Case Name: Goddard and St. John v. The Merchants Bank
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1848-12-23
Citations: 2 Sandf. 247
Docket Number: 
Parties: Goddard and St. John v. The Merchants Bank.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 4
Pages: 247–258

Head Matter:
Goddard and St. John v. The Merchants Bank.
Money paid under a mistake of facts may be recovered back, in an action for money had and received.
Where a draft, after having been protested for non-payment, is paid to the agent of the holder, by a third person, for the honor of the drawer, without his having seen the draft, but upon the representation of such agent that he has a genuine draft, and the draft afterwards turns out to be a forgery; the person paying it supra protest, may, after having given immediate notice of the forgery, recover back the amount paid by him, in an action against the agent, brought before such agent has paid over the money to his principal, and before his situation in respect to his principal has been in any manner changed.
What will be considered due diligence, on the part of a person paying a forged draft, supra protest, in giving notice of the forgery.
An agent’s merely passing money in account, giving credit, or making a rest, is not equivalent to paying the money over to his principal.
Where the name of an indorser is forged, the acceptor who pays in ignorance of the forgery, may recover back the money from an innocent holder, on the ground that he is not presumed to know the signature of every indorser. But where the name of the drawer is forged, the acceptor who pays the bill will not, as a general rule, be allowed to dispute the genuineness of the drawer’s signature. Per Vanderpoel, J.
The acceptor is presumed to know the signature of the drawer, when he accepts, as he is supposed to be in correspondence with him. Per Vanderpoel, J.
Nov. 16;
Dec. 23, 1848.
This was an action of assumpsit, tried in June, 1848. The object of the suit was to recover the amount of a forged draft paid to the defendants, by the plaintiffs, supra protest, for the honor of the alleged drawers. The draft was for $1000, dated Cleveland, Ohio, August 28, 1847, and purported to be drawn by S. H. Mann, cashier of the Canal Bank, upon the American Exchange Bank of New York, payable to the order of E. S. Moore. On the 15th of September, 1847, the draft was brought to the bank of Rutland, Vermont, by a person who was introduced to the cashier as E. S. Moore, and who, it was stated, wished to obtain from the bank the money on a draft he had, for the purpose of buying cattle. The cashier having agreed to cash the draft, Moore indorsed the same, and received the amount thereof in bills of the bank. The next day the draft was sent to the Farmers Bank of Troy, to be collected for the bank of Rutland, who remained the owners thereof until it was taken up by the plaintiffs. The Farmers Bank of Troy transmitted the draft, with their indorsement thereon, to the defendants, the Merchants Bank, in New York, who were the agents of the Farmers Bank in that city, for collection. The defendants presented the draft to the drawees, the American Exchange Bank, and payment being refused, for the want of funds of the drawers, it was in the usual course pf business handed to John U. Campbell, a notary public, for protest. The draft was again presented to the drawees by the notary, on the 18th of September, 1847, and payment being refused, it was duly protested, and notices to the endorsers and drawer were prepared to be sent by mail. The plaintiffs hearing of the protest of the draft, and supposing such draft to be genuine, thereupon .intervened, and for the honor of the drawers, of whom they were then the bankers or agents, in New York, voluntarily paid to the defendants the amount of the draft, with costs of protest. And the defendants passed the amount to the credit of the Farmers Bank of Troy. It afterwards appeared, and was proved on the trial, that the draft was forged. The circumstances under which the draft was paid to the plaintiffs were as follows:
Elijah H. Riker testified, that on the 20th of Sept, 1847, he was in the office of the notary, John D. Campbell; that he answered calls for him when he was absent; that on that day, Mr. Goddard, one of the plaintiffs, called at Mr. Campbell’s office and inquired for Mr. Campbell. He said he had been informed by a clerk in the American Exchange Bank, that Mr. Campbell had an Ohio draft in his hands, drawn by the Canal Bank of Cleveland, to protest as a notary; and that he, Mr. Goddard, wished to pay it, with the fees of protest; that the witness requested him to wait a few minutes until Mr. Campbell should come in; that Mr. G. said he was in haste, and could not wait; and asked the witness if he would take a certified check and hand it to Mr. Campbell. He asked for the draft, and said he wanted to pay it, and had a certified check to pay it with. The witness told him that Mr. Campbell had the draft. He then asked the witness to take the certified check, for the purpose of paying the draft in the hands of Mr. Campbell, which he did. Mr. Goddard said he was the agent of the bank, and did not wish any notice of protest sent out. When he was leaving, he requested that the draft should be sent down to their office. When Mr. Campbell came into the office, the witness handed him the check, and stated to him that Mr. Goddard had called to pay a draft of the Ohio Bank, and that no notices of protest should be sent; also, that the plaintiffs wished the draft sent down to their office.
John D. Campbell, the notary, testified, that on the 18th of September, 1847, being Saturday, he presented the draft at the American Exchange Bank, and demanded payment, which was refused; that on Monday morning, September 20th, when he came down to his office, he found a certified check of the plaintiffs for $1000 75, which he was told by Mr. Riker had been left to pay the draft; that he took the check to the Merchants Bank and handed it to the note teller, who ceritfied the amount to the Farmers Bank at Troy. That he brought back to his office the draft, and put it in his trunk, where it remained until the next morning, when Mr. Goddard called and spoke of his having left his check, to pay the draft; that the witness then went to his trunk and took out the draft and handed it to him. On looking at it a few moments, Mr. Goddard said he doubted if it was a genuine draft; and wanted the witness to return him the money. The witness told him that he had presented it to the bank on which it was drawn, and that he thought it strange nothing had been said about its being a forgery ; the witness offered to go to the bank with him, and see the cashier; that he told Mr. G. that if he had informed the witness of the forgery the day before, he, the witness, might have sent the notices in time on that day. Mr. G. said he had not seen the draft until it was shown to him by the witness. The witness went to the Merchants Bank with Mr. G. and saw the cashier with him. Mr. G. told the cashier that the draft was a forgery, and demanded back the money deposited the day before. The cashier declined refunding it, saying that he did not know the draft was a forgery, and that the money having been paid, and gone to the credit of the Farmers Bank of Troy, he did not see how it could be returned. It was then agreed between Mr. Goddard and the cashier, that the witness should again present anew, and protest the draft, and give notice, to the parties, which he did, on the 21st of September. This witness also testified that Mr. Riker was not his clerk; that when he was absent from his office, Riker frequently received papers for him, and answered questions for him in regard to the witness’s business ; that Riker had equal charge of the office, being a co-tenant with the witness of the same.
The testimony being closed, by consent of parties, the jury found a verdict for the plaintiffs for $1051 53, subject to the opinion of the court.
H. E. Davis, and W. Kent, for the plaintiffs.
I. Money paid under a mistake of facts can be recovered back in an action for money had and received. (Boyer v. Pack, 2 Denio R. 107; Mowalt v. Wright, 1 Wend. 355; Wait v. Leggett, 8 Cow. 195; Bank of Orleans v. Smith, 3 Hill, 560.)
II. The act of the plaintiffs in paying supra protest, is sanctioned and encouraged by the commercial law. (Story on Bills of Exchange, § 121, 122, 123.) And in thus paying, the plaintiffs acted not only under a mistake, but upon an affirmation of the defendants’ agent, untrue in point of fact, and which the plaintiffs had no means of correcting.
III. Had the plaintiffs even seen the draft and paid the money under a mistake as to the genuineness of the drawer’s signature, he would have been entitled to recover back his money, on the discovery of the mistake and giving notice. (Wilkinson v. Johnson, 3 Barn. & Cres. 428 ; Canal Bank v. Bank of Albany, 1 Hill, 287.)
IV. Due diligence was used by the plaintiffs in giving notice of the forgery. (See the same cases as mentioned in last point.)
B. W. Bonney, for the defendants.
I. The Bank of Rutland were bona fide holders for full value, of the check in question, which was received by that bank, and the consideration therefor paid in the ordinary course of business, without negligence, fault, or blame on their part.
II. The check was, in the usual course of business, indorsed and transmitted for collection by the Bank of Rutland to the Farmers Bank of Troy, and by that bank to the Merchants Bank in New York. The defendants were the agents of the Farmers Bank in the transaction, having nó interest whatever in the check or its proceeds.
III. The check was promptly presented for payment by the defendants, and payment being refused, it was, in the usual course of business, handed to a notary for protest, by whom the same was again presented to the drawees and duly protested, and notices to the indorsers and drawer prepared to be sent in due course of mail, as required by law. No laches, improper conduct, or blame whatever is attributable to the Merchants Bank or the notary.
IV. The plaintiffs, of their own mere motion, without request, application or notice from the defendants or the notary, intervened, and for the honor of the drawers, of whom they were then the bankers or agents in New York, voluntarily paid the check. The defendants received the money in perfect good faith, and passed the same to the credit of their principals, the Farmers Bank, and cannot be required to repay the same to the plaintiffs.
V. The payment of the check, without request or notice from the defendants, and without seeing, the same, to determine as to its genuineness or character, was gross negligence on the part of the plaintiffs, which precludes them from recovering back the money so paid. If they were misled by information received from the drawees, the defendants cannot be made responsible for it.
VI. It is a well settled principle of law, that the drawee of a bill or check, who accepts or pays the same, thereby admits the signature of the drawer, and is estopped from subsequently denying it, and cannot afterwards defend an action on the acceptance, brought by a bona fide holder, or recover back the money paid, although the drawer’s signature be a forgery. And a third person not a party to the paper, who for the honor of the drawer, has voluntarily intervened and accepted or paid the bill or check, is, under like circumstances, in no better position than the drawee. (Chitty on Bills, Springfield Ed. of 1842, 307, 426-7, and 430-1; Price v. Neal, 3 Bur. 1354, A. D. 1762; Smith v. Chester, 1 Term R. 654, A. D. 1787; Levy v. Bank of U. S., 1 Binney, 27; Jones v. Ryde, 5 Taunton, 488; Bruce v. Bruce, 5 Taunton, 495 ; Smith v. Mercer, 6 Taunton, 76; Bass v. Clive, 4 M. & S. 15, A. D. 1815 ; Wilkinson v. Johnson, 3 Barn. & Cress. 428; Cock v. Masterman, 9 Barn. & Cress. 902.)
VII. It was the duty of the Merchants Bank, as correspondent and agent of the Farmers Bank, to have caused the check in question to be duly protested on the day it was presented to the drawees, and notices to be regularly sent to the indorsers and drawer. And not having done so, the Merchants Bank is responsible to the Farmers Bank for the amount of the check. The responsibility of an agent is in these particulars, greater and more rigidly enforced than that of a party in interest as indorser for value. (Allen v. Suydam & Boyd, 20 Wend. 321; Woodruff v. Merchants Bank, 25 Wend. 673 ; Same case in error, 6 Hill, 174.)
VIII. The plaintiffs, by intervening and voluntarily paying the check in question, and by application to the notary, prevented the giving of due notice to the endorsers and drawers, and procured the protest and notices which had been prepared to be destroyed. By these acts the defendants have been made liable to the Farmers Bank for the amount of the check, and therefore the plaintiffs cannot recover back the money so paid.
IX. The testimony shows actual damage to the Bank of Rut- land, by the delay in sending forward the protest and notices. Had they been sent one day sooner, the supposed forger would have been arrested at Cleveland, and the money might have been recovered from him.
X. The money in question having been received by the defendants as mere agents, and immediately passed to the credit of the Farmers Bank, their principal, the Farmers Bank and not the defendants, (if any one,) were liable therefor; and this action against the defendants cannot be sustained.
XI. The verdict, taken by consent, should be set aside, and a non-suit or verdict for defendants entered.
Before Vanderpoel and Sandford, J. J.

Opinion:
By the Court. Vanderpoel, J.
It is now too well established to admit of doubt or controversy, that money paid under a mistake of facts, can be recovered back, in an action for money had and received. (Boyer v. Pack, 2 Denio, 107 ; Mowatt v. Wright, 1 Wend. 355 ; Bank of Orleans v. Smith, 3 Hill, 560.) It is conceded that the draft which the plaintiffs paid to the defendants, was a forgery; and the only question is, upon whom the loss should fall. Questions of this description are not always free from difficulty; as the decisions of the courts, especially those in England, have not always been consistent as to payment by mistake of bills or notes, when there has been a forgery. Chitty says, (Chitty on Bills 430, ed. of 1842,) that with respect to payments by mistake, of bills or notes, where there has been a forgery, the decisions and opinions have been contradictory; that there are many conflicting decisions upon the question, whether the party paying should be allowed to recover back the money from the person to whom he has inadvertently paid it. In stating the prominent reasons that have been put forth on both.sides of this question, he remarks, that the holder of a bill who has obtained payment, cannot be considered as having altogether shown sufficient circumspection— " he might, before he discounted, or received the instrument in payment, have made more inquiries as to the signature and genuineness of the instrument, even of the drawers or indorsers thereof; and if he thought fit to rely on the bare representation of the party from whom he took it, there is no reason that he should profit by this accidental payment, when the loss had already attached upon himself, and when, by an immediate notice of the forgery, he is enabled to proceed against all other parties, precisely the same as if the payment had not been made, and, consequently, the payment to him has not, in the least, altered his situation, or occasioned any delay or prejudice ; that of late, these considerations have influenced courts in determining whether or not the money shall be recoverable back."
These views of the learned writer strike us as sound, and the considerations which he states as having, of late, influenced courts, we are free to say, have had a potent, if not controlling influence in bringing us to the conclusion we have reached in this cause. The defendants here were the agents of the Bank of Troy, and as such received the amount of the draft from the plaintiffs. They gave their principal credit on their books for the amount, but had not paid over the money. An agent's merely passing money in account, giving credit, or making a rest, is not equivalent to a payment over. (Buller v. Harrison, Cowper, 568 ; Cox v. Prentice, 3 M. & Sel. 344 ; 5 Taunt. 456 ; Ibid. 815 ; Langley v. Warner, 1 Sand. R. 209.) Enough appears to show that the Bank of Troy was the agent of the Bank of Rutland to collect, and the question, therefore, in reality, is, whether the Bank of Rutland, whose first mistake gave currency to this bill, shall sustain the loss, or the plaintiffs, who paid the bill for the honor of the Canal Bank of Cleveland.
The act of the plaintiffs in paying the bill, supra protest, is sanctioned by the commercial law. (Story on Bills, § 121, 122, 123.) The party who accepts and pays a bill, supra protest, has his own rights and recourse over against the person or persons for whose honor he accepted the same, and against all other parties to the bill, who are liable to the same person or persons. (Story, § 124.) He is not, then, to be regarded as a mere volunteer, who has officiously obtruded himself into the position he occupies, and who is therefore to be regarded with disfavor by the court.
The defendants had handed the bill to Mr. Campbell, their notary, after the drawees had refused payment for want of funds. On the 20th of September, one of the plaintiffs called at Mr. Campbell's office, and found Mr. Riker there, who, as he testifies, in Mr. Campbell's absence, answered questions and did business for him. He answered the plaintiff, on inquiry made by the latter, that Mr. Campbell had a draft of $1000 of the Canal Bank of Cleveland on the American Exchange Bank, which the defendants had left with him, to be protested. Whereupon, the plaintiff handed to Mr. Riker his check for the amount of the draft and protest, to be delivered to Mr. Campbell, which he did so deliver to him on the same day, and the latter, on the same day, paid it over to the note-teller of the defendants, who credited it to the Bank of Troy. When the plaintiff paid it, he acted upon the representation of Riker, the agent of their notary, that the notary had such a draft, that is, a real draft, drawn by the Canal Bank of Cleveland on the American Exchange Bank. The payment was made on the faith of this representation when, in point of fact, it was not true. Ought the defendants to profit by such a payment, which, if not induced by the representations of their own agent, was accidental, and made in ignorance of - a most material fact 1 More especially ought the defendants, to be exonerated from the obligation of refunding this payment, when they had notice of the mistake before they paid over the money to their principal, and before their situation, in respect to their principal, was in any respect changed. The case of The Canal Bank v. Bank of Albany, (1 Hill, 287,) was that of money paid on a forged indorsement of a draft. The court hold that the defendants were bound to refund, on the ground that money paid by one party to another, through a mutual mistake of facts, in respect to which both were equally bound to inquire, may be recovered back. We are aware of the distinction between that case and the present, in the fact that there the name of the indorser was forged, and that in such a case the acceptor who pays in ignorance of the forgery, may recover back the money from an innocent holder, on the ground that he is not presumed to know the signature of every indorser. But when the name of the drawer is forged, the acceptor who pays the bill, will not, as a general rule, be allowed to dispute the genuineness of the drawer's signature. He is presumed to know the signature of the drawer when he accepts, as he is supposed to be in correspondence with him. In Smith v. Chester, (1 T. R. 655,) Buller J. says, when a bill is presented for acceptance, the acceptor looks to the hand-writing of the drawer, and he is precluded from afterwards disputing it; and that it is on that account that he is liable, though the bill be forged.
The plaintiffs here are not the acceptors. They did not look at the signature of the drawers when they made the payment, because they had not then the opportunity to do so. They gave their check to Riker before they saw the bill, and on the faith, induced by Riker's representations, that Campbell had a genuine bill drawn by the Canal Bank of Cleveland. Though the plaintiffs are not the drawees, yet had the American Exchange Bank, which was the drawee, paid the bill under the circumstances disclosed in this case, in respect to the plaintiffs, we cannot see upon what sound principles they could be precluded from recovering it back. Had the American Exchange Bank paid the bill to Riker without seeing it, on the representation of the latter that Campbell had such a bill; though standing in the relation of drawee, the bank thus paying would not come within the reason of the rule which precludes the drawee and acceptor from recovering back the money when the name of the drawer is forged. The American Exchange Bank would not have done, (because they could not when they made the payment,) what Justice Buller says every acceptor is presumed to have done, looked at the handwriting of the drawer to be satisfied that it is genuine. Suppose one of the officers of that' bank had called upon the notary, and asked him whether he had such a bill, and the latter had answered in the affirmative, but that he could not then exhibit it, as the key of the desk containing it was in the possession of his clerk then out, and the officer of the bank had paid the bill on the faith of such representation, without seeing it, there is surely" no sound principle of law or ethics, which would preclude the bank as drawee, in such a case, from questioning the genuineness of the drawer's signature, or recovering back the money. The reason which generally seals the mouths of the drawee and acceptor against denying the signature of the drawer, would not then have existed. Though the case of The Canal Bank v. Bank of Albany, is different from 'the present, in the particular above stated, yet the reasoning of the learned judge who delivered the opinion in that case, goes strongly to sustain the present plaintiffs. The learned judge also speaks rather disapprovingly of the case of Cocks v. Masterman, (9 Barn. & Cres. 902,) (a case much relied upon by the defendants,) and seems to intimate a doubt whether it ought to be followed. (1 Hill, 293.)
In Cocks v. Masterman, the court expressly waived an opinion upon the main question, whether the plaintiff there could have recovered back the money, if he had given seasonable notice of the forgery. The case turned entirely upon the ground, that notice of the forgery was not given by the plaintiff to the defendant on the same day the former discovered it. Judge Cowen, in the case of the Canal Bank, speaks of the rule adopted in Cocks v. Masterman, as one of " rigor."
The case of Wilkinson v. Johnson, (3 Barn. & Cres. 428,) seems rather to conflict with Cocks v. Masterman. In the former, the plaintiff paid the bill for the honor of one of the indorsers. It turned out, that the names of the drawer, acceptor, and the indorsers, for whose honor the plaintiff had paid the bill, were ail forged; and it was held, that the plaintiff could recover back the money from the holder of the bill, to whom he had paid it under a mistaken opinion that the signature of the supposed drawer was genuine. The conclusion of the court, and the reasoning of Abbot, Ch. J., in that case, favor most of the positions taken by the plaintiffs here.
We also think, that due diligence was used by the plaintiff in giving notice of the forgery, and that no possible prejudice resulted or could result to the defendants, or to the Bank of Rutland, from the retention of the notice of protest for the period it was stayed at the plaintiff's request. They could not recover from the Canal Bank of Cleveland. The only person from whom they could recover was " E. S. Moore," the forger of the bill. It does not appear, that he had any residence where they could have sent notice to him, and it would hardly lie in his mouth to say, that he was not obliged to pay a forged draft, because he was not duly notified of its protest. (Story on Bills, § 308.) We are of opinion, that the plaintiffs used due diligence. (1 Hill, 291, and cases there cited.)
The plaintiffs are entitled to judgment.