#### The Merchants Bank v. C. M'Intyre & Co.

Money paid under a mutual mistake of facts, may be recovered back.

Where a draft on a bank was presented for payment by a remote indorsee, to whom it was paid, both parties being ignorant of the fact, that the first indorsee to whom it was specially indorsed, had never indorsed the draft, but that a fictitious signature resembling his was placed on the draft; it was *held,*that on discovering the fraud, the bank could recover the amount from the party to whom it was paid.

Where an agent collects a negotiable draft as indorsee, without disclosing his agency to the drawer, he will be liable to refund the money to the drawer, on its appearing that it was paid on a fictitious indorsement, although the agent has, in the meantime, remitted the proceeds to his principal.

March 29th;

April *7,*1849.

This was a case agreed upon between the parties for submission, without action, pursuant to the code of procedure.

On the 13th day of February, 1847, the bank of Mobile, at Mobile, in the state of Alabama, by T. M. English, cashier, on receiving $250 from George G. Henry, delivered to him a draft or check upon the Merchants’ Bank in the city of New York, addressed to their cashier, bearing the above date, and substantially as follows:

“ $250.

*“*At sight pay this my first check, second unpaid, to the order of G. G. Henry, No. 5612, two hundred and fifty dollars.”

Signed by the cashier of the bank of Mobile, and the sum written across the face, and signed by the teller of the same bank.

This check was by G. G. Henry endorsed as follows: —“ Pay to the order of Henry Harlan, Esq.—George G. Henryand was enclosed by him in a letter, addressed to Henry Harlan, Danville, Kentucky, and deposited in the post-office at Mobile.

The check was never received by, nor came to the use or knowledge of, Harlan.

In March, 1847, Charles M'Intyre & Co., the defendants, copartners in business in New York, received through the post-*432office in New York the draft or check, with a further indorsement thereon, as follows Pay to the order of Charles M‘Intyre &■ Co.—Henry Harlan.” The draft was inclosed in a letter addressed to them, containing instructions to fill an order for merchandize with the proceeds of such draft, after deducting their commissions. The defendants thereupon indorsed the draft as follows :—“ Charles M'Intyre & Co.,” and handed the same to their clerk, by whom it was immediately afterwards presented to 'the paying teller of the Merchants’ Bank, in their banking-house, for payment. On such presentment the teller inquired of the clerk whether he was one of the firm of Charles M'Intyre & Co., to which the clerk answered “ no.” The teller then said, “ we are not acquainted with that firm. You must get some person known to the bank to identify their signature, &c.” The clerk then asked the teller whether he knew C. and E. W. Thwing. The teller answered “ Yes, that will do.” The clerk then left the bank with the draft, and went to the office of Edmund Charles & Son, one of whom wrote under the indorsement of Charles M‘Intyre & Co., the following words : “ Attested.—Edmund Charles & Son, 35 Wall-street.” The clerk afterwards took the draft to C. & E. W. Thwing, one of whom wrote thereon, under the signature of Charles M‘Intyre & Co., the words, “ Correct.—C. & E. W. Thwing.”

The clerk then returned to the Merchants’ Bank, and prer sented the draft, with all these indorsements thereon, to the paying-teller, who thereupon received it, and paid the amount thereof ($250,) to such clerk of Charles M‘Intyre & Co., on the 13th day of March, 1847; and they, with the money so received, after deducting their commission, filled the order for merchandize above mentioned.

The draft or check never having been received or heard of by Henry Harlan, George G. Henry, on the 15th day of February, 1848, at Mobile, enclosed in a letter to said Harlan, at Dan-ville, Kentucky, the second of duplicate of such check by him obtained from the bank of Mobile for the sum of $250, signed by the cashier, and countersigned by the teller, in these words :

*433“ #250. “ Bank of Mobile, Mobile, Feb. 13th, 1847.

“ At sight, pay this my second check, first unpaid, to the order of G. G. Henry, No. 5612. Two hundred and fifty dollars,

T. M. English, Cashier.

“To the Cashier of the Merchants’ Bank, New York.” (Endorsed,)

“ Pay to the order of Henry Harlan, Esq. .

“ Geo. G. Henry.”

This second check was received by Harlan, and was by him indorsed and delivered to the cashier of the Bank of Danville for collection, by whom it was indorsed, and sent to the cashier of the Bank of America in New York, Who received it and presented it to the Merchants’ Bank for payment. This presentment of the second check called the attention of the Merchants’ Bank to the first check, and being satisfied upon inquiry, that the second check was regularly received and indorsed by Harlan, to whom both of the checks were indorsed by said Henry, and that the first check had never come to the possession or use, or knowledge of Harlan, but had been by some other person indorsed as above set forth, and sent to Charles M‘Intyre <fe Co., as above stated ; the Merchants’ Bank paid the amount of the second check to the Bank of America.

The Mercnants’ Bank then, on the 10th of March, 1848, called upon Charles M‘Intyre & Co. to repay to them the amount of the first check, who refused to make such payment. Both checks were produced and exhibited to the court upon the argument.

*B. W. Bonney*for the plaintiffs.

I. Money paid under a mistake of facts, may be recovered back in an action for money h ad and received. *(Bowyer*v. *Pack,*2 Denio, 107; *Mowatt*v. Wright, 1 Wendell, 355; *Wait*v. *Leggett,*8 Cowen, 195; *Bank of Orleans*v. *Smith,*3 Hill, 560.)

II. The check in question, upon which the #250 now sought to be recovered back, was paid by the plaintiffs to the defendants, was a genuine check, drawn by the Bank of Mobile on the plaintiffs, and duly endorsed by the payee to Henry Harlan,

*434III. The plaintiff’s teller paid the -money in question, in the belief that the defendants were lawful holders of the check by indorsement of the first indorsee. This was a mistake as to the fact, and the plaintiffs may recover back the money so paid. *(Canal Bank*v. *Bank of Albany,*1 Hill, 287; *Coggill*v. *The American Exchange Bank,*1 Comstock, 113; *Talbot*v. *Bank of Rochester,*1 Hill, 295.)

IY. By presenting the check and demanding payment, and when their right to receive the money was questioned, procuring certificates to obtain it, the defendants affirmed themselves to be the lawful holders of the check, and entitled to receive payment thereof. Upon this affirmation, and believing it to be true, the plaintiffs paid the money, which they may now recover back, it being conceded that defendants had no title to the ■check.

Y. The plaintiffs- have been guilty of no laches. As soon as informed that the indorsement of the check was a forgery, they gave notice to the defendants, and demanded back the money paid.

VI. The defendants will not suffer loss from being compelled to repay the money. They will be entitled to recover the same amount from their correspondent, from whom they received the check, and whom, it is to be presumed, they know. *(Canal Bank*v. *Bank of Albany,*1 Hill, 287.)

VII, The plaintiffs are entitled to judgment for the money paid, ($250,) with interest, from March 13, 1847.

*C. C. Egan,*for the defendants.

The plaintiffs must bear the loss occasioned by their negligence. They paid the check, although not negotiated; the name of the first indorsee not being on the check at all.

If they have any right of action, it is not against the defendants, who acted merely as agents, in entire good faith, and who have paid over the money to their principals. Both parties had equal knowledge of the facts. *(Potter*v. *Evans, 2*Hall, 252 ; *Mowatt*v. *Wright,*1 Wend. 355; 3 Wend. 72; 4 Cow. 454.)

*Bonney,*in reply.

The plaintiffs knew nothing of the agency. If there were a'

*435mutual mistake, we are entitled to recover; if the defendants were acquainted with the state of the case, it was a fraud. The defendants presenting the draft for payment, may be regarded as an averment that it was payable to *Henry Harden.*The name written on the first check would readily be read as *Harlan.*>

By the Court. Oakley, Ch. J.

The indorsement on the first draft, is certainly in a name different from that of the first indorsee, Harlan; and the inquiry is, were the defendants under the circumstances bound to refund the money which they received from the plaintiffs. They rely on two grounds to defeat a recovery.

*First.*They say they acted as agents merely in the transac-. tion, and transmitted the proceeds of the draft to their correspondent, in ignorance of the fact that the draft was not properly indorsed, and before they were called upon to refund.

How the law would be in this respect, if the fact of their agency had been known to the Merchants Bank when they paid the draft, we need not say. But their agency was not known. The defendants did not communicate it to the plaintiffs, and they not being apprised of any agency, dealt with the defendants as the owners of the draft, and may now treat them accordingly.

*Second.*It is contended that there was palpable negligence in the acceptance and payment of the draft by the bank, because it was manifest on inspection, that the indorsement was fictitious.

It is a general principle, undoubtedly, that where the drawee of a bill pays it negligently, and without proper precaution, he is remediless, if it turn out that the signature of the drawer, or of any indorsee, be forged. The drawee is bound to use reasonable diligence, or the consequences will fall upon him. The peculiar feature of this case is, that the defendants first acted on the faith of the genuineness of this indorsement, and gave the sanction of their own signature to the genuineness of all the indorsements previous to their own. It is contrary to reason and principle, that they who with better opportunity to know *436the true state of the case, and who presented the draft for payment as being the rightful holders and authorized to receive it, should after its payment by the drawees, set up that the latter, because they paid under a defective authority, must lose the amount. The defendants either knew of the defect, and are thus responsible for the fraud; or they were at least equally negligent with the plaintiffs. If we assume the latter ground, it is the ordinary case of mutual ignorance of an important fact, which if it had been known to either of the parties, would have prevented the negotiation from going into effect. In such a case, either party may rescind, and thus the plaintiffs are entitled to recover.

This is in accordance with our decision in several cases recently. We hold it to be a principle of universal application, that where one presents a draft or check to a bank for payment, it is a representation of the genuineness of the signatures appearing upon it. And except where the drawer’s signature is forged, or there is some other peculiar reason for taking the case out of the rule, the party so presenting the draft will be held responsible to the drawee for the authenticity of such signatures.

Judgment for the plaintiffs.