Where a bank pays a check that has been raised, it may recover the amount paid.14 So, if the drawee pays a forged check to another bank in the same city, relying (according to bank custom) on the holder's diligence, without examining the check, and returning it promptly on discovery of the forgery, it may recover from the bank which received the money and was guilty of negligence in purchasing the check.415 So, if the drawee's agent pays a bill without obtaining it, because it was then in a notary's hands, upon an agreement of the notary's clerk to send it around the same day, and the drawee afterwards, on seeing the bill next day, discovers the forgery, and promptly demands repayment, he may recover.416 So, the drawee who pays a check, which has been indorsed and deposited and presented through the clearing house, may afterwards sue the indorser on his implied warranty, upon discovering the forgery, when the check was repudiated by the drawer.117 And notwithstanding an agreement to credit checks in payment of clearing-house balances, subject to correction, if the paper proved not to be genuine on inspection, a bank may recover a payment made on a forged certificate, and not discovered until after business hours, if it has been guilty of no negligence.*18

§ 1487. - But the drawee is required to know the drawer's signature, and cannot, therefore, in general, recover a payment made by him to the bona fide holder of a forged draft.119 And if he pays to a bona fide holder a bill with a forged bill of lading at

against a mere collecting agent, who held the draft under an indorsement "for collection," and has paid over the amount. National Park Bank v. Seaboard Nat. Bank, 114 N. Y. 28, 20 N. E. 632; National City Bank v. Westcott, 118 N. Y. 468, 23 N. E. 900. But, aliter, if not paid over. United States Nat. Bank v. National Park Bank, 59 Hun, 495, 13 N. Y. Supp. 411.

414 White v. Bank, 64 N. Y. 316; or the excess paid above the original sum drawn. Oppenheim v. Bank (Sup.) 50 N. Y. Supp. 148.

415 Ellis v. Trust Co., 4 Ohio St. 628.

416 Goddard v. Bank, 4 N. Y. 147, affirming 2 Sandf. (N. Y.) 247.

417 National Bank of North America v. Bangs, 106 Mass. 441.

418 Allen v. Bank, 59 N. Y. 12.

419 National Park Bank v. Ninth Nat. Bank, 46 N. Y. 77; Deposit Bank of Georgetown v. Fayette Nat. Bank, 90 Ky. 10, 13 S. W. 339; Germania Bank V. Bontell, 60 Minn. 189, 62 N. W. 327; First Nat. Bank of Marshalltown v. Marshalltown State Bank (Iowa) 77 N. W. 1045. But delay in discovering

RAND.C.P.-135

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tached, in ignorance of the forgery, he cannot recover.420 So, if the drawee of a check pays it through the clearing house, it cannot recover the payment on discovery of the forgery.421 The giving of bank credit is a payment, and the amount cannot be recovered back on discovery of the forgery some months afterwards, although the holder had been guilty of negligence in purchasing the check of a stranger. 422 And, even where the forgery is discovered the same day, it has been held that the bank, which paid the check by crediting the holder, cannot recover.423 So, if an acceptor pays a forged bill of exchange, he cannot recover the payment from the holder who received it." 424 In like manner, the acceptor's banker should know his signature, and cannot recover a payment made on a forged acceptance.425

Where, however, a forged bill is paid to one who indorses it, and thereby warrants its genuineness, recovery may be had on his indorsement.* 426 But where a bank pays a forged check to another bank, which indorsed it, and which had previously on the same day refused payment of another check deposited with it by the same depositor and discovered later in the day to be a forgery, and had

the forgery and repudiating the charge of such check to it by a corresponding bank does not render the drawee bank liable. First Nat. Bank v. First Nat. Bank, 151 Mass. 280, 24 N. E. 44. And the drawee is not bound to know the indorser's signature. First Nat. Bank v. Northwestern Nat. Bank, 152 Ill. 296, 38 N. E. 739.

420 Hoffman v. Bank, 12 Wall. 181.

421 Commercial & Farmers' Nat. Bank v. First Nat. Bank, 30 Md. 11.

422 Bank of St. Albans v. Farmers' & Mechanics' Bank, 10 Vt. 141.

423 Levy v. Bank, 1 Bin. (Pa.) 27.

424 Byles, Bills, 339; 2 Daniel, Neg. Inst. 254; Price v. Neal, 3 Burrows. 1354, 1 W. Bl. 390. As to effect of acceptance, see § 629, supra. 425 Benj. Chalm. Dig. art. 237; Chit. Bills, 442; Smith v. Mercer, 6 Taunt. 76, 1 Marsh. 453; Pooley v. Brown, 11 C. B. (N. S.) 566.

426 Lennon v. Grauer, 2 App. Div. 513, 38 N. Y. Supp. 22; Third Nat. Bank of City of New York v. Merchants' Nat. Bank. 76 Hun, 475, 27 N. Y. Supp. 1070; Rouvant v. Bank, 63 Tex. 610; People's Bank v. Franklin Bank, 88 Tenn. 299, 12 S. W. 716; First Nat. Bank v. State Bank, 22 Neb. 769, 36 N. W. 289; or even an indorsement "Without recourse," Ware v. McCormack, 96 Ky. 139, 28 S. W. 157, 959. And see §§ 752, 1468, supra. But see, contra, Germania Bank v. Bontell, 60 Minn. 189, 62 N. W. 327. But stamping a

draft "Paid" before surrender is not equivalent to indorsement. Ball, 69 Tex. 604, 7 S. W. 101.

Vogel v.

failed to disclose these circumstances to the bank paying the check, the payment may be recovered.427

Notice of Forgery.

§ 1488. Payment of a forged check cannot be recovered, where the party paying neglects to give notice after discovering the forgery, and the party receiving payment is injured by losing his opportunity of recourse and indemnity.428 Many English cases hold that notice must be given upon the same day on which the forgery is discovered.129 But if one pays a bill for the indorser's honor upon a forged indorsement, and gives notice the same day immediately after discovering the forgery and in time for notice of dishonor to prior indorsers, he can recover. 430 The same rule controls the government as a holder, and it cannot recover after neglecting for sev eral months to give notice of the forgery of the indorsement on which it made the payment.* 431 One who receives counterfeit bank notes may, in like manner, recover the amount for which they were taken, although they were not presented and discovered to be counterfeit until the next day.1 But, where a bank which has received such notes fails to return them to the depositor for two months after discovering the forgery, it cannot recover.+34 So, where such notes are taken by an agent for goods sold, and are

433

427 First Nat. Bank of Quincy v. Ricker, 71 Ill. 439.

425 2 Pars. Notes & B. 598; but not, if the holder is not damaged. Oppenheim v. Bank (Sup.) 50 N. Y. Supp. 148.

429 Byles, Bills, 234, 339; Chit. Bills, 481; Story, Bills, § 451; Cocks v. Masterman, 9 Barn. & C. 902; Jones v. Ryde, 5 Taunt. 488, 1 Marsh. 157; Bruce v. Bruce, 5 Taunt. 495, note, 1 Marsh. 165; Boyd v. Emmerson, 2 Adol. & E. 184, 4 Nev. & M. 99; Kilsby v. Williams, 5 Barn. & Ald. 815, 1 Dow. & R. 476; Mather v. Maidstone, 18 C. B. 273. In this last case the acceptance itself was forged, and it was paid by the drawee after inspecting the signature. See remarks of Cowen, J., as to the strictness of the English rule, in Canal Bank v. Bank of Albany, 1 Hill (N. Y.) 291.

430 Wilkinson v. Johnson, 3 Barn. & C. 428, 5 Dowl. & R. 403.

431 U. S. v. Central Nat. Bank of Philadelphia, 6 Fed. 134.

432 Keene v. Thompson, 4 Gill & J. (Md.) 463.

433 Young v. Adams, 6 Mass. 182.

434 Pindall v. Bank, 7 Leigh (Va.) 617. So, too. Samuels v. King, 50 Ind.

527.

immediately recognized by the principal to be counterfeit, but are not returned for several months.485 But, if the forgery is not discovered for a long time by the purchaser of a note, he may recover the purchase money paid, if he has used due diligence, however long the time may have been.436

The diligence required is in giving notice after discovery, not in making discovery.437 In Pennsylvania, express provision is made by statute for recovery by an indorsee of the consideration paid to an indorser on a forged instrument.438 In the larger cities the question of diligence is controlled to some extent by bank and clearing-house rules. But failure to return a check within the precise time fixed by such rules, by reason of a mistake, which caused a brief delay without injury to the holder, has been held not to prevent a recovery.439 The subject of payment to one who holds under a forged indorsement has been already considered in a previous part of this chapter.440 The question of liability for forged paper, on the part of one who transfers it with or without indorsement, has also been considered in an earlier chapter.

435 Raymond v. Baar, 13 Serg. & R. (Pa.) 318.

436 Frank v. Lanier, 91 N. Y. 112. But see U. S. v. Clinton Nat. Bank, 28 Fed. 357. On the other hand, even a few days' delay, if due to the drawee's negligence, with a change of position in the meantime by the party receiving the payment, will prevent recovery against him. Iron City Nat. Bank v. Fort Pitt Nat. Bank, 159 Pa. St. 46, 28 Atl. 195.

437 Third Nat. Bank v. Merchants' Nat. Bank, 76 Hun, 475, 27 N. Y. Supp. 1070. As to estoppel by negligence in discovery, see § 1782, infra.

438 PENNSYLVANIA (Purd. Dig. p. 222, § 10;

also Id. p. 1733, § 8).

439 Merchants' Nat. Bank v. National Eagle Bank, 101 Mass. 281; Merchants' Nat. Bank v. Nat. Bank of Commonwealth, 139 Mass. 513, 2 N. E. 89. 440 See § 1468, supra.

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§ 1489. The ordinary rules of application of payment hold good, in general, as to payment of commercial paper. The debtor mak ing the payment has, in the first instance, the right to designate how it shall be applied.* 441 This is true, of course, only in the case of voluntary payments.442 The application should be made by him at the time of making the payment, and it has been held that this must be so.*** But the general rule seems to be that he may

441 Byles, Bills, 229: 2 Daniel, Neg. Inst. 275; 2 Pars. Notes & B. 222; Upham v. Lefavour, 11 Metc. (Mass.) 174; Wendt v. Ross, 33 Cal. 650; Clarke v. Scott, 45 Cal. 86; Wipperman v. Hardy, 17 Ind. App. 142, 46 N. E. 537. So. a payment by a third person, under agreement with the maker, must be applied as directed by him. Ellis v. Allen, 48 Vt. 545. But the application cannot be changed after the maker's death and after a note is barred, so as to give effect to the agreement that it might be applied to that note. Coon's Appeal, 52 Conn. 188.

442 2 Daniel, Neg. Inst. 275; 2 Pars. Notes & B. 222.

443 2 Edw. Bills & N. § 755; 2 Pars. Notes & B. 222; Thayer v. Denton, 4 Mich. 192; Howland v. Rench, 7 Blackf. (Ind.) 236; Calvert v. Carter, 18 Md. 73: Crisler v. McCoy, 33 Miss. 445; Irwin v. Paulett, 1 Kan. 418. 444 Haynes v. Waite, 14 Cal. 446; Long v. Miller, 93 N. C. 233.