§ 1739. All defenses are on the ground (1) that the party did not execute the instrument declared on, or (2) that the instrument as executed had no binding force as alleged, or (3) that the defendant's liability has been discharged or modified. Of the first class of defenses are forgery and alteration.

Forgery is the counterfeiting or altering of any writing with intent to defraud.1 A forged instrument is not the contract of the party named, and involves no liability on his part, unless by his conduct he estops himself from setting up the defense. Thus, if the drawee pays a forged check, he will still be liable to the drawer for the funds in hand, as though no payment had been made. But where he is directed by the drawer to accept a bill on receiving "a clean bill of lading" for a certain cargo, his acceptance of a genuine bill on the receipt of a forged bill of lading will bind the drawer.3

1 Byles, Bills, 331. And see Chit. Bills, 864; 2 Daniel, Neg. Inst. 356; 1 Edw. Bills & N. § 268; 2 Pars. Notes & B. 583. Although the forger personates an intended payee of the same name. Com. v. Foster, 114 Mass. 311. So, the signature of a note without authority of the maker may be a forgery. Beeber v. Pabst (Pa. Sup.) 7 Atl. 748. And the holder of a forged check cannot recover damages against the drawee for its detention, when presented for payment. Terry v. Allis, 16 Wis. 504. So, the writing of a fictitious name fraudulently is a forgery. Brown v. People, 8 Hun (N. Y.) 562; Rex V. Whiley, Russ. & R. 90; Rex v. Bolland, 1 Leach, 83; Rex v. Dunn, Id. 57; Gibson v. Minet, 1 H. Bl. 569, 583; Schultz v. Astley, 2 Bing. N. C. 544. Chit. Bills, 220; Hall v. Fuller, 5 Barn. & C. 750, 8 Dowl. & R. 464; Mackintosh v. Bank, 123 Mass. 393; Weisser v. Denison, 10 N. Y. 68; Laborde v. Association, 4 Rob. (La.) 190.

3 Ulster Bank v. Synnott, 5 Ir. R. Eq. 395. But payment of a bill on the strength of forged collateral cannot be recovered on the ground of mistake. First Nat. Bank of Detroit v. Burkham, 32 Mich. 328. And if a bank pays a forged acceptance, under a mistaken direction of the acceptor referring to another similar acceptance, it cannot hold the acceptor liable. First Nat. Bank v. Tappan, 6 Kan. 456.

If a bank pays a check to a holder under a forged indorsement, the payment will not be binding upon the drawer, although he fails to examine his bank book and give notice of the forgery promptly.* So, if a check is stolen from the payee, and is afterwards paid by the bank on a forged indorsement to a bona fide holder (who took it notwithstanding its being crossed to another bank, and paid it over as collecting agent to his principal), the drawer, having been charged with the check, may recover the money from the party who received it. A forged indorsement or assignment gives no right, even to a bona fide purchaser, as against a party whose name is forged. And the owner may recover a stolen bond from one who purchased it in good faith under a forged indorsement in the payee's name, although the owner had himself purchased it from the payee indorsed in blank, and the thief had erased the indorsement, and afterwards indorsed it himself as payee. So, where a bank issues its certificate of deposit, which is specially indorsed by the payee, and lost in the mail in course of transmission to his indorsee, and the bank pays it on a forged indorsement, it will still be liable to the payee for the amount.8

It is the duty of the drawee to know the drawer's signature, and it has been held that where the drawee sends a clerk to pay a bill, and it proves to be forged, the drawee cannot afterwards recover the amount from a party receiving it in good faith."

4 Welsh v. Bank, 73 N. Y. 424; United Security Insurance & Trust Co. v. Central Nat. Bank (Pa. Sup.) 40 Atl. 97; Pollard v. Wellford (Tenn. Sup.) 42 S. W. 23. And he need not compare the checks returned with the bank list. Clark v. Bank (App. Div.) 52 N. Y. Supp. 1064.

Bobbett v. Pinkett, 1 Exch. Div. 368.

• Citizens' State Bank of Newcastle v. Adams, 91 Ind. 280. It creates no liability, and passes no title. Thorpe v. Dickey, 51 Iowa, 676, 2 N. W. 581; McCarville v. Lynch, 14 Misc. Rep. 174, 35 N. Y. Supp. 383; Ehrler v. Braun, 120 III. 503, 12 N. E. 996. And see $1468, supra.

↑ Colson v. Arnot, 57 N. Y. 253.

In an action of trover, or for money had and received. Talbot v. Bank, 1 Hill (N. Y.) 295.

9 Price v. Neal, 1 W. Bl. 390, 3 Burrows. 1354. And see §§ 1486, 1487, supra. On the other hand, the drawee of a check cannot require the holder to prove the genuineness of the drawer's signature. Allen v. Kramer, 2 Ill. App. 205. And the drawee is not entitled to require an indorsement from the holder of a bill or check, even by way of receipt, § 1414, supra; although he may and

Some cases, however, have held that the drawee of a check does not warrant the drawer's signature by paying it, and that he may recover the amount paid from the party receiving it.10 Cases of this sort generally turn on the relative negligence of the parties paying and receiving, and a recovery by the drawee of payment made on a forged check or bill or on a forged indorsement is generally barred, if at all, by negligence on his part amounting to matter of estoppel. But it has been held that the government, paying a check upon a forged indorsement, may recover the amount paid, in the absence of negligence, upon discovery of the forgery many years afterwards.11 Where a bank pays its certificate of deposit to another bank on a forged indorsement of the payee's name, made by a mark witnessed by an employé in the bank which took and presented the certificate, it may recover the amount from such bank.1 But if it pays on a forged indorsement of the payee to a collecting bank, and the money is paid over by it, the bank which gave the certificate cannot afterwards recover the money paid.13

12

Notice of Forgery Discovered.

14

§ 1740. The party making payment on a forged bill or indorsement must give prompt notice on discovery of the forgery, and even a brief delay in giving such notice has been held to cut off his right to recover the payment. So, where one pays out a counterfeit bill should require its surrender on payment, § 1415, supra. The holder who indorses places himself, therefore, needlessly in a position of liability, exonerating the drawee.

10 Tradesmen's Nat. Bank v. Third Nat. Bank, 66 Pa. St. 435; Bank of Commerce v. Union Bank, 3 N. Y. 230. So, where the holder had purchased the forged check from a stranger, and had already paid for it, Third Nat. Bank of St. Louis v. Allen, 59 Mo. 310.

11 U. S. v. National Park Bank, 6 Fed. 852.

12 State Nat. Bank v. Freedmen's Savings & Trust Co., 2 Dill. 11, Fed. Cas. No. 13,324.

13 Stout v. Benoist, 39 Mo. 277.

14 Seven days, Smith v. Mercer, 6 Taunt. 76; or nine, Redington v. Woods, 45 Cal. 406; or fourteen, Davies v. Watson, 2 Nev. & M. 709; or a month, Thomas v. Todd, 6 Hill (N. Y.) 340; United States v. Bank, 45 Fed. 163; or until the collecting bank had paid over the amount to its customer, Iron City Nat. Bank v. Ft. Pitt Nat. Bank, 159 Pa. St. 46, 28 Atl. 195. And see $$ 1469, 1488, supra.

in good faith, he is only required to take it back if it is returned to him within a reasonable time.15 But, where a forged check is deposited in a bank for collection, the bank will not be liable as agent to its depositor for detention of the check by the drawee beyond the time allowed by the clearing-house rules.16 And such rules have been held to relate to the sufficiency of the drawer's deposit rather than the genuineness of the signature, and not to affect a drawee who discovered the forgery and returned the check two days after he had paid it.17

Foreign Statutes.

§ 1741. In some countries it is specially provided by statute that no rights can be acquired under a forged signature.18 The acceptance of a forged bill is a nullity.19 But the indorsements are declared to be valid, although the bill itself is forged.20 So, a forged indorsement will transfer no title, but a genuine indorser will be liable to his indorsee. So, the acceptance of a bill may be a forgery without rendering other genuine signatures ineffectual.22 And the rights of the holder against drawer and indorsers will in such case remain intact.23

21

15 Simms v. Clark, 11 Ill. 137.

16 Stuyvesant Bank v. National Mechanics' Banking Ass'n, 7 Lans. (N. Y.) 197.

17 Tradesmen's Nat. Bank v. Third Nat. Bank, 66 Pa. St. 435. Although returned too late to enable the bank to secure itself or pursue the forger. Frank v. Bank, 84 N. Y. 209.

18 GREAT BRITAIN (Bills of Exchange Act, § 24).

19 ARGENTINE REPUBLIC (Code Com. art. 824); BOLIVIA (Code Com. art. 392); CHILI (Code Com. art. 676); COLOMBIA (Code Com. art. 420); COSTA RICA (Code Com. art. 410); ECUADOR (Code Com, as in "Spain"); MEXICO (Code Com. art. 356); PERU (Code Com. art. 421); SPAIN (Code Com. art. 463); URUGUAY (Code Com. art. 842).

20 HUNGARY (Exch. Law, § 39).

21 ARGENTINE REPUBLIC (Code Com. art. 806); BRAZIL (Code Com, art. 363); HOLLAND (Exch. Law, art. 137); PORTUGÁL (Code Com. art. 358); URUGUAY (Code Com. art. 825).

22 AUSTRIA (Exch. Law, arts. 75, 76); GERMANY (Exch. Law, arts. 75, 76). 22 ARGENTINE REPUBLIC (Code Com. art. 816); BRAZIL (Code Com. art. 394); HOLLAND (Exch. Law, art. 145); PORTUGAL (Code Com. art. 366).