Fair dealings require, under such circumstances, that it should be held to the statements as rendered, on the ground that it adopted the payments made and impliedly ratified them. Leather Manufacturers' Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657, 29 L. Ed. 811; Myers v. S. W. Nat. Bank, 193 Pa. 1, 44 Atl. 280, 74 Am. St. Rep. 672.

[5] But, it is said, the defendant ought not to escape liability because it received the checks for payment from other banks which are solvent, for which reason it will not be damaged. I do not think this conclusion follows. Defendant has paid the checks once, and, plaintiff having called upon it again to pay them, it has a right to resist the payment, irrespective of whether or not it may, in case it does pay, be reimbursed by some one else. A loss has been sustained, which, if occasioned solely by plaintiff's negligence, should be borne by it, and the defendant is in position to assert such defense-this upon the theory that one who, by his own neglect, is responsible for or the cause of a loss, should bear it instead of an innocent party. First Nat. Bank v. American Exch. Nat. Bank, 49 App. Div. 349, 63 N. Y. Supp. 58, affirmed 170 N. Y. 88, 62 N. E. 1089.

I am of the opinion that there was at least a question for the jury as to the negligence of the plaintiff that would prevent a recovery. The judgment should therefore be reversed, and a new trial ordered, with costs to the appellant to abide the event.

INGRAHAM, P. J., and LAUGHLIN, J., concur.

HOTCHKISS, J. (dissenting). The plaintiff was a depositor with the defendant and brought this action for a balance of account. What, if any, balance exists, depends upon certain checks which plaintiff claims were improperly paid by the defendant because of the alleged forgeries of the indorsements of the payees. The number of checks in dispute is 362, covering a period from August 1, 1907, to September 15, 1910. The plaintiff is an English company which maintains a principal office in the city of New York under the charge of a general manager, and through which plaintiff's business, including its many agencies in the United States, is directed. During the period in question, nearly 800,000 policies were sent from the New York office to the plaintiff's various agencies, and there was at all times outstanding on its books policies approximating 300,000 in number. When a policy was canceled before it had expired, it became necessary to pay to the holder a return premium representing the unearned portion of the original premium. The policies on account of which such payments were made amounted, during the period in question, to some hundreds of thousands. The individual amounts of the sums so returned were comparatively small; but, because of their great number, the aggregate amounted to about $90,000 a month, all of which was apparently drawn from the plaintiff's account with the defendant. The territory in which plaintiff transacted business was divided into districts, and, when an application for a return premium was received, it would be given over to a clerk who had charge of the returns within the district to which the policy concerned belonged, and thereupon it became his

duty to proceed as follows: From the canceled policy, the "daily report," and the "policy register," it was the duty of the clerk to make out on a printed form what was called an "account," showing certain particulars of the policy, the amount of the return premium, etc. The same clerk would also prepare an "order" on plaintiff's cashier for a check on defendant for the amount to be returned. The clerk would then pass the "account" and the "order" to the head of the accounting department, who would sign the "order" and send it to the cashier, with the voucher papers on which the order was based, attached. A check having been prepared by the cashier, it would be sent to the proper officers of the plaintiff for signature, after which the check would be returned to the head of the accounting department, and from him it would come to the hands of the clerk who had prepared the vouchers on which the check was based, and thereupon it became the duty of the clerk to see that the check was transmitted to the person entitled to receive the same.

Among the clerks employed in plaintiff's accounting department and whose business it was to prepare vouchers and checks for return premiums were Bradford and Walker, who, when the checks in question came back into their hands duly signed, purloined them and converted their proceeds to their own use. This conversion was accomplished in the following manner: In every case, the checks represented a fictitious transaction upon which no return premium was owing by the plaintiff, and each of the checks had been procured from plaintiff by means of fictitious vouchers on the faith of which the checks were signed. In some instances, the names of the payees of the checks were those of existing persons, some of whom were customers of the plaintiff, but to whom plaintiff owed nothing, and some were personal creditors of Walker, who took this method to pay his personal debts. The remaining payees represented persons having no existence. Of the checks payable to the order of existing payees, some were in fact indorsed by such payees; but on the others the indorsements were forged. The indorsements so forged and as well the indorsements of the checks payable to nonexisting payees were made by Bradford or by Walker or by the procurement of one of them. The frauds were discovered by plaintiff, and the defendant was notified early in September, 1910. Prior to August 2, 1909, it had been defendant's custom to return to plaintiff its passbook with canceled vouchers and to take a mere receipt for the same; but on that day defendant gave to plaintiff's bank messenger a new form of signature card with directions to have it signed by some one duly authorized and to return the same to defendant. On one side of this card was an order designating the individual to whom defendant should deliver returned vouchers, "taking his receipt for same in my behalf in form as on reverse hereof." On the reverse side was printed the following form of receipt:

"Received, from the Merchants' National Bank of the City of New York passbook for the account of the undersigned, showing balance $ at the close of business, canceled vouchers called for by passbook and list of vouchers which are hereby accepted as correct and gen

together with

uine, and the account approved as stated, unless written notice to the contrary is given within ten days from this date."

This blank card was by the messenger delivered to Ketcham, an employé of the plaintiff with the title of cashier, and among whose duties was the making up of the daily deposits with defendant and the receipt. and custody of all returned vouchers when the same were brought to plaintiff's office by the messenger. Ketcham was not an officer of the plaintiff and his duties were clerical only. Without calling the attention of any of plaintiff's responsible officers to the receipt of the card or to the new system of receipting for canceled vouchers which the terms of the card suggested, Ketcham filled in the name of the messenger, Thomas Baxter, as the one authorized in the future to receive from defendant and receipt for canceled vouchers, and so filled in, Ketcham signed the card in the name of the plaintiff, per “D. R. Ketcham, Cashier." The signed card was on August 2d returned to the defendant, from which date all of plaintiff's canceled vouchers were receipted for in the foregoing form. The fact that Ketcham had signed the card and authorized the giving of the form of receipt evidenced thereby was never brought to the knowledge of any representative of plaintiff authorized to contract in its behalf. On the trial much testimony was given both by plaintiff and defendant on the subject of plaintiff's alleged negligence in uttering the checks and as well in failing to adopt and enforce such a system of examination or audit as was adapted to disclose the fraudulent practices of its clerks.

At the conclusion of the trial, both sides moved to direct a verdict. Defendant's motion having been denied, it asked to go to the jury on a variety of questions including those raised on this appeal.

An analysis of the checks as they appear in the record shows that they were drawn to the order of payees and bore indorsements which are divisible into the following classes: (a) Checks to the order of existing persons; (b) checks to the order of nonexisting persons; (c) checks of class A indorsed by the identical payees named therein; (d) checks of class A bearing forged indorsements of payees.

The plaintiff recovered on all the checks of the several classes, on the theory that the payees' indorsements were forgeries, and counsel so argues on this appeal. In the case of checks to the order of and indorsed by existing payees, the theory is that, as to plaintiff, they are to be regarded as forgeries because plaintiff never intended to draw checks to such payees. The bank has thus been held liable not only in the case of nonexisting payees, but also in cases of existing payees whose indorsements were genuine.

(1) No argument is necessary to show that the court erred in cases of the latter class. As to these, the bank paid according to its instructions. If plaintiff was led by fraud or mistake into unintentionally giving to the bank orders to pay to persons to whom it owed nothing, the loss should fall on plaintiff whose error caused the payments to be made.

(2) The case of nonexistent payees is apparently covered by Hartford v. Greenwich Bank, 157 App. Div. 448, 142 N. Y. Supp. 387, decided by this court in June last. In that case, an employé of a tea com

pany, a depositor in defendant bank, fraudulently induced his employer to sign checks to the order of a nonexistent person, in payment of bills which the employé led his employer to believe were owing by him to such pretended creditor. In fact, the name of such payees was one assumed by the employé himself and under which he had rented an office and received his mail in a distant part of the city. Under his assumed name, the employé opened an account with the Greenwich Bank. Having thus fraudulently procured the checks from his employer, the employé indorsed the same in his assumed name, and, so indorsed, deposited them with the defendant bank, from which he drew the proceeds. By a divided court, the bank was held not liable to the tea company for the loss. The reasoning of the court is summed up in the following sentences (at page 451 of 157 App. Div., at page 389 of 142 N. Y. Supp.):

"This is not strictly speaking the case of a check drawn to a fictitious or nonexistent person. * ** What we have here is a successful fraud perpetrated upon the tea company by one of its own employés, by which it was induced to believe that it owed that employé certain sums of money. The checks in suit were intended to be paid in satisfaction of this supposed debt and were in fact paid to the person for whom they were intended. No liability attaches to the bank under these circumstances."

The minority of the court pointed out that, while the majority assumed to base their decision on the intent of the drawer, they had in fact confused the matter of such intent with that of the identity of the payee, and in working out their legal conclusion had substituted the latter for the former. The error in a result thus obtained was pointed out in Philips v. Mercantile Nat. Bank, 140 N. Y. 556, 562, 35 N. E. 982, 983 (23 L. R. A. 584, 37 Am. St. Rep. 596), where Judge Gray, writing for the court, said:

"The fictitiousness of the maker's direction to pay does not depend upon the identification of the name of the payee with some existent person, but upon the intention underlying the act of the maker in inserting the name."

The minority in the Greenwich Bank Case placed their dissent on the ground that the indorsement of the name of the payee should be treated as a forgery, and that "the rule that a check payable to a fictitious payee is deemed payable to bearer has no application where the drawer of the checks is not aware that the payee is fictitious." At page 454 of 157 App. Div., at page 392 of 142 N. Y. Supp. (citing Shipman v. Bank of State of New York, 126 N. Y. 318, 27 N. E. 371, 12 L. R. A. 791, 22 Am. St. Rep. 821). As I read the Shipman Case, it decided exactly that on a state of facts indistinguishable from those in the Greenwich Bank Case. In the Shipman Case, plaintiffs were by the fraud of their clerk induced to sign checks to various classes of fraudulent payees, including some wholly fictitious who plaintiffs were induced to believe were clients of plaintiffs, to whom the sums represented by the checks were owing. But the question would seem. settled by Seaboard Nat. Bank v. Bank of America, 193 N. Y. 26, 85 N. E. 829, 22 L. R. A. (N. S.) 499. In that case, one Pennock, an employé of Babcock & Co., a depositor of the Federal Bank, presented to that bank a check purporting to have been drawn on it by

Babcock & Co. to the order of "N. Y. Draft," but which check was in fact forged. In exchange for this check, the employé received from the Federal Bank a draft on plaintiff to the order of Carroll Bros. whose name Pennock indorsed on the draft which he deposited to his credit in the Mellon Bank. Carroll Bros. was an existing firm and dealers with Babcock & Co., but to whom the latter owed nothing. Plaintiff, having reimbursed the Federal Bank, brought action to recover the amount of the draft from defendant, the correspondent of the Mellon Bank, to which plaintiff had paid the draft, and judgment in plaintiff's favor was sustained. The court refused to treat Carroll Bros. as fictitious payees because, under subdivision 3 of section 28 of the Negotiable Instruments Law (Consol. Laws, c. 38) of this state, such an instrument payable "to the order of a fictitious or nonexisting person" is to be considered as payable to bearer only when "such fact was known to the person making it so payable." After pointing out that in this fact of knowledge lies the difference between our act and certain others, including the English Bills of Exchange Act, the court. cites numerous commentators, who recognize the "New York rule," and also quotes with approval (at page 35 of 193 N. Y., at page 832 of 85 N. E. [22 L. R. A. (N. S.) 499]) the following very apt language from the Shipman Case:

"Hence if the maker or drawer supposes the payee to be an actually existing person (as for instance, where he is induced by fraud to draw the instrument to the order of a fictitious person whom he supposes to exist), the instrument will not be payable to bearer, and no person can acquire the title thereto by delivery. And where the instrument is drawn payable at a bank, the bank cannot charge the same to the account of its customer, since the instrument is not in such case payable to bearer and the instrument is a forgery."

The reason for the so-called "New York rule" is apparent and supports its propriety, and incidentally discloses what I deem to be the basic error of the decision in the Greenwich Bank Case. A check payable to a nonexistent person, necessarily, can never bear a genuine indorsement. Hence the drawer who is aware of such nonexistence cannot intend the check to be indorsed by the payee named and must be taken as intending it to be payable to bearer. But, if the fact of the payee's nonexistence is unknown to the drawer, presumably he relies on the drawee to see to it that payment is made as directed, and this casts the burden on the drawee to ascertain by identification or otherwise to whom he pays, and to pay only on a genuine indorsement. Naturally, if such an indorsement be impossible, the drawee should not pay at all.

It has been suggested that the Seaboard Bank Case is to be distinguished from that of the Greenwich Bank, because in the former the check of Babcock & Co. in exchange for which the Federal Bank issued its draft, was a forgery, but this fact the court took pains to point out (at pages 31 and 32 of 193 N. Y., 85 N. E. 829, 22 L. R. A. [N. S.] 499), was quite immaterial. The case of the Seaboard Bank was neither cited by counsel nor referred to in either of the opinions in the Greenwich Bank Case, and seems to have wholly escaped attention. If, however, it is, as I deem it to be, a controlling authority binding upon and which it was the duty of this court to follow when