dissenting: The defendant demurred to the complaint upon the ground that it did not state facts sufficient to constitute a cause of action. The court sustained the demurrer and dismissed the action and this presents the only point in this appeal.
It is well settled law that a demurrer on this ground admits every fact that is pleaded in the complaint. It is therefore admitted:
1. That the plaintiff was a Virginia corporation, engaged in a general banking business at Richmond, Va., and that the defendant is a national banking corporation, engaged in national banking business at Golds-boro, N. 0.
2. That a short time prior to 23 June, 1918, after regular banking hours and not in the regular course of business, and when Gr. A. Nor-wood, president of the defendant, and one N. L. Massey were alone in defendant’s banking house, the defendant, acting through its president and as a matter of accommodation, sold and delivered to said Massey a number of New York exchange checks drawn by defendant upon the First National Bank of New York, and signed by Norwood as president, payable to the order of Massey, and for small amounts, ranging from $2 to $9, among the checks being those sued on in this action. The checks were drawn on ordinary bond paper and not upon what is commonly known as “safety paper,” the date, name of payee, and the amount in words and figures being all written in the blanks on the checks with ordinary pen and ink either by Norwood or Massey.
3. It is further admitted by the demurrer that at the time of the issuance of the checks and for some years prior thereto the defendant owned a protectograph or mechanical check writer which it had habitually used in drawing all New York Exchange checks issued by it by means of which the letters forming words denoting the amount of such checks were cut or perforated into the paper, destroying its fiber and damaging its surface by means of which the perforations were dyed with some fast or indelible red and black ink, small perforations forming *475some fancy design being made immediately preceding first word and immediately following last word; that in issuing the checks on this occasion Norwood negligently failed and omitted to either write the same upon “safety paper” or to use a proteetograph or any like machine or device to write in the amount thereof.
4. It is further admitted by the demurrer that at the time of the issuance of the check, and for years prior thereto, it was a matter of common and general knowledge, which was known by defendant’s officers, that there had been discovered and developed certain simple chemical preparations which were easily obtainable at retail stationers at small cost by the public generally, and were in general use for legitimate purposes, by means of which a person of ordinary skill and learning, such as Massey, could easily remove from an ordinary good grade pf bond paper such as these checks were written upon, all traces of writing placed thereon with ordinary pen and ink, leaving no visible sign or trace upon the paper of either the original writing or of the means used for its removal.
5. It is further admitted by the demurrer that for several years prior to 1918, when these checks were issued, the danger of innocent parties being damaged and defrauded by application of the processes described above became a matter of general and common knowledge and grave concern to all bankers; and in order to combat the danger to innocent parties, certain simple and protective processes were evolved and adopted and were in use in June, 1918, and had been for some years prior, and their use was generally known and in common use by banking institutions and business houses; and by the use of said processes and devices checks could be so drawn that they could not be altered or raised so as to escape detection by a reasonable and prudent person in the ordinary course of business, save by a few especially and highly trained chemists and documental experts.
6. It is further admitted by said demurrer that these checks could not have been raised by Massey, or any person of ordinary skill and knowledge, if such protective devices had been used, as the defendant was in the habit of using, and as were in common and general use among all banking houses, these devices being, to wit: (a) The drawing of checks upon a specially prepared and sensitized paper, known as “safety paper,” upon which it was impossible to alter or erase writing without leaving tell-tale traces; and (b) a mechanical check-writing machine, such as the kind above described and referred to, and such as was then owned and had been commonly used by this defendant.
7. It is further admitted by the demurrer that the checks so sold by the defendant as aforesaid, out of office hours, and without the use of such devices, were four checks, numbered 11,809, 11,827, 11,811, and *47611,829, wbieb were originally drawn for the following amounts, respectively, viz.: $2, $6, $2, and $3; and that after obtaining these checks from the defendant, issued in the manner aforesaid without the protection of above devices, which the defendant possessed and commonly used, and out of office hours, Massey, or some one under his direction, removed •therefrom the original writing, denoting the amounts thereof, by means of the chemical process above referred to and raised the same to the following amounts respectively: $9,018.12, $14,084.70, $9,000, and $12,903, the new amounts being inserted in said checks in figures in pen and ink following the dollar mark and being punched and written thereon in words and figures with a mechanical check writer or protecto-graph of the kind described above, aid after having been so altered,' when they were presented to the plaintiff the checks appeared regular and genuine in all respects, and bore no visible signs and traces of alteration, and the fact that they had been altered could not be detected by the exercise of ordinary care.
8. On or about 23 June, 1918, Massey, who was known to plaintiff’s officers, deposited with the plaintiff at Richmond, Ya., the check above referred to, bearing the number 11,829, the same having been altered in the manner above described so as to purport to have been originally drawn for the sum of $12,903, and plaintiff immediately forwarded this check to New York for collection through its correspondent there, and same was duly honored by the First National Bank, the drawee, of which fact plaintiff was informed on 24 June, 1918, and thereupon credited Massey’s account with the amount thereof, which, with other funds to his credit, gave Massey a balance of $15,000 on plaintiff’s books.
9. It is further admitted by the demurrer that on 24 June Massey drew against plaintiff a check to his own order for $9,000 and used said check in paying another check of like amount which he had hitherto drawn upon the Bank of Commerce and 'Trust of Richmond, Ya., to the order of the defendant, and which had been forwarded for collection, and payment of which had been refused by the drawee by reason of insufficient funds to the credit of Massey; and on the same date the Federal Reserve Bank of Richmond presented to plaintiff for certification, and plaintiff duly certified, a check drawn by Massey for $6,000 to the order of Gc. A. Norwood (defendant’s president), and which was indorsed by said Norwood and said defendant, which check was drawn upon plaintiff and had been previously dishonored on account of insufficient funds. Both of said checks so drawn by Massey were honored and paid by plaintiff prior to its discovery that the $12,903 check was a forgery, and the defendant and its president received the $15,000 above mentioned.
10. It is further admitted by the demurrer that the following day, that is, 25 June, Massey presented to plaintiff for negotiation the three *477checks, Nos. 11,809, 11,811, and 11,827, wbicb bad been altered as aforesaid, and then appeared and purported to have been drawn respectively for tbe following amounts: $9,018.12, $14,084.70, and $9,000, and bearing absolutely no traces or evidences of having been altered.
11. The demurrer further admits that plaintiff, having reason to believe in the genuineness of said checks, the other check having been honored by the New York drawee of the defendant, gave Massey the following sums therefor: two New York Exchange checks, $14,084.70 and $7,253.48 respectively (which were negotiated and paid prior to the discovery of the fraudulent raising of said three checks) ; $7,000 being paid to him in currency and the sum of $3,764.67 by way of credit on notes of Massey held by plaintiff.
12. The demurrer further admits that said three checks were by plaintiff forwarded for collection and dishonored there on account of insufficient funds, and on 28 June it was discovered that they had been fraudulently raised and altered.
13. It is further admitted by the demurrer that on account of the foregoing, plaintiff’s net loss and damages were $40,118.17, plaintiff having been called upon as an unqualified indorser to refund, and having refunded, the sum advanced by the New York bank on the first check with interest which it was legally bound to do.
14. It is further admitted by the demurrer that New York Exchange checks drawn by a national bank, written upon “safety paper” or by means of a mechanical check writer, have always enjoyed a very high degree of negotiability, and have always been accepted and cashed by all bankers, not by virtue of any dependence upon the solvency and responsibility of the payee, but merely upon identification of the payee,, and with dependence upon the solvency of the drawer and the drawee bank.
15. It is further admitted by the demurrer that the plaintiff knew and relied upon this defendant’s habitual and customary use of said protectograph and regular check writer in drawing its New York Exchange checks.
16. It is further admitted by the demurrer that the defendant was negligent in issuing the said checks in the form and under the circumstances alleged, and without using either “safety paper” or the mechanical check writer, and particularly in the failure to use the check writer, which the defendant had habitually and customarily used theretofore; and plaintiff avers that by reason of the above negligent conduct and admissions the defendant is estopped .to deny its liability to the plaintiff on account of said checks.
The demurrer having admitted all the above facts, clearly and consecutively stated, the only point involved in this appeal is: “Does the complaint set forth facts sufficient to constitute a cause of action?”
*478Tbe fundamental legal proposition relied upon by tbe complainant is tbat tbe maker of a negotiable instrument owes a duty to future holders of tbe same, without notice of any defect therein, and purchased for a valuable consideration, to exercise ordinary care to so draw tbe instrument as to prevent its being materially altered in a manner not to be detected in tbe exercise of ordinary care.
This action is based upon tbe allegations, admitted by tbe demurrer, of gross negligence on tbe part of tbe defendant bank, which negligence was tbe proximate cause of tbe imposition practiced by tbe drawee upon tbe plaintiff. "When, as in this case, such negligence, as is alleged in this complaint, is admitted by tbe demurrer, and is sustained by tbe court, as was done in this case, upon tbe ground tbat tbe complaint does not state a cause of action, tbe dismissal of tbe action denies to tbe plaintiff in all such cases tbe elementary justice of having tbe rights of plaintiff determined in a court as in all similar cases where a complaining party seeks remedy for damages proximately caused by tbe negligence of tbe defendant.
This case is in no wise affected by tbe provisions of C. S., 3106, which provides: “Where a negotiable instrument is materially altered without tbe assent of all parties liable thereon, it is avoided except as against tbe party who has himself made, authorized, or assented to tbe alteration and subsequent indorsers. But where an instrument has been materially altered, and is in tbe bands of a holder in due course not a party to tbe alteration, be may enforce payment thereof according to tbe original tenor.” And tbe defendant contends tbat tbe sum total tbat it is indebted to tbe plaintiff for the $40,118.17, which it has paid out by reason, as tbe demurrer admits, of the proximate negligence of the defendant, is tbe sum of $2, $6, $2, and $3, to wit: $13.
But C. S., 3106, has no reference whatever to a case like this in which tbe alteration in tbe New York Exchange checks issued by tbe defendant to Massey deceived tbe plaintiff by reason of tbe negligence of tbe defendant, as is alleged in tbe complaint and admitted in tbe demurrer,' in not using tbe ordinary and customary methods by which tbe defendant admits it bad heretofore used in issuing said exchange, whereby said Massey was enabled to practice such deception and to make such alterations without detection by tbe plaintiff.
Tbe cause of action -here alleged is tbe negligence of the defendant, and that this was tbe proximate cause of tbe injury sustained by the plaintiff • which took this paper in ordinary course relying upon tbe observance by the drawee bank of the ordinary precautions which said defendant bad heretofore observed, as it is alleged and admitted, both by itself and by all other banks, and tbe failure to do which was the sole cause of tbe successful deception practiced upon tbe plaintiff.
*479It is not a matter of tbe negotiable instrument law, but whether tbe defendant bank was guilty of negligence wbicb was tbe proximate cause of tbe injury sustained by tbe plaintiff.
“It is tbe duty of tbe maker of tbe note to guard not only bimself, but tbe public against frauds and alterations, by refusing to sign negotiable paper made in sucb form as to admit of fraudulent practices upon tbem witb ease and without ready detection.” Zimmerman v. Rote, 75 Pa. St., 191.
In Leach v. Nichols, 55 Ill.; 276, tbe Court said: “It has been held by this Court that if a man carelessly lets bis note go into circulation written in ink and partly in pencil, thus affording both a temptation and an opportunity to fraudulently alter it, and it is so altered, be shall not be permitted to set up sucb alteration against an innocent bolder.”
In Hoffman v. Bank, 99 Va., 485, it is said: “When a party puts bis paper in circulation, be invites tbe public to receive it of any one having it in possession witb apparent title, and be is estopped to urge an actual defect in that wbicb, through bis act, ostensibly has none. It is tbe duty of tbe maker of a negotiable note to guard not only bimself, but tbe public against frauds and alterations, by refusing to sign negotiable paper made on such a form as to admit fraudulent practices upon tbem witb ease, and without ready detection. Tbe inspection of tbe paper itself furnishes tbe only criterion by wbicb a stranger to whom it is offered can test its character, and when tbe inspection reveals nothing to arouse tbe suspicions of a prudent man, be will not be permitted to suffer when there has been an actual alteration. Daniel on Negotiable Instruments, sec. 1405.”
In Bank v. MacMillan (1918), I. A. C. (L. R.), 777, where a check was filled out for a certain amount, and additional words and figures were added to increase tbe amount, and where tbe check was a fully completed instrument when it was issued, Lord Finley said (p. 811) : “If a customer, drawing a check, neglects reasonable precautions against forgery, and if forgery ensues, be is liable to make good tbe loss to tbe banker, and tbe fact that a crime has to intervene to cause tbe loss does not make it too remote. Indeed, forgery is tbe very thing against wbicb tbe customer is bound to take reasonable precaution. Leaving blank spaces in tbe check is tbe commonest form in wbicb forgery is facilitated, and to lay down as a matter of law that it is not a breach of duty would be á somewhat startling conclusion.” He also says: “No one can be certain of preventing forgery, but it is a very simple thing in drawing a check to take reasonable and ordinary precautions against forgery. If owing to tbe neglect of sucb precautions, it is put into tbe power of any dishonest person to increase tbe amount by forgery, tbe customer must bear tbe loss as between bimself and tbe banker.”
*480There are numerous decisions to the same effect, and in all the courts, and it would be useless duplication to repeat them.
This defendant issued these cashier’s checks without using the protecto-graph and a form of paper used always now-a-days by banks and other large business institutions, as a protection which the defendant knew, or should have known, that all persons would expect to be used as a protection, and the absence of which would furnish occasion to defeat the very negotiability which is the first feature of paper. This is all admitted by the demurrer.
The plaintiff does not contend that this requirement of anticipation or prevention of forgery by alteration, with or without erasure, is required of others than first-class business men or banking institutions dealing largely in such paper, nor even upon them in issuing ordinary notes, checks, and bills, but only when they issue such paper as national bank notes, travelers’ checks, or New York Exchange (as in this case),, and the measure of care which is asked is simply such care as is commonly used in the doing of these acts by men engaged therein throughout, this State and Nation.
Before the volume of exchange reached its present limit, and before the issuance of such paper and its protection, by all reasonable devices became essential to security of business, there were decisions of the courts which did not require the use of these devices. But business methods have changed with the increased volume of business, with the multiplication of methods to falsify and forge such papers, and with the ready means of protection now at hand by the use of the protectograph and special paper such as the defendant itself was in the habit of using. The failure to do this on this occasion is alleged to be the proximate cause of the forgery in this ease, and that it is directly traceable to this, negligence of the defendant. The demurrer should have been overruled and the facts determined on answer filed.
The defendant, if it desires, should have leave to file an answer and raise an issue of fact as to whether there was negligence on the part of the defendant which was the proximate cause, as a matter of fact. The court could not hold as a matter of law on the demurrer that upon the facts alleged in the complaint, and admitted by the demurrer, the defendant was not negligent.
We think the court below erred in sustaining the demurrer, and that, the complaint alleged a sufficient cause of action because:
(1) The defendant was in duty bound to exercise ordinary care, by using methods in general use, to so draw its cashier’s checks as to prevent their being materially altered with ease in a manner not to be detected by the exercise of ordinary care.
*481(2) That it was negligence in tbat tbe defendant did not nse either tbe “safety paper” or tbe mechanical check writer, which the demurrer admitted is used ordinarily by all banks, and which the demurrer admits that the defendant had habitually used, and that, relying upon that fact, the plaintiff had been led to, and did reasonably, rely upon the defendant doing so.
(3) Such negligence, upon the allegations in the complaint, which are admitted by the demurrer, was the proximate cause of the plaintiff’s injury and loss.
(4) The plaintiff’s refund to the drawee bank of the check actually paid was not a waiver or estoppel to prosecute its claim against the defendant since the plaintiff as an unqualified indorser was legally bound to make good such payment by the drawee bank.
(5) The plaintiff was subrogated to the right of the drawee bank against the defendant, and the money having been paid out by the drawee bank upon a mistake of fact could be recovered by the drawee bank against the plaintiff and the defendant is liable to make good the loss to the plaintiff for its negligence in drawing the $12,903 check, irrespective of its liability for its negligence in drawing the other cheeks, and is liable to repay to the plaintiff the sum of $15,000 received by the defendant under a mistake of facts, for it is estopped by its negligent conduct in inducing a belief on the part of the plaintiff of a state of facts which prevented it ascertaining the lack of genuineness of the $12,903 check.
This Court and all others have sustained the proposition in equity and good morals that whenever one of two innocent parties must suffer for the acts of the third, the one whose conduct has enabled such third person to occasion the loss must sustain it. Or to state it somewhat differently, as more applicable to this case: “Where one of two persons must suffer from the fraud or misconduct of a third person, he who by his negligent conduct made it possible for the loss to occur must bear the loss.”
The allegations in the complaint admitted by the demurrer fully charge, if taken to be true, that the proximate cause of the loss sustained by the plaintiff was the negligence of the defendant in failing to take the proper precautions used by all banks and large business houses in this day by the use of properly prepared paper and mechanical check writers to prevent the successful perpetration of the fraudulent alteration of the cashier’s checks issued by the defendant bank which precautions the complaint avers, and the demurrer admits, were not only in ordinary use by all banks, but were in regular use by the defendant bank itself. If the failure to do this was the proximate cause of the payment by the *482plaintiff, or its correspondent bank, of the cashier’s checks issued by the defendant, and which had been fraudulently altered and raised by the aforesaid negligence of the defendant bank, then the latter was liable as a matter of law.
The judgment sustaining the demurrer should be overruled, and the defendant should have leave to file an answer raising the issue of fact as to proximate cause to be passed upon by the jury. O. S., 546.