When the maker of negotiable instruments, such as were the interest coupons in suit, specifies some bank as the place where he will pay the obligation, such bank is the agent of the maker and not the agent of the payee or owner. Forwarding money to such agent, especially when the agent does not have possession of the bond or coupons, is never payment of the bond or coupons, no matter how long the money remains in the hands of the agent or how late the owner or holder of the bonds or interest coupons may present the same to such bank for payment. Here, the New York bank, Kountze Brothers, never received the interest coupon notes. Even though they had received from the defendant the amount of money required to pay the coupon notes, and retained the funds *Page 390 for that purpose, yet, not having received the notes, the loss resulting because of the bank's insolvency must fall on the defendant. (7 C.J. 627.) That such is the law has been fully recognized by this court and is the rule generally followed, especially in states where the Uniform Negotiable Instruments Law has been adopted. (7 C.J. 605, 606; Kalman v. TreasureCounty, 84 Mont. 285, 275 P. 743; United States Nat. Bank v.Shupak, 54 Mont. 542, 172 P. 324; Baldwin v. Adkerson,156 Va. 447, 158 S.E. 864; Peurifoy v. Boswell, 162 S.C. 107,160 S.E. 156; In re Interborough Consolidated Corp., 288 Fed. 334, 32 A.L.R. 932; Cheney v. Libby, 134 U.S. 68,10 Sup. Ct. 498, 33 L. Ed. 818; State Nat. Bank of St. Louis v. J.J. Hyatt Co., 75 Ark. 170, 86 S.W. 1002, 112 Am. St. Rep. 50; St. PaulNat. Bank v. Cannon, 46 Minn. 95, 48 N.W. 526, 24 Am. St. Rep. 189; First Nat. Bank of Omaha v. Chilson, 45 Neb. 257,63 N.W. 362; Dillingham v. Parks, 30 Ind. App. 61, 65 N.E. 300;Southern Exch. Bank v. Pope, 152 Ga. 162, 108 S.E. 551;Pierson v. Swift County Bank, 163 Minn. 344, 204 N.W. 31;Trowbridge v. Ross, 105 Mich. 598, 63 N.W. 534; ChesaningState Bank v. Branton, 234 Mich. 263, 207 N.W. 826;Cosmopolitan Trust Co. v. Leonard Watch Co., 249 Mass. 14,143 N.E. 827; Amos v. Baird, 96 Fla. 181, 117 So. 789.)
Interest coupons, whether attached or detached from bonds, are promissory notes, and, therefore, the maker is not discharged from liability through neglect to make presentment for payment. (Perry v. Norddeutscher Lloyd, 150 Misc. 73,268 N.Y. Supp. 525; Kalman v. Treasure County, supra; Mississippi Power Light Co. v. A.E. Kusterer Co., 156 Miss. 22, 125 So. 429;Toon v. Wapinitia Irr. Co., 117 Or. 374, 243 P. 554;Fidelity Mutual Life Ins. Co. v. Wilkes-Barre H.R. Co.,98 N.J.L. 507, 120 A. 734; 9 C.J. 49.) The interest coupon notes are plainly negotiable promissory notes as defined by section 8591, Revised Codes 1921, and no duty rested upon plaintiff to present them to the banking house of Kountze Brothers for payment. Presentment and demand of payment are not necessary except to impose liability on *Page 391 persons secondarily liable. The drawer of a check is secondarily liable, but the liability of the maker of a promissory note is always primary. (Cashion Gin Co. v. Reisch, 144 Okla. 169,289 P. 701.)
Section 8477, Revised Codes 1921, which is embodied in the Uniform Negotiable Instruments Law, has uniformly been construed to relieve the owner of a negotiable promissory note of any duty to make presentment of it either to the maker or to the place specified in the instrument for payment thereof in order that the owner may have a right of action against the party primarily liable. (8 C.J. 527, sec. 741; First State Bank of Hilger v.Lang, 55 Mont. 146, 174 P. 597, 9 A.L.R. 1139; Quickenden v. Hulbert, 83 Mont. 501, 272 P. 994; Park Gasoline Co. v.Crusius, (N.J. Sup.) 158 A. 334; Cashion Gin Co. v.Reisch, supra; Binghampton Pharmacy v. First Nat. Bank,131 Tenn. 711, 176 S.W. 1038, 2 A.L.R. 1377.) It is admitted by appellant that never before in its course of dealing regarding the collection of interest involved in this litigation had any presentment of any of the coupons or bonds been made by it to the county treasurer of Big Horn county, until after the banking house of Kountze Brothers had closed its doors. Appellant had been entirely satisfied with its course of dealing as to said interest until it found that it could not go on with such custom or course of dealing, because of the bankruptcy of its own agent for collection of this interest. Then, for the first time it presented its interest coupons for payment at the office of the county treasurer and, as the evidence shows, this presentment was not made until fully four months or more after its interest was due. This constituted a course of dealing by the plaintiff with the bank of Kountze Brothers through its Denver bank, so as to clearly infer an agency between the former and appellant for the collection of all interest on the bonds in question. (First Nat. Bank v. *Page 392 Hessell, 133 Wash. 643, 234 P. 662; Galligan v. Schapiro,82 Colo. 423, 260 P. 519; Wagner v. Spaeth, 36 Wyo. 279,254 P. 123; Ross v. Johnson, 171 Wash. 658,19 P.2d 101.)
Where the holder of negotiable paper through his own conduct caused the maker to believe that a certain dealer was his agent for receiving payments and such dealer appropriated such payments to his own use, the holder, whose negligence made it possible for the dealer to commit the wrong, must suffer the loss. (Millious v. Thompson, 94 Mont. 110, 20 P.2d 1060.) In the cited case it was also held that where the holder by his own conduct and want of ordinary care had caused the maker to believe that another was the holder's agent, such agent became ostensibly the agent of the holder, citing Security State Bank v. Soule,70 Mont. 300, 225 P. 127. Where one of two innocent persons must suffer from the wrong of a third, the loss must fall upon the one whose negligence enabled it to happen. (Rankin v. Brown,131 Cal. App. 137, 20 P.2d 954.) We contend that the appellant had made Kountze Brothers its collecting agent by a long course of dealing and custom, and that had appellant been diligent in presenting its paper to its collecting agent, it would have suffered no loss and that its laches in so doing should be chargeable to appellant and not to respondent.
Where a bank fails after paper has been paid through actual receipt of the money to the bank where such paper is payable, the loss falls upon the owner of the paper and not upon the maker. (7 C.J. 627.) The act of the county treasurer in transmitting the money to the actual holders of the interest coupons, in accordance with his records, was a payment of said interest coupons for the account of the respondent school district.
If a party selects a bank to collect a note and payment is made to such bank, it is the agent of the person selecting it and payment to it is equivalent to payment to him. (Porter v.Roseman, 165 Ind. 255, 74 N.E. 1105, 112 Am. St. Rep. 222, 6 Ann. Cas. 718; Scott v. Gilkey, 153 Ill. 168, 39 N.E. 265.) *Page 393
Appellant's entire argument is based on the proposition that, where a note is made payable at a particular bank, this does not of itself make the bank the agent of the payee or holder to receive payment, and payment to a bank of the amount due on the note made payable there when the bank does not have possession of the note, or authority to collect it, does not discharge the maker. The facts in the case at bar do not support such a theory. It is our contention that the banking house of Kountze Brothers, by the acts of the appellant itself in exercising its option as to payment and from the terms of the agreement and from all conditions, usages and customs in relation to the payment of the interest coupons in question, did have the authority, as the collecting agent for appellant, to receive the interest due on the bonds; thus the law so strenuously relied upon by appellant as to payment is not applicable to the facts in this case. Plaintiff corporation brought this action in the district court of Big Horn county to recover $1,650 with interest, which sum is alleged to be due to plaintiff from the defendant school district, on fifty-five interest coupons for $30 each.
It appears that on January 15, 1921, the defendant school district issued seventy-five bonds for $1,000 each, bearing interest at the rate of six per cent. per annum, payable on the fifteenth days of January and July in each year, as evidenced by interest coupon notes attached to and made a part of the bonds. The coupons were made payable at the office of the county treasurer of Big Horn county, or at the banking house of Kountze Brothers in New York City, hereinafter called the bank. The bonds were payable to "bearer" and were sold and delivered to Kountze Brothers. Thereafter the bank sold and disposed of the bonds to some third party. The evidence discloses that they were purchased by J.K. Mullen from Bosworth, Chanute Co., in Denver, Colorado, in March, 1921, and were transferred to the plaintiff corporation on March 30, *Page 394 1929. It appears that the money to pay the coupons was always sent by the county treasurer to the bank. This was the practice which was followed from the time when the bonds were issued.
From the time it became the owner of the bonds, plaintiff always deposited the interest coupons, when due, in the First National Bank of Denver. That bank then forwarded them to the bank in New York for payment, and in this manner all the coupons which fell due prior to July 15, 1931, were paid.
On May 23, 1931, the county treasurer, according to his custom, transmitted enough money to the bank to pay the interest coupons which were to become due July 15, 1931. Plaintiff deposited its coupons with the First National Bank of Denver on October 6, 1931; thereafter that bank proceeded to present them to the New York bank for payment. This presentment was not made until after October 13, 1931, upon which date that bank had become bankrupt. The coupons were returned to the Denver bank with the advice that, Kountze Brothers having closed its doors, no presentation of the interest coupons could be made. The Denever bank then transmitted them to the county treasurer of Big Horn county for payment, but they were returned without payment. Plaintiff then instituted this action.
The county treasurer testified that he transmitted the interest due on the bonds in question to Kountze Brothers on May 23, 1931; that he had no notice prior to July 15, 1931, that the interest was to be paid to any other than the New York bank; that it did not return the money to him; and that he did not know what disposition was made of the remittance forwarded by him.
The cause was submitted to the court sitting without a jury. The court found generally in favor of the defendant and against plaintiff. From the judgment entered thereon plaintiff appeals.
The controlling question presented for our solution is whether the transmittal of the money by the county treasurer to the New York bank constituted a payment of the interest *Page 395 coupons so as to bar plaintiff from recovery in this action. Plaintiff contends that it did not, because "(1) the school district having seen fit to make the bonds payable at the banking house of Kountze Brothers at New York City, did thereby make that banking house its agent and was responsible for any dereliction or defalcation of its agent; (2) the interest coupons being negotiable instruments and having all the attributes of commercial paper, the plaintiff was not required to present them to Kountze Brothers for payment on July 15, 1931, the due date, or at any particular time, and cannot be required to suffer the loss resulting from the failure of Kountze Brothers to pay the interest coupon notes."
It will be noted that the coupons in question are payable to[1, 2] bearer and possess all the qualities and incidents of commercial paper. Title to such paper passes by delivery. (SeeKalman v. Treasure County, 84 Mont. 285, 275 P. 743, 746.) In the case cited this court, in discussing a similar situation, used the following pertinent language: "The interest coupons in question are made payable to bearer; hence pass by delivery and possess all the qualities and incidents of commercial paper. * * * It is the universal rule that, where commercial paper is made payable at a particular bank, such bank is the agent of the maker and not the holder, the holder not having deposited it at the designated bank for collection." To the same effect is UnitedStates Nat. Bank v. Shupak, 54 Mont. 542, 172 P. 324. This rule is supported by the great weight of authority everywhere. (See Baldwin v. Adkerson, 156 Va. 447, 158 S.E. 864;Peurifoy v. Boswell, 162 S.C. 107, 160 S.E. 156; In reInterborough Consolidated Corp., (C.C.A.) 288 Fed. 334, 32 A.L.R. 932; Cheney v. Libby, 134 U.S. 68, 10 Sup. Ct. 498,33 L. Ed. 818; also, 8 C.J. 605, 606; and annotation upon subject in 2 A.L.R. 1381, wherein a long list of cases from numerous jurisdictions is to be found.)
Defendant, however, contends that this rule is not applicable[3] in the instant case, for the reason that plaintiff, by virtue of a long course of dealing, made Kountze Brothers its agent. *Page 396 There is respectable authority supporting the proposition that in certain instances there may be an exception to the general rule, viz., that through a course of dealing plaintiff might be deemed to have constituted Kountze Brothers its agent for the purpose of receiving payment on the coupons. (See First Nat. Bank v.Hessell, 133 Wash. 643, 234 P. 662; Galligan v. Schapiro,82 Colo. 423, 260 P. 519; Wagner v. Spaeth, 36 Wyo. 279,254 P. 123; Ross v. Johnson, 171 Wash. 658,19 P.2d 101; Fowle v. Outcalt, 64 Kan. 352, 67 P. 889.) The rule is well stated in 8 C.J. 598, as follows: "Payment made to the payee of a negotiable bill or note, where he has transferred the instrument before maturity, without requiring the production and surrender of the instrument, is ordinarily insufficient as against the transferee, provided he is a holder in due course. But payment to the payee after the transfer of the instrument is binding on the transferee, where the payee is made the agent of the transferee for collection, or where the money was actually received by the transferee, but not unless the agency is clearly shown, or, if the agency is not proved, unless the transferee is estopped to deny the authority of the payee to collect."
A careful study of the record in this case fails to disclose anything establishing, or tending to establish, that plaintiff had made the New York Bank its agent or had recognized it as such. The facts are quite to the contrary. While it is true that Kountze Brothers' bank was the original purchaser of the bonds from the district, there is nothing to show that it held them for any length of time. It is affirmatively disclosed that it did not sell the bonds with the coupons attached to the plaintiff, but the bonds passed through the hands of at least two intermediate holders. There was never any direct dealing of any kind between plaintiff and Kountze Brothers, except the fact of the transmittal of coupons to it for payment. This cannot be construed as constituting Kountze Brothers the agent of plaintiff, because the district, in the first instance, had made that bank the place of presentment and payment, so that the mere presentation of the coupons there was only equivalent *Page 397 to presenting them direct to the county treasurer. In all of the cases wherein an exception to the general rule has been recognized, there was something to show an independent relation between the holder of the paper and the alleged agent. Here, the only relation of agency shown is between the district and Kountze Brothers. In such circumstances we are forced to hold that this case does not furnish any basis sufficient to create an exception to the general rule.
It is further contended by defendant that, if plaintiff had[4-6] been diligent in presenting the coupons for payment, it would have suffered no loss, and that its laches in not so doing should be chargeable to it and not to defendant, citing section 8488, Revised Codes 1921. Such contention and the authority cited in support thereof might be very forceful if the paper in question had been checks or bills of exchange, rather than interest coupons. The interest coupons were, in effect, promissory notes. (See sec. 8591, Id., and note; also, Perry v.Norddeutscher Lloyd, 150 Misc. 73, 268 N.Y. Supp. 525, and 9 C.J. 49, and cases cited.) The law is well settled that the maker of such instruments is not discharged from liability through neglect or delay on the part of the holder in making presentment for payment. (See Kalman v. Treasure County, supra; Perry v. Norddeutscher Lloyd, supra; Fidelity Mutual Life Ins. Co. v. Wilkes-Barre H.R. Co., 98 N.J.L. 507, 120 A. 734; Toon v. Wapinitia Irr. Co., 117 Or. 374, 243 P. 554.) It must be remembered that there is a distinction between checks and notes. While the liability of the drawer of a check is secondary, the maker of a note is primarily liable, so far as the necessity of presentment for payment is concerned. (Cashion Gin Co. v.Reisch, 144 Okla. 169, 289 P. 701.) "The person `primarily' liable on an instrument is the person who, by the terms of the instrument, is absolutely required to pay the same. All other parties are `secondarily' liable." (Sec. 8403, Rev. Codes 1921.) "Presentment for payment is not necessary in order to charge the person primarily liable on the instrument." (Sec. 8477, Id.) *Page 398
In accordance with the foregoing statutes which are embodied in the Uniform Negotiable Instruments Law, it has been uniformly held that the holder of a negotiable promissory note does not have to make presentment of the same in order that he may have a right of action against the party primarily liable. (First StateBank of Hilger v. Lang, 55 Mont. 146, 174 P. 597, 9 A.L.R. 1139; Quickenden v. Hulbert, 83 Mont. 501, 272 P. 994;Binghampton Pharmacy v. First National Bank, 131 Tenn. 711,176 S.W. 1038, 2 A.L.R. 1377; Park Gasoline Co. v. Crusius, 10 N.J. Misc. 147, 158 A. 334; Cashion Gin Co. v. Reisch, supra; 8 C.J. 527.)
The interest coupons involved here being in effect negotiable promissory notes, and defendant school district being the party primarily liable thereon, plaintiff is not foreclosed from recovery because it failed to present them to the bank before it became bankrupt. The bank was not the agent of plaintiff. It is obvious that if it can be said to have been the agent of anyone in this transaction, it must, under the authorities to which we have already adverted, be held to have been the agent of defendant.
It has been suggested that by reason of business custom prevailing in such matters, defendant was required to have its money in the New York bank on July 15, 1931, to pay the coupons. There is neither allegation nor proof of such a custom. A particular custom or usage relied on as a basis for recovery or defense must be pleaded. (Lewis v. Aronow, 77 Mont. 348,251 P. 146.) The burden rests upon one asserting custom or usage to prove it. (Dingley v. McDonald, 124 Cal. 682, 57 P. 574;Imperial Valley Long Staple Cotton Growers' Assn. v.Davidson, 58 Cal. App. 551, 209 P. 58. See, also, Reid v.Linder, 77 Mont. 406, 251 P. 157.)
It has also been urged that the defendant school district should not lose because the holder of the coupons was not diligent in their presentation. This position is not tenable in the circumstances of this case. Here it would seem that defendant may have been wanting in diligence, in that it apparently did not avail itself of every opportunity at its command to prevent *Page 399 loss to itself. The facts of this case indicate that the $1,650 may have been a trust fund in the possession of the New York bank, and that timely and appropriate action might have resulted in reclaiming the fund in whole or in part, so that the full loss to defendant would have been averted.
The judgment is reversed and the cause remanded to the district court of Big Horn county, with direction to enter judgment in accordance with the prayer of plaintiff's complaint.
ASSOCIATE JUSTICES MATTHEWS and ANDERSON concur.
MR. CHIEF JUSTICE SANDS, absent on account of illness, takes no part in the foregoing decision.