United States v. Chase Nat. Bank

• Decision Date: 21 April 1917
• Citation: 241 F. 535
• Parties: UNITED STATES v. CHASE NAT. BANK.
• Court: U.S. District Court — Southern District of New York

241 F. 535

UNITED STATES v. CHASE NAT. BANK.

United States District Court, S.D. New York.

April 21, 1917

This is an action at law to recover from the defendant, a bank, the amount of a check or sight draft drawn under the following circumstances: Lieutenant Sumner was an officer in the United States army, detailed to the Quartermaster's Department and authorized as such to draw upon funds placed by the Treasury Department at his disposal. One Howard, a sergeant in the Quartermaster's Department, had been detailed to assist Sumner for some time past, and had learned his method of availing himself of these funds. While Sumner was temporarily away upon leave, Howard took one of the regulation drafts of the Treasury Department, filled it to the order of Sumner, and forged Sumner's name as drawer. Having then forged the indorsement of Sumner's name in blank, he cashed the check over the counter of the Howard National Bank of Vermont. This bank indorsed the check to the defendant, which upon delivery presented it to the Treasurer of the United States, who paid it. Howard's forgery was soon discovered, and the plaintiff thereupon sued the defendant to obtain a refund of the amount so paid. Other circumstances are admitted by the stipulation under which the cause was tried, but they are relevant only upon the question of the negligence of the several parties, and as such do not require statement here.

Joseph A. Burdeau, of New York City, for the United States.

Henry Root Stern, of New York City, for defendant.

LEARNED HAND, District Judge (after stating the facts as above).

No one disputes since Price v. Neal, 3 Burr. 1354, that a drawee may not recover money paid upon paper forged by the drawer; on the other hand, no one disputes that, if the bill be once lawfully signed and uttered, no innocent holder may collect the bill with a forged indorsement and retain the proceeds. The question at bar presents the case where the forger not only forges the putative drawer's name, but makes the bill payable to the drawer and then forges the indorsement as well.

A bill made in the form of this check, even if valid, is incomplete and not commercial paper at all, until it has been indorsed and delivered to some person other than the drawer. Until then it is in form only an order to pay to the maker, and no obligation can arise between the maker as maker and himself as payee. This, after some confusion, was decided in the case of notes (Wood v. Harper, 2 Exch. 13; Brown v De Winter, 6 C.B. 336), and is now unquestioned law (Moses v. Lawrence County Bank, 149 U.S. 298, 13 Sup.Ct. 900, 37 L.Ed. 743; Negotiable Instruments Law (Consol. Laws N.Y. c. 38) Sec. 320). It is so obvious as not to justify expatiation; and the same reasoning applies to bills.

Therefore until Howard indorsed Sumner's name, the check did not even on its face, exist as a legal instrument, any more than an undelivered deed; its factum was in abeyance. When he did indorse it in blank and deliver it to the Vermont bank, it was an order to pay the sum to bearer. The drawer's name was forged, but the two added forgeries of the same name were of no more significance than if the forger had signed Sumner's name three times as drawer. The rule is, however, not confined to cases where the paper is payable to drawer or maker. It is generally held that, if the drawer selects as payee the name of even a real person, and forges, not only the drawer's name, but the payee's, a presenting holder may keep the proceeds. Phillips v. Mercantile National Bank, 140 N.Y. 556, 35 N.E. 982, 23 L.R.A. 584, 37 Am.St.Rep. 596; Bartlett v. First National Bank, 247 Ill. 490, 93 N.E. 337; Snyder v. Corn Exchange National Bank, 221 Pa. 599, 70 A. 876, 128 Am.St.Rep. 780; Coggill v. American Exchange Bank, 1 N.Y. 113, 49 Am.Dec. 310; Trust Company v. Hamilton Bank, 127 A.D. 515, 112 N.Y.Supp. 84. National Bank of Commerce v. United States, 224 F. 679, p. 681, 140 C.C.A. 219, though at first blush it seems to be an exception, in fact went off on another point, and recognizes the general rule.

It is true that the decisions are not unanimous (First National Bank v. N.Y. Bank, 152 Ill. 296, 38 N.E. 739, 26 L.R.A 289, 43 Am.St.Rep. 247; McCall v. Corning, 3 La.Ann. 409, 48 Am.Dec. 454), and it takes only slight evidence of participation to defeat the holder (Bank of Danvers v. Bank of Salem, 151 Mass. 280, 24 N.E. 44, 21 Am.St.Rep. 450); but it is none the less true that, where the foregoing facts are baldly presented, the better considered cases protect the presenting holder. Yet, when the forger draws a note to the name of a payee, either real or fictitious, and the drawee or maker accepts it, supposing the name to be real, no subsequent negotiation of it by the forger gives a valid title, and, if the drawee pays, he may recover. Shipman v. Bank of N.Y., 126 N.Y. 318, 27 N.E. 371, 12 L.R.A. 791, 22 Am.St.Rep. 821; Seaboard Bank v. Bank of America, 193 N.Y. 26, 85...