dissenting.
On 31 January 1975, this Court, without a dissenting vote, held the Bank entitled to recover from the defendant Gill, as Custodian of the State Indemnity and Guaranty Fund, and from the defendants Woodcock and Insurance Company of North America, the surety on Woodcock’s fidelity bond, the liability of Woodcock and his surety being primary and that of the State Indemnity and Guaranty Fund secondary. Trust Co. v. Gill, State Treasurer, 286 N.C. 342, 211 S.E. 2d 327.
Today, after nearly three years of further consideration and research, the present majority opinion “withdraws” that decision without finding a single legal principle stated therein erroneous and affirms the judgment of the Superior Court. Thus, this Court now holds, not only that the Bank cannot recover from the State Indemnity and Guaranty Fund, but cannot even recover from Woodcock, the actual perpetrator of the fraud, and the surety on his bond.
A judgment against Woodcock, himself, may or may not presently be uncollectible, but the' Bank is entitled to it and to pur*191sue its remedy against his surety. The majority opinion speaks repeatedly, and correctly, of Woodcock’s fraud in issuing the warehouse receipts for which the Elevator had received no grain. Whom did Woodcock defraud? The Bank, of course. He issued the receipts for the purpose of having them delivered to the Bank in exchange for then outstanding receipts held by the Bank, the validity of which such other receipts in the hands of the Bank is unquestioned. That purpose was accomplished and those previously outstanding receipts Woodcock caused to be cancelled. Thus, the Bank was damaged by Woodcock’s fraud. Yet the majority opinion holds, it cannot even recover from Woodcock. It is elementary that one damaged by fraud perpetrated upon him by another may recover his damages from such fraudulent party. Brooks v. Construction Co., 253 N.C. 214, 116 S.E. 2d 454 (1960); Buick Co. v. Rhodes, 215 N.C. 595, 2 S.E. 2d 699 (1939); Frick Co. v. Shelton, 197 N.C. 296, 148 S.E. 318 (1929).
Of course, it is true that where parties to a transaction are in pari delicto neither can recover from the other. Bledsoe v. Lumber Co., 229 N.C. 128, 48 S.E. 2d 50 (1948); Byers v. Byers, 223 N.C. 85, 25 S.E. 2d 466 (1943); Bean v. Detective Co., 206 N.C. 124, 173 S.E. 5 (1934). However, the majority opinion does not say the Bank was in pari delicto with Woodcock, but only that it was so-careless it must be deemed to have taken the wrongfully issued receipts in bad faith. Woodcock, himself, testified the Bank did not know there was not enough grain in the Elevator to support the receipts at the time they were delivered to the Bank. There was no testimony in conflict with this statement by him. As I shall show below, the surrounding circumstances compel the conclusion that the Bank did not know the new receipts were spurious when it received them. Exceedingly gullible the employees of this local branch of the Bank may have been (and I think they were), but there is no evidence whatsoever which would support a finding that the Bank was in pari delicto with Woodcock. Thus, the Bank, having been damaged by Woodcock’s wrongful issuance of the receipts (for which he has served a prison sentence) and his fraudulent transfer of them to the Bank in exchange for receipts valid in the hands of the Bank, is clearly entitled to recover from Woodcock and the surety on his bond and, to this extent, at least, the Superior Court was in error and so is the present majority opinion.
Let us turn now to the more important question — the right of the Bank to recover from the State Indemnity and Guaranty Fund. It is my opinion that the present decision results in injustice and *192throws the law into confusion by ignoring the established principle of law to the effect that a principal for whose benefit an agent acts without authority ratifies the act and is bound thereby if, with knowledge of the improper act of the agent, he accepts the benefit obtained for him thereby by the agent. That was the basis for our former decision. In my view, it still requires that result in this case. The present majority opinion does not mention the law of ratification or show its inapplicability to this case.
The Elevator and the Southeastern Farmers Grain Association, Inc. (hereinafter called Southeastern), are two distinct and separate entities. The Elevator, a unit of the State Warehouse System, was the warehouseman, Woodcock its agent. The Elevator was short of grain with which to meet then outstanding receipts valid in the hands of their holders. Consequently, the Elevator was faced with forced closure. Solely for the purpose of avoiding this, Woodcock issued, without authority, receipts for non-existent grain. These he caused to be transferred to the Bank, receiving in exchange previously issued receipts valid in the hands of the Bank. He then cancelled those previously issued receipts. That discharged the Elevator’s liability on those receipts.
Now, the Elevator (the State Indemnity and Guaranty Fund) says to the Bank, in effect: “We are not liable to you on the new receipts because they were issued without authority and we are not liable to you on the old receipts, which our agent procured from you in exchange for the new ones, because wé have cancelled them.” This the Elevator cannot do, because when, with full knowledge of Woodcock’s acts, it took back and cancelled the previously outstanding receipts, the Elevator ratified Woodcock’s issuance of the new ones on which the Bank now claims. Thus, the liability of the Elevator (and the State Indemnity and Guaranty Fund) is the same as it would be if Woodcock had been expressly authorized by the Elevator to issue the receipts upon which the Bank now claims.
In their petition for rehearing, the defendants assert two grounds for reconsideration and reversal of our original opinion. First, they assert that our original opinion is in conflict with G.S. 25-7-504, a provision of the Uniform Commercial Code, in that, in disregard of the Official Comment upon that section of the Code, we applied “the doctrine of equitable estoppel” to “enlarge the rights of a transferee [without due negotiation] of a document of title beyond the rights provided by G.S. 25-7-504.” Second, they assert that our original opinion impairs the commercial usefulness of warehouse *193receipts by exposing the holder to the risks of equities in favor of others.
The present majority opinion does not refer to or rest upon either of these two asserted grounds for withdrawing our former decision. In this, the present majority opinion is correct, for each of these bases on which rehearing was sought and allowed is completely unsound.
The latter of the defendants’ contentions is patently without any semblance of foundation in fact or law. How could the commercial usefulness of warehouse receipts be impaired by a decision permitting a transferee thereof to enforce such a receipt against the warehouseman? It is the present majority opinion, not our former decision, which impairs the commercial usefulness of warehouse receipts, but that circumstance, in and of itself, is not the basis of my dissent.
An examination of our former opinion will disclose the defendants’ other asserted ground for its reconsideration and withdrawal is equally without any foundation. Our former opinion makes no reference whatever to estoppel except a single statement to the effect that the Bank asserted that the Elevator was “estopped to challenge the validity of the 13 new receipts in the hands of the Bank.” No reference whatever appears in our former opinion to any principle of equity except with respect to the right of the Bank to obtain reformation of the receipts for a mistake in the drafting thereof, a matter relating only to the amount of the Bank’s recovery, not to its right to proceed against the warehouseman, and so against the State Indemnity and Guaranty Fund, and a matter not reached or dealt with in the present majority opinion. Our former decision, that the Bank can so proceed successfully, was placed neither on the ground of estoppel nor on principles of equity but on the ground of ratification by the warehouseman of an act of its agent through acceptance by the warehouse of benefits derived therefrom with knowledge of the circumstances. Ratification by a principal of an unauthorized act of his agent is, of course, a doctrine of the common law, not of equity.
The Uniform Commercial Code provides in G.S. 25-1-103:
“Supplementary general principles of law applicable.— Unless displaced by the particular provisions of this chapter, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and *194agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.” (Emphasis added.)
It has been said that this section “is probably the most important' single provision in the Code.” White and Summers, Uniform Commercial Code (1972), § 1, p. 6.
The right of the Bank to recover from the Elevator (the warehouseman), and so from the State Indemnity and Guaranty Fund, does not stem from the transfer of the 13 new receipts to the Bank by Southeastern, which transfer was otherwise than by due negotiation. It stems from what the Elevator did after that transfer — the. acceptance by the Elevator from its agent, Woodcock, of the old receipts (previously held by the Bank and valid in its hands) and its cancellation of those receipts with full knowledge of how its agent, Woodcock, obtained them from the Bank. It is this act of the warehouseman which lifts the right of the Bank under the new receipts above the right thereunder of its transferor, Southeastern. Neither G.S. 25-7-504 nor the Official Comment thereto (relied upon by the defendants in their petition for rehearing, though not by the present majority opinion) is in conflict with our original decision that a warehouseman, who, after such a transfer of a receipt, issued by his agent without authority, accepts, with full knowledge of the circumstances, the proceeds of the previously unauthorized receipt, thereby ratifies the issuance of the receipt and becomes liable thereon to the transferee. The Uniform Commercial Code does not deal with that situation. Consequently, as the Code expressly provides in G.S. 25-1-103, “The principles of law and equity, including * * * principal and agent * * * supplement its provisions” and provide the rule for the decision of this controversy.
Clearly, as we held in our former decision, the Superior Court’s Finding of Fact Number 41 is not supported by the evidence. That Finding (summarized) is:
41. The plan whereby Southeastern delivered to the Bank the 13 new, fraudulent warehouse receipts in exchange for the surrender by the Bank of the 16 old warehouse receipts was not intented to and did not in fact promote the interest of the Elevator. Since Southeastern had already caused the grain represented by these receipts to be delivered by the Elevator, Southeastern was obligated to surrender the receipts for cancellation and when the Elevator obtained possession of such *195receipts “it had a perfect right to cancel them on its records.” The Elevator did not benefit from the cancellation of these receipts.
On the contrary, the Elevator, and the Elevator alone, was intended to be benefited and was benefited by the consummation of Woodcock’s fraud on the Bank. Southeastern’s obligations were not diminished one particle. It is not contended that the 16 old receipts, now cancelled, were not held by the Bank by due negotiation. Therefore, in the hands of the Bank, these were valid, enforceable obligations of the Elevator to deliver grain, irrespective of the fact that the Elevator had already shipped out all the grain represented thereby. Consequently, while the Bank held those receipts, the Elevator’s delivery of such grain gave it no right whatever to cancel those receipts. Those receipts were obtained from the Bank by Woodcock’s fraud. With full knowledge of this fraud, the Elevator accepted the receipts so obtained and cancelled them, thus eliminating its previous obligation to deliver grain upon their presentment. This is Woodcock’s uncontradicted testimony on that point:
“[Mrs. Carlton] was instructed to deliver this check to Branch Banking and Trust Company on May 6,1970, to pick up sufficient warehouse receipts, or a number of warehouse receipts. To pick up a quantity of receipts to cancel for the Warehouse Examiner. The purpose of having her pick up these receipts and having them cancelled for the Warehouse Examiner was as related in the statement I just read. The Examiner was there and we needed them for his audit. We needed them for his audit because the warehouse was short of grain. If we could cancel the receipts that would reduce the amount of grain that the Elevator was charged as having outstanding.” (Emphasis added.)
Contrary to the finding and conclusion of the Superior Court, the Elevator had, as against the Bank, no right whatsoever to cancel the old receipts, except through ratification of Woodcock’s issuance of the new receipts for delivery to the Bank in lieu of the old ones. Thus, as between the Bank and the Elevator, the new receipts must be deemed authorized by the Elevator and its binding obligations to deliver grain.
The State Warehouse Superintendent signed each of these new receipts in blank before it was filled out and completed and, in this condition, turned it oyer to Woodcock, thus putting it in the power *196of Woodcock to complete the receipt and issue it when and as Woodcock saw fit to do so. While I do not rest my dissent on this circumstance, I am constrained to observe that it was this action of the State Warehouse Superintendent in entrusting these receipts, so signed in blank by him, to the local manager of the warehouse, known by the Superintendent to be also the managing officer of an association whose business was the buying and selling of grain, to which association the warehouse manager habitually issued receipts purporting to represent grain stored in the warehouse, which made it possible for these receipts to be issued by Woodcock when no grain had been deposited in the Elevator. It would hardly be surprising if a continuation of such careless practice by the State Warehouse Superintendent should result in continuing depletions of the State Indemnity and Guaranty Fund. For reasons best known to itself, certainly not understood by me, the Bank elected to abandon its appeal from the judgment denying it any recovery from the State Warehouse Superintendent and the surety on his bond, so that question is not presently before us.
Each of these receipts, so signed by the State Warehouse Superintendent and by Woodcock, states upon its face, “The State of North Carolina guarantees the integrity of this receipt.” What does that mean? Surely, the integrity of the receipt means that the Elevator has received and holds the grain described therein and will hold it until the receipt is presented to it by the holder thereof and will thereupon deliver that grain pursuant to the holder’s direction. That the State of North Carolina guaranteed. That is the guaranty the Bank is suing to enforce.
G.S. 106-435 created the State Indemnity and Guaranty Fund. G.S. 106-441 provides, “[T]he receipts issued under this section for cotton and other agricultural commodities shall be supported and guaranteed by the indemnity fund provided in § 106-435.” Thus, the extent of the State’s guaranty of the “integrity” of these receipts is the right of recourse to the said fund. That is all the Bank seeks in this case. As we said in our former decision, the State’s liability upon this guaranty is secondary to the liability of the Local Manager of the Warehouse (Woodcock) and that of the State Warehouse Superintendent and the sureties on their bonds. See: Ellison v. Hunsinger, 237 N.C. 619, 75 S.E. 2d 884 (1953); Lacy v. Indemnity Co., 193 N.C. 179, 136 S.E. 359 (1927); Lacy v. Indemnity Co., 189 N.C. 24, 126 S.E. 316 (1925). Obviously, it is also secondary to the liability of the warehouseman (the Elevator).
*197The Uniform Commercial Code, G.S. 25-7-203, provides-
“Liability for non-receipt or misdescription. — A party to or a purchaser for value in good faith of a document of title other than a bill of lading relying in either case upon the description therein of the goods may recover from the issuer damages caused by the non-receipt or misdescription of the goods [with specified exceptions not applicable to the present case.]” (Emphasis added.)
The Official Comment upon this section of the Code states:
“The issuer is liable on documents issued by an agent, contrary to instructions of his principal, without receiving goods. No disclaimer of the latter liability is permitted.” (Emphasis added.)
In White and Summers, Uniform Commercial Code, § 20-4, p. 690, it is said:
“When one reads [§ 7-203] together with the Code definition of issuer, the Code imposes liability for nonreceipt on a warehouseman ‘for whom an agent or employee purports to act in issuing a document if the agent or employee has real or apparent authority to issue documents, notwithstanding that the issuer received no goods.’ (§ 7-102(l)(g)). This is a salutary departure from pre-Code law in such states as Massachusetts which permitted the issuer to escape liability for nonreceipt where the issuer’s agent, having authority to issue receipts, issued a receipt for goods not delivered. It should be noted, too, that the warehouseman’s liability runs only to ‘a party or purchaser for value in good faith of a document of title * * * relying in either case upon the description therein.’ ”
I think it obvious that the State’s guaranty of the “integrity” of the 13 receipts now held by the Bank is not intended to extend to Southeastern, the party to whom they were issued, for Southeastern necessarily knew no grain had been delivered by it, or for its account, to the Elevator. I think it equally obvious that the State’s guaranty of the “integrity” of these receipts is not intended to extend to a transferee of them, if that transferee did not purchase them for value and in “good faith,” as that term is used in the Uniform Commercial Code, but it does extend to a transferee of these receipts if the transferee purchased them for value and in “good faith,” as that term is used in the Code.
*198Clearly, the Bank purchased these 13 receipts for value, having surrendered to Southeastern in exchange therefor 16 other receipts the validity of which, in the hands of the Bank, has never been questioned. Thus, the right of the Bank to recover from the State Indemnity and Guaranty Fund on account of these 13 receipts depends upon whether the Bank took them “in good faith,” as that term is used in the Uniform Commercial Code. The present majority opinion holds the Bank did not do so. This is where I respectfully part company with the present majority so far as the Bank’s right to recover from the State Indemnity and Guaranty Fund is concerned.
It should be observed that the liability imposed by the Uniform Commercial Code (G.S. 25-7-203) upon the warehouseman (the Elevator), and so upon the State as guarantor of the “integrity” of the receipt, when the receipt was issued without any such goods being deposited in the warehouse, runs to “a purchaser for value in good faith.” This section of the Code does not require that such purchaser take by “due negotiationi.e., that he be an indorsee of the receipt. The Code, itself, defines “good faith” as that term is used throughout the Code. It expressly states: “ ‘Good faith’ means honesty in fact in the conduct or transaction concerned.” (Emphasis added.) G.S. 25-1-201(19).
Woodcock testified that the Bank did not know the Elevator was short on corn when the arrival of the State Inspector precipitated his fraudulent issuance of these receipts. A careful study of the voluminous record has revealed to me no testimony of any witness to the contrary. Woodcock’s testimony is strongly corroborated by the circumstances.
The record clearly shows these circumstances:
(1) The “transaction concerned” began with the unexpected arrival of the State Inspector at the Elevator on 5 May 1970. Nothing indicates it was contemplated earlier, even by Woodcock, certainly not by the Bank.
(2) At that time the Elevator did not have in its facilities enough grain to meet its previously issued and outstanding receipts. Woodcock knew this. The Bank did not.
(3) From 10 February 1970 to 5 May 1970, the Elevator had delivered, pursuant to Southeastern’s directions, huge quantities of grain, for which receipts were outstanding, without requiring surrender of such receipts. Woodcock knew this. The Bank did not.
*199(4) The Elevator was a unit of the State Warehouse System. It engaged in no other business. It did not buy and sell grain. Southeastern was its principal customer. It does not appear that the Elevator was indebted to the Bank or was a customer of the Bank.
(5) For many months prior to 5 May 1970, the Bank, acting through Craven Brewer, Manager of its local branch, conducted banking transactions with Southeastern with an amazing degree of laxity and disregard of what would seem to be elementary principles of good banking, permitting huge overdrafts to remain unpaid for. long periods of time and making very large loans in addition. Thus, the Bank knew Southeastern — not the Elevator — was in a precarious financial condition. These banking transactions are not, however, the “transaction concerned.”
(6) On 5 May 1970, when the “transaction concerned” was precipitated by the arrival of the inspector at the Elevator, Southeastern — not the Elevator — was indebted to the Bank on its notes in the total amount of $545,424. There were then no overdrafts. These notes were secured by pledges by Southeastern of receipts issued by the Elevator, which receipts the Bank had acquired by due negotiation and which were, therefore, valid and enforceable by the Bank against the Elevator and the State Indemnity and Guaranty Fund. Nothing whatever indicates that the security so held by the Bank was not fully adequate to cover these notes.
(7) When the “transaction concerned” began, and throughout it, Craven Brewer, who had conducted the previous transactions with Southeastern, who had permitted the former overdrafts (eliminated prior to the “transaction concerned”) and who had made the loans represented by the notes so held by the Bank, was absent on military duty.
(8) The Bank refused to permit Woodcock to take “for the inspector’s examination” the receipts it then held, until the notes they secured were paid, and refused to accept another overdraft in payment of the notes.
(9) Thereafter, the Bank surrendered to its customer (Southeastern) the receipts of the Elevator, previously so pledged to the Bank, in exchange for Southeastern’s new note and the pledge of 13 new receipts issued by the Elevator. This is the “transaction concerned.” According to Woodcock’s uncontradicted testimony, the Bank did not then know the Elevator was short of grain.
*200(10) Southeastern surrendered the receipts it so obtained from the Bank to the Elevator, which cancelled them with full knowledge as to how they were obtained from the Bank.
(11) The Bank, by the “transaction concerned,” had no purpose to improve its own position and could not possibly have done so. Prior thereto, the Bank held notes, fully secured, of a debtor it knew to be in precarious financial condition. It knew of no shortage at the Elevator. It surrendered those papers in exchange for like notes, secured, as it thought, by like receipts of like validity. Had the new receipts been supported in full by grain in the Elevator, the Bank’s position would not have been one whit better than it was prior to the “transaction concerned.” The Bank’s sole apparent purpose was to accommodate its customer (Southeastern) without changing, in the slightest degree, its right to payment of the latter’s indebtedness to it or the security it held therefor.
I see in these facts no indication that the Bank lacked “honesty in fact in the transaction concerned” —the only requirement, according to the express provision of the Uniform Commercial Code, for its qualification as a purchaser “in good faith” of the 13 new receipts.
This Court has the advantage of three years’ perusal and re-perusal of hundreds of pages of testimony. The local employees of the Bank, who handled the “transaction concerned,” did so in connection with their other duties, in a short space of time during a single banking day. Looking backward, we see Woodcock has been convicted of criminal fraud in the “transaction concerned.” That morning, however, he was a respected businessman in the community and was so regarded by the employees of the Bank. We now know the Elevator was short of grain at the time of the “transaction concerned.” Woodcock testified the Bank’s employees did not know that. Looking backward, it is apparent they were gullible, but most victims of fraud are gullible, at least at the time of the fraud, and gullibility is not dishonesty in fact. Only lack of “honesty in fact” by its employees will prevent the Bank from being a purchaser of these receipts “in good faith,” and so justify denial of the Bank’s recovery from the State Indemnity and Guaranty Fund.
Surely, the Bank’s local manager, Brewer, had been exceedingly lax in his conduct of past banking transactions with Southeastern, but those overdrafts had been paid when the “transaction concerned” took place — in Brewer’s absence.
To be sure, one who wilfully shuts his eyes so that he will not see fraud by a transferor of commercial paper (or other property) *201cannot thereby qualify as a purchaser “in good faith,” but I see no evidence of the Bank’s employees so shutting their eyes when they exchanged papers with Southeastern’s emissary. That situation is usually found where the purchaser is seeking to grasp for himself an advantage, as where he seeks to buy something for far less than its true value and for fear of losing a good bargain shuts his eyes to its history. As above noted, in the “transaction concerned,” the Bank would not have gained anything whatever by the exchange had the Elevator been bursting at its seams with corn.
The majority opinion speaks of credulity. In my view, to conclude that a bank, holding the note for more than $500,000 of a debt- or it knows to be in precarious financial condition, which note is fully secured by a pledge of warehouse receipts completely enforceable by the bank, would, without any purpose or hope of gain thereby, give up that security in exchange for receipts it knows to be spurious, or even suspects to be spurious, taxes credulity beyond the breaking point. The circumstances of the exchange of the valid, old receipts for the spurious new ones fully corroborate, in my judgment, Woodcock’s uncontradicted testimony that the Bank did not know the Elevator was short of grain.
The majority’s present decision enables Woodcock, the defrauder, and his surety to go free of liability and the State to renege on its express guaranty of the “integrity” of these receipts. It prevents a purchaser for value and in good faith of the guaranteed receipts from reaching the Indemnity and Guaranty Fund which was set up for this very purpose. I, therefore, am of the opinion that we should adhere to our former decision.