43

and protest is in general governed by the law of the place of payment, and not of the place where the instrument was drawn or indorsed. It follows that a bank to which a bill or a note is sent for collection discharges its duty if it conforms to the rules of the local law in these respects, unless it is instructed to follow a different course.**

Instructions

It is the duty of the bank to follow any instructions which the customer may give in respect to the collection or remittance, and if the bank fails so to do it will be liable for any resulting loss. If the paper is forwarded by the depositing bank to another bank for collection, it is the duty of the depositary to communicate the instructions to the collecting bank.**

Sheldon, 12 Wend. (N. Y.) 439, 27 Am. Dec. 137; Lee v. Selleck, 33 N. Y. 615 (but see Union Nat. Bank v. Chapman, 169 N. Y. 538, 62 N. E. 672, 57 L. R. A. 513, 88 Am. St. Rep. 614). See "Bills and Notes," Dec. Dig. (Key No.) § 386; Cent. Dig. §§ 1051-1054.

43 Townsley v. Sumrall, 2 Pet. 170, 7 L. Ed. 386; Chatham Bank v. Allison, 15 Iowa, 357; Ellis v. Bank, 7 How. (Miss.) 294, 40 Am. Dec. 63; Simpson v. White, 40 N. H. 540; Carter v. Union Bank, 7 Humph. (Tenn.) 548, 46 Am. Dec. 89.

A drawer of a bill is discharged by failure to protest, where protest is required by the law of the place where the bill is drawn, though protest be not required by the law of the place where the bill is payable. Amsinck v. Rogers, 189 N. Y. 252, 82 N. E. 134, 12 L. R. A. (N. S.) 875, 121 Am. St. Rep. 858. See "Bills and Notes," Dec. Dig. (Key No.) § 386; Cent. Dig. §§ 1051–1054.

44 See Morse, Banks & B. (4th Ed.) § 220.

45 Milwaukee National Bank v. City Bank, 103 U. S. 668, 26 L. Ed. 417; Central Georgia Bank v. Cleveland Nat. Bank, 59 Ga. 667; Lord v. Hingham Nat. Bank, 186 Mass. 161, 71 N. E. 312; Finch v. Karste, 97 Mich. 20, 56 N. W. 123; Omaha Nat. Bank v. Kiper, 60 Neb. 33, 82 N. W. 102; First Nat. Bank of Texarkana v. Munzesheimer (Tex. Civ. App.) 26 S. W. 428. See Long v. Bank of Commerce (Ky.) 38 S. W. 886. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 171, 172; Cent. Dig. §§ 554-564, 597–628.

46 Borup v. Nininger, 5 Minn. 523 (Gil. 417). See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 171, 172; Cent. Dig. §§ 554564, 597-628.

Good Faith-Securing Priority

' 47

It is the duty of a collecting bank to exercise good faith and loyalty towards its customer in the business intrusted to it. It has been held, however, that this duty does not prevent a bank which holds a claim against the drawee of a draft placed in its hands for collection, where it has not been instructed to bring suit, from securing priority of its own claim by attachment; and this, although it fails to obtain security for the customer's claim, provided it makes due presentment and is guilty of no misrepresentation or fraudulent concealment.48 But where the bank is instructed to place the claim in the hands of attorneys for suit, and fails to do so until it has secured its own claim, it is liable for any resulting loss. So, where the bank grants time to the debtor, without communicating with its customer, and in the meantime secures a preference.50

Medium of Payment

Authority to collect means authority to receive payment in legal currency; that is, in legal tender or what is by common consent tendered and passes as such at par.51 Unless specially authorized to do so, a collecting bank may not receive in pay

47 Freeman v. Citizens' Nat. Bank, 78 Iowa, 150, 42 N. W. 632, 4 L. R. A. 422. See "Banks and Banking," Dec. Dig. (Key No.) §§ 171, 172; Cent. Dig. §§ 597-628.

48 United States Bank v. Westervelt, 55 Neb. 424, 75 N. W. 857. See "Banks and Banking," Dec. Dig. (Key No.) §§ 157, 171, 172; Cent. Dig. §§ 539-546, 597-628.

49 Finch v. Karste, 97 Mich. 20, 56 N. W. 123. See "Banks and Banking," Dec. Dig. (Key No.) §§ 171, 172; Cent. Dig. §§ 597-628.

50 Dern v. Kellogg, 54 Neb. 560, 74 N. W. 844. See "Banks and Banking," Dec. Dig. (Key No.) §§ 171, 172; Cent. Dig. §§ 597-628.

51 Ward v. Smith, 7 Wall. 447, 19 L. Ed. 207; Midland Nat. Bank v. Brightwell, 148 Mo. 358, 49 S. W. 494; Whipple v. Walker, 2 Thomp. & C. (N. Y.) 456. See cases generally cited under this paragraph. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. §§ 554-566, 597-628.

53

ment a bill or a note, 52 or a check, even if it be certified.": If a bank accepts a check in lieu of payment of paper intrusted to it for collection, it assumes the risk of payment of the check, and is liable for any resulting loss. 5 A usage of banks in collecting drafts to surrender them to the drawees on receiving checks for payment has been held unreasonable.55 But the

52 Scott v. Gilkey, 153 Ill. 168, 39 N. E. 265. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. $$ 554-566, 597-628.

53 Essex County Nat. Bank v. Bank of Montreal, Fed. Cas. No. 4,532, 7 Biss. 193; German-American Bank v. Third Nat. Bank, Fed. Cas. No. 5,359; Levi v. National Bank of Missouri, Fed. Cas. No. 8,289, 5 Dill. 104. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. §§ 554-566, 597-628.

54 Bank of Antigo v. Union Trust Co., 149 Ill. 343, 36 N. E. 1029, 23 L. R. A. 611; National Bank of Commerce v. American Exch. Bank, 151 Mo. 320, 52 S. W. 265, 74 Am. St. Rep. 527; Landa v. Traders' Bank of Kansas City, 118 Mo. App. 356, 94 S. W. 770; Fifth Nat. Bank v. Ashworth, 123 Pa. 212, 16 Atl. 596, 2 L. R. A. 491 (cashier's check). See, also, Morris v. Enfaula Nat. Bank, 106 Ala. 383, 18 South. 11.

In some cases it seems to be intimated that, notwithstanding the check is dishonored, if the bank used the utmost diligence in presenting it, and upon its dishonor reclaims it in sufficient time to take the necessary steps to charge any parties secondarily liable on the paper for which the check was given, the bank is guilty of no negligence. See First Nat. Bank of Meadville, Pa., v. Fourth Nat. Bank of New York, 77 N. Y. 320, 33 Am. Rep. 618 (cf. Kirkham v. Bank of America, 165 N. Y. 132, 58 N. E. 753, 80 Am. St. Rep. 714); Comer v. Dafour, 95 Ga. 376, 22 S. E. 543, 30 L. R. A. 300, 51 Am. St. Rep. 89; Noble v. Doughten, 72 Kan. 336, 83 Pac. 1048, 3 L. R. A. (N. S.) 1167; Anderson v. Gill, 79 Md. 312, 29 Atl. 527, 25 L. R. A. 200, 47 Am. St. Rep. 402.

Where the bank receives in payment of a draft the drawee's check, but sends the draft with the check to the drawee bank, to be delivered on payment of the check, and the check is not paid, nor the draft delivered, the bank is not liable. Second Nat. Bank of Columbia v. Cummings, 89 Tenn. 609, 18 S. W. 115, 24 Am. St. Rep. 618. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. §§ 554-566, 597-628.

55 National Bank of Commerce v. American Exch. Bank, 151 Mo. 320, 52 S. W. 265, 74 Am. St. Rep. 527. See, also, Noble v. Doughten,

bank may receive payment by a check drawn on itself by a debtor who has a sufficient deposit, since the bank need not go through the form of paying to the debtor the money and receiving it back. So it has been held that the bank may accept in payment its own certificate of deposit.57 It is not within the authority of the bank to receive partial payment.58

Surrender of Attached Bills of Lading

Where a bank receives for collection, without special instructions, a time draft with an attached bill of lading, even if it makes the goods deliverable to the order of the consignor, it has been held that the bank may surrender the bill of lading to the drawee on his acceptance of the draft, upon the ground that the transaction upon its face is a sale by the drawer to the drawee upon credit, and that accordingly the bill of lading is a security only for the acceptance, and not for the payment of the draft. Other cases upon substantially the same facts

59

72 Kan. 336, 83 Pac. 1048, 3 L. R. A. (N. S.) 1167. In Jefferson County Sav. Bank v. Commercial Nat. Bank, 98 Tenn. 337, 39 S. W. 338, a usage of local banks to accept in payment certified checks was held reasonable. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. §§ 554-566, 597-628.

56 Welge v. Batty, 11 Ill. App. 461; Billingsley v. Pollock, 69 Miss. 759, 13 South. 828, 30 Am. St. Rep. 585; Sayles v. Cox, 95 Tenn. 579, 32 S. W. 626, 32 L. R. A. 715, 49 Am. St. Rep. 940. Contra: State Bank v. Byrne, 97 Mich. 178, 56 N. W. 355, 21 L. R. A. 753, 37 Am. St. Rep. 332. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. §§ 554-566, 597-628.

57 British & Amer. Mortg. Co. v. Tibballs, 63 Iowa, 468, 19 N. W. 319 (cf. Bank of Montreal v. Ingerson, 105 Iowa, 349, 75 N. W. 351). See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. §§ 554-566, 597-628.

58 Lowenstein v. Bresler, 109 Ala. 326, 19 South. 860. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162, 171, 172; Cent. Dig. $8 554-566, 597-628.

59 National Bank of Commerce v. Merchants' Nat. Bank, 91 U. S. 92, 23 L. Ed. 208; Woolen v. New York & Erie Bank, Fed. Cas. No. 18,026, 12 Blatchf. 359; Commercial Bank of Manitoba v. Chicago, St. P. & K. C. Ry. Co., 160 Ill. 401, 43 N. E. 756; Moore v. Louisiana Nat. Bank, 44 La. Ann. 99, 10 South. 407, 32 Am. St. Rep. 332. See

hold that, if the bill of lading makes the goods deliverable to the order of the consignor, the bank is not authorized to surrender the bill without payment of the draft, upon the ground that making the goods so deliverable is almost conclusive evidence of an intention on the part of the consignor to retain the jus disponendi and to reserve the property in goods, and that such intention negatives the inference that the sale was on credit and that consequently the bill of lading was to be surrendered upon acceptance of the draft. While it is true that, where by the bill of lading the goods are deliverable to the order of the seller or his agent, prima facie he reserves the property in the goods, yet it is entirely consistent with this reservation that the property shall pass upon acceptance of the draft, rather than upon its payment-in other words, that the seller intends a sale upon credit; and it is submitted that the cases last referred to are erroneous. The rights of the bank, where it discounts or purchases a draft with an attached bill of lading, will be considered later.62

61

RIGHTS AND LIABILITIES AS TO PROCEEDS OF

COLLECTION

52. RELATION OF BANK TO CUSTOMER-When paper intrusted to a bank for collection has been collected, by weight of authority, the bank becomes, in the absence of an agreement to the contrary, a

"Banks and Banking," Dec. Dig. (Key.No.) §§ 161, 162; Cent. Dig. $8 554-566.

60 W. & A. McArthur Co. v. Old Second Nat. Bank, 122 Mich. 223, 81 N. W. 92 (sight draft, but, being entitled to three days grace, equivalent to a time draft); Security Bank of Minnesota v. Luttgen, 29 Minn. 363, 13 N. W. 151; Second Nat. Bank of Columbia v. Cummings, 89 Tenn. 609, 18 S. W. 115, 24 Am. St. Rep. 618. See "Banks and Banking," Dec. Dig. (Key No.) §§ 161, 162; Cent. Dig. §§ 554-566.

61 Tiffany, Sales (2d Ed.) 162.

62 Post, p. 252.