CUSTOM OF BANKS — DEALINGS BETWEEN BANK AND DEPOSITOR — TITLE TO NEGOTIABLE INSTRUMENTS — RESTRICTED ENDORSEMENTS — PRESUMPTION AND PROOF OF BAILMENT.
1. A negotiable instrument deposited in a bank, endorsed "for collection," remains the property of the depositor, and the same rule when the written endorsement appears unrestricted, but as a matter of fact (evidenced by express collateral agreement or a tacit understanding to be reasonably inferred from the course of dealing between the bank and its depositor) the instrument is taken by the bank, not as a purchase, but for collection simply.
2. The fact that a bank has given a depositor credit for the amount of a negotiable instrument, regularly endorsed, is not conclusive evidence that the bank had purchased the paper and was not a mere bailee thereof.
3. When a bank habitually credits a depositor's account with negotiable instruments endorsed to it by such depositor, giving permission to the depositor to draw against such credits, but charges up to the depositor all such papers as are not paid on presentation, or deducts such items from the next deposit, such a course of dealing stamps the transaction, with reference to the title to instruments so endorsed, as being unmistakably a bailment for collection simply, and no greater title is vested in the bank.
The Armour Packing Company, by a motion in the cause, in the case of Tate v. Bank, pending in the Superior Court of New Hanover, sought to recover possession of a certain check by it deposited in the said Bank of New Hanover before insolvency, which was unpaid and is now held by the defendant receiver and by (549) him claimed to be the property of the bank. The check in controversy was deposited by petitioner in the bank on 16 June, 1893, three days before the appointment of a receiver, and is as follows:
"No. 189. BALTIMORE, 13 June, '93.
"DROVERS AND MECHANICS NATIONAL BANK,
"Pay to the order of J. W. G. Cobb, $312.31.
"E. STENBERGER, "H. STENBERGER, Attorney."
The check at the time of its deposit was endorsed as follows:
"Pay to the order of C. S. McColl. J. W. G. Cobb."
"Pay to Armour Packing Company or order. C. S. McColl."
"Armour Packing Co., by H. J. Bierman, Cas."
The Bank of New Hanover thereupon transmitted the check to the Importers and Traders National Bank of New York, endorsed as follows:
"Pay to Importers and Traders National Bank, or order, for collection for Bank of New Hanover, Wilmington, N.C.
"W. L. SMITH, Cashier."
The Importers and Traders National Bank transmitted the check to the National Exchange Bank, at Baltimore, endorsed as follows:
"Pay to National Exchange Bank, Baltimore, or order, for collection for account of Importers and Traders National Bank, New York. "
The check was presented for payment upon the drawees named therein, at Baltimore, on 21 June, 1893, when payment was refused for want of funds in drawees' hands belonging to the (550) drawer to meet the same, and thereupon the check was protested for nonpayment and returned to the defendant, Junius Davis, receiver, as aforesaid, on or about 26 June, 1893.
The further facts are contained in the judgment of his Honor, which is in these words:
This cause came on for trial before Starbuck, J., at the January Term, 1896, of New Hanover. By consent of counsel for both parties, a jury trial was waived and it was agreed that the court should find the facts. The court, upon the testimony and exhibits, finds the following facts:
At the time of the transaction, hereinafter stated, the petitioner had its principal place of business at Kansas City, Mo. It had a branch business at Wilmington, N.C. under the charge of a local manager. The defendant Bank of New Hanover filed a deed of assignment for the benefit of creditors on 19 June, 1893, and the defendant Junius Davis was appointed receiver.
Previous to and at the time of the insolvency of the said bank petitioner kept a deposit account with the said bank. Deposits of money, checks and drafts were made in the said bank from time to time by the manager of petitioner's local business at Wilmington in the name of the plaintiff company. The petitioner, through its home office at Kansas City, drew checks against the deposits so made, its checks usually being for an amount corresponding to the amount of a previous deposit. The manager of the petitioner's said business in Wilmington had no authority to check against the deposits made by him to the credit of the plaintiff company, but the same were subject only to petitioner's check drawn at its home office at Kansas City, and this fact was assented to by the defendant bank.
(551) The course of business between the petitioners and said bank was such that from time to time the petitioners would make deposits of money, checks, drafts and other negotiable paper by simple endorsement, and deposit the same in bank, the deposit slip, containing the items of cash, drafts or checks, being prepared by the petitioner's local manager. The said bank would at the time credit the whole deposit, money, drafts and checks in the pass book of the plaintiffs kept with said bank as one item, one amount; and the deposit so made, including the checks and drafts, would at once be credited by the bank to the account of the petitioners on the books of the bank as cash. There was no express agreement between the petitioners and the bank with reference to the passing of title to the paper deposited. The check sued on was deposited with the other paper and money, amounting in all to $3,485, on 16 June, 1893. The whole deposit of $3,485 was credited on the pass book of the petitioners as one item and was at once credited by the bank to the account of the petitioners as cash on the books of the bank. The said check was endorsed in blank by the petitioners. The petitioner at no time overdrew its account.
The last check of the plaintiff paid by the bank was on 17 June, for $2,392. This check was against a deposit of a week before of like amount. On 16 June the petitioner had to its credit a balance of $6,250. The check in controversy was never drawn against by the petitioners. It was the custom of the said bank, where paper deposited with it was returned unpaid, to charge the same back to the depositor, if such depositor was an out-of-town customer; if such depositor to whom it had been credited was a customer in town, he would give the bank a check for it, if he had money to his credit, or take it off his deposit ticket when making his next deposit. The bank regarded the petitioner as an in-town customer, and so treated (552) it in their dealings. If paper deposited by petitioner and passed to its credit by the bank was returned unpaid the bank would immediately notify petitioner, who was the last endorser, and when petitioner's local manager would make his next deposit (he deposited daily) the amount of such unpaid paper would be deducted from the aggregate of the deposit slip of that day and the said paper delivered to the local manager. It was also a custom of the bank to mark all paper belonging to it and payable out of town, at sight or on demand, upon the day of deposit, and before sending it in the mail, with the letters "C. I., " indicating cash item. The paper so marked was treated as cash. This is not a general custom of banks, but was a custom of the Bank of New Hanover and done for the purpose of distinguishing paper deposited with them for credit and paper simply left with them for collection. It so stamped paper received by it from petitioners on deposit, and the draft sued on was so stamped. The bank was in the custom of receiving items for collection, as well as items deposited as cash. This stamp of "C. I. " was used by the bank for its own guidance. Where paper was left with the bank for collection, such paper was not treated by the bank as cash until actually collected, nor put to the credit of the depositor until actually collected. There were several occasions on which deposits were made by plaintiff of paper for collection. In these cases the paper was time paper and not due; the petitioner deposited them with the bank before maturity, and at maturity, when collected, the proceeds were credited to the petitioner. They were not credited to the petitioner when the deposit was made. The bank, when paper which had been credited was returned unpaid did not notify all endorsers on such paper, but notified only the depositor to whom it had been credited, who was the last endorser. It was generally (553) understood between the depositors of the bank and the bank that if paper so deposited was not paid the depositor would repay it on its return. The bank looked more to the credit of the depositor than anything else in taking paper for deposit and crediting it as cash. The general customs at the bank were applicable to its dealings with the petitioner.
The draft sued on was presented for payment upon the drawees named therein at Baltimore, on 21 June, 1893, after the insolvency of the defendant bank, when payment was refused, and therefore was protested for nonpayment and returned to defendant Junius Davis, receiver.
And upon the foregoing facts, it is adjudged by the court that the said check or draft mentioned in the petition herein is not property of the petitioner, the Armour Packing Company, but is the property of said Junius Davis, as receiver of the Bank of New Hanover.
The costs of this petition, to be taxed by the clerk, must be paid by said Armour Packing Company.
Petitioner appealed, and assigned as error that his Honor erred in his conclusion of law upon the facts found, that the said check is not the property of the petitioner, but is the property of the defendant Davis, as receiver of the Bank of New Hanover.
CLARK, J.
Had the paper, when deposited by the plaintiff in the bank, been endorsed "for collection," there can be no question that it would have remained the property of the depositor, for the title would not have passed. Boykin v. Bank, post, 556. Had the (554) paper been collected and the proceeds mingled with the general funds of the bank, even if the paper had been endorsed "for collection," the plaintiff would have been a simple contract creditor, with no preference over other creditors. Bank v. Bank, 115 N.C. 226; Bank v. Davis, 114 N.C. 343. The point here presented is different from either of the above, and has elicited some conflict of decision, but it seems now settled by the weight of authority, especially the more recent cases, and it is in accordance with the "reason of the thing," that while an endorsement "for collection" of a draft or check does not transfer title to the endorsee, but merely constitutes him the agent of the endorser, a different result does not follow an unrestricted endorsement, where, though the endorser is credited and the endorsee charged with the amount of such paper, it appears as a fact that the endorsee does not become unconditionally responsible for such amount until the check or draft is actually paid. Bank v. Hubbell, 117 N.Y., 384 (15 Am. St., 515). In a very recent case ( In re Bank, 45 Am. St., 454; 56 Minor, 119) the Court says: "There can be no doubt that, if a draft or other paper is delivered to a bank for collection, the mere fact that the endorsement of the owner is unrestricted will not, as between him and the bank, make the latter the owner of the property. Neither is it conclusive upon the question of the ownership of the paper that before collection the amount of it is credited to the customer's account, against which he has the privilege of drawing by check. Such privilege is merely gratuitous, if the bank may cancel the credit or charge back the paper to the customer's account when it is not paid by the maker or drawee. Gites v. Perkins, 9 East, 12; Levi v. Bank, 5 Dill., 104; Balback v. Frelinghuisen, 15 Fed., 675." And in a late case in the United States Circuit Court of Appeals (555) ( Beal v. Somerville, 50 Fed., 647) the same principle is affirmed, the Court pointing out that, though the amount of the paper may be at once placed to the credit of the depositor, with permission to him draw against it, yet if the tacit understanding from the course of dealings between the parties is that if the paper is not paid the amount thereof is to be charged back to the depositor's account, this is really a bailment for collection, and, as between the depositor and the bank, the title never passed, it having passed sub modo only as between the bank and the payee. As between the depositor and the bank, the question whether title passes or not depends upon whether as a matter of fact the paper was taken for collection, though not so restricted by an endorsement to that effect, or whether it was taken absolutely as a purchase or discount. To the same purport are Balbach v. Frelinghuisen, supra; Scott v. Bank, 23 N.Y., 289, and 2 Morse Banks, sec. 583c. In the present case it is found that the tacit agreement between the parties, from their course of dealings, was that, though the amount was credited to the depositor and he could draw against it, yet if the paper so deposited was not paid on presentation the amount thereof was to be charged up to the depositor's account or taken off his next deposit ticket. This stamps the transaction as being unmistakably a bailment for collection. As nothing had passed, the fact that the bank had simply given the depositor credit on its books would not make the bank a purchaser for value. Bank v. Davis, 114 N.C. 335, citing Mann v. Bank, 30 Kan. 412; Bank v. Valentine, 18 Hun., 416; Bank v. Newell, 71 Miss. 308.
It was further said in In re Bank, supra: "Of course, in all such cases the banker, like a factor, has a lien for advances made (556) on the faith of the paper, and consequently the claim of the customer may be modified by the state of his account. " No such question, however, arises in this case, the balance of the plaintiff's account, independent of this check, being in its favor at the time of the failure of the bank. Upon the facts found, the check is the property of the plaintiff.
Reversed.
Cited: Cotton Mills v. Weil, 129 N.C. 456; Davis v. Lumber Co., 130 N.C. 176; Mfg. Co. v. Tierney, 133 N.C. 637; Bank v. Oil Mills, 150 N.C. 721; Bank v. Exum, 163 N.C. 202; Bank v. Roberts, 168 N.C. 476; Worth Co. v. Feed Co., 172 N.C. 342.
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