The writer fully concurs in the opinion of the majority, and is induced to file this special concurrence by the filing of the dissent by Mr. Justice Evans. The question is one of great importance, and fully justifies the wide range of discussion in both the majority and the dissenting opinions. The point of divergence in the views of the respective members of the court is the construction to be placed upon Section 61 of the Uniform Negotiable Instruments Law (Section 9521, Code of 1924). This section is quoted in both the majority and dissenting opinions. The first clause of this section, which provides that the drawer by drawing the instrument admits the existence of the payee and his capacity to indorse the same, must be limited to the terms and purposes of the section. The engagement of the drawer is that the instrument on due presentment will be accepted or paid, or both, and *Page 849 that, if it be dishonored and the necessary proceedings ondishonor are duly taken, he will pay the amount to the holder or to any subsequent indorser who may be compelled to pay it. The engagement, therefore, of the drawer is to the holder or indorser who has been compelled to pay the amount represented by the instrument. No greater liability can be created by construction. Section 191 of the Negotiable Instruments Act (Section 9652 of the Code of 1924) defines a holder as the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof. An indorser is defined by Section 63 (Section 9523 of the Code) as any person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor. The drawee cannot, therefore, be either a holder in due course or an indorsee of a check, draft, or other bill of exchange, within the meaning of Section 61 (Section 9521 of the Code). Balsam v. Mutual Alliance Tr. Co., 74 Misc. Rep. 465 (132 N.Y. Supp. 325); National Bank of Rolla v.First Nat. Bank of Salem, 141 Mo. App. 719 (125 S.W. 513);Commercial Sav. Bank Co. v. Citizens Nat. Bank,68 Ind. App. 417 (120 N.E. 670);Farmers' Merch. Bank v. Bank of Rutherford,115 Tenn. 64.
Payment by the drawee necessarily retires the instrument from circulation, and therefore all indorsers are relieved from liability to the bank on the warranty implied by such indorsement. The liability of an indorser extends only to subsequent holders in due course. Section 66, Negotiable Instruments Law (Section 9526 of the Code). The drawee is in no sense a holder in due course. The authorities are uniform in holding that payment by the drawee discharges the indorsers on their warranty; but, as pointed out in the opinion of the majority, a liability based upon negligence, or for money had and received, will sometimes lie. Balsam v. Mutual Alliance Tr. Co., supra; National Bank of Rolla v. First Nat. Bank of Salem, supra;First Nat. Bank v. Bank of Cottage Grove, 59 Or. 388 (117 P. 293); Figuers v. Fly, 137 Tenn. 358 (193 S.W. 117).
Thus it is clear that Section 61 is in no manner designed to protect the drawee of a check. The drawee is not only not included in its terms, but is necessarily excluded thereby.
The inapplicability of Section 61 to the drawee does not always result in a denial thereto of a remedy. Likewise, under some facts, the drawer may be precluded by his negligence from *Page 850 recovering of the drawee for loss resulting from the payment of a check payable to a fictitious person, and bearing a forged indorsement. It is practically the uniform holding of the courts that a drawee bank which has paid a check drawn by a depositor to a fictitious person without knowledge that he is such, is not discharged from liability to the drawer although the check bears the purported indorsement of such fictitious person, as such indorsement constitutes a forgery. Chism, Churchill Co. v.Bank, 96 Tenn. 641 (36 S.W. 387); Robertson Banking Co. v.Brasfield, 202 Ala. 167 (79 So. 651); Hatton v. Holmes, 97 Cal. 208 (31 P. 1131); Harmon v. Old Detroit Nat. Bank, 153 Mich. 73 (116 N.W. 617); Shipman v. Bank of State of New York, 126 N.Y. 318 (27 N.E. 371); Guaranty St. Bank Tr. Co. v. Lively (Tex. Civ. App.), 149 S.W. 211; First Nat. Bank v. Brule Nat. Bank,41 S.D. 87 (168 N.W. 1054).
As is clearly pointed out in a number of the cases cited supra, and in the majority opinion, the bank, ordinarily at least, pays the check to its depositor at its peril. It is charged with the duty of paying out the funds of the depositor only upon his order.
Thus far, reference is to the decisions in other jurisdictions. While the point was not actually involved in First Nat. Bank v.Marshalltown St. Bank, 107 Iowa 327, the court in that case said that the drawee ordinarily has no recourse upon indorsers. In the course of the opinion in that case, we said:
"But, whatever the text-writers may think, a long line of authorities sustain the proposition that, as between the drawee and a good-faith holder of a check, the drawee bank is to be deemed the place of final settlement, where all prior mistakes and forgeries shall be corrected and settled once for all; and if overlooked, and payment is made, it must be deemed final. There can be no recovery over."
As bearing upon the questions involved in this case, attention is called to the annotations in 12 A.L.R. 1089 and 22 A.L.R. 1228.
In the authorities cited in the dissent, particular attention is called to Marcus v. People's Nat. Bank, 57 Pa. Sup. Ct. 345. This case does not refer to or purport to construe any provision of the Negotiable Instruments Law. The holding is that a drawer who delivers a check to a swindler, payable to a fictitious *Page 851 payee, when the swindler indorses the name of the fictitious payee and obtains payment thereof, cannot recover of the drawee his loss, for the reason that, where two innocent persons must suffer, the one at fault must bear the loss. The court in this case attributed the wrong to the drawer, who put the check in circulation. The court apparently overlooks the universal rule that it is the duty of the drawee to pay the check to the person named therein, or upon his genuine or authorized indorsement, and that it does otherwise at its peril. The only reference we have been able to find to this opinion is in National Union Fire Ins.Co. v. Mellon Nat. Bank, 276 Pa. St. 212. The reference to it in that case was for the purpose of distinguishing the two cases, and nothing was said approving or disapproving the holding. The doctrine of the Marcus case is entirely out of harmony with the general rule, and, so far as appears, has no support in any adjudicated case, but, on the contrary, is against the overwhelming weight of authority, which places the burden upon the drawee. The quotation in the dissent from McMann v. Walker is found in 31 Colo. 261 (72 P. 1055). The question involved in that case was whether a note executed to a corporation not authorized to do business in the state of Colorado was valid in favor of third persons who obtained such note before maturity and without notice of its infirmities. Its validity was sustained.
National City Bank v. National Bank of the Republic, 300 Ill. 103 (132 N.E. 832), involved the construction of Section 62 of the Negotiable Instruments Law (Section 9522, Code of 1924). This section defines the liability of an acceptor. The instrument involved in that case was purchased by a mercantile company of St. Louis from the Broadway Savings Trust Company, drawn on the National City Bank, and made payable to the order of the Sheet Tin Plate Company, of Pittsburg. One Manning secured the letter from the mail box after it had been therein deposited by the manufacturing company, and by some means completely erased the name of the payee, and inserted his own therein. Manning delivered the draft to a jeweler in Chicago, by the name of Barnett, who took it to the drawee for acceptance, and it was accepted thereby. Barnett later indorsed the draft to the National Bank of the Republic, receiving credit on his account therefor. Notice was promptly sent to the National City Bank that the draft had been altered, and credit was asked *Page 852 upon its account with the Chicago bank for the amount thereof. The drawee, in turn, notified the National Bank of the Republic of the alteration, and asked reimbursement. The drawee bank gave the drawer credit for the amount, and instituted suit against the National Bank of the Republic, to recover the amount paid. The plaintiff prevailed in the lower court and in the court of appeals, but met with a reversal in the Supreme Court. The case there turned on the construction to be given Section 62 of the Uniform Negotiable Instruments Law. The court held that the acceptance by the drawee discharged the drawer from liability, and that the liability assumed by the acceptor extended only to the payee named in the instrument, and not to the original payee, whose name had been completely erased by Manning and his own substituted therefor. Thus it appears that the case is in point only in so far as the court held that the drawer was discharged by the drawee's acceptance of the draft. To the same effect seeState Bank of Chicago v. Mid-City Tr. Sav. Bank, 295 Ill. 599 (129 N.E. 498).
The language of the dissent in Robertson Banking Co. v.Brasfield, supra, has never had the approval of any court in this country, and is contrary to the doctrine of the cases cited and many more readily available.
Lane v. Krekle, 22 Iowa 399, is perhaps in no particular out of harmony with Section 61 or any other section of the Negotiable Instruments Law. Neither the liability nor the rights of a drawee of a check were involved in any way in that case. The court, however, held the defendant, who executed a note to a fictitious payee, liable to a subsequent purchaser for value without notice of the defects, upon two grounds: First, that the instrument was payable to bearer; and, second, that the defendant, by the execution of the note to a fictitious payee, estopped himself from denying liability to such holder.
Section 61 of the Negotiable Instrument Act relates to the drawer, and was designed to protect indorsees and holders in due course. The holding on the second point finds its counterpart in the statutes relating to holders of negotiable promissory notes in due course.
It is the opinion of the writer that Section 61 affords no protection whatever to the drawee, but that its terms must be construed as applicable only to the holder or indorsee in due *Page 853 course. As already pointed out, this does not in all cases deprive the drawee who has paid a check upon a forged indorsement of a remedy, but his remedy is not upon the warranty of the indorser. Such warranty, within the meaning of Section 66 of the act, is available only to subsequent holders in due course. Not only is this the specific language of the act, but such is the uniform construction placed thereon by the courts of this country.
The right of the drawee to recover of an indorser, when such right exists, is rested by the decisions upon three principal grounds: (1) The negligence of the first indorser or a holder, (2) mistake, and (3) for money had and received. An indorser held liable on one of these grounds would be in no position to recoup his loss from the drawer. The drawer does not undertake to protect indorsers or holders against their own negligence, nor against liability on the ground of mistake, or for money had and received. The engagement of the drawer is that the instrument will be paid or accepted, or both, and that, if dishonored, and proper proceedings are taken, on dishonor, he will pay it to the holder or a subsequent indorser. The theory of the dissent that the course of liability proceeds in a circle is not correct; and the right of the drawer to recover of the drawee who has paid a check purporting to be signed by him, but the signature to which is a forgery, or where payment is made upon a forged indorsement, is absolute, in the absence of negligence on the part of such drawer which operates as an estoppel and precludes recovery by him. The exceptions are where the instrument is made payable to a fictitious person with the knowledge of the drawer, and when the check is drawn and made payable to the person intended, although in fact fictitious.
With the exception noted, as the writer understands the law, the loss in all other cases lies between drawee and indorser.