Sec.-First Nat'l. Bank of L.A. v. Bank of Am. Nat'l. Tr. & Sav. Ass'n.

TRAYNOR, J. The plaintiff, Security-First National Bank, issues numerous checks drawn on itself. It was the sole duty of one of plaintiff’s officers, A. M. Hadley, to sign such checks. Each check was presented to him with a debit slip, and if the slip showed that the check was properly authorized and that funds were available in the proper account, he signed the check. Among the employees who prepared debit slips and wrote checks, but who were not authorized to sign checks, was Dee L. Ellis, Jr., head of the accounting division of the trust department. Ellis prepared a number of checks for Hadley’s signature, drawn to the order of L. W. Bobbitt, together with debit slips in the usual form on the basis of which Hadley signed the checks. There was such a person as Bobbitt, but he knew nothing of the transaction, and Ellis did not intend that he receive any of the checks. Ellis had become acquainted with one of defendant’s employees and had no difficulty in establishing an account with defendant as agent for Bobbitt. He indorsed the name of L. W. Bobbitt on the cheeks, deposited them in this account, and later withdrew the funds deposited. Defendant presented the checks through the Los Angeles clearing house and in accord with — 157 — the clearing house rules guaranteed all prior indorsements. When plaintiff received the checks from the clearing house, they were returned to the accounting division of the trust department where they fell into the hands of Ellis, who destroyed them. By manipulation of the outstanding-checks file Ellis was able to conceal the fraud for a time, but it was eventually discovered, and plaintiff brought this suit on defendant’s guarantee. Defendant appeals from the judgment for plaintiff. Defendant invokes section 3090 of the Civil Code (§9(3) of the Uniform Negotiable Instruments Act) providing: “The instrument is payable to bearer . . . (3) When it is payable to the order of a fictitious or non-existent person, and such fact is known to the person making it so payable. ...” If these checks are payable to a fictitious payee, and are therefore bearer paper, defendant’s guarantee of the indorsements imposes no liability. (Union B. & T. Co. v. Security-First Nat. Bank, 8 Cal.2d 303 [65 P.2d 355].) The fact that Bobbitt was an actual person does not prevent his name from being that of a fictitious payee, for it is settled that an instrument is drawn to the order of a fictitious payee if it is not intended that the person named on its face have any interest in it. (Union B. & T. Co. v. Security-First Nat. Bank, supra.) Such a check, however, is not payable to bearer unless the fact that the payee is fictitious is known by “the person making it so payable.” (Civ. Code, § 3090.) This condition limits the extent to which the fictitious payee rule qualifies the usual rules governing the effect of forged indorsements. A forged indorsement is ordinarily a nullity. It does not pass title to a check (Civ. Code, § 3104; Anglo-California Trust Co. v. French American Bank, 108 Cal.App. 354 [291 P. 621]) and a bank may not charge to the account of its depositor a check paid on the basis of such an indorsement. (Hatton v. Holmes, 97 Cal. 208 [31 P. 1131]; Atwell v. Mercantile Trust Co., 95 Cal.App. 338 [272 P. 799].) Where the drawer intentionally makes a cheek payable to a fictitious payee, he knows that it will be indorsed in the name of the payee by someone bearing another name and he thus cannot obtain the benefit of these rules. Similarly, when he entrusts an employee with the responsibility of signing his checks, the signer takes the place of the drawer. His signature creates the check and his knowledge binds the — 158 — drawer. When, the drawer or his signer is the victim of the fraud of the bookkeeper who is charged with examining the drawer’s accounts and informing him of his liabilities, the person buying or paying the check has no right to a release at the expense of the innocent drawer from the responsibility of determining the authenticity of the indorsements. (See Brannari’s Negotiable Instruments (Beutel’s sixth ed. 1938) p. 223, 224.) Hadley, not Ellis, was the signer of plaintiff’s checks. Defendant, however, asserts that Hadley acted as a mere automaton, and that Ellis’s authorization was in effect an order to him to execute the checks. While Hadley ordinarily signed in reliance on vouchers executed by Ellis, the record shows that he refused on at least one occasion to sign a check authorized by Ellis. In many large businesses, it is necessary for the officer authorized to sign checks to do so in reliance on the vouchers of another employee, although that employee has no authority over him. In this situation, as in the execution of plaintiff’s cheeks, the fraud of the employee preparing the vouchers automatically leads to the. unwitting execution by the signer of cheeks to fictitious payees. Since this severance of the function of investigating disbursements from that of executing checks creates the only situation in which checks can be commonly executed to a fictitious payee without the knowledge of the person making them so payable (See Note, 74 A.L.R. 822), it is probable that the requirement of knowledge was included in the section to prevent such checks from becoming payable to bearer. Thus, in Los Angeles Investment Co. v. Home Savings Bank, 180 Cal. 601 [182 P, 293, 5 A.L.R. 1193], one Emory, the manager of the insurance department of a real estate firm, prepared requisitions representing false insurance claims. He was not authorized to sign checks. On the basis of his requisitions another officer signed checks drawn to the order of various persons, and in their names Emory signed and negotiated them. It was held that those checks were not payable to bearer, because the officer signing them was the person making them payable to a fictitious payee, and he had no knowledge that the payee was fictitious. Defendant attempts to distinguish the Home Savings Bank case on the theory that the representations of the defrauding employee were there subject to an independent audit, so that they were not the direct cause of the execution of the fictitious payee checks. The opinion, however, attaches — 159 — no significance to this fact, declaring unequivocally that fictitious payee checks are not payable to bearer unless the signor is aware of the fraud. Throughout the many years since the Negotiable Instruments Law was drafted, this interpretation has been adopted almost universally throughout the country. (See Brannan’s Negotiable Instruments, supra, p. 208 et seq., and the long list of cases there cited; 7 Am.Jur. 844; 10 C.J. 580.) Since the same result was commonly reached in this country before the adoption of the Negotiable Instruments Law (see Kulp, The Fictitious Payee, 18 Mich.L.Rev. 296; Note, 22 A.L.R. 1229) the decision in the Home Savings Bank case and similar cases may be supported on the theory that section 9(3) of the Negotiable Instruments Law was intended to codify the common law. The question whether it was sound policy to adopt the rule is one for the Legislature to decide. Defendant relies particularly on Union Bank & Trust Co. v. Security-First Nat. Bank, supra, Goodyear Tire & Rubber Co. v. Wells Fargo Bank, 1 Cal.App.2d 694 [37 P.2d 483], and Rancho San Carlos v. Bank of Italy, 123 Cal.App. 291 [11 P.2d 424], The Union Bank & Trust Co. case involved the fraud of one Williams, the director and assistant secretary of two corporations that maintained accounts at the Union Bank. He was authorized by his employers to sign checks, on which counter-signatures were also required. He drew and signed checks on his employers’ accounts and procured the necessary co-signatures. He presented these checks to the Union Bank, and upon a written requisition on behalf of his employers, drawn and signed by himself, purchased cashier’s checks to the order of the payees designated in the requisitions. He later indorsed the checks in the name of the payees and deposited them. It was held that the checks were payable to bearer. The court emphasized the special situation of a bank in issuing cashier’s checks, a form of currency for which the bank is paid in advance. It is not concerned with who the payee should be. For this reason the knowledge of the purchaser may determine whether a cashier’s cheek to a fictitious payee is payable to bearer. Williams, as authorized by his employers, purchased and designated the payee of the cashier’s checks. The court also emphasized the fact that Williams was authorized to sign his employers’ checks. He could therefore have drawn fictitious payee cheeks against his employers’ account that would have been payable to bear — 160 — er. The court concluded that the same result followed when Williams used this authority to sign personal cheeks as the means of causing the execution of cashier’s checks to fictitious payees. In the Goodyear Tire and Rubber Co. case one Downs was authorized to sign checks, which, however, were not valid until signed by certain co-signers. Downs drew and signed a number of checks and his co-signers signed on the strength of his signature. He then forged the indorsements of the payees and collected the cheeks. The court pointed out that Downs knew that the payee was fictitious when he drew and signed these checks, and made it clear that the requirement of cosigners did not restrict the effect of his knowledge. Since the joinder of the co-signers was automatic, the court treated the case as if Downs were the sole signer, and concluded that the checks were payable to bearer. The opinion, however, expressly asserts that if Downs had not been the signer of the cheeks, his knowledge would not have been controlling. In Rancho San Carlos v. Bank of Italy, supra, an employee was entrusted with signed blank checks and was authorized to fill in the blanks. He completed them in the names of fictitious payees, indorsed the checks in those names and then negotiated them. It was held that they were payable to bearer. The court viewed the authority to complete a signed blank check by filling in the name of the payee and the amount payable as the equivalent of the authority to sign an otherwise complete check. Defendant in the present case contends that Ellis delivered the trust department checks because they were sent to the payees by the accounting division. Delivery of a negotiable instrument, however, is not essential to its execution. A check is complete when received by the person who is to deliver it, and lack of delivery is no defense against a holder in due course. (Civ. Code. § 3097.) Ordinarily, therefore, the signer remains the person making the completed check payable to a fictitious payee regardless of whether another employee is responsible for seeing that it reaches the payee. (Los Angeles Investment Co. v. Home Savings Bank, supra; United States Cold Storage Co. v. Central Mfg. Dist. Bank, 343 Ill. 503 [175 N.E. 825, 74 A.L.R. 811] ; Sealoard Nat. Bank v. Bank of America, 193 N.Y. 26 [85 N.E. 829]; Jordan Marsh Co. v. National Shawmut Bank, 201 Mass. 397 — 161 — [87 N.E. 740, 22 L.R.A. N.S. 250]; City of St. Paul v. Merchants’ Nat. Bank, 151 Minn. 485 [187 N.W. 516, 22 A.L.R. 1221].) A contrary conclusion has been arrived at when an employee has discretion to decide when and whether checks shall be delivered. (See Goodyear Tire & Rubber Co. v. Wells Fargo Bank, supra, and eases there cited.) The soundness of these decisions need not be considered, since the claim that Ellis had such authority is based only on conjecture. The evidence shows merely that the checks were returned to the accounting division to be forwarded to the payees. After the checks were cleared they were returned to the trust department accounting division, which was under the supervision of Ellis, and there examined and balanced against the file of outstanding checks. Defendant concludes from these facts that Ellis was the officer who paid them, and argues that in so paying them Ellis represented that he knew of nothing wrong with the checks or their indorsements, and accepted defendant’s guarantee of the indorsements without disclosing that they were forged. Defendant contends that because Ellis performed these acts in the course of his employment, plaintiff is estopped from denying the validity of the indorsements. The checks were not paid merely by the settlement at the clearing house. This settlement is usually tentative only, and the cleared checks are not regarded as paid until the time has passed under the clearing house rules during which the drawee bank can return them to the forwarding bank. (Sneider v. Bank of Italy, 184 Cal. 595 [194 P. 1021, 12 A.L.R. 993].) It is difficult to regard any one employee as paying the checks. If one were to be singled out it would most likely be the employee who has authority to decide whether or not the cheeks should be returned to the forwarding bank. There is no showing that Ellis had such authority. The judgment is affirmed. Gibson, C. J., Curtis, J., and Edmonds, J., concurred.