In July, 1884, Mary C. Melson resided at Lancaster, Pa., where the Farmers' National Bank, of Lancaster, was located, with which she kept an account. July 9, 1884, she drew a check on this bank for $1,871.84, payable to John J. Cameron, or order, and mailed it to him at Indianapolis, Ind., who, July 15, 1884, indorsed it in blank and delivered it to a firm of private bankers doing business at Indianapolis, under the name of "Harrisons' Bank." The check, though indorsed in blank, was in fact delivered and received for the purpose of collection only. The Corn Exchange Bank was the New York city correspondent of Harrisons' Bank, and they exchanged collections and kept mutual accounts, Harrisons' Bank being accustomed to draw sight bills or checks against its balance with the Corn Exchange Bank. The view we take of this case makes it unnecessary to further consider the manner in which these accounts had previously *Page 446 been kept. July 15, 1884, Harrisons' Bank indorsed the check to the Corn Exchange Bank for collection and credit, and forwarded it by mail. It was received July seventeenth, and credited by the Corn Exchange Bank to Harrisons' Bank; reserving, however, the right to charge it to Harrisons' Bank if it should be dishonored. It was not found by the court, nor was it asserted that the Corn Exchange Bank knew, or had the slightest reason to suspect, that Harrisons' Bank did not own the check, and was acting only as a collecting agent for Cameron, or some undisclosed owner, and so the Corn Exchange Bank became the holder of the check in good faith, and could, had it been dishonored, have maintained an action thereon for its collection. July seventeenth, the Corn Exchange Bank indorsed the check "for collection and remittance" to the Farmers' National Bank of Lancaster, the drawee, with directions to remit by draft payable in the city of New York. July eighteenth, the check was received by the Farmers' National Bank of Lancaster, was charged to the account of the drawer, Mary C. Melson, and cancelled. For this service the Farmers' National Bank of Lancaster charged the Corn Exchange Bank $1.84, and on the same day drew its check or sight draft, payable to the Corn Exchange Bank, or order, on the First National Bank of New York, for $1,870, and mailed it to the Corn Exchange Bank. The check was no longer a valid contract. The liability of the drawer and indorsers thereon was ended, and could never be restored. The Lancaster Bank had legally, and in good faith, discharged its duty to the drawer, the indorsers and the holder of the check, and the Corn Exchange Bank had accepted of the draft of the Lancaster bank in discharge of the liability of the drawer and indorsers. The Lancaster bank accepted of the agency tendered by the Corn Exchange Bank, performed the services and received payment therefor. The relation of principal and agent was established, and in discharge of its liability thus assumed the Lancaster bank mailed the draft. July 17, 1884, Harrisons' Bank failed, and on the eighteenth, but after the check had been paid and cancelled and the draft given in payment *Page 447 mailed, the drawer ef the check, Mary C. Melson, and the payee, John J. Cameron, requested the Lancaster bank to stop payment of its draft, which it did, and the draft was dishonored. The Corn Exchange Bank brings this action to recover the amount of the draft, which the Lancaster bank defends on the ground that the plaintiff did not hold the check for value, and is not entitled to its proceeds as against John J. Cameron, the payee. The defense is not placed on the ground that it is necessary to protect the defendant from any present or future liability, for it is conceded that it has exactly performed all of its duties in respect to the check. It does not deny that it became the agent, for a consideration, of the Corn Exchange Bank, and promised by its draft to pay the plaintiff $1,870.
By the law of this state Harrisons' Bank was the agent for Cameron, but neither the plaintiff nor defendant was his agent, and had either neglected to take the necessary steps to collect the check, to Cameron's injury, he would have had no right of action against either; but would have had a cause of action against Harrisons' Bank. (Allen v. Merchants' Bank, 22 Wend. 215; Montgomery County Bank v. Albany City Bank, 7 N.Y. 459;Commercial Bank of Penn. v. Union Bank, 11 id. 203; Ayrault v. Pacific Bank, 47 id. 570; Exchange Nat. Bank of Pittsburgh v. Third National Bank, 112 U.S. 276; Morse on Banks, [3d ed.] § 272.) In Montgomery Co. Bank v. Albany City Bank, the plaintiff indorsed and sent a draft to the Albany City Bank for collection, which, in turn, indorsed and sent it to the Bank of the State of New York for collection; but the latter bank negligently omitted to present the draft for payment, and the drawer and indorsers were discharged. The plaintiff sued both banks and recovered against both at Circuit, and the judgment was affirmed by the General Term; but it was reversed in the Court of Appeals as to the Bank of the State of New York, and affirmed as to the Albany City Bank. It was said: "The New York State Bank was the agent directly guilty of the neglect. That bank was employed to do the service by the plaintiff's agent, the Albany City Bank, as its agent, to which it was alone responsible for its *Page 448 acts and nelect, and for which the latter, according to the settled rule, was alone responsible to the plaintiff, there being no agreement to the contrary, expressed or implied."
It is unnecessary to specially consider the cases which were decided in this state prior to Allen v. Merchants' Bank,supra, or those of states in which it is held that the bank receiving payment of the paper is the agent of the owner, notwithstanding it may have passed through several banks before reaching the bank making the collection.
The ground upon which the defendant seeks to justify the refusal to perform its contract with its principal seems to be that if the plaintiff recives the money, it ought to pay it to John J. Cameron, but may not, and, therefore, this defense.
Assuming, but not deciding, that Cameron could maintain an action against the Corn Exchange Bank to recover the amount of the check, such fact would in no wise support this defendant's contention. No contract relation exists between it and Cameron, nor is there any privity between them.
When the owner of commercial paper delivers it for collection to bank A, which forwards it for collection to bank B, which, in turn, forwards it for collection to bank C, to which it is paid, it has been held that if bank C, instead of paying the money to bank B, retains and applies it on a debt due from bank B, the owner (bank A being insolvent) may recover of bank C; but we are unable to see that these cases justify this defendant in resisting the payment of its draft, to which it has no defense, for the benefit of a third person, who may have a right to recover the money represented by it.
The check which the defendant received from the plaintiff having been paid, charged to the account of the drawee and surrendered, the account closed, and a draft therefor delivered to the Corn Exchange Bank, the defendant can not now assert as against its principal the legal rights or equities of a third person. (McKay v. Draper, 27 N.Y. 256; Aubery v. Fiske, 36 id. 47; Wharton on Agency, § 242 and cases there cited.)
The judgment should be reversed and a new trial granted, with costs to abide the event. *Page 449