defer the holder's claim while it secures its own claim; 14 but if it give the owner of the paper timely notice it may secure a priority for itself. If payment or acceptance be refused, the bank must immediately give notice of non-payment or non-acceptance as required by law,16 and must take all the steps necessary to charge any indorser upon the paper. Any failure to do so is a breach of duty and is negligence." If the draft shows the bank where the acceptor is supposed to have funds, it should present to that bank,18 for it is the duty of the collecting bank to make demand at that place or presentment for payment.19 If the paper is indorsed generally to the collecting bank, it is not negligence in it to indorse it generally.20 The liability of a correspondent bank may have the implied authority to buy in the property sold. Marks v. Bodie Bank, 8 Pac. R. 807. 14 Finch v. Karste, 97 Mich. 20. See U. S. Nat. Bank v. Westervelt, 75 N. W. R. 857 (wrong). indorsers. Steele v. Russell, 5 Neb. 211; Smedes v. Utica Bank, 20 Johns. 372; Fabens v. Mercantile Bank, 23 Pick. 330; Thompson v. State Bank, 3 Hill (S. C.), 77; Bird v. La. St. Bank, 93 U. S. 96, semble; 15 Freeman v. Citizens' Nat. Bank, Woolen v. New York Bank. 12 78 Iowa, 150. 16 Bank of Mobile v. Huggins, 3 Ala. 206; Nat. Pahquioque Bank v. First Nat. Bank, 36 Conn. 225; Bank of Hanover v. Kenan, 76 N. C. 340; Wingate v. Mechanics' Bank, 10 Pa. 104; Woolen v. New York Bank, 12 Blatchf. 359; Bank of Lindsborg v. Ober, 31 Kan. 599; Exchange Bank v. Sutton Bank, 78 Md. 577. A fire does not excuse it. Merchants' State Bank v. State Bank, 69 N. W. R. 170. If accepted in the wrong name it is liable. Walker v. State Bank, 9 N. Y. 582. But it may act in accordance with established usage. Patriotic Bank v. Farmers' Bank, 2 Cranch C. C. 560; Warren Bank v. Suffolk Bank, 10 Cush. 582; Haddock v. Citizens' Nat. Bank, 53 Iowa, 542. 17 The bank must notify all the Blatchf. 359; Chapman v. McCrea, 63 Ind. 360; West v. St. Paul Nat. Bank, 54 Minn. 466. Contra, Bank of Mobile v. Huggins, 3 Ala. 206; United States Bank v. Goddard, Fed. Cas. No. 2937; State Bank v. Bank of Capitol, 41 Barb. 343; Phipps v. Milbury Bank, 8 Met. 79. 18 This is, of course, the general rule. 19 Illinois seems to hold the astonishing doctrine that since the bank where payable has no right to pay the draft for the depositor's credit, there is no necessity of making demand at that place (Haines v. McFerron, 19 Bradw. 172), unless the depositor has directed the payment. 20 Dorchester Bank v. New England Bank, 1 Cush. 177. is governed by the same rules, whether it is held liable to the holder or its immediate employer.21 § 181. Liability for correspondent bank.- It is a practice so universal that any one must be held to know it, that a bank will employ another bank to make collections at a distance. But the legal relations that result are matters upon which courts are not agreed. But most courts agree that if the collecting bank employs as its agent the bank upon which the paper is drawn, or where it is payable, it is guilty of negligence,' and where that negligence can be considered the cause of an injury to the holder the first bank is liable. But if such a proceeding is customary, one court affirms that customary negligence is not negligence. All courts agree that if the bank of primary collection does not use ordinary and reasonable care and diligence in selecting its correspondent bank, it is liable for the negligent acts and the defaults of that bank. If there is an express contract governing the liability of the initial bank, that contract will govern. But there being no express contract, the liability of the initial bank has been the subject of hot debate be 21 To determine to whom liable consult the next section. 1 First Nat. Bank v. Fourth Nat. Bank, 56 Fed. R. 967, 16 U. S. App. 1; Germ. Nat. Bank v. Burns, 12 Colo. 539; Western Scraper Co. v. Sadilek, 69 N. W. R. 765; Drovers' Nat. Bank v. Anglo-Am. Co., 117 Ill. 100; Merchants' Nat. Bank v. Goodman, 109 Pa. 422. Contra, Indig v. Nat. City Bank, 80 N. Y. 100; Briggs v. Cent. Nat. Bank, 89 N. Y. 182. But the New York court say the collecting bank does not make the second bank its agent. St. Nicholas Bank v. State Nat. Bank, 128 N. Y. 26. And the English court so held. Heywood v. Pickering, 43 L. J. Q. B. 145. 3 2 This is simply the rule of proximate cause. First Nat. Bank v. City Nat. Bank, 34 S. W. R. 458. 3 Indig v. Nat. City Bank, 80 N. Y. 100. See note 1, ante. 4 Etna Ins. Co. v. Alton City Bank, 25 Ill. 243; Dorchester Bank v. New England Bank, 1 Cush. 177. See the cases cited in notes 16 to 28 to this section. Exchange Nat. Bank v. Third Nat. Bank, 112 U. S. 276; In re State Bank, 56 Minn. 119; Power v. First Nat. Bank, 6 Mont. 251. But it would be against public policy for the bank to contract against liability for its own negligence, although it could contract against liability for its correspondent's negligence. 7 8 tween the different courts. The Supreme Court of Pennsylvania has been unable to agree with itself," but it is probably to be classed upon one side of the question. The courts of the United States and of New York, New Jersey, Ohio,10 Indiana," probably Pennsylvania,12 Michigan,13 Montana 14 and Minnesota,15 maintain the absolute liability of the first bank for all defaults of its correspondent banks. It need not be said that if the owner of the collection himself treats with the correspondent, he makes the correspondent his own agent. And the same result follows if he, himself, selects the correspondent. Many of these courts treat the question as one of delegation of power and not possession of power. The question is not whether the first bank is delegating any power, but rather, has it the power to appoint a sub-agent for the principal, if the relation is one of agency? The above cases make answer that it has no such power granted to it by the contract of collection, and therefore the initial bank is liable for all defaults of its correspondent, including a failure to pay over the proceeds. But the courts of Louisiana, Massachusetts," Iowa,18 Mississippi,19 Missouri,20 See Minneapolis Co. v. Metropolitan 6 Compare Mechanics' Bank v. Earp, 4 Rawle, 384; Bellmire v. United States Bank, 4 Whart. 109, with Wingate v. Mechanics' Bank, 10 Pa. 104; Bradstreet v. Everson, 72 Pa. 124. 7 Exchange Nat. Bank v. Third Nat. Bank, 112 U. S. 276; Hoover v. Wise, 91 U. S. 308; Kent v. Dawson Bank, 13 Blatch. 237. The English rule is the same. 11 Tyson v. State Bank, 6 Blackf. 225. 12 Siner v. Stearne, 155 Pa. 662; Bradstreet v. Everson, 72 Pa. 124. 13 Simpson v. Waldby, 63 Mich. 439. 14 Power v. First Nat. Bank, 6 Mont. 251. 15 Streissguth v. National Germ. Am. Bank, 43 Minn. 50. 16 Hum v. Union Bank, 4 Rob. (La.) 109. 17 Fabens v. Mercantile Bank, 23 Castle v. Corn Exchange Bank, Pick. 330. 148 N. Y. 122. 9 Davey v. Jones, 42 N. J. Law, 28; Titus v. Mechanics' Bank, 35 N. J. Law, 588. 10 Reeves v. State Bank, 8 Ohio St. 465. 18 Guelick v. National State Bank, 56 Iowa, 434. 19 Third Nat. Bank v. Vicksburg, 61 Miss. 112. 20 Daly v. Butchers' Bank, 56 Mo. 94. 26 Nebraska," Illinois," Connecticut," Maryland, Wisconsin,25 Colorado, Tennessee 27 and Kansas 28 affirm that the first bank is liable only for due care and diligence in the selection of a trustworthy correspondent; that it is given power by the very fact of the deposit for collection to employ subagents, who thereupon become the agents of the holder. This divergence of authority is exceedingly unfortunate, since in the states which hold this rule, if a party can bring his action in a United States court, the state rule will not be followed, and the practitioner is confronted with one kind of law in one court and another kind of law in another court, both within the same state, and with, in some cases, concurrent jurisdiction. The primary difficulty with this latter view is that it is based upon the idea that the collecting bank is an agent of the holder, but the collecting bank is bailee and its agents are its own agents.29 What the collecting bank does is not in the principal's name, but in its own name as bailee and qualified owner of the paper.30 In the next place, if the collecting bank is merely an agent, and sends the paper to another agent, the primary bank could claim no lien as against a garnishment directed to the secondary bank against the owner, and hence it would lose its banker's lien, although checks might have been drawn against the very collection and paid. In the third place this 21 First Nat. Bank v. Sprague, 34 agency. Had it been discerned to Neb. 318. 22 Waterloo Milling Co. v. Kuenster, 158 Ill. 259. See § 186, note 2. 23 East Haddam Bank v. Scovil, 12 Conn. 303. be a bailment, the difficulty would not have resulted. See § 171, ante. 30 No one probably would dispute that, if the paper were deposited as collateral security, a typical bail 24 Citizens' Bank v. Howell, 8 Md. ment, and the bank proceeded to 530. collect it under a power, the agents 25 Stacy v. Dane Co. Bank, 12 Wis. used in the collection, whether 629. 26 Bank v. Burns, 12 Colo. 539. banks or individuals, would be the agents of the bailee. It is conced 27 Bank of Louisville v. Bank, 8 edly true in the case of common Baxt. 101. 28 Bank v. Ober, 31 Kan. 599. 29 It is unfortunate that the question has been considered one of carriers that the successive carriers, unless the contract is special, are agents of the initial carrier. view requires the holder of a collection, in order to protect himself fully, to ascertain the name of the correspondent bank and delay the collection until he can acquire satisfactory information. This argument ab inconvenienti ought to be controlling in the absence of some imperative rule of law. There are certain other states which, adopting the rule that the primary bank is not liable in general for the acts of the correspondent bank, yet claim the rule to be that, if the payee resides at the place where the collecting bank is located, that bank is liable for the acts of its correspondent at all events. It is hardly necessary to add that the correspondent bank is liable to whomever the particular rule adopted makes its employer." § 182. Liability of bank for notary.- If the deposit of paper for collection in a bank is a bailment, it follows necessarily that the default of the notary to which the bank confides the performance of some duty concerning the paper for the bank is the default of the bank, and so some cases hold;1 but the great weight of authority is otherwise, and it is held that if the bank shows due care and diligence in the selection of a notary it has discharged its whole duty.2 Log 31 Etna Ins. Co. v. Alton City Bank, 25 Ill. 243; Bank of Louisville v. Bank of Knoxville, 8 Baxt. 101; Stacy v. Dane Co. Bank, 12 Wis. 629, and a number of the cases cited in the preceding note recognize this distinction. If the correspondent resides in the same place, he is a servant of the bank; but if he resides in another place, he is an agent of the holder. There is no reason in the distinction. The courts see the wrong of the rule when applied to a home collection, but are unable to see it when applied to a collection to be made at a distance. 32 To the first bank: Merchants' Bank v. Stafford Nat. Bank, 44 Conn. 565; Locke v. Merchants' Nat. Bank, 66 Ind. 353; First Nat. Bank v. Mansfield Sav. Bank, 3 Ohio Dec. 141. Yet, if the first bank is bailee, it may sue and recover for the negligence up to the whole loss, even in those states which say that the correspondent bank is the agent of the holder. So the first case in this note holds. 1 Ayrault v. Pacific Bank, 47 N. Y. 570; Davey v. Jones, 42 N. J. Law, 28. 2 Britton v. Nicholls, 104 U. S. 757 (but see this case explained, 112 U. S. 284); Tiernan v. Commercial Bank, 7 How. (Miss.) 648; Agric. Bank v. Comm. Bank, 15 Miss. 592 (this case contains some admirable dicta for drinking men); Bellmire |