Hoffman Company v. Bank of Milwaukee
ERROR to the Circuit Court for the District of Wisconsin; the case being thus:
Chapin & Miles, a forwarding and commission firm in Milwaukee, were engaged in moving produce to Hoffman & Co., of Philadelphia, for sale there. The course of their business was thus: They first shipped the produce, obtaining a bill of lading therefor, to which they attached a draft drawn by them on their consignee for about the value of the grain, and then negotiated the draft with bill of lading attached, to some bank in Milwaukee, and obtained the money. It was understood that the draft was drawn upon the credit of the property called for by the bill of lading, and would be paid by the consignee upon receipt of the bill of lading; and-with perhaps a single exception where the bills of lading, not being obtained during bank hours, was sent otherwise than with the draft-the drafts were accompanied by such bills. The Philadelphia firm, however, rarely knew what flour belonged to any particular bill of lading; not being obliged by the railroad clerks at Philadelphia, where they were known, to exhibit any bill of lading in order to get the flour, and their custom being, on getting notice from the railroad office that flour had arrived for them, to pay the charges, give receipts, and send their drayman for it, and bring it away. It was the practice of the Milwaukee firm to advise their Philadelphia correspondents by letter of shipments made and drafts drawn, which advisements were acknowledged with a promise 'to honor the drafts.' When flour was 'slow' in going forward they correspondent with the Milwaukee house about it, but did not on that account refuse acceptance or payment of any bill.
Having been thus dealing for about sixteen months, Chapin & Miles drew three drafts on Hoffman & Co., in the ordinary way, and attaching to them bills of lading which they had forged, negotiated, in the ordinary course of business, the drafts, with the forged bills of lading attached, to the City Bank of Milwaukee, getting the money for them. The bank knew nothing of the forgery of the bills of lading. The ordinary correspondence between the two houses took place. That in regard to one draft will exhibit its character.
'MILWAUKEE, February 26th, 1869.
'MESSRS. HOFFMAN & CO., PHILADELPHIA.
'DEAR SIRS: We ship to you to-day 200 bbls. 'Prairie Flour,' and draw at s't for $1100, which please honor. Will draw for $5 only when we can, but must crowd $5 1/2 part of the time.
'CHAPIN & MILES."PHILADELPHIA, March 2d, 1869.
'MESSRS.C.HAPIN & MILES.
'GENTLEMEN: Yours 26th ult. here. Your draft $1100, will be paid, but we think you should try to keep them down to $5 per barrel. We advise sale of 100 Prairie, at $7, and 54, at $7.25.
'HOFFMAN & Co.'
No flour was forwarded. The Milwaukee bank forwarded the drafts, however, with the forged bills of lading attached, to their correspondent, the Park Bank in New York, for collection. The Park Bank forwarded the same to its correspondent, the Commonwealth Bank of Philadelphia, for the same purpose, and the latter bank presented the draft and bill of lading to the drawees, Hoffman & Co., who, knowing the drafts to be genuine, and not supposing that the bills of lading were otherwise, paid the drafts to the Philadelphia bank, which remitted the money back to the Park Bank to the credit of the Bank of Milwaukee.
No flour coming forward, Hoffman & Co. discovered that the bills of lading were forged, and Miles & Chapin being insolvent, they sued the Bank of Milwaukee to recover the amount paid, as above stated.
The declaration in the case contained the common counts in assumpsit, with a notice attached to the defendant, 'that the action was brought to recover $3100, money paid by the plaintiff, under mistake of fact, upon drafts and bills of lading (of which copies were annexed), the mistake being that the plaintiffs paid the money upon the belief that the said bills of lading were genuine instruments; whereas, in fact, they were forged; the amount of money paid being the amount called for by the drafts, which was paid upon the credit and inducement of the bills of lading.'
Neither the name of the defendant, the Milwaukee bank, nor of any of its officers or agents, appeared in or upon the bills of lading in question, and had it not been for extrinsic evidence, it could not have been told from those bills that the bank had had anything to do with them. Nor had the bank had any dealings or correspondence of any kind with the Philadelphia house, relative to the shipments of flour by Chapin & Miles, or relative to the drafts drawn by them.
On this case the court below directed the jury to find for the bank, defendant in the case, and the plaintiffs brought the case here.
Mr. M. H. Carpenter, for the plaintiff in error:
The case is this: The defendants are owners of certain drafts drawn upon the plaintiffs, which the defendants know the plaintiffs will not pay unless accompanied with bills of lading, which will authorize the plaintiffs to receive the flour, upon the faith and security of which the drafts are drawn. And knowing this, the defendant presents said drafts to the plaintiffs, accompanied by forged bills of lading; and the plaintiffs, believing the bills of lading to be genuine, pay the money to the defendant. Had the plaintiffs known the real facts of the case they would not have accepted and paid the drafts, and could not have been compelled to do so, and the loss would have fallen on the defendants. The plaintiffs paid the drafts to the defendant because they did not know the facts; in other words, under a mistake. The money of the plaintiffs has therefore got into the pocket of the defendant without consideration; both the plaintiffs in paying and the defendant in receiving the money being mutually mistaken about the fact which was the inducement for the plaintiffs to pay the money. Money so paid can be recovered. 
We fully concede the rule that the acceptor of a draft is bound to know the signature of the person drawing or indorsing it. But the rule is confined to the signature of mercantile paper; and this payment was made not on the credit of the draft, but on the credit of the bills of lading. It was part of the agreement between the forwarders and the consignees, that bills of lading should always accompany the drafts; genuine bills, of course, not forged ones. The Milwaukee bank being an indorser of the draft which carried the bill of lading with it, should be held to have guaranteed the genuineness of the bill.
In Bank of Commerce v. Union Bank,  it was held that the acceptor of a draft which was forged, not as to the signature of the drawer, but by an alteration in the body of the draft, might recover back the money, as money paid under a mistake. The court distinguishing the case from that of the forgery of the drawer's signature, which the acceptor is presumed to know, say: 'The greater negligence in a case of this kind is chargeable on the party who received the bill from the perpetrator of the forgery. So far as respects the genuineness of the bill each indorser receives it on the credit of the previous indorsers,' &c.
This language is particularly applicable to the facts of this case; for these forged bills of lading purported to be executed in Milwaukee, where the defendant had its banking office, and where its officers could have informed themselves as to the genuineness of the instruments by a few minutes' walk. The plaintiffs resided and did business in Philadelphia, and received the instruments on the faith of approbation by the defendant.
Mr. J. W. Cary, contra:
We concede that money paid by mistake may, in many cases, be recovered back, but it is settled that money paid by the drawee of a forged bill of exchange to an innocent holder for value, cannot be so recovered, because the drawee is presumed to know his drawer's signature. This exception is 'fully conceded' by the other side. Their argument is obliged, therefore, to proceed on an assumption of facts not true; to assume that this payment was not a payment of drafts, but a payment on flour shipped. This is a radical defect of the argument, and pervades it throughout. The assumption is in the face of the facts. These show that Hoffman & Co. paid drafts, relying on their general business arrangement with Chapin & Miles rather than on a receipt of the very flour mentioned in any specific bill of lading. In this particular case it is specifically 'the draft' which they promise to pay.
The bill of lading is not in any way indorsed by the Milwaukee bank. No representation of any sort was made by that bank about anything to Hoffman & Co. The transaction was wholly between Miles & Chapin and Hoffman & Co., and in pursuance of their general agreement. The bills, which were not forgeries, though the case would not be changed if they had been-were discounted in ordinary course, forwarded for collection, and paid on demand. That concludes the thing. That the 'collateral' was worthless don't change the case. The bank's title to the drafts being unquestioned, no defence was available to the acceptor after payment of them.
There positions do not rest on argument merely. The case of Craig v. Sibbett & Jones,  where the judgment of the Supreme Court of Pennsylvania is given, in a luminous opinion by Gibson, C. J., is in point. So too the English case of Robinson v. Reynolds  covers this. After such precedents there would be an end of the question if the case were not plainly within old rules, which it is.
Mr. Justice CLIFFORD delivered the opinion of the court.
^1 Hudson v. Robinson, 4 Maule & Selwyn, 478; Ellis & Morton v. Ohio Life and Trust Company, 4 Ohio State, 628.
^2 3 Comstock, 230; and see Goddard v. Bank, 4 Id. 147.
^3 15 Pennsylvania, 238.
^4 2 Adolphus & Ellis, N. S. 196.