PAVILIS V.

LIVESTOCK CO
PAVILIS, RESPONDENT, V. FARMERS UNION LIVESTOCK COMMISSION, APPELLANT
FILE NO. 8371. SUPREME COURT OF SOUTH DAKOTA. OPINION FILED JUNE 20, 1941.
1. Bills and Notes.
The statute providing that every contract on a negotiable instrument is incomplete
and revocable until delivery is merely a legislative enactment of common law rule,
modified by subsequent language to the extent that if any such instrument, after
completion, is negotiated to a holder in due course, it is valid and effectual for all
purposes in his hands. SDC 46.0121.
2. Bills and Notes.
Under statute and common law, the fact that a completed negotiable instrument is
stolen from its drawer prior to its delivery does not constitute a defense against a
holder in due course. SDC 46.0121.
3. Bills and Notes.
A check which was signed by corporate drawer's office manager but left blank as to
date, amount, and payee, pursuant *9797 to custom, and was stolen by an
employee who inserted date, amount and payee, was an "incomplete instrument"
when stolen and could not be enforced against drawer by innocent purchaser for
value in absence of conduct of drawer creating an estoppel. SDC 46.0120, 46.0121.
4. Bills and Notes.
The Negotiable Instruments Law does not prevent inquiry into question of negligent
custody of an incomplete instrument, and holder in due course, into whose hands
such instrument comes as result of negligence, may recover. SDC 46.0120, 46.0121.
5. Bills and Notes.
Where corporation's office manager, pursuant to custom, signed block of checks to
be used for day's business, leaving amount, date and payee in blank to be filled in
by bookkeepers, and after office was closed employee stole one of the checks,
inserted date, amount and payee, and negotiated it, corporation was not negligent
so as to be "estopped" from denying liability as against innocent purchaser for
value. SDC 46.0120, 46.0121.
6. Bills and Notes.
Though drawer owes duty to use due care in execution of checks, signers of checks
in blank do not assume the risk of liability in all cases where such instruments are
wrongfully taken, completed and negotiated. SDC 46.0120, 46.0121.
APPEAL FROM CIRCUIT COURT, MINNEHAHA COUNTY; HON. JOHN T. MEDIN, JUDGE.
ACTION BY GUST PAVILIS, AN INDIVIDUAL DOING BUSINESS UNDER THE FIRM NAME
AND STYLE OF RAINBOW INN, AGAINST FARMERS UNION LIVESTOCK COMMISSION,

TO RECOVER ON CHECK. FROM A JUDGMENT FOR PLAINTIFF, DEFENDANTS APPEAL.

REVERSED.
Bailey, Voorhees, Woods Bottum and H.L. Fuller, of Sioux Falls, all for Appellant.
Claude A. Hamilton, of Sioux Falls, for Respondent.
ROBERTS, J.
This is an action brought to recover upon an instrument alleged to be a check
transferred to plaintiff for value by one C. Hoard who was named as payee therein.
Defendant interposed an answer alleging, first, that plaintiff was not a holder of the
check in due course, and *9898 second, that the instrument having been signed in
blank by the defendant and having been stolen from its possession prior to delivery
had no legal inception or existence as a check. The court made findings in favor of
the plaintiff and from the judgment entered thereon defendant has appealed.
The case was submitted upon an agreed statement of facts. The facts material to a
decision are as follows:
"It was the practice of defendant's office manager, who was authorized to sign
checks, to sign a block of instruments, printed to be used as checks * * * at the
beginning of the business day and deliver the same to the bookkeeper whose
regular duty it was to complete the instruments as checks and deliver the same to
customers during the business day and it was likewise the practice of such office
manager to procure the return of such signed instruments not delivered at the close
of the business day for the purpose of safekeeping and for the purpose of checking
or auditing the same, which instruments were thereafter placed in a safe in
defendant's office; that the office of said office manager adjoined the front office in
which the bookkeepers worked and it was the practice of the office manager to
personally supervise the work of the bookkeepers during the business day and
during the business day such bookkeepers worked at open desks in the presence of
customers at the counter and in the presence of each other and in the presence of
yardmen employed by defendant, who used the office occupied by bookkeepers as
their headquarters.
"That upon February 24, 1939, and for some time prior thereto one C. Hoard was
employed by defendant as a bookkeeper and clerk whose duties were particularly to
prepare an account of sales from the scale tickets presented by defendant's
customers, and that it was the duty of another bookkeeper in defendant's employ, *
* * to prepare or complete instruments printed to be used as checks upon such
shippers' proceeds account for amounts indicated by such scale ticket and account
of sales which instruments had, previous to being so completed, been signed by
defendant's *9999 manager or office manager, who were the only employees of
defendant expressly authorized by it to sign checks; that said Hoard was expressly
authorized by defendant in the absence of such other bookkeeper to complete and
deliver checks * * * only during business hours and only to defendant's customers
and only for amounts due them as shown by such account of sales, but said Hoard
was not expressly authorized by defendant to prepare, complete or deliver checks

on such account, except during business hours, or for any amount other than as
indicated by such scale tickets and account of sales or to anyone other than
customers for whom livestock had been sold by defendant and said Hoard was not
expressly authorized to sign or endorse checks in the name of or on behalf of
defendant.
"That the said Hoard was not entrusted with a key to the defendant's office although
he did have access to a key kept in a desk in the office for the purpose of unlocking
the padlock on the inside of the gate across the counter between defendant's office
and the hall, it being his duty to enter the office after it had been opened by one of
the defendant's employees entrusted with a key to such office, and if the gate had
not been previously opened to unlock the same at the opening of the business day
with the key placed in such desk.
"That on or about the 24th day of February, 1939, after the close of defendant's
office said Hoard gained access thereto by unlocking the gate across the counter,
presumably with the key to the lock which he had removed from the desk in the
office before leaving the office, and climbed over the counter into defendant's office
and thereafter opened the safe in defendant's office by using the combination,
which he knew, and without defendant's knowledge and consent took therefrom
certain instruments printed for use as checks upon such shippers' proceeds
account, blank as to amount, date and payee, which had been signed by
defendant's office manager authorized to sign checks, in one of which instruments
said Hoard thereafter without defendant's knowledge or express consent inserted
*100100 the date, amount and payee in the manner which appears more fully from
such instrument * * *.
"That said Hoard thereafter on said 24th day of February, 1939, placed his name
upon the back of said instrument and delivered the same to plaintiff for a
consideration of the value of One Hundred Two and 85/100 Dollars ($102.85)."
The check is in all respects regular except that the name of the payee is written
after the word "pay" and in the space intended for statement of the amount in
writing. It is contended that the instrument is not payable to order and is therefore
non-negotiable, but a determination of this question is not necessary to a decision
in this case.
[1-3] The instrument came into possession of plaintiff as an innocent purchaser for
value. It is contended, however, that the check was an incomplete instrument when
stolen and cannot be enforced by plaintiff whether a holder in due course or not.
The Negotiable Instruments Law expressly provides that "every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument
for the purpose of giving effect thereto." SDC 46.0121. This is merely a legislative
enactment of the common law rule. Dimock State Bank v. Boehnen, 46 S.D. 50, 190
N.W. 485; McCormick Harvesting Machine Co. v. Faulkner, 7 S.D. 363, 64 N.W. 163,
58 Am. St. Rep. 839. This language that a contract becomes effectual only by
delivery is modified by subsequent language in the section at least to the extent
that if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands. Both under the statute

and the common law the fact that a completed instrument is stolen from its drawer
prior to its delivery does not constitute a defense against a holder in due course.
Daniel on Negotiable Instruments, 7th Ed., 983 and 984; Angus v. Downs, 85 Wn.
75, 147 P. 630, L.R.A. 1915E, 351; Farmers' State Bank v. Koffler, 60 N.D. 11, 232
N.W. 307, 70 A.L.R. 1223; Gruntal v. National Surety Co. et al., 254 N.Y. 468, 173
N.E. 682, 73 A.L.R. 1337. The provisions of SDC 46.0121 are confined to completed
instruments. SDC 46.0120 *101101 referring to incomplete instruments is worded
as follows:
"Where an incomplete instrument has not been delivered it will not, if completed
and negotiated, without authority, be a valid contract in the hands of any holder, as
against any person whose signature was placed thereon before delivery."
We think it clear that the check in controversy was an incomplete instrument when
stolen and cannot be enforced in the absence of conduct on the part of the drawer
creating an estoppel. Linick v. A.J. Nutting Co., 140 A.D. 265, 125 N.Y.S. 93; Hockett
v. Pacific States Auxiliary Corporation, Cal.App., 15 P.2d 547; Massachusetts
National Bank v. Snow, 187 Mass. 159, 72 N.E. 959.
It is urged by counsel that defendant is chargeable with negligence and is estopped
to deny liability. In support of his contention he cites Northern Pacific Ry. Co. v.
Spokane Valley Growers' Union, 132 Wn. 607, 232 P. 691, 43 A.L.R. 194; Johnson v.
Weed Gumaer Mfg. Co., 103 Wis. 291, 79 N.W. 236; Geddes v. Blackmore, 132 Ind.
551, 32 N.E. 567; Leseure v. Weaver, 89 Ill. App. 628; Boston Steel Iron Co. v.
Steuer, 183 Mass. 140, 66 N.E. 646, 97 Am. St. Rep. 426. The cases cited are those
in which the party sought to be charged upon a negotiable instrument has
entrusted an instrument signed in blank to an agent or some other person who has
wrongfully completed and negotiated the instrument; an agency or trust was
created by means of which the fraud was committed and the fact that there was no
authority for completing the instrument or that the paper was otherwise wrongfully
dealt with was no defense.
Plaintiff also cites the case of Phillips v. A.W. Joy Co., 114 Me. 403, 96 A. 727, 728,
L.R.A. 1916E, 690. The question of the liability of the signer of a blank check which
was stolen, completed and negotiated to the plaintiff was presented. The court held
that the signer of the check was liable, and referring to the negligence of the
defendant said: "It is conceded that this check was signed in blank. Was there such
negligence on the part of the defendant company or its agents as will permit this
plaintiff to recover? The *102102 case seems to show quite clearly that the check
book was left about the office in such a way that this check was, in fact,
undoubtedly stolen, and, as we have already seen, according to the plaintiff's
undisputed testimony, the bookkeeper admitted that `it would be easy for anybody
to come in and abstract one of the checks.' Under all the circumstances it seems to
us, in view of the character of the paper stolen, its condition as to signature when
stolen, the negligence in leaving the signed checks in such environment that theft
was easy, and the apparent care of the plaintiff before cashing the check, that we
should apply the rule of estoppel noted in Salley v. Terrill, supra [ 95 Me. 553, 50 A.
896, 55 L.R.A. 730, 85 Am. St. Rep. 433], as well as the rule that, when one of two

innocent persons must suffer by the act of a third, he who has enabled such person
to occasion the loss must sustain it."
This case differs in its facts from the case at bar. Checks signed in blank by the
defendant in that case and left unguarded in his office to which strangers had
access rendered him liable by reason of negligence.
In Baxendale v. Bennett, L.R. 3 Q.B. Div. 525, 33 Am. Rep. 137, 4 Eng. Rul. Cas. 637,
the defendant at the request of one Holmes signed a blank acceptance. Defendant
after the paper had been returned to him by Holmes placed it in an unlocked desk in
his chambers. The bill was stolen from the desk, completed and negotiated. It was
contended that defendant had so negligently dealt with the acceptance as to have
facilitated the theft. The court held that plaintiff, a bona fide holder, was not entitled
to judgment.
In Linick v. A.J. Nutting Co., supra, a blank check signed by the plaintiff was stolen
by persons who filled in the amount and a fictitious name as payee and presented it
to the drawee bank to be certified. They endorsed the name of the payee and
transferred the check to the defendant for value who collected the amount of the
check from the bank. The drawer having taken up the check from the bank
instituted action for money had and received. Defendant sought to defend on the
ground that plaintiff was estopped *103103 by reason of negligence to deny liability
on the check. But the court held that the check was an incomplete instrument and
that negligent custody of the check was not borne out by the facts.
In a recent case, City National Bank of Galveston v. American Express Co., Tex. Com.
App., 16 S.W.2d 278, 280, the court in answer to the contention that the defendant
company should not be heard to deny the validity of travelers checks stolen from a
selling agency, completed and negotiated to innocent purchasers for value, there
being no negligence on the part of the selling agency, said: "General knowledge
that banks are robbed sometimes does not charge any man with lack of prudence in
committing incomplete instruments, though duly signed by him as maker, to the
custody of a particular bank. Nor is it thought that the express company by placing
the incomplete instruments with the bank, assumed the risk of liability arising
against the company on account of the incomplete instruments being taken by
robbery and subsequently completed and negotiated by the robbers."
See, also, Daniel on Negotiable Instruments, 6th Ed., 986 and 987; Negligence in
the Law of Bills and Notes, 24 Col. L. Rev. 685; 13 Minn. L. Rev. 146; Annotations,
L.R.A. 1915E, 351 and 110 A.L.R. 976.
[4-6] While there can be no question that the provisions of the Negotiable
Instruments Law do not prevent an inquiry into the question of the negligent
custody of an incomplete instrument, and that, if as a result of negligence such
instrument comes into the hands of a holder in due course, the latter may recover,
yet we cannot say under the facts and circumstances of the instant case that
defendant was negligent. The loss did not result from completion and negotiation of
the check by one entrusted with its possession, and we are not concerned with a
breach of duty as between a depositor and drawee. It does not appear that

defendant company had reason to mistrust its employee and to anticipate the
wrongful taking by him of a check signed in blank, the subsequent completion and
negotiation. The *104104 drawer owes the duty to use due care in the execution of
checks, but it does not follow as a legal conclusion that signers of checks in blank
assume the risk of liability in all cases where such instruments are wrongfully taken,
completed and negotiated. To hold that a person is negligent in having in his
possession a check signed in blank would require something more than the exercise
of ordinary care.
The judgment appealed from is reversed.
All the Judges concur.

WEINER V. THE PENNA. CO.,

ETC
WEINER, APPELLANT, V. THE PENNSYLVANIA COMPANY FOR INSURANCES
ON LIVES ANDGRANTING ANNUITIES.

SUPERIOR COURT OF PENNSYLVANIA.

OCTOBER 4, 1946.

MARCH 4, 1947.
Banks and banking Checks Payment Check signed by maker in blank Delivery
Unauthorized payment to fictitious payee Maxims Innocent party rule Negotiable
Instruments Law.
1. Where a check is signed by the maker in blank and taken and filled in by another without authority
from the maker, and the drawee bank upon presentation makes payment to a fictitious payee who
has properly indorsed the check, the bank is not liable to the maker, whether or not it has made any
investigation or identification before payment.
2. As between two innocent parties, liability should be borne by the one who made the loss possible.
3. The duty of a bank toward its depositors rests upon an implied contract, and it is bound to honor,
according to tenor, the depositor's checks bearing genuine signature where the latter's balance is
sufficient; in such cases the bank's liability is absolute, unless an estoppel bars the maker, and such
absolute liability flows from the breach of contract and there is no room for any doctrine of
negligence.

4. Section 15 of the Negotiable Instruments Law, May 16, 1901, P.L. 194 (which provides that where
an incomplete instrument has not been delivered, it will not, if completed and negotiated without
authority, be a valid contract in the hands of any holder, or against any person whose signature was
placed thereon before delivery) relates to "holders" or any person whose signature was placed
thereon before delivery.
5. A "holder" takes the instrument prior to presentation for payment.
6. A drawee bank which takes a check at and for payment is not a holder within the meaning of
section 15 of the Negotiable Instruments Law.
7. The construction of section 15, as it relates to checks, should be less literal and strict than as it
relates to notes.
Before BALDRIGE, P.J., RHODES, HIRT, RENO, DITHRICH, ROSS and ARNOLD, JJ.

APPEAL, NO. 177, OCT. T., 1946, FROM JUDGMENT OF M.C., PHILA. CO.,
FEB. T., 1946, NO. 285, IN CASE OF CLARA WEINER V. THE PENNSYLVANIA
COMPANY FOR INSURANCES ON LIVES AND GRANTING ANNUITIES.
JUDGMENT AFFIRMED. *321321
ASSUMPSIT.
AFFIDAVIT

OF

DEFENSE

RAISING

QUESTIONS

OF

LAW SUSTAINED,

OPINION BY TUMOLILLO, J. PLAINTIFF APPEALED.

Paul A. Liebman, with him Leo Weinrott, for appellant.
Edward M. David, with him Edmund R. Finegan and Saul, Ewing, Remick Saul, for appellee.

Argued October 4, 1946.

OPINION BY ARNOLD, J., March 4, 1947:

The plaintiff signed her name to a check drawn upon the defendant bank of which she had been a
depositor for years. Except for her signature nothing was written on it. The check was stolen and
completed by filling in the amount, $250, the date and the name of the payee (fictitious). The
defendant bank paid the check to the fictitious payee, who properly indorsed it. The plaintiff-drawer

sued the drawee bank in assumpsit for the amount thereof, alleging negligence of the bank, inter
alia, in failing to identify the person paid. The court below entered judgment for the defendant upon
an affidavit of defense raising questions of law.
The duty of a bank toward its depositors rests upon an implied contract. It is bound to honor,
according to tenor, the depositor's checks bearing genuine signature where the latter's balance is
sufficient.1 A failure to honor such a check is a breach of the contract subjecting the bank to
damages, which may be punitive.

1.
Unless the balance is subject to lien or claim.
On the other hand, the bank may only pay upon the signature of the drawer, and if that be not
genuine, i.e., forged, the bank, if it pays such check, is liable to the depositor, because it has no
written order from the depositor. Even though the forgery of the drawer's signature is done so
skillfully as to practically defy detection, such as an exact simulation, the bank is liable. Since this
liability of the bank is therefore absolute, even though it exercises the highest possible degree of
care, *322322 such liability is purely for breach of contract, i.e., the absence of the signed order of
the depositor. So, too, if the check bears the genuine signature of the drawer, but is paid by the bank
upon the forged indorsement of the payee, the bank is liable because it has paid otherwise than as
directed by the written order. In both such cases the bank's liability is absolute unless an estoppel
bars the maker from alleging the forgery. It is no defense to show investigation, identification, good
judgment or prudential conduct. If the signature and indorsement are genuine and the payment
follows the depositor's written order, the bank is no less protected by law where it does nothing to
determine the genuineness. The bank pays at its peril, with or without investigation or identification,
which things are had by the bank solely for its own safety, for the depositor's rights are unaffected
either by their presence or absence. No duty in these respects is owed to the depositor, but the
liability in such cases flows from the breach of the contract. There is no room for any doctrine of
negligence, which in turn depends upon improper fulfillment of a duty of care.
Another type of case is where the check has been "raised", the signatures of the maker and the
payee being genuine, and delivery being intended. Of such alteration the check carries its own
evidence, and hence the drawee is liable unless the maker is estopped, and to determine this the
law examines the care used by the respective parties (balancing or contrasting negligence) as where
the check as drawn by the maker was written in such careless fashion as readily to lend itself to, or
indeed invite, an alteration highly difficult to detect. We find no raised check cases among our
appellate court decisions, but in Leas et al. v. Walls, 101 Pa. 57, a "raised" note case, the drawer
was held to the duty of ordinary care in guarding against alterations. Usually it is held that the
depositor may be made to suffer the loss if his negligence, by facilitating the alteration, contributed to
induce the payment, provided the bank be free from negligence. This is on the theory that
the *323323 depositor should take usual and reasonable precautions. Such defense by the bank
has been held good in New York,2 California3 and Tennessee.4 To the contrary are the holdings in
Texas,5Kentucky6 and Oklahoma.7 In England apparently the bank is held liable unless there also
appear in the case elements of entrusting such check (easily susceptible of alteration) to an employe
or other person acting for the drawer, who himself altered it.8

2.
Gutfreund v. East River Nat. Bank, 167 N.E. 171 ( 251 N.Y. 58).
3.
Glassell Development Company v. Citizens' National Bank, 216 P.
1012; Leather Mfrs.' National Bank v. Morgan, 117 U.S. 96, 29 L. ed. 811.
4.
Foutch v. Alexandria B. T. Co., 149 S.W.2d 76, a very well reasoned
opinion.
5.
Glasscock v. First National Bank, 266 S.W. 393.
6.
Commercial Bank v. Arden Fraley, 197 S.W. 951.
7.
First National Bank v. Ketchum, 172 P. 81.
8.
MacMillan v. London Joint Stock Bank, 2 K.B. 439 1917.
Where a check is signed by the maker in blank and taken and filled in, we find no decisions in
Pennsylvania.9*324324 In this type of case the signatures are genuine, and the check bears no
evidence on its face that delivery was not intended; and there is no alteration of the writing or
figures. In other jurisdictions there is a divergence of opinion. Indiana, 10 Missouri,11 New York12 and
California13 hold that the loss falls upon the depositor, for reasons which will hereafter appear.

9.
In Robb v. Pennsylvania Company, etc., 186 Pa. 456, 40 A. 969, 41 A. 49,
the question before the court was whether the drawer's possession of a
rubber stamp facsimile signature estopped him from asserting that a check
paid by the bank was a forgery, the forgery being accomplished by means
of the stamp. The majority view was that the precautions of the depositor
were for the jury. Justice WILLIAMS and Chief Justice STERRETT filed a
dissenting opinion and wanted the law applied as in a blank check
case. The dissent then stated the law of blank checks, which the majority of
the court did not controvert, only denying the application of the rule to a
rubber stamp forgery. The law was thus stated at page 458a: "When an
account is opened at a bank by the deposit of money the depositor leaves
his genuine signature with the banker for his guidance and protection in the
payment of checks. When checks are presented bearing this signature they
must not be refused, but if the signature is a forgery, no matter how skillfully

it is done or how difficult of detection, they must not be paid. . . . But if the
depositor executes a check and for any reason leaves it on his table where
it is found by another, who fills it up, presents it at bank and receives
payment upon it, this is a good payment by the bank, and the loss is that of
the depositor for the check was signed by him. If intead of leaving his check
upon the table the drawer had deposited it in a drawer within his safe,
locked the safe, and put the key away in a box in his office . . . nevertheless
if a clerk or employee had taken the key from the box, unlocked the safe,
abstracted the check and used it for his own benefit, its payment by the
bank would have bound the depositor. His loss would have been due not to
the failure of the banker to distinguish his genuine signature but to the
crime of his employee who obtained it surreptitiously. One of two innocent
persons must suffer because of the payment of the check, and the law
determines that the loss shall fall upon him whose act or omission made
the loss possible. If the depositor had not signed his check and left it where
it was possible for a criminal to appropriate it, palpably the loss could not
have happened."
10.
Citizens' National Bank v. Reynolds, 126 N.E. 234.
11.
S.S. Allen Co. v. Bank of Buchanan County, 182 S.W. 777.
12.
Trust Co. of America v. Conklin, 119 N.Y.S. 367.
13.
Rancho San Carlos, Inc., v. Bank of Italy, etc., 11 P.2d 424, and Edelen v.
Oakland Bank of Savings, 178 P. 737.
It has been said14 that three divergent theories exist, which will be discussed seriatim. First, a strict
and literal construction of 15 of the Negotiable Instruments Law.15 This view does not commend
itself, for that section relates to "holders" or any person whose signature was placed thereon before
delivery. A "holder" takes the instrument prior to presentation for payment. Since the drawee bank
takes the instrument at and for payment, it is not a holder. Section 15 applies to both notes and
checks, but since checks are required to be paid by the drawee bank, and since the discount or
purchase of notes is not obligatory, the construction of *325325 15 as it relates to checks ought to
be less literal and strict. Second, that the right of recovery by the depositor shall be based on
contrasting or balancing the negligence between the drawer and the bank, the ultimate fact of liability
(and hence the estoppel) to be determind by the jury under the particular facts. This is the law of
New Jersey.16 The difficulty with this view is that while in theory the jury determines whether there
should be an estoppel under the facts of the case, in practice it may consider the financial, rather

than the legal, responsibility. In addition the estoppel itself should be for the court under the facts
found, and not for the jury. The third view, which we adopt, is the application of the maxim that as
between two innocent parties, the bank and the depositor, liability should be borne by the one, i.e.,
the depositor, who made the loss possible.17 This is estoppel in pais. Apparently the rule was first
applied by our appellate courts in 1833 inPresident, Merchants' Bank, v. President, Bank of
U.S., *326326 4 Rawle 318, although a similar maxim or rule existed from the early days of the law.
It has been as recently enunciated as Ervin v. City of Pittsburgh, 339 Pa. 241,14 A.2d 297,
and Kienberger v. Lally, 130 Pa. Super. 583, 198 A. 453. The effect of the rule is to bar the assertion
of a given claim or a defense, by forbidding the same.

14.
(N.J.) Joseph Heinberg, Inc. v. Lincoln National Bank, 113 N.J.L. 76, 172 A.
528.
15.
Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands
of any holder, or against any person whose signature was placed thereon
before delivery: 15 of N.I.L., 56 P.S. 20.
16.
Joseph Heinberg, Inc., v. Lincoln National Bank, 113 N.J.L. 76, 172 A. 528.
17.
The rule is variously stated in Pennsylvania: ". . . the loss should fall on the
one whose act facilitated it":Ervin v. City of Pittsburgh, 339 Pa. 241, at page
256, 14 A.2d 297. ". . . the loss must fall on him by whose act the
wrongdoer has been enabled to commit the fraud": Gramigna v. Board of
Ministerial Pensions, etc., 330 Pa. 335, at 336, 199 A. 177. ". . . he who
clothed the wrongdoer with the power to injure must bear the loss":Keller
v. N.J. Fidelity Plate Glass Ins. Co., 306 Pa. 124, at 135, 159 A. 40. ". . .
[the loser] must be the one who places it within the power of the third
person to commit a wrong": Stirling's Petition, 292 Pa. 194, at page
200, 140 A. 869. ". . . the one who makes possible the commission of the
fraud is the loser": Williams v. Cook,289 Pa. 207, at page 213, 137 A. 232.
". . . he who gave the aggressor the means of doing the wrong must alone
bear the consequences of the act": Dowd v. Crow, 205 Pa. 214, at 218, 54
A. 780. ". . . he must bear the loss whose act or neglect has been the
occasion of the suffering": Jeffers v. Gill, 91 Pa. 290, at page 295. ". . . he
shall suffer who by his own acts occasioned the confidence and the
loss": Garrard v. Haddan, 67 Pa. 82 at page 85. ". . . the loss must fall on

him by whose act the wrongdoer has been enabled to commit the
fraud":Kienberger v. Lally, 130 Pa. Super. 583, at page 590, 198 A. 453.
In the instant case the plaintiff signed the check in blank, thus putting it in the power of an
unauthorized person to fill it in and present it for payment. The depositor's act made the loss
possible and caused it, and enabled the thief to commit the fraud. The depositor-plaintiff's acts in this
respect are a bar and an estoppel in her suit against the drawee bank, thus preventing any recovery
on her part. To hold otherwise would require the bank to communicate with the drawer as each
check was presented, in order to find out if delivery was intended. This is too much to be expected,
and to place the burden of loss or its chance on the depository if it does not interview the maker, is
neither fair nor compatible with public interest. Checks have come to constitute the normal medium
of exchange. They are highly convenient to the ordinary business or non-business depositor. They
keep books for him. In a very large proportion business and personal spending is accomplished by
checks.18 To say that the depository shall be required to call upon the depositor to determine whether
a check bearing his signature was actually delivered is to set at naught all of the modern
conveniences accomplished by their use.

18.
Some idea of the vast increase in check payments in only a part of
Pennsylvania is obtained from the Federal Reserve Bank of Philadelphia.
Debits to individual accounts in Philadelphia for the past ten years have
been as follows:

1937 .......... $16,344,752,000 1942 ......... $21,944,601,000 1938 ..........

14,553,165,000 1943 ......... 26,307,761,000 1939 .......... 15,813,654,000
1944 ......... 28,287,668,000 1940 .......... 16,629,622,000 1945 .........
30,074,082,000 1941 .......... 21,460,897,000 1946 ......... 32,139,495,000
Judgment affirmed.

Appellate Division of the Supreme Court of New York, Second Department.

140 App. Div. 265 (N.Y. App. Div. 1910)

LINICK V. NUTTING CO
LOUIS LINICK, APPELLANT, V. A.J. NUTTING COMPANY, RESPONDENT.

APPELLATE DIVISION OF THE SUPREME COURT OF NEW YORK, SECOND

DEPARTMENT.

OCTOBER 20, 1910.

*266 266

Solomon S. Schwartz, for the appellant.

Edward L. Collier, for the respondent.

BURR, J.:
On July 20, 1909, plaintiff signed his name to a blank check. Thereafter David Ryckoff and Benjamin
Silberman stole the check, filled in the name of F.A. Mann as payee and the sum of $147.87 as the
amount thereof, and presented it to the State Bank, where plaintiff kept his account, and procured it
to be certified. Thereafter they indorsed said check with the name of F.A. Mann and passed it to
defendant for value, who collected the amount thereof from the said bank. Plaintiff, having taken up
said check from the bank now sues defendant as for money had and received for the amount of the
check.
The question submitted, and which we are called upon to decide, is whether defendant obtained any
title to the check which, as against the plaintiff, was a valid obligation for $147.87, As a general rule,
one can only part with title to personal property by his voluntary act, or by conduct sufficient to create
an estoppel. In the case of commercial paper it was long ago held that when by voluntary act a party
intrusts another with such paper with a blank thereon designed to be filled up with a stipulated
amount, such party is liable to a bona fide holder of the instrument, although the amount inserted
was larger than that agreed upon. So, if the place of payment is left blank when the maker delivers it,
the insertion of a different place of payment than that agreed upon will not avoid such paper in the
hands of an innocent holder for value. (See Van Duzer v. Howe,21 N.Y. 531; Redlich v. Doll, 54 id.
234.) The authorities are not harmonious as to the basis of this liability. Some deem that it rests upon
an implied authority conferred by the maker upon the person to whom it was delivered to fill in the
blanks, and others upon estoppel by reason of negligence. ( National Exchange Bank v.Lester, 194
N.Y. 461, 465.) Upon neither of these grounds can the plaintiff be charged in this case. Certainly not
upon the ground of implied authority, for that doctrine grows out of the relation of principal and agent,
and there is no such relation between a thief and his victim. There is a vast difference in the rule of
liability upon negotiable instruments between *267267 a case where the possession has been

parted with by the affirmative act of the maker in an incomplete state, and one where his parting with
such possession is the result of a crime. The rule that the bona fide holder of an incomplete
instrument, negotiable but for some lack capable of being supplied, has an implied authority to
supply the omission, and to hold the maker thereon, only applies where the latter has by his own act,
or the act of another, authorized, confided in or invested with apparent authority by him, put the
instrument in circulation as negotiable paper. ( Ledwich v.McKim, 53 N.Y. 307; Davis Sewing
Machine Co. v. Best, 105 id. 59, 67.)
None of the circumstances connected with the theft of this paper appear, except that it was stolen
and that the persons guilty of the crime have been tried, convicted and sentenced for the same.
Plaintiff, therefore, cannot be charged with negligence giving rise to an estoppel, unless a man is
guilty of negligence in writing his name upon a piece of paper which by some possibility may
afterwards be stolen from him, which paper afterwards comes into the hands of a third person who is
an entire stranger to the transaction, with words written over the signature which are sufficient in
form to make it a check or note. Actionable negligence involves, first, the existence of a
duty; second, the omission to exercise ordinary and reasonable care in connection therewith,
and third, injury resulting in consequence thereof. In view of the contractual relation existing between
the bank and its depositor, some duty of care may be owing to it. The bank, by the terms of its
contract with him, is bound to pay on his account to the holder of paper bearing his genuine
signature the amount called for, if such amount is to his credit. But a third person is under no
obligation to honor his paper. He can take it or not as he pleases, and as a rule such paper is
accepted in reliance upon the immediate transferrer thereof. ( Trust Co. of America v. Conklin, 65
Misc. Rep. 1.) What duty, therefore, is owing to him? Again, at the risk of being charged with lack of
ordinary care and prudence, must one guard against the possibility of a crime being committed? It
has been held that where the maker of a completed negotiable instrument has parted with its
possession, but it is in such form that it is possible to make alterations in it, he is not guilty of
negligence in thus *268268 delivering it, for the reason that he is not bound to assume that the
person to whom he delivers it will be likely to commit a crime because it is apparently easy to do so.
( National Exchange Bank v. Lester, supra.) The drawer of a check is not bound so to prepare it that
nobody else can successfully tamper with it. ( Critten v. Chemical Nat. Bank, 171 N.Y. 219, 224.)
Much less can a party be held liable for negligence because it is possible that he may be deprived of
the possession of an incomplete negotiable instrument by a crime. He is not bound to anticipate nor
guard against such an act. No case has been cited holding a maker liable under such
circumstances. We have found two well-considered cases to the contrary. ( Burson v. Huntington, 21
Mich. 415; Baxendale v. Bennett, L.R. 3 Q.B. Div. 525.) In theBurson case the note was taken by the
payee named therein from a table in the room of the maker, without his authority or consent, and
transferred to an innocent holder for value. Judge CHRISTIANCY says, in an opinion concurred in by
the entire court (the italics are ours): "When a note payable to bearer, which has once become
operative by delivery, has been lost or stolen from the owner, and has subsequently come to the
hands of a bona fide holder for value, the latter may recover against the maker, and all indorsers on
the paper when in the hands of the loser; and the loser must sustain the loss. In such a case there
was a complete legal instrument; the maker is clearly liable to pay it to some one; and the question
is only to whom. But in the case before us, where the note had never been delivered and therefore

had no legal inception or existence as a note, the question is whether he is liable to pay at all, even
to an innocent holder for value. The wrongful act of a thief or a trespasser may deprive the holder of
his property in a note which has once become a note, or property, by delivery, and may transfer the
title to an innocent purchaser for value. But a note in the hands of the maker before delivery is not
property, nor the subject of ownership, as such; it is, in law, but a blank piece of paper. Can
the theft or wrongful seizure of this paper create a valid contract on the part of the makeragainst his
will, where none existed before? There is no principle of the law of contracts upon which this can be
done, unless the facts of the case are such that, in justice and fairness, as between the maker and
the innocent holder, the maker ought to be estopped to deny the making and *269269 delivery of the
note. * * * There may be cases where the culpable negligence or recklessness of the maker in
allowing an undelivered note to get into circulation, might justly estop him from setting up nondelivery; as if he were knowingly to throw it into the street, or otherwise leave it accessible to the
public, with no person present to guard against its abduction under circumstances when he might
reasonably apprehend that it would be likely to be taken. * * * The evidence tends to show that when
he left the room in his own house, the note being on the table, and his sister remaining there, he did
not confide it to the custody of the payee, but told him not to take it, and no final agreement between
them had yet been made, and no consideration given. Under such circumstances he can no more be
said to have trusted it to the payee's custody or confidence, than that he trusted his spoons or other
household goods to his custody or confidence; and there was no more apparent reason to suppose
he would take and carry off the one, than the other. The maker, therefore, cannot be held
responsible for any negligence; there was nothing to prove negligence, unless he was bound to
suspect, and treat as a knave, a thief or a criminal, the man who came to his house apparently on
business, because he afterwards proved himself to be such. This, we think, would be preposterous.
We, therefore, see no ground upon which the defendant could be held liable on a note thus
obtained, even to a bona fide holder for value."
In the case of Baxendale v. Bennett ( supra), decided by the English Court of Appeal, the defendant,
at the request of one Holmes, had written his name for Holmes' accommodation as an acceptor
upon a paper which was blank, except that it had an impressed bill stamp upon it, and had given it to
Holmes with authority to fill it up and sign it as drawer. Afterwards Holmes, discovering that he did
not need the accommodation, returned the paper to defendant in the same state in which he
received it. It was stolen from defendant's desk, filled up and signed by one Cartwright as drawer,
indorsed by him, and subsequently transferred to plaintiff as a bona fide holder for value. The court
(BRAMWELL, L.J.) held that the defendant was not liable. In his opinion he says: "Suppose he had
signed a blank cheque, with no payee, or date, or amount, and it was stolen, would he be liable or
accountable, not merely to his banker the drawee, but to a holder? * * * I cannot think *270270 so.
But what about the authorities? It must be admitted that the cases ofYoung v. Grote (4 Bing. 253)
and Ingham v. Primrose (7 C.B. [N.S.] 82) go a long way to justify this judgment; but in all those
cases, and in all the others where the alleged maker or acceptor has been held liable, he has
voluntarily parted with the instrument; it had not been got from him by the commission of a crime.
This, undoubtedly, is a distinction, and a real distinction. The defendant here has not voluntarily put
into any one's hands the means, or part of the means, for committing a crime. But it is said that he
has done so through negligence. I confess I think he has been negligent; that is to say, I think if he

had had this paper from a third person, as a bailee bound to keep it with ordinary care, he would not
have done so. But then this negligence is not the proximate or effective cause of the fraud. A crime
was necessary for its completion. Then the Bank of Ireland v. Evans' Trustees (5 H.L.C. 389) shows
under such circumstances there is no estoppel."
This rule of law has now passed into the statute in these words: "Where an incomplete instrument
has not been delivered it will not, if completed and negotiated, without authority, be a valid contract
in the hands of any holder, as against any person whose signature was placed thereon before
delivery." (Neg. Inst. Law [Consol. Laws, chap. 38; Laws of 1909, chap. 43], 34.) The provision of
the subsequent section of the same act, to the effect that "where the instrument is in the hands of a
holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to
him is conclusively presumed," must be read in connection with said section 34, and this provision
does not apply in the case of an incomplete instrument, completed and negotiated without authority.
(Crawford Neg. Inst. 35, note.)
We conclude, therefore, that the delivery of a promissory note by the maker is necessary to a valid
inception of the contract. The possession of such a note by the payee or indorsee is prima
facie evidence of delivery, but if it appear that the note has never been actually delivered and that
without any confidence, or negligence, or fault of the maker, but by force or fraud, it was put in
circulation, there can be no recovery upon it, even when in the hands of an innocent holder. *271271
Defendant contends that, as against the plaintiff, the bank was justified in paying out the plaintiff's
money on the check, and cites in support of his contention Trust Co. of America v. Conklin ( supra). If
so, it was not because the check was a valid check in the hands of a third person, but because of
the peculiar contract relation between the bank and its depositor. We are not called upon to decide
this, since it seems to be conceded that if the check was not a valid obligation in the hands of the
defendant this action will lie as for money had and received.
The judgment appealed from must be reversed and a new trial ordered, costs to abide the event.
JENKS and THOMAS, JJ., concurred; WOODWARD, J., read for affirmance, with whom CARR, J.,
concurred.

WOODWARD, J. (dissenting):
From the conceded facts it appears that the plaintiff signed a check, leaving the amount and the
name of the payee blank. The instrument was stolen from his place of business by two persons, who
filled in the amount, inserted the name of a fictitious payee, procured the same to be certified by the
bank on which it was drawn and transferred the check to the defendant, who parted with the full
apparent face value, partly in merchandise and partly in cash. The defense interposed was that the

plaintiff was negligent in leaving the incomplete instrument where it could be stolen, and a fraud
thereby perpetrated upon the defendant.
Section 34 of the Negotiable Instruments Law (Consol. Laws, chap. 38; Laws of 1909, chap. 43)
provides: "Where an incomplete instrument has not been delivered it will not, if completed and
negotiated, without authority, be a valid contract in the hands of any holder, as against any person
whose signature was placed thereon before delivery." Section 35 of the same statute provides:
"Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between immediate parties, and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, accepting or indorsing, as the case
may be; and in such case the delivery may be shown to *272272 have been conditional, or for a
special purpose only, and not for the purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties
prior to him so as to make them liable to him is conclusively presumed. And where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is proved."
"Delivery," as defined by section 2 of the Negotiable Instruments Law, "means transfer of
possession, actual or constructive, from one person to another." By section 35 the delivery, to be
effectual, must, as regards a remote party other than a holder in due course, be made either by or
under the authority of the person making, drawing, accepting or indorsing the instrument; and when
the instrument is in the hands of a holder in due course, a valid delivery is conclusively presumed.
The check in question was not delivered "by or under the authority of" the maker. But as to a holder
in due course, that, it would seem, is not requisite. In the hands of such a party a valid delivery is
conclusively presumed. The defendant was a holder in due course. (Neg. Inst. Law, 91.) It follows
that section 34 is not applicable, for that section presupposes that there has been no delivery. I,
therefore, vote to affirm the judgment.
CARR, J., concurred.
Judgment of the Municipal Court reversed and new trial ordered, costs to abide the event.

Supreme Court of Iowa.

226 Iowa 162 (Iowa 1939)

IN RE ESTATE OF MARTENS
IN RE ESTATE OF MAGGIE MARTENS. MABEL F. BONK, CLAIMANT,
APPELLANT, C.C. CRAWFORD, ADMINISTRATOR, DEFENDANT, APPELLEE,
JACK MARTENS ET AL., OBJECTORS, APPELLEES.

NO. 44438.
SUPREME COURT OF IOWA.

FEBRUARY 7, 1939.
BILLS AND NOTES: Delivery as essential element restatement of 1 common law. Section
9476, Code 1935, providing that every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto, is a restatement of
the common law rule.

EXECUTORS AND
ADMINISTRATORS: Note found in
decedent's safe no
delivery. *163163 APPEAL AND ERROR: Probate claims no trial de novo.

APPEAL FROM LYON DISTRICT COURT. O.S. THOMAS, JUDGE.

TRIAL COURT DENIED APPELLANT'S CLAIM, BASED ON AN ALLEGED

NOTE OF $1,500, AGAINST THE ESTATE. AFFIRMED.
Fisher Fisher, for appellant.
Meltzer Vogl and H.H. Hindt, for appellees.

MILLER, J.
Appellant, Mabel Martens Bonk, filed a claim, based on a note for $1,500, against the administrator
of this estate. The claim being denied, a petition was filed to secure the allowance thereof, to which
the administrator filed answer in the form of a general denial. Various issues were presented by the
evidence. We deem it necessary to consider only one of them, namely, whether or not the action of
the trial court, in denying appellant's claim, was proper because of the failure to establish that the
note was delivered during the lifetime of the deceased.
At the trial, appellant testified that she is the daughter of the deceased. She identified Exhibit A as a
note in the handwriting of her mother, dated March 1, 1930, promising to pay appellant $1,500 on
December 1, 1930, signed by the decedent. On the back of the note was the endorsement: "This
money is coming to her for teaching $1,000, and $500. is what the rest got also. Mother."
The decedent died January 2, 1936. The administrator qualified on March 1, 1936. Appellant testified
that, about March 11, 1936, in examining the contents of her mother's safe, she discovered an
envelope on which, in her mother's handwriting, was the notation: "Please give this to S. Fisher in
case of death. Mabel Martens from Mother"; she delivered the envelope to said Simon Fisher at his
law office shortly after she discovered it; Fisher opened the envelope, which was sealed, in her
presence and in the presence of the administrator; the note, Exhibit A, was found in the envelope;
her mother had *164164 told her that, in case of death, there was a letter for her, but she knew
nothing of any note; she found the envelope after the administrator had made an examination of the
contents of the safe and had not discovered it; she had loaned her parents $1,000 from time to time
out of money earned teaching school; her brothers and sisters each had received $500 when they
were married; she married subsequent to March 1, 1930, and did not receive her $500.
Simon Fisher testified that he first saw the envelope and the note after the death of the decedent; he
opened the envelope in the presence of the appellant and the administrator; in 1930 appellant
agreed to accept a note from her mother in satisfaction of $1,500 owed by her father's estate, which
was not paid because of insufficient funds; the decedent told him she had executed a note in favor of
appellant for $1,500, and she would bring it to the office and leave it with him; later she told him she
had placed it in a box or safe at home and for him to get it and give it to appellant any time he heard

of her death; he told her to deliver it to him or leave it with him, and if she wanted to, to turn it over to
appellant.
Apparently the trial court held that the claim should be denied because the record failed to establish
legal delivery of the note, which formed the basis of appellant's claim. We hold that there was no
error in this decision.
[1] Section 9476 of the Code provides that every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. This was the
common law rule. In the case of Bell v. Mahin, 69 Iowa 408, 29 N.W. 331, this court commences its
opinion with the following statement:
"The first defense set up by Petty to the note is that it was executed upon Sunday. It seems to be
undisputed that the note was signed on Sunday, but it was not intended to be delivered on that day,
and was not in fact delivered until Monday. A promissory note becomes a contract at the time of its
delivery. This contract, then, was made on Monday, and is not subject to the objection urged that it is
a Sunday contract."
[2] Obviously, the note here sued upon could not be made the basis of a valid claim against the
estate unless there was a legal delivery of the same, during the lifetime of the
decedent. *165165 Our decisions, relative to analogous situations, are reviewed in the recent case
of Orris v. Whipple, 224 Iowa 1157, 1170, 280 N.W. 617, 623, wherein we state:
"All there is to show delivery in this case is that the deed was prepared and executed by Miss Aken;
that she told others that she wanted the plaintiffs to have the property, and that she had prepared
papers so providing. She put the deeds in her safety deposit box and retained the key. We do not
think these admitted facts show a legal delivery of the deed in question."
[3] The position taken by this court in the Orris case is controlling here. It is not necessary to review
the evidence introduced by appellees. We recognize that this case is not triable de novo; the
determination of the credibility of the witnesses and the weight of the testimony were matters for the
trial court to decide. In re Smith's Estate, 223 Iowa 172, 271 N.W. 888. Our statement of the facts
herein is more favorable to appellant than the record warrants. However, the decisive factor is that,
even when we so consider the evidence, the record fails to establish delivery of appellant's note
during the lifetime of the deceased.
[4] Appellant did not present to the trial court and does not present to this court the question
involving what rights, if any, she might have had had she undertaken to file a claim based upon the
alleged indebtedness of the decedent to her independent of the note. Her claim and her petition are
based solely upon the note. At page 8 of appellant's argument, counsel states: "Under this record, as
we view it, there is but one issue to submit to this court, and that is the sufficiency of the delivery of
the note." As above pointed out, the trial court's decision on that issue was right. The judgment
entered pursuant thereto must be and it is affirmed. Affirmed.

MITCHELL, C.J., and BLISS, SAGER, STIGER, OLIVER, and HALE, JJ., concur.