Some courts, however, hold that, under a statute requiring such record, in the -to prove, on behalf of a construction absence of statutes rendering invalid un- superintendent in an action for his salary, recorded proceedings, or making such the passing of a resolution by the village records the only evidence of such proceed-council authorizing the appointment of such ings, parol evidence is admissible to extend the record.

COLORADO SUPREME COURT.

JOHN BOATSMAN, Admr., etc., of Carroll Nichols, Deceased, Plff. in Err.,

V.

STOCKMEN'S NATIONAL BANK.

(Colo., 138 Pac. 764.)

to

Bank liability for paying money
impostor on telegraphic order.
A bank which, acting upon telegraphic
instructions to pay money for warranty
deed, if regular, to a named person, pays
the money to an impostor for a forged
deed, is not bound to relieve its cor-
respondent from the loss if the latter, in
answer to a communication from the im-
postor in the name of the property owner,
makes an offer for the land and closes the
deal by forwarding a deed for execution,
which is done by the one to whom the
money is paid, and directing the bank to
pay over the money for the deed.

E

(February 2, 1914.)

RROR to the District Court for Morgan County to review a judgment in defendant's favor in an action brought to recover a certain amount and interest, alleged to have been wrongfully paid out by it to an impostor on a forged deed. Affirmed.

The facts are stated in the opinion.
Messrs. Taylor & Pendell, for plain-

tiff in error:

The bank is justified in paying the check upon the indorsement of the impostor under the assumed name only where it carries out the intention with which the drawer issued

the check.

Land Title & T. Co. v. Northwestern Nat. Bank, 196 Pa. 230, 50 L.R.A. 75, 79 Am. St. Rep. 717, 46 Atl. 420; United States v. National Exch. Bank, 45 Fed. 163; Levy v. Bank of America, 24 La. Ann. 220, 13 Am. Rep. 124; E. S. Karoly Electrical Constr. Co. v. Globe Sav. Bank, 64 Ill. App. 225; Emporia Nat. Bank v. Shotwell, 35 Kan. 360, 57 Am. Rep. 171, 11 Pac. 141; Crippen v. American Nat. Bank, 51 Mo. App. 508; Meridian Nat. Bank v. First Nat. Bank, 7 Ind. App. 322, 52 Am. St. Rep. 450, 33 N. E. 247, 34 N. E. 608; Robertson v. Coleman, 141 Mass. 231, 55 Am. Rep. 471, 4 N. E.

Note. The question who must bear loss when a check or bill is issued or indorsed to an impostor is discussed in notes to Land Title & T. Co. v. Northwestern Nat. Bank, 50 L.R.A. 75; Harmon v. Old Detroit Nat. Bank, 17 L.R.A. (N.S.) 514; and McHenry v. Old Citizens' Nat. Bank, 38 L.R.A. (N.S.) 1111. And see later cases in this series: Goodfellow v. First Nat. Bank, 44 L.R.A. (N.S.) 580, and Simpson v. Denver | & R. G. R. Co. 46 L.R.A. (N.S.) 1164.

619; American Exch. Bank v. City Bank, 5 N. Y. Leg. Obs. 18; First Nat. Bank V. Farmers' & M. Bank, 56 Neb. 149, 76 N. W. 430; Dodge v. National Exch. Bank, 30 Ohio St. 1; Smith v. Mechanics' & T. Bank, 6 La. Ann. 610; Famous Shoe & Clothing Co. v. Crosswhite, 124 Mo. 34, 26 L.R.A. 568, 46 Am. St. Rep. 424, 27 S. W. 397; Land Title & T. Co. v. Northwestern Nat. Bank, 211 Pa. 212, 107 Am. St. Rep. 565, 60 Atl. 723; Meyer v. Indiana Nat. Bank, 27 Ind. App. 354, 61 N. E. 596; Metzger v. Franklin Bank, 119 Ind. 359, 21 N. E. 973; First Nat. Bank v. American Exch. Nat. Bank, 49 App. Div. 349, 63 N. Y. Supp. 58; Merchants' Loan & T. Co. v. Bank of Metropolis, 7 Daly, 137.

The particular person who, in this instance, actually received the money, and who delivered the deed to the defendant bank, was personally well known to the drawer Nichols, and Nichols could not have intended that Warren, the person to him well known, was in any event to receive the

same.

Nichols had a right to reply upon his belief that the defendant bank knew what it was talking about when it first appeared upon the scene and asserted that it had a proper deed in its possession, and it would have been presumptuous for said Nichols to then have made further inquiry, but he did take the precaution to direct the payment to an unknown person whose form he

had in his mind as the real owner of the

land in question, and upon the express condition that the deed so taken was regular.

Under the facts of this case the defendant

bank was clearly charged with the duty of identification; and, so far as the complaint discloses, wholly negligent in that regard, paid the money to the wrong party,-a party never once in the contemplation of the plaintiff, to whom the plaintiff never intended one cent of the money to go under any circumstances, and to a person who would never have received the money had the plaintiff been present and delivered the cash in person. This rendered it liable.

Messrs. Arthur Ponsford and Charles

F. Carnine, for defendant in error:

No negligence could be attributed to the defendant.

29 Cyc. 419; Daniels v. Noxon, 17 Ont. App. Rep. 206; Smyth v. Lynch, 7 Colo. App. 383, 43 Pac. 670; Smith v. Mechanics' & T. Bank, 6 La. Ann. 610.

One who first made possible such a fraud as was committed in the case at bar cannot recover the loss sustained by reason thereof.

Emporia Nat. Bank v. Shotwell, 35 Kan. 360, 57 Am. Rep. 171, 11 Pac. 141; Crippen v. American Nat. Bank, 51 Mo. App. 508; Robertson v. Coleman, 141 Mass. 231, 55 Am. Rep. 471, 4 N. E. 619; Samuel v.

Cheney, 135 Mass. 278, 46 Am. Rep. 467; | Murphy twenty-five hundred dollars.
United States v. National Exch. Bank, 45 remit. Register deed to us.
Fed. 163; Meridian Nat. Bank v. First Nat.
Bank, 7 Ind. App. 322, 52 Am. St. Rep. 450,
33 N. E. 247, 34 N. E. 608.

Bailey, J., delivered the opinion of the court:

Farmers & Merchants Bank
Morrill, Nebraska.

We

The defendant bank thereupon paid Warren $1,500 cash and a $1,000 draft on the and took the deed for delivery. The folCity National Bank of Omaha, Nebraska, lowing September the imposition was discovered and payment stopped on the draft. Soon thereafter Warren was tried, convicted, and sentenced to a term in the Colorado penitentiary on a plea of guilty to a charge

of forgery.

Nichols demanded of the defendant bank

A

Carroll Nichols, a real estate dealer at the town of Morrill, Scotts Bluff county, Nebraska, died in April, 1911. John Boats man, as administrator of his estate, brought this action in the district court of Morgan county, against the Stockmen's National Bank of Brush, Colorado, by which it is sought to recover $1,500 and interest, alleged to have been wrongfully paid out by the return of the $1,500 paid to Warren beit on account of Nichols to one H. M. War-lieving him to be Murphy. The bank reren on a forged deed. The quarter section fused payment and this suit followed. of land involved in the controversy is situdemurrer to the complaint was interposed ate in Scotts Bluff county, Nebraska, and is owned by Charles E. Murphy, a resident of and sustained upon the ground that it statUtah. Warren was also a real estate dealer, ed no cause of action. Plaintiff elected to residing at Mitchell, Nebraska, near Morrill. stand by his case as made, the action was Nichols knew Warren, but did not know dismissed, and he brings the case here to Murphy. On May 23d, 1910, Warren wrote review such judgment. Nichols a letter in the name of Murphy, proposing a quick sale of the land and soliciting an offer therefor. The name of Murphy was wrongfully used, without his knowledge or consent, throughout the whole transaction. In answer to that letter Nichols telegraphed an offer of $2,500 for the land. Warren acknowledged receipt of the offer in a letter dated May 25th, 1910. Four days later Warren again wrote Nichols, directing him to send the deed to the defendant bank at Brush, Colorado, for execution, with draft to pay for the land. The deed, naming Boatsman as grantee, who loaned Nichols the money to buy, was accordingly mailed by Nichols to Murphy at Brush, Colorado, which Warren received and thereupon executed, as Murphy, acknowledged the same before a notary public, pre-peared at the bank with the deed which sented it to the defendant bank, and requested payment of the $2,500. Finding no money at the bank, he requested it to telegraph to the Farmers & Merchants Bank of Morrill, Nebraska, with whom Nichols did business, with the following result:

Deed Chas Murphy to John Boatsman duly executed and in our hand Murphy wants money wired to this bank at once or will call deal off.

Stockmens Natl. Bank.
June 2, 1910

The gist of the complaint is that the defendant bank negligently paid the impostor $1,500. In such cases the controlling inquiry is whether the drawer, by failure to use ordinary diligence to avert a loss, has so increased the risk and responsibility of the drawee as to take the case out of the general rule of liability for payment of money on a forged instrument. When the facts show that such is the case, it is uniformly held that the drawer must bear the loss.

It will be presumed that the defendant bank had full knowledge of all dealings between Nichols and Warren, pretending to be Murphy, which the complaint discloses. The deception was complete as to both the defendant bank and Nichols. Warren ap

Nichols had prepared and forwarded, purporting to be duly executed by Charles E. Murphy before a notary public. The defendant bank telegraphed the Nebraska bank, with whom Nichols did business, that Charles Murphy had presented the deed and awaited immediate remittance or the deal would fail. Nichols forthwith sent the money, and the defendant bank thereupon the letter of May 29th, 1910, Warren reaccepted the deed and made payment. By quested Nichols to make the draft payable

to bearer to avoid identification, as he was not known in that community, and stated that he was very anxious to get the matter off his hands, that the acceptance of the price offered was a great sacrifice on his part, and must be acted upon immediately If warranty deed is regular, pay Charles if at all. This is substantially a reiteration

Stockmens National Bank,

Brush, Colo.

such a case the risk is not the ordinary risk assumed by the bank in its implied contract with its depositor, but a largely increased risk, as it follows that a check thus fraudulently obtained will be fraudulently used; the bank is deprived of the protection afforded by the fact that a bona fide holder of a check will exercise care to preserve it from loss or theft, which are the ordinary risks; there is thrown upon the bank the risk of antecedent fraud practised upon the drawer of the check, of which it has neither knowledge nor means of knowledge." Iron City Nat. Bank v. Ft. Pitt Nat. Bank, 159 Pa. 47, 23 L.R.A. 615, 28 Atl. 195; Bank of England v. Vagliano Bros. [1891] A. C. 107, 60 L. J. Q. B. N. S. 145, 64 L. T. N. S. 353, 39 Week. Rep. 657, 55 J. P. 676, 3 Eng. Rul. Cas. 695.

And in Murphy v. Metropolitan Nat. Bank, 191 Mass. 159, 114 Am. St. Rep. 595, 77 N. E. 693, citing numerous authorities supporting it, this is said:

in these particulars of the letter of May | is issued to one whom the drawer intends to 25th, four days earlier. Such statement designate as the payee: First, because in might well have aroused the suspicion of an ordinary business man in dealing with a stranger and put him on inquiry. But the attitude of Nichols is shown by the fact that he acted in harmony with every suggestion of Warren. The record fails to show that he took any precaution for his own protection against this stranger. Evi dent. the price asked was low, and Nichols was so thoroughly interested in making an advantageous deal that he completely lost sight of the possibility of deception. By mailing the deed to the stranger for execution, he not only placed in his hands an instrument peculiarly well adapted to perpetrate a fraud upon the bank, but so increased its ordinary risk as to take the case out of the general rule applicable in cases of payment of money on forged instruments. The bank was fully justified, in the circumstances of this case, in paying the money to the person presenting the deed, duly acknowledged, and it discharged every duty imposed upon it by law to escape liability. The law will not permit a drawer who has, through lack of diligence, been misled into making a direction for the payment of money on a forged deed, to shift the burden of loss by placing an undue and extraordinary responsibility upon the drawee bank. The representative of Nichols is here contending that such extraordinary risk attaches to the bank, notwithstanding the total failure of Nichols to use even the most ordinary means to prevent deception. The rule of law which he claims is applicable does not reach the present situation. Generally on payment of money on a forged instrument, in the absence of negligence on the part of the depositor whose check it purports to be, the bank cannot charge the amount to his account. 5 Cyc. 544. But where there is a failure on the part of the depositor to use diligence to avert a loss, and such, we think, may fairly be said to be the fact in the present dispute, a different rule applies. The rule is stated in the case of Land Title & T. Co. v. Northwestern Nat. Bank, 196 Pa. 230, 50 L.R.A. 75, 79 Am. St. Rep. 717, 46 Atl. 420, as follows:

"The ordinary rule is well established that a banker on whom a check is drawn must ascertain at his peril the identity of the person named in it as payee. It is only when he is misled by some negligence or other fault of the drawer, that he can set up his own mistake in this particular against the drawer."

Under the facts here disclosed the way was made plain and easy for the perpetration of a fraud upon the bank through lack of care on the part of Nichols in sending a deed for execution to a stranger, and in arming him with letters and telegrams which, together with the deed, could be presented to the bank as a means of identification, so that the purchase price would be paid to him, a perfectly natural and proper thing, under such circumstances, for the bank to do.

The matter is thus reduced to the simple proposition that where two innocent parties have both been deceived, the loss must be borne by the one who primarily made such loss possible. The vital mistake was made by Nichols in dealing with Warren believ ing him to be Murphy. This was the funda"The reason of the rule that when a bank mental and primary error, the responsibilpays a depositor's check on a forged indorse-ity for which rests solely upon Nichols. It ment, or a raised check, it is held to have was this initial error which led directly to paid it out of its own funds, and cannot the loss. In Crippen v. American Nat. charge the payment to the depositor's ac- Bank, 51 Mo. App. 508, it was said: count, is that there is an implied agreement by the bank with its depositor that it will not disburse the money standing to his credit, except on his order.

It is confined to cases in which the depositor has done nothing to increase the risk of the bank. It should not apply when the check

"It has been ruled, too, that when both parties to a transaction are innocent, and the loss must fall upon one, it should be upon the one who in law most essentially facilitated the fraud. Stout v. Benoist, 39 Mo. 281, 90 Am. Dec. 466. And so it has been held in respect to two persons equally

under a similar state of facts, in Land, Title, & T. Co. v. Northwestern Nat. Bank, 196 Pa. 230, 51 L.R.A. 75, 79 Am. St. Rep. 717, 46 Atl. 420, it was said:

innocent, where one is bound to know and | tion. Meyer v. Indiana Nat. Bank, 27 Ind. act upon his own knowledge, and the other App. 354, 61 N. E. 596. In this connection, has no means of knowledge, there is no reason for burdening the latter with the loss in exoneration of the former, or, if both are equally innocent and equally ignorant, the loss should remain where the chances of business have placed it. United States v. National Exch. Bank (C. C.) 45 Fed. 163; Gloucester Bank v. Salem Bank, 17 Mass. 33; Bank of United States v. Bank of Georgia, 10 Wheat. 333, 6 L. ed. 334; Price v. Neal, 3 Burr. 1355. In the last cited case, Lord Mansfield used this language: 'It is a misfortune which has happened without the defendant's fault or neglect. If there was no neglect in the plaintiff, yet there is no reason to throw off the loss from one innocent man upon another innocent man. But in this case, if there was any fault or negligence in any one, it certainly was in the plaintiff, and not in the defendant.' If the plaintiffs, or their agents for them, before closing the loan, had exercised the precaution dictated by ordinary prudence in such cases by instituting an inquiry as to whether the person who had applied for the loan under the name of P. W. Pool was the Pool who really owned the land, they would not have fallen the easy victim of the swindler that they did. It was an easy matter to have required of the applicant some satisfactory proof of his identity."

Moreover, under the facts disclosed, it appears that the money was paid to the very person to whom Nichols actually intended it should be, the one through whose agency the transaction was brought about. It is idle to say, as does plaintiff, that Nichols never in fact dealt with Warren, the impostor; this contention only goes to show that the deception was complete. It would be to disregard substantial facts to say that the actual intent of Nichols, because he mistook his physical payee, Warren, for his mental payee, Murphy, was not met by payment to the former. Nichols did not deal merely with the name "Charles E. Murphy," but rather with the physical entity, the human agency indicated by that name, the one who quickened him to action. The true Charles Murphy was unknown to Nichols, and he naturally had in mind only a man with this land to sell,—the person with whom he corresponded,-Warren. He meant the money to be paid, and it was paid, to that identical person, and the estate of Nichols must therefore, as against the bank, bear the loss, for his actual intent was in fact carried out. Names are used as one method only of indicating identity of person, and are in no sense conclusive on this proposi

"The facts of this case do not, we think, bring it within the rule that a bank paying a check to order on a forged indorsement may not charge the payment to the drawer's account, for the reason that the check was issued to the person whom the drawer intended to designate as the payee. If not within the rule, the plaintiff has no standing whatever. It is a perverted statement of the whole transaction to say that the check was intended for Dr. Herman S. Bissey, and that he alone was entitled to receive payment. Dr. Bissey had no more right to the check than had Ashley. He had to it, and, had the truth been known, it given nothing for it. No one was entitled would not have been issued. Under the supposed facts on which the trust company acted, Ashley was the owner of the property; he had executed a mortgage, and was entitled to payment. The clear intention was to pay him, although there was a mistake as to the facts on which the intention was based. Nor is the solution of the question involved to be sought in determining whether the bank was negligent in dealing with its depositor, Rogers. The officers of the trust company, of course, had no doubt. They acted in entire good faith, and, it may be conceded, with ordinary prudence; but the loss was occasioned by their error, and there is no reason, legal or equitable, why it should be shifted to another."

The case of Emporia Nat. Bank v. Shotwell, 35 Kan. 360, 57 Am. Rep. 171, 11 Pac. 141, quoted by both parties, discloses facts closely analogous to those of the present case. It was there announced:

"The vital point in this case is, that Shotwell intended the draft to be sent to the party executing the notes and mortgages, and intended it to be paid to the person to whom he sent it and whom he designated by the name of Daniel Guernsey, because that was the name which he assumed in executing the notes and mortgages; and therefore the National Bank is protected in paying the draft to the very person whom Shotwell intended to designate by the name of Daniel Guernsey."

In the case of Samuel v. Cheney, 135 Mass. 278, 46 Am. Rep. 467, an impostor opened a place of business in Saratoga Springs, assumed the name of a responsible merchant engaged in business there, and then began correspondence under that name with plaintiff, as a result of which a quan