virtue either of an express or an implied understanding, he did contract with a member "in reference to" such usages, he may hold the bank to the fulfilment of this special contract.

If any person or bank employs a member of the association to transact any business, such employer is neither bound by the rules, nor entitled to take advantage of and enforce them as against other members, by reason of the fact that the agent is a member. The fact of the agency does not "bring the case within the operation of the rule, that the principal is entitled to the benefit of the contract of the agent, while transacting the business of the principal. This is undoubtedly true as to all the legal rights acquired by the agent for the benefit of the principal; but" the clearing-house rules are "a mere laborsaving usage, designed for the exclusive benefit of the agent, the adoption of which could not affect the principal without his assent."

The foregoing principles were laid down in a very satisfactory opinion delivered by the Chief Justice of the Supreme Court of New Jersey; and the facts of the case in support and explanation of which they were enunciated, are well worth a brief recital. The plaintiff deposited in the Bank of Commerce in New York city, a check drawn on the defendant bank, which was situated in New Jersey. The defendant, of course, was not itself a member of the New York clearing house; but it had as its agent in New York city the Ocean Bank, and it was wont to receive and pay checks drawn upon it through that bank. That bank was a member of the clearing house, and used its facilities in transacting the business of the defendant bank. The check in question came from the Bank of Commerce through the clearing house to the Ocean Bank. The rules of the clearing house required that any check which was not to be honored must be returned before ten o'clock A.M. of the day following that on which it was received through clearing; otherwise the bank on which it was drawn would be held.

1 Overman v. Hoboken City Bank, 1 Vroom, 61; 2 id. 563.

to pay it. If, therefore, this check had been drawn directly on the Ocean Bank, that bank must either have returned it before ten o'clock of the next day, or it must, according to the rules, have paid it. It was returned a whole day later than this limit with the statement that it could not be paid since the defendant had no funds of the drawer's. The plaintiff, who had lost the amount of the check by the intermediate failure of the drawer, sought to hold the defendant on the ground that since its agent was a member of the clearing house, and was uniformly wont to adhere to its rules and use its facilities in transacting the defendant's business, therefore the defendant was itself answerable for the agent's breach of such rules, and was itself liable to suffer for such breach according to the terms prescribed by those rules. Besides laying down the doctrines stated in the three preceding paragraphs which directly militated against any recovery by the plaintiff, the court further criticised the very sufficiency of the rule or usage which he set up, even if it could be applicable at all to the defendant bank, to cover the circumstances of this case. For the usage appeared to be that where a check is presented at the clearing house" to a bank against which the said check was drawn" then it must be returned within the prescribed time, or paid by such bank. But the proof in this case showed a presentation not "to the bank against which the check was drawn" but to an agent. "This is an essential difference. For such a purpose the agent does not represent the principal. The usage, if contemplating a presentation to the principal may be reasonable, and very unreasonable if extending to the agent. The plaintiff has failed to bring his case within the usage." The soundness of these remarks will be seen at once if we suppose the employing bank, the defendant in this case, instead of being close at hand in New Jersey, to have been situated in Boston or Chicago or Philadelphia. The New York agent cannot possibly know the state of the accounts of the depositors in its principal's books. It cannot properly agree or refuse to pay checks drawn upon

it, and some days must be consumed in the intercommunication, meantime the twenty-four hour rule, which appears to be arbitrary, would have concluded the distant bank from refusing to pay the check long before that bank was aware that such a check had been drawn. The practical reductio ad absurdum is obvious.

A case has very lately been decided in Massachusetts1 which arose between two banks, both members of the clearing house. The rule on which it was based was embodied in a formal vote or article of the association; in the words following, to wit: "Whenever checks are sent through the clearing house, which are not good, they shall be returned by the banks receiving the same to the banks from which they were received, as soon as it shall be found that said checks are not good, and in no case shall they be returned after one o'clock." The plaintiff bank returned the check, as dishonored, to the defendant bank, which had presented it at clearing; but the messenger carrying the check did not arrive at the rooms of the defendant bank until five or seven minutes after one o'clock. The defendant bank, on the ground that the return was made too late, under the rule, refused to take back the check or to refund its amount. It did not appear, however, that the position or relations of the defendant bank to the drawer had undergone any change in the few minutes that had elapsed since one o'clock. It would have been no worse off if it had consented to receive back the check at five minutes after one than it would have been had it been obliged under the rule to receive it back at five minutes before one. The court took the view that the articles of association were in the nature of a contract between the members. If the plaintiff had not kept the check so long that it would at common law be held to have adopted it and assumed to pay it, the power to refuse to pay it, and to return it, still existed, and could be affected by the rule of the Clearing

1 Merchants' National Bank v. Eagle National Bank, Massachusetts, 101 Mass. (not yet printed).

House Association only so far as it should appear that the defendant bank had suffered actual injury by reason of the delay. To the extent of such actual injury it seems that the defendant bank might be entitled to a set-off against the sum due from it on the check. Or it might pay the check, and then sue for damages for the injury caused to it by the failure of the returning bank to observe the terms of the agreement between them, and to return before one o'clock.

Had the rule or agreement gone further and declared positively and in terms, as was the fact in the case previously discussed, that if the returning bank did not return before the hour named, it should altogether forfeit the right to return at all and should be held to pay the amount of the check, the entirely different terms of the contract would have raised an entirely different issue. That an usage, or even a by-law, to this effect would be regarded as in derogation of the common law, in that it would undertake to make a bank pay the check of a drawer who had no funds to his credit; and that therefore the plaintiff would be held to make out his case with great strictness, may be gathered from the language of the New Jersey case, above cited. But from the same case it may be gathered that if the plaintiff should succeed in sufficiently proving his case the court would not deprive him of a favorable decision. Certainly there would seem to be no ground on which the courts could reasonably undertake to annul a positive and definite agreement voluntarily entered into between parties of high intelligence, and believed to work to the common advantage of all concerned.

An usage among the banks in the clearing house at London to return checks at any time before five o'clock P.M., even if they have been cancelled for payment in the usual manner by drawing a line through the drawer's signature, provided the ⚫ words "cancelled by mistake" are noted upon them, has been recognized by the English courts as good and binding.1

1 Fernandez v. Glynn, 1 Camp. 426, n.

The payment of checks may be affected by the use of the clearing house in one important particular. Checks, as has been seen, must be paid in the order of presentment. But when the deputy of the bank takes from its drawer in the clearing house all the checks which it has to pay, he may receive a considerable number of checks of the same depositor. It is clear that there can be no priority among these. They are all received at precisely the same moment. For the order in which they are placed in the drawer has nothing to do with the presentment of them to, or receipt of them by, the bank, indeed is really in nearly all cases unknown to the bank. The bank cannot look at their dates, for priority of presentment not of date secures priority of payment. So if the bank cannot pay all the checks of any individual depositor then coming through clearing, it must pay none of them. It has no legal power or right to select or choose from among them certain ones. which it will honor, or certain ones which it will dishonor. All or none must be paid. Any other course would render the bank liable to the holders of the dishonored paper. A check presented at the counter for payment must be paid at once if there are funds enough to the drawer's credit to pay it alone; but if it is sent through clearing it must take its chance, that his funds shall be sufficient to pay not only it but all his other checks which shall be sent through clearing on the same day; and failing this it must be dishonored.

That the system of presentment through the clearing house is a legal presentment for payment to the bank on which the check is drawn - a matter which it would seem could never be doubted has been specifically ruled in England.1

1 Reynolds v. Chettle, 2 Camp. 596.