This action is by a depositor (plaintiff appellee) against the bank (defendant appellant) to recover $2,500 paid out by the bank on a check drawn by the depositor in favor of "D. W. Johnson" as payee and charged to the account of the depositor. The trial court gave judgment for the plaintiff. In my opinion, this judgment is laid in error.
The evidence requires, indubitably, the acceptance of these conclusions: (a) That one Kirven (since deceased) applied to the plaintiff for a loan to "D. W. Johnson"; (b) that there was no such person as D. W. Johnson, a fact necessarily known to Kirven, but unknown to the plaintiff; (c) that plaintiff agreed to make the loan to D. W. Johnson whom the plaintiff himself then thought to be an existing person, to be secured by a mortgage on real estate Kirven represented as being owned by D. W. Johnson, in Marengo county, where both plaintiff and Kirven resided; (d) that plaintiff had full confidence in Kirven, actually, avowedly, accepting and acting on Kirven's judgment alone of the value of the security and of the soundness of D. W. Johnson's title thereto; (e) that upon the receipt of the notes and mortgage, purporting to be signed by D. W. Johnson, plaintiff sent the check in question to Kirven for delivery to the payee, D. W. Johnson; (f) that Kirven received the check, indorsed it in the name of "D. W. Johnson," and forwarded the check thus indorsed to the First National Bank of Montgomery, with the object and result of opening therewith an account for "D. W. Johnson," and subsequently checked out the whole amount by signing the name of "D. W. Johnson"; and (g) that some months afterwards the plaintiff discovered there was no such person as "D. W. Johnson," and demanded reimbursement by the defendant bank, which the defendant bank declined to make.
The trial below having proceeded without any reference to the possible question of estoppel against the plaintiff's right to recover, within the doctrine applied in Bank v. Morgan,117 U.S. 96, 6 Sup. Ct. 657, 29 L.Ed. 811, no consideration has been given that possible inquiry.
The plaintiff admitted signing the check in question, and also that he sent this check to Kirven for delivery by him to D. W. Johnson, named as payee therein. The plaintiff further testified that Kirven had made "several loans" for him; "that he had known him (Kirven) for years, and that Kirven had made some loans, not many, for him during that time; that Kirven told him that this man Johnson owned this land, and that the title was good, and Kirven fixed up the papers, and, relying onthis, he made the loan; * * * that Kirven was one of the promptest men he had ever had any dealings with in his life,and that previous to this he had represented plaintiff inseveral loans and plaintiff thought him all right" (italics supplied). No evidence to a different effect was offered. The evidence of the plaintiff himself is conclusive of the fact that plaintiff intended to constitute Kirven his agent to effect this loan, to represent him in this as in other previous loans, and that he gave Kirven the fullest confidence, as respected Kirven's integrity and his judgment as a lawyer competent to appraise the value of securities for loans and to pass upon the validity of titles to the property. The plaintiff's confidence was egregiously misplaced and abused. Kirven, in furtherance of his fraudulent design, indorsed the check in the fictitious name of its payee, effected the payment of the check, and appropriated the money. Under the circumstances disclosed by the record, to permit the plaintiff to recover the amount so paid out and charged to plaintiff's account is to sanction and effectuate a grave injustice. The plaintiff, the drawer of the check, should bear the loss. There is no intimation, or suggestion, that either the defendant bank or the Montgomery bank participated in or had the slightest notice or knowledge of Kirven's fraudulent design or his acts in accomplishing it.
There are, in my opinion, several reasons why the loss thus occasioned should be left to be borne by the plaintiff, drawer of the check in question.
1. It may be assumed, for the occasion *Page 172 only, that the plaintiff himself was free from personal fault in uttering the check, later paid by the drawee, the defendant. This court has repeatedly announced the principle that, when one of two innocent persons must suffer from a loss by the tortious act of a third person, he who enabled the third person to occasion the loss should bear it. Young v. Lehman, 63 Ala. 519,524; Allen v. Maury, 66 Ala. 10, 19; Reynolds v. Reynolds,190 Ala. 468, 67 So. 293; Noble v. Moses, 74 Ala. 604; 16 Cyc. 773; 10 R. C. L. 695. Even the limitation upon this principle defined in the cited text in Cyc. and by Judge Christiancy in Holmes v. Trumper, 22 Mich. 427, 7 Am. Rep. 661, when considering the wrongful interpolation made by the payee in a promissory note after its delivery, is inapplicable here, for the reason, among others, that Kirven bore a relation of confidence, avowed by the plaintiff himself, to the plaintiff in the process of making this loan for the plaintiff, and especially under the commission the plaintiff gave Kirven to deliver the check, which the plaintiff sent to Kirven for the purpose. The sound morality and justice of applying the stated doctrine of estoppel to this plaintiff is thus set forth, in a like case, in Marcus v. Bank, 57 Pa. Super. 345, 350, 351:
"It is conceded that the payees named in the checks did not exist; the checks were drawn by the maker payable to imaginary persons. The plaintiff, having confidence in Moskovitz, accepted his statements that the transactions were loans to the persons named, and handed the checks to Moskovitz to be delivered to the supposed borrowers. The whole transaction was between the plaintiff and Moskovitz, so far as the pretended lending of money and the payment by the plaintiff to the borrowers were concerned. The effect of the drawing of the checks on the bank was an implied representation by the drawer that the payees were existing persons, and yet there could not be a genuine indorsement of such papers. It is not reasonable to charge the bank with the consequences of the payment of a forged indorsement, when the plaintiff put in circulation checks which were not susceptible of a genuine indorsement. The case is one for the application of the rule that, as between two innocent parties, he who by his acting makes loss possible must bear it. That the plaintiff was overconfident, and that he was cheated by Moskovitz, whom he was befriending, is very evident; but we are not persuaded that there is substantial ground for shifting the result of his credulity to the bank, which was in no way responsible for the putting of the checks in circulation."
But it is urged that the bank, in paying the check on the false indorsement of the nonexisting "D. W. Johnson," was not one of two innocent persons, within the stated principle of estoppel. Since the check was confessedly signed by the plaintiff, was fair upon its face, the fault to be attributed to the bank is that the bank was negligent in not exercising — as a primary, affirmative duty, before paying the check — proper diligence, or at least some diligence, to ascertain whether the indorsement was genuine, notwithstanding there was no fact, nor the slightest circumstance relating to the check, or to the transaction of which it was a part, suggesting or indicating in any degree the fact that the drawer had, innocently or otherwise, made the check payable to a non-existing person, from whom, of course, no genuine indorsement could ever come. There are, in the writer's judgment, two sound objections to the acceptance of this proposition:
First. The manifest effect of the provisions of section 61 of the Uniform Negotiable Instruments Act (Code Ala. § 5016) is to conclusively impute to the drawer of a negotiable instrument the admission that the payee exists and that the payee then has capacity to indorse. So far as presently important, that section reads:
"The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse. * * *"
The ordinary check is a negotiable instrument. Uniform Neg. Instr. Act, § 185; same section Code Ala. § 5132; Uniform Neg. Instr. Act, § 189; Code Ala. § 5136; Uniform Neg. Instr. Act, § 1; Code Ala. § 4958; Crawford's Anno. Neg. Instr. Law, pp. 176, 177; Boswell v. Bank, 123 Ky. 485, 96 S.W. 797. The check uttered, sent forth by this plaintiff, was a negotiable instrument. Authorities supra. When this check, confessedly executed and uttered by the plaintiff, was presented to the First National Bank of Montgomery or to the drawee, the defendant, it was impressed by the quoted statute (section 61, Uniform Neg. Instr. Act) with the admission, imputed to the drawer by positive law, that its payee was an existing person who then had the capacity to indorse it, and upon this admission the bank had the right, under the law, to rely. If this widely adopted statute means anything, it means what it says. This act was submitted to the lawmakers of the country as a complete proposal. It was previously carefully considered, was conformed to express the best of the nationally drawn thought on the subject, and has been generally adopted with the particular view of affording a uniform statutory status in respect to its very important subject-matter. The bank having the right to rely upon the admission the positive law imputed to this drawer (plaintiff), no negligence or other breach of duty should be attributed to the bank in failing to exercise diligence, care, or to institute inquiry, to ascertain that the payee named in the check, and uttered by the drawer himself, was a nonexisting person. To attribute negligence to the bank in such circumstances annuls the quoted provisions of section 61 of the Uniform Negotiable Instruments Act.
In Hill v. McCrow (Or.) 170 P. 306, 309, the Supreme Court of Oregon read section 60 of the Uniform Negotiable Instruments Act — a section relating to the liability of makers, while section 61 relates to the drawers — according *Page 173 to its terms when that court said:
"By the very act of engaging to pay to a particular payee, he [i. e., maker] acknowledges his capacity to receive the money, and also his capacity to order it to be paid to another. Section 5893, L. O. L."
According to the provisions of section 61 of the act, the drawer of the check said to the banks:
"When I uttered this check the payee named therein was an existing person and then had the capacity to indorse it."
To permit the drawer to assert to the contrary, after the thus issued check has induced the wholly unwarned banks to part with money on the faith of the check, is, it seems to me, the extension to the drawer of a legal bounty and an undeserved immunity, in immediate opposition to the terms of section 61 of the act. Manifestly no answer to these considerations is afforded by referring, as the majority opinion suggests, to the provisions of section 9 of the Uniform Negotiable Instruments Act (Code Ala. § 4966), wherein it is provided that an 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." There is no inharmony between the two sections. The one simply defines an instrument payable to bearer; the other imposes upon the drawer, as a legal result, an unequivocal admission, aside from the obligation that consists with natural, necessary implications from the acts of the drawer. The object of both sections is to give faith, credit, and security to negotiable instruments that are introduced by the drawer or maker into commercial channels, and to this end to fairly, reasonably restrict the opportunity makers and drawers might seek or avail of to avert a just liability consequent upon the issuance of such instruments. Both of these sections operate against the makers or drawers of negotiable instruments, and in favor of those who honor them.
It is certain that neither those who with commendable care constructed the Uniform Negotiable Instruments Act nor the lawmaking bodies that have since adopted it had any idea that sections 9 and 61 (Code Ala. §§ 4966, 5016) were inharmonious, much less that the undesignated one of them was rendered ineffectual by the unindicated other of them.
Second. The other reason against the acceptance of the proposition that the bank should be held derelict or negligent in the premises is that to so affirm involves the unjustified imposition upon the bank of the primary duty to exert a protecting care to save the drawer from a loss to which the drawer's own misplaced confidence, in one serving his interest, has subjected him; a confidence that in this instance was avowedly repeatedly reposed in Kirven for the purpose of advancing the drawer's pecuniary interest; a confidence that was unlimited, even to the extent of unreservedly accepting Kirven's representation as to the borrower, the value, and the title to the security for the loan, and, finally, of committing to Kirven the delivery of the check to the mythical person the thus fully trusted Kirven caused the drawer to name as payee therein. The drawer of the check should not be reimbursed for a loss immediately consequent upon his misplaced confidence, and the drawee bank pronounced negligent in honoring the check, unless the doctrine is accepted that banks are constituted the guardians of the drawers of checks to protect them from the consequences of their own misplaced confidence in those who represent them. Such ought not to be, and is not, as I read the authorities, the obligation or duty of the banks.
2. Independently of the above-stated considerations, this check was payable to bearer, within the purview of subdivision 3 of section 9 of the Uniform Negotiable Instruments Act (same section, Code Ala. § 4966), quoted before in this opinion. If so, under familiar principles, the banks were justified in paying the check on the indorsement by whomsoever made. Beyond all doubt the only evidence on the subject (that of the plaintiff himself, the substance of which has been quoted ante) establishes Kirven's agency for plaintiff in respect of this loan, including the mission to deliver the check to the ostensible borrower, D. W. Johnson. Agency is a matter of contract; and, if not required to be in writing, its existence may be proven by evidence of pertinent facts and circumstances conducing to the establishment of that conclusion. 1 Mechem on Agency, § 300; Merriam v. Haas, 154 U.S. 542, 14 Sup. Ct. 1159,18 L.Ed. 29; State v. Bristol Bank, 108 Ala. 3, 7, 8, 18 So. 533, 54 Am. St. Rep. 141. The distinguishing features of agency are representative character and derivative authority. I Mechem, § 26. According to the discriminatory description of "broker" and "agent," approved in Stratford v. City Council,110 Ala. 619, 625, 20 So. 127, Kirven was not in this instance, a "broker" or a "loan broker." That there was in fact no such person as "D. W. Johnson" is not a factor in determining in this action by the drawer against the drawee of the check, the principal's (the plaintiff's) intent to constitute Kirven his agent in the premises. Since Kirven was the plaintiff's agent to promote and effect the loan and to particularly guard the plaintiff's interests therein, the knowledge Kirven actually had that "D. W. Johnson" was not an existing person is imputable to the principal, the plaintiff. In our recent deliverance on this subject, Hall Co. v. Haley Co., 174 Ala. 190, 202, 56 So. 726, 730 (L.R.A. 1918B, 924), expressly reaffirming Bank v. Allen, 100 Ala. 476, 483, et seq., 14 So. 335, 27 L.R.A. 426, 46 Am. St. Rep. 80, wherein an important feature of the ruling, relating to imputed knowledge, made in Shipman v. Bank, 126 N.Y. 318, *Page 174 27 N.E. 371, 12 L.R.A. 791, 22 Am. St. Rep. 821, was not accepted, this court deliberately declared:
"Constructive notice to the principal through the actual knowledge of the agent is not a rule of evidence, but one of substantive law. Given notice to or knowledge of the agent, received while so acting, and the principal is conclusively bound by it; not because he ever knows it in fact, because his actual knowledge is utterly immaterial, but because as to the thing the agent is doing the agent is in law the principal, and the principal is in law the agent. Their legal identity is complete. Nor can it matter, in this aspect of the rule, whether the agent has or has not, private reasons or interests which make it unlikely or even certain that he will not inform his principal, as correctly ruled in First Nat. Bank v. Allen,100 Ala. 476, 14 So. 335, 27 L.R.A. 426, 46 Am. St. Rep. 80."
No occasion or necessity to now repudiate that pronouncement is made to appear. The agent's (Kirven's) knowledge that "D. W. Johnson" was a nonexisting person was acquired, not only before the check was issued, but through the very process of discharging the agency, including the representations he made to his principal in and about the subject of his agency and the acts he did in his principal's behalf, as well as through his commission by the principal to deliver the check to "D. W. Johnson," he necessarily knew that the payee was a fictitious person. The fact that Kirven, previous to his agency, knew there was no such person as D. W. Johnson, did not neutralize the further important fact that in the very act of discharging the commission the principal (the plaintiff) gave him, he knew of the nonexistence of the pretended borrower. In view of undisputed evidence in the record, it is not possible to accord effect or application to the doctrine that discriminates between an agent's previous knowledge of a fact pertinent to his agency and knowledge acquired by the agent in the process of effecting the object of the agency.
It is insisted that the knowledge of an agent should not be imputed to his principal, if the knowledge of the fact thus imputed would involve the assumption that the agent would advise the principal of the agent's perpetration of or connection with a crime or other infidelity in respect of the subject of the agency. In Bank v. Allen, 100 Ala. 476, 483-485,14 So. 335, 27 L.R.A. 426, 46 Am. St. Rep. 80, decided 25 years ago, it was pointedly held, in a case where the agent was a forger, as the quotation ante from Hall Co. v. Haley Co., supra, discloses, that even the certainty that the agent would not advise his principal of the agent's own crime or dereliction would not avail to avert the imputation to the principal of the agent's knowledge. The quoted doctrine of the Allen and Hall-Haley Cases, supra, should, in my opinion, be either renounced as unsound or applied to the case at bar. I see no sufficient reason to now repudiate a doctrine so long recognized in this jurisdiction. The doctrine of these texts and decisions supports the conclusion that this check was payable to bearer, and, in consequence, the plaintiff should not recover. 2 Michie on Banks Banking, § 138; Code, § 4966; Kohn v. Watkins, 26 Kan. 691, 40 Am. Rep. 336; Equitable Assur. Soc. v. Nat. Bank of Com. (Mo.App.) 181 S.W. 1176; Marcus v. Bank, 57 Pa. Super. 346. See Emporia Bank v. Shotwell,35 Kan. 360, 11 P. 141, 57 Am. Rep. 171, 175; Snyder v. Corn Exch. Bank, 221 Pa. 599, 70 A. 876, 128 Am. St. Rep. 780.
It would unduly extend this opinion to comment upon the many decisions bearing on this question. Discriminative annotators have made exhaustive contributions to the learning on the subject in these, among other, books: 22 L.R.A. (N.S.) 499 et seq.; 50 L.R.A. 75 et seq.; 34 L.R.A. (N.S.) 1101 et seq.; 54 Am. St. Rep. 869. When the decisions and texts upon which the majority of the court rest their conclusion are considered in the light of the differentiating facts and circumstances presented here and in them, the error of according such texts and decisions a controlling influence in casting the court's judgment in favor of this plaintiff's right to recover will appear. In addition to the discriminating fact that here the drawer's name to the check was not forged, the texts and decisions cited by the majority of this court show that appropriate effect and influence was not accorded (a) the relation of confidence existing between the drawer and the guilty agent; (b) the rule of primary injustice illustrated in the case of Marcus v. Bank, quoted ante; and (c) the preservative, protective right conferred on the banks by the provisions of section 61 of the Uniform Negotiable Instruments Act, quoted above. The visitation upon the bank, the drawee, of the obligation and burden to bear the risk of loss that the drawer's act, and his confidence in his own agent, enhanced by uttering a check that never could receive a genuine indorsement, seems to me to be obviously unfair; there being, manifestly, a wide difference between a case where a genuine indorsement may be required and a case where no genuine indorsement can ever be given. In the one instance, the former, the banker may reasonably, justly rely upon the restraint, and consequent protection, the penal laws exert upon a particular existing person, named as payee; while in the other, the latter, no such protection is afforded the banker, because there is no particular existing person upon whom such penal laws may operate to restrain criminal conduct.
Shipman v. Bank is grounded on the theory that there no relation of agency existed between the plaintiff and the perpetrator of the fraud. Indeed, the court expressly held that the perpetrator was not, in any sense or degree, the agent of the plaintiff. It is alone through that interpretation of Shipman v. Bank that it may be reconciled with the later deliverance, by the same court, in Phillips v. Bank, 140 N.Y. 556,35 N.E. 982, 23 L. R. *Page 175 175 A. 584, 37 Am. St. Rep. 596, wherein the judicial process of interpreting the Shipman Case, and, at the same time, of deciding the Phillips Case, the court, in effect, materially modified broad statements to be found in the opinion in the Shipman Case.
In my opinion, the judgment below should be reversed.
GARDNER and THOMAS, JJ., concur in this dissent.