#### The Citizens’ National Bank, Resp’t, *v.*The Importers & Traders’ National Bank, App’lt.1

*(Court of Appeals,*

*Filed January 28, 1890.)*

1. Banks and banking—Bill ok exchange—Forgery.

Plaintiff had funds on deposit with defendant and made a draft upon them, which W. & Co. bought to remit to creditors. The bookkeeper of W. *&*Co. erased the name of the payee and, insert ng other names, used the paper for his own purposes, and it was paid. *Held,*that defendant could not plead such previous payment as a defense in an action brought by plaintiffs, who had reimbursed W. & Co., after defendants had'refused to pay the drafts when presented by a genuine endorsee; that such previous payment was no payment at all as to the true owner.

2. Same—Remedy.

The remedy of the drawer in such case is by action for breach of contract in refusing to pay the draft.

3. Same—Evidence.

Where the defense is simply payment, evidence that W. & Co. made a settlement with their bookkeeper for his indebtedness to them, including the appropriation of the draft in question, and received from him property as security, is immaterial and inadmissible.

Appeal from a judgment of the supreme court, general term, first department, affirming judgment entered on verdict.

This action was commenced by the plaintiff, a bank in the state of Iowa, to recover against the defendant, a bank in New York city, on the ground of the non-payment of certain drafts or bills of exchange, which plaintiff had drawn upon the defendant in favor and to the order of Wadsworth & Co. The complaint alleges, in ten counts, the making and delivery of the drafts, their endorsement by the payees, a presentation and demand for payment, the defendant’s refusal and its protest for non-payment thereof; that at the time of defendant’s refusal to pay the plaintiff had sufficient funds on deposit with defendant wherewith to pay the drafts, and that by reason of the non-payment the plaintiff has been compelled to pay the amount of the drafts, and to take them up. The form of the drafts was as follows, viz.:

$3,269.65. State of Iowa. No. 232245. The Citizens’ National Bank of Davenport. Davenport, *April*7, 1884. Pay this first of exchange, second unpaid, to the order of W. *20. Wadsworth & Co., thirty-two hundred sixty-nine 65-100 dollars, in current funds. E. S. Carl, *Cashier,*

*To Importers & Traders' National Bank, New York:*

The defense set up in the answer was the payment of the described paper to the Fourth National Bank, as the holder thereof through various endorsements. The answer admitted the possession by defendant of sufficient deposits from the plaintiff to pay all of the paper. Upon the trial these facts were developed. W. & Co. bought these drafts from the plaintiff bank, in order to remit to their creditors in payment of sundry accounts, and, having appropriately endorsed them, delivered them to their bookkeeper to be sent off. He, however, erased the endorsements and forged others, and used the paper for his own purposes. It thereby came into other hands, and through the Fourth National Bank was presented to and paid by the defendant. Against the plaintiff’s proofs establishing the forgeries, through which the paper was diverted from the uses ordered by W. & Co., the defendant offered nothing in disproof. After the forgeries were discovered, and upon the return to the plaintiff of the drafts from the defendant, W. & Co. demanded and obtained them back from the plaintiff and endorsed them to one W. for collection. He was refused payment of them by the defendant, on their presentation; the defendant’s cashier placing the refusal on the ground of their previous payment. W. then returned them to the payees W. & Co. The plaintiff repaid to W. & Co. the moneys wherewith the drafts had been purchased by them, and then commenced this action.

*A. R. Dyett,*for app’lt; *George Wadsworth,*for resp’t.

1

**Affirming 17 N. Y. State Rep., 430.

Gray, J.

The form of the complaint is perhaps, technically, open to a criticism that it seems to ground the action upon the drafts themselves, and therefore makes it one to recover plaintiff’s deposits. Such a cause of action has not accrued to the plaintiff at all, upon the facts in this record. The cause of action which is stated to have accrued to plaintiff, was for the refusal of the defendant to honor the plaintiff’s drafts upon it. The contract between the two banks, as implied by law, was that the amount of funds standing to the credit of the plaintiff bank on the defendant’s books should be held and paid out upon and according to the plaintiff’s checks or order, and a failure to obey an order for their payment was a breach of the defendant’s duty and contract, for winch it is legally liable, either in tort, or upon the contract. In this case, the "breach of contract occurred upon the refusal to pay the plaintiff’s drafts upon its funds to the order of the payees named and a cause of action then arose in plaintiff’s favor. But this criticism upon the form of the complaint is not serious in its results; for the pleading may be upheld and the action maintained as one simply for the breach of the defendant’s contract to pay the drafts of the plaintiff. The Code of Civil Procedure requires that a complaint shall contain a plain and concise statement of the facts constituting the cause of action; *3and that requisite is met here sufficiently. The pleading, after describing the drafts and stating the proceedings up to protest for non-payment, alleges that at the time said defendant so neglected and refused to pay, etc., plaintiff had sufficient money or funds on deposit with the defendant to its credit and subject to its draft or order wherewith to pay, etc., and that by reason of the nonpayment the plaintiff has been compelled to pay and has paid the amount, etc.”

That is a plain statement of the facts, from which, as a legal conclusion, the plaintiff’s legal right to recover is deducible and the defendant could in nowise be misled. This seems especially true; for, by its answer, the defendant admits that it was indebted to the plaintiff for moneys theretofore deposited, subject to its draft, check or order, in more than a sufficient sum to pay all the drafts; and it relies, to defeat the action, npon the defense of payment only. As to the cause of action, I think it clearly one which did accrue to and became enforceable by the plaintiff.

In the first place, we must regard the paper as never having been paid by defendant to the order of the plaintiff; for the rule is well and long established that a forged endorsement does not pass a title to commercial paper, negotiable only by endorsement, and payment by the drawee, although in good faith, of a draft so affected, is no payment at all as to the true owner. *Graves*v. *American Exchange*Bank, 17 N. Y., 205.

It was the defendant’s business to see to it that its depositor’s moneys were expended according to its directions, and every expenditure was at the defendant’s risk of the direction being valid and the endorsement conveying title to the holder genuine. *Corn Exchange Bank*v. *Nassau*Bank, 91 N. Y., 74, 81.

The defendant made no attempt to disprove the plaintiff’s evidence as to the forged endorsements of the payees’ names and orders and the forgeries must be taken as proved. Forgeries may consist, in the legal sense, of any fraudulent alteration of paper by which another may be defrauded. Ghitty on Bills, 781. So we have no payment by the -defendant of these drafts proved, and the question becomes solely one upon its objection to the right of the plaintiff to maintain this action for non-payment by the defendant to third persons of the drafts. Its counsel says the proper remedy was to sue for the deposits. That is not so. Here the cause of action is the breach of the implied and conceded contract to pay out the plaintiff's funds according to its drafts and order. The remedy was to sue for the breach and to recover against the defendant in an amount equal to the amount of the plaintiff’s drafts, which were refused payment. That the plaintiff repaid to W. & Co. the moneys they had paid to it to obtain these drafts, and thereby re-acquired the paper, is wholly immaterial as long as the action is not upon the drafts themselves. If the plaintiff was suing upon this paper through a derivative title from W. & Co., it would be a very different question indeed. But the payment back of the moneys to W. & Co. established the damage and its extent to which the defendant’s acts subjected the plaintiff. The acquisi*4tian thereby, and the holding and exhibition of the dishonored drafts are evidences of the facts constituting the cause of action. In recent cases this court has passed upon similar questions as to the rights of drawers of checks, to which we may in fact liken this paper.

In *Bank of British North America*v. *Mercantile Nat. Bank, etc.,*91 N. Y., at p. 111, the case shows the payment by the defendant bank of a check given by the" plaintiff bank to H., and made payable to her order. Her endorsement was forged and the money collected by another person. When the facts of the forgery and of the payment were discovered the action was commenced. It is true the only defense was the statute of limitations; but Earl, J., in his opinion, which was concurred in by all the judges, said: “ When the defendant paid the check upon the forged endorsement, it paid its own money and discharged no part of its indebtedness to the plaintiff * * * the plaintiff lost none of its rights by receiving under a mistake as to the facts the check as one properly paid and charged to its account by the defendant.” But later in the case of *Viets*v. *Union Nat. Bank,*101 N. Y., 563, this rule was laid down, that “ the refusal to pay on presentation of the check, which presentation is equivalent to a demand of payment, gives to the drawer a right of action, in case he has funds in the bank to meet the check and the refusal tó pay was without his authority.”- • ■ .....

This doctrine I find has the distinct support of a decision of the King’s Bench in the case of *Marzetti*v. *Williams,*1 B. & Adolphus, 415. That was an action by the drawer of a check against his bankers for failing to pay it to the payees named therein on presentation. The dishonor was through some inadvertence of the bankers; and, as matter of fact, the check being presented the next day, was then paid. Lord Tenterden held that the action ■ was maintainable as one founded on the banker’s implied contract with his customer that he will pay checks drawn by him provided he has moneys of the customer and a breach of that contract was created when the defendants would not pay the check. Nominal damages were awarded the plaintiff in that case though he might not have sustained a damage in fact. Justices Parke, Taunton and Patterson agreed with Lord Tenterden, holding that it was immaterial whether the action was in form tort or assumpsit.

The rule is well supported in principle as by the authorities and governs this case. The damage to the plaintiff here was not merely nominal for the dishonor of its drafts ; but actual for the amount represented by them and which the plaintiff had to make good to the payees.

There is but one other question which I think calls for further consideration and that is as to the exclusion of certain evidence, which the defendant sought to elicit from the witness Wadsworth. By a question to that witness, who was one of the payees of the drafts, defendant endeavored to prove that when the plaintiff paid back to Wadsworth & Co. the moneys for the drafts which had been dishonored, they had settled with their bookkeeper, and for 1 his indebtedness to them, including the appropriation by him of *5these drafts, had received certain property. In support of their right to make this proof they argue that if W. & Co. had made a ■. settlement with their bookkeeper, they were not in any position to demand back the drafts which had been returned to the plaintiff by the defendant as paid, and if plaintiff redelivered the drafts to them under such a state of facts, it acted in its own wrong and the defendant would not be liable. Without discussing the features of such a case, it is sufficient to say that there are two good reasons for the exclusion of the evidence. In the first place no such defense was set up by the answer; nor did that pleading contain any allegation which would raise any other issue than the issue of payment. In the next place, the question, if answered according to its tenor, would not elicit any proof that W. & Co. had been paid. It called for the witness’ testimony as to whether his firm did not charge the bookkeeper with the drafts and then take from him various kinds of property “ as security for this entire indebtedness, consisting of these checks in part, and did they not receive that property and did they not collect something from it, etc.” But that they may have received some securities for his indebtedness would not establish the fact of a payment and extinguishment of any claim based on the purchase of the drafts which were dishonored.

I think the action was rightly disposed of below and the judgment appealed from should be affirmed, with costs.

. ° All concur.