Star Fire Insurance v. New Hampshire National Bank

Allen, J. The defendants received the draft on a forged indorsement of the payees’ names, and took no title to it. By indorsing it they warranted the genuineness of all prior signatures. 2 Pars. N. & B. 589 ; Dan. Neg. Ins., ss. 730, 731, 1357; Bank v. Fearing, 16 Pick. 533; Lobdell v. Baker, 1 Met. 193; Bank v. Morton, 4 Gray 156 ; Merriam v. Wolcott, 3 Allen 258; Herrick v. Whitney, 15 John. 240; Murray v. Judah, 6 Cow. 284; Canal Bank v. Bank of Albany, 1 Hill 287; Aldrich v. Jackson, 5 R. I. 218; Thrall v. Newell, 19 Vt. 202. The defendants’ indorsement was a representation that they had paid or accounted, or would pay and account, to the payees for what they might receive upon it. Relying upon their indorsement and the representations which it legally carried, the plaintiffs paid the draft, and the defendants received the money or an equivalent credit, through their correspondents who collected it. With knowledge or notice of the forgery, the plaintiffs might have resisted payment. They had no knowledge or notice or even suspicion of the character of the first indorsement, and were in no fault for not knowing it. They had a right to rely on the defendants’ indorsement; and with *446 that reliance they paid the draft, and the defendants received the money paid through an innocent mistake. By reason of the forgery the payees failed to receive the money due them, and the plaintiffs were compelled to pay again the amount of the draft, and might then rely on the promise of the defendants arising from their indorsement for repayment. The defendants, having credited the amount of the draft to Craig and indorsed it for collection, must be understood to have received the draft as cash, and were holders for value. If they received it as agents for collection, they did not disclose the agency; and as between them and the plaintiffs, they must be taken to have acted as principals. Canal Bank v. Bank of Albany, supra. The banks at Boston and Hartford subsequently indorsing the draft for collection were agents, of the defendants (Hoover v. Wise, 91 U. S. 308, and cases cited), and the defendants were the proper parties to be sued. Craig was not an agent of the plaintiffs for any purpose connected with the draft, except to deliver it to the payees. His agency was local, and limited to the business of effecting insurance risks and the issuing of policies. It did not include in its scope the power to adjust losses, nor to indorse, collect, or accept the plaintiffs’ drafts, nor did the plaintiffs in any way authorize him to perform those acts, or hold him out as having authority to perform them. He was a stranger to the draft, and his acts in indorsing his own name and forging the names of the payees upon it did not relieve the defendants of their duty of diligence to make inquiries respecting the genuineness of the indorsements. His acts not being within the duties of his agency, and being unauthorized, did not bind the plaintiffs, and his knowledge of the forgery was not the knowledge of the plaintiffs. The plaintiffs notified the defendants of the mistake in payment as soon as the forgery was discovered, and being in no fault for not knowing it sooner, there was no unreasonable delay in the notice to the defendants. Canal Bank v. Bank of Albany, supra ; Merchants' National Bank v. National Eagle Bank, 101 Mass. 281. This is not the case of a drawee paying a draft on which the name of a drawer is forged, or which was put into circulation by the drawer with a forged indorsement upon it. In such case the drawee, having ordinarily the best means of knowledge of the drawer’s signature, cannot recover from an innocent holder to whom he has paid the draft. Hortsman v. Henshaw, 11 How. 177; Coggill v. American Exchange Bank, 1 Comst. 113. Air acceptance of the draft warrants the genuineness of the drawer’s signature, but not of an indorser’s made subsequent to the issuing of the draft and before acceptance or payment; and the payment by the drawee to one who holds by a forged indorsement of the payee’s name entitles him to recover the sum paid, if seasonable notice of the forgery is given. *447 Tlie defendants and plaintiffs both paid the draft by mistake, neither knowing nor suspecting the forgery. If there were any question of negligence, the defendants.preceded the plaintiffs, who relied on the former’s indorsement, which carried with it assurance of the genuineness of the preceding indorsements. The equities between the parties are not equal. McKleroy v. Southern Bank of Ky., 14 La. Ann. 458; Dan. Neg. Ins., s. 1862. The defendants have received the plaintiffs’ money, which in equity and good conscience they cannot retain, and the plaintiffs made a reasonable demand for it before suit. On the facts reported no legal defence to the suit was shown, and a verdict for the plaintiffs was properly ordered. Judgment on the verdict. Clark, J., did not sit: the others concurred.