Title: MISSISSIPPI B. & T. CO. v. County Sup. & Diesel Serv., Inc.
Citation: 253 So. 2d 828
Docket Number: 46322
State: Mississippi
Issuer: Mississippi Supreme Court
Date: October 25, 1971

253 So. 2d 828 (1971) MISSISSIPPI BANK AND TRUST COMPANY v. COUNTY SUPPLIES AND DIESEL SERVICE, INC. and State Guaranty Bank. No. 46322. Supreme Court of Mississippi. October 25, 1971. Henley, Lotterhos &amp; McDavid, Richard M. Edmonson, Jackson, for appellant. Willis T. Matthews, Magee, for appellee. J.T. Brown, Thomas, Price, Alston, Jones &amp; Davis, Jackson, amicus curiae. SUGG, Justice. This is an appeal from the Chancery Court of Simpson County, Mississippi, by Mississippi Bank and Trust Company, appellant here and defendant and cross-complainant below, from a decree allowing recovery of $712.80 by County Supplies and Diesel Service, Inc., against Mississippi Bank and Trust Company and State Guaranty Bank, jointly and severally, and allowing recovery in the amount of $712.80 by State Guaranty Bank, appellee here and defendant and cross-complainant below, against Mississippi Bank and Trust Company in the amount of $712.80. The case was tried on the following agreed statement of facts. On May 5, 1969, Simpson County, Mississippi, issued warrant number 2469 in the amount of $712.80 out of the public road fund for District one, claim number 277, payable to *829 County Supplies and Diesel Service, Inc., at the State Guaranty Bank of Magee, Mississippi, the County Depository. Between May 5, 1969, and August 20, 1969, the warrant was delivered to Ed Little without the knowledge or consent of County Supplies and Diesel Service, Inc., and without the knowledge or consent of either of the banks involved. Ed Little was employed by County Supplies and Diesel Service, Inc., as a commission salesman and had no real or apparent authority to perform any acts for his employer except solicit orders for business. Neither of the banks involved had any knowledge or information as to the facts of the employment or the authority of Ed Little. On June 3, 1969, Ed Little opened a checking account at Mississippi Bank and Trust Company, being account number XX-XXXX-X, in the name of N.E. Little. On or about August 20, 1969, Little deposited the aforesaid county warrant number 2469 in his personal checking account at Mississippi Bank and Trust Company, less $100 cash. Without the knowledge, permission or authority of County Supplies and Diesel Service, Inc., Little endorsed said warrant, "County Supplies and Diesel Service for deposit to A/C # XX-XXXX-X." Mississippi Bank and Trust Company made no inquiry as to whether or not Little had authority to endorse the check for and on behalf of County Supplies and Diesel Service, Inc., and the net proceeds of the warrant were credited to the account of Little, less the $100 cash paid to him. County Supplies and Diesel Service, Inc., has never been, and was not at the time of the trial, a depositor or customer of State Guaranty Bank and said bank at no time has ever known or been familiar with the manner, method or authenticity of endorsements made by County Supplies and Diesel Service, Inc., or the signature, writing, authority or duties of Little. Mississippi Bank and Trust Company properly endorsed the warrant by stamping on the back thereof its identification number and "pay any bank PEG (the abbreviations understood to mean and universally mean in the banking profession, `prior endorsements guaranteed') Mississippi Bank and Trust Company, Jackson, Mississippi." The warrant was sent through regular banking channels to State Guaranty Bank, the drawee bank, which, without further inquiry, promptly paid the same by debiting the account of public road fund for District one of Simpson County, Mississippi, on August 25, 1969. Thereafter, County Supplies and Diesel Service, Inc., learned of the unauthorized endorsement and negotiation of the warrant by Little, and on May 7, 1970, made demand on Mississippi Bank and Trust Company by a letter from its attorney for reimbursement in the sum of $712.80. Mississippi Bank and Trust Company denied liability and County Supplies and Diesel Service, Inc., then made demand on State Guaranty Bank which likewise denied liability. County Supplies and Diesel Service, Inc., then filed suit against both banks on June 23, 1970, and both banks denied liability and filed cross-bills against each other. N.E. Little was originally made a party defendant to the case, but was dismissed when service of process could not be obtained. Appellant assigns as error the following: 1. The trial court erred in entering a judgment against the appellant in favor of the County Supplies and Diesel Service, Inc. 2. The trial court erred in entering a judgment against the appellant on the cross-bill of the State Guaranty Bank. The chancellor was eminently correct in holding that County Supplies and Diesel Service, Inc., had the right to recover from both State Guaranty Bank, the drawee bank, and Mississippi Bank and Trust Company, the collecting bank. *830 The following Mississippi cases support the proposition that a payee may recover from the drawee bank directly on a forged or unauthorized endorsement of its name as payee: Commercial National Bank &amp; Trust Co. of Laurel v. Hughes, 243 Miss. 252, 137 So. 2d 800 (1962); Hart v. Moore, 171 Miss. 838, 158 So. 490 (1935); Masonic Benefit Association v. First State Bank, 99 Miss. 610, 55 So. 408 (1911). It is likewise clear under Mississippi law that County Supplies and Diesel Service, Inc., was entitled to recover from Mississippi Bank and Trust Company under the authority of Thomas v. First National Bank of Gulfport, 101 Miss. 500, 58 So. 478 (1912). In addition to this Mississippi case, the authorities from other jurisdictions are almost unanimous in support of the proposition that a bank that has obtained possession of a check under an unauthorized or forged endorsement of the payee's signature, and has collected the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner. 10 Am.Jur.2d Banks § 632 (1963) states as follows: Since the chancellor was correct in holding that County Supplies and Diesel Service, Inc., was entitled to recover from both banks, the question remains as to which bank should bear the loss. Mississippi Bank and Trust Company states in its second assignment of error that the chancellor erred in entering a judgment against it on the cross-bill of State Guaranty Bank. This question has been put to rest by the Mississippi Uniform Commercial Code section 41A:4-207, Mississippi Code of 1942 Annotated (Supp. 1967) which provides the following: The clear effect of this statute is that Mississippi Bank and Trust Company by transferring the warrant by its endorsement, after receiving consideration, warranted to State Guaranty Bank, who took the item in good faith, that all signatures of endorsers were genuine or authorized. Before the enactment of the Uniform Commercial Code the general rule that a drawee bank which paid a check upon a forged endorsement could recover the money so paid the collecting bank was expressed *831 in 9 C.J.S. Banks and Banking § 358c (1938) as follows: Also, in 10 Am.Jur.2d Banks § 634 et seq. (1963), the general rule is stated as being: The Mississippi Supreme Court has long recognized this general rule and in the case of Williams v. Tishomingo Savings Institution, 57 Miss. 633 (1880), which involved a suit by a drawee bank against an endorser, the Court said: In the case of Citizens Bank of Hattiesburg v. Miller, 194 Miss. 557, 11 So. 2d 457 (1943), the Court held that a drawee bank could recover on a check paid under a forged endorsement the money so paid to one cashing the check. The Court stated: The appellant cites Holmes County Bank &amp; Trust Company v. Grenada Bank &amp; Trust Company, 231 So. 2d 505 (Miss. 1970) as the controlling authority. The Holmes case had approximately the same factual situation that exists in the instant case with the exception that the endorsement of the payee was typed on the back of the check in the Holmes case. The Court decided, as between the two banks, the drawee bank must bear the responsibility for determining the genuineness of all signature endorsements appearing on a check. In the Holmes decision the Court cited as controlling First National Bank v. Deposit Guaranty Bank &amp; Trust Company, 247 Miss. 765, 156 So. 2d 814 (1963). In the First National Bank case, both the signature of the drawer of the check and the endorsement were forged. The Court in that case, relying on a long line of precedents, said: The Court reaffirms the proposition that it is the duty of a bank to know the signature of its depositors and that the payment of an instrument by a bank on a forged signature of one of its depositors effectually closes the transaction, except that if the bank can reach the person by whom the forgery was committed or one who receives the money with knowledge of such forgery, it has the right to recovery. Our Court has held in the case of Oxford Production Credit Association v. Bank of Oxford, 196 Miss. 50, 16 So. 2d 384 (1944), that a drawee bank is under no obligation to know the signature of endorsers of checks that it pays and stated as follows: The First National case, supra, also stated, "The warranty of an endorsement, however, does not apply to payment of a check by a drawee bank." This sentence is hereby overruled so that the liability between banks involving payment of an item on a forged or unauthorized endorsement will be clearly governed by the decision in the instant case. We, therefore, overrule the case of Holmes County Bank and Trust Company v. Grenada Trust and Banking Company, supra. The learned chancellor was correct in his decision and the instant case is, therefore, affirmed. Affirmed. All Justices concur, except JONES, J., who took no part. RODGERS, Presiding Justice (concurring): I concur in the majority opinion for the sake of clarity, but I am constrained to point out that the sentence withdrawn from the opinion in First National Bank of Jackson, Mississippi v. Deposit Guaranty Bank &amp; Trust Company, 247 Miss. 765, 775, 156 So. 2d 814, 818 (1963), is taken out of context and thus changes the meaning of Paragraphs 3 and 4 of the opinion in that case. The sentence withdrawn: "The warranty of an endorsement, however, does not apply to payment of a check by the drawee bank" refers to the preceding discussion in which we said: "It admitted, however, that the warranty of an endorser, set out under § 107, Miss.Code 1942, Rec., did not apply to the facts in this case." We were discussing at that point that an endorsement did not apply to the payment by the drawee bank on a forged signature of the maker. To make it perfectly clear, we cited cases holding that payment of a check by the drawee bank on an unauthorized endorsement did not amount to an acceptance under the Negotiable Instrument Law. Since the reporter took this sentence out of context and since we are trying to make it perfectly clear, I have no objection to the withdrawal of the foregoing sentence in the First National Bank case, supra. BRADY, Justice (concurring): I concur in the opinion and judgment of the Court as expressed by Justice Sugg. However, since it reverses an opinion in Holmes County Bank &amp; Trust Company v. Grenada Trust &amp; Banking Company, 231 *834 So. 2d 505 (Miss. 1970), which I wrote, and also that portion of the opinion in First National Bank of Jackson v. Deposit Guaranty Bank &amp; Trust Company, 247 Miss. 765, 156 So. 2d 814 (1963), upon which my opinion was based, some explanation is in order. I am compelled to say that the opinion considered only the forged endorsement which was involved in the latter case, where the Deposit Guaranty Bank &amp; Trust Company, the payee bank, was held liable after it had honored and cashed the check on which the maker's name was also forged. This confession does not justify or excuse the error, nor the monstrous oversight which also should be admitted. In 1968 the Holmes County Bank &amp; Trust Company's contention was resolved and the suit was unnecessary for the reason that the Mississippi Legislature had enacted the Uniform Commercial Code which Justice Sugg's opinion points out absolves the Holmes County Bank &amp; Trust Company and places the liability on the Grenada Trust &amp; Banking Company. The attorneys involved also are guilty of this oversight. The Uniform Commercial Code, which has prescribed in a short period of time the commercial laws of this and other states, accomplishing that which the Law Merchant required three hundred years to evolve, may be of considerable benefit, as is hoped; however, it could also become a veritable shirt of Nessus to other judges, attorneys, clients, banks and to the commerce of Mississippi because of its mutations. As Justice Jackson observed, so do I: