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the fact that an implied warranty is a contract implied in fact, and as such must prevail, as effectually as an express contract would, over any general obligation which in the absence of an actual contract the law would raise, would seem to be the key to the mystery of the conflict in the above cases of payments on forged paper; and even if one concludes that the feeling of the judges as to what must have been the underlying understanding of business people has been allowed to overcome equitable principle where it should not have done so, it is consoling to know that the error, if it be one, is due rather to poor business judgment than to defective legal conscience.2
1 The cases of payment under a mistake as to a forged indorsement have been fully discriminated from Price v. Neal, on the ground that the defendant takes the legal title as trustee for the real owner of the paper, and that the payor, who on principle should sue the defendant only after he has paid the real owner and been subrogated to his rights, has for practical reasons been allowed a direct action against the defendant before he has paid the real owner. See Professor Ames, 4 Harv. L. REV. 297, 307. This result is, of course, supported also by the considerations already discussed where a check has been raised in amount. Where the holder expressly guarantees the genuineness of all indorsements in his chain of title, the payor's right to recover is unques. tioned. Second Nat'l Bank v. Guarantee, etc., Co., 206 Pa. St. 616. And if it is proper to say that the parties presumably intend such a guaranty where nothing is said, a contract implied in fact that the endorsement is genuine makes a defendant liable. For the reasons suggested by Professor Ames, however, it would seem to be unnecessary to imply such a contract, though the possibility of the implication serves to explain why the payor can recover without first paying the real owner of the paper. On the effect of change of position where there has been payment on a forged indorsement, see London and Riverplate Bank v. Bank of Liverpool, [1896) 1 Q. B. 7.
2 The statement of Holmes, C. J., in Dedham Nat'l Bank v. Everett Nat'l Bank, 177 Mass. 392, 395, about the rule in Price v. Neal that, “ Probably the rule was adopted from an impression of convenience rather than from any more academic reason," would seem to be the opposite of the fact. It apparently was adopted because of general equitable principle (see Professor Ames in 4 Harv. L. Rev. 299, 300), and was retained because it did not conflict with the presumed intention of the parties. That it did not so conflict Mr. Justice Holmes makes plain in the rest of his opinion.
Cases such as Leather v. Simpson, L. R. 11 Eq. 398, and Goetz v. Bank, 119 U. S. 551, where a drawee who pays genuine bills of exchange accompanied by forged bills of lading is not allowed to recover because the equities of the parties are equal, present sharply the question of whether a warranty should not be implied. Why imply a warranty where the body of a bill of exchange has been altered, and not imply one where a forged bill of lading accompanies a genuine bill of exchange ? The feeling that the unexpressed but actual understanding of the parties requires the implication of a warranty in the bill of lading cases would seem to be the only excuse for the decision in Guarantee Trust Co. v. Grotrian, 114 Fed. Rep. 433, where a United States Circuit Court of Appeals held that the fact that the bill of exchange, which was accom. panied by forged bills of lading for flax seed, was accepted “ against indorsed bills of lading for 8417 bushels of flax seed," would allow the plaintiffs to recover the subsequent payment because “under their conditional acceptance the plaintiffs had a right
THE RELATION OF AGENCY TO QUASI-CONTRACTS. The relation of implied warranty to quasi-contracts having been explained, very little need be said about the relation of agency to quasi-contracts. Agency and quasi-contracts touch on the subject of change of position. It is held that an agent who acts for a disclosed principal and, without knowing that a payment has been made to him by mistake of fact, turns the money over to his principal, is freed from liability to the payor; but that an agent who purports to act for himself and not for a principal has no defense in the fact of payment to his principal, even if the latter has since become insolvent.
The reason why the agent for the undisclosed principal remains liable, despite a settlement with the principal, is that the agent impliedly warrants that he has acted for no one but himself, and must abide by the consequence of that warranty. The cases do not cal! it implied warranty, but that is clearly what it amounts to. The defendant is held impliedly to have represented that he was a principal and to have promised in fact, though not expressly, to remain such, and hence is not allowed to show any change of position which has taken place solely because the implied promise is false. Here, again, if the courts are in error, their fault is one of business judgment and not of conscience; it is the presumed intention of the parties — their understanding implied in fact 3 — that the courts allow to override the general notions of equity.
to genuine documents and to rely upon the genuineness of those delivered upon the discharge of their obligation.”
i Holland v. Russell, 4 B. & S. 14; Ellis v. Goulton,  1 Q. B. 350; McDonald v. Napier, 14 Ga. 89; Mowatt v. McClelan, 1 Wend. (N. Y.) 173; Nat'l Park Bank v. Seaboard Bank, 114 N. Y. 28. See Smith v. Binder, 75 Ill. 492; Shand v. Grant, II C. B. (N. S.) 324. And see Continental, etc., Co. v. Kleinwort, 90 L. T. R. 474. See also cases of payment over by an administrator, Grier v. Huston, 8 Serg. & R. (Pa.) 401 ; Beam v. Copeland, 54 Ark. 70; and by a public officer, Dickey Co. v. Hicks, 103 N. W. Rep. 423 (N. D.).
2 Newall v. Tomlinson, L. R. 6 C. P. 405; First Nat'l Bank of Minneapolis v. Holyoke Nat'l Bank, 182 Mass. 130; Canal Bank v. Bank of Albany, i Hill (N. Y.) 287; Holt v. Ross, 54 N. Y. 472; Merchants Bank v. McIntyre, 2 Sandf. (N. Y.) 431 ; Smith v. Kelly, 43 Mich. 390. See United States v. Pinover, 3 Fed. Rep. 305, 309, and Continental, etc., Co. v. Kleinwort, 90 L. T. R. 474.
8 “You have a right to the benefit you contemplate from the character, credit, and substance of the party with whom you contract.” Lord Denman, C. J., in Humble v. Hunter, 12 Q. B. 310, 317.
Now we are ready for our discussion of the cases on change of position. The first thing to do is to define our terms.
CHANGE OF POSITION AS A DEFENSE.
The words "change of position" are used here simply in the ordinary sense of such a change in the situation of the defendant, in consequence of the mistake in payment, as will entail financial loss to him if he has to make repayment. That change may consist in the loss of a legal right on the very claim or instrument upon which the payment is made,? or in the giving up of property, or in delay in getting at the person really liable, or in the payment of money to third persons. Such a change of position may mean a total or only a partial loss, and, if the latter, can be of course only pro tanto a defense.7
1 Where it is not in consequence of the payment, change of position is immaterial. See Continental, etc., Co. v. Kleinwort, 51 Wkly. Rep. 541, and on appeal in 90 L. T. R. 474; Nat'l Bank of Commerce v. Nat'l Banking Ass'n, 55 N. Y. 211. It is only by showing that but for the mistake he would not have changed his position, that the defendant can get any equity. Causation is necessary to make his change of position part of the same transaction as the plaintiff's mistaken payment, but that causation need not impute any blame to the plaintiff.
2 See Pooley v. Brown, 11 C. B. (N. s.) 566; Watson v. Moore, 33 L. T. R. 121; Behring v. Somerville, 63 N. J. L. 568.
• See Walker v. Conant, 69 Mich. 321.
4 Continental Nat'l Bank v. Nat'l Bank of Commonwealth, 50 N. Y. 575; Boas v. Updegrove, 5 Pa. St. 516. The dictum contra in Standish v. Ross, 3 Ex. D. 527, cannot be supported. It is only a dictum, because prior to the sheriff's levy the defendant's attorney knew of the defect in the defendant's title, and the defendant therefore had no defense against the sheriff who had acted innocently; for the defendant alone was to blame and should bear the loss. See cases under III (b), infra.
6 See Crocker Woolworth Bank v. Nevada Bank, 139 Cal. 564; Union Bank v. Ontario Bank, 24 Lower Can. Jur. 309.
6 Since there seem to be no cases where change of position has been claimed because the defendant afterward lost the identical money paid him, or had it stolen from him, before confusing it with his own, that case is not considered, though it is submitted that on principle such a change of position should be a complete defense.
Whether, as was intimated in Sir Charles Brisbane v. Dacres, 5 Taunt. 144, and in Skyring v. Greenwood, 4 B. & C. 281, a change of position is made out by showing that because of the mistaken payment the defendant has altered his mode of living, is open to doubt, since it must be assumed that the defendant has had his money's worth of enjoyment. Yet to allow a recovery where the defendant has proved beyond a reasonable doubt that the mistake caused the change in the defendant's habits of life may in some cases work great hardship on the defendant. It is probably no defense, but the matter is not concluded by authority.
7 See Bean v. Copeland, 54 Ark. 70.
And now we are prepared for the cases. In considering them it is desirable to follow Professor Keener's classification.1
(a) The plaintiff alone is negligent or is more at fault than the defendant.
If the defendant has not altered his position in consequence of the mistake, it is no défense to him that the plaintiff was more negligent than the defendant or that the plaintiff alone was negligent; ? but where the defendant has changed his position in consequence it is a defense. It being the plaintiff's own fault that one of them must suffer a loss, he and not the defendant should suffer it.
1 "Is it against conscience for a defendant to retain money paid to him under mistake, when the circumstances are such that the parties can no longer be put in statu quo and the repayment thereof will throw a loss upon him? This question may arise where, but for the negligence of the plaintiff, the mistake would not have been made ; where the mistake was due to the negligence of the defendant; where neither the plaintiff nor the defendant can be said to have been negligent; where, if the plaintiff was negligent the defendant was equally negligent; or where, though there was no negligence at the time of payment, the plaintiff had been guilty of laches in asserting his rights." Keener, Quasi-Contracts, 59.
? Kelley v. Solari, 9 M. & W. 54 ; Townsend v. Crowdy, 8 C. B. (N. S.) 477 ; Imperial Bank of Canada v. Bank of Hamilton, (1903] A. C. 49; Appleton Bank v. McGilvray, 4 Gray (Mass.) 518; Merchants Bank v. Eagle Bank, 101 Mass. 281; Union Nat'l Bank v. Sixth Nat'l Bank, 43 N. Y. 452 ; Lawrence v. American Nat'l Bank, 54 N. Y. 432; McKibben v. Doyle, 173 Pa. St. 579; Rutherford v. McIvor, 21 Ala. 750; Young v. Lehman, 63 Ala. 519; First Nat'l Bank v. Behan, 91 Ky. 560; Fraker v. Little, 24 Kan. 598; Douglas County v. Keller, 43 Neb. 635; Alston v. Richardson, 51 Tex. I; Devine v. Edwards, 101 Ill. 138 ; Brown v. College Corner Co., 56 Ind. 110; City Nat'l Bank v. Peed, 32 S. E. Rep. 34 (Va.); U. S. v. Park Bank, 6 Fed. Rep. 852. There are cases contra. See Keener, Quasi-Contracts, 70, n. 2.
8 Deutsche Bank v. Beriro, 73 L. T. R. 669; Continental Nat'l Bank v. Tradesmen's. Bank, 173 N. Y. 272; Walker v. Conant, 65 Mich. 194; Wilson v. Barker, 50 Me. 447 ; Fegan v. Great Northern Ry. Co., 9 N. D. 30; Richey v. Clark, 11 Utah 467 ; Maher v. Miller, 61 Ga. 556; German Security Bank v. Columbia, etc., Co., 27 Ky. L. Rep. 581 ; Pelletier v. State Nat'l Bank, 41 So. Rep. 640 (La.). See also Mayer v. Mayor of New York, 63 N. Y. 455; DeNayer v. State Nat'l Bank, 8 Neb. 104, 108.
While no implied warranty as to the genuineness of the body of a check arises from certification, and it is not necessarily negligent to certify checks previously altered and then pay them (Metropolitan Nat'l Bank v. Merchants Nat'l Bank, 182 III. 367 ; 5 Cyc. 542), or to pay a certified check altered after certification (Nat'l Bank of Commerce v. Nat'l, etc., Ass’n, 55 N. Y.211; Imperial Bank of Canada v. Bank of Hamilton, (1903] A. C. 49; Clews v. Bank of New York, etc., Ass'n, 89 N. Y. 418; but see same case 114 N. Y. 70), it is negligence estopping the plaintiff from suing for it to adopt a forged certification and to pay a defendant who thereupon innocently changes his position. Continental Nat'l Bank v. Nat'l Bank, 50 N. Y. 575. See 5 Cyc. 543. Moreover, if there is actual negligence, the certifying bank cannot recover the money paid on the raised check to one who has since changed his position. Continental Nat'l Bank v. Tradesmen's Bank, supra.
VIIHI VIV III LIUIVU.
(b) The defendant alone is negligent or is more at fault than the plaintiff.
For the same reason, in either of these situations, the defendant must bear the loss; 1 and this is true where the negligence of his agent is imputed to him.2
(c) Neither party is negligent.
The title to the money paid having vested in the defendant, and the plaintiff having no right to recover it unless it is unconscientious for the defendant to refuse restitution, equitable principle would seem clearly to require that a defendant who has altered his position because of a mistaken payment for which he is not to blame should be excused pro tanto from repayment. “The principle which forbids the defendant enriching himself at the expense of the plaintiff should clearly forbid the plaintiff indemnifying himself at the expense of an innocent and blameless defendant.” 4 But this equitable principle has been disregarded in some of the cases. So far as it has been departed from because of contracts express or implied in fact which are inconsistent with its application, and most of the cases come under this head, the writer has nothing to say here. The cases where the defendant is estopped to set up a change of position because of his indorsement, or because of his implied warranty, or because he failed to disclose that he was acting for a principal with whom he has since settled, represent a conflict between equitable principle and real or supposed business under
1 Union Bank v. U. S. Bank, 3 Mass. 74; Phetteplace v. Bucklin, 18 R. I. 297. See White v. Continental Bank, 64 N. Y. 617 ; Rose v. Shore, i Call (Va.) 540. And see the cases where the plaintiff is in the same situation as that of Price v. Neal, except that the defendant's negligence is the approximate cause of the loss, and the plaintiff is allowed to recover. Canadian Bank of Commerce v. Bingham, 31 Wash. 484; People's Bank v. Franklin Bank, 88 Tenn. 299; Nat'l Bank of N. A. v. Bangs, 106 Mass. 441; First Nat'l Bank of Danvers v. First Nat'l Bank of Salem, 151 Mass. 280; Ellis v. Ohio Life, etc., Co., 4 Oh. St. 628 (and see First Nat'l Bank v. First Nat'l Bank, 58 Oh. St. 207); First Nat'l Bank of Orleans v. State Bank of Alma, 22 Neb. 769; First Nat'l Bank of Quincy v. Ricker, 71 Ill. 439; Rouvant v. San Antonio Nat'l Bank, 63 Tex. 610; First Nat'l Bank v. First Nat'l Bank, 4 Ind. App. 355. But see Commercial, etc., Bank v. First Nat'l Bank, 30 Md. 11, where the defendant's change of position was apparently allowed to condone his negligence.
2 Standish v. Ross, 3 Ex. D. 527, where the knowledge of the defendant's attorney was imputed to him, while the plaintiff had acted innocently.
3 Keener, Quasi-Contracts, 63-65.
* Keener, Quasi-Contracts, 67. See also the sound dictum in Guile v. Balbridge, 2 Swan (Tenn.) 295.
6 That which is an indorsement in form may in fact be only a receipt for payment. First Nat'l Bank v. Holyoke Nat'l Bank, 182 Mass. 130. See 4 Harv. L. Rev. 302.