Coplin v. Maryland Trust Co.

Hammond, J., delivered the opinion of the Court. In this suit by a depositor against a drawee bank for paying a check on which the indorsement of the payee was forged or unauthorized, the trial judge found for the bank, and the depositor has appealed. The case was tried and decided on a stipulation of facts as follows: Paramount Promotions, a partnership, had a checking account with the Maryland Trust Company, of Baltimore, and on March 29, 1957, drew a check to the order of “Donald Flax, Trustee” in the amount of $3,520.00. On April 2, 1957, this check was presented to the Maryland Trust Company for payment and the account of Paramount was debited in the amount of $3,520.00.

The check was not indorsed “Donald Flax, Trustee” but was indorsed “For deposit to the Account of Donald Flax.” It had been deposited, on April 1, 1957, in the one account Donald Flax carried in the Central Bank of Howard County, at Clarksville, Maryland, designated “Donald Flax Special.” Donald Flax did not indorse the check nor was it done with his permission or authorization. The final stipulation was that Paramount “believed and intended Donald Flax to be a trustee for the funds.” The trial judge found nothing before him, in the stipulation, or otherwise, indicating that Donald Flax was in fact a trustee or that he had improperly, or in violation of any agreement with Paramount, used the funds the Paramount check had created in his bank account, subject to his order, in the Central Bank. We think the findings below were warranted and judgment ¹²² properly entered for the bank for the reason that Paramount showed no loss, damage or detriment. Code (1957), Art. 13, sec. 44, provides that where a signature on an instrument is forged or made without the authority of the person whose signature it purports to be, “it is wholly inoperative, and no right * * * to enforce payment thereof * * * 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.” This Court, in Union Trust Co. v. Soble, 192 Md. 427, 430-431 , holding the word “precluded” in the statute to be synonymous with “estopped,” said: “It is an established rule that when a bank receives money on deposit, it impliedly contracts to pay the depositor’s checks only to the persons to whom they are made payable or upon their genuine indorsements. * * * If the drawer is free from negligence or any conduct warranting his estoppel, the bank cannot charge to his account any check upon which the indorsement has been forged or made without authority.

But if the drawer is negligent in some duty owing to the bank, or if he may be charged with conduct in consequence of which the improper payment was made, he must bear the loss.” The fact that the drawee bank may rely on the guarantee of prior indorsements and can sue the presenting bank does not affect the duty, set out in Soble , not to pay its depositor’s check on a forged or unauthorized indorsement. 8 Zollman, Banks & Banking, Sec. 5633 (1936). The Courts have added qualifications, beyond those dealt with in Soble , to the liability of a drawee bank to the drawer of a check on which the indorsement is forged or unauthorized. In dealing with the effect of these qualifications under the stipulated facts we treat the Flax indorsement as forged or made without authority. Compare First Denton National Bank v. Kenney, 116 Md. 24 , and Time Loan Service, Inc. v. Bukowitz, 203 Md. 562 .

It has long been held that, despite the almost universal custom of requiring a payee to indorse a check before payment, a bank is protected if it pays without indorsement, as long as the payee actually receives the money ordered by the drawer to be paid. Osborn v. Gheen, 16 D. C. (5 Mackey), ¹²³ 189, 194, aff’d 136 U. S. 646 , 34 L. Ed. 552 ; Modern Equipment Corp. v. Northern Trust Co. (Ill. App. Ct. 2nd Div.), 1 N. E. 2d 105, 107 ; Glens Falls Indemnity Co. v. Palmetto Bank, 23 F. Supp. 844, 848 , aff’d 104 F. 2d 671 (C. C. A. 4th Cir.); Gilbert v. Chase National Bank (S. D. N. Y.), 108 F. Supp. 229, 231 ; 2 Paton’s Digest, p. 2070.

The rationale of these holdings underlies the many decisions that even though a drawee bank pays a check of a depositor on the forged or unauthorized indorsement of the payee named therein, if the proceeds of the check or the benefit of the proceeds are received by the payee, no recovery can be had against the bank by the drawer, for the reason that if the person entitled to receive the proceeds actually receives them or the benefit of them, the drawer has suffered no loss and the technical breach of duty by the bank has occasioned no harm. Modern Equipment Corp. v. Northern Trust Co., supra; Commercial Credit Corp. v. Empire Trust Co. (C. A. 8th Cir.), 260 F. 2d 132 ; Gilbert v. Chase National Bank, supra; National Surety Corp. v. City Bank & Trust Co. (Wis.), 20 N. W. 2d 559 ; Florida National Bank at St. Petersburg v. Geer (Fla.), 96 So. 2d 409, 412 ; Sweeney v. National City Bank of Troy (App. Div.), 33 N. Y. S. 2d 885, aff’d 48 N. E. 2d 711 ; Lincoln