This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 220.— A current account customer brings in a note for collection, made payable at a private banker's office in a place where there is no chartered bank. He is told that the collection will only be forwarded to the private banker's at his own risk, and the following notice had been placed in his pass-book when his account was opened, viz.:
All bills, notes and other securities left with the bank for collection will be collected at the risk and cost of the parties leaving them, the bank only holding itself responsible for the amount actually received by it, and not for any omission, informality or mistake occurring in collecting them. When the note matures a partial payment is stated to have been made on the note to the private banker who fails to remit the money, and also fails financially, suspending payment the day after the payment was made.
(1) Can the customer bring suit against the bank and recover the amount paid on the note, but not remitted by the private banker?
(2) Would not the customer have a chance to recover the amount from the maker of the note ? In making the note payable at this private banker's office, did he by so doing appoint him the collecting agent?
The note was returned to the customer, and of course no charge was made by the bank.
Answer.— (1) If the understanding with the customer was clearly that stated, then he must be taken to have authorized the employment of the private banker as his agent to make the collection, and must bear any loss that may result therefrom. On proof of the conditions upon which the collection was received the customer's suit against the bank must fail.
(2) The customer has no remedy against the maker of the note. Having authorized the employment of the private banker to collect the note, anything paid the latter by the maker is in effect payment to the customer.
The fact that the note was made payable at the private banker's office is immaterial. The liability is placed upon the customer by the parole agreement, etc., at the time the note was handed in.
We might add that the law is quite clear that where a bank selects a collecting agent of its own accord, without asking the customer for instructions, or putting on him the risks involved, it is responsible for the agent's acts.
Where a customer discounts with a bank bills which can only be collected by sending them to a private banker, it might seem reasonable that, as the sending of them to such agent is a course forced upon the bank by its customer's manner of doing business, he should be responsible, but the law is clearly otherwise, and most banks, we think, now take the precaution of requiring customers who discount or lodge for collection bills payable at such points, to give a letter of indemnity on the lines suggested by the notice clipped from the pass-book.