Louisiana National Bank of New Orleans v. Citizens' Bank of Louisiana. LUDELING, C. J. This suit is brought by the Louisiana National Bank against the Citizens' Bank to recover the amount of a check drawn by the Bank of Mobile, purporting to be for twenty-seven hundred dollars, but which had been fraudulently raised from a smaller amount, and paid, in ignorance of the forgery, by the Louisiana National Bank, on which the check was drawn. The answer of the Citizens' Bank is the general issue; it avers the check was deposited in the Citizens' Bank by and for account of the New Orleans Savings Institution, which institution is called in warranty. The answer of the Savings Institution is the general issue, and the special defense that the Savings Institution took the check on deposit, and paid out on account of it, upon the faith of the certification that it "was good" put upon the check by the Louisiana National Bank. There is no dispute about the facts. The bill of exchange or check was drawn by the bank of Mobile, but the amount thereof had been raised from twenty-seven dollars to twenty-seven hundred dollars before it was presented to the Louisiana National Bank of New Orleans for certification, and the New Orleans Savings Institution and the Citizens' Bank received and paid their money for it after the Louisiana National Bank had certified that it was "good." Who must bear the loss? We do not consider it important to determine whether this be a check or a bill of exchange. In the case of City Bank v. Girard Bank this court said: "We are unable to discover any difference between the obligation to pay a check or a bill of exchange. Both contain a request from the drawer to the drawee to pay a sum of money to the person in whose favor the check or bill is drawn. A check drawn in New Orleans on London would, in our opinion, be a foreign bill." 10 La. 567. Mr. Parsons says: "The check is always considered in England as a kind of inland bill of exchange, and this language is frequently adopted by American writers. They are much used here in drawing from one State upon houses of deposit in another, and small sums of money are frequently and very conveniently sent in this way; and it has even been suggested that these checks are foreign bills, and as such subject to protest and damages." 2 Pars. on Notes and Bills. The obligation of the Louisiana National Bank to pay was the same whether the instrument be called a check or a bill. What was Louisiana National Bank of New Orleans v. Citizens' Bank of Louisiana. the effect of the acceptance or certification of the Louisiana National Bank? Clearly it created an engagement of the bank to pay the check, and the bank became primarily liable to any innocent holder thereof for the debt which it had certified was "good.” Mr. Parsons says: "It is quite common in this country to present a check, not for payment, but to be marked or certified as good and then it circulates or is transmitted as cash. Checks are often certified as good in England as well as here, and are there used and deposited as bills of the certifying bank. The marking or certifying is called in some cases 'acceptance,' and is said to have the same effect as acceptance." 11 Pars. on Notes and Bills, 74. * * * The counsel for plaintiff says the general rule is, that he who pays in error is entitled to recover back the money so paid, and he admits the exception to this rule in favor of commercial paper, when the drawee has paid but he says that the exception applies only when the signature of the drawer is forged, as the drawee was bound to know the signature of his correspondent, and whether he had funds, and that he guaranteed nothing else. It seems to us that, tested by this rule, the plaintiff cannot recover. We have already said that, by certifying the check "good," the bank bound itself primarily to bona fide subsequent holders according to the agreement of the plaintiff, its act in certifying only estopped the bank from denying the signature of the drawer and the amount certified. That is all the plaintiff seeks to make the defendant responsible for. It is the signature and the amount of the check which give it value. It is of no consequence by whom the body of the instrument was written. It often happens that a check is written by a clerk or third person and signed by the drawer. One of two innocent persons must suffer in this case; it would seem but just that he whose act has caused the loss should bear it. Price v. Neal, 3 Bur. 1357; Bass et al. v. Clive, 4 Maule & Selwyn, 15; Smith v. Mercer, 6 Taunton, 81. y certifying the check the bank bound itself to pay the amount which it said was good, and upon this obligation alone the defendant parted with its money. The Louisiana National Bank, by its cashier, wrote across the face of the check "good, Eng. F. Garcia." And with this certification, the check, as it was when certified, was acquired by the defendant in due course of its business; and the plaintiff paid it. We cannot perceive how the plaintiff can contend with any sem Louisiana National Bank of New Orleans v. Citizens' Bank of Louisiana. blance of right that the defendant was negligent in not inquiring from the Bank of Mobile if the check was genuine. If this inquiry had to be made by any one, it seems that it should have been made by the certifying bank before it gave currency to it and lulled suspicion and stopped inquiry by the responsibility of its certification that it was good. In the case of the Merchants' Bank v. State Bank, the Supreme Court said: "By the law merchant of this country the certificate of the bank that a check is good is equivalent to acceptance. It implies that the check is drawn upon sufficient funds in the hands. of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an undertaking that the check is good then and shall continue good, and this agreement is as binding on the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money. The transferee takes it with the same readiness and sense of security that he would take the notes of the bank. It is available also to him for the purposes of money. Thus it continues to perform its important functions, until in the course of business it goes back to the bank for redemption and is extinguished by payment. It cannot be doubted that the certifying bank intended these consequences, and it is liable accordingly. To hold otherwise would render these important securities only a snare and delusion." 10 Wall. 647. See, also, United States Bank v. Bank of Georgia, 10 Wheat. 333. The plaintiff relies upon the cases of McCall v. Corning, 3 La. Ann. 409, and Espy v. Bank of Cincinnati, 18 Wall. 604, as conclusively settling the right to recover. Neither of these cases was like the one under consideration. In the case of McCall v. Corning et al., a forged draft had been sold to Britton & Co., who transferred it to Corning et al., before acceptance. They had parted with their money, not on the credit of the drawee's acceptance, but on the faith they had in the drawer and the payee and indorser. In the case of Espy there was no written certification on the check. The cashier of the bank had verbally told the clerk of Espy, Heidelbach & Co., the payee, that "it is all right; send it through the clearinghouse." In this connection the court used the following language: "It is also to be considered that the bank was not asked to certify Louisiana National Bank of New Orleans v. Citizens' Bank of Louisiana. it in the usual way by indorsing it good, and that the party who asked information was the one whose name was in the check as payee. We do not propose to decide here what would have been the legal effect in the present case if the bank officer had, under precisely these circumstances, been requested to indorse the check as good, and had done so, affixing his name or his initials in the ordinary way." 18 Wall. 619, 620. This extract is sufficient to show that the question involved in this case was not decided in Espy v. Bank of Cincinnati. The plaintiff also relies upon the case of the Marine National Bank v. The National City Bank, recently decided by the Court of Appeals for New York. That case differs from the present case in this, the party who had the check certified, and to whom, subsequently, payment was made, was the same whose name was in the check as payee; in the present case the Citizens' Bank was not a party to the check. See, also, the cases of Farmers' Bank v. Butchers' Bank, 16 N. Y. 125; First National Bank v. Leach, 52 id. 350; 11 Am. Rep. 708; Cooke v. State National Bank, 52 N. Y. 115; 11 Am. Rep. 667. It is therefore ordered and adjudged that the judgment of the lower court be reversed, and that there be judgment in favor of the defendant, rejecting the plaintiff's demands with costs. Rehearing refused. NOTE BY THE REPORTER. - The doctrine of this case we deem to be in conflict with the general doctrine in New York. The remarks quoted from Merchants' Bank v. State Bank, 10 Wall. 647, were not made in a case like the present, and have only a general application. Equally obiter are some expressions in Expy v. Bank of Cincinnati, 18 Wall. 604. There the court say: "Bank checks are not bills of exchange, and though the rules applicable to each are in many respects the same, they differ in important particulars. Among these particulars is that a check is drawn against funds on deposit with the banker, and the indorsement that it is good implies that there were funds there to pay it when the indorsement was made. A bill of exchange is not drawn on such deposits necessarily, and the acceptance raises no implication that the drawer has such funds to meet it. It is no new promise by the acceptor to pay, funds or no funds. In both cases the bank is supposed to know the signature of its correspondent, and cannot, after indorsing it as good or accepted, dispute the signature. But as one of the main elements of utility in a bill of exchange is that it shall circulate freely, and it may thus pass through many hands on the faith of the acceptor's signature, it may possibly be that he should be responsible for the promise contained in it, as it came from his hands, as it was drawn on no special fund, and the possession of such fund by him does not affect his liability. By such acceptance he becomes primarily liable, as if he were the maker of a promissory note. How far these reasons should be applied to a certification that a check was good seems extremely doubtful, both as principle and authority, where the object is to use the indorsement to put the check in circulation, or raise money on it, or use it as money, and this object is known to the certi fying bank, it may be argued with some force that the bank should, as in the case of anacceptance of a bill of exchange, be held responsible for the validity of the check as it Louisiana National Bank of New Orleans v. Citizens' Bank of Louisiana. came from the hands of the certifying bank. Such a rule would seem to be just when checks are certified, as we know they often are, without reference to the presence of funds by the drawer, and when the well-known purpose is to give the drawer a credit by enabling him to use the check as money by putting it into circulation. But such a verbal statement as was made in the present case cannot come within that principle," etc. But the case of Marine National Bank v. National City Bank, 59 N. Y. 67; s. c., 17 Am. Rep. 305, is in conflict with the principal case. There a check was raised as to amount and name of payee, and certified to a third person, the apparent payee, who parted with the money on the faith of the certificate. The holder deposited it in his bank, which collected it from the certifying bank. Discovering the forgery, the latter sued the former bank, and was held entitled to recover. The court held, that the certification guaranteed only the genuineness of the drawer's signature and that he had sufficient funds, which should not be withdrawn. In this case the court observe that they do not assent to the distinction, taken in the Expy case, between an oral and a written certification They conclude: “An inquiry may reasonably and properly be made of the drawee of a check, as to the genuineness of the signature of the drawer, and the state of his account, but a resort would be had to other sources of information to learn the consideration of the check, by whom the body was written, the genuineness of the indorsement, and the title of the payee. As to such matters the drawer could not be supposed, ordinarily, to have any information, and would not be called upon, or expected to give answer in respect to them." We cannot appreciate the force of the distinction made in the principal case, that the payment was here made to the payee and not to a third person not a party to the check. The principle is the same; the parting with money on the faith of the certification. The principle that certification guarantees the presence of funds, whether the drawer had any or not, was laid down in Farmers' Bank v. Butchers' Bank, 16 N. Y. 125, and in Cooke v. State National Bank of Boston, 52 id. 96; s. c., 11 Am. Rep. 667, referred to in the principal case. In First National Bank of Jersey City v. Leach, 52 N. Y. 350; s. c., 11 Am. Rep. 708, also cited in the principal case, the decision was that as between holder and drawer, certification is equivalent to payment. By the act of certification the money ceases to be the drawer's, and if the drawee fails to make good his certification, the loss must fall on the holder. But see, contra, Andrews v. German National Bank, 9 Heisk. 211; s. c., 24 Am. Rep. 300. The general doctrine is that the acceptance of a bill of exchange is not an admission of the genuineness of the body of the bill. Bank of Commerce v. Union Bank, 3 N. Y. 235. Perhaps the question involved in the principal case may fairly be considered as not definitely settled except in the States of Louisiana and New York. In National Bank of Commerce v. National Mechanics' Banking Association of New York, 55 N. Y. 211; s. c., 14 Am. Rep. 232, it was held, that a bank is not bound to know the handwriting or genuineness of the filling up of a check drawn upon it, but only the signature of the drawer. So, where a bank had certified a check, which afterward was fraudulently raised, and the bank by mistake paid the raised amount to a bona fide holder, it was held, that it could recover back the sum so paid, unless the holder had suffered loss in consequence of the mistake. The court here said: "If the defendant had shown that it had suffered loss in consequence of the mistake committed by the plaintiff, as for instance, if in consequence of the recognition of the check in question, the defendant had paid out money to its fraudulent depositor, then, clearly, to the extent of the loss thus sustained, the plaintiff should be responsible," VOL. XXVI-18 |