Winchester Milling Co. v. Bank of Winchester

• Decision Date: 21 March 1908
• Citation: 111 S.W. 248,120 Tenn. 225
• Parties: WINCHESTER MILLING CO. v. BANK OF WINCHESTER et al.
• Court: Tennessee Supreme Court

111 S.W. 248

120 Tenn. 225

WINCHESTER MILLING CO. v. BANK OF WINCHESTER et al.

Supreme Court of Tennessee.

March 21, 1908

Action by the Winchester Milling Company against the Bank of Winchester, the American National Bank of Nashville, and the Whitwell Mercantile Society. From a judgment of the Court of Civil Appeals, reversing a judgment for plaintiff against American National Bank and the Whitwell Mercantile Society complainant brings certiorari. Complainant's bill dismissed.

Crownover & Crabtree, for complainant.

Estill & Littleton, for defendant Bank of Winchester.

Lynch & Phillips, for defendant Whitwell Mercantile Society.

Jno. W Gant, for defendant American Nat. Bank.

NEIL J.

The Whitwell Mercantile Society, located in Marion county, this state, was indebted to the Winchester Milling Company located at Winchester, in Franklin county, and on account of such indebtedness forwarded to the milling company two checks, one for $242.15 and the other for $262, the two aggregating $504.15. These checks were drawn by the mercantile society on the Whitwell Savings Bank in favor of complainant, the milling company. On the 1st and 2d days of May, 1906, respectively, the complainant indorsed these checks, making them payable to the order of the Bank of Winchester, and deposited them to their credit as cash in the bank, and checked out the proceeds; their account being overchecked May 3d to the amount of $315.62. For a number of years the Bank of Winchester and the American National Bank, of Nashville, Tenn., had been in regular banking correspondence with each other. The Bank of Winchester sent these two checks to the American National Bank for collection. There was only one bank at Whitwell; that is, the Whitwell Savings Bank, on which these checks were drawn. The American Bank promptly forwarded these checks to the Whitwell Savings Bank for payment. They were marked by that bank "Paid," respectively, on May 3d and 5th. That bank charged up the checks to the Whitwell Mercantile Society, and on May 5th both of them were surrendered to the society; the society having, at the time the checks were charged up, more than enough on deposit to pay them. The Whitwell bank sent to the American National Bank, on account of these checks, two cashier's drafts on the Citizens' Bank & Trust Company, of Chattanooga. These two drafts were promptly forwarded by the American National Bank to its banking correspondent at Chattanooga, and by the latter they were presented to the drawee bank for payment, and, payment being refused, they were duly protested and promptly returned to the American National Bank. The American National Bank, having previously credited them to the Bank of Winchester, charged back to that bank the amount of the two drafts, together with the protest fees thereon; the whole amounting to $509.15. The Bank of Winchester accepted the drafts, and acquiesced in the action of the American National Bank, and charged back to the complainant, the Winchester Milling Company, the $509.15, notifying the complainant of the fact, and on the 21st of June surrendered the drafts to complainant. They were accepted by complainant without objection made at the time, so far as the record shows. The evidence shows that it was the universal custom in Nashville, and in Winchester, and all over the country, to charge back items received by banks for collection which had been credited to depositors and returned unpaid. The evidence also shows that this was the custom between the American National Bank and the Bank of Winchester, and also the custom between the Bank of Winchester and its patrons, including complainant. In addition to this, the American National Bank had printed on its stationery, which it used, in acknowledging the receipt of collections, the following: "All items payable outside of Nashville received by this bank for credit, or for collection, are taken at the sender's risk. Should returns sent by the collecting agents for such items be dishonored, the amount will be charged back to the bank or banker from whom the item was received. This bank assumes no liability for neglect or default of collecting agents, nor for items lost in the mail, and hereby gives notice to that effect." There was another notice to the same effect, and in almost the same language, on the stationery of the American National Bank, but not limited to items payable outside of Nashville, being general in its terms, and covering all items taken by that bank for credit or collection. These blanks were used in the dealings between the American National Bank and the Bank of Winchester.

On May 10th the Whitwell Savings Bank suspended and went into the hands of a receiver.

On July 26th the original bill in this case was filed against the Bank of Winchester, the American National Bank, and the Whitwell Mercantile Society. There was subsequently an amended bill. It is not necessary to recite the contents of these bills, further than to say that the original bill was amended by the amended bill so as to charge that the Bank of Winchester forwarded the checks to the American National Bank for collection, and that the latter bank forwarded them to the said Whitwell Savings Bank for collection; that thereupon the Whitwell Savings Bank forwarded to the American National Bank the cashier's drafts above mentioned in settlement for the checks; and that the said checks and cashier's drafts were not collected, because of the negligence of the American National Bank "in its failure to present said checks and drafts for payment within a reasonable time and in due course."

There was no evidence offered in the court below that there was any custom among the banks of this state, or in the business of the Bank of Winchester or of the American National Bank, that collections should be sent, or could properly be sent, to the drawee bank. Likewise there was no evidence of any instructions on the part of complainant that would justify such a course of business.

The chancellor dismissed the bill as to the Bank of Winchester, but rendered a decree in favor of the complainant against the American National Bank and the Whitwell Mercantile Society for the amount of the checks and interest, and the other items making up the sum of $509.15 above mentioned.

From this judgment the American National Bank prayed an appeal to the court of Civil Appeals, and the Whitwell Mercantile Society carried the case into that court by writ of error. The complainant also filed the record for error in that court, to have reviewed the decree of the chancellor dismissing its bill as to the Bank of Winchester.

By some chance, no notice was taken by the Court of Civil Appeals of the writ of error filed by the complainant against the Bank of Winchester. That court, however, reversed the decree of the chancellor as to the American National Bank and the Whitwell Mercantile Society. Thereupon the original complainant brought the case to this court by the writ of certiorari to review the action of the Court of Civil Appeals.

The foregoing facts present several questions for decision. The first question suggested is whether the American National Bank acted negligently in sending the collection directly to the drawee bank. The next concerns the effect and result of the American National Bank's taking from the Whitwell Savings Bank the drafts on Chattanooga in payment of the checks sent for collection; next, the effect of the acceptance and retention of these drafts by complainant, when turned over to it by the Bank of Winchester, and the allegations of the bill as to negligence on the part of the American National Bank in this regard. Another question that may present itself for solution is whether the Whitwell Mercantile Society is still liable.

Under the rule designated by Mr. Morse as the Massachusetts rule, which prevails in Tennessee and several other states, each successive bank handling an item for collection is agent of the owner, and liable to him for the discharge of the duties incumbent upon collecting agents, and the several banks in the course of the chain of transmission are held responsible only for the selection of proper agents, and for their own diligence and propriety of action in respect of the collection. Bank of Louisville v. Bank of Knoxville, 8 Baxt. 101, 35 Am. Rep. 691; Bank v. Cummings, 89 Tenn. 609, 18 S.W. 115, 24 Am. St. Rep. 618; Morse on Banks & Banking, § 214.

The author last referred to says, in respect of the selection of the drawee bank as agent:

"In this country the party who is to pay a check is not a suitable agent for its collection. A Chicago bank received a certified check for collection, and sent it to the drawee bank. The latter mailed in return a worthless draft, surrendered the check to the drawer as paid, failed, and closed its doors. The Chicago bank was liable to the depositor for the full amount of the check. The debtor cannot be the disinterested agent of the creditor to collect the debt, and it cannot be considered reasonable care to select an agent known to be interested against the principal, to put the latter into the hands of its natural adversary." Morse on Banks and Banking, § 236 (a), citing Drovers' National Bank v. Anglo-American P. & P. Co., 117 III. 100, 7 N.E. 601, 57 Am. Rep. 855. To the same effect is 1 Daniel, Neg. Inst. 328a; 3 Amer. & Eng. Enc. of Law (2d Ed.) p. 809; and 5 Cyc. p. 506.

On the page of the Encyclop dia of Law referred to will be found the following:

"The forwarding bank must exercise due care in the selection of the correspondent to whom it transmits the paper for collection, and it will be liable for negligence in selecting an unsuitable correspondent. The bank upon which the bill is drawn is not a suitable agent

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