Schaap v. First National Bank
208 S.W. 309
Ark.
1918
Check Treatment
HART, J.,

(after stating the facts). The record shows that Slates had authority to sell drugs for the plaintiff and to collect past due accounts, either receiving payment therefor in money, or in the checks of customers drawn in favor of his principal. Slates indorsed the checks by writing his principal's name across the back thereof followed by the words, “per E. H. Slates.” The indorsement “per E. H. Slates” did not purport to be his own indorsement but was notice to the defendant that Slates had acted for the plaintiff. See our Negotiable Instrument Act, Acts of 1913, p. 260 and Section 23 thereof.

But it is earnestly insisted, by counsel for the defendant that the authority to collect past due accounts, either in money or by checks, carried with it the authority to indorse the checks received by him in payment of the accounts. The main purpose had in view was the collection of the accounts. This was accomplished when Slates had received the various checks payable to his principal. When Slates received them in payment of a-debt due his principal, his duty as collector ceased except to transmit the checks to his principal. The indorsement of the checks was not a necessary incident to the collection of the accounts and his authority to receive checks, instead of cash, did not confer power to indorse the checks. It has been uniformly held that the fact that an agent authorized to make collections in checks as well as in money does not enlarge his authority to indorse checks so taken in the name of his principal. Daniel on Negotiable Instruments (6 Ed.), vol. 1, sections 290-291; Jackson v. Bank (Tenn.), 36 Am. St. Rpts. 81; Deering v. Kelso (Minn.), 73 Am. St. Rep. 324; Jackson Paper Mfg. Co. v. Commercial National Bank (Ill.), 93 Am. St. Rep. 113; Hamilton National Bank v. Nye (Ind.), 117 Am. St. Rep. 333; Dispatch Printing Co. v. National Bank of Commerce, 124 N. W. (Minn.) 236, 50 L. R. A. (N. S.) 74; The New York Iron Mine v. The First National Bank of Negaunee, 39 Mich. 644; and Graham v. U. S. Savings Institution, 46 Mo. 186.

In Jackson v. Bank, supra, the court said: “No equitable considerations can be invoked to soften seeming hardships in the enforcement of the laws and rules fixing liability on persons handling commercial paper. These laws are the growth of ages and the result of experience, having their origin in necessity. The inflexibility of these rules may occasionally make them seem severe, but in them is found general security.”

This court has recognized the desirability of having uniformity in the decisions of the courts of last resort in the various states on the subject of nogtiable paper. The question of whether the payee of the cheek may recover its proceeds from the bank which has cashed it, or which has collected it on an unauthorized indorsement, is presented in this court for the first time. The general rule on the question is stated by Morse on Banks and Banking (5 Ed.), vol. 1, sec. 284, p. 491, as follows: “If a negotiable instrument having a forged endorsement comes to the hands of a bank and is collected by it, the proceeds are held for the rightful owners of the paper, and may be recovered by them, although the bank gave value for the paper, or has paid over the proceeds to the party depositing the instrument for collection.”

Prof. Bolles in his article on the subject in 5 Cyc. 548, says that if a bank pays a check on a forged indorsement, this is no defense against a recovery by the rightful owner.

In the present case the money collected by the banks on the checks belonged to Schaap. The general rule is that an unauthorized indorsement is a nullity. The banks’ position in law is the same as if they had taken the checks belonging to Schaap and collected the money on them without any indorsement at all, and when without lawful right, the bank converted them into money, the proceeds were substituted for the checks and subject to Schaap’s demand as his money. The banks held the checks for the plaintiff, Schaap, who was their lawful owner and they could not be exonerated from their obligation by paying the amount to another, who had never been authorized to receive it. In making such payment as well as in the collection of the money on the checks, in other instances, the checks being unindorsed by the plaintiff, the banks acted in hostility to the plaintiff’s rights, so as to become liable to him for the loss so occasioned. This holding is in accord with the almost universal current of authority on the question. The cases are based upon the theory of ratification by the payee or owner of the check of its collection from the drawee, and that the collecting bank can then be held as for moneys had and received, and that the payment by the drawee bank to the collecting bank with the forged or unauthorized indorsement thereon is evidence that the check was accépted and paid by the drawee bank, which acts the payee ratifies. In other words, the true owner of a check, with a forged unauthorized indorsement may ratify the act of a bank, in receiving it, in that condition; and collecting the proceeds or paying them out without authority and yet not ratify the forged or unauthorized indorsement. In such cases the bank cannot avoid liability by showing that its conduct was governed by good faith and the payee is entitled to recover unless he has been guilty of fraud or negligence in the matter. United States Portland Cement Co. v. United States National Bank of Denver (Col.), L. R. A. 1917 A. 145; Talbot v. Bank of Rochester, 1 Hill (N. Y.) 295; Johnson v. First National Bank, 6 Hun. (N. Y.) 124, affirmed in 68 N. Y. 616; Shaffer v. McKee, 19 Ohio St. 526; Buckley v. Second Natl. Bank, 35 N. J. 400, 10 Am. Rep. 249; Farmer v. Peoples Bank (Tenn.), 47 S. W. 234; Knoxville Water Co. v. East Tenn. Nat. Bank (Tenn.), 131 S. W. 447; Crisp v. State Bank (N. D.), 155 N. W. 78; Peoples Bank v. Franklin Bank (Tenn.), 17 Am. St. Rep. 884 and note.

The only ease holding to the contrary to which onr attention has been called is Tibby Bros. Glass Co. v. Farmers & Merchants Bank (Penn.), 15 L. R. A. (N. S.) 519. In that case it was held that a bank which collects checks cashed by it on forged indorsements is not liable for any money had and received to the nse of the payee. The holding is based on the ground that since the checks had not been accepted by the drawee, there was no privity of contract between the bank and the payee which would sustain an action, and that the action of the collecting bank in cashing the checks placed it upon no different ground than if it had been the drawee bank.

Counsel for the defendants recognize the majority rule to be as stated in the opinion but they say that this rule is contrary to the reasoning of our court in former decisions bearing on the question. The cases referred to are Sims v. American Natl. Bank, 98 Ark. 1.; Rogers Commission Co. v. Farmers Bank, 100 Ark. 537; and State, use etc. v. Bank of Commerce, 133 Ark. 498, 202 S. W. 834. These cases are in accord with the general rule that the holder of an uncertified or unaccepted check can, in the absence of statute, maintain no action thereon against the bank on which it is drawn even though the bank has funds of the drawer out of which it could pay the check. The principle is based upon the theory that there is no privity on contract between the holder of the check and the drawee bank. See case note to L. R. A. 1916 C. at 166. The principal case cited to support the majority rule just referred to is First National Bank v. Whitman, 94 U. S. 343, in which the court held that the payee of a check before it is accepted by the drawee cannot maintain an action upon it against the latter as there is no privity of contract between them. In that case the court held that payment to a stranger upon an unauthorized indorsement does not operate as an acceptance of the check, so as to authorize an action by the real owner to recover its amount as upon an accepted check. We do not think that our holding in our own cases above cited or the holding in the "Whitman case is in conflict with our holding in the present case. It is apparent from an examination of the case note just referred to that the courts of last resort from several of the States from which we have cited cases to support our holding in the present case have also held in accordance with the rule in this State that the payee of an unaccepted check cannot maintain an action against the bank upon which it is drawn upon refusal of payment even though the drawer has funds in the bank. As we have already seen, Slates, the agent of the plaintiff, had no right to indorse the cheeks in the plaintiff’s name and the plaintiff’s right to the checks remained precisely as it was before Slates undertook to indorse them for him. The checks therefore when received by the defendants were the property of the plaintiff and in that case he may, as we have seen, ratify the action of the banks in receiving the checks and collecting their proceeds- without ratifying the unauthorized act of his agent in indorsing the checks in the name of the principal. This view is not opposed to the reasoning of the court in Mills v. Hurley, 129 Ark. 350. In that case the payee sued the drawer on a check which had been rightfully delivered to an agent of the payee in payment of the debt of the drawer, but which had been indorsed by the agent without authority and collected. The court held that the drawer had discharged his full duty in delivering the check to an agent of the - drawee authorized to receive it in payment of his debt and that he could not be held responsible for the wrongful act of the agent of the drawee in indorsing the check in the latter’s name without authority and collecting it. The authorities on this question are divided; but there seems to be nothing in the reasoning of the court in Mills v. Hurley, supra, that conflicts with the views we have herein expressed. Therefore the plaintiff’s right of recovery upon the checks is complete and the court erred in holding to the contrary.

This is an application of that well settled maxim that a subsequent ratification has a retrospective effect and is equivalent to a prior command.

It is also contended that the justice of the peace in the one case and the municipal court in the other were without jurisdiction because the checks in the aggregate in each case amounted to more than $300. There is no merit in this contention. Each check was for less than $300, and the transaction in regard to each was had on different days. They constituted separate transactions and had no relation to each other. It is well settled in this State, that where there are separate causes of action upon distinct contracts, each for a sum within the jurisdiction of a justice of the peace, they may be joined in one section, even though the aggregate amount exceeds the jurisdictional amount. American Soda Fountain Co. v. Battle, 85 Ark. 213; Modern Laundry v. Dilley, 111 Ark. 350, and Fort Smith Paper Co. v. Templeton, 113 Ark. 490.

For the error indicated in the opinion, the judgment in each case must be reversed and the cause remanded for a new trial.