For the errors indicated a new trial must be ordered. The judgment below is accordingly-Reversed.

DEEMER, C. J., WEAVER and PRESTON, JJ., concur.

THE BELLEVUE BANK OF ALLEN KIMBERLY & Co., Appellant, V. THE SECURITY NATIONAL BANK OF SIOUX CITY, IOWA, Appellee.

BANKS AND BANKING: Principal and Agent-When Relation 1 Exists Collection of Note. A bank receiving a note for collection and remittance becomes the agent of the sender to perform such acts.

BANKS AND BANKING: As Collecting Agent-Notes-Checks in 2 Payment-When Payment Effected. The naked act of accepting a check in payment of a note is presumed in law to be on condition that the check is good. If the check is dishonored, no payment is effected.

PRINCIPLE APPLIED: (See application below.)

BANKS AND BANKING: Deposit of Checks-Credit Thereon-Can3 cellation. The naked act of a bank in entering a credit on its books in favor of one depositing the check of a third party is presumed in law to be on condition that the deposited check is good. If the check is dishonored, the credit can be cancelled.

PRINCIPLE APPLIED: (See application below.)

BANKS AND BANKING: Remittances Under Mistake-Fraud-Re4 call-Cancellation-Principal and Agent. A remittance in the form of a draft to the holder of a note by one acting as the collecting agent for such holder, such remittance being made under a mistake of fact, induced by fraud, that said note had really been paid, may be recalled and cancelled even though the holder of the note to whom the remittance was sent was not a party to the said fraud, the said holder parting with nothing and losing nothing by reason of the mistake.

PRINCIPLE APPLIED: The Western Co. of Sioux City and the Michigan Co. of Kalamazoo, Mich., were both going concerns.

April 1st, the Western Co. issued $240,000 of accommodation notes to the Michigan Co., the same being sold at divers places. Plaintiff bought one of these notes, which was payable at defendant's bank August 1st following. Nearly $20,000 of like notes, owned by other parties, fell due at the same time and place. Being accommodation notes, the Michigan Co. assumed to meet them by sending to the Western Co. on July 26-28 four of its own checks (all later dishonored) aggregating $30,000 and drawn on Kalamazoo and New York banks. The Western Co., having a checking account with defendant, deposited these four checks with defendant on the afternoon of July 30th and received credit entry on the books. Defendant forwarded the checks at once for payment, the correspondent being ordered to wire notice of dishonor if any such. In due course, the four checks would be presented August 1st. A few days prior, the defendant received plaintiff's note for collection. Defendant had for collection other notes of the same kind aggregating $20,000. Defendant presented all notes for payment on August 1st and received from the Western Co. a check on itself for the aggregate amount and surrendered them all to the maker. Defendant knew nothing of the nature of the notes, or of the relations existing between the Western Co. and the Michigan Co. It believed the four checks had been or would be honored. On August 1st at 4:30 P. M., it mailed to plaintiff a draft for the amount of its note. Within an hour, a wire said the Kalamazoo checks were dishonored. On the same day, defendant repossessed itself of all the notes, returned the Western Co. check, stopped payment of the draft and wired demand on plaintiff for its return when received. The note was protested and returned. The Western Co. and the Michigan Co. both proved to be insolvent. No indorser or security was released. Plaintiff brought suit on the draft.

Held, (a) the defendant was the mere agent of the plaintiff to collect the note, (b) the agent was justified in taking the check of the Western Co. on condition in law that if the check proved worthless no payment in fact would be effected, (c) the credit on the books to the Western Co. induced by the worthless Michigan Co. checks was also conditional, and (d) defendant had the right, on discovery of the mistake to recall the draft and was not liable thereon.

ESTOPPEL: Election of Remedies. One who, while acting as agent 5 in collecting a note, was misled into the belief that the note was paid by reason of a credit extended to the maker of the note by checks deposited by him with the agent, and who thereupon remitted a draft to the holder of the note for the proceeds of the supposed collection, and who immediately on learning that the

checks were worthless recalled the draft, is not estopped to deny liability on the draft because on the day following he brought suit on the worthless checks and later dismissed the same.

Appeal from Woodbury District Court.-HON. GEORGE JEPSON, Judge.

THURSDAY, FEBRUARY 11, 1915.

ACTION upon a bank draft drawn by the defendant upon its Chicago correspondent in favor of the plaintiff and remitted by mail. The defense is affirmative. It is averred in effect that the draft was issued and mailed by mistake and that immediately after its mailing the defendant wired stoppage of payment to the Chicago correspondent and wired a demand of return to the plaintiff as payee, all of which was done on the same day and before the plaintiff had received the draft or had been otherwise advised of its remittance. The detailed facts pleaded will be set forth in the opinion. There was judgment for the defendant. Plaintiff appeals.-Affirmed.

Shull, Gill, Sammis & Stilwill, and Munger, Robinson and Kindig, for appellant.

Milchrist & Scott, and Carter, Brackney & Carter, for appellee.

EVANS, J.-The plaintiff is a banking partnership of Bellevue, Michigan. The defendant is a banking corporation of Sioux City, Iowa. Two other actors figure prominently in the facts. The Western Implement Company was a partnership engaged in the retail implement and automobile business in Sioux City. Its capital was about $11,000. The Michigan Buggy Company was a manufacturing corporation of Kalamazoo, Michigan, engaged largely in the manufacture of automobiles. The Western Implement Company was a patron of the defendant bank to the extent that it maintained a checking account therein. For convenience in the discussion, the

names of the two companies will be abbreviated and they will be referred to as the Michigan Company and the Western Company. Both were going concerns. Both proved to be insolvent, the Western Company becoming involved in the insolvency of the Michigan Company. The draft sued on was in supposed collection of and remittance for a note for $923.75 executed by the Western Company to the Michigan Company; endorsed by the Michigan Company to the plaintiff; sent by the plaintiff to the defendant for collection and direct remittance of proceeds. The note was drawn payable at the defendant bank. On the date of its maturity, the Western Company delivered its check on the defendant bank for the amount of said note and others maturing on the same date executed by the same makers to the same payee but held by different endorsees. At the time such check was delivered, the Western Company had an apparent credit upon the books of the bank for an amount sufficient to meet the same. Relying upon such apparent credit and believing the check to be therefore good, the defendant bank drew its draft in favor of the plaintiff and remitted the same as the proceeds of the collection of its note. The fact which came to light immediately thereafter was that the apparent credit of the Western Company on the books of the defendant bank had been obtained by a scheme which was essentially fraudulent and whereby the Michigan Company and the Western Company intended to induce the defendant bank to accept the checks of the Western Company in payment of the various notes referred to. The facts in brief were that in April, the Michigan Company had obtained from the Western Company its notes for a total sum of $240,000. These were wholly without consideration and were accommodation notes. These were sold by the Michigan Company to various purchasers. As between the Michigan Company and the Western Company, it was the duty of the former to meet these notes when they matured. For that apparent purpose it sent on July 26th and 28th to the Western Company two checks upon banks in Kalamazoo and two

checks upon banks in New York, making a total of over $30,000. On the afternoon of July 30th, these checks were deposited by the Western Company to its own credit in the defendant bank and were forwarded by the bank for collection. Under the instructions of the defendant bank to the collecting banks, it was entitled to telegraphic notice in case of dishonor. In due course these checks would be presented to the drawees by August 1st. The Kalamazoo checks were thus presented in the forenoon. The defendant bank, ignorant of the real relations between the Michigan Company and the Western Company, and ignorant of the fact that the paper was accommodation paper; and having received no notice of the dishonor of the checks deposited on July 30th, and believing, therefore, that the same had been or would be honored, remitted the draft in question to the plaintiff at 4:30 P. M. Within one hour thereafter, it received telegraphic notice of the dishonor of the Kalamazoo checks. It immediately sought out the Western Company and then learned from it of the facts which we have above recited. It demanded and received back the note which it had previously surrendered, and recalled the draft by wire in the manner already indicated. Later, it received telegraphic notice of the dishonor of the New York checks. The Michigan Company and the Western Company were in fact insolvent, as these developments disclosed. The defendant bank thereupon formally protested the note and returned it to the plaintiff. No endorser or other form of security was released nor was any loss caused to the plaintiff by any act or failure on the part of the defendant. The plaintiff refused to return the draft and refused to concede any right to the defendant to recall the same. The detailed facts in the case are undisputed and are made to appear largely by stipulation.

It will be seen from the foregoing that the draft in suit presents on its face a cause of action and that the affirmative defense thereto is in the nature of a failure of consideration and mistake.