Hardy v. Chesapeake Bank

Alvey, J., delivered the opinion of the Court. This action- was instituted by the appellants against, the appellee to recover an' alleged balance due on bank account. The appellants were customers of and depositors in the bank of the appellee; and the appellants having been notified that their account was overdrawn, upon investigation, they discovered, as they allege, 'that a considerable amount that had been paid out on their account had been paid out on forged checks, and that, by a proper balancing of the account as of the 10th of October, 1873,. there was a balance of $6,113.37 then due them; and it was to recover that amount that this action was instituted.' In the course of the trial below, several questions were raised and decided; some upon the introduction of the evidence, and others upon the prayers offered by the parties for instructions to the jury. We shall first consider the questions raised by the prayers, so far as those questions are presented by the exceptions taken by the appellants.

At the trial below, there were fourteen checks produced which were alleged to be forgeries on the appellants, and which had been paid by the appellee. These checks were all entered in the appellants’ bank-book, containing the account between the appellants and the appellee. Five of these checks, amounting to $860, were included among the checks entered in the bank-book at the time it was written up and balanced on the 13th.of July, 1873;. and the remaining nine checks, amounting to $1296, were dated, presented and paid, between the 13th of July,. 1873, and the 6th of October, 1873, at which latter date ⁵⁸³ the bank-book was again written up and balanced. Upon each occasion of writing up and balancing the bank-book, the cancelled checks were returned to the appellants, and the balance ascertained carried forward to their credit.

Holmes, the alleged forger, was the confidential clerk and book-keeper of the appellants, and all the checks produced and alleged to have been forged were taken from the regular check-book of the appellants, and were filled up in the handwriting of Holmes. He was entrusted with the care of the appellants’ bank-book, their checkbook, and with the checks returned by the bank; and he entered in the bank-book all the checks paid by the bank, except the four last. It was his business to enter the checks in the bank-book and to superintend the writing up and balancing the account with the bank, and to keep himself informed of the true state of the account. It was not until about the 10th of October, 1873, upon being notified that their account with the bank had been overdrawn, that the appellants, as they allege, first discovered that Holmes had forged checks and drawn money on their account.

Upon proof of these facts, the appellants claim that, under well established principles of law, they were entitled to recover the entire amount of the fourteen checks produced, if in fact they were forgeries; and that the Court below was in error in refusing to grant their first prayer, which asserted this right. On the other hand, the appellee sought to maintain two distinct grounds of defence; first, that the checks alleged to be forged were not forged at all, but were the genuine checks of the appellants; and second, that, assuming the checks to be forged, there was such negligence, and apparent acquiescence, on the part of the appellants, as to induce the belief that the alleged forged checks paid after the 13th of July, 1873, were genuine, and that, therefore, the appellants are estopped to question the genuineness of the ⁵⁸⁴ checks, or the authority of Holmes to draw them in the name of the. appellants. With respect to the first ground of defence, that was fully covered by the last prayer offered by the appellee, and which was conceded by the appellants. Of course, if the checks were not forged, there was no ground for the appellants’ action; and it was quite correct to instruct the jury, as was done by this conceded prayer, that if they should find that the hank-book of the appellants had been balanced, and the checks returned by the appellee to the appellants, and no objection was made to their payment, then, as to such checks, the burden of proof was on the appellants to show the alleged forgery.

But with respect to the second ground of'defence, the appellee, by its second prayer, which was granted as a qualification of the first prayer offered by the appellants, obtained an instruction to the jury, that though the appellants might be entitled to recover the amount of the first five of the fourteen checks alleged to have been forged, «being those prior to the 13th .of July, 1813, yet, in respect to the other nine, the acceptance of the balanced account in the bank-book by the appellants, containing entries made by Holmes of the forged checks, with the cancelled checks upon which such balance was struck, and the continuous dealing with respect to such balance, and the condition of the account — the hank in good faith paying the checks on similar signatures, to those on checks embraced in the former settlement of the account, without suggestion or intimation from the appellants that any thing was wrong — are facts sufficient to estop the appellants to question the genuineness of the checks, or the authority of Holmes to draw them in the form in which they were presented. It was to the granting of this prayer, as well as to the refusal to grant the first prayer offered by the appellants without qualification that the latter excepted. ⁵⁸⁵ 1. It is now perfectly well settled, that the relation between banker and customer, who pays money into the bank, or to whose credit money is received there on deposit, is the ordinary relation of debtor and creditor; and that when the bank receives the. money as an ordinary deposit and gives credit to the depositor, the money becomes the funds of the bank, and may be used by it as any other funds to which it may be entitled. It is accountable for the deposits that it may receive as debtor, and in respect to ordinary deposits there is an implied agreement between the bank and the depositor that the checks of the latter will be honored to the extent of the funds standing to his credit.

Horwitz vs. Ellinger, 31 Md., 492, 503 ; Foley vs. Hill, 2 C. & Fin., 28; Thompson vs. Riggs, 5 Wall., 663 ; Bank of the Republic vs. Millard, 10 Wall., 152, 155 . There is no question of trust, therefore, between the parties, but their relation is purely a legal one; and if the bank pays money on a forged checkno matter under what circumstances of caution, or how-1 ever honest the belief in its genuineness, if the depositor himself be free of blame, and has (lone nothing to mislead the bank, all the loss must be borne by the bank, for it acts at its peril, and pays out its own funds, and not those of the depositor. It is in view of this relation of the parties, and of their rights and obligations, that the principle is universally maintained, that banks and bankers are bound to know the signatures of their customers, and that they pay checks purporting to be drawn by them at their peril. Com. & Farm.

Nat. Bank vs. First Nat. Bank, 30 Md., 11 . No right or title can be legally claimed through a forgery; and the possession by the bank of a forged check upon which money has been paid, affords of itself no ground for claim of credit in account as against the party whose name has been forged.

But while these are the strict and necessary rules as against banks and bankers, their operation may be varied ⁵⁸⁶ by the acts and conduct of the parties for whose benefit and protection they are intended-to be enforced. If,-for instance, a customer of a bank, having a deposit account, and who is in the habit of drawing checks upon that account, should, by words or acts, cause the bank, the-latter acting upon such reasonable grounds as prudent business men generally act, to make payment on a forged check, such .customer would not be allowed, as against the bank, to set up the forgery that he, by his conduct, had induced the bank to act on as a genuine check. This is the principle sought to be applied by the second prayer of the appellee; the latter insisting-that it had been misled and induced to honor and pay the checks drawn by Holmes, bythe negligent conduct and apparent acquiescence of the'appellants. But it is objected by the appellants that the prayer as granted by the Court is fatally defective, because of the omission to submit to the jury the question, whether the appellants were, in' point of fact, guilty of negligence in respect to the bank account, and whether, if there was negligence at all, that negligence was of a character to mislead, and did actually mislead, the appellee, and induced it to act upon the belief that, as all the checks paid prior to the 13th of July, 18⁷³, and which had been returned to the appiellants, remained without objection, all checks similarly drawn and presented for payment after that date were unobjectionable.

The instruction certainly does omit to put this question distinctly to the jury, and whether it be for that reason defective remains to be determined. It must be borne in mind that the appellants were not hound at their peril and under all circumstances to detect-the forgery. They were simply bound to refrain' from doing any act that would reasonably have the effect of' misleading the appellee to its hurt or injury, and not fail to do any act that positive duty required them to do for the protection of the appellee. When the bank account ⁵⁸⁷ was balanced in the bank-book on the 13th of July, 1813,, and the book and the cancelled checks were returned to the appellants, after the lapse of a reasonable time, (within which the checks and account could have been examined and compared,) without objection being made, the presumption arose that the account as balanced, and also the checks charged therein, were all correct.

This presumption, however, proceeds upon the ground simply of an implied admission, and is only prima facie in its effect. Wiggins vs. Burkham, 10 Wall., 129 . Such presumption arises from the natural and usual habits of careful business men to examine and scrutinize such accounts when rendered; but the presumption is liable to be repelled, by showing that the error or fraud complained of was not discoverable by the exercise of reasonable care and diligence, or that there was no such appearance of things as to excite the suspicion of a reasonable man, or that, for any reason, the party had not had an opportunity to examine the account. Weisser vs. Denison, 10 N. Y., 68, 76 ; Nat.

Bank vs. Whitman, 94 U S., 343, 346. It is insisted, however’, that as Holmes was the confidental clerk of the appellants, and was entrusted to make the entry of all checks in the bank-book, and did make the entries as well of the forged checks as all others, he acted as the agent of the appellants, and his acts and his. knowledge in respect to these entries are to be taken as the acts and the knowledge of the appellants themselves; and upon this imputed knowledge they should be taken to have acquiesced in the entries of the forged checks. And therefore, as to the fact of knowledge on the part, of the appellants, it was only necessary that the jury should be required to find that the forged checks were entered in the bank-book by Holmes, the alleged forger, in order to find and conclude the appellants. But it is clear, we think, such position can neither be supported, upon principle or authority. ⁵⁸⁸ It is conceded that Holmes did not act as agent in drawing the checks; and if the appellants are not liable in respect to the fraudulent drawing, we do not perceive upon what principle they can be bound or made liable in respect to the fraudulent entry of those checks in the bankbook.

Holmes was not an agent for any such purpose, and the principle is too well settled to require the citation of authorities for its support, that the principal is bound by the acts of his agent only so far as the agent acts within the limits and scope of his employment. The fraudulent knowledge of the agent in regard to acts and transactions outside of and beyond his employment cannot be imputed to his principal. To do so would work the grossest injustice, and lead to the most anomalous consequences. In the case of the Manhattan Co. vs. Lydig, 4 John., 377 ; this question was distinctly presented and decided.

In that case, it was contended, that the fraudulent entries in the ledger of the bank, and those in the customer’s bank-book, made by the book-keeper of the bank, were acts that bound the bank. But the Court expressly decided otherwise. So, in the case of Weisser vs. Denison, 10 N. Y., 68 ; a casein many of its circumstances almost exactly similar to the circumstances of the present case, there it was insisted as here, that as the confidential clerk of the plaintiff settled the account with the bank as the agent of the plaintiff, the agent having knowledge of the forgeries, and that the charges in dispute were bused upon such forgeries, the principal was affected by the knowledge of the agent, and should be deemed to have acted in person, with full knowledge of all the facts, and thus to have acquiesced in the payment of the forged checks from his funds. But the Court was explicit in overruling the position, citing the authorities in support of their ruling.

Indeed, if the position contended for here by the appellee be maintainable, the same principle would have afforded a short answer to the demands of the plain ⁵⁸⁹ tiffs in many of the cases that have been refewed to in argument; but in none of them was it intimated by the-Courts that such a doctrine could be supported. Moreover, if the principle contended for by the appellee be sound, it is a little difficult to understand why it should have been conceded by the appellee’s second prayer, that recovery could be had for the first five of the forged checks ; for if the acts and knowledge of the agent in making the entries of those checks in the bank-book could be properly imputed to the appellants, irrespective of knowledge in fact, those entries would amount to a ratification and adoption of the acts of Holmes in drawing those cheeks, as well as those dated subsequent to the 13th of July, 1873. We therefore think that the jury should have been required to find either that the appellants had knowledge in fact that the forgeries had been committed, or that, from carelessness and indifference to the rights of others, they failed to inform themselves from sources of information readily accessible to them, and which, by the exercise of ordinary diligence as business men, would have disclosed to them the fact that the forgeries had been committed. If such facts be found to exist, then it must be also found, in order to work an estoppel, that the appellee acted, in honoring and paying the nine checks in question, in reference to the conduct of the appellants in failing to make known an objection to the account as stated and balanced in the bank-book on the 13th of July, 1873, and that such omission and neglect of the appellants did in fact mislead the appellee into the error of paying the nine forged checks now in dispute.

This doctrine of estoppel in pais is applied in a great, variety of circumstances, but its great object is to prevent injustice being done, where one party has been led into, error by the fault or fraud of the other. It is a most valuable doctrine for the promotion of justice; but it can have no application except where the party invoking it ⁵⁹⁰ can show that he has been induced.to act or refrain from acting, by the acts or conduct of the adverse party, under circumstances that would naturally and rationally influence ordinary men. It can, therefore, only be set up and relied on by a party who has been actually misled to his injury; for if not so misled he can have no ground for the protection that the principle affords. The doctrine has been applied in many cases by the Court, though under circumstances unlike those of the present case.

Alexander vs. Walter, 8 Gill, 252 ; Homer vs. Grosholz & Coquentin, 38 Md., 520, 526 ; Bramble vs. State, use of Twilley, 41 Md., 435, 441 ; Brown, Lancaster & Co. vs. Howard Fire Ins. Co., 42 Md., 385 : Hamilton vs. Central O. R. Co., 44 Md., 551, 561 . In all these cases the essential conditions of the application of the principle as heretofore stated have been recognized. In England, the leading case upon the subject is Pickard vs. Sears, 6 Ad. & El., 469; but the doctrine would appear to be more clearly and comprehensively stated in Freeman vs. Cook, 2 Exch., 654; than in any previous case.

In that case, Parks, B., in a carefully expressed judgment for the whole Court, stated the doctrine in these terms : “If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would take the representation to be true, and believe that it was meant that he should act upon it, and did act upon it as true, the party making the representation would be equally precluded from contesting its truth ; and conduct, by negligence or omission, where there is a duty cast upon a person, by usage of trade or otherwise, to disclose the truth, may often have the same effect.” This statement of the doctrine. has been fully approved and adopted in subsequent cases, after elaborate discussion, as appears from the case of Swan vs. N. B. Australasian Co. 2 H. & Colt., 175, 181; decided in the Ex. Ch., and again in the case of Carr vs. L. N. W. R. Co., L. Rep. 10 C. P., 307. In the latter case, the principle was formulated in respect to acts of ⁵⁹¹ negligence and omission, thus: “ If, in the transaction itself which is in dispute, one has led another into the belief of a certain state of facts by conduct of culpable negligence, calculated to have that result, and such culpable negligence has been the proximate cause of leading, and has led, the other to act by mistake upon such belief to his prejudice, the second cannot be heard afterwards, as against the first, to show that