Lieber v. Fourth National Bank

REYNOLDS, P. J. (after stating the facts). — In spite of the multitude of reasons assigned why a motion for new trial should have been granted, thirty-eight such grounds being set forth in the motion, and these grounds for new trial being repeated under nine headings in the assignment of error in this court, these nine assignments being subdivided into numerous subassignments, the propositions involved in it are really very simple and very few. The first proposition involved is, the pass book having been returned at stated periods, showing the balance of the account in favor of plaintiff on the books of the bank at those dates, whether its receipt and retention by plaintiff, together with the checks charged against him without objection constituted the rendering and acceptance of an account stated, and whether the non-action of plaintiff thereon for several years after receiving this balanced account, which included the two checks in controversy, as well as the checks, presented such a state of facts as, making it an account stated, would drive plaintiff into a court of equity to open it up, or compel plaintiff, the account stated having been set up in the answer as a defense, to meet that defense, not by a general denial in his reply, but by setting up his equitable defense to the account stated by way of — 170 — reply, if he desired to open up the account on any grounds upon which an account stated can be attacked. In brief, it is claimed that the court, sitting as in the trial of an action at law, is precluded from opening up that account. It is true that the authorities treat this transaction between the bank and its customer as a debit and credit account, its customer the creditor, the bank the debtor. In very many cases these pass books and checks returned to the depositor by the bank with the accounts balanced, are treated as accounts, stated, the depositor not making timely objection, but we have found no case, and have been referred to none in which, in a case such as the one at bar, the party has been thrown out of the law court and driven to chancery to recover payment of a check, carried into the pass book account and covered by the pass book. The case so frequently referred to and much relied on by the very learned counsel for appellant, of Kenneth Investment Co. v. Bank, 96 Mo. App. 125, as holding that the receipt and retention without objection for a considerable time of the balanced pass book and cancelled checks, constitutes an account stated, is a case in which, while this court held that these accounts between the bank and its customer so rendered constitute accounts stated, when retained without objection to the account as rendered, still the court permitted that same account to be attacked and its untruthfulness shown and its error corrected in an action at law. It is true that no point appears to have been made that the case was on the wrong side of the court, but it is apparent that it was tried as an action at law. It is true that after defendant set up the rendition of the account, that is, the return of the pass book with the account balanced and of the checks cancelled, plaintiff replied that the balances were incorrect in that defendant had incorrectly charged plaintiff with amounts drawn out on forged checks. But that did not appear to change it into a suit in equity to open up and set aside an account for fraud — it was proceeded upon as — 171 — an ordinary action at law, not tried before the court, it is true, but before a referee in the first instance, as in any other action at law. The necessity of such a reply as in Kenneth Investment Company case was obviated in the case at bar by the amended petition, which distinctly sets up the fact of the payment of these forged checks, charges they were forged and, averring that they were wrongfully charged to plaintiff, demands judgment for them. That is practically all that the reply in the Kenneth case did — beyond a general denial, which was also interposed in the reply in this case. So that Kenneth Investment Co. v. Bank is no authority for the proposition that in the case at bar plaintiff' should, by way of reply, attack the balanced pass book as an account stated, and go into equity to open up the account'. We hold that under the pleadings in this case, it was open to plaintiff to challenge the payment of these checks, without being driven to the equity side of the court to do so. A feature which does distinguish the Kenneth case from the case at bar is, that it was a case in which a clerk of plaintiff, one of its confidential agents, was the one who, by the means of forged checks, concealed by him from the company (plaintiff) had drawn a large amount of money on account of the plaintiff from the bank. He was the one through whose hands the pass book and the returned checks came from the bank to the plaintiff in the case. That is not the fact in this case. The question we are here to determine is, was it such negligence on the part of plaintiff in failing to discover the forgery of the signatures of the payees on the checks, as to throw on him and not the bank the ensuing loss? We think not. The case of Wind v. Bank, 39 Mo. App. 72, and the Kenneth Investment Company case, supra, set out the law of this State as fully and as clearly as any others and they are recognized as correct announcements of our law. Without quoting either at length, it is sufficient to say that they hold — 172 — that estoppel founded on negligence should not work injury to the depositor unless it appears that his negligence has occasioned special damage to the hank. That of course assumes there was negligence. In the case at bar the trial court found there was no negligence, and we concur in that view. Counsel for appellant call our attention to the case of Leather Manufacturers’ Bank v. Morgan, 117 U. S. 96, and say that they hope the court will read that at length, if not already familiar with it. Following the suggestion of counsel, a reading of that case and a consideration of it shows us that it is not very sharply in point or authority in a case of this kind. The facts there as to the relationship of the parties are not as in this case. The forger in that case was the confidential clerk of plaintiff. The pass book and the checks went through his hands to plaintiff. Furthermore its doctrine on the point here at issue is expressly rejected by our court in the Kenneth Investment Company Case, see l. c. 146. Reading the Morgan case, however, we find.it refers to the case of Bank v. Whitman, 94 U. S. 343. Turning to this latter case we find that it is almost parallel in its facts with the case at bar. In the Whitman case the Supreme Court of the United States states the question to be this: “Can the payee of a check, whose endorsement has been forged or made without authority, and when payment has been made by the bank on which it was drawn upon such unauthorized endorsement, maintain a suit against the bank to recover the amount of the check?” It will be observed that this practically states the question before us for adjudication in this suit. Further along in the case it is recited that the testimony in it is to the effect that the bank, after the payment of the check on which the endorsement was forged, made its weekly statement to its customer of deposits received and payments made, returning among the checks the, one on which the endorsement of the payee was either forged or unauthorized, as having been — 173 — paid on the twenty-second of the month prior to the turning in of the statement of the balance for the month and showing that in this statement the amount of this draft was entered to the credit of the bank and charged to the depositor. The customer or depositor in this Whitman case was a Mr. Spinner, and the person to whose order the draft was made and whose name had been either forged or affixed without authority was a Mrs. Kimbro. We give these names.so that in quoting hereafter, it will be understood what position the parties occupied in the transaction. The court states that there is no suggestion in the evidence that either the bank or the depositor, its customer, knew that the ¿ndorsement of the payee was unauthorized. We are to assume, says the court, that the bank would not knowingly subject itself to the dangers and liabilities resulting from making payment to one not authorized to receive payment. We assume, also, said the court, that the bank would not ask the depositor to give it credit for a payment that the bank knew to have been illegally made, and that the bank would not attempt to deceive its depositor into the belief that the pretended endorsement was a real one. “It comes to this, then,” says Mr. Justice Hunt, who delivered the opinion, ‘ ‘that, upon a settlement of accounts between them, a credit was by mistake allowed to the bank to which it was not entitled. The law is, that neither party is to be benefited or to be injured by the mistake. The bank must refund the amount by handing over the sum, or by crediting the same to Mr. Spinner in his next account. Mistakes in bank accounts are not uncommon. They occur both by unauthorized or pretended payments, as well as by the omission to give credits for sums deposited. When discovered, the mistake must be rectified, and an ordinary writing up of a bank-book, with a return of vouchers or a statement of accounts, precludes no one from ascertaining the truth and claiming its benefit. [Story, Eq. Pl., secs. 799-801; Story, Eq. Jur., secs. 523, 527; Buchlin v. Chaplin, 1 — 174 — Lans. 443; Burne v. Hone, 2 Barb. 487; Bullock v. Boyd, 2 Edw. 293.] We cannot perceive that such a mistaken recognition of the validity of the payment of this check can create an additional or different contract between the bank and the owner of the draft.” Continuing, the opinion disposes of another proposition as to who are-the real parties in interest, also presented in this case, under the contention against permitting Hawkins, Bed-ford and plaintiff to testify, and its discussion on this is so illuminative that we trust we will be pardoned for quoting at some length. Mr. Justice Hunt says: “It is further contended that such an acceptance of the check as creates a privity between the payee and the bank is established by the payment of the amount of this, check in the manner described. This argument is based upon the erroneous assumption that the bank has paid this check. If this were true, it would have discharged all of its duty, and there would be an end of the claim against it. The bank supposed it had paid the check; but this was an error. The money it paid was upon a pretended and not a real endorsement of the name of the payee. The real endorsement of the payee was as necessary to a valid payment as the real signature of the drawer; and in law the check remains unpaid. Its pretended payment did not diminish the funds of the drawer in the bank, or put money in the pocket of the person entitled to the payment. The state of the account was the same after the pretended payment as it was before. “We cannot recognize the argument that the payment of the amount of a check or sight draft under such circumstances amounts to an acceptance, creating a privity of contract with the real owner.” It will be seen how thoroughly this case is in line with Kenneth Investment Co. v. Bank, 96 Mo. App. 125, heretofore referred to and how aptly it fits the facts in this case, in disposing of two of the propositions made, first, the proposition that the plaintiff is estopped from — 175 — claiming credit for the amount represented in these two checks hv reason of their having been paid on forged endorsements, and of the other proposition made, that by the payment of the checks on a forged endorsement, the man who committed the forgery and endorsed his name on the check became a party to it and was therefore a party to the contract involved in this action, and that his death had shut off the other parties, the real drawer and payees of the checks, from testifying. Incidentally it as well as Bank v. Morgan is in point on the propositions advanced by defendant, that the receipt of the balanced pass book and checks and their retention without objection, drove plaintiff over to the equity side of the court, if he desired to open up that so-called stated account. The strictness with which the National courts preserve and enforce the distinction between actions at law and suits in equity, renders it impossible to suppose that the Supreme Court of the United States Avould have tolerated, much less decided on elaborate discussion, an action brought at law, which should have been relegated to the chancery side of its courts. Taking up the question of the competency of witnesses, it is to be noted that in this case at bar, Penn at no time Avas a party to the transaction. His effort to make himself so by his forgery, which has been proven in this case, as we have seen, does not make him so, and the effort to shut out the testimony of the real payees of the checks on the ground that they were privies in contract Avith Penn under circumstances of this kind, is so far-fetched that we are somewhat surprised that it is advanced by counsel of the eminence of those in this case. Neither Hawkins nor Bedford are parties to this action; nor are they parties to any contract whatever with Penn. The forging of their names by Penn surely did not make them co-contractors. [Bank v. Whitman, supra.] Plaintiff stands on a somewhat different footing. Some of his transactions were with Penn; he loaned through him, and sent him the checks. But we can, — 176 — as the trial court probably did, discard all of his testimony as to dealings with Penn and not affect the result. The claim is made that it was negligence on the part of plaintiff to lie by for nearly five years before malting any .demand on the bank for correction of the account by crediting back to him the money which had been drawn out on the two checks.. With hardly an exception the cases cited by counsel for defendant in support of their argument are those in which the forgery was committed and the fraud covered up by an employee of the depositor or customer of the bank, either by a secretary or confidential clerk, or an officer, or other agent, in case of a corporation. In such cases, an examination of the checks returned and of the entries made would have disclosed to the depositor the error in his account with the bank. Negligence was imputed in such cases, sufficient to bar recovery. This case, however, is entirely different. The return of the checks to the plaintiff carried no information to him whatever that the signatures of the payees of the check were forged; on the contrary he had no reason whatever to suppose that they were other than genuine signatures of the payees. It is a fundamental law of commercial paper, including bank checks, that every endorser guarantees the genuineness of the preceding endorsements. The very fact that the defendant paid these checks was an assurance on which the plaintiff had a right to rely that the defendant bank had assured itself of the genuineness of every one of the preceding endorsements before it paid the check. To hold otherwise would sap the very foundation of the law of negotiable paper. The check came into the hands of this plaintiff with the signature of the payee endorsed on it; under that was the signature of Penn, or of the firm of Penn & Sallee; that guaranteed the signatures of the payee; under that the signature by endorsement of the Bank of Callaway County, at Pulton, by its presence, guaranteed the genuineness of both of — 177 — the preceding endorsements. This was followed in one check by the endorsement of the National Bank of Commerce of St. Louis, and in the others by that of the Mechanics’ National Bank of St. Louis, and following that was the acceptance of these endorsements as genuine by the defendant bank itself. So that there was nothing whatever to put any prudent man on inquiry as to the genuineness of the first endorsement or any succeeding one, and the plaintiff was no more bound to know that the first endorsement was genuine than was the defendant bank, in fact not as much so, for the bank defendant was the final party, the one on whom the check was drawn. More than that, counsel for defendant themselves 'took the testimony of very many witnesses, resident and evidently prominent citizens of Fulton, every one of whom testified that down to the very day of his suicide, the reputation of Penn in that community was of the very highest character, not only as a good citizen but as a man of pecuniary responsibility, so that if plaintiff had gone to Fulton and inquired into the character of Mr. Penn, every word that he would probably have heard or would have been likely to have heard there would have tended to have thrown plaintiff off his guard and would have led him to believe that the endorsement guaranteed by Penn was a genuine one made by the payee of the check. Defendant introduced this class of testimony for the purpose of proving, as its counsel stated, that any inquiry on the part of plaintiff would have shown him the forgery and that it was his duty to have gone to the payee and ascertained from, him whether or not the endorsement was genuine, as also to have gone to the records to see if his deeds were of record. Not only do we decline to take this view of it, but the effect of the testimony on us is exactly opposite. In the first place, plaintiff was under no obligation to hunt up these men; he had abstracts, certified to by Penn, showing that they had title to the land on which — 178 — the loans were made, and that his deeds were of record. He had the originals of the deeds of trust stamped as having been duly filed and recorded, he had the notes, all transmitted to him by a man, who, according to the testimony brought out by the defendant itself, occupied a position of high social and business standing in his community. There was therefore nothing whatever to put him or any prudent man on his guard, or to suggest to him that the endorsements on these checks were false and fraudulent, and forgeries. To our minds the testimony introduced by defendant instead of helping defendant is directly against it and makes for the plaintiff in furnishing him the very fullest and most complete possible reason for not making further inquiry, or any inquiry for that matter, as to the genuineness of the endorsements of the payees of the checks. So that with the account balanced in the book and these checks returned to him, the signatures of all the endorsers on the checks guaranteed by three banks and by a man of the highest standing in his community, plaintiff cannot be charged with any negligence whatever in not discovering the fraud perpetrated upon him and the bank sooner that he did. As soon as he had any cause for suspicion of the honesty of Penn, he took the most prompt and vigorous steps to put the bank (defendant) in possession of the facts which had come to his knowledge and to put the bank in a condition where, at that time, it could have amply protected itself against any loss by a resort to the preceding endorsers. The point made as to the petition failing to aver demand or tender of the notes may be technically correct, but its omission is not sufficient cause for reversal. There was testimony from which a demand and tender may be inferred. Moreover, filing the suit was in itself a demand. The interviews of Mr. Sale with the president of the defendant bank had no purpose other than to advise him that he was there ready and willing to turn over the checks, which he then had with him; his in — 179 — terview was solely directed to secure repayment; the conduct of the president was enough to show that a formal demand would then have been unavailable — and no one is required to do a useless thing. On consideration of the whole case, we see no reason to disturb the finding of the trial judge, which is entitled, at least in a case of this kind to the same consideration that we give to a general or special verdict of a jury. On the undisputed evidence in the case, there is no ground for going into equity to surcharge and falsify accounts as evidenced by the pass books. Both sides, practically, if not directly, admit the forgery on the drafts or checks, so there was no question of correction or opening up of accounts involved. On all the evidence in the case the judgment is for the right party and is affirmed. All concur.