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1032.
FEDERAL RESERVE BOARD
WASHINGTON
X-3504
August 16, 1922.
SUBJECT:
Charging Back of Gover~nt Warrants and Checks
Previously Paid by Treasurer of United States.
Dear Sir:
On July 10, 1)22, the Bo~rd sent to a+l Federal Reserve
Banks a latt~r (X-3471), subj~ct "Amendment to Check Collection
Circulars Suggastad by Tre2l.sury Dep:1rtment 11 , dealing with the
Treasury's practice with regara. to the b.ter ch:lrging back of
Governmant warrants o.nd checks previously paid by tha Treasurer
of the Unit~d States.
In thi~ connection ther~ is enclosed
hareNith, for your information, co;y of a letter received today
from the Sacret;;.ry of the Treasury tr:msmitting copies of
correspondence betw~en the,Trea~ury Dep~rtment ~d the National
City Bank of New York, setting for~~ 1n f~l the Treasury's
position with regard to the charging back of ·Government items,
the method of h:t.nd.ling such it;ms 'Qy the Federal Reserve Banks
· upon charging back :.md the respective functions of the Fadernl.
Il.eserva Ea.nks and the Treas;ury with regard to reclamation on
such items.
Very truly yours ,
Vice Governor.
(Enclosure)
TO THE GOV3BNORS OF .ALL 11'.
COPIES TO AG3NTS~
R.
BLlGS
I
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c
0 p
y
...
THE SECI&'"TARY OF THE TREASURY
X-3504a
Washington
fit' dear
Mr~
August 12, 1922.
Platt:
Referring ,to previous correspondence relative
to the Treasury's practice with regard to the later
charging back of Government warrants and checks previously paid by the Treasurer of the United States, I
enclose copies of recent correspondence between the
Treasury and the National City Bank, consisting of the
Bank's letters of July S, 1922, July 27, 1922, and August
7, 1922, and my letters of July 19, 1922 and July 29;
1922.
These letters set forth in full the Treasury's
position with regard to tha later charging back of
Government items, the method of handling such items by
the Federal Reserve Banks upon chargi?;lg back, and the
respective functions of the Federal Reserve Banks and
the Treasury with regard to reclamation on such items.
As there has recently been considerable misunderstanding
and difficulty regarding this matter, mu.ch of which has
been traceable to the action of the National City Bank,
I would suggest the advisability of sending copies of
the correspondence to all the Federal Reserve Banks in
connection with your previous circular lettar on this
subject dated July 10, 1922.
Very truly yours,
(Signed) A.
.
w.
•
Bon. Edmmd Platt,
Vice-tJovernor, Federal Reserve £oard,
Washington, D. C.
5 enclosures.
Mellon,
Secretary •
THE NATIONAL CITY BJJ[[
of New York
New York,. August 7, 1922
Office of tha
President
My dear Mr. Mellon:
I have received your letter of July 29th regarding the form of credit advice used by us with respect
to w2.I'rants and checks dravvn on the Treasury of the
United St:;~.tes, o.nd I delayed a reply until, for the
~pose of our record, a confi~tion of your definition of the capacity in which the Federal Reserve Danl:
acted in such matters was obtained through Mr. Strong,
who advised me that a copy of your letter had been
sent to him.
That confirmation has now been received,
s.nd I am plea5.,d. to write that. with a full concurrence
of counsel we have dete~ined to discontinue the form
of credit advice whieh was obj actionable to you.
This matter sto.nds in a much clearer light
tho.n heretofore, and I want to expr~ss my personal
appreciation for your cooperation in closing it thus
satisfactorily.
Yours very truly,
(Signed)
c.
E. Mitchell
President •
.'
Hon. .Andrew W.. Mellon
Secret~ry of the Tre~sury,
Washington, D. c.
J
(Copy)
THE SECRETARY OF THE TREASURY
Washington
29 , 1922.
X-3504a
July
Dear Mr. Mi tchall:
I
I received your letters of July 24 and July 27, 1922 regarding the form of credit advice used by the National City Bank of
New York with respect to warrants and checks drawn on the Treasurer
of t~e United States. I note that your counsel are not satisfied on
the question as to whether the Federal Reserve Bank acts in a private
or governmental capacity in handling ~ch items, and that this question is in their opinion relevant, for the reason that the Federal
Government would not be barred by the statute of limitations and in
case of a forged endorsement ~ght bring action for recovery years
after the discovery of the forgery when an ordinary i:ndividual would
be barred by the lapse of time. The Federal Reserve Banks do not
pay Government warrants and checks, but cash them under Treasury
regUlations. The ~ea~rer of the United States, as the drawee of
Government warrants and checks, makes payment thereof, and the
Government, rather than the Federal Reserve Bank, is the real party
at interest when the question arises of recovery on warrants and
checks paid on forged endorsements. I take it to be clear that in
the absence of a statute expressly providing otherwise, the United
States Government would not be barred by the statute of limitations,
or by laches, and that there might therefore be cases where it could
bring suit for recovery in respect to Government warrants and checks
which had been paid on a forged endorsement, evan though enough time
might have elapsed to bar recovery by private parties similarly situated. I do not see that there is any escape from this situation. The
Government is the sovereign, and from time immemorial this has been
the rule. I do not understand, however, how this contingency justifies the form of credit advice used by t:'le National City Bank of New
York. The letter of October 3, 1921, from the Cashier of the bank
states that this clause reads as follows: -,:"All instruments against
the Government of the United States are credited'subjact to final payment by the Treasury Department. Therefore, any item which subsequently
may be returned unpaid to us by the Department will be charged back
against your account"· As the Treasury has previously pointed out, the
fact that warra:J:l,ts and checks drawn on the Treasurer of the United
States must be credited "subject to final payment by the Treasury Department" is not unusual and does not warrant any discrimination as
between commercial items and Government items. In the nature of the
case, warrants and checks must be subject to final payment by the
drawee, and the terms and conditions on~ich the Treasurer of the
United States makes examination and payment are set forth in paragraphs
35 to 38 of Treasury Department Circular No. 176, dated May 15, 1922.
The second sentence of the credit advice refers to returned items, and
the. Treasury 1 s practice in· this regard has already bean.. fully explained
in previous correspondence. Under this practice, as outlined in subdivision 2 of paragraph 37 of Trea~ry Department Circular No. 176,
.·
1036
July 29,1922.
\'
.
X-3504a
-2-
warrants and checks paid by the Treasurer. which are subsequently found
to bear a forged endors~ment, or to bear any other material alteration
or defect not discoverable upon first examination, will be returned to
the Federal Reserve Bank or national bank depositary which cashed the
item, but the Federal Reserve Bank or other depositary will not be ex~
pected to give credit therefor to the Treasurer until it has actually
received reimbursement therefor from the person liable on the forger~
or alteration. The term "remitting ba."lk 11 as· used in this paragraph
applies to the Federal Res~rve B~Ylk, rather than to the bank presenting the i tern to the Federal Reserve :BBnk, as has already been explained
in mw letter of July 19, but even as between the Federal Reserve Bank
and the bank which presented the item the practice would be, as I
understand it, to call upon the presenting bank for reimbursement, and
not to charge its account with the item under any arbitrary procedure.
In other words, the 1 terns would not be "charged back" by the Federal
Reserve Bank, but would be ~reated in substance like collection items.
In the event that recovery. could not be made in this manner it would,
of course, be necessary to ,bring suit, and in ordinary course wit
would be brought by the United States, rather than by the Federal Reserve Bank, since the Federal Reserve Banks act in such matters for
account of the United States a~d the United States is the real party
· at interest. Under the procefrare thus established the items cannot
properly be said to be 11 charged back", ~d the credit advice used by
the National City Bank of New York is therefore incorrect and misle~ing. As a matter of fact, sava for the one question as to the effect
of lapse of time the procedure would be the same as with commercial
items, and on the question of the lapse of time it would, of course, be
the policy of the Treasury to rrDve at the earliest possible moment after
discovery of the forgery or alteration. The Treasury cannot undertake
that the Government in these matters will be barred by lapse of time,
but even assuming a casa where there might be a sufficient lapse of
time to bar private parties, the result would be a suit brought in
regular marm.er by the Government of the Unittid States, and not an arbitrary charging back of the item through the channels from which it was
received.
I wish that you would consider the matter further in the light
of the considerations suggested by this letter and advise me if it is
not possible under the prevailing conditions to discontinue the use of
the credit advice in question. In this connection I shQu.ld like to
refer to your Cashier's letter of December 1~, 1921, from which the
Treasury upderstood that notwi thsta.nding the point raised by counsel
the N'ation~l City Bank wou,ld change its forms as soon as the Federal
Reserve :B~ changed its circular •.
Yours very truly,
(Signed) A.W. Mellon,
Secretary.
C. E. Mitchell, Esq.,
President, The 1Nat1onal City Bank of New York,
New York, N. Y.
1037
X-3504C!.
THE NATIONAL CITY BANK
of New York
Office of
the President
New York, July 27, 1922·.
Hon • ..1\ndrew W. Mellon,
Secretary of the Treasury,
Washington, D. c.
My dear Mr. Mellon:
Referring further to your letter of July 19, regarding the
form of advice whioh we use when remitting the proceeds of Government
warrants and checks paid by· the Treasury of the United States,· I
have conferred with our counsel, upon whose de~inite advice you will
realize that we mu.st rely.
I had hoped that your letter would
definitely close the matter in their minds, but it appears that
While it did dispose of the first qu~stion raised in our letter of
July 3, it does not seem to have satisfied them on the question as
to whether the Federal Reserve :Bank acts in a private or Governmental
capacity when it pays these items.
:
This question in their opinion is relevant for the reason
that by;dacision of ·the Supreme Court, the Federal Government is not
barred ~Y the StA-tute of LimHations, and in case of a forged prior
endorse~ent might, if it saw fit, bring :m action for r::covery
several :years after it otherwise would be b_\.rred.
Consequently,
if the federal Reserve Ea~ acts as a Governmental agent in this
r~spect,: it would have the san1e po~ver, ::.nC. we ~\re ::..dvised that it
probably is not possibl~ for tha Government to depl·ive itself of
this power without express law to that effect.
~'.
''·
i feel sure you understand the difficulty of our position.
We do not want you to interpret us as doubting ~ither th3 good intentions. ot )our Department or of the Federal Reserve Ba11k, :md we
would be only too glad to acquiesce and discontinue the use of this
stamp, -but we do not wish to assume any unnecessary risk with. respect to collection items •
•. . If you have at hand any decisions or opinions showing thJ.t
the Fdderal' Reserve :Sank in receiving this type of paper for collection is acting in a private ~d not a Governmental capacityt"
so that the usual commercial laws will apply between this Barik
and it, I will be very glad to recaive them.
1038
X-3504a
New
Yorl~-,
.:;·uly 27, 1922.
.. 2 .On
raceipt of your reply to this letter, I can assure
you the nutter will be definitely closed.
Yours very truly,
(SigntJd) C. E. Mitchell
President ..
X-3504a
·THE SECRETARY OF THE TBEASURY
Washington
July 19, 1922.
PERSONAL.. ·
My dear'
JK:r. ·Mitchell:
I have received from your cashier a letter dated July
&,
1922, with.further reference to a form of credit advice used by
..
....
'~··
'..
the National City ~atik of New York which contains an objectionable
statement ng. rding the charging back of Government warrants and
checks previously paid by the Treasurer of the United States. 'Ihis
credit advice has result3d in many difficulties with foreign banks,
and has been tha cause of some embarrassment to the Government of
the United States.
I had supposed that its use was discontinued
some time ago by your bank, but it noV'T appears that it is still in
use and that the bank does not yet regard the question as settled ..
The correspondence has been going on since early las·i; fall, and
thera have been several letters from yc1u· cashier, particularly
letters d::::.ted December 15, 1921, March 16, 1922, and June 21, 1922,
indicating that the National City Ecnk would discontinue the usa
of its stamp as soon as the Federal Rese~v~ 3~nk of New York revised its check collsction circ1:,J. .-.r.
Thi:3 revision was made a
couple of months ago, gnd thd F Jci;;r :.1 R;;serve , -~ank at th2.t time advi sad the Treasury thJ..t tho Ns..tion::J. City BDnk had ::>.ctually given
up the obj sction::1.'tle form of ad.vic<3. 1ipp;;..rently this J:u.s not been
done.
In these circtunstancas I should ap:praciate it if you would
give the m:~tter your personal ::~.t<o.:mtion, in order that it T!JE'.::f be
settled once ~d for all.
The 1Treasuryrs procedure in rasp~ct to returned items has
been many t±mes explained in lettars to the N~tionnl City Eank, and
the regulations of the Treasury ~nd of the Federal FBaerve Bank of
New York have been revisad in order to stata th.3 si tu2.tion in as
clear and ddfini te terms as possible.
As to the spacific qu.,;·stions
raisad in your Cashier's letter of July 6, the tarm "remitting bank''
USdd in Section 37 (2) of Treasury Department Circular No. 1{6,
as amended and supplemented May 15, 1922, means the Federal Reserve
B:mk rather than the bank which has transmitted the paper to the
Federal Reserva Bank. On the second question, as to w~ether the
"Reserve Banks in dealing with this type of paper are acting in a
Governmental or privat.:l capacity", I do not quite understand. what
is me.mt nor wh::.t rel:.:.tion the inquiry has to the matter under
discussion.
It is clear, of course, that under Section 15 of
the Federal Reserve Act, the Federal Reserve B~s act as depos~~
taries and fiscal agents of the United States, ~d their duties as
depositaries and fiscal agents in respect to the payment of Gove~ent w~rants and chacks are set forth in the provisions of.the
1010
X-3504a
July 19, 1922.
- 2 aforesaid Treasury Department Circular No. 176. '
Tha Federal
R~serve Banks also act for thair member b::mks in connaction with
the collection of checks and simil:::Lr items, ;;1nd thair responsibilities
in this re&~rd are usually set forth in their own c~rculars.
Very truly yours,
(Signed) A. W. Mellon,
Secratary.
C. E. Mitchell, Esq.,
President, The N:::Ltional City Batik of New York,
New York, N. Y•
•
...
.
10lt
{Copy)
THE NATIONAL. CITY BANK OF NEWYORK
New York, July S, 1922.
In
~eplying
please quote initials
C:BL-T
· X-3504a
BOn, A. w. Mellon,
Secretary of the Treasury,
Washington, D. C.
Dear Sir:
RE:-Checks and warrants drawn on the
Trea~rar of the United States.
We are glad to acknowledge your letter of June ~3, 1922,
g1v1ng assurance that it is your intention to treat checks and
warrants drawn on the Government in accordance with the usual
commercial practice, and referring us to Sections 35 to 38 of
Treasury Department Circular 176, dated May 15, 1922.
•
It is gratifying to tl'lis Ban:: to note your stand with
respect to the p9.ymant of Government checks and warrants. However,
under present banking pract-ice, as .you know, a great proportion
of this paper is collected through tue Federal Reserve Banks,
which in certain respects act as an agency of the Gover~~ent.
This has raised two~questions: first, w~1ether the 11remi tting bank"
referred to in Section 37(2) is to be interpr0ted as the Federal
Reserve Bank~ or the bank which has transmitted the paper to the
Reserve Bank, and second, whether the Reserve Banks in dealing
with tnis type of paper are acting in a sovernmental or private
capacity?
V"Te would like very much to conform to your desire and
discontinue at once the use of the stamp referred to in former
correspondence, which is subject to so much criticism from our
foreign correspondents. Our counsel. however, do not feel free
to advise that coursa until they know the attitude of the Department of the Treasury on the points mentioned.
Yours vQry truly,
(Signad) N.
c.
Lenfestey,
Cashier.
@FedFRASER