Martin, J.
The respondent, a depositor in the defendant bank, recovered a judgment for the sum of $3,252.55, representing payments made from plaintiff’s account on checks upon which the name of the payee was forged. The bank defended on the ground that the loss was caused by the plaintiff’s negligence.
The method followed by the plaintiff in transacting business becomes important in view of the contention of the defendant that plaintiff was negligent. When a consignment of goods was received the amount thereof was entered in a book known as the “ Consignment Book.” The charges against the consignment advanced by the plaintiff, including freight, storage and cartage, were also entered therein. A record of the sales of the consigned goods was kept in the same book,, but ordinarily remittances to consignors were not entered.
An employee of the plaintiff, one Edgar B. Hamm, formerly employed by the defendant bank, had charge of the routine matters in regard to bank accounts. He also had charge of drawing checks, mailing entries on the stubs, keeping the cash book, and various other matters about the office. When the defendant sent its monthly statement with vouchers, it was given to Hamm to check and see that they balanced. These monthly statements and vouchers were also examined and checked independently by the accountants employed by the plaintiff, and were found to be correct.
In the latter part of the year 1924, Hamm conceived a fraudulent scheme to obtain money. His method of operation was to prepare a statement showing an amount due a consignor, present this statement with a check drawn to the order of the consignor to either John H. Patón, the secretary of plaintiff, or John G. Patón, the president of plaintiff, for signature, repossess himself of the check and statement, destroy the statement, forge the payee’s signature upon the check, writing his own indorsement thereunder, and then cash the check over the counter of the defendant. The defendant bank in each instance paid the checks without any question and without any investigation as to the indorsements of payees, although none of the payees were known to it. Having destroyed the statement which was presented with the check for signature, there was no record of any remittance to the consignor outside of the check [547]*547stub or the check book. With the statement destroyed showing the remittances, it was a simple matter for Hamm thereafter to prepare a new statement and issue a new check, which, of course, was forwarded to the consignor in due course.
The only risk that Hamm incurred was that either John H. Patón or John G. Patón, the officers of the plaintiff corporation, would remember the prior remittance. Hamm knew they were not likely to remember the prior remittance in view of the fact that the amount of purchases of the business at that time amounted to from $30,000 to $40,000 a month, and judging from the small amount of the checks in question, the total number of checks drawn making up $30,000 to $40,000 a month must have been very large.
All of the checks in question, with the exception of two, were issued in the same manner. No change was made by Hamm, on the face of the check. The amount of the check as drawn was regularly entered on the stub of the check book and carried through to the cash book. At the end of the month examination of the face of the checks, together with the bank statement and the list of checks returned, would not show any discrepancy whatsoever.
The two checks that were handled differently are shown in the record as plaintiff’s Exhibits 13 and 27. Plaintiff’s Exhibit 13 is a check drawn to the order of A. Kreger. He was a truckman doing business with the plaintiff, and in December, 1924, he rendered a bill for trucking services of $72.60 for which Hamm drew a check. After procuring the signature of John H. Patón to a check in payment of this bill, Hamm received the check, destroyed the bill, forged Kreger’s signature and cashed it with the defendant bank. He testified that this amount was included by Kreger in a later bill which covered other items, and that the later bill was paid, so that no inquiry was made by Kreger as to the non-payment of this bill and no notice, therefore, given to the plaintiff of the irregularity.
Plaintiff's Exhibit 27 is a check to the order of K Chorosh, a stenographer of the plaintiff, for her salary. Hamm procured the check, forged the payee’s signature and cashed it the same as the other checks. Apparently some days later another check was drawn to Miss Chorosh, so that she made no claim. Hamm’s recollection was very vague with reference to the course pursued in this transaction. This was the last check misappropriated.
In January of 1926, Hamm, no longer able to withstand the strain caused by fear of discovery, disappeared. He was later apprehended, made a full confession, pleaded guilty to attempted forgery in the second degree, and was sentenced to a term in prison.
In view of the facts set forth the court refused to sustain the [548]*548contention of the defendant bank that the plaintiff was negligent in failing to examine the indorsements upon the checks when the checks were returned with the statements at the end of the month. The court held that the plaintiff did all that was required or that could be expected. The defendant contends that after the canceled checks were returned by the bank, the plaintiff should have gone to the files, located the signatures of customers and compared them with the indorsements on the checks. The uncontradicted testimony shows that an examination of the face of the checks and the bank statements, checking the bank balances and comparing the checks returned with the check stubs, would have revealed no discrepancies; the checks had not been changed, the amounts of the checks had been properly placed on the stubs and the amounts also properly entered in the cash book. No checks were abstracted from the fist of canceled checks returned by the bank so that the plaintiff in performing its full duty could not have by an examination of the face of the checks detected the forgeries. As an additional precaution the plaintiff employed a firm of accountants who also examined these books and checks, compared the checks with the check stubs, compared the bank balances and checked the lists of returned checks. This firm of accountants was unable to detect any forgeries.
In Shipman v. Bank S. N. Y. (126 N. Y. 318) the court held that the bank must at its own peril determine the question of the genuineness of the indorsements, and that the depositor is entitled to assume that the bank has ascertained this fact, and this rule is reiterated in a number of cases.
In Stumpp v. Bank of New York (212 App. Div. 608) the court said: “ Under the authorities, I believe that the depositor, upon the return of his vouchers from the bank accompanied by a statement of the transactions in his account for the preceding month, is bound to do three things: (1) Compare the vouchers returned by the bank with the check stubs in his stub book; (2) compare the balance entered in the statement (or pass book) with the balance in his stub book; (3) compare the returned vouchers with the fist of checks entered in the statement (or check fist). If such examination is made with ordinary care and no error is detected, then the depositor is not negligent; if be fails to make any or all of these comparisons, and such comparison would have disclosed the forgery, then he is negligent and cannot recover from the bank.”
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Martin, J.
The respondent, a depositor in the defendant bank, recovered a judgment for the sum of $3,252.55, representing payments made from plaintiff’s account on checks upon which the name of the payee was forged. The bank defended on the ground that the loss was caused by the plaintiff’s negligence.
The method followed by the plaintiff in transacting business becomes important in view of the contention of the defendant that plaintiff was negligent. When a consignment of goods was received the amount thereof was entered in a book known as the “ Consignment Book.” The charges against the consignment advanced by the plaintiff, including freight, storage and cartage, were also entered therein. A record of the sales of the consigned goods was kept in the same book,, but ordinarily remittances to consignors were not entered.
An employee of the plaintiff, one Edgar B. Hamm, formerly employed by the defendant bank, had charge of the routine matters in regard to bank accounts. He also had charge of drawing checks, mailing entries on the stubs, keeping the cash book, and various other matters about the office. When the defendant sent its monthly statement with vouchers, it was given to Hamm to check and see that they balanced. These monthly statements and vouchers were also examined and checked independently by the accountants employed by the plaintiff, and were found to be correct.
In the latter part of the year 1924, Hamm conceived a fraudulent scheme to obtain money. His method of operation was to prepare a statement showing an amount due a consignor, present this statement with a check drawn to the order of the consignor to either John H. Patón, the secretary of plaintiff, or John G. Patón, the president of plaintiff, for signature, repossess himself of the check and statement, destroy the statement, forge the payee’s signature upon the check, writing his own indorsement thereunder, and then cash the check over the counter of the defendant. The defendant bank in each instance paid the checks without any question and without any investigation as to the indorsements of payees, although none of the payees were known to it. Having destroyed the statement which was presented with the check for signature, there was no record of any remittance to the consignor outside of the check [547]*547stub or the check book. With the statement destroyed showing the remittances, it was a simple matter for Hamm thereafter to prepare a new statement and issue a new check, which, of course, was forwarded to the consignor in due course.
The only risk that Hamm incurred was that either John H. Patón or John G. Patón, the officers of the plaintiff corporation, would remember the prior remittance. Hamm knew they were not likely to remember the prior remittance in view of the fact that the amount of purchases of the business at that time amounted to from $30,000 to $40,000 a month, and judging from the small amount of the checks in question, the total number of checks drawn making up $30,000 to $40,000 a month must have been very large.
All of the checks in question, with the exception of two, were issued in the same manner. No change was made by Hamm, on the face of the check. The amount of the check as drawn was regularly entered on the stub of the check book and carried through to the cash book. At the end of the month examination of the face of the checks, together with the bank statement and the list of checks returned, would not show any discrepancy whatsoever.
The two checks that were handled differently are shown in the record as plaintiff’s Exhibits 13 and 27. Plaintiff’s Exhibit 13 is a check drawn to the order of A. Kreger. He was a truckman doing business with the plaintiff, and in December, 1924, he rendered a bill for trucking services of $72.60 for which Hamm drew a check. After procuring the signature of John H. Patón to a check in payment of this bill, Hamm received the check, destroyed the bill, forged Kreger’s signature and cashed it with the defendant bank. He testified that this amount was included by Kreger in a later bill which covered other items, and that the later bill was paid, so that no inquiry was made by Kreger as to the non-payment of this bill and no notice, therefore, given to the plaintiff of the irregularity.
Plaintiff's Exhibit 27 is a check to the order of K Chorosh, a stenographer of the plaintiff, for her salary. Hamm procured the check, forged the payee’s signature and cashed it the same as the other checks. Apparently some days later another check was drawn to Miss Chorosh, so that she made no claim. Hamm’s recollection was very vague with reference to the course pursued in this transaction. This was the last check misappropriated.
In January of 1926, Hamm, no longer able to withstand the strain caused by fear of discovery, disappeared. He was later apprehended, made a full confession, pleaded guilty to attempted forgery in the second degree, and was sentenced to a term in prison.
In view of the facts set forth the court refused to sustain the [548]*548contention of the defendant bank that the plaintiff was negligent in failing to examine the indorsements upon the checks when the checks were returned with the statements at the end of the month. The court held that the plaintiff did all that was required or that could be expected. The defendant contends that after the canceled checks were returned by the bank, the plaintiff should have gone to the files, located the signatures of customers and compared them with the indorsements on the checks. The uncontradicted testimony shows that an examination of the face of the checks and the bank statements, checking the bank balances and comparing the checks returned with the check stubs, would have revealed no discrepancies; the checks had not been changed, the amounts of the checks had been properly placed on the stubs and the amounts also properly entered in the cash book. No checks were abstracted from the fist of canceled checks returned by the bank so that the plaintiff in performing its full duty could not have by an examination of the face of the checks detected the forgeries. As an additional precaution the plaintiff employed a firm of accountants who also examined these books and checks, compared the checks with the check stubs, compared the bank balances and checked the lists of returned checks. This firm of accountants was unable to detect any forgeries.
In Shipman v. Bank S. N. Y. (126 N. Y. 318) the court held that the bank must at its own peril determine the question of the genuineness of the indorsements, and that the depositor is entitled to assume that the bank has ascertained this fact, and this rule is reiterated in a number of cases.
In Stumpp v. Bank of New York (212 App. Div. 608) the court said: “ Under the authorities, I believe that the depositor, upon the return of his vouchers from the bank accompanied by a statement of the transactions in his account for the preceding month, is bound to do three things: (1) Compare the vouchers returned by the bank with the check stubs in his stub book; (2) compare the balance entered in the statement (or pass book) with the balance in his stub book; (3) compare the returned vouchers with the fist of checks entered in the statement (or check fist). If such examination is made with ordinary care and no error is detected, then the depositor is not negligent; if be fails to make any or all of these comparisons, and such comparison would have disclosed the forgery, then he is negligent and cannot recover from the bank.”
The only negligence which the defendant may take advantage of to reheve itself from liability is the omission by the plaintiff to perform some duty which it owed the bank. The plaintiff owed the bank no duty to keep a proper set of books and records or to [549]*549keep any books of record whatsoever, except a check book and check stubs. Therefore, whether the plaintiff had a proper bookkeeping system and kept proper records is immaterial. Nor was the plaintiff negligent in employing Hamm and relying implicitly upon his honesty and integrity until it had some notice to the contrary.
A bank that has paid out money upon forged indorsements may relieve itself from liability only by establishing that the payment was induced by the depositor’s negligence, and that in making the payment it was free from any negligence. This is an affirmative defense and the bank has the burden of proving not only the depositor’s negligence but its own freedom from negligence.
The evidence conclusively established that there was no negligence on the part of the plaintiff. To require a depositor to examine each indorsement on a check when returned by the bank, would cast too great a burden on depositors. As a general rule a depositor is not familiar with such indorsements.
The authorities relied on by defendant, which held that a depositor was negligent in failing to discover a forged indorsement, were based on a peculiar state of facts which gave the depositor notice of such forgeries.
We are of the opinion that the trial court properly directed a verdict for the plaintiff, and that the judgment appealed from should be affirmed, with costs.
Dowling, P. J., and McAvoy, J., concur; Finch and O’Malley, JJ., dissent.