edge of his principal. The intent and knowledge of the principal was, as we have said, that of the officers who drew the checks, and they were wholly innocent of any intention of drawing checks to fictitious payees.

There is eminent authority to sustain the foregoing views. In Shipman v. Bank, 126 N. Y. 318, [22 Am. St. Rep. 821, 12 L. R. A. 791, 27 N. E. 371], the facts and contentions are practically identical with those of the case at bar. One Bedell, an employee of the plaintiffs and in charge of their real estate department, secured from time to time checks of the plaintiffs with which to pay parties whom Bedell represented were borrowing money from or through the plaintiffs. Some of these alleged borrowers were real persons, who were not, however, borrowing any money and to whom Bedell had no intention of delivering the checks. Others were nonexistent persons. The checks were in each case made payable to the order of the alleged borrower. Bedell, on receiving the checks, forged the names of the ostensible payees, and had the checks presented to the defendant bank on whom they were drawn, which paid them. The amount involved was very large, and the case was elaborately presented and argued by eminent counsel. In reply to the contention that the checks were payable to fictitious persons and therefore to bearer, the court said (126 N. Y. 330, 331, [22 Am. St. Rep. 821, 12 L. R. A. 791, 27 N. E. 374]):

"It is claimed by the defendant that the sixteen checks made payable to the order of persons having no existence were, in legal effect, payable to bearer. It is provided by statute that paper made payable to the order of a fictitious person and negotiated by the maker has the same validity 'as against the maker and all persons having knowledge of the facts, as if payable to bearer.' (1 R. S. 768, sec. 5.)

"We are of the opinion, upon examination of the authorities cited by counsel on both sides, that this rule applies only to paper put into circulation by the maker with knowledge that the name of the payee does not represent a real person. The maker's intention is the controlling consideration which determines the character of such paper. It cannot be treated as payable to bearer unless the maker knows the payee to be fictitious and actually intends to make the paper payable to a fictitious person. (Irving Nat. Bank v. Alley, 79 N. Y. 536; Turnbull v. Bowyer, 40 N. Y. 456, [100 Am. Dec. 523];

Vagliano v. Bank of England, L. R. 22 Q. B. D. 103; S. C. on appeal, 23 Q. B. 243; Armstrong v. Pomeroy Nat. Bank, 46 Ohio St. 512, [15 Am. St. Rep. 655, 6 L. R. A. 625, 22 N. E. 866]; 7 Railway and Corporation Law Journal, 114; Gibson v. Minet, 1 H. Black. 569.)

"The findings of the referee that the plaintiffs in good faith believed that the names of the payees represented real persons, entitled to receive from them the amount of the checks in each case, having been led to believe this by the fraudulent contrivance of Bedell, and that they intended that Bedell should deliver the check to a real payee therein named and that they did not intend that they should go into circulation or be paid by defendant otherwise than through a delivery to and indorsement by the payee named; and that plaintiffs gave no authority to Bedell to indorse the name of the payee, or to put the checks into circulation, and that no one in fact relied on any appearance of authority, derived from the plaintiffs, in Bedell to indorse the payee's name upon the checks or to put them in circulation, disposes of this question. The indorsement of the names of the fictitious payees upon the checks, with intent to deceive and to put the checks in circulation, constituted the crime of forgery by means of which, and without any fault of the plaintiffs, payment was obtained thereon. The defendant does not occupy any different position with reference to the checks payable to fictitious payees than it does with reference to those payable to real parties whose indorsements were forged.

"Bedell of course knew that the payees were fictitious, but he was not acting within the scope of his employment, but in carrying out a scheme of fraud upon the plaintiffs, and under such circumstances his knowledge cannot be imputed to his principals. (Frank v. Chemical Nat. Bank, 84 N. Y. 209, [38 Am. Rep. 501]; Weisser v. Denison, 10 N. Y. 68, [61 Am. Dec. 731]; Welsh v. German American Bank, 73 N. Y. 424, [29 Am. Rep. 175]; Cave v. Cave, L. R. 15 Ch. Div. 643, 644.)"

Identical facts and contentions also appear in Jordan Marsh Co. v. National Shawmut Bank, 201 Mass. 397, 408, [87 N. E. 740, 743, 22 L. R. A. (N. S.) 250]. Upon the point under immediate discussion the court said:

"The question arises whether the making of a check payable to a fictitious or nonexisting person, through neg

ligent failure to discover the fraud by which the check is obtained, stands differently from making a check to an actual person, in reference to its effect upon payment by the defendant. We are of opinion that there is no difference in law. In either case it is the duty of the bank to see that there is a genuine indorsement. In some respects it would be more difficult to deceive a bank in this particular, as against vigilant investigation, if the payee was fictitious than if he were real. In some respects it might be less difficult. We know of no decision that has recognized a difference in law between the two cases. It has been held that there is no difference. (Armstrong v. National Bank, 46 Ohio St. 512, [15 Am. St. Rep. 655, 6 L. R. A. 625, 22 N. E. 866].)”

To the same effect is United States v. National Bank of Commerce, 205 Fed. 433, [123 C. C. A. 501].

The bank's counsel rely largely to sustain their position upon two decisions, Phillips v. Mercantile Nat. Bank, 140 N. Y. 556, [37 Am. St. Rep. 596, 23 L. R. A. 584, 35 N. E. 982], and Snyder v. Corn Exchange Bank, 221 Pa. St. 599, [128 Am. St. Rep. 780, 70 Atl. 876]. The facts in these two cases were much the same as those in the case at bar, with a very important exception, viz., that the dishonest employee had authority to draw checks and did himself draw the very checks in question. In both cases the decision is put upon this ground and on this ground distinguished from Shipman v. Bank, 126 N. Y. 318, [22 Am. St. Rep. 821, 12 L. R. A. 791, 27 N. E. 371].

As to the third defense, that the plaintiff was guilty of negligence which induced or contributed to the payment of the checks by the bank, the only negligence claimed is in the officers of the plaintiff signing the checks on the false demands or requisitions of Emory, and in the failure of the plaintiff to discover the forgeries more promptly. The lower court found such negligence, and it is urged upon us that the question being one of fact is concluded on appeal by such finding. This is not true, of course, if there is no conflict in the evidence (and there is none), and the conclusion of negligence is one which cannot reasonably be drawn from the probative facts put in evidence. We are much inclined to the opinion that negligence cannot be reasonably inferred from the probative facts in this case. The company had rather an elaborate system of approving, checking, and enter

CLXXX Cal.--39

ing demands before checks were drawn to pay them. It was, as we have said, very similar to the systems found in other large corporations. Complaint is chiefly made that the company relied upon the honesty of its heads of departments and the regularity on their face of the demands or requisitions which such heads approved, and made no investigation to determine whether such demands were fraudulent or not. But trust must be placed in someone (Kohn v. Sacramento etc. Co., 168 Cal. 1, [141 Pac. 626]; The Yamato v. Bank of Southern California, 170 Cal. 351, [149 Pac. 826]), and necessarily in heads of departments. If trusting them in regard to demands for checks for disbursements regular upon their face is negligence, so it would be negligence to trust them in a hundred other ways in which it is within their power to defraud their employer. Business could not be conducted on any such basis. It is impossible for any large concern to investigate minutely in advance every demand for disbursement necessary for it to make in its daily business. The delay and expense of so doing would be too great.

[5] But however this may be, even if the company were guilty of negligence in signing the checks upon the fraudulent demands of Emory, it is plain that such negligence did not contribute to or induce the acceptance by the banks of the forged indorsements. The forgery of the indorsements was entirely distinct from the issuance of the checks on false demands, and there was no relation between them. This is clearly shown by the fact that Emory could just as easily have forged indorsements on and secured the payment of checks issued on genuine demands, and in fact did so in one instance.

This point also is discussed in Jordan Marsh Co. v. National Shawmut Bank, supra, and the matter is there summed up as follows (201 Mass. 408, [22 L. R. A. (N. S.) 250, 87 N. E. 742]): "But the whole duty of seeing whether there is a forgery of such an indorsement upon any check rests primarily upon the banker. The drawer of the check has nothing to do with that. Ordinarily, he makes no representation that has any relation to it. In the case just supposed he made no representation in regard to it. The checks payably to the order of A. L. Sefton, which she did not indorse, were wrongly paid, and the defendant's liability for payment is like that for the payment of any other check bearing such a forged

indorsement. The plaintiff had nothing to do with the payment, or with the defendant's performance or nonperformance of its duty to see that payment was made to the right person. There are many cases that illustrate the rule that negligence of the maker is immaterial unless it is of a kind that directly and proximately affects the conduct of the banker in the performance of his duties. (Citing many cases.)"

The other particular in which it is claimed that the plaintiff was negligent is, as we have said, that the plaintiff did not examine more carefully the canceled checks as they were returned to it, and discover the forgeries earlier. The plaintiff did indeed make some examination of the returned checks to see that the indorsements were regular. [6] But a depositor is not bound to examine the indorsements on returned checks. He is bound within a reasonable time to ascertain the genuineness of the checks themselves (Janin v. London etc. Bank, 92 Cal. 14, [27 Am. St. Rep. 82, 14 L. R. A. 320, 27 Pac. 1100]), but as to indorsements, the rule and its reason are correctly stated in Shipman v. Bank, supra.

"The defendant's contract was to pay the checks only upon a genuine indorsement. The drawer is not presumed to know, and in fact seldom does know, the signature of the payee. The bank must, at its own peril, determine that question. It has the opportunity, by requiring identification when the check is presented, or a responsible guaranty from the party presenting it, of ascertaining whether the indorsement is genuine or not. When it returns the check to the depositor, as evidence of a payment made by his direction, the latter has the right to assume that the bank has ascertained the fact to be that the indorsement is genuine. (Weisser v. Dennison, 10 N. Y. 68, [61 Am. Dec. 731]; Welsh v. German American Bank, 73 N. Y. 424, [29 Am. Rep. 175]; Frank v. Chemical Nat. Bank, 84 N. Y. 209, [38 Am. Rep. 501]; First Nat. Bank v. Whitman, 94 U. S. 347, [24 L. Ed. 229]; Leather Mfg. Bank v. Morgan, 117 U. S. 107, [29 L. Ed. 811, 6 Sup. Ct. Rep. 657, see, also, Rose's U. S. Notes].)" (See, also, Jordan Marsh Co. v. National Shawmut Bank, supra; United etc. Co. v. Central etc. Bank, 185 Pa. St. 586, [40 Atl. 97]; German etc. Bank v. Citizens' etc. Bank, 101 Iowa, 530, [63 Am. St. Rep. 399, 70 N. W. 769]; Guaranty etc. Co. v. Lively (Tex.