On the 9th of December, 1884, Wilkinson & Co. executed and delivered to the defendant, Charles E. Hubbell, a general assignment for the benefit of their creditors of their property, both real and personal, and Hubbell duly accepted the trust created, and duly qualified as such assignee, and took possession thereunder on the morning of December 10, 1884, said asof December, 1884. Between the execution and delivery of the assignment and the 20th of February, 1885, Hubbell, as such assignee, received of the checks, drafts, etc., sent by plaintiff to Wilkinson & Co. the sum of $4,626.83, being the balance of said sum of $13,822.43. The defendant remitted to the plaintiff $438.67 of above amount, being proceeds of time paper sent for collection, as to which a different practice had prevailed, but defendant, Hubbell, as such assignee, refused to pay the balance of said $4,626.83, being the sum of $4,188. 16, to the plaintiff.

Wilkinson & Co. to their own correspondents | kinson & Co. in divers sums from December at the cities and villages where such payments 4 to December 9, 1884, both dates inclusive, were to be made, and Wilkinson & Co. re- and no part of that sum has been paid to the ceived from them the proceeds of such paper plaintiff but all of it was paid out by Wilkinwhen collected. On Thursday of each week son & Co. in due course of business before DeWilkinson & Co. remitted to the plaintiff, by cember 9, 1884. a draft on New York, the amount standing to the credit of the plaintiff upon their books up to that time, less about of 1 per cent for their services. These remittances were generally made in the morning, regardless of whether Wilkinson & Co. had at the time actually received the proceeds of all the checks, drafts, etc., which then stood upon its book credited to the plaintiff. This manner of do-signment being duly recorded on the 10th day ing business had been carried on for a number of years prior to the failure of Wilkinson & Co., and was understood by the plaintiff, and was the existing arrangement. In pursuance of this arrangement, the plaintiff on and for a number of days prior to December 8, 1884, forwarded to Wilkinson & Co. various drafts, checks and notes, indorsed by the plaintiff in the manner above described, inclosed in letters in the form specified, amounting in all to $14,260.36, all of which, except time collections amounting to $438.67, were credited to the plaintiff upon their books. From this total Wilkinson & Co., prior to December 9, 1884, had sent various sums for collection to other agents, leaving a balance of $13,822.43 to be accounted for. Of this sum there had been paid to and received by Wilkinson & Co., on and prior to December 9, 1884, the sum of $9,195.50, which sum was received by Wil

tain the proceeds to apply to a balance due from the bank sending it, unless authorized by some course of dealing, or by some other matter outside of the indorsement. Sweeny v. Easter, 68 U. S. 1 Wall. 166 (17 L. ed. 681); Stark v. U. S. Nat. Bank, 41 Hun, 506.

A bank which has received from its correspon- | dent a draft indorsed "For collection" which is indorsed in like manner to its correspondent, cannot apply the proceeds to the latter's debt and refuse to pay the owner. City Bank of Sherman v. Weiss, 67 Tex. 331.

Where a draft sent to a bank for collection was paid by the drawee by check, which the bank collected through the clearing house, and a memorandum was placed with the bank's cash to indicate that the proceeds of the draft was the property of the sender, and the next morning the bank was closed and the receiver credited such proceeds to the sender of the draft on the books of the bank, the sender can recover the same, as the fund was not so mingled that it could not be traced and identified. First Nat. Bank v. Armstrong, 36 Fed. Rep. 59.

What will give collecting bank a right to apply pro

ceeds.

It appears to be well settled that the mere crediting of the amount of the draft upon the account of the transmitting bank will not give the collecting bank any claim thereon prior to its collection, at least if the credit is not an absolute one but is made "subject to payment." Fifth Nat. Bank v. Armstrong, 40 Fed. Rep. 46; First Nat. Bank v. Reno Co. Bank, 3 Fed. Rep. 257, 1 McCrary, 491.

It is also held that such crediting of moneys collected on bills and notes remitted for collection does not prevent the real owner of such bills and notes from reclaiming the proceeds in the hands of the collecting banker. Arnold v. Clark, 1 Sandf. 491; Lawrence v. Stonington Bank, 6 Conn. 521.

Prior to a notice of the plaintiff's claim served on defendant, Hubbell, December 26, 1884, he had, as assignee of Wilkinson & Co., received from the entire estate the sum of $10,903,36, which sum included all but $295.48 of the above-named amount, $4,198.16, and the assignee, prior to receiving the notice,

On the contrary, it has been held in Ohio that the receipt of the proceeds of a draft by a collecting bank, and the entry of such proceeds on its books to the credit of the transmitting bank, which is at the time an apparently solvent institution, and there being no notice but that the draft was its absolute property, is a payment to the transmitting bank which relieves the collecting bank from all liability to the owner of the draft. Reeves v. State Bank, & Ohio St. 465.

It is, however, intimated in that case that before the collection of the draft its owner may, by notification to the collecting bank, make it his agent and thereafter control the application of the proceeds. Id. 484.

Effect of advances and overdrafts.

An advance made by a collecting bank on the faith of a draft sent it for collection and so indorsed will give it no right to retain the proceeds thereof as against the true owner. First Nat. Bank v. Bank of Monroe, 33 Fed. Rep. 408.

Where one bank receives from another a draft belonging to a customer, for collection merely, without advancing any money or giving any credit thereon, it has no title to the draft which will authorize it to retain the moneys received thereon, as against the true owner, on account of overdrafts of the remitting bank. Lindauer v. Fourth Nat. Bank, 55 Barb. 75; Dod v. Fourth Nat. Bank, 50 Barb. 265; McBride v. Farmers Bank, 25 Barb. 657; Commercial Bank v. Maine Bank, 1 Trans. App. 302, 3 Keyes, 337.

Absolute credit of amount.

The deposit of a check in a bank, and the credit, with the depositor's consent, of the amount thereof in his pass book as cash, vests title to the check in the bank, and the depositor thereby loses all control over it. Metropolitan Nat. Bank v. Loyd, 90 N. Y. 530.

had paid out in the management of the estate, | ondaga County, and was not apprised of the and in a dividend to the preferred creditors in same until after Hubbell had paid the divithe assignment, the sum of $10,548.57, leaving dends to the preferred creditors of Wilkinson a balance of $354.79, the dividend being the & Co., named in the assignment. After the sum of $10,001.71, and being made in pursu- trial of this action, the defendant Alfred Wilance of an order of the County Court of kinson died, leaving the defendant J. Forman Onondaga County. The dividend paid by the Wilkinson sole surviving partner of the firm assignee to the preferred creditors of Wilkin- of Wilkinson & Co. Before the commenceSon & Co. was made by him in accordance ment of this action due and proper demand of with the provisions of the assignment to him; payment on behalf of the plaintiff was made and under an order of the county judge of of the firm of Wilkinson & Co., and of said Onondaga County, dated December 23, 1884, Charles E. Hubbell, as such assignee, and paywhich directed and authorized him to make a ment by them severally refused. The assigndividend of 10 per cent upon the first preferred ment was subsequently set aside as a fraud upon claims mentioned in the assignment. All of Wilkinson's creditors. The trial judge held the payments were made by the defendant, that the defendant, Hubbell, was not liable for Charles E. Hubbell, as assignee of Wilkinson the moneys received and spent by Wilkinson & Co., in good faith, and without any notice & Co. prior to the assignment, nor for the or knowledge of any claims made by the plain- money received by Hubbell himself after the tiff on any of the money received by him, and assignment, and paid out by him in the paywithout knowledge of any claim made by the ment of a dividend to the preferred creditors plaintiff that the title to any portion of the under the assignment, and that Wilkinson & moneys, which were the proceeds of checks, Co. were themselves liable for the amounts coldrafts, etc., sent by the plaintiff to Wilkinson lected by them as proceeds of the paper sent & Co., was claimed to be vested in it. After them for collection by the plaintiff. From an the assignee had paid out the money, and on affirmance of a judgment entered to this effect the 26th day of December, 1884, the plaintiff by the General Term in the Fourth Department, for the first time made any claim, or served the plaintiff has appealed here. any notice upon the assignee of any claim, to any of the moneys, drafts, checks or securities received by Wilkinson & Co. from the plaintiff, or the proceeds of any such drafts, checks or securities received by him. The plaintiff had no notice of the application for the order granted by the county court or judge of On

If the title to the paper, without purchase or advance, is to vest in the collecting bank, it must make itself absolutely responsible for the amount. Dickerson v. Wason, 47 N. Y. 439; Scott v. Ocean Bank, 23 N. Y. 289.

In First Nat. Bank v. Bank of Monroe, 33 Fed. Rep. 408, Judge Wallace intimates that the collecting bank may refuse to deliver the proceeds of the collected draft to its owner if an intermediate bank has acquired title to the proceeds, which may be done by the crediting by such bank to its customer of the amount of the proceeds of the draft after it has received them, and thus terminated its relation of agent and assumed that of debtor. Whether or not a credit of the collected proceeds upon the books of the collecting bank would be a receipt thereof by the intermediate bank is left undecided.

Effect of custom or course of dealing. Where there have been for years mutual dealings between two banks, and an account current kept between them, in which they mutually credited each other with the proceeds of all paper remitted for collection, there is a lien upon the paper thus transmitted for the general balance of account. Bank of the Metropolis v. New England Bank, 42 U. S. 1 How. 234 (11 L. ed. 115), 47 U. S. 6 How. 212 (12 L. ed. 409).

Where, by agreement and custom, a bank receives drafts from its correspondent bank, and credits them to the latter as cash, the title to the entire interest in the proceeds, when collected, passes, so as to make the correspondent bank a general creditor; and this result is not changed by the fact that the drafts were indorsed "for collection," and there was an agreement that they should be charged back if not paid. Elkhart First Nat. Bank v. Armstrong, 39 Fed. Rep. 231.

A mere usage or custom between banks in the transmission of notes for collection, by which they

Mr. William James, for appellant:

The special and restrictive indorsement made upon all these collections by plaintiff before forwarding the same to Wilkinson & Co. shows the intent of the plaintiff to retain the title thereto and the avails thereof as against

mutually credit the avails in account to overbalances due, cannot deprive a third person, the real owner of the notes, of his rights. Hackett v. Reynolds, 5 Cent. Rep. 521, 114 Pa. 328.

Where, by agreement between two banks, each acts as collecting agent for, and keeps a running account with, the other, crediting it with the avails of collections made, and charging it with paper sent, a balance being struck once a week and the balance remitted by the bank indebted, with nothing to distinguish the avails of collection from the other funds of the bank, in case either bank fails the other has no lien upon any specific fund on account of paper sent to the insolvent bank, but must come in as a general creditor. People v. City Bank, 93 N. Y. 582.

Revocation of agency.

Where a collecting agent of commercial paper to be collected by him at a place remote from his place of business employs a sub-agent in the locality of the payee, such sub-agent cannot, as against the owner, retain the proceeds, but the latter may revoke the agency created by him, and seek the paper or its proceeds in the hands of the sub-agent, or may follow it until it reaches the hands of a bona fide holder for value. Naser v. First Nat. Bank, 116 N. Y. 492. See also Reeves v. State Bank, 8 Ohio St. 465.

If a bank receives a draft indorsed "For collection" and after indorsing it in like manner forwards it to its correspondent to have the collection made and the proceeds credited to its account, notice to the collecting bank of the insolvency of the transmitting bank before the draft is collected will render such credit unlawful and make the collecting bank accountable to the owner of the draft for its amount. Crown Point First Nat. Bank v. Richmond First Nat. Bank, 76 Ind. 561.

all others; therefore these restrictive indorse- | can Exchange Bank, 44 Barb. 175; McBride v. ments upon this paper must govern. Farmers Bank, supra; Hoffman v. Miller, 9 Bosw. 334.

Ex parte Pease, 19 Ves. Jr. 25; Ex parte Thompson, 1 Mont. & MacA. 102; White v. Miners Nat. Bank, 102 U. S. 658 (26 L. ed. 250); Van Amee v. Bank of Troy, 8 Barb. 312; People v. City Bank, 96 N. Y. 37.

This restrictive form of indorsement and forwarding the same for collection has become a part of the law-merchant for the world since the decision in 1761 of Edie v. East India Co., 2 Burr. 1228, and of this custom courts must take judicial notice.

Jones v. Peppercorne, 28 L. J. N. S. Ch. 158; East Haddam Bank v. Scovil, 12 Conn. 314; Fabens v. Mercantile Bank, 23 Pick. 330; Merchants Bank v. Hall, 83 N. Y. 345.

These collections being thus restrictively indorsed by the plaintiff for a specific purpose, such indorsement conferred no title to the same nor to the proceeds thereof, upon Wilkinson & Co., or said Hubbell, but the same remained in the plaintiff.

Snee v. Prescot, 1 Atk. 249; Ancher v. Bank of England, 2 Doug. 637; Edie v. East India Co. 2 Burr. 1227; Sigourney v. Lloyd, 8 Barn. & C. 622; White v. Miners Nat. Bank, supra; Montgomery Co. Bank v. Albany City Bank, 7 N. Y. 460; People v. Dansville Bank, 39 Hun, 188; McBride v. Farmers Bank, 26 N. Y. 450. A bank does not become the bona fide holder of paper sent it for collection unless it makes subsequent advances upon the faith of the specific paper in question.

Arnold v. Clark, 1 Sandf. 491; West v. Ameri

In the case at bar there are no mutual accounts or collections; hence the plaintiff did not part with its title to these collections nor to the avails thereof, nor did the same pass to Wilkinson & Co.

White v. Miners Nat. Bank, People v. Dansville Bank, Van Amee v. Bank of Troy, supra; Dickerson v. Wason, 47 N. Y. 439; Scott v. Ocean Bank, 23 N. Y. 289; McBride v. FarmersBank, supra, Commercial Bank v. Marine Bank, 3 Keyes, 337; Montgomery Co. Bank v. Albany City Bank, supra; Sigourney v. Lloyd, 8 Barn. & Č. 622, 5 Bing. 525.

As no title to said collections or the proceeds thereof passed to or vested in Wilkinson & Co., it follows that no title to the same pa-sed or vested in said assignee by virtue of said assignment.

Re Howe, 1 Paige, 125; Shirley v. Congress Steam Sugar Refinery, 2 Edw. Ch. 513; Addison v. Burckmyer, 4 Sandf. Ch. 498; Leger v. Bonnaffe, 2 Barb. 475; 2 Sugd. Vend, and P. pp. 74, 75; People v. Dansville Bank, 39 Hun, 189; Bishop, Insolv. Debtors, 2d ed. 301; Van Heusen v. Radcliff, 17 N. Y. 584: Giles v. Perkins, 9 East, 12; Thompson v. Giles, 3 Dow. & Ry. 742; Carpenter v. Marnell, 3 Bos. & P. 40; Rhoades v. Blackiston, 106 Mass. 334; Beall v. Harrell, 7 Nat. Bankr. Reg. 400; Re Kimball, 1 Nat. Bankr. Reg. XLII. (193); Re Hambright, 2 Nat. Bankr. Reg. 157.

Hubbell, as assignee, acted in such a negli

occurring in its collection, whether arising from the default of its own officers or from that of its

correspondent in the other State, or of an agent employed by such correspondent, in the absence of any express or implied contract varying such liability. Exchange Nat. Bank v. Third Nat. Bank, 112 U. S. 276 (28 L. ed. 722); Tradesman's Nat. Bank

How subject affected by repudiation of doctrine of v. Third Nat. Bank, 112 U. S. 293 (28 L. ed. 728);

sub-agency of collecting bank.

Montgomery County Bank v. Albany City Bank, 7
N. Y. 459; Commercial Bank v. Union Bank, 11 N.
Y. 203; Allen v. Merchants Bank, 22 Wend. 215;
Bank of Orleans v. Smith, 3 Hill, 560.

The same doctrine has been held in Indiana (Tyson v. State Bank, 6 Blackf. 225; Abbott v. Smith, 4 Ind. 452); in Michigan (Simpson v. Waldby, 6 West. Rep. 158, 63 Mich. 439); in Montana (Power v. First Nat. Bank, 6 Mont. 251); in New Jersey (Titus V. Mechanics Nat. Bank, 35 N. J. L. 588); in Ohio (Reeves v. State Bank, 8 Ohio St. 465), and in Pennsylvania. Wingate v. Mechanics Bank, 10 Pa. 104. Compare, however, Merchants Nat. Bank v. Goodman, 1 Cent. Rep. 427, 109 Pa. 422; and see, in support of the doctrine, Kent v. Dawson Bank, 13 Blatchf. 237; Taber v. Perrot, 2 Gall. 565; Van Wart V. Woolley, 3 Barn. & C. 439; Mackersy v. Ramsays. 9 Clark & F. 818.

A class of cases of which Hoover v. Wise, 91 U. S. 308 (23 L. ed. 392); Allen v. Merchants Bank, 22 Wend. 215; Montgomery Co. Bank v. Albany City Bank, 7 N. Y. 459; Commercial Bank v. Union Bank, 11 N. Y. 203; Ayrault v. Pacific Bank, 47 N. Y. 570; Mackersy v. Ramsays, 9 Clark & F. 818, and Bradstreet v. Everson, 72 Pa. 124,-are types, have held that the bank to whom a draft is given for collection cannot appoint a sub-agent for the owner, but that its correspondent is its agent for whose conduct it alone is answerable and whose actions it alone can control, and that consequently no privity exists between the owner of the draft and the collecting bank, which will sustain a suit by the former against the latter. The Supreme Court of Ohio in Reeves v. State Bank, 8 Ohio St. 465, applied this doctrine to the right of the owner to recover the proceeds of a collected draft from the collecting bank and refused to permit a recov-position is that of an independent contractor, and ery. And the same ruling was afterwards made in the United States Circuit Court for the Northern District of Illinois (Hopkins, J.), Hyde v. First Nat. Bank, 7 Biss. 156; and it has been the ground for one or two recent dissenting opinions by federal judges.

Where a bank receives a note for collection, its

the instruments employed by it are its agents and not the sub-agents of the owner of the note. Hoover v. Wise, 91 U. S. 308 (23 L. ed. 392); Bradstreet v. Everson, 72 Pa. 124; Lewis v. Peck, 10 Ala. 142; Cobb v. Becke, 6 Ad. & El. N. S. 930.

The case of Britton v. Niccolls, 104 U. S. 757 (26 L. ed. 917), was one in which the defendant acted

Bank for collection; liability for neglect or default under specific directions from the plaintiff.

of correspondents and agents.

A bank receiving a draft or bill of exchange in one State for collection in another State, from a drawee residing there, is liable for neglect of duty

Where a check is received on deposit as cash, the depositor to continue liable as indorser until payment, the bank is bound, equally with the one receiving the check for collection, to use diligence in

the assignees pay over the proceeds of the as- the firm it certainly would make no alteration signed property to the creditors of the assignor in the law relative to indorsement for collection in pursuance thereof before any of the cred- only. Nor does the finding of the learned jusitors obtain a general or specific lien upon the tice at special term as to the custom pursued assigned property by a creditor's bill or attach-between the parties alter the law in regard to ment, the other creditors cannot compel the the title to the paper before the funds arising assignee to account to them for such property. from the payment thereof were actually reWakeman v. Grover, 4 Paige, 23, affirmed, ceived by the firm. The finding shows that 11 Wend. 187; Ames v. Blunt, 5 Paige, 13; the credit was a provisional one only. It was Barney v. Griffin, 4 Sandf. Ch. 552; Averill v. a mere matter of bookkeeping. It would seem Loucks, 6 Barb. 470; Re Mitchell v. Tenant, 40 to have been more in the form of a memoranHun, 635; Collumb v. Read, 24 N. Y. 505; Sul- dum of the different pieces of paper received; livan v. Miller, 9 Cent. Rep. 477, 106 N. Y. 635; because if any were not paid, such as went to Herring v. New York, L. E. & W. R. Co. 7 protest were at once charged back upon the Cent. Rep. 308, 105 N. Y. 375; Young v. Brush, books of the firm against the plaintiff, and re28 N. Y. 671. turned to it, with the expenses of protest charged to it. The firm never became absolutely responsible to the plaintiff for the amount of these collections until the collections were actually made, and the proceeds received by them. The property in these different pieces of paper therefore never vested in the firm, and the firm never purchased them or advanced any money upon them. Hence, the firm never owned them. Scott v. Ocean Bank, 23 N. Y. 289; Dickerson v. Wason, supra.

Peckham, J., delivered the opinion of the

court:

The defendant, Hubbell, as one defense to the claim of the plaintiff, insists that Wilkinson & Co., upon the receipt by them of the various checks and drafts or other pieces of paper payable on demand, and upon the crediting of the amounts thereof to the plaintiff upon their books, without waiting for the payment of the same, became the owners thereof, and that these facts amounted to a transfer of the title to the paper or its proceeds to Wilkinson & Co. In that we think he is mistaken. The indorsement upon each piece of paper was for collection simply, and by virtue of that indorsement 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. Montgomery Co. Bank v. Albany City Bank, 7 N. Y. 459; Dickerson v. Wason, 47 Ň. Y. 439; White v. Miners Nat. Bank, 102 U. S. 658 [26 L. ed. 250].

The letter accompanying the inclosures of paper amounted simply to a direction to credit after the collection was made, and up to the time that the funds were actually received by

These pieces of paper were undoubtedly subject to the direction of the plaintiff at any time prior to their payment, and it would have been the duty of the firm to have obeyed such direction. The plaintiff could have withdrawn the paper, or made such other disposition of it as seemed to it proper. It might have been liable to pay the firm for the services performed by them; but that had no effect or bearing upon the title to the paper.

The cases relied on by the counsel for the defendant for the purpose of showing title in the firm were decided upon an essentially different state of facts.

In Clark v. Merchants Bank, 2 N. Y. 380, the indorsement was in blank, which the court said prima facie imported a transfer of the title to the note, and that it was not sent for collection merely. Upon looking at the other facts in the

anything in lieu of money. Fifth Nat. Bank v., the payee. First Nat. Bank v. Strauss, 66 Miss. 479. Ashworth, 2 L. R. A. 491, 123 Pa. 212.

The receipt by a bank to which a note was forwarded for collection, of the maker's check in payment thereof, and the cancellation and surrender of the note, deducting the amount of the check from the maker's account, are in effect a collection of the check from the general funds in the hands of the bank. Arnot v. Bingham, 29 N. Y. St. Rep. 878, 55 Hun, 553.

By the law of Mississippi, the duty of a bank receiving commercial paper for collection, in case of nonpayment, is to place the paper in the hands of a notary public, to be proceeded with in such manner as to charge the parties to it and secure the rights of the real owners; and the bank is not liable in such cases for the failure of the notary to perform his duty. Britton v. Niccolls, 104 U. S. 757 (26 L. ed. 917).

The notary is the sub-agent of the owner of the note, and as such is liable to him; he is not the agent of the bank. Ibid.

|

When the drawer and drawee of a draft proceed together to the bank to deposit the draft for collection, the instruction given to the bank officer by the parties as to the disposal of the money when collected, are questions of fact; and the judgment of the appellate court upon those questions is final. International Bank v. Ferris, 6 West. Rep. 511, 118 Ill. 465.

A bank with which a note is deposited by the payee, for collection, cannot refuse to return the note, or its proceeds, to the depositor, on the ground that it was given to defraud creditors of a third person, unless the bank is one of those creditors. First Nat. Bank v. Leppel, 9 Colo. 594.

To hold a bank with which a note is deposited for collection, as garnishee, a special notice is necessary, specifying the note in question as the property of a person other than the depositor. Ibid.

When a bank became an agent to receive and to collect, not money, but Confederate notes or promises, the obligation it assumed was to pay Confederate notes when they should be demanded. Planters Bank v. Union Bank, 83 U. S. 16 Wall. 483 (21 L. ed. 473).

The indorsing bank having received it from a prior indorser on deposit and given him credit therefor, is not a bona fide purchaser for value under the Mississippi statute giving the benefit of Duties and liabilities of bank receiving drafts for certain defenses and set-offs previous to notice of collection. See note to Freeman v. Citizens Nat. assignment as though the suit had been brought by | Bank (Iowa) 4 L. R. A. 422.