[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 66 The action was originally commenced by the city of New York against the Bronx County Trust Company, one of the city depositaries, to recover the aggregate amount paid out by the trust company and charged to the city on 652 checks upon which the indorsements were forged. The checks had been cashed or deposited by the forgers at other banks, and when received by the trust company all bore the indorsement of the banks presenting them, under the legend "Prior indorsements guaranteed." After the commencement of the action the trust company paid the city the sum sued for, impleaded the indorsing banks on their indorsement and guaranty, and served each of them with a supplemental summons and answer. The Bronx County Trust Company may, therefore, be referred to as the plaintiff and the impleaded banks as the defendants. The trial court dismissed the plaintiff's cause of action. The judgment was reversed on facts and law by the Appellate Division, and judgment given pro tanto against the defendants.
The checks had been drawn to the order of fictitious city employees whose names had been fraudulently placed upon the records and payrolls of the Cromwell Avenue Garage, operated by the Department of Street Cleaning of the City of New York. The weekly payrolls were made up from the garage records under the direction of the garage manager by a clerk, and included the names of the men actually employed, as well as the fictitious names which had been added. Opposite the name of each employee was a statement of the hours worked and *Page 69 of the amount payable. The payrolls thus prepared were certified as correct by the garage manager, and also by the superintendent of the district in which the garage was located, and were then forwarded to the Department of Finance. There the pay checks were made out, and the payroll returned to the garage with a pay check for each name shown on the payroll, including the checks payable to the fictitious names. Each check upon its face was drawn upon the Bronx County Trust Company, followed by the words, "Payable Upon Identification at Other City Depositaries." At the lower left-hand corner was a blank line, above which were the printed words, "Signature of Payee — For Identification Only," and underneath the line were the printed words, "Not an Endorsement." It was the duty of the manager of the garage before delivering the checks to require the payee to sign for identification in his presence upon the face of the check, and to sign also a receipt on the payroll. The checks payable to fictitious names were segregated by the manager and the clerk and receipted for on the payroll by the one or the other. Then one or the other would sign the payee's name on the identification line on the face of the check and at the same time indorse the payee's name on the back of the check, so that the fictitious name appeared in the same handwriting on the payroll, on the face and on the back of the check. The checks in bunches were then either cashed or deposited at the defendant banks under an assumed name, or cashed by a confederate. In every case the check bore the further indorsement of the name or assumed name of the person presenting it for payment or deposit.
Except for the identification feature of these checks they differed not at all from the usual and customary form of check. The indorsement of the fictitious names was, therefore, a forgery. (Shipman v. Bank of State of New York, 126 N.Y. 318;National Surety Co. v. National City Bank, 184 App. Div. 771. ) The forgers, *Page 70 though city employees, were not acting within the scope of their duties, and their knowledge was not the knowledge of the city. (Shipman v. Bank of State of New York, supra; Henry v.Allen, 151 N.Y. 1; Critten v. Chemical Nat. Bank, 171 N.Y. 219,230; Prudential Ins. Co. v. National Bank of Commerce,227 N.Y. 510.) The checks, therefore, were not payable to bearer under Negotiable Instruments Law, section 28; nor could they pass by indorsement. (Neg. Inst. Law; Cons. Laws, ch. 38, § 42.) The plaintiff, by reason of the foregoing facts, was bound to reimburse the city for the moneys paid out by it, unless it could claim full protection upon some principle of estoppel or full or partial protection by way of set-off for some negligence chargeable to the city.
The plaintiff paid the city without contesting the claim. It says it did so because there was no defense available to it since (a) it had a remedy against the indorsing banks and, therefore, suffered no damage; and (b) it did not rely upon the forged signatures, but upon the indorsement and guaranty by the indorsing banks. It is not necessary to consider the validity of the assigned reasons further than to say that National SuretyCo. v. Manhattan Co. (252 N.Y. 247) is not, upon the facts here, an authority for proposition (a).
The only defenses theoretically open to the plaintiff against the claim of the city were estoppel and negligence by way of set-off. (National Surety Co. v. Manhattan Co., supra.) Under the peculiar facts of this case, the defense of estoppel is equally available to the defendants and will be considered below. The defense of negligence in cases of this sort is ordinarily available only to the drawee bank, to which alone, it has been said, the depositor owes a duty of care. (Corn Exchange Bank v.Nassau Bank, 91 N.Y. 74, 80; Critten v. Chemical Nat. Bank,171 N.Y. 219, 229.) The doctrine of privity, however, is not so conclusive as it once was. Whether there may *Page 71 be negligence under circumstances which would carry the tort liability of a depositor beyond his contract undertaking (Cf.Ultramares Corp. v. Touche, 225 N.Y. 170), we do not stop to inquire, for the question is not here. The broad charges of negligence are not made out. While it is true that there had been similar forgeries for two years before the earliest one involved here, the forgeries were in the indorsements. So far as the evidence shows, no facts came to the city's knowledge as inPrudential Ins. Co. v. National Bank of Commerce (supra), to put it upon inquiry. Lacking such warning it had a right to rely upon the vigilance of the banks in detecting forged indorsements. Nor can it be justly said that there was negligence in the issuance and delivery of the checks. No fault is or can be found with the system of payment used by the city. It provided for careful and detailed records of the work done by all employees at the garage, and it required the payrolls made up from those records to be separately certified by two responsible officials. The old satiric query, Quis custodiet ipsoscustodes, is no reply to this. True it is perhaps, that if there had been other officials to watch those whose duty it was to watch, discovery might sooner have been made. But the city was not bound to anticipate a criminal conspiracy among its trusted employees (Peoples Trust Co. v. Smith, 215 N.Y. 488); nor did it, as a depositor, owe the duty of such extraordinary vigilance even to the plaintiff drawee, much less to the defendants. (Paton Co. v. Guaranty Trust Co., 227 App. Div. 545; affd.,254 N.Y. 621.)
We come, then, to the one substantial question. This system of payroll payment was first put in use by the city of New York in 1915. There were at that time 135 depositary banks with which the city had accounts. To each of those banks, including all the parties to this action, was sent a letter which referred to the pay plan as having been devised for making pay checks of the city of *Page 72 New York "as good as currency;" and stated, among other things, that the plan included "the use of a self-identifying check," and further that "the circular which I am enclosing describes the way employees make out checks so as to make the signature, in effect, certified by the city." There was inclosed a list of the banks which had assented to the plan. The circular to which reference was thus made was a copy of one which had been distributed to all city employees, describing the new pay check and giving directions for its use. Among other things, the employees were told that "the banks listed below have assured the comptroller that they will cash all checks presented by city employees when properly identified."
The contention of the defendants is that out of that arrangement and the subsequent course of dealing thereunder there arose between the city and its 135 depositary banks a contractual relationship, or at least an understanding, by virtue of which, either contractually or by estoppel, any bank taking one of the city's pay checks would acquire good title thereto, if the indorsement of the payee on the back corresponded with the identification signature on the face
Contract there was not. There is no indication that the banks' "assurance" that they would cash all checks presented by city employees when properly identified was anything more than an assurance. The letter with its accompanying circular merely described the new plan of payment with expressions of expectation as to how it would operate. So far as the evidence shows there was nothing to prevent the defendants from refusing to cash a check even when the payee was properly identified.
It seems equally clear that the doctrine of estoppel has no application. It is matter of common knowledge that a bank in cashing a check or in accepting it for deposit ordinarily relies only upon the responsibility of the party, usually its own customer, with whom it deals. It pays no attention to indorsements other than his. *Page 73 Upon no other basis could the banking business be carried on. Moreover, the evidence of the defendant bank chiefly interested here shows that it took the checks in question solely upon the indorsement of its own customer. It "did not look beyond that." The defendants as matter of fact were not misled by any act or omission of the city nor by any understanding with it. If, however, we pass over what was actually done and look only to the face of the letter and circular, no warrant will be found for saying that the defendants, had they chosen so to do, were at liberty to identify the payee solely by a comparison of the two signatures, or that they had been led to believe that they were. "The circular," says that letter, "describes the way employees make out checks so as to make the signatures, in effect, certified by the city." The way the employees were directed to make out checks to the end mentioned is stated thus in the circular: "When you take the check to the bank for payment you should endorse it in the presence of the paying officer, unless the bank waives this obligation." So far as the city was concerned that act by the paying party was obligatory as part of the identification. Somewhere along the line between the issuance of the check and its payment by the drawee bank identification by that method was essential, unless the paying party chose to waive it; and clearly any waiver was at the risk of that party, and of subsequent parties. In the case of none of the questioned checks was there an indorsement in the presence of the person paying.
There is a further contention that a ratification of the payment of the checks by the banks arose from the act of the police authorities in taking certain moneys found in the possession of the forgers. This, it is said, amounted to the election of an inconsistent remedy. Even if the police can be said to have been acting as agents of the city, there seems to be no good reason why the city was not at liberty to pursue both the forgers and the banks *Page 74 in civil actions for the recovery of its loss without surrendering its rights against either until it had been paid. Election of remedies is a defense only "when a choice is exercised between remedies which proceed upon irreconcilable claims of right" (Metropolitan Life Ins. Co. v. Childs Co.,230 N.Y. 285, 291), and has no application to the pursuit of remedies against parties concurrently liable, short of payment and satisfaction. (Sciaballa v. Illinois Surety Co., 166 App. Div. 677; affd., 215 N.Y. 692.)
The judgment should be affirmed, with costs.