Opinion
14555
December 11, 1937.
Before HOLMAN, J., County Court, Richland, April, 1937. Reversed in part, affirmed in part.
Action by E.A. Blackwell and G. Truette Smith, copartners under the name and style of Blackwell Smith, against the First National Bank of Columbia. From an order overruling a demurrer to defendant's answer the plaintiffs appeal.
The order of Judge Holman is as follows:
This case comes up on a demurrer to the answer on the ground that it does not state facts sufficient to constitute a defense. It becomes necessary to consider the pleadings, in order to understand the questions presented.
Paragraphs 1, 2, and 3 of the complaint, admitted by Paragraph 1 of the first defense of the answer, allege that plaintiffs are partners under the name of Blackwell Smith, that defendant is a national bank in the City of Columbia; that on May 14, 1936, J.C. Wertz drew his check on defendant for $130.00 payable to the order of plaintiffs, and, for value, delivered it to plaintiffs, Wertz then having sufficient funds on deposit with defendant to pay the same.
Paragraph 4 of the complaint alleges: "That plaintiffs endorsed said check preparatory to depositing same to their account in South Carolina National Bank, Columbia, S.C.; that thereafter and on the same day (May 14, 1936), the check was stolen from the office of plaintiffs, and as they are informed and believe, was presented to defendant by a person unknown to defendant but who represented himself to be one of the plaintiffs, and the amount thereof was paid to such person." Paragraph 2 of the first defense admits these allegations, and alleges that plaintiffs indorsed said check by writing on the back thereof, "Blackwell Smith, attys., by E.A. Blackwell," and the same was presented to defendant during banking hours. The demurrer specifies that the admission of these facts constitutes an admission of liability on the part of defendant and this raises the first question before me. In this connection, on the hearing of the demurrer, by agreement of counsel, the original check was submitted to me and a photostat copy filed as a part of the record, for my consideration of the demurrer. The check is dated and signed as alleged, and drawn, "Pay to Blackwell Smith, Attys., or order." It is indorsed "Blackwell Smith, Attys., by E.A. Blackwell." In other words, the indorsement was exactly the name of the payees, without any restriction or qualification.
Paragraphs 5 and 6 of the complaint read:
"V. That the defendant failed to ascertain the identity of the person presenting said check or to make proper investigation or inquiry to establish his identity; that had proper or sufficient investigation or inquiry been made before said check was paid, defendant could have easily ascertained that said party was not one of the plaintiffs; not the payee of the check, and that he was without right or title thereto.
"VI. That the defendant was guilty of negligence and recklessness in paying said check as aforesaid and the plaintiffs, as the direct and approximate cause of its act in so doing, have been deprived of the value of said check and the amount represented thereby, and have been damaged in the sum of One Hundred and Thirty ($130.00) Dollars."
These allegations are denied, upon information and belief, by Paragraph 3 of the first defense. The demurrer specifies that such a denial is not sufficient to put in issue these allegations. This raises the second question for determination.
As a second defense, defendant alleges that "plaintiffs endorsed said check without restriction, thus making the same payable to bearer, as plaintiffs well knew, and then kept the check lying unprotected and exposed to theft; that in so doing plaintiffs were guilty of negligence and recklessness, which, combining and concurring with any negligence or recklessness on the part of defendant, contributed as a proximate cause of plaintiffs' damage, without which the same would not have occurred." The remurrer specifies, as to this defense, that the contributory negligence and recklessness of the plaintiffs was not a proximate cause of their damage. This raises the third question for consideration.
The first question, as stated above, is whether the defendant bank was under a duty to plaintiffs to require that the person presenting the check identify himself before defendant cashed the check.
In determining this question, it is important that the legal relations between the parties be borne in mind. The Negotiable Instruments Law (Section 6940 of the Code of 1932), provides: "A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check." This means exactly what it says. Peurifoy v. First National Bank, 141 S.C. 370; 139 S.E., 793, 797. Wertz was a depositor with defendant. Plaintiffs were not; they deposited with the South Carolina National, another bank in the City of Columbia. There was no contractual relation between defendant and plaintiffs in respect of this check. The payee of a check has no claim against the bank upon which it is drawn. The duty of the bank is solely to its depositor. South Carolina National Bank v. McCandlass, 4 Cir., 44 F.2d 111. This does not, of course, militate against the rule that the holder of a check may maintain an action ex delicto for conversion against the bank which pays the check, knowing that the indorsement of the holder's name thereon was unauthorized. Yarborough v. People's Nat. Bank, 162 S.C. 332; 160 S.E., 844. But that rule is in no wise involved here. Nor are we concerned with the rule that the bank, when it cashed the check payable to bearer, took the risk of the blank indorsement being genuine. There is no question but that the indorsement was genuine and valid. It is admitted that it was made by Mr. Blackwell himself.
"A bank must not mistake the person of the holder, and the direction of the maker or subsequent indorsers must be followed at the bank's peril; but where a check is payable to bearer, the bank is not bound to require any indentification and is warranted in making the payment to the person by whom the check is presented. * * *" 7 C.J., 677, citing, Farmers', etc., Bank v. Bank of Rutherford, 115 Tenn., 64; 88 S.W. 939; 112 Am. St. Rep., 817.
In the case cited, the Court said:
"But in the present case the check was payable to Freeman, or bearer. It was not necessary to be indorsed at all, and was indorsed, as the proof shows, simply as a compliance with the custom of the Rutherford bank. It was not only not necessary that it should be indorsed, but it was not necessary that Freeman, the holder, should be identified, and hence it was not negligence in the bank to fail to have him identified, and it was a bona fide holder, if it paid to bearer, with or without indorsement." 115 Tenn., 64; 88 S.W., 939, 940; 112 Am. St. Rep., 819.
Section 6785 of the Code of 1932 provides in part:
"An endorsement in blank specifies no endorsee, and an instrument so endorsed is payable to bearer, and may be negotiated by delivery." "It was the duty of the bank, when a check which properly demanded payment was presented, to make payment, if the drawer had sufficient funds to meet it." St. Charles Co. v. Armour Co., 156 S.C. 397; 153 S.E., 473, at page 477.
In Peerrot v. Mt. Morris Bank, 120 App. Div., 247; 104 N YS., 1045, it was held that where the owner of a check endorses the same so that it is payable to bearer and delivers it to another, the bank, in the absence of notice of any limitation on the authority of the holder, is justified in paying the same to the holder, although the check was in fact delivered only for the purpose of being placed to the credit of the owner's account.
In Doucette v. Old National Bank, 1931, 161 Wn., 159; 296 P. 570, 572, a recent and well-considered case involving the principle which controls here, the Court held that a check indorsed by a payee in blank passes by delivery as fully and freely as a bank note, and said, "If a bank pays a check indorsed in blank upon presentment to the holder thereof, having at the time no reasonable cause for suspecting any irregularity or any cause for refusing such payment, the bank will be protected in doing so, no matter what facts unknown to it may have occurred prior to the presentment." Section 393. Morse on Banks and Banking, 6th Ed.
This would seem to dispose of the question here presented.
The complaint does not allege any facts raising an issue as to whether the bank, when it cashed the check, became a holder in due course, Section 6803, Code of 1932. It alleges that the check was presented by a person unknown to defendant, but who represented himself to be one of the plaintiffs. It is not alleged that the agent, acting for the bank, in cashing the check knew the plaintiffs, so that he should then have realized or suspected the theft. Since the agent acting for the bank was under no duty to require any identification under the law, the only assumption is that he acted in good faith, as nothing is alleged to create a suspicion of theft in his mind.
The established rule in this respect is well stated in Farr-Barnes Lumber Co. v. Town of St. George, 128 S.C. 67, at page 74; 122 S.E., 24, 26, in this way:
"This Court has announced in numerous cases that, to defeat the rights of a bona fide holder for value of commercial paper, something more is required than proof of facts and circumstances which merely give rise to suspicion, or which may be sufficient to put a prudent person on inquiry. There must be proof of actual notice or knowledge of the defect in title, or bad faith on the part of the holder at the time he purchased the paper."
By the way of contrast and comparison, Charleston Paint Co. v. Exchange Co., 129 S.C. 290; 123 S.E., 830, is interesting.
Plaintiffs contend, however, that the check was stolen from their office — that there was no delivery. They rely on the last sentence of Section 6767 of the Code, which reads: "And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved." They say that the thief acquired and could pass no title and that they are entitled to show this under the rule of the sentence quoted. But plaintiffs overlook the sentence of Section 6767, immediately preceding the one on which they rely. This reads: "But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed." Since, as shown above, the bank became a holder in due course, delivery is conclusively presumed.
In Ehrlich v. Jennings, 78 S.C. 269, 272; 58 S.E., 922, 923; 125 Am. St. Rep., 795; 13 Ann. Cas., 1166, the rule is stated thus: "The general rule of law is that a thief of personal property cannot convey to purchaser, however innocent, any title to the stolen property as against the real owner. But from the highest considerations of public policy the law excepts from the rule negotiable instruments acquired in good faith before maturity and without notice, and makes the title of such holder good against the world. [Citing cases.]" This was the common-law rule in this State prior to the adoption of the Negotiable Instruments Law and, as shown above, that law continues this rule in effect, Section 6767, Code. An exhaustive discussion of the question is found in Chapter 18, p. 791, Vol. I, of Defenses to Commercial Paper, by Joyce.
Little need be said in respect of the second specification, asserting that the denial of the allegations of Paragraphs 5 and 6 of the complaint on information and belief is ineffective. As the Court judicially knows, the presumption is that the check was cashed by one of the several tellers, along with many others, as a part of the teller's routine day's work. The bank is charged with the teller's knowledge, but this is not imputed to the president personally. There is no presumption that the president had personal knowledge concerning these detailed allegations, but doubtless he had been informed concerning them by the teller when he verified the answer. The president could not deny knowledge or information sufficient to form a belief because he had the information. He could deny only on information and belief because he did not have the knowledge. The corporation speaks from the viewpoint of the agent making the verification in its behalf. The denial is good under the established practice.
The third specification is likewise without merit. In view of the conclusion reached on the first and controlling question, this point probably becomes academic. But if there were allegation and proof tending to show negligence on the part of defendant, then the question of proximate cause arising on this defense would become at most a question for the jury. It is definitely settled that "the doctrine of `the last clear chance,' * * * is not the law in this State." Spillers v. Griffin, 109 S.C. 78; 95 S.E., 133; 134 L.R.A., 1918D, 1193. And plaintiffs are faced also with the rule that where one of two innocent persons must suffer by reason of the wrongdoing of a third, "it must be he who has placed it within the power of the malefactor to perpetrate the wrong." Davis v. Bland, 138 S.C. 354; 136 S.E., 300, 304. Noland v. Law, 170 S.C. 345; 170 S.E., 439, 442. This rule was applied in Doucette v. Old National Bank, supra, to a case with facts of the same legal effect.
It is, therefore, ordered that the demurrer to the answer be and the same is hereby overruled.
Messrs. Richard E. Broome and Blackwell Smith, for appellants, cite: Duty of bank to establish identity of payee: 126 N.E., 234; 190 S.E., 543; 172 A., 528; 3 R.C.L., 542; 216 P., 560; 29 A.L.R., 358; 114 A.S.R., 595; 77 N.E., 963; 50 L.R.A. (N.S.), 107; 12 S.W. 919; 7 L.R.A., 93; 17 A.S.R., 900; 83 S.W. 655; 74 A.L.R. 811; 17 L.R.A. (N.S.), 514; 126 A.S.R., 467; 135 S.C. 107; 133 S.E., 210; 162 S.C. 332; 160 S.E., 844; 129 S.C. 290; 123 S.E., 830; 14 A.L.R., 764; 69 A.L.R., 1078. Pleadings: 21 R.C.L., 458. Proximate cause: 61 S.C. 468; 39 S.E., 721; 77 S.C. 370; 58 S.E., 35; 122 A.S.R., 574; 109 S.C. 119; 95 S.E., 357; 11 A.L.R., 1411; 115 S.C. 168; 104 S.E., 123; 122 S.C. 117; 114 S.E., 761; 166 S.C. 173; 164 S.E., 441; 190 S.E., 459.
Mr. J.B.S. Lyles, for respondent, cites: Verification: 49 C.J., 23; 76 S.C. 237; 56 S.E., 974; 9 L.R.A. (N.S.), 519; 15 R.C.L., 1057; 177 S.C. 240; 181 S.E., 41.
December 11, 1937.
No good reason appears why a rehearing in this case should be granted. The Court, however, withdraws the opinion heretofore filed and substitutes in lieu thereof the following:
This appeal is from an order of the County Judge overruling a demurrer to the answer. The following facts appear: On May 14, 1936, one J.C. Wertz drew his check on the defendant bank in the sum of $130.00. It was made payable to Blackwell Smith, attorneys, or order, and delivered to them by the maker. It was then endorsed by the plaintiffs, the named payees, preparatory to depositing it to their account in a bank other than the defendant. On the same day, however, the check, bearing such indorsement, was stolen from the office of the plaintiffs and presented for payment by a person unknown to the bank, but who represented himself to be one of the plaintiffs, and the amount specified in the check was paid to such person by the defendant.
The bank set up two defenses to the cause of action alleged in the complaint. The plaintiffs demurred on the ground that the answer did not state facts sufficient to constitute a defense, the demurrer, for different reasons and in certain particulars stated therein, being specifically directed to each defense separately.
We have considered with care the entire record, giving especial attention, of course, to the pleadings. We are satisfied that the conclusions reached by the County Judge are correct, except as to the first defense set up in the answer of the defendant. As to this defense, we think he should have sustained the demurrer. Certain facts alleged in the complaint are presumptively within the knowledge of the defendant, or are such as may be readily ascertained by it. Its denial, therefore, as to such alleged facts, should be in positive form.
In overruling the demurrer to the first defense of the answer, therefore, the order appealed from is reversed; in all other respects it is affirmed.
Leave is granted the defendant, however, to move before the Judge of the Richland County Court, within ten days after the remittitur herein goes down, for an order permitting to amend its answer, so that it may present its first defense on the merits.
And it is so ordered.
MR. CHIEF JUSTICE STABLER and MESSRS. JUSTICES BONHAM, BAKER and FISHBURNE concur.
MR. JUSTICE CARTER did not participate on account of illness.