a draft. The name of those acceptors, alone, was counterfeited on the back of his check, and deceived the defendants. He had the time and leisure to discover the reality of the transaction, and should have used both, before giving his check on a double forgery. It could have been done by stepping to the counting house of the acceptors, probably but a few squares from his office. The paying teller of the bank, seeing his well known name to a check in favor of, and endorsed by a well known house, might easily be led, by his signature, into the error of taking for granted that the whole was genuine. He had no leisure to go out to verify the signature of the acceptors, but was confined to his counter. Checks, it is a matter of notoriety, are constantly pouring in upon the paying tellers of our few remaining banks. On the score of negligence, Smith was most in fault, and might well excuse that, in defendants, of which he himself was doubly guilty, with far more facilities of avoiding its effects. Where two parties are equally guilty of negligence, he who suffers loss, must bear it, and neither can recover from the other. 3 Bur. Rep. 1354. 1 Black. 390. 2 T. Rep. 70. But the main ground of the plaintiffs’ action is, that he ordered the money to be paid to Payne and Harrison, and that the bank paid it to other persons. The fallacy of the argument in support of this ground, consists in this, that having given out his check, it was immaterial to Smith to whom the money was paid. His check being out, the money he deposited in bank, to the amount of the check, was no longer his; he had parted, for its supposed value, with all his interest in the check, and the money it represented. That the holder, perhaps an innocent holder of the check, drew the money, was no injury to him; the injury to him was done before by the counterfeiter, in imposing a forged draft upon him. The money in bank belonged to the holder of the check. It was in the power of the holder to go to Payne and Harrison, and give it in payment of a debt, or purchase goods with it, or obtain its discount, and the check would have thus become theirs, also the money in bank, and the transaction binding upon Smith, beyond a doubt. He thus put it into the power of the counterfeiter, to dispose of his check and money. It was his business, to stop the payment of the check, and to regain it, before it got into the possession of an innocent holder, and his misfortune and loss, if he failed to do so. For, in fact, Smith did not order the money to he paid to Payne and Harrison, but, through them, to the counterfeiter. He gave his check, which represented his money, to the counterfeiter, for a draft-supposed to be genuine, and not to Payne and Harrison with whom he had no transaction, and who would not have endorsed, or incurred any responsibility with 'regard to it, until it became theirs, by some transaction with the holder. And therefore, as well observed by the counsel of the defendants, no action can be found in the books, in which the drawer of a geninue check, has recovered its amount from a banker on account of a negligent payment of the check. If made payable to the order of the payee, the right of action belongs to him, for the payment on a forged endorsement; but in no case has such a right been claimed by the drawer of the check. — 622 — The paying teller of the bank, so far as Smith was concerned, was bound to know only his signature. The bank was the depository of his money, and k°nn^ t0 pay it on his check, which was genuine. As to him, the bank was not bound to send out and ascertain the genuineness of the signatures of the endorsers of his check. They were required to do so, to secure themselves from liability to the endorsers alone. The bank was bound to know the genuineness of the signature of Payne and Harrison only, at the risk of being liable to them, and not to Smith. It is not pretended that Payne and Harrison have any right of action against the bank. If they had, it is their right of action, not the plaintiff’s. The drawer of a check has never recovered from the banker, unless his name was forged ; or, as in the case of Hall v. Fuller, where the amount for which he checked, was altered from ¿63 to £330, and the last sum was paid by the banker. He checked for £3, and was to be charged with that sum, and not ¿6330, for which he did not check. But he is to be charged with the sum for which he actually checked, unless there be greater negligence, in paying it, than that of which he was himself guilty. Smith had no suspicion of the genuineness of the transaction with the stranger ; for then, it would have been his duty, in order to recover, to have communicated his suspicion, to the bank, and stopped the payment of the check; and he could not use the name of Payne and Harrison, to impose on the bank a risk he was unwilling to incur himself. He had no transaction with Payne and Harrison, which authorized him to use their name as payees of the check. The use of it was fictitious as to them, and fictitious as to the bank, and can give him no rights which he would not have had, if the check had been made payable to bearer, or to a fictitious person ; in which case, it is admitted, he could not recover the money paid on the check from the bank. It does not appear, to me, to be in the ordinary course of business, to make a check payable to a payee with whom we have no business transactions, and on that account, Smith, and not the bank, should bear the loss. The case should bo likened to a check to the order of á fictitious person, which has often been held to be the appropriation of so much money to be charged to the drawer, and credited to the account of the holder of the check, or bill, as the case may be. Both are out of the ordinary course of business, and should expose to loss only the author of the fiction, if there be reasonable care on the part of the other parties to the transaction. In fact, courts should encourage only real, and not fictitious transactions, which are so liable to give rise to losses. It has been urged, that if I give a check to a tradesman for goods, payable to his order, and it is paid without his order, I can recover the amount from the banker. 1 think not. The tradesman took the check in payment of his goods, and I was discharged from his bill; my genuine check was charged to my account, and I could only claim the balance of my deposit. The tradesman could sue the bank for the amount of the check, because the money belonged to him, as holder of the check, and was paid, without his order, on a forged endorsement. But having paid my bill with the check, and got my discharge, I can have no such right of action. I am of opinion, for these reasons and those given by the chief justice, that the judgment of the district court, should be reversed, and judgment rendered for the defendants, with costs.