National Park Bank v. Seaboard Bank — 22 N.Y. St. Rep. 160

Majority

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The National Park Bank of New York, App’lt, v. The Seaboard Bank, Resp’t.^[1]

(Court of Appeals, Second Division,

Filed March 19, 1889.)

Headnote

.1. Bills and notes—Title to when sent fob collection by one bank TO ANOTHER.

The title to commercial paper received ior collection by a bank and forwarded to its correspondent in the usual course of its business without any express agreement in reference thereto, does not rest in such correspondent even if it has remitted upon general account in anticipation of collections. Dickerson v. Wason, 47 N Y., 439 , followed.

3. Same—When bank cannot be required to repay proceeds of draft SENT TO IT FOR COLLECTION.

A bank to whom a draft has been forwarded for collection by one of its correspondents and who has paid over the proceeds of said draft to its principal before notice of a mistake, cannot be required to repay the same.

3. Same—Application of payments.

Where a payment is made upon general account with no direction as to its application, the law applies it to the oldest items, that is the first debits are to be charged against the first credits and the debt paid according to priority of time. Sheppard v. Steele, 43 24. Y., 52, followed.

Appeal from a judgment of the general term of the supreme court, ■ first department, affirming a judgment entered upon a decision made on a trial at circuit by the court without a jury.

On the 7tti of July, 1885, the First National Bank of Wallingford, Connecticut, drew on the plaintiff a draft in the usual form for the sum of eight dollars payable to the

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■order of one Frank Saxton, and delivered the same to him. Subsequently, but prior to July 15, 1885, said draft was raised from eight dollars to $1,800, and on that day said Saxton indorsed it in blank and presented it to the Eldred Bank, of Eldred, Pennsylvania, with the request that it should collect the same for him.

The Eldred Bank received said draft for collection only, giving back a receipt to that effect; indorsed it to the order of the defendant’s cashier “for collection for account of the Eldred Bank, Eldred, Pa.,” and at once forwarded it for ■collection to the defendant, its New York correspondent, which received it on the morning of July 16, 1885, and at ■once notified the Eldred Bank, by mail, that it had been received and placed to its credit. On the next day the defendant presented it, through the New York clearinghouse, to the plaintiff for payment, and the plaintiff thereupon, through a mistake of fact, paid it to the defendant as a draft for $1,800. The change in said draft was unknown to each of said banks until about the 15th day of August, 1885, and all of them acted in good faith in the premises.

It was the custom of the defendant to notify the Eldred Bank immediately of a failure to collect any of its checks or drafts or of . anything wrong in regard to them. The Eldred Bank waited until July 25,1885, in order to be sure that everything was all right, when not having heard anything to the contrary, it became satisfied that the draft was genuine in all respects, and paid over the proceeds thereof, less charges for collection, to said Saxton. According to the established course off business between the defendant and the Eldred Bank, the former did not become responsible for said draft, or for any draft, forwarded to it for collection by the cashier, but “was reimbursed by said Eldred Bank in case of the non-payment of any such draft * * * if the defendant had made any credits, payments or remittances, in anticipation of the collection of the same or on account thereof.”

The defendant, upon receipt of said draft, credited the amount thereof to the Eldred Bank in the only account that it kept with the latter. Said account was balanced on July 21, 1885, and the balance carried to the credit of the same account, which remained open until after August 15, but by that time the aggregate of the debits therein by the defendant to the Eldred Bank, since the last balancing thereof, including the balance then existing in favor of the Eldred Bank, exceeded the aggregate of the credits by considerably more than the sum of $1,800 with interest thereon from July 17, 1885.

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The plaintiff first learned that the draft had been altered on the 15th of August, 1885, when it notified the defendant of the fact and requested repayment of the difference' between said sums with interest, which the defendant refused, as it had already paid over the money to the Eldred Bank, which in turn had paid it to Saxton. At this time-the balance to the credit of the Eldred Bank on the books of the defendant exceeded the amount of said draft, but said balance arose wholly from collections and transactions, subsequent to the date when said draft was paid.

The plaintiff brought this action to recover from the defendant the difference between the genuine and the altered draft.

The justice before whom the cause was tried without a jury, found the foregoing facts, and also found specifically “that said sum of §1,800 and all other sums of money -in the possession of or under the control of the defendant on July 17, 1885, and on July 25, 1885, belonging to or to the credit of said Eldred Bank, had been, prior to August 3 5, 1885, the date of the aforesaid notice, paid over by the defendant to said Eldred Bank.” “That the defendant never had any title, ownership, interest or property in or to said check or draft, or any part thereof and never assumed any title, ownership, interest or property in the same.”

Said justice found as a conclusion of law that the complaint should be dismissed upon the merits, with costs, and the judgment entered accordingly having been affirmed by the general term, the plaintiff appealed to this court.

Francis C. Barlow, for appl’t; Alfred Taylor, for resp’t.

—When the draft in question was paid by the' plaintiff under a mistake of fact, the defendant either owned, it, or simply held it for collection as the agent of the Eldred Bank. If the. defendant had then owned the draft, it would, have become liable, upon discovery of the facts, to refund the amount mispaid, provided its condition had not, in • the meantime, changed so that this would be unjust. The National Bank of Commerce v. The National Mechanics Banking Association, 55 N. Y., 211 ; White v. The Continental National Bank, 64 N. Y., 316 .

If, however, the defendant did not then own the draft, but merely presented it for payment as the agent of another bank, it could not be required to repay, provided it paid over to its principal before notice of the mistake. La Farge v. Kneeland, 7 Cow., 460 ; Mowatt v. McLelan, 1 Wend., 173 ; Herrick v. Gallagher, 60 Barb., 566 ; Story on Agency, § 300.

The plaintiff claimed that the entry made by the defendant on its books to the credit of the Eldred Bank upon the receipt of the draft, proved that it belonged to the defend

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ant, while the defendant claimed that the restrictive endorsement of the draft by the Eldred Bank, prevented any change ■of title and simply created an agency for collection.

A question of fact thus arose as to the intention of the parties to the transaction, to be determined by considering -their words and acts, their course of business, and all of the •surrounding circumstances. We think that the decision of. this question in favor of the defendant by the trial court, acting in the place of a jury, is conclusive upon us. Moreover it seems to be settled that the title to commercial paper received for collection by a bank and forwarded to its correspondent in the usual course of business, without any express agreement in reference thereto, does not vest in such corresponent, even if it has remitted upon general account in anticipation of collections. Dickerson v. Wason, 47 N. Y. , 439 . Title passes only by a contract to that effect, to be either expressly proved or inferred from an unequivocal course of •dealing. Scott v. Ocean Bank, 23 N. Y., 289 .

This would involve in the case at bar an agreement on the part of the defendant to become absolutely responsible to' the Eldred Bank for the amount of the draft whether it was collected or not, without any right to reimbursement for advances. Id. This was not the agreement of the parties to the transaction in question, either as found by the trial court, or as appears from the undisputed evidence. In the case of the Metropolitan Bank v. Loyd, 90 N. Y., 530 , relied upon by the plaintiff, the referee found that the owner of a check endorsed it in blank and deposited it in a bank, which received it as a deposit of money, entered the amount as cash to his credit in his pass-book, and returned the book to him. It was held that under those circumstances the property in the check passed from the customer and vested in the bank. Ho other result could follow a transfer absolute in form and in fact by one party and its receipt as cash by the other.

The learned counsel for the plaintiff concedes that an agent who has received money paid by mistake cannot be compelled to repay it where he has paid it over to his principal without notice, but he contends that as the specific proceeds of this draft were not paid over, the rule has no application.

The trial court found, and the evidence clearly shows, that the proceeds of the draft, including the entire amount that the Eldred Bank had to its credit with the defendant when the draft was paid, had been drawn out at least two weeks before the alteration of the draft was discovered.

Where a payment is made upon general account with no direction as to its application, the law applies it to the oldest items. That is, the first debits are to be charged against- the first credits, and the debt paid according to

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priority of time. Sheppard v. Steele, 43 N. Y., 52 ; .Allen v. Culver, 3 Den., 284 ; Webb v. Dickenson, 11 Wend., 65 .

In Allen v. Culver (supra, p. 293 ), the court said: “In. the case of a running account betwen parties where there-are various items of debit on one side and of credit on the-other, occurring at different times, and no special appropriation of payments, constituting the credits, has been made by either party, the successive payments and credits-are to be applied in discharge of the items of debit antecedently due in the order of time in which they stand in the account. In other words each item of payment or credit is applied in extinguishment of the earliest items of debt until it is exhausted.”

We -think that this rule should be applied to the case-under consideration, and that the amount received upon the draft had been paid over by the defendant to the EldrecL Bank before it was notified that the draft had been, altered.

The judgment appealed from should be affirmed, with-. costs.

All concur.