Opinion ID: 307865
Heading Depth: 2
Heading Rank: 1

Heading: Responsibility as Between Drawer of Check and Bank.

Text: 10 In its memorandum opinion on the post-trial motions, the district court said: 11 In considering the question here presented it is important to keep in mind that the relationship of bank and depositor did not exist in this case because Columbian never had an account at The Bank of Camilla. Therefore, the principle of law regarding the responsibility of a bank to its customers has no application here   . 12 [App. 516] 13 Concededly the question is a difficult one, and no case has been found where the precise relationship existed as that between Columbian and the banks in this case. Nonetheless, we are persuaded that each bank's oral contract, based on agreed consideration to pay Columbian's checks as presented, placed upon the bank the same responsibilities and liabilities as if the checks had been paid from a general deposit of money by Columbian in the bank. In the latter case the law has been long established in Georgia that: 14 Where one deposits money in a bank on general deposit, the bank immediately becomes the debtor of the depositor for the money deposited, and undertakes, impliedly, to pay that money either to the depositor or to some person to whom he directs it paid; and, in order to discharge itself from this liability to the depositor, the bank must pay the money to the depositor, or as directed by him. The liability cannot be discharged in any other way. In the present case Burke, the depositor, drew a check in favor of Mrs. Knapp for a certain amount of money, and the bank did not pay the money to her or to her order, but paid the money to Knapp, upon a forged indorsement. How does the bank discharge its indebtedness to Burke? It has not paid the money to Burke, or to the person to whom he directed it to be paid, or to her order; and it is only in these ways that the bank can be discharged of its liability. 15 Atlanta Nat. Bank v. Burke, 1888, 81 Ga. 597, 7 S.E. 738, 739. The Georgia courts have continued to follow the Burke case. Insurance Co. of North America v. Fourth National Bank, N.D. Ga.1926, 12 F.2d 100, aff'd 28 F.2d 933 (5 Cir. 1928); Fulton National Bank v. Didschuneit, 92 Ga.App. 527, 88 S.E.2d 853 (1955); Citizens & S. National Bank v. New York Cas. Co., 84 Ga.App. 47, 65 S.E.2d 461 (1951). 16 The Burke case is also in accord with the law generally prevailing in other states: 17 Ordinarily, as between the drawer of a check and the bank upon which it is drawn, the latter is bound at its peril to determine the genuineness of the endorsements upon which it is paid; it cannot, if the drawer is free from negligence or conduct warranting his estoppel, charge against the drawer's account a check payable to a named payee or his order and paid upon a forged endorsement. 18 10 Am.Jur.2d, Banks Sec. 623, p. 587. See also 9 C.J.S. Banks and Banking Sec. 356c, p. 734 et seq. 19 In general the drawer of a check has like rights against an intermediary bank which cashes a check on a forged endorsement and collects it from the drawee bank. 20 Although not agreeing uniformly in the reasons given for their decisions, most courts hold as a general rule that an intermediary bank which receives a check on a forged indorsement and collects it from the drawee bank is liable to the drawer of the check for his loss, the bank's acceptance of the check for collection being at its peril as to a possible forged indorsement. 21 10 Am.Jur.2d, Banks Sec. 629, p. 596. The note appended to this text states in part: 22 The theory upon which recovery has been allowed by some well-considered cases has been that of the implied obligation to pay to the true owner the money received by the collecting bank and erroneously paid by it to the wrongdoer on the strength of the forged indorsement   . 23 Other theories are discussed in an annotation in 99 A.L.R.2d 638, 640-648. Apart from questions of negligence or other conduct of the drawer operating to preclude him, these strict rules of responsibility of the bank apply despite the fact that the person who forged the endorsement was an agent or employee of the drawer. First National Bank v. Guaranty Life Ins. Co., 1962, 45 Ga.App. 289, 164 S.E. 212; cases collected in Ann. 39 A.L.R.2d at 648. 24 The Uniform Commercial Code adopted by the Georgia Legislature, effective January 1, 1964, left applicable the general principles of law not particularly displaced, Georgia Code Ann. 109A-1-103. 25 Specifically, Georgia Code Ann. 109A-4-102(2) provides that: 26 (2) The liability of a bank for action or nonaction with respect to any item handled by it for purposes of presentment, payment or collection is governed by the law of the place where the bank is located. 27 Section 109A-4-104 contains the following pertinent definitions: 28 (g) 'Item' means any instrument for the payment of money even though it is not negotiable but does not include money. 29 (a) 'Account' means any account with a bank and includes a checking, time, interest or savings account. 30 (e) 'Customer' means any person having an account with a bank or for whom a bank has agreed to collect items and includes a bank carrying an account with another bank. 31 We think that Columbian was a customer of the bank within the foregoing definition for either of two reasons. (1) Columbian had an account with the bank, though the account was tallied daily. By statute (Sec. 109A-4-104(a)) 'account' means any account with a bank and includes the usual accounts. [Emphasis added.] Account is not limited to the accounts specifically named. (2) The bank had agreed to collect items for Columbian. For a consideration the bank agreed to cash and collect Columbian's checks. Those checks were clearly items as defined in the Act (Sec. 109A-4-104(g)). 32 True, the customer owes certain duties to discover and report unauthorized signatures or alterations as specifically provided by Georgia Code Ann. 109A-4-406. Columbian did not and does not ask that judgment be rendered by the court in its favor but simply that it be accorded a trial by jury. For that reason, it would be premature for us to discuss the duties of the customer further than to observe that Columbian is not barred by the one-year limitation prescribed by section 109A-4-406(4)(b): 33 (4) Without regard to care or lack of care of either the customer or the bank 34    35 (b) a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1)) discover and report any alteration on the back of the item or any unauthorized indorsement is precluded from asserting against the bank such alteration or unauthorized indorsement. 36 Thus Columbian falls within the strict letter of the Uniform Commercial Code as a customer of the bank. 37 Of more importance, the considerations of policy which impose a strict measure of responsibility upon a bank arising from the contract either of the drawer bank or of an intermediate bank would seem to apply also in favor of Columbian as the drawer of a check paid by a bank pursuant to a contract, even though the contract is not that of a general depositor. The bank's opportunity to determine whether an endorsement is genuine is usually better than the opportunity of the drawer of the check. The bank is also in better position to protect itself by insurance. Under usual commercial practices, such policy considerations place a strict responsibility upon a bank which contracts to cash a drawer's checks. 38 We conclude that the district court erred in ruling that the principle of law regarding the responsibility of a bank to its customer has no application here. 39