Neal v. Coburn

42 A. 348, 92 Me. 139, 1898 Me. LEXIS 98

• Court: Supreme Judicial Court of Maine
• Decided: November 25, 1898
• Status: Published

Opinion

Emery, J.

Haven was a depositor in the Bay State Trust Company, a bank in Boston. A written instrument purporting to be his check upon that bank, payable to Crew or order, was by Crew indorsed for value to Coburn, the defendant. Coburn indorsed it for value to Neal and Quimby. That firm indorsed it for value to Furbish, Butler & Oakes. The latter firm indorsed it for collection to the Phillips National Bank. The Phillips Bank indorsed it for colle'ction to the Commonwealth Bank of Boston, which bank presented it for payment through the clearing house to the Bay State Trust Company, the bank upon which it was drawn. The Bay State Trust Company paid it as Haven’s check, marked it paid and charged the amount to Haven’s account. Three days afterward it was discovered that the drawer, (Haven’s) signature was forged, and the paper was returned through the same channel to Neal and Quimby, the plaintiffs, who refunded the amount and in their turn presented it to Coburn, the defendant, and demanded of him to refund the amount in his turn which he refused to do. Hence this action for money had and received to enforce such refunding.

It is conceded that Neal and Quimby cannot maintain this action unless the Bay State Trust Company could do so had all the intermediate indorsers refused to refund. The question therefore is,— assuming the good faith of all parties, — who shall bear the loss in such case, the first innocent indorser for value or the bank which accepted the paper as genuine and paid it as the check of its depositor?

Since a check belongs to that class of written instruments called commercial paper, the question stated is not so much one of abstract justice in the particular case, as it is of what is the established or workable rule in this class of .cases. Commercial paper has long been governed by special rules which, while designed to ensure justice, are also designed to ensure the free and safe use of an indispensable commercial agency. The commercial world needs and seeks for the plain workable rule rather than for the somewhat uncertain abstract right in each case. We think such a rule decisive of this case has been long and firmly established.

A check is in form and nature a species of bills of exchange and is pro tanto governed by the same rules (Foster v. Paulk, 41 Maine, 425), hence decisions as to bills of exchange upon this question are applicable to this case. In 1715 in an action by an indorsee against the acceptor of a bill of exchange, tried before Lord Raymond in the King’s Bench Court sitting at Guildhall to hear commercial cases, it was held that the acceptance sufficiently proved the signature of the drawer. Evidence offered by the acceptor to affirmatively prove the bill to be a forgery was rejected, one of the reasons given being “ the danger to negotiable notes.” Jenys v. Fowler, 2 Strange, 931. In 1762 before Lord Mansfield, in the King’s Bench then also sitting at Guildhall, was tried an action for money had and received to recover back money paid to an innocent indorsee of a bill of exchange by the drawee. The signature of the drawer was forged. Lord Mansfield stopped the defendant’s counsel, saying the case could not be made plainer by argument, and ordered judgment for the defendant. Price v. Neal, 3 Burr. 1355. In 1815 the question came before the Common Pleas also then sitting in London. The banker sought by an action for money had and received to recover back money paid by him to an innocent holder of a bill of exchange bearing a forged acceptance of a correspondent of the banker’s. The plaintiff was nonsuited. Smith v. Mercer, 6 Taunt. 76. In 1882 the English “Bills of Exchange Act” was passed “to codify the law relating to Bills of Exchange, Cheques and Promissory Notes.” In section) 54 it was enacted that, “ the acceptor of a bill by accepting it is precluded from denying to a holder in due course the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill.” 4 Eng. Rul. Cases 159, 160. The rule stated by Lord Raymond, in 1715, seems to have become firmly established in that great commercial country.

In this country the earliest published judicial decision upon the question appears to have been made in 1802 by the Supreme Court of Pennsylvania. An innocent holder of a check for value presented it for deposit to his credit in the bank upon which it was drawn. The bank received it, and credited the amount to the holder and debited the same to the supposed drawer. It soon proved to be a forgery, whereupon the bank charged the amount back to the holder’s account. The holder then brought an action against the bank, and recovered judgment. Levy v. Bank of U. S. 1 Binney, 27. In 1825 a case similar in principle came before the U. S. Supreme Court which always decides for itself questions of general commercial law as applicable to the whole country. The Bank of the United States remitted to the Bank of Georgia papers purporting to be bank-notes of the latter bank which were received and credited to the account of the former bank. Some days afterward the supposed notes were found to be counterfeit and the Bank of Georgia tendered them back to the U. S. Bank and charged the amount back to that bank, and refused to acknowledge any indebtedness for them. The U. S. Bank brought an action for balance of account stated, and for money had and received, and was held entitled to recover the amount so deposited. Bank of U. S. v. Bank of Georgia, 10 Wheat. 333. This decision does not appear to have been questioned in any federal court. The applicability of this decision is manifest when it is recalled that th¿ acceptor of a bill of exchange is in the same category as the maker of a note. If one who pays what purports to be his note cannot recover the money back, no more can one who pays what purports to be a bill of exchange or check drawn upon him.

In 1820, five years earlier than the case in Wheaton, a similar case occurred in Massachusetts between two banks as to the counterfeit bills of one of them which it received from the other and paid as genuine. It was held that it could not recover back the money paid. Gloucester Bank v. Salem Bank, 17 Mass. 33. As late as 1890 the Supreme Court of Massachusetts stated the rule as follows: “ In the usual course of business, if a check purporting to be signed by one of its depositors is paid by a bank to one who finding it in circulation or receiving it from the payee by indorsement took it in good faith for value, the money cannot be recovered back on the discovery that the check is a forgery.” Danvers Bank v. Salem Bank, 151 Mass. 282.

In a New York case in 1850 the bank upon which a draft was drawn refused payment for want- of funds of the drawer, whereupon ■ Goddard, the correspondent of the supposed drawer, being informed of the draft but without seeing it, left his own check for its payment, which amount was remitted to the holders of the draft. The next day Goddard on seeing the draft found it to be forged. Held, however, that he could not recover back the amount of the holder. Goddard v. Merchants Bank, 4 N. Y. 149. In 1871 a bank in New York paid to an innocent holder a forged draft drawn upon it and then sought to recover the money back. The court rendered judgment for the defendant as in the earlier case, using this language : “ Por more than a century it has been held and decided without question that it is incumbent upon the drawee of a bill to be satisfied that the signature of the drawer of the bill is genuine, — that he is presumed to know the handwriting of his correspondent; — and if he accepts or pays a bill to which the drawer’s name has been forged he is bound by the act and can neither repudiate the bill nor recover the money paid..... A rule so well established and so firmly rooted in the jurisprudence of the country ought not to be overruled or disregarded.” National Park Bank v. Ninth National Bank, 46 N. Y. 80, 81.

Other courts have also recognized the rule more or less explicitly. Commercial Bank v. National Bank, 30 Md. 11; Germania Bank v. Boutell, 60 Minn. 192; St. Albans v. Farmers Bank, 10 Vt. 141; Star Ins. Co. v. State Bank, 60 N. H. 442; Dipont Bank v. Fayette Bank, 90 Ky. 22.

The only allusion to the rule we have found in the published opinions of this court is in Belknap v. Davis, 19 Maine, 457, in 1841, where in an action by the holder against the acceptor of a bill of exchange it was held that “the acceptance admits the signature of the drawer and the authority to draw.” So far as it goes this would seem to be in the same line with the decisions above cited and quoted from, and would seem to indicate that the rule so long and firmly upheld by those decisions is in harmony with the law of commercial paper in this state.

In some cases the courts have been led to inquire whether the condition of the holder had changed between the payment of the check and notice to him of the forgery, and to hold that if the holder had suffered no loss by reason of the payment he should refund the amount to the bank or drawer. The rule cited does not make any such distinction, — does not call for any inquiry into the condition of the holder. To do so is to abandon the rule, and with it all certainty. It would leave every person receiving payment on a check in complete uncertainty as to whether and when it was in fact finally paid. It would be a destructive blow to the usefulness of checks as an instrumentality of trade. It is also against the reason and equity of the rule as stated by the courts recognizing it, and hence is inconsistent with the rule. Wherever the rule is upheld the doctrine of such cases must be rejected.

The reason usually given for the rule is that it is impracticable for the indorsee or holder of a bill of exchange or check to know or learn whether the signature of the drawer is genuine, and that the bank or other drawee has the best means of knowing or learning the fact; or, as sometimes expressed, the bank may be presumed to know the signature of its depositor, and the acceptor the signature of his business correspondent. Lord Mansfield in Price v. Neal, supra, compared the equities. He said that the action for money had and received could not be maintained unless it was against conscience in the defendant to retain it and that it was not against conscience for an innocent holder to retain money paid to him by the drawee of a bill of exchange which he had in good faith paid value for. As between parties equally innocent there seems to be no more equity in throwing off the loss from one to the other, than in leaving it where it fell. In cases like these however, where the loss fell in the regular course of business upon the bank which could have known and should have known the forgery, it seems positively inequitable to throw off that loss upon an innocent man who had much less opportunity of knowing. As also said by Lord Mansfield in Price v. Neal, if negligence is to be considered it was as much if not more in the drawee or bank as in the holder. But whatever the reason or equity of the rule and however much it may be criticised by text writers and theorists, it has been so long established and so explicitly recognized by the courts in commercial communities it should stand as the rule until modified by legislative actión. It evidently has been found to be a workable rule, and its plainness and certainty should not be obscured by fine judicial distinctions confusing to the lay mind.

It has been suggested that this rule breaks against another rule of the law of commercial paper, viz: — that the defendant by indorsing the check guaranteed to every subsequent holder the genuineness of the signature of the drawer. But the bank upon which the check was drawn did not become a holder. It did not purchase the check. The bank paid it, extinguished it. It was no longer a check, and could no longer have a holder as such. It had become merely a voucher. Skowhegan Bank v. Maxfield, 83 Maine, 576.

The plaintiff cites cases in which it was found that the bank was induced by the conduct of the holder to assume the check to be genuine without investigation. In other cases it was found that the holder knew or had reason to know of the forgery or was put upon inquiry before taking the check. In these cases it was held that the holder was without the rule.

In this case, however, no such facts can be found. Haven the supposed drawer was occupying a summer cottage in the neighborhood. The check was written upon one of his blanks taken from his check-book. The signature was so good an imitation that the bank accepted it. Crew, the forger, had previously received genuine checks from Haven. He was a boarder at the defendant’s hotel or boarding house. While after the event the defendant now believes Crew to have been an impostor, nothing in the case shows that he so believed or had reason to so believe before the event. It is true he was told by Crew that Haven desired the check to be held about three weeks before presentment, but that was no reason for suspecting the genuineness of the signature. It might have generated a doubt as to the solvency of Haven but no more. While perhaps a banker would have hesitated to accept the check under the circumstances, we find in them nothing that would naturally have deterred a man like the plaintiff. In the New York case, Goddard v. Rutland Bank, supra, the circumstances surrounding the transfer of the check from the forger to the first holder were even more suspicious than here, and were held to be insufficient to affect the holder.

We find the plaintiff was an innocent holder for value, and that the loss by the forgery fell in the course of business upon the bank. We hold that the defendant though he has suffered no loss is protected by the rule cited, and that under the rule the loss cannot be thrown off the bank upon him.

It is conceded that the defendant’s verbal promise to refund made under a misapprehension of the law was without consideration, and hence not binding.

BlamtiJjs nonsuit.