United States v. Chase National Bank

Background

A U.S. government officer (the Treasury) sued a New York commercial bank to get back $3,571.47 that the Treasury paid on a government draft. At Fort Ethan Allen a finance clerk, Sergeant Howard, forged Lieutenant E. V. Sumner’s name on a Treasury draft, both as the drawer and as the payee’s endorsement. Howard cashed the forged instrument at the local Howard National Bank, which sent it on to the New York bank for collection. The New York bank presented the draft to the Treasury, received payment, and was credited. Two weeks later the Treasury discovered the forgery and demanded repayment, but the collecting bank refused.

Reasoning

The central question was whether the Treasury could get its money back after paying a draft that turned out to be entirely forged. The Court applied longstanding rules: when a drawee pays on what appears to be the drawer’s signature, the drawee bears the risk of being satisfied about the drawer’s handwriting. An innocent collecting bank that took the draft, presented it for payment, and received value in good faith is not unjustly enriched simply because the instrument later proves forged. Because the complaint relied only on the forged endorsement and the collecting bank showed no fault, the Court affirmed the lower courts and denied recovery.

Real world impact

This ruling means the government may be unable to recover Treasury funds paid on wholly forged drafts when an innocent bank collected and was paid in good faith. It places the immediate loss on the paying agency, rather than on the collecting bank, unless the bank had notice, negligence, or participation in the fraud. Because the decision affirms the lower courts rather than deciding new policy, it resolves this dispute now but does not bar other claims where different facts, such as bank fault, are alleged.

Dissents or concurrances

Justice Clarke dissented, indicating there was at least one Justice who disagreed with the outcome.