Story Case

Upon a partial payment of an old debt, a note for $500 for the balance due was given to Simon Turner by Herbert Weatherby. The note was in a wallet which was lost by Turner, and next appeared in the hands of a banker, Michael Collins. It bore an indorsement of the name of Turner and several subsequent thereto. Weatherby defaulted in payment at maturity, and Turner was notified that he would be held to pay the note. Suit was brought by Collins upon his refusal, and the defense of Turner was that he had never indorsed the note and that Collins had never acquired title to it, because the first indorsement was a forgery. Collins could make no proof of the signature of Turner, but did prove that he bought the note for value, in the course of business, without notice or grounds for suspicion as to the validity of the signatures, before it had matured.

As it appears that Collins is a holder in due course, is he entitled to recover from Turner in spite of his denial of his signature?

Ruling Court Case. Buckley Vs. Second National Bank, Volume 35 New Jersey Reports, Page 400

Buckley was the holder of a draft drawn upon the United States, to his order, for $100. An agent of Buckley, who was completely without authority, forged the name of Buckley, and received payment upon the draft from the Second National Bank; the Second National Bank received payment upon it from the United States. Buckley now brings this action to recover this amount from the bank.

He contends that, since the instrument was forged, the bank acquired no title whatsoever in it.

Mr. Justice Woodhull said: "It is clear, then, that nothing passed to the defendants by virtue of the forged indorsement. The plaintiff's right to the check remained precisely as it was before his name was forged. The check, therefore, when the defendant obtained the money on it, was the property of the plaintiff, and in that case he may, as we have seen, recover the amount, as money had and received by the defendant to his use." Judgment was given for Buckley.

Ruling Law. Story Case Answer

Where a forged name has been signed to a negotiable instrument, either as maker, acceptor, or indorser, such fact constitutes a real defense as to the person whose name has been forged. A forged name does not give any title to the instrument, or create any liability, as against the person whose name is forged. It must be remembered, however, that the acceptor, by his acceptance, warrants the genuineness of the maker's signature; and a forgery is not a real defense in his hands; likewise, an indorser promises his indorsee and all subsequent indorsees that all prior signatures are genuine, and, consequently, he cannot set up the forgery to escape liability as against a subsequent indorser, who had no knowledge of the forgery.

In the Story Case, Collins is not entitled to recover from Turner. A bona fide purchaser is not protected against forgery, but takes the risk of the genuineness. Since the forgery is also a defect in the title, Collins does not own the note and could not enforce it against Weatherby, the maker. Only Turner is entitled to enforce that obligation, because he never ceased to be the owner of it. Collins, however, does have recourse against the one who indorsed the note to him, and against all indorsers subsequent to the forgery. Those persons promised to all parties subsequent to themselves to pay the note as it was when they signed. Each man can recover from the person from whom he took the note, and upon whom he would, ordinarily, have relied, until it reaches the one who depended upon the forger or upon an irresponsible person whose indorsement of the note ought never to have been accepted.