This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 289.— The drawee of a bill of exchange accepts and pays it. It is subsequently found that the signatures of the drawer and payee are forged. Can the drawer recover the money from the party who endorsed subsequently to the forged endorsement? Is not the bill discharged by payment of the liability, and the endorsers thereby discharged?
Would your opinion be affected by the following considerations: that the names of the drawer and endorser, which are forged on the bill, are those of employees of the drawee; and that the forged endorsement was totally unlike the genuine ?
Answer.—The rights of the parties in the case are governed by section 21 as amended in 1897. The drawee has, under that amendment, a right, having paid the bill on a forged endorsement, to recover the money from the party to whom it was paid, or from an endorser, who endorsed the bill subsequently to the forgery, provided the bill was paid by him in good faith and in the ordinary course of business, and provided that due notice is given. The circumstances connected with the drawee's knowledge of the endorser's signature would certainly be material in coming to a conclusion upon the question of whether the payment was or was not made in good faith and in the ordinary course of business, but it would require a very clear case to warrant the conclusion that the payment was not so made, merely because the drawee might have discovered the forgery by examining the signatures.
The rights above mentioned grow out of the payment on a forged endorsement, and the fact that the drawer's signature was forged also does not affect the question. But if the endorsement had been valid, the drawee could not reclaim the money, as he is precluded from denying the genuineness of the drawer's signature. See section 54.