Case Name: Johnson, Appellant, v. First National Bank of Beaver Falls
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1951-05-25
Citations: 367 Pa. 459
Docket Number: Appeals, Nos. 3 and 4
Parties: Johnson, Appellant, v. First National Bank of Beaver Falls.
Judges: Before Drew, C. J., Stern, Stearne, Jones, Bell, Ladner and Chidsey, JJ.
Reporter: Pennsylvania State Reports
Volume: 367
Pages: 459–476

Head Matter:
Johnson, Appellant, v. First National Bank of Beaver Falls.
Argued March 20, 1951.
Before Drew, C. J., Stern, Stearne, Jones, Bell, Ladner and Chidsey, JJ.
Joseph A. Rieser, for appellants.
Leonard L. Ewing, with him Reed, Ewing <& Ray, for appellee.
May 25, 1951:

Opinion:
Opinion by
Mr. Justice Jones,
The plaintiffs, husband and wife, sued to recover a sum allegedly standing to their credit, as joint de positors, in a checking account in the defendant bank. The complaint averred that, after various deposits made by the plaintiffs to the credit of the account and withdrawals therefrom from time to time, there should have been a net balance in the account to the plaintiffs' credit in the month of October 1948 of $3153; that the plaintiffs made demand therefor; and that the defendant refused to pay the plaintiffs that sum or any portion thereof. The defendant answered, denying that anything was due the plaintiffs, and averred, under new matter, that the plaintiffs had received payment in full as shown by the bank's ledger sheet of the account which began with an entry of October 23, 1947, crediting the plaintiffs with a balance brought forward of $3278. Subsequent entries of deposits and withdrawals appear on the ledger sheet until October 4, 1948, at which time the withdrawal shown reduced the balance in the account to $.00 There were, all told, in the period of time covered by the ledger sheet twenty-three withdrawals by checks purportedly drawn by one or the other or both of the plaintiffs. In their reply to the new matter, the plaintiffs averred that only six of the withdrawals had actually been made by them and that seventeen of the checks charged to their account, for an aggregate sum of $3153, were forgeries.
At trial, the plaintiffs proved that all seventeen of the contested checks were forgeries, and the jury expressly so found in a special verdict. The defendant offered no proof of the genuineness. of the signatures to the checks involved and no longer questions that they were forgeries. It so happened, however, that the last two of such checks were cashed by the bank after the plaintiffs had knowledge of the "irregularity" in their account and, because they did hot notify the bank accordingly when they first obtained such knowledge, the jury relieved the bank of liability for the payment of,;thqse checks and returned á verdict, for•,the. plain tiffs in the sum of $2770. The verdict represented the amount paid out by the bank on the other fifteen forged cheeks all of which had been cashed by the bank before the plaintiffs knew, or had reason to know, that such checks had been charged to their account. The defendant moved for judgment n.o.v. on the ground that the plaintiffs had failed to give the defendant prompt notice of the forgeries and were thereby precluded from setting them up. The court below granted the motion and entered judgment for the defendant from which the plaintiffs brought these separate appeals.
Section 23 of the Negotiable Instruments Law of May 16, 1901, P. L. 194 (56 PS §28), provides that "When a signature is forged . it is wholly inoperative, and no right . to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded froth setting up the forgery . . ." (Emphasis supplied). The word "precluded", as used in Section 23 of the N. I. L., has been construed in this State, as well as elsewhere, to mean "estopped" which necessarily connotes harm or at least unfairness, otherwise, to the one asserting the estoppel. In Commonwealth v. Globe Indemnity Company, 323 Pa. 261, 266, 185 A. 796, Mr. Justice Linn, speaking for this court, said with respect to the effect of a forgery, — "Being a forgery, section 23 declares that 'it is wholly inoperative' and confers 'no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto' unless the draioer is estopped" (Emphasis supplied). In First National Bank of Shoemakersville v. Albright, 111 Pa. Superior Ct. 392, 397-398, 170 A. 370, Judge (later Mr. Justice) Parker said, — "We understand that the word 'precluded' as used in the Act Of 1901 is equivalent to 'estopped.'" In-such- connection, the-samé opinión'-furthér' statéd that "negligence is treated as a ground of estoppel" and that this is but " . . an application of the general principle that when one of two innocent persons, that is, persons each guiltless of an intentional, moral wrong, must suffer a loss, it must be borne by that one of them ivho by his conduct has rendered the injury possible': 10 R. C. L. 695." See also Clearfield National Bank v. Madera National Bank, 87 Pa. Superior Ct. 564, 568; and, generally, Brannan, Negotiable Instruments Law, 7th Ed., §23, p. 455.
Among the acts of negligence capable of estopping a depositor from recovering from his bank for its payment of a check bearing the depositor's forged signature is his- failure to promptly notify the bank of the forgery: see McNeely Company v. Bank of North America, 221 Pa. 588, 592, 70 A. 891, where it was said that "The duty of a depositor in a bank, upon discovering that it has paid and charged to his account either a check bearing his forged signature as drawer or his check on the forged indorsement of the payee, is to promptly notify it of the forgery." However, as we later had occasion to note, what constitutes prompt notice "varies with the circumstances" of each case: Commonwealth v. Globe Indemnity Company, supra. The McNeely case, itself, had impliedly so recognized. In Iron City Nat. Bank v. Fort Pitt Nat. Bank, 159 Pa. 46, 28 A. 195, Mr. Justice Mitchell had said that, short of an equitable estoppel in favor of a bank which has paid out the proceeds of a check bearing a forged endorsement, "the date of the notice is not material." With reference to that statement, it was observed in the McNeely case that "This must be read with refer.ence to the facts in.that case." And, of course, that is so in any case. . .
• In view of the meaning judicially imputed to the \Vord "precluded", as employed in Section 23 of the Negotiable Instruments'' - Law,- "timely" - rather thán "prompt" more correctly, defines the character of notice which a depositor is required to give his bank of a forged check charged to his account. In the nature of things, there can be no arbitrary standard as to the length of time within which a depositor, after discovering that his bank has charged a forged check to his account, must give the bank notice thereof in order that he may not be precluded from setting up the forgery. Consequently, the cases, such as the appellee cites, where delays of specified periods of time in notifications were fatal to depositors' claims for recovery, are in no sense controlling. Conceivably, in certain situations a far shorter period of time than that given in the appellee's citations might even be too late. The issue as to the timeliness of the notice is one of fact to be so resolved according to the relevant and material attendant circumstances.
What was said in the McNeely case with respect to a depositor's duty to give his bank prompt notice that it had paid and charged to his account a forged check was, in reality, superfluous to the decision in that case. There, the admitted facts and undisputed documentary proofs conclusively showed such a negligent coursé of conduct on the part of the depositor with respect to its regularly returned checks over a period of six years that the depositor's recovery for the bank's payment of forged checks during that long time was precluded as a matter of law. No substantial question as to the promptness of any notice was involved. There was no room for doubt that the bank had not been promptly notified of the forgeries. The question which the plain tiff's claim actually posed in the McNeely case was whether the bank was not liable for the payment of forged checks regardless of the lack of prompt notice of the forgeries. That question was ruled adversely to the plaintiff on a principle deduced from United Security Life Insurance and Trust Company v. Central National Bank, 185 Pa. 586, 40 A. 97, that "The law assumes, and does not find it necessary to conduct an inquiry to verify the assumption, that had the notice been given promptly, the [bank] might have taken steps to protect itself as against [the forger]": see the McNeely ease at p. 598. It should not be overlooked, however, that the United Security Life Insurance case, supra, was decided three years before Pennsylvania's adoption of the Negotiable Instruments Law and that the McNeely case did not even mention Section 23.
While a depositor's failure to give his bank timely notice that forged checks have been charged against his account "is a good defense . . . the bank has the burden of proof" (Peoples City Bank v. John Hancock Mutual Life Insurance Company, 353 Pa. 123, 131, 44 A. 2d 514) of its lack of knowledge in such connection, free from any fault of its own. That is so as a matter of contract (and not tort) law which is applicable to the debtor-creditor relationship. In an interesting and well-considered opinion in R. H. Kimball, Inc. v. Rhode Island Hospital National Bank, 72 R. I. 144, 153-154, 48 A. 2d 420, Mr. Chief Justice Flynn, speaking for the Supreme Court of Rhode Island, said, —". . . in the absence of any contract limitation and where payment by the bank of a forged check has been unquestionably established, there is ample authority that the bank must then affirmatively show that it had exercised due diligence in its transactions with the forger before it can put in issue the depositor's alleged negligence. The substance of that rule is stated or applied in 7 Am. Jur. 371, §516; National Dredging Co. v. Farmers Bank, 6 Penn. (Del.) 580; Basch v. Bank of Am. Nat. Trust & Savings Ass'n., 22 Cal. 2d, 316; Wussow v. Badger State Bank, 204 Wis. 467. See Critten v. Chemical Nat. Bank, 171 N. Y. 219; Leather Manufacturers' Bank v. Morgan, 117 U. S. 96. In the event that the bank is found, upon the evidence, to have been negligent in the performance of its duty, the bank becomes liable because of its primary contractual obligation and not because of its negligence."
In the instant case the learned court below fell into error both procedurally and substantively. It passed upon the defendant's motion for judgment n.o.v. in the mistaken belief that it was incumbent upon the plaintiffs, in the first instance, to establish that they had given the bank timely notice of the forgeries and ignored the primary duty of the bank to show itself free from negligence before the plaintiffs could be precluded by any failure of theirs in the premises.
There is evidence in the case that, when Johnson got his returned checks on September 20th, they were handed to him in two envelopes, one containing five authentic checks drawn by the depositors throughout the eleven months preceding and the other envelope containing fifteen forged checks all drawn to the order of the same payee, viz., the forger, in the preceding sis weeks. From the bank's separation of the cheeks, the jury could infer that it had already detected the spurious ones and had so segregated them. The bank's denial of the testimony as to the two envelopes was merely general on the basis of custom and not specific to the issue. Then, too, the action of the forger in making good, at the teller's request, a relatively large overdraft in the account occasioned by his last withdrawal on a forged cheek was so unusual as to cause a reasonably prudent person to question the regularity of the transaction and thus, perhaps, discover the forgeries. The question of the defendant's negligence was for the jury. Under the evidence, it cannot be said as a matter of law that the defendant was not guilty of a want of care.
Even the evidence which the defendant offered in an effort to show lack of timely notice of the forgeries by the depositors was entirely oral. Its credibility and weight were for the jury's appraisal and determination. The fact that the depositors knew within a week of receiving their bank statement and returned checks on September 20th that forgeries had been charged to their account and did not at once so notify the bank did not preclude the plaintiffs from setting up the forgeries if the bank knew or, by the exercise of reasonable care, should have known of them. In any view, therefore, the case was properly for the jury.
Judgment reversed and here entered for the plaintiffs on the verdict.
i E. g. Lesley v. Ewing, 248 Pa. 135, 93 A. 875, a delay' of two' months; Connors v. Old Forge Discount and Deposit Bank, 245 Pa. 97, 91 A. 210, a delay of six weeks; and Knights of Joseph Building and Loan Association v. Guarantee Trust & Safe Deposit Co., 69 Pa. Superior Ct. 89, a delay of five weeks.