delivered the opinion of the Court.
Thе County of Cochise, Arizona, on December 22, 1920, drew its check on the Central Bank of Willcox, Arizona, in favor of plaintiff in error, hereafter callеd plaintiff. Plaintiff delivered the check indorsed in blank to the First National Bank of Douglas, Arizona, and that bank credited plaintiff’s account and' passbоok with the amount of the check. The passbook had printed upon its face, “All out of town items credited subject to final payment.” The Douglas Bank indorsed the check, “ Pay to the order of the El Paso Branch, Federal Reserve Bank of Dallas,” which will be referred to as defendant, and forwarded it to that bank for collection.
Defendant forwarded the check, in due time, to. the drawee bank at Willcox. The latter debited the drawer’s аccount with the amount of the check, stamped it “ paid,” later returning it to the drawer, arid transmitted to the defendant, in-lieu of cash, its own check uрon the Central Bank at Phoenix, in an amount- covering this and other items. The last check was dishonored; both the Willcox Bank and the Central Bank of Phoеnix having failed, the First National Bank of Douglas received.no proceeds of the check and charged back the amount of it to the account of plaintiff. ^
Plaintiff brought suit in the District Court for western Texas to recover the amount of the check, on the ground that defendant was negligent in accepting the check of the Willcox Bank in payment instead of cash, especially because it was chargeable with notice that bоth the Will-cox Bank and the Phoenix Bank were then insolvent. -The case was tried without a jury., and resulted in a judgment for defendant,
Both plaintiff and defendant concede that it is the rule of the federal courts that a bank which receives, commercial paper for collection is not only bound tо use due care itself, but is responsible to its customer for a failure to collect, resulting from the negligence or insolvency of any bank to -which it transmits the check for collection,. This is the so-called “ New York rule,” which in effect makes the first bank a guarantor of the solvency and-diligence оf the correspondents which it employs to effect the collection.
Exchange Nat. Bank
v.
Third Nat. Bank,
From this the defendant argues that under the rule applied in the federal courts, the First National Bank of Douglas became liable by its contract, with plaintiff for the negligence of the defendant; hence that there was no privity of contract between plaintiff and defendant, and no basis for a recovery even though defendant was negligent in accepting an exchange, check from the Willcox Bank. See Federal Reserve Bank v. Malloy, supra, 164. *492 This was the view taken by the Circuit Court of Appеals, but the plaintiff objects that.it is not a necessary corollary of the New York, rule applied in Exchange National Bank v. Third Nat. Bank, supra, that one who deposits paper for collection may not proceed against a correspondent selected by the initial bank for that purpose, for negligent failure to make the collection, and that neither Exchange Nat. Bank v. Third Nat. Bank nor Federal Reserve Bank v. Malloy so held. It objects also that in any event the rule is not applicable here because of the stipulation appearing on' the face of the passbook “All out of town items credited subject to final payment.”
It is said that the effect of this language was to relieve the initial bank, the First National Bank of Douglas, from the liability which would otherwise have resulted under the New York rule, and to make it a mere agent to transmit the paper to defendant for collection, and thus to make applicable the Massachusetts rule. See Federal Reserve Bank v. Malloy, supra. In that case, a local statute relieved the bank receiving paper for collection, from any liability except that of due care in selecting a sub-agent for collection and in transmitting the paper to it; and it was held that the owner of the paper might proceed agаinst the sub-agent for negligent failure to collect the paper.
It is not necessary to decide any of these questions here; For when paрer is indorsed without restriction by a depositor, and is at once passed to his credit by the bank, to which he delivers it, he becomes the creditor of the bank; the bank becomes owner of the paper, and in making the collection is not the agent for the depositor.
Burton
v.
United States,
*493
Such was the relation here between the plaintiff and the. Douglas Bank, unless it was altered by the words printed on the pass-book to the effect that out of town items were credited “subject to final payment.” The meaning of this language, as the cashier of the Douglas Bank testified, and as the court below held,, was that- if the check was not paid on presentation, it was to be charged back to plaintiff’s account. The check was paid and the drawer and indorsers discharged. Malloy v.
Federal Reserve Bank,
“ The testimony . . . as to the custom of the bank when a check was not paid, of charging it up against the depositor’s account, did not in the least vary the legal effect of the transaction; it was simply a method pursued by the bank of exacting payment-from the indorser of the check, and nothing more. There was nothing whatever in the evidence showing any agreement or understanding as to the effect of the transaction, between the parties-^ the defendant and the bank — making it other than shch as the law would imply from the . facts already stated.”
While there is not entire uniformity of opinion, the weight of authority supports the view that upon the deposit of paper unrestrictedly indorsed, and" credit of the аmount to the depositor’s account, the bank becomes the owner of the paper, notwithstanding a custom or agreement to charge the paper back to the depositor in the event of dishonor.
Burton
v.
United States, supra;
*494
Brusegaard
v.
Ueland,
Plaintiff Having thus surrendered its rights in the paper, only rights arising out of its contract with the initial- bank remained. If those rights were affected by the act or omission of defendant, they were affected only because that, contract so stipulated. Defendant’s duties arose out of its contract with the initial bank, or out of its relation to that bank as owner of the paper. Hence there was no relationship between plaintiff and defendant ytfiich could be made the basis of recovery for defendant’s want of diligence.
Judgment affirmed.