Freeman's National Bank v. National Tube Works Co. , 151 Mass. 413 ( 1890 )

Knowlton, J.

The indorsement from the defendant to the People’s Bank, although in terms unrestricted, was without consideration, and merely for the purpose of collection. The People’s Bank became the agent of the defendant, and the defendant, as owner of the drafts, can avail itself of all that its agent did for its protection.

The subsequent indorsements through which the drafts came' to the plaintiff were, both restrictive, giving notice that the' ownership had not passed beyond the People’s Bank. They-purported to be made only for the purpose of collection on-account of the owner, and they merely passed the legal title so far as to enable the indorsees to demand, receive, and sue for the money to be paid. Lynn National Bank v. Smith, 182 Mass. 227. It is well settled, that upon such an indorsement the owner may control his negotiable paper until it is paid, and may intercept the proceeds' of it in the hands of an intermediate agent. Manufacturers’ National Bank v. Continental Bank, 148 Mass. 553, and cases there cited. The indorsement of the Penn Bank, taken in connection with the former indorsement of the People’s Bank, did not, by the words “ for account of Penn Bank,” imply that the Penn Bank was the owner. It was a request to pay “for account of” the Penn Bank as agent of the People’s Bank. An unbroken succession of such indorsements would indicate that each indorser was acting by direction of the next preceding indorser, who was himself an agent of the owner, who had before indorsed, and for whom the collection was to be made.

Nothing was shown in the course of business of either of the banks necessarily to conflict with the implication to be derived from the form of the indorsements. The letter of the People’s Bank in which the drafts were sent to the Penn Bank was, simply, “We enclose for collection and credit” the drafts-, describing them. The Penn Bank in its reply said,- “We enter for collection ” the drafts described, “ to be used when paid.” As recited in the report, “ The drafts, when received by the Freeman's Bank, were entered upon its collection book, but have never been entered upon its account current, or upon any other book or account, to the credit of the Penn Bank.” It has so long been held by the courts that an indorsement of this kind ¡is restrictive, protecting the rights of the owner, that officers of ¡banks must be presumed to have well understood the law, and when they have honored overdrafts drawn by other banks which had sent other drafts for collection must have done it trusting in part to the financial soundness of their correspondent, and in part to the probability that the drafts would be paid, and not to a supposed legal right to control the drafts against the owner. Rice v. Stearns, 8 Mass. 225, 227. Wilson v. Holmes, 5 Mass. 543. Treuttel v. Barandon, 8 Taunt. 100. Sigourney v. Lloyd, 8 B. & C. 622. Leary v. Blanchard, 48 Maine, 269. Sweeny v. Easter, 1 Wall. 166. Bank of Washington v. Triplett, 1 Pet. 25. Lawrence v. Stonington Bank, 6 Conn. 521. Bank of Metropolis v. New England Bank, 1 How. 234, and 6 How. 212.

One who collects commercial paper through the agency of banks must be held impliedly to contract that the business may be done according to their well known usages, so far as to permit the money collected to be mingled with funds of the collecting bank. Dorchester & Milton Bank v. New England Bank, 1 Cush. 177. When a payment is made to his agent and’the money is put with the money of the collecting bank, he has a right to receive a corresponding sum, but he loses his right to the specific fund. In the absence of directions to the contrary, the collecting bank may pay it to the bank to which it should regularly be remitted by setting it off against a debt due from that bank and giving credit for it in the account.

Very likely authority to collect would authorize the receipt of the money from the payor before maturity, if he saw fit then to pay, and remittances afterwards made, whether by a payment of money or by a set-off and adjustment of accounts in the usual way, would be good against the owner. In the present case no collection was made, for payment was stopped before the draft became due. The plaintiff had no right to advance the Penn Bank $7,000, or any other sum, on account of the defendant. Its only authority was to transmit, or pay by adjustment and set off, money which it received for the defendant.

We are of opinion that, upon the facts reported, the action cannot be maintained.

Judgment for the defendant.