Case Name: John C. Smith v. The Mechanics and Traders' Bank
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1851-06
Citations: 6 La. Ann. 610
Docket Number: 
Parties: John C. Smith v. The Mechanics and Traders’ Bank.
Judges: 
Reporter: Louisiana Annual Reports
Volume: 6
Pages: 610–630

Head Matter:
John C. Smith v. The Mechanics and Traders’ Bank.
The plaintiff, a broker, discounted without inquiry, for an entire stranger, a forged bill purporting to bo drawn on and accepted by a commercial house in New Orleans. In payment, he gave the forger bis check upon the bank, payable to the order of the supposed acceptors of the bill. The forger obtained the money from the bank by forging the name of the supposed acceptors. Tho plaintiff sued the bank for the amount of the check. 'Held'- That the plaintiff did not exercise due precaution in thus taking the hill without inquiry; that filling up the check to the order of the supposed acceptors of the hill, instead of the party for .whom the bill was discounted, was not in the usual course of business; and was an unjustifiable attempt to shift from himself to the hank the duty of making inquiry, and the risk of loss incurred by his taking forged paper; that by placing his check in the hands of the probable forger of the bill, he supplied him with the means well calculated to deceive and impose on the bank; and that, although the bank had been guilty of negligence in paying the check, yet the loss should properly be borne by the plaintiff.
The relation between a bank and its customers, requires perfect good faith.
A discounter, whose business it is to buy bills, is not in the same situation as a bank whoso businessis to pay, and greater caution is required from the former than the latter.
No person should buy bills from entire strangers, without using a proper and reasonable degree of caution, and after proper inquiry.
APPEAL from the Fifth District Court of New Orleans, Buchanan, J. A.
K. Josephs and J. R. Grymes, for plaintiff, contended:
The plaintiff, a depositor in the Mechanics and Traders’ Bank, sues to recover the amount of a check drawn by him, to the order of Payne and Harrison, a well known commercial house in this city, and paid by the bankupon a forged endorsement. To wit: “No. 1572. New Orleans, November 7th, 1850. Mechanics and Traders’ Bank, pay to Payne and Harrison, or order, twenty-nine hundred and eight dollars and sixty-seven cents. $2908 67. Pp., J. C. Smith. J. Kilty Smith. (Endorsed,) Payhe and Horria.”
The defendants, in their answer, deny their liability to loss in consequence of the forgery; because, the payees, Payne and Harrison, never had any interest or right of property in the check, but that the same was delivered by plaintiff to the holder of an alleged acceptance of Payne and-Harrison, as the proceeds of the discount thereof by plaintiff, and was correctly paid to a fictitious payee. The evidence shows, that a draft purporting ,to have been drawn by one W. C. Ventriss, and accepted by Payne and Harrison, was discounted by plaintiff; the same having been offered by a person he did not know, he took the usual precaution of drawing his check for the proceeds to the order of the acceptors, Payne and Harrison. Huntington, a partner in the house of Payne and Harrison, declares, that the names of Payne aud Harrison on the draft, as well as on the check, are very bad imitations of the signature of the house, and the name of the drawer, Ventriss, is also a forgery. By inspecting the check, it will be seen, that instead of the name of Harrison, one of the payees, Horrin has been most distinctly substituted.
It was admitted on trial, that the plaintiff has, during several years, had large sums of money deposited in the defendants’ bank, which he draws from time to time. Cazenave has had charge of plaintiffs’ books for four or five years, and testifies, that in taking notes it is his habit to draw checks for the proceeds, to the order of the persons for whom they are discounted; as it often happens that clerks of commercial houses with whom he deals, call for the proceeds of paper discounted for their employers. The only witness offered by the defendant, Stringer, testifies as follows: “I am paying teller of defendants. Plaintiff'is a customer of the bank, and does a large business there. Plaintiff generally draws his checks to order; in some instances, they have been made to bearer. There is no particular understanding between plaintiff and defendants as to the mode of conducting their business. Payne and Harrison do not keep an account with defendants.” Cross-examined. “ Plaintiff is a broker, and keeps a considerable account with defendants, and has for along while. 'Where the party in whose favor the check is drawn is not known, the bank is in the habit of making inquiries; where the parties are known, they pay without verifying the signatures of the payees. I have refused to pay checks of plaintiff’s and other parties, where I did not know the party in whose favor the check was drawn, and required plaintiff and others, in those cases, to verily the checks.”
The duties and liabilities of the defendants, as general depositaries, rest upon an immovable basis of principles and decisions of daily occurrence and daily recognition; and their responsibility for losses, occasioned by ordinary neglect, naturally results from the great profit and advantage which they derive from the employment of the monies entrusted to their safe keeping. And it has been invariably held, that loss by payment of a check forged either in the drawer’s or payee’s name, or altered as to the sum, must fall upon the banker; because it is his duty to see that a cheek is genuine in all respects. In the case of Hall v. ^'u^er^ cited at length in Chitty on Bills, at the foot of page 287: “ The facts stated in the special case were these: The plaintiff kept cash at the house of the defendants, who are bankers. The plaintiff, having occasion to pay a sum of ¿63 to a tradesman, drew a check for the amount upon the defendants, and delivered it to the payee, who told him that he wanted to send it into the country. It was drawn in the usual form, payable to the payee, or bearer, with the plaintiff’s signature and the date. When the check was presented for payment, the amount was altered from £3 to £330. No suspicion being entertained by the defendants’ clerks, it was paid at the counter, as a matter of course. At that time, the plaintiff had not cash in the defendant’s hands to the full amount of the check thus altered. In no instance, had the plaintiff overdrawn his account, and had never given the defendants notice that he wished to have credit ultra the balance in hand. Great ingenuity had been displayed in altering the check, and the fraud could not be detected upon a cursory view. Soon afterwards, the plaintiff, finding that his account was overdrawn, the fraud was detected, and he called upon the defendants to indemnify him for the money which they had so paid without his authority; which the defendants refusing to do, this action was brought. The question for the opinion of the court was, whether the action was maintainable, either for the whole or any part of the amount of the check ? F. Pollock, for the plaintiff, argued, that as the defendants must, in point of law, bear the loss of a check forged in every respect, the same consequences would follow where the forgery was only of a part. Payment of a check, forged either in the drawer’s or the payee’s name, had been held to throw the loss upon the banker, whose duty it is to take care that no fraud is committed on his customer’s money. The forgery, in the amount of the check, was just the same as if the check was wholly forged in all respects. This, in fact, was not the plaintiff's check, and payment of it by the defendants could not bind his effects. Suppose this were a deed, and the plaintiff had been sued upon it, he might plead non est factum. Here trie drawer of the check had no means of guarding against fraud; not so the defendants, who, supposing them to be deceived, must bear the loss. Besides, as the check exceeded the amount of the plaintiff’s balance in hand, they ought to have paused and made inquiry before they paid it, especially as the plaintiff had never overdrawn his account and desired no accommodation. In this respect, the defendants were guilty of negligence, and a fortiori they must bear the loss. Gouldburne, for the defendants, contended, that if this action could be maintained, it would throw upon bankers a new, and certainly a most fearful responsibility. He admitted, that a banker paying a check forged in the signature, could not throw the burthen of the loss upon his customer; but it had never yet been decided that this principle extended to an alteration, either in the amount or in the payee’s name. It was the duty of the banker to look only to the drawer’s name, which was the only criterion which he might reasonably be supposed to have as to its genuineness. There was no analogy between a deed and a banker’s check. The slightest alteration in an instrument of the former description would vitiate it; but not so of a check. If there was any negligence in this case, it was all on the side.of the plaintiff, in paying a check to a person who told him that he meant to remit it into the country. Abbott, C. C. was of opinion, that the action was maintainable: ‘It was the duty of a banker to take care that he did not pay away his customer’s money, without a sufficient authority for that purpose; and if he paid to a forged order, he must'bear the loss; and it was immaterial whether the order was forged wholly or in part. Here the defendants had paid a sum of money belonging to their customer, which the latter had never authorized him to pay; and therefore they could not charge him with the loss. Under these circumstances, the defendant was entitled to judgment.’ Bayley, J., concurred: ‘ The banker was bound to pay only to his customer's order; and if he unfortunately paid a forged order, ho alone must bear the loss. It is the banker’s duty to see that a check is genuine in all respects.’ Judgment for the plaintiff. 8 Dowl. and Ry. 465, S. C.”
In the case of Laborde v. The Consolidated Association, tho bank was held liable for the loss occasioned by payment of a forged check presented by the plaintiff’s clerk, who had committed the forgery. 4 R. R., 193. Also, in Filing v. The Commercial Bank, 7 R. R., 461,. where the forgery was committed by a person in the plaintiff’s employment, and the court say, “was so well executed as to deceive a close and accurate observer.” And nothing but proof of extraordinary neglect on the part of the plaintiff, calculated to mislead the bank and •facilitate the commission of the forgery, could justify your reversal of the judgment appealed from. The evidence, on the contrary, establishes great caution and prudence on the part of the plaintiff, and a strict conformity with his usual course of business with the bank, and with his habitual reliance upon their usage and responsibility, even in the extreme case bf checks drawn to the order of strangers; which, as we have seen, they undertake to verify as to the genuineness of the payee’s signature. In the case before you, the check was made payable to the order of a long established commercial firm of the city, whose (Huntington) handwriting should have been well known at the bank, which was in the daily habit of discounting or collecting notes and obligations bearing their signature. And, indeed, there can.be no reason shown to justify the bank in assuming to exercise a greater degree of diligence and care in the case of checks payable to unknown persons, than that which they conceive themselves bound to employ when the payees are known to the bank; in which case “ they pay without verifying the signatures.” (Stringer.) A course which no prudent man would pursue in the management of his own affairs, and cannot certainly protect a bailee held to extraordinary diligence from the nature and conditions of the deposit. Angelí and Ames on Corporations, ed. 1846, 223.
In this condition, the defendants expect to relieve themselves from the consequences of extraordinary neglect, by showing that the transactions which led to the drawing of the check were of an unreal character; that the consideration given to the plaintiff being a forged bill, and Payne and Harrison were consequently fictitious payees; whose endorsement upon the check was unnecessary. As to the right of á bank to ascertain in what manner its customer is disposing of the money for which he checks, it may be questioned by some, as likely in certain instances to lead to unnecessary developements; although, if sanctioned by the court, a great moral reform might by this means be effected. Take the very extreme case of money lost at the gaming table by a depositor, who draws a check in the usual form, to the order of the winner. Should the payee’s endorsement be forged, or the amount increased, upon the doctrine contended for, it certainly would be wrong to throw the loss upon the bank. It may be very true, as in the present case, that they had enjoyed the use of the drawer’s money; and that the immediate cause of the loss was their neglect to verify the payee’s signature ; but the original transaction being illegal, immoral, and out of the usual course of business, the money was consequently intended to be paid by the customer, without consideration or real benefit, which must necessarily justify the subsequently gross neglect by which the loss was occasioned. It is urged, with equal force of reasoning, that Payne and Harrison, although in fact real persons, were, in point of law, fictitious payees ; because they are without interest in the matter.
The same difficulty would occur in a large class of cases in which payments are made by clerks, in whose favor the employer has a habit of drawing his checks; indeed, the right of the depositor to consult his own convenience or caprice upon this subject, cannot be questioned, provided that, in so doing, lie does not, by any negligent or improper act, expose the bank to loss by facilitating the forgery, or inducing a relaxation of the extreme vigilance imposed upon them by custom and law. In the case of Dana v. Underwood, 19 Pickering, 99, it was held, that a promissory note purporting to be payable to a real person, and endorsed in a forged handwriting resembling and intended to pass for his, cannot be considered as a note payable to a fictitious payee. Chief Justice Shaw, in delivering the opinion of the court, p. 103, says: It was contended, that this might be considered as a note payable to a fictitious person; and so, in legal contemplation, may be treated as a note payable to bearer, and pass by delivery without endorsement. But the court are of opinion, that this is entirely unsupported by proof, and inconsistent with the proof. That a note is payable to a fictitious payee, is a matter of fact to be proved. „ In this case, the original offer was of a note signed by Charles Brown and Lindemard, as makers, and Nathaniel Brown, the brother of Charles, as endorser. Nathaniel Brown was often at his brother’s counting-room, and transacted his business there. The handwriting resembles his, and was undoubtedly intended to pass as his. If it was not actually endorsed by him, and it could be proved that it was done by any other person through whose hands it had passed, can it be doubted that the proof would convict that person of forgery ? But it is ingeniously urged, that any person is to be deemed fictitious to whom the note is not in fact transferred, or intended to be transferred, and who in fact has no interest or concern in it. But ^ principle could be adopted, it would be wholly immaterial whether the endorsement is genuine or not, so far as to give to the instrument the character of a negotiable note, and when the endorser himself is not actually sued. For it would be always open to the dilemma; if he is a party, it is a genuine endorsement ; if he is not, he is a fictitious payee, and no endorsement is necessary.
In the case of Laborde, the forgery was committed, and the check presented, by a person in the employment of the drawer, and well known at the bank. So in Etting's case, where it was shown to have been so skilfully executed, as almost to defy detection. Yet, in both cases, the banks were held for the amount; although the confidential relations which exist between a clerk and his employer afforded, without doubt, the opportunity and inducement to the crime.
In the case before you, not only was the check paid to a stranger, but it is proved to be a very bnd forgery; indeed, the endorsement is of a different name from that of the payees. Instead of Harrison, Horrin is so distinctly signed as to strike the most casual observer; and with the exercise of ordinary vigilance should never have been received. Suppose the transaction to have been a real one between Payne and Harrison and the plaintiff, would it in any way have changed the duties and responsibilities of the defendants; or, in other words, were they prevented by the fault of the plaintiff, and the character of the present transaction, from employing the same degree of care and prudence which they would undoubtedly have been required to exercise in such case ? The contrary has been clearly shown; on the side of the plaintiff, extreme and usual caution, which a long course of business had made familiar to the bank; on the part of the defendants, gross neglect, without which the loss could never have occurred. C. C. 2882, &c. Byleson Bills, Law Library, vol. 61, p. 253, § 251, 254. In the case of Young v. Grote, Bing., 253, 13 Eng. Com. Law, 421, the court defined the degree of negligence on the part of the customer, which would exonerate the bank from the loss in case of forgery, and which must clearly result from some act entirely out of the usual and regular course of business, and calculated to expose the banker to new and extraordinary risks; as where a check was drawn in a careless and improper manner, and altered by the drawer’s clerk. But the doctrine of Hallv. Fuller, is expressly sustained; and the loss thrown on the bank, where the check is drawn in the usual and regular mode, and the forgery committed, as in the present case, by a stranger.
L. Pierce, for the defendants, contended:
Smith gives a check to a stranger, in payment to him of an acceptance of Payne and Harrison held by him, and and makes it payable to persons having no interest in connection with it, to wit: Payne and Harrison. The bank pays it to the original holder, to the person to whom it was given as owner. Has Smith, the drawer, a right of action, because the payee’s name, the payee who had no right or interest in it, was forged ? l's there a case, where in case of forgery of payee’s name, the drawer recovered back his money from his banker ? Is it not always the original holder, the real payee, or in case of fictitious payee, the bond fide owner 1 Is there any one but Payne and Harrison, or a subsequent holder, that can complain? and if they do not, where is the injury? The check was the property of the real payee, the man who presented himself as owner of the note, of which this check was the cash payment, and who probably, was some innocent transferree, as it is not likely the forger would run the risk of being caught and stopped by Smith’s discovery of the forgery.
2. This check was given in payment of a supposed real draft of Ventriss, accepted by Payne and Harrison; both were forgeries, it is true ; but who first suffered himself to be imposed upon ? Who gave the means to a stranger, whom no one knew, to impose upon the bank, by a forged endorsement of a house, whose signature was not in bank, by suffering himself to be imposed upon by not only one, but a double forgery ? The plaintiff: it was his want of care and diligence that caused him to be imposed upon — his desire of interest and commissions; and it was he that put the further means of imposition upon others into the stranger’s hands. The measure of diligence required between the two parties, is entirely different. Smith is a broker, recoives propositions at his leisure, can tell the applicant for discount to call again, can acquire information of signatures, by sending to another street, or inquiring himself: the paying teller of a bank is nailed to his counter, he cannot stop the operations of the bank to verify every signature; enough for him that he knows that Smith has really drawn a check that is good, against Smith, who cannot complain; but he knows, and the bank knows, that he takes the risk of the signature of the payees; that if a forgery, there will be a claim by the payees, that may avail; but if it never belonged to the payees, then he is safe.
3. Smith is required by law, to be more exact, and diligent and cautious; and the first error, the first false step is his. The check was made to fictitious payee, or to bearer, and it was good payment on the part of the bank. If Payne and Harrison were not the owners of the check, had no knowledge of it, nothing to do with it, they were not the original holders or owners of the check, they were literally fictitious payees, for they were not really payees. The check was owned by the holder, and was intended by Smith to be given to him, in payment of the accepted draft. If, as urged,.it was purposely so made by Smith, to test the genuineness of Payne and Harrison’s acceptance, it was putting arms into the hands of this unknown, to defraud and entrap others; and the loss is occasioned by the wrongful act of Smith.
4. That there was not that mala fides on the part of the bank that, under the latest decisions, can make them liable. They are bound to know the handwriting of their customers, no doubt, but they are not bound to know the signatures of firms, who are not their customers; and if they run the risk as to them, the customer cannot take-advantage of it. There was no mistake as to him, and if he suspected anything wrong, it was his business to have put the paying teller on his guard as to the check, and not thus covertly make the bank his guardian or sponsor, for all the mistakes that his desire-for discount may occasion: there was no mala fides, and the check was as if payable to.the bearer.
5. The amount of the principle established in this case, should judgment be in favor of plaintiff, is, that he can be as careless as he chooses, discount with every kind of character, “ hang out his sign, — bills discounted for strangers, if they have good names on them, without any questions asked; ” and by making his own check payable to one of the debtors on the note, be perfectly secure from imposition, making the bank his warrantor, by giving the stranger his real check, and almost asking him to forge the endorsement; for he well knows, that the debtor of the note would never guarantee his signature, by endorsing a check in which he had no interest, and for an unknown man.
The position thus secured would be lucrative and safe, but abhorrent to common justice.
Authorities for defendant: 1 ‘ Where the loss has fallen, there it must lie; one innocent man must not relieve himself by throwing it o'n another.” 3 Burrows, 1354. 1 Blackstone, 390. “ Where one of two innocent persons must suffer by act of a third, he who has enabled such third person to occasion loss, must sustain it.” Chitty, 256. 2 T. R. 70.
Fictitious payee: “If anote be made payable to a fictitious person, or his order, although no order can be made by the payee, who is not in existence, yet, if the instrument be issued into the world, with an endorsement in blank, purporting to be made by such fictitious person, it will, as against the drawer and maker, be considered as payable to bearer.” Smith’s Merc. Law, 131, (Art. 172.) Hy. Black, 569. Collis v. Emmett, 1 Hy. Black, 318. Bayley on Bills, 2 Ed., 26,28. TatlocJcv. Harris, 3T.R. 174. Vere v. Lends, lb. 182. Minot v. Gibson, lb. 481. Contrat de Change, Pothier, 99, 104. 17 Wendell, 100. Chitty, 20, note 287, 1836. Simmons v. Bond, 2 Neville and Manning, 608. Deposit is a loan, 17 Wendell. “We consider this an agreement between all the parties, to appropriate so much property to be carried-to the account of the holder of the bill.” Tatloek v. Harris, 3 T. R. 182. “ There would be great inconveniences, if such an action might not be brought by the bearer, if no action could be brought in the name of the person to whom the bill or note was originally made payable. That person might release the action, oi' a debt due from him might be set off against it in account.” Grant v. Vaughan, 3 Burrows, 1529.
The original holder can recover only: “When a bill is assignable only by endorsement, as no interest can be conveyed otherwise than by that act, and as it is a general rule that no title can be obtained through a forgery, and consequently, the original holder in such case may, when he has regained possession of the bill, recover against the acceptor and drawer, although the acceptor may have paid the bill.” Chitty, 260, do. 259, 260.
Degree of diligence: “More caution is required in case of a discounter, than a payer, &c.” 2 Carrington and Payne, 215, 98. 5 Dowling and Ryland, 326, 237. Byles, 2d Ed. 56, 93. of 1st Ed., 85. 3 Barn, and Cress. 466.
What negligence makes liable: “In the subsequent case of Backhouse v. •®'zrr*son> which was the case of a lost bill, the same principle was adopted, and it was held, that though it was a good defence, that the plaintiff took tho bill fraudulently, or under such circumstances, that he must have known that the person from whom he took it had no title, or that the plaintiff was guilty of gross negligence in taking it, yet, it was no defence, .that he took it under circumstances in which a prudent and cautious man would not have taken it.” 5 Barn, et ais., 1098. 3 N. and M., 188. “And the case of Goodman v. Harvey, 4th Adol. and Ellis, 870, and 6 N. and M., 372, has since finally decided, that even gross negligence is not alone enough to destroy the title of a holder for relief, but that a case of mala fides, on the part of such holder, must be made out, in order to defeat his claim.” Chitty, 257. 8 Barnwell and Cress. Gill v. Cuticle. Common Law Rep.

Opinion:
The judgment of the court was pronounced by
Eustis, C. J.
The plaintiff is a broker in this city; his business is that of discounting bills and notes. He kept an account with the Mechanics and Traders' Bank; the banking house is opposite his office in Canal street. On tho 7th of November, 1850, the plaintiff discounted a forged bill, offered for discount by a person unknown to him. It purported to have been drawn by W. C. Ventriss on Payne and Harrison, a well known house in the city. The acceptance of Payne and Harrison was forged, and the forgery was a very bad imitation of their signature. The name of the drawer was forged. Of Garland, the payee and endorser of the bill, no account whatever is given, and the presumption is, that he is a fictitious person. The plaintiff gave a check on the bank, for the net proceeds of the bill, to the unknown person offering it for discount. It was drawn in favor of Payne and Harrison. Thej' kept no account with the bank, nor is any relation established by the evidence between them and the plaintiff, except that resulting from their forged acceptance of this bill. The check was paid, on demand, at the bank; the endorsement of Payne and Harrison having been forged. This forgery was also a very bad one; the name of Horrin was put in the endorsement, in the place of that of Harrison, which made it read Payne and Horrin. The payment of this check must be coneeded to have been gross negligence on the part of the clerk of the bank.
The liability of the bank to Payne and Harrison, for having paid their'forged check, would be unquestionable, had they an interest in it. But they are entire strangers to the whole transaction ; they have no interest in the check, and no claim against the bank growing out of it. The plaintiff brings his action against the bank for money deposited, and the bank sets up this payment of the plaintiff's check, with the forged endorsement of Payne and Harrison, as a defence to his action.
As a general rule, it is undoubtedly true, that the banker is bound to pay on his customer's order, and if, unfortunately, he pay a forged order, he alone must bear the loss. It is conceded, however, by the learned counsel, in their printed argument, that proof of extraordinary neglect on the part of the plaintiff, calculated to mislead the bank and facilitate the commission of the forgery, would justify the reversal of the judgment appealed from, which is in their favor. We think, that the current of decisions fully justifies this admission. Indeed, to exonerate the banker who pays a forged check, gross negligence, on the part of the customer, does not seem to be required. In the case of Young v. Grote, although the plaintiff was found to have been guilty of gross negligence n leaving blank checks with his wife, and depending on her to fill them up in such sums as his business might require, and in her delivering one of them filled up in such a manner that the sum could be easily altered, yet the chief justice, in conceding the general rule, that the banker who pays a forged check is bound to pay the amount again to his customer, states, though that rule be perfectly well established, yet, if it be the fault of the customer that the banker pays more than he ought, he cannot be called upon to pay again. In support of this opinion, he cites the authority of Pothier, in commenting on the case put by Seacchia, and, in conclusion, adds, "we decide here on the ground, that the banker has been misled by want of proper caution on the part of his customer."
The evidence establishes nothing of neglect on the part of the plaintiff; on the contrary, it is urged, by counsel, as establishing great caution or prudence on his part, and a strict conformity with his course of business with the bank. It is not assuming, therefore, more than the evidence justifies, to consider that what was done by the plaintiff, he did from caution and with a view to protect his interests. There is no intimation of any want of correct conduct on his part in this affair, nor any evidence whatever to that effect. It must be considered as unimpeached, and that he acted according to his own views of his rights.
It was admitted, on trial, that the plaintiff has, during several years, had large sums of money deposited in the bank, which he draws from time to time. Cazenave, who has had charge of the plaintiff's books for four or five years, testifies, that in taking notes, it is the habit to draw checks for the proceeds to the order of the persons for whom they are discounted, as it often happens that clerks of commercial houses with whom he deals, call for the proceeds of paper discounted for their employers. The teller of the bank testifies, that the plaintiff does a large business with the bank. He generally draws his checks to order; in some instances, they have been made payable to bearer. There is no particular understanding between the plaintiff and the bank, as to their mode of doing business. As the light of the plaintiff to recover, depends upon his conduct in the business for which the check was given, it is necessary to consider it in relation to those rules of law, which must always control the acts of merchants and bankers, in their dealings with each other. That the relation between a bank and its customers requires perfect good faith, is conceded; and, we conceive, that the caution required from the customer, in his transactions with the bank, is established by the decisions of the highest authority in mercantile matters, which have been cited by counsel.
It is admitted, that the person who passed the forged bill to the plaintiff, was a stranger and unknown to him. Let us examine how the law considers the' taking of a bill under these circumstances.
The rule may be considered established, that a discounter, or man whose business it is to buy bills, is not in the same situation as a bank, whose business it is to pay, and greater caution is required from the discounter than the bank. Snow v. Peacock, 12 English C. L. Rep., 98. Byles on Bills, 85.
In Gill v. Cubitt, 10 Eng. C. L. Rep., 216, Abbott, Chief Justice, says: "It appears to me, that no person should take a security of this kind from another, without using reasonable caution. If he take such security from a person whom he knows, and whom he can find out, no complaint can be made of him. In that case, he has done all any person could do. But, if it is to be laid down as the law of the land, that a person may take a security, of this kind, from a man of whom he knows nothing, and of whom he makes no inquiry at all, it appears to me, that such a decision would be more injurious to commerce than convenient to it,, by reason of the encouragement it would afford to the purloining, stealing, and defrauding persons of securities. The interest of commerce requires, that bond fde and real holders of bills, known to be such by those with whom they are dealing, should have no difficulties thrown in their way in parting with them. But it is not in the interest of commerce, that any indiv^ua^ sh°uld he enabled to dispose of bills or notes, without being subject to inquiry."
Bayley, Justice, states: "I agree that the way in which my lord chief justice put this case for the consideration of the jury, by asking what would be the case, if a man were to put over his shop, ' bills discounted for strangers, if they have good names on them, without any questions being asked,' was a very strong way of putting the case for their consideration." The opinion delivered by the chief justice was fully concurred in by the other judges.
In Snow v. Peacock cited, in the Common Pleas, the rule in Gill v. Cubitt, was recognized and acted upon as the only safe rule. The question was, whether the defendants were liable to the owner of a bank note, they having taken it from a stranger, without any further inquiry than merely asking his name, — Best, Chief Justice, said to the jury : "The question for your consideration is, whether the defendants, in this case, took the note in the usual course of business; for the course of business must require, in the usual and ordinary manner of conducting it, a proper and reasonable degree of caution necessary to preserve the interests of trade."
In the case of Vairin v. Hobson, 8 L. R. 55, Mathews, Judge, in delivering the opinion of the court, states: "As to the second question, it has been ruled by late decisions in the tribunals of England, that the payment of a valuable consideration is not alone sufficient evidence of good faith and fair dealing in the purchaser of such an instrument. In addition to this fact, he must show that due diligence was used by him, to ascertain the character and standing of the person who offers it for sale or discount. He must examine into probabilities as to the means by which the person got possession, and if there exist any circumstances in relation to the manner of bringing a paper of this nature into market, calculated to raise suspicions in the mind of a man of ordinary prudence and discretion, the purchaser or acquirer, although for a valuable consideration, will obtain no better title than that which his immediate transferrer had. Gill v. Cubitt and Doun v. Halling, 3 and 4 Barnwell and Cresswell, pp. 466 and 330. The principles recognized in these decisions, we believe to be just and reasonable, when the vendor is unknown to the purchaser, and imposes no improper restraints calculated to impede a fair and honest circulation of negotiable paper in furtherance of trade and commerce."
In the case of Nicholson v. Patton, 13 L. R. 216, where the clerk of a notary took a note from his office and pledged it to a broker, Rost, Judge, said: "The fact of the loss being proved, the defendant must show that he came into possession of the note in the regular course of trade, and that he acquired it in good faith and for a valuable consideration, for we take the rule, as settled in England, in the case of Gill v. Cubitt, as our guide."
We do not understand this rule at all relaxed, by the decision in the case of Beale v. Wilcox, 3d Ann. 405. We think it has been universally acquiesced in and acted upon by our courts, in cases of lost or stolen bills, and that its operation has been most salutary in preventing frauds, by imposing proper obstacles to their circulation. C. C. 3473. Little v. Citizens' Bank, 2d Ann. 978. That article of the code provides, that if the possessor of the thing lost or stolen, bought it at public auction, or from a person in the habit of selling such things, the owner cannot obtain restitution of it without returning to the purchaser the price it cost him.
There is nothing in evidence respecting the person from whom the plaintiff bought the bill, or what passed between them at the time, so that the case rests on the naked fact admitted, that the person was unknown to the plaintiff, and a stranger, and that he took the precaution of requiring the signature of Payne and Harrison on his check. Had the bill been lost or stolen, we do not think the plaintiff couldstand justified in law in discounting it. Under these decisions, we think, he would have been liable to the real owner of the bill.
We think, therefore, that the plaintiff cannot be considered as taking this bill in the usual and ordinary course of business, not having exercised a proper and reasonable caution respecting the person offering it. In relation to tho plaintiff's conduct in taking the bill as a matter of business, it can make no difference whether the bill was lost, stolen or forged; in all the cases the standard is the same. It is proper to observe, that the check was not drawn according to the usual habit of the plaintiff, as testified to by Cazenave, his book-keeper; that is, it was not made payable to the order of the person for whom it was discounted. He was a person unknown, and no relations are proved to have existed between Payne and Harrison and the plaintiff, except that growing out of their forged names as acceptors of the bill.
It is said, however, that the plaintiff, in making his check payable to the order of Payne and Harrison, did what he had a right to do, and that the defendants have no right to complain of it. But it being conceded, that extraordinary neglect on behalf of the plaintiff, calculated to mislead the bank and facilitate the commission of the forgery, would absolve the bank from responsibility in paying the forged check; an act, deliberately done, having the same effect, ought to carry with it the same consequence, unless in conformity with the usual course of business between the customer and the bank. The making his check payable to parties whose names are forged as acceptors^on the bill discounted, was not, as we have seen, in conformity with the plaintiff's mode of doing his own business, still less has it been shown to have been in conformity with the usual course of business between him and the bank.
We think it cannot be denied, that this check was the implement of fraud, placed by the plaintiff' in the hands of a party who had every interest to make use of it against the bank. The genuine signature of the plaintiff to the check, was calculated to mislead the bank, and it certainly facilitated or provided the means of the commission of the forgery. The unknown person, who got the check, was the forger of the bill, or his accomplice- The only obstacle to the accomplishment of the object of the crime, was the required signature of Payne and Harrison, which had been already forged on the bill. Would he, who had forged their names once and imposed them on the plaintiff, hesitate an instant in repeating the act?
We look in vain for any plausible ground, on which the act of the plaintiff in giving the check in this form, can be held to be consistent with his relations with the bank. There is a great difference between the merchant who pays his bills or acceptances, and the discounter who pays them in market. The former gives such a direction to his money, by drawing his check to the order of another person, as may ensure its reaching the real creditor. He draws his check in favor of the payee of a bill, or of a known third person, when the person presenting the bill is unknown. The responsibility of determing the genuineness of the signatures, is thrown upon the bank who undertakes to pay checks to order. But very different is the situation of the discounter, upoii whom the law imposes more caution, in his relations with the bank. What bank would deal with one who should assert the right of buying bills from unknown persons, without inquiry, and throw upon the bank the responsibility of determining the genuineness of the signature, he should interpose between himself and the loss by forged bills,? The signature interposed, is the protection he makes use of to save himself from the consequence of the neglect of that care and caution, in taking bills from strangers, which the law imposes on him. It seems to us obvious, that he, being bound to exercise caution in the first instance, is not permitted to impose any responsibility on the bank, by any signature he interposes, to save himself from a loss which ordinary caution might have prevented.
This mode of drawing his checks, is stated in the printed argument of the counsel for the plaintiff, as a matter of usual precaution on his part, and it is said that the evidence establishes extreme and usual caution, which along course of business had made familiar to the bank. We have looked in vain for the proof of any recognition on the part of the bank, of any mode of dealing like that in the present case.
The plaintiff required the signature of Payne and Harrison, as a matter of precaution; against what? Against the forgery, loss, or theft of the bill. But is a discounter to be heard, when he avows that he buys bills under circumstances which induce him to take precautions against their being forged ? If a doubt exist in his mind as to its genuineness, can he take the bill and impose the responsibility resulting from its being forged, on another party with whom he deals. We think this mode of doing business, would be fatal to the best interests of commerce, and destructive of those principles upon which alone it can be maintained.
If there was any necessity for precaution, why was it not exercised before the bill was bought. If the title of the holder, or genuineness of the bill was questionable, or not recognized, why were not Payne and Harrison applied to in order to ascertain it? The delay of a few minutes could have removed the doubt. The making the check payable to Payne and Harrison, is entirely umnercantile and irregular. Had they been applied to, to endorse the check of a broker, their impression would have been one of surprise, and the request would be scarcely heeded. Why should they put their names out to a person they did not know ? Or guarantee the payment of a check, which in no way concerned them?
In conclusion, we think that, notwithstanding the gross neglect of the bank in paying the check, the first fault was committed by the plaintiff, in taking the forged bill. Whenever a forged bill is in circulation, the loss must fall on some one, and, we think, that in law and in conscience, the plaintiff ought to bear it in the present case.
It is therefore ordered, adjudged and decreed, that the judgment of the court below be reversed; and judgment is rendered for the defendants, with costs in both courts.
Preston, J.
Smith discounted a supposed draft of Ventriss, of Donaldson-ville, on Payne and Harrison, merchants of New Orleans, and purporting to be by them accepted. It turned out that the name of the drawer, a planter, as well as the name of the acceptors, was forged. It was presented by a stranger, no doubt the counterfeiter, to whom he gave a check on the Mechanics and Traders' Bank, in favor of Payne and Harrison for the proceeds. By a forged endorsement of their name, the amount of the check was drawn from the bank, and Smith sues for the-balance of his account, without deducting the check.
If the defendants are liable at all, it is either for negligence in paying out the plaintiff's money on a forged endorsement, or absolutely, whether negligent or not, because they paid out his money deposited with them, to other persons than those to whom he ordered payment. ~
On the score of negligence, Smith was more in fault than the defendants. He gave out his check on the forgery of the name of the drawer and of the acceptors of a draft. The name of those acceptors, alone, was counterfeited on the back of his check, and deceived the defendants. He had the time and leisure to discover the reality of the transaction, and should have used both, before giving his check on a double forgery. It could have been done by stepping to the counting house of the acceptors, probably but a few squares from his office. The paying teller of the bank, seeing his well known name to a check in favor of, and endorsed by a well known house, might easily be led, by his signature, into the error of taking for granted that the whole was genuine. He had no leisure to go out to verify the signature of the acceptors, but was confined to his counter. Checks, it is a matter of notoriety, are constantly pouring in upon the paying tellers of our few remaining banks. On the score of negligence, Smith was most in fault, and might well excuse that, in defendants, of which he himself was doubly guilty, with far more facilities of avoiding its effects. Where two parties are equally guilty of negligence, he who suffers loss, must bear it, and neither can recover from the other. 3 Bur. Rep. 1354. 1 Black. 390. 2 T. Rep. 70.
But the main ground of the plaintiffs' action is, that he ordered the money to be paid to Payne and Harrison, and that the bank paid it to other persons. The fallacy of the argument in support of this ground, consists in this, that having given out his check, it was immaterial to Smith to whom the money was paid. His check being out, the money he deposited in bank, to the amount of the check, was no longer his; he had parted, for its supposed value, with all his interest in the check, and the money it represented. That the holder, perhaps an innocent holder of the check, drew the money, was no injury to him; the injury to him was done before by the counterfeiter, in imposing a forged draft upon him.
The money in bank belonged to the holder of the check. It was in the power of the holder to go to Payne and Harrison, and give it in payment of a debt, or purchase goods with it, or obtain its discount, and the check would have thus become theirs, also the money in bank, and the transaction binding upon Smith, beyond a doubt. He thus put it into the power of the counterfeiter, to dispose of his check and money. It was his business, to stop the payment of the check, and to regain it, before it got into the possession of an innocent holder, and his misfortune and loss, if he failed to do so.
For, in fact, Smith did not order the money to he paid to Payne and Harrison, but, through them, to the counterfeiter. He gave his check, which represented his money, to the counterfeiter, for a draft-supposed to be genuine, and not to Payne and Harrison with whom he had no transaction, and who would not have endorsed, or incurred any responsibility with 'regard to it, until it became theirs, by some transaction with the holder. And therefore, as well observed by the counsel of the defendants, no action can be found in the books, in which the drawer of a geninue check, has recovered its amount from a banker on account of a negligent payment of the check. If made payable to the order of the payee, the right of action belongs to him, for the payment on a forged endorsement; but in no case has such a right been claimed by the drawer of the check.
The paying teller of the bank, so far as Smith was concerned, was bound to know only his signature. The bank was the depository of his money, and k°nn^ t0 pay it on his check, which was genuine. As to him, the bank was not bound to send out and ascertain the genuineness of the signatures of the endorsers of his check. They were required to do so, to secure themselves from liability to the endorsers alone. The bank was bound to know the genuineness of the signature of Payne and Harrison only, at the risk of being liable to them, and not to Smith.
It is not pretended that Payne and Harrison have any right of action against the bank. If they had, it is their right of action, not the plaintiff's. The drawer of a check has never recovered from the banker, unless his name was forged ; or, as in the case of Hall v. Fuller, where the amount for which he checked, was altered from ¿63 to £330, and the last sum was paid by the banker. He checked for £3, and was to be charged with that sum, and not ¿6330, for which he did not check. But he is to be charged with the sum for which he actually checked, unless there be greater negligence, in paying it, than that of which he was himself guilty.
Smith had no suspicion of the genuineness of the transaction with the stranger ; for then, it would have been his duty, in order to recover, to have communicated his suspicion, to the bank, and stopped the payment of the check; and he could not use the name of Payne and Harrison, to impose on the bank a risk he was unwilling to incur himself. He had no transaction with Payne and Harrison, which authorized him to use their name as payees of the check. The use of it was fictitious as to them, and fictitious as to the bank, and can give him no rights which he would not have had, if the check had been made payable to bearer, or to a fictitious person ; in which case, it is admitted, he could not recover the money paid on the check from the bank.
It does not appear, to me, to be in the ordinary course of business, to make a check payable to a payee with whom we have no business transactions, and on that account, Smith, and not the bank, should bear the loss. The case should bo likened to a check to the order of á fictitious person, which has often been held to be the appropriation of so much money to be charged to the drawer, and credited to the account of the holder of the check, or bill, as the case may be. Both are out of the ordinary course of business, and should expose to loss only the author of the fiction, if there be reasonable care on the part of the other parties to the transaction. In fact, courts should encourage only real, and not fictitious transactions, which are so liable to give rise to losses.
It has been urged, that if I give a check to a tradesman for goods, payable to his order, and it is paid without his order, I can recover the amount from the banker. 1 think not. The tradesman took the check in payment of his goods, and I was discharged from his bill; my genuine check was charged to my account, and I could only claim the balance of my deposit. The tradesman could sue the bank for the amount of the check, because the money belonged to him, as holder of the check, and was paid, without his order, on a forged endorsement. But having paid my bill with the check, and got my discharge, I can have no such right of action.
I am of opinion, for these reasons and those given by the chief justice, that the judgment of the district court, should be reversed, and judgment rendered for the defendants, with costs.