wise, in relation to the collection is entered into, the bank is bound to obey instructions.3

§ 262. Paper payable at a specific bank.

Where a note is made payable at a bank and is placed or left there with instructions from the owner to collect and credit him, the bank, after collecting, becomes a debtor to the owner of the collection.

When the bank makes the collection and places the proceeds to the credit of the owner, its duties and responsibilities are ended.

Where an instrument payable at a bank is placed with it by the owner for collection, the bank becomes the agent of the payee and is authorized to receive payment.

If, however, the note is payable at the bank but is not left there for collection, a payment to the bank is not payment of the note. The bank in this case acts as the agent of the payor. The naming of a bank as the place of payment designated in a promissory note does not create an agency and give the bank power to collect the note; but if the bank accepts payment, having no authority to collect, it acts only as agent for the payor, and in receiving the money and canceling the note without authority first received from the payee it becomes liable to the payee in case of loss.*

A bank is not authorized to receive the money for the payee by reason simply of the fact that the note is payable there.5

If a bank accepts money in payment of a note which is made payable at its place of business, it acts as the agent of the payor and the money so received becomes a special deposit, and in case of loss through gross negligence, of a special deposit made in it with the knowledge and acquiescence of its officers and directors, it becomes liable.

In the case of Bank of Montreal v. Ingerson, 105 Iowa, 349, it is held that where a bank had secured its indebtedness to a creditor bank by putting up notes signed by third persons and payable to and at debtor bank, that the debtor bank had no

385; Wingate v. Mechanics' Bank, 10 Pa. St. 107; Power r. First Nat. Bank, 6 Mont. 250,

3 Mechanics' Bank r. East, 4 Rale,

5 Cheney r. Libby, 134 U. S. 68. 6 National Bank v. Graham, 100 U. S. 699.

4 Ward . Smith, 7 Wall. 447.

authority to receive payment for notes in the hands of creditor bank.

Where a bank is named as the place of payment of a promissory note, if the debtor was ready at the time and place named to pay it and the bank refused to accept payment, such readiness is equivalent to a tender and an answer pleading that fact and payment of the money then due into the court, wil! be a bar to the recovery of interest and cost but not to the cause of action.7

§ 263. Law of place governs relation.

It is laid down as a general rule that the law of the place of the performance of a contract for collection governs it. In the case of Kent v. Dawson Bank, Fed. Cas. No. 7714, the court says:

"The place of performance of a contract is generally a controlling consideration by which to determine the lex loci contractus, and where, as here, the contract is both made in North Carolina and was to be performed there, it is clear that the case must be controlled by the law of that State." 8

§ 264. Usage and custom.

A custom is not binding upon the parties affecting collections unless it is general as to place. It must also be certain and uniform. It must be known to both parties. It may be so general that both parties are presumed to know it.

A custom which is contrary to public policy cannot prevail. In the State of California the courts hold that where one gives a draft to a bank to collect, he is held to have an implied knowledge of its usage in making collections so far as such usage does not contravene any rule of law.9

In the case of Jefferson County Sav. Bank v. Commercial Nat. Bank, 39 S. W. 338, the court holds, that in the absence of special directions where a principal selects a bank as his collecting agent, he is bound by a reasonable usage prevailing and established among the banks at the place where the collection is to be made. Knowledge of the usage may not be

7 Hills r. Place, 48 N. Y. 520.

8 St. N. Bank v. S. N. Bank, 128 N. Y. 26.

9 Davis v. First Nat. Bank of Fresno, 118 Cal. 600.

known to the principal but as the law is applied in California he is bound by such usage.

The effect of local usage and the question of reasonableness are so very clearly presented in the opinion of the court, it is cited in full:

Opinion.

"This cause was tried upon a statement of agreed facts. Those essential to its present determination are as follows, towit: The complainant and defendant were corporations engaged in general banking operations — the one in Birmingham, Ala., and the other in Nashville, in this State. They were at the time of the transaction, out of which this controversy arose, and had been for a considerable period antecedent, engaged in a mutual correspondence, as the exigencies of their business. required or suggested. In the course of this correspondence, the complainant bank, as owner and holder, forwarded to the defendant bank for collection, a note for $940, drawn by Loventhal & Son, to the order of and indorsed by J. C. Marks & Co., and also a draft for $1,352, drawn by J. C. Marks & Co., and accepted by Sulzbacker Bros., both due and payable on Saturday, June 20, 1891. At 2 P. M. of the day of its maturity, the maker of the note and the acceptor of the draft tendered in payment thereof, to the teller of the Commercial National, their checks for the respective amounts due thereon, drawn on and properly certified by the Nashville Savings Bank (a banking corporation of good standing in Nashville); and these checks were accepted by this officer of the defendant, and the note and draft, after being stamped " paid," were delivered into the hands of the parties respectively entitled to them. This was done in accordance with a well-established usage or custom of the various banks of Nashville. The checks thus received were carried over to Monday, June 22d, on which day, at the hour of 11 A. M., they were presented to the Nashville Savings Bank for payment, this being the day and the hour, according to the custom and usage of the banks of Nashville, for their presentment. These checks were left with the Nashville Savings Bank for examination, according to another custom or usage of these banks, and at 2 P. M., of June 22d, they were returned unpaid to the defendant bank. At that

hour the Nashville Savings Bank closed its doors, and the Commercial National Bank at once caused the checks to be presented and protested for non-payment. It is agreed that the Jefferson County Savings Bank had no nowledge of any of these local customs or usages of the banks of Nashville, and was ignorant of the methods pursued by the defendant bank in regard to this paper, until informed thereof by subsequent correspondence. Efforts made to collect the amount of these checks out of the drawers having proved abortive, the result is that the draft and note have been wholly lost to their owner. The bill in this cause seeks a decree against the Commercial National Bank covering this loss, upon the ground that it had no right, in the absence of express authority, to receive in payment of this paper anything but money, and that it cannot excuse itself from liability for doing otherwise, by setting up a local custom or usage of which the complainant was wholly ignorant. The Court of Chancery Appeals held to this view, and accordingly entered a decree in favor of complainant for the full amount of the note and draft, with interest added.

"In this decree there was error. The rule which that court invokes as decisive of this case that is, that an agent, in the want of express authority, cannot accept anything in discharge of the principal's debt except money is well settled, and has been frequently announced in such cases as Walker v. Walker, 5 Heisk. 425, but it does not control in a case like the present. A principal who selects a bank as his collecting agent, thus availing himself of the facilities which it holds out, in the absence of special directions, is bound by any reasonable usage prevailing and established among the banks at the place where the collection is made, without regard to his knowledge or want of knowledge of its existence. Sahlien v. Bank, 90 Tenn. 221, 16 S. W. Rep. 373; Howard v. Walker, 92 Tenn. 452, 21 S. W. Rep. 897. This rule regulating the relations of collecting banks to parties who take advantage of the means which they offer in this respect, is founded on sound reason. Every business man knows that in the constantly increasing volume and variety of banking transactions, the larger number of which are settled or disposed of by a simple exchange of credits, methods have been adopted by bankers to economize labor, reduce risks, and simplify dealings with one another,

and with their customers. Some of these methods are of a general character, while others are dictated by local convenience or necessity. That these methods prevail is a fact of such public notoriety that no business man can well affect to be ignorant, and least of all, a banking institution. It is in view of this we have held that, in choosing a bank as a collecting agent, the principal impliedly agrees that the agency may be performed in accordance with such reasonable methods as sanctioned by experience, have ripened into usage, when such usage is not in contravention of a general law, and in this holding we are well supported by authority, as will be seen by reference to the cases already cited. The usages which were observed in the unsuccessful effort to collect the paper in controversy, and which are shown to have been established among the banks of Nashville, we find were reasonable and proper. It follows that the complainant was conclusively affected by them, although actually ignorant of their existence. The decree of the Court of Chancery Appeals is reversed and the bill is dismissed."

Where a customer has for a considerable length of time been dealing with a bank, indorsing to it for collection, checks, drafts, etc., and where such indorsements were general and not restricted, the bank, it has been held, may mingle the funds so collected with the general funds of the bank, and such a usage and custom has been sustained, but where a party not a regular customer of the bank and a stranger to the usage and custom prevailing in the place, indorses to the bank a collection without consideration, the bank has no implied authority or authority by usage and custom, when such collection is made. by it, to place the funds with the general funds of the bank.

The funds should be held by the bank as a collection or a special fund until authorized by the owner to be placed to his credit in the general funds of the bank.10

§ 265. General rule as to title of paper.

The general rule is that the title of paper deposited with a bank for collection does not pass to it, but remains in the depositor.

The general rule, therefore, sustains the bailment theory.

10 Freeman's Bank v. National Tube Works, 151 Mass. 413.