LaFayette v. Merchants' Bank

Riddick, J., (after stating the facts.) This is an action to recover money páid under mistake of fact. And the facts, briefly stated, are that one Boudinot Whitlock had an agreement with the plaintiffs, RaFayette & Brother, by which RaFayette & Brother agreed to pay drafts drawn by Whitlock on them for the purchase price of cattle, provided that a bill of sale signed by the vendor conveying the cattle to RaFayette & Brother should be indorsed on the back of the draft as security for the payment of the draft. . To enable Whitlock to have these drafts with bill of sale in proper form, blank drafts with bills of sale printed on the back, with spaces for description of cattle purchased and for signature of the owner, were prepared and given to Whitlock. The intention was that he should buy these cattle in the Indian Territory, where he lived, and where the firm of RaFayette & Brother was in business. He afterwards drew drafts in favor of certain parties living in the Territory without their knowledge, and then without their knowledge or consent indorsed their names on the back of the drafts, and signed their names to the bills of sale on the back of the drafts, and then delivered the drafts to the Merchants’ Bank, of Fort Smith, which paid him full value therefor. The bank indorsed the draft, and sent it to a 'bank at Muskogee, Ind. Ter., which presented it to RaFayette & Brother for payment, and they paid it. Neither the Merchants’ Bank nor RaFayette & Brother had any notice of the forgery, and both supposed that it was a legitimate transaction on the part of Whitlock. On the discovery of the fraud, RaFayette & Brother demanded that the bank repay the money, and upon its refusal to do so they brought this action to recover it. It is a general rule that money paid under a mistake of fact may be recovered. The right of recovery proceeds upon the theory that the plaintiff has paid money which he was under no obligation to pay, and which the party to whom it was paid had no right to receive or to retain. The law therefore raises an implied promise on his part to refund it, and an action will lie to recoven it. The reasons which permit a recovery are equitable in their nature, and the rule does not apply in any case where it would be unjust or inequitable to compel the return of the money. For instance, if one, in ignorance of the date of the maturity of a note, pays it, and afterwards discovers that it is barred by statute of limitations, he cannot recover the money paid, as there was a moral obligation on him to pay his debt, whether barred or not. 15 Am. & Eng. Enc. Law (2d Ed.), pages 1103 to 1106, and cases cited. Brit no such 'reason exists in this case. When this draft was presented to the plaintiffs for payment, it had the indorsement of the defendant bank upon it, -as well as the indorsement of the name of the payee and his signature to the bill of sale on the back of the draft. The plaintiffs had the right to suppose that the bank had taken proper precaution to ascertain that these signatures were genuine. The presentation of the draft for payment under such circumstances was in effect a representation on the part of the bank either that it had paid or that it would pay to the payee or to his order the amount named in the draft, and that his signature both to the bill of sale and indorsed on the draft was genuine. Under these circumstances the plaintiffs paid over the money to the collecting bank, acting as the agent of the defendant in making the collection, and it seems to us that the equities are in favor of the plaintiffs, and that a recovery should be allowed, unless there is some rule of law that forbids it. Now, there is an exception to the rule permitting a recovery of money paid under a mistake of fact in the case of a drawee paying a draft or check upon which the name of the drawer had been forged. The reason for the exception is said to be that j the drawee should know the signature- of the drawer, and that he lis guilty of carelessness in paying a check where the drawer's name has been forged, and that, as between him and an innocent holder, no recovery should be allowed. Defendant contends that the exception applies also where the name of the drawer is genuine, and where the drawer has himself forged the signature. of the payee. There is authority to support that position. The Supreme Court of the United States so declared the law in an opinion delivered by Chief Justice Taney. The court said that “the acceptor of a bill is presumed to accept upon funds of the drawer in his hands, and he is precluded by his acceptance from averring to the contrary in a suit brought against him by the holder.” Hortsman v. Henshaw, 11 How. 177; Bigelow on Bills and Notes, 568. But, though there are cases that seem to hold to the contrary (Merchants’ Bank v. Bank of Commonwealth, 139 Mass. 513; Northampton Bank v. Smith, 169 Mass. 281), still we may admit that the rule declared by Chief Justice Taney is correct in cases where there is nothing on the draft to give notice that the drawee does not pay out of funds of the drawer in his hands. But that is not the case here. The bill of sale on the back of the draft was notice to every one taking it that the drawee was paying, or would pay, not upon the funds of the drawer in his hands, but out of his own funds, upon the belief that there was a valid bill of sale and a transfer of the property described therein. The form of the draft was notice to the bank that the drawee would not pay unless the bill of sale and the signature thereto were genuine, and it should have taken the usual precautions to ascertain that they were genuine before parting with its money. It obtained this money, ,not by presenting the drafts alone, but by presenting them in connection with these forged bills of sale. The drawee was ignorant of the forgery, and the case, as we think, conies within the general rule that one who has paid money under a mistake of fact may recover it. Northampton Bank v. Smith, 169 Mass. 281; Merchants’ Bank v. Bank of Commonwealth, 139 Mass. 513; Star Fire Insurance Co. v. New Hampshire Bank, 60 N. H. 442; Carpenter v. Bank, 123 Mass. 66. It is true that the drawees did not notify the bank of the mistake and the forgery until five or six months after the money was paid, but the reason of that was that they were themselves ignorant thereof. Having no reason to suspect that a forgery' had been committed, they were not guilty of negligence in failing to discover it sooner; and so soon as they discovered it, they notified the bank. Nor is it shown that the bank was injured in any way by the delay, so we think that it furnishes under the circumstances no defense to the action. The circuit court directed a verdict for the defendant. In testing the correctness of that ruling we must take that view of the facts sustained by evidence that is the most favorable to plaintiffs, and when we do that it seems very clear that the court erred in directing a verdict. The judgment is therefore reversed, and the cause remanded for a new trial. Hike, C. J., not participating.