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X-3613
January
9, 1923. ·
Mr. M. G. Wallace, Counsel t
Fecleral Reserve Ba.nli of Richmond J
Richmond, Virginia.
· ·
Dear Mr. \Tallo.ce:
Please accept my thanks fo.r your latter of December
·29 containing your views ·.~·i th refereltlce to the letter ad.:iressed
to me under date of December 15 by M+. E. B~ Stroud, Jr.,
Office Counsel to the Federal R2.serve1 B;;.nk of Dallas.
I have read your latta r ~·:itl\ much interest, a.nd1
while I have been preventei by great prassure of work from
making aDJ investigation of the subjec;, I a~ ~thir inclined
to agree with your suggestion tha.t if ~· customer. deposits a
check in a bank whiqh forwards it to at1~ther bank for collection, the right of the customer to aue ~he second., bank depends
upon the relationship be~·,een hirr.self a.rt4 the fir~t bank, and
that relationship is deter~ined by the law of the ~tate tn
which the first bank ia loc~'.ted.
It seems to me ·that the
question whether the so-called New York rule, or th~ so... called
Ma.ssadlUsetts rule, is to apply de~ends upon which ~nterpre~
tion is plac.ed upon the contract entered into between the first
bank and its depositor. .. lt is a. general principle .pplicable
in cases involving confliqts of laws that a contract'is to be
construed in accordance with the lex loci contractus,.·· which,
in this case, ·.vould be the law of the State in which the first
bank is loca.ted. ·
.As indicate:i abova, ho•vever 1 this is rr..erely rey :off-hand impression and is .not to be taken as a ,:l.&finita
opinion.
I am very glad that you find our practice of .jistributing reports on cases of general interest to the Federal
Reserve System to be of some assistance.
Very truly yours,
(Signed)
''·
":'.'alter ~a.tt
General Counsel.
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Federal Reserve :Bank
of Richmond.
December
29,
1322.
Mr. ~alter ~yatt, General Counsel,
Federal Reserve Beard,
~ashington, D. C.,.
My deat' Mr .. "'ya.tt.
I have your letter of December 2Sth enclosing the interesting letter of Mr. E. B. Stroud~ Jr., Office Counsel to the
Federa~ Reserve Bank of Dallas.
'l'he ~int presente1 is certainly
a striking one. The so-called Massachusetts and New York rules
are always breeding troUble, and I heartily a~prove of the suggestion· of Mr. Stroud that a uniforrr.. circular should be adopted, but
I incline to think that it would be wise to iefer this circular
until the several oases now pending involving collections have
been decided, in order that the circular rmy be drawn in the
light of the decisions.
It seems to me that in Mr. Stroud's case the court in
erred. I should say thE,t the right of the original depositor
to sue a remote agent should be determined not by the law of the
state in whiCh the remote agent i~ located, but by the law of the
state in which the original deposit was made. The theory upon
which the courts deny the right of the original depositor to sue
the remote agent in tho:;;e states in which the New York rule is
applied is that the relation between a bank and a. depositor is
that of a general contractor, and that sub-contractors are not
liable to the person who contracts with a. general cvnt~~tor. The
theory upon which the courts apply the Massachusetts rule permitting
the depositor to sue the remote bank is that the bank in which the
Check ~as originally deposited is a mere forwarding agent authorized
to appoint sub..a.gents, who tl'»ecome the agents of and are responsible
to the pri~ipal.
Dalla~::;
I,
It seems, to me that if we apply these principles it
appears that if a customer deposits a check in a. bank which forwards
it to another bank, ,the right of the customer to sue the second bank
depends upon the rel:ationshi~: between himself and the first bank,
and that relationship is determined by the la~:.r of the state in which
the first bank is located.
If. un:ier the law of that state, the
first bank was an independent contractor, the customer conld not
sue..
If, under the law of that state, the first bank was a for-
X-3613
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warding agent, the customer could sue.
It has alway3 seemed. to me that the books upon the subject
lay too rmch stress upon the so-called Ne\': Yor}- rule and the socalled Massachusetts rule.
They are not really rules of law a.t
all, but are merely rules of construction which the courts apply
to the contract betvreen a bank and its depositor when the parties
have not by express provision rr.ade clear the exo.•ct relationship
which they intended to assume to each other.
In addition to the above it seems to me that in the case
mentioned by Mr. Strou1 an action cauld be brought against the
Federal Reserve Bank" of Dallas in the name of the member bank
which sent the check for the use of its depositor.
In the case of Malloy Bros. v. Federal Reserve Bank of.
Richmond I a~ ~ing the point that this suit could not be maintained by Malloy Bros. directly ag&inst the Federal Reserve Bankj
but, as you will see from the above, I do not think my ovm point
is a strong one, and l ha.ve little ho;e of getting the court to
go further than to hold that the suit rrey be brought by Malloy
Bros., but that when so brought it is open to every defense or
e:{cuse which could be urgel against the membsr bank which sent us
the check.
I thank you for sending me thi3 letter from Mr. Stroud,
and I hope that you '\'ill continue the very helpful practice of
distributiri? to counsel for the various b~ks reports upon decisions
affecting the operations of the Federal Reserve Banks; it is certainly a great assistance.
· Very truly yours,
(Signed) M. G. •·'allace,
Counsel.
@FedFRASER