the insolvency of any of the parties. These various questions will be considered in the order of the holder's rights, the initial bank's rights, and the correspondent bank's rights in the proceeds. Most of the law upon this subject has been produced in the last decade or two. 188. The rights of the owner of collection. As we have heretofore said,' the deposit of paper for collection in a bank creates the relation between the banker and customer of bailor and bailee. It is submitted that this is the only relation that will answer the situation. The bank is owner against all the world except the true owner. It is liable for negligence in an action at law. The owner can follow the proceeds of the collection in an action at law. The initial bank is liable for its correspondent's defaults, except in some jurisdictions, which recognize, however, that the bank can sue as owner itself, although it is not the owner, because it can charge off a credit given. What legal relation except bailment will answer these conditions? If, however, the paper be sold or discounted to the bank, it is, of course, not deposited for collection. The contract of bailment may be either the one which results from custom recognized as a rule of law, or it may be that customary duty modified by an express agreement or by a course of dealing between the bank and its depositor. This fact is material as to the relation which results upon the completion of the collection; it may also be material as defining the duty of the bank in making the collection, or its responsibility if the collection be not made. But whatever the relation between the holder of the collection and the bank in which he deposits it, the depositor, when placing the paper in the bank, must indorse it. This indorsement may be for credit or for collection, or for collection and credit, or for account. The 1 See § 133, ante. 2 This view must be taken in regard to those cases which affirm that all title passes to the bank upon a deposit for credit. See § 133, ante, and Fourth Nat. Bank v. Mayer, 89 Ga. 108. But these courts form of indorsement is not material between the bank and the customer, if there is an agreement or understanding between the parties, except that it may be evidence as to the relation between them. The actual agreement governs. But the indorsement is exceedingly material where the collection is to pass through other banks. Whether the paper is indorsed for collection or credit, the bank may permit the deposit that requires collection to be checked against. Taking first a deposit for credit where the responsibility on the paper remains with the customer, the beneficial ownership of the proceeds after collection and the ownership of the . paper before collection remains with the depositor until, at least, the reception of the proceeds by the bank dealing immediately with him. It matters little whether the relation is called that of bailor to bailee, or that of cestui que trust to trustee, or that of agent to principal, except that the last two views introduce serious difficulties as to procedure. Being the ultimate owner, the depositor of the paper can claim it against any one who cannot show a better right. A better right can be shown by any correspondent bank having a lien on the proceeds which received the paper as the property of the bank transmitting to it, when it was not put upon notice that the paper was held by the initial bank for collection and not as owner. An original indorsement for collection, or any indorsement for collection or for account prior to the indorsement to it, is notice that the trans 4 Evansville Bank v. German Am. Bank, 155 U. S. 556; Beal v. Somerville, 50 Fed. R. 647, 5 U. S. App. 14; Beal v. National Ex. Bank, 55 Fed. R. 894, 5 U. S. App. 376. These cases must be taken to have settled the law contrary to the view held by the text books, which asserted a contrary principle. But in those states which hold that a deposit for credit passes title to the bank, the proceeds are lost to the depositor (see § 133, ante), unless he treated with the correspondent bank. Pickering v. Cameron, 103 Iowa, 186. 5 Bank of Metropolis v. New England Bank, 1 How. 234, 6 How. 212; Blaine v. Bourne, 11 R. L. 119; Cecil Bank v. Farmers' Bank, 22 Md. 148; City Bank v. Weiss, 67 Tex. 331; Lindauer v. Fourth Nat. Bank, 55 Barb. 75; Sweeney v. Easter, 1 Wall. 166; Hackett v. Reynolds, 114 Pa. 328. 6 mitting bank is not the owner; so is notice communicated in any other way. But such correspondent bank by its agreement with its transmitting bank cannot control the effect of such an indorsement or other notice. If it has a lien it is only to the extent of a credit allowed, or detriment suffered by it on the credit of this particular paper, unless it has a lien by agreement or by a course of dealing. The next person that may be able to claim a lien on the paper as against the owner is the bank which deals directly with him. This bank has a lien or a set-off upon the proceeds of the collection for any matured claim which it may have against the depositor of the paper,10 and in most jurisdictions a set-off, where the claim is unmatured and the depositor insolvent," provided the proceeds of the collection in the initial bank would become a general deposit of the holder.12 It would also necessarily have a lien for any credit allowed the holder upon the particular paper deposited for collection. But whenever in the chain of collecting banks the proceeds are lawfully taken by a bank for a claim owed to it by its predecessor in the collection, that predecessor becomes at once liable to its immediate predecessor as for the 6 First Nat. Bank v. Bank of Monroe, 33 Fed. R. 408; Evansville Bank v. Germ. Am. Bank, 155 U. S. 556. It is held that an indorsement for collection and credit does not pass title to the bank, even though it be credited as cash. Armstrong v. National Bank, 90 Ky. 431. But every indorsement for credit to any bank, not the one on which the paper is drawn, shows that very same fact. 7 See § 133, ante. rine Bank, 3 Keyes, 337. The case of Wyman v. Colo. Nat. Bank, 5 Colo. 30, wrongly held an overdraft already existing sufficient. Milliken v. Shapleigh, 36 Mo. 596, is to the contrary. Carrol v. Exc. Bank, 30 W. Va. 518, holds that general balances are sufficient, but Bank of Syracuse v. Wis. Ins. Co., 12 N. Y. Supp. 952, contradicts it. The New York cases do not recognize an existing debt as sufficient. 10 Greene v. Jackson Bank, 18 R. L. 8 Hutchins v. Manhattan Co., 29 779; In re Armstrong, 41 Fed. R. N. Y. Supp. 1103. 9 Cody v. City Nat. Bank, 55 Mich. 379; McBride v. Farmers' Bank, 26 N. Y. 450; Dod v. Fourth Nat. Bank, 59 Barb. 265; Comm. Bank v. Ma 381. 11 See § 140, ante. 12 The rule as to application applies only to general deposits. reception of the proceeds; 13 and the same result follows where a bank receives the proceeds by a lawful credit to it; and whenever in the chain of collection any bank has parted with the proceeds, either by transmission or credit lawfully given, its connection with the collection has ceased." But as between banks it should not be forgotten that they are governed by the same rules as apply to the original depositor and the initial bank, as to notice by the form of indorsement to itself or to some of its predecessors; and where the bank receiving the paper has the right to assume that it is the property of the bank transmitting to it, yet it has no lien except where it grants a credit upon the particular paper, or has one by an agreement or course of dealing. The third class of persons who may show a better right may be assignees or garnishers of the owner of the paper.' 15 The case of assignees calls for no particular mention. They gain the rights of their assignors and no more; and in order to protect themselves should give notice to any bank which they desire to be affected, unless notice to the first or initial bank 13 The initial bank becomes responsible to the holder because it obtains the proceeds by a credit which if lawfully given is precisely the same as the receipt of so much actual money. See In re Madison Bank, 5 Biss. 515. But it should be remembered that if the deposit for collection was taken by a bank known to its officers to be insolvent, a fraud was committed upon the depositor, and a credit by one bank to another bank would not relieve it from its liability to the owner, unless it could claim to be a bona fide holder of the proceeds. See note 25, infra. 14 This principle is recognized in most of the cases. See Evansville Bank v. Germ. Am. Bank, 155 U. S. 556. But the crediting cannot be made before payment. Jones v. Kil breth, 49 Ohio St. 401. One case would be considered notice to all the others, where they are considered successive bailees or agents under the initial bank. The garnishment may be either upon the correspondent bank or the initial bank. If it be upon the initial bank before it has received the proceeds, the holder of the collection may protect himself by reclaiming the proceeds from the correspondent bank which holds them. But in any event the garnisher gets no better title or right than the holder had, and the garnishment is therefore subject to any claims which the correspondent bank or the initial bank may have upon the paper. Whether the proceeds would be subject to garnishment at all or not must depend upon the terms of the particular governing statute.16 But it can be said that at common law, certainly, it is not subject to attachment or execution by direct levy." But if the deposit for collection be subject to check, there ought to be no question that it is not subject to garnishment until the proceeds have been received by the initial bank and there credited or held for the depositor.18 But where the deposit is for collection merely and not checked against, there seems to be no good reason why the proceeds could not be garnished in the hands of any corre 16 Ordinarily garnishment is for the purpose of reaching those assets of the debtor which are not capable of manual delivery. Such would be a bailor's interest where the bailee was in possession and entitled to the possession. The bailor's interest is recognized as attachable in Warner v. Fourth Nat. Bank, 115 N. Y. 251, but if it be attachable, it could only be by process of garnishment under most systems. Where a chose in action is garnished the usual course is to garnish the debtor. Manual delivery of the document itself would not necessarily confer any lien against the debtor. This question must be settled by reference to special treatises upon the subject of attachment and garnishment. The leading authorities upon the question will be found in note 20, infra. But it is such a simple matter for the holder of the collection to avoid the effect of a garnishment, and it is so difficult for the creditor, unless he can obtain confidential information from the banks, that the whole inquiry can hardly be considered practical. 17 It is not subject to execution because not capable of being taken possession of as against the bailee in possession with a right to retain possession. 18 Fourth Nat. Bank v. Meyer, 89 Ga. 108. |