tachment against the payee, and an amendment will be necessary to entitle the payee to recover.287

Payment to Indorsee.

§ 1467. An indorsement, as we have seen, transfers the rights of the indorser, including his right to receive payment.238 But where it is restrictive in its terms, e. g. "for the use of" the indorser, payment to the indorsee will be insufficient, if misapplied by him.239 But payment may be made to an indorsee, even after the transfer to him has been rescinded, unless it is shown that the maker had notice of that fact.2

240

Valid payment to an indorsee implies indorsement by one who is legally capable of indorsing.241 But it has been held to be suffi cient for the maker to pay an indorsee under an indorsement by a corporate payee which is ultra vires.242 If, however, the indorsement is for an illegal consideration, such as a gambling debt, payment made to the indorsee after notice of that fact will be of no avail as against the indorser.243 And if a bill or note is payable to several persons, who are not partners, an indorsement by one will not entitle the indorsee to payment.2 244

237 Prescott v. Hull, 17 Johns. (N. Y.) 284.

238 See § 729 et seq. A check payable to order cannot be paid to a holder other than the payee, without indorsement. Dodge v. Bank, 30 Ohio St. 1. But a note secured by a mortgage may be paid to one who holds it without indorsement by a separate assignment of the note and mortgage. Pease v. Warren, 29 Mich. 9.

239 Sigourney v. Lloyd, 8 Barn. & C. 622. And see § 724 et seq. 240 Collier v. Hershey, 21 Ark. 482.

241 As to infant, see § 271, supra. The Negotiable Instrument Law makes an infant's indorsement a sufficient transfer of the title in COLORADO, CONNECTICUT, FLORIDA, VIRGINIA (section 22), MARYLAND (section 41), and NEW YORK (section 41). As to married woman, see § 288, supra.

242 Vanarsdall v. State, 65 Ind. 176.

248 Commercial Nat. Bank v. Spaids, 8 Ill. App. 493. So, too, a payment with notice that the indorsement was made to defraud creditors (as against such creditors). Wheeler v. Winn, 38 Vt. 122.

244 Ryhiner v. Feickert, 92 Ill. 305. So, a bill by A. and B. (not partners), "to our order," and indorsed by A. only. Carvick v. Vickery, 2 Doug. 653, note.

Payment to Indorsee-Forgery.

245

§ 1468. If payment is made to one who holds a note under the unauthorized indorsement of the payee's agent, the holder (although he may be a bona fide purchaser) will be liable to the payee for the amount received.2 But under the present statute in England a check may be paid by the bank on which it is drawn, to one holding under such an indorsement.246 This act provides that, if a draft or check on a bank purports to be indorsed by the person to whom it is drawn payable, it shall be sufficient authority to the banker to pay the bearer, without proof that such indorsement was made by the payee or by his authority or that of the drawer or other indorser.247 In Germany, also, it is not incumbent on the payor of a bill to prove the indorsements to be genuine.248 But, by statute in some countries, the holder who receives payment of a bill is liable for the genuineness of the indorsements.249 And this is the general rule of the law merchant as to indorsers.

If an indorsement is forged, payment to one who holds under it. will not, in general, be a defense against the lawful owner,250 even though the person who receives the payment is a bona fide holder for value.251 So, it is no defense against the owner to prove a payment to one who held under a forgery, by which the bill was altered and made payable to bearer instead of to order.252

245 Johnson v. Bank, 6 Hun (N. Y.) 124.

246 Charles v. Blackwell, 2 C. P. Div. 151, affirming 1 C. P. Div. 548. 247 16 & 17 Vict. c. 59, § 19; Bills of Exchange Act, § 60.

248 AUSTRIA (Exch. Law, art. 36); GERMANY (Exch. Law, art. 36); SWEDEN (Exch. Law, § 42); SWITZERLAND (Ob. R. 755).

249 HOLLAND (Exch. Law, art. 166); PORTUGAL (Code Com. art. 387). 250 2 Pars. Notes & B. 211, 595; Story, Bills, §§ 412, 450; Smith v. Sheppard, 1 Chit. 180, note; Johnson v. Windle, 3 Bing. N. C. 225. The lawful payee may, however, waive the forgery, and elect to sue the person receiving the money as paid to his use. Indiana Nat. Bank v. Holtsclaw, 98 Ind. 85. But the maker could not sue in such case. Hensel v. Railway Co., 37 Minn. 87, 33

N. W. 329.

251 Byles, Bills, 224; Chit. Bills, 446; 2 Daniel, Neg. Inst. 254; 1 Edw. Bills & N. § 271; Long v. Bailie, 2 Camp. 214; Mead v. Young, 4 Term R. 32. But see, as to the effect of an acceptance given to such holder, Hortsman v. Henshaw, 11 How. 177. And see § 629, supra.

252 Although made possible by the negligence of the drawer's agent, Bel

In like manner, the drawer of a bill or check will not be bound by payment made by the drawee under the forged indorsement of the payee. 253 And the bank which pays a check upon a forged indorsement (except as it is relieved by the recent statute in England) will still be responsible to its depositor, as though no payment had been made.254 And the depositor may recover against the bank, although his pass book has been frequently balanced and returned to him, and even though a period of more than six years elapsed before discovery of the forgery.2

255

Forged Indorsements.

256

§ 1469. Where a bank holds a note or bill for collection under a forged indorsement, and collects and pays it over to its principal. it will still be liable to the real owner for the amount collected.2 And if an acceptor pays a bill by check, and afterwards pays the check to one who finds it or holds it under a forged indorsement, it will be no payment of the original bill.257 So, if a bill is indorsed by another person in the payee's name, and paid to the holder under such indorsement, the payee may recover such payment.258 But, under the English statute above referred to, a valid payment may be made by the bank drawn upon, although it knew the sig knap v. Bank, 100 Mass. 376; and the drawer cannot therefore recover against the agent for such negligence, Hatton v. Holmes, 97 Cal. 208, 31 Pac. 1131. 253 Morgan v. Bank, 11 N. Y. 404; Citizens' Nat. Bank v. Importers' & Traders' Bank, 119 N. Y. 195, 23 N. E. 540; Star Fire Ins. Co. v. New Hampshire Nat. Bank, 60 N. H. 442; First Nat. Bank v. Pease (Ill. Sup.) 48 N. E. 160; Pickle v. Must, S8 Tenn. 380, 12 S. W. 919. And the drawer may recover the check itself from a third party who has received and paid it under a forged indorsement. U. S. v. National Bank of Republic, 2 Mackey (D. C.)

289.

254 Robarts v. Tucker, 16 Q. B. 575.

255 Bank of British North America v. Merchants' Nat. Bank, 91 N. Y. 106. affirming 48 N. Y. Super. Ct. 1; although five months more elapsed in this case after discovery of the forgery before giving notice or offering to return the check.

256 Arnold v. Bank, 1 C. P. Div. 578; although the payee was himself negligent in forwarding the bill by mail to his indorsee in England.

257 Thompson v. Bank, 82 N. Y. 1.

258 Although the bill was delivered through the post office to the wrong person, Graves v. Bank, 17 N. Y. 205.

nature both of the payee and of the person who forged his name, and was grossly negligent in making the payment.259 If the check is collected, however, by another bank, and paid to a stranger under a forged indorsement, the collecting bank will not be protected like the drawee) by the statute, but will be liable to the drawer of the check. 260

Since an indorsement warrants the genuineness of prior indorsements, payment made by the drawee to an indorser, holding under a forged indorsement, may be recovered from such holder.261 Where the drawee of a check pays it under a forged indorsement, and charges the amount to the drawer, and is afterwards notified of the forgery, and obliged by suit to repay the amount to the drawer, it may recover the payment from the holder to whom it was made; 202 although the forgery would have been discovered sooner, if the drawer or the bank had taken measures to ascertain the genuineness of the check. 26 On the other hand, no recovery can be had against one who has received payment under a forged indorsement after his position has been changed by delay and his remedy against prior parties lost,* or where he is a mere agent under an indorsement "for collection," and has paid the money over to his principal.†

In general, only reasonable diligence is necessary on the drawer's part in giving notice after discovery of the forgery.264 If notice is

259 Hare v. Copeland, 13 Ir. C. L. 426.

260 Ogden v. Benas, L. R. 9 C. P. 513. See § 1453, supra.

261 Star Fire Ins. Co. v. New Hampshire Nat. Bank, 61 N. H. 442; Onondaga Co. Sav. Bank v. U. S., 12 C. C. A. 407, 64 Fed. 703, affirming 39 Fed. 259; Third Nat. Bank v. Merchants' Nat. Bank, 76 Hun, 475, 27 N. Y. Supp. 1070; although the later indorsement is "for collection," U. S. v. American Exch. Nat. Bank, 70 Fed. 232. But see, contra, Northwestern Nat. Bank v. Bank of Commerce of Kansas City, 107 Mo. 402, 17 S. W. 982.

262 Carpenter v. Bank, 123 Mass. 66. So, on a settlement between the bank and the payee. Levy v. Bank, 27 Neb. 557, 43 N. W. 354.

283 Neither of them owing this duty to the holder, notwithstanding a local custom of New York banks, which was held to be inadmissible. Corn Exch. Bank v. Nassau Bank, 91 N. Y. 74.

* London & River Plate Bank v. Bank of Liverpool [1896] 1 Q. B. 7.

U. S. v. American Exch. Nat. Bank, 70 Fed. 232; Vogel v. Ball, 69 Tex. 604, 7 S. W. 101.

264 Canal Bank v. Bank of Albany, 1 Hill (N. Y.) 287.

promptly given to the holder receiving such payment, the money may be recovered from him as a payment made by mistake.265 And even the United States government must give notice, like any other party, within a reasonable time after discovering a forgery of its notes, and, if it fails to do so, it cannot recover payments made by it on such notes.266

265 Wilkinson v. Johnson, 3 Barn. & C. 428. 266 U. S. v. Central Nat. Bank, 6 Fed. 134.

(2124)

And see § 1486, infra.