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FEDERAL RESERVE BOARD WASHINGTON X-3U22 M a y 27, 1 9 2 2 . SUBJECT: D e c i s i o n in Richmond Par Clearance Case. Bear Sir: T h e r e is t r a n s m i t t e d h e r e w i t h , f o r y o u r information, a copy of the d e c i s i o n b y the S u p r e m e Court of the State of N o r t h Carolina in the case of t h e F a r m e r s a n d M e r c h a n t s B a n k , et a l , v . t h e F e d e r a l Reserve B a n k of Richmond. Very truly yours, G o v (Enclosure) T O C H A I R M E N O F ALI« F . R . B A N K S . e r n o r. COPY X-3U22& N O R T H C A R O L I N A S U P R E M E C O U R T - S p r i n g T e r m 1 9 2 2 - #1+19 U n i o n . F a r m e r s a n d M e r c h a n t s B a n k et a l s V* F e d e r a l R e s e r v e B a n k of R i c h m o n d , V a « Appeal by defendants from Webb, J. F e b . T e r m 1 9 2 2 of U n i o n . T h i s a c t i o n w a s b r o u g h t b y t h i r t e e n banks a n d trust c o m p a n i e s o r g a n i z e d u n d e r t h e la-re o f t h i s S t a t e w h i c h a r e n o t m e m b e r s o f t h e F e d e r a l R e s e r v e S y s t e m , a g a i n s t t h e F e d e r a l R e s e r v e B a n k o f R i c h m o n d , V a . , tc o b t a i n a n i n j u n c t i o n to p r e v e n t the F e d e r a l R e s e r v e B a n k f r o m r e f u s i n g to a c c e p t exchange drafts d r a w n b y the p l a i n t i f f s o n their r e s e r v e d e p o s i t s for less t h a n the f a c e amount of checks p r e s e n t e d , a n d f r o m r e t u r n i n g a s d i s honored checks drawn b y various depositories u p o n the plaintiff banks which h a d b e e n p r e s e n t e d a t t h e i r c o u n t e r s b y the F e d e r a l R e s e r v e B a n k o f R i c h m o n d b u t f o r w h i c h the p l a i n t i f f s h a d t e n d e r e d d r a f t s f o r l e s s a m o u n t s d r a w n b y them upon their respective reserve depositories. A temporary restraining o r d e r w a s a w a r d e d in a c c o r d a n c e w i t h the p r a y e r of t h e c o m p l a i n t . The a c t i o n h a v i n g b e e n b r o u g h t b y said b a n k s f o r the b e n e f i t of t h e m s e l v e s and s u c h o t h e r l i k e i n s t i t u t i o n s w h o m i g h t j o i n in t h e s u i t a n d t h e r e s t r a i n i n g order p r o v i d i n g that all such institutions m i g h t b e c o m e p l a i n t i f f s in the action and h a v e the benefit of said restraining order, some 265 state banks a n d t r u s t c o m p a n i e s h a v e b e c o m e p a r t i e s p l a i n t i f f as a p p e a r s f r o m t h e r e c o r d . By agreement between counsel, trial b y jury was waived and by consent the judge f o u n d the f a c t s a n d u p o n the said f i n d i n g of the f a c t s a d j u d g e d : ( l ) T h a t t h e d e f e n d a n t , F e d e r a l R e s e r v e B a n k o f R i c h m o n d , is h e r e b y e n j o i n e d f r o m r e f u s i n g t o a c c e p t e x c h a n g e d r a f t s w h e n t e n d e r e d b y the - 2 - X-}k22a p l a i n t i f f "banks i n p a y m e n t o f c h e c k s d r a w n o n t h e m u n d e r t h e o p t i o n g i v e n said b a n k s u n d e r p r o v i s i o n s of C h a p t e r 2 0 L a w s N . C. r a t i f i e d 5 Feb. 1921; ( 2 ) T h e s a i d d e f e n d a n t is h e r e b y e n j o i n e d f r o m r e t u r n i n g a s d i s h o n o r e d any check, payment for w h i c h in exchange drafts b y plaintiff banks or either of t h e m , h a s b e e n tendered u n d e r the p r o v i s i o n s of s a i d act and the d e f e n d a n t r e f u s e s to a c c e p t the same; ( 3 ) T h e s a i d d e f e n d a n t is l i k e w i s e e n j o i n e d f r o m p r o t e s t i n g f o r n o n p a y m e n t any c h e c k , p a y m e n t f o r w h i c h in exchange d r a f t s b y p l a i n t i f f b a n k s , or e i t h e r of t h e m , h a s b e e n t e n d e r e d u n d e r the p r o v i s i o n s of s a i d A c t a n d d e f e n d a n t r e f u s e s to a c c e p t the same; ( U ) T h e s a i d d e f e n d a n t is l i k e w i s e e n j o i n e d f r o m p u b l i c a t i o n o r a u t h o r i z i n g the p u b l i c a t i o n of the name of a n y of the p l a i n t i f f b a n k s , l i t e r a l l y or b y i n c l u s i o n , in a n y l i s t or o t h e r p u b l i c a t i o n d e s i g n e d f o r circulation among b a n k i n g institutions generally, regardless of the name employed to designate such list or publication u n l e s s a n d u n t i l the b a n k thus published or included shall have previously given its consent to such publication. Appeal b y the defendant, Alex W. Smith and Stack, Parker & Craig for plaintiffs. Connor & H i l l , H e n r y W . Anderson, M. G. Wallace and C.7r.Tillett,Jr.for defendant. C l a r k . C. J . T h e d e f e n d a n t , F e d e r a l R e s e r v e B a n k o f R i c h m o n d , is a b a n k i n g c o r p o r a t i o n d u l y o r g a n i z e d u n d e r the A c t of C o n g r e s s a n d e s p e c i a l l y u n d e r a certain Act k n o w n as the Federal Reserve Act. I t is o n e of t h e 1 2 F e d e r a l - 3 - X-jU22a R e s e r v e B a n k s w h i c h w e r e organized, u n d e r the t e r m s of that A c t and d o e s b u s i n e s s in a c c o r d a n c e therewith, e s p e c i a l l y w i t h the N a t i o n a l banks and State m e m b e r b a n k s in the Fifth Federal Reserve D i s t r i c t , w h i c h consists o f a p o r t i o n o f t h e S t a t e of W e s t V i r g i n i a , t h e w h o l e o f M a r y l a n d , the D i s t r i c t of C o l u m b i a , V i r g i n i a , N o r t h C a r o l i n a a n d S o u t h C a r o l i n a . Under t h e t e r m s o f t h i s A c t , t h e m e m b e r b a n k s , w h i c h a r e the N a t i o n a l b a n k s in the above m e n t i o n e d district and also certain State banks therein, w h i c h h a v e q u a l i f i e d f o r a n d b e e n a d m i t t e d to m e m b e r s h i p i n t h e F e d e r a l R e s e r v e S y s t e m , a r e r e q u i r e d to k e e p a n d m a i n t a i n w i t h t h e F e d e r a l R e s e r v e B a n k of Richmond certain balances as reserves. The m e m b e r banks create these b a l a n c e s b y s e n d i n g to t h e F e d e r a l R e s e r v e B a n k f o r c o l l e c t i o n c h e c k s or other instruments w h i c h they h a v e received on deposit or for collection. Since the b u s i n e s s of all b a n k i n g i n s t i t u t i o n s c o n s i s t s l a r g e l y in t h e h a n d l i n g o f c h e c k s , it is c l e a r t h a t if t h e F e d e r a l R e s e r v e B a n k is to d i s c h a r g e e f f i c i e n t l y its f u n c t i o n a s a r e s e r v e d e p o s i t o r y of i t s m e m b e r b a n k s , it m u s t b e a b l e to c o l l e c t t h e i r c h e c k s a n d o t h e r i n s t r u m e n t s w h i c h are the o r d i n a r y m e a n s of m a k i n g s e t t l e m e n t of a c c o u n t s and t r a n s m i t t i n g funds. When the Federal Reserve Banks ware first organized they ware not e x p r e s s l y e m p o w e r e d to a c c e p t f o r c o l l e c t i o n a n y c h e c k u n l e s s it w a s d r a w n u p o n a m e m b e r b a n k or other Federal Reserve Bank. Since member banks re- ceive checks not only upon other member banks but also u p o n non-member b a n k s , a n d since the m e m b e r b a n k s w h i c h include m o s t of the l a r g e r b a n k s o f t h e c o u n t r y , a c t e d a s a g e n c i e s t h r o u g h w h i c h the n o n - m e m b e r b a n k s c o l l e c t e d c h e c k s w h i c h t h e y h a d r e c e i v e d , it s o o n b e c a m e e v i d e n t t h a t if t h e F e d e r a l R e s e r v e B a n k s u n d e r t o o k to c o l l e c t c h e c k s u p o n t h e i r m e m b e r C56 - U - X-jU22a banks but could not collect for member banks checks u p o n n o n - m e m b e r banks, a v a s t m a j o r i t y o f c h e c k s u p o n m e m b e r b a n k s w o u l d p a s s t h r o u g h the' F e d e r a l Reserve Banks while checks on non-member banks would be collected through other agencies. As the amount of the checks w h i c h any b a n k r e c e i v e s u p o n others and t h e a m o u n t o f c h e c k s u p o n i t s e l f w h i c h it is c o m p e l l e d to p a y , w i l l u s u a l l y bs about t h e s a m e , if a F e d e r a l R e s e r v e B a n k c o u l d h a n d l e a l l c h e c k s u p o n m e m b e r b a n k s but could receive f r o m ^ m e m b e r b a n k s o n l y a p o r t i o n of the c h e c k s w h i c h t h e y t h e m s e l v e s r e c e i v e , i n t h e c o u r s e o f t i m e t h e f l o w of checks would be unequal and the member banks w o u l d be placed at a great d i s a d v a n t a g e i n t h e i r e f f o r t s to m a i n t a i n p r o p e r r e s e r v e s . As a con- s e q u e n c e , C o n g r e s s b y t h e A c t of 7 S e p t . 1 9 1 6 a n d o f 2 1 J u n e 1 9 1 7 , a m e n d e d S e c . 1 3 of t h e F e d e r a l R e s e r v e A c t a n d a u t h o r i z e d a n y F e d e r a l R e s e r v e B a n k to r e c e i v e f o r c o l l e c t i o n f r o m i t s m e m b e r b a n k s " c h e c k s a n d d r a f t s p a y a b l e u p o n p r e s e n t a t i o n i n i t s d i s t r i c t " , t h u s r e m o v i n g a n y l i m i t a t i o n u p o n the p o w e r of the F e d e r a l Reserve B a n k to receive c h e c k s . F r o m the v e r y nature of a c h e c k n o p e r s o n is o b l i g e d to c o n s i d e r t h e d r a w e e , or p e r s o n u p o n w h o m it is d r a w n , b e f o r e r e c e i v i n g it e i t h e r a s a h o l d e r o r a s a n a g e n t for collection. U n d e r t h e l a w b e f o r e the l a s t m e n t i o n e d a m e n d m e n t to t h e F e d e r a l Res e r v e A c t , F e d e r a l R e s e r v e B a n k s w e r e r e q u i r e d to r e c e i v e c h e c k s u p o n m e m b e r b a n k s f o r c o l l e c t i o n at p a r , a n d w e r e , t h e r e f o r e , c o m p e l l e d to r e q u i r e m e m b e r b a n k s to p a y t h e m the full face a m o u n t of all c h e c k s r e ceived. It is o b v i o u s t h a t if m e m b e r b a n k s w e r e c o m p e l l e d t o p a y t h e - 5 - X-3422a full face amount for all checks h a n d l e d through the Federal Reserve Banks "but s u c h b a n k s c o u l d n o t r e q u i r e n o n - m e m b e r b a n k s t o p a y t h e f u l l f a c e amount .on c h e c k s d r a w n u p o n t h e m , a g r e a t i n e q u a l i t y w o u l d r e s u l t b e - c a u s e n o n - m e m b e r b a n k s w o u l d , t h r o u g h the a g e n c y o f t h e i r m e m b e r b a n k ' correspondents, collect all c h e c k s u p o n any m e m b e r b a n k at par; but w o u l d n o t p a y to m e m b e r banks checks d r a w n u p o n themselves at p a r . With this in v i e w , C o n g r e s s expressly p r o v i d e d b y the a m e n d m e n t of 2 1 June 1 9 1 7 t h a t " n o c h a r g e f o r the p a y m e n t of t h e c h e c k s a n d d r a f t s a n d t h e r e m i s s i o n t h e r e f o r b y e x c h a n g e or. o t h e r w i s e s h a l l b e m a d e a g a i n s t t h e F e d e r a l R e s e r v e Bank". I n e x e r c i s e o f t h e po-ver t h u s c o n f e r r e d , t h e F e d e r a l R e s e r v e B a n k o f R i c h m o n d u n d e r t o o k to m a k e a r r a n g e m e n t s w i t h all n o n - m e m b e r b a n k s in its d i s t r i c t u n d e r w h i c h t h e y w o u l d a g r e e to r e m i t a t p a r f o r a l l c h e c k s w h i c h the F e d e r a l R e s e r v e B a n k r e c e i v e d u p o n them- P r i o r to t h i s t i m e , it h a & b e e n the c u s t o m of m a n y small b a n k s , e s p e c i a l l y those l o c a t e d in remote sections and thus f r e e f r o m c o m p e t i t i o n , to r e f u s e to remit t h e full face a m o u n t f or c h e c k s d r a w n u p o n t h e m T h i c h w e r e sent t h r o u g h the m a i l s , but they i n s i s t e d t h a t i n a s m u c h a s t h e c h e c k c a l l e d f o r payment i n m o n e y at t h e i r c o u n t e r s a n d n o t f o r a r e m i s s i o n b y d r a f t or o t h e r w i s e , t h e y c o u l d r e f u s e to p a y a n y c h e c k u n t i l it w a s p r e s e n t e d a t t h e i r c o u n t e r s a n d t h a t , t h e r e f o r e , if t h e y u n d e r t o o k t o r e m i t f o r c h e c k s s e n t t h e m b y m e a n s o f a n e x c h a n g e d r a f t , t h e y c o u l d , in c o n s i d e r a t i o n of t h e i r w a i v e r of d i r e c t p r e s e n t a tion demand a discount and remit some lesser sum. n o t t h e f u l l f a c e a m o u n t of c h e c k s , b u t T h i s is c a l l e d a n e x c h a n g e c h a r g e f o r r e m i t t i n g f o r - 6 checks- X-3U22a T h e a m o u n t of t h i s c h a r g e o r d i s c o u n t e x a c t e d i n c o n s i d e r a t i o n of p a y m e n t b y d r a f t r a t h e r t h a n i n c a s h v a r i e d , b u t u s u a l l y r a n f r o m l / l O t o l / 4 o f 1/0 u p o n t h e a m o u n t of a l l c h e c k s so p a i d M a n y n o n - m e m b e r b a n k s refused to m a k e a n y a g r e e m e n t to p a y the F e d e r a l R e s e r v e B a n k at p a r f o r c h e c k s s e n t t h e m f o r c o l l e c t i o n t h r o u g h the mails. The F e d e r a l R e s e r v e B a n k of R i c h m o n d 1 w a s p r o h i b i t e d b y t h e F e d e r a l Reserve Act f r o m p e r m i t t i n g any discount to b e d e d u c t e d from t h e f a c e a m o u n t o f c h e c k s w h i c h it h e l d f o r c o l l e c t i o n . It s e n t r e p r e - s e n t a t i v e s to t h e n o n - m e m b e r b a n k s i n N . C . u r g i n g t h e m t o a g r e e t o r e m i t a t p a r , e x p l a i n i n g t h a t it b e l i e v e d t h a t s u c h p r a c t i c e w o u l d b e f o r t h e m u t u a l c o n v e n i e n c e of b o t h p a r t i e s a n d t h a t a n i n s i s t e n c e b y t h e n o n m e m b e r b a n k s o n t h e i r s t r i c t l e g a l r i g h t to h a v e a c h e c k p r e s e n t e d f o r p a y m e n t at t h e i r c o u n t e r s a n d t o p a y t h e s a m e o n l y i n l e g a l m o n e y w o u l d b e a n i n c o n v e n i e n t a n d e x p e n s i v e m e t h o d of d e a l i n g , n o t o n l y to t h e F e d e r a l Reserve B a n k of R i c h m o n d , but a l s o to the n o n - m e m b e r b a n k s . The n o n - m e m b e r b a n k s w e r e a t the s a m e t i m e a l s o n o t i f i e d t h a t if t h e y s h o u l d i n s i s t u p o n t h e i r l e g a l r i g h t to r e q u i r e a p r e s e n t a t i o n a t t h e i r c o u n t e r s of a l l c h e c k s d r a w n u p o n t h e m vvhen h a n d l e d b y a F e d e r a l R e s e r v e B a n k , t h e F e d e r a l R e s e r v e B a n k w o u l d b e c o m p e l l e d to p r e s e n t t h e c h e c k s at t h e i r c o u n t e r s b y m e a n s of d u l y a u t h o r i z e d a g e n t s b u t if c o m p e l l e d t o t a k e t h i s course the F e d e r a l Reserve B a n k w o u l d , a f t e r s u c h p r e s e n t a t i o n , refuse t o "'aive its r i g h t t o i n s i s t u p o n p a y m e n t i n l e g a l t e n d e r m o n e y - - 7 - X-3%22a The Federal Reserve Bank made arrangements with certain residents of the towns in w h i c h various n o n - m e m b e r b a n k s w e r e s i t u a t e d to c o l l e c t c h e c k s a s i t s a g e n t s b y m e a n s o f p e r s o n a l p r e s e n t a t i o n o r it sent a n e m p l o y e e to such t o w n to act as its a g e n t , On 15 November 1921, the Federal Reserve B a n k of Richmond gave n o t i c e t h a t it w o u l d c o l l e c t c h e c k s u p o n a l l n o n - m e m b e r b a n k s i n N , C . by s e n d i n g t h e m t h r o u g h the m a i l if the b a n k w o u l d a g r e e to p a y the full a m o u n t d u e u p o n the checks, or b y p e r s o n a l p r e s e n t a t i o n b y the a g e n t if t h e n o n - m e m b e r b a n k r e f u s e d t o p a y t h e f u l l f a c e a m o u n t o f the check u n l e s s p r e s e n t e d p e r s o n a l l y at its c o u n t e r . T h e L e g i s l a t u r e of N , C,, L a w s 1 9 2 1 , C h a p t e r 20, a u t h o r i z e d S t a t e b a n k s i n N. C. to charge a fee not in e x c e s s of l / S of 1 ^ o n r e m i t t a n c e s c o v e r i n g checks, o r a m i n i m u m f e e of 10'& a n d p r o v i d e d that in the event a Federal Reserve Bank, post office, or express company s h o u l d present checks at the counters of the d r a w e e b a n k a n d d e m a n d p a y m e n t i n c a s h , s u c h d r a w e e "bank s h o u l d b e p e r m i t t e d to p a y by means of a draft drawn upon its exchange deposit, excepting, however, checks p a y a b l e to the State or to the Federal Government and checks u p o n w h i c h t h e d r a w e r h a d e x p r e s s l y d e s i g n a t e d to the contrary- The defendant bank, being advised that this statute w a s unconstitutional, presented the checks at the counter of the drawee bank, demanding the full amount due a n d returned the checks as d i s h o n o r e d w h e n payment in full was refused. In returning checks w h i c h h a d b e e n so p r e s e n t e d , the F e d e r a l R e s e r v e B a n k of R i c h m o n d w a s c a r e f u l to state that the c h e c k h a d been d u l y presented a n d t h a t p a y m e n t i n m o n e y a t i t s f a c e amount had b e e n demanded but had b e e n refused as the drawee bank claimed - g - X-3422a the right to d i s c h a r g e its o b l i g a t i o n b y its own d r a f t . T h e p l a i n t i f f s in this p r o c e e d i n g sought to r e s t r a i n the F e d e r a l Reserve Bank of Richmond, from returning any check presented under t h e s e c i r c u m s t a n c e s a n d t o r e q u i r e it t o a c c e p t a n e x c h a n g e d r a f t f r o m t h e p l a i n t i f f s w h e n a n y c h e c k h a d b e e n t h u s p r e s e n t e d to t h e m r e g a r d less w h e r e such e x c h a n g e draft w a s p a y a b l e or w h e t h e r o r not the p a y m e n t o f it c o u l d b e i n d e f i n i t e l y p o s t p o n e d , a s s u g g e s t e d i n t h e a r g u m e n t , by a succession of such exchange drafts. The p l a i n t i f f s , however, in a d d i t i o n to the e c o n o m i c effect of the F e d e r a l statute w h i c h f o r b i d s the p a y m e n t b y the R e s e r v e Bank of a charge for collection of checks thus forcing, as they claim, all c o l l e c t i o n to b e m a d e t h r o u g h t h e F e d e r a l R e s e r v e B a n k s w h o c a n t h u s collect without charge, made the further a l l e g a t i o n that the defendant was u n d e r t a k i n g to coerce the non-member b a n k s to a b a n d o n their right to c h a r g e for r e m i t t i n g for c o l l e c t i o n s of checks u p o n t h e m b y saving u p checks over a c o n s i d e r a b l e p e r i o d of time u n t i l they r e a c h e d a large a m o u n t a n d t h e n d e m a n d i n g them at the counter w i t h the p r o b a b l e effect of d r i v i n g the b a n ! into liquidation. W e n e e d not consider this a l l e g a t i o n w h i c h w a s n o t o n l y denied b y the d e f e n d a n t but w h i c h the court has found a s a fact to b e untrue, a n d the plaintiffs^^nave t a k e n no e x c e p t i o n to s u c h f i n d i n g . It w o u l d be unnecessary to notice this proposition but that such conduct was condemned b y Mr. Justice Holmes in the case o f the A m e r i c a n B a n k & Trust Co. v Federal R e s e r v e B a n k o f Atlanta, o p i n i o n f i l e d l 6 May 1 9 2 1 . That decision was r e n d e r e d u p o n a demurrer on which, o f course, the court - 9 - X-3U22a : v a s s u m e d t h a t a l l the a l l e g a t i o n s o f t h e b i l l a n d a l l r e a s o n a b l e i n f e r e n c e s f r o m t h e m .-/ere t r u e . T h e f i n d i n g of fact o n the trial in the p r e s e n t case, eliminated this question entirely f r o m our consideration. The r e c o r d and briefs in this case are v o l u m i n o u s and the argument h a s b e e n v e r y e l a b o r a t e a n d a b l e as the i m p o r t a n c e of t h e c a s e d e m a n d e d . T h e F e d e r a l R e s e r v e B a n k u n d e r the p r o v i s i o n s o f t h e F e d e r a l Statute h a s the right to receive for c o l l e c t i o n a c h e c k d r a w n u p o n a n o n - m e m b e r b a n s , o r u p o n a n y o t h e r p e r s o n - vithin i t s d i s t r i c t u n d e r the c l e a r u n m i s t a k a b l e terms of the act. T h e a m e n d m e n t m a d e 21 J u n e 1917 to S e c . 13 o f the F e d e r a l R e s e r v e A c t p r o v i d e s : "No c h a r g e f o r t h e p a y m e n t of t h e c l u c k s a n d d r a f t s a n d t h e r e m i s s i o n t h e r e f o r f o r e x c h a n g e o r o t h e r w i s e s h a l l b e m a d e a g a i n s t the Federal Reserve Banks". T h e r e a l q u e s t i o n , t h e r e f o r e , p r e s e n t e d f o r u s is w h e t h e r t h e L e g i s l a t u r e o f N . C. c a n b y t h e A c t a b o v e m e n t i o n e d , C h a p . 2 0 L a w s 1 9 2 1 , i n t e r f e r e w i t h t h i s p r o v i s i o n o r r e g u l a t i o n of t h e F e d e r a l c o r p o r a t i o n b y a v a l i d A c t o f C o n g r e s s b y p r o v i d i n g t h a t a s t a t e b a n k n e e d n o t p a y its o b l i g a t i o n s in lawful money %hen checks, which u p o n their face are unconditional orders for the p a y m e n t of m o n e y , are p r e s e n t e d by Federal Reserve B a n k s . The question m a y be p r e s e n t e d concretely by this h o m e l y illustration. Suppose a farmer or merchant or other c i t i z e n of this State should send h i s c h e c k f o r $ 1 , 0 0 0 , d r a w n o n a bank, i n t h i s S t a t e , i n p a y m e n t of a p u r c h a s e o f goodjs o r o t h e r a r t i c l e , to N e w Y o r k , T h e p e r s o n r e c e i v i n g it w o u l d p l a c e t h i s c h e c k , i n t h e o r d i n a r y c o u r s e o f b u s i n e s s , to h i s c r e d i t i n s o m e b a n k in t h a t c i t y , w h i c h b a n k i n o r d i n a r y u s a g e w o u l d s o m e t i m e s c h a r g e f o r c o l l e c t i o n a small sum b a s e d u p o n the i n t e r e s t f o r the t i m e u s u a l l y occupied X-3422a -10- i n s e n d i n g t h e c h e c k to t h e b a n k h e r e a n d the r e t u r n o f t h e c o l l e c t i o n to the bank in N e w York. A s to t h i s c h a r g e , w h i c h is a m a t t e r b e t w e e n t h e d e p o s i t o r a n d h i s b a n k , t h e r e is n o c o n t r o v e r s y h e r e . W h e n such c h e c k is s e n t to t h i s S t a t e it h a s b e e n n o t u n u s u a l h e r e t o f o r e , f o r t h e b a n k h e r e to m a k e i t s r e m i t t a n c e b y e x c h a n g e o n N e w Y o r k a n d to c h a r g e a f e e f o r t h e s e r v i c e b u t s i n c e t h e a m e n d m e n t to S e c . 1 3 o f t h e F e d e r a l R e s e r v e B a n k A c t o f 2 1 J u n e 1 9 1 7 , if s u c h c h e c k f r o m N e w Y o r k is r e m i t t e d t h r o u g h the F e d e r a l Be serve B a n k no c h a r g e c a n be m a d e f o r e x c h a n g e in r e m i t t i n g t h e p r o c e e d s a n d if t h e b a n k h e r e s h o u l d r e m i t a n y t h i n g l e s s t h a n t h e f a c e of the c h e c k , $ 1 0 0 0 , t o the F e d e r a l R e s e r v e B a n k , t h e F e d e r a l R e s e r v e B a n k i n o b s e r v a n c e o f the p r o v i s i o n s o f t h e a b o v e a m e n d m e n t to S e c , 1 3 w i l l r e f u s e to a c c e p t it a s p a y m e n t a n d n o t i f y i t s c o r r e s p o n d e n t in N e w Y o r k w h y the c h e c k has b e e n p r o t e s t e d for non-payment T h e p l a i n t i f f s c o m p l a i n t h a t t h e r e s u l t is t h a t a l l c h e c k s w i l l b e s e n t f o r c o l l e c t i o n t h r o u g h t h e F e d e r a l R e s e r v e B a n k s s y s t e m b u t t h a t is a n e c o n o m i c r e s u l t w i t h which this court h a s n o t h i n g to d o . This m a y or m a y not h a v e b e e n the intention o f Congress in m a k i n g the amendment but t h e F e d e r a l R e s e r v e B a n k A c t h a s b e e n h e l d v a l i d a n d the a m e n d m e n t o f 1 9 1 7 w a s a v a l i d r e g u l a t i o n o v e r the c o r p o r a t i o n c r e a t e d b y it vvhich C o n g r e s s h a d the p o w e r to make. C o n c e d i n g that C o n g r e s s c a n n o t r e q u i r e the b a n k h e r e to r e m i t w i t h o u t c h a r g e f o r i t s t r o u b l e , Congress by forbidding the charge p r e v e n t s the R e s e r v e B a n k f r o m a l l o w i n g such c h a r g e (and the t o t a l o f s u c h c h a r g e s if m a d e t h r o u g h o u t t h e C o u n t r y w o u l d a m o u n t t o $ 1 3 5 , 0 0 0 , 0 0 0 a n n u a l l y ) and the R e s e r v e B a n k h a s n o a l t e r n a t i v e e x c e p t to d e m a n d p a y m e n t o f t h e f a c e a m o u n t o v e r t h e c o u n t e r in l e g a l t e n d e r f r o m w h i c h n o s t a t e c a n r e l e a s e the p a y e e b a n k w i t h o u t v i o l a t i o n of t h e U . S. -11- X-3^22a C o n s t i t u t i o n , a n d o f i t s o b l i g a t i o n to t h e d r a w e r a n d t h e d e s t r u c t i o n o f its b u s i n e s s b y t h e p r o t e s t s o f t h e c h e c k s o f i ^ s c u s t o m e r s . T h e s t a t u t e o f N. C., C h a p t e r 20, I921, w a s i n t e n d e d for the b e n e f i t o f t h e S t a t e b a n k s in t h i s S t a t e , "by a u t h o r i z i n g t h e m t o continue to charge exchange for remitting collection of checks presented to them for payment, b y sending their own checks for less than the f a c e a m o u n t of t h e c h e c k sent h e r e for c o l l e c t i o n , b u t h o w e v e r d e s i r a b l e t h a t p o l i c y m a y b e , it is c l e a r l y i n c o n f l i c t w i t h t h e v a l i d c o n s t i t u t i o n a l p r o v i s i o n of t h e F e d e r a l s t a t u t e . No Act of this State can authorize the drawee bank to pay less than the face amount of the check d r a w n u p o n it b y its d e p o s i t o r o r t o r e m i t i t s c h e c k i n p a y m e n t o r p a y it o t h e r w i s e t h a n i n l e g a l t e n d e r m o n e y . N o r c a n it r e q u i r e t h a t t h e Federal Reserve B a n k shall pay a fee or that the b a n k h e r e may remit less than the f a c e v a l u e of the check w h e n the F e d e r a l statute forbids s u c h charge. It is true t h a t t h e F e d e r a l R e s e r v e B a n k a s h o l d e r o f t h e c h e c k h a s n o c o n t r a c t r i g h t s w i t h t h e d r a w e e b a n k u n t i l t h e c h e c k is p r e s e n t e d b u t a s h o l d e r it c a n r e q u i r e p a y m e n t o f t h e f a c e a m o u n t o n t h e c h e c k i n l e g a l t e n d e r a n d u n d e r t h e A c t o f C o n g r e s s it c a n n o t p a y a d e d u c t i o n f r o m t h a t f a c e v a l u e b y a c c e p t i n g a r e m i t t a n c e to t h e H e s e r v e B a n k o f a lesser amount, T h e R e s e r v e B a n k a l w a y s e n c l o s e s w i t h t h e c h e c k sent to t h e p a y e e b a n k a s t a m p e d a n d a d d r e s s e d e n v e l o p e f o r t h e c h e c k t o b e remitted in p a y m e n t , w h i c h must b e for t h e f a c e amount of the c h e c k sent. The Federal statute, being a regulation of the Federal Corporation by Congress, the Act of t h i s State a u t h o r i z i n g the p a y e e b a n k here to e x a c t e x c h a n g e is i n d i r e c t c o n f l i c t w i t h t h e d u t y i m p o s e d u p o n t h e F e d eral R e s e r v e B a n k b y the Act of Congress a n d the R e s e r v e B a n k acts w i t h i n -12- X-3U22a its d u t y t o o b s e r v e t h e p r o v i s i o n of t h e F e d e r a l A c t b y r e f u s i n g to r e c e i v e a c h e c k f o r l e s s t h a n t h e f a c e a m o u n t o f t h e c h e c k s e n t b y it for collection. I t is t r u e it c a n n o t e n f o r c e p a y m e n t o f t h e f a c e a m o u n t e x c e p t b y p e r s o n a l p r e s e n t a t i o n of t h e c h e c k a t t h e c o u n t e r o f t h e p a y e e b a n k b u t it h a s a r i g h t to r e f u s e a c h e c k s e n t t o it b y the p a y e e b a n k f o r l e s s t h a n the f u l l f a c e a m o u n t a n d to p r o t e s t the c h e c k it h a s s e n t h e r e f o r c o l l e c t i o n f o r n o n - p a y m e n t » T h e m a t t e r t h e n b e c o m e s o n e b e t w e e n t h e d r a w e r o f t h e c h e c k a n d t h e p a y e e ? >ank w h o r e f u s e s to p a y i t . The U . S. C o n s t i t u t i o n , Art- V I , (Sec-2) p r o v i d e s that the C o n ? s £ i t u t i o n of t h e U . S . a n d the l a w s m a d e in p u r s u a n c e t h e r e o f , " s h a l l b e t h e s u p r e m e l a w o f t h e l a n d ; a n d the j u d g e s i n e v e r y S t a t e s h a l l b e b o u n d t h e r e b y , a n y t h i n g i n t h e C o n s t i t u t i o n or l a w s of a n y S t a t e to t h e contrary notwithstanding". I n the m a t t e r b e f o r e u s the A c t of C o n g r e s s w h i c h p r o v i d e s that no e x c h a n g e shall be a l l o w e d b y the R e s e r v e B a n k f o r r e m i t t i n g f o r t h e c o l l e c t i o n o f a n y c h e c k b y a n y b a n k is i n d i r e c t c o n f l i c t w i t h t h e s t a t u t e o f t h i s S t a t e a u t h o r i z i n g the p a y e e b a n k t o r e m i t a l e s s e r a m o u n t t h a n t h e f a c e a m o u n t o f a n y c h e c k p a i d b y it if presented b y the Federal Reserve Bank. t h e F e d e r a l l a w is s u p r e m e . The injunction, therefore, was improvidently g r a n t e d a n d the j u d g m e n t m a s t be In this conflict of authority, REVERSED.
@FedFRASER