Court Opinion

ID: 3435888
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:08:29.144485+00
Date Added: 2024-06-11T13:56:38.853141
License: Public Domain

It appears without dispute that the appellees, residents of Des Moines, had money in excess of the amount here involved, on deposit in the appellant bank; that one Halverson gained the confidence of the appellee Peter McCornack, and 1.  BANKS AND    represented to him that he (Halverson) had a BANKING:     client who wished to borrow money, to be secured deposits:    by mortgage on land; that McCornack consented to payment of   make the loan, and thereafter Halverson checks:      delivered to McCornack a note purporting to be fictitious   signed by C.R. Kutsman, and secured by mortgage payee.       on land in Story *Page 835 
County purporting to be signed by C.R. Kutsman and Mable Kutsman, and McCornack signed a check for $1,005.50, payable to the order of C.R. Kutsman, which he delivered to Halverson, for Kutsman; that Halverson indorsed the name C.R. Kutsman and his own name on the check, and deposited it in his account in the Shaffer State Bank at Altoona. The check was paid, on presentation to the appellant bank, and the amount charged to the account of the plaintiffs. This transaction took place in July, 1920. In 1924, it was discovered that the note and mortgage which Halverson had delivered to Peter McCornack were forged instruments; that no such person as C.R. Kutsman in fact existed; and that the land described in the mortgage belonged to others. Payments of interest had been made by Halverson. It is upon this state of facts that the charge of conversion made in the petition is based.
It further appears that, on one previous occasion, and in numerous instances after the transaction in question, Halverson, by like fraudulent means, obtained other checks from McCornack, which he cashed by the same procedure; and that, in August following the giving of the check in question, the appellant delivered to the appellees a statement of their account, accompanied by the canceled checks charged against it, including the one here involved; that the statement bore the words "Please examine at once. Failure to report errors in this statement within 12 days will release the Central State Bank from all liability;" and that no claim of error was made until in May, 1924. It also appears that, on numerous dates from March, 1921, to February, 1924, Halverson had on deposit in another bank amounts largely in excess of the amount of the check, but owed indebtedness to the bank that, in the language of the witness, "on the average exceeded his average daily balance." In 1920, he owned a farm worth $40,000, with an incumbrance of $10,000 on it, and in 1923, the farm was worth $24,000, with incumbrances amounting to $22,000. He was later adjudged a bankrupt.
The pleaded defenses, briefly stated, were: (1) That the check was paid to the person to whom McCornack intended payment to be made. (2) That the appellant bank was guilty of no negligence. (3) That the appellee Peter McCornack was guilty of negligence in making the check, in that he failed to *Page 836 
ascertain that the payee was a fictitious person. (4) That, by the acceptance without objection of the statement of their bank account, with the check in question canceled and charged against it, there was an account stated, and plaintiffs were thereby estopped to claim that the check was improperly paid. (5) That, by the failure to notify appellant of the alleged irregularity in the payment of the check within six months after receiving such statement, the claim was barred by the statute of limitations. (6) That appellees were guilty of negligence in not sooner notifying appellant of the alleged error in the payment of the check, for the reason that they knew, or should have known, that Halverson was receiving the proceeds of checks turned over to him under similar circumstances, and so received the proceeds of the check in question; and that appellant suffered loss thereby, in that, for a considerable time after paying such check, Halverson was financially responsible, but when such notice was given, he was insolvent; and that thereby plaintiffs were estopped.
This epitome of the answer does not correspond to its numbered divisions, some of which were stricken out on motion, but embodies the substance of the matters pleaded in defense and relied upon in this court.
The fraudulent scheme which is the occasion for the controversy is by no means a new one. Its counterpart, in all essential details, and others bearing many points of similarity, have been many times before the courts, resulting in the application of certain well established and clearly defined principles. Such confusion as is to be found in the adjudicated cases is usually to be accounted for by the application of the law to the facts, rather than in the statement of the controlling principles themselves, although there are cases that in some respects run counter to what we believe to be the great weight of authority.
I. We have said that it is a bank's business to see to it that its depositor's money is expended according to his directions, and that every expenditure is at the bank's risk of the validity of the direction and of the genuineness of the indorsement conveying title to the holder. German Sav. Bank v. Citizens Nat.Bank, 101 Iowa 530.
"The implied contract between the banker and his depositor in regard to the depositor's checks is that the banker will pay *Page 837 
them from his deposit to the persons to whom he orders payment to be made. When a definite order is made in the check, the duty of the banker is absolute, as a general rule, to pay only in accordance with the order. If payment is to be made to the order of a person named in the check, and if he orders the payment to be made to another person, it is the duty of the banker to see that the signature of the payee is genuine." Jordan Marsh Co. v.National Shawmut Bank, 201 Mass. 397 (87 N.E. 740, 22 L.R.A. [N.S.] 250).
This rule will be found variously stated in practically all the cases to which we shall have occasion to refer, and in many others that might be cited.
II. It is clear, upon the record, that, through the fraud of Halverson, McCornack was induced to draw the check in question, payable to a fictitious payee to whom he believed he was making a loan.
"To constitute forgery, the name alleged to be forged need not be that of any person in existence. It may be wholly fictitious, if the instrument is made or altered with intent to defraud * * *" 26 Corpus Juris 899.
The indorsement of a check payable to a fictitious payee, by one to whom the drawer did not intend payment to be made, is forgery. Shipman v. Bank of State of New York, 126 N.Y. 318
(27 N.E. 371, 12 L.R.A. 791); Jordan Marsh Co. v.
2.  FORGERY:     National Shawmut Bank, supra; Armstrong v.
elements:    National Bank, 46 Ohio St. 512 (6 L.R.A. 625); fictitious   United Cigar Stores Co. v. American Raw Silk
payee.       Co., 184 App. Div. 217 (171 N.Y. Supp. 480);Padgett v. Young County (Tex. Civ. App.), 204 S.W. 1046; FirstNat. Bank v. Farmers  Merch. Bank, 56 Neb. 149 (76 N.W. 430);Harmon v. Old Detroit Nat. Bank, 153 Mich. 73 (17 L.R.A. [N.S.] 514); American Exp. Co. v. Peoples Sav. Bank, 192 Iowa 366.
A check payable to the order of a fictitious person with the knowledge of the drawer is payable to bearer. Section 9469, Code 3.  BILLS AND    of 1924. But where the fact that it is payable NOTES:       to a fictitious person is unknown to the drawer, construc-    the bank upon which it is drawn, on paying tion:        it, is in no different position from where it maturity:    pays a check payable to a real party upon a fictitious   forged indorsement. payee. *Page 838 Shipman v. Bank of State of New York, supra; Harmon v. OldDetroit Nat. Bank, supra; Los Angeles Inv. Co. v. Home Sav. Bank,180 Cal. 601 (182 P. 293); American Exp. Co. v. Peoples Sav.Bank, supra; Robertson Banking Co. v. Brasfield, 202 Ala. 167
(79 So. 651).
McCornack did not know that the payee was a fictitious person; the check was not, therefore, payable to bearer; and the bank cannot escape liability upon that ground.
III. It is insisted that the bank paid the check, through intermediate indorsing banks, to the person to whom McCornack intended it should be paid.
It is held that, where an impostor represents himself to be another, whether the person whom he so impersonates be a real or fictitious person, and procures a check payable to the order of such person, the bank is protected in paying 4.  BANKS AND    the check to the impostor, because it made BANKING:     payment to the person to whom the drawer deposits:    intended it should be made, no matter what name unintended   he assumed. United States v. National Exch.
payee.       Bank, 45 Fed. 163; Karoly Elec. Const. Co. v.Globe Sav. Bank, 64 Ill. App. 225; States v. First Nat. Bank, 17 Pa. Sup. Ct. 256; Russell v. First Nat. Bank, 2 Ala. App. 342
(56 So. 868); Montgomery Garage Co. v. Manufacturers L. Ins. Co., 94 N.J. Law 152 (109 A. 296); Crippen, Lawrence  Co. v. AmericanNat. Bank, 51 Mo. App. 508; Townsend, Oldham  Co. v. ContinentalSt. Bank (Tex. Civ. App.), 178 S.W. 564. But where one represents himself to be the agent of a fictitious person, and fraudulently procures the delivery to himself of a check payable to the order of such fictitious person as payee, and secures the payment of the check to himself by indorsing the name of the fictitious payee upon it, in the absence of estoppel or negligence on the part of the drawer, the loss, as between the drawer and the bank upon which it is drawn, must be borne by the latter. Los AngelesInv. Co. v. Home Sav. Bank, supra; Figuers v. Fly, 137 Tenn. 358
(193 S.W. 117); Russell v. First Nat. Bank, supra; Murphy v.Metropolitan Nat. Bank, 191 Mass. 159 (77 N.E. 693); First Nat.Bank v. Farmers  Merch. Bank, supra; First Nat. Bank v. Pease,168 Ill. 40 (48 N.E. 160); Armstrong v. National Bank, supra. See, also, note in 22 A.L.R. 1249.
Here, it cannot be claimed that McCornack intended the *Page 839 
check to be paid and the money to go to Halverson. He intended it to be paid to Kutsman, the payee of the check, and his intention in that respect is not affected by the fact that there was no such person as Kutsman, so long as he was in ignorance of that fact.
Many cases are cited which are claimed to support the contention of appellant at this point. Examination of them discloses that, in those where recovery against the bank paying the check was denied, facts were presented which, it was claimed, brought the case within the rule that obtains where the perpetrator of the fraud represented himself to the drawer of the check as the person named as payee, or the check was paid to, or bore the indorsement of, the person to whom the drawer intended payment to be made.
IV. The obligation of a bank is absolute that it will pay only in the manner directed by the depositor; not that it will exercise reasonable care and diligence to do so. Los Angeles Inv.Co. v. Home Sav. Bank, supra; Union Tool Co. v. Farmers  Merch.Nat. Bank, 192 Cal. 40 (218 P. 424); Jordan Marsh Co. v.National Shawmut Bank, supra; Murphy v. Metropolitan Nat. Bank,
supra; Armstrong v. National Bank, supra; Dana v. National Bankof the Republic, 132 Mass. 156; Dodge v. National Exch. Bank,30 Ohio St. 1; Shipman v. Bank of State of New York, supra; Brixenv. Deseret Nat. Bank, 5 Utah 504 (18 P. 43); Guaranty St. Bank Tr. Co. v. Lively, 108 Tex. 393 (194 S.W. 937); Figuers v. Fly,
supra.
The appellant bank, in paying the check, was bound to know, at its own risk, that the indorsements by which the holder of the check claimed title were genuine. Its liability for a payment not in accordance with the direction of the drawer, as evidenced by the check, did not depend upon negligence, but upon a violation of its implied contract with its depositor. The claimed fact that it was not shown to have been negligent is, in and of itself, no defense to a liability predicated on a failure to observe an absolute duty. The question whether the bank was negligent, or exercised due and reasonable precautions to ascertain the genuineness of the indorsements in paying the check, is immaterial upon the naked and primary question of its liability for having paid a check upon a forged indorsement. The question of the drawee's negligence may arise where there is ground *Page 840 
for saying that the drawer was guilty of negligence, resulting in an estoppel, in issuing the check. It was so held in Union ToolCo. v. Farmers  Merch. Nat. Bank, supra, where there was an alteration of the checks which the drawer might have discovered by a comparison of the earlier returned checks with its records. But it was held that such an estoppel could not prevail if, notwithstanding the drawer's negligence, the paying bank was also negligent in not discovering the alterations and forged indorsements; that the bank could only avail itself of the drawer's negligence in such respect by way of estoppel where it was itself free from negligence in paying the altered checks bearing the forged indorsements. We do not have such a case here. But one similar previous transaction appears in the record. It is not shown when the check involved in that was returned to appellees. Furthermore, the appellant is not shown to have taken any precautions whatever to ascertain the genuineness of the indorsements on the check in question. On the trial below, it was stipulated by the parties that the check was paid by the appellant in the regular course of business, relying on the maker's signature and the indorsement of the person presenting the same for payment, and without inquiry as to the indorsement of C.R. Kutsman.
V. The facts appearing of record do not show that McCornack was guilty of negligence in making the check payable to one to whom he believed he was making a loan, and in delivering it to one who made application on behalf of the borrower to him for the loan. There is no showing that anything had then come to his knowledge respecting Halverson, to put him upon inquiry as to his honesty. This conclusion is abundantly supported by many of the cases herein cited. Moreover, there is nothing in the record from which it could be found that McCornack's failure to ascertain that the payee of his check was a fictitious person induced or contributed to the payment of the check by the appellant. Seaboard Nat. Bankv. Bank of America, 193 N.Y. 26 (85 N.E. 829, 22 L.R.A. [N.S.] 499). As pointed out in Los Angeles Inv. Co. v. Home Sav. Bank,
supra, the forgery of the indorsement in reliance upon which the bank paid the check was distinct from the issuance of the check by McCornack, and Halverson could as easily have forged an indorsement upon *Page 841 
a check payable to the order of a real person. And, as said inJordan Marsh Co. v. National Shawmut Bank, supra:
"But the whole duty of seeing whether there is a forgery of such an indorsement upon any check rests primarily upon the banker. The drawer of the check has nothing to do with that."
The drawer of a check who, through failure to discover the fraud that is being practiced upon him, makes a check payable to the order of a fictitious payee, in ignorance of that fact, stands in the same position with reference to the bank upon which it is drawn as where his check is payable to the order of a real person. His negligence in so drawing the check is immaterial, unless it directly and proximately affects the conduct of the bank in paying the check. Jordan Marsh Co. v. National ShawmutBank, supra, and cases cited; Armstrong v. National Bank, supra;Robertson Banking Co. v. Brasfield, supra.
VI. Appellant contends that McCornack, in drawing the check, must be held, under Section 9521, Code of 1924, to admit the existence of the payee and his then capacity to indorse, and that he cannot question the payment made by the bank upon the indorsement of the payee's name by Halverson. That section, so far as material, is as follows:
"The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse, and engages that on due presentment the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."
This statute would seem to be not for the benefit of the drawee, nor designed to relieve the drawee of the duty to pay out the drawer's money only in accordance with his order, but for the protection of holders of the paper in case the 5.  BILLS AND    drawee refuses to pay. This is apparent from the NOTES:       entire section, which must be read together. It construc-    provides not only that the drawer admits the tion:        existence of the payee and his capacity to admitting    indorse, but that he engages that, upon dishonor existence of and the necessary proceedings thereon, he will payee.       pay the amount to the holder or any subsequent indorser who may be compelled to pay it. There is here an engagement to pay only in case of dishonor by the *Page 842 
drawee, and then only to the holder or to an indorser who may be compelled to pay. There is no engagement to pay the amount to a drawee which has honored the check.
That this statute was not intended to relieve the drawee of the duty to ascertain the genuineness of the payee's indorsement is plain when we consider that Paragraph 3 of Section 9469 does expressly operate to relieve it of such duty, where the drawer knows the payee is a fictitious person, by making a check so drawn payable to bearer. Many of the cases say that a drawer has a right to make a check payable to the order of one whom he does not know. But, if the drawer does not know the payee, he cannot know whether he exists or not. If, however, under Section 9521, the fact that a check is payable to a fictitious person relieves the drawee of the duty to know the genuineness of the indorsement of the payee, the check is, in effect, payable to bearer whether the drawee knew that the payee was fictitious or not. We are required to so construe the statute as, if possible, to give effect to all its parts. But to construe Section 9521 so as to relieve the drawee of the duty to know the genuineness of the payee's indorsement, where the check is, without the knowledge of the drawer, payable to a fictitious person, is to destroy entirely Section 9469, by imposing, in all cases where the check is payable to a fictitious person, the result that it is payable to bearer, a result that Section 9469 declares shall follow the making of a check so payable to a fictitious person when the drawer so knows. With Section 9521 so construed, Section 9469 has no function to perform.
The fact that, under Section 9522, the acceptor, by accepting the instrument, engages to pay it, and admits the existence of the payee and his capacity to indorse, lends no support to the contention that the drawer of a check must know at his peril that the payee is not a fictitious person. What the drawee admits by its acceptance is precisely what the drawee of a check drawn on funds on deposit with it must, at its peril, know before it pays the check. It is only what, as between it and the drawer of the check, it is required to know, and the very thing the drawer has a right to assume it will know before paying the check, — that is, the genuineness of the payee's indorsement.
So, too, Section 9520, providing that the maker of a negotiable instrument by making it admits the existence of the payee *Page 843 
and his then capacity to indorse, we think throws no light on the present question. The maker of a note is also the payer; it is his obligation, and his alone. There is no intervening party to the instrument between him and the payee, sustaining any duty to him. It is clear that the holder of the instrument is the only party for whose benefit the admission imposed by statute on the acceptor or maker is intended, and these statutes and cases construing them tend to support our conclusion that the same thing is true of the admission imposed by statute on the drawer.
The statute has been held applicable where the instrument was payable to a corporation not authorized to do business within the state. Young v. Gaus, 134 Mo. App. 166 (113 S.W. 735); Despres,Bridge  Noel v. Hough Drug Co., 123 Miss. 598 (86 So. 359). In such case there is no question but that the drawer intended the payee named to receive the money, and he is held to admit the capacity of the payee to do so. The same thing is true of Hill v.McCrow, 88 Or. 299 (170 P. 306), where a note was payable to the order of a firm which the maker believed to be the owner of certain corporate stock which he was buying, and the note was indorsed by one who did business in that name, but who did not own such stock. It was said that the fact that the person who indorsed did not own the stock went to the question of fraud, and did not involve the law as to a fictitious payee.
But when the payee is a fictitious person and this is unknown to the drawer, the statute does not, we think, have the effect to bind the drawer by an indorsement of the name of the payee by one to whom he did not intend payment to be made. In American Exp.Co. v. Peoples Sav. Bank, supra, where, on the record then presented, it appeared that the payees of certain drafts were fictitious, we said:
"True, the drawer, by drawing the instrument, admits the existence of the payee, and his then capacity to indorse. Section 3060-a61. This, however, confers no authority upon the purchaser to indorse the name of the payee and negotiate the instrument."
This identical question was before the Supreme Court of Alabama in Robertson Banking Co. v. Brasfield, supra. After quoting the section in question (the same as our Section 9521), the court said: *Page 844 
"How this section harmonizes with Subdivision 3 of Section 4966 [the same as our Section 9469], unless it applies to all instruments other than those payable to bearer, we are not called upon to decide; for, as above stated, the check in question was not payable to bearer, and if Section 5016 [our Section 9521] makes Brasfield [the drawer] admit the existence of the payee, Johnson, and his capacity to indorse the check, this would but strengthen the reason and necessity of obtaining a genuine indorsement before paying the check. The section does not make Brasfield admit that anyone other than his named payee could properly and legally indorse the check."
Furthermore, the statute in question is but declaratory of the common law. 8 Corpus Juris 63; Platte Valley Bank v. Harding,1 Neb. 461; Exchange Nat. Bank v. Capps, 32 Neb. 242 (49 N.W. 223). No exposition of the common law corresponding to the interpretation appellant would give to the statute can, we think, be found in the books. What was said in the case of Lane v.Krekle, 22 Iowa 399, had reference to the relation between the holder and the maker of a note payable to bearer, and obviously concerned a very different situation from that here involved. InJordan Marsh Co. v. National Shawmut Bank, supra, it was inquired whether the making of a check payable to a fictitious or nonexisting person through negligent failure to discover the fraud by which the check was obtained, stood differently from the making of a check to an actual person, in reference to the effect upon its payment by the drawer, and the court said:
"We are of opinion that there is no difference in law. In either case it is the duty of the bank to see that there is a genuine indorsement."
See, also, United Cigar Stores Co. v. American Raw Silk Co.,
supra; Shipman v. Bank of State of New York, supra.
There are cases, among which Marcus v. People's Nat. Bank, 57 Pa. Sup. Ct. 345, is frequently cited, that appear to determine the whole question of liability between the drawer of a check payable, without the drawer's knowledge, to the order of a fictitious person, and the drawee bank, paying the check on a forged indorsement, — at least where it cannot be said that payment was made to the very person intended by the drawer, — by the application of the doctrine that, as between two innocent *Page 845 
parties, he who by his act makes the loss possible must bear it. It seems to us that this loses sight of a controlling consideration, and indeed begs the question, by assuming that both parties were innocent, — the very question at issue. The parties are not equally innocent, unless we are to reconstruct entirely the relation between a bank and its depositor, and restate their respective duties. If a depositor has a right to draw a check payable to the order of one whom he does not know, and who, therefore, for aught he knows, may be a fictitious person, and to rely upon the bank to pay the check only on a genuine indorsement, and it is the duty of the bank to know at its peril, before it pays the check, that the indorsement of the payee is genuine, how can it be said, in case of payment on a forged indorsement, that the parties are equally innocent? The drawer has done what he had a right to do, and what is done every day in ordinary course of business, and the bank has failed to do what its duty to its depositor required of it. If it had demanded a genuine indorsement, as it was its duty to do, before honoring the check, since there could be no such thing in the case of a fictitious payee, the check would not have been honored. In such case, an innocent holder, upon taking proper steps, would have been protected by Section 9521. The purpose of that section was to protect the innocent holder of dishonored paper, — not the drawee who paid it in violation of duty.
We think that the statutory provision that the drawer of a negotiable instrument admits the existence of the payee and his capacity to indorse is not to be construed as rendering an instrument payable to bearer, when it is payable to the order of a fictitious person and the maker is in ignorance of that fact; or as imposing on such drawer an admission of the validity and genuineness of an indorsement of the payee's name thereon by one to whom it cannot be said he intended payment to be made; or as relieving the drawee of the duty to ascertain the identity of the indorser and the genuineness of the indorsement.
VII. Section 9266, Code of 1924, provides:
"No bank shall be liable to a depositor for the payment by it of a forged or raised check unless within six months after the return to the depositor of the voucher of such payment, such depositor shall notify the bank that the check so paid is forged or raised." *Page 846 
This section was in force at the time the check in question was 6.  BANKS AND    cashed, as Section 1889-a, Code Supplement of BANKING:     1913. It is claimed that appellees' cause of deposits:    action is barred under this statute. Prior to forged or    the enactment of the statute, we had raised       held, in German Sav. Bank v. Citizens Nat. Bank,
check:       supra, that a depositor was under no duty to the liability    bank as to the genuineness of an indorsement. We of bank.     said:
"The check was returned with an apparent genuine indorsement of Quinlan. The fact that intervener had paid the money thereon, and presumably had satisfied itself that the indorsement of Quinlan was genuine, as it was in duty bound to do, was a further reason why plaintiff should not, in the absence of knowledge to the contrary, have concerned itself as to the genuineness of the indorsement of Quinlan's name thereon. Furthermore, the plaintiff owed no duty to the defendant, or to the intervener, as to the genuineness of the indorsement of Quinlan."
See, also, 7 Corpus Juris 688; Los Angeles Inv. Co. v. HomeSav. Bank, supra; Shipman v. Bank of State of New York, supra;Jordan Marsh Co. v. National Shawmut Bank, supra; Armstrong v.National Bank, supra; United Sec. Life Ins.  Tr. Co. v. CentralNat. Bank, 185 Pa. St. 586 (40 A. 97); Brixen v. Deseret Nat.Bank, supra; Murphy v. Metropolitan Nat. Bank, supra; Grand Lodgeof A.O.U.W. v. State Bank, 92 Kan. 876 (142 P. 974, L.R.A. 1915B 815); Leather Manufacturers' Nat. Bank v. Morgan,117 U.S. 97 (29 L. Ed. 811); Third Nat. Bank v. Merchants' Nat. Bank, 76 Hun (N.Y.) 475.
The statute does not, we think, change this rule in respect to the genuineness of the signature of indorsers. The indorsement is no part of the check as made by the drawer, although it is, of course, contemplated that the payee must indorse it. But, since the maker is not required to know the signature of the payee, and has a right to issue the check payable to the order of one unknown to him, relying on the bank to pay only in accordance with his direction, a forged indorsement does not make the check a "forged check," within the meaning of the statute. In UnionTool Co. v. Farmers  Merch. Nat. Bank, supra, cited by appellant, there was, in addition to a forged indorsement, an *Page 847 
alteration on the face of the check. We are of the opinion that the action is not barred by the statute in question.
VIII. The contention that the return of the canceled check with the balanced pass book constituted an account stated, is met by the proposition that an account stated may always be opened for 7.  ACCOUNT      fraud or mistake. Los Angeles Inv. Co. v. Home
STATED:      Sav. Bank, supra; Shipman v. Bank of State of
conclusive-  New York, supra; Jordan Marsh Co. v. National
ness: fraud  Shawmut Bank, supra; Leather Manufacturers' Nat.
or mistake.  Bank v. Morgan, supra.
IX. It is claimed that the appellees were guilty of negligence in failing to discover the fraud of Halverson after the payment by the bank upon the forged indorsement, and that the bank 8.  BANKS AND    suffered prejudice therefrom, in that, had it BANKING:     been notified at an earlier date, it could have deposits:    protected itself by a recovery against estoppel to  Halverson. We think there was sufficient question     evidence to require the submission of this payment.     question to the jury.
As we have said, this was one of the first of a number of similar transactions. Thereafter, numerous checks drawn by McCornack payable to persons Halverson claimed to represent were returned to appellees with indorsements indicating that Halverson had received the money thereon. In August, 1923, McCornack gave to Halverson a check for $4.00, which, when returned a short time later, with the balanced pass book, had been raised to $400. The change was apparent on the face of the check. These circumstances, with the general course of dealing between Halverson and McCornack, were sufficient, we think, in connection with the evidence of Halverson's changed financial condition, to make it a jury question whether appellees were guilty of negligence in not sooner discovering and notifying the appellant of the fraud, and whether such negligence operated to the prejudice of the bank. Brixen v. Deseret Nat. Bank, supra; Danav. National Bank of the Republic, supra; Hardy v. ChesapeakeBank, 51 Md. 562 (34 Am. Rep. 325); Pratt v. Union Nat. Bank, 79 N.J. Law 117 (75 A. 313); North British  Merc. Ins. Co. v.Merchants' Nat. Bank, 161 App. Div. 341 (146 N.Y. Supp. 720).
It follows that the lower court was in error in striking Divisions III and IV of the amendment to the answer, and in failing *Page 848 
to submit to the jury, under proper instructions, the questions whether appellees were guilty of negligence in not sooner discovering the fraud and notifying appellant thereof, and whether appellant suffered prejudice therefrom and appellees were thereby estopped. We are also of the opinion that appellant was unduly restricted in its examination of Peter McCornack as its own witness upon the subject of his relations with Halverson, as bearing upon the charge of negligence in failing sooner to discover the fraud.
X. It follows from what has been said that there was no error in overruling appellant's motion for a directed verdict or in refusing the requested instructions.
Because of the errors pointed out, the judgment is reversed, and the cause remanded. — Reversed and remanded.
De GRAFF, C.J., and MORLING, J., concur.
STEVENS and FAVILLE, JJ., specially concur.
EVANS and ALBERT, JJ., dissent.