On Motion for Rehearing.
RAYNOLDS, J.It is urged by the appellant in its motion for rehearing that, the First State Bank being insolvent, the relation of agency between appellant and said bank could not arise; that the First State Bank had no right to collect the note in question. The principle invoked here is often applied when the remitting bank seeks to collect from the receiver of an insolvent collecting bank. It is universally held that the remitting bank is entitled to the entire fund so collected, and does not have to share pro rata with the other creditors of the insolvent bank. But this principle has no application here.
[3,4] It is true the First State Bank had no right to act as agent for the appellant bank after its insolvency. In fact, it had no right to.continue in business'; but it did so, and the appellant sent to it the note in question for collection, which the appellee, Mossman, paid to the First State Bank. -The fact that it was insolvent did not destroy the agency as far as third parties were concerned, nor has the fact that the appellant could collect the entire sum from the receiver of said bank any bearing on the question of the payment by the appellee. It was the failure of the First State Bank to -remit what it had collected to the appellant which caused appellant’s loss. Appellee has paid once, and it was through the fault of appellant’s agent that the appellant did not receive the payment. The well-known principle applies that, when one of two innocent parties must suffer, the one who made the condition possible should bear the loss. It was the sending of a note to an insolvent bank to collect that caused appellant’s loss.
In Baldwin’s Bank v. Smith, 215 N. Y. 76, at page 82, 109 N. E. 138, at page 141 (L. R. A. 1918F, 1089, Ann. Cas. 1917A. 500), a case similar to the present one, the court said:
"If we lay refinements aside, the truth is that the actual default of the Watkins Bank was in not remitting- the proeeeds of the note to its principal, a cogent reason for adhering to the view that the note was paid. It is not conclusive on the question of payment that the plaintiff might not have been entitled to assert that the assets in the hands of the assignee or receiver of the Watkins Bank were impressed with a trust in its favor, because there might be a transfer of credits so as to constitute payment without actually setting aside a distinct fund which could be impressed with a trust. See People v. Merchants’, etc., Bank, 78 N. Y. 269, 34 Am. Rep. 532. That point is not involved and need not be decided. If, however, we assume that the note was not paid, the failure to secure .payment was due' to the neglect of the plaintiff’s agent, and the loss resulting therefrom should fall on the one responsible for the fault.”
See, also, Smith v. Essex County Bank, 22 Barb. (N. Y.) 627.
The motion for rehearing will therefore be denied, and it is so ordered.
Parker, C. J., and Roberts, J., concur.