Bank of Williamson v. McDowell County Bank , 66 W. Va. 545 ( 1909 )

Poffenbarger, Judge:

The Bank of Williamson, doing business at Williamson, Mingo county, sued the McDowell County Bank, located at Welch, in McDowell county, in assumpsit, laying the damages at $900.00. The purpose of the action was the recovery of money paid by the plaintiff to the defendant on a forged check for $800.00, purporting to have been drawn on the plaintiff By D. B. Young, one of its depositors, in favor of George Horner, and collected at the request of some unknown person, by the 'defendant. Trial by jury having been waived 'and the ease submitted to the court, there was a judgment for the defendant of. which the plaintiff complains.

At the time of the forgery of the check, Young had $1,000.00 on deposit in the Bank of Williamson on which he had never drawn any cheeks. He resided in Kentucky, several miles from Williamson. His testimony imports that he had never had any other account or transaction with the bank as a depositor. In September, 1907, the forged check was presented to the McDowell County Bank by a stranger who wrote the name George Horner on the back of it and delivered it to one of the defendant’s agents. For some reason, the bank did not give him the cash or place the amount to his credit. It took the note for collection, and, after stamping the following endorsement upon it: “Pay to the order of any Bank, Banker or Trust Co. All Prior Endorsements Guaranteed. Sep. 17, 1907. McDowell County Bank Welch, W. Va. I. J. Rhodes, 'Cashier,” sent it to its correspondent at Williamson, W. Va., The Mingo County Bank, which endorsed it as follows: “Pay to the order of any Bank or Banker All Prior endorsements guaranteed Mingo County Bank. Williamson, W. Va.” On the 18th day of September, 1907, the Bank of Williamson paid the amount thereof to the Mingo County Bank which, in turn, paid it to the McDowell County Bank, where it was deposited to the credit' of the person calling himself George Hor-ner, who afterwards withdrew it from the bank. Sometime in November, 1907, the forgery was discovered, upon the appearance of Young at the Bank of Williamson for the purpose of withdrawing his money, and his disavowal of any knowledge of the check that had been paid out of it.. The money was replaced to his credit and a demand made upon the defendant ¡'for reimbursement. The person who djelivered the check for collection, and who afterwards received from it the money, was wholly unknown to the officers and agents of the McDowell County Bank and they required from him no identification. It seems that no inquiry was made as to who* he was. On the face of the check there was a recital to the effect that it bad been given for land. Failure to malee inquiry or require identification, together with the endorsements and guarantee stamped on the back of the check, are the circumstances relied upon by the plaintiff as fixing the liability upon the defendant.

It is hardly necessary to observe that there has been a payment of money under a mistake of fact. Ordinarily, money so paid may be recovered back. This is a general rule of law not peculiar to transactions between bankers. Simmons v. Looney, 41 W. Va. 738; Haigh v. United States B & L. Ass’n., 19 W. Va. 792; W. Va. Transp. Co. v. Sweetzer, 25 W. Va. 434; Burton v. Burton, 10 Leigh 597; Richmond v. Judah, 5 Leigh 305. like all other general rules, however, it has its exceptions. Circumstances are sometimes such as to impose upon one of the parties a higher duty and the exercise of greater care and diligence to know the facts than upon the other, to the end that wrong, injustice and hardship' may be avoided. It is eminently fair and just, in the absence of fault or neglect on the part of the holder of a check to require the bank on which it is drawn to determine at its peril whether the signature of the maker is genuine, for it always has, or is supposed to have, knowledge on that subject and means of determining the question with reasonable certainty and safety, while the holder-, who may be a purchaser for value, may be, and often is an entire stranger to the maker, having no knowledge or information as»to the genuineness of the signature and no' convenient means of obtaining it. The unequal footing on which the parties stand amply justifies the exception of such transactions fromi the operation of the general rule allowing recovery of money paid under mistake, and denial of such right to a bank for money paid on a forged check or other instrument. And so it has been uniformly held. Johnston v. Commercial Bank, 27 W. Va. 343; Price v. Neal, 3 Burr. 1354; Smith v. Mercer, 6 Taunt. 76; Mather v. Maidstone, 37 Eng. Law & Eq. 339; Levy v. Bank of U. S., 4 Dallas 234; U. S. Bank v. Bank of Georgia 10 Wheat. 33; Gloucester Bank v. Salem Bank, 17 Mass. 33; Bank of St. Albans v. F. & M. Bank, 10 Vt. 141; C. & F. Bank v. First Nat’l Bank 30 Md. 11; National Park Bank v. National Bank, 46 N. Y. 77; 5 Am. & Eng. Ency. Law 1011; 5 Cyc. 546; Dan. Neg. Instr., section 1651; Morse on Banks & Banking, section 466.

Aside from the justice and fairness of this exception, referable to the superior position of the drawee, it faciliates comknercial transactions by giving stability to commercial paper. It relieves the purchaser of cheeks, drafts and notes of risk and hazard to the extent of requiring care and scrutiny on the part of him who is in the better position to know whether the signature is genuine or not. It favors the outside commercial world as against the drawee, by excepting them from the operation of the general rule. The law thus accords to them a protection and right which citizens generally do not have, immunity from the Return of money paid to them under a mutual mistake. The allowance of this advantage or favor does not imply the grant of anything additional. It does not relieve the purchaser of commercial paper of any duty or obligation resting upon him in the acquisition or purchase thereof. In other words, it does not bestow upon him the additional right to omit the care, prudence and diligence by which he ought to be governed in his conduct as a means of safety to himself and other parties to the paper. Accordingly, it is generally held that any negligence, omission of duty, misconduct, or act, the tendency and effect of which is to prejudice the drawee, will deprive him of the benefit of this exception, and compel him to resume his place under the operation of the general rule, applicable to the recovery of money paid under mistake of fact, and return the money.

The reason for this becomes more apparent by observing that the purchaser of commercial paper, by the act of purchase, establishes a relation between himself and all the other parties thereto; and assumes, to a limited extent, the performance of duties which otherwise would devolve upon the drawee him'self. But for the intervention of the purchaser the payee of a check would himself bring it to the bank on which it is drawn and personally receive the money. There, the drawee would have an opportunity of taking precaution to ascertain whether he is the payee or a mere impostor, as Well as the genuineness of the signature of the maker. Bpon failure of the person ap-pfying for payment to prove his identity to the satisfaction of the bank, payment would be refused and the matter would end there, whether the check was genuine or forged; and if it were a forged check, the bank, by that inquiry, would prevent the fraud. -If the transaction passed beyond this stage, resulting in the payment of a forged check, notwithstanding the precaution of inquiry, the bank would have in its own hands knowledge of all the facts and circumstances, elicted by the inquiry, to aid it in pursuing the forger, both criminally and civilly. Is it not reasonable to say and hold that any bank, other than the one on which a check is drawn, assuming to take it by purchase or for collection and put it in circulation as commercial paper, should perform those precautionary acts for the protection of the bank on which the cheek is drawn, which the drawee bank itself would have performed, had the checkrbeen presented to it; and that its omission of such duty amounts to negligence and misconduct working prejudice and injury to the drawee? If a bank, in purchasing such paper, omit all inquiry as to the identity of the payee and hand over the money to some person wholly unknown to it, it is not in a position, on discovery of the fraud, to give the injured drawee any information or render it any aid in seeking the apprehension of the criminal or recovery of the money from him. The drawee has the right to assume that these duties have been performed. The general practice of bankers to make reasonable inquiry as to the identity of the payee in purchasing commercial paper is matter of common knowledge and judicial cognizance. Therefore, the endorsement of a purchasing bank, not qualified or limited in any respect, amounts to a representation to the drawee that this precaution has been taken. Upon that endorsement the drawee has the right to rely to that extent, and if identification has not been required, the endorsement amounts to an imposition by the purchasing bank upon the drawee. Thus we have two prejudicial acts, one of omission and the other of commission. The purchasing bank having assumed to perform a duty which the drawee would have performed but for its intervention, neglected to perform it. Not having performed it, it has falsely represented by its endorsement that it did.

Freedom from fault on the part of the purchaser is one of the requisites or conditions of the rule exempting him from liability under the general law. This was made plain in the original case of Price v. Neal. In declaring it, Lord Mansfield said tbe defendant bad r‘bona fide paid” one of the bills “without the least privity or suspicion of any forgery.” Proceeding, he said: “The ocher bill, he (the plaintiff) actually accepts; after which acceptance the defendant innocently and bona, -fide discounts it. The plaintiff lies by for a considerable time after he has paid these bills, and then found out they were forged, and the forger comes to be hanged. He made no objection to them at the time of paying them. Whatever neglect there was was on his side. * * * * If there was no neglect in the plaintiff there is no reason to throw off the loss from one innocent man upon another innocent man; but in this case if there was any fault or negligence in any one it certainly was in the plaintiff and not in the defendant.” Later decisions in stating the rule, put in the element of innocence in both parties. Bank v. Bank, 30 Md. 11; Bank v. Bank, 10 Vt. 141; Ellis & Morton v. Life Ins. & Trust Co., 4 O. St. 628. In this last case, the exception is stated in the following terms: “A well settled exception to this rule occurs, when the payment is made by the drawee of a forged bill or cheek, to a holder for value and without fault, and the money cannot be returned without prejudice to him.” The same case declares the inapplicability of this exception and the withdrawal of its protection when the condition of innocence on the part of the purchaser is lacking, in these terms: “But this exception does not'apply, when, either by express agreement, or a settled course of business between the parties, or by a general custom in the place, and applicable to the business in which both parties are engaged, the holder takes upon himself the duty of exercising some material precaution to prevent the fraud; and by his negligent failure to perform it, has contributed to induce the payee to act upon the paper as genuine, and to advance the money upon it. Nor does it apply in any ease, where the parties are in a mutual fault, or where the money is paid upon a mistake of facts, in respect to which both were bound to inquire.” That failure of the bank on taking a forged check from a stranger without inquiry as to his identity is sufficient to deprive it of the benefit of the exception, is expressly declared in Canadian Bank v. Bingham, 30 Wash. 484, in the following termte: “A bank which pays a forged check upon it in the name of a depositor may, if it acts within a reasonable time, recover the amount thereof from the bank which took the check in course of business, and negligently paid the money upon the indorsement of the check by the payee named, without inquiry into its genuineness, or without requiring any identification of the person presenting such check for payment; or any showing that he was lawfully the holder thereof.” In substantially the same terms, it was held in National Bank v. Bangs, 106 Mass. 441, that if a party take a check, either payable to his order from a stranger or other third person, without inquiry, although in good faith and for value, and give it currency and credit by indorsing it before receiving payment, the drawee may recover back the money. For other cases declaring and enforcing this principle, see Bank of Danvers v. Bank of Salem, 151 Mass. 280; First Nat’l Bank v. Northwestern Nat’l Bank, 152 Ill. 296 (43 Am. St. Rep. 247); Bank of Marshalltown v. State Bank, 107 Ia. 327 (44 L. R. A. 131); Bank of Quincy v. Ricker, 74 Ill. 439; Bank v. Allen, 59 Mo. 310; Bank of Crawfordsville v. Bank of Lafayette, 4 Ind. App. 355; Corn Ex. Bank v. Nassau Bank, 91 N. Y. 74; While v. Bank, 64 N. Y. 316; Turnbull v. Bowyer, 40 N. Y. 456; Peoples Bank v. Franklin, 88 Tenn. 299. The general principle is stated in Germania Bank v. Boutell, 60 Minn. 189, 51 Am. St. Rep. 519, by Mr. Justice Mitchell as follows: “The bank may recover back money paid on a check to which the signature of one of its customers was forged, when there was a lack of good faith on the part of the payee toward the bank, as when he knew the check was forged, or knew the circumstances easting suspicion on its genuineness not known to the bank, and which he did not communicate to it, or where the holder was negligent in not making due inquiry as to the validity of the check before he took it, and the drawee, having a right to presume that he had made such inquiry, was itself thereby excused from making inquiry before paying it. In the first case, the holder is really a party to the fraud, and is not a good faith holder. In the second ease, he has, by his negligence, contributed to the consummation of the mistake on the part of the drawee by misleading him.” See also 5 Cyc. 546; 5 Am. & Eng. Ency. Law 1071; Morse on Banks & Banking, section 466; Dan. Neg. Instr., section 1657.

In conformity with these principles, it is uniformly held that a bank endorsing a check, not drawn upon it, warrants the genuineness of all the preceding signatures endorsed on it,' including that of the payee, but not that of the drawer. First Nat'l Bank v. Northwestern Nat'l Bank, 152 Ill. 296 (43 Am. St. Rep. 247); Williams v. Tishomingo Savings Inst., 57 Miss. 633; Story on Bills of Exchange, section 225; 2 Parsons on Bills & Notes 588.

Such is the great weight of authority on the question presented. Only four cases holding the contrary have been found, namely: Farmers Nat'l Bank v. First Nat'l Bank, 30 Md. 11, Bank of St. Albans v. F. & M. Bank, 10 Vt. 141, Salt Springs Bank v. Syracuse Savings Bank, 62 Barb. 101, and Howard v. M. V. Bank, 28 La. Ann. 727 (26 Am. Rep. 105), of which the first was decided in 1838, the second in 1868, the third in 1862 and the fourth in 1876. In so far as they allow the benefit of the exception under circumstances showing negligence or misconduct on the part of a bank purchasing, or taking for collection, and putting into circulation, as if it had been purchased, a check drawn upon another bank, they are wholly irreconcilable with the great weight of judicial opinion and decision, .as ay ell -as variant from the spirit of the exception declared in Price v. Neal and the great number of subsequent decisions in which it has been observed. In the last two, circumstances were disclosed which tended to prove negligence •on the part of the drawers, off-setting that on the part of the purchasing banks. When both have been negligent, not merely unfortunate, no recovery can be had. The result is the same as when both are innocent. Ellis & Morton v. Life Ins. & Trust Co., 4 O. St. 628.

I do not think I have misapprehended the principles on which tiie cases herein referred to have been disposed of. I adhere to the rule declared in Price v. Neal and admit the correctness of the long line of decisions enforcing it under circumstances calling for its application. There axe some cases in which the rule itself is criticised and it is said to have been denounced as unsound and unreasonable by some of the text writers, but I give it unqualified approval, indispensable in commercial transactions. Br amount of timje would be wasted in demandj| guaranties of holders, so palpably necessary ought'to be, and are in fact, everywhere made without demand'. Lack of this rule would not only impede commercial transactions, but also introduce unnecessary-and gravé elements of uncertainty and clanger, and render the whole commercial system unstable and treacherous as well as too slow to meet ordinary business demands.

The commercial evils fenced out by this exceptional rule in favor of the world at large against the dr'awee, would be admitted, as breeders of loss, confusion, distrust and instability, if, disregarding the premises laid down by Lord Mansfield, the courts apply it against an innocent drawee in favor! of a negligent or mala fides holder. In two of the four cases, herein named as being contrary to the weight of authority, this seems to have been done. The cases in which negligence on the part of the purchaser has imposed liability in favor of the drawee are numerous. The attempt to argue them away by saying the decision turned on the forgery of the endorsements is futile. It is in respect to the payee and his endorsement that duty devolves. upon the purchaser. He is not in a position to know anything about the genuineness of the signature of the drawer, and hence the law imposes no duty upon him in respect to that. In law, there is neither a payee nor an endorser in the case of a forged check or bill. The -entire instrument is a nullity; but, for the purpose of working out justice in favor of innocent parties injured by it, it is treated, on the principle of estoppel, as a valid paper, to the extent of denying the drawee right of recovery against them, if he paid it before discovery of the forgery, and they have omitted no duty in the premises. What •purports to be an endorsement by a payee, in such a ease, is not an endorsement. It is a mere fraudulent act, part and parcel of the fraudulent process by which money is obtained on the forged paper. If the forger, or utterer of the forged paper, is thwarted at the initial point of negotiation by the require-mlent of identification, the entire scheme may be defeated and the money saved. This uniform requiremlent, on the part of bankers, is a strong deterrent barrier to the utterance of forged pape"Wjü^it it nobody would stand guard at the inception inquire as to one of the indispensable requi^[ity, the existence of a payee, an inquiry the te without requiring the payee to come to ms counter for identification, and this might necessitate a trip from San Francisco to New York. ¡The impossibility of doing business in that manner necessitated the establishment, long ago, of the rule that a bank or other person, in purchasing a bill, check or note and endorsing it, warants the genuineness of all preceding signatures endorsed thereon, including that of the payee. Observe that the warranty is that of genuineness of signature, not solvency of parties. To say a bank.can take and endorse a check, forged as to both drawer and payee, and having no payee and no endorsement by a payee, and not be liable on its guaranty of the genuineness of the endorsement, the drawee being without fault, is to deny applicability of the rule to a ease falling within its very letter as well as its spirit. In Vagliano Bros. v. Bank of England, 23 Q. B. D. 243, 248, 251, Lord Esher said: “I think there must be three real parties, although ihe same party may be the drawer and the payee. But in the present case there is no real drawer. The man who pretended or purported to be the drawer was a forger. The law merchant never recognized a forger of another man’s name as a real merchantile drawer. There is in this case no real payee the forging drawer cannot be recognized as the payee. The pretended payee is Petridi & Co.; but the pretended bill was not drawn in favor of Petridi & Co.; it was not intended that the pretended bill should ever be in the possession or under the control of Petridi & Co. The payee of a bill of exchange is a person in whose favor it is drawn, that is to say, the person to whom it is to be handed first in order that he may deal with it. In order to make a document a bill of exchange, there must be a real payee; Petridi & Co. were not the real payee. If they had found the pretended bill, they could not honestly have required payment of it, or have indorsed it; they would have known that it was not really drawn in their favour. The document in question . had np. jreal payee, and therefore on that ground also was not a bill of exchange. It was not even a contract of any kind, or evidence of any contract. It was not a contract or evidence of a contract between the forging. drawer and the acceptor. The forger could not have sued upon it or by means of it. It was not a contract or evidence of a contract between Yucina & Co. and the acceptor. It is not at law an available instrument at all, unless it can be treated as a bilí of exchange. But such a document can, between certain persons, under certain circumstances, be treated as a bill of exchange by ordinary rules of law, although it is not really a-bill of exchange, it can be so treated between persons, one of whom is by the legal rules of estoppel prevented from denying to the other that it is a bill of exchange. If the estoppel is constituted, then to the extent of the estoppel, but no further, the document as between those persons must be treated by virtue of the rules of the general law, not of the law merchant, as if it were really a bill of exchange. * * * * * The 'similar application of the legal rules of estoppel to the case of an estoppel as against an acceptor in respect of indorsements on a bill accepted by him will explain the cases in which an acceptor has been held not to have been estopped from disputing an illegal indorsment. It seems to me useless, to name the eases which have been cited. They all determine that the peculiar conditions applied to bills of exchange b}r the law merchant are only applied to regular and honest bills of exchange; but that documents resembling bills of exchange, and dishonestly purporting to be bills of exchange, though they are not really bills of exchange, may have to be treated as bills of exchange, subject to the law merchant rules of bills of exchange, if circumstances are proved to exist between certain parties sufficient according to general law to prevent one of them from denying to the other that the document in certain particulars is a regular bill of exchange. In this case the document is not a bill of exchange. It has no real drawer and no real payee. Neither the forger nor Vucina & Co. is a real drawer; Petridi & Co. is not a real payee. As to the defect of the drawer, the acceptor would be estopped as against the Iona fide, indorsee for value. If that had been the only fault in the bill, the acceptor would have been bound to. pay it. But there is the defect of the payee and of the indorsement which purports to be the indorsement of the payee. The acceptor in this case is not by the general law estopped as to those defects because it is not proved that when he accepted he knew that the payee was not a real payee.” In the same case, Bowen, L. J., said: “The instruments in question were not, therefore, payable to bearer, and the bank having paid upon forged indorsements must in the absence of any other ground of defence, take the consequences. It is, however1, contended on their behalf that the letters of indication justified them, in paying to any person who appeared to be a. bona 'fide holder of the bills. (We cannot put any such construction upon the letters of indication. They intimated, no doubt, that the documents in question were acceptances of Yagliano Brothers then in circulation, or which at the date of maturity would have become so, but they gave no authority to pay except according to the apparent tenour of the bills. The responsibility ,<of verifying the indorsements remained, therefore, with the bank. In the case of a genuine bill the bank would have had to bear this responsibility. There was nothing in the letters of indication to relieve them from it here. * * * * There was, we think, negligence on his part in leaving so much to a clerk in Glyka’s position without any effective supervision or control over his proceedings. But this was not the proximate cause of the loss which has been incurred, and therefore cannot be relied on as a defense against the claim of the plaintiff, even if there, were no negligence on the part of the bank. But the officers of the bank paid the bills across the counter, and it was proved that the usual course of business was for a banker not to pay bills of so large'an amount except through a banker, and the officials of the bank neglected this precaution and paid the bills over the counter to a man whom they did not know. This, in our opinion, was negligence cn the part of the bank, which materially contributed to the frauds in question being successfully carried out by Glyka. This, we think, would prevent the bank from, effectually relying on the defence of negligence of the plaintiff.” The bills in that case had been forged by a clerk of the plaintiff, apparently in favor of an existing firm, but were in fact rank frauds, both as to drawer and payee, just as is the cheek in this case. The instruments involved in First Nat’l. Bank v. Northwestern Nat’l. Bank, 152 Ill. 296; Nat’l. Bank of Marshalltown v. State Bank of Marshalltown, 107 Ia. 327; Bank v. Allen, 59 Mo. 310; Canadian Bank v. Bingham; 60 L. R. A. 955; First Nat’l. Bank of Lisbon v. Bank of Wyndmere, 10 L. R. A. (N. S.) 1, and some others cited, were, of the same character. In all of them, it was held that while the drawee must know the signature of the drawer and the indorsee was in no manner chargeable with duty in respect to- that sig.nature, in the absence of knowledge of its forgery or circumstances sufficient to put it on inquiry, the latter was bound to take precaution, at its end of the line, against forgery and fraud, by inquiry as to the identity of the payee, the existence cf a real payee, and made to respond in money to the injured drawee for its failure to do so. Bank of Quincy v. Richer, 71 Ill. 439, ajoplies the principle invoqed in this ease, and differs from it only in respect to the character and degree of negligence on the part of the purchasing bank. It declares that the drawee or payor of a forged check can recover back the amount paid by him on it, when the holder or payee has been at fault, or guilty of fraudulent practices which m'ay have thrown the drawee off his guard. It says the holder must refund to the drawee, if the former has been at fault, notwithstanding the duty of the drawee to determine at his peril the genuineness of the signature of the drawer. . It recognizes the general rule and the exception, not the general rule without the exception, as do tbe Ohio cases and nearly all the others here relied upon. It is true the annotator in 27 L. R. A., at page 637, says the general rule “has been modified in a few cases in which fault or negligence on the part of the bank obtaining payment, which is held to have contributed to the deception of the drawee, is held ground for compelling repayment of the money to the latter”; but I do not think his words conYey his exact meaning, since it must have been apparent to him that these cases do not modify the general rule. They are simply not within it, because they do not involve the facts on which the general rule is based, showing innocence in both parties. The courts in deciding themi said so. Having made this statement, the annotator sets forth a number of well considered cases, excepted by the courts from the operation of the rule, on the ground that the facts did not bring them within it, but none of them denied the soundness of the general rule. In 10 L. R. A. (N. S.) the annotators, at page 58, say: “And the prevailing rule would appear to be that a bank which cashes a cheek drawn upon another bank without requiring proof as to the identity of the person presenting the same or miaking inquiry in regard to him, the amount of which check is after-wards paid to it by the drawee, is liable to the drawee for the amount so paid, where the check proves to be a forgery; it having been guilty of the first fault.” Although in Com Ex. Bank v. Nassau Bank, 91 N. Y. 74, the signatures of the payees only, not of the drawers, were forged, I think the principles declared 'in it are applicable. As to the liability of a purchaser, negligent in respect to the endorsement, to the extent of paying on a forgery thereof, no reason for a distinction between a bill bearing the genuine signature of the drawer and one to which the signature of a person has been forged as drawer, is perceived. In both cases his negligence may inflict injury upon the drawee or contribute thereto. White v. Bank, 64 N. Y. 313, .is found on re-examination to be inapplicable. The check, bearing genuine signatures, but having been fraudulently raised in amount, is governed by entirely different rules, which need not be stated here. First Nat'l Bank v. Nat'l Bank, 58 O. St 207, does not overrule the case in 4 0. St. 628, nor is it in conflict with the views expressed in this opinion. The payee was known to the purchasing bank. He endorsed the check, and, on principles of estoppel, the endorsement was treated as genuine, though in fact there was no drawer, no payee, no indorsement. Besides, the endorsement of the purchasing bank was “for collection,” not absolute and unrestricted, wherefore the case was distinguished from the class in which endorsements are unrestricted, as was done in Bank of Chicago v. Bank of Commerce, 107 Mo. 402, and Nat'l. Park Bank v. Seaboard Bank, 114 N. Y. 28. In neither of these cases, however, was there any negligence in respect to the endorsement of the payee, as to which duty rested upon the collecting hank. Had there been, the decisions might have been different. In the case in 115 Tennessee, criticising the ruling in 88 Tenn. referred to, the check was payable tó a certain person or bearer. Such a check requires no endorsement, and, of course, no duty rested upon the bank to require proof of identity of the payee. “If the bill is payable to order, it is an authority to pay the bill to any person who becomes holder by a genuine indorsement. If the bill is originally payable to bearer it is an authority to pay the bill to the person who is the holder.” Vagliano Bros. v. Bank of England, 23 Q. B. D. 255; Robarts v. Tucker, 16 A. & E. (N. S.) (71 E. C. L.) 560. Nothing in that case called upon the court to re-examine the ruling in the formler, and its expression of disapproval is obiter. Besides the opinion sets forth no .reasoning or examination of authorities as a basis for the criticism.. Moreover, the opinion says there was negligence on the part of the purchasing bank, in the first case, and none in the latter, and marks a plain distinction on that ground. The quotation from the opinion in Germania Bank v. Boutell, 60 Minn. 189, sets forth the views and opinion of an able judge, respecting the very point under discussion here. The rule applied here did not apply in his ease, for the payee was identified and there had been no negligence on the part of the defendant. But this obiter of Judge Mitchell’s is entitled to as mluch weight as the dicta of other judges and the opinions of text writers.

By its conduct, the McDowell 'County Bank induced the Bank of Williamson to do what it refrained from doing itself, pay money to an unidentified stranger. In fact, it took the check for collection, instead of purchasing it, because the party claiming to be payee was unknown to it, and refused to pay him the mloney until it had collected the same. If it had told the Bank of Williamson the status of the matter, that bank would have been more cautious. Tt not only did'not do this, but, on the eontrarj1", endorsed the check as if it had been bought outright, and expressly guaranteed the genuineness of the forged endorsement “George Horner.” This ivas a representation to the Williamson bank that there was a George Horner, and that he was the payee, having right to the money, and had transferred that right to the bank, and, possibly, that he was good for $800.00 in case the check should prove to be worthless. I am unable to perceive the reason or ground upon which it can be said that such a representation may not have induced action on the faith of it, and, was not dangerous to the party to whom it was made.

But there is another element in the case. The Bank of Williamson was also negligent. It had no signature of its depositor in its possession or within its reach, in any form whatever, to enable it to make any investigation of the genuineness of the signature to the check. As we have shown, no recovery can be had, if both parties are without fault. Negligence or omission of duty, on the part of the first taker, causing, or likely ‡0 cause, injury to the drawee, is the circumstance that deprives the former of the benefit of the exemption of dealers in commercial paper from the operation of the general rule, allowing recovery of money paid under a mistake of fact. Failure of duty, not necessarily the actual cause of the injury, has this effect. No inquiry as to whether the drawee was really misled, is made. It is enough that there was technical negligence. The exemption rests upon the assumption of innocence in both parties. If both are at fault, as in this ease, it seems to follow that neither, while claiming, or accorded, the benefit of the exception to the general rule, should be permitted to deny its protection to the other. It is an arbitrary rule of commercial law, and the reasoning which justifies it, when both parties are innocent, justifies it also, when both parties are at fault. It was the duty of the drawee to- determine, at its peril, the genuineness of the signature of its depositor, and its sole right to demand -reimbursement from the defendant rests upon technical fault in the latter. This may or may not ha,ve occasioned the injury to the former, but an arbitrary rule, founded upon public policy, imposes liability, without inquiry as to actual. cause of injury. Public policy demands, with equal reason, the observance of due care and-complianee with the customary regulations, on the part of the drawee. Who can safely say the Bank of Williamson would not have discovered the forgery and saved the money it has lost, if it had taken the usual precaution? Though the forged name and the genuine signature are very similar, even the slight difference might have been noticed had a comparison been made at the time. Similarly, nobody can say with certainty the omission of duty on the part of the McDowell County Bank influenced the other bank in the slightest degree, but it may have done so, and instances may occur in which the wrong is perfectly apparent. It is a question, not of actual, but of potential, injury, and the enforcement of compliance with wholesome regulations. Therefore, having been negligent itself, the plaintiff is not entitled to recover on the technical ground of negligence in the defendant.

It is suggested in a brief that the recovery should be had from, the Mingo County Bank, if at all. The effect of this would be to make a clearly innocent party suffer loss, due to mistake or negligence of others. For even so plain a proposition as the contrary of this we have authority. Bank v. Bank, 107 Ia. 327; Bank v. Bank, 22 Neb. 769.

These views and conclusions result in an affirmance of the judgment complained of.

Affirmed,