Untitled Texas Attorney General Opinion

Honorable R. S. Qche County Auditor Gregg County Longview, Texas iiearMr. Wyche: Opinion No. O-6007 Re: Liability of'a depository bank for paying out the public funds upon duly dram checks bearing forged endorsements of payee, under the facts stated. Your requeSt for 8 legal opinion upon the above subject n?atter is as follows: "In 1943 and 1944 the payrolls of Gregg County were padded. Checks were dram in favor of aertein individuals who actually did no work and who never received the check. The payrolls were also padded with regard to rental of trucks. The perscm to whom the checks mre written never received them and never endorsed them, nor authorized anyone to endorse them in both oases. Two persons were indicted by the Grand Jury for forgery, One has hem convicted and some 26 cases are pending against these persotsJ The total amount of the forgeries exceeds $ll,OOO.OO. "These warrants were dram in favor of these persons and were to be paid by the Depository Bank. A bank at Gladewater accepted most of these forged checks and, in turn, collected the money from the Depository Sank. May B Depository Bank and the other bank be sued for recovery of these various sums of money? *Please give me your opinion as to whether or not a Depository Rank is wholly responsible, or both banks." Undoubtedly, the depository bank is liable to the county for any loss sustained by it through the payamt of a oheok bearing a forged endorsement of the name of the payee* There is a contraat relation existing between the oounty and its depository bank, the essence of which relation, so far as the depository's liability is concerned, is that it will safely keep the funds of the county and disburse them only upon the order of the county author- ities duly drawn. Any disposition of the funds, otherwise then to the Honorable R. S. Wyche - page 2 O-6007 properly-drawn order of the county, wcul* be a violation of its duty as a bank, and any payment, therefore, to one other than ,thepayee in the oounty's order, would render the bank liable for any loss therefrom. In other words, in making such unauthorized payment, the bank would be paying cut its own money and not the county"5 money, and would have no right to charge the county's aocount. The general rule throughout the country is thus expressed in Corpus Juri.sSecundum, Vol. 9, p. 734, 0 356: "Since, under the contract between a bank and its depositor, the bank is bound to pay checks only to persons designated by the depositor, supra, 0 340, it becomes the duty of the bank to its depositor, at its peril, to determine the genuineness of the indorsements on his checks and pay only where they are genuixs. Where a bank actually pays a check bearing a forged indorsement, such payment, of course, does not discharge the bank's obligstlons to the drawer: in legal contemplation it is considered that the bank has paid out its own funds rather than those of the drawer. Accordingly, the bank has no right to charge the depositor's account with the amount of such a payment; and if ,thebank does so, regardless of its good faith, or freedom from negli- gence, it will be liable to the drawer, ***.n As to the intermediary bank mentioned by you it is also liable, and may be sued by the county at the oounty’s election. In Fjdelity 6:E&posit Co, of Maryland v1 Fort Worth National Rank, 65 S-W. (2) 276, the Supreme Court adopted an opinion by the then Commission of Appeals in whioh the very question was presented; saying: "Though there is some suthority to the contrary, the great weight is on the side which holds that 8 collecting bank which accepts a check on another bank on a forged in- dorsement aaquires no title thereto, and holds the proceeds thereof, when collected from the drawee bank, for the rightful owner, who may recover from the collecting bank as for money had and received. even though suoh hank has fully paid over and accounted for the same to the forger without knowledge or suspicion of the forgery. Michie on Banks and Ranking, ppO 522, 523, and 524. See, also, annotations under note 79, p0 524, same authority. Of course, the right of the payee or rightful owner to recover on this class of cheeks from the collecting bank is conditioned on the ai~enae of any fault or laches on hjs part, and on the absence of B ratification of the forgad.or unauthorized indorsement by him. l**“( Honorable R. S. Wyche - page 3 O-6007 The case of Home Indemnity m. vn %ate %blk of Fort “ovd~,e, !Iowa) 6 N, W., (2) 757, has a very thorough and oxhnustiw, disfiouss;o~. of the question citi!zgand quotifignumerous CSS% ,throughout. the ~~)~:~~?;py, and holds to the same effect as to the ~liehi1it.yof thn in.te~medlrir~ banko The liability of such intermediary bank is not prediwted upon any theory of relation of depositor and bank, but on the contrary, is predicated upon the theory of conversion, or as for money had and received, We call your attention, however, to the possible danger ,that the county by a suit against the intermediary bank might waive its rj~ght to sue the depository drawee bank, We do not dRci.dethis quest-;aa,how- ever. fn the event the county should elect to *iuethe depository bank, undoubtedly that bank would vouoh in the intermediary bank upon its guarantee of prior endorsements, under the unifwm wstom of hanks guaranteeing the genuineness of all prior endoPsema:,t:r, There could be a possible sjhwtion where neither bkn?i: w:lu!d be liable, We refer to a case where the cheek or chnoks In~o~lvndware knowingly drawn, payable to a fictitious ;7er6on%nd not tn a Sni‘iCCs:y - contemplated person as payee. 2he endorsement of suoh check by sno*zhnr in the name of the fictitj.ousperson would not make the dopos?wry bank liable, neither would it make the intermediary bsnk liahlQ9 fnr thq simple reason that a cheak thus mdo, p8y~ble ,to a flctj~t~ious pe’won is in law a "bearap" check, which the depository bank, or any o':hw batik may with impunity pay to any one prnsen,tingit, Tn suoh a 01;s"ti‘.il bani:, whether depository or intermediary, woul~lbe entirely wi.tfi;~r P!.sright to pay the cheek, and would not be ,liab'Le to the county for avy .!rss sustained by reason of euch payman% out of the aoun~ty""3 fvnd*:.,SRR Zollman, Eanks and Hankjng, 1701~ 6, 0 ZR6:i. It is hardly necessary to add that in any even,tthe intiSv;dual or individuals forging such endorsements would be personally I-;n.tUe for any loss sustained by the oounty,, We trust that what we have said satisfactorily SP.SWCPEyolu inquiry,