
    The St. Nicholas Bank of New York, App’lt, v. The State National Bank, Resp't.
    
    
      (Court of Appeals,
    
    
      Filed June 2, 1891.)
    
    1. Banks—Liability of collecting bank.
    A bank receiving commercial paper for collection, in the absence of a special agreement, is liable for a loss occasioned by the default of its correspondents or other agents selected by it to effect the collection.
    2. Same.
    Plaintiff, in New York, sent to defendant, in Tennessee, a draft on a bank in Texas for collection. Defendant forwarded the same to its agents in Texas, by whom it was collected and the proceeds remitted by a sight draft on New York, the usual mode of remittance. Before the sight draft could be presented both drawer and drawee had failed. Held, that defendant was liable for the loss.
    3. Same.
    The contract could not be treated as a Tennessee contract, or subject in any way to the law of that state.
    Appeal from judgment of the supreme court, general term, first department, reversing judgment in favor of plaintiff recovered on a verdict directed by the court.
    This action was brought to recover the proceeds of a draft for $473.57 sent for collection by the plaintiff to the defendant, and paid to the defendant’s correspondents. The trial resulted in the direction of a verdict for the plaintiff for the amount demanded. Upon appeal to the general term the judgment entered upon the verdict was reversed and a new trial ordered. From the order of reversal the plaintiff appealed to this court.
    There is no controversy as to the facts, which, for the most part, were set forth in a stipulation read upon the trial. They may be summarized as follows:
    The plaintiff is a corporation organized under the laws of the state of New York, and engaged in the business of banking in the city of New York, and the defendant is a corporation organized under the National Banking Act, and doing business in the city of Memphis.
    For two years prior to the 18th day of November, 1884, the plaintiff had been accustomed to send checks, notes and drafts to the defendant for collection, including such as were drawn upon persons residing at a distance, in the state of Texas and elsewhere. The commercial paper was enclosed in letters, consisting of printed forms, filled out by the insertion in writing of the date, the name of the defendant’s cashier, and a description of the enclosure. The checks and drafts were collected by the defendant, and the proceeds were remitted to the plaintiff, less one-fourth of one per cent, the defendant’s commission, and the expense incurred in making distant collections.
    On November 10th, 1884, the plaintiff was the owner and holder of a check for $473.57, dated November 6th, 1884, drawn upon the City National Bank of Dallas, Texas, by A. D. Aldridge & Co., and payable to the order of Henry Levy & Son. This check was endorsed by the plaintiff to the defendant for collection, and was sent to the latter in the usual course of business.
    The defendant received the check on November 13th, 1884, and on that day endorsed it for collection and forwarded it by mail to the firm of Adams & Leonard, at Dallas, Texas. They were at the time and had been for many years bankers in good standing at Dallas, and the correspondents of the defendant. They received the check on November 17, 1884, and on that day duly presented it for payment to the bank upon which it was drawn, and it was immediately paid, and the proceeds were received by them. They then remitted to the defendant a sight draft for the amount collected, drawn by them upon Jemison & Company, of the city of New York. This draft was sent by the defendant for collection to the First National Bank ¿f New York, and on November 24, 1884, was presented to Jemison & Company, who, in the meantime, had suspended payment The draft was accordingly protested and returned to the defendant; thereupon, the defendant, on November 28, 1884, mailed the protested draft to the plaintiff and the plaintiff refused to accept it, Adams & Leonard had failed in business before the draft on Jemison & Company was presented for payment The only evidence offered by the defendant in opposition to these facts was-proof of a decision of the supreme court of Tennessee, in the case of Bank of Louisville v. First National Bank of Knoxville, which, will be referred to in the opinion.
    
      Charles F. Hughes, for app’lt; A. Walker Otis, for resp’t.
    
      
       Reversing 36 N. Y. State Rep., 216.
    
   Earl, J.

The rule has long been established in this state that a bank receiving commercial paper for collection, in the absence-of a special agreement, is liable for a loss occasioned by the default of its correspondents or other agents selected by it to effect the collection. Allen v. Merchants' Bank, 22 Wend., 215 ; Montgomery County Bank v. Albany City Bank, 7 N. Y., 459; Commercial Bank v. Union Bank, 11 id., 203; Ayrault v. Pacific Bank, 47 id., 570; Naser v. First National Bank, 116 id., 498; 27 N. Y. State Rep., 670. And the same rule prevails in some of the other states, in the United States supreme court and in England. Titus v. Mechanics’ National Bank, 6 Vroom, 588; Wingate v. Mechanics' Bank, 10 Pa. St., 104; Reeves v. State Bank, 8 Ohio St., 465 ; Tyson v. State Bank, 6 Blackf., 226; Simpson v. Waldby, 30 N. W. Rep. (Mich.), 199 ; Mackersy v. Ramsays, 9 Cl. & Fin., 818. In such a case the collecting bank assumes the obligation to collect and pay over, or remit the money due upon the paper, and the agents it employs to effect the collection, whether they be in its own banking house or at some distant place, are its agents, and in no sense the agents of the owner of the paper. Because they are its agents it is responsible for their misconduct,, neglect or other default

Here, when this money was received by Adams & Leonard,, the defendant’s agents, it was, in law, received by it, and it became absolutely bound to pay or remit the same to the plaintiff; It is difficult to see upon what principle the defendant could beheld liable if Adams & Leonard, its agents, had carelessly failed to collect the draft, or had collected it and then purposely misappropriated the proceeds thereof, and yet not liable for their failure to pay over the proceeds in consequence of their unexplained insolvency. Upon what principle can the defendant be held liable for one default of their agents and not for every default ? That the insolvency of the sub-agent in such a case does not shield the •collecting agent from responsibility for the loss has been decided in several cases quite analogous to this. ■ Reeves v. State Bank, Simpson v. Waldby and Mackersy v. Ramsays, supra, and Bradstreet v. Everson, 72 Pa. St., 124. It is not needful now to vindicate the principle upon which these cases rest, as that has been sufficiently done by learned judges writing the opinions therein. They are well supported by many analogous cases in other branches of the law, and it is believed they lay down the best -and safest rule and subserve the wisest commercial policy.

The case of Indig v. National City Bank, 80 N. Y., 100, is not •opposed to these views. There the defendant received a note for collection which was payable at the Bank of Lowville, and it sent the note directly to the bank for payment, which on the next day sent a draft for the amount of the note to the defendant and failed before the draft reached its destination, and it was held that the loss did not fall upon the defendant That conclusion was reached by holding that the Lowville bank was not the agent of the defendant, but that the defendant was in the same position as if it had sent the note to some agent and he had received the proceeds thereof, and had then bought a draft on Hew York of the Lowville bank for the amount, and the bank had then failed before the draft was paid. The defendant there would have been held liable if the Lowville bank had been its agent for the collection of the note. Briggs v. The Central National Bank, 89 N. Y., 182.

After Adams & Leonard had received payment of the draft they drew a draft upon Jemison & Co. for the amount, and sent that to the defendant for the purpose of discharging their obligation to the defendant That draft was not made for the purpose -of remitting the proceeds of the collection to the plaintiff, and was not used by the defendant for that purpose. It sent the draft to the First Hational Bank of Hew York for collection, intending .afterward to remit the proceeds of the collection to the plaintiff in some other way. After Adams & Leonard and Jemison & Co. had failed, it sent the worthless draft to the plaintiff. By so doing it did not discharge its obligations to the plaintiff. If Adams & Leonard had purchased a draft of the Dallas Bank and sent that to the plaintiff, or if it had sent the draft to the defendant, .and the latter had then sent it to the plaintiff, then, according to the doctrine of Indig v. The National City Bank, the defendant would not have been responsible for the continued solvency of the Dallas Bank. That case was much discussed here, and there was much difference of opinion about it. It is a border case, and its doctrine should not be much extended.

The defendant, however, claims that the contract with the plaintiff is to be treated as a Tennessee contract, and that by the law of that state it cannot be made liable for this loss. Upon the trial, for the purpose of showing the law of that state, it put in evidence a decision of the supreme court in the case of Bank of Louisville v. First National Bank of Knoxville, 8 Baxter, 101. In that case a bill of exchange payable at the First National Bank of Knoxville was sent by a New York bank to the Bank of Louisville for collection. It was transmitted by the Louisville bank to-the Knoxville bank, was received by the latter and was subsequently returned unpaid. The cashier of the Knoxville bank delivered the bill to a notary public in good repute at the time who-failed to protest it, by reason of which the right of action against-the drawer was lost. The Louisville bank paid the amount of the bill to the New York bank, and then brought suit to recover against the Knoxville bank, and failed. It was held that “where a bank receives a bill of exchange for collection, payable at a distant place, its liability is discharged by transmitting the same, in due time, to a suitable and responsible bank or other agent at the same place of payment, and in such case the principal’s assent to-the employment of a sub-agent is implied,” and that “ if a debt be lost by negligence of an agent to whom a bill of exchange is sent, for collection, the principal or home bank (having complied with its duty and not being liable to the holders) cannot by voluntarily discharging the claim of the payee maintain an action on the case for negligence against the sub-agent. Such right accrues only to the holder or payee of the bill under the circumstances.” That decision was not based upon any statute law but upon the principles of the common law supposed to be applicable to the facts of the case. It did not make or establish law, but expounded the law and furnished some evidence of what the law applicable to-that case was; evidence which other courts might or might not-take and-receive as reliable and sufficient; and-even the same-court upon .fuller discussion and more mature consideration might in some subsequent case refuse to take the same view of the law.

There is no common law peculiar to Tennessee. But the common law there is the same as that which prevails here and elsewhere, and. the judicial expositions of the common law there do not bind the court here. The courts of this state and of other states, and of the United States, would follow the courts of that, state in the construction of its statute law. But the courts of this state will follow its own -precedents in the expounding of the general common law applicable to commercial transactions; and so it has been repeatedly held. Faulkner v. Hart, 82 N. Y., 413 ; Swift v. Tyson, 16 Peters, 1; Oates v. National Bank, 100 U. S., 239 ; Ray v. Western Penn. Natural Gas Co., decided in Pennsylvania supreme court Jan. 12. 1891. We must, therefore, hold that the obligation resting upon the defendant was that which the principles of the common law as expressed by the courts of this state-placed upon it

If it be said that the contract between these parties was made in view of the common law, then we must hold that it was the common law as expounded here.

But it cannot be maintained that the contract between these parties was a Tennessee contract. It is by nó means clear even that it can be held that the contract was made there. It does not certainly appear where it was made. It cannot be said that a new contract was made every time a piece of paper was sent by the plaintiff to the defendant for collection. There was a general contract between the parties, which was either created by some negotiation, or which grew out of the course of business between them, that the defendant should collect the paper sent to it for the compensation to be allowed. If that contract was made by correspondence, the plaintiff making a proposition by mail and the defendant accepting it by mail, then when the acceptance was put in the mail at Memphis the contract was complete and. had its inception there. If the proposition came from the defendant and was accepted in the same way in New York, then it would have to be treated as made in New York.

In the absence of more proof than we have here it cannot be assumed that this contract was made in Tennessee. Nor is this to be regarded as a Tennessee contract for the reason that it was to be performed there, so that the defendant can claim that its obligations and interpretation is to be governed by Tennessee law. We cannot perceive how any substantial part of the contract was to be performed in Tennessee. The defendant was to collect this draft in Texas, and pay its proceeds, less its compensation, to the plaintiff in New York, and so the contract was to be performed in Texas and New York. Adams & Leonard collected the draft for the defendant in Texas and sent it their own draft on Jemison & Co. This draft the defendant sent to the First National Bank of New York for collection and credit. If the draft had been paid, then the defendant would have had credit for the amount with that bank, and would probably have sent its own draft on that bank to the plaintiff for the amount of the collected draft, less its compensation, and that bank would have paid that, draft on presentation, and thus the proceeds of the collected draft would finally have reached the plaintiff, and the obligation of the defendant would then, and not until then, have been fully discharged. So, always, the defendant having collected a draft sent to it by the plaintiff, and received the proceeds thereof, would, in the ordinary course of business, discharge its obligation to the plaintiff by payment through its corresponding bank in New York. Therefore we think it is quite clear that this contract cannot in any view be treated as a Tennessee contract, subject in any way to the law of that state.

Our conclusion therefore is that the order of the general term should be reversed and the judgment entered upon the verdict affirmed, with costs.

All concur.  