maintain an action against the holder thereof for a conversion of the bill, or could not sue at law in a court for money had and received to recover the proceeds received in payment thereof, then a drawee dependent upon the doctrine of subrogation could not, on the theory of subrogation, recover the money paid by him under mistake as to the genuineness of an indorsement. In conclusion it is submitted that on no theory of quasi contract can the decisions reached in the cases considered in this note be reconciled, or the results reached in many of the cases be justified."

These two articles by masters of the subject strongly tend to support the contention that the exceptional rule is unsound. But if it be treated as sound, both under the great weight of authority and the reason for it, the case at bar does not come within it, since the defendant claims under a forged indorsement. We are of opinion, therefore, that the appellant was entitled to recover under the general rule which permits a recovery of money paid under a mistake, and that the demurrer to the petition should have been overruled.

Judgment reversed for further proceedings consistent with this opinion.

SECTION 5.-RIGHT OF THE DRAWEE WITH RESPECT TO INSTRUMENTS PAYABLE TO THE ORDER

OF A FICTITIOUS PAYEE

Reference was made to the subject of fictitious payees in Chapter I, where we were considering the circumstances under which an instrument was to be deemed payable to bearer, and it was there stated that this matter could be taken up more profitably in connection with our study of the various legal aspects of forgery.

In order to pave the way for our study of the legal effect of making an instrument payable to the order of a fictitious payee, let us take the following illustrations:

(1) Suppose that F. forges M.'s name as the drawer of a check drawn upon the D. bank and payable to bearer, or to P. or bearer, and negotiates the instrument to A., a holder in due course. Upon presentment to the drawee, D., A. obtains payment. What is the result? D. cannot charge M.'s account, because M. did not draw the instrument. If the instrument were drawn payable to P. or bearer, and either F. or A. indorsed P.'s name, such indorsement would not be a forged indorsement within the meaning of the rule which allows a drawee having paid to a holder under a forged indorsement to recover the money so paid, for the reason that the genuine indorsement of P. is not necessary to pass title to the instrument. Therefore the drawee, D., cannot recover the money paid to A. because of the rule discussed in section 4 of this chapter.

(2) Suppose, then, that F. forged M.'s name as the drawer of a check drawn upon the D. bank payable to P. or order and delivers the instrument to P. Suppose further that T. steals the instrument from P., forges P.'s indorsement and negotiates to A., a holder in due course. Notice the important distinction between

this case and that put in the first illustration. In this case the check is payable to P. or order, therefore the genuine indorsement of P. is necessary to pass title; while in the first case, the instrument being payable to P. or bearer, the indorsement of P. was not necessary to pass title. Upon payment by D. to A., what are the rights of D.? M.'s name being forged, D. cannot charge M.'s account just as in the first case. But D. may recover from A., in spite of the rule developed in section 5 of this chapter, because the drawee has alsó paid to a holder under the forged indorsement of P., whose genuine indorsement was necessary to pass title to the paper. Money paid under a forged indorsement may be recovered. It may seem somewhat strange to be speaking of having title to an instrument which is void as far as the drawer is concerned, but it is nevertheless true. A person may own something that has little or no value, as well as he may own something possessing value.

(3) We are now ready for the case of the fictitious payee. F. forges M.'s name to a check payable to P. or order, drawn upon the D. bank. F. indorses P.'s name and negotiates to A., and A. obtains payment from the drawee, D. What are D.'s rights? Is case (3) in legal effect like case (1) or case (2)? If it is like case (1), then D. cannot recover from A. If case (3) is like case (2), then D. may recover from A. The answer depends upon the legal effect to be given to the signature by F. of P.'s name, as an apparent indorser of the check. Apparently, case (3) is like case (2), because both instruments were payable to order and in both cases P.'s name was placed upon the instrument as an indorser by some one other than P. If the appearance of things governed, D. could recover from A. But as a matter of law the appearance of things does not govern, for the law is that, in legal effect, case (3) is like case (1), and D. accordingly cannot recover from A. We have the rather novel situation of an instrument expressly payable to a named payee or order being treated as though it were payable to bearer. The words "or order" have the same meaning as the words "bearer" whenever the instrument is payable to a fictitious payee or order, and case (3) is a case where P. was a fictitious payee; that is, P. was fictitious in the sense that F. intended that P. should never have any interest in the check.

What reason is there for the rule that an instrument payable to the order of a fictitious payee is deemed payable to bearer? This may best be shown by a case involving a fictitious payee where no fraud is intended. Suppose that M. draws his check in the D. bank payable to P. or order, intending then to deliver the check to P. in payment of a debt. Suppose further that M. thereafter changes his mind about delivering the instrument to P. and decides to pay a debt of the same amount which he owes A. Of course, the normal thing for M. to do would be to destroy the first check and draw a new one payable directly to A.; but suppose M. decides to make use of the check which he has drawn payable

to P. or order, M. then indorses P.'s name and delivers the same to A., or authorizes A. to indorse P.'s name. Certainly P.'s name was not forged either in the criminal law sense nor in any other sense. P. sustained no damage whatsoever because until delivery P. could have no interest in the check. Is it not perfectly reasonable to say, therefore, that in this case the indorsement of P. by M. or A. shall be treated as a genuine indorsement of P. and as a result that title to the check passed to A.? This result is not only possible, but virtually necessary, because M. intended that P. should not have any interest in the check, but that A. should obtain title. The result is the same where F., the person who physically drew the instrument, forged the name of the apparent drawer, for he likewise intended that P. should have no interest in the check, but that the transferee, A., should have the interest in the instrument. It would have been somewhat more logical for the law to have said that where the instrument is made payable to the order of a fictitious payee, and such fictitious payee's name is signed as an indorser, such indorsement should have the same effect as though in all respects such indorsement were genuine. The law, however, did not say quite this, but instead the rule became fixed that an instrument so drawn became payable to bearer. In the majority of cases the same result is reached, but the way in which the rule is phrased makes the underlying reason for its existence appear less distinct.

From a practical standpoint the typical case calling for the application of the rule relating to fictitious payees arises where a fraudulent party, commonly an agent of the person whose name is signed as drawer, adopts this scheme to defraud the bank in which his employer maintains an account. The success of the scheme to defraud is made more certain if the paper is made payable to the order of some one with whom the apparent drawer is known to have business dealings. The scheme is only one of many forced constantly upon the attention of the business and banking world, where the negotiable instrument is made to do the work of the crowbar or of nitroglycerine.

The section of the Negotiable Instruments Law involved is as follows:

Section 9, subsection 3. The instrument is payable to bearer when it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable.

The case following illustrates the application of the rule. Then follow a few cases bearing a close resemblance to the fictitious payee case but upon closer examination are found to be governed by other rules. (1) Suppose that F., the fraudulent party, induces M. to draw the instrument payable to P. or order, and F. indorses. P.'s name; is this instrument payable to bearer? (2) F., by fraud, induces M. to believe that he, F., is P., and obtains an instrument payable to P. or order; is this instrument to be deemed payable to bearer?

TRUST CO. OF AMERICA v. HAMILTON BANK OF NEW YORK CITY. (Supreme Court of New York, Appellate Division, 1908. 127 App. Div. 515, 112 N. Y. Supp. 84.)

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MCLAUGHLIN, J. This is a controversy submitted to the court upon an agreed statement of facts. The controversy relates to four checks for $500 each, drawn upon the plaintiff, a trust company doing a banking business, and signed: "Estate of Kate M. Wallace. Arthur B. Wallace, Adm'r." At the time the checks were presented to the plaintiff for payment, the estate of Kate M. Wallace was one of its depositors, having to its credit an amount in excess of all the checks, which could be drawn out on checks signed by Arthur B. Wallace, administrator, when countersigned by the United States Fidelity & Guaranty Company. The Wallace estate had then been practically settled, and the amount on deposit was ready for distribution among the next of kin of the decedent. The four checks in question were drawn without the knowledge or authority of the administrator, his signature being forged, and in each there was inserted as payee the name of some one of the next of kin whose distributable share of the amount on deposit with the plaintiff was greater than the amount of the check or checks thus apparently payable to such person. The first check was dated September 25, 1905, and was presented on that day to the United States Fidelity & Guaranty Company by a person unnamed, without the knowledge of plaintiff or defendant. The United States Fidelity & Guaranty Company, relying upon the apparent genuineness of the check, countersigned the same, and it was then, by some person unknown, presented to the plaintiff for acceptance and by it accepted, in writing. The name of the payee was then forged upon the back of the check as first indorser, and it was subsequently deposited with the defendant, by one M. F. Kerby, one of its depositors, who was given credit for the same. It then bore the following additional indorsements: "Harvey J. Conkey. M. F. Kerby. A. Edward Fisher." Thereafter, the defendant, through the New York Clearing House, presented the check to the plaintiff for payment, guaranteeing the indorsements, and it, relying upon the genuineness of the check, with the guarantee of the defendant thereon, not knowing that the indorsement of the payee was forged, paid the same in good faith. Substantially the same facts are true in regard to the second check, which was dated in November, 1905. The other two checks, dated in December, 1905, and January, 1906, were not presented to plaintiff for acceptance before payment and were deposited with defendant by Harvey J. Conkey, one of its depositors, to the credit of his account; otherwise, the same course was pursued with regard to them. They were indorsed "Harvey J. Conkey" below the forged indorsement of the payee.

Upon discovering the forgeries, the plaintiff at once notified the defendant, tendered back the checks, and demanded repayment. In the meantime both Kerby and Conkey had withdrawn the proceeds of the checks, and the defendant, relying on plaintiff's acceptance and payment of them, had paid out the same in good faith. The defendant has refused to repay plaintiff the amount of the checks, or any of them, and the question presented is whether plaintiff is entitled thereto.

The general rule is that payments made under a mistake of fact may be recovered, although negligently made; but it is also settled that,

if the drawee of a bill of exchange to which the drawer's name has been forged accepts or pays the same, he can neither repudiate the acceptance nor recover the money paid, since he is bound to know the drawer's signature. * * * It is also settled that, where the indorsement of the payee of a bill of exchange has been forged, subsequent holders obtain no title to it, and payments made to one who holds under such forged indorsements may be recovered.

* *

*

Therefore, if all the indorsements on the checks in question had been genuine, the plaintiff could not recover; but if the maker's signatures had been genuine, and only the indorsements or any of them forged, it could recover. A leading authority on the subject. is Bank of England v. Vagliano Bros., L. R. 1891 App. Cas. 107.

* * *

* * *

Under the negotiable instruments law and the cases cited, I am of the opinion the checks in question, as between plaintiff and defendant, were payable to bearer. It does not appear who forged the maker's signatures, but the subsequent history of the checks does not leave it open to doubt that the person who did so knew that the parties whose names were used as payees would never have any interest in the instruments. Just as in the Bank of England and the Phillips Cases, 140 N. Y. 556, 35 N. E. 982, 23 L. R. A. 584, 37 Am. St. Rep. 596, in order to accomplish the fraud more easily, the names inserted as payees were those of persons to whom checks might naturally be made. Whether indorsing the names of the payees upon the checks was technically forgery or not it is unnecessary to consider. It has been convenient to thus describe them. Despite these forged indorsements, then, the defendant acquired good title, since in legal effect the checks were payable to bearer. Plaintiff, having paid them to a holder in due course, cannot recover upon the ground that the payees' signatures were forged.

* * *

[Quoting from 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, the court said:] "The maker's intention is the controlling consideration which determines the character of such paper." * *

I am of the opinion that the plaintiff has no legal claim against the defendant, and for that reason the latter is entitled to judgment upon the merits, with costs.

SEABOARD NAT. BANK v. BANK OF AMERICA.

(Court of Appeals of New York, 1908. 193 N. Y. 26, 85 N. E. 829,

22 L. R. A. [N. S.] 499.)

Action by the Seaboard National Bank against the Bank of America. From a judgment of the Appellate Division, affirming a judgment for plaintiff, defendant appeals.

Three persons doing business under the firm name of E. V. Babcock & Co., at Pittsburg, Pa., were depositors in the Federal National Bank of that city. One Pennock was the auditor and chief bookkeeper, and known by said bank to be in the employ of said firm. On September 17, 1904, said Pennock went to said bank, and presented a check purporting to be signed by said firm, drawn upon said bank, payable to the order of "N. Y. Draft," for $2,000, and requested said bank to give him a New York draft for $2,000, payable to the order of "Carroll Bros." A draft was drawn by said bank upon the plaintiff, a bank