1. By the law of the District of Columbia, a forged signature of
the payee on a check is inoperative to pass to a subsequent
bona fide holder for value, either the title to the
instrument, or the right to enforce payment, or the right to retain
the proceeds if payment is made in ignorance of the forgery. P.
293 U. S.
345.
2. Under settled principles of conflict of laws, the validity of
a transfer of a chattel brought into a country by consent of the
owner is governed by the law of that country, and this rule applies
to negotiable instruments. P.
293 U. S.
345.
3. The principle applies in the present case to a government
check, drawn and payable in the District of Columbia, but which
was
Page 293 U. S. 341
mailed by the Government from the District to the payee at his
residence in Yugoslavia, and was negotiated in that Kingdom. P.
293 U. S.
346.
4. By the law of Yugoslavia, as stipulated in this case, the
transferee of a check who takes it in good faith and for value
without notice that the endorsement of the payee's name was forged
or notice of other defect, and without negligence or fraud on his
own part, acquires title to the instrument and the right to collect
it and retain the proceeds.
Held that a holder of a check
acquired by transfer under these circumstances in Yugoslavia had
the right in this country to enforce payment and to retain the
proceeds as against the drawer, although, by the law of the
District of Columbia, where the check was drawn and made payable
and was delivered by mailing, a forged endorsement is inoperative,
the check having been sent by the drawer to the payee in Yugoslavia
with the presumed intention that it should be negotiated there
according to the law of that country. P.
293 U. S.
346.
5. An express guarantee of prior endorsements means no more than
what is implied by every unrestricted endorsement -- namely, that
the endorsements were effective to give legal title and the right
to enforce payment. P.
293 U. S.
348.
6. A Treasury circular declared that the handling of Government
checks by Reserve Banks should be "subject to examination and
payment by the Treasurer of the United States," and a circular of a
Reserve Bank declared that, as the Government exercised the right
of returning at any time checks which, for any cause, were not
considered good, the Bank, as fiscal agent, as a condition of
receiving checks on the Treasury, reserved the right to charge back
and return them unconditionally.
Held that collection of a
government check through the agency of the Bank with knowledge of
these provisions does not imply consent that the Government may
demand restitution irrespective of its obligation to make the
payment. P.
293 U. S.
349.
7. As against the United States, the rights of the holder of its
checks drawn upon the Treasurer are the same as those accorded by
commercial practice to the checks of private individuals. P.
293 U. S.
350.
69 F.2d 799 affirmed.
Certiorari to review the reversal of a judgment recovered by the
United States in an action for money paid
Page 293 U. S. 342
on a check bearing a forged endorsement of the payee's name.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
On September 5, 1929, the United States brought in the federal
court for Southern New York this action to recover from the
Guaranty Trust Company $160 with interest. That sum was claimed as
damages resulting from the payment to the Trust Company, through
the Federal Reserve Bank of New York acting as fiscal agent of the
United States, of a check, payable to Louis Macakanja drawn on the
Treasury of the United States by the disbursing clerk of the United
States Veterans' Bureau. The complaint alleged that the letter
containing the check had been mailed to the payee in Yugoslavia,
that neither the "payee of said check nor anyone on his behalf had
ever received or endorsed the same," and that
"the letter containing the check was taken or received in
Yugoslavia by some person other than the payee thereof, and that
thereafter the name of Louis Macakanja was written on the back of
the said check by some person other than the payee thereof, and by
a person who was not authorized to sign the name of said payee and
who had no right, title, or interest in and to said check, with
possession
Page 293 U. S. 343
thereof, and no right or authority to receive, endorse or
dispose of the same."
The answer set up as a special defense that the "check was
negotiated and transferred in the Kingdom of Yugoslavia;" that,
under its law,
"upon the negotiation and transfer of a check, every transferee,
if he takes without actual notice of any alleged forgery or other
defect, in the absence of fraud or gross negligence, obtains a good
title to the instrument, even if the endorsement of the payee is
forged, and acquires the right to collect and retain the
proceeds;"
that
"each of the transferees of the check mentioned in the complaint
gave valuable consideration and took without notice of any alleged
forgery or other defect, and without fraud or negligence, and
thereby obtained a good title to the instrument and acquired the
right to collect and retain the proceeds;"
and that the "defendant under the law of Yugoslavia, duly
obtained title to said check, as aforesaid, and duly collected and
retained the proceeds." [
Footnote
1]
Page 293 U. S. 344
The case was tried before a jury. The evidence consisted of an
agreement as to facts and the cancelled check. The agreement
recited, among other things, that the purported indorsement of the
payee was a forgery, made in Yugoslavia; that, on or about November
30, 1921, the check was transferred and delivered there to the
"Merkur" Bank; that the "Merkur" Bank duly indorsed the check and
transferred it in Yugoslavia to the "Slavenska" Bank; that the
"Slavenska" Bank indorsed and transferred the check in Yugoslavia
to the Guaranty Trust Company, and forwarded it by mail; that each
of these banks paid a valuable consideration, received the check in
good faith, took it without notice of the forgery or other defect,
and was not guilty of any fraud or negligence; that "the Treasurer
of the United States, upon receipt of said check, paid the same by
crediting the Federal Reserve Bank of New York with the amount;"
that, in December, 1921, that Bank credited the Trust Company with
the amount; that the United States first learned of the forgery on
or about April 27, 1926, and that, on June 1, 1926, it requested,
through the Federal Reserve Bank, reclamation from the defendant,
which was denied.
The check, dated October 29, 1921, was payable to the order of
"Louis Macakanja, 37 Sasava Kot Glina, Z. P. Maja, Yugoslavia."
When presented for payment, it bore what purported to be his
indorsement made in the presence of two witnesses and a
certification by the Municipal Administration of Maja to the effect
that "the holder
Page 293 U. S. 345
of the check is identical with the beneficiary thereof," and
that the witnesses, as well as the receiver of the money, had
subscribed the instrument. The check bore these further
indorsements: "
Merkur' Banking and Exchange Business, Stanko
Shon, Zagreb;" "Pay to the order of Guaranty Trust Co. of New York,
New York City, N.Y. Slavenska Bank D. D. Zagreb;" also the stamp of
the Guaranty Trust Company: "Previous Endorsements Guaranteed;" and
the stamp of the Federal Reserve Bank.
Each party moved for a directed verdict. The District Court
directed a verdict for the plaintiff in the sum of $160 with
interest from June 1, 1926, and entered judgment for that amount.
The Circuit Court of Appeals reversed the judgment, 69 F.2d 799.
This Court granted certiorari.
First. The check was both drawn and payable in the
District of Columbia. By the law of the District, a forged
indorsement of the payee is declared to be wholly inoperative.
[
Footnote 2] Ordinarily, a
subsequent
bona fide holder for value without notice of
the forgery would acquire neither title to the instrument nor the
right to enforce payment, and would acquire no right to retain the
proceeds if payment were made in ignorance of the forgery. But,
under settled principles of conflict of laws, adopted by both
federal and state courts, the validity of a transfer of a chattel
brought into a country by the consent of the
Page 293 U. S. 346
owner is governed by its law, and that rule applies to
negotiable instruments.
Embiricos v. Anglo-Austrian Bank,
[1905] 1 K.B. 677;
Weissman v. Banque De Bruxelles, 254
N.Y. 488, 494, 173 N.E. 835.
Compare Direction Der
Disconto-Gesellschaft v. United States Steel Corp.,
267 U. S. 22,
267 U. S. 28.
See Queensboro Nat. Bank v. Kelly, 48 F.2d 574, 576. Here,
the rule is particularly applicable, for the Government, having
made the check payable to one therein described as resident in
Yugoslavia and having mailed it to his Yugoslavian address, must be
deemed to have intended that it should be negotiated there
according to the law of that country. It was thereby given
something of the quality of a foreign bill; although technically
the check was delivered within the District when mailed there.
Compare Koechlin et Cie. v. Kestenbaum Brothers, [1927] 1
K.B. 889;
see Lorenzon, Conflict of Laws Relating to Bills
and Notes (1919) p. 135, n. 267. The law of Yugoslavia provides
that the transferee in due course acquires, despite the forgery,
not only "a good title to the instrument," but also "the right to
collect and retain the proceeds thereof." As the Government sent
the check to Yugoslavia and the forged indorsement and the
transfers of the check were made there, its law governs the
validity of the transfer, and the banks acquired at least a good
title to the check. [
Footnote
3]
Second. The Government contends that, although the
title to the check may have passed from the payee to the Trust
Company, it acquired, as against the drawer, no right either to
enforce payment or to retain the proceeds paid. The argument is
that, since the check was both drawn and payable within the
District, the obligation
Page 293 U. S. 347
arising therefrom is governed by its laws; that, under the law
of the District, the drawer agreed to pay the check only on the
order of the payee, and that, since there was no such order and the
payment made was in ignorance of the forgery, the money may be
recovered as having been paid under a mistake. The law of the
District determines the formal and essential validity of the check,
the interpretation of the contract, the incidents of the
obligation. But the Trust Company does not attempt to enlarge or
modify the obligation of the drawer as determined by the law of the
District. The question presented is: has the Trust Company, by
acquiring title to the check, acquired the right to enforce the
obligation which it represents? The enforcement does not contravene
the public policy of the District. The question relates to the
incidents of the transfer of title to a chattel, and hence is
determined by the law of Yugoslavia. The Trust Company is not
confronted with any procedural obstacle, like that presented in
some jurisdictions where the transferee of a nonnegotiable cause of
action seeks to sue thereon in his own name.
Compare
27 U. S.
Butler, 2 Pet. 239,
27 U. S. 240.
Nor is the Trust Company confronted by a divergent public policy of
the forum which forbids its courts from applying the Yugoslavian
law.
Compare Bond v. Hume, 243 U. S.
15.
Oscanyan v. Arms Co., 103 U.
S. 261,
103 U. S. 277.
Indeed, the courts of New York, where this suit was brought, would
doubtless give effect to the rule of the foreign law here relied
on.
Compare Weissman v. Banque De Bruxelles, 254 N.Y. 488,
494, 173 N.E. 835.
The Government argues that acquisition of the legal title to
negotiable paper does not necessarily imply acquisition of a cause
of action thereon. It is suggested that even an instrument properly
endorsed by the payee so as to transfer the title may fail to
confer any right to enforce the obligation of the maker, as where
the cause of
Page 293 U. S. 348
action had been lost by a discharge in bankruptcy, and that,
when the title to the instrument is transferred to a
bona
fide holder for value without an indorsement, or after
maturity, the transferee may fail to acquire a right to enforce
payment, because such paper is subject to any defense open as
against the payee. But those rules have no application here. The
discharge in bankruptcy operates upon the obligation represented by
the check, regardless of who the holder may be. The transferee
without indorsement, or after maturity, acquires the rights which
the payee had, and it is those rights only which the Trust Company
asserts. To conclude that the forged indorsement was sufficient to
pass legal title, but insufficient to transfer the right of the
payee to collect the proceeds, would deprive the transfer of
"title" of all significance except as regards the right to retain a
scrap of worthless paper. [
Footnote
4]
Third. The Government contends that, irrespective of
considerations discussed above, the Trust Company is liable because
of its indorsement. The argument is that its indorsement, made when
the check was presented for payment through the Federal Reserve
Bank of New York, is an independent contract governed by the law of
New York,
Spies v. National City Bank, 174 N.Y. 222, 225,
66 N.E. 736; that, by the Negotiable Instrument Law of that State,
the indorsement warrants, besides the title, the authenticity of
penmanship of the payee or the authorization of the indorsement in
his name; [
Footnote 5] and
that, if
Page 293 U. S. 349
there be doubt as to the meaning and effect of an indorsement
under the law of New York, there can be no doubt as to the Trust
Company's obligation, because of the terms of its stamp: "Prior
endorsements guaranteed." The express guaranty of prior
indorsements means no more than what is implied by every
unrestricted indorsement -- namely, that the indorsements were
effective to give to the holder a legal title and the right to
enforce payment of the check.
Fourth. The Government contends that it is entitled to
recover because of exceptional rights conferred in express terms by
regulations of the Treasury and of the Federal Reserve Bank of New
York. A Treasury circular then in effect provided for the handling
of Government checks by the Reserve Banks and branches "subject to
examination and payment by the Treasurer of the United States."
[
Footnote 6] A Reserve Bank
circular recited:
"The Government has for many years exercised the right of
returning at any time warrants and checks which for any cause have
not been considered good, and the Federal Reserve Bank of New York
as fiscal agent of the United States as a condition of receiving
government warrants and checks on the Treasurer of the United
States from member banks or through the New York Clearing House
reserves the right to charge back any such item and return the same
at any time unconditionally to the institution from which it was
received. [
Footnote 7] "
Page 293 U. S. 350
The argument is that, with knowledge of these regulations, the
check was presented by the Trust Company for payment through the
Reserve Bank of New York, and sent by the Bank to the Treasurer of
the United States; that the Treasurer paid the check by crediting
the Reserve Bank with the amount and the Reserve Bank so credited
the Trust Company; that the Trust Company was not obliged to avail
itself of the facilities of the Reserve Bank, and that, having done
so with full knowledge of the regulation, it consented that the
Government might charge back any such item and return the same at
any time unconditionally.
Closter National Bank v. Federal
Reserve Bank of New York, 285 F. 138, 140, is cited as
establishing this proposition. And it is suggested that, since the
rule there declared is controlling, no occasion exists for deciding
the question of conflict of laws presented by the petition for
certiorari. The rule declared in the
Closter case has no
application here. [
Footnote 8]
That case dealt solely with the relation between the holder of the
check and the collecting agency employed. As against the United
States, the rights of the holder of its checks drawn upon the
Treasurer are the same as those accorded by commercial practice to
the checks of private individuals.
Compare United States v.
National Exchange Bank, 270 U. S. 527,
270 U. S. 534;
Lynch v. United States, 292 U. S. 571,
292 U. S.
579.
Page 293 U. S. 351
Moreover, the Government expressly disclaimed the assertion of a
preferred position. [
Footnote
9]
Additional reasons are suggested for affirming the judgment of
the Court of Appeals: that the Government cannot recover on the
guaranty of prior indorsements, because it has failed to show
damage from the alleged breach. That it cannot recover the money as
having been paid under a mistake, because it has failed to show
"that the defendant cannot retain the money with good conscience."
Compare United States v. Chase National Bank, 252 U.
S. 485,
252 U. S. 495.
That recovery must be denied, regardless of the foreign law,
because on the agreed facts, the Government is, under § 24 of the
Code of the District, "precluded from setting up the forgery."
Compare 52 U. S.
Henshaw, 11 How. 177. Since we sustain the special defense
based on the law of Yugoslavia, we have no occasion to pass on
these matters.
Affirmed.
[
Footnote 1]
The law of the Kingdom of Yugoslavia in reference to checks and
bills of exchange according to the stipulation was in 1921 and
still is as follows:
"Upon the negotiation and transfer of a check or bill of
exchange, each transferee, endorse, or holder thereof obtains a
good title to the instrument and acquires the right to collect and
retain the proceeds thereof, even though the endorsement of the
payee is forged, where"
"(a) The instrument purports to bear a chain or series of
endorsements from the payee of the instrument to the transferee,
holder or endorsee thereof, and"
"(b) The said transferee, holder or endorsee gives valuable
consideration for the instrument, and"
"(c) The said transferee, holder, or endorsee takes the
instrument without actual notice of any forgery or other defect in
the instrument and is not guilty of any fraud or gross negligence
in taking the instrument."
"The law of Yugoslavia further provides that:"
"(a) When an endorsement follows a blank endorsement, there is a
presumption of law that the person who executed the endorsement has
acquired title to the instrument under the blank endorsement,
and"
"(b) The transferee, holder, or endorsee of the instrument is
under no duty or obligation to investigate the genuineness of prior
endorsements."
"Under the law of Yugoslavia, an endorser does not guarantee or
warrant the genuineness of prior endorsements."
[
Footnote 2]
Code of Laws of the District of Columbia 1929, Title 22, § 24,
and also § 42 of the New York Negotiable Instruments Law
provides:
"Where a signature is forged or made without the authority of
the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a
discharge therefor, or to enforce payment thereof against any party
thereto can be acquired through or under such signature unless the
party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority."
[
Footnote 3]
Compare McClintick v. Cummins, Fed.Cas. 8,699, 3
McLean, 158;
Dundas v. Bowler, Fed.Cas. No. 4, 141, 3
McLean, 397;
Russell v. Griggsby, 168 F. 577, 580,
rev'd on other grounds, 222 U. S. 222 U.S.
149.
[
Footnote 4]
Compare 74 U. S.
White, 7 Wall. 700,
74 U. S. 735;
Meuer v. Phenix Nat. Bank, 94 App.Div. 331, 88 N.Y.S. 83,
aff'd, 183 N.Y. 511, 76 N.E. 1100;
Peterson v.
Swanson, 176 Minn. 246, 223 N.W. 287;
Beneficial Loan
Assn. v. Hillery, 95 N.J.Law, 271, 276, 113 A. 324.
[
Footnote 5]
Negotiable Instruments Law of New York provides:
"§ 116. Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:"
"1. The matter and things mentioned in subdivisions one, two and
three of the next preceding section, and,"
"2. That the instrument is, at the time of his indorsement,
valid and subsisting."
The "matters and things" in § 115 so referred to are:
"1. That the instrument is genuine and in all respects what it
purports to be;"
"2. That he has a good title to it;"
"3. That all prior parties had capacity to contract."
[
Footnote 6]
Treasury Department Circular No. 176. December 31, 1919.
[
Footnote 7]
Reserve Bank Circular No. 258, March 1, 1920.
[
Footnote 8]
The United States was not a party to that litigation. The
Closter Bank sued the Reserve Bank, collecting agent, for the
proceeds of a check. The court held that it was a term of the
employment that the Reserve Bank might charge back any amount paid
on a check if the Government refused final payment, and that hence
it was unnecessary for the Reserve Bank to prove that the check in
question was forged:
"By the terms of the collecting agreement under which the
defendant in error performed the service, the collection agent had
the right, if it acted in good faith, to charge back the item to
the plaintiff in error's account, without the necessity of
establishing forgery or alteration of the warrant."
[
Footnote 9]
See letter of Jan. 12, 1922, by L. P. Gilbert, Jr.,
Under Secretary, to The Guaranty Trust Company.