197 P. 547 | Or. | 1921
The plaintiff argues that it is entitled to recover because: (1) The defendant is chargeable with negligence in not having detected the forgery of Insley’s signature; and (2) even though
Although in this country most of the text-writers and some judges have protested strongly against the rule announced in Price v. Neal, the doctrine established by that case has been accepted as a part of our law-merchant by the national supreme court as well as by most of the state appellate tribunals: Bank of United States v. Bank of State of Georgia, 10 Wheat. 333 (6 L. Ed. 334, see, also, Rose’s U. S. Notes) ; State Bank v. Cumberland Savings & Trust Co., 168 N. C. 605 (85 S. E. 5, L. R. A. 1915D, 1138); Deposit
Stated broadly and in general language, the drawee named in a bill of exchange is bound to know the signature of the drawer and hence accepts or pays the instrument at his peril. A check is defined as “a bill of exchange drawn on a bank payable on demand”: Section 7977, Or. L. A bank is bound to know the signatures of its depositors, and, therefore, if as drawee a bank pays a check to which is signed the name of one of its depositors, it does so at its peril. There are a few jurisdictions in which it is held that the drawee can recover even f-rom an innocent holder if the holder will, after recovery, be in no worse condition than if the bank had refused to pay the bill of exchange or check: Bank of Lisbon v. Bank of Wyndmere, 15 N. D. 299 (108 N. W. 546, 125 Am. St. Rep. 588, 10 L. R. A. (N. S.) 49); American Express Co. v. State National Bank, 27 Okl. 824 (113 Pac. 711, 33 L. R. A. (N. S.) 188). Although in most of the American jurisdictions the courts are agreed upon the general rule that the drawee named in a bill of exchange or check is bound to know the signature of the drawer, and therefore by paying assumes the loss
The general statement that a drawee who pays a bill of exchange or check does so at his peril, is not strictly accurate, for it is subject to qualification and exception. The general language employed in this statement fails to take into account any of the duties resting upon the holder. The doctrine of Price v. Neal is not available to a holder who (1) is guilty of bad faith, or (2) has been negligent. The rule with which we are now concerned is more accurately stated when we say that a drawee who has paid a bill of exchange or check cannot recover the payment from a holder in good faith for value and without fault. The holder is guilty of bad faith towards the drawee and must refund if he participated in the forgery, or if he knew the check was forged, or knew of circumstances causing suspicion of its genuineness and these circumstances were neither known to the drawee nor communicated to him by the holder. Obviously, a bad faith holder ought not to be permitted to retain money received from an innocent drawee on a bill of exchange or check to which the name of the drawer has been forged; and so say all the authorities. But if we suppose that an indorser was a holder
A holder cannot profit by a mistake which his negligent disregard of duty has contributed to induce the drawee to commit: Ellis v. Ohio Life Ins. & Trust Co., 4 Ohio St. 628, 668 (64 Am. Dec. 610). The holder must refund, if by his negligence he has contributed to the consummation of the mistake on the part of the drawee by misleading him: Germania Bank v. Boutell, 60 Minn. 189, 194 (62 N. W. 327, 51 Am. St. Rep. 519, 27 L. R. A. 635). If the only fault attributable to the drawee is the constructive fault which the law raises from the bald fact that he has failed to detect the forgery, and if he is not chargeable with actual fault in addition to such constructive fault, then he is not precluded from recovery from a
Apt illustrations of culpable negligence of a holder are found in that class of cases where a stranger representing himself to be the payee presents to a bank a check drawn upon another bank and the first bank purchases the check without inquiry and without-identification of the person presenting the check. The customary practice of banks is to require identification of strangers, and for that reason the drawee
If the instant case were to be governed by rules of the law-merchant, the defendant could invoke the doctrine of Price v. Neal, and the plaintiff could, if the defendant was negligent, counter by advancing the contention that the negligence of the defendant deprives it of the protection which would otherwise be afforded by the rule which binds the drawee to know the signature of the drawer of the check: First Nat. Bank v. Bank of Cottage Grove, 59 Or. 388, 394 (117 Pac. 293).
Section 7854, Or. L.: “The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance; and admits (1) the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (2) the existence of the payee and his then capacity to indorse.”
Section 7977, Or. L.: “A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a cheek. ’ ’
Section 7980, Or. L.: “Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon.”
Sections 7854, 7977 and 7980, Or. L., correspond respectively with Sections 62, 185 and 188 of the negotiable instruments law.
It will be observed that in Section 7854, Or. L., the word “accepting” and not the word “paying” is employed in the statute; and yet in all the states where the question has been presented, except the state of Pennsylvania, where a different course of legislation has produced a different result and except in South Dakota (Crawford’s Ann. Neg. Inst. Law (4 ed.), 121; Brannan’s Neg. Inst. Law (3 ed.), 229, 231), the courts have ruled that Section 62 is merely a legislative affirmation of the rule announced in Price v. Neal, and that this section includes the payment as well as the acceptance of a negotiable instrument on the theory that the section was intended as a legislative adoption of the entire doctrine of
Thus it appears that Section 62 of the negotiable instruments law has, except in Pennsylvania and except in South Dakota, been received as a legislative affirmation of the rule in Price v. Neal: Brannan’s Neg. Inst. Law (3 ed.), 231. It will be observed that Section 62 does not in terms provide for the exceptions, such as negligence of the holder, which had been recognized in nearly every reported judicial decision where the doctrine of Price v. Neal had been followed. In other words, notwithstanding state: ments occasionally made to the effect that there is a conflict among the authorities, a careful examination of the precedents will disclose that, aside from the
The negotiable instruments law is in the main a codification of the rules of the law-merchant; and in most instances where there had been a difference of judicial opinion the negotiable instruments law will upon investigation be found to have adopted the rule of the majority. With but few reported decisions to the contrary, the courts of this country which had followed Price v. Neal had for a century, recognized negligence upon the part of the holder as an exception which untied the hands of the drawee and enabled him to recover from the negligent holder; and in this situation it is inconceivable that the framers of the act designed to make Section 62 absolute and free from the exceptions which had been previously recognized. Section 62 has been criticised because it fails to speak of the exceptions which had come to be so generally observed (59 Univ. of Pa. Law Eev. 493); and yet the history of the Price v. Neal rule
If the United States National Bank had been aware of the forgeries, or if it had known of circumstances sufficient to put it upon inquiry, a duty in respect of the signature of the drawer would have been imposed upon it; but in the absence of such knowledge or circumstances the United States National Bank owed no duty to the First National Bank to inquire about the genuineness of the signature of the drawer, for the drawee must know the signature of the drawer: Germania Bank v. Boutell, 60 Minn. 189 (62 N. W. 327, 51 Am. St. Rep. 519, 27 L. R. A. 635); Price v. Neal, 3 Burr. 1354; Bank of Williamson v. McDowell County Bank, 66 W. Va. 545 (66 S. E. 761, 37 L. R. A. (N. S.) 605); Crocker-Woolworth Nat. Bank v. Nevada Bank, 139 Cal. 564 (73 Pac. 456, 96 Am. St.
We cannot say that the defendant was negligent as a matter of law. Nor can we say in this appeal that the defendant was negligent as a matter of fact; because it devolved upon the plaintiff to show negligence, and the findings of the trial court were against the plaintiff: Deposit Bank of Georgetown v. Fayette Nat. Bank, 90 Ky. 10 (13 S. W. 339, 7 L. R. A. 849).
The plaintiff cannot derive any benefit from the fact that thirteen of the merchants delivered an ag
The two sections of the negotiable instruments law which prescribe the warranties imposed upon an in
“An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof.”
Section 7982, Or. L., defines “holder” as “the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.”
Section 7844, defines a holder in due course to be one—
“Who has taken the instrument under the following conditions: (1) that it is complete and regular upon its face; (2) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”
Under the provisions of Section 7843, Or. L.:
“The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument.”
We now inquire whether the indorsement and presentment for payment operated under the rules of the law-merchant, as a warranty by the defendant holder to the plaintiff drawee that the signature of Insley was genuine. Many and probably most of the text-writers have persistently opposed the doctrine of Price v. Neal and naturally we should expect to find among such text-writers those who take the view that
Those who refuse to accede to the doctrine of Price v. Neal may consistently argue that the holder warrants the genuineness of the drawer’s signature; but those authorities which adhere to Price v. Neal cannot with any semblance of consistency in one breath say that the drawee warrants the signature of the drawer and in the next breath say that the holder warrants the drawer’s signature. To say that the rule of Price v. Neal applies except where the holder indorses the check is to except the rule out of existence, because in actual practice nearly all checks and bills of exchange are indorsed by the holder when presented for payment. It is utterly illogical to say on the one hand that by making payment the drawee warrants to the holder the genuineness of the drawer’s signature and on the other hand that by receiving payment the holder warrants the same thing to the drawee. If each warrants to the other exactly the same thing, then in case of payment of a forged
When a holder signs his name on the back of a check and then receives payment from the drawee his signature is not strictly speaking an indorsement, but it is merely a receipt, although the signature is usually called an indorsement and for convenience we have so referred to it: 56 Am. Law Eeg. (N. S.) 122; 4 Har. Law Eev. 297; Brannan’s Neg. Inst. Law (3 ed.), 323; 17 Har. Law Eev. 581-583. The liability of the holder to refund when he has received payment on a cheek coming to him through a forged indorsement is not dependent upon whether or not the holder has signed his name on the back of the check, for regardless of whether or not he indorses the instrument, the holder is bound to know the genuineness of all prior indorsements: Wellington Nat. Bank v. Robbins, 71 Kan. 748 (81 Pac. 487, 114 Am. St. Rep. 523). A holder can sue the drawee and compel payment without indorsing a check. A drawee who has paid a check can sue the holder and compel
Although all the authorities agree that the drawee has a right to compel the holder to refund money paid on a check having the genuine signature of the drawer but bearing a forged indorsement, they do not agree upon the theory of the obligation which creates the right: 4 Har. Law Rev. 297; Farmers’ Nat. Bank v. Farmers & Traders’ Bank, 159 Ky. 141 (166 S. W. 986, L. R. A. 1915A, 77); Brannan’s Neg. Inst. Law (3 ed.), 230. As pointed out by the editor of the note in First Nat. Bank of Lisbon v. Bank of Wyndmere (N. D.), 10 L. R. A. (N. S.) 49, the warranty of the drawee in respect of the signature of the drawer is governed by a rule of the law-merchant, while recovery by the drawee of payment made on a forged indorsement is dependent upon common-law rules with reference to recovery of money paid by mistake: Crocker-Woolworth Nat. Bank v. Nevada Bank, 139 Cal. 564, 584 (73 Pac. 456, 96 Am. St. Rep. 169, 63 L. R. A. 245).
Thus far we have discussed the check as it stands alone, and without regard to the clearing-house rules. We have determined that the law of the land requires a holder to refund to the drawee a payment received on a forged indorsement, but we have also determined that the holder is not required to refund money paid on a check which was invalid from the beginning on account of the forgery of the signature of the drawer. If we turn to the rules of the clearing-house we shall see that a member guarantees
It will be remembered that the stamped indorsement placed by the defendant on the back of the checks did not include the words “Prior indorsements guaranteed”; but the rules of the clearinghouse do provide that the stamped indorsement operates as a guaranty of prior indorsements. As previously pointed out the negotiable instruments law provides for warranties made by the indorser and those warranties are for the benefit of subsequent holders only. It has also been pointed out that the general rule is that a drawee can recover moneys paid on a forged indorsement, but that the authorities place the right of recovery upon different grounds, some placing the right upon the ground of warranty or guaranty, and many others placing the right upon the ground of mistake: Note in L. R. A. 1916E,
The clearing-house rule which provides for the guaranty of prior indorsements refers to the signatures of indorsers and does not include drawers: Farmers & Merchants’ Bank v. Bank of Rutherford, 115 Tenn. 64 (88 S. W. 939, 112 Am. St. Rep. 817); National Bank of Rolla v. First Nat. Bank of Salem, 141 Mo. App. 719 (125 S. W. 513); State Bank v. Cumberland Savings & Trust Co., 168 N. C. 605 (85 S. E. 5, L. R. A. 1915D, 1138; Cherokee Nat. Bank v. Union Trust Co., 33 Okl. 342 (125 Pac. 464).
If, as the trial court found, the payees named in the checks were fictitious payees, then under Section 7801, Or. L., which corresponds with Section 9 of the uniform negotiable instruments law, as that section has been interpreted by some adjudications, the checks were payable to bearer and hence title was not derived through forged indorsements, but merely by delivery: 8 C. J. 608; Trust Co. of America v. Hamilton Bank, 127 App. Div. 515 (112 N. Y. Supp. 84); Bank of England v. Vagliano Bros., L. R. [1891] App. Cas. 107.
We do not find it necessary to decide whether Article XYI, Section 1 of the clearing-house rules is applicable to the situation presented here. Without intending to indicate our opinion upon the subject, the reader’s attention is directed to National Bank of Commerce v. Mechanic’s American Nat. Bank, 148 Mo. App. 1 (127 S. W. 429). Nor need we inquire whether Section 7980, Or. L., concludes the plaintiff. However, the following precedents may be consulted: First National Bank v. Bank of Cottage Grove, 59 Or. 388, 396 (117 Pac. 293); Cherokee Nat. Bank v. Union Trust Co., 33 Okl. 342 (125 Pac. 464).
The conclusions we have reached compel an affirmance of the judgment. Aeeirmed.
