252 U.S. 485
40 S.Ct. 361
64 L.Ed. 675
CHASE NAT. BANK.
Argued Jan. 14 and 15, 1920.
Decided April 19, 1920.
Mr. Assistant Attorney General Spellacy, for the United states.
[Argument of Counsel from pages 485-488 intentionally omitted]
Messrs. Henry Root Stern and Charles E. Rushmore, both of New York City, for defendant in error.
[Argument of Counsel from pages 488-490 intentionally omitted]
Mr. Justice McREYNOLDS delivered the opinion of the Court.
Plaintiff in error sued the defendant bank, at law, to recover money paid out under mistake of fact. The complaint alleged:
‘First. That at all the times hereinafter mentioned, the plaintiff was and is a coro ration sovereign, and the defendant was and is an association organized for and transacting the business of banking in the city, state, and Southern District of New York, under and pursuant to the provisions of the acts of Congress in such case made and provided;
‘Second. That on or about the 18th day of December, 1914, the defendant presented to the Treasurer of the United States at Washington, D. C., for payment, a draft in the sum of $3,571.47, drawn on the Treasurer of the United States, payable to the order of E. V. Sumner, 2d Lt., 2d Cav., A. Q. M., and purporting to be drawn by E. V. Sumner, Acting Quartermaster, U. S. A., and to be endorsed by E. V. Sumner, 2d Lt., 2d Cav., A. Q. M., the Howard National Bank, and the defendant; a copy of said draft and the indorsements on the back thereof is hereto attached and market Exhibit A,1 and made a part hereof; ‘Third. That at the date of the presentation of said draft by the defendant to the Treasurer of the United States, the defendant was a depository of the funds of the United States of America, and payment of said draft to the defendant was thereupon made by the plaintiff, by passing a credit for the amount of said draft to the defendant upon the accounts of the defendant, as depository for the funds of the plaintiff;
‘Fourth. That the name of said E. V. Sumner, 2d Lt., 2d Cav., A. Q. M., indorsed upon the back of said draft, was forged and had been wrongfully and fraudulently written upon the same by a person other than the said E. V. Sumner, without his knowledge or consent, and no part of the proceeds of said draft were ever received by him;
‘Fifth. That the payment of said draft made by the plaintiff to the defendant, as described in paragraph three of this complaint, was made under a mistake of fact and without knowledge that the signature of the said E. V. Sumner, 2d Lt., 2d Cav., A. Q. M., payee thereof, had been forged upon the back of said draft;
‘Sixth. That the plaintiff has duly requested the defendant to repay to it the amount of said draft, to wit, $3,571.47, but the defendant has failed and refused to pay the same or any part thereof to the plaintiff.
‘Wherefore, the plaintiff demands judgment against the defendant in the sum of $3,571.47, with interest thereon from the 18th day of December, 1914, together with the costs and disbursements of this action.’
The bank denied liability and among other things claimed that the same person wrote the name E. V. Sumner upon the draft both as drawer and indorser. The facts were stipulated.
It appears: Lieutenant Sumner, quartermaster and disbursing officer at Ft. Ethan Allen, near Burlington, Vt., had anthority to draw on the United States Treasurer. Sergeant Howard was his finance clerk and so known at the Howard National Bank of Burlington. Utilizing the official blank form, Howard manufactured in toto the draft in question—Exhibit A. Having forged Lieutenant Sumner’s name both as drawer and indorser, he cashed the instrument over the counter at the Howard National Bank without adding his own name. That bank immediately indorsed and forwarded it for collection and credit to the defendant at New York City; the latter promptly presented it to the drawee (the Treasurer), received payment and credited the proceeds as directed. Two weeks thereafter the Treasurer discovered the forgery and at once demanded repayment which was refused. Before discovery of the forgery the Howard National Bank withdrew from the Chase National Bank sums aggregating more than its total balance immediately after such proceeds were credited; but additional subsequent credit items had maintained its balance continuously above the amount of the draft.
Both sides asked for an instructed verdict without more. The trial court directed one for the defendant (241 Fed. 535) and judgment thereon was affirmed by the Circuit Court of Appeals (250 Fed. 105, 162 C. C. A. 277). If important, the record discloses substantial evidec e to support the finding necessarily involved that no actual negligence or bad faith, attributable to defendant, contributed to success of the forgery. Williams v. Vreeland, 250 U. S. 295, 298, 39 Sup. Ct. 438, 63 L. Ed. 989, 3 A. L. R. 1038.
The complaint placed the demand for recovery solely upon the forged indorsement—neither negligence nor bad faith is set up. If the draft had been a valid instrument with a good title thereto in some other than the collecting bank, nothing else appearing, the drawee might recover as for money paid under mistake. Hortsman v. Henshaw, 11 How. 177, 183, 13 L. Ed. 653. But here the whole instrument was forged, never valid, and nobody had better right to it than the collecting bank.
Price v. Neal (1762) 3 Burrows, 1354, 1357, held that it is incumbent on the drawee to know the drawer’s hand and that if the former pay a draft upon the latter’s forged name to an innocent holder not chargeable with fault there can be no recovery. ‘The plaintiff cannot recover the money unless it be against conscience in the defendant to retain it.’ ‘But it can never be thought unconscientious in the defendant to retain this money when he has once received it upon a bill of exchange indorsed to him for a fair and valuable consideration which he had bona fide paid without the least privity or suspicion of any forgery.’ And the doctrine so announced has been approved and adopted by this court. Bank of United States v. Bank of Georgia, 10 Wheat. 333, 348, 6 L. Ed. 334; Hoffman v. Bank of Milwaukee, 12 Wall. 181, 192, 20 L. Ed. 366; Leather Mfgs. Bank v. Morgan, 117 U. S. 96, 109, 6 Sup. Ct. 657, 29 L. Ed. 811; United States v. Natl. Exch. Bank, 214 U. S. 302, 311, 29 Sup. Ct. 665, 53 L. Ed. 1006, 16 Ann. Cas. 1184.
In Bank of United States v. Bank of Georgia, through Mr. Justice Story, this court said concerning Price v. Neal:
‘There were two bills of exchange, which had been paid by the drawee, the drawer’s hand-writing being a forgery; one of these bills had been paid, when it became due, without acceptance; the other was duly accepted, and paid at maturity. Upon discovery of the fraud, the drawee brought an action against the holder to recover back the money so paid, both parties being admitted to be equally innocent. Lord Mansfield, after adverting to the nature of the action, which was for money had and received, in which no recovery could be had, unless it be against conscience for the defendant to retain it, and that it could not be affirmed that it was unconscientious for the defendant to retain it, he having paid a fair and valuable consideration for the bills, said ‘here was no fraud, no wrong. It was incumbent upon the plaintiff to be satisfied that the bill drawn upon him was the drawer’s hand, before he accepted or paid it; but it was not incumbent upon the defendant to inquire into it. There was a notice given by the defendant to the plaintiff, of a bill drawn upon him, and he sends his servant to pay it, and take it up; the other bill he actually accepts, after which, the defendant, innocently and bona fide, discounts it. The plaintiff lies by for a considerable time after he has paid these bills, and then found out that they were forged. He made no objection to them at the time of paying them. Whatever neglect there was, was on his side. The defendant had actual encouragement from the plaintiff for negotiating the second bill, from the plaintiff’s having, without any scruple or hesitation, paid the first; and he paid the whole value bona fide. It is a misfortune which has happened without the defendant’s fault or neglect. If there was no neglect in the plaintiff, yet there is no reason to throw off the loss from one innocent man upon another innocent man. But, in this case, if there was any fault or negligence in any one, it certainly was in the plaintiff, and not in the defendant.’ The whole rasoning of this case applies with full force to that now before the court. In regard to the first bill, there was no new credit given by any acceptance, and the holder was in possession of it before the time it was paid or acknowledged. So that there is no pretense to allege, that there is any legal distinction between the case of a holder before or after the acceptance. Both were treated in this judgment as being in the same predicament, and entitled to the same equities. The case of Price v. Neal has never since been departed from; and, in all the subsequent decisions in which it has been cited, it has had the uniform support of the court, and has been deemed a satisfactory authority.’
Does the mere fact that the name of Lieutenant Sumner was forged as indorser as well as drawer prevent application here of the established rule? We think not. In order to recover plaintiff must show that the defendant cannot retain the money with good conscience. Both are innocent of intentional fault. The drawee failed to detect the forged signature of the drawer. The forged indorsement puts him in no worse position than he would occupy if that were genuine. He cannot be called upon to pay again and the collecting bank has not received the proceeds of an instrument to which another held a better title. The equities of the drawee who has paid are not superior to those of the innocent collecting bank who had full right to act upon the assumption that the former knew the drawer’s signature or at least took the risk of a mistake concerning it. Bank of England v. Vagliano Bros.,  L. R. App. Cases, 107; Dedham Bank v. Everett Bank, 177 Mass. 392, 395, 59 N. E. 62, 83 Am. St. Rep. 286; Deposit Bank v. Fayette Bank, 90 Ky. 10, 13 S. W. 339, 7 L. R. A. 849; National Park Bank v. Fourth National Bank, 46 N. Y. 77, 80, 7 Am. Rep. 310; Howard v. Bank, 28 La. Ann. 727, 26 Am. Rep. 105; First National Bank v. State Bank, 107 Iowa, 327, 77 N. W. 1045, 44 L. R. A. 131; Bank v. Trust Co., 168 N. C. 606, 85 S. E. 5, L. R. A. 1915D, 1138; 4 Harvard Law Review, 297, article by Prof. Ames. And see Cooke v. United States, 91 U. S. 389, 396, 23 L. Ed. 237.
The judgment of the court below is
Mr. Justice CLARKE dissents.
Office of the Quartermaster.
Fort Ethan Allen, Vermont.
Thesaur Amer (Shield)
December 15, 1914.
Treasurer of the United States 15-51444
Pay to the order of E. V. Sumner, 2d Lt., 2d Cav., A. Q. M., $3571.47, thirty-five hundred seventy-one & 47/100 dollars.
Object for which drawn: Vo. No. Cash transfers.
E. V. Sumner,
Acting Quartermaster, U.S.A. 21739.
Form Approved by the Comptroller of the Treasury
January 27, 1913.
This check must be indorsed on the line below by the person in whose favor it is drawn, and the name must be spelled exactly the same as it is on the face of the check.
If indorsement is made by mark (X) it must be witnessed by two persons who can write, giving their place of residence in full.
E. V. Sumner, (Sign on this line)
2d Lt., 2 Cav., AQM.
Pay Chase National Bank New York, or order. Restrictive indorsements guaranteed. Howard Nat’l Bank, 58-3 Burlington, Vt. 58-3, M. T. Rutter, Cashier.
Received payment from the Treasurer of the United States Dec. 16, 1914. 1-74 The Chase National Bank 1-74 of the City of New York.