Spencer & Co. v. Bank of Hickory Ridge

Smith, J., (after stating the facts). The case of LaFayette v. Merchants’ Bank, 73 Ark. 561, is similar in many respects to the case at bar. There the facts were that one Whitlock had an agreement with the plaintiffs, LaFayette & Bro., by which LaFayette .& Bro. agreed to pay drafts drawn by Whitlock on them for the purchase price of cattle, provided that a bill of sale, signed by the vendor, conveying the cattle to LaFayette & Bro., should be endorsed on the back of the draft as security for the payment of the draft. To enable Whitlock to have these drafts, with bills of sale in proper form, blank drafts, with bills of sale printed on the back, with spaces for description of cattle purchased and for the signature of the owner, were prepared and given to Whitlock. The intention was that he should 'buy these cattle in the Indian Territory, where he lived and where the firm of LaFayette & Bro. was in business. He afterward drew drafts in favor of certain persons living within the Territory, and, without their knowledge or consent, endorsed their names on the backs of the drafts, and signed their names to the bills of sale on the backs of the drafts, and then delivered the drafts to the Merchants’ Bank of Fort Smith, which paid him full value therefor. The bank endorsed the drafts and sent them to a bank at Muskogee, Indian Territory, which presented them to LaFayette & Bro. for payment, and they paid them. Neither the- Merchants’ Bank nor LaFayette & Bro. had any n-otioe of the forgery, and both supposed that it was a legitimate transaction on the part of Whitlock. On the discovery of the fraud, LaFayette & Bro. demanded that the bank repay the money, and upon its refusal to do so, they brought an action to recover. In that case it was -said that as a general rule money paid under a mistake of fact could be recovered; that the right of recovery proceeded upon the theory that LaFayette & Bro. had paid out money which they were under no obligation to pay, and which the party to whom it was paid had no right to receive or to retain, and that the law, therefore, raised an implied promise to refund this money. It was there said that the reasons which permit a recovery are equitable in their nature, and that the rule does not apply in any case where it would be unjust or inequitable to compel the return of the money. In discussing the rule of the law merchant as applicable to the facts there stated, it was said: “But no such reason exists in this case. .When this draft was presented to the plaintiff for payment, it had the indorsement of the defendant bank upon it, as well as the indorsement of the name of the payee and his signature to the bill of sale on the back of the draft.' The plaintiffs had the light to suppose that the bank had taken proper precautions to -ascertain that these signatures were genuine. The presentation of the draft for payment under such oiroumstances was in effect a representation on the part of the bank either that it had paid -or that it would pay to the payee, or to his order, the amount named in the draft, and that his signature both to the bill of sale and indorsed on the draft was genuine. Under these circumstances the plaintiffs paid over the money to the collecting bank, acting as the agent of the defendant in making the collection, and it seems to us that the equities are in favor of the plaintiffs, and that a recovery should be allowed, unless there is some rule of law that forbids it. “Now, there is an exception to the rule permitting a recovery of money paid under a mistake of fact in the case of a drawee paying a draft or check upon which the name of the drawer has been forged. The reason for the exception is said to be that the drawee should know the signature of the drawer, and that he is guilty of carelessness in paying a check where the drawer’s name has been forged, and that, as between him and an innocent holder, •no recovery shoul-d be allowed. Defendant contends that the exception applies also where the name of the drawer is genuine, and where the drawer has himself forged the signature of the payee. There is authority to support that position. The Supreme Court of the United States so declared the law in an opinion delivered by Chief Justice Taney. The court said that ‘the acceptor of a bill is presumed to accept upon funds of the drawer in his hands, and he is precluded by his acceptance from averring to the contrary in a suit brought against him by the holder.’ Hortsman v. Henshaw, 11 How. 177; Bigelow on Bills and Notes, 568. “But, though there are cases that seem to hold to the contrary (Merchants’ National Bank v. National Bank of Commonwealth, 139 Mass. 513; Northampton National Bank v. Smith, 169 Mass. 281), still we may admit that the rule declared by Chief Justice Taney is correct in cases where there is nothing on the draft to give notice that the drawee does not pay out of funds of the drawer in his hands. But that is not the case here. The bill of sale on the back of the draft was notice to every one taking it that the drawee was paying, or would pay, not upon the funds of the drawer in his hands, hut out of his own funds, upon the belief that there was a valid bill of sale and a transfer of the property described therein. The form of the draft was notice to the bank that ¡the drawee would not pay unless the bill of sale and the signature thereto were genuine, and it should have taken the usual precautions to ascertain that they were genuine before parting with its money. . It obtained this money, not by ¡presenting the drafts alone, but by presenting them in connection with these f orged bills of sale. The drawee was ignorant of the forgery, and the case, as we think, comes within the general rule that one who has paid money under a mistake of fact may recover it. Northampton National Bank v. Smith, 169 Mass. 281; Merchants’ National Bank v. National Bank of Commonwealth, 139 Mass. 513; Star Fire Ins. Co. v. New Hampshire Bank, 60 N. H. 442; Carpenter v. Bank, 123 Mass. 66.” (1) Appellants say the case just quoted from should control here, and that upon the authority of that case a verdict should have been directed in their favor. But we think this case is distinguishable from that one on the facts. It is true, as stated in that opinion, that, in the usual course of business, the drawee has the right to suppose that the collecting bank has taken proper precautions to ascertain the genuineness of the signatures upon which it expects to make the collection and that, in the usual course of business, the presentation of the draft for payment is, in effect, a representation upon the part of the bank of the genuineness of such signatures, but here the jury might have found, if the statement of Thompson was accepted, that he knew nothing about the transaction which was consummated by the draft, and that he had made no inquiry as to the genuineness of these bills of lading, and that Spencer & Co. did not rély, and had no right to rely, upon any representation, either expressed or implied, by Thompson that the bills of lading were genuine. But, upon the contrary, the jury might have found from the evidence that Spencer & Co. acted upon their own knowledge and upon their own opinion of the validity of these hills of lading, and that they had no right to assume that Thompson had made any inquiry upon that subject, and that they had .assured Thompson that they would pay this draft when it was presented to them with the bills of lading, then in Farrin’s possession, attached. Of course, Spencer’s evidence is to the effect that he agreed to honor the draft only upon the condition that there should be attached to it, when presented, bills of lading for three carloads of com, and that there were no bills of lading attached when the draft was presented. (2) We should affirm this case but for the action of the court in giving the sixth instruction set out above, which we think was prejudicial under the issues made. It was shown without dispute that neither appellants nor appellee knew anything about the invalidity of these bills of lading until .about the 14th of March, on which day appellants promptly wrote appellee advising it of that fact. This would certainly not be such delay as would defeat recovery if appellants were otherwise entitled to recover. It is urged, however, that this instruction was not prejudicial because the jury must necessarily have found that there was no delay in notifying the bank. But we can not say that this is true. Upon the contrary, appellee argues here, as was no doubt done before the jury, that there was unnecessary delay in .discovering the fact of the forgery; that appellants could have ascertained in thirty minutes a fact which they did not learn for nearly thirty days, by a simple inquiry at the railroad office in the city of Jonesboro. For the error in giving this instruction, the judgment is reversed and the cause remanded. Justices Hart and Kirby, dissent.