This section is from the book "Canadian Banking Practice", by John T. P. Knight.
Question 334. - A chartered bank sent for collection to a private bank in Y. (the only bank in the town) a note for $100 payable at the office of the private bank in Y, which note had been deposited with the chartered bank as collateral security by one of its customers. The note was paid at maturity, and the private bank failed and did not remit for the collection. Who should bear any loss incurred? If the bank, please give reason?
Answer. - Most banks take the precaution of requiring customers who discount, or lodge for collection, bills payable at such points to give a letter, the effect of which is to make the private banker the agent of the customer. In the absence of any letter or agreement of this kind, the private banker would be the agent of the bank, and the bank would, therefore, have to bear the loss.