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c 0 :? y No. 260 X-4896 Hul t, J.. Honno,;pip, County · Tr~1sccntinental Oil Cor~ar~, Eniorsod .Appellant Filed July 1, 1927 ~ vs. 26054 Grace F. Kaercher, Clerk. Federal Reserve Earu~ of !iiinneapoli~, Respondent. Defendant received fror.i. the First !rational Bank: of Chicago, a o~ber barik of the Federal Reserve Bark of.that city, two cashier 1 s checks issued by a barik of South Dakota, a oernber bank of defendant. The checks bore the u.TU"estricted indorsement of plaintiff, the payee. Chicago b~~s Under the arranganent existing between tho and defendant, as expressed in Regulation J. Series, 1917, of the Federal Reserve :Soard and defendant's Circulnr lio. 193, defendant acco,pted the collection of the checks upon tho toms that it might forward the S/llDe to the payer bank with instruction to rem.i t by draft upon a Minneapolis bank. ~ne statute of South Da~ota authorized the collecting barik, doing business in that state, to send the checks direct to the payer bank. And the court found an established general banking custo:o, existing in Minnesota ar.:.d South Dakota, to forward i teos for collection direct instructions to reoit by draft. to :payer ba.rik with It is hold: Dcfenda.."'l.t wa.s not 6"1lil ty of negligence in scn;'.ling the checks direct to the payor bank. Nor in instructing the payer bo.nk to rOI;li t by draft en bank in Minneapolis. - - - - - - - - - - - - - - - - - - Affil'tled. - -- ~ ~ ~ ~ ~ •· ... 2- X-4898 OPINIOl-T ------- AlJ:;eal fro1:1 an order denying plaintiff 1 s notion for ar.1ended f!Jldings or a new trial. The action is one to recover damages of defen~~t, the Federal Reserve Bark of the Ninth Reserve District; located at Minneapolis, this state, for negligence in the collection of two cashier 1 s checks, issued by the First National Bank of Eureka, South Dakota, both dated August 2, 1920, payable to plaintiff and transmitted to its office in Chicago, Illinois. the checks was $2, 670.35. The aggregate aoount of Plaintiff endorsed them by unrestricted endorsement and deposited the same on August 5, 1920, in the First National Bank of Chicago, the ar.1ount being credited to plaintiff 1 s checking account and entered on its pass book which contained a provision that the bank in so receiving such checks acted only for plaintiff as agent to collect the same and assumed no responsibility beyond care in selecting agents at other points to whom to forward such checks. The Chicago l3a.nk was a meober bank of the Federal Reserve Bank of Chicago, and the Eureka Bank was a mecber bank of defendant at this time. The general supervision and control of the Federal Reserve banks is lodged in the Federal Reserve Board. (#9785- 9805, U. S. Coop~ Stat. 1916)·. This Board prooulgated Regulation J. Series of 1917, which governed the Reserve ba.:i.1ks in 1920, and contained these provisions: 11 In ha."1dlir.g i ter:!S for meober banks a Federal Reserve Bal'lk will act as agent only. Board will require that each nenber **** *"'** The bank authorize· its Federal ·*- 3 X-4898 - Reserve Bark to send chocks for collection to b~~s on which checl:s are drawn, and, except for ncglige:-.i.ce, such Federal Reserve :Sank will assu.r.::e no liability. A."l:'J' further rcquiror.:ents that the :Soard rJ.a;y deem necessarJ will be set forth by the Federal Reserve letters of i:l.structions to their mel!'lber **** Reserve Barik will also promulgate rules and banks. EarJ~s in their Each Federal regulatio~s 6overning tho details of its operations as a clearing house, such rules and regulations to be binding on all member through tho Federal Reserve Barik. 11 defenda.:at issued Check Cl~~:+rinr. **** ba."ll-.:s which are clearing Pursuant to authority thus given ar.Q. Collection CircuJ:a.r l'To. 193, which was in force during .August 1920, and which had prior to that month been received by tho First J:Jationa.l :Ba...'"lk of Chicago, a:1d the Federal Reserve :Bank of Chicago, the here I!laterial part reading: Re~erve "Checks received by the Federal Ea.l'lk drai'l:n Ol': its menber ba..'1ks will be forwarded direct to such wC!:l'bor bar.iks and arc to be rew.i tted for by the member banks on day of recci;;t if :_1ossi blo, by their draft on the Federal Reserve J3a.l".k provided the~~ :::.ave a bal- ance in excoss 'Of their required reserve, or by their draft on a bank in Minneapolis or St. Paul. Member banks are required by the Fedorol Reserve :Board to provide funds to cover at par all cheCks received from or for account of, their Federal Reserve :Ba...""lk. In handling items for member banks, the Federal Reserve Ea....'"ll;: of It is understood that each mcmben Minneapolis acts as agent only"' ba11k authorizes it to send check~ on which checks are drawn, a.~d Reserve BruL~ for collection direct to banks except for negligence the Federal of Minneapolis assumes no liability until funds are r:-o· ~~..) r::·1 . ~J- X-4898 4 - actually in its hands, and is authorized to charge f~r baci~ ~~r item which it has not recui vod final peyuent, including iteus lost iJt trn.:nsit. 11 itaws for Member brull-:s of the Federal Reserve Ba::Jks clearar~ce a~d se::-~d their collections to the Reserve Batik of which they are members; ou.t to save time end work there existed. an arra:r.gement, in August 1920, bet~oe~ the First National Bank of Chicago, the Federal Reserve Bank of Chicago a:J.d the defend8.nt whereb:l t:t.e former mig.'lt sond direct to dcfonda.'!.t for collection i terns upon ba:·.ks within its district, the proceeds of such items so routed bcir~ crcdi ted by defendant to the Federal Reserve Ba..."il;: of Chicago, it being agreed by a::.. d between all these barJ:s that their rights a..J.d liabilities should in all respects be the $ame as if iteJs so routed had been first derosi ted by tho First National Bv..'Jk of Chicago, with the Federal Reserve Banl:: there and by the lcction with defendant. lat'~€.r do:_Josi tee. fvr col- The two cashier's cheCks wore uu1der this arr•angonont sent directly to defendant "Jy the First National :Bank of Chicago, ly ~~d e~d were received by defen~J.t on August 6 end 7 respective- imcediatoly forwarded with other similar itemu, totalling $8,277.30, direct to tho Eureka Bank with instructions to reoit for the same by draft on a Minneapolis or St •. Paul bark.. On .A.ugust 10 the Eureka Ba.nk at to::!) ted to ret1i t to defendant f;;r said checks and the other i tor.:s cy c,rawing its draft in tho sum of $8,277.30 upon tho First & Security 2Ia.ti.:::na1 BarJ.l: of ML:.neapolis, which draft was recoi vcd by defendant oi ther after ba.nldng hours or. the 11 t::: or early on the 12th of August, and on that day presor-ted to the First & Security National BarJ: for p~1:ent, but payment was refused for 5 .,.. X-4898 lack of funds to tho credit of the Eureka Bark. Eureka Banr~ On August 11 t~e sus?endod paycent and a receiver was appointed for said barik by the Comptroller of Currency. ~e draft has never been paid~ The court fou.:ld that i:f the checks hai beenpresented separately over the to the co~Lnter ~arcl:a Bank at a~ ~ice between t~e 7 ar.d 11 of August there would have been sufficient money on ha11d to pay them, but not e1;1ough to have paid all the i tows forwarded et the one time stated. August 1920 a.~d mhe trial court also found the existence during of·~~ established, general, uniforc and certain usage custom anong ban.'!.cing institutions in Min,nesota and South Dakota in accordance with which defendant was authorized to send the checks direct to the Eureka :BanJ.::: and to direct that bank to reoi t b"'J its draft upon a bw..k in Minneapolis or St. Paul. tablished custoo, nor the arra.~geoents Nei thor this es- between the Chicago batiks and defendant, nor the contents of Regulation J. Series 1917, nor of aefendants Clearing and Collection Circular No. 193 were known to plaintiff. There was an.otll.er bank at Eureka besides the one here involved. The .Ao.erican Railway Express Cocyar~ also t:J.aintained an office at Eureka with an agent authorized to collect noney on checks and drafts on banks there and r&.:li t the saoe for a consideration. A statute of South Dakota was in forco in 1920 readir~: "Ani bank, banker or tru.st compa.r..y, hereinafter callect barJt, organ... ized under the laws of, or doing business in this state, receiving for collection or deposit, any check, note or other negotiable instruoent drawn upon or peyable at al'JY other bank, located in another city or town whether within or wi t.~out this state, r::JaY for- !-4298 ward such inst~~ent for collection directly tc the barik on which it is drawn or at •1hich it is ::1aC..o payable ll..."'!d such DOthod of forward.ins d.i:;.~oct to tho :.'ayor, shall be C.oor.~c·i duo diliGence o...-·1d tho failure of such payer bank, because of its insolvency or other dcfaul t, to accou..."'lt for the 1)l'Oceods t::.ercof, shall not render the I forwarding b~~ liable therefor, provided however, such forwarding bar..k shall have used. C.uo dilieenco ir. other res?octo in connection with the collection of r>uch instrur.wnt. 11 Because of tho agreenent between Natio1~l Barik of Chicago, stated in pl~intiff plaintiff~s a11C.. the First pass book, that bank was neroly tho ageat to select a sub-age4t for tho collection of tho choCks, so that the Now York rule will not shield fron accou."ltabili ty to :plai:-1tiff. whether the facts founC.. show We then actior~ble claios negligence in two respects only. cor.~e dofe~~:t to the :proposition negli6ence. First, in Plaintiff forwardir~ the chocks direct to the payer bam:, and second in a"L:cthorizing that ba.""lk to rooi t by draft on a Mi:nnoa:polis or St. Pa.v.l ba.ril:: i:1stoad of by cash. It is contended that the South Dakota statute has no application to the first proposition because defendant is not a ba:ik in that state. But South Dcl~ota is a part of the Reserve district in which by act of Congress defendar.t is required to and does do businesz. T.he checks in quC:lstion were there drawn and payable. And it seer.1s to us tha.t "IJlaintiff cnnnot be heard to say that handling the collection of checks so is~~ed and payable in that state, in accordance with provisions of its statute, is negligence. 53 .... 7 ... X-4898 Fa.rr:ler t s & Me:·dht,::'lt 1 s :Sanl: v. Federal Reserve ]an}>;: of Biohoond 262 U. S. 649, cited. by plaintiff, holc:!.s th.J.t this provision of the statute is a:)plicable. Of ccurse, if th.Jro were n.llogaticn a:1d. proof that defendant k:i.1E:w; of the failing condition of the ba."'ll-c it r.:liQ1 t be net;l icence to io r:ha t the law peroi ts, na-::1ely ser:d the checks direct 'so the :"'"'-/Or b.::G:J:. The clai!:J. is siL~J 1.:,' t1"'~.:; B'..1t there is no claio of that sort. t!1e sole circunstancc tl:at the chec!cs were forwarded. to the :1a;ycr Jc:·rc:': establishes ncglige::1ce. :But a~id.e froo the statute and the established custom of bar..king, we think, the contract of ero::>loyment of dcfenda,j_1t absolves it fro::J. liability on the facts found both as to the sm1cing ~~d tho authorization to remit by draft. Defendant was employed by Dlaintiff 1 s authorized agent, the First National Th4~ of Chicago, to collect tile cheCks. Such agent knew that the only te:r"L:s and conditions upo:::1 whicl1 defe::..da.nt would accept such employcccut were those of Regulation J. Series 1917 and the Cleuring and Collection Circular No. 193, fU:..d forc m..1st be held to have consented ~~d t~era agreed in behalf of plain- tiff that not only the checks might be sent directly to the peyer b~ik for collection, but also ant by draft upon a barili: in tr~t such banl: might remit to defend- l~in:;.1eapolis. by law to collect cbccks or drafts for its ber batiks of other Fedcre~ Reserve Eanks. Defendant is not m~~bor baru~s c~~elled or for mem~ It is authorized to render such service under terms and conditions established by Federal Reserve EoarQ and by its 01~1 rcgulationa communicated to banking institutions who see fit to r0quest tho service. As ex- fi4 X-4898 pressed in Fergus County v. Federal Reserve s~pra, lect checks. 75 Mont. 582, & Merchants Bank v. Federal Reserve Bank it was settled in Farmer 1 s of Richmond, Balli~, that defendant was not compelled by law to col- The Montnna court there ap;lied this quotation from 6 California Juris-;;n1..1denco 117: 11 It is a fuJ.1damontal rule of law, however, that what one r.:.ay refuse to do such terms as he :pleas::;s. entirel~r ho may agree to on Hence, one person being u.nder no legal duty to perform certain services for another, may, upon agreeing to perform suc...'l services, cxe::1pt hinself from liability for his o>vn negligence, providi~ *** there is no attem?t to exo~t h~ self fron res;?onsi bili ty from any fraud or willful injury to the other person or his property, or to exerupt hil:lself from responsibili ty from a...v violation of the law either willful or negligent. 11 We do not need to go to this extent in this case, for there is no attempt to exempt defendant fron negligence. ?nere is cerely a proposition that if the collection of checks or drafts is entrusted to defendant it will be dop.e by forwarding the sar.:e to the payer ba11k direct with authorization to re.oit by draft on a bark in Mim1eapolis or St. Paul. It only exeopts itself froc liability for the default of the payer bank. going bank will honor its OW11 checks draft. It is to be prosur.:ed that a ~d renit only with a good There is no law Vi'hich forbids eo: bank frco naking pay::.ent otherwise tlan b~' cash. In fact, we know that the banking business could not be conducted without extraordinary and neeaJ.ess e:x--pense to the public, or at all, perhaps, if in the colloctio~ of cot:Jnercial paper only currency wa.s to be used. not be said and clearance It can therefore that. the conditions upon which defendant undertook the 56 9 .., X-4898 collection of these cheCks as expressed in Regulation J and Circular 1-To. 193; r>ernit negligence or exer.:J:pt therefron, but on the contrary prescribed that the established, general a.~d custonary banking ~ethod in use in the states of Minnesota and South Dakota as found by the court should be ei:QloyeC.. canner ~' It is trn. e, t:1at an act C.one in the custor::~c~y nevertheless, be found negligently done, and that cus- tom oay not overrule a settled rule of law.· Minneapolis Sash & Door Co. v. Metropolitan BarJ(, 76 Minn. 136; Stein v. Shapiro, 145 Minn. 60. Bnt it oust also be recognized that w~en in the comnercial and b&'lking business there has grvwn up a.n established, general, uniforn and certain usage a..-:.d custotl to send checks direct to a. distant payer barik with authorization to renit by draft, a barik.acting as a collec- tion agent ought not to be held to have been negligent in following that general cust~, especially where, as ~ere, as such collection agent it was done upon tho in consenting to act ex~ress condition that perforcance of the services and responsibilities therefor were to be in accordance with Regulation J and Circular No. 193. Of course, as alreaczy said, if plaintiff had alleged and proved tnat defendant had knowledge of some risk in pursuing the ordinary course or tho course agreed upon in atte!:lpting to cake t.'le collection, proper care night have required a deviation therefroo. sort is c~ged Bnt nothing of that against defendant. Plaintiff confidently relies on Federal Reserve Earik of Ricboond v. lJa].loy 264 U. S. 160. As we read that case it accepts the trial courtts conclusion that the Reserve Boar:d 1 s regulation si~ilar to Regulation J Series 1917 herein authori~ed defendant to h7 X·-4&3e .) 10 - send. tl1e checks direct to the payer ba."1k so that be clained on that score. :10 negligence r.:ay This is nade verJ clear in the decision of th,e trial court, Halloy v. Federal Reserve J3anlr of Ricr..nond, 281 Fed. 997. As to the second point that it was negligence to authorize rer....:i ttance other than. in ::.1oney the decisior.. recognizes "that the obligation tne lau i!.lposes to collect only i:1 cone:,r r..m.y be varied by a regulation, clearly and posit~vely though in terms, it relates only to the consent of his subagent." inter so, upon the ba.~:s ground. that the omler of the checl: is bound Bu.t U.."lC-er the so providing, al- the knowledge and b~r there inYol vcd, regulo.tio~'l sir.1ila.r to RegJ.laticn J here, it was held. that authori t~· to pcy ":Jy draft was not to be ir:1plied frDr.:: the r.1ere autl1ori ty to forward the check to tho payer baru: di~cct, and that the custor.:: there proven was cqui vocal, since reni ttarJ.ce could be draft or by shipoent of currency. 11 11 b;7 oeans of exchange It is true, the Supre:J.e Court in the quotation above r.acio ft-or:. tho Malloy decision ass'l.Jl:led the principle stated therein to be the law ccrely for that decision. Here Byt why should it not be good law generally? dcfon~"lt rc- coives in tho usual course of business checks for collection fro:r.:. a banlc. Tho chocks bear tho u..'1I'estricted enctorser::~ent There is nothing to advise defendant of the ten~s pass book of the payee to tho effect that the age:1t of the payee to select a subaGO~lt should not defendant ha.vo the right to ~al1k of tl'le lJayee. contained in the is nerely the to oake collection. cor.~.sid.or Why tho bJ.nk the owner of the checks and hence hold it to the teres of Circular No. 193; or else consider that the bank has authority fror:: the cwnor to .., ~ X...4998 11 - 0~loy defendant to collect such checl:s upon such terns and condi- tions as d.ef.)ndant is willing to unc.ertake the service, or, if you please, upon the terns and conditions inposed by the established, certain and uniforr.: barJdng custor:.1 and usage in the states \7here the service is to be rendered? sane as the barJ:ir~ custo~ In this case tho Circular Uo. 193 is the on the ?reposition in question. It ap- peals to us that the principle of law ass'llr.1ed to exist by Mr• Justice Sutherland in the Malloy opinion is-:GOUl'l<l and leads to an affimance. The First llationaJ. Bank knew the terns upon which defendant would undertake the collection when the checks wore forwarded to it. Defendant followed t~oso ten~s to_the letter. Wnen an agent pursues the oethod agreed upon for the discharge of his duties as agent, the principal ir.. all justice should not be perni tted to say that the agent was negligent. The case of HorJOerberg v. State Be~ of Slayton, 212 N. W. 16, does not help appellant, neither an agreenent nor a banking custoo was fou.."'ld t·J ezcuse tho acceptance of a worthless draft fran the payer bark. On the contrary, that decision recognizes that by agreenent an agent for collection of checks nay lir.1i t the responsibility established rules of law place lJ±:lOn hin. And the authorities seeo to agree tr.at such rules r:.ay "t;le lioi ted or varied by agreeoent. So:oi:-..gson v. Stockyards Nat. ::&w."1l:, 162 Minn. 424; Farr.1er 1 s State Ba..."Jk v. Union 1Tat. Bl;l.nk, 42 N. Dak. 449~ Closter Nat. Baril.: v. Federal Reserve Bar.l:, 285 Fed. 138, (certiorari denied 261 u. S. 613). An 86Te~ent that ~~e collection of paper may be nade in a certain canner t!Ust be held to be as a shield to the charge of negligence co~~ercial cffect~vo as an instruction how to pro- -~. 1:::! ceod. X:-4898 - The latter freed fron the charge 6f negligence a bar~ ~hich recci ved a check fron a sub-agent ba..'Jk 11i th instruction to send the sru~e for collection direct to the payer bank. First Nat. Baclc of Chicago v. Citizens Savings Bank of Detroit, :).23 Mi9h. 336, and the sace check involved in First Whittier, 221 Ill. 319. Nat~ :cx.k of Chipago v. Bank of If the established rule that it is negli- gence to send an iten to the :payer ba...'Jk dircc:t, oay be abrogated by directions or instructions to the forwarding bank, it should follow that likewise way the rule that the r~i tta.nce r:ru.st be in currency. ~ne rules of law invoked in this case seen to be slipping away froo the established custoo and usage of present day banking, S~okane Valley State Batik v. Lutes 133 Wash. 66. So we find that the legislatures of different states have seen fit by statute to effect a. change. By Chapter 138 L. 1927, both r~les were rendered ineffective to establish negligence in this state. Other grounds are urged by respondent for en affiroance which ue need not consider in view of the conclusion stated. Such grou...'1.ds aoong others are: no daoages resulted, since the Eureka Bank was not in condition to reoit for all the iteos forNarded at the BaL1e time that plaintiff's were, and since the only one liable on the checks is now liable on the draft nothing was lost to plaintiff by the substitution of the latter for the for.oer. cla.ioed by respondsnt tr~t the Et~eka It is also Bank becane a collecting bank for plaintiff when it received the checks and issued the draft; that 13 plaintiff sta~ds ... .in the shoes of one or the other of the fiO X-4898 Chic~;o bm1ks; that plab.tiffts unrestricted endorser.1ent gave defendant the right to consider tho First National :Bar..k cf Chicago the owner of the checks; and was never t~1at acco~tod b~i to be so:1t. tho ror:1ittance draft sent by tho Eureka Bank defo:J.d.ant a.nd wns not one wl:ich it a-...::.thorized We thi:.ll;: tl1e findings of fact as to tl1e agroe:r::ent under which defendc.wt accepted the collection of these checks as well o.s the established ge:1eral baru:ing ~~st~n in the states of Minnesota and South Dakota arc sustained by the evidence, and these fi:.1dings justify the conclusion that no negligence was proven without aid of the other grounds adv~~cos by resJondont. The order is affirced.
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