ing institution in the city of New York, and delivered to said Pennock. Said Pennock thereupon went to the Mellon National Bank of Pittsburg, Pa., in which bank he had a personal account, and he thereupon signed the name of "Carroll Bros." on the back of said draft, and deposited the same to his account in said Mellon National Bank. The draft was indorsed by the Mellon National Bank, and forwarded to its correspondent, the defendant, in the city of New York. The defendant collected said draft of the plaintiff, through the clearing house in the city of New York in the usual course of business. The check upon the Federal National Bank, which purported to be signed by E. V. Babcock & Co., was a forgery. "Carroll Bros." is a partnership, composed of two members, doing business in Pennsylvania, and it had dealings, from time to time, with said E. V. Babcock & Co., but in the dealings with said E. V. Babcock & Co., Carroll Bros. were always indebted to E. V. Babcock & Co. The indorsement of the name "Carroll Bros." upon said draft was without the knowledge or authority of said Carroll Bros., said E. V. Babcock & Co. or of said Federal National Bank. This action was brought to recover the amount of said draft, and judgment was entered in favor of the plaintiff, from which judgment an appeal was taken to the Appellate Division of the Supreme Court, where the judgment was unanimously affirmed, and from such judgment of affirmance an appeal is taken to this court. CHASE, J. The Federal National Bank was a depositor with the plaintiff. The relation existing between a bank and a depositor being that of debtor and creditor, the bank can justify a payment on the depositor's account only upon the actual direction of the depositor. * * It is provided by the Negotiable Instruments Law that: "Where a signature is forged or made without 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." * * * If it was necessary for Carroll Bros. to indorse the draft before it could be paid by the plaintiff to the account of the Federal National Bank, then it was never so indorsed, because Pennock's act was a forgery, and wholly inoperative. The defendant cannot retain the money paid to it by the plaintiff upon such unindorsed draft, for the very excellent reason that it had no title to the instrument upon which the money was paid. It is further provided by the Negotiable Instruments Law (section 28) as follows: "The instrument is payable to bearer: * When it is payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable. * * * * It is claimed by the defendant that the draft was payable to a fictitious or nonexisting person, and consequently writing the signature of Carroll Bros. on the back of the draft was not in legal effect a forgery, and not necessary to protect the plaintiff in its payment. * * * We * * * think that the defendant is wrong in its contention that the draft was payable to bearer as defined in the Negotiable Instruments Law. It is only when a person making an instrument knows that he is making it payable to a fictitious or nonexisting person that it can be treated as payable to bearer. The appellant asserts that a person to whom a draft, made payable to a third person, is issued can, while he remains the owner thereof, divert it from the purpose for which it was intended, and that, for the purpose of such diversion, or of returning the amount of the draft to his account in the bank, he can indorse the payee's name thereon without being liable for the crime of forgery. Assuming that, in cases where the draft has never been delivered to the payee, or the payee has not in some way obtained a vested interest therein, the appellant is right in its claim, the assumed authority to so indorse the payee's name thereon does not arise because the draft is payable in legal effect to bearer, but because of the fact that such an act of the owner is harmless. Such means of recalling a proposed transaction, or of changing the use to be made of a draft, is sustained upon the right that a person has to do as he pleases with his own, and for that reason, until the rights of others in the draft have become vested, the acts of the owner therewith are innocent and colorless. * * *There is no presumption arising from the facts proven that the name "Carroll Bros." was intended as a fictitious or nonexisting payee. Such intention, to be effective, must necessarily arise from knowledge, and exist as an affirmative fact in the mind of the drawer of a draft at the time of its delivery. * * * Selover in his work on Negotiable Instruments Law (page 70) says: "The doctrine that a check or bill made payable to a fictitious person is payable to bearer, and negotiable without indorsement if the fictitious character of the payee was known to the parties, originated in England, and in each of the cases holding the doctrine the decision was based on the fact that the acceptor knew, at the time of his acceptance, that the instrument was payable to a fictitious person. If the drawer or maker of an instrument did not know that the payee was a fictitious or nonexistent person, and did not intend to make the paper payable to such person, paper payable to the order of such person cannot be treated as payable to bearer, for the intention of the maker or drawer is the test.' * * * It does not appear that the Federal National Bank knew Carroll Bros. was a fictitious or nonexisting person, or intended that the instrument should be payable to bearer. The judgment should be affirmed, with costs. MERCANTILE NAT. BANK OF CITY OF NEW YORK v. SILVERMAN. (Supreme Court of New York, Appellate Division, 1911. 148 App. Div. 1, 132 N. Y. Supp. 1017.) Action by the Mercantile National Bank of New York against Louis Silverman. Judgment for plaintiff, and defendant appeals. LAUGHLIN, J. This is an action on a promissory note, upon which the defendant admitted his liability, but pleaded facts on which he demanded that the amount of two checks paid by the plaintiff and charged to his account be set off. This defense was overruled. * * * The appellant was a private banker, conducting business in the city of New York, and for a long time he had been accustomed to purchase claims of officers of the United States army for their salaries to grow due in the future, and to take assignments of their vouch ers therefor. He had a drawing account with the plaintiff, and the checks which were charged to his account and the amount of which he seeks to offset herein were drawn and dated on the 16th day of September, 1907. One was for $900, payable to the order of "Lieut. Col. Frederick Marsh," and the other was for $526.50, payable to the order of "Capt. J. A. Shipton." * * * The appellant was not personally acquainted with either Lieut. Col. Marsh or Capt. Shipton, and had had no business transactions with either of them; but in due course of mail he received a letter under date of September 11, 1907, written on the stationery of the New Willard Hotel at Washington, D. C., purporting to be signed by "Frederick Marsh, Lieut. Col. Coast Artillery Corps," and stating, in substance, that the writer observed by an advertisement in the Army and Navy Register that appellant discounted monthly pay vouchers for army officers, and stating his monthly salary; that he desired to have appellant cash his vouchers for October, November, and December of that year. * * On the receipt of these letters and vouchers, appellant inclosed the checks, either in one envelope addressed to Marsh by his official title, or in separate envelopes, the one payable to the order of Marsh addressed to him, and the other addressed to Shipton by his official title, at the New Willard Hotel at Washington, D. C., but as to which the testimony of the appellant is uncertain. The appellant knew, by an examination of the Army and Navy Register before answering the first letter, that there were such officers, and where they were regularly stationed, which corresponded in that regard with the information contained in the letter; but he made no inquiry to ascertain whether or not they were then at the New Willard Hotel or in Washington, or to ascertain whether or not the writer of the letter was Lieut. Col. Marsh. * * * The primary question to be considered is whether Lieut. Col. Marsh and Capt. Shipton of the United States army were the respective payees of the checks, or whether the appellant intended to make the individual with whom he had the correspondence the payee thereof. I am of opinion that only one inference may be drawn from these uncontroverted facts, and that is that, while the appellant erroneously believed that his correspondent was Lieut. Col. Marsh, he did not determine that question, and reasonable care did not require that he determine it. The appellant did not personally deliver the checks, and thus pass on the identity of the payee. He transmitted them by mail, so addressed that without violating the law they could. not be received and opened by any one other than the army officers, and made the checks out in such form that they could not be collected by any one other than the army officers, without the commission of the crime of forgery, and failure on the part of the person or corporation cashing them in the first instance to require proper identification. In these circumstances, I think no title to the checks passed to the impostor. * * * * With respect to the sale and delivery of property to an impostor, where the vendor passes on the question of his identity, it has been held that the title passes, although the transaction may be rescinded for fraud. * * It is unnecessary to decide whether a different result would be required if the appellant had delivered the checks personally, and had determined for himself the identity of the payee which. would present the question as to who was intended as the payee in a somewhat different aspect and might give rise to a question of estoppel. * It follows, therefore, that the judgment and order should be reversed, * *and the complaint * * * dismissed, with costs. * SECTION 6.—RELATION OF A DRAWEE BANK TO THE DRAWER While a bank which has certified or paid a check drawn upon it is not a holder, the relation of the bank to its depositor is sufficiently analogous to the situations discussed in the preceding sections as to warrant a special inquiry into the nature of this contract. In many respects this is no part of the law of negotiable instruments, but is part of the law of contracts generally. The problem, in its broad outlines, is: What are the terms in the contract between a bank and its depositors? These terms are usually not expressly agreed upon, but are implied either in fact or law. No attempt is here made to present a complete analysis of the contract of deposit. A few only of its important aspects are involved in the cases following. BLAKE v. HAMILTON DIME SAVINGS BANK CO. (Supreme Court of Ohio, 1908. 79 Ohio St. 189, 87 N. E. 73, 20 L. R. A. [N. S.] 290, 128 Ain. St. Rep. 684, 16 Ann. Cas. 210.) SUMMERS, J. The action was brought by the defendant in error, the Hamilton Dime Savings Bank Company, of Hamilton, Ohio, against the Franklin Bank of Cincinnati, Ohio, upon a check drawn by C. G. Blake & Co. upon the Franklin Bank for $275, payable to the order of C. G. Blake, and certified by the Franklin Bank to be good, and indorsed by C. G. Blake and Charles Werbel. On Friday, October 16, 1903, Blake bought a horse from Werbel and indorsed the check to the order of Werbel and delivered it to him in payment for the horse. The indorsement of certification was as follows: "Good for $275.00 when properly indorsed. The Franklin Bank, H. Sachteleben, Teller." Werbel indorsed the check, and on the following Monday, October the 20th, deposited it to his account with the Hamilton Dime Savings Bank Company, and was given credit therefor on the books of the bank. The Hamilton Dime Savings Bank Company sent the check to the Atlas National Bank, of Cincinnati, for collection, and it was protested for nonpayment for the reason "payment stopped." Thereupon, on November 19, 1903, the defendant in error sued the Franklin Bank on the check, and the Franklin Bank filed a motion for an order of interpleader, which was granted, the amount of the check with interest was paid into court, and C. G. Blake was substituted as defendant. Blake filed an answer averring that he had been induced to purchase the horse and to deliver the check in payment therefor by the false and fraudulent representations of Werbel, that Werbel is the owner of the check, that the plaintiff, The Hamilton Dime Savings Bank Company, received the check only as collecting agent for Werbel and with knowledge that Werbel had been notified that payment on the check would be stopped. A jury was waived, and the court stated its findings of fact separately from its conclusions of law. Judgment was given for the bank for the amount paid into court, less costs to the date of that payment. The court found that the Hamilton Dime Savings Bank Company was the purchaser of the check for value and before notice and without knowledge of Blake's claim. * * * * In this state a bank check for part of the sum due the drawer does not, before acceptance by the drawee, constitute an equitable assignment of the amount for which it is drawn, * * and the holder cannot maintain an action against the bank for the amount of the check, although it has funds to the credit of the drawer sufficient to meet it. * * * This is now made the law by statute. * * * [N. I. L. § 189] is as follows: "A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check." But this is a certified check. Mr. Daniel says that the certification of modern commerce is quite recent in its origin, but now of daily and extensive occurrence. And in Merchants' National Bank of Boston v. State National Bank of Boston, 10 Wall. 604, 19 L. Ed. 1008, decided in 1871, Mr. Justice Swayne says in the opinion that "it is computed by a competent authority that the average daily amount of such checks in use in the city of New York, throughout the year, is not less than $100,000,000," and that "we could hardly inflict a severer blow upon the commerce and business of the country than by throwing a doubt upon their validity." And, speaking of their legal effect, he says: "By the law merchant of this country, the certificate of the bank that a check is good is equivalent to acceptance. It implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an undertaking that the check is good then and shall continue good; and this agreement is as binding on the bank as its notes of circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money. The transferee takes it with the same readiness and sense of security that he would take the notes of the bank. It is available also to him for all the purposes of money. Thus it continues to perform its important functions until in the course of business it goes back to the bank for redemption and is extinguished by payment. It cannot be doubted that the certifying bank intended these consequences, and it is liable accordingly. To hold otherwise would render these important securities only a snare and delusion. A bank incurs no greater risk in certifying a check than in giving a certificate of deposit. In well-regulated banks the practice is at once to charge the check to the account of the drawer, to credit it in 'certified check account,' and, when the check is paid, to debit that account with the amount. Nothing can be simpler or safer than this process. The practice of certifying checks has grown out of the business needs of the country. They enable the holder to keep or convey the amount specified with safety. They enable persons not well acquainted to deal promptly with each other, and they avoid the delay and risks of receiving, counting, and passing from hand to hand large sums of money." Daniel (section 1603) says that, when |