Story Case

A rogue forged the name of Russell Green to a check for $847.72, upon the Inland Bank, where Green had an account. The check was indorsed in the name of the payee, and bore another indorsement when it was offered to The Mammoth Market Company by one of its customers in payment of a bill. Before taking it, the cashier of The Mammoth Market Company sent it to the Inland Bank to be certified. The bank marked it accepted and the cashier of the market, therefore, took it as cash from the customer. When he later presented it to the bank for payment, the bank refused, saying that it had discovered that the signature of the drawer, Kussell Green, was a forgery, and also that the account of Russell Green had been exhausted by applying the balance upon a debt which Green owed to the bank. The Mammoth Market Company brought suit against the Inland Bank upon the acceptance of the check, and the same defenses were in the suit. Who should recover?

Ruling Court Case. National Park Bank Vs. Ninth National Bank Of New York, Volume 46 New York Reports, Page 77

The Rudgely National Bank of Springfield, Illinois, on March 25, drew a bill of exchange upon the National Park Bank for $14.20. It was payable to the order of Ely Shirly, and delivered to him. The bill was subsequently altered by increasing the amount to $6,300, by changing the name of the payee to E. G. Fanchon, and by erasing and rewriting the name of William Eidgely, Cashier. The bill in question was bought in good faith by the Ninth National Bank of New York. It was presented to National Park Bank, and $6,300 paid to the Ninth National Bank, when the Park bank discovered the alteration and forgery. It then sued to recover the money. It contended that the name of the drawer was forged twice, and that it conld recover the amount, as money paid under a mistake of fact.

Decision: Acceptance of a bill, or payment thereof, by the acceptor or drawee, is an admission, which he cannot thereafter dispute, that the signature of the drawer is genuine, that he had the capacity and authority to draw the bill. Thus, the Park bank, as against a bona fide holder of this instrument, is bound by it as it stood when it was paid.

Mr. Justice Allen said: "For more than a century it has been held and decided without question, that it is incumbent upon the drawee or acceptor of a bill to be satisfied that the signature of the drawer is genuine, that he is presumed to know the handwriting of his correspondent; and if he accepts or pays a bill to which the drawer's name has been forged, he is bound by the act, and can neither repudiate the acceptance nor recover the money paid." Judgment was given for the Ninth National Bank.

Ruling Law. Story Case Answer

When the drawee accepts a bill drawn upon him, or when he pays it, he admits the existence of the drawer; he admits the genuineness of the signature of the drawer; he admits that the drawer had authority to draw the instrument. It follows that, as against a subsequent holder for value, without notice of any defect in title to the instrument, the drawee or acceptor cannot affirm that there was no drawer; nor that the signature of the drawer was forged; nor that the drawer had no authority to draw upon him for that amount. Thus, if A forges the name of M to a bill drawn upon D, and this is passed on to a bona fide purchaser for value, who presents the same to D for payment, and payment is made, D cannot recover that money because the name of M was forged. When he pays the instrument, he admits the genuineness of the signature of the maker, and this fact he cannot deny as against a bona fide holder for value without notice. Having accepted the check (which is really a bill of exchange), the bank is now precluded from maintaining these defenses. If it has taken the account in payment of a debt, that is equivalent to terminating the obligation to pay checks drawn upon it, and terminating the authority of Green to draw the checks. But the lack of authority must be asserted when the check is first presented, and is no defense after acceptance. Likewise, the forgery, while a good reason for dishonoring the bill, is not an excuse from liability after it has been accepted. The casual bearer of a bill is not expected to know the signature of the drawer, but the drawee, who must look to the drawer for his reimbursement for paying the bill, is expected to know his signature. Since he is expected to know, his acceptance is regarded as an expression as to its validity and may be relied upon by other persons. Therefore, the bank must pay the check, even though it was forged, because it gave its promise to do so. Likewise, it is liable, in spite of the lack of authority to draw upon it.