THE LAW OF BANKS AND BANKING. INTRODUCTION. In the history of the common law the conception of a bailment is much older than the conception of agency or trust. These three things, which are so distinctly differentiated at the present day, have one attribute in common: a confidence is reposed by one man in another to whom he intrusts property or property rights. It is upon that ground that an equitable remedy can be applied to each relation. In a stage of society where the modern law of contract and of trusts was wholly undeveloped, because there was no occasion for it, the remedies given by the law for the enforcement of such obligations were bound to be more or less crude and inadequate. In process of time the courts of equity were to seize upon the idea of a trust, and out of it were to construct a large portion of their jurisdiction. But the common-law courts, while losing their control over trusts, were to retain jurisdiction over those other trust relations which are called bailment and agency. From remote times the notion of a bailment was familiar to the common law. Bracton had copied much of the Roman law upon the subject, and his borrowed learning was long afterwards to form the basis of Lord Holt's celebrated judgment in Coggs v. Bernard. For the relation of bailment the common law from an early period furnished a remedy, just as later it was to furnish a remedy for that other case of trust and confidence which we call agency or procuration. Remote as this fact seems, it has given to the business of banking certain characteristic legal features. The word deposit, misused as it now is in banking, originally expressed the exact legal function of the banker; he was the bailee of money or property delivered to him for safe keeping, to be returned by him at the bailor's request. This is one of the well known species of bailments. But the English law, for reasons that would require too much space to enumerate, gave to the bailor a single remedy in the alternative. He could either recover his property or its value. If the bailee refused to deliver, he could obtain only its value. The law did not undertake to deliver back to him the specific thing. In banking the especial propriety of this remedy appears where the thing bailed was money, for one piece of money was as good as another piece of the same denomination. At the same time the action of debt was originally for so much property, describing it, which the defendant unjustly detained. It is apparent that the direct effect of both these remedies was to transform the bailment or deposit of money with a banker into a debt arising out of the relation of debtor and creditor.! Business convenience, no doubt, did its part toward this result, but the remedy must have greatly assisted in this transformation. But the old idea of a bailment did not entirely disappear. The invention of the action on the case, of which assumpsit was a species, gave to the bailor his action for damages when the bailee refused to return the thing bailed, and those damages were held to include all the damages arising from the breach of the duty to return. The invention of checks adapted itself to the remedies in existence, and hence it is that the depositor to-day has his two remedies: an action of debt, and an action on the case for damages for the banker's breach of duty in not returning the deposit. But the history of the banking relation teaches a valuable lesson to-day. It completely justifies those courts which deny to the holder of the check the right to sue the banker upon the check; for suppose the bailor had delivered to his bailee twenty ho 1 See § 128, post. 2 See § 145, post. and had given some one an order to go and get one of the horses, the common law and common sense would both tell us that the holder of the order was simply the bailor's agent to demand a return, and that the bailor must sue. But this historical development shows another thing, and that is that the duty annexed to the banker's reception of the deposit is, as the courts are bound to recognize, wholly a customary duty, and is therefore a duty arising out of a custom so old that it is law. It is, indeed, a customary duty so old that the mind of man runneth not to the contrary. It is therefore a duty arising out of law, not out of agreement, and is quasi ex contractu. This most difficult subject in the law has lately received an able and long needed examination from those American jurists whose work has done so much for the law and whose labors have reflected so much renown upon our legal scholarship. This customary duty is enforced by the same action on the case that enforces the customary duty of the common carrier, where the duty was laid centuries ago always as founded upon the custom of the realm. This consideration also proves to us how wanting in historical sense are those courts and text-writers who found the check-holder's right to sue upon a customary duty owed by the banker to the check-holder. But in another branch of banking law the idea of bailment has been fruitful of important consequences. It was once well understood that the deposit with a banker of business paper requiring collection was a bailment, to which custom had also annexed certain important duties. By the accident of the remedy furnished by a primitive age the bailor could hold only his bailee, while the bailee was owner of the thing bailed as to the rest of the world. Gradually the idea of the bailor's ownership was to gain ground, and his right of property as against the world became recognized. But side by side with it remained the old conception of the bailee's right to recover the thing bailed against the world. But in this country courts and text-writers have See § 147, post. 4 See § 147, post. become confused, just as the lawyers of the Middle Ages did, between agency, trust and bailment, so that to read the lucubrations of courts upon this question is like going back several hundred years and listening to some Elizabethan Clench or Gawdy ratiocinizing over these superficial resemblances. We have one court saying the deposit for collection creates an agency; we have another court saying the banker becomes a trustee; yet the one court permits the agent to sue as owner, which he could not do if he were an agent, and the other court permits the owner of the collection to sue his banker at law for negligence, which could not be done if he were a trustee. But the English courts by an unbroken tradition, and some of our courts by reflection, have been enabled to see that the right of the banker to sue as owner at law and the right of the owner to sue the banker at law for negligence belongs only to the relation of bailment." This historical development solves easily the question which so unfortunately divides the courts, and proves beyond question that the correspondent banks are the agents of the bailee, the bank to which the paper is intrusted for collection, where the owner does not himself select and treat with the correspondent bank. Astonishing and incredible as it may seem, one court — the Supreme Court of Illinois — at an early period held that a deposit of paper for collection with an express company was a bailment and made the first company responsible for its correspondents; yet the same court is heard later asserting in stentorian tones that the same deposit with a banker creates an agency, when the first bank is not liable for the defaults of its correspondents." This idea of a bailment solves, too, the reasons why the owner of the paper can reclaim the proceeds from a correspondent bank. It shows what is the nature of the title that passes from the bailor to the bailee upon a deposit in a bank of paper which requires collection. Grossly erroneous, therefore, is the holding of those courts which say an absolute title passes upon a deposit for credit of paper to be collected, and 5 See SS 171, 133, post. 6 See note 2, § 186, post. |