(dissenting). I am unable to agree to the disposition of the case made by the majority, for the reasons which I will now state.
The majority opinion gives a full statement of the ease, the material facts involved, the propositions urged by appellant for reversal, and counter propositions urged by appellee in support of the judgment, but the rules of law that controlled in reaching the decision are not stated otherwise than by reference to cases cited and provisions of the Penal Code, relating to the crime of forgery.
On examination it appears that the authorities cited support, among others, these propositions: That an indorsement of commercial paper is a contract with all subsequent holders, to the effect that the instrument itself and antecedent signatures thereon are genuine, and further that money paid upon a mistake of fact may be recovered. In view of the facts with which we are dealing, I assume the majority were controlled by one or both of these rules. While each authority cited is related in a generic sense to the case at bar, still there is such a differentiation in the facts involved that it cannot, in my opinion, be correctly said either is directly in point.
Appellant’s cause of action is based on the idea that it was subrogated to the rights of the city of Dallas, and stands precisely in its shoes; it follows, therefore, that, if the city had no cause of action for the recovery of money paid by the bank on the warrants issued to fictitious and nonexisting persons, appellant had none, and was properly denied recovery. It is not denied that appellee paid full value for the warrants and at the time’ was innocent of any knowledge of the forgeries and fraud involved in their origin and negotiation.
The rule is well settled at common law that, where commercial paper is drawn and put in circulation, payable to a fictitious person, the holder can declare and recover, as on a bill or note payable to bearer, its legal effect (ignoring its form) being that of an instrument payable to bearer, and this is true whether the maker or drawer knew or did not know the payee was a fictitious person. 1 Daniel on Negotiable Instruments (6th Ed.) § 139, states the rule as follows: “In a case of a note payable to a fictitious person, it appears to be well settled that any bona fide holder may recover on it against the maker as upon a note payable to bearer. It will be no defense against such bona fide holder for the maker to set up that he did not ■know the payee to be fictitious. By making it payable to such person he avers his existence and he is estopped, as against a holder ignorant of the contrary to assert the fiction * * *■ where a note has as its payee a fictitious firm, and the holder endorses it, assuming the firm’s name, a bona fide endorsee may recover against the maker. * * * ” Also see Coggill v. American Exchange Bank, 1 N. Y.. 113, 49 Am. Dec. 310, 313.
The common-law rule, however, has been modified in this state by statute to the effect that an instrument is construed as payable to bearer “when it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable.” See Neg. Ins. Act, art. 5932, R. S. 1925, § 9, subd. 3. The pertinent question therefore is, Did the city of Dallas, legally speaking, have notice at the time the warrants were drawn of the fictitious and non-existing character of the payees to whose order the fraudulent warrants were drawn? If so, appellee bank, as bearer of the warrants, held an unimpeachable title, and was in no way liable to the city; therefore was not liable to appellant for money collected thereon. What are the facts? Lyles, the impostor, was superintendent of maintenance in the sanitary sewer department of the city government, was given power to employ and discharge laborers — therefore was a general agent, was required to and did make out and file with the engineering department daily time sheets containing the names of employees under him and the amount of money due each; from these daily time sheets the engineer, at the end of the week, made out a pay roll that was transmitted to the auditor of the city, who, in turn, presented same for approval to the commissioner having charge of that department of the city government, and, after being approved by the latter official, the auditor drew warrants payable to the order of the respective laborers, these after being signed ■by the mayor, countersigned by the auditor, attested by the secretary, were turned over to Lyles for delivery to the laborer's. Taking advantage of the authority and’ confidence reposed in him, Lyles hatched his swindling scheme; that is, beginning in July, 1925, and continuing until April 23, 1926, he padded his daily time sheets with the names of two ostensible, but non-exist*503ing, laborers, and, in pursuance of tbe system in vogue, the engineer made up pay rolls, and, after being approved by the commissioner, warrants were issued thereon and given to Lyles for delivery to the fictitious payees. In furtherance of the swindle, Lyles indorsed the names of the fictitious payees on the warrants, as well as that of his own, and were by him presented to, and cashed by, appellee bank, and later the hank presented same to and received payment from the city. These are the material facts bearing on the point under consideration. Were these facts sufficient to visit notice on the city of the fictitious character of the payees to whom it made the warrants payable? I think so. It is axiomatic that acts performed and knowledge obtained by an agent, within the scope of his authority, are the acts and knowledge of' his principal, even though the agent may act fraudulently to serve his personal ends.
In Gleason v. Seaboard, etc., R. Co., 278 U. S. 349, 49 S. Ct. 161, 73 L. Ed. -, where a railroad employee, having a duty to give notice to those engaged in the cotton trade of the arrival of cotton “under order notify” bill of lading, forged a bill of lading and notified the consignee of its arrival, whereupon the draft attached to the bill was paid, the railroad was held liable, notwithstanding the fact that the false statements were made solely to effect a fraud for the employee’s benefit. Also see Litchfield Shuttle Co. v. Cumberland, etc., Bank, 134 Tenn. 379, 183 S. W. 1006; Bartlett v. First Nat. Bank, 247 Ill. 490, 93 N. E. 337, 340.
A case directly in point is Equitable Life Assur. Soc. v. Nat. Bank of Commerce (Mo. App.) 181 S. W. 1176. An agent of the insurance society, with authority to solicit and take applications for life insurance, and to forward proofs of death, to whom drafts in settlement of death claims were forwarded by the society for delivery to beneficiaries formed a conspiracy with others to defraud the society, and, in furtherance of the enterprise, procured the execution of an application for insurance on the life of Samuel T. Wicker, a nonexisting person, payable to his wife, Mary J. Wicker, also a nonexisting person, a policy was issued accordingly, and afterwards he assisted in procuring proofs of death of the fictitious insured, forwarded same to the society, thereupon a draft was issued payable to the order of the named beneficiary in settlement of the death claim, was forwarded to this agent for delivery, and, after the name of the fictitious beneficiary was indorsed thereon, the recreant agent put same in circulation, which, after a limited circulation, finally reached defendant bank, with whom the society kept an account, was paid by it, and the amount charged against the account of the society. After discovering the swindle, the society sought to recover from the bank the money paid, on the ground that the indorsement of the fictitious beneficiary on the draft was a forgery. The society was denied recovery, and in disposing of the case the court,, among other things, said: “By his act [the agent] he put this check into circulation. The check was sent to him by the appellant for delivery to Mary J. Wicker [the'fictitious beneficiary]. He knew that was a non-existing fictitious person. His knowledge of that fact must be held to be the knowledge of his principal, the appellant. So . that the appellant had notice and knowledge, through its agent Davies, that the check named as payee a fictitious, non-existing person. By the act of delivering such a check and so putting it in circulation, the bank upon which it was drawn is entitled to the same protection as if the check had been payable to bearer. This appellant, a corporation, can act only through agents. When those agents, acting within the apparent or real scope of their authority, commit a tort, the principal is bound for the consequences. Garretzen v. Duenckel, 60 Mo. 104, 11 Am. Rep. 406, so holds and the doctrine there so clearly announced by Judge Wagner has never been departed from in our State. This corporation, appellant, had as much knowledge of the fictitious character of this payee, through the knowledge of its agent Davies, when he delivered the check and put it in circulation as if another agent, its treasurer, for instance, had, with that same knowledge, issued this cheek.”
Again at page 1182 the court used this language: “But in the case before us, we hold that the knowledge of this agent Davies of the fictitious character of the payee -in this check, was the knowledge of the drawer of the check, the appellant here, and that, under the common law, however construed, it cannot recover from respondent, an innocent holder for value, and here the payor-.”
I think the court announced a sound doctrine, that it is applicable to the facts of this case — hence I am of opinion that the city of Dallas was visited with the knowledge possessed by Lyles, that is, that payees in the fraudulent warrants were fictitious persons, therefore the instruments were in legal effect payable to bearer, and, as ap-pellee bank was an innocent holder for value, was entitled to protection as such. So, for this reason, I think the judgment of the court below was correct, and should have been affirmed.
Furthermore, I believe the judgment should have been affirmed, under the equitable principle that, “where one of two innocent parties must suffer, he through whose agency the loss occurred must bear it.”
In Day v. Brenton, 102 Iowa, 482, 480, 71 *504N. W. 538, 540 (63 Am. St. Rep. 460) the Supreme Court of Iowa stated the doctrine as follows: “‘Where one of two innocent parties must suffer, he through whose agency the loss occurred must bear it.’ Again: ‘Where, somebody must be a loser by reason of a deceit practiced, he who employs and puts trust and confidence in the deceiver should be the loser, rather than a stranger.’ Again, it' has been said: ‘Where loss is caused by the fraud of a third person, such loss should fall on the one whose act enabled such fraud to be committed.’ ” Also see Union Pac. R. Co. v. Johnson, 45 Neb. 57, 63 N. W. 144, 147, 50 Am. St. Rep. 540; 10 R. C. L. 378, § 128.
As heretofore shown, Lyles, the city’s superintendent of maintenance in its sanitary sewer department, systematically padded his daily time sheets by reporting A. C. Roberts and M. Hall, fictitious persons, as having performed labor, from these daily time sheets, the engineer made up weekly pay rolls that ultimated in the issuance of the fraudulent warrants which were intrusted by the city to Lyles for delivery to creatures of his imagination, thus making it possible for him to consummate this swindle.
The case should not, in my opinion, be determined by rules of commercial law that control in cases of forged indorsements, for forgery was only one act in the scheme, and should be considered only in its relation to other acts making up the whole; that is, as a part of the ensemble. The general authority conferred on Lyles by the city, the generous confidence reposed in him, made the swindle possible, without which he could not halve succeeded. The city employed no method of checking the accuracy of daily time sheets filed by him, which, if done, evidently the swindle could have been prevented, on the contrary, he was given such a free hand that he was enabled to easily and successfully consummate the swindle.
That the city was at fault the undisputed evidence shows, for it was by reason of the power and confidence reposed by it in Lyles, its failure to check or otherwise verify the accuracy of his daily time sheets, that enabled him to successfully prosecute the swindle. This agency that the city permitted Mm to exercise without proper supervision was itself a dangerous instrumentality, calculated to cause precisely what it did cause, that is, an injury to be suffered by another, and, as this resulted from the agency created by the city, it should shoulder the consequences of its employee’s bad faith.
Appellant should not be permitted to successfully contend that the bank failed to protect the city from fraudulent devices of its trusted employee who, under circumstances created by it, had so easily deceived it, for, if such contention prevails, the bank, an innocent party, will be made to suffer a loss resulting from the city’s own derelictions.
The authorities cited below support, in principle, the proposition for which I am now contending, to wit: Heavy v. Commercial Nat. Bank, 27 Utah, 222, 75 P. 727, 101 Am. St. Rep. 966; United States v. Nat. Exchange Bank (C. C.) 45 E. 163; Iron City Nat. Bank v. Port Pitt Nat. Bank, 159 Pa. 46, 28 A. 197, 23 L. R. A. 615; Phillips v. Mercantile, etc., Bank, 140 N. Y. 556, 35 N. E. 982, 23 L. R. A. 584, 37 Am. St. Rep. 596; 3 R. C. L. 999, § 209.
It is insisted, however, that the bank was at fault in cashing the warrants without making proper investigation to ascertain whether or not Lyles was a holder in due course. If it be conceded that, under the circumstances, the bank should have made such investigation, yet a vain or an unreasonable thing would not be required. If the bank had questioned” Lyles when the warrants were presented, is it reasonable to suppose he would have disclosed his criminal scheme? I submit not. If the bank had gone further and inquired of the city engineer, who made up the weekly pay rolls, of the commissioner, who approved the pay rolls for warrants, of the auditor who drew and countersigned the warrants, of the may- or who executed same, or of the secretary who gave his attestation, is it reasonable to assume, in view of their positive official af-firmance of the validity of these transactions, that they could or would have disclosed any impeaching evidence? I do not think it reasonable to assume that any such evidence would have been disclosed. Certainly the bank would not have been required to pursue the investigation any further, and, if pursued even thus far, the quest would have proven futile, because the case, had been so circumstanced by what the city had done and failed to do that an investigation would have disclosed nothing.
For this additional reason, I am of opinion the judgment of the trial court was correct, and should have been affirmed.