Armour v. Greene County State Bank

GROSSCUP, Circuit Judge. A jury having been waived, this case was tried, in the Circuit Court, by the court. It was brought by the defendant-in-error against the plaintiff-in-error to recover $2,764.11, with interest, the sum total of certain checks drawn by A. C. Morían, agent of Armour & Co., upon the defendant-in-error, [632] payable ostensibly to certain farmers in the vicinity of Farlin, Iowa, and purporting to bear their endorsements on the back. The endorsements were, however, forgeries. The checks themselves were false, for, though on their face appearing to have been given to known farmers in payment of corn, were never in fact drawn or delivered for that purpose. They were dishonestly made by Morían in pursuance of a purpose to defraud the bank, or Armour & Co. It seems to have been the practice of Armour & Co. to place purchasing agents in the corn producing districts, who, buying corn from farmers, paid for the same by drawing checks upon some local bank. By a corresponding arrangement made with the bank, such checks, when presented, were paid; and at intervals, when a number had accumulated, the bank was reimbursed by a draft upon Armour & Co. for their totals. It was under such an arrangement that Morían was operating as Armour & Co.’s agent at Farlin, and that the defendant-in-error was cashing his checks. At the beginning of the season, about October, 1898, Armour & 'Co. deposited four hundred and fifty dollars with the bank in the nature of indemnity against the bank’s advancements upon the checks. From that time until May, 1899, various checks of Morían were presented and paid, and transmitted at intervals, together with drafts for the respective aggregates. No loss or fraud was discovered until April, 1899, when an inspection of the cribs by an agent of Armour & Co. showed that they contained less corn than the mem-oranda on the checks called for. It was then found, that during the period covered, Morían had interspersed with the genuine checks these spurious checks, and had thereby drawn out of the bank; 'and, through the bank, from Armour & Co. $2,764.11 more than he had actually paid on account of corn purchases. Pl^intiff-in-error .contends that the bank was guilty of negligence in the payment of the checks in controversy upon the forged endorsements. And, also, irrespective of this, urges that the legal relationship between the bank and Armottr & Co. was that of banker and dépositor; arg.uing therefrom that, as a matter of law, the loss arising from the payment of these checks must fall upon the bank. Upon the question of negligence the Circuit Court found, as a fact, that the negligence of Armour & Co., in their failure to examine the clicks forwarded to them by the bank, materially contributed to the loss sued for. We find in the record no evidence sufficient to overthrow the Court’s finding of fact in this respect. A large proportion of the checks in question bore the endorsement of Morían himself. If this was irregular, the bank should have been notified by Armour & Co. as soon as the practice began. In the absence of such notice, Morlan’s endorsement was in effect a certificate by the drawer of the genuineness of the endorsement of the payee. The bank, so long as it acted in good faith, could not be expected to look beyond such a certificate.' ' • Nor were Armour & Co., in another respect, without fault. The checks each bore a memoranda of the amount of purchase. The [633] period over which they ran was from October to April. The truthfulness of the memoranda could have been tested at any time by an inspection of the corn in the cribs. Such inspection was within the power of Armour & Co., but not within the duty undertaken by the .bank. A failure to make it by the former, at apt times, lies at the bottom of this loss; and its consequence oUght not to be visited upon the bank. Of course, if the relationship between the parties was that of banker and depositor, these facts relating to negligence are largely immaterial. But, in our opinion, such legal relationship is not applicable to the transactions under consideration. Clearly,, a deposit for safe keeping was not intended, except to the extent of making the bank Armour & Co.’s disbursing agent. The transaction more nearly resembles the drawing of inland bills of exchange; in which case, it is -well settled, that the drawee cannot recover back money paid to the holder. Horstman v. lienshaw, n How. 177, 13 I,. Ed. 653. Neither of these legal relationships, however, seem to exactly fit -the transactions. Armour & Co. were large purchasers of corn in this and in other districts. Though their -transactions could have been carried forward through their purchasing agent alone, by entrusting him with the custody of the funds, they chose, out of considerations largely of bookkeeping, to have an independent disburs'ing agency. The disbursing agent was the bank. ' Its duty, in effect, was to pay for such corn as Morían should report through his checks. The bank’s obligation under such circumstances was that simply of ordinary care and good faith. It had the right, in the absence of facts putting it upon notice, to rely upon Morlan’s integrity. It was intrusted with no power to supervise or change his methods of transacting the business in hand, and, as has already been stated, there is no evidence impeaching the bank’s good faith, or disclosing facts that ought to have put it upon its guard. The bank was, therefore, guiltless of negligence, and laying aside, for the time, any consideration of Armour & Co.’s negligence, the case is one, where one of two innocent parties, standing in equal relation as to obligation, must suffer through the fraud of a third. By a familiar maxim of the law, the loss in such case must fall upon Armour 8c Co., who, by their selection of Morían in the first instance, made the loss possible. The judgment of the Circuit Court is affirmed.