022 Leonardi v.

Chase National Bank

N.Y.S.2d 706 (March 23, 1942)
Hagarty, J. / Tita K
Subject Matter: Transfer
Summary:
Plaintiffs deposited a check with Florida Bank. Since the drawee is in NY, Florida Bank forwarded it to Chase Bank (also in NY) for
collection. It was accepted, and the amount was credited by Chase Bank to Florida Bank. Florida Bank, which had outstanding debts
owed to Chase Bank, became insolvent. Due to this, Chase Bank set off, on its account with Florida Bank, the latter’s debt and credits
due it, including the amount of the deposit. Because of all this, the Plaintiffs lost their funds in Florida Bank (i.e. they can no longer
withdraw money from the insolvent bank). They sued Chase Bank. WON at the time Chase Bank set off the credit, a relationship of
debtor and creditor existed between the Chase Bank and plaintiffs with respect to the amount of the check. (NO) The Court cleared
Chase Bank of any liability, in effect saying that it is Florida Bank that Plaintiffs must sue.

Doctrines:
Pursuant to the indorsement, the check was deposited for collection and credit. When final payment was made by collection, the
depositor became a creditor.

The agency of Chase Bank and Florida Bank was terminated. The relationship of debtor and creditor between Plaintiffs and
Florida Bank ensued as of June 9.

Parties:
Petitioner Leonardi
Respondent Chase National Bank
Facts:
Drawee: Bank of Manhattan Trust Company (Manhattan Trust)
Payees/Holders: John and Florence Leonardi (Plaintiffs)
Depositary/Collecting Agent: Bank of Bay Biscayne (Florida Bank)
NY Correspondent of Florida Bank/Collecting Subagent: Chase National Bank of NY (Chase Bank; Defendant)
A check for USD 3,750 was made to the order of plaintiffs and drawn on Manhattan Trust.
June 6, 1930 - Florence Leonardi deposited said check with the Florida Bank (with which they had an account) with the
indorsement titled, “For deposit”. This check, together with others, amounting to USD 27,147.68, was mailed by the Florida
Bank to Chase Bank.
June 9, 1930 - The letter was received by Chase Bank at 12:05 A.M. The check cleared through the 8:00 A.M. exchanges to
Manhattan Trust. The amount was credited to the Florida Bank by Chase Bank sometime before 11:00 A.M. Manhattan Trust,
after acceptance, was given the opportunity to dishonor the check by 3:00 P.M. It failed to do so, hence the credit by
Manhattan Trust became final and irrevocable.
June 10, 1930 - After close of business, Florida Bank, being insolvent, failed to transact business and was taken over by the
Comptroller of Florida. (Florida bank was eventually liquidated.) Florida bank owed Chase Bank over USD 1M.
June 11, 1930 - Upon learning of the insolvency, Chase Bank set off as against the indebtedness the credits to Florida Bank in
the sum of USD 257,468.81, including the amount of the Leonardi check.
Arguments:

Petitioner argues that the funds credited to Florida Bank, as represented by the amount of the Leonardi check, was due to the
plaintiffs’ account in said bank and the set off (June 11) made by Chase Bank, without their consent, was tantamount to conversion,
making the latter liable to the plaintiff.

Respondent, on the other hand, contends that while the indrosement made by Florence of the check upon deposit constituted
Florida Bank as collecting agent, and its indorsement to Chase Bank constituted the latter as collecting subagent, this arrangement
was terminated by the time Chase Bank credited the amount to Florida Bank upon the clearance of the check (June 9). Thus, any
arrangement regarding credits between the two banks is extraneous to the transaction of the Leonardis. Chase Bank no longer had
any obligation to the Leonardis and is not liable for their loss.
Issue/s: WON at the time of set-off (June 11), Chase Bank was still acting as the collecting agent and subagent for
Florida Bank and Plaintiffs, respectively. (NO)
Ratio:

NO – Final credit was given by Chase Bank to Florida Bank on June 9, thus releasing the former from its obligations as collecting
subagent.

 The transaction was governed by the Compiled General Laws of Florida to the effect that when a check is deposited in a
bank (Florida Bank) for credit or for collection, it shall be considered due diligence for the bank to forward it without delay,
and such forwarding bank shall only be liable, except in case of want of due diligence, after actual final payment is received
by it.
 The effect of the statute in the present case was to render Chase Bank the subagent of plaintiffs in the collection of the
proceeds of the check until actual final payment.
 While the language of the passbook issued by Florida Bank to Plaintiffs reiterates the effect of the statute i.e the deposit slip
used by Plaintiffs contains the statement that, “All items are credited subject to final payment in cash or solvent credits.”
The clear implication is that a credit provisionally given upon deposit becomes final when the item is collected and final
payment by way of a solvent credit is received by the bank. The method by which such credit was established between
defendant and the bank upon collection of the item is obviously within the scope of the agency.

RE: Constitution of Florida Bank and Chase Bank as collecting agent and subagent respectively (Relevant to Topic):

 Plaintiffs’ indorsement “For deposit” on the check was restrictive and indicated that the forwarding bank (Florida Bank)
was an agent for collection and not owner of the item. When Florida Bank forwarded (in effect indorsed) the check to
Chase Bank, the latter was constituted as collecting subagent. In other words, this case illustrates that the annotation of
“For deposit” or “For collection” upon depositing a check with a bank other than the drawee bank has the same effect –
the indorsement is considered restrictive and the bank becomes a collecting agent for the depositor.
 Pursuant to the indorsement, the check was deposited for collection and credit. When final payment was made by
collection, the depositor became a creditor.

RE: Actual final payment:

 The undisputed proof is that final credit was given Florida Bank by Chase Bank as of the close of the business day of June 9,
in accordance with custom and understanding of banks. Such credit established in favor of Florida Bank was an actual final
payment within the purview of the statute.
 The result was that the agency of Chase Bank and Florida Bank terminated and the relationship of debtor and creditor
between Plaintiffs and Florida Bank ensued as of June 9. In consequence, Chase Bank was entitled to set off the credit as
against the general indebtedness of Florida Bank to it, as of June 11, in accordance with the agreement between them to
that effect.

Judgment, and order granting reargument and on reargument adhering to the determination which granted a motion for a directed
verdict, unanimously affirmed.