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count of said F. M. Chapman, who
thereafter refused to allow credit to
plaintiff for sairl nhah- h.
- v .i.; , 111 I, mcic"
after and on or about the 6th day of
October, 1908, plaintiff discovered
, that, said check was false, fraudulent,
forged and worthless and thereupon
immediately notified said defendant
of said facts and tendered said check
to said defendant and demanded from
said defendant the repayment at said
sum of $.i5; that said plaintiff paid
said sum of $55 to said defendant,
relying upon the genuineness and
validity of said check and under the
mistake that said check was genuine
and valid and the check of F. M.
Chapman and was drawn by said F.
M. Chapman and bore his genuine
signature; that in fact said check
was false, worthless and fraudulent
and the signature to the same pur
porting to be that of F. M. Chapman
was forged and fraudulent; that de
fendant refused and still refuses to
pay to this plaintiff said sum of $55;
that by reason of the premises there
is now due and owing from said de
fendant to this plaintiff the sum of
$55, with interest at the rate of six
per cent per annum from the 6th day
of October, 1908."
The second cause of action for $50,
paid in like manner upon the forged
check of F. M. Chapman, and the
third cause for $75, paid upon the
forged check of the Dieston Lumber
company, signed by H. D. Crites on
Its behalf, are in substance and form
the same as the first, except as to
names, amounts, dates nnH th
that the third check was delivered to
plaintiff at defendant's bank and tak
en to plaintiff's bank, where the for
I gery was discovered within less than
jtwo hours and the defendant immed-
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STOCK TON
OREGON SUPREME COURT DECISIONS
Fall Text Published bj Courtesy of F. A. Tamer, Reporter of the
Supreme Court.
First National Bank of Cottnsre Grore
t. Rank of Cottage Grove, Lane
County.
First National Bank of Cottage
Grove, a corporation, appellant, v.
Bank of Cottage Grove, a corpora
tion, respondent. Appeal from the
circuit court of Lane county. The
Hon. L. T. Harris, Judge. Argued
and submitted July 25, 1911. H. W.
Thompson, (Thompson & Hardy on
the brief), attorney for appellant.
J. C. Johnson, attorney for respon
dent. Bean, J. Affirmed.
This is an appeal from a judgment
sustaining a demurrer to' each cause
of action in plaintiff's complaint, and
dismissing the action.
The plaintiff, for its first cause of
action, after the allegations of the
corporate existence of plaintiff and
defendant, sets forth:
"That the plaintiff and defendant
during all the times herein men
tioned were banking corporations lo
cated and doing business In the city
of Cottage Grove In the county of
Lane and state of Oregon. That on
or aboiit the fith day of October,
1908, the defendant presented to the
plaintiff for payment a certain forged,
fraudulent and worthless check pur
porting to have been drawn by one
F. M. Chapman upon plaintiff's bank
In favor of J. H. Barnwell for $55,
dated October 2, 1908, and endorsed
In blank by J. H. Barnwell, Garnian
Hemenway Co., and the defendant
herein.
That said forged, fraudulent and
worthless check was in words and
figures as follows, to-wit:
'No.
'Cottage Grove, Ore., Oct. 2, 1908.
First Nat'l Bank, .pay to J. H. Barn
well or bearer, $55 Fifty-five dol
lars. F. M. Chapman.
That there was endorsed on the
back of said check words and figures
as follows to-wit:
'J. H. Barnwell, Garman Hemen
way Co. Bank of Cottage Grove.
Paid Oct. 5, 1908, Cottage Grove, Ore.
"That F. M. Chapman was a de
positor In plaintiff's bank and had to
his credit a sufficient amount to pay
said check; that said check was pre
sented to plaintiff by defendant with
a large number of other checks on
said day and that plaintiff, believing
said check to be genuine, and believ
ing that the purported signature
thereon of F. M. Chapman was gen
uine, and, relying upon such belief,
paid to the defendant the said sum of
$55 and charged the same to the ac-
A.
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lately notified.
Bean, J. It will be noticed that
there Is on allegation that defendant
knew or suspected the checks were
forged. Xor is defendant charged
with any act of negligence in falling
to make proper Inquiry as to the
genuineness of the checks, or that
plaintiff was misled through any
fault of defendant. It was assumed,
upon the argument of counsel, that
plaintiff acted in entire good faith,
and it is conceded that there are no
special circumstances connected with
the case, such as the ability to ob
tain the money from the persons
committing the fraud.
The question is whether a banker,
upon whom a check or bill has been
drawn, and who has paid the check
r- bill upon which the drawer's name
has been forged, can, upon discovery
of the forgery, recover the amount
from the holder in due course, under
the circumstances as shown by the
complaint. Upon this important
question, which is presented to this
court for the first time, there has
been a great difference of opinion be
tween the court s and the eminent
text-writers, and before entering
Into a consideration of our own stat
utes on the subject we will refer to
a few of these authorities. Follow
ing the ancient case'of Price v.Neal,
III Burrows, 1355. decided by Lord
Hansfleld, the -courts of this country
have many times held that such a
recovery could not be had, maintain
ing the position that, as between the
drawee and the holder, In due course
of a check the drawee bank Is to be
deemed the place of final settlement,
where all prior mistakes and for
geries can be corrected at once and
finally, and lf overlooked and pay
ment Is made, the matter Is at an
end, and there can be no recovery
thereafter. National Bank of Rolla
v. First National Bank, 125 S. W.
(Mo.). 513: Rndinetnn v Wnnrin M
Cal., 406; Bank of Quincey v. Ricker,
71 III., 439; First National Bank v.
Northwestern Bank, 152 111., 296;
National Bank v. Ninth National
Bank, 46 N. Y., 77; Ellis v. Life Ins.
Co., 4 Ch. St., 628; see also Dedham
Bank v. Everett Bank, 177 Mass.,
392.
A bank is presumed to know the
signatures of its depositors and the
condition of their accounts and cred
its, and In those cases where the
name of the maker has been forged
to the Instrument and the check or
draft has In due course finally been
presented to and accepted and paid
by the drawee, the courts have in
numerous Instances refused a recov
ery from the indorser. Deposit
Bank v. Fayette National Bank, 90
Ky., 10; National Bank v. State
Bank, 107 la., 327; Howard v. Miss
issippi Val. Bank, 28 La. Ann., 727;
Com. & Farmers Nat. Bank v. Balti
more First Nat. Bank, 30 Md 11;
Salt Springs Bank v. Syracuse Sav.
Bank, 62 Barb. (N. Y.) 101; Nat
Bank Commonwealth v. Grocers Nat.
Bank, 35 How. Pr. (N. Y.), 412; Car
thage First Nat. Bank v. Yost, 11 N.
Y. Sup., 862; Farmers & Mer. Bank
v. Bank of Rtaherford, 115 Tenn., 64;
St. Albans Bank v. Farmers & Mer.
Bank, 10 Vt., 141; Germanla Bank v.
Boutell, 60 Minn., 189.
There is a line of decisions that
state the rule as follows: The
drawee of a forged check, who has
paid the same, may upon discovery
of the forgery, recover the money
paid from the party who received it,
even though the latter was a holder
in due course, provided the latter has
not been misled or prejudiced by the
failure of the drawee at the time of
payment to detect the forgery, and
that the burden of showing that he
has been misled or prejudiced Is
upon the party claiming the right to
retain the money. Lisbon Bank v.
Wyndmere Bank, 15 N. D., 299; 108
N. W., 546; Bank v. Bingham, 71
Pac. (Wash.), 43; American Express
Co, v. Bank. 113 Pac. (Okla.), 711; 5
Cyc, 546, 547; Danvers Bank v. Sa
lem Bank, 151 Mass., 280; Dedham
Bank v. Everett Bank, 177 Mass., 392.
Some cases have modified the old
rule. Many of the text writers ad
vocate that In such cases there
should be a recovery, for the reason
that the money so paid was paid un
der mistake of fart, and that tn al
low a recovery Is, therefore the most
equitable rule. II Parsons on Notes
& Bills, 80; IIDanlel (5 ed.), Sec.
1656. The rule In Price v. Neal, su
pra, has been criticised as inequita
ble and fundamentally wrong (II.
Morse on Bank Sc. Banking, Sec. 44) ;
It Is said to be harsh and against the
great rule that money paid by mis
take may be recovered. II. Bolleson
Modern Law of Banking, 721. In the
divergent opinions in Germanla Bank
c. Boutell. 60 Minn., 189, the different
doctrine are said to be well stated,
In the dissenting opinion In which
we note that Mr. Justice Ganty, fa
vouring the so-called modern rule, re
marks: "I concede that it is good
public policy to hold that a banker
should know the signature of hisde-
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positor. It tends to greater vigilance
on the part of the banker, and more
prompt discovery of the forgery,
which malies the business of forgery
more dangerous and less successful."
But the learned justice affirms that
this should not overturn and ex
clude other well established princi-
I pies applicable thereto.
We have noticed these authorities
i In a general way for the purpose,
among others, of considering their
effect upon legislation. On account
of a confusion of ideas upon this and
other questions of similar nature,
and realizing that In modern com
merce the coin of the country is sup
plemented and aided by means of
drafts, checks and other commercial
paper, the legislatures of more than
three-fourths of our states, in an en
deavor to have a uniform law in this
respect, within the past few years
have enacted a "negotiable instru
ments" law. Ours was adopted in
1899; see Sec. 5834, L. O. L., et se
qul. The plaintiff in substance claims
to be a holder in due course of the
checks in question, which defendant
had purchased in good faith and in
dorsed, and promptly presented to
the plaintiff bank for payment, and
they were honored and paid by plain
tiff, and that such payments were
under a mistake of fact. "If an im
plied warranty of genuineness ac
companies the unrestricted Indorse
ment or transfer of any negotiable
instrument, it is an assurance to the
drawee of its genuineness in all re
, spects, save that of the name of the
drawer alone, with which knowledge
the drawee is charged. Bank v.
Bank 96 Am. St., 169, 175. The doc
trine that a bank is bound to know
the signature of its customer has
been applied very strictly by the
United States supreme court. II.
Daniel (5 ed.). Sec. 1656. It should
be remembered however, that the
party holding such a check should In
no way contribute to the success of
the fraud. If so. he would certainly
not be a holder In due course. II.
Daniel (5 ed.) Sec. 1657. See also
note on page 896 to the case of Peo
ples Bank v. Franklin Bank, 17 Am
St., 884. A check is in the nature
of a bill of exchange, and treated as
such. Neal v. Coburn, 92 Mo., 139.
The sections of our negotiable In
struments law, bearing upon the
question involved, provide as fol
lows: L. O. L. Sec. 5856. "Where a sig
nature is forged, or made without
the authority of the person whose
signature it purports to be, it Is
wholly inoperative, and no right to
retain the instrument, or to give a
discharge therefor, or 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 from
setting up the forgery or want of
authority."
L. O. L. Sec. 5885, states that, "A
holder in due course is.a holder who
has taken the Instrument under the
following conditions: (1) that it is
complete and regular upon Its face;
(2) that he became the holder of It
before it was overdue, and without
notice that it had been previously
dishonored, if such was the fact; (3)
that he took It in good faith and for
value; (4) that at the time it was
negotiated to him he had no notice
of any infirmity in the instrument or
defect In the title of the person ne
gotiating it" This definition does
not embrace the case of a drawee.
L O. L Sec. 5899. Every indorser
who indorses without qualification
warrants to all subsequent holders
In due course (1) the matters and
things mentioned In subdivisions 1,
Z, and 3 of the next preceding sec
tion, (That the instrument is genu
ine and in all respects what It pur
ports to be); and (2) that the in
strument is at the time- of his in
dorsement valid and subsisting. And
In addition, he engages that, on due
J presentment, it shall be accepted or
iiaiu, ur uuiu, a me case may oe,
according to its tenor, and that if it
be dishonored, and .the necessary
proceeding? on dishonor be duly tak
en, he will pay the amount thereof to
the bolder or to any subsequent in
dorser who may be compelled to pay
it
L O. L. Sec. 5965. "The accept
ance of a bill Is the signification by
the drawee of bis agsent to the order
of the drawer. The acceptance must
be in writing and signed by the
drawee. It must not express that the
drawee will perform his -promise by
any other means than the payment
or money."
L. O- L. Sec. 6020. "Where a check
is certified by the bank on which it
is drawn, the certification is equiva
lent to an acceptance."
L. O. L Sec. 6U21. "Where the
holder of a check procures it to be
accepted or certified, the drawer and
all indorsers are discharged from
diability thereon."
L. O. L. Sec. 6025. "In any case
not provided for in this act the rules
of the law merchant shall govern."
when the defendant bank, which
was a holder in due course, present
ed these checks to the plaintiff bank,
the drawee, and they were honored,
accepted and paid, the prior indors
ers were thereby discharged from
further liability. The checks when
so paid had run their course; they
were no longer checks within the
meaning of the negotiable instru
ments law, but only cancelled vouch
ers, and the plaintiff was not a hold
er thereof in due course. St. Louis
Bank v. German American Bank, 127
S. W. (Mo.), 434; Riverside Bank v.
Shenandoah Bank, 74 Fed., 276; Neal
v. Coburn, 92 Mo., 139; Farmers &
Merchants Bank v. Rutherford Bank,
115 Tenn., 64. The payment of a
bill or check by the drawee amounts
to more than an acceptance. The
rule, holding that such a payment
has all the efficacy of an acceptance,
Is founded upon the principle that
the greater Includes the less. Bank
v. Bank, 125 S. W.. 513; Neal v. Co
burn, supra. In Bank v Bank, 109
Mo. App.,665, Mr. Justice Broaddus,
answering the argument that abso
lute payment was not an acceptance,
said: "An acceptance binds the ac
ceptor to pay the bill, and he cannot
be heard to deny that he has funds
in his hands for the purpose. A pay
ment of the bill is more than accept
ance, for the one is an obligation to
pay; the other a discharge of the in
debtedness represented by such bill.
If the one concludes the drawee, It
is Inconceivable why the other would
not." Under, the provision in Sec.
6021, L. O. L that where the holder
of a check procures it to be accepted
or certified the indorsers are dis
charged from liability, the plaintiff,
when it paid the checks in question,
precluded itself from setting up that
the check was a forgery on any want
of authority of the person affixing
the signature it purported to bear,
within the meaning of Sec. 5S56, L.
O. L. The following cases. In which
the negotiable Instruments law Is ap
plied, sustain this view: Bank of
Com. v. Mech. Nat. Bank, 127 S. W.
(Mo.), 429; Title Guarantee & T. Co.
v. Haven, 111 N. Y. Sup., 305; Bank
of Rolla v. Salem Bank, 125 S. W.
(Mo.), 513; Farmers & Mer. Bank v.
Rutherford Bank, 115 Tenn., 64. In
the case of Title Guarantee & T. Co.
v. Haven, supra, Mr. Justice Ingra
ham. In considering sections of the
negotiable Instruments similar to
those quoted from our statute, con
strued them as making it conclusive
upon the drawee after acceptance
that the note was genuine and all
prior indorsements assured.
Under our negotiable Instruments
law, as well as by the weight of Judi
cial authority, we think that where a
bank, as the plaintiff, being the
drawee of a bill of exchange or
check drawn upon it by one of Its
depositors, pays the bill or check to
a holder thereof in due course (as
the defendant, who has in no way
contributed to the fraud and is not
guilty of negligence in the matter),
and It Is afterward ascertained that
the signature to the bill or check Is
a forgery, the bank making such pay
ment cannot recover the money from
such holder. A case of this kind is
an exception to the general rule that
money paid under a mistake of fact
piay be recovered.
There was no error in the judg
ment of the lower court, sustaining
the demurrer, and it is affirmed.
Mr. Chief Justice Eakin did not sit
in this case, and took no part in Its
decision.
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