Opinion
January 30, 1935.
March 25, 1935.
Banks and banking — Collection of commercial paper — Duty to drawee to demand cash — Acceptance of check — Presentation next day after receipt — Check as conditional payment.
1. A collecting bank is not liable to the drawee of a draft for loss caused by failure of such bank to demand payment in cash upon presentation of the draft to another bank which had agreed to honor the draft on behalf of the drawee. [102-3]
2. Where the collecting bank accepts a check from the bank honoring the draft, the only duty of the collecting bank to the drawee of the draft is to exercise due diligence to realize upon the check in order to avoid any loss which might be caused by the subsequent insolvency of the drawer of the check, and such duty is discharged by presentation of the check to its drawee for payment on the day after its receipt. [103]
3. Where the collecting bank is not negligent in presenting for payment the check so received, it is not prejudiced by the intervening insolvency of the drawer of the check, and upon dishonor of the check the collecting bank is entitled to receive payment from the drawee of the original draft to cover the latter's undischarged obligation upon the draft. [103]
4. In the absence of circumstances indicating a contrary intention, a cashier's check accepted from a debtor is not an absolute but merely a conditional payment, defeasible upon nonpayment or dishonor. [103]
Argued January 30, 1935.
Before FRAZER, C. J., KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.
Appeal, No. 384, Jan. T., 1934, by plaintiff, from order of C. P. No. 5, Phila. Co., March T., 1930, No. 2994, in case of The S. A. Gerrard Company of Philadelphia v. Tradesmen's National Bank and Trust Company. Judgment affirmed.
Assumpsit. Before LAMBERTON, J.
The opinion of the Supreme Court states the facts.
Verdict directed for defendant and judgment entered thereon. Plaintiff appealed.
Error assigned, among others, was refusal of judgment n. o. v., quoting record.
Edmund J. Bodziak, with him E. Ewing Montgomery, of Reber, Granger Montgomery, for appellant.
Richardson Dilworth, of Evans, Bayard Frick, for appellee, was not heard.
Plaintiff sued in assumpsit to recover the sum of $4,000, with interest, from defendant. The learned trial judge directed a verdict for defendant, and from the overruling of plaintiff's motion for judgment n. o. v. plaintiff appeals.
In connection with the receipt of produce from a California concern, plaintiff, a distributor of fruits and vegetables, with its principal place of business in the City of Philadelphia, was required to obtain a line of credit with the U.S. Bank and Trust Company of Philadelphia, whereby the latter agreed to honor the shipper's drafts on plaintiff. Pursuant to the arrangement, produce was forwarded to Philadelphia and simultaneously therewith the shipper drew four drafts on plaintiff, each in the amount of $1,000, payable to the order of a local California bank. These drafts, together with invoices and diversion orders, were forwarded by the California bank to defendant, its Philadelphia correspondent, for collection. Immediately upon receipt of the drafts, defendant presented them for payment to the U.S. Bank and Trust Company, receiving in return the latter's check in the sum of $4,000, drawn on The Pennsylvania Company for Insurances on Lives and Granting Annuities of Philadelphia. At the time this transaction took place the U.S. Bank and Trust Company required and received plaintiff's check for $4,000, drawn on plaintiff's account in that bank. Defendant presented the U.S. Bank and Trust Company's check to the Pennsylvania Company on the morning of the next day, payment being refused due to the closing of the drawer bank. On the same day, defendant sent its runner to plaintiff's place of business to procure a check for $4,000, in return for which plaintiff was given the dishonored check of the U.S. Bank and Trust Company. Plaintiff's check was immediately cashed and remittance made forthwith to the California bank.
The foregoing transactions all took place during December, 1929. The provisions of the Bank Collection Act of June 12, 1931, P. L. 568, are, accordingly, not controlling.
Plaintiff's chief contention is that defendant's acceptance of the U.S. Bank and Trust Company's check in lieu of cash, followed by its failure to present the draft on the same day it was received, amounted to payment and had the effect of discharging plaintiff from further liability on the four drafts. We are referred to numerous cases presenting the question of the liability of a collecting bank to its correspondent for loss caused by failure to demand cash upon presentation of commercial paper. These cases are obviously not in point. Defendant was acting as collecting agent for its California principal and as such was subject to liability for negligence in collection; but to the drawee from whom payment was being received there was no obligation to demand cash. See Cohen v. Tradesmen's Nat. Bank, 262 Pa. 76; 4 A.L.R. 518; 55 A.L.R. 1168. Having accepted the check, defendant's only duty to plaintiff was to exercise due diligence to realize upon it in order to avoid any loss which might be caused by the subsequent insolvency of the drawer. Defendant presented the check to the drawee the day following its receipt. That a collecting bank discharges any obligation it may owe to the drawer by presenting it for payment on the day after its receipt is well established: Integrity Trust Co. v. Lehigh Ave. B. L. Assn., 273 Pa. 46, and cases therein cited.
Furthermore, in the absence of circumstances indicating a contrary intention, a cashier's check accepted from a debtor is not an absolute but merely a conditional payment, defeasible upon nonpayment or dishonor: Cannonsburg Iron Co. v. Union Nat. Bank of Pittsburgh, 3 Sadler 46; Briggs v. Holmes, 118 Pa. 283, s. c. 131 Pa. 233; Morse, Banks and Banking (6th ed.), sections 543-4. Since defendant was not negligent in presenting the check for payment, it was not prejudiced by the drawer's intervening insolvency, and upon dishonor, defendant was entitled to receive plaintiff's check to cover the latter's undischarged obligation upon the original drafts: Briggs v. Holmes, supra.
This disposition of the case renders unnecessary discussion of the other questions raised by counsel.
The assignments of error are all overruled and the judgment is affirmed; costs to be paid by appellants.