The opinion of the court was delivered by: CLARY
Plaintiff, The First Trust and Savings Bank of Zanesville, Ohio, (which for brevity will be hereinafter referred to as 'Zanesville') has brought this action to recover from the defendant, Fidelity-Philadelphia Trust Company (hereinafter referred to as 'Fidelity'), the sum of $ 82,000 with interest and costs. The basis of the action is the purchase by Zanesville in July of 1950 of four spurious or worthless collateral notes from Philadelphia Acceptance Corporation (hereinafter referred to as 'PAC'). From the pleadings and proof I make the following:
2. On or about March 31, 1939, Zanesville purchased its first collateral distiller's note from PAC, a broker dealing in liquor distillers' notes. Thereafter, and through July of 1950, Zanesville bought from PAC approximately 220 such notes.
3. The general course of conduct in all such transactions was as follows: PAC would offer to Zanesville by telephone, telegram or letter, one or more promissory notes of whisky distillers, secured by whisky warehouse receipts. Zanesville either accepted or rejected these offers by telephonic communication with PAC.
4. During the first few years of business transactions between Zanesville and PAC, the following method was employed: PAC, after acceptance of its offer by Zanesville, would send the note or notes, its draft or drafts, and whisky warehouse receipts directly to Zanesville, which would retain the notes and collateral whisky warehouse receipts and send its check to PAC. This method of operation involved such detailed paper work at Zanesville that in 1942 one of Zanesville's tellers requested PAC's agent to suggest a less burdensome method of handling the PAC paper and collateral. PAC's agent then suggested that the whisky warehouse receipts (the collateral for the distillers' notes) be deposited with Fidelity for safekeeping and that only the safekeeping receipts be transmitted to Zanesville. PAC's agent pointed out that this method would facilitate the release of whisky warehouse receipts to the distiller in the event that substitution of whisky warehouse receipts was necessary or desirable and in addition would save time and expense in shipping the receipts from Philadelphia to Zanesville, Ohio, and return. W. E. Decker, then cashier of Zanesville and now its president, was consulted. He agreed that such a procedure would produce the advantages indicated and thereupon by simple oral agreement between Decker and PAC's agent that method of handling the whisky warehouse receipts was adopted by the parties.
5. There was no express agreement between Zanesville and Fidelity with respect to the method of handling the collateral whisky warehouse receipts supporting distillers' notes sold by PAC to Zanesville. Between 1938 and 1950 Fidelity issued some 2,145 safekeeping receipts to Zanesville and to other banks throughout the United States. The certificates were kept in individual folders in the vaults of Fidelity. Fidelity did not keep a master record of the distillers' notes or of the whisky warehouse receipts which it handled. Each such transaction was treated individually and the whisky warehouse receipts involved were kept separately as the property of the banks to which Fidelity issued its safekeeping receipts. Fidelity made no profit from these transactions. Its charge of $ 2 for each safekeeping receipt, regardless of the number of whisky warehouse receipt certificates involved, was sufficient only to pay for the clerical work involved in the handling of these certificates. At no time did Fidelity release any of the whisky certificates except at the written order and request of Zanesville.
6. On a few occasions after 1942, the original method of handling such transactions was followed, viz., Zanesville took into its own possession the whisky warehouse receipts involved as collateral in those few transactions.
8. On the same day that the transaction outlined in the foregoing finding of fact was accomplished, PAC would send directly to Zanesville a written confirmation of the sale of the note by PAC to Zanesville together with an independent appraisal of the market value of the whisky security made by Harold S. Laden & Company, a qualified appraiser, as well as a letter from PAC enclosing check in payment of prior note being replaced by a new note.
9. In due course Zanesville would mail a check to Fidelity drawn by Zanesville upon its account in the Chase National Bank of New York (hereinafter referred to as 'Chase') in payment of the note. The check was made payable to Fidelity in accordance with the instructions given to Zanesville by PAC.
10. Immediately upon the mailing by the Collection Department of the note, draft and safekeeping receipt to Zanesville, Fidelity would give credit to PAC in its checking account in Fidelity for the face amount of the uncollected draft. When the draft was paid by Zanesville's check, Fidelity reimbursed itself from the proceeds and charged interest to PAC for the number of days required to collect the draft.
11. The practice of giving credit for uncollected drafts when drawn on other banking institutions or on brokers and charging interest therefor for the time required to collect the drafts was a common accepted banking practice.
12. Upon receipt by Fidelity of Zanesville's check, as described in finding of fact No. 9, it would deposit it with the Federal Reserve Bank of Philadelphia on the same day it was received, getting immediate credit from the Federal Reserve Bank; the Federal Reserve Bank of Philadelphia would then forward the Zanesville check to Chase through the Federal Reserve Bank of New York for collection on the following day.
13. On July 3, 1950, PAC sold to Zanesville note SY-266 of the Alexander Young Distilling Co. in the sum of $ 20,000 and on the same day sent its check for $ 22,000 drawn on Fidelity to the order of Zanesville to pay off note SY-253A of the same company, which note was to mature on August 7, 1950. Accompanying the communication was a new appraisal of Harold S. Laden & Company for Zanesville's files. Note SY-266 dated July 3, 1950 and also due August 7, 1950 was transmitted by PAC to Fidelity in accordance with the method of operation set forth in finding of fact No. 7, together with negotiable U.S. Bonded Warehouse Receipt No. 542 of Carrollton Springs Pure Rye Distillery, Inc. covering 650 barrels of Bourbon Whisky in new cooperage. In accordance with the established practice, the note, draft and safekeeping receipt were sent by Fidelity to Zanesville and Zanesville sent its check to Fidelity in payment of said note and this payment was collected by Fidelity in the manner described in finding of fact No. 9.
15. On July 18, 1950, PAC sold to Zanesville note SC-218 of Brookside Distilling Products Corporation in the amount of.$ 19,000 to mature August 7, 1950 and collaterally supported by Receipts Nos. 574 and 634 of Carrollton Springs Pure Rye Distillery, Inc. covering 496 barrels of Bourbon Whisky in new cooperage. This transaction followed the same course as outlined in findings of fact Nos. 7 and 9 and was paid for by Zanesville. On the same date PAC sent its check for $ 20,000 drawn on Fidelity to Zanesville to pay off note SC-192 of the Brookside Distilling Products Corporation, which note likewise was to mature on August 7, 1950.
16. On July 21, 1950, PAC sold to Zanesville note SY-274 of the Alexander Young Distilling Company in the amount of.$ 19,000 which note was to mature on August 7, 1950, and was secured by Warehouse Receipt No. 537 of Carrollton Springs Pure Rye Distillery, Inc. covering 600 barrels of Bourbon Whisky. This transaction followed the usual procedure set out in finding of fact No. 7. PAC sent the original and unsigned copy of the note to the Corporate Trust Department of Fidelity, which issued its safekeeping receipt, and the Collection Department sent the note, draft, safekeeping receipt and its collection form to Zanesville. PAC on the same day sent its check, drawn on Fidelity, in payment of note SY-266, the transaction referred to in finding of fact No. 13. In accordance with established practice, Zanesville returned note SY-266 and the Fidelity safekeeping ...