distant places. But the advantages arising from business association, and the possible or probable temporary use of the money, are a sufficient consideration for the undertaking to collect it.1 And although the party bound to make payment resides in a distant place, or the paper is payable at a bank in a distant place, no special directions or contract for its transmission are necessary, it being assumed that there is a tacit understanding, arising from the obvious circumstances, that such transmission is expected by the depositor, and undertaken by the bank.2

$325. Effect of making paper payable at a bank.-A bank at which negotiable paper is made payable, and at which it is deposited for collection, becomes, by receiving it from the holder, his agent to collect the amount at maturity of the paper; and though payment be not made at maturity, the bank has implied authority to receive the money at any time thereafter, and while the paper remains at the bank. Payment may, therefore, be safely made to the bank by the debtor, unless he receives actual notice not to do so. The designation of the bank as place of payment, imports a stipulation that the holder will have the paper at the bank at maturity to surrender up, and that the maker or acceptor will then pay it; and if it be not then lodged there, and the payor himself or his agent is there, with necessary funds to meet it, he so far satisfies the contract that he can not be made responsible for any future damages, either as costs of suit or interest, for delay.

§ 326. When bank is agent for payee.-But the

'Halls v. Bank of the State, 3 Rich., 366; Bank of Utica v. M'Kinster, II Wend., 475; Bank of Utica v. Smedes, 3 Cow., 662.

* Fabens v. Mercantile Bank, 23 Pick., 330; Bank of Washington v. Triplett, I Peters, 25.

Alley v. Rogers, 19 Grat., 383; Marine Bank v. Fulton Bank, 2 Wall., 2531 Ward v. Smith, 7 Wall., 447; Morse on Banking, 323.

'Id.

Ward v. Smith, 7 Wall., 447.

mere fact that a bill or note is made payable at a bank does not of itself confer any agency upon the bank, on the part of the payee, to receive the amount. In order to make the bank the payee's agent to receive the money, the paper must be indorsed to, or lodged with, it, for collection, or it must have received authority from the payee to collect the amount due;1 and without such circumstances or such authority any amount which the bank receives to apply in payment, it will be deemed to have taken as the agent of the payor.2

§ 326a. Whether the bank at which the paper is payable may apply funds of the principal payor to pay it, is a question upon which the authorities differ. In England it is well settled that if the acceptor makes his acceptance payable at a particular bank or banker's, it is tantamount to an order on the part of the acceptor, to the bank or banker, to pay the bill to the person who, according to the law merchant, is capable of giving a good discharge to the billthat is, to any holder by genuine indorsement; or by delivery, when the paper is payable to bearer. And this may be regarded as well-established law. When a note is made payable at a particular bank or banker's, it has been held in Illinois, that although the maker may have funds there

3

'Caldwell v. Evans, 5 Bush (Ky.), 380; Balme v. Wambaugh, 16 Minn., 120. 2 Ward v. Smith, 7 Wall.. 447; Pease v. Warren, 29 Mich., 9 (1874); Cooley, J.: "It can not be pretended that making a note payable at a bank can make the bank the agent of the payee to receive payment, unless the officers are disposed to accept the agency; and in this case the refusal was distinct and emphatic."

Robarts v. Tucker, 16 Ad. & El., N. S., 578; 71 E. C. L. R. (1851), Parke, B.; Forster v. Clements, 2 Camp., 17 (1809), Lord Ellenborough; Keymer v. Laurie, 18 L. J. Q. B., 218 (1849), Patteson, J.: "The plaintiff, by making the acceptance payable at the defendant's (banking house), clearly authorized them to pay it." Thomson on Bills, 120; Chitty on Bills (13 Am. ed.), 716, *639, note; I Parsons N. & B., 357, note. In Byles on Bills [*19], 91, it is said: "If the funds in the banker's hands have been applied to the payment of the customer's acceptance, made payable at the banker's, though without any further authority, that is a defence (to the banker) to an action (brought by the customer) for dishonoring the (customer's) check." See also, to same effect, Byles [*188], 319; Edwards on Bills, 166, where it is said that if a note is made negotiable at a bank, "the maker authorizes the bank to pay it out of his funds on deposit, or by advancing the amount to his credit."

on deposit sufficient to pay it, the bank or banker has no authority to apply these funds to pay the note at maturity without being so ordered by the maker, verbally, or by check, or draft, or other writing. And this view was taken by the author in the former editions of this work. But this view the author is now convinced was erroneous, and upon principle and authority we should say that a bank or banker at whose house negotiable paper is made payable, may apply to its payment funds of the maker or acceptor held on deposit at its maturity, the relations of banker and customer, and the tenor of the instrument, justifying the inference that the customer intended this to be done. In New York, in a recent case it was said by Rapallo, J.: "A note payable at a bank where the maker keeps his account, is equivalent to a check drawn by him upon that bank, except that in the case of a note the failure to present for payment does not discharge the maker."2 And other well-considered cases sustain this view.

'Wood v. Merchants' Savings, etc., Co., 41 Ill., 247. In this case the note was payable "at the banking house of J. G. Conrad, Chicago." It was there presented at maturity, and marked "Good. C. W. Dunlop, Teller." At the time the maker had funds on deposit, but had given no authority to or order on the banker to pay the note. The next day Conrad failed, and made an assignment for the benefit of creditors. The Court held that the maker was still bound; and Breese, J., concluding his opinion, said: "To sum up all on this point in a few words, the fact that the note was made payable at Conrad's bank, did not authorize that bank to pay the note without being so ordered by the maker, verbally, or by check or draft or other writing. The holder of the note could not, therefore, draw the funds except on the order of the maker, and the money in the bank belonging to him remained at his risk. It would be going too far to hold that the mere certification of a note by the bank at which it was payable, that it was 'good,' should operate to release the maker, and be held equivalent to an actual payment of the money. We think the better rule is to consider nothing as an actual payment which is not really such, unless there be an express agreement that something short of a payment shall be taken in lieu of it." See on this subject the Albany Law Journal, June 29, 1878, p. 500.

Indig v. National City Bank, 80 N. Y., 106 (1880).

'Lazier v. Horan, Iowa S. C., Dec., 1880, 23 Albany L. J., 150; Thatcher v. Bank of the State of New York, 5 Sandford, 130 (1851), Sandford, J., saying: "The bank pays for its dealers who have funds to their credit such bills, notes, accepted or drawn by them, as are payable at the bank. The latter circumstance is deemed an order by the depositor for the payment of the bill or note out of its funds deposited. But it is only in respect of its dealers, persons keeping an account with the bank, that this course of business exists or can exist. A person may, no doubt, become a dealer by a deposit made on the day his draft or note

§ 3266. Whether the bank must pay the note or acceptance of a depositor made payable there, is another question; but one which we think should be affirmatively decided in the interest of the bank, and of the depositor, and of the note holder alike, and according to the general usages and interests of trade. It is quite clear that if the bank make a special agreement to apply the deposit of its dealer to payment of checks, or in any other way; or if instructed to make a particular application of it; then it must abide the agreement or instruction, and can not apply the deposit otherwise-even to a debt due itself.3 It is also clear and

falls due, though never before in the bank; but his deposit must be made with the proper officer of the institution, and with the requisite assent to his becoming a dealer." Etna National Bank v. Fourth National Bank, 46 N. Y., 88 (1871), Allen, J.: "Before this note matured, or was presented for payment, the defendant (bank) paid upon another note of the same maker, payable at the bank of the defendant, and which, by commercial usage, takes the place of, and is equivalent to, a check, and charged the same to the account of the maker, leaving an amount to the credit of the account, insufficient to pay the plaintiff. This payment was valid as against the customer of the defendant, the maker of the note, and that corporation had no cause of action against the defendant either for the money or for not paying the plaintiff's note when presented. The defendant has performed its contract with Florence Mills, and discharged its obligation to it, by honoring its drafts, and was without funds for the payment of the plaintiff's note when presented. If the defendant is charged with the amount of the note at the suit of the plaintiff, the anomaly will be presented, of a liability existing in favor of a stranger to a contract after it has been fully performed, and its obligations fulfilled, in favor of, and by transactions with, the party with whom it was made." In Home National Bank v. Newton, a well-considered case, decided in the First District Appellate Court, Chicago, Ill., and reported in the Banker's Magazine for July, 1881, p. 58, similar views were taken. Wilson, J., said: "As it is the duty of the bank to pay its customer's checks, when in funds, so, at least, it has authority, if it is not under actual obligation, to pay his notes and acceptances made payable at the bank. It is a presumption of law that if a customer does so make payable or negotiable at a bank any of his paper, it is his intent to have the same discharged from his deposit. neglect of the bank to make such appropriation would discharge the indorsers and sureties. The act of thus making his paper payable at a bank is considered as much his order to pay as would be his check, and if the bank pay without express orders to the contrary, it is a defence to a suit by the depositor for money so paid. And the rule seems to be settled that if a bank advances the money to pay a bill or note of its customer, made payable at the bank, it may recover from the depositor as for money loaned, the paper so made payable being equivalent to a request to pay. He makes the bank his agent, with implied authority to protect his credit by appropriating his deposits to the payment of his maturing obligations made payable at the bank."

1 Wilson v. Dawson, 52 Ind., 513.

The

Egerton v. Fulton N. B., 43 How. Pr. R., 216; Bank U. S. v. Macalester, S Penn. St., 475.

3 Egerton v. Fulton N. B., 43 How. Pr. R., 216.

well settled that when a bank is itself the holder of a bill or note there payable, it may at maturity apply funds of the principal payor on deposit to meet it. Now, as between the bank and the note holder, whose agent for collection it is, it is bound to act for his interest, and it would be negligence, as to him, to fail to make the application, it being conceded that the application is authorized by the debtor, by the very fact that his paper is made there payable; and as between the bank and the maker of the note, or acceptor of the bill, there payable, it is to the interest of the maker or acceptor that his commercial paper be protected; and as he has impliedly authorized and made the bank his agent to pay it, by making it there payable, and depositing funds. sufficient to meet it, it would be the duty of the bank to subserve that interest and make the application accordingly.3 And it is certainly to the interest of the bank, and of banks generally, that this be the recognized duty of such institutions, as it induces to the certainty, and assurance, that is so much to be desired in all commercial transactions, and is to be taken as the fair understanding and contemplation of all parties. When a general deposit is made in bank by the payor after maturity of the paper, it has been held that the presumption of authority to apply it in payment does not arise.4

§326c. Where an agent deposits in bank the proceeds of property sold by him for his principal, under instructions. thus to keep it, a trust is impressed upon the deposit in favor of the principal, and his right thereto is not affected by the fact that the agent at the same time deposited other moneys

1Dawson v. Real Est. Bank, 5 Pike, 284. Held in this case that if it fails to do so, it releases a surety; but the case must be one in which offset would be pleadable.

* See ante, § 326a; and post, § 330.

See McDowell v. Bank of Wilmington, I Harrington (Del.), 369. Held that if maker of note held by bank has funds on deposit, bank must apply them to note, or if not, it releases an indorser.

National Bank v. Smith, 66 N. Y., 271.