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X-4700
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24.6
!N IF.tiE DIST1'q:CT COURT OF OOUGLAS CDUNTY, NEBRASKA.
William Whittingham,
Plajntiff
)
)
)
)
vs.
Federal Reserve Bank of
Kansas City, Mo., a corporation,
)
)
O?BTION OF THE C)URT.
)
)
)
)
Plaintiff brings this suit nt law against the defendant to recover
from the defendant the amount of a certain cashier's check issued by the
Wyoming State 'Ban'k of I1usk, Wyo., made payable to the plaintiff herein, a
resident of the City of Village of Pardeeville, Wisconsin, on the ground that
as the agent of the plaintiff for the collectio:n of said check the defendant vic:<
lated its rluty and was grossly negligent in its proceedings to collect said
check, resulting in its failure to collect.
Insofar as it is necessary here to relate plaintiff in his amended
petition alleges that on or about
--- date
of Febru...<U'y 1923, he callsed to
be pla.ced with the defendant for the purpose of immediate collection and payment in legal··tender money of the United States, the cashier's check referred
to, same being for $1220.40 ~~d plaintiff alleges that he did so by depositing said check in the Pardeeville State Bank of Wisconsin for collection on
February 17, 1923, which bank immediat0ly forwardod same to the First WiGconsin
,
.
National Bank of Milwaukee for collection, the latter bank 1n turn forwarding
same to this defendant; that the defondant negligently mailed said check, with
other items, direct to the Wyoming State 3rulk at Lusk, which issued said check
and negligently accepted in payment therefor the Lusk Bank's draft on the
Digitized for First National
FRASER
Bank of Cheyenne, Wyoming, and thereupon the Lusk Bank stamped
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its cashier's check paid; that c.. t tho time of the presentation of said cas:1ier 1 ~;
check to the Lusk Bank for :9ayment, and at the tirJ.e plaintiff accepted its
worthless draft in payment therefor, said Lusk Bank had in its possession sufficient legal tender
~oney
"
to pay sai4 cashier's check in full; that very soon
after defendant's receipt of the Lusk
.~ank
draft aforesaid, said Lusk bank
failed. and a receiver therefor was ap";)ointed, whereupon defendant filed. with
the receiver it's claim Qlld proof of ownership of said draft.
That by
reason of the foregoing facts the defendant becar.ne and is liable to the plaintiff for the amount of plaintiff's cashier's check, placed in defendru1t•s
hands for collection, and for which he prays judgment, with interest and costs.
To this petition the defendant filed it's answer in which it
alleges that on 6r about February
--- ,
1923, it received for collection
from the 1st Wiocbnsin Uat '1 BEmk of lf.ilwaukec for the account and credit of
the :B,edernl Reserve Bank of Chicago, of which the Milwaukee bank was nnd is
a member, the cashier's check refer1·ed to in plaintiff's petition, in the sum
I
,
'
of $1220.40, which the plaintiff had endorsed and depOclited in the Pardeeville
State Bank of Pardeeville, Wise.,
w~1ich
bMk had forwarded said chock to the
said 1st Wisconsin Nat' 1 Bank of Milwaukee; that defendc.n t in due course of
business and without any negligence, but in the exercise of due diligence and
with lawful right and authority so to do, promptly forwarded said check to
said Wyoming Sta.tc Bank of Lusk for payment, and thereupon received from said
bank it's draft in the amount of said check which dre..ft, however, was dishonored, and not pn.id because of the failure and closing of said Lusk bank,
whereupon defendant charged back to the nccount of the Federal Reserve
Chicago the amount of eaid
dan~
cr~ock,
D..s it had a right to do.
Ther~upon
~nnk
of
dofen-
pleads regulations J-series of 1920 promulgated by the Federal acsorvc
Board, and also Bulletin #184, issued by said Federal Reserve Bank 'of Chicago,
under date of December 7, 1922, as contained in a general letter
kno'~
as
- 3 General Letter
D~l,
undet
da~~
'•
of january 15, 1923, likewise a general letter
of authority by said Chicago bank to defendant under date of Nov. 16, 1922,
and alleges that it was
operat~ng
under and in pursuance of the same, and that
it received and handled the check in question in conformance to said rules and
regulations, and the statutes of, the United States pertaining to the subjectj
that the 1st Wisconsin Nat'l Ba.TJ.k from which defendant received said check was
and is a member bank of the Chicago Federal Reserve District and had full
lmowledge and notice of all of the rules and regulations under which defendant
as a Federal 2eserve
Ban~
Oj_)erated and was required to 01)era-te in the handling
of said check; that defendant believed said 1st Wisconsin Nat 1 1 Bank was the
owner. of said check and entitled to the proceeds thereof and dealt with said
•
bank accordingly and that prior to the filing of plaintiff! s petition in this
case, the defendant had no knowledge
or notice of any alleged right or claim
of plaintiff in or to said check or tho proceeds thereof, or of any connection between plaintiff and the Pardeeville bank or between plaintiff or
the Pardeeville Bank a.,.""ld the lst Wisconsin Nat' 1 Bank of Milwaukee.
Defendant admits that for the benefit of the said Milwaukee bru1k,
w::1ich w:C1ich it dealt as the presumed oVvner of said cashier's check, it filed
proof of claim for the amount of said check with the receiver of tho insolvent
bank at Lusk and that it did so with the consent and authority of said Milwaukee
bank.
~nat
said claim was allowed and that since the allowance thereof de-
fendant has received two dividends thereon which it promptly transmitted to
the
~aid
Milwaukee bank, w:1ic:1 were recci ved nnd accepted by said bank with-
out objection.
Defendant further plcc:1.dS a gcn.eral and uniform custom of long and
continuous standing prevailing among all banks and b[.U.""lkers in the United
,
States, including those of Illi!l.ois, Wisconsin,
Nebras~m
and '\":yoming, for
banks having checks, drafts a..YJ.d other like paper for collection to send said
http://fraser.stlouisfed.org/
instruments direct
Federal Reserve Bank of St. Louis
to the bank af issue for collection, and to receive and
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249
accept in payment therefor, said bank's draft instead of requiring said bank
to remit by actual cash, and that in the instant transaction, defendant simply
followed the universal custom in it's effort to collect the cashier's check
in question,
.
Defendant further allegef:l that i t appears from the face of the
amended petition that plaintiff has not the legal capacity to maintain this
action, and further satd an1(mded petition doea not state facts sufficient to
constitute a cause of action in favor of plaintiff and
~gainst
this defendant.
From the evidence in the case, the most, if not all of which is
expressly admitted in the record or stands undisputed, it appears that some
time about the early part of February, 1923, the plaintiff was the owner of a
note a;rtd mortgage which had become due and tho mortgagee, rosi<ling at or near
Lusk, Wyoming, had indicated his readiness to pay same, whereupon plaintiff
h~ds
placed the same in tho
to forward and collect.
of the Pardeeville Bank, in which he did business,
In due time and on or about
F~bruary
17, 1923, the
Pardeeville Bank received remittance of the amount of said notB and mortgage
in the form of a cashiert s check of the Wyoming State Bank at J:,usk, Wyo, for
. the sum of $1220.40, payable to the plain tiff; on or fll;ou t the aame. day plaintiff endorsed said cashier's check in blank and gave it to the Pardeeville
bank, which in return
therofo~ g~vo
plaintiff $20.40 in cash
ru1d
a regular
negotiable certificate of deposit on it's own bank for the balance of $1200.00
and plaintiff says that is all he knows about it and
t~t
he never saw or
heard anything of tho cashier's check after that,
It further appearo that the Pardeeville Bnnk received the cashier's
check endorsed by plain tiff, duly endorsed saruo i tsolf
it-ts
corre~pondont
&id
forwarded it to
the First 11'iiscon_sin Natfl Bank of Milwaukee, taking credit
for the same 1 tself and charging same to tho r::ilwaukee bank,
The Milwaukee
·oank receiving said check gave the Pardeeville Bank duo credit for same, enDigitized fordorsad the same
FRASER
itself and forwarded
ch~ck
to the defendant herein, thru the
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Federal Reserve Bank of Chicago, w~ich defendant bank in turn endorsed the
check ro1d promptly forwa=ded same direct to the bank of issue, The Wyoming
State Bank at Lusk, Wyo. for payment.
That bank upon receipt of it's cashier's
check, stamped the same paid and in payment therefor issued and sent to defendant it's own draft upon it's correspondent, the First Nat 1 1 Bank of Cheyenne,
Wyo.
That at the time of the presentation of said cashier's checL to the Lusk
bank for payment and defendru1t 1 s acceptance of a draft in·payment therefor instead of cash, said Lusk bank had in it's possession available for the payment
of said check more than su1'ficient sum of legal tender money to pay said check.
That defendant having received said draft as aforesaid, promptly forwarded the
same to the First Nat'l Bank of Cheyenne, Wyo., the drawee, for payment, but
before said draft could be presented for payment, the tusk bank had closed itts
doors and the State Bank Controller for the State of Wyoming had taken possession.
Said draft was duly protested for nonpayment and returned to the defendant.
Upon defenda.."'lt receiving the return of the unpaid draft it notified
the Milwaukee Bank of that fact and that it had charged back against said
bank the amount of the cashier's check and the Milwaukee bank in turn charged
back said item to the Pardeeville bank and notified said bank accordingly,
whereupon it seems that an officer of said Pardeeville bank went to the plaintiff
herein and procured from him a surrender of the certificate of deposit that said
bank had theretofore issued to him and cancelled the
s~e
by stamping it paid.
Full and satisfactory proof has bem1 made of the existence and
operation of all of the rules, regulations and other like matters pleaded in
defendant's answer, includ.ing the prevailbg universal custom among all banks
and bankers of the United States for the bank having conunercial or bank papers
for collection against a distant bank, to m~m·d :~uch. pe~~r di1.1{;c:t ..to the bank
.·. .
. .......
of issue and to receive said banks draft in payment therefor, and that this
custom was well known and understood by all the parties handling
cashie~'s
•
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check in this case (including tho
self.
To him it was perhaps not
Pu~deevllle
bank) excent the plaintiff him-
~1own.
It is in evidence that the defendant retained the dishonored draft
for the purpose of filing the same for allowance with the receiver for the
insolvent bank and that it did so by and with the consent of the Milwaukee
bank; that :.mid claim was filed, proof made, and judgment rendered therefor
in the name of the defendant as a general creditor.
•
Since said allowance two
5% dividends thereon have been paid to defendant, amounting to something less
than $125.00, which was duly remitted by defendant to the Milwaukee bank and
by it credited to the Pardeeville bank.
Therefore, under the allegations of his
~~ended
petition and the proof
in support thereof, the plaintiff claims the defendant is liable upon any one
or more of the following grounds:
1.
Because defendant as plaintiff's agent for the collection of said cashier's
check was negligent nnd violated it's duty in sending said check direct. to
the bank that issued it ru1d in accepting in p~ent therefor· said banks
draft instead of cash.
2.
Because defendant filed it's claim as a general creditor with the receiver
of the insolvent ba.l1k instead of a preferred creditor claiming the right
to the money received by said bank in payment of plaintiff's note and
mortgage as a separate or segregated fund for the use and benefit of
plaintiff.
3.
Because the defend~1t in filing a claim for payment of it's draft representing the proceeds of plaintiff's cashial''s chec'k. in· itts own name,
making proof thereof accordingly and obtaining a jud@nent therefor in H' s
own name, thereby became the absolute debtor of plaintiff for the amount
of his cashier's check.
I have thus set forth an abstract of the pleadings and evidence in
the case at the length I have more for the benefit of those who might wish to
have an outline of it's history than because the same is necessary for the
pronouncement of a decision.
For, as I view the case and the
transact~on
in-
valved, I am firmly of the opinion that it falls clearly within the cantralling principles announced in the very recent case of CITY OF DOUGLAS vs FEDERAL
RES;ERVE :BANK OF DALLAS, decided by the Supreme Court of the United States on
X-4700
- 7 June lst of the present year,
and..~e:pcirtt\ld
as also the decisions of our own
Su~reme
.
2£)2
in 46 Sup.Ct.Rep. at page 554;
Court in the case of National Bank of
Commerce vs Bossemyer, 101 Nebr. 96, and other cases cited in the City of
Douglas case, supra.
From the opinion tn the case last referred to, it appears that the
County of Cochise, Ariz., drew it's check on the Central Bank of Wilcox, .Ariz.
in favor of plaintiff, the City of Douglas,which endorsed it in blank to the
First Nat 1 1 Bro1k of Douglas, Ariz., and that bank credited the amount of said
check to the account and in the pass book of plaintiff, on the face of which
pass book was printed: "All out of town items credited subject to final paymen t".
The Douglas bank endorsed the check: "Pay to the order of the El Paso
Branch, Federal Reserve Bank of Dallas," the defendant herein and forwarded
it to that bank for collection.
The defendant bank in due time forwarded the
cheqk to the drawer bank at Wilcox.
The latter bank debited the drawer's
account with the amount of the check, s·ta.nwed. it paid, and returned i t to the
drawer and transmitted to the defendant, in lieu of cash, it 1 s own check upon
the Central Bank of Phoenix, in an a110unt covering this and other items.
Be-
fore this check could be presented for payment both the Wilcox Bank and the
Pho~nix
Bank failed, and said check was dishoFored.
Douglas receiving no proceeds of the check,
the account of plaintiff.
c~~rged
The First Nat 1 1 Bank of
back the amount of it to
Thereupon plaintiff brought suit in the Federal
District Court against the defendant Federal Reserve B9nk of Dallas to recover
the amount of the check on the ground that defendant was negligent in accepting
'the check of the Wilcox Bank in payment instead of cash.
The case was tried without a jury, resulting in a judgment for
defendant, which was later affirmed by the Circuit Court of Appeals, and still
later reaffirmed by the Supreme Court of the United States in it's opinion
just referred to and in which it a?pears that plaintiff assigned as error the
http://fraser.stlouisfed.org/ of the
holding
Federal Reserve Bank of St. Louis
Circuit Court of Appeals "that defendant was not in sucll rela-
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25:3
X-470LJ
tionship with plaintiff as to permit ?laintiff to recover for defendants
negligence."
Mr. Justice Stone, in writing the opinion in the case, after stating
the facts substantially as above recited, refers to what is known aS the "New
York rule", in respect to the liability of a bank having commercial paper for
collection and what the courts have held thereunder; also to what is known as
the "Massachusetts rule" in respect to the same subject matter, and what the
courts have held under that rule; also to the particular theory advanced by
the plaintiff on which it claims the right to recover, and that advanced by
the
defenda~t
on which it claims plaintiff cannot recover, and then says:
"It is not necessary to decide a..Dy of these questions here, for
when paper is endorsed without restrictions by the depositor, and is at once
passed to his credit by tho bank to which he delivered it, he becomes the
creditor of the bank; the bru1k becomes the owner of the paper and in mal{ing
the collection is not the agent for the depositor," (citing numerous cases.)
11 Such was the relation here between the plaintiff and the Douglas
bank, unless it was altered by the words printed on the passbook to the
effect that out of town iteri1s \7ere credited 11 subject to final payment 11 • The
meaning of this language, as tl1e cas~1ier of the Douglas bank testified, and
as the court below held, was that if the check was not paid on presentation,
it was to be charged back to plaintiff's acco~~t. The check was paid, ~"d
the drawer and indorsers discharged." (citing nur.aerous ca:Jes.)
11 Wi thout these words, the relationship betweon the plaintiff and
the bank was that of indorser and indorsee; and their usc here did not vary
the legal rights ax1d liabilities incident to that relationship, unless it dispensed with notice of dishonor to the depositor. 11
and thare is no evidence of that, either in that cnse or the case at bar.
While there is not entire ~•iformi ty of opinion, the weight of
authority supports the view that upon tho deposit of paper unrestrictedly indorsed, and credit of the amount to the depositor's acco~~t, the bank becomes
the om1er of the paper, notwithstanding a custom or agreement to charge the
paper back to the depositor in the event of dishonor 11 , (citing numerous cases,
including that of National Bank of Commerce vs. Bossmyer, 101 Neb. 96.)
11
"Plain tiff having thus surrendered it 1 s rig.."l ts in the paper, only
rights arising out of its contract with the initial bank remained. If those
rights were affected by the act or o:llission of defendant, they were affected
only because that contract so stipulated. Defendant's duties arose out of
its contract with the ini tial.;bank, or out of its relation to that bank as
owner of the paper.
Hence there was no relationship between plaintiff and
defendant which could be made the basis of recovery for defendant's want of
http://fraser.stlouisfed.org/
diligence. 11
Federal Reserve Bank of St. Louis
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2f)4
This case, it seems to me, covers in all substaptial respects the
tra."lsaction in the ca.se at bar, except that in the case at bar which occurred
between plaintiff and the initial bank at the very inception of the transaction
offers a much stronger reason for the application of the rule announced than
in the ordinary case.
The evidence in the case at bar is that plaintiff,
having possession of the cashier's check, endorsed the same in blank without
any restrictive terms or conditions whatsoever, and gave it to the Pardeeville
bank, which in return therefor gave to plaintiff $20.40 in cash and a regular
negotiable certificate of deposit on its own bank for, $1200.00, without any
qualifications or conditions whatever attached thereto.
In my opinion, that
constituted a complete purchase and sale of the cashier's check.
The bank
thereby became the absolute owner of the check and the plaintiff the absolute
owner of the cash and the certificate
of deposit, each to do with their re-
spective instruments whatsoever they liked.
But it is said that it is in evidence that the cashier's check was
given to and accepted by the bank of Pardeeville for collection.
It is my
candid opinion that no such idea was ever O}.":pressed or thought of by either
plaintiff or the bank at the time the instruments wer·e exchanged, but that that
theory is a"l after-thought suggested by the bank after it discovered the failure
to collect the proceeds of the cashier's check and in the attempt to have that
theory prevail persuaded the aged plaintiff to surrender his certificate of
deposit back to the bank.
The theory now
adv~1ced
serves as a most striking illustration of
the truth of the old proverb that actions
spea~
louder than words; ro1d that
the character of the endorsement of the check by plaintiff to the bank, and
his receiving therefor from the bank part cash and a negotiable certificate
of deposit for the
bal~ce,
constitutes a transaction between the parties en-
tirely inconsistent with the theory of a bailment for collection.
it would seem
Besides,
that such an oral agreement between plaintiff and the initial
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2f)5
bnnk, particularly if unJrnov::1 to the dofend,•.:tJJ.t; would not alter in any vmy the
legal effect of plaintiff t s unrestricted endorsement.
t!'hat much, apparently 1
is either expressod or plainly inferred from the most, if not all; of the decided. cases.
T:.1e same view as announced in the case of City of Douglas, supra,
seems to have been expressed by our own Supreme Court in the National 2ank
of Commerce vs. Bossmyer, 101 Nebr. 96, above referred to.
In that case,
the court said:
11 While th8re is some conflic.t in the authorities, the better view
is that the deposit of a check or draft in a bank with a general enaorsement,
nnd the giving of credit for its amofult by the bmk to the depositor, in the
absence of other evidence as to the intention -of the parties passes the title
to the bank and makes it a holder for value, entitled to recourse on prior
endorsements upon the protest of the paper. In other words when such a state
of facts ie proven, there is a 12rima faci~ case made that the title has passed,
and the fact that it, the receiving bank, may charge back the protested draft
does not affect the relation.
In Higgins vs. Hayden, 53 Neb. 61, before the
enactment of the Neg.otiable Instruments Act, it was held that a bill of exchange dravm to the ::>rder of a ba.."lk b;/ its customer, the arnoun t of which was
placed to his credit, and on which tho customer drew and the bank paid checks,
becrune the property of the ba.."l.k, such conduct being inconsistent with the
theory of a bailment for collection."
It may be proper here to note that
11
other evidence" as to the in ten-
tion of the parties in transferring the paper, appearing in the above quotation,
means .:>ther written words as part of, or connected with, the indorsement itself
appearing on the face of the instrument, tending to alter or modify the otherwise unrestricted endorsement.
This much clearly appears from other parts of
the same opinion as well as from other decided cases.
Plaintiff, in support of his action herein, seems to rely strongly
upon the case of Malloy vs. Federal Reserve Ba.:."lk of Richmond, 264 U. S. 160.
There would seem to be at least two important distinctions between the case referred to and the case at bar.
The first is, that it nowhere
a~pears
in the
Malloy case, supra, that the endorsement of the paper by the depositor with the
initial bank was an unrestricted endorsement, or that anyone connected with the
transaction claimed that it was such.
About the only indication we are afford-
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x~7400
2~:~6
ed as to the character of the endorsem!:ltlt is the following statement taken from
the opinion of the court in its statement of the facts in the case.
It wa.s properly endorsed a:::1d de:posi te.d with the Perry :Banking Company of Perry, Fla. ,for collection and credit , 11
11
The 2nd distinction is, as was said by Justice Stone in the City of
Douglas case, supra, in stating the distinction betweer. that case and the Malloy
case, - that in the Malloy case
11
a local statute relieved the bank receiving
:paper for collection from any liability except that
of
due care in selecting a
sub-agent for collection and in transmitting the paper to it, and it was held
that the owner of the paper might proceed against the sub-agent
failure to collect the paper 11 •
legal
~ffect
f~r
negligent
The question of unrestricted endorsement or the
thereof did not arise in the case:
The plaintiff has not sought either to plead or prove a li1re:
lo~al
statute of t'!isconsin, and, so far as the court is aware, none exists.
J3ecaus.e of the legal
~feet
of plaintiff's unrestricted. endorsement
in the case at bar, he has never been able to 1·each that point or situation in
the case where the alleged negligence of the defendant could be considered as
was done in the Malloy case.
It may be proper to observe that the City of Douglas case, decided
on June lst of the present year, met with the approval of the entire bench of
that court, including, of course, Justice Sutherland, who wrote the opinion in
the Malloy case.
I arn of the opinion that plaintiff has shown no relationship between
himself ru1d the defendru!t herein which could be made the basis of recovery for
defendant's alleged want of diligence.
~~d
that if plaintiff has a cause of
action at all arising from the transaction in question, as probably he has,
it is against the Pardeeville brulk for tho restoration of his certificate of
deposit.
Plaintiffs action will be dismissed and judgment for
(SGD)
A.
c.
TROUP,
defend~~t
Judge.
for costs.
@FedFRASER