
    JACOB SHIPSEY, Plaintiff and Respondent, v. THE BOWERY NATIONAL BANK OF NEW YORK, Defendant and Appellant.
    I. Check lost.
    1. Rights and duties of holder of.
    
    
      а. Rights of. Upon giving notice of the loss to the drawer, and tendering sufficient indemnity, he has a right of action against the drawer as upon a lost instrument.
    б. Duty of. If it was necessary to go through the forms of demand and protest, that duty rests on the holder and
    1. Not on the collecting agent, the check being lost during its transmisdon by mail to the drawee.
    
    II. Payments, Appropriation op.
    1. Where neither party makes any specific appropriation of money paid at the time of payment, the law applies it to eldest claim held hy the party receiving against the party paying.
    
      a. Afo^'tiorari, if there he hut one indebtedness then existing, the law will apply the payment to that indebtedness.
    1. After the law has once made such application, no subsequent and different application to the prejudice of other persons can be made by either of the parties of both of them.
    III. Bank acting as Collecting Agent, por reward.
    1. Check depodted with it for collection lost during transmission by mail to the drawee.
    
    
      a. Liability and duties of hank.
    1. It is not responsible for the loss of the check, nor is it bound to make presentment of it as a lost check. Its only ddty is to ascertain within a reasonable time, that the check had not reached its destination, and then to give notice to the holder of the loss. ^
    
      Negligence in not performing these duties would render the bank liable for an injury that might be thereby caused to the holder.
    
    IV. Application op aboye Principles.
    1. A. on the 2d of November, 1868, deposited in a hank for collection a check drawn on a bank in another State, and the bank with which the check was deposited transmitted it the same day to the bank on which it was drawn hy mail; on the 15th November, the transmitting bank ascertained that the check had not then reached its destination, and had not been paid, but had been lost in the course of transmis-. sion; on the 18th November, notice of the loss was given to A. ; on that day and the succeeding day the drawer had on deposit with the drawee more than enough to pay the check, and was perfectly solvent; on the 31st and 35th November, the drawer (being then indebted to A. only on the check in question) paid to A. more than sufficient to meet the check; no application of this payment was made at the time by either party; afterwards A. undertook to apply it to other debts which subsequently became due to him; on November 38th, the property of the drawer was seized by the sheriff under attachments, and he filed his voluntary petition in bankruptcy December 7th.
    Before Barbour, Ch. J., Monell, and Freedman, JJ.
    
      Decided December 31, 1873.
    Held,
    A. could not recover against the transmitting bank because
    1. He had suffered no injury from the act of the bank in not sooner ascertaining and communicating the loss.
    
      a. tie could by proper diligence have collected the check on the 10th November.
    
      i. The check was paid on the 35th November.
    Appeal "by defendant from judgment entered on decision of a single judge on a trial by the court without a jury.
    Plaintiff kept an account with defendant, and was in the habit of depositing with defendant for collection checks drawn by one Merritt on the Port Chester National Bank, under an agreement by which plaintiff was to pay defendant one-eighth of one per cent, on the amount of all checks so deposited to cover the expenses of the collection thereof. On the second of November, 1868, plaintiff, being the owner for value of a check for $550, dated that day, drawn on said Portchester Bank, by said Merritt to his own order, and endorsed by him, endorsed the same and deposited it with the defendant as a bank for collection, and at the time of such deposit paid to the defendant in cash, under the aforesaid agreement, a sum equal to one-eighth of one per cent, on the amount thereof; and the defendant forthwith credited to plaintiff’s account on its books, and in plaintiff’s pass-book, the full amount of the check, and this credit was made in the same form and manner as any deposit of a customer with his bank is ordinarily made ; it was credited in the same form and manner as the amount would have been had it consisted of bills instead of a check.
    The ordinary course of the defendant’s business with respect to checks such as the one in question was for defendant’s cashier to enclose the same in a sealed envelope, properly directed to the Portchester National Bank, with the postage thereon prepaid, and to place such envelope in a private box of the defendant, to which it was the duty and ordinary course of business of the porter of the defendant to go twice a day, and take therefrom such letters or envelopes as he found there, and deposit the same in the post-office. The duties thus imposed on the cashier and porter of the defendant they performed November 2d, 1868. The plaintiff was aware, prior to November 2d, that the defendant was in the practice of collecting the checks drawn by Merritt on the Portchester National Bank, deposited with it by plaintiff for collection, through the mails.
    According to the due and ordinary course of mail and business, a check mailed as aforesaid on November 2d, would reach the Portchester National Bank on the following morning, November 3d, and the defendant, which at that time was nearly every day in correspondence with the Portchester National Bank, would receive from said Portchester National Bank advice of such check on November 4th.
    The check in question never was received by, nor was it ever presented at the Portchester National Bank, and no demand for the payment of this check was ever made upon the Portchester National Bank by the defendant.
    On November 16th, 1868, defendant’s cashier discoverecl for the first time that the check in question had never been received by the Portohester National Bank. On the same day the cashier returned to New York, and on the 18th day of November, 1868, notified the plaintiff, by letter, that the check in question had never been received by the Portohester National Bank, and that, if the check was not found, defendant would ask plaintiff for a duplicate. This was the first notice that the plaintiff had that said check had not been paid, and was the first notice of any kind the plaintiff had as to anything in relation to said check after its deposit by him with, the defendant.
    From November 18th, 1868, until January 7th, 1869, the defendant made various requests of the plaintiff to procure a duplicate check, and otherwise assist defendant in obtaining payment of the amount of this check from Merritt or the Portohester Bank. On November 25th, 1868, defendant demanded a duplicate check from plaintiff. On December 4th, 1868, defendant, by letter, offered to give plaintiff a bond to indemnify Merritt in. the premises, if Merritt so desired. On December 22d, 1868, defendant sent plaintiff such a bond unexecuted, which plaintiff returned, and on December 31st, 1868, defendant again sent plaintiff such a bond duly executed, which plaintiff again returned, and on that day the defendant charged" the amount of this check to the plaintiff’s account, and on January 7th, 1869, plaintiff having drawn all moneys due to him from defendant, except an amount equal to the amount of this check, demanded the amount of this check from the defendant, and the. defendant refused to pay the same. During all the time from November 2d, 1868, until December 31st,. 1868, the amount of this check remained credited to plaintiff’s account on the books of the defendant and on plaintiff’s pass-book, and during that period, plaintiff frequently drew his account with defendant, including the check in question, down so that his balance amounted to less than the amount of the check in question, and his book was balanced by the defendant on the 18th day of December, 1868, and the balance then struck included the credit to plaintiff of the amount of the check in question. The Portchester National Bank has continued its business since November 2d, 1868, without interruption, and has remained solvent.
    On the 15th and 16th days of November, 1868, Merritt had on deposit in the Portchester Bank more money than was sufficient to pay the check in question.
    On the 21st and 25th of November, 1868, Merritt paid plaintiff' an aggregate of $575. At the time of the receipt of this money there was no debt due from Merritt to plaintiff other than the check in question. Neither party made any specific appropriation of this money at the time, but afterwards, other checks of Merritt’s which plaintiff had cashed having been returned protested, the plaintiff made an application of the $575 toward the payment of those checks. . •
    This action was brought to recover from defendant the amount of the check of November 2d, 1868, the complaint alleging that defendant discounted the check and placed the proceeds to his account, but failed to pay them over on demand.
    The answer denied that defendant discounted the check, and pleaded the above matters in bar. ’
    The cause was tried before the court, a jury trial being waived. The learned judge before whom the trial was had found the above facts, and as conclusions of law from them found that defendant was liable for the amount of the check, by reason of its negligence in not discovering the loss prior to November 15th, 1869, and in not notifying the plaintiff thereof until N ovember 19 th, 1863, and in not having demanded payment of the check from the Portchester Bank as a lost check, and that the plaintiff had the right to apply the money received November 21st and 25th to and upon the then subsequent indebtedness, and was not bound to apply the same to the check in question, and that plaintiff was entitled to recover the amount of the check in question from defendant.
    On these findings judgment was entered against defendant for plaintiff, and defendant appeals therefrom.
    
      James R. Marvin, attorney, and F. G. Salmon, of counsel for appellant, urged:
    
      First. The plaintiff has not been damaged by any act of the defendant.
    
      (a.) When the last check was deposited for collection with defendant, and when, in the ordinary course of business it would have been presented for payment, there were no funds to pay it, it would have been returned unpaid on the third day.
    
      (b.) Lack of presentation and protest, when there are not funds to pay, do not discharge the endorser (Johnson v. B. R. N. America, 5 Robertson, at pp. 594 and 595).
    
      (c.) Any later presentation and protest was expressly waived by the plaintiff’s own acts.
    
      (d.) Plaintiff did not endeavor to protect himself. Merritt was solvent for some time after notice to him of the loss of the check, but he (plaintiff) did nothing to protect himself.
    (<?.) The defendant was amere collecting agent, and is only liable for actual damage suffered by its principal, and can show that its principal sustained no damage (Allen v. Suydam, 20 Wend. 321.
    
      Second. The check now sued on has been paid and satisfied in fact and in law.
    1st. The creditor can elect on what demand the money shall apply.
    2d. If he fail ,so to do, the debtor can exercise his election.
    
      3d. If neither of them elect, the law appropriates the fund to the payment of the eldest claim, or as the equity of the case may require (Pars on Cont., vol. 2, pp. 144, 145, and notes, Tit. of Appropriation of Payments).
    Now supposing, but not conceding, that when the payments of November 21st and 25th were made, Merritt exercised no election as to their appropriation, and the plaintiff did not appropriate them to the payment of the lost check, there could have been no appropriation of them at all; for appropriation on the part of the creditor being a mere act of the mind, he could not elect to appropriate the fund on account of an indebtedness of the existence of which he was not aware—which in fact did not exist.
    There being only one debt or demand on November 21st and 25th existing between Shipsey and Merritt, and the fund being appropriated to pay that debt, or else remaining unappropriated, the law steps in and applies it as justice and equity demand in payment of that debt (Pars on Cont., cited supra).
    
    It may be claimed that the creditor has a reasonable time to elect how he will apply the fund; but that doctrine only applies to cases where the creditor has two or more coexisting and ascertained demands against the debtor. Such have always been the facts in the cases where the court has held as above as to reasonable time.
    But even this is a departure or attempted departure from previously well-settled principles.
    The court of errors held that the election must be made at the time of the payment, and cite Sir William Grant in Devaynes v. Noble Claton’s case, (1 Mer. 584 to 610) to that effect with approbation (Baker v. Stackpoole, 9 Cow. at p. 435, near the bottom of page ; Stone v. Seymour, 15 Wend, at p. 24).
    The well-settled rules of law governing appropriations are:
    
      1st. That the fund must be applied to the most precarious security when there is nothing to control the application—i. e., no election on either side (Pars. Cord. vol. 2, Tit. Appropriation, p. 143, and note).
    2d. If one of the debtor’s liabilities be contingent, the law will apply the payment to a certain debt (Pars. Cont. vol. 2, supra, p. 143 ; Niagara Bank v. Rosevelt,, 9 Corr. 409, at p. 412).
    If there were any liability on the unpresented checks of $870 on November 21st and 25th, what was it but a contingent liability ? (Niagara Bank v. Rosevelt, supra.)
    
    3d. A party cannot wait after the payment until his debtor becomes further indebted, and then appropriate the payment to the extinguishment of the newly created demand, leaving a previous demand unpaid (Baker v. Stackpoole, 9 Cow. 420, at p. 435, near bottom; Stone v. Seymour, 15 Wend, at p. 24).
    4th. In no case can a creditor who receives payment generally retain and appropriate it to the extinguishment of a demand created after the payment, leaving a prior demand unpaid (Baker v. Stackpoole, supra; Stone v. Seymour, supra).
    
    
      John C. Shaw, attorney, and Thomas Allison, of counsel for respondent, urged:
    
      First. When this check was deposited, the defendant became its owner and a debtor to plaintiff for its amount, and the only way in which defendant could have acquired the right to charge plaintiff with its amount was by properly protesting the check and charging him with notice as endorser, which defendant never did. We submit the court below should have found •that defendant was the owner of this check and not plaintiff’ s agent to collect it, and that the relation between plaintiff and defendant was that of endorser and holder. In this view, whatever else may be held as to the rights of the parties, if principal and agent, the defendant had no claim against plaintiff as endorser, and could not retain any part of his bank balance to meet any such claim. The plaintiff was entitled to the money thus retained by defendant, and the judgment was right on the merits, whether founded on a correct theory or not (see the opinion of the N. Y. Superior Ct. Gen’l Term, Holtsinger v. National Corn Ex. B., 6 Abb. Pr. R. S. 292, as to the practice).
    On the question of ownership, see Chapman v. White, 2 Seld. 412 ; Market Bank v. Hartshorne, 3 Keyes, 137 Clark v. Merchants Bank, 2 Comstock, 380; Scott v. Ocean Bank, 23 N. Y. R. 289, and see the two last-named cases cited and the distinction between a bank becoming owner and merely collecting agent, pointed out by Parker, J., in Commercial Bank of Clyde v. Marine Bank, 3 Keyes R. at page 341. See. also Opinion of Gen’l Term of Superior Court, June Term, 1873, in Justh v. National Bank of Commonwealth (Daily Register, July 2, 1873).
    
      Second. The loss of the check in the mail, if it be assumed to have occurred, would be no excuse for defendant’s entire failure to present, demand payment of, protest, and give notice of non-payment of this check as a lust check.
    1st. The collection agent takes the risk of the agency he employs to do his business through (Hoard v. Garner, 3 Hannf. S. C. R. 179; Allen v. Merchants Bank, 22 Wend. 215 ; Montgomery County Bank v. The Albany City Bank, 3 Seld. [7 N. Y.] 459 ; The Commercial Bank of Penn. v. The Union Bank of N. Y., 1 Kern [11 N. Y.], 203).
    2d. The owner of a lost check should make, as far as possible, the same presentment and demand, and give the same notice of dishonor, with all other precautions, that he would employ if the note were in his manual possession. The loss of the "bill is not an excuse for the entire omission of these acts, Tbut only for reasonable delay (2 Parsons on Notes and Bills, 261 ; Chitty on Bills, marginal pages 288, 289, 291, and 297 Edwards on Bills, marginal pages 295, 296, 305, 306 ; Smith v. Rockwell, 2 Hill R. 482; Rowley v. Ball, 3 Cowen R. 303).
    
      Third. The holder must also at the time of demand and notice offer indemnity to both maker and endorser in the case of a note, and to drawee, drawer, and endorser in case of a check or bill, if the same be lost. In this case the defendant did not do this. All defendant did was to offer plaintiff indemnity for Merritt and none for himself. Defendant did not deal with Merritt, but sought to place the plaintiff in the position of assuming the responsibility of dealing with Merrit (Smith v. Rockwell, 2 Hill R. 482; Rowley v. Ball, 3 Cowen R. 303; Edwards on Bills, marg. pp. 305-307).
    Griving notice of loss to parties on the paper is not giving notice of demand and non-payment, but is merely using means for the holder’s own protection (Edwards on Bills, marg. pp. 307, 308).
    The law of this State and of England does not authorize the holder to demand a duplicate check or bill or note when the original is lost, though the law of France does authorize such a demand. Defendant, therefore, can claim no benefit from his demand to that effect made in this case (Chitty on Bills, Marg. p. 289 ; Baker v. Burnham, 37 N. Y. R. 614).
    
      Fourth :—The defendant, as collecting agent of plaintiff, was at least bound to give immediate notice of the loss of the check or of the absence of funds to pay it so soon as defendant had actual knowledge of those fiicts. Yet defendant had actual knowledge on November 15th, 1868, that this check was lost, and gave no notice of that fact to plaintiff until November 18th, 1868.
    
      Fifth. If, however, the question is to be decided on the ground of the application of payments, then we say these checks and this money could not be applied to the check in question in this suit. The plaintiff was credited with the amount of this check on defendant’s books from November 2d, 1868, until December 31st, 1868, and during all this time plaintiff was allowed to, and did, draw his account down so that his balance was reduced to an amount less than the check in question. While this state of facts existed, plaintiff had no claim against Merritt on this check. The defendant had such claim, if any one. There was no debt due plaintiff from Merritt on this check until December 31st, 1868, and the checks and money were received November 21st and 25th, 1868, and could not be applied by either plaintiff or the law to a subsequent debt of December 31st, 1868 (Thomas v. Kelsey, 30 Barb. 268; Baker v. Stackpoole, 9 Cow. 420; Niagara Bank v. Rosevelt, 9 Cow. 409 ; Hunter v. Osterhoudt, 11 Barb. 33 ; Seymour v. Van Slyck, 8 Wend. 403).
   By the Court.—Monell, J.

The check which the defendant undertook to collect, as the agent of the plaintiff, having been lost, the latter, as soon as he was apprized of the loss, had a right of action upon it as upon a lost instrument, upon giving notice of the loss to the drawer and tendering a sufficient indemnity. The loss of the check, and the consequent inability of the holder to make a presentment, did not relieve the drawer of his liability to the holder. If it was necessary to go-through the forms of demand and protest, that duty rested upon the plaintiff and not upon the bank. Immediately upon receiving notice of the loss, the plaintiff was bound to give notice to the drawer, and to do all that he was required to do to fix the liability of the drawer; then, upon an offer of indemnity, he could have legally demanded payment (2 Pars, on Con. 262; Freeman v. Boyston, 7 Mass., 483, 486).

It is clear, therefore, that if the plaintiff took the proper steps to fix the liability of the drawer of the check as upon a lost instrument,' there was' a present indebtedness from him to the plaintiff on the 18th of November, to the amount of the lost check.

That was the legal status of those parties on that day.

The question then arises, whether the subsequent payments made by Merritt should operate as a payment or satisfaction of such indebtedness.

On the 21st and 25th of November Merritt paid to plaintiff the aggregate of five hundred and seventy five dollars, a sum sufficient to satisfy or pay his indebtedness upon the lost check. At that time there was no other debt dxoe from Merritt to the plaintiff. Neither party made any specific appropriation of the money at the time, but afterwards other checks of Merritt which the plaintiff had cashed having been returned protested, the plaintiff made an appropriation of the $575 towards the payment of these checks.

The law in regard to the appropriation of payments is this: The debtor may direct its application to any debt. If he makes no application, the creditor may apply it to any demand. If neither makes any specific application, the law will apply it to the eldest claim (2 Pars, on Cont. 144, 145).

No appropriation or application of the money paid by Merritt was made by either party at the time of payment. It could not be applied afterwards to the prejudice of other parties.

Not only under the rule I have stated was the application due to the debt evidenced by the lost check as being the oldest debt, but it was in fact the only debt due at the time of payment, and therefoie entitled to a priority (Stone v. Seymour, 15 Wend. 19). The plaintiff could not wait, after the payment, until another debt became due, and then apply the payment to the extinguishment of the newly created demand, leaving the previous demand unpaid (Baker v. Kauffman, 9 Cow. 420).

I am satisfied, therefore, that the defence of payment was sustained hy the evidence, and should have prevailed at the trial.

I am also of the opinion that the learned justice was in error in respect to the other branch of the case.

His conclusion of law is that by reason of the negligence of the defendant in not discovering the loss of the check prior to November 15th, 1868, and in not notifying the plaintiff thereof until November 18th, 1868, and in not having demanded payment of the check from the Portchester National Bank as of a lost check, the defendant, upon the facts found, became liable to the plaintiff for the full amount of the said check.”

It is doubtless true that the defendant, having undertaken to collect the check, is to be held liable for all injury caused by its negligence. It was not responsible for the loss of the check; nor was it, in my judgment, bound to make presentment of it as a lost check. It seems to me that its only duty to the plaintiff was to ascertain within a reasonable time that the check had not reached its destination, and then to give notice to him of the loss. All duty in respect to it then passed to the plaintiff, who was bound to tender to the drawer a suitable indemnity and demand payment of the lost instrument. For any negligence of the defendant, in not duly ascertaining the loss of the check, it would be liable, as already said, for any injury that might thereby be caused to the plaintiff.

At the time the plaintiff received notice from his agent, the defendant, of the loss of the check, namely, on the 18th of November, the drawer of the check was solvent and able to pay. On that and the succeeding day his balance in bank was much more than sufficient to pay the check, and there was no proceeding against his property until the 28th of November. The plaintiff, therefore, could hy diligence have enforced his claim against the drawer of the check, and prevented a loss. And had he, as I think he should have done, demanded payment of Merritt, with an offer of indemnity, it is probable the money would have been paid. At any rate, he had an immediate cause of action for the recovery of the amount.

The error of the learned judge was in enlarging the duty of the defendant beyond that of giving notice of the loss of the check, for he says it was also negligent in not demanding payment as of a lost check. That was no part of its duty, but if any demand was necessary, it devolved upon the plaintiff’ to make it after he was apprized of the loss.

The defendant undertook merely to collect the check, and was bound to reasonable diligence only. The loss of the check was not attributable to any act of the defendant, and imposed no other obligation than to give notice of the loss. If it negligently omitted reasonable diligence in discovering the loss, for that neglect it may be liable, provided the plaintiff was injured by reason of it; but that is the limit and extent of its liability.

But I do not think any presentation was necessary, as the omission to do so would have been no defence by the drawer, unless he could have shown some injury (Etting v. Shook, 2 Hall, 459 ; Conroy v. Warren, 3 John Cas. 259).

For both the reasons above assigned I think the judgment should be reversed, and a new trial ordered, with costs to the appellants to abide the event.

Freedman, J., concurred.

Barbour, C. J.

I concur in reversing the judgment appealed from, but for one only of the reasons stated in the opinion of Judge Monell. • As the drawer of the ■check was not indebted to the plaintiff otherwise than on the check, when the $575 was received from the former by the latter, and as nothing was said by either touching the purpose or object to which the $575 was to be applied, the receipt of that sum by the plaintiff operated in law as a payment of the check.  