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X-4530
148
III THE UNITED STATES CIRCUIT COURT 01? APPEALS FOR
THE FIFTH CIRCUIT.
110. 4721.
PASCAGOUIA NATIONAL BANK OF MOSS P0I1TT AND PASCAGOULA,'
MISSISSIPPI.
Appellant,
Versus
FEDERAL RESERVE BANK OF ATLANTA AND OSCAR NEWTON AS
FEDERAL RESERVE AGENT, ETC.,
Appellees.
Appeal from the District Court of the United States for the
Northern District of
Georgia.
Alex W. Smith, Jr,, (Alex W. Smith, Jr., Smith, Hammond.
& Smith, and Denny & Heidelberg on the "brief), for Appellant,
Newton D. Baker, Ho11ins N. Randolph and Robert S. Parker,
(Hollins H. Randolph, Robert S. Parker, Newton D. Baker, Walter
Wyatt and Montgomery B. Angell on the brief), for Appellees.
Before WALKER, BRYA1T and FOSTER, Circuit Judges.
WALKER, Circuit Judge
This is an appeal from a decree
dismissing a b i l l f i l e d by the appellant, a national bank
X-4530
-2-
149
l o c a t e d
as
in M i s s i s s i p p i .
f o l l o w s
in
the
opinion
The
questions
r a i s e d
r e n d e r e d "by t h e
arc
D i s t r i c t
w e l l
s t a t e d
Judge:
"The present case involves the handling of
checks "between the Federal reserve "bank and one of
i t s members under regulation J of the Federal Reserve
Board. That regulation, adopted to execute the collection and clearing house powers granted in section
13 and section 16 of the Federal Reserve Act (Comp.
St. Sees. 9796, 9799), requires that each Federal
reserve bank shall exercise the function of a clearing
house and collect checks on terms and conditions particularly set forth, whose effect, so far as here
material, i s that each reserve bank will receive at
par, checks which can be collected at par, and only
such, whether they be sent i t by i t s own member and
a f f i l i a t e d banks, or by, or for the account of, other
reserve banks, and whether the checks are drawn on
i t s own member banks or non-member banks, and that
the checks sent each reserve bank will be counted as
reserve or become available for withdrawal by the
bank sending them (subject to final payment) only in
accordance with a time schedule based on experience of
the average time required to collect checks drawn on
the different points. The observance of this regulation by the reserve bank of Atlanta results in a refusal by i t to permit the complainant, one of i t s
members to deduct the previously charged 'exchange'
or compensation for remitting payment for checks drawn
on complainant, and prevents complainant getting immediate credit for checks sent by i t to the reserve bank
when drawn on points at a distance from Atlanta,
whereby i t loses the use of the credit during the
period of delay. The complainant contends, f i r s t ,
that by the provision of section 16 of the Reserve
Act, i t is entitled to immediate credit, at par, for
checks drawn on any of the depositors in the reserve
bark of Atlanta, no matter at what distance from
Atlanta the drawee may be; second, that under the
Hardwick Amendment of section 13 (section 4, c. 32,
40 Stat. 234,) (Comp. St. Ann. Supp. 1919, Sec. 9796)
i t has the right to make a chhrge for remitting payment to the reserve bank of Atlanta of checks drawn
on i t s e l f when these are not the property of the reserve bank, bat are handled for collection; third,
that under section 13 the reserve bank of Atlanta
has no right to have or collect any checks drawn on
complainant which come to the reserve "bank from a
source outside of the Sixth Reserve district; fourth,
that, if the Reserve Act authorizes this deprivation
of complainant's right to charge for remittance, i t
takes i t s property without due process of law, contrary to the Constitution.11 Pascagoulia. National Bank
v* Federal Reserve Baric of Atlanta, 3 3?. (2d). 465*
The claim that for checks drawn upon any of the depositors of the Federal Reserve Bank of Atlanta (herein referred to
as appellee), sent or delivered by appellant to appellee for deposit, appellant was entitled to immediate credit at par as
deposits subject to he checked or drawn on i s based upon the provision of section 16 of the Federal Reserve Act (38 Stat. 26,
U. S. Conrp. St. 1918, 59799, Par. 12) that "Every Federal Reserve
Bank shall receive on deposit at par from member banks * * * *
checks and drafts drawn upon any of i t s depositors,"
That pro-
vision i s explicit in imposing on a Federal reserve bank the
duty of receiving on deposit from member banks checks and drafts
drawn upon any of i t s depositors, and in requiring that such
checks be so received at par.
The amount of the credit to be
given the depositor i s prescribed, but not the time of giving i t ,
unless the language used means that the amount called for by such
a check, upon the receipt of i t by the reserve bank, at once
becomes subject to be withdrawn on the depositor's checks.
In
the absence of a statute otherwise providing, the express or implied agreement or understanding of the parties determines whether
a bank accepting from a depositor a check on another bank is required to give credit therefor at the time of the acceptance or
at a subsequent time., the bank not being required to give irane-
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X-4530
diate credit for the check as for cash if i t clearly manifests
i t s intention not to do so.
National Bank v. Barkhardt, 100 U.S.
151
686; Barton v. United States, 186 U.S. 283; St. Louis & S. ?. 3y.
Co., 27 Fed. 243.
The opinion in the f i r s t cited case shows that
i t was distinctly recognized that where a "bank takes from a depositor
a check on another hank the depositor i s not entitled to credit
for the check at the 'time of i t s delivery if at that time he
has notice that the giving of credit therefor would "be deferred
to a time in the future.
the last cited case:
The following i s from the opinion in
' "It i s quite certain that bankers do not
invariably credit their customers for sight paper as for cash,
but are generally influenced by the financial responsibility of
the customer, or the drawee of the paper, or both.
If a bank
does not wish to assume the relation of debtor for the paper to
the depositor, this intention may be manifested in a very explicit
manner by crediting the paper as paperM.
The relation between a
bank and a customer having a checking account with i t does not
necessarily imply that for checks on other banks sent or delivered
for deposit the customer i s entitled to be credited as for cash
prior to the presentation and collection of such checks.
The
receipt by a bank of checks on other banks for collection and
credit and making the amount to be credited therefor subject to
withdrawal by the depositor only after collection
incidents of such a relation.
are ordinary
It could not well be said that
banks so receiving checks on other banks do not thereby engage
in receiving on deposit checks.
Appellee 1 s above mentioned regu-
lation disclosed its intention as to the time the amount of a
check recuired to be received by it on deposit would become a part
— 5 —
of the Customer's checking deposit.
X-4530
Hi at regulation is not incon-
sis tent vith the requirement that appellee "shall receive on deposit at par" such a check unless that requirement gave appellant
the right to "be credited for such sight uaper as for cash: As
a'^ovc indicated, the duty of a "bank, whether imposed by statute
or by agreement, to receive on deposit checks on other banks does
not noccbsarily imply that tho amount to be credited for a check
becomes, immediately upon the tank's receipt of i t , part of the
depositor's balance subject to be checked againit and withdrawn.
{Incontroverted evidence in this case showed that there i s a general custom among banks to refuse to pay checks drawn against
uncollected funds.
The provision in question is to be construed
in the light of customs affecting the relations of banks and their
customers.
Furthermore, if that provision has the meaning attrib-
uted to i t in behalf of the appellant, practically it has the
effect of requiring a reserve bank to buy from member banks checks
on i t s depositors and to pay in cash therefor the amount they call
for, or to lend without interest that amount on such checks for
whatever time may elapse between the bank's receipt of them and
the presentation of them to the drawees.!or payment, the obligation incurred by the member bank in such a transaction being to
repay to the reserve bank the amount of checks not paid by the
drawees.
That the lawmakers did not intend the provision in
question to have that effect is persuasively indicated by other
provisions of the Federal Reserve Act.
A member bank's checking
deposit in a reserve bank constitutes also i t s reserve balance
provided for by section 19 of the Act.
That reserve balance is
required to be "an actual net balance" equal
to not less than a
3.52
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X-4530
prescribed percent-um of the aggregate aiuount of i t s demand deposi t s
and a prescribed percentm of
its
time
d e p o s i t s .
So far as
a "balance i s represented "by uncollected checks or: other • "banks
received from a depositor i t could act t e l l "be considered to "be
either actual or net.
The value
of
such
paper may consist wholly
in the depositor's obligation to repay the amount credited therefor or acvanced thereon.
Evidently i t was not intended to permit
the depositor's promises to make good to "be counted in determining
the amount of its"actual net balance."
Section 13 of the Act
prescribes the character of paper which a
count for, or make advances on
provision of
that
section nor
to,
any
reserve
bank may dis-
its member banks.
other provision of
Neither
the
the
Act in-
dicates an intention to authorize a reserve bank to invest i t s
funds in uncollected checks on other banks presented by a member
bank.
If
u n d e r
quired,
upon
chocks
drawn
the provision in question a reserve bank is re-
the receipt by i t for deposit from a member bank of
on any of
i t s
depositors located where there is no
o f f i c e o f a reserve bank, to credit the amount thereof in t h e
reserve account of such member bank, i t i s apparent that the reserve banks would constantly have many millions of dollars of
their resources invested in non-interest bearing paper in transit.
That result is not consistent with due effect being given to t h e
provision as to what a, member bank may obtain advances on:5from
a reserve bank.
For reasons above indicated, we conclude that the
provision in question does not require the appellee, upon i t s receipt from appellant for
deposit
appellee's depositors and
p r i o r
of checks
to the
drawn
payment
upon any of the
of such checks,
to credit the o:..ount thereof as for cash, thereby making: such
amount at once subject to he withdrawn by appellant.
In viev. of the unequivocal language of paragraph 1 of
Amended Section 13 of the Federal Bescrve Act as to collection
charges against federal reserve banks and of the decisions in the
cases of American Bank v. Federal Bshcrvo Bank, 262 U. S. 643,
and farmers Bank v. federal Be serve Bank, P,62 IT. S. £49, wc think
i t would be superfluous to add anything to what was said in the
opinion rendered by the District Judge in support of the conclusion
that appellant was not entitled to rake exchange or remitting
charges on checks on i t s e l f received from appellee, whether appellee Wf.s the owner of those checks or held them for collection pursuant to authority conferred by the federal Reserve Act.
The decree is
AF7IPJ3D.
(OF-IGIxIAL FILED FE3BUAHY 11th, 1926.)
Foster, Circuit Judge, dissenting.
Section 16 of the Federal .Reserve Act provides
that every Federal Reserve Bank shall receive on deposit at par from member banks checks and drafts drawn
upon any of its depositors.
Section 13 of the Act
provides that any Federal Reserve Bank may receive
such deposits from member banks but does not specify
at par, and further provides that both member and nonmember banks may make reasonable charges, for collection or payment of checks and drafts and remission
thereof by exchange or otherwise, provided no such
charges shall be made against the Federal Reserve
Banks.
In this case i t appears that the appellee does
not give immediate credit for checks deposited by
member banks, drawn on other member banks.
Regula-
tion J provides for holding such checks in suspense
for a period sufficiently long to allow for collection in the ordinary course of events before credit
i s given.
of the Act.
Thi-s is a plain violation of section 16
Receiving checks for collection i s not
receiving them on deposit.
It i s idle to say that to give immediate credit
to checks deposited would require the Reserve Bank
to lend millions of i t s money without interest.
In
nearly all cases a crediting of the check and subsequent collection would be a mere matter of book-
keeping.
If the Reserve Bank applied, clearing house
Methods as they are authorized to do, probably most
of the iter.is could be handled in the bank.
The danger of loss to the Beserve Bank i s also
infinitesimal.
Die member banks are stockholders
of the Reserve Bank in proportion to their own capital and surplus * In the event of the failure of a.'<
member bank the Reserve Bank has a f i r s t lien on i t s
stock.
The member bank is: also required to keep a
certain percentage of i t s total deposits on deposit
with the
Reserve rank, in this instance three per
cent of time deposits and seven per cent of i t s
general deposits.
If the check deposited were not
in fact paid, the Reserve Bank could immediately
charge i t against the deposit.
If that reduced the
deposit below the legal requirement, the penalty
provided by the act could be applied.
The penalty
usually enforced for a reduction of the required
deposit below the minimum is to charge the discount
rate and two per ceilt additional on the deficit
until repaid.
The Reserve Bank has the right to
make frequent examinations of the member banks and
to call for statements of their affairs whenever
thought necessary.
So they have ample opportunity
to judge of the solvency of the member banks.
The
minimum deposit required by the act i s subject to
chcck so no violation of the law would occur i f
occasionally these deposits were reduced below the
Liininum.
Of course, the statute should not "be con-
strued to require the Reserve Bank t d give immediate
credit regardless of the solvency of the depositor
and the payee of the check, nor to give credit i f
there be cause to suspect thM; the check i s not
genuine or for any other reason . will not "be paid
when presented.
If
it
he
the
two
the
a p p e l l e e
on
conceded arguendo
s e c t i o n s
o t h e r
to
for
p e l l e e
is
on
h a r d l y
be
s a i d
of
f e d e r a l
It
serve
ceive
Bank,
such
in
the
Reserve
i s
charge
which
is
"by c o n s t r u i n g
is
v e s t e d
from member
the
"banks
same' r e s e r v e
it
seems
horn
of
the
dilerana.
made
for
payment
a
charge
made
to
in
drawn
d i s t r i c t
then
charge
me
the
ap-
It
or
against
can
c o l l e c the
Bank.
contended
r e c e i v e s
that
par
other
checks
them on
them at
t i o n
the
d i s c r e t i o n
checks
c o l l e c t i o n ,
Bank
dicated,
take
member banks
merely
t i o n
together
that
is
to
that
although
checks
say,
deposit
i n
f o r
for
s t i l l
would be
be
Federal
manner
c o l l e c t i o n ,
c o l l e c t i o n ,
when c o l l e c t e d ;
would
the
the
above
they
inre-
a n d must
consequently,
made
Re-
a g a i n s t
c r e d i t
a
c o l l e c -
the
Reserve
i l l e g a l .
The Supreme Court, in Farmers Bank vs. Federal
Reserve Bank, 262 U. S. at page 653, said this:
"Pa
of a cho
l e c t i o n
f a c e of
may, d e s
r clearance does no
ck who deposits it
w i l l be c r e d i t e d in
the check if i t is
p i t e par clearance,
t mean tha
with
his
h i s accou
c o l l e c t e d .
make a ch
t the pay
bank for
nt w i t h t
His ban
arge to h
ee
c o l he
k
im
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X-4530
for i t s service in collecting the check from the
drawee bank. It nay make such a charge although
"both i t and the drawee tank are members of the
federal reserve system; and some third bank
which aids in the process of collection may likewise make a charge for the service i t renders."
The argument that the Reserve Bank mast inevitably credit the face of the check when collected i s
not sound.
Section 13 does not require i t nor does,
a reasonable construction of section 16.
It seems
to me to be clearly the intention of Congress that
the Federal Reserve Banks shall give to i t s member
banks immediate credit for checks drawn on other
member banks in the same district.
If I am wrong in this conclusion, then i t
inevitably follows that the member banks have the
right to make collection and exchange charges on
such checks as the charge can not be said to be
made against the Reserve Bank when the check i s
merely held for collection.
For these reasons I respectfully dissent.
(ORIGINAL FILED FEBRUARY 11th, 1926.)
@FedFRASER