First Nat. Bank of Pawnee City v. Sprague

• Decision Date: 23 March 1892
• Citation: 34 Neb. 318,51 N.W. 846
• Parties: FIRST NAT. BANK OF PAWNEE CITY v. SPRAGUE.
• Court: Nebraska Supreme Court

34 Neb. 318

51 N.W. 846

FIRST NAT. BANK OF PAWNEE CITY

v.SPRAGUE.

Supreme Court of Nebraska.

March 23, 1892.

Syllabus by the Court.

1. Where a bank receives for collection a note or bill, payable at a distant point, with the understanding that such collection is an accommodation only, or that it shall receive no compensation therefor beyond the customary exchange, and transmits such paper to a reputable and suitable correspondent at the place of payment, with proper instructions for the collection and remittance of the proceeds thereof, it will not be liable for the defaults of such correspondent.

2. In such case the holder will be held to have assented to the employment in his behalf of such agents as are usually selected by banks in the course of business in making collections through correspondents, and the correspondent so selected will, in the absence of negligence by the immediate agents and servants of the transmitting bank, become the agent of the holder only.

3. The exchange which is usually charged by banks for the transmission of money from one place to another is not a sufficient consideration to support an implied undertaking to answer for the default of a correspondent selected to make collections for customers according to the course of business of banks.

Error to district court, Pawnee county; BROADY, Judge.

Action by H. W. Sprague against the First National Bank of Pawnee City to recover the proceeds of a certain draft. Verdict and judgment for plaintiff. New trial denied. Defendant brings error. Reversed.Story & Story, for plaintiff in error.

J. L. Edwards, for defendant in error.

POST, J.

On the 3d day of February, 1888, at Pawnee City, in this state, the defendant in error drew a sight draft on Davis & Wedd, residing at Canon City, Colo., of which the following is a copy: “$85.75. First National Bank, Pawnee City, Neb., Feb. 3, 1888. Pay to the order of First National Bank of Pawnee City, Neb., eighty-five and 75-100 dollars, with exchange and collection charges; value received; and charge the same to account of H. W. SPRAGUE. To Mess. Davis & Wedd, Canon City, Colo. No. C. 5238.” The said draft was by the drawer left with the plaintiff in error at its banking-house in Pawnee City for collection, and by it for warded for collection to the Exchange Bank of Canon City, Colo., and by the latter collected in full from the drawees. The last-named bank failed, without having remitted the proceeds of said draft; and no part thereof has been paid, either to the plaintiff or the defendant in error. There is no controversy with reference to the facts on this branch of the case. Defendant in error was a customer of the bank, and was in the habit of shipping butter to parties at distant points, and making sight drafts therefor, payable to its order, credit being given him for the proceeds thereof when collected. It further appears that defendant in error was permitted by the bank to overdraw his account by reason of such collections. It does not appear that plaintiff in error was in the habit of making any charge for collecting said drafts. With reference to the transaction in question he testifies as follows: “Question. Did you expect them to charge you anything for collecting this draft? Answer. Not directly. No, I think not. If I had not been doing my banking business with them, I would expect to pay them; but as I was doing my business there, and they charged two per cent. for overdrafts right along, and I frequently made overdrafts, I supposed they did this as a favor.” There is no pretense that the bank in this case was guilty of negligence in forwarding the draft, in the selection of its correspondent, or in giving instructions to the latter with reference to the collection, or remittance of the money when collected.

The only question for consideration is whether the plaintiff in error, in view of the facts stated, is answerable for the default of the bank at Canon City. The court, on its own motion, gave the following instruction: “The court instructs the jury that when a home bank receives for collection merely a draft drawn upon a person residing in another place, which draft, from the nature of the business and general usage in such cases, will have to be transmitted for collection to some correspondent bank at the place where the debtor resides, and for the collection of which draft the home bank will receive only the customary exchange, in the absence of any express agreement between the parties to the contrary, the home bank, if it exercises due and ordinary care in selecting such correspondent bank, and transmits such draft for collection to such correspondent bank, will not be liable for the default or failure of such correspondent bank to remit moneys collected by it upon such draft.” If this instruction correctly states the law applicable to the case, the motion for a new trial should have been sustained. The courts, as well as text-writers, differ widely upon the question presented. It is held by the courts of the United States, New York, New Jersey, Ohio, Indiana, Minnesota, and perhaps others, following the English cases, that where a note or bill is received for collection by a bank, and by it transmitted to a correspondent at a distance for presentment and demand, the latter is the agent of the transmitting bank only, which will be liable for the defaults of its correspondent. This view is also approved by Mr. Daniel in his work on Negotiable Instruments, (volume 1, p. 324.) The leading case holding this is ...