#### Dennis H. McBride, Respondent, *v.*Illinois National Bank, Appellant.

First Department,

July 10, 1914.

Principal and agent—banks and banking — liability of bank receiving note for collection for negligence of its correspondent.

Where a promissory note has been forwarded for collection through a chain of banks, the first and second of which do not accept the same for collection, but by written notice limit their liability to that of an agent, and the third bank received the same without attempting in any manner to limit its liability, it became the agent of the owner for collection and is liable for the negligence of the bank to which it transmitted the note, in that the latter failed properly to present the same for payment, resulting in the release of a solvent indorser, the maker being insolvent. (See, also, head note, 1S8 App. Div. 339.)

Ingraham, P. J., dissented, with opinion.

Appeal by the defendant, Illinois National Bank, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 29th day of April, 1913, upon the report of a referee appointed to hear and determine the issues.

*418
      *Delos McCurdy, Ion*the appellant.

*George D. Beattys,*for the respondent.

Laughlin, J.:

This is an action on an assigned claim of the National City-Bank of Akron, 0., to recover damages alleged to have been caused by the negligence of the defendant as a bank employed to collect a certain promissory note payable at the Galesburg National Bank, Galesburg, 111.

This court on an appeal from a former judgment herein in favor of the plaintiff, reversed the judgment and ordered a new trial before the referee whose report is now under review. (138 App. Div. 339.) The material facts then presented by the record are stated in the opinion delivered on that appeal, and need not be restated. The loss has been occasioned by the release of a solvent indorser. On the former trial it was held, in effect, that the proximate cause of the release of the indorser was a letter transmitted by the defendant with the note to the People’s Trust and Savings Bank of Galesburg, 111., containing the words “No Protest.” This court on the former appeal held that it was not necessary to protest the note because it was not a foreign bill of exchange, and, on evidence which is the same as that in the record now before the court, held that the said People’s Trust and Savings Bank of Galesburg, which the defendant employed to collect the note, was guilty of negligence in failing properly to present the note for payment. Since the evidence is precisely the same with respect "to those two points in this record, we adopt the opinion on the former appeal without further discussing them.

On the former appeal it was also held, on the authority of *Montgomery County Bank*v. *Albany City Bank*(7 N. Y. 459), that the only theory on which the defendant would be liable to the plaintiff for the negligence of its correspondent or collecting agent is that the defendant was employed by the plaintiff *to collect*the note; and it was also held that such employment was not shown in that the relations between the Cleveland bank, to which the note was transmitted by the plaintiff’s assignor, and the Chicago bank, to which the Cleveland bank transmitted the note, and between the Chicago bank and the defendant, to *419which the Chicago bank transmitted it, were not shown, and it did not appear whether or not there were any special contract relations between them with respect to this note; but it was assumed and the learned referee has so construed the opinion that the first bank which undertook unconditionally to collect the note became hable to the plaintiff’s assignor as its agent. It then appeared and now appears that the Akron bank, which owned the note, before the maturity thereof forwarded it by mail to the First National Bank of Cleveland, O., its correspondent, for collection. The Cleveland bank, however, in effect.refused to accept the note *for collection Joy*writing the owner a letter acknowledging the receipt of the note and saying:. “In receiving and forwarding paper outside of this city, this bank acts only as your agent, using its best efforts in selecting its correspondents, and will assume no responsibility except for its own acts.” It was held on the former appeal that that notice relieved the Cleveland bank of liability for the collection of the note and that it merely undertook to transmit it as agent of the Akron bank and that in the absence of some limitation on the liability of the Chicago bank the latter would become the agent of the Akron bank. It now appears that when the Chicago bank received the note from the Cleveland bank it acknowledged the same on a postal card, upon which was printed the following: “ All items not payable in Chicago received by this bank for collection or credit, are taken at owner’s risk. This Bank, as agent for owner, will forward such items to Banks out of this city, and assumes no responsibility for neglect, default, or failure of such banks, nor for losses occurring in the mail. Should any Bank convert the proceeds or remit therefor in checks or drafts, which are dishonored, the amount for which credit has been given will be charged back and dishonored paper returned.” The Chicago bank transmitted the note to the defendant for collection, and, • there is no evidence of any contract limiting the liability of the defendant,, or that it attempted in any maimer to limit its.liability by any letter or notice to the Chicago bank, or otherwise. The presumption is that defendant accepted the note for *collection,*and the burden of showing a special agreement, express or implied, limiting its liability was upon it. *(National*
      *420
      *Revere Bank*v. *Nat. Bank of Republic,*172 N. Y. 102, 108.) The learned referee has merely applied the opinion of this court on the former appeal to the facts as they now appear, and, following the views expressed by this court that, in the absence of any hmitation on the liability of the Chicago bank, it would become the agent of the owner of the note, the referee has held that the Chicago bank, like the Cleveland bank, merely received the note for transmission, and that the defendant became the agent of the owner for collection.

The Court of Appeals in the *Montgomery County Bank Case (supra),*which has been accepted as the settled law of this State on these questions and often cited with approval *(Commercial Bank of Pennsylvania*v. *Union Bank of New York,*11 N. Y. 203; *Naser*v. *First National Bank,*116 id. 492. See, also, to same effect *National Revere Bank*v. *Nat. Bank of Republic, supra,*and cases cited), clearly stated the rule to be that the bank accepting employment from the owner of commercial paper *to collect*it becomes his agent and is liable for any negligence on the part of any other bank or agent employed directly or indirectly by it to accomplish the purpose; and that if the bank originally employed employs another, such other bank becomes its agent and not the agent of the owner, and is responsible to it alone and not to the owner for any negligence. This rule of law is not uniform throughout the United States, but it is the rule adopted by the Supreme Court of the United States. *(Exchange National Bank*v. *Third National Bank,*112 U. S. 276.) It may be said that it was not necessary for this court on the former appeal *to decide*the question as to whether, if each bank in the chain preceding the defendant refused to accept the note for collection and merely transmitted it, and the defendant failed thus to limit its liability, the defendant would become the agent of the owner; but in view of the decision of this court on the other questions, that was the only possible theory on which the defendant could be liable, and, therefore, that was the only occasion for the new trial, and whether it was necessary to express a decided view on that question on the former appeal or not, the views then expressed are, I think, sound and logical. If the defendant was the first bank which accepted the note *for collection,*that

*421implies that the other hanks merely acted as the owner’s agent *in transmitting*the note and in ultimately *employing __*the., defendant to collect it. Under the well-settled rule, the defendant having accepted the note for collection, is liable either to the Chicago bank or to the plaintiff for the negligence of the Galesburg bank. Since the Chicago bank did not accept the note *for collection*it is liable neither to the Cleveland bank nor to the plaintiff, and, therefore, it having sustained no damages, and incurred no liability for the ultimate negligence of the final bank for collection, it could not recover of the defendant, and unless the plaintiff can recover of the defendant it would seem that no one can. If there be any question with respect to the authority of the Cleveland bank to accept the release of the liability of the Chicago bank for the collection of the note, or of the Chicago bank to act as agent for the owner in employing the defendant to collect the note, it would seem that the plaintiff by bringing this action has ratified such acts, and its ratification is equivalent to original authority. The proposition that the first bank which accepts employment *for the collection*of the paper becomes the agent of the owner is established, I think, *bj Bank of Washington*v. *Triplett*(11 Pet. 25) and *Naser*v. *First National Bank (supra).*In the first of those cases the holder of an inland bill of exchange deposited it with the Mechanics’ Bank of Alexandria for *transmission*to a bank in Washington for collection, indorsing it in blank for that purpose. It was held that the bank to which it was thus transmitted in Washington became the agent, not of the transmitting bank, but of the owner of the bill, notwithstanding the fact that it did not know who was the owner of the bill. In that case, however, the negligence was on the part of the Washington bank, and the case differs from this on the facts in that here the negligence, according to the decision on the former appeal, was not on the part of the defendant. I am of opinion, however, that *Bank of Washington*v. *Triplett (supra)*is consistent with the *Montgomery County Bank Case (supra)*only on the theory that the first bank which accepts paper *for collection*becomes through the employment of one of the transmitting banks the agent of the owner; and that is also true of the *Naser Case (supra)*in which the *422question was as to whether the fund collected was subject, in the hands of the bank to which it had been *transmitted*for collection by the bank employed for that purpose by the owner of the draft, to levy under an attachment against the *owner*of the draft, and it was held that the proceeds belonged to such owner, and not to the transmitting bank.

It follows that this judgment is right and should be affirmed.

McLaughlin, Dowling and Hotchkiss, JJ., concurred; Ingraham, P. J., dissented.

Ingraham, P. J. (dissenting):

When this case was before this court on the former appeal (138 App. Div. 339) we applied the principle established in the case of *Montgomery County Bank*v. *Albany City Bank (7*N. Y. 459) and expressly held, as I read the opinion, that the defendant could not be liable to the plaintiff on account of the failure of the People’s Trust and Savings Bank at Galesburg, where the note was payable, to present the note for payment and properly protest it. The conclusion at which my brother Clarke arrived in reversing that judgment is as follows: “To sustain the judgment in this case would be to hold that the defendant, without knowledge of the special agreement, though with knowledge of the general rule, was liable not to its immediate predecessor but to a remote principal upon the doctrine of agency of an undisclosed principal and for a negligence not of its own but of its correspondent. If the plaintiff is right, and the chain once broken, all the links fall apart, and it has the right to sue any one, it should have proceeded against the People’s Trust and Savings Bank. If it is not right and the rule has only been affected so far as the Cleveland and the Chicago banks are concerned, it has no privity with the defendant or right to sue it, even assuming, which we do not at all concede, that its act in allowing the words ‘No Protest ’ to appear upon its letter of transmittal was the proximate cause of the loss.”

As to the substantial facts upon which this conclusion was based there is no change upon the new trial. The plaintiff in this action sues as the assignee of the National City Bank of Akron, 0. It discounted this note for a customer, and before *423maturity sent it to its correspondent, the First National Bank of Cleveland, O.; the Cleveland bank sent the note to the Commercial Bank of Chicago, which forwarded it to the Illinois National Bank of Peoria, 111., which in turn forwarded the note to the People’s Trust and Savings Bank of G-alesburg, 111. I think it clear that, applying the principle established in the *Montgomery County Bank Case (supra),*this defendant was not responsible to the plaintiff’s assignor or either of the banks in the chain except for its own negligence. It received the note in the ordinary course of business for collection at a point distant from the city in which it was located, and it passed the note on to a responsible banking institution in the city in which the note was payable. It certainly assumed no obligation either to the plaintiff’s assignor or to any of the banks in the chain except for its own negligence, and there is no allegation or proof that it was negligent. The loss was occasioned solely by the failure of the G-alesburg bank to properly present the note. Certainly the defendant never became the agent of the plaintiff’s assignor except to transmit the note for collection, and I think in the absence of some negligence of the defendant the defendant was not liable.

I think, therefore, that the judgment appealed from should be reversed, with costs, and the complaint dismissed, with costs.

Judgment affirmed, with costs.