COMMERCIAL NAT. BANK v. NACOGDOCHES COMPRESS & WAREHOUSE CO., 133 F. 501

SHELBY, Circuit Judge, having made the foregoing statement of the case, delivered the opinion of the court. That it was wrong for Baldwin and B. S. Wettermark to remain silent under the circumstances, no just man can deny; and, if such wrong caused injury to the bank, a jurisprudence would be defective that afforded no remedy. If we were without precedent in cases, general principles would authorize relief, for the law can ask no better justification than the instincts of all just men.

It would be a most unreasonable and unjust rule to permit the active managers and officers of a warehouse company, who knew that a bank was relying upon its forged receipts, to remain silent and not divulge the fact until the condition of the bank was altered for the worse.

The law condemns not only active misrepresentation, but it imposes such activity as is requisite to reasonable social conduct; condemning negligence and requiring a measure of prudence to avoid injuring others. “A good example of duty,” says the learned author of a recent work, "is to be found in cases in which a man, finding that his name has been forged, neglects to notify the victim until after his position (by the death, escape, or bankruptcy of the forger) has been changed.” Ewart on Estoppel (1900) 41.

The general principle that the negligent failure to act, when it causes injury to others, creates an estoppel, was announced and applied by the Supreme. Court in Leather Manufacturers’ Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811; and the House of Lords in McKenzie v. British Linen Co., 6 App.

Cas. 82 — a case in which the bank’s position not having been altered by the wrong prevented the estoppel — announced the rule that “a person who knows that a bank is relying upon his forged signature to a bill cannot lie by and not divulge the fact until he sees that the position of the bank is altered for the worse.” The same principle, under varying circumstances, has been often applied. Ewart on Estoppel (1900) pp. 135, 136, and cases there cited. We do not find that the learned trial judge, in.his instructions to the jury, said anything that conflicts with the principles that we have announced.

He directed a verdict for the defendant, because* in his opinion, the plaintiff “had not shown that he was injured by the silence of the defendant.” The facts as they appear in the record do not, we think, authorize the court to decide, as matter of law, that the plaintiff was not damaged by the conduct of the defendant.

As the case is to be tried again it is well for us not to discuss at length the facts, but, without referring to other probable results of the failure to give notice of the forgery, it seems evident, on the evidence as it appears in the record, that, if the warehouse company had answered the letter of the plaintiff with reasonable promptness, there were such dealings between the bank and Wettermark & Son that the former might have recovered some of its loss.

It is true that, if information of the forgery had reached the bank on December 24th, Wettermark & Son then had no funds in the bank; but a few days later, on January 2d, they had to their credit more than $6,000. The judgment must be reversed, and the cause remanded for a new trial. McCORMlCK, Circuit Judge, dissents.