Case Name: The Corn Exchange Bank, App'lt, v. The Farmers' National Bank of Lancaster, Pa., Resp't
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1890-02-25
Citations: 29 N.Y. St. Rep. 965
Docket Number: 
Parties: The Corn Exchange Bank, App’lt, v. The Farmers’ National Bank of Lancaster, Pa., Resp't.
Judges: 
Reporter: New York State Reporter
Volume: 29
Pages: 965–971

Head Matter:
The Corn Exchange Bank, App’lt, v. The Farmers’ National Bank of Lancaster, Pa., Resp't.
(Court of Appeals, Second, Division,
Filed February 25, 1890.)
BANKS Aim banking—Draft sent for collection.
July 9,1884, Mary O. Melson, a resident of Lancaster, Pa., drew a check on defendant, where she kept an account, payable to John J. Cameron or order, and mailed it to him at Indianapolis. Cameron, July 15, endorsed it in blank and delivered it to “Harrisons’ Bank,” a firm of private bankers, for collection, who forwarded the check to the plaintiff, their New York correspondent, for collection, and it was credited to Harrisons' Bank July 17, plaintiff reserving the right to charge it if dishonored. On the same day plaintiff endorsed it "for collection and remittance” to defendant, with request to remit Hew York draft, and July 18 the defendant charged the check and cancelled it, sending a New York draft on the First Hational Bank of New York." Harrisons’ failed on the 17th, and on the 18th, but after the draft had been sent, both drawer and payee of check requested defendant to stop payment of its draft, which it did. In an action to recover the amount of the draft by the Corn Exchange Bank, Field, that defendant was not justified in thus resisting the payment of its draft, to which it had no defense, for the benefit of a third person, who might have a right to recover the money represented by it.
(Bradley and Brown, JJ., dissenting.)
Appeal from a judgment of the general term of the first judióla! department affirming a judgment entered on a decision of the court dismissing the complaint on the merits. ■
John M Bowers, for app’lt; Jefferson Qlarh, for resp’t.
Reversing 4 N. Y. State Rep., 557.

Opinion:
Follett, Oh. J.
In July, 1884, Mary 0. Melson resided at Lancaster, Pa., where the Farmers' Eational Bank of Lancaster was located, with which she kept an account. July 9, 1884, she drew a check on this bank for $1,871.84, payable to John J. Cameron or order, and mailed it to him at Indianapolis, Ind., who, July 15,1884, endorsed it in blank and delivered it to a firm of private bankers doing business at Indianapolis under the name of " Harrisons' Bank." The check, though endorsed in blank, was in fact delivered and received for the purpose of collection only. The Corn Exchange Bank was the Rew York city correspondent of Harrisons' Bank, and they exchanged collections and kept mutual accounts, Harrisons' Bank being accustomed to draw sight bills or checks against its balance with the Corn Exchange Bank. The view we take of this case makes, it unnecessary to further consider the manner in which these accounts had previously been kept. July 15, 1884, Harrisons' Bank endorsed the check to the Corn Exchange Bank for collection and credit, and forwarded it by mail. It was received July 17, and credited by the Corn Exchange Bank to Harrisons' Bank, reserving, however, the right to charge it to Harrisons' Bank if it should be dishonored. It was not found by the court, nor was it asserted that the Corn Exchange Bank knew or had the slightest reason to suspect that Harrisons' Bank did not own the check and was acting only as a collecting agent for Cameron or some undisclosed owner, and so the Corn Exchange Bank became the holder of the check in good faith, and could, had it been dishonored, have maintained an action thereon for its collection. July 17, the Corn Exchange Bank endorsed the check " for collection and remittance " to the Farmers' Rational Bank of Lancaster, the drawee, with directions to remit by draft, payable in the city of Rew York. July 18 the check was received by the Farmers' Rational Bank of Lancaster, was charged to the account of the'drawer, Mary C. Melson, and cancelled. For this service the Farmers' Rational Bank of Lancaster charged the Corn Exchange Bank §1.84, and on the same day drew its check, or sight draft, payable to the Corn Exchange Bank or order, on the First Rational Bank of Rew York for $1,870, and mailed it to the Corn Exchange Bank. The check was no longer a valid contract. The liability of the drawer and endorsers thereon was ended and could never be restored. The Lancaster bank had legally and in good faith discharged its duty to the drawer, the endorsers and the holder of the check, and the Corn Exchange Bank had accepted of the draft of the Lancaster Bank in discharge of the liability of the drawer and endorsers. The Lancaster bank accepted of the agency tendered by the Corn Exchange Bank, performed the services and received payment therefor. The relation of principal and agent was established, and in discharge of its liability thus assumed the Lancaster bank mailed the draft. July 17, 1884, Harrisons' Bank failed, and on the 18th, but after the check had been paid and cancelled, and the draft given in payment mailed, the drawer of the check, Mary 0. Melson, and the payee, John J. Cameron, requested the Lancaster bank to stop payment of its draft, which it did, and the draft was dishonored.
The Corn Exchange Bank brings this action to recover the amount of the draft, which the Lancaster bank defends on the ground that the plaintiff did not hold the check for value and is. not entitled to its proceeds as against John J. Cameron, the payee. The defense is not placed on the ground that it is necessary to protect the defendant from any present or future liability, for it is conceded that it has exactly performed all of its duties in resjiect to the check. It does not deny that it became the agent, for a consideration, of the Corn Exchange Bank, and promised by its draft to pay the plaintiff §1,870.
By the law of this state Harrisons' Bank was the agent for Cameron, but neither the plaintiff nor defendant was his agent, and had either neglected to take the necessary steps to collect the check, to Cameron's injury, he would have had no right of action against either, but would have had a cause of action against Harrisons' Bank. Allen v. Merchants' Bank, 22 Wend., 215; Montgomery County Bank v. Albany City Bank, 7 N. Y., 459; Commercial Bank of Pennsylvania v. Union Bank, 11 id., 203; Ayrault v. The Pacific Bank, 47 id., 570; Exchange Nat'l Bank of Pittsburgh v. Third National Bank, 112 U. S., 276; Morse on Banks (3d ed.), § 272. In Montgomery Co. Bank v. The Albany City Bank and the Bank of the State of New York, supra, the plaintiff endorsed and sent a draft to the Albany City Bank for collection, which in turn endorsed and sent it to the Bank of the State of New York for collection, but the latter bank negligently omitted to present the draft for payment, and the drawer and endorsers were discharged. The plaintiff sued both banks and recovered against both at circuit, and the judgment was affirmed by the general term ; but it was reversed in the court of appeals as to the Bank of the State of New York, and affirmed as to the Albany City Bank. It was said: " The New York State Bank was the agent directly guilty of the neglect. That bank was employed to do the service by the plaintiff's agent, the Albany City Bank, as its agent, to which it was alone responsible for its acts and neglect, and for which the latter, according to the settled rule, was alone responsible to the plaintiff, there being no agreement to the contrary, expressed or implied."
It is unnecessary to specially consider the cases which were decided in this state prior to Allen v. Merchants' Bank, supra, or those of states in which it is held that the bank receiving payment of the paper is the agent of the owner notwithstanding it may have passed through several banks before reaching the bank making the collection.
The ground upon which the defendant seeks to justify the refusal to perform its contract with its principal seems to be that if the plaintiff receives the money, it ought to pay it to John J. Cameron, but may not, and therefore this defense.
Assuming, but not deciding that Cameron could maintain an action against the Corn Exchange Bank to recover the amount of the check, such fact would in no wise support this defendant's contention. No contract relation.exists between it and Cameron, nor is there any privity between them.
When the owner of commercial paper delivers it for collection to bank A, which forwards it for collection to bank B, which, in turn, forwards it for collection to bank C, to which it is paid, it has been held that if bank G, instead of paying the money to bank B, retains and applies it on a debt due from bank B, the owner (bank A being insolvent) may recover of bank C; but we are unable to see that these cases justify this defendant in resisting the payment of its draft, to which it has no defense, for the benefit of a third person, who may have a right to recover the money represented by it.
The check which the defendant received from the plaintiff having been paid, charged to the account of the drawee and surrendered, the account closed, and a draft therefor delivered to the Corn Exchange Bank, the defendant cannot now assert as against its principal the legal rights or equities of a third jjerson. McKay v. Draper, 27 N. Y., 256; Aubery v. Fiske, 36 id., 47; Wharton Agency, § 242, and cases there cited.
The judgment should be reversed, and a new trial granted, with costs to abide the event.