Chain of title should be complete : meaning.

Still another case of want of contract arises where between the plaintiff and the defendant there is a forged indorsement.1 Each person who signs a negotiable contract of the law merchant undertakes to pay to any one who acquires title according to the law merchant. That law requires, not that every intervening holder of the paper between the plaintiff and the defendant should have been owner of the instrument or even the lawful holder of it, but that every intervening indorsement of an owner should be genuine. The holder may have a good claim against later indorsers; back of the forged indorsement he cannot go, for want of legal assent on the part of the signers. For example: The plaintiffs sue the defendants to recover the amount paid by mistake by the plaintiffs as acceptors to the defendants as holders of a bill of exchange payable to A, whose indorsement had been forged. The defendants were bona fide holders for value. The plaintiffs are entitled to recover.'

2

There are one or two nominal exceptions to this rule. The maker of a note, or the drawer of a bill or a cheque, can make it Exceptions to payable to whomsoever he will; and if he makes it the rule. payable to a person having no interest in it, he may indorse that person's name, and put the instrument into circulation. So far as the question of his own liability upon the instrument is concerned, it would make no difference whether the maker or drawer had the authority of the payee to indorse his name or not; because having once used the payee's name for the purpose of putting the paper into circulation, he could not afterwards deny his right to do so. Indeed, it could

1 Of course one whose signature is forged is not bound. N. I. L. § 30. But one may be estopped by conduct or words to set up the forgery. Id.; infra, p. 226.

2 Canal Bank v. Bank of Albany, 1 Hill, 287; Hortsman v. Henshaw, 11 How. 177; Cases, 274; Arnold v. Cheque Bank, 1 C. P. D. 578.

3 Canal Bank v. Bank of Albany, supra.

As to paper nayable to a fictitious person see ante, p. 26.

not affect the case that the payee was a party in interest, so far as the liability of the maker or drawer, on the instrument, is concerned. The act would be a forgery and of course not binding upon the party whose name was forged; but the forger could not escape liability on the instrument allege that he had forged the payee's name.

he could not

More than that, the law merchant appears to hold the acceptor of a bill of exchange liable notwithstanding a forgery by the drawer of the payee's signature, if the forgery was committed before the acceptance.1 For example: The plaintiff is suing to recover the amount of a bill of exchange paid by him as acceptor to the defendant, a bona fide holder for value, one of the drawers of the bill having, before the acceptance, forged the payee's name. The plaintiff did not know of the forgery when he paid. He is not entitled to recover.2

§ 5. FORGED SIGNATURE OF DRAWER, ETC.

Peculiarity of

Forgery of the signature of the drawer of a bill of exchange stands upon a footing of its own. Were it not for a special rule of law, founded upon the natural effect of acceptsuch case: ance, the case would be in no wise peculiar, and estoppel to the courts would therefore hold that no action deny signature. could be maintained against the acceptor by any person. But

1 Contra, it seems, if the drawer's forgery was committed after the acceptScholfield v. Londesborough, 1896, A. C. 514, forgery by drawer in the

ance.

body of the bill.

2 Coggill v. American Bank, 1 Comst. 113. See Hortsman v. Henshaw, supra. The acceptance was of the drawer's order as the drawer chose to put it; the drawer could request the drawee to pay to any one to whom he made the sum payable. But on the right to recover money back which has once been paid recent English authority is opposed to the current of American authority, not permitting recovery if any lapse of time has occurred during which the person receiving the money might have changed his position. London Bank v. Bank of Liverpool, 1896, 1 Q. B. 7. But see Bank of Commerce v. Union Bank, 3 Comst. 230; Cases, 249; Leather Manuf. Bank v. Morgan, 117 U S. 96; Dana v. National Bank of Republic, 132 Mass. 156; Shepard Lumber Co. v. Eldridge, 171 Mass. 516; Winslow v. Everett Bank, id. 534. In these American cases lapse of time is considered as no bar in the absence of negligence on the part of the person demanding return of the money.

the drawer and the drawee are, or they are generally assumed to be, correspondents; they are ordinarily in close business. relations, the drawee usually holding funds of the drawer and often being his banker. The drawee is, therefore, presumably familiar with the hand of the drawer, and when he accepts a bill purporting to be the drawer's, he thereby asserts or admits that the signature is the genuine signature of the drawer.1

That may well have misled a purchaser of the bill; and the law therefore holds the acceptor, by reason of his acceptance, estopped to deny his liability to a purchaser after acceptance who is a bona fide holder for value; the acceptance in such a case is binding, notwithstanding the fact that the drawer's signature is a forgery. For example: The plaintiff sues to recover the amount of a bill of exchange which as acceptor he has paid to the defendant, a bona fide holder for value who had discounted the bill after acceptance. The drawer's signature is forged, but the plaintiff did not know the fact when he accepted. The plaintiff is not entitled to recover; it was his duty to satisfy himself of the drawer's hand before acceptance, and his acceptance is a conclusive admission, in favor of the defendant, of the genuineness of the signature.2

The case from which the example is taken went still further. Another bill had been paid by the plaintiff, on presentment, without acceptance, the defendant having already taken it; but the same rule was applied, the plaintiff was not allowed to show that the drawer's signature had been forged. The case, therefore, appears to go the length of holding the drawee bound by his act, whether of acceptance or payment, though that act could not have misled the holder into his purchase of the bill; enough that the acceptance or payment was in favor of a holder in due course.

That doctrine has since been denied, and the admission of genuineness of the signature put upon the ground that the drawee has, by his acceptance or by some other act in recognition. of the bill, recommended the instrument. If the bill was taken

1 N. I. L. § 69, 1.

2 Price v. Neal, 3 Burr. 1354; Cases, 267. That is the leading case, and has had a long following. See Bigelow, Estoppel, 481 et seq., 5th ed.

before acceptance or other recognition, the drawee, according to this view, is not bound by his subsequent acceptance or payment, and accordingly may recover the money back again if he has paid it. But the question appears to be settled, no doubt by custom, against this modification of the rule, and the rule established in general, that acceptance or payment by the drawee admits the drawer's signature in favor of a holder in due course.1 The rule however being founded on custom may indeed be changed by custom. Thus it is laid down that the acceptor may allege the want of genuineness of the drawer's signature, if he can show that by a settled course of business between the parties, or by a general custom of the place, the holder took upon himself the duty of exercising some particular precaution to prevent the loss, and failed of performing that duty. So also it has been held that if the holder himself indorsed the paper, as for collection, before it was presented to the drawee, the drawee will not be estopped from alleging that the drawer's signature was forged, because now the holder is thought to have asserted the genuineness of the bill, and to have misled the drawee. And again, if the owner of the bill, on presenting it to the drawee, withhold from him important information which the former has touching the question of genuineness, acceptance or payment will not be binding."

It should be remembered that the estoppel goes no further than to cut off the acceptor's right to set up the want of genuineness of the drawer's signature, and that his acceptance does not preclude him from asserting that other signatures, with an exception above mentioned (where the drawer indorses the

1 McKleroy v. Southern Bank, 14 La. An. 458; Cases, 270.

2 N. I. L. § 69, 1, making no distinction; Lyndonville Bank v. Fletcher, 68 Vt. 81; National Bank of North America v. Bangs, 106 Mass. 441 (a cheque); First National Bank v. First National Bank, 58 Ohio St. 207 (a cheque); First National Bank v. Northwestern Bank, 152 Ill. 296; Marine Bank v. National City Bank, 59 N. Y. 67; National Park Bank v. Ninth National Bank, 46 N. Y. 77; Bills of Exchange Act, § 54 (2).

Ellis v. Ohio Ins. Co., 4 Ohio St. 628; First National Bank v. First National Bank, supra.

4 National Bank of North America v. Bangs, 106 Mass. 441.

5 First National Bank v. Ricker, 71 Ill. 439.

payee's name), are not genuine, or that the body of the bill has been altered.1

There are other cases also in which the defendant has become barred of the right to allege want of contract between himself Other cases of and the holder of the paper. Thus, to acknowlestoppel. edge a signature as one's own will preclude one from asserting, against a bona fide holder for value, who takes the paper thereupon, that the signature is not genuine. So also if it appear that there has been a regular course of dealing, in which bills have been accepted by a clerk or agent whose signature has been acted upon by all parties concerned as the signature of the employer or principal, the fact will afford very, strong evidence against the latter that he has authorized the acceptance in the present case. But a person is not bound as acceptor of a bill of exchange bearing a forged acceptance by the mere fact that he has previously paid one bill similarly forged, unless he has actually led the holder to believe in some other way that the present acceptance is genuine.*

Incapacity, natural or legal, to contract, by way of making, accepting, drawing, or indorsing, is a defence in all cases in favor of the incompetent party, and, it may be added, as in contracts of the common law, in favor of him only. It matters not what false representations touching capacity may have been made, as, for instance, by an infant that he is of age; it matters

5

1 First National Bank v. Northwestern Bank, 152 Ill. 296; Corn Exchange Bank v. Nassau Bank, 91 N. Y. 74; Lyndonville Bank v. Fletcher, 68 Vt. 91. 2 N. I. L. § 30; Buck v. Wood, 85 Maine, 204; Rosenplanter v. Toof, 100 Tenn. 92; Goodell v. Bates, 14 R. I. 65; Cohen v. Teller, 93 Penn. St. 123; Rudd v. Matthews, 79 Ky. 479. See Bank of United States v. Bank of Georgia, 10 Wheat. 333, which goes still further. But see Koons v. Davis, 84 Ind. 387, 389, which may be doubted.

Morris v. Bethell, L. R. 5 C. P. 47; Crout v. De Wolf, 1 R. I. 393.

4 Morris v. Bethell, supra; Cohen v. Teller, supra.

5 Compare Baker v. Stone, 136 Mass. 405; Merriam v. Cunningham, 11 Cush. 40; Alvey v. Reed, 114 Ind. 148; Wieland v. Kobick, 110 Ill. 16; Burley v. Russell, 10 N. H. 184; Bartlett v. Wells, 1 Best & S. 836. But see Kilgore v. Jordan, 17 Texas, 341.