Bank v. Butler.

UNAKA NATIONAL BANK v. HENRY BUTLER, for use of . THOMAS Davis.

(Knoxville. September Term, 1904.)

1. BILLS AND NOTES. Negotiable bank check indorsed in blank passes by delivery.

A bank check drawn payable to a specified person or order is a negotiable instrument, and when indorsed in blank is payable to bearer, and passes by delivery as freely and absolutely as a bank note, and a bona fide purchaser in due course of business acquires a good title. (Post, p. 579.)

Acts cited and construed: Negotiable Instruments Law, Acts 1899, ch. 94, secs. 9 (5), 57, 185.

Cases cited and approved: Gardner v. Bank, 1 Swan, 425; Neely v. Morris, 2 Head, 595; King v. Fleece, 7 Heis., 277; Smith v. Mosby, 9 Heis., 501; Bearden v. Moses, 7 Lea, 459; Bank v. Aull, 93 Tenn., 647; Chism v. Bank, 96 Tenn., 644; Farmer v. Bank, 100 Tenn., 188.

2. SAME. Same. Loser of bank check indorsed in blank cannot recover from bank paying it to a bona fide purchaser after notice of loss to bank.

Where a negotiable bank note, indorsed in blank, is lost, the loser cannot recover of the bank the amount thereof, for paying it to a bona fide purchaser after such loss, though he had notified the bank of its loss. (Post, pp. 579, 580.)

Cases cited and approved: Hunt v.

Sanford, 6 Yer., 387; Van Wyck v. Norvell, 2 Hum., 195; Ryland v. Brown, 2.Head, 273; Merritt v. Duncan, 7 Heis., 156; Jordan v. Jordan, 10 Lea, 134; Caulkins v. Gaslight Co., 85 Tenn., 693; Smith v. Railroad, 91 Tenn., 221; Memphis Bethel v. Bank, 101 Tenn., 131.

Cases cited, distinguished, and approved:

Tenn., 381; Chism v. Bank, 96 Tenn., 644.

Pickle v. Muse, 88

Bank v. Butler.

3. SAME. Same. Same. Purchaser of lost negotiable instrument, before maturity, without actual knowledge of infirmity and without bad faith, acquires title, when.

The purchaser of a negotiable instrument before maturity and in due course of trade, without actual knowledge of an infirmity therein or of defect of title in the person negotiating the same, or without knowledge of such facts as would make his action in taking the instrument amount to bad faith, is a bona fide purchaser, and as such is entitled to payment, and his title will not be defeated because he received it under merely suspicious circumstances. (Post, pp. 580-586.)

Acts cited and construed:

1899, ch. 94, sec. 56.

Negotiable Instruments Law, Acts

Cases cited and distinguished: Hunt v. Sanford, 6 Yer., 387; Van Wyck v. Norvell, 2 Hum., 195; Ryland v. Brown, 2 Head, 273; Merritt v. Duncan, 7 Heis., 156; Gill v. Cubitt, 3 Barn. & Cress., 446.

Cases cited and approved: Cheever v. Railroad, 150 N. Y., 65; Magee v. Badger, 34 N. Y., 249; Bank v. Belting Co., 148 N. Y., 705; Knox v. Eden, etc., Co., 148 N. Y., 454; Bank v. Diefendorf, 123 N. Y., 202; Vosburgh v. Diefendorf, 119 N. Y., 357; Jarvis v. Beach Co., 148 N. Y., 652; Swift v. Smith, 102 U. S., 442; Murray v. Lardner, 2 Wall., 710.

4. SAME. Same. Same. Same. A purchaser of lost negotiable instrument, indorsed in blank, from an unknown holder, acquires title, when; case in judgment.

Where a negotiable bank check, indorsed in blank and lost, is purchased by a merchant in due course of trade, within one week after its issuance, from a customer who was unknown to him, but supposed to be the payee, without further indorsement or inquiry as to the identity of the customer, such purchaser acquires a perfect title to the check, and is entitled to payment; in consequence of which, the loser of the check loses his title, and is not entitled to recover the amount thereof from the bank.

Bank v. Butler.

FROM WASHINGTON.

Appeal from the Circuit Court of Washington County.-A. J. TYLER, Judge.

KIRKPATRICK, WILLIAMS & BOWMAN, for Bank.

J. B. Cox, for Butler.

MR. JUSTICE SHIELDS delivered the opinion of the Court.

This action involves the title of a bona fide purchaser of a bank check payable to a particular payee or order, and indorsed in blank by the payee, as against that of the rightful owner, who lost it; and the construction of certain sections of the negotiable instrument law (chapter 94, p. 139, Acts 1899).

.

W. B. Harris, a manufacturer of Johnson City, Tenn., a regular depositor in the Unaka National Bank, of that city, plaintiff in error, drew his check upon that bank November 24, 1903, in favor of Henry Butler, or order, for $16.25, and delivered it to him. Henry Butler indorsed it in blank and delivered it for value to Thomas Davis, who the next day lost it, presumably upon the public highway. On the second day, Thomas Davis gave notice to Harris, the drawer, of his loss; and both he and

Bank v. Butler.

Harris then notified the bank, and directed it not.to pay the check if presented for that purpose. The check was accepted by Ward & Fryberg, merchants in Johnson City between November 24 and December 1, 1903, for goods sold, from a customer who was unknown to them, but supposed at the time to be the payee, without further indorsement, or inquiry of the identity of the holder or the nature of his title. They indorsed and presented it to the bank, and it was paid and charged to the account of the drawer, W. B. Harris. This action is brought by Henry Butler, for the use of Thomas Davis, against the plaintiff in error, to recover the proceeds of the check. The circuit judge tried the case without the intervention of a jury, and gave judgment in favor of the plaintiff below, and the bank brings the case here for review and assigns error.

The theory upon which this suit is brought is that the bank having been notified of the loss of the check by the former rightful owner and the drawer, and directed not to honor it, the subsequent payment was unauthorized, and a wrongful interference with the property of the defendant in error, for which it must answer, and, further, that Ward & Fryberg were not bona fide holders, and acquired no title to the check, because the suspicious circumstances attending its negotiation, and their negligence in failing to require identification of their cus tomer, fixed them with constructive notice of the infirmity in his title.

113 Tenn-37.

Bank v. Butler.

1. The defendant in error, in support of his first contention, cites and relies upon the case of Chism v. Bank, 96 Tenn., 644, 36 S. W., 387, 32 L. R. A., 778, 54 Am. St. Rep., 863, in which it is said: "And it is equally true that, where a banker pays a draft or check drawn upon him, he, at his peril, pays it to any one but the payee, or to one who is able to trace his title back to the payee through genuine indorsements. The mere possession of the check or bill under apparent title does not necessarily imply the right to demand or receive payment, and, when it is paid to such holder, the drawee has put upon him the risk of seeing that the apparent is the real title to the paper. For the banker holds the funds of his depositor under an obligation to pay them to him or to his order, and, if he pays them otherwise, he cannot treat such a payment as a discharge of his liability."

And that of Pickle v. Muse, 88 Tenn., 381, 12 S. W., 919, 7 L. R. A., 93, 17 Am. St. Rep., 900, in which it is held that "a check drawn in favor of a particular payee or order is payable only to the actual payee, or upon his genuine indorsement; and, if the bank mistake the identity of the payee, or pay upon a forged indorsement, it is not a payment in pursuance of its authority, and it will be responsible."

The law undoubtedly is, as held in these cases, that a check payable to a particular payee or order cannot lawfully be paid to any other than the payee, or upon his genuine indorsement, and the bank must judge of the identity of the payee and the genuineness of his indorsement at its peril.