[214 U.S. 302, 303] This action was brought by the United States to recover the sum of payments made at the subtreasury in Boston upon 194 pension checks, the signatures or marks of the persons to whom the checks were payable having been forged. The National Exchange Bank of Boston was originally sole defendant, but in legal effect the National Exchange Bank of Providence was substituted as defendant, and the issues were made up between it and the United States. We shall hereafter refer to that bank as the Exchange Bank.
The cause was tried upon an agreed statement, and the material facts may be thus summarized:
Upon receipt of pension vouchers, regular in form and purporting to be executed by the pensioners named therein,-but which in fact were forgeries,-the United States pension agent at Boston drew the checks in question upon the subtreasury at Boston, aggregating $6,362.07, in favor of the pensioners named in the vouchers, and transmitted such checks by mail directly to the address of each pensioner as given in the vouchers, in accordance with the provision of 4765, Revised Statutes, U. S. Comp. Stat. 1901, p. 3285. Of the persons named in the checks fifteen had died, and the others were the widows of soldiers, who had remarried, and whose right to a pension had ceased, all the names, however, as we have said, having been forged. With but two exceptions the checks were either for $24 or $36.
The checks with the forged indorsements thereon of the [214 U.S. 302, 304] payees were cashed by the Exchange Bank, and immediately indorsed to a national bank in Boston for collection. The checks were presented by the collecting bank at the subtreasury of the United States in Boston. The collecting bank received payment of the same, and accounted for such payment to the Exchange Bank. 1
In May, 1897, a special examiner of the Pension Bureau was detailed at Providence to investigate the case of one Mooy, a deceased pensioner, in whose name three of the checks here in question, each for $36, had been issued and paid in 1896. On June 18, 1897, the examiner reported to the bureau the forgery of the name of the deceased payee, and that it had probably been done by one William A. Munson. December 18, 1897, notice was given to the Exchange Bank by the United States attorney at Providence that the indorsements of Mooy's name to said checks were forged, and that at a proper time reclamation would be made for the money paid to the bank upon the checks. The remaining forgeries were discovered at different times during the months of February, March, April, and May, 1898, and in December, 1898, Munson, who was undergoing imprisonment upon a sentence imposed June 22, 1898, for forging a pension check, with which presumably this case is not concerned, admitted that he had forged the signatures of the payees on the checks in suit. [214 U.S. 302, 305] On July 22, 1898, the United States attorney at Providence made written demand upon the Exchange Bank to be refunded the sums paid, except as to checks aggregating $351.27, for which no demand for repayment was made other than by the bringing of this action. The bank refusing to repay, this action was commenced on August 27, 1901
Each of the 194 checks was made the subject of two counts. An indebtedness of the defendant bank to the United States was averred in the first count to have arisen from the fact that a described check had been lawfully issued by a United States pension agent, drawn upon the Assistant Treasurer of the United States, that a signature, purporting to be that of the payee, was thereafter forged upon the check, and that the Exchange Bank indorsed said check and presented it for payment to the Assistant Treasurer, who paid the amount thereof. The second count was the common count for money received by the defendant to the use of the United States. In substance, the defenses interposed in the answer of the bank were that, if the facts averred in the declaration were established by the proof, the bank was yet not liable, because the action had not been brought within a reasonable time after the alleged payments of the drafts, nor had prompt notice been given of the discovery of the forgeries. It was also averred that the United States had been negligent in not verifying the signatures of the payees of the checks in suits by comparing them with signatures of the payees in its possession.
Upon the agreed facts the circuit court entered judgment against the bank for the full amount claimed, with interest. The appellate court, however, reversed this judgment, and remanded the cause with directions to enter judgment for the Exchange Bank (80 C. C. A. 632, 151 Fed. 402); and this writ of error was thereupon prosecuted.
Assistant Attorney General Fowler for plaintiff in error.
[214 U.S. 302, 307] Mr. Theodore Francis Green for defendant in error.
Statement by Mr. JusticeWhite [214 U.S. 302, 309]
Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:
A preliminary matter needs to be noticed. In the opinion of the circuit court of appeals it is said (italics ours):
United States Pension Agency, No. 297073. Boston, Mass., Mch. 5, 1892. Assistant Treasurer of the United States, Boston, Mass. Pay to the order of Mahala B. Jaques 9492 B81 Thirty-six Dollars. $36 36 100 Interior W. H. Osborne, U. S. Pension Agent. Paid Mar. 12, 1892, Asst. Treas., Boston. 'Indorsements: Mahala B. Jaques, Payee. M. M. Angell. Pay Nat. Bank of the Republic, Boston, or order, for collection, for account of First National Bank, Providence, R. I. C. E. Lapham, Cashier. Indorsement Guaranteed. Nat'l Bank of the Republic, Boston.
The sample check thus referred to is also set out in the opinion delivered in the circuit court. But no such check is in the record, nor is it embraced in the list of checks collected by the Exchange Bank, and for which recovery is sought by the United States. Presumably the stated sample check must have been inadvertently taken from the record in an action against some other bank. At all events, as it is not in argument questioned that the Exchange Bank was the holder of the checks sued for, when they were paid by the United States, we shall assume the correctness of the recital in the agreed statement of facts, that the checks 'with the forged signatures thereon were cashed by the defendant, who immediately indorsed the said checks to a national bank in Boston for collection.'
The circuit court of appeals reversed the judgment in favor of the United States upon the ground that, by the operation of an exceptional rule, said to prevail, under certain conditions, as to commercial paper, the United States could not recover for the mistaken payments, as there had been unreasonable delay in giving notice to the Exchange Bank after the discovery of the forgeries. The correctness of this action is assailed in the assignments of error, the government contending that the pension checks in question were mere Treasury warrants, not commercial paper in the true sense of that term, and hence not controlled by the so-called exceptional commercial rule; but that, even if the checks were commercial paper, and governed by such rule, mere negligent delay in giving notice of the discovery of the forgery would not prevent recovery unless the Exchange Bank established by proof that it had thereby suffered damage. It is besides claimed that if the agents of the government were negligent in giving notice of the discovery of the forgeries, their laches cannot be imputed to the United States. The Exchange Bank not only traverses [214 U.S. 302, 311] these assignments, but insists that the claim of the United States to recover was rightfully rejected, because the duty was on it not only to give prompt notice of the discovery of the forgeries, but also to discover cover the forgeries promptly after payment,-a contention which is controverted by the government.
In order to simplify the issue for decision we concede, for the sake of the argument only, that the forged instruments were not official warrants, as contended by the government, but, in a generic sense, are to be classed as negotiable commercial paper, and that, in a case coming within the exceptional rule referred to, the laches of the authorized agents of the government can be imputed to it. But, assuming the instruments to be negotiable paper, the question yet remains whether the right of the United States to recover from the Exchange Bank is controlled or limited by the exceptional rule referred to.
That, in certain classes of cases, an exceptional rule is enforced in England as to commercial paper, by which, under particular circumstances, such paper is taken out of the operation of the general rule relating to the recovery of money paid by mistake, is not subject to question. Price v. Neale, 3 Burr. 1354; Smith v. Chester, 1 T. R. 654; Smith v. Mercer, 6 Taunt. 76; Wilkinson v. Johnson, 3 Barn. & C. 428; Cocks v. Masterman, 9 Barn. & C. 902. The decisions referred to, however, show that the exception was limited to cases where the person who paid a forged instrument, and who sought recovery of the amount paid, was charged with knowledge of the genine signature of the person whose name was forged, and, therefore, was presumed to have been negligent in making the payment. For instance, where one accepted a draft purporting to be drawn upon him by a customer whose signature he was presumed to know, which afterwards turned out to be a forgery. Again, where a draft which purported to have been accepted, and, by the seeming act of acceptance, was made payable at a particular bank, which paid the same for account of its customer, the apparent acceptor, and it afterwards turned [214 U.S. 302, 312] out that the acceptance was a forgery, the exceptional rule was applied.
Several of the English cases above cited were reviewed by this court in Bank of United States v. Bank of Georgia, 10 Wheat. 333, 348, et seq., 6 L. ed. 334, 339. In that case recovery of moneys paid was denied to a bank which had received as genuine notes it had issued, but which had been fraudulently altered as to amount after being put in circulation, the decision having been rested (p. 353) 'upon the broad ground that there was an acceptance of the notes as genuine, and that it falls directly within the authorities which govern the cases of acceptances of forged drafts.'
The exceptional rule was thus noticed in the opinion delivered in Cooke v. United States, 91 U.S. 389, 396 , 23 S. L. ed. 237, 242:
White v. Continental Nat. Bank was cited and the doctrine therein expressed was approved and applied by this court in Leather Mfrs.' Nat. Bank v. Merchants' Nat. Bank, 128 U.S. 26 , 32 L. ed. 342, 9 Sup. Ct. Rep. 3. The opinion in that case, delivered by Mr. Justice Gray, was announced on October 22, 1888, and was subsequent in date to several decisions of lower Federal courts, cited in the opinion of the court below in this case, and which were deemed to conclusively demonstrate that the United States was not entitled to recover. In the Leather Mfrs.' Bank Case the question for decision was thus stated in the opinion:
The right of action was held to have accrued upon the pay- [214 U.S. 302, 316] ment of the money. After distinguishing the case from one which involved the relations of a bank and its depositors, the relations of a bank and its depositors,
... * *
We are of the opinion that the case before us is directly within the principle governing the ruling made in the case just cited as well as within the doctrine of White v. Continental Nat. Bank, which in effect, as we have shown, was approved by this court in Leather Mfrs' Nat. Bank v. Merchants' Nat. Bank. The United States is not before us as the acceptor of a draft drawn upon it, and charged with knowledge of the signature of the drawer; nor was it a bank which had paid the check of a depositor, and was charged with knowledge of the signature of such depositor. The forgery here was in the name of the payee, and it is therefore impossible, as it was in the case of White v. Continental Nat. Bank and in the Leather Mfrs' Bank Case, to bring this cause within the exceptional rule without holding that the United States was charged with knowledge of the signatures of the vast multitude of persons who are entitled under the law to receive pensions. The exceptional rule as to certain classes of commercial paper proceeds upon an assumption of knowledge or duty to know, naturally arising from the situation of the parties, entirely consonant with their capabilities, and in accord with the common-sense view of their relation. To apply the rule, however, to the government and its duty in paying out the millions of pension claims which are yearly discharged by means of checks would require it to be assumed that that was known, or ought to have been known, which, on the face of the situation, was impossible to be known; would besides wholly disregard the relation between the parties, and would also require that to be assumed which the obvious dictates of common sense make clear could not be truthfully assumed. But, con- [214 U.S. 302, 318] clusive as are these considerations, the case does not alone depend upon them, since we think legislation of Congress in reason precludes the conception that it was contemplated that the United States (or its agents) had actual knowledge of the signatures of pensioners, and, in paying pensions, was bound to all the world under such an assumption.
By 4764 and 4765, Rev. Stat. (U. S. Comp. Stat. 1901, pp. 3284, 3285), it is required before a pension check shall be issued, that vouchers shall be supplied, and the duty is cast upon the Secretary of the Interior of making rules and regulations to establish the identity of the pensioner. As shown by the record, the regulations thus promulgated require vouchers to be signed in duplicate before an officer authorized to administer an oath, or before a fourth-class postmaster. The pensioner is required to exhibit his pension certificate to such officer, and also to sign and make oath to a statement as to his identity, his existing right to the pension, and his postoffice address. The officer is required to certify as to inspection of the pension certificate; that the pensioner was fully identified; that he had signed the duplicate receipts; and the address of the pensioner is to be stated in the certificate. These requirements are incompatible with the assumption that the government was chargeable with knowledge of the identity, continued existence, and right to pensions, or with the signatures, of those entitled to receive pension moneys. The requirement by the government of proof, for its own protection, affords no ground for the contention that, as to any action taken as the result of the furnishing of such proof, the government is estopped as to third parties from showing that the proofs furnished were false and fraudulent, and that the government had been deceived thereby. To so hold would be to say that, from the act of exerting a precaution against fraud, there arose a presumption by which the fraud could be successfully accomplished. This would be the case if it were now held that, because by forged vouchers the government was deceived into acting, third parties had a right to rely upon the integrity of the proof, and to estop the government as though [214 U.S. 302, 319] representations as to the verity of such proof had been made by it to such third parties. The rights, therefore, of the bank as the apparent acquirer of the pension checks are to be governed by the nature and character of the instruments, and cannot be enlarged so as to relieve the bank from the obligation of warranty implied in the presentation of checks and the collecting of the amount. The subject is aptly illustrated in the opinion by Coxe, Judge, in United States v. Onondaga County Sav. Bank, 39 Fed. 259, affirmed by the circuit court of appeals for the second circuit in 12 C. C. A. 407, 26 U. S. App. 377, 64 Fed. 703.
As the nature of the forgery did not cause the case to be controlled by the exceptional rule, and as the Exchange Bank, when it presented the checks and obtained thereon the money of the United States, by operation of law warranted the genuineness of the instruments which it thus presented and upon which it asked and received payment, it follows that the case in substance is accurately portrayed in observations made by the court of appeals of New York in the White Case, at pages 320, 321:
Under these conditions the warranty of genuineness implied by the presentation and collection of the checks bearing the forged indorsement having been broken at the time the checks were cashed by the United States, and the cause of action having therefore then accrued, the right to sue to recover back from the Exchange Bank was not conditioned upon either demand or the giving of notice of the discovery of facts which, by the operation of the legal warranty, were presumably within the knowledge of the defendant.
The conclusion to which we have thus come renders it unnecessary to consider whether, if the facts presented merely a case of mutual mistake, where neither party was in fault, and reasonable diligence was required to give notice of the discovery of the forgery, if there was lack of such diligence, it would operate to bar recovery by the United States, although the Exchange Bank was not prejudiced by the delay.
The judgment of the Circuit Court of Appeals must be reversed and the judgment of the Circuit Court affirmed.
And it is so ordered.
[ Footnote 1 ] The payments were made as follows:
During 1886, 1887 and 1888, five checks, each for $36.30, were paid on account of pension certificate issued in name of Martha
Crampton.... $180 00
During 1892 $334 80 1893 867 27 1894 1,092 00 1895 1,380 00 1896 1,620 00 1897 888 00 ___ 6,182 07 ___ $6,362 07