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X-4897
No. 110
In the Supreme Court of Arkansas, Juno 27, 1927
The Hicks ··company, Ltd., vs. Federal Reserve :Bank": of St. ~ouis
MEHA.FFY, J.
The appellant, plaintiff below, filud tee
11
follo~7ing
complo.int:
The plaintiff, for its cause of action against the defendant,
alleges:
"First: That the plai:rltiff is a cor-poration orga...'Ylized
existing under and Qy virtue of the laws of the State of
ar~d
Louisiar~,
and is engaged in the wholesale grocer business in said State, with
its
princip~
Minden,
office in Shreveport, Louisiana, and branch office at
Louisi~~.
"Second: Tho dofenda.J.t is a banking corporation orgar.ized
and existing under
~d
by virtue of the
le~s
of tho United States
with its principal office in St. Louis, Missouri, ru1d was at all times
hereinafter mentioned and is now under
anc.
b;.r virtue of the lawz o:
the United States operating a branch barik kno;1n as the Little
3o~~
:Branch Federal Reserve :Sank of St. Louis, in Li tt1e Rock, Arka."lsas.
"Third: That on or about the - - - - - day of December, 1923,
H. ·T. Dickens of Bussey, Columbia CO'IL"lty, Arkansas, was indebted
to
the plaintiff upon account in the sUD of $897.44, and mailed his check
drawn on the :Bank of Taylor, of Taylor, Columbia
Cou.nt~r, ~kansas,
for the sum of $897.44, in settleme:nt of said account; that said
check was mailed by the said H. T. Dickens at Bussey, Arkansas, to
the plaintiff at Minden, Louisiana, and was received and the amount
credited to the account of H. T. Dickens by the plaintiff on or
:HJ
110- 2
X-4897
about the - - - - - day of Decer..ber, 1923.
"Fourth: That on or about the G. W. :Brown, of Taylor, Colunbin
-
Cou_~ty,
~r
of December, 1923,
Arkansas was indebted to the
Plaintiff upon account in tho sum of $806.47, and mailed his check
drawn on the Bank of
Ta~'lor,
of Taylor, Columbia County, Arka:1sc.s,
for the s~ of $806.47 in settleuent of said accou..~t; t~t said cho~:
was mailed
qy
the said G. W. Brown at Taylor, Arkansas, to the
Plaintiff at Minden, Louisiana, and was recaived and the aoount crodi ted to the account of G . W. :Brovm by the plaint iff
o~J.
or about the
_ _ _ day of December, 1923.
"Fifth; Tr...a.t on or about the
--- day
of Decon:bor, 1923, as
soon as said checks wer0 received by the plaintiff, it deposited said
checks in the Banlc of Minden, of Minden, Louisiana, for collection;
that the First National Baruc of Shreveport
~~ediately
indorsed and
tranSQitted said che¢ks for collection to the defendant at Little
Rock, .Arkansas; that on or about the _ _ _ dr".y of Decomber, 1923, tho
defendant transmitted the aforesaid checks, together
to the Bank of Taylor, Taylor,
"Sixth: That on the
Ark£u~sas,
~~th
other checks
for collection a11d return.
day of Decenber, 1923, the said Ea.'1k:
of Taylor received eaid checks drawn on it as aforesaid a:.1d s tan.~ed
said checks
11 Paid11
and charged to the accounts of H. T. Dickens and
G. W. Brown, the said Dickens and Brown each having more to their
credit in the Bank of '1aylor than the
amou..~t
of each of said checks,
and on the same day the said Bar.ik of Taylor transn::.i tted to the
defendant its draft on the Bankers Trust Coopany of Little Rock,
!rkansas, for the aggregate amount of the checks, including the two
checks sued on herein; that the defendant, ionediately upon its
110 ... 3
rece~:Pti
X-489'7
presented said chocks tv the :Bar.Jz\.irs Trust Co::l_Pa."'lY of I..i ttle
Rock, .Arkansas, for payr;1ent, a:1d payrlent was refused., the Ba.'l1lc of
T~lor
having been placed in the hc.."l.J.s of the State Ba.il.c Cor.:::1issic1er,
Cor.:tpan~r;
notice of which had been recei "Ved by":. the Bankers Trust
the plaintiff does not know whether the
p~ent
That
of saiC. chocks was
refused on account of insufficient funds or whether it was on account of
l~ving
received notice that
sai~ ba.~
charge of by the State Bank Comndssioner.
has been
~1at
the
~ron
defe~~"lt
in
there-
after charged the acount of said Choc~s to its ~Jodiato correspondent, First National. :&.nk of Sl1re7eport, a.ml the First National
Ba.r.ll':: of Shreveport wnoc:iatel~- cr..are;ed the a.':"!ount of said checks
back to the Bank of llii:lclC:J., who in turn charged t!lo auount of said
chocks back to
t~is
plaintiff.
"Seventh: Plaintiff alleges that the clefenCa:nt was negligent
i:i.1 not requiring tho :Ba...""lk of Te.ylor to pay t:'le onount of said checks
in money and in acceptir.g in payn.ent of said
chec~::s
on the :Bankers Trust
.Ar':ar~sas,
Coop~
of Li ttlc; Rock,
a draft Jrawn
v.:1ich prcved.
to be worthless; that the plaintiff by reason of said negligence
suffered daoages in the
SUD
of $1,703.91, the ai:lOU-"lt of said checks.
"Wherefore, pretll.ses considered, plaintiff prays
ju~ent
against said defendant fer its dar.ages cioresaid in the
Sl]C
of
$1, '703.91. toget'her Tii th interest, cost, and all other ani proper
relief."
Appellee,
~efen~~t belo~,
filei
d~.rurrer ~"ld ar~swer w~~ch
are
as follows:
11 The
defenda.:."lt de:cr!lrs to the cor.1plaint herein because the sane
does not state a cause of action, and in no wise waiving said de
110 - 4
X-4897
:32
r.ro.trer bu.t specially reserving and. standing upon the sane, defendant, bj·
leave of court, ansuers and says:
11
1.
Dofer..da...-·1t is not liable to the
the cheCks in question were
forwarde~
plai:.~tiff
by the
because at the tine
defen~t
to the
~~
of Taylor, upon which thev were draw by E. T. Di&-ens and G. W. Brown,
the said
11
2.
~k
Tho
of Taylor was insolvent.
dcfer:~t
G.enies that it is liable to tho plaintiff and
says that it has no contractual relations with the plaintiff; that
there is no privity of contract between the plaintiff and G.efendant,
as the defenda."lt received such chocks thr·:JU£;!1 tho Federal Reaerve
~~
of Dallas, such checlcs bein& direct routoG. to the defend&nt by
tho First National BaLk of Shreveport by the consent only of the
Federal Reserve
BroL~
of Dallas, irlth directions to defendant to
transnit the proceeds of tbe checks, if collectei, to the Federal
Reserve Bank of n1llas,
Defon~"lt
is responsible, therefore, if
liable at all, which it denies, o1uy to the Foreral Reserve Bark of
Dallas.
11
3.
Defendant is I).Ot liable i11 D.J."V eve:r:.t
becau~e
between the First National Bank of Shreveport and the
it ";,res agreed
Fe~oral
Reserve
:Ba..·1.k of Dallas that all checks for collection, S"olch as those involved
in this action,night be forwarded to the drawee
accepted therefor in pa.yne:nt.
ban.~
and a bank draft
That the Federal Reserve Bank of Dallas
published a notice to this effect to all of its corrcsponde:nt ani
oOI:lber ba:;.lks, i::.'lcll.:\.di:J.g the First National :Be.nk of Shrove)ort, which
directly assented. thereto anu wc.s bou..."'l.d by such regulation,
&'li
all the
cm.stOI:lers of the First National :Bank of Shreveport, forwarding checks
for collection through the Federal Reserve Bank of Dallas and, by its
110- 5
X-4897
pcrt:ti s s ion,. direct routing checks to its correspondent banks,
wer~
bound by such regulation.
That the defena.aD.t, on its own part, had.
given notice to all of its correspondents, including the Federal
'e'
servo Bank of Dallas, that it would forward chocks for collection to
the drawee bank and accept in pa,yDent therefor a
the Federal Reserve
Bar~
b~-lk
draft, and that
of Dallas, the First National Bank of Shreve-
port, and all bonks for whon defendant undertook to collect cheCks,
assented to and were bound by snch notice.
11 4.
Defendant saving and reserving all of its defenses hereto-
foro sot up,
s~s
that it is not liable to the plaintiff in any event
on account of the alleged negligent act cooplained of, because after
such checks had been forwarded to the :Ba.r..k of Teylor, and after the
Bank of Tcylor had ro:::J.i tted to
p~
the saoe by a bank draft drawn on
the Ba;nkers Trust Conpany of Little Rock, and after such draft was
dishonored by the Bankers Trust Cor.:pany of Li ttl a Rock because of'
the insolvency of the Bank of Taylor, and after notice of such fact
had cooe to the knowledge of the plaintiff, the plaintiff elected to
T~lor
hold the Bank of
filing
T~lor,
bank.
cla~
and ratified the act of the defenda."lt by
with the State Bank Cacoissioner against the Bank of
seckir~
to collect the proceeds of such checks froo such drawee
The defendant pleads such ratification in bar of the plaizttiff 's
claio herounier. 11
Thereafter the defendant filed the following aoendr.lent to i't;s
'
answer:
11
Tho defend.o.n t only undertook to collect checks or forw¥"d
the sar1e for collection u.mler the lawful conditions set forth by
regulations published by the Federal Reserve Board and in force and
effect at the tiDe of the transactions conplained of,.
particular~y
110- 6
X-4897
:~~l
regulation J. Series of 1920, nnd tho conditions and taros for the
collection of checks set forth in Circular No. 6, Series of 1922, dated
Decer:.bor 20, 1922,
la~fully
published by the defendant, and the terns
and conditions in Circular No. 19, Series of 1923, dated Septeobcr 24,
1923, lawfully published by the Federal Reserve :Bank: of Dallas, all of
whiCh regulations,
ten~s,
and conditions fully bound the plaintiff and
by which it is proviC:.ed that checks received by the defendant night be
forwarded for collection to the drawee bank and an exchange
draf~
cepted therefor and the chec..l<:s released to the drawee bank,
rul
ac-
of
which the defendant pleads in defense of the plaintiff's cause o:f
action. 11
This case was suboi tted upon an agreed. statooent of facts and
certain evidence.
The agreed stataoent of facts is as follows:
"Tho following stateoent is agreed upon as the facts upon \7llich
this
case~
be
suboit~ed.
{In the event of an e;ppeal by
eithe~
party,
only relevant portions of the publications and circulars attached as
exhibits hereto will be aorried into the record; such relevant portions will be indicated by underscoring those parts of such
do~ents
as are read in eVidence by either party at the trial hereof.)
"!I.he plaintiff, the l3ank of :Minden and the First National Bank
of Shreveport, are dooicUed in the district of the Federill Reserve
Bank of Dallas.
The First National
~nk
of Shreveport is a meml;ler
bank of the Federal Reserve Systeo, Dallas District.
The Bank of
Minden is not a I:loober.
"If forwarded for collection through a. Federal Reserve Bank,
the checks involved in this action would have been cleared through
t}J.e l)all'-11 :Bank, unless under regulations pu.blished to mecber am.d
110 -
'1
x-4897
non-oaober ba:iks, poroission had been obtained froo the Dallas
B~~
for
direct fornording through a FedGJral Reserve :Bank of another district.
In which latter event, the proceeds
uo~d
be cleared
throu&~
the
Dallas Barlt and the collection wade under ter.as and conditions governing the clearance and collection of checks published br.r the Dallas
bank.
"The Ban..lc of Taylor was in the district of the Federal Reserve
Bank of St. Louis.
Tho checks involYed in this action were sent direct
to the Little Roclt Branch of the Federal Reserve
~~
of St. Louis by
pemission obtained by the First National Bank of Shreveport froi:J.
the Federal Reserve Banl-c of Dallas.
Tho Federal Reserve Bank of
St. Louis and the Federal Reserve Banlt of Del.la.s had published regulations governing tho teros and conditions upon whicl'l either of them
would collect checks or forward the sor.::.e for collection.
These regu-
lations were known to the First National Bank of Shreveport, and no
collection business
wa~
accepted by either of the Federal Reserve
Banks, or any branch thereof, except subject to the conditions of such
regulations.
The officers of the Bank of Minden would testify that
these regulations were unknown to then.
"A copy of the regulations in force by the St. Louis Bank,
designated as Circular No. ·6, Series of 1922, dated Decaober 20, 1922,
is attached and Dade a part of this agreeoont as :EJ.:hi bit 1, and a
copy of the regulations in force by the Dallas :Bank, designated as
Circular No. 10, series of 1923, dated Septeober 24, 1923, is attached
and r.1ade a part of this a.greeoent as Exhibit 2.
A copy of the regu-
lations adopted by the Federal Reserve Board, Series of 1920, is
attached and made a part of this agreet1cnt as Exhibit 3.
110- 8
11
X-4897
Aftor tho failure of tho Bonk of Teylor. dcfonda....""lt ·ivas authorized
by the Fcdcro.l Reserve Barllc of Dallas to file clains
~i th
of the fnilod batik in behalf of its
authorization
includ.ed the
SU.':l
indo~scrs,
~hich
clai:J.eC. by Hicks Cotrpapy, Ltd •. ,
the rccei ver
A copy of this
authorization,
~~tci
February 27, 1924, is attached to this
as Exhibit 4.
The items of $806.47 and $897.44 representing the chpc1:s
which had been deposito! for collection by the ylaintiff
Bank of Minden and forwarded by that
baP~
agrocme~t
~ith
the
to the First Nationnl
~
of Shreveport, a member bank of the Dallas Federal Reserve District.
11
The First National Ba..''lk of Shreveport was authorized by the
Bank of Minden to file a claim with the receiver of the failed bank
as to the above two items.
This was by letter dated
Feb~r
8, 1924,
as shoun by letter of the First National Barik of Shreveport, dated
September 17, 1925, attached hereto as EXhibit 5.
11
Correspondonce between Hicks Compo.cy. Ltd., and the defendant
occurred as shown by letters
hereto as Exhibits 6, 7 and
11
dated~
12, 13, anC. 14, 1924, attached
a.
Direct forwarding of checks for collection from booits in the
Dallas District to the Federal Reserve Bank of St. Louis was authorized
by the Dallas Bank, April 20, 1922, as shown by letters attached hereto as Exhibits 9 and 10.
11 A
claim on behalf of 1 tS indorsers was fil ad with the receiver
of the !a.:nk of Taylor by the defend.a...'"lt, copy of which is attached
as Exhibit 11,· the claim of Hicks Company,- Ltd., being covered by the
two items sho\vn on the list attached to the claim in the
amount of the c.."I'J.ec..lts •·
respect~ve
110 .... 9
X-41397
ti!fu_o form of doposi t tickot in use ·oy :Ba.nl: of Ta:rlor and used
by Hicks Company, Ltd., in
deposi~ing
the two checks in attachocl
hereto as Exhibit 12.
"The Bo.11Jc of Taylor forwnrded a bank draft drawn on its balance
at the Bankers Trust Company, Little Rock, which was not paid beca:use
of insufficient funds.
The balance of the Bar-k of Taylor with the
Bar~ers Trust Co~any on December 13, 1923, was $1,582.43.
"The defendant hns ma.d.e :peymonts to tho plaintiff cut of proceeds
it received from the Bank Comnissioncr in the liquidation of the assets
of tho Bank of Taylor, as fellows:
September 3, 1925 •
Septonber 28, 1925
• • • $164.30
•
154.41
...
154.41
..
.........
February 27, 1926
Total.
.• ...•
11 Tho
$473.12
Bailk of Teylor was the onl;r bank at
Ta~rlor,
nearest other barik being at Staops, about ten wiles
The last :published sta.tencnt of tho Barl: of
with as EXhibit No.
~lo::.·
.Arkansas, the
c~sU4~t
fro.o Taylor.
i.;; exhil)itod here-
"
!hulbers of exhibits r.ere introduced, incluaing circulars, letters
and
co~ies
of regulations, which we do not thiruc necosscry to set out
llere.
W. A.. Hicks testified in substance as follows:
11
:S:o is vico-prcside:J.t of the .A.tlorican Southern Trust Cccpar.y of
Little Rock, \Jhich is onge.g0d in gonoro.l. conr;:orcial banking
His bank does business
of
busine~s
genero.ll~r
busino~!Js.
all over ArkDnsa.s, and a large a.t:lOunt
over tho United States; does a gonoral coooorcial
barik~ng
X-4897
110 - 10
business, the collobtion 6f ~hacks, drafts and itor..~s of that character.
The capital of the ba..."lk is one oillion dclla.rs, and a surplus of tuC?
huri~ed thousand. dollars.
lion dollars.
The average dC")OSi t is about sixteen mit-
Witness has been in the
for 15 years.
b~iking ~siness
Until its merger with certain other
was the largest bank in Arkansas.
in Little RQdk
bar~s,
bar~
this
I am familiar with the U.."liversal
C"J.stom of Federal banks in t"his Federal Reserve District and in t!le
United States in collecting cheCks
dra~
on ort•of
to~
bonks.
Tho
gonernl custom is to send tho checks direct to the paying banks.
It
is the custom to BCcapt drafts dra'W:l by the drawee ba.."'lk on their correspondent, which is usu.aJ.ly located in the town in which the sending
bei~
is located.
It is not tho custom to damand currency from the
drawee bar..k for checks baing colloctod.
OROS~BXAUIN.A.TIOU
This has been the custom since I have boon in the
ness.
It is not
go~orally
ba..~:ing
the custom to ascortnin tho
condition of tho bank before sendir;.g.
busi-
fir~"lcial
If it should be brought to our
direct attention that tho bank is in an insolvent condition we woul'd
route our items to apother
bam~.
We
gation as to tho condition of a bank.
neve~
make auf special investi-
We do not make any investi-
gat ion as to tho 8l'll0Unt of the ca:r>i tal stock or the size of tho
"ba.nf•
Every State bank is required to publish a statement, and our bank
receives those statancnts.
in Ark.."lllsas.
We rocoivc ste.temants from every bank
iie I:!Dke it our srecial "business to get. them, to keep
in touch with the situation, and. to find out whether or not the
bar~
is getting along all right if it is doing business with us in a bollrowing way.
!the published statement of the bank does not indicate .
X-4E97
110 - 11
its condition as being solvent.
be solvent and in good
A
baru~
may be over-extended, and may.
to the published statement •
conditio~ accor~ing
. It is very hard to toll from tho published statement as. to whether tho
bank should be considered as being in a shaky condition.
':i.he published
statement might indicate that it is in an over-extended condition,
but not that it was ins)lvcnt.
and a half thousond
surplus, $2,250.
doll~rs
~~divided
If tho bank showed that it had twelve
capital stoCk, sevon and a half thousand
?refits, deposits of about $54,000. loans
for moro tha.Tl $130,000, a."'ld loa.::s o.nd discounts and bills payable
of $53,000, I would
~ot
call it in
but I would not call it in an
~bsolutely
insolv~nt
first-class condition,
condition.
It depends
entirely upon tho assets in tho way of bills receivable.
If tho
assets werG worth dollar for dollar just J.ikc it stated, and a'bsolutcly good, it would not be insolvent,
~~t
if the assets wore not
worth that much :money, which is u::rJ.a.lly the case, it wc1J.l d not show
a very good report, "bu.t that is e. thi:r..g that co·uld be O.etermined only
by
~Tl.
intensive examination of its assets.
In 1921
~1d
1922 our
b~~ •
. known as the Germa.Tl. National :Ba.."'lk, had deposits of $6,900.00 and we
were borrowing seven and one-half million dollars, and our bills
receivable were twelve oillion dollars.
We were not insolvent, but
our stato.ment indicated that we were rather in
dition.
In the year 1923
ovor-cxtonded cc:1ili.ticn.
n~
~
over-extended con-
bnclts in Arkansas were still in an
ito have hacl less bankruptcies of bar..ks in
Arlr..ansas than h. a:r.:y State surroundir..g us over a period of fi vo yoars,
but I ao not
sign.
sayi~
that this
over-exte~dod
condition was a very good
As I stated before, it depends on the value of tho assets of
the bank and the assets cannot be detcnJinod
~thout
an extensive
llO- 12
X-4897
o:xmrtination by one \7ho knows tho' value of their raper.
th~t
It is possible
their cash oay be low today and collections tooorrow bring up
their resources.
It does not indicate entirely that the
solvent, but in&icatcs
cot:l!:iiU:'4.t;r a:.1.d :W.s
tr~t
~etten
tho bank is
t~·ing
be~
is in-
to take care of its
itself i!l tho.t condi tio:il during hard tioos
and has not yet 'been o.blc to recover.
When we loan nancy to countey
banks we do not require individual i::dorsenent of Cirectcrs, 'but we
require colla.terl:'.l - that is, the rledging of their bills recei va'ble in sene
~~ses
we require
indiviL~
indorseoont.
RE ..;; DI3ECT
EW~INATION
I oxacinod tho ,u:lishod stat0oent stipulated in the agreed
stat~ont
of facts in this case, and we see nothing in the stateoent
that uould koop us fron oending i tcr:s direct to tho 'banlt of
~lor
for collection.
BE - CROSS EXAMINATION
~oro
is
nothir~
in t}le statonont to indicate t:mt r.o would not
send items for nora than $~,000. direct to the batik.
The stateoent
shows that the entire capital stock was tekan up in barking house,
furni t'ill'e and fixtures, banking house and other real estate was $12,000,
the ca.r>ital stock $12,500, the surplus $7,500, the undivided profits
$2,234, r:clcing approxinatoly $10,000 r:.orgin in their capital stock 1
surplus and undi vide G. profits ·above their furniture a..."ld fixtures,
banking house ani other real estate.
It is reasonable to expect
~n
analyzing a statecent of this character that the banking house,
furni 'tiu'e and :fixtures are of sor.:e ve.l·ll.E!.
That would have to be do-
4-0
X-4897
110 - 13
terr.:ined, of course,
011
a sale of the assets.
In r:..y way of analyzin£
this stntcoEmt I \7buld decrease that 50 per cent, bru12-::ing house,
furniture and fixtures, and other real estate worth a9proxioately
~6,000,
r·l1ich added to tho surplus, capital stock a.nC. undiviC.od
profits would r:1akc a net a:.:1ount of better than $6, 000..
hesitate to scnQ itens direct to the
~~
of Taylor for collection.
They :lid owe the $53,000 and the $130,000.
the
~aper,
We would not
~Ict
lmor.ring the value of
I cannot soy uhothcr subtracting tho loan $53,000 and the
$130,000 fror.1 the loans and discounts the usual anount of 'bad paper,
unothcr that would loave tho baclc insolvent.
I will say that this
statew.ent LlC.icatod tl:at tho bark was in a very extended condition,
but tho over-extended condition docs not indicate insolvency.
oignt be insolvent
a-~d
It
it ni£ht not - that depGnds entirely on its
assets."
F. A. Coe testified in
"I am
I:lllilagCr
su~stance
as follous:
of the Li tt;te Rock: Clearing House Association,
which is an association of the 'bariks of Little Rock for
~:ing
settlements on Little RoCk cheCks, and in addition we run a country
department for the collection of some out-of-town checks.
I have
been secretary of this association since August last year.. I was
with the Little Rock
Bra...~ch
of the Federal Reserve Bank of St •. Louis
since January·l, 1919, until August 1, 1923.
I am acquainted with
the universal custom of bail$ ha.11dling chccksdrawn on out-of-tovm
banks for collection.. I understand tho -u.r.r.ivorso.l custom to be as
stated by Mr •. Hicks •. whose testimony I have heard.
L11
110 - 14
X-4897
CROSS-EXAMINATION
! was b.ssistant cashier of the Fcdcrn.l Rescrv-o Barik at this
place wh-en tho i toms in question woro .sent to the :&.:ik of "Toylor:,
Mr. A. F .. J3o.ilcy tvas in charge.
custom to send c11ccks to t..""lose
Ho is not
coun~
tigation <>f t!10ir f'ir..ancial condition..
h(..'l"~
lt is the u:nive:rsul
bariks without making invosTh.c "]o;r..k of
T~rlor
is not a
mombor o:f tho Federal Rosm-ve :Broik or the Federnl .Reserve Syst0m.
It was the custom cf tne :Fadorcl liesorve :Btulk to send these i tc::1s to
nonmember nD.Illts l7ithout making a:rry investigation as to their fi:nanc ial standing..
It is also t...1.e custom of the Little Roclt Clearing House Assoelation to do tn.e same thing.
This is a co:t:Jme:rciaJ. ctl.Btom wnich is
the outgrowth of business conditions..
The above was all the evidenea introduced and t11o court., a.ftei!
hearing the evidence., foUild tho law a.<'1d facts i:r. fe.vor of' the defondant and rendered jud@nent accordingly.
!'he plaintiff savf.}d its exceptions 1 filed its m.?ticn for a new
trial which was by the .court overruled, prayed. a..'"l appeal to the
Suprwe Court., which was grturteC..
The
appella.r~t1s
contention is that he has a :right to sue tho
Federal Rosorve l3nnk
the Federal Eeservo
a.nc.
E~~
that it is not bouna
A~poll~'"lt
alleges
b~-
the regulations of
t~at
the Fcdcrnl Reserve
l3a.nk wa.s negligent in acccptir..g tho draft o:f tho Bank of Taylor and
that because of that negligence it is liable in this case.
110 ... 15
X-4897
The Bank of Taylor, to whom the
were sent, was the payee
ch~cks
pa.nk and this court had, prior to tho Act of tr. . e General Asser.:.bly of
.
l92l, held that it was negligent to send a cheCk for collectior. to
\
the payee bank.
char~od
that that act
~ct
But after the passage
the
~ule
and, in
of the Legislature, the court said
r;,f
that act this court held
t~e
decision construing the
t~at
there are two conflicti:q.g
Jl.inos of decisions; one originating in New York and the other in
~ssachusetts.
Under tho first rule a bank was responsible for all
\
of the correspondent banks through whose hands the choCk passed for
collection, unless there was an express contract to tho contrary between the custOI:ler and the initial bank.
And the other rule holding
that the correspondent baalks were agents of the customer and the
initial
ba~
is not responsible for their negligence.
The Act of the Legislature of 1921 is sot out in full in the
case of Farmers and Merchants Bank V. Rey 170 .Ark. 293. Tho Court in
that case said:
11
The evidence in this case was sufficient to warrant
the jury in finding that appel,lant was not guilty of &"lY negligence
in the selection of its
~ tself
corro~pondents
and that it was not negligent
in forwarding the check :tor collection. 11
The case relied on chiefly by appellant is tho case of Federal
Reserve Bank V. Malloy, 31 A. L. R., 1261.
That case not only announces
the two rules, the Now York rule and tho MassaChusetts rule, but tho
case o.nnotated and Iriany ati.thori ties are collected.
Aoong other things
it announces as one of tho roasons for its decision, that the choCks were
delivered to a banlt in Florida for collection and stated that tho x:elation of the payee to tho initial batik Of deposit was controlled by
43
X-4897
110 - 16
the Florid...'\ Stn.t"G.tc with rcsrect tc-
wr~ich
it 1:mst 'be prcs-..lr.1<;.;d they
dealt ui th onch other and tho.t this stat1;.te J:'1.a.d tho effect of ir.l;iOrling
tho Massachusetts rule intc tho contro.ct uitJ:-. tl:c result thnt tho initial bank ha.i ir.:plied n"G.thori t;r to i:1trust the collection of tho chock
to a· sub-agent
~1d
of any
or ncglicencc on their part rested on tho
dcf~ult
that tho sub-agent in turn to another and the risk
In that case it wa.s urged that
t...~o
o~ors.
accCj_)ta.nco of thu d:re.wee 1 s
draft instead of money was justified by custom.
.And the United States
Supreme Court said, with reference to the custom:
11
The bu.siness of check collecting is hanelecl by the Federal
Reserve :Bank in a wa;y very siMilar to that in which it is handled "uy
collecting batiks
throu~~out
the country.
When one barik receives
checks on anothe:.- in a dista..."'lt city, it usv.ally sends them to the
bank on which they arc drar.n, or to some ether bank in that city, and
receives settlement by moans of an oxchl'_ngc d:rof't
d.rt'.''in.l
by tho bank
to which the checks arc sent upon some one of its ccrr.:>spondonts.
When checks arc sent with the expectation that the
thom will remit at ouco, we call it
scndi~
for
ba~ roccivil~
cclloc~ion
and return.
Whe11 this is dOna. tho bo.r.ik upon u-hich tho chocks arc dratm is expected to cancel tho chocks and charge thotl to tho accounts of tho
dra.uors, a."li to remit by rqoans of its exchange draft, or by a. shipment ·of
than
curro~cy.
An oxcho...."'lgc era.ft is used. more frequently
a shipoont of curroncy.
The court thon so.id, after quc.til'lg the ebovo ovidc:-:..co;
"It
thus appoers that the custom, if otherwise established, docs not fix
a defini to and uniform method of romi ttanco.
\ihon checks arv sent
110 ... 17
X-48D7
for collection and. return, tho bm1k is ox-:occted
t:::
cancel the check
and charge them to tho account of the 2'.ra.wors, and rc~it
of its exchange draft, or by a
shi:p~ont
of currency,
11
11
:8'1; means
tho former
being usod more frequently than the latter.
Whether the choice of
mett.ods is at the elocti0n of the
or tho collecting
dr~weo b&~
b~~
do os not appear. "
The Court then stated that the custom was not kno·.vn to ple.intiff
and all others reasons aside, by its uncertainty ar.d laCk of
unifo~
ity, it furnishes no definite standard by which tho terms of tho
implied consent sought to be established thereb.f can be determined.
j
The
o~urt
11
continuing, said:
It furaishes no rule "by which it can be ascertained 'When an
exchange draft sl'.all be romi tted and. when currency shell be required,
or who is to exercise the right of election.
in
li~~
of tithes is good; but to
times,- 3 ponce, as the
taiaty. * * *
oc~~pior
11 ~
?~~ somet~2es
custom to pay Z pence
Z ~once,
and somo-
of the land pleases, is bed for uncer-
* * A ~~stom to do
a thing in either one or tho other
of two modes, as the person relying upon it
r.~y
choose, can furnish
no basis for an implication that the )Orson sought to be bound
had in oind one oodo rather than. the other.u
~J
it
Federal Reserve :Bank v.
Malloy, 31 A. L. R., 1261.
It will be observed that the testir.'tony in tl">.at case showed t:1e
custom to be to send either a draft or cash.
this case
s~ows
that it is tho
u.~ivorsal
]Ut the testimony in
custom to send the checks
diroct to the payee banks and that it was tho custoc to acc6!Jt drafts
45
110
~
18
JC-4897
drawn by the draii6e bank o_n their
corr~spondentf
the town in which the sending bar..k is
located~
which is usually in
It is not the custom
to demand currency from the d:rawee bank for the checks being collected.
Tho above was the testimony of Mr .•
w.
S. Hicks, Vice President
of the Am.cricro1. Sou thorn Trust Co. and lU-. F. A. Coo tos tificd that ho
was the
m~~or
of tho Little Rock Clearing House Association and ac-
quainted with the uni vorsal custom of banks handling chocks drawn on out
of town banks for collectiOll, Dnd he understood the universal custom
to be as stated by Mr. Hicks, i7hoso tustimony he had hGard.
The difference between the case relied· on by appellant and the
case at bar is, as to custom, that in tho case of Federal Reserve Bank
V. 1/ial.loy, the testimony showed the custom was to receive either money
or drafts; one or the other.
the
~~stem
The
testimo~~
in this case shows that
was to receive drafts and not money, so there was no
uncertainty about it.
It is contended that the appellee was negligent in sending to
the payee bank and negligent in recci ving a draft instead of money.
But tho allegation in the complaint is that it was negligo::1t in not
requiring the Bank of Taylor to pay the said chocks in money, and in
accepting in payment a draft dravm on the :Bankers Truot Coiiifaily.
This
is tho only act of nogligence.alleged.
As we have alrcaay said, the statute itself authorized the
a:ppeJ,lee to send tho
chccJ.~
could not be nogligonco
to tho Bank of Taylor,
~~d
And hence this
the appellant, in its complaint, alleges
that the appellee received the cheCks, transmitted
th~u
to the
Bank
of Toylor, Taylor, Arkansas, and that the Bank of Taylor received the
110 - 19
X-4897
47
.... ~. llii
chocks, stanpod them :paid n.ne..
and Brown.
cr~gcd
them to the accou.'lt of Dickens
Ani that on tho same d!>.y, tho sni d. 13a.rlt
ot. 1'~lo~
ti-tan~""
mi ttod to the defendant its draft on the Bo.:nkerc Trust Conpo.ny of
Little Rock £U1d that tho Defendant, appellee
ho~e,
iwocdintely pro-
sontod said checks to the Bankers Trust Coopany.
According to tho allegations in the cocplaint and tho proof in
the case, the
ap~olloe
was not negligent, in forwarding tho check
fo1· collection, nor »as it guilty of any necligence in e:n:y other wcy.
And, under the rule announced by this court since the Act of 1921,
Federal Rosorvo Bank, the appellee here, was not neGligent.
~he
Seo Bank
of Hunter v. Gros, Manuscript Opinion, Oct. 11, 1926; Rainwater,
Bar~
Cor:JOissioner v. Federal Reserve Bank of St. Louis, Manuscript Opinion,
Ja:n:uary 24, 1927; Tho Federal
Land
'Bank of St. Louis v. Goodtla.n,
Manuscript Opinion, April 4, 1927; Bru:k cf Y.eo v.
~~
of Cabot,
Manuscript Opinion, May 9, 1927.
In the view that we bave taken of this case, it is unnecessary
to discuss the other questions contior.ed in tho briefs of counsel.
We have roached the conclusion that tho appellee was not
~
g~ilty
of
negligence and the caso must therefore be affir.ced.
McKAY and SMITH • • • • • • • • • For kP,Poll£U1t
Je~es
General
G.
M~Conkey,
Co-~<.nsol
Fodoral Reserve :Ba.'lk, St. Louis, Missouri.
Ashley CoCkrill,
Henry M. Arcistead,
Li ttlo Rock, .Arkansas • • • • For Appell eo.
@FedFRASER