National Park Bank v. Seaboard Bank — 7 N.Y. St. Rep. 406

Majority

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National Park Bank, App’lt, v. The Seaboard Bank, Resp’t.

(Supreme Court, General Term, First Department,

Filed March 31, 1887.)

Headnote

1. Bills—Notes and checks—Raised check—When collecting agent LIABLE.

The Eldred Bank received a certain check for collection in the usual course of its business, and forwarded the same to the defendants, its correspondent, for collection, without any special agreement in reference thereto. The established course of business 1 etween the defendant and said bank was that the defendant did not become responsible for any draft or check forwarded to it for collection by said bank, but in case of nonpayment, if the defendant had made any credits or remittances in anticipation of the collection of the same, or on account thereof, it was entitled to be reimbursed. The check in question had been raised when received by the Eldred Bank, and the raised amount was paid to the defendant by the plaintiff. At the time of payment of said check the change in its amount was unknown to the drawee and all three banks. About a month after its payment the plaintiffs were informed, for the first time, of the raising of the check. Meanwhile, defendant had paid the money received from plaintiff on this check, and all other money it then had to the Eldred

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Bank, though it had during all the time funds belonging to said bank, received later. Reid, that the defendant acquired no title or property in the check in question, or in the proceeds thereof, after its collection, but that the same was the property of the Eldred Bank.

2. Same—Principal and aqbnt—When the relation of agent exists.

The mere giving of credit in an account, or even remitting in anticipation of collection, does not change the relations between the party remitting paper and the party receiving paper for collection; the latter is simply agent.

3. Same—When agent not liable for money mispaid to him.

If money be mispaid to an agent expressly for the use of his principal, and the agent has paid it over, he is not liable in an action by the person who mispaid it, but the remedy is against the principal.

4. Accounts—Order in which payments must be applied.

In cases of running accounts, where debts and credits are constantly accruing, payments must be applied to extinguish the debts according to the priority of time.

Appeal from a judgment dismissing the complaint.

In July 1885, the Wallingford Bank which then kept an account with the plaintiff drew on the plaintiff a draft or check for the sum of eight dollars in the usual form to the order of one Frank Saxton and delivered the same to him. On the 15th of July 1885, Saxton requested the Eldred Bank to collect the said draft or check, and thereupon endorsed the same for collection and delivered the same to the Eldred Bank. The amount of the check at the time of such delivery had been raised from $8.00 to $1,800. On the said 15th of July the Eldred Bank endorsed the check, below the endorsement of Saxton as follows: “Pay S. Q-. Nelson, cashier or order for collection, for account of the Eldred Bank, Eldred, Pa., P. O. Heasley, cashier; and forwarded the same to the defendant who was then the New York correspondent of the Eldred Bank. The defendant received it on the morning of July 16, 1885, and credited the same in their account current with the Eldred Bank on that day. On the 17th of July the draft was presented to the plaintiff by the defendant through the New York clearing house and paid on that day as a draft of $1,800 and said draft was then and there delivered and surrendered by the defendant to the plaintiff. On the day of its receipt, July 16, 1885, the defendant notified the Eldred Bank by postal card of its receipt and of its credit by the defendant to the Eldred Bank which postal card was received by the latter bank on July 17, 1885. The Eldred Bank in order to make sure that the draft was all right intentionally refrained from paying over the proceeds to Saxton until the 25th of July 1885. Not having heard that there was any-, thing wrong about the draft, it being the uniform custom of the defendant to notify the Eldred Bank of its failure to collect any of its checks or drafts or of anything wrong in

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regard to them, it paid the proceeds of the draft to Saxton. The Eldred Bank received the check for collection in the usual course of its business and forwarded the same to the defendants its correspondent for collection without any special agreement in reference thereto. The established course of business between the defendant and the Eldred Bank was that the defendant did not become responsible for the draft or check or for any draft or check forwarded to it for collection by the Eldred Bank, but in case of nonpayment, if the defendant had made any credits, payments or remittances in anticipation of the collection of the same or on account thereof, it was entitled to be reimbursed. At the time of the payment of the draft the change in its amount was unknown to the drawers and to said three banks and all said three banks acted in good faith and in ignorance of the raising of the check. Subsequent to the sixteenth of July the date of the receipt of the draft by the defendant and prior to the fifteenth of August, the date of the discovery that the draft was altered, payments were made by the defendant to the Eldred Bank largely exceeding in amount the balance in hand on the sixteenth of July, including the draft of $1,800. But during all this time, a balance remained in the hands of the defendants of more than $1,800 belonging to the Eldred Bank. On the fifteenth of August, the plaintiffs were for the first time informed of the raising of the draft, and on the same day gave notice to the defendant, and requested the defendant to repay to it, the plaintiff, the difference in the sum of $8.00 and the sum of $1,800 which it had paid upon the draft. The defendant refused to comply with this demand and the plaintiff brought this action to recover the said amount. The case was tried before the court without a jury, and upon the court finding the foregoing facts, the complaint was dismissed, and from the judgment thereupon entered this appeal is taken. ■

Francis C. Barlow, of counsel, for app’lt; Alfred Taylor, of counsel, for resp’t.

The ground upon which the learned justice founded his judgment was that the plaintiffs could not recover from the defendants, because the latter held the draft merely for collection and as agents of the Eldred Bank, and had paid over the proceeds to the Eldred Bank, before they, the defendants, had received any notice of the alteration. There is no claim that there was any neglect upon the part of either the plaintiffs or the defendants in. relation to the payment and collection of this draft.

The two questions then which are presented upon this appeal are:

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First, Whether the learned court was correct in holding, that the defendants were merely the agents of the Eldred Bank; and,

Second, Whether they had paid over to the Eldred Bank the proceeds collected upon the draft, and were thus absolved from liability.

There would seem to be no question as to the first proposition were it not for the fact that the defendants upon the receipt of the draft before its collection, had credited the same to the Eldred Bank in the account current between the two banks. If the defendants had kept this draft collected it, and remitted the identical proceeds to the Eldred Bank, then it is admitted in view of the nature of the endorsement that the defendants would be simply the agents for collection of the Eldred Bank. The case of Dickerson v. Wason ( 47 N. Y., 439 ), seems to set at rest the proposition that the mere giving of credit in account, or even remitting in anticipation of collection changes the relations between the party remitting paper and the party receiving paper for collection. In that case paper had been deposited by the plaintiff with the firm of Van Sann & Son in New York city for collection. Van Sann & Son sent the paper in a letter to the defendants, stating: “ Enclosed we hand you for collection * * * and when paid remit proceeds in draft on New York, etc. Protest if not paid.”

The note in question was endorsed by Van Sann & Son as follows: “ Pay Wason, Everett & Co., or order for collection.” It was received by the defendants July twenty-fourth and collected at maturity August twenty-seventh, on which day defendants heard that Van Sann & Son had stopped payment. In anticipation of the collection of the note in question, the defendants had remitted various sums of money to Van Sann & Son prior to their failure. These remittances were made as a general remittance on account current. The plaintiffs thereupon commenced an action to recover from Wason, Everett & Co. the amount collected upon this note. It was held that the plaintiffs never had in fact parted with the ownership of the note to Van Sann & Son, and that as the defendants had not remitted the money after the collection of the note, the plaintiff’s were ■entitled to recover the same as their property. Applying the case cited to the case at bar, it would, therefore, appear that the defendant acquired no title or property in the check or draft in question or in the proceeds of such draft after its collection, but that the same was the property of the Eldred Bank and could have been recovered from the Seaboard Bank had the same become insolvent immediately after its collection.

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, The next question to be considered is whether under these circumstances the payment over of the money to the Eldred Bank discharged the defendants from all claim or liability to the plaintiffs. This qestion is not entirely free from doubt. The cases of Butter v. Harrison (1 Cowp., 566), Mowatt v. McLelan ( 1 Wend., 174 ), Lafarge v. Kneeland ( 7 Cow., 460 ), and Herrick v. Gallagher ( 60 Barb., 566 ), seem to sustain the principle that if money be mispaid to an agent expressly for the use of his principal, and the agent has paid it over, he is not hable in an action by the person who mispaid it, but the remedy is against the principal. And this rule seems to 'be recognized in the case of the National Bank of Commerce v. The National Mechanics Banking Association ( 55 N. Y., 216 ). There are various cases, however, beginning with the Bank of Commerce v. The Union Bank (3 Comst., 236), where recoveries have been had for money paid on raised commercial paper through mistake, some of which seemed to militate against this rule, although the question is not discussed, nor are the facts sufficiently distinctly stated, in order to form an intelligent opinion. Marine National Bank v. National City Bank, 59 N. Y., 67 ; White v. Continental National Bank, 64 N. Y., 320 , and cases there cited. And, therefore, the distinct expression of opinion in the case of the National Bank of Commerce v. The National Mechanics Banking Association, (supra), should govern.

It seems clear that it must be held that the Seaboard Bank has paid over the proceeds of this draft to the Eldred Bank. It is true that they have not paid the distinct money received in payment of the check, but they have credited it in account and have remitted very much more than sufficient to exhaust this amount and any credit which might have existed at the time the same was made, long before the discovery of the raising of the amount of the check. Applying the well settled rule that in cases of running accounts where debts and credits are constantly occurring, payments must be applied to extinguish the debts according to the priority of time, the amount received upon the check in question had been paid over by the defendants to the Eldred Bank. The rule above stated is sustained by the cases of Sheppard v. Steele ( 43 N. Y., 52 ), Waldon v. Davidson ( 11 Wend., 65 ), Allen v. Culver ( 3 Denio, 293 ), United States v. Kirkpatrick ( 9 Wheat., 720 ), Bixby v. Drexel ( 56 How., 478 ), Clayton's case (1 Mer., 572), in re Hallett (13 L. R. Ch. D., 696).

It is no answer to this rule that its application turns the plaintiffs out of court and puts them to the trouble, expense and delay of a suit against the Eldred Bank, because the plaintiffs in this action are entitled to no greater consider

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ation at the hands of the court than is the Seaboard Bank, neither having been guilty of negligence and both having acted in the utmost good faith. The rules of law in reference to the application of payments should not be warped unless some great injustice is done thereby, which does not appear to be the effect of the application of the rule to the case at bar.

Under the circumstances, therefore, it does not appear ■ that any error was committed in the progress of the trial and the judgment appealed from should be affirmed with costs.

Brady and Daniels, JJ., concur.