
    LIABILITY OF BANKS FOR. PROCEEDS OF COLLECTIONS MADE BY CORRESPONDENTS.
    Common Pleas Court of Montgomery County.
    The Platt Iron Works Company v. The Third National Bank.
    
    Decided, December 19, 1913.
    
      Banks and Banking — Draft Deposited for Collection — Forwarded to Correspondent Bank, Which Made the Collection But Failed to Remit Proceeds — Wo Liability on the Part of- the Forwarding Bank, When — Custom and Usage.
    
    While it is the settled law of Ohio that a correspondent bank in receiving a draft for collection becomes the agent of the bank forwarding the draft, yet the law will presume in the absence of any showing to the contrary that it was understood by the principal the collection would be made in accordance with the custom and usage of banks with respect to such collections, and in case of failure of the correspondent bank to remit the proceeds no liability arises in favor of the principal as against the forwarding bank, where no claim of negligence on the part of the forwarding * bank is made.
    
      
      McMahon & McMahon, for plaintiff.
    
      Gotschall & Turner, contra.
    
      
      Afiirmed by the Court of Appeals without opinion.
    
   Snediker, J.

This cáse is before the court on demurrer to the petition. The cause of action stated is that the trustees in bankruptcy of the plaintiff company on December 11th, 1911, deposited with the defendant for collection a check for $299.50 drawn to their order by the Shaw Cotton Oil Company on the Bank of Shaw, of Shaw, Mississippi; that defendant forwarded said check through its various agents for collection, and same was- presented for payment by the First State Bank of Shaw to the said Bank of Shaw which paid the First State Bank of Shaw. Thereupon, the First State Bank of Shaw remitted by_dra£t upon the Bank of Commerce & Trust Company, of Memphis, Tennessee. But when the draft was presented to the last named bank payment was refused because the First State Bank of Shaw was closed and in the hands of a receiver. No negligence on the part of the defendant, the Third National Bank, is alleged, The claim of the plaintiff, therefore, rests upon rights which it contends arise from the fact that the draft which was forwarded by the agent of the defendant was refused payment. That the First State Bank of Shaw is the agent of the Third National Bank and not the agent of the plaintiff company is clearly decided by the Supreme Court of the State of Ohio in the case of Reeves, Stephens & Co. v. State Bank, of Ohio, 8th O. S., 466. The first syllabus of this ease, which recites the law as laid down "by the court is to the effect that the correspondent of a bank, which receives a collection of the character referred to in the plaintiff’s petition, is the agent of the bank and not the sub-agent of the owner of 'the instrument left for collection; and that payment to the agent is payment to the bank, unless there was some agreement or authority between the owner and the bank beyond the mere fact of the instrument being received for collection.

Does this relationship existing between the Third National Bank and the First State Bank of Shaw- of itself -give rise to a liability of the defendant to plaintiff which entitles plaintiff to recover under the conditions here stated? There is (as the court is entitled to and should recognize) existing a custom or usage in the banking business conforming to the exact procedure adopted in the collection of this cheek by the Third National Bank. When the check in question was deposited with the Third National Bank by the plaintiff, such custom or usage must have been in contemplation by the respective parties to this case. It was both the right and the duty of the Third National Bank to follow such custom in making this collection and procuring its return. Its right and duty arose from the fact that such custom or usage became a part of the contract which the bank entered into with the plaintiff for the purposes of the. collection. Defendant’s authority was governed by such usage and its agency could only be properly executed in conformity therewith. The adoption of any other plan would have been at the defendant’s own risk.

‘‘Besides the express and incidental powers, established custom or usage oftentimes, to a great extent, adds other powers to the agents express authority. When a principal appoints an agent for a certain purpose in respect to which there are certain well established customs or usages, the law will presume in the. absence of any circumstances showing the contrary that the principal had such usages in view when he appointed the agent, and if the latter transacts the business according to such customs or usages the principal will be bound thereby.” Clark & Skyles on Agency, Vol. 1, page 502.

In following out this custom, the defendant bank finds itself in possession of a draft which, not through its own fault but by the vicissitudes of business, is rendered uncollectible. Is the loss incident to this condition of affairs the loss of plaintiff or defendant? In the absence of any averment of negligence on the part of defendant, how can plaintiff complain? Having done all. that it could do or ought to have done as the agent of this plaintiff, defendant has met all the requirements of its contract for collection.

“Where an agent is employed"to transact business in respect to which there exists certain established customs or usages, in the absence of anything to the contrary, such customs or usages will enter into and form an element of the agent’s authority. In such cases then it is the agent’s duty to act according to such customs or usages, unless he has received positive instructions to the contrary, or unless there are other circumstances in the case showing that such -customs or usages were not to form part of his authority, and in the absence of such instructions or circumstances, if he acts- according t9 such customs or usages, he will not be liable to his principal for any loss that may result.” Clark & Skyles on Agency, Vol. 1, page 885.

In our opinion, defendant is not liable to the plaintiff for the amount of the check so deposited with it, and the demurrer to the petition is therefore sustained.  