Court Opinion

ID: 7061990
Source: CourtListenerOpinion
Date Created: 2022-07-24 07:21:51.909486+00
Date Added: 2024-06-11T16:12:12.876465
License: Public Domain

Dissenting Opinion.
Robinson, J.
Believing that the opinion adopted by the majority of the court is contrary to the doctrine laid down by the Supreme Court, that it is opposed to *118the great weight of authority in other jurisdictions, and that on principle, the judgment of the lower court should be affirmed, I am constrained to dissent from the conclusion reached.
The question presented by this appeal is, whether a bank in this State, receiving a draft for collection on a drawee at some distant point and undertaking its collection through a number of correspondent banks, is liable to the payee of the draft for the default of any of such correspondents. Are the correspondent banks the agents of the home bank or the agents of the owner of the paper?
The first paragraph of the appellant’s answer avers that on the 10th day of July, 1893, he was engaged in the banking business under the name of “Irwin’s Bank, Columbus, Indiana,” and as was its custom and course of dealing with its regular customers, undertook, for the accommodation of such customers, to transmit for collection to banks at other places, drafts and other evidences of indebtedness without other cost than the expense paid the bank making such collection when sent to a point where appellant or its correspondent bank had no correspondent bank, and when appellant had no correspondent bank atthepoint or place where collection was to be made, appellant would, unless otherwise directed, send the same to its most convenient correspondent bank, which in turn, had a correspondent bank at the point or place of collection; that appellee knew appellant’s method of making collections, and on said day, without any other agreement than that implied by such knowledge, appellee delivered to appellant the draft sued on, and indorsed thereon: “Pay to W. G. Irwin, Cas., or order, for collection. Reeves Pulley Co.;” that appellant had no correspondent bank in California where the collection Avas to be made, and that appel*119lant’s most convenient correspondent bank, which in turn had a correspondent bank in California, was the Indianapolis National Bank at Indianapolis, Indiana; that appellant transmitted said draft to the Indianapolis National Bank to be by it sent to its correspondent bank in California and indorsed the draft as follows: “Pay E. E. Rexford, Cas., or order, for collection, and credit Irwin’s Bank, of Columbas, Ind. W. G. Irwin, Cashier.” That said Indianapolis National Bank, in turn, sent the draft to its correspondent bank, The State Loan and Trust Company of Los Angeles, California, and indorsed the draft, “Pay State Loan and Trust Company, or order, for collection for the Indianapolis National Bank, Indianapolis, Indiana. E. E. Rexford, Cashier.” That said draft was paid to said State Loan and Trust Company on July 19, 1893, and credited on said day by said bank to said Indianapolis National Bank, and that at said time the Indianapolis National Bank was debtor to the State Loan and Trust Company in a sum in excess of the amount of the draft, that said Indianapolis National Bank failed and went into the hands of a receiver as insolvent on the 24th day of July, 1893, and two days later notice of said collection and credit was received by said Indianapolis National Bank; that at the time the draft was sent to the Indianapolis National Bank it was supposed and reputed to be. solvent, and appellant had no notice or information1 to the contrary; that said Indianapolis bank still remains in the hands of a receiver with its assets and liabilities unascertained, and that said State Loan and Trust Company still retains said sum so collected and credited, and claims the same as its own.
The second paragraph differs from the first only in averring that said bank “undertook, for the accommodation of its said customers, and not otherwise, to col*120lect by transmitting for collection, and not otherwise,” and that said draft was delivered to defendant “for collection in the manner aforesaid, and not otherwise.”
The third paragraph is the same in substance as the first, except it avers defendant’s custom and course of dealing in undertaking “to transmit for collection” in the manner and without charge to its regular customers as alleged to be “the custom of banks generally,” but omits the direct averment as to plaintiff’s acquaintance with the custom. Demurrers to these paragraphs of answer were sustained and these rulings are the only errors assigned.
It is argued by appellant’s counsel that the doctrine of the first bank’s liability is opposed by the analogies of the law; that the compensation is so manifestly inadequate as to refute an implied assumption of so great a liability; and that by the usages of trade, the usual dealings between parties, and the exigencies of the case, the employment of a subagent to make the collection was authorized by the appellee. In Pollard v. Rowland, 2 Blackf. 22, Rowland, an attorney, without the knowledge of his client, who had given him for collection a note ón a party residing in a county in which Rowland did not practice law, and forty miles distant from Rowland’s, employed another attorney to make the collection, the latter being in default, the first attorney was held liable. See, also, Abbott v. Smith, 4 Ind. 452.
It is evident, from the nature of each of the successive indorsements, that the title to the draft, or to its proceeds, never passed out of the Reeves Pulley Company. The California bank by virtue of the indorsements never acquired any right to the proceeds of the draft. In Sweeny v. Easton, 1 Wal. 166, in speaking of an indorsement similar to these in the *121case at bar, the court said: “The words Tor collection’ evidently had a meaning. That meaning was intended to limit the effect which would have been given to the endorsement without them, and warned the party that, contrary to the purpose of a general or blank endorsement, this was not intended to transfer the ownership of the note or its proceeds.” City Bank v. Weiss, 61 Tex. 331, 60 Am. Rep. 29; Blaine v. Bourne, 11 R. I. 119, 23 Am. Rep. 429; Bradstreet v. Everson, 72 Pa. St. 124, 13 Am. Rep. 665; Evansville Bank v. German-American Bank, 155 U. S. 556. It is true, it has been held that a person “acting without reward, except the privilege of using the money, was not bound to use more than ordinary care and was liable for gross negligence only.” Bronnenburg v. Charman, 80 Ind. 475.
In the case at bar the draft was not delivered to appellant to be held in trust for some specific purpose and then returned to appellee. Nor was it delivered to appellant to be by him simply transmitted to the one who was to pay it in California, but the purpose of the delivery and the undertaking by appellant was not only to send the draft to the payer but to return to appellee its proceeds. When appellee delivered and appellant accepted the draft with the indorsement, “Pay to W. G. Irwin, Cashier, or order, for collection. Reeves Pulley Co.,” it cannot be said that appellee delivered the draft and appellant accepted it for transmission only. This would be giving to the transaction between the parties an entirely different meaning from that conveyed by the language which they themselves used. It must be concluded that if appellant had intended to undertake only the transmission of the draft it would have been so expressed in the indorsement. From the nature of the transaction between the parties, it is not to be presumed that, *122appellee expected to receive the proceeds of the draft from the party owing it, but that the proceeds would be returned through appellant’s bank. It is true, the answers plead a custom, of banks receiving paper like the draft in question for transmission only, but in determining the sufficiency of the pleading all the facts pleaded must be taken together. The specific allegations of fact, setting out the indorsement, negative the idea that appellant was engaged as a forwarding agent merely. Were it conceded that the custom is well pleaded, it would be inconsistent with the specific allegation setting out the indorsement.
In a note to the case of Allen v. Merchants’ Bank, 22 Wend. 215, 34 Am. Dec. 289, it is said: “Some, however, have seemed to suppose that banks do not undertake such collections, as they do other branches of their business, solely from motives of profit, but as an accommodation of their customers; and that as they have no ownership or interest in the paper collected, the pay is in a measure gratuitous unless extra commissions are charged. From this notion has no doubt sprung the disposition of some courts to hold banks to a less stringent accountability with respect to paper taken for collection than would be enforced against agents for hire generally in the management of the business of their principles. Such a notion, however, is entirely fallacious, as shown in the principal case. Banks are not in this, any more than in any other part of their business, charity institutions. They undertake collections, not from motives of benevolence, but because from long experience they have found it directly or indirectly profitable to do so. If they should find it unprofitable they would cease to perform the service, however advantageous it might be to the world at large. The benefit derived from the use of the money collected for the time that it may be left in *123their hands, the extension of their business, and the advantage of settling their accounts with distant banks, without being compelled to send money to and fro between them, by means of collections made in the places where such banks are situated, furnish ample consideration for the undertaking to collect. Thompson v. Bank of South Carolina, 30 Am. Dec. 354; Reeves v. State Bank of Ohio, 8 Ohio St. 465; Titus v. Mechanics’ Rational Bank, 35 N. J. L. 588; 1 Dan. Neg. Inst., section 324.”
There is a great conflict of authority on the question as to how far the first bank is to be held liable for the default of a correspondent bank. In the able briefs of counsel for appellant and appellee these cases are collected. There is a direct conflict, and text-writers are as far from agreeing on the question as the courts of the different states. Many of the states follow the courts of Massachusetts, which deny the liability of the bank, while an equally formidable array follow the New York and United States supreme courts, and affirm the bank’s liability. The courts of several States follow the Massachusetts rule that the first bank is not liable. These authorities rest on the proposition that as the collection of a draft at a distant point cannot be made by the bank itself through any of its officers, but must be entrusted to a subagent, the holder of the draft impliedly authorizes the bank to employ a subagent, and that the risk of the subagent’s neglect is then upon the holder of the draft; and further that the consideration, in the absence of an express or implied agreement for compensation, is inadequate from which to infer a contract to guarantee against loss. Counsel for appellant rely upon the case of Bank of Washington v. Triplett, 1 Pet. 25, as declaring the rule that the bank with which the note or draft is deposited for collection has no further duty *124therewith than to transmit to another bank. In that case a bill was placed in the hands of a bank in Alexandria for the purpose of being transmitted to a bank in Washington for collection, the Alexandria bank indorsing it in blank for that purpose. The Alexandria bank wrote a letter at the instance of the owner of the bill notifying the Washington bank how to proceed in the collection of the bill. In that case suit w'as brought against the Washington bank and not the Alexandria bank. In the opinion it is said: “The payees of the bill indorsed it in blank, and delivered it to the cashier of the Mechanics’ Bank of Alexandria, for the purpose of being transmitted, through said bank, to a bank in Washington, for collection. * * * The bill was not delivered to the Mechanics’ Bank of Alexandria for collection, but for transmission to some bank in Washington, to be collected.”
In Exchange National Bank v. Third National Bank, 112 U. S. 276, the Pittsburg bank discounted, before acceptance, certain drafts and sent them to the New York bank for collection. The New York bank sent them to its correspondent, the First National Bank of Newark, N. J., for acceptance and collection. The drafts were drawn on “Walter M. Conger, Sec’y Newark Tea Tray Co., Newark, N. J.” The drafts were presented by the Newark bank to Conger for acceptance, who, except in one instance, accepted them by writing on the face: “Accepted, payable at the Newark National Banking Co., Walter M. Conger.” There was sufficient time before the time of payment to notify the Pittsburg bank the form of the acceptance and for said bank thereafter to give further instructions as to the form of acceptance. The Newark bank held the drafts for payment, but the Pittsburg bank was not notified of the form of the acceptance until two of the drafts were returned to it by the New York bank. At *125that time the drawees and indorsers were insolvent, but the drawees were solvent when the drafts were discounted. The drafts were protested for nonpayment, but none of them were paid. Suit was brought by the Pittsburg bank against the New York bank alleging negligence in not obtaining acceptance of the drafts by the Tea Tray Company, or having them protested for non-acceptance by that company, or giving notice of such non-acceptance, and in failing to give notice that the company would not accept the drafts, or that Conger would not accept them in his official capacity. It was earnestly contended that the liability of the New York bank in taking for collection these drafts on a drawee at Newark extended merely to the exercise of due care in the selection of a competent agent at Newark, and to the transmission of the drafts to such agent with proper instructions, and that the Newark bank was the agent of the Pittsburg bank and not the agent of the New York bank, and that due care having been used in selecting the agent the New York bank was not liable. In the opinion, the court said: “The question under consideration was not presented in Bank of Washington v. Triplett, 1 Pet. 25, for although the defendant bank in that case was held to have contracted directly with the holder of the bill to collect it, the negligence alleged was the negligence of its own officers in the place where the bank was situated. * * * The agreement of the defendant in this case was to collect the drafts, not merely to transmit them to the Newark bank for collection. This distinction is manifest; and the question presented is, whether the New York bank, first receiving these drafts for collection, is responsible for the loss or damage resulting from the default of its Newark agent. There is no statute or usage or special contract in this case, to qualify or vary the obligation re-*126suiting 'from the deposit of the drafts with the New York bank for collection. On its receipt of the drafts, under these circumstances, an implied undertaking by it arose, to take all necessary measures to make the demands of acceptance necessary to protect the rights of the holder against previous parties to the paper. From the facts found, it is to be inferred that the New York bank took the drafts from the plaintiff, as a customer, in the usual course of business. There are eleven drafts in the case, running through a period of over three months, and the defendant had previously received from the plaintiff two other drafts, acceptances of which it had procured from Conger, at Newark, through the Newark bank. The taking by a bank, from a customer, in the usual course of business, of paper for collection, is sufficient evidence of a valuable consideration for the service. The general profits of the receiving bank from the business between the parties, and the accommodation to the customer, must all be considered together, and form a consideration, in the absence of any controlling facts to the contrary, so that the collection of the paper cannot be regarded as a gratuitous favor. Smedes v. Bank of Utica, 20 Johns. 372, and 3 Cowen 662; McKinster v. Bank of Utica, 9 Wend. 46; affirmed in Bank of Utica v. McKinster, 11 Wend. 473. The contract, then, becomes one to perform certain duties necessary for the collection of the paper and the protection of the holder. The bank is not merely appointed an attorney, authorized to select other agents to collect the paper, its undertaking is to do the thing, and not merely to procure it to be done. In such case, the bank is held to agree to answer for any default in the performance of its contract; and, whether the paper is to be collected in the place where the bank is situated, or at a distance, the contract is to use the proper *127means to collect the paper,' and the bank, by employing the subagents to perform a part of what it has contracted to do, becomes responsible to its customer.”
In Mackersy v. Ramsay, 9 Cl. & Fin. 818, a bank in Edinburgh was employed to obtain payment of a bill drawn on Calcutta. The Edinburgh bank transmitted the bill to its correspondent in London who forwarded it to a house in Calcutta to whom the bill was paid, but that house having failed the Edinburgh bank was sued and was held liable on the ground that it was an agent to obtain payment of the bill and as payment had been made the bank’s principal could not be called on to suffer any loss occasioned by the bank’s subagents, between whom and the principal no privity existed. Van Wart v. Woolley, 3 Barn. & Cr. 439.
In Titus v. Mechanics’ National Bank, 35 N. J. L. 588, the court said: “A dealer who deposits a draft on distant city, in a bank in his own town, has no choice of their agent or correspondent. It is the business of a bank to provide proper agents or correspondents for this service, when they adopt it, as most banks do, as part of their regular business. If fhey have no such correspondent, they should refuse to take paper for collection, and then the holder could choose whether he would leave it for transmission. He would then be led to inquire abo'ut the agent to whom it would be transmitted. The English and New York rule is much better adapted to the convenient dispatch of business. It is no hardship on the bank; it can always look to its correspondent bank to which transmission is made, for indemnification from its neglect.” The following authorities sustain the doctrine that the correspondent bank is the agent of the home bank and not the agent of the owner of the paper. Davey v. Jones, 42 N. J. L. 28, 36 Am. Rep. 505; Allen v. Merchants Nat’l Bank, 22 Wend. 215, 34 Am. Dec. 289; Ayrault *128v. Pacific Bank, 47 N. Y. 570, 7 Am. Rep. 489; Castle v. Corn Exchange Bank, 148 N. Y. 122, 42 N. E. 518; St. Nicholas Bank v. State Nat'l Bank, 128 N. Y. 27, 27 N. E. 849; Naser v. First Nat'l Bank, 116 N. Y. 498, 22 N. E. 1077; Corn Exch. Bank v. Farmers Nat'l Bank, 118 N. Y. 443, 23 N. E. 923; Hoover v. Wise, 91 U. S. 308; German Nat'l Bank v. Burns, 12 Colo. 539, 13 Am. St. 247, 21 Pac. 714; Nat'l Exch. Bank v. Beal, 50 Fed. 355; First Nat'l Bank v. Craig (Kan.), 42 Pac. 830; Thompson v. Bank of South Carolina, 3 Hill 77, 30 Am. Dec. 354; Power v. First Nat'l Bank, 12 Pac. 597, 6 Mont. 251; Simpson v. Waldby, 63 Mich. 439, 30 N. W. 199; Nat'l Citizens Bank v. Citizens Nat'l Bank (N. C.), 25 S. E. 971; Bailie v. Augusta Savings Bank, 95 Ga. 277, 21 S. E. 717; Reeves v. State Bank, 8 Ohio St. 465; Hermann v. State Bank, 10 Ohio St. 446; Streissguth v. Nat'l German-American Bank, 43 Minn. 50, 44 N. W. 797, 19 Am. St. 213; Montgomery County Bank v. Albany City Bank, 7 N. Y. 459; Commercial Bank v. Union Bank, 11 N. Y. 212; Daniel Neg. Inst., sections 324, 342, 344, 345; Rand. Com. Paper, sections 1457, 1458; Edw. Bills and Notes (2nd ed.), 383; Boone on Banking, sections 203, 204, 235.
The liability of a collection agency, to whom had been delivered a bill for collection, for the default of an attorney to whom the agency had sent the bill for collection, was established by a divided court in the case of Hoover v. Wise, 91 U. S. 308; but the liability of a bank for the default of a correspondent bank was established by a unanimous court in the case of Exchange National Bank v. Third National Bank, 112 U. S. 276. The United States Circuit and District Courts have approved the same doctrine. National Exchange Bank v. Beal, 50 Fed. 355. In the case of Dunn v. *129City National Bank, 58 Fed. 174, where a mercantile agency contracted with its subscribers under a written agreement, to communicate, on request, information as to the financial responsibility of merchants and manufacturers and expressly stipulated that the information was to be obtained mainly by subagents of its subscribers whose names were not to be disclosed, and that the “actual verity or correctness of the said information is in no manner guaranteed,” it was held that the agency was not liable for loss occasioned to a subscriber by the acts of a subagent in furnishing false information.
Whether there is or is not a want of privity between appellee and the California bank does not affect appellee’s rights as against appellant. The authorities seem to be agreed upon the proposition that an indorsement for collection simply does not pass title to the paper so indorsed, and those states which hold the first bank liable follow this doctrine. In the case of the National, etc., Bank v. Hubbell, 117 N. Y. 384, the court said: “The endorsement upon each piece of paper was for collection simply, and by virtue of that endorsement no title passed to the firm, but, on the contrary, it became simply the agent of the plaintiff to present the paper, demand payment thereof and remit to it. Under such circumstances the title to the paper remained in the party sending it.” And as stated above the doctrine of the first bank’s liability has long been established in New York. And. in First National Bank v. First National Bank, 76 Ind. 561, it was held that the indorsement of a check for collection did not vest the title to it in the indorsee nor give it any right to the proceeds, and in that case the following doctrine in Sweeny v. Easter, 1 Wal. 166, is approved: “The words Tor collection’ evidently *130had a meaning. That meaning was intended to limit the effect which would have been given to the endorsement without them, and warned the party that, contrary to the purpose of a general or blank endorsement, this was not intended to transfer the ownership of the note or its proceeds.”
Although the Massachusetts court has strenuously denied the liability of the first bank, yet that court holds that if an agent undertakes to do the work of his principal and employs a subagent to assist him, on his own account, he is answerable to the principal for the wrong-doing of the subagent, although the principal has knowledge of the fact of the employment of the subagent. Barnard v. Coffin, 141 Mass. 37, 6 N. E. 364. See, also, Morgan v. Tener, 83 Pa. St. 305; Bradstreet v. Everson, 72 Pa. St. 124; Sweet v. Southworth, 125 Mass. 417; Dyas v. Hanson, 14 Mo. App. 363. And the authorities which approve the Massachusetts doctrine give no good reasons why a bank should be excepted from the well established principle of law that every person is liable for the acts of such agents as- he has selected, to transact such business as he has undertaken to transact for others.
Not only do we believe that the doctrine laid down in Exchange National Bank v. Third National Bank, supra, and in that of the great commercial center, New York, the better doctrine, and that a rule laid down by the highest court in the land upon a question that most frequently arises between persons residing in different states, should govern; but that a different doctrine cannot be declared in our own State without disregarding the adjudications of our own Supreme Court. In Tyson v. State Bank, 6 Blackf. 225, 38 Am. Dec. 139, a bill was left with a branch of the State Bank of Indiana for collection. The branch bank failed to present the bill either for acceptance or pay*131ment, and in a suit by the indorsee the State Bank was held liable for the damages he had sustained by reason of the failure to present the bill.. It is true, the State Bank undertook to make the collection, but in the opinion it is held: “The State Bank, through one of its branches, having undertaken, for a reasonable reward, to collect the plaintiff’s debt, placed itself in the situation of an agent or attorney, who, for reward, undertakes to perform services for another in the line of his business or profession. He is bound to a faithful discharge of his duty, and is responsible to his employer for all damages arising from his neglect.”
In approving the doctrine laid down in Smede v. Bank, 20 Johns. 372, the court, in Tyson v. State Bank, supra, said: “The court remarked that the custom of receiving notes for collection was not founded on mere courtesy, but with a view to the interests of the institution and was the source from whence profit may and did arise.”
It is argued by appellant that Tyson v. State Bank, supra, although frequently cited in support of the doctrine of the first bank’s liability, does not, in fact, so hold. But this question has been decided adversely to appellant’s contention in American Express Co. v. Haire, 21 Ind. 4. In that case the court said: “In Hoard v. Garner, 3 Sandf. 179, the New York doctrine is stated thus, by Judge Sanford: ‘The principle established by Allen v. Merchants’ Bank, 22 Wend. 215, was, that the implied contract of the banker was an undertaking to do the thing itself, and was not the delegation of an agent or authority to procure the thing to be done; that the contract looked mainly to the thing to be done, and his undertaking was for the due use of all proper means for its performance; that it was not a contract only for the immediate services of the agent and his acting faithfully as the represent*132ative of Ms principal; that in the latter case the responsibility ceases with the limits of the personal services undertaken; in the other it extends to cover all the necessary and proper means for the accomplishment of the object, by whomsoever used or employed.’ * * * Ohio follows the line of these decisions. Reeves & Co. v. State Bank, 8 Ohio St. 465. Indiana has followed the same line of decisions, as applicable to banks; Tyson v. State Bank, 6 Blackf. 225, and as applicable to attorneys; Abbott v. Smith, 4 Ind. 452.” See Chapman v. McCrea, 63 Ind. 360; First National Bank v. First National Bank, 76 Ind. 561. The case of Tyson v. Bank, supra, commits Indiana to the rule that the first bank is liable for the default of its correspondent bank. 1 Morse on Banks and Banking, pp. 472-473, recognizes Indiana as committed to this, rule by the cases above referred to. There is no reason on principle why the rule which declares the liability of collection agencies and attorneys for the default of subagents selected by them, should not apply to banks when they undertake to do precisely the same kind of service.
Comstock, J., concurs in the dissenting opinion.