Cohen v. Lincoln Savings Bank , 275 N.Y. 399 ( 1937 )

A check for $4,500, drawn upon Irving Trust Company by Lincoln Savings Bank to the order of the plaintiff, a depositor of the savings bank, was indorsed in blank by the plaintiff and handed by her to her husband, Samuel Goldberg, with authority to use the check in payment for the assignment to her of a half interest in an award of $10,000 made in proceedings for the condemnation of a parcel of real property. An attorney, William L. Abrams, had previously offered to sell the award to Goldberg at a discount. After some negotiations they agreed that the sale should be made at a discount of ten per cent. Goldberg at that time did not, so far as appears, know or care who was the owner of the award. What he wanted was, of course, a valid assignment by the owner of record of the award which Abrams had agreed to sell and he retained an attorney, Feinstein, to search the title so that he might know who the owner of record was.

On the day set for the closing, Goldberg, accompanied by this attorney, went to Abrams' office. There he met Kurtz, another attorney, who claimed that he represented the owner of the award. A man who came into the office a little later was introduced by Kurtz as Harry Wolter, the owner. Goldberg told Abrams, that he was in a hurry and wished to leave. Abrams, Goldberg and Goldberg's lawyer, Feinstein, then went into another room. Goldberg had arranged that the plaintiff, his wife, should buy and pay for half the award and Samli Building Corporation, of which he was president, the other half. He had checks from both in his possession. He handed them indorsed in blank to Abrams and said to him: "Assign these checks to the proper owner and deliver to Mr. Feinstein the assignment of the papers to be recorded." He saw Abrams write over the blank indorsements the words "Pay to the order of Harry Wolter." Then Goldberg left the office.

The man introduced as Harry Wolter was in fact an impostor named Dennis. He executed and acknowledged an assignment of the award in the name of Harry Wolter. It was a forgery and resulted in no transfer of title to any award. Because Goldberg, Feinstein and Abrams believed that the stranger was Harry Wolter, the record owner of the award, and that his written assignment would pass good title to the award, the impostor received the checks which were payable only to the order of Harry Wolter. The impostor then indorsed the checks in the name of Harry Wolter and induced the defendant Jacoby to believe that he was in fact Harry Wolter, the payee named in the check obtained from the plaintiff, and to discount the check. Jacoby deposited the check in his own bank. Bearing Jacoby's indorsement as well as the indorsement of two banks, it was presented at the Irving Trust Company, upon which it was drawn, and there paid in due course. The fraud was revealed some months thereafter. The plaintiff has received nothing for her check because no assignment by Dennis could transfer title to an award for property belonging to Harry Wolter as record owner. Her account in the savings bank has been charged with the amount of the check which was intended as payment for an assignment fromHarry Wolter and which was payable only to the order of Harry Wolter, though Harry Wolter never indorsed or transferred the check. She has recovered judgment for the amount so charged against her, upon a finding that the signature of Harry Wolter, placed upon the check by an impostor, who has no right to that name, is a forgery just as the same signature placed by the same impostor upon the assignment is a forgery. Under the judgment the loss must ultimately fall upon the impleaded defendant Jacoby who paid value for it.

The Negotiable Instruments Law [Cons. Laws, ch. 38] provides (§ 42): "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." In considering the effect of an indorsement made by one who falsely impersonates a payee named in a negotiable instrument, the courts have usually treated the statutory provision as a restatement of the common law and, at least, so far as concerns the problem as presented in this case, no distinction need be drawn.

We have said recently: "In determining whether there was a forgery the true test is whether or not the indorsement of the name of the payee was made by the person who was intended by the drawer to be the payee. If such person indorsed, there is no forgery." (Halsey v. Bank of New York Trust Co., 270 N.Y. 134,138.) We apply that test here. It is indeed the test which is almost universally applied in determining whether there has been a forgery. It is to be noted, however, that both at common law and under the statutory rule, a signature which is "forged or made without authority of the person whose signature it purports to be" may not be wholly "inoperative," but, on the contrary, may confer a right against a party to a negotiable instrument if "the party, against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority." A distinction between a case where there has been no forgery or want of authority and a case where a party against whom it is sought to enforce a right is "precluded from setting up the forgery or want of authority" seldom carries any practical consequences; and the courts may at times ignore distinctions in thought which carry no practical consequences. Thus sometimes a confusion seems to creep unnoticed into many opinions which discuss the effect of a signature on a negotiable instrument made by a party who has been given possession of the instrument but is not named therein. The question of whether a challenged indorsement of the name of the payee has been made by the person who was intended by the drawer to be the payee then becomes obscured and confused with the question of whether a party against whom a right is asserted is "precluded" from setting up the forgery.

Where a person has been induced by fraud to draw a check to the order of an existing person, whose name and identity has been fraudulently assumed by another, and to deliver the check to the impostor, it has been held by most courts that an indorsement by the impostor is not a forgery and the bank upon which it is drawn may pay it upon such indorsement. "This result may be reached in several ways, none of which is without difficulty." (See McKeehan, The Negotiable Instruments Law, 41 American Law Register [N.S.], 499, 503, reprinted in Brannan's Negotiable Instruments Law [2d ed.], pp. 220, 247, 248.) In that article the author says: "As a matter of fact, the courts base their decision on the first ground, namely, that the bank has merely carried out the drawer's intent. Here and there an expression may be singled out which seems to countenance one or more of the other views [negligence, estoppel, etc.], but a fair reading of the opinions shows that one idea dominates nearly all of them, namely, that the money has been paid to the person for whom it was really intended. The reasoning is briefly this: A man's name is the verbal designation by which he is known, but the man's visible presence affords a surer means of identification. C. was deceived as to the man he was dealing with, but he dealt with and intended to deal with the visible man who stood before him, identified by sight and hearing. Thinking that this man's name was B., he drew the check to B.'s order intending thereby to designate the person standing before him; so the bank has simply paid the money to the person for whom it was intended." (Cf. Halsey v. Bank of NewYork Trust Co., supra.)

An academic legal problem may be greatly simplified by excluding, in its formulation, all facts which might introduce conflicting considerations to be weighed in the balance in reaching a sound conclusion. Legal problems, as presented in actual litigation, are seldom free from such complications. The rule that the payee of the check is the particular person who was intended by the drawer to be the payee can hardly be questioned. The name by which he is designated is merely the tag by which the intended person may be identified. A person, though bearing that name, if not the person intended, has no title to the check and cannot indorse or transfer title to it. (Graves v. AmericanExchange Bank, 17 N.Y. 205.) When an instrument is made "payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable," the instrument is payable to bearer. (Negotiable Instruments Law, § 28, subd. 3.) Even before the Negotiable Instruments Law was adopted, a bill payable to a fictitious payee was payable to bearer without being indorsed by the maker or the person to whom it was delivered. (Plets v. Johnson, 3 Hill, 112;Central Bank of Brooklyn v. Lang, 1 Bosw. 202; Irving Nat.Bank v. Alley, 79 N.Y. 536.) When the instrument is payable to the order of a fictitious or non-existent person, and the person making it so payable has been induced to believe that he is describing an existing person as payee, no other person can acquire any right or title to the instrument. (United CigarStores Co. v. American Raw Silk Co., 184 App. Div. 217; affd.,229 N.Y. 532; Shipman v. Bank of State of New York, 126 N.Y. 318. )

Every valid instrument which is not payable to bearer must be payable to a determinate payee and where it appears that the maker intended a particular person to be the payee, the payee so intended even though designated by a wrong name and even though he induced the maker to deal with him through fraudulent misrepresentation as to his responsibility, character or name, is the real payee and can by indorsement transfer title to the instrument. "Although one may be deceived as to the name of the man with whom he is dealing, if he dealt with and intended to deal with the visible person before him the check may properly be indorsed by the impostor." (Halsey v. Bank of New York TrustCo., supra, p. 139.)

Thus if we assume the premises of the problem as formulated by the author of the article, viz., that the maker of a check though "deceived as to the man he was dealing with" yet "intended to deal with the visible man who stood before him, identified by sight and hearing," and if "thinking that this man's name was B., he drew the check to B.'s order intending thereby to designate the person standing before him," then there can be little if any room for disagreement with the conclusion, generally accepted by courts and academic writers, that a drawee bank which pays the check upon the indorsement of the person intended to be the designated payee "has simply paid the money to the person for whom it was intended."

In any examination of the cases which have considered the problems arising from false impersonation of a named payee, it quickly appears that the real difficulty has been in determining whether the intended payee was in truth the person bearing the name by which the payee was designated or was the visible person who had assumed that name in order to misrepresent his responsibility or character. Seldom, if ever, is possible argument excluded that the payee named and not the visible person, who by fraud obtains the instrument, was the payee actually intended, and "there are border cases where the line is hard to draw between the impostor who appropriates what is intended for another, and the impostor who deceives by misrepresenting his responsibility or character." (Strang v.Westchester County Nat. Bank, 235 N.Y. 68, 72.)

It has been said that "In these fraudulent impersonation cases, the maker or drawer of the instrument may be said to have a double intent. First, he intends to make the instrument payable to the person before him or to the person writing at the other end of the line, in case the negotiation is by correspondence. Second, he intends to make the instrument payable to the person whom he believes the stranger to be. The courts have almost unanimously held that the first is the controlling intent except where the named payee was already known to the maker or drawer, as in Cundy v. Lindsay, 3 A.C. 459, and Rossi v. Nat.Bank, 71 Mo. App. 150, supra, or was more particularly identified in some manner, e.g., by some designation, description or title, as in the case of Mercantile Nat. Bank v.Silverman, 148 App. Div. 1; 132 N.Y. Supp. 1017, supra, in which cases the courts treat the second as the controlling intent." (Brannan on the Negotiable Instruments Law [5th ed.], pp. 310, 311.)

Perhaps, in truth, both intents are so inseparable that the choice of one intent rather than the other is purely arbitrary — an example of rationalization, perhaps unconscious, to reach a desired result. (Cf. Keel v. Wynne, 210 N.C. 426, and note in 15 N.C.L. Review 186 [1937].) Nevertheless an examination of the cases in other jurisdictions can leave no doubt that, as Brannan points out, in most jurisdictions it has been held that "the first is the controlling intent" (MontgomeryGarage Co. v. Manufacturers Liability Ins. Co., 94 N.J.L. 152; see note in 22 A.L.R. p. 1228; Land Title Trust Co. v.Northwestern Nat. Bank, 196 Penn. St. 230; see note in 50 L.R.A. p. 75; Id. v. Id., 211 Penn. St. 211; see note in 52 A.L.R. p. 1329), though a minority sustain the view that the latter intent is controlling. (Tolman v. American Nat. Bank,22 R.I. 462; Keel v. Wynne, supra.) We do not attempt in this opinion to analyze these cases in detail. In none are the facts exactly similar to those presented in the case under consideration. It is sufficient to point out that even in those cases which apply the so-called "majority rule" there was proof of an antecedent fraud by which a stranger induced a person to deal with him by masquerading as another and the negotiable instrument was made payable to the impostor as a result of the antecedent fraud and the negotiations induced thereby; and it appeared that the instrument was delivered to consummate the dealings with the stranger and with intent that it should be paid to him, though that intent may have been coupled with a second intent of the drawee "to make the instrument payable to the person whom he believes the stranger to be." It was the finding of this first intent which has dictated the conclusion in every case where a bank has been exonerated of fault in the payment of a negotiable instrument to a person not named in the instrument.

Thus it was said in Montgomery Garage Co. v. ManufacturersLiability Ins. Co. (94 N.J.L. 152): "We think that the rule is where, as here, the drawer of a check delivers it for a consideration which turns out to be fraudulent, to an impostor under the belief that he is the person whose name he has assumed and to whose order the check is made payable, a bona fide holder for a valuable consideration paid to the impostor upon his endorsement of the payee's name, is entitled to recover from the drawer, itappearing that the person to whom the check was delivered was thevery person whom the drawer intended should endorse it andreceive the money, and that the drawer made no inquiry before issuing the check concerning the identity or credit of the named payee, who was unknown to the drawer." (Italics are ours.) The broader statement of the rule that the drawer of a check, draft or bill of exchange who delivers it to an impostor, supposing him to be the person whose name he has assumed, must bear the loss, is itself "limited by the hypothesis that the impostor is supposed to be the person named as payee." (Cf. Land Title Trust Co. v. Northwestern Nat. Bank, supra, and note in 50 L.R.A. p. 75, and especially note on the second appeal in 52 A.L.R. p. 1329.) Indeed, the rule in such case that the drawer does not bear the loss in the absence of intent or some form of estoppel is so well established by precedent and statute that it seems hardly open to challenge.

In every case in this court where the loss has been imposed upon the drawer there has been proof of dealings between the drawer and another person who deceived the drawer as to his name and identity and there has been a finding that the drawer delivered the instrument to the impostor as the consummation of such dealings or negotiations and with intent that the instrument should be paid to the person with whom such dealings were previously had even though that person was designated by a name he did not bear. (Cf. especially First Nat. Bank v. AmericanExchange Nat. Bank, 170 N.Y. 88.) No person can become a "holder for value" of a negotiable instrument by transfer from a person not named therein and who has no title thereto or authority to transfer it. A person who pays value for an instrument takes the risk that the person named therein as payee is not the person designated and intended as payee, at least where the party to the instrument against whom a right thereunder is asserted has not by act or default contributed to the deception. He may protect himself against such risk by requiring sufficient identification or guaranty by others upon whom reliance can be placed. The drawer of an instrument payable to a named payee is under no duty to assure himself that the person to whom it is delivered is the payee so named or is entitled to receive it in his behalf. Though Goldberg erroneously believed that the visible person was in fact Harry Wolter, the person entitled to the check as consideration for the promised assignment of the award, reasonable care did not require that he determine it. He and Abrams were justified in delivering to him the check made out to Harry Wolter in reliance on the fact that the check could not be transferred except by Harry Wolter, the named payee, or paid except upon an order made by him. (Mercantile Nat. Bank v.Silverman, 148 App. Div. 1; affd. on opinion below, 210 N.Y. 567. ) That may be true, indeed, even where there is some doubt in the mind of the drawer whether the person to whom the check is delivered may not be masquerading as the named payee. (Gallo v.Brooklyn Sav. Bank, 199 N.Y. 222.) Unless the evidence in this case dictates the inference that Goldberg or Abrams had the actual intent that the visible person, though masquerading as Wolter, should receive payment of the check, there can be no ground for reversing the judgment.

We have pointed out at the beginning of the opinion that the negotiations for the purchase of the award were conducted by Goldberg entirely with Abrams. The plaintiff and Goldberg, her representative, had no dealings or communications of any kind with the impostor or indeed with the owner of the property until the moment that the impostor came into the room, and even thereafter, so far as appears, their only dealing with him was, through their agent, to hand him the check indorsed to the order of Harry Wolter. The absence of all prior dealings differentiates this case from every case which has been cited to sustain the contentions of the appellants. The premises fall upon which the conclusion in those cases rested that the drawer must bear the loss. Here there was no antecedent fraud by which the drawer was induced to enter into a transaction with the impostor. At the time when Goldberg left the office knowing that the checks were payable only to the order of Harry Wolter, the assignment had not been executed, delivered or examined. The impostor did not deceive "by misrepresenting his responsibility or character." He deceived by inducing Goldberg and Abrams to believe that he was Harry Wolter who, as they thought, was assigning an award which he owned, and thus he succeeded in appropriating what was intended for another. (Strang v. Westchester County Nat. Bank,supra.)

Physical presence is, as we have said, "often a surer means of identification" than a designated name (Halsey v. Bank of NewYork Trust Co., supra, p. 139), but as we also pointed out in the same case, only where physical presence is combined with antecedent dealings and intention "to deal with the visible person." "The fact that the vendor deals with the person personally rather than by letter is immaterial, except in so far as it bears upon the question of intent." (Phelps v. McQuade,220 N.Y. 232, 234.)

The appellants stress testimony of Goldberg that he intended that the checks should be delivered to Kurtz or his client. Of course Goldberg so intended. He accepted the introduction of the impostor as Harry Wolter, the true owner. He had no reason to suspect fraud. There was no reason to require further identification. He named as payee the person whom he intended,i.e., Harry Wolter, the owner, from whom he expected to receive an assignment. He authorized delivery to the impostor because he believed that he was the person so intended. Under these circumstances it certainly cannot be said as matter of law that the payee intended was the visible person with whom there had been no previous dealings and who could have no possible right to the check unless he was, as he claimed, Harry Wolter, the payee named therein. Any question of fact that may exist has been resolved in favor of the plaintiff. The only case in this State which in some aspects might seem to support the plaintiff's case is Hartford v.Greenwich Bank (157 App. Div. 448; affd., 215 N.Y. 726). After labored attempts to distinguish that case in United Cigar StoresCo. v. American Raw Silk Co. (supra), and to limit it inStrang v. Westchester County Nat. Bank (supra), this court definitely overruled the case in Ulmann Co. v. Central UnionTrust Co. (257 N.Y. 563), and thus definitely established the rule that only a payee named in the instrument or identified by previous dealings and intended to be described by that name can transfer title to the instrument.

It has been said that "both commercial practice and legal theory tend more and more to disregard everything except that which actually appears on the instrument." (McKeehan, The Negotiable Instruments Law, 41 American Law Register [N.S.], p. 449.) Only in that way can merchants rely upon the rule that a negotiable instrument in the hands of an innocent purchaser will be paid according to its tenor and intent and will not be paid otherwise. The judgment in favor of the plaintiff enforces rights in accordance with the written instrument and in accordance with commercial practice and especially the practice upon the closing of title, and it accords with the decisions of this and other States.

The judgment should be affirmed, with costs.