The Market Street Title Trust Company made out its check to S.W. Samson. The check was intended for A. W. Sanson. He was an attorney who was entitled to receive the money in payment of a mortgage. By mistake, the check was mailed to Albert W. Sampson, a police officer. When Sampson received the check he took it to the Chelten Trust Company. He had no account there and they knew nothing about him except that he was recognized by the teller who received the check from him as a police officer whom he had seen in the vicinity of the bank. When the check was presented it had been *Page 243 altered so that the payee read "A. W. Sanpson." It was endorsed "A. W. Sampson." The teller did not pay the check, but put it to the credit of Albert W. Sampson in a saving fund. Instead of forwarding the check to the Market Street Title Trust Company for collection, defendant endorsed it generally, guaranteeing the prior endorsement and forwarded it, presumably through the clearing house. A few days thereafter, Sampson called at the Chelten Trust Company, requesting that the funds represented by the check be put in such shape that he could draw against them. The Trust Company called up the plaintiff, asked if the check had been paid; plaintiff said that it had been, and thereupon the money was placed by the defendant to Albert W. Sampson's credit generally and thereafter he drew it out.
The policeman's fraud resulted in his arrest and he was subsequently convicted and sentenced for his crime. He and his wife testified that they did not alter the check. The testimony on behalf of the plaintiff was that the check when it left its hands was unaltered. The inference is very strong that the man who perpetrated the fraud had forged the altered name of the payee, but this plays no important part in the matter. Subsequently the real payee of the check called upon the plaintiff for the money; this led to an investigation and the discovery of the fraud and this suit was brought by it against defendant to recover the amount of the check under its guaranty. I would hold the defendant liable, otherwise its guaranty of prior endorsements amounts to nothing. I think it should be determined that such an endorsement amounts to a declaration by the endorsing bank that the proper payee, the individual to whom the drawer of the check intended the money to be paid, had endorsed it, otherwise with the vast number of checks passing through banks in today's great volume of business, drawee banks will have no adequate protection against forgeries. The legal determination, so it seems to me, should be that a drawee bank *Page 244 (or one as in this case which is both drawer of the check and drawee) need only look at the forwarding bank's endorsement; if that is a guarantee of prior endorsements, the drawee bank can pay to the bank so endorsing without being affected in any way by the invalidity of prior endorsements: Nat. Union Fire Ins. Co. v. Mellon Nat. Bank, 276 Pa. 212.
I think the case in hand is not ruled by Land Title Trust Co. v. Northwestern Nat. Bank, 196 Pa. 230. There the paying and forwarding bank had not endorsed guaranteeing prior endorsements, but had endorsed for collection only, as the dissenting opinion discloses. That case involved an impostor to whom the drawer in fact meant the check to go, and the decision was expressly predicated on that fact. The impostor cases, as I understand them, are limited to the instances when the swindler presents himself in person and receives the instrument as his own. I am unable to agree that the plaintiff here, as drawer, intended Albert W. Sampson to receive payment merely because the envelope containing the check was addressed to him. The mistake, as pointed out by the learned president judge of the court below, was not as to the "identity" of the payee but as to his "residence and his exact name."
I can see no difference, so far as the application of legal principles is concerned, between the facts before us and as they would be applied if the police officer had found the check, or if a check drawn to John Smith had gotten into the hands of the wrong John Smith and been presented by him for payment. Defendant's teller who accepted the police officer's endorsement did not know that he was A. W. Sampson, save from his own statement, and knew nothing about the letter forwarding the check to him. He appeared at the Trust Company with the bare check, with nothing to show that it was his. Even though it be said that the plaintiff was initially negligent in allowing Sampson to get hold of the check, it can be said as a matter of law that this negligence was *Page 245 not the proximate cause of the loss. It tended in no way to influence defendant's conduct in the matter. The rule is that the negligence of the drawer is immaterial unless it is of the kind that directly and proximately affects the conduct of the banker in the performance of his duties: Jordan Marsh Co. v. Nat. Shawmut Bank, 201 Mass. 397, 87 N.E. 740, and cases there cited.
The "one of two innocent persons rule," if it has any place in the case at all, should not cloak the defendant but the plaintiff. Defendant by its guaranteeing endorsement threw plaintiff off its guard and enabled the fraud to be perpetrated. Before allowing Sampson to use the check, it was the duty of the Trust Company to ascertain whether he was the real owner of it and had capacity to pass title thereto. No investigation was made as to his capacity to endorse. Section 61 of the Negotiable Instruments Act which provides, "The drawer by drawing the instrument admits the existence of the payee and his then capacity to endorse" means the real payee, not the forging one. The drawer merely warrants the capacity of the person to whom he wants the money to go, not the capacity of a swindler to endorse the name of that person: Nat. Union Fire Ins. Co. v. Mellon Nat. Bank, 276 Pa. 212; Joseph Milling Co. v. First Bank of Joseph, 109 Oregon 1, 216 Pacific 560; American Express Co. v. People's Savings Bank, 192 Iowa 366,181 N.W. 701; Robertson Banking Co. v. Brasfield, 202 Ala. 167,79 So. 651. As I understand the language of this section and as text writers understand it, in practical application it means that having drawn a check to a minor, the drawer cannot raise the question of his nonage, or, to a supposed corporation, that it was not incorporated, or any other incapacity of the intended payee, but the language does not cover misusers of the paper. See Uniform Laws Annotated, volume 5, page 300, and Supplement, page 149.
When the Trust Company's teller received the check from the forger, it clearly exhibited that it had been *Page 246 altered, and when the latter endorsed it, he did not do so in the name of the payee as then drawn, which was "A. W. Sanpson." The endorsement is "A. W. Sampson." There was clear notice on the check as it then stood, not only of its alteration, but of a nonagreeing endorsement. The Trust Company, it seems to me, violated every dictate of banker's prudence in subsequently endorsing in the way it did and should not be permitted to saddle upon plaintiff the loss resulting from its lack of care, particularly so when account is taken of the fact that the endorser of the check was only known to the teller by sight and was not a depositor in the Trust Company and never had any dealings with it. As to the custom of banks to accept such checks for collection, it is sufficient to point out again that defendant did not restrictively endorse the check, but endorsed it generally and guaranteed the prior endorsement.
It is the duty of the accepting bank to make proper investigation to determine the identity of the one who endorses (United Security Life Ins. Trust Co. v. Central Nat. Bank,185 Pa. 586) and it warrants by merely signing after the name of the pretended payee the validity and genuineness of the instrument itself: Negotiable Instruments Act, sections 65, 66. If, as here, it further guarantees the endorsement, the drawee bank has the right to rely on such representation: Second Nat. Bank of Pittsburgh v. Guarantee Trust Safe Deposit Co.,206 Pa. 616; Phila. Nat. Bank v. Fulton Nat. Bank,25 F.2d 995. "The appellant bank in paying the check was bound to know at its own risk that the endorsements by which the holder of the check claimed title were genuine": McCornack v. Central State Bank, 203 Iowa 833, 211 N.W. 542, 544.
It is difficult for me to distinguish in principle the case at bar from Second Nat. Bank of Pittsburgh v. Guarantee Trust Safe Deposit Co., 206 Pa. 616. There a draft was drawn upon the plaintiff bank, payable to the order of John Davis, a brother and beneficiary of *Page 247 Benjamin Davis, who was a member of a fraternal organization. The name of John Davis was forged by someone on the back of the draft. This forged endorsement was followed by the endorsement of an official of the beneficial association. His endorsement was again followed by that of the defendant trust company, which guaranteed the previous endorsements. The draft, bearing these endorsements, was presented to the plaintiff and paid by it. Subsequently it was notified, not only that the endorsement of the name of John Davis, the payee of the draft was a forgery, but that a fraud had been perpetrated upon the beneficial order by falsely representing that Benjamin Davis, who was a member of the order, was dead and that his beneficiary, John Davis, was therefore entitled to receive the amount payable on his death. The defendant endeavored to avoid liability by averring that the draft was issued by the beneficial organization without proper precaution having been taken to ascertain whether or not the person insured was alive, and it set up that this negligence was imputed to the plaintiff bank by reason of its being the depositary of the funds of the order. As to this defense it was said: "The matter which it is thus sought to inject into the case as a defense has no proper place there. The liability of the defendant here is that of an endorser. The form in which its endorsement was placed upon the back of the draft, was not the mere writing of its name there, which of itself would create an implied warranty of the genuineness of the previous endorsements, but it was more; the defendant expressly guaranteed the previous endorsements. What reason then is there for excusing it from complying with the terms of its contract? . . . . . . The form in which the defendant endorsed the draft, makes clear its intention not only to transfer, but to be bound as endorser, and as guaranteeing the validity of the prior endorsements." But, it is argued, plaintiff's acts or negligence as drawer, in not noting the alteration when the check was returned to it and giving *Page 248 prompt notice, prevent recovery. Reliance is placed largely on the case of United States v. Nat. Exchange Bank, 270 U.S. 527; see, also, Brady, The Law of Forged and Altered Checks (1925), section 86. If this were simply an action by a drawee bank against the collecting bank and the drawer were a third party not on the record, it is clear that liability would rest upon the defendant and negligence on the part of the drawer would be no defense: Second Nat. Bank of Pittsburgh v. Guarantee Trust Safe Deposit Co., supra; Farmers' Bank of Abbeville, 116 S.E. 204; Brady, section 39. I agree, of course, that a drawee bank cannot maintain an action against a collecting bank unless it suffers a loss (Brady, op. cit. page 152), but I do not agree that anything done here by plaintiff, as drawer, would bar its right of action if it were suing its drawee bank. See Brady, page 455. In Union Tool Co. v. Farmers' Merchants.' Nat. Bank, 192 Cal. 40, 218 P. 424, the payee's name was altered and then the endorsement forged. The drawer was, nevertheless, permitted to recover from the drawee. The court said: "Assuming that the plaintiff (drawer) was negligent in not making a more thorough examination of the returned checks . . . . . . still the depositing bank may not escape liability for the payment of amounts paid on forged checks unless it has itself been free from negligence." In my opinion, therefore, defendant is liable to the plaintiff for money paid upon a forged endorsement, and plaintiff, as drawer or drawee, is not precluded from setting up the forgery, and that the case is essentially different from the so-called "impostor" cases, the "fictitious payee" cases such as Snyder v. Corn Exchange Nat. Bank, 221 Pa. 599, and also the cases in which the amount of the check has been raised or the check issued in such condition as to facilitate alteration, forgery and fraud. We are here dealing with a forged endorsement which had been guaranteed by defendant to be genuine. This act made the fraud and consequent loss possible, without *Page 249 this guarantee the swindler would have been detected when the check came to plaintiff's hand.
I would further hold that the delay of five days in giving defendant notice of the forgery was not an unreasonable one under the circumstances. The Trust Company was no different from any other endorser and certainly an individual endorser would not be relieved by the delay. Furthermore, from my viewpoint the success of the forgery was due to the active negligence of the defendant and it should not be permitted to take advantage of its own lack of care. I would affirm the judgment.
Mr. Justice FRAZER and Mr. Justice SADLER joined in the dissent.