On June 14, 1887, the German-American Bank purchased from the Great Western Distilling Company of Peoria a draft, of which the following is a copy:
J. B. Greenhut, Sec. and Treas.
-And on the same day transmitted it to the Fidelity Bank in the following letter: [155 U.S. 556, 558] 'Peoria, Ills., June 14th, 1887.
At the time of its transmission it was indorsed:
-This indorsement being made by a rubber stamp, which had been forwarded to the German-American Bank by the Fidelity Bank. At the time the German-American Bank transmitted this draft to the Fidelity Bank it credited cash with the full amount of said draft, and charged the same to the said Fidelity Bank in its ledger account with said bank as a debit against the said Fidelity Bank. Such entries were made in pursuance of the right which the plaintiff claimed to have under its said contract and the custom of bankers, a custom expressly found to exist throughout the United States, to enter, at the time of transmission, sight paper transmitted to the said Fidelity Bank for collection upon its ledger account with the said Fidelity Bank; and were provisional, in that the plaintiff at the time of making said entries intended to exercise the right, which it also claimed to have under its said contract with the said Fidelity Bank and the like custom of bankers, to cancel each of said entries by a counter entry in case the draft was not paid. The making of such entries was not communicated to the Fidelity Bank. The draft was also before its said transmission to the Fidelity Bank entered on the remittance register of the German-American Bank as remitted to the Fidelity Bank.
The German-American Bank never at any time drew drafts [155 U.S. 556, 559] upon the Fidelity Bank against collections transmitted to it until it had received from the latter notice of payment thereof. Upon the receipt of this draft, on June 15, 1887, no entry representing it was made by the Fidelity Bank in its general ledger account with the German-American Bank, but only on the collection register. Between the Fidelity Bank and the Old National Bank of Evansville, Ind. (hereinafter called the Old National Bank), the defendant in the court below, there then existed an arrangement for mutual and reciprocal collection business; and on June 16th the draft was forwarded by the former to the latter bank, with this additional indorsement: 'Pay Old National Bank, Evansville, Ind., cashier, or order, for collection. Please report by this number, 66,923. Fidelity National Bank, Cincinnati, O. Ammi Baldwin, Cashier.' The letter inclosing the draft was in these words:
On June 18th the Old National Bank acknowledged receipt by postal card, as follows:
No entry was made by it at the time on its ledger account with the Fidelity Bank, but only in its collection register. On June 18th the draft was forwarded to the First National Bank of Terre Haute, received by the latter on June 20th, and paid to [155 U.S. 556, 560] it by the Terre Haute Distilling Company on the afternoon of that day between 2 and 3 o'clock. On the same afternoon a letter was written by the First National Bank to the Old National Bank, advising the latter of the payment of the draft, and that its amount had been credited to the account of the latter, which letter was posted at about 4 o'clock of the same afternoon. The letter was received by the Old National Bank at or about 8 o'clock on the morning of June 21st. During the month of June, 1887, the banking hours of these banks were from 9 o'clock in the forenoon continuously until 3 o'clock in the afternoon, and, the letter having been received before banking hours of the 21st, the amount of the draft was, in accordance with its general practice, entered by the Old National Bank in its account with the Fidelity Bank as a credit to the latter as of June 20, 1887.
On June 21, 1887, the Old National Bank wrote and mailed to the Fidelity Bank a letter, notifying the latter of the payment of the draft and the entry to its credit. This letter was received by the persons in charge of the Fidelity Bank on June 22d.
Alpheus H. Snow and John M. Butler, for plaintiff in error.
Chas. W. Smith, J. W. Warrington, and J. S. Duncan, for defendant in error.
Mr. Justice BREWER, after stating the facts in the foregoing language, delivered the opinion of the court.
The Fidelity Bank did not purchase this draft from the plaintiff, and, although it acquired the mere legal title, never became its equitable owner. It received it as an agent, and the indorsement, 'For collection, for German-American National Bank of Peoria, Illinois,' was notice to it and every subsequent holder that it was forwarded simply for collection. Neither by the express terms of the contract between the plaintiff and the Fidelity Bank, nor by the course of business between them, nor by the custom of bankers, did the receipt of the draft by the Fidelity make it a debtor for the amount thereof; neither would it become such debtor until after collection and possession of the proceeds of the draft, either actually or by settlement of accounts between the parties. Sweeny v. Easter, 1 Wall. 166; White v. Bank, 102 U.S. 658 ; Bank v. Armstrong, 148 U.S. 50 , 13 Sup. Ct. 533.
The draft was collected and the proceeds thereof received by the defendant. While it was at first collected by the First National Bank of Terre Haute, yet it was by that bank credited to the defendant, notice of the credit given, and the amount settled between the two banks in the adjustment of their accounts.
The case, therefore, is presented of a receipt of the proceeds of the draft by the defendant, a subagent or agent of the collector, and the nonreceipt of the proceeds by the plaintiff, [155 U.S. 556, 563] the owner, and the question is whether the former has discharged itself of liability for the moneys which its has thus received.
The contention of the defendant is that it paid the moneys which it received to the party from which it received the draft, to wit, the Fidelity Bank, which was the agent of the owner. It is not pretended that it ever forwarded to the Fidelity Bank the cash therefor, but the claim is that it credited such amount on the account of the Fidelity Bank, the Fidelity being at the time indebted to it, and that this is equivalent to an actual payment of money. The difficulty with this contention is that, at the time this credit was entered by the defendant, the Fidelity was not in a condition to receive credit or make any settlement; it was insolvent, and in the custody of the officers of the law. The defendant received no notice of the collection by the Terre Haute bank, made no entry on its books, took no other action looking to a settlement with the Fidelity until the morning of the 21st, and it is found not only that the Fidelity had been insolvent for 10 days theretofore, but that on the 20th the bank examiner had taken possession,-a possession which he maintained until the appointment of the receiver, Armstrong. At the time this examiner took possession the business of the bank stopped and the authority of the directors and officers ceased. They could not thereafter make any settlement with the defendant to the prejudice of the rights of third parties. If on the morning of the 21st the defendant had brought to the Fidelity Bank in cash the amount which it had collected on this draft, and tendered it to the officers of the Fidelity Bank in payment of a balance due to such bank, the latter could not have lawfully received that cash for such purpose, so as to relieve the defendant from its liability to the plaintiff. And, a fortiori, if it could not accomplish this by an actual tender of the money, it cannot by a mere entry on its own books. The only way in which the defendant could, after receiving the amount of this check, discharge itself from liability to the plaintiff was by a payment to the Fidelity Bank, its indorser, at a time when the Fidelity Bank was authorized [155 U.S. 556, 564] to receive it for the plaintiff, and the authority to so reveive it terminated when it stopped business.
There is nothing in the case of Bank v. Armstrong, 148 U.S. 50 , 13 Sup. Ct. 533, which conflicts with this. On the contrary, it was said in that opinion, in reference to a transaction similar to the one before us: 'The plaintiff, then, as principal, could unquestionably have controlled the paper at any time before its payment, and this control extended to such time as the money was received by its agent, the Fidelity.'
Language found later in the opinion, upon which the defendant relies, must be understood in relation to the particular facts of that case. Certain drafts had been received by the Fidelity Bank, and forwarded for collection to other banks, and by the latter collected. Of these collections some had been made by banks indebted to the Fidelity, and others by banks to whom the Fidelity was indebted, and the amount of such collections credited on their accounts with the Fidelity. The former were paid by such banks to Armstrong, the receiver of the Fidelity, and after its failure. The suit was one brought by the original owner of these drafts against the receiver, to charge the funds in his hands with a trust in respect to all these collections, and it was adjudged that he was such trustee as to the former, and not as to the latter,-the former, because the collection had not been completed by the Fidelity before its failure, and therefor the amounts thereof subsequently received by the receiver were received for the benefit of the original holder; while, as to the latter, the collection by the Fidelity was complete, and the original holder stood simply as a general creditor of the Fidelity for such amounts. There was in respect to these latter collections no question as to the precise time at which the transaction between the Fidelity and the collecting banks was completed, and no suggestion that an entry on the books of the Fidelity, or some other act indicating its assent to the action of the collecting banks in crediting the amount, was necessary to complete the settlement. On the contrary, it was assumed that the settlement between [155 U.S. 556, 565] the Fidelity and its agents was complete at the time of the failure.
It is unnecessary, in this case, to consider what would be the rights of the parties if a settlement between the defendant and the Fidelity Bank had been consummated while the latter was actually engaged in business, although in fact insolvent; for, as stated, no action was taken by the defendant until after the Fidelity had stopped business, and was in possession of the officers of the law. The mere fact that news of the condition of the Fidelity had not reached the defendant at the time it made this entry is immaterial. The condition of insolvency was 'disclosed' because it was known to the officers of the law, and action had been taken by them in consequence thereof, and that is all that is necessary. We think the conclusions of the circuit court were correct, and its judgment is affirmed.