Leather Manufacturers National Bank v. Merchants' National Bank/Opinion of the Court

The principal question argued is whether this action was barred by the statute of limitations of New York, by which any action upon a contract, obligation, or liability, expressed or implied, except a judgment or a sealed instrument, must be brought within six years after the cause of action accrues. Code 1855, § 91; Code 1877, § 382. The question, then, is whether if a bank, upon which a check is drawn payable to a particular person or order, pays the amount of the check to one presenting it with a forged indorsement of the payee's name, both parties supposing the indorsement to be genuine, the right of action of the bank to recover back the money from the person so obtaining it accrues immediately upon the payment of the money, or only after a demand for its repayment. In order to avoid confusion in dealing with this question, it is important to keep in mind the difference between the liability of a bank to a depositor, and the liability to the bank of a person who has received money from it upon a forged check or order. It is true that the liability, in either case, is that of debtor, not that of trustee or ballee; but there the resemblance ceases. The specific money deposited does not remain the money of the depositor, but becomes the the property of the bank, to be invested and used as it pleases; its obligation to the depositor is only to pay out an equal amount upon his demand or order; and proof of refusal or neglect to pay upon such demand or order is necessary to sustain an action by the depositor against the bank. The bank cannot discharge its liability to account with the depositor to the extent of the deposit, except by payment to him, or to the holder of a written order from him, usually in the form of a check. If the bank pays out money to the holder of a check upon which the name of the depositor, or of a payee or indorsee, is forged, it is simply no payment as between the bank and the depositor; and the legal state of the account between them, and the legal liability of the bank to him, remain just as if the pretended payment had not been made. Bank v. Whitman, 94 U.S. 343. But as between the bank and the person obtaining money on a forged check or order the case is quite different. The first step in bringing about the payment is the act of the holder of the check in assuming and representing himself to have a right, which he has not, to receive the money. One who, by presenting forged paper to a bank, procures the payment of the amount thereof to him, even if he makes no express warranty, in law represents that the paper is genuine; and, if the payment is made in ignorance of the forgery, is liable to an action by the bank to recover back the money which, in equity and good conscience, has never ceased to be its property. It is not a case in which a consideration, which has once existed, fails by subsequent election or other act of either party, or of a third person; but there is never, at any stage of the transaction, any consideration for the payment. Espy v. Bank, 18 Wall. 604; Gurney v. Womersley, 4 El. & Bl. 133; Bank v. Morton, 4 Gray, 156; Aldrich v. Butts, 5 R. I. 218; White v. Bank, 64 N. Y. 316.

Whenever money is paid upon the representation of the receiver that he has either a certain title in property transferred in consideration of the payment, or a certain authority to receive the money paid, when in fact he has no such title or authority, then, although there be no fraud or intentional misrepresentation on his part, yet there is no consideration for the payment, and the money remains, in equity and good conscience, the property of the payer, and may be recovered back by him, without any previous demand, as money had and received to his use. His right of action accrues, and the statute of limitations begins to run, immediately upon the payment. Thus, in the early case of Bree v. Holbech, 2 Doug. 654, where an administrator received the amount of the mortgage money upon his assignment of a mortgage purporting to be made to the deceased, but in fact a forgery, of which both parties were ignorant, it was held by Lord MANSFIELD and the court of king's bench that the right of action to recover back from the administrator the money so paid was barred by the statute of limitations in six years from the time of the payment. So in Bank v. Van Gieson, 18 Johns. 485, where a promissory note payable at the Bank of Geneva was left by the indorsers with the Utica Bank for collection, and sent by it to the Bank of Geneva for that purpose, and the amount was afterwards paid by the Utica Bank to the indorsers upon * the mistaken supposition that it had been paid to the Bank of Geneva by the maker, when in fact it had not, and it was not pretended that the Utica Bank had been guilty of any negligence, the supreme court of New York held that notice of the fact that the note had not been paid by the maker was unnecessary to maintain an action by the Utica Bank to recover back the money from the indorsers; and Chief Justice SPENCER said: 'The plaintiffs' ground of action, then, is that the money was paid to the defendants under a mistake of facts. The defendants are not bailees or trustees of the money thus received. It was paid and received as their money, and not as money to be kept for the plaintiffs. In such a case, it was not necessary to make a demand prior to the suit; for a request was not essential to the maintenance of the action, nor did the defendants' duty to return the money erroneously paid arise upon request.' In Bank v. Daniel, the acceptor and indorsers, upon taking up a bill of exchange for $10,000, which had been duly protested for non-payment, paid 10 per cent. as damages, under a mistake as to the local law upon the subject. Upon a bill in equity to relieve against the mistake, and recover back the money, this court, while holding that such a mistake gave no ground for relief, also held that, if it did, the statute of limitations ran, in equity as well as at law, from the time of the payment; saying: 'If the thousand dollars claimed as damages were paid to the bank at the time the bill of exchange was taken up, then the cause of action to recover the money (had it been well founded) accrued at the time the mistaken payment was made, which could have been rectified in equity, or the money recovered back by a suit at law.' 12 Pet. 32, 56. In Dill v. Wareham, 7 Metc. 438, the supreme judicial court of Massachusetts, speaking by Chief Justice SHAW, held that a party receiving money in advance on a contract which he had no authority to make, and afterwards refused to fulfill, was liable to the other party in an action for money had and received, without averment or proof of any previous demand. And in Sturgis v. Preston, 134 Mass. 372, where land was sold for a certain sum by the square foot, and the purchaser, relying on the vendor's statement of the number of feet, made payment accordingly, and afterwards discovered that the number had been overstated, but disclaimed all charge of fraud or fraudulent concealment on the part of the vendor, it was held that the right of action to recover back the excess paid accrued immediately, without any previous demand, and was barred by the statute of limitations in six years from the date of the payment. See, also, Earle v. Bickford, 6 Allen, 549; Blethen v. Lovering, 58 Me. 437. The judgment of the circuit court in the present case appears to have been based upon the decision in Merchants' Bank v. First Nat. Bank, 4 Hughes, (U.S.) 1, which proceeds upon grounds inconsistent with the principles and authorities above stated, and cites no case except the very peculiar one of Cowper v. Godmond, 9 Bing. 748; 3 Moore & S. 219; in which the right of action to recover back money paid for a grant of an annuity, the memorial of which was defective, was held not to accrue until the grantor elected to avoid it on that ground,-the annuity apparently being considered as not absolutely void, but as voidable only, at the election of the grantor. See Churchill v. Bertrand, 3 Q. B. 568; 2 Gale & D. 548.

Although some of the opinions of the court of appeals of New York, in the cases cited at the bar, contain dicta which, taken by themselves, and without regard to the facts before the court, might seem to support the position of the defendant in error, yet the judgments in those cases, upon full examination, appear to be quite in accord with the views which we have expressed. The cases of Thomson v. Bank, 82 N. Y. 1, and Bank of British N. A. v. Merchants' Bank, 91 N. Y. 106, were actions by depositors against their respective bankers, and were therefore held not to be barred until six years after demand. In Southwick v. Bank, 84 N. Y. 420, the decision was that there was no such mistake as entitled the party paying the money to reclaim it; and in Sharkey v. Mansfield, 90 N. Y. 227, it was adjudged that money paid by mistake, but received with full knowledge of all the facts, might be recovered back without previous demand; and what was said in either opinion as to the necessity of a demand where both parties act under mistake was obiter dictum. Two other cases in that court were decided together, and on the same day as Bank of British N. A. v. Merchants' Bank, above cited. In one of them the defendants, who had innocently sold to the plaintiffs a forged note as genuine, and, upon being informed of the forgery and requested to pay back the purchase money, had expressly promised to do so if the plaintiffs should be obliged to pay a third person to whom they had in turn sold the note, were therefore held not to be discharged from their liability to refund by the plaintiffs' having awaited the determination of a suit by that person against themselves, before returning the note to the defendants. Frank v. Lanier, 91 N. Y. 112. In the other case, a bank, which had paid a check upon a forged indorsement, supposed by both parties to be genuine, was held entitled to recover back the money, with interest from the time of payment; necessarily implying that the right of action accrued at that time. Corn Exchange Bank v. Nassau Bank, 91 N. Y. 74. In the case at bar, as in the case last cited, the plaintiff's right of action did not depend upon any express promise by the defendant after the discovery of the mistake, or upon any demand by the plaintiff upon the defendant, or by the depositor or any other person upon the plaintiff; but it was to recover back the money, as paid without consideration, and had and received by the defendant to the plaintiff's use. That right accrued at the date of the payment, and was barred by the statute of limitations in six years from that date. For this reason, without considering any other ground of defense, the order must be, judgment reversed, and case remanded to the circuit court, with directions to set aside the verdict, and to order a new trial.

Mr. Justice BLATCHFORD did not sit in this case, or take any part in the decision.