Warren-Scharf Asphalt Pav. Co. v. Commercial Nat. Bank of Detroit

LURTON, Circuit Judge, after making the foregoing statement of facts, delivered the opinion of the court. The authority expressly conferred upon England included the power to “indorse and sign checks.” The evidence shows that remittances were several times made to Mm from the New York office of the company by checks payable to its own order. To utilize them, an indorsement was essential. An indorsement of a check purporting to be payable to the order of the paving company, for the purpose of either collection or deposit, implied a contract that the instrument itself and all antecedent indorsements were genuine. Story, Prom. Notes, §§ 135-380, 387; 4 Am. & Eng. Enc. Law (2d Ed.) 447; Harris v. Bradley, 7 Yerg. 310; Turnbull v. Bowyer, 40 N. Y. 456-460; Onondaga County Sav. Bank v. U. S., 26 U. S. App. 377, 12 C. C, A. 407, and 64 Fed. 703. In the absence of circumstances amounting to notice that the signature of the paving company was a forgery, the defendant in error had a right to rely upon the indorsement made by England as a representation and guaranty by the payee that the check itself, as well as the signature of the drawer, was genuine. Although the defendant in error was bound at its peril to know, the signature of a check drawn by England under the power of attorney to him, yet it was not the payee of this forged check; and it was not bound to know the New York signature of the paving company, or the genuineness of the filling up of a check purporting to. have been drawn at the principal office of the corporation upon its New York bank of deposit. Unless, therefore, it acted in bad faith, or the forgery was so obvious that it should have been detected by bare inspection, it was not negligent in accepting the check as a cash deposit in reliance upon the representation of the known local agent of the apparent drawer, and upon the contract implied from the indorsement placed thereon by England under his known authority. National Bank of Commerce v. National Mechanics’ Banking Ass’n, 55 N. Y. 211-215. Neither in the form or signature of the check, nor in any circumstance occurring when the check was indorsed and deposited, do we find any fact which would justify a jury in holding the defendant in error guilty of any negligence in taking this forged check and crediting it as a cash deposit. The instrument turned out to have been unauthorized by the apparent drawer, and the signature a forgery. If the drawer and payee were not legally identical with the indorsee, the fact that the instrument was not genuine, and the drawer’s, signature a forgery, would operate to fix the liability of the indorser as absolute, without either demand or notice. In such a case the indorsee would become entitled to recover the amount of the check from the indorser upon the implied warranty that the in [185] strument and the antecedent signatures were genuine. Liability would be fixed before and without any presentation of such a forged check. Turnbull v. Bowyer, 40 N. Y. 456-460. The fact that the drawer, payee, and indorser were legally the same person does not change the principle. The indorsement of this check by the paving company, or by one authorized to indorse in its name, was equally effective as a warranty of the genuineness of both the instrument itself and all antecedent signatures. The liability of the paving company growing out of its -relation to the instrument as an indorser was, by reason of the fact that the instrument was a forgery, not the usual contingent liability of an indorser, but one of fixed responsibility as a warrantor of the genuineness of the paper indorsed. But it is said that the authority to England did not authorize him to over-check, and that, until the check deposited had been actually collected, there was no authority to pay the §10,000 check presented on the same day. The forged'check was the apparent check of a responsible customer upon another bank. According to the well-recognized course of banking business, this check was accepted as a cash deposit. Morse, Banks, §§ 569, 570. The receiving teller testifies that in the acceptance of this check, and crediting it at once to the account of the paving company, there was nothing out of the ordinary course of banking business. This evidence is not contradicted or questioned. The bank was under no obligation to credit a check thus deposited as cash, but it was clearly guilty of no negligent or unusual conduct in doing so. When received and credited as cash, the account was subject to check, and the bank had no right to refuse to pay checks against the account thus swollen. Armstrong v. Bank, 133 U. S. 433-466, 10 Sup. Ct. 450. The check subsequently paid was in no true sense an overdraft, and the bank became the bona fide holder of the forged cheek for value so s°oon as checks were drawn and paid by reason of the credit thus obtained. It is next urged that the check drawn by and paid to England on August 7th was not a check drawn in the name of the paving company. The authority of England was to “indorse and sign checks”; “all checks drawn against or indorsed for deposit to said account by the said England to be in the name of this company.” It is said that the §10,000 check paid to England was signed only in the name of “C. R. England, Atty. & Cashier.” This is a misreading of the instrument. The name of the “Warren-Scharf Asphalt Paving Company” appears on the face of the check above the signature of England. It is true that the name of the company appeal's above the words “Pay to the order oí cash.” This check was in the form of all previous checks drawn against this account. The name of the paving company is engraved or printed on the check, and was taken from the check book furnished England by the company. It is likewise the form in which the company’s name was signed upon checks drawn at its principal office against its New York account. The objection is not well taken. It is next said that England’s authority was limited to signing checks “for the use of” the company, and that this check was drawn .payable to “cash,” and was presented for payment by England him [186] self, and that a check thus drawn and paid w'as equivalent to a check payable to the order of England, and was therefore not prima facie a check drawn for the “use of” the company. The authority to sign checks for the use of the company imposed no affirmative duty upon the bank to inquire into the purposes of the check, or the use to which the money was to be put. If the bank paid this check in good faith, having no notice of England’s fraudulent purposes, and not acting in collusion with him, it should be protected. England was acting within the apparent scope of his agency, and the bank was not bound to inquire into the use he intended to make of the proceeds of the check, it being drawn in usual form and in ordinary course of business. All or nearly all of the checks theretofore drawn against this account had been payable to “cash,” and had been presented by and paid to England. It is true that most of them had been accompanied by á slip indicating the kind of money needed, which would possibly imply that the check was drawn for money needed to pay off employés. But there was no other indication than this memorandum made by England himself that the check had been drawn for the use of his company. In the absence of circumstances calculated to arouse suspicion that the check had been drawn for some fraudulent purpose, the bank was under no obligation to know that the drawer’s own agent was going to misappropriate the proceeds. The mere fact that this accredited agent of the paving company had drawn this check payable to “cash,” and that he presented it for payment himself, was not enough to put the bank upon inquiry as to the honesty of his purposes in the subsequent use of the money. The explanation given by England, that the money would be needed for use in a neighboring city after bank hours, and for a transaction in which money alone would answer, was calculated to lead the bank to the conclusion that the check had been tlrawn, and that the'proceeds were to be used, for the purposes of the paving company. The intimation that the transaction in which it was to be used was one of which no record was wanted carried no intimation that it was not a transaction for the benefit of the company, and justified no inquiry into its character. The inquiries made by the paying teller as to the terms of the letter of authority and as to the then state of the paving company’s account were all proper precautions for the security of the bank. There was nothing in the colloquy between England and the bank’s teller indicative that suspicion as to the honest purposes of England had been aroused, or upon which the bank should be charged with negligence or as exceeding its authority in respect to paying checks drawn by England. There wa? no evidence from which a jury might rightfully infer that the bank had notice that England was exceeding his authority or intended a misappropriation. The plaintiff in error intrusted England with the authority to indorse and sign checks in its name, and any loss arising from his dishonesty, when apparently acting within the scope of his known powers, should be borne by those who enabled him to perpetrate the fraud, rather than by one who has innocently suffered. There was no error in instructing the jury to find for the defendant in error, as there was no such conflict of evidence as would properly make an issue for the jury. The judgment is accordingly affirmed.