
    HENRY WELSH, Plaintiff and Respondent, v. THE GERMAN AMERICAN BANK, Defendant and Appellant.
    I. DEPOSIT IN BANK PAYABLE TO THE WRITTEN ORDER OF THE DEPOSITOR.
    
    1. ACTION AGAINST THE BANE TO RECOVER.
    (as) Defenses, what ake not.
    1. OhecTo, payment of. The fact of payment by the bank of the amount of a cheek drawn by the depositor to the order of a payee, to a person other than such payee, on the forged indorsement on the check of the name of such payee, does not constitute a defense.
    1, It is not a payment to the written order of the depositor.
    2. Negligence of depositor. This, unmixed with the element of inducement by or through the depositor to pay on the forgery, constitutes no defense.
    1. Negligence, what will not constitute.
    
    
      (a) A depositor signing checks for amounts not due to the payee, trusting, without making a personal examination, to his clerk’s statement that such amounts were due, and after signing, handing them to the clerk, will not.
    
      
      II RATIFICATION, WHAT R0E8 NOT AMOUNT TO.
    
    1. Non-discovery of the forgery of the indorsements upon checks drawn by a depositor to order of a payee, which checks had been honored by the depository and returned to the depositor with his pass-books where he was charged with the amounts thereof, for a length of time after such return, say two years, and the not malting any claim, against the depository until after such discovery, is hot a ratification of the payments made on such forged indorsements.
    
      III. AGCOUNT 8TATED.
    
    1. DEFENSE OF, TO AN ACTION BROUGHT ON A CONTRACT.
    
      (a) Pleading of Plaintiff, what not necessary.
    1. A reply denying the account stated, or if admitting it, the setting forth that plaintiff was erroneously debited or credited therein (as the case may be), in respect of the cause of action, is not necessary. °
    2. Amended complaint. Nor is it necessary to amend the complaint by inserting allegations of error in the account, with a view to open it.
    (&.) Overcoming effect of defense of ; what may be shown.
    1. Errors or mistakes affecting the result.
    Before Sedgwick, Speir and Freedman, JJ
    
      Decided June 25, 1877.
    Appeal from judgment for plaintiff, entered upon verdict directed by the court.
    
      E. A. Acker, attorney, and D. M. Porter, of counsel for appellant, cited the following cases:
    
      (a) As to there being an account stated: Bullock v. Boyd, 2 Edw. Ch. 292; Nevins v. Davison, 6 Selden, 75; Story's Eq. Jur. 526. (b) As to pleadings necessary by the plaintiff: Hutchinson v. Market Bk., 48 Barb. 321; Nevins v. Davison, 6 Selden, 75; Bullock v. Boyd, 2 Edw. Ch. 292; Lockwood v. Thorne, 1 Kernan, 170, 173; 18 N. Y. 285, 291, 292 ; Manhattan Co. v. Lydig, 4 J. R. 377. (c) As to the checks being payable to a fictitious person: Coggil v. The Am. Ex. Bk., 1 Comst. 
      113; National Bk. of Commerce in N. Y. v. The National Mechanics Banking Association of N. Y., 55 N. Y. 211. (d) As to plaintiff’s negligence: Allen v. Coit, 6 Hill, 318; Alderson v. Clay, 1 Starkey, 403 ; Hutchinson v. Market Bk. of Troy, 48 Barb. 321; Johnson v. First National Bk. of Hoboken, 6 Hun, 124; Nevins v. Davison, 6 Seld. 75. (e) As to ratification: Coggil v. Am. Ex. Bk., 1 Comst. 113; Gloucester Bk. v. Salem Bk., 17 Mass. 42; Lawrence v. Taylor, 5 Hill, 114 ; Ward v. Evans, 2 Salk. 442; Williams v. Mitchell, 17 Mass. 98 ; Story on Agency, §§ 234, 260. (f) The plaintiff under the circumstances must himself bear the loss, the defendant being innocent and free from negligence. Coggil v. Am. Ex. Bk., 1 Comst. 113; Reddick v. Doll, 54 N. Y. 234; Young v. Grote, 4 Bingham, 253 ; Isnard v. Jones, 10 La. Ann. 103; Vanduzen v. Howe, 21 N. Y. 351; Russell v. Pond, 56 Id. 57; Ingham v. Primrose, 28 L. J. 275; Garrard v. Hadden, 67 Penn. 82 ; Hutchinson v. Market Bk. of Troy, 48 Barb. 321 ; Gloucester Bk. v. Salem Bk., 17 Mass. 42. (g) The effect of defendant’s acts was to make the transaction valid as to defendant: Smith v. National Bk. of Commonwealth, 56 N. Y. 480; Continental National Bk. v. National Bk. of the Commonwealth, 50 Id. 575. Cases distinguished from this: 57 N. Y. 602; 11 Id. 404.
    
      Lemuel Skidmore, attorney, and E. L. Fancher, of counsel, for respondent, urged:
    I. When a check upon a bank is drawn payable to the order of a particular .person, the bank is bound to ascertain the genuineness of the payee’s indorsement before paying the check (Morgan v. Bank State of N. Y., 11 N. Y. 404; Graves v. American Exch. Bank, 17 Id. 205; Johnson v. Bank of Hoboken, 6 Hun, 124, since affirmed by court of appeals).
    II. There was not any negligence of depositor, in this case to excuse the bank in paying a check upon a forged indorsement. There was no gross negligence (Leavitt v. Stanton, Hill & Denio Supp. 413).
    III. Weisser v. Dennison, 10 N. Y. 68, is a case very similar to the present. In that case checks were forged by a confidential clerk of depositor, paid by the bank, charged in the depositor’s bank-book, balanced and returned to depositor, yet the bank was held liable to refund the money to depositor, as the act of his clerk was not authorized. Even if an account were stated by return of the bank-book and vouchers, yet it may be impeached by showing fraud or mistake.
    IV. The only authority given to Swindells by plaintiff on signing the checks, was to forward them to W. hi. Johnson, a customer well known to both: in making any other disposition of the checks Swindells was a wrong-doer and did not represent the plaintiff (Weisser v. Dennison, 10 N. Y. 18).
    V. This is not the case of a fictitious payee. A fictitious payee is one intended by the drawer to be fictitious and nominal (American Exchange Bank v. City Bank, 5 N. Y. Leg. Obs. 18).
    VI. The plaintiff was guilty of no negligence in entrusting the checks to his book-keeper to forward to the customer Johnson (Weisser v. Dennison, 10 N. Y. 83).
    VII. The plaintiff and defendant are not equally free from blame. The plaintiff is,- on the contrary, not to blame at all. The defendant is to blame for paying checks to the wrong individual, when they were bound to ascertain that the indorsement was genuine. Had the bank performed this simple duty, no damage could have befallen it.
   By the Court.—Sedgwick, J.

The action was upon contract. The complaint alleged that the plaintiff deposited with the defendant, from time to time, sums of money, amounting together to more than one hundred thousand dollars ; that defendant promised plaintiff to pay the said money on demand to the plaintiff or to his order, in writing; that the defendant had paid to the plaintiff or his order all the said money excepting $3,146; that the plaintiff, by order in writing, had demanded of the defendant the amount last named, but the defendant had refused to pay any part of the same.

The answer admitted the deposit with the defendant, the promise of the defendant as stated in the complaint, and the demand upon defendant.

There was a stipulation made by the parties, read. upon the trial, that the plaintiff was entitled to recover the amount claimed, unless the defendant “shall be able upon the trial to establish one or more of the affirmative defenses pleaded in the answer, and by the legal operation of such affirmative defenses to defeat or lessen the recovery; and in attempting to prove any of the said affirmative defenses the defendant shall be confined to due proof of legal payment to the plaintiff,” or his written order, of twelve checks amounting to the sum claimed, which the defendant had paid and charged to the plaintiffs’ account. These checks were drawn to the order of W. M. Johnson, excepting one which had been drawn to the order of J. D. Johnson and then indorsed to the order of W. hi. Johnson.

The proof showed that a clerk of plaintiff had drawn these checks and presented them to plaintiff to be signed as for amounts which the plaintiff owed W. ÍT. Johnson. W. 1ST. Johnson was in the practice of consigning butter to the plaintiff to be sold. The clerk took the checks after they were signed. The name of W. 1ST. Johnson was forged upon them as indorser. The checks were then delivered to other parties, who indorsed them, and they were paid by defendants through the clearing-house.

As the stipulation confined the defendant to due proof of legal payment to the plaintiff, or lib written order, of the amount of the checks, the plaintiff was entitled to recover upon the single fact that W. hi. Johnson’ s name was forged. Beyond doubt, under the admission by the defendant of the obligation to pay to the order of plaintiff, it was not a legal payment. There was no pretense that the plaintiff took part in the forgery. Even if there were negligence on his part (there was in fact none), he had a right to rely on defendant’s undertaking to pay to his order. If he did nothing to induce the defendant to pay upon the forgery, part of his rightful advantage was that though he was negligent, the defendants had contracted, that they would do that, which would prevent injury to him from his negligence.

It may be proper, however, to look through the defenses to see if there were any evidence in the case which called upon the court to send any defense to the jury.

The first defense was that the whole of the moneys deposited had been paid upon checks drawn by plaintiff, in fulfillment of the agreement stated in the complaint. This was certainly disproved, when it appeared that the checks required the defendant to pay their amounts to the order of W. IN". Johnson, and the defendants had paid them without that order.

The next defense was that the checks were drawn to the order of a fictitious person, and that the plaintiff deb'vered them to his clerk who indorsed them in the name of the fictitious payee. The proof was conclusive that the payee, W. IN". Johnson, was a real and not a fictitious person. In one instance the payee was J. D. Johnson. He was a book-keeper of the plaintiff, as I read the testimony of the latter. Before the plaintiff signed the last mentioned check, J. D. Johnson had indorsed it to the order of W. M. Johnson. This defense, therefore, had no evidence to support it.

The next defense was, that after all the money deposited with defendant had been paid upon checks signed by the plaintiff, they stated “accounts between each other, which said accounts so stated showed that the said money had been paid out by this defendant upon such checks, which said checks were from time to time returned to and received by the plaintiff, and thereafter plaintiff assented to, ratified and confirmed such payment of said money.” The only statement of account between the parties was such as consisted of entries made by the defendant, in the plaintiff’s passbook, charging Mm with the payment of the amounts of the checks, which were sent to the plaintiff with the book, corresponding balances being stated in the book.

The checks, with the forged indorsements, were among the checks returned. There was no other ratification of the payment, than the plaintiff not discovering the forgery, for some time, at the longest two years, and not making any claim upon defendant, until the discovery. Of course, whatever was the legal force of the retaining of the book ,by the plaintiff under the circumstances, whether it had only the effect of an admission, or was a technical account stated, the plaintiff had the right to show what errors or mistakes affected the result. The appellant’s counsel urges, that the plaintiff should have pleaded the alleged errors in the complaint or by a reply. He was not called upon to open the account in the complaint (if there were an account stated), because his action was upon the contract set out, and the merit of the defense in its legal nature consisted of its showing a satisfaction of defendant’s obligation under the contract. The defense was affirmative in its character and the plaintiff was not called on to meet it, until it had been pleaded. Of course, under the Code, he was not required to controvert the defense by a reply.

The next defense was, that after the defendant had paid the moneys as the answer had stated, and after the plaintiff had discovered the forgery, he “delayed and failed to take the necessary steps to protect the parties to this action, and acted in collusion with said book-keeper or confidential clerk, both in the drawing, indorsement, delivery and payment of said checks, and ratified, adopted, and confirmed such payment, and authorized said indorsements and payments thereof.” There was no evidence to support this defense."

The last defense was, that the plaintiff “so negligently and unskillfully signed said check and permitted said indorsements so to be made, and entrusted the same to his book-keeper or confidential clerk, and thereby gave him credit, and said checks were paid by this defendant in the usual course of business to this defendant’s damage, to the amount of said sum, with the interest thereon, as stated in the complaint.” The considerations pertinent to this defense, relate to the fact, that when the clerk presented the checks for signing, as being drawn for amounts due, the plaintiff believed the clerk, and did not look at the original entries to learn what the facts were. That is, he trusted his clerk. That trust was not negligence. Of course, handing the checks, after they were signed, to the clerk, was not negligence, nor did that give the clerk any credit with the defendants.

On the evidence in the case, and the stipulation, the judge was obliged to direct a verdict for plaintiff.

Judgment affirmed, with costs.'

Speir and Freedman, JJ., concurred.  