Continental National Bank v. First National Bank

Truly, L, delivered the opinion of the court. Appellant - was the owner of eleven checks, aggregating $1, 318.91, drawn prior to July 31, 1896, on appellee, by parties, all depositors with appellee, in amounts in excess of their checks. These checks were by appellant on said July 31st sent to the American National Bank of New Orleans, La., for collection and remittance, each check being indorsed, “Pay to the [108] order of any State or National Bank.” The American National Bank at the date of'the receipt of these checks was, and for some months prior thereto had been, to the knowledge of its own officers, but without the knowledge of appellant or appellee, utterly insolvent. On August 3d the American National Bank sent these checks to appellee, upon whom they were drawn, for collection and remittance. On August 5th they were collected by the appellee, and would have been remitted to the American National Bank, but at 3 p. si., on August 5th, the American National Bank closed its doors and passed into the hands of a receiver, whereupon, the appellee hearing of such failure before making remittance to cover said collection, credited the proceeds thereof to the account, on its books, of the American National Bank. The appellee had no knowledge at that time that the checks were the property of appellant, and received same under the general indorsement as stated. The American National Bank had been for some time prior to its failure the New Orleans correspondent of appellee, and at the date of its failure was indebted to appellee in the sum of $20,000. Appellant sued for the amount of the checks in question, claiming that, as the American National Bank was at the date of its receipt of the checks utterly insolvent, therefore it had no right to receive such checks for deposit, and such action was fraudulent, and revoked its employment by appellant as agent; wherefore it is averred that appellee became the agent of appellant, and liable to account to it for the proceeds of the checks. On behalf of appellee it is contended that, as the checks were received under a general indorsement, it was entitled to' consider them as the property of the American National Bank, and, having no information of any claim of appellant, had the right to dispose of the proceeds in accordance with the course of business dealings existing between appellee and its correspondent, the American National Bank. The precise question here presented has never been passed upon or' considered by this court, and the authorities and the [109] courts of last resort of the various states are in hopeless conflict. After careful consideration and review of the legal principles applicable, our conclusion is: Where a bank forwards checks for collection under a general indorsement in blank, the title to such collection, as to third parties dealing without notice, and not being put upon inquiry, passes to the bank to which they are forwarded, and the initial bank becomes simply a general creditor of the bank to which the items are sent for collection. So where in turn the second bank sends such items under a like indorsement in blank to its correspondent for collection, the same relationship is established between them, and the bank finally making the collection has the right to apply the proceeds thereof in any manner that may be authorized by the mutual understanding and course of dealing previously existing between it and the bank from which the items were received. The collecting bank is not required to make any inquiry to ascertain who, in point of fact, is the real owner of the proceeds of the collection, where the items for collection are received under a general indorsement. It has the right to assume that the ownership is in the bank forwarding the item to it. American Exchange National Bank v. Theummler, 195 Ill., 90 (62 N. E., 932: 58 L. R. A., 51; 88 Am. St. Rep., 177). Any other rule would render it impossible for the bank making a collection to protect itself unless the remittance was in all cases made to the payee named in the check, and this would often be not in accordance with the real rights of the parties in interest. Where a bank collects checks received under a general indorsement, and remits the proceeds to’the bank from which the items were received, it has discharged its whole duty in the premises, and the initial bank must look to its correspondent for payment; and when, by the course of dealing or understanding, the bank making the collection has the right to apply the proceeds of such collection to the credit of the bank from which the items were received, and upon making the collection does make such application, this is likewise a full discharge of its [110] duty, and the initial bank has no right to hold the collecting bank for the proceeds of the collection. The possession of the checks by the American National Bank under a blank indorsement was presumptive evidence of its ownership, and appellee, not being in any manner advised of appellant’s claim, and not placed upon inquiry, had the right to consider the checks as the property of the American National Bank, and to dispose of the proceeds according to the course of dealing existing between them. The right of appellee to deal with the proceeds is not affected by the fact that the American National Bank had been for a long period insolvent. The collection was fully completed, the money actually received by appellee, and its rights thereby established and fixed, before such insolvency was disclosed. Nor is the controlling legal principle different because no advances were made by appellee on this particular collection. The American National Bank was the regular correspondent of appellee, keeping accounts and deposit balances with each other to draw against in the regular course of business. This collection was received in the usual and customary course of business, and in accordance with such custom was, before such failure, duly credited to their mutual running account. Bank of Metropolis v. New England Bank, 1 How. (U. S.), 234 (11 L. ed., 115); Same v. Same, 6 How. (U. S.), 212 (12 L. ed., 409); Doppelt v. National Bank, (Ill.) N. E., 753; Zane, Banks and Banking, secs. 187, 188; Commercial National Bank v. Armstrong, 148 U. S., 58 (13 Sup. Ct., 533; 37 L. ed., 363); 2 Morse, Banks and Banking, secs. 591, 592. In the instant case the appellant, by forwarding these collections under a general unlimited indorsement, divested itself absolutely of all ownership, and retained simply the right to look to its correspondent, the American National Bank, for payment; and when the American National Bank, without restricting or limiting such indorsement, sent the same to its correspondent, the appellee, it in turn divested itself of all ownership in the items, and could only look to the appellee for settlement in accordance with the [111] established course of dealing between them. The record here discloses that under the uniform course of dealing existing between appellee and the American National Bank, the appellee had the right to apply the proceeds .of all collections to the credit of the American National Bank, and, as it did so apply the proceeds of these special items without knowledge of any claim on the part of appellant, it was strictly within its rights, and cannot now be made to again account for the proceeds of collections which have already been credited to the account of the American National Bank. It is not necessary for us to decide what remedy, if any, the holder of a check drawn by a depositor on a bank in which he has sufficient funds to pay such a check may have against the bank on which the check is drawn. That point is not presented for decision by the record here made, for the reason that appellant divested itself, as to third persons without notice, of all ownership by its general and unlimited indorsement and subsequent forwarding to its own correspondent, and its only right in the premises is that of a general creditor of the American National Bank. Citizens’ Bank v. Bank of Greenville, 71 Miss., 271 (14 So. Rep., 456); Brewing Ass’n. v. Clayton, 56 Fed., 759 (6 C. C. A., 108). For these reasons, on the facts set out in the special pleas of appellee, appellant has no cause of action. Wherefore the judgment is affirmed.