Bank of Republic v. Kaspar State Bank , 369 Ill. 34 ( 1938 )

An action of assumpsit was brought against the Kaspar American State Bank in October, 1932, by the National Bank of the Republic to recover $3398.02, on account of one hundred forty-two checks drawn upon it and its assignor, the Standard Trust and Savings Bank. The checks in question had been drawn between September 6, 1927, and May 1, 1928, by an employee of the Burton-Dixie Corporation, payable to the order of eighteen of its employees, ostensibly for pay-roll purposes. Each check bore the purported endorsement of the respective payees which, it is claimed, was forged by one of the drawer's employees. All of the checks were subsequently endorsed by one Mike Zupan and deposited by him with defendant who again endorsed them and collected payment from plaintiff or its assignor. A typical check is as follows:

"Special Account Check Burton Dixie Corporation 2024 South Racine Avenue 63763 Chicago, Jan. 10, 1928

Pay to the Order of Tony Alozoitis $24.75

Exactly Twenty Four Dollars Seventy Five Cents Not good for more than One Hundred Dollars — or after sixty days from date.

The National Bank of the Republic (2-13) Chicago, Ill. Burton Dixie Corporation by A.H. Hafferkamp."

"Endorsements:

Tony Aloziotis Mike Zupan Kaspar American State Bank Paid through Chicago Clearing House on January 16, 1928, Continental National Bank and Trust Company."

At the trial, defendant (appellee here) made no effort to refute the evidence of the forgeries offered by plaintiff nor did it deny that it had received payment from plaintiff or its assignor. A jury in the circuit court of Cook county returned a verdict for plaintiff and judgment was rendered thereon for $3660. On appeal, the Appellate Court for the First District reversed the judgment because "the delay for a period of four years in notifying the defendant bank of the forgeries defeats plaintiff's right to recover," and judgment was rendered there against plaintiff for costs. We granted leave to appeal.

Section 66 of the Negotiable Instruments act (Ill. Rev. Stat. 1937, chap. 98, par. 86) provides that every endorser, not an accommodating party, who endorses without qualification, warrants to all subsequent holders in due course that the instrument is genuine and that he has good title to it. These express warranties, however, extend only to subsequent holders in due course and, by definition, (Ill. Rev. Stat. 1937, chap. 98, pars. 72, 213,) the drawee is excluded from this class. (8 Corpus Juris, p. 393.) We are not concerned with the liability of an endorser who guarantees all prior endorsements, since the Kaspar American State Bank made no such endorsements. Section 23 of the act (Ill. Rev. Stat. 1937, chap. 98, par. 43) provides that where a signature on an instrument is forged, it is wholly inoperative and "no right * * * to enforce payment thereof against any party thereto, 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." Thus, defendant was not entitled to collect the money from plaintiff drawee in the first instance, and we have held that where payment has been made without knowledge of the forged endorsement of the payee, the drawee may recover the amount so paid. (Cosmopolitan State Bank v. Lake Shore Trust and SavingsBank, 343 Ill. 347.) Defendant does not dispute this general rule but contends that plaintiff in this case is estopped from recovering because it failed to notify defendant within a reasonable time after learning of the forgery. The issue of notice within reasonable time thus becomes the principal question before us.

The only Illinois case where this same question has been considered and passed upon by this court is favorable to the defendant's position, and, in our judgment, decides the issue. InFirst Nat. Bank v. Northwestern Nat. Bank, 152 Ill. 296, this court said: "And where a drawee or a bank pays a bill of exchange or a bank check to an endorser who derives title through a prior forged endorsement, he may recover back the money so paid, on discovery of the forgery, provided he makes demand for repaymentwithin a reasonable time after the discovery of such forgery. — (2 Daniel on Neg. Inst. secs. 1364, 1372; Canal Bank v. Bank ofAlbany, 1 Hill, 287; Williams v. Tishomingo Savings Institution,57 Miss. 633.") This rule has been approved by various text writers, and to our knowledge has never been disputed. (Morse, Banks and Banking, (6th ed.) p. 1074; Joyce, Defenses to Commercial Paper, (2d ed.) p. 264.) In the latter work, the author states: "And one who has made a payment on a forged bill or note may forfeit any right which he possesses to recover such payment by a failure to give noticeuntil after an unreasonable period of time has elapsed after his discovery of the forgery." While it is true that a drawee, like a drawer or payee, may not be under a duty to discover a forged endorsement (Hamlin's Wizard Oil Co. v. United States Express Co.265 Ill. 156; United States Cold Storage Co. v. CentralManufacturing Bank, 343 id. 503;) we believe it is well settled, as previously stated by this court, (First Nat. Bank v.Northwestern Nat. Bank, supra,) that a drawee, to recover money paid to a cashing bank on a check with a forged endorsement, must notify the cashing bank within a reasonable time after discovering the forgery.

A.H. Hafferkamp, an officer in the Burton-Dixie Corporation, testified that they found out about the forgeries in "June or July or August, 1928." That company hired an investigator in October, 1928, to discover further facts surrounding the issuance of the checks but the exact time when plaintiff bank learned of the forgeries does not appear in the record. It is not denied that, as found by the Appellate Court, it was at least four years prior to the bringing of this suit. The burden was upon plaintiff to show when it learned of the forgeries and when it notified defendant. In the absence of such a showing in the record, we must conclude, as claimed by defendant, that the beginning of this suit in 1932 was the first notice received by defendant. Had plaintiff notified defendant earlier, the latter might have taken steps to hold Zupan, the prior endorser, or the forger himself. Thus defendant was necessarily damaged by plaintiff's negligence and delay in notifying it within a reasonable time after discovering the forgeries. What is reasonable diligence in giving notice is usually a question of fact to be determined in each particular case. Under all authorities seen by us such a period as four years' delay in giving notice after discovery would preclude recovery on forged paper. See 3 Randolph on Commercial Paper, sec. 1740.

Plaintiff has cited Crahe v. Mercantile Trust and Savings Bank,295 Ill. 375, and Independent Oil Men's Ass'n v. Ft. DearbornNat. Bank, 311 id. 278, but these two cases are not controlling here. In the former, we held that the negligence of a payee in allowing a check to be put into circulation with a forged endorsement was no defense to a drawee who had paid the check. In the latter, we held that a payee was under no duty to notify the cashing bank of a forged endorsement. The issue of reasonable notice, as in the present case, was not involved in either of those decisions and they also can have no application here because no direct relationship existed there between the parties to the suits.

Plaintiff further contends that even if it was under a duty to notify defendant of the forged endorsements, defendant waived such defense because it did not set it up in its affidavit of defense. An essential part of plaintiff's cause of action was proof that it had notified defendant of the forgery and such notice was alleged in four counts of plaintiff's declaration. Plaintiff's affidavit of claim filed with its declaration pursuant to section 55 of the Practice act of 1907 (Cahill's Stat. 1931, chap. 110, sec. 55) significantly failed to make any similar allegation and the affidavit of defense filed with defendant's plea of the general issue merely met the allegations in the affidavit of claim. While defendant waived all other defenses not stated in its affidavit, this did not relieve plaintiff of the necessity of proving the essential averments of its declaration. (Harrison v. Rosehill Cemetery Co. 291 Ill. 416. ) Thus plaintiff's objection is not well taken.

In its notice of appeal to the Appellate Court defendant failed to include a prayer for relief as required by rule 33 of this court. Because of this, plaintiff now argues that the Appellate Court had no jurisdiction to hear the case and that subsequent proceedings are a nullity. While the filing of a notice of appeal is made jurisdictional by section 76 (2) of the Civil Practice act, (Ill. Rev. Stat. 1937, chap. 110, sec. 76, par. 200,) the failure to include a prayer for relief therein is merely an error of form and not of substance. Where, as here, an appellee is not prejudiced, the Appellate Court is not deprived of jurisdiction by technical errors of this sort.

The judgment of the Appellate Court is affirmed.

Judgment affirmed.