Fifth Nat. Bank v. Armstrong

Thayer, J., (after stating facts as above.') The indorsement by which the Fidelity Bank acquired the possession of the drafts in controversy was clearly a restrictive indorsement. It was an indorsement that destroyed the negotiability of the drafts, except for purposes of collection, and gave notice to all parties through whose hands they passed that they were the property of the Portsmouth and Staunton banks, respectively. By virtue of the indorsements alone, the Fidelity Bank did not acquire title to the drafts, but was merely constituted an agent for their collection. Thus far there is no room for serious controversy. First National Bank v. Reno County Bank, 3 Fed. Rep. 261, 262; Balbach v. Frelinghuysen, 15 Fed. Rep. 675; White v. Bank, 102 U. S. 661; Hoffman v. Bank, 46 N. J. Law, 604; Blaine v. Bourne, 11 R. I. 119; Bank v. Bank, 76 Ind. 561; Sweeny v. Easter, 1 Wall. 173; Levi v. Bank, 5 Dill. 107; 1 Daniel, Neg. Inst. §§ 336, 337. The contention is, however, that the practice shown of crediting sight drafts, when received for collection, as cash, and the allowance of interest on daily balances into which such credits had entered, alters the case, and that,' because of that method -of dealing, the drafts became the property of the Fidelity Bank as soon as a credit was given therefor upon its books, and that from that time forward the Fidelitjr Bank became the debtor of the Portsmouth and Staunton banks, respectively, for the sums severally credited. When checks or sight drafts are indorsed generally by the payee, and deposited with a bank, and credit is given therefor to the depositor, with his consent, as for so much cash, with the understanding, express or implied, that such credit may be drawn upon, the prevailing opinion seems to be that the relation of debtor and creditor is forthwith created between the bank and the depositor, and that the bank becomes at once the owner of the paper, and not merely an agent for its collection. An indorsement in blank, or to the order of the receiving bank, is entirely consistent with that view of the transaction. Bank v. Loyd, 90 N. Y. 534, and cases cited; Railway Co. v. Johnston, 27 Fed. Rep. 243; Hoffman v. Bank, 46 N. J. Law, 605. 49 But if paper is indorsed, “For collection fqr account of the depositor,” and then deposited, and credit given, a different case is presented. The mere fact that paper thus indorsed is credited by a bank to the depositor as cash, and the privilege accorded to him of drawing against the .credit, may not, as it seems, be sufficient to vest the bank with title to such paper. In some cases it appears to be held that such credits are merely provisional, that is, subject to revocation, until the paper is actually collected by the receiving bank, or until the credit has been drawn against by the depositor, and that up to such time the title to the paper is in the depositor, and the bank is a mere agent of the depositor, for collection. Bank v. Bank, (Mass.) 20 N. E. Rep. 193; Levi v. Bank, 5 Dill. 107-111; Balbach v. Frelinghuysen, 15 Fed. Rep. 683; 2 Morse, Bank. §§ 583, 586. In the opinion of the court, the true criterion, in a case such as is last stated, for determining the question of title to the paper before the same is actually collected, and before the credit has been drawn against, is whether the depositor intended to part with title, and whether the receiving bank intended to purchase the paper, and assume the risk of payment, and give an absolute credit therefor, as in cases of discount. Viewing the matter in that light, I have little difficulty in finding, in the case at bar, that the title to the two drafts, and their proceeds, remained in the Portsmouth hank and Staunton bank, respectively, up to the time the Fidelity Bank failed, and the government took possession of its assets. The indorsements placed on the drafts in question, when forwarded to the Fidelity Bank, is persuasive evidence, notwithstanding the previous course of dealing, that neither the Portsmouth bank nor Staunton bank intended to part with their title to the drafts in question, or to enable the Fidelity Bank to deal with the same as its own. It was a restrictive indorsement, and it must be assumed that that form of indorsement was adopted for a well-defined purpose. It may well be doubted whether the legal effect of that form of indorsement can be controlled or modified by proof of a usage existing to credit such items as cash, and permit the credit so given to be drawn against; it being conceded that in the present case neither of the depositors saw fit to avail themselves of such privilege. But, be that as it may, it is also apparent that the Fidelity Bank did not intend to purchase the drafts in question, and give its customers an absolute credit for the par values thereof. In its letter acknowledging the receipt of the Shelby draft, the Fidelity Bank stated that it credited the same, “subject to payment.” This must be understood as meaning that 1he credit was merely provisional, that is, conditional on payment, and that it did not intend to assume the risk of payment, or give an absolute credit, or put itself in any other relation to the paper than that of an agent for collection. This seems to me to be the proper interpretation of the transaction, looking at it merely with a view of determining what the parties thereto intended. As the Fidelity Bank never received the proceeds of the drafts, and was not even notified of their payment prior to its failure, and as the banks that had deposited them for collection laid claim to the proceeds of the drafts, in 50 the hands of the subordinate collecting agent, before they had become mingled with the funds of the Fidelity Bank, I think they are entitled to recover the same as against the receiver of the Fidelity. Hackett v. Reynolds, (Pa.) 6 Atl. Rep. 689; First National Bank v. Reno County Bank, supra. It is so decreed.