Smith v. National Bank of D.O. Mills & Co.

• Decision Date: 25 October 1911
• Citation: 191 F. 226
• Court: U.S. District Court — Northern District of California
• Parties: SMITH v. NATIONAL BANK OF D. O. MILLS & CO.

191 F. 226

SMITH v. NATIONAL BANK OF D. O. MILLS & CO.

United States Circuit Court, N.D. California.

October 25, 1911

[Copyrighted Material Omitted]

Mack Green, Brown & Heer, for plaintiff.

White Miller & McLaughlin, for defendant.

VAN FLEET, District Judge (after stating the facts as above).

Aside from some minor considerations urged upon the attention of the court, which are not deemed material, the case turns upon the question whether the intermediary, the Reno bank, through whose action the failure to collect the draft manifestly resulted, is to be regarded as the agent or representative in the transaction of the defendant, or as that of the plaintiff. If it was the agent of the defendant, then the latter is responsible for its acts, and liable for the loss suffered by plaintiff through its dereliction. If, on the other hand, it is to be regarded as the agent of the plaintiff in the premises, then, of course, plaintiff's demand upon this defendant must fail.

That plaintiff's right of action is against either the defendant or the Reno bank is obvious. The drawee bank may at once be eliminated from the transaction so far as the plaintiff's rights are concerned. Having at the direction of its correspondent, the Reno bank, accepted the draft and transferred the credit on its books from the account of the plaintiff to that of the former bank, the plaintiff's funds in its hands to the amount of the draft thereupon became to all legal intents and purposes so far as plaintiff is concerned the property of the Reno bank. As suggested by counsel for plaintiff, had an attachment been thereafter, on that day, served upon the drawee at the suit of a third person, the writ would have held the credit as the property of the Reno bank. The transaction, according to universal banking methods, was a payment of the draft just as effectually as if the cash had passed; and plaintiff's rights thereunder as against the drawee were at an end. Her right thereafter to look for the proceeds of her draft was against whoever represented her in the transaction; and, of course, the subsequent attempt of the Reno bank to have the account on the books of the drawee reversed to represent its original status was without avail to affect that right especially since it did not restore the conditions previously existing.

What, then, are the rights of the parties in the premises? The plaintiff's attitude is that her sole representative in the transaction was the defendant, that it undertook as her agent to collect her draft, and that with the instrumentalities which it chose to employ to accomplish that purpose she had nothing to do, that the subagency chosen by the defendant for the purpose was its agency, and not plaintiff's, and, her money having been lost through the neglect of the latter, defendant is responsible for such loss, and she may look to it alone for reimbursement.

The defendant's contention, on the other hand, is, in substance, that all it undertook to do in the premises, since it could not make collection personally, was in good faith and with proper diligence to employ the usual and ordinary means for the purpose; that it did not obligate itself to make the collection, but merely to exert proper judgment in selecting an agency for plaintiff through which to make it; that, having done that, the agent so chosen became the agent of the plaintiff; and that the loss having occurred through the negligence of the latter, and through no failure on the part of defendant to properly perform its duty in the premises, it cannot be held responsible for the plaintiff's loss.

The question as to the extent of the obligation assumed by a bank in accepting commercial paper for collection at a distant point in the ordinary course of business and without special features to the contract has arisen in a great many cases, under facts not differing in legal effect from the present, and has given rise to much diversity of ruling in the courts of the different states of the Union. These decisions will generally be found aligned with one or the other of two general groups-- the one supporting in its substance the contention of the plaintiff; the other sustaining that of the defendant. If we were dependent for a solution of the question upon a choice between these divergent views, it might present some considerable difficulty in reaching a conclusion satisfactory to the court. But I am of opinion that the question, so far as affecting the ruling of the federal courts, has been definitely settled by the Supreme Court in the leading case of Exchange National Bank v. Third National Bank, 112 U.S. 276, 5 Sup.Ct. 141, 28 L.Ed. 722. In that case a bank in Pittsburg discounted for the drawers, and sent for collection in ordinary course of business to a bank in New York, certain drafts drawn on a party in Newark, N.J. The New York bank, in turn, sent the drafts to a bank in Newark for presentation, acceptance, and collection. Through the neglect of the latter to have proper acceptance of the paper a loss occurred; and it was held that the Newark bank was the agent in the premises of the New York bank, and not of the sender, and that the sender was entitled to recover its loss from the New York bank; and it is said, quoting from Hoover v. Wise, 91 U.S. 308, 23 L.Ed. 392:

'That where a bank, as a collection agency, receives a note for the purposes of collection, its position is that of an independent contractor, and the instruments employed by such bank in the business contemplated are its agents, and not the subagents of the owner of the note.' All the leading authorities are exhaustively reviewed, and the diversity in the decisions in the state courts noticed; and, after such review, it is said, as to the rule applicable in such cases:

'The question involves a rule of law of general application. Whatever be the proper rule, it is one of commercial law. It concerns trade between different and distant places, and, in the absence of statutory regulations or special contract or usage having the force of law, it is not to be determined according to the views or interests of any particular individuals, classes, or localities, but according to those principles which will best promote the general welfare of the commercial community. Especially is this so when the question is presented to this tribunal, whose decisions are controlling in all cases in the federal courts. The agreement of the defendant in this case was to collect the drafts, not merely to transmit them to the Newark bank for collection. This distinction is manifest; and the question presented is whether the New York bank, first receiving these drafts for

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