SECURITY–FIRST NAT. BANK OF LOS ANGELES v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N.
There are two defendants in this action, but, since the defendant bank only is before us on this appeal, the word “defendant” where hereinafter used refers to it only, unless otherwise indicated. The plaintiff issued certain checks drawn upon itself, which came to the defendant upon forged indorsements. The defendant impressed its clearing house stamp upon these checks, presented them to plaintiff through the clearing house and obtained payment. This stamp included the words, “all prior endorsements guaranteed,” and plaintiff brings this action to recover on that guaranty. Judgment went for plaintiff and defendant appeals.
The checks in question were drawn and signed in plaintiff's trust department, and purported to be made for payments due from trusts held by it, to the order of a person named L. W. Bobbitt. Plaintiff had in its trust department several divisions, including an accounting division, the head of which was the other defendant, Ellis, who had no official title. All of these checks were false and fictitious checks written by Ellis, but not signed by him he having no authority to sign checks for plaintiff, and none of them represented any actual payment due from plaintiff. After they were signed Ellis obtained possession of them, indorsed the name of L. W. Bobbitt upon them and deposited them in an account he had opened with defendant bank, at one of its Los Angeles branches, in the name of Bobbitt. Ellis then drew the money out of defendant bank, on checks to which he signed Bobbitt's name, and used it himself. In dealing with defendant bank Ellis did not pose as Bobbitt, but as the latter's agent, making all of the signatures except the first indorsement before presenting them to the bank. There was such a person as L. W. Bobbitt known to Ellis, but he did not live in California had nothing to do with these acts of Ellis, knew nothing of them, had no interest in the checks, was not intended by Ellis to have either the checks or the money procured on them, and did not in fact receive either.
The mode in which Ellis accomplished this defalcation is described in much detail in the record, but a brief statement of it here will suffice. In its trust department plaintiff had an assistant trust officer named Hadley, who was also an assistant secretary. He was referred to as a “signing officer” and his sole function was to sign checks and other papers and documents coming from the trust department. He signed from 800 to 1,500 of these various papers a day, and of course had no time to investigate the various transactions out of which they arose, to see if they were proper, and was not expected to do so, but acted on the assurances of others authorized to give them. When his signature on a check was desired, the check, fully made out, was presented to him, together with a “debit ticket,” which showed the name of the payee, the purpose for which the check was drawn, its amount and the number of the trust involved. At the bottom of it were also separate spaces headed respectively by the words “Prepared by,” “Authorized by,” “Signed by,” and “Funds O.K.” In these spaces initials or names of certain authorized persons were written by them. When a check and one of these tickets was presented to Hadley his custom, as he testified to it, was to look first to see if one of the authorized persons, of whom he had a list, had signed under “Authorized by,” and then “to see if the ‘Funds O.K.’ was initialed by a person having authority to so initial it; and then I examined the amount set forth in the ticket, and turned it over and examined on the check to see if it was protectographed in that amount; and then I initialed it under ‘Signed by’ and signed the check.” He did not look to see who the payee of the check was or what was the purpose of the payment or the name, purpose or number of the trust. It was physically impossible for him to do that work and the bank did not expect him to do so. Hadley naturally had no recollection of the checks involved here, but Ellis testified that he presented them to Hadley and that in signing them Hadley followed his custom as just stated. Ellis was one of the persons authorized to sign debit tickets in the places looked at by Hadley. Ellis personally wrote the checks in question and the debit tickets for them, initialed the latter and presented the checks to Hadley.
It is defendant's contention that under the circumstances above stated, the checks in question were payable to bearer, within the intent of section 3090 of the Civil Code. If this be so the checks could be negotiated by mere delivery, no indorsement being necessary for that purpose. Civ.Code, § 3111. Defendant's further contention that in such case defendant would incur no liability on its guaranty of indorsements appears to be conceded, and is correct. Union B. & T. Co. v. Security–First Nat. Bk., 1937, 8 Cal.2d 303, 310, 65 P.2d 355.
Section 3090 of the Civil Code, so far as material here, reads as follows: “The instrument is payable to bearer––* * * (3) When it is payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable * * *.” There is no doubt that, if Ellis' knowledge and intent are regarded as determinative, all the checks in question were payable to the order of a fictitious person, and this also, plaintiff concedes. While there was such a person as Bobbitt, Ellis did not intend that he should have any interest in the checks and he had in fact no rights in them. This is sufficient to make him a fictitious payee, if Ellis was the person making the checks so payable, within the meaning of section 3090. Union B. & T. Co. v. Security–First Nat. Bk., supra, 1937, 8 Cal.2d 303, 307, 65 P.2d 355. Of course the character of the payee in this respect was known to Ellis, but it was not known to Hadley, who believed all checks signed by him to be regular and genuine in all respects and had no information to the contrary, nor was it known to any person connected with plaintiff, other than Ellis. The question for decision on section 3090 therefore resolves itself into these two questions: Was Ellis the person making these checks “so payable,” or if not, was his knowledge on the subject chargeable to plaintiff?
It is now settled that “the person making it so payable,” within the meaning of section 3090 above quoted, is not always or necessarily the nominal maker of a check or other negotiable instrument. Union B. & T. Co. v. Security–First Nat. Bk., supra, 1937, 8 Cal.2d 303, 308, 65 P.2d 355; Goodyear Tire, etc., Co. v. Wells Fargo Bank, 1934, 1 Cal.App.2d 694, 702, 37 P.2d 483; Rancho San Carlos v. Bank of Italy, 1932, 123 Cal.App. 291, 295, 11 P.2d 424. In Union B. & T. Co. v. Security–First Nat. Bk., supra, the checks in question were cashier's checks of the plaintiff, issued at the request of an agent of one of plaintiff's depositors, made payable to persons named by him and delivered to him. He forged the payees' indorsements and obtained the money on the checks. It was held that regarding the payees named in the checks the plaintiff had no intent save that of following the agent's instructions and that since his intent was that fictitious payees be named, the checks were payable to bearer and plaintiff was not liable to the depositor for paying on forged indorsements, nor was defendant, the collecting bank, liable to plaintiff on its guaranty of indorsements. The faithless agent was named Williams and the court said on this point: “The intended fictitious payee was the creature of Williams' mind, and, while the appellant, Union Bank, was the nominal maker of the cashier's checks, still Williams was the person who actually drew the bill and was the person making the cashier's checks payable to a fictitious payee; and, since he acted within the scope of his authority, his act, intent, and knowledge, although adverse to and a fraud upon his principal, are nevertheless binding upon the latter.” 8 Cal.2d 309, 65 P.2d 358.
In Union B. & T. Co. v. Security–First Nat. Bk., supra, the court cited with approval Rancho San Carlos v. Bank of Italy, supra, and Goodyear Tire, etc., Co. v. Wells Fargo Bank, supra. In the Rancho San Carlos case the plaintiff delivered to an employee named Harris, who had no authority to sign its checks, several duly signed checks on defendant bank which were blank as to payees' names and amounts. This was done, according to custom, to enable Harris to pay plaintiff's bills. Harris filled out one of these checks for $10,000, naming as payee a real person who had no interest in it and was not intended by Harris to receive it, forged this payee's name and contrived to get the money. It was held that plaintiff, by delivering the blank checks to Harris, gave him authority to fill the blanks, and further, (at 123 Cal.App. 295, 11 P.2d 426): “It has been held that the words, ‘the person making it so payable,’ refer to the person who actually drew the check, whether he be the nominal maker or not [citing cases]; and in principle the same rule should apply where the person who actually makes the check payable is expressly or impliedly authorized to complete it in that manner.” For this reason it was held that the check was payable to bearer, under section 3090 of the Civil Code, and defendant bank was not liable to plaintiff as for payment on a forged indorsement.
In the Goodyear case, supra, 1934, 1 Cal.App.2d 694, 37 P.2d 483, the plaintiff sued to recover money which it had deposited in defendant bank and which the latter had paid out on duly signed checks of plaintiff. The plaintiff required two signatures on its checks, one of the authorized persons, Downs, being also its controller and in charge of its accounts. Downs wrote a number of checks to fictitious payees, representing no obligations of the corporation, and presented each of them to a cosigner, with or without supporting documents, sometimes signing it before and sometimes after the cosigner did. The cosigners signed the checks without investigation, depending on Downs and the system for assurance of their correctness. Downs then stole the checks, forged the payees' signatures and got the money they called for. It was held that these checks were, in contemplation of law, payable to bearer, and defendant was not liable to plaintiff on account of the forged indorsements. The court discussed the matter at great length and among other things said, at 1 Cal.App.2d 709, 37 P.2d 489: “On the facts of this case the cosigners of Downs were mere automatons. Their names on the instruments gave them no more validity than did the corporate name printed thereon. They had just as much general intent with reference to the instruments involved as their corporate employer, and no more. For all practical purposes their names as well as that of the corporation might have been printed upon the checks. It is difficult to understand why any unsurmountable legal barrier is created merely because on the facts in this case cosigners were required to affix and went through the motions of affixing their names at the time the checks were in the process of being drawn. If the cosigners had signed the checks in question in blank, then based upon every rule of reason and on the clear authority of the San Carlos case, supra, the checks were ‘bearer’ checks. It would be no answer to say that authority to sign in blank was not given, for the act of signing would be within the scope of the authority of the cosigners. The facts in this case establish beyond cavil that the cosigners did, as a practical matter, sign in blank.”
Under the facts of the case at bar Hadley was in substantially the same situation as that given to the cosigners of Downs in the case just quoted. Hadley did not even look at the names of the payees on a check and either he had no actual intent at all regarding them, or if he had any such intent it was, at most, to make the checks payable to the persons intended by Ellis, and was thus like that of the bank which issued the cashier's checks involved in Union B. & T. Co v. Security–First Nat. Bk. supra, 1937, 8 Cal.2d 303, 308, 65 P.2d 355. There must be an intent somewhere as to the payee to be named in a check and if the signer of the check has none that intent must be sought elsewhere. If the plaintiff should use a check writing machine by which signatures were mechanically placed on checks, without any attention to the contents of the checks by the persons whose signatures were thus placed on them, it is obvious that such persons would have no intent whatever in regard to such checks and the intent of those authorized to operate the machine would have to be considered. Here Hadley was, at least as to payees' names, a mere machine, devoid of intent, and the intent which determines the character of the check, on the question whether the payee's name is fictitious, must be that of the one who operated the machine, in this case, Ellis. As in the Goodyear case, supra, 1934, 1 Cal.App.2d 694, 37 P.2d 483, 490, the signature, though made after the payee's name was in the check, was “as a practical matter, * * * in blank,” and hence is subject to the rule of the San Carlos case, supra, 1932, 123 Cal.App. 291, 11 P.2d 424.
In opposition to this conclusion plaintiff cites and relies on Los Angeles Inv. Co. v. Home Sav. Bank, 1919, 180 Cal. 601, 182 P. 293, 5 A.L.R. 1193. The plaintiff there was a corporation doing an extensive business, with several departments. One of these, in charge of one Emory, as manager, made many disbursements by check. Emory had no authority to sign checks, and to obtain a check he prepared a demand showing the purpose of the payment and the person to whom it was to be made. This demand was sent to the accounting department where it was examined and if found correct a check was prepared and presented with the demand to the officers authorized to sign checks and the signed check was returned to Emory's department for delivery to the payee. Emory, like Ellis in this case, prepared fictitious demands, and one real demand, in favor of named persons, some of whom were fictitious and some real, got possession of the checks signed for these demands, indorsed the payees' names on them and thereby obtained the money payable on them. The checks were drawn on defendant bank and plaintiff sued to recover the amount paid on these forged indorsements. One of the defenses was that the checks were in law payable to bearer, because of Emory's intent regarding them, but the court said, at page 606, of 180 Cal., at page 295 of 182 P., 5 A.L.R. 1193, “Emory did not execute the checks on behalf of the company. It is the intention of the officers who did that must be taken to be the intention of the company. The execution of the checks was one within the scope of their authority, not within that of Emory. As to these officers, it is plain that they did not intend to execute checks to fictitious parties or to pay money to the person to whom Emory intended it should be paid, to wit, himself. They intended to pay money to what they believed to be existent persons, and this being so, the checks cannot be considered as made to fictitious payees.” This statement, while accurate enough as applied to the facts of that case, does not entirely conform to the later decisions just reviewed, and some limitation must be put upon it to bring it into such conformity. In that case an audit was interposed between Emory, who prepared the demands, and the officers who signed the checks, the purpose of which was to determine whether the checks were proper or not. The signing officers were not mere automatons but acted upon the results of such audit and it was quite proper to regard them as having an intent regarding the checks. But where the actual signer of the check has and in the nature of the operation can have, no intent at all as to the payee, as where he signs in blank (Rancho San Carlos v. Bank of Italy, supra, 1932, 123 Cal.App. 291, 11 P.2d 424) or complies with the request of another, with no intent except to do what is asked (Union B. & T. Co. v. Security–First Nat. Bk., supra, 1937, 8 Cal.2d 303, 65 P.2d 355), or is a mere automaton signing without intent (Goodyear Tire, etc., Co. v. Wells Fargo Bank, supra, 1934, 1 Cal.App.2d 694, 37 P.2d 483), it is obvious that the character of the check cannot be determined on his nonexistent intent, and the controlling intent is that of the person who, within the scope of his authority, fixes the name of the payee. In this case that person was Ellis. It must be understood that our decision is based on the system, which was so set up by plaintiff as to eliminate from the duty of Hadley, as the actual signer of a check, any consideration of its propriety, and particularly to relieve him from any necessity of even looking at the payee's name. If he had any duty in these respects, but performed it negligently or perfunctorily or even omitted to perform it at all on some particular occasion, a different result might follow.
The judgment is reversed.
SHAW, Justice pro tem.
SCHAUER, P. J., and PARKER WOOD, J., concur.