third party receiving the paper, such as a correspondent bank, may assume rightfully, in the absence of notice of a different state of facts, that the paper belongs to the bank transmitting it. When the funds are collected and in the collecting bank, whether or not those funds become a general deposit in the bank depends upon the course of dealing between the parties, if there has been one, or if there has been no course of dealing, and no express contract, except to collect, has been made, the funds after collection belong to the bank, and the relation of debtor and creditor exists between the bank and its depositor. But where there has been an express contract to collect the money and return the proceeds to the depositor, the express contract would overrule the general usages of the business, and the money in the hands of the bank would be a trust fund of the depositor." Such are the rules governing deposits for collection. But ordinarily a man who has checks or drafts takes them to his bank and deposits them for credit to himself. If nothing is said or written to indicate the intention, the deposit is for the depositor's credit.' But where such a deposit is made, the question as to where the title remains is a much debated contention. If the checks or drafts are on the particular bank in which they are deposited, a credit of them as cash to the depositor is payment, and by the great weight of authority that payment is final and irrevocable. The checks, 3 Cody v. City Nat. Bank, 55 Mich. 379; Vickery v. State Sav. Ass'n, 21 Fed. R. 773. And see § 175, post. 4 Marine Bank v. Fulton Bank, 2 Wall. 252; Commercial Nat. Bank v. Armstrong, 148 U. S. 50; Marine Bank v. Rushmore, 28 Ill. 463; Butchers' Bank v. Hubbell, 117 N. Y. 384; Reeves v. State Bank, 8 Ohio St. 465. 5 Continental Nat. Bank v. Weems, 69 Tex. 489, where the contract was for collection and return of proceeds. This is the rule as between banks, and the same principle applies as between depositor and bank. 6 Continental Nat. Bank v. Weems, 69 Tex. 489. See also McLeod v. Evans, 66 Wis. 401 (overruled by Nonotuck Silk Co. v. Flanders, 87 Wis. 237), and Anheuser-Busch Ass'n v. Morris, 36 Neb. 31. See § 343, post, for full discussion. 7 Farmers' Bank v. Slayden, 8 Tex. Civ. App. 63. 8 Am. Ex. Nat. Bank v. Gregg, 138 Ill. 596; Bank v. Burkhardt, 100 U. S. 686; Bartley v. State, 73 N. W. R. 744; Oddie v. National City Bank, 45 N. Y. 735. And see § 158, post, notes 5 and 6; City Nat. Bank v. Burns, 68 Ala. 267. Contra, Na thereupon, have passed from the ownership of the depositor. But if the bank receives such checks upon the express condition that they are not credited as cash, but are subject to further examination, the mere entry of them as cash will not preclude the bank from charging them back to the depositor." But a custom to that effect would not be valid.10 Where the checks or drafts deposited for credit are on another bank than the one receiving them, it is usual for them to be credited as cash. The point is, however, whether they pass to the bank as owner or as a mere bailee where they are credited as cash. All the cases agree that when such checks or drafts deposited for credit are collected and the money in the collecting bank, the relation of debtor and creditor exists," unless there be some special agreement or understanding between the bank and its customer to the contrary. All the cases agree that all third parties may treat the bank in which checks have been deposited for credit of the depositor as the owner of the paper. But where the title is during the process of collecting is a very different question. Some courts erroneously say that, if the depositor is allowed to check against the deposit, the title is in the bank. Other 12 tional Gold Co. v. McDonald, 51 Cal. 64. In Pennsylvania, if the drawee knows that the drawer has no funds, the bank may revoke the credit. Patterson v. Union Nat. Bank, 52 Pa. 206. Rawl v. Saulsbury, 66 Ga. 394, was a case of the bank's own check. 9 Pratt v. Foote, 9 N. Y. 463; Rapp v. National Security Bank, 136 Pa. 426. 10 This must follow from the fact that payment of a check is final. A custom to abrogate that rule of law would not be valid. See § 158, post. 11 See note 4, ante, for cases. This rule applies between banks, and between the depositor and the bank. The two cases that seem to be opposed are McLeod v. Evans, 66 13 Wis. 401 (but Nonotuck Silk Co. v. courts deny this, and say the right to check against the deposit is a mere privilege." This latter idea is the true one, because there is no question on the authorities but that the bank, having received checks or drafts on other banks as cash credited, has the right to revoke the credit if the collection is not made; but this would not be possible if title had passed.15 It does not help the matter to appeal to custom, because customs are facts, while title is a legal conclusion from the facts. One part of the custom may be to treat the deposit as cash, but the other part of the custom is to treat the credit as merely tentative. A custom cannot exist as to a legal conclusion. Therefore, we must fall back upon the facts. The Supreme Court of the United States once said the whole question is one of fact.16 That statement does not help the matter, because the facts being conceded the law must put a construction upon those facts. Now, on principle, a deposit of checks for credit on one bank upon another bank is a bailment." The duty of the bank is to Northwestern Fuel Co., 58 Minn. 141; Lanterman v. Travous, 73 Ill. App. 670, 174 Ill. 459; Am. Ex. Bank v. Mining Co., 165 Ill. 103; Doppelt v. National Bank of Republic, 175 Ill. 432; Am. Trust & Sav. Bank v. Manufacturing Co., 150 Ill. 336. But these courts recognize that the bank can charge back the deposit. 14 Balbach v. Frelinghuysen, 15 Fed. R. 675; Beal v. City of Somerville, 50 Fed. R. 647, 5 U. S. App. 14. This last is the only able examination of the matter that has been made. It expressly disapproves 2 Morse on Banking, 896. See also Scott v. Ocean Bank, 23 N. Y. 289. The Supreme Court of the United States has followed the case of Beal v. City of Somerville. 15 See Beal v. City of Somerville, supra; Stapylton v. Cie des Phosphates, 88 Fed. R. 53. See also 188, 189 and 190, infra. 16 St. Louis & S. F. Ry. Co. v. Johnston, 133 U. S. 566. But this case really decides that checks received and credited as cash against which the depositor has the right to draw, when the checks are on a different bank than the one receiving them, do not necessarily become the property of the bank. But the case is not in point, because it is put upon the ground that, even if it was a deposit, the bank became a trustee by reason of its fraud. If the deposit was really a purchase by the bank, and is so treated and acted upon by both parties, title, of course, passes. Taft v. Quinsigamond Bank, 52 N. E. R. 387. The case of Evansville Bank v. German-American Bank, 155 U. S. 556, says the legal title is in the collecting bank, but that it has not the equitable title. 17 Giles v. Perkins, 9 East, 12, 14; Beal v. City of Somerville, 50 Fec. collect and credit the depositor with the amount obtained. When that is done the bailment is complete. The collecting bank takes no risk upon the paper; if collection is not made it charges the paper back to the depositor.18 If the bank fails. in this duty it is liable for negligence.19 It would not be so if it owned the paper. Hence we are driven to conclude that the bank has no title until the collection is complete. The full reason for this conclusion will be found in sections 187 and 188. This conclusion is wholly compatible with the fact that a third party without notice may get title from the bank. That is the result of investing the bank with the indicia of ownership. This conclusion is, too, wholly compatible with the fact that the bank may sue upon the paper whether indorsed to it for credit or for collection. But it may do this as holder, although it is not the owner.20 Each bank in the chain is a holder or bailee. But it cannot be said that this conclusion is the adjudicated law everywhere upon this subject. A very ably considered case so holds.21 But there are cases which hold that if the depositor is allowed to check against the deposit, the title passes to the bank. There are other cases which say that if the deposit is credited as cash the title passes to the bank. The conflict of authority is not capable of being explained, but the true rule is that of Beal v. City of Somerville. The impor R. 647. And see §§ 181, 187-190, infra. 18 Am. Trust & Sav. Bank v. Manufacturing Co., 150 Ill. 330; Beal v. City of Somerville, supra. This fact is what renders the decisions in note 13 so ingeniously absurd. 19 Exchange Nat. Bank v. Third Nat. Bank, 112 U. S. 276; Mound City Paint Co. v. Commercial Nat. Bank, 4 Utah, 353. 20 Evansville Bank v. GermanAmerican Bank, 155 U. S. 556; Commercial Bank v. Armstrong, 148 U. S. 50; First Nat. Bank v. Hughes, 46 Pac. R. 272. The case of First Nat. Bank v. Payne, 42 S. W. R. 736 23 (Ky.), can only be passed over in charitable silence. 21 Beal v. City of Somerville, 50 Fed. R. 647. And this case is followed in all the federal courts. 22 Craigie v. Hadley, 99 N. Y. 131, and cases cited in note 13, ante. One case says a deposit for collection and credit does not pass title. Armstrong v. National Bank, 90 Ky. 431. But the indorsement for credit always shows this fact by being to another bank. 23 Security Bank v. Northwestern Fuel Co., 58 Minn. 141; Ditch v. Western Nat. Bank, 79 Md. 192. tance of the matter is as to who sustains the loss when the correspondent bank fails, and as to who owns the funds if the collecting bank should fail. These matters will be treated under the head of collections and insolvency." § 134. Ownership of deposit.—The natural presumption is that money deposited to the credit of a depositor by himself belongs to that depositor, and in reason the bank need only look to the apparent owner of the fund. If it pays that apparent owner of the deposit or one designated by him, the bank is fully protected.' But sometimes it will happen that money deposited to the credit of one man really belongs to another. In such case, after notice as to who is the true owner of the fund, the bank cannot pay the apparent owner. If the bank pays the true owner of the fund it is always protected. The rule is believed to be settled that a bank cannot dispute the title of the depositor, except when the credit is claimed by the true owner, or when the same has been attached or garnished. When the form of the deposit is such that it is notice of the true ownership of the fund, the bank is compelled to act upon such notice. But 24 See SS 188-190, 343 and 344, post. 1 Daly v. New York Chem. Co., 2 Hall, 550; Fulton Bank v. New York Canal Co., 4 Paige, 127; McEwen v. Davis, 39 Ind. 109; Davis v. Panhandle Nat. Bank, 29 S. W. R. 926. As to presumption see Egbert v. Payne, 99 Pa. 239; Lockhaven Nat. Bank v. Mason, 95 Pa. 113. 2 See cases following. 3 Providence Ass'n v. Citizens' Sav. Bank, 19 R. I. 142; Anderson v. Market Nat. Bank, 1 N. Y. Supp. 136; Frazier v. Erie Bank, 8 Watts & S. 18; Union Bank v. Johnson, 9 Gill & J. 297. As to fact of notice see Isom v. First Nat. Bank, 52 Miss. 102; Gibson v. Nat. Park Bank, 98 N. Y. 87; Eagle Mfg. Co. v. Belcher, 89 Ga. 218. 4 Lockhaven Bank v. Mason, 95 Pa. 113; Brown v. Kinsley Ex. Bank, 51 Kan. 359. True owner may recover against the bank. Starr v. York Nat. Bank, 55 Pa. 364; Smith v. Phila. Nat. Bank, 1 Walk. (Pa.) 318. It is said that the bank can pay the true owner only when he has enforced his claim by legal process. Lund v. Seamen's Bank, 37 Barb. 129. But this is not true. See Farmers' Bank v. King, 57 Pa. 202; First Nat. Bank v. Bache, 71 Pa. 213; Viets v. Union Nat. Bank, 101 N. Y. 563; Bank v. Waddel, 100 N. C. 338. 5 Citizens' Bank v. Alexander, 120 Pa. 476; Martin v. State Bank, 7 S. D. 263. 6 See the next section. |