In the case of the First National Bank of Fort Worth, Texas, v. Payne, 42 S. W. Rep. 736, the court holds that where a note has been assigned to a bank for collection only, the bank cannot recover upon it.

It is generally understood that a mere deposit of a collection to a bank by the owner, does not pass the title or make the bank the purchaser of the paper.

The general rule as laid down by the Supreme Court in the State of Georgia is, that "where a promissory note was indorsed by the payee to another for collection" for the account of the payee, the indorsee had such a legal title as would authorize him to bring suit upon the paper in his own name.11 In the State of Iowa, in the case of Merchants National Bank v. McNulty, 36 Iowa, 229, the court says:

"If the note was obtained without consideration as alleged, the payees could not recover thereon. The indorsee, Burton, and the subsequent holder, Hill, constitute the firm of Burton, Hill & Company, the payees, and hence held the note subject to the same defenses which might have been interposed against it in the hands of the payees. The plaintiff, if not a bona fide purchaser stands in no better position."

It is generally understood between the parties that a mere deposit "for collection" does not make the bank the purchaser of the paper or relieve the depositor where credit has been given.

There has been considerable contention and litigation upon this subject, but the weight of authorities supports the theory that it is a gratuitous favor and is not a banking custom.

In Georgia, a negotiable instrument deposited in a bank indorsed "for collection" remains the property of the depositor, which supports the bailment theory, and the same rule holds when the written indorsement appears unrestricted, but as a matter of fact evidence by express collateral agreement or understanding may be reasonably inferred from the course of dealing between the parties, the instrument is taken by the bank not as a purchase but for collection simply.

Where the bank gives the depositor credit for the amount of a negotiable instrument indorsed to it, the giving of credit

11 Wilson et al. v. Tolson, 79 Ga. 137.

is not conclusive evidence that the bank had purchased the paper and was not a mere bailee thereof.

The authorities hold that where a depositor is given credit upon checks, drafts, and negotiable instruments, indorsed to the bank for collection and he is allowed to draw checks against the same, but where such collections as are not paid and are deducted from the next deposit, such a course of dealing stamps the transaction with reference to the title to instruments so indorsed, as being unmistakably a bailment for collection simply and no greater title is vested in the bank.12

If, by the nature of the transaction, the bank becomes responsible to the depositor for the amount of the collection, the title of the paper vests in the bank.

In the case of Gibson v. City of Erie, 196 Pa. St. 7, the owner of municipal bonds who made a special deposit of them with the bank, which bank was the agent of the municipality, it is held, he does not lose his title thereto by reason of the bank collecting and paying over to him the proceeds of the interest coupons, and where the bank failed after using the money deposited with it by the city for the payment of the principal, held, that the owner is not estopped from recovery against the municipality.

§ 266. Form of indorsement controls title to collections.

If the owner of paper desires to retain the title to the collection, he should place a restrictive indorsement upon it. Such an indorsement would read "indorsed for collection." This kind of an indorsement destroys the negotiability of the paper.

The Supreme Court of the United States, in the case of The Commercial Bank of Pennsylvania v. Armstrong, 148 U. S. 50, says:

"The words for collection' evidently had a meaning. That meaning was intended to limit the effect which would have been given to the indorsement without them and warned the party that contrary to the purpose of a general or blank indorsement, this was not intended to transfer the ownership of the note or its proceeds."

And in White v. National Bank, 102 U. S. 658-661, where

12 Armour Packing Co. r. Davis, Receiver, 118 N. C. 548; National

Butchers & Drovers' Bank v. Hubbell, 117 N. Y. 384.

the indorsement was "for account," the same justice, speaking of the indorsement, said:

"It does not purport to transfer the title of the paper or the ownership of the money when received. The plaintiff then, as principal, could have control of the paper at any time before its payment, and this control extended to such time as the money was received by its agent."

The court here cites: 117 N. Y. 384; 148 Mass. 553; 151 Mass. 413; 14 S. W. Rep. 411; 76 Ind. 561.

Where the paper is controlled by such a restrictive indorsement, the courts emphatically hold that it does not transfer the title of the paper or the ownership of the money when received.

Sustaining the doctrine that a collection made by a bank upon paper indorsed to it by restrictive indorsement cannot place the money so collected in the general funds of the bank, but must retain the same as previously stated as a special deposit or collection for the benefit of the owner.'

13

Where a negotiable instrument, then, is indorsed to a bank for collection and a restrictive indorsement is placed upon the paper, the bank does not become the owner of the paper, but receives the same for the purpose of collection only.

Where an instrument in the following language:

"Pay S. V. White or order, for account Miner's National Bank, Georgetown, Colorado.

"J. L. BROWNELL, President."

Which directs that the proceeds when collected shall be paid to a certain person, does not pass the title.

The Supreme Court of the United States, in the case of White v. National Bank, 102 U. S. 658, says:

"The language of the indorsement is without ambiguity and needs no explanation either by parole proof or by resort to usage. The plain meaning of it is, that the acceptor of the draft is to pay to the indorsee for the use of the indorser. The indorsee is to receive it on account of the indorser. It does not purport to transfer the title of the paper or the ownership of the money when received."

The Appellate Court of the State of Illinois, in the case of

13 Evansville Bank v. German American Bank, 155 U. S. 556.

Fawsett v. National Life Ins. Co. of U. S., 5 Ill. App. 272, where an instrument indorsed:

"Pay to the Second National Bank of Monmouth, for collection, for account of George F. Harding, executor of Abner C. Harding, deceased.

A. F. FAWSETT.”

Held, that where a note is indorsed in a form showing an intention to pass all interest in the note, such indorsement imports a consideration, and wherever that is the case, the property in the instrument will be deemed to have passed absolutely to the assignee.

§ 267. Blank indorsement.

It may be stated that the general rule is that a blank indorsement by the payee or holder of a negotiable instrument carries the title to the bank.

The rule in New York and most of the States is, that where a customer doing business with a bank and having a general account therein, deposits a check, indorsing the same in blank and receives credit on his pass-book, the title to the check so indorsed passes to the bank. However, where the customer understands and has notice of the fact that the paper was indorsed and delivered to the bank for collection only, the title will remain in the depositor.14

§ 268. Power to collect may be revoked.

The owner of the paper at any time before the bank takes action, may revoke the authority of the bank from proceeding in the collection.

This is upon the analogy that the bank is acting as an agent. If the bank persists in the collection, it may be restrained by an order of the court.

The power to revoke the collection cannot be enforced, however, if the bank has acquired a lien upon it. The lien gives the bank an interest in the property, and if the collection has matured it is the duty of the bank to collect.

If the bank becomes insolvent, its power to collect is revoked.

14 Metropolitan Nat. Bank v. Loyd, 90 N. Y. 530; Brooks v. Bige

low, 142 Mass. 6: Bank of Republic v. Millard, 10 Wall. (U. S.) 152.

But where a bank has brought suit and has entered upon the process of collecting, its authority cannot be revoked unless it is shown that it obtained authority unlawfully.

It is claimed that the authority of the bank may be revoked after it has entered on the process of collection if it fails to take the steps necessary to recover the collection.15

§ 269. Bank lien upon collections.

The Supreme Court of the State of Michigan, in the case of Gibbins v. Hecox, reported in 63 N. W. 519, lays down the general rule to be that a bank has a lien on all money, notes and funds of a customer in its possession for any indebtedness of a customer to the bank which is due and unpaid. The court says:

"The reason given for allowing the lien is, that any credit which a bank gives by discounting notes or allowing an overdraft to be made, is given on the faith that money or securities will come into the possession of the bank in the due course of future transactions."

The court, in its opinion, cites the case In re Farnsworth, 5 Biss. 223, Fed. Cas. No. 4673, stating:

"Judge Blodgett of the United States Circuit Court of Illinois held that, a bank holding a customer's demand note has a lien upon the proceeds of drafts delivered to it, for collection after the giving of the note, though collected after the filing of petition in bankruptcy and can apply such proceeds upon the note."

The court then cites from the case of Muench v. Bank, 11 Mo. App. 144, which court says:

"The general lien of bankers is part of the law merchant. That bankers have a lien on all money and funds of a depositor in their possession for the balance of the general account is undisputed. A banker's lien does not arise on securities deposited with him for a special purpose, otherwise we have no doubt that when a discount has been made by the bank, and the note has matured, so as to create an indebtedness from the depositor of the bank, all funds of the depositor which the bank has at the date of the maturity of the discounted note, or which it afterward acquires in the course of business with 15 Bank of Mobile v. Huggins, 3 Ala. 206.