Case Name: THE BANK OF CALIFORNIA v. HARRY YOUNG
Court: Oregon Supreme Court
Jurisdiction: Oregon
Decision Date: 1927-10-18
Citations: 123 Or. 95
Docket Number: 
Parties: THE BANK OF CALIFORNIA v. HARRY YOUNG.
Judges: 
Reporter: Oregon Reports
Volume: 123
Pages: 95–103

Head Matter:
Submitted on briefs October 5,
affirmed October 18,
rehearing denied November 22, 1927.
THE BANK OF CALIFORNIA v. HARRY YOUNG.
(260 Pac. 227.)
For appellant there was a brief over the names of Mr. J. F. Boothe and Mr. Ben H. Conn.
For respondent there was a brief over the name of Mr. Thomas G. Greene.

Opinion:
BROWN, J.
A draft such as the one drawn by the defendant in this case is a negotiable instrument. It is made so by the negotiable instrument statute of Oregon: Or. L., §7793. When the plain tiff is a holder in due course, for value, of the commercial paper in question, then he is entitled to recover thereon, regardless of the defense of an alleged existence of the relationship of principal and agent between the original depositary and the depositor: Or. L., § 7849. These propositions of law cannot be controverted.
The plaintiff does not question the well-established rule that, when a negotiable instrument is deposited with a bank for collection, the relation of principal and agent is thereby established between the bank and the depositor, and not the relation of debtor and creditor: 2 Michie, Banks and Banking, § 156; National Revere Bank v. National Bank, 172 N. Y. 102 (64 N. E. 799); Jefferson County Savings Bank v. Hendrix, 147 Ala. 670 (39 South. 295, 1 L. R. A. (N. S.) 246). Moreover, the existence of the relationship of principal and agent between the original depositary and the drawer of the draft does not preclude the transfer by it to its correspondent of a title superior to the title it possessed: Blacher v. National Bank, 151 Md. 514 (135 Atl. 383, 49 A. L. R. 1366), and authorities there cited. However, the negotiable instrument forming the basis of this action bore no qualified or restricted indorsement tending to show that it was deposited for collection. It was complete and regular upon its face, and required the drawee to pay to the Bank of Kenton, payee, the sum of $1,626.95. The defendant had put it into circulation in the form of a draft by uttering, publishing and delivering it to the Bank of Kenton, payee therein, whereupon the bank credited to his checking account the full sum of $1,626.95. Shortly thereafter, he withdrew by his personal check about one half of the amount named in the draft. The Bank of Ken ton, not as agent for the defendant, but as the apparent owner and holder of the draft, forwarded it, with others, to the plaintiff bank, as transferee thereof. The transferee received it from the original depositary in good faith, for full value, before it was due, and without notice of any infirmities therein. The correspondent bank likewise gave the depositary credit in the amount represented by the draft and paid the amount in full. Thereafter, and prior to its presentation by the plaintiff bank to the drawee, the defendant arrested payment of his negotiable paper by warning the drawee not to pay.
Notwithstanding the fact that the plaintiff claimed the right to charge back in the event that the draft was not paid, it accepted the draft and credited the account of the Bank of Kenton for the amount of money represented thereby, and when the Bank of Kenton checked out the fund arising from the entry of that credit the status of the correspondent bank became that of a purchaser for value: Bank of Jordan Valley v. Duncan, 105 Or. 105 (209 Pac. 149). In that case, Mr. Chief Justice Burnett, speaking for this court, said:
"When a maker publishes his note to the world, negotiable in form, it is not incumbent upon anyone to whom it is offered, unless there be circumstances of suspicion, to busy himself inquiring about infirmities."
The appellant cites and relies upon the case of Security Savings & Trust Co. v. King, 69 Or. 228 (138 Pac. 465). That case is not applicable. There the controversy was between the depositor and the original depositary, while in the case at bar the rights of a third person are involved.
The effect of an agreement to charge the paper back to the depositor in the event of nonpayment is treated in the illuminating and recent case of City of Douglas v. Federal Reserve Bank of Dallas, 271 U. S. 489, 492 (70 L. Ed. 1051, 46 Sup. Ct. Rep. 554), where the Supreme Court of the United States, speaking through Mr. Justice Stone, said:
"When paper is indorsed without restriction by a depositor, and is at once passed to his credit by the bank to which he delivers it, he becomes the creditor of the bank; the bank becomes owner of the paper, and in making the collection is not the agent for the depositor (citing authorities). Such was the relation here between the plaintiff and the Douglas Bank, unless it was altered by the words printed on the passbook to the effect that out of town items were credited 'subject to final payment/ The meaning of this language, as the cashier of the Douglas Bank testified, and as the court below held, was that if the check was not paid on presentation, it was to be charged back to plaintiff's account. Without these words, the relationship between the plaintiff and the bank was that of indorser and indorsee; and their use here did not vary the legal rights and liabilities incident to that relationship, unless it dispensed with notice of dishonor to the depositor. * #
"While there is not entire uniformity of opinion, the weight'of authority supports the view that, upon the deposit of paper unrestrictedly indorsed, and credit of the amount to the depositor's account, the bank becomes the owner of the paper, notwithstanding a custom or agreement to charge the paper back to the depositor in the event of dishonor: Burton v. United States, 196 U. S. 283 (49 L. Ed. 482, 25 Sup. Ct. Rep. 243); Brusegaard v. Ueland, 72 Minn. 283 (75 N. W. 228); National Bank of Commerce v. Bossemeyer, 101 Neb. 96, 102 (162 N. W. 503, L. R. A. 1917E, 374); Walker & Brock v. Ranlett Co. 89 Vt. 71 (93 Atl. 1054); Aebi v. Bank of Evansville, 124 Wis. 73 (102 N. W. 329, 109 Am. St. Rep. 925, 68 L. R. A. 964). See Scott v. McIntyre Co., 93 Kan. 508 (44 Pac. 1002, L. R. A. 1915D, 139); Vickers v. Machinery Warehouse & Sales Co., 111 Wash. 576 (191 Pac. 869). But see Implement Co. v. Bank, 128 Tenn. 320 (160 S. W. 848); Packing Co. v. Davis, 118 N. C. 548 (24 S. E. 365)."
For decisions relating to the title to commercial paper deposited by the customer of a hank to his credit, see Old National Bank v. Gibson, 105 Wash. 578 (179 Pac. 117, 6 A. L. R. 247); United States National Bank v. Amalgamated Sugar Co., 179 Fed. 718; 2 Morse on Banks and Banking, § 573, pp. 238, 239; 6 A. L. R. 252; 11 A. L. R. 1043; 16 A. L. R. 1084; 24 A. L. R. 901; 42 A. L. R. 492.
We have considered all questions raised on the appeal and find no reason for a reversal. This case is affirmed. Affirmed. Rehearing Denied.