3. Depositor's Ownership

But there is a line in collecting checks simply for collection beyond which the depositor's control of them ceases. So long as the process of collection is incomplete, the bank is the agent of the depositor, and he as principal can direct the bank's operations. And if a check has been sent to another bank, but before the collection has been completed the first bank fails and the money is collected afterward, the first bank still acts as an agent, and the principal is entitled to the money. On the other hand, when a collection is completed before the failure of "the collecting bank, and the money is credited to the depositor, the agency or trust relation has thereby been changed into the ordinary relation of debtor and creditor, and the depositor can fare no better than other creditors.

4. Indorsing In Blank

Very often a check is indorsed in blank, in other words is indorsed in such a way as to give the bank complete control over it. This may be done for several reasons. The depositor may wish to draw against it at once or before the collection can be completed. The bank would hardly suffer him to do this if it did not have full control of the check and the proceeds as soon as they were collected. That would be poor banking surely to permit a man to draw out money and yet retain control of his deposits. No bank would or ought to permit this, unless some peculiar reasons existed to justify its departure from the obvious rule of safety. When, therefore, the checks deposited by a customer are indorsed in blank, or payable to the order of the bank, it becomes the owner of them; and the debtor and creditor relation at once arises with respect to them, and when the money is collected, the bank is responsible therefor, like any other debtor. On the other hand, as the money belongs to the bank, it can be diverted, and while the bank would be legally liable to the depositor for the amount, if the bank failed he might not be able to recover it. Thus, suppose the First National Bank of Boston kept a collection account with St. Claire National Bank of St. Claire, Wisconsin. Suppose the Boston bank sends for collection a check thus indorsed in blank which is collected by the St. Claire bank and the amount is applied to settle a balance that may be due from the Boston bank. Suppose the Boston bank should fail, would the depositor of that check have any claim against the St. Claire bank? None whatever, if the check has been collected. The blank indorsement was notice to the latter bank that the depositor had transferred the check to the other, and it was justified in treating it as the owner. But if the check had not been thus indorsed, the depositor could instantly demand it, or the money if it had been collected and not so mingled with other money as to lose its identity.1

5. Indorsing For Collection

Another important con sequence of indorsing checks "for collection" is, the Endorsers do not incur any responsibility. Such an indorsement is for collection and nothing more. If such a check has been raised or increased in amount before its deposit for collection and it has passed through successive collectors, similarly indorsed, the payee bank can not collect the money of them on the discovery of the alteration if they have paid it over. As these indorsements have such a limited meaning, they have become distasteful to indorsees, and their use is rapidly passing away, and indorsers are returning to the former practice which carries responsibility. In the new Negotiable Instruments law that has been enacted by several States and doubtless will soon be by all, it is declared that every person negotiating an instrument by delivery or by a qualified indorsement warrants: -

1 See pages 131-135

1. That the instrument is genuine and in all respects what it purports to be.

2. That he has a good title thereto.

3. That all prior parties had capacity to contract.

4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.