Argued December 6, 1928. In the course of a real estate settlement, where plaintiff was insuring the title to the property and distributing the purchase price, it should have paid Albert W. Sanson, Esq., 1218 Chestnut Street, the sum of $4,591. Through some unexplained mistake of its officials, plaintiff's check for that sum, drawn by and upon itself, was made to the order of S.W. Samson, who, so far as appears, was a nonexistent person. Through another unexplained mistake of its officials, the check was mailed to Albert W. Sampson, 5842 Crittenden Street, Philadelphia, who had no interest in the settlement or right to the money; the letter, with which the check was enclosed, being also directed to him and stating, "We are enclosing herewith check to your order in the amount of $4,591," etc., etc. Before the check left plaintiff's bank, or shortly thereafter and before it was taken to defendant, the mistaken name of S.W. Samson was changed to the equally mistaken one of A. W. Sampson* (to whom, as already stated, the check was mailed), by writing the latter name over the former. No attempt was made to conceal the change; it was observable even on the most casual glance. It is difficult to believe plaintiff's contention that it was made after mailing, since, while fastened to the letter addressed to Albert W. Sampson, it passed under the scrutiny of five of plaintiff's officials or employees, one of whom signed it, *Page 234 another OK'd it, one or two others verified it and a fifth signed the letter to Sampson which said "We are enclosing herewith check to your order"; but, in the view we take of the matter, it is of no consequence when the change was made. Such alterations in the name of the payee are quite common in checks brought for deposit, the custom of banks, when they occur, being to refuse to receive the check in question except for collection, and to pay nothing on account of it until it has been honored by the drawee bank.
Albert W. Sampson, to whom, as stated, plaintiff sent the check, took it to defendant and sought to open an account with it. Because of the alteration in the name of the payee, defendant, following the custom of banks above referred to, refused to take the check except for collection, and this being assented to by Sampson, he endorsed it in the presence of defendant's officials, they stamped upon it their endorsement, which contained also the words "prior endorsements guaranteed," and, in due course, the check, palpably altered as stated, was presented to and paid by plaintiff. A few days later, Sampson called on defendant to see if the check had been honored, defendant called plaintiff up on the telephone, and one of the officials of the latter, after inquiry regarding or examination of the altered check, replied that it had been paid. Defendant then allowed Sampson to open a checking account with it, and the whole amount was paid to him, or on his order, before defendant received any notice that the check should not have been paid by plaintiff. Fifty-two days after plaintiff had paid the check, A. W. Sanson, Esq., to whom it should have been drawn, inquired of plaintiff why he had not received his money. This led to an investigation, the errors above set forth were discovered, and five days later plaintiff notified defendant thereof and demanded a refund of the amount of the check. This being refused, plaintiff sued defendant on its endorsement; the trial judge refused defendant's point for binding instructions, but gave such instructions for plaintiff; a *Page 235 verdict was rendered accordingly; the court in banc refused to enter judgment non obstante veredicto for defendant, but instead, entered judgment on the verdict, and defendant prosecuted this appeal. The judgment is erroneous for several reasons.
In the first place, it should have been entered for defendant, because of Land Title Trust Co. v. Northwestern Nat. Bank, 196 Pa. 230, from which it cannot be distinguished in principle. There the check was drawn to the order of the proper person, but handed by plaintiff's employee to a third party, supposed to be the proper person, and was endorsed by that third party and deposited in the defendant bank, which also endorsed it and collected its amount from plaintiff. After the fund had been paid out by defendant, the mistake was discovered, plaintiff sued defendant on its endorsement, the trial court, as here, gave binding instructions in plaintiff's favor, but we reversed and entered judgment for defendant, because the money was in fact paid to the person to whom plaintiff, by its actions, showed it intended the money should be paid, though there, as here also, plaintiff thought it would be used by an entirely different person. There is, of course, no difference in principle between delivering a check to the wrong person by handing it to him, supposing him to be the right one, and delivering a check to the wrong person bymailing it to him, supposing him to be the right one. In that case, as in this, plaintiff caused a specified person to receive the check, expecting he would use it, defendant endorsed the check and collected it from plaintiff, and thereafter paid its amount to the person to whom plaintiff had delivered it. There an instructed verdict for the drawer was reversed, and here a like instructed verdict must receive the same treatment.
The only difference between the two cases is that here defendant's endorsement was accompanied by the words "prior endorsements guaranteed," while there it was not; but this is wholly immaterial, not only because it has always been the law that every unqualified endorsement *Page 236 is a guaranty of the validity of all previous endorsements, but also because the guaranty here, in the very nature of things, was that the prior endorsement, "A. W. Sampson," was the signature of the A. W. Sampson, to whom plaintiff sent the check, and not the signature of A. W. Sanson, Esq., to whom it was neither drawn nor sent, and of whom defendant had no knowledge. Neither defendant, nor any one else to whom the check was given, could know, nor were they required to know, that, in the minds of those acting for plaintiff, there was an undisclosed intention to have the money received by some one other than the person named on the face of the check. The liability is not to be determined by a consideration of plaintiff's undisclosed intent, but by determining whether or not it was negligent in delivering the check to the one who obtained the money on it (Houser v. Nat. Bank of Chambersburg,27 Pa. Super. 613, per RICE, P. J.); that it was, is an admitted fact in the instant case. This is, indeed, the law respecting any written instrument, but it is especially so in regard to commercial paper, for, from the earliest days to the present, it has always been held to be a "courier without luggage."
It is of no moment that defendant did not see the letter with which the check was enclosed, for neither did defendant, in the Land Title Trust Co. Case, know of the circumstances under which the check was given. Nor is it a matter of any consequence, in the consideration of the present point, even if the fact be so, that the name of the payee was altered after the check left plaintiff's bank, for the point of the decision in the Land Title Trust Co. Case — and it is equally applicable here — is that the money was paid to the one to whom plaintiff delivered the check, in order that it might be paid to him. So, also, the objection last stated fails for the further reason — and this is an additional and independentbasis for entering judgment for defendant — that "it is not reasonable to charge the bank with the consequences of the payment of a forged endorsement when *Page 237 the plaintiff put in circulation checks which were not susceptible of a genuine endorsement [there being no S.W. Samson]. The case is one for the application of the rule that as between two innocent parties he who by acting makes the loss possible, must bear it": Marcus v. Peoples Nat. Bank, 57 Pa. Super. 345,350, by HENDERSON, J., quoted with approval in National Union Fire Ins. Co. v. Mellon Nat. Bank, 276 Pa. 212,218. Upon this latter ground, the same rule is laid down in States v. First Nat. Bank of Montrose, 203 Pa. 69, 73.
Though unnecessary, perhaps it is advisable to say that the supposed inapplicability of the Land Title Trust Co. Case to the present situation, growing out of the statement in the opinion there (page 238) that the wrongdoer "would have received money instead of a check if he had asked for it, or he could have drawn the money in the banking department in an adjoining room," which could not have been done here, and the later award of a new venire, as set forth in a footnote to that case (the reason for such award, as shown by the petition for it, appearing in our records to January Term, 1899, No. 285, being the statement just quoted, which it was alleged was not true in fact), is clearly shown to be imaginary by our opinion when the case reached us after the second trial: Land Title Trust Co. v. Northwestern Nat. Bank, 211 Pa. 211. In that opinion we said (page 214): "The only fact not developed on the first trial, which was proved on the second, was that the check was taken to the banking department of the institution by the person to whom it had been delivered, and payment demanded. The paying teller refused to pay it unless the person presenting it was identified, whereupon the latter said he would deposit it in his own bank. This was the person to whom the settlement clerk of [defendant] had handed the check, intending to designate him as the payee, [but] the appellee, which had no knowledge" of this is not affected by it. There, we affirmed the judgment on an instructed verdict for defendant, despite that new evidence, and it may be of interest to observe *Page 238 that we also said (page 213): "In the note to the report of the [first] case in 50 L.R.A. 75, there will be found numerous cases sustaining and vindicating it."
There is, however, a still more important reason for entering judgment for defendant in the present case, growing out of plaintiff's long delay, after the check was paid by it, in discovering that it was paid to or on account of A. W. Sampson, and not A. W. Sanson, Esq., who was its real creditor; and also in the delay in notifying defendant, after the fact of the erroneous payment was actually known by plaintiff. The leading case on these points is Price v. Neal, 3 Burr. 354, by LORD MANSFIELD. It holds that if the drawee actually paid on a forged instrument, he was, by that fact alone, debarred from recovering back from an innocent payee. There are a multitude of cases sustaining this conclusion, and but a few varying from it: see note 12 A.L.R. 1089. The Negotiable Instruments Law (May 16, 1901, P. L. 194), does not disturb that rule: Ibid. 1114 and cases cited.
In this State the rule of Price v. Neal was adopted and applied with great strictness, the paying bank not being allowed to recover back the amount of a forged check, credited in a customer's deposit book, even though the bank discovers the mistake on the same day, and the depositor agrees to refund the money: Levy v. Bank of the United States, 1 Binney 27. To relieve against this severity, the rule was modified by section 10 of the Act of April 5, 1849, P. L. 424, 426. It provides that where the signature of any "drawer, acceptor or endorser, shall have been forged thereon," recovery back can be had by the payer: see Tradesmen's Nat. Bank v. Third Nat. Bank, 66 Pa. 435; Corn Exchange Nat. Bank v. Nat. Bank of the Republic,78 Pa. 233. This statute has not been repealed by the Negotiable Instruments Law, as amended by the Act of April 27, 1909, P. L. 260: Union Nat. Bank v. Fraklin Nat. Bank, 249 Pa. 375. The Act of 1849, however, does not relieve the paying bank of all *Page 239 the duties required of it by the law merchant. In Iron City Nat. Bank v. Fort Pitt Nat. Bank, 159 Pa. 46, 50, 52, we said, in construing the statute: "The mere fact of payment is no longer, eo instanti and of itself, a bar to recovery of the money, but the principles of the commercial law are still applicable, and there is still the same necessity as before for care, diligence and proper notice under the settled rules of the law of negotiable paper. . . . . . The drawee is still presumed to know the drawer's signature . . . . . . though the first slip is no longer conclusive against him. But having finished his examination, dismissed the subject from further attention, and allowed five days to elapse, during which the party receiving the money has paid it out in reliance upon the plaintiff's act, the latter cannot be allowed to say that he acted with due diligence." This is quoted with approval in Union Nat. Bank v. Franklin Nat. Bank, 249 Pa. 375, 383; U.S. Nat. Bank v. Union Nat. Bank, 268 Pa. 147, 154, and Union Nat. Bank v. Farmers Mechanics Nat. Bank, 271 Pa. 107.
Under the statute, therefore, though the time of discovery and notice cease to be a matter of importance if the payee has in his hands, at the time demand is made upon him by the drawee, funds belonging to the wrongdoer (Union Nat. Bank v. Franklin Nat. Bank, supra; U.S. Nat. Bank v. Union Nat. Bank, supra); yet the law presumes injury to the payee by delay, and will not enter into a calculation as to whether injury did or did not occur: Leather Manufacturers' Bank v. Morgan,117 U.S. 96; McNeeley Co. v. Bank of North America, 221 Pa. 588, 594; Marks v. Anchor Savings Bank, 252 Pa. 304; Union Nat. Bank v. Farmers Mechanics Nat. Bank, supra. This matter is well stated in the McNeely Case (221 Pa. 594) as follows: "This right is to proceed immediately, and to the promptness with which a bank is able to exercise it, recovery is often due. When a depositor withholds from his bank his knowledge of the forgery, he withholds from it this right to proceed *Page 240 promptly for its own protection. It may or may not be able to recover from the forger by promptly proceeding against him, but its right is to try by so proceeding; and when one of its depositors discovers that it has innocently sustained a loss, he ought, not only in all good conscience, but as a legal duty, to notify it at once of its mistake, for, by withholding from it what he has discovered, he can, as just stated, gain nothing, but it may lose all. A forger may be insolvent or beyond the reach of civil or criminal process, but, by prompt proceedings against him, others may become interested in him and come to his assistance, who after delay may not do so. This incident to a bank's right to promptly proceed against a forger is not to be overlooked. Whenever a depositor knowingly withholds from it knowledge without which it cannot so proceed in an effort to protect itself, he ought to be regarded, when he comes to enforce alleged rights against it, as having withheld from it a substantial right, without regard to what might or might not have resulted from a prompt exercise of that right."
In this class of cases, the burden is always on the drawee to prove clearly that he "gave notice as soon as he discovered the fraud" (States v. First Nat. Bank, 203 Pa. 69, 74) and that the payee then had funds from which he could recoup himself (Union Nat. Bank v. Farmers Mechanics Nat. Bank, supra), otherwise the right to recover back is lost, and whether or not he performed his full duty is usually a question of law for the court: Marks v. Anchor Savings Bank, 252 Pa. 304. In the instant case, no excuse for the delay was even attempted. Here, also, as plaintiff was both drawer and drawee, it is liable for its failure to discover and to give notice of the forgery by the alteration of the payee's name, exactly as it would have been by the forgery of a depositor's signature. It was bound to know both, the first because the check was its own, drawn by it; the *Page 241 latter because of the implied contract between it and its depositor.
In United States v. Nat. Exchange Bank of Baltimore,270 U.S. 527, 534, where a check was altered, after issuance, from $47.50 to $4,750, it is said: "If the drawer and the drawee are the same, the drawer cannot recover for an overpayment to an innocent payee because he is bound to know his own checks: Bank of United States v. Bank of Georgia, 10 Wheaton 333." In the latter case, where the defendant bank was both maker and payee of certain notes, and the forgery consisted in altering the amount of the notes, the Supreme Court, speaking by Justice STORY, said (page 353): "We think the case may be justly placed on 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 acceptance of forged drafts. If there be any difference between them, the principle is stronger here than there; for there the acceptor is [only] presumed to know the drawer's signature. Here, a fortiori, the maker must be presumed and is bound to know his own notes. He cannot be heard to aver his ignorance; and when he receives notes, purporting to be his own, without objection, it is an adoption of them as his own." This reasoning is so cogent and convincing, as respects cases arising under the law merchant, as to obviate the necessity for further quoting from or considering the drawer-drawee cases. From them, the inevitable conclusion is that plaintiff, as drawer of the check, was bound to know, when it was presented for payment, whether, when it mailed the check to Albert W. Sampson, it was payable to his order, as in the accompanying letter plaintiff said it was, or whether it was still drawn to the nonexistent S.W. Samson, and was afterwards altered to make A. W. Sampson the payee. It must be remembered, in this connection also, that the alteration of the name was not a skilfully hidden thing, but plainly observable when plaintiff paid the check. *Page 242
In the light of the principles above stated, we have examined every one of our cases since the decision of Iron City Nat. Bank v. Fort Pitt Nat. Bank, supra, and find none which gives the slightest color to plaintiff's claim of a right to recover under the admitted facts here. In the case last cited, it will be recalled that the drawee bank was refused the right to recover back, because of five days delay in discovering the forgery; here we have 52 days delay in discovering the erroneous payment, and 5 days additional delay in notifying defendant, after plaintiff had actual knowledge thereof. In the case of a skillful forgery there might be some excuse, in fact if not in law, in failing to detect it. Here, where the alteration in the name was patent, even that excuse fails. But there can be no excuse for a failure to give immediate notice after the facts are known. In States v. First Nat. Bank,203 Pa. 69, 74, it is said: "To recover from it, he was bound to give it notice as soon as he discovered the fraud practiced upon him, and the burden was upon him, on the trial below, to show that he had given such notice. Not having done so, he cannot recover." This is the rule in all our cases.
The judgment of the court below is reversed and judgment is here entered for defendant non obstante veredicto.
* In forging the name from Samson, the letter "p" was written over the third downward stroke of the letter "m," thereby causing the forged name, on a casual inspection, to appear as if it were Sanpson rather than Sampson.