Cohen v. Lincoln Sav. Bank of Brooklyn

• Citation: 275 N.Y. 399,10 N.E.2d 457
• Parties: COHEN v. LINCOLN SAV. BANK OF BROOKLYN et al.
• Decision Date: 05 October 1937
• Court: New York Court of Appeals

275 N.Y. 399

10 N.E.2d 457

COHEN

v.LINCOLN SAV. BANK OF BROOKLYN et al.

Court of Appeals of New York.

Oct. 5, 1937.

Action by Lillian Cohen against the Lincoln Savings Bank of Brooklyn and others. From a judgment of the Appellate Division, First Department (250 App.Div. 702, 294 N.Y.S. 488), unanimously affirming a judgment of the Trial Term of the Supreme Court in favor of the plaintiff rendered after a trial before the court without a jury, the defendants appeal by permission.

Affirmed.

HUBBS, J., and CRANE, C. J., dissenting. Appeal from Supreme Court, Appellate Division, First Department.

I. Maurice Wormser, Allan C. Rowe, Paul E. Mead, and Bernard Fliashnick, all of New York City, for appellants.

Leo Guzik and Ephraim S. London, both of New York City, for respondent.

LEHMAN, Judge.

A check for $4,500, drawn upon Irving Trust Company by Lincoln Savings Bank to the order of the plaintiff, a depositor of the savings bank, was indorsed in blank by the plaintiff and handed by her to her husband, Samuel Goldberg, with authority to use the check in payment for the assignment to her of a half interest in an award of $10,000 made in proceedings for the condemnation of a parcel of real property. An attorney, William L. Abrams, had previously offered to sell the award to Goldberg at a discount. After some negotiations, they agreed that the sale should be made at a discount of 10 per cent. Goldberg at that time did not, so far as appears, know or care who was the owner of the award. What he wanted was, of course, a valid assignment by the owner of record of the award which Abrams had agreed to sell and he retained an attorney, Feinstein, to search the title so that he might know who the owner of record was.

On the day set for the closing, Goldberg, accompanied by this attorney, went to Abrams' office. There he met Kurtz, another attorney, who claimed that he represented the owner of the award. A man who came into the office a little later was introduced by Kurtz as Harry Wolter, the owner. Goldberg told Abrams that he was in a hurry and wished to leave. Abrams, Goldberg, and Goldberg's lawyer, Feinstein, then went into another room. Goldberg had arranged that the plaintiff, his wife, should buy and pay for half the award and Samli Building Corporation, of which he was president, the other half. He had checks from both in his possession. He handed them indorsed in blank to Abrams and said to him: ‘Assign these checks to the proper owner and deliver to Mr. Feinstein the assignment of the papers to be recorded.’ He saw Abrams write over the blank indorsements the words ‘Pay to the order of Harry Wolter.’ Then Goldberg left the office.

The man introduced as Harry Wolter was in fact an impostor named Dennis. He executed and acknowledged an assignment of the award in the name of Harry Wolter. It was a forgery and resulted in no transfer of title to any award. Because Goldberg, Feinstein, and Abrams believed that the stranger was Harry Wolter, the record owner of the award, and that his written assignment would pass good title to the award, the impostor received the checks which were payable only to the order of Harry Wolter. The impostor then indorsed the checks in the name of Harry Wolter and induced the defendant Jacoby to believe that he was in fact Harry Wolter, the payee named in the check obtained from the plaintiff, and to discount the check. Jacoby deposited the check in his own bank. Bearing Jacoby's indorsement as well as the indorsement of two banks, it was presented at the Irving Trust Company, upon which it was drawn, and there paid in due course. The fraud was revealed some months thereafter. The plaintiff has received nothing for her check because no assignment by Dennis could transfer title to an award for property belonging to Harry Wolter as record owner. Her account in the savings bank has been charged with the amount of the check which was intended as payment for an assignment from Harry Wolter and which was payable only to the order of Harry Wolter, though Harry Wolter never indorsed or transferred the check. She has recovered judgment for the amount so charged against her, upon a finding that the signature of Harry Wolter, placed upon the check by an impostor, who has no right to that name, is a forgery just as the same signature placed by the same impostor upon the assignment is a forgery. Under the judgment the loss must ultimately fall upon the impleaded defendant Jacoby who paid value for it.

The Negotiable Instruments Law (Consol.Laws, c. 38) provides (section 42): ‘Where a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party, against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority.’ In considering the effect of an indorsement made by one who falsely impersonates a payee named in a negotiable instrument, the courts have usually treated the statutory provision as a restatement of the common law and, at least, so far as concerns the problem as presented in this case, no distinction need be drawn.

We have said recently: ‘In determining whether there was a forgery the true test is whether or not the indorsement of the name of the payee was made by the person who was intended by the drawer to be the payee. If such person indorsed, there is no forgery.’ Halsey v. Bank of New York & Trust Co., 270 N.Y. 134, 138, 200 N.E. 671, 673. We apply that test here. It is indeed the test which is almost universally applied in determining whether there has been a forgery. It is to be noted, however, that both at common law and under the statutory rule a signature which is ‘forged or made without authority of the person whose signature it purports to be’ may not be wholly ‘inoperative,’ but, on the contrary, may confer a right against a party to a negotiable instrument if ‘the party, against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority.’ A distinction between a case where there has been no forgery or want of authority and a case where a party against whom it is sought to enforce a right is ‘precluded from setting up the forgery or want of authority’ seldom carries any practical consequences; and the courts may at times ignore distinctions in thought which carry no practical consequences. Thus sometimes a confusion seens to creep unnoticed into many opinions which discuss the effect of a signature on a negotiable instrument made by a party who has been given possession of the instrument but is not named therein. The question of whether a challenged indorsement of the name of the payee has been made by the person who was intended by the drawer to be the payee then becomes obscured and confused with the question of whether a party against whom a right is asserted is ‘precluded’ from setting up the forgery.

Where a person has been induced by fraud to draw a check to the order of an existing person, whose name and identity has been fraudulently assumed by another, and to deliver the check to the impostor, it has been held by most courts that an indorsement by the impostor is not a forgery and the bank upon which it is drawn may pay it upon such indorsement. ‘This result may be reached in several ways, none of which is without difficulty.’ See McKeehan, The Negotiable Instruments Law, 41 American Law Register (N.S.) 499, 503, reprinted in Brannan's Negotiable Instruments Law (2d Ed.) pp. 220, 247, 248. In that article the author says: ‘As a matter of fact, the courts base their decision on the first ground, namely, that the bank has merely carried out the drawer's intent. Here and there an expression may be singled out which seems to countenance one or more of the other views [negligence, estoppel, etc.], but a fair reading of the opinions shows that one idea dominates nearly all of them, namely, that the money has been paid to the person for whom it was really intended. The reasoning is briefly this: A man's name is the verbal designation by which he is known, but the man's visible presence affords a surer means of identification. C. was deceived as to the man he was dealing with, but he dealt with and intended to deal with the visible man who stood before him, identified by sight and hearing. Thinking that this man's name was B., he drew the check to B.'s order intending thereby to designate the person standing before him; so the bank has simply paid the money to the person for whom it was intended.’ Cf. Halsey v. Bank of New York & Trust Co., supra.

An academic legal problem may be greatly simplified by excluding, in its formulation, all facts which might introduce conflicting considerations to be weighed in the balance in reaching a sound conclusion. Legal problems, as presented in actual litigation, are seldom free from such complications. The rule that the payee of the check is the particular person who was intended by the drawer to be the payee can hardly be questioned. The name by which he is designated is merely the tag by which the intended person may be identified. A person, though bearing that name, if not the person intended, has no title to the check and cannot indorse or transfer title to it. Graves v. American Exchange Bank, 17 N.Y. 205. When an instrument is made ‘payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable,’ the instrument is payable to bearer. Negotiable Instruments Law, § 28, subd. 3. Even before the Negotiable Instruments Law was adopted, a bill payable to a fictitious payee was payable to bearer without being indorsed by the maker or the person to whom it was delivered. Plets v. Johnson, 3 Hill 112; Central Bank of Brooklyn v. Lang,...