
    WAGGONER BANK & TRUST CO. v. GAMER CO. et al.
    (No. 2709.)
    (Supreme Court of Texas.
    June 18, 1919.)
    1. Payment @=>21 — Check as Payment.
    For a check to have the effect of payment in the absence of an agreement or of laches by the holder, the drawer must have funds to his credit in the bank upon which it is drawn, and the bank must be in position to pay the check on demand.
    2. Banks and Banking @=>171(1) — Deposit op Checks — Liability op Bank pob Collection.
    Where a check drawn by a third party is deposited by the payee in a bank to the payee’s credit, the bank is under no absolute obligation to collect it, it being merely charged with the-duty of using due diligence for its collection and due care in selection of an agency for the purpose so that, when it forwards the check for collection in accordance with business custom to a reputable correspondent, it will not be liable for negligence if the drawee bank fails to pay it.
    3. Banks and Banking @=171(3) — Collection op Checks — Negligence op Cobbe-spondent Bank.
    It is not negligence for a correspondent bank which has received a .cheek from another bank for collection, to forward it to the drawee bank, for collection, in keeping with its custom and without reason to apprehend that the check would not be duly remitted for, where such bank is the only bank at the place of payment.
    4. Banks and Banking @=171(1, 5) — Collection op Checks — Duty op Collecting Bank.
    When a bank with which a check is deposited has presented it to the drawee bank for payment, and payment is refused, it need thereafter make no further presentment; its ordinary duty, in the absence of instructions, being only to promptly notify the owner of the check of its dishonor and to return the check to him.
    5. Banks and Banking @==>175(4) — Collection op Checks — Collecting Bank’s Duty to Retubn Dishonoeed Check.
    Where a bank with which a check is deposited forwards it to its correspondents in due course of business, and the check is appropriated by the drawee bank, but not paid, the mere failure of the collecting bank to obtain the return of the check does not charge it with negligence as a matter of law.
    Error to Court of Civil Appeals of Second Supreme Judicial District.
    Action by the Gamer Company against the Sagerton Hardware & Furniture Company, the Waggoner Bank & Trust Company, and others, in which the Waggoner Bank & Trust Company filed ¾ cross-action against the City National Bank of Dallas. A judgment for plaintiff against the Hardware Company and for the City National Bank on the cross-action was reversed by the Court of Civil Appeals, and judgment rendered for plaintiff against the Waggoner Bank & Trust Company, and in favor of the Hardware Company as against plaintiff, and in favor of the City National Bank of Dallas on the cross-action (166 S. W. 428), and the Waggoner Bank & Trust Company alone brings error.
    Reversed as to the Waggoner Bank & Trust Company, judgment of the district court denying the Gamer Company recovery against it affirmed, and the judgment of the Court of Civil Appeals affirmed in other respects.
    Wray & Mayer, of Ft. Worth, for plaintiff in error.
    Capps, Cantey, Hanger & Short, of Ft. Worth, for defendant in error Gamer Co.
    Theodore Mack, of Ft. Worth, for defendant in error Sagerton Hardware & Furniture Co.
    Cockrell & Gray, of Dallas, for defendant in error City National Bank.
   PHILLIPS, C. J.

The Sagerton Hardware & Furniture Company, of Sagerton, Texas, owing the Gamer Company, of Ft. Worth, for a bill of merchandise, on October 23, 1967, gave the latter its check for $1,435.88 drawn upon the First Bank of Sagerton. The check was currently deposited to its credit by the Gamer Company with the Wag-goner Bank & Trust Company, of Ft. Worth, the bank with which it did business. The latter, as was its custom, forwarded the check for collection to its correspondent bank at Dallas, the City National Bank. The First Bank being the only bank at Sagerton, the City National Bank forwarded the check to it for collection and remittance. Instead of remitting as instructed, the First Bank on receipt of the check on October 29 marked it as paid, and credited the City National Bank with the amount. The First Bank was badly involved at the time and insolvent. It went into bankruptcy about the 4th of December following. The trial court found, however, that if prior to November 10th, the check had been presented at the counter of the bank and payment in' that way. demanded, the bank would have had the money with which to pay it.

Not receiving remittance for the check, the City National Bank, about November 1st, telephoned the First Bank of Sagerton in inquiry concerning its disposition of the matter, and was told that while it had can-celled the eheOk as paid and surrendered it to the Hardware Company, the drawer, it could not remit for it. The First Bank had in fact, on October 30th, surrendered the check as cancelled to the Hardware Company. Thereupon the City National Bank advised the Waggoner Bank & Trust Company of the Sagerton bank’s failure to remit for the check. On receiving the advice, the Waggoner Bank & Trust Company, on November 4th, charged back the check to the account of the Oamer Company, and advised the latter that the payment of the check had been refused but the check had not been returned to it. The Waggoner Bank & Trust Company apparently made no effort to obtain the return of the check. A few days later it advised the Gamer Company that it was expecting to -receive it. It did not obtain the check, nor did the Gamer Company secure its return. On behalf of the City National Bank it was testified that it made no effort to obtain the check because of the advice of the First Bank of Sagerton that the check had been by it can-celled and surrendered to the drawer.

The City National Bank had been sending checks to the First Bank’ of Sagerton for collection ever since the latter opened for business — some months prior to this transaction. It had been its custom to make collections of checks on that bank only by that means. On account of the latter’s high rate of exchange, it at one time had tried to have an express company handle checks for collection there, but the express company had refused. It does not appear that either the Waggoner Bank & Trust Company or the City National Bank in undertaking the collection of the check had any reason to apprehend that the First Bank of Sagerton would not remit for it in accordance with the City National Bank’s instruction. The drawer of the check, the Hardware Company, did not have the amount1 of the check to its credit in the First Bank when it gave the check, but it had arranged with the bank, for its payment. No question was made in the case as to the reliability of the City National Bank.

The suit was by the Gamer Company against the Sagerton Hardware & Furniture Company, the Waggoner Bank & Trust Company and the City National Bank. In the pleading, the liability of the City National Bank was rested upon its having surrendered the check to the First Bank of Sagerton. The liability of the Waggoner Bank & Trust Company was predicated upon its surrender of the check and having in effect collected it by receiving credit for it from its correspondent bank. >If mistaken as to the liability of the defendant banks, plaintiff sought judgment against the Sagerton Hardware & Furniture Company upon its original liability for the mechandise.

The trial was before the court. Judgment was rendered in favor of both banks, but for the Gamer Company against the Sagerton Hardware & Furniture Company in the amount of the check, less certain credits realized from the bankrupt estate of the First Bank.

The court found that neither of the banks was negligent in its handling of the check, nor in failing to collect it or obtain its return.

On the appeal of the Gamer Company and the Sagerton Hardware & Furniture Company, the honorable Court of Civil Appeals reversed the trial court’s judgment and rendered judgment in favor of the Sagerton Hardware & Furniture Company, and for the Gamer Company against the Waggoner Bank & Trust Company in the amount of the check less the credits referred to, holding also that the Waggoner Bank & Trust Company should recover nothing over against the City National Bank on its cross-action. 1⅜6 S. W. 428. The Waggoner Bank & Trust Company alone applied to this court for a reversal of this judgment.

We referred the case to the Commission of Appeals for its examination and report. Section B of the Commission was of the opinion, and so reported, that the Gamer Company was clearly not entitled to .any1 recovery against the Sagerton Hardware & Furniture Company; and that the Waggoner Bank & Trust Company was liable because after learning that the First Bank had not paid the check, it did not report the facts to the Gamer Company, and failed to make any further effort to. collect the check. It relied upon First National Bank v. City National Bank, 106. Tex. 297, 166 S. W. 689, L. R. A. 1918E, 336, for its holding.

We did not agree with the conclusions of the Commisáion of Appeals, and accordingly set the case down for argument.

There is nothing in the record to indicate that the Gamer Company agreed with the Sagerton Hardware & Furniture Company to accept the check in payment of its debt against the latter company. In the absence of such an understanding, the giving of the check did not operate as a payment of the debt. For a check to have the effect of payment, the drawer must have the funds to his credit in the bank upon which it is drawn, and the bank must be in position to pay the check on demand. The receipt of a check is not payment for the debt for which it is delivered, if there is no laches on the part of the holder. Daniel on Negotiable Instruments, § 1623. Here, there was no laches. The bank upon which the check was drawn did not pay it, and evidently had no intention of paying it. It reported •to the City National Bank that it could not remit for it. This was equivalent to saying that it could not pay it. A bank which confesses its inability to pay in a customary method, cannot be said to be in position to pay. A check given for a debt upon such a bank and whose payment by the bank is so refused, is not a satisfaction of the debt. The bank appropriated the check, instead of paying it. With this true, the Hardware Company could not claim that by means of the check it had paid its debt to the 'Gamer Company.

The Gamer Company is not complaining here of the favorable judgment for the Hardware Company rendered by the Court of Civil Appeals; and the determination of its liability for the original debt is material only in its bearing upon the liability of the Waggoner Bank & Trust Company.

The Waggoner Bank was under no absolute obligation to collect the check. The duty it was charged with was to use due diligence for its collection and due care in its selection of an agency for the purpose. It forwarded the check in accord with business custom to its correspondent at Dallas, a reputable and reliable bank. Its correspondent, in keeping with its custom and having no reason to apprehend that by the means adopted the check would not be duly remitted for, sent it for collection to the drawee bank. It was the only bank at the place of payment. Under this condition, the Gamer Company had no right to expect that a different means of collection would be used, or to require a different method. ' The correspondent bank was not guilty of negligence, under the circumstances, in sending the check for collection to the drawee bank. First National Bank v. City National Bank, 106 Tex. 297, 166 S. W. 689, L. R. A. 1918E, 336.

We fail to perceive upon what theory the conduct of the Waggoner Bank, after learning that the check had not been remitted for to its correspondent bank, can be held to have been negligent as a matter of law. The decision in First National Bank v. City National Bank furnishes no authority for such a holding. There, the Stockyards National Bank forwarded a check to- the drawee bank for collection and returns, with instructions to protest if not paid. It received no returns or notice of protest. More than a month elapsed, during which time it made no effort whatever to ascertain whether the check had been paid or to obtain remittance for it if paid.' ’ it did nothing; but ignored the transaction entirely after sending the check for collection, leaving the bank from which it had received the check, and in consequence, the original holder, under the belief that the check had been duly paid by the drawee bank, and giving neither an opportunity for self-protection. We held that its conduct was negligent, as it clearly was.

There is presented here no such state of facts. The forwarding agency used by the Waggoner Bank promptly made inquiry of the drawee,bank when it failed to duly receive a remittance for the check. Up.on then learning that the drawee bank Could not remit for the cheek, it promptly so notified the Waggoner Bank, and the latter, in turn, promptly notified the Gamer Company of its non-payment. The Waggoner Bank had endeavored to collect the check in a customary business way. It was not obliged, under the facts, to use an extraordinary method. It was not able to make the collection, but through no negligence of its own or its correspondent, and only because the drawee bank had failed" to make payment. It promptly notified the owner of the check of its non-payment. This, we think, fully apprised the Gamer Company of the situation and afforded it opportunity to take for its protection such steps as it desired, either against the drawee bank or the Hardware Company, the drawer of the check. If this action did not terminate the duty in the premises of the Waggoner Bank, save possibly as to obtaining the return of the check, it was sufficient to warrant the trial court’s finding substantially to that effect. A bank is not an ordinary collection agency. After it once presents a check for payment to the drawee bank and payment is refused, it is under no absolute duty, in the absence of a special undertaking, to thereafter make repeated presentments of the check. Its ordinary duty, in the absence of instruction to protest, is only to promptly notify the owner of the check of its dishonor, return him the check, and leave him to his own methods for his protection. This, the Waggoner Bank did, except as to returning the check.

The cheek was not returned by it because it did not regain its possession. While making no payment of the check, the drawee bank marked it paid on the day of its receipt, and on -the next day surrendered it as a cancelled check to the drawer. For that reason the City National Bank did not obtain its return and failed to return it to the Waggoner Bank. The physical possession of the cheek, under the facts, was not absolutely essential to the Gamer Company in order for it to obtain payment from the Hardware Company, or the First Bank if it could do so, or for it to proceed against them because of its non-payment had it seen fit to pursue such a course. It received prompt notice that the check had not been paid. That was the important fact in the situation; and its being promptly brought to the knowledge of the Gamer Company was sufficient to enable it to itself take action in its own behalf. For this reason it is our opinion that a mere failure by the Waggoner Bank to obtain the return of the check did not charge it with negligence as a matter of law.

It is urged that the Waggoner Bank in omitting to advise the Gamer Company that the drawee bank had marked the check as paid but had not remitted for it, and in stating that the check had not been paid, failed to state the real facts. Marking the check as paid was not payment of the check. It was, in truth, not paid. In so notifying the Gamer Company, we think the Wag-goner Bank stated the substantial fact.

In our view the case is one of fact. The trial court found that the Waggoner Bank was not guilty of negligence. It cannot be said that there was no warrant for the finding, and we therefore decline to overturn it.

The judgment of the Court of Civil Appeals as to the Waggoner Bank & Trust Company is reversed, and the judgment of the District Court denying the - Gamer Company recovery against it is affirmed. In other respects the judgment of the Court of Civil Appeals is affirmed. 
      <§soFor other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes
     