The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
4 7 FEDERAL RESERVE BOARD WASHINGTON X-4370 ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD JUZie 30, 1925. SUBJECT; Opinion of Circuit Court of Appeals i n F i r s t Rational Bank of Denver v . Federal Reserve Bank of Kansas C i t y . Dear S i r : Through the courtesy.of Mr. Leedy, Counsel f o r the Federal Reserve Bank of Kansas City, I enclose f o r your information an opinion rendered r e c e n t l y by the United S t a t e s C i r c u i t Court of Appeals f o r the Eighth Circuit i n the above e n t i t l e d c a s e . This was a s u i t similar to the Malloy case f o r a l o s s on c e r t a i n che dcs handled by the Federal Reserve Bank under Regulat i o n J, S e r i e s of 1920. The Federal Reserve Bank sent the checks d i r e c t to the drawee bank which remitted by means of an exchange draft and then f a i l e d before the exchange d r a f t could be c o l l e c t e d . The p l a i n t i f f a l l e g e d that the Federal Reserve Bank was n e g l i g e n t in accepting an exchange d r a f t i n l i e u of cash. The Federal Reserve Bank demurred to the complaint and contended that i t did not s t a t e a cause of a c t i o n because there was no p r i v i t y of contract between the Federal Reserve Bank and the p l a i n t i f f . The D i s t r i c t Court sustained the demurrer; but the Circuit Court of Appeals r e versed t h i s holding, on the ground th&t the contract p r i n t e d on the deposit s l i p imported the Massachusetts r u l e i n t o the transact i o n and, therefore, there was a p r i v i t y of contract between the p l a i n t i f f and. the Federal Reserve Bank. Your a t t e n t i o n i s e s p e c i a l l y c a l l e d to the concurring opinion of Judge Trieber, which d i s c u s s e s the question whether or not Regulation J and the check c o l l e c t i o n c i r c u l a r of the Federal Reserve Bank have the force and e f f e c t of law and w i l l be j u d i c i a l l y n o t i c e d or whether they must be introduced i n evidence. While I doubt that the Federal Reserve Bank's c o l l e c t i o n c i r c u l a r has thcu f o r c e and e f f e c t of law, I am confident that Regulation J does. See United S t a t e s v . Grimaud, 220 U.S. 506 and numerous cases c i t e d therein; a l s o United S t a t e s v . Sacks, 357 U.S. 37; and United States y . Janowitz, 257 U.S.42. Very t r u l y yours, Walter. Wyatt, General Counsel. To Counsel f o r a l l F.R.Baiiks except Kansas City. Enclosure: 4 ? X-4370-a "• UNITED STATES CIRCUIT COURT OF APPEALS Eighth C i r c u i t . No. 6859 - May Term, A.D.1925. The F i r s t National Bank of Denver, P l a i n t i f f i n Error, vs. Federal Reserve Bank of Kansas City, Missouri, Defendant i n Error, In Error to the D i s t r i c t Court of the United S t a t e s f o r the D i s t r i c t of Colorado. Mr. Horace Phelps (Mr. Gerald Hughes, Mr. Clayton C. Dorsey and Mr. James D. Benedict were with him on the b r i e f ) , f o r p l a i n t i f f in error. Mr. Mason A. Lewis (Mr. James B. Grant, Mr. Robert L. Stearns, Mr. James E. Goodrich and Mr. H» G. Leedy were witji him on the b r i e f ) , f o r defendant i n error. Before KENTON, C i r c u i t Judge, and TRIEBER and PHILLIPS, D i s t r i c t Judges. PHILLIPS, D i s t r i c t Judge, d e l i v e r e d the opinion of the Court. The F i r s t National Bank of Denver, h e r e i n a f t e r c a l l e d p l a i n t i f f , "brought t h i s a c t i o n a g a i n s t the Federal Reserve Bank of Kansas City, h e r e i n a f t e r c a l l e d defendant, to recover the sum of $ 8 , 8 5 1 . 4 6 , damages a l l e g e d to have been caused by the negligence of the defendant i n the c o l l e c t i o n of nine checks. The second amended complaint of p l a i n t i f f i n substance a l l e g e s ; 473 2 . F i r s t B a t . B k . o f Denver v s . Fed.Res.Bk.. o f K.C. X-4370-a That t h e p l a i n t i f f i s a n a t i o n a l "banking c o r p o r a t i o n o r g a n i z e d and e x i s t i n g uncLer t h e n a t i o n a l "banking l a w s o f t h e U n i t e d S t a t e s ; t h a t t h e d e f e n d a n t i s a f e d e r a l r e s e r v e bank o r g a n i z e d a n d e x i s t i n g under t h e F e d e r a l R e s e r v e A c t : and t h a t t h e C i t i z e n s S t a t e Bank o f Ordway, C o l o r a d o , ( h e r e i n a f t e r c a l l e d C i t i z e n s Bank) was a s t a t e "bank'organi z e d and e x i s t i n g u n d e r t h e l a w s o f t h e S t a t e o f C o l o r a d o . "That on, t o - w i t , t h e 2 7 t h day of September, 1 9 2 1 , and "both p r i o r and s u b s e q u e n t t h e r e t o , John Amicon Brother- and Company, ( h e r e i n a f t e r c a l l e d Amicon Company) o f Ordway, C o l o r a d o , was t h e owner o f a commercial o r c h e c k i n g a c c o u n t i n t h e s a i d The C i t i z e n s * * * Bank * * *, t h e "balance t h e r e i n t o t h e c r e d i t o f s a i d d e p o s i t o r "being i n e x c e s s o f t h e sum o f E i g h t Thousand E i g h t Hundred F i f t y one D o l l a r s F o r t y - s i x Cents ( $ 8 , 8 5 1 . 4 6 ) ; t h a t p r i o r t o s a i d d a t e , t h e * * * Amicon * * * Company, f o r v a l u e , made, e x e c u t e d and d e l i v e r e d t o t h e H a l l a c k and Howard Lumber Company, ( h e r e i n a f t e r c a l l e d Lumber Company) o f Denver, C o l o r a d o , n i n e ( 9 ) c e r t a i n c h e c k s drawn "by t h e * * * Amicon * * * Company t o the o r d e r o f t h e * * * Lumber Company f o r t h e a g g r e g a t e sum o f E i g h t Thousand E i g h t Hundred F i f t y - o n e D o l l a r s F o r t y - s i x Cents ( $ 8 , 8 5 1 . 4 6 ) . * * * "That on t h e 2 7 t h day of September, 1 9 2 1 , t h e * * * Lumber Company e n d o r s e d s a i d n i n e c h e c k s and d e p o s i t e d t h e same w i t h the p i a i n t i f f * * * to transmit f o r c o l l e c t i o n ; t h a t the d e p o s i t s l i p accompanied by s a i d d e p o s i t made by s a i d * * * Lumber Company, c o n tained the following provisions: ' T h i s bank w i l l o b s e r v e due d i l i g e n c e i n i t s e n d e a v o r t o s e l e c t r e s p o n s i b l e a g e n t s , b u t w i l l n o t be l i a b l e i n c a s e o f t h e i r f a i l u r e o r n e g l i g e n c e or f o r l o s s o f i t e m s i n t h e m a i l . Checks on t h i s bank w i l l be c r e d i t e d c o n d i t i o n a l l y ; i f not found good a t the c l o s e of b u s i n e s s on day d e p o s i t e d t h e y w i l l be c h a r g e d back t o t h e d e p o s i t o r and t h e l a t t e r n o t i f i e d . A l l i t e m s a r e c r e d i t e d s u b j e c t t o f i n a l c a s h payment and a r e h a n d l e d a t r i s k o f d e p o s i t o r . 1 "That on s a i d d a t e , t o - w i t , t h e 2 7 t h day of September, 1 9 2 1 , s a i d p l a i n t i f f * * * d i d c r e d i t t h e amount of s a i d c h e c k s a t f a c e t o t h e c h o c k i n g o r commercial a c c o u n t o f s a i d * * * Lumber Company w i t h s a i d p l a i n t i f f , and d i d , i n t h e u s u a l c o u r s e o f b u s i n e s s , e n d o r s e 474 3 . F i r s t H a t . B k . o f Denver v s . F e d . R e s . B e . of K.C. X-4370-a and d e l i v e r s a i d c h e c k s and o t h e r c h e c k s f o r c o l l e c t i o n t o 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 Bank o f Kansas C i t y , Denver B r a n c h , " That t h e r e a f t e r t h e d e f e n d a n t e n d o r s e d e a c h o f s a i d c h e c k s on t h e hack t h e r e o f a s f o l l o w s : "Pay t o t h e o r d e r of any bank o r t r u s t company. A l l p r e v i o u s e n d o r s e m e n t s g u a r a n t e e d . September 2 8 , 1 9 2 1 . Denver Branch, F e d e r a l R e s e r v e Bank Kansas C i t y , Denver C o l o r a d o . 1 1 , and t h e r e u p o n t r a n s m i t t e d s a i d c h e c k s d i r e c t l y t o t h e C i t i z e n s Bank f o r payment. That on October 5 , 1 9 2 1 , t h e C i t i z e n s Bank i s s u e d f o r s a i d n i n e c h e c k s and o t h e r c h e c k s , i t s d r a f t drawn on t h e C e n t r a l S a v i n g s Bank &.! T r u s t Company o f Denver, i n f a v o r o f t h e d e f e n d a n t , f o r t h e sum of $ 9 , 9 2 8 . 1 9 r stamped s a i d n i n e c h e c k s "paid", d e b i t e d t h e a c c o u n t o f Ami con Company w i t h t h e amount t h e r e o f , and r e t u r n e d t h e c h o c k s t o t h e Ami c o n Company. That'," on O c t o b e r 5 , 1 9 2 1 , t h e C i t i z e n s Bank t r a n s m i t t e d s a i d d r a f t by m a i l t o the d e f e n d a n t , and on O c t o b e r 6, 1921, t h e d e f e n d a n t r e c e i v e d and a c c e p t e d t h o same. That on October 8 , 1921, t h e C i t i z e n s Bank was c l o s e d by t h e o r d e r o f t h e S t a t e Bank Commissioner o f C o l o r a d o ; t h a t on Oct o b e r 6, 1 9 2 1 , t h e d e f e n d a n t p r e s e n t e d s a i d d r a f t t o t h e drawee bank, and payment was r e f u s e d ; t h a t on O c t o b e r 2 5 , 1921, d e f e n d a n t n o t i f i e d p l a i n t i f f by l e t t e r t h a t s a i d c h e c k s h a d n o t boen c o l l e c t e d , and t h a t t h e d e f e n d a n t was h o l d i n g s a i d u n p a i d d r a f t therefor. That p r i o r t o t h e commencement o f t h i s a c t i o n , t h e lumber Company a s s i g n e d t o t h e p l a i n t i f f a l l i t s r i g h t s t i t l e and i n t e r e s t i n and t o s a i d c h e c k s and i t s c l a i m a n d c a u s e of* a c t i o n a g a i n s t t h e d e f e n d a n t , on a c c o u n t o f t h e m a t t e r s and t h i n g s a l l e g e d i n t h e s e c o n d amended c o m p l a i n t . • % That t h e p l a i n t i f f i n a c t i n g a s t h e c o l l e c t i n g a g e n t o f s a i d c h e c k s was n e g l i g e n t and v i o l a t e d i t s d u t y i n t h e f o l l o w i n g r e s p e c t s : » * * * * * " ( c ) I n f a i l i n g t o c o l l e c t from s a i d drawee bank t h e amount of s a i d checks i n cash. "(d) In a c c e p t i n g f o r s a i d checks a d r a f t t o i t s order i n p a y ment t h e r e o f , 475 4 . F i r s t H a t . 3 k . of Denver v s . F e d . E 6 s . B k . o f K.C. X-4370-a " ( e ) In t r a n s m i t t i n g and d e l i v e r i n g t o s a i d drawee bank s a i d c h e c k s w i t h o u t r e c e i v i n g t h e r e f o r i n c a s h t h e amount t h e r e o f and i n p l a c i n g i t s e l f i n a p o s i t i o n of i n a b i l i t y to r e s t o r e s a i d checks to the p l a i n t i f f . * * * * * "(g) In f a i l i n g to u s e ordinary d i l i g e n c e i n r e q u i r i n g s a i d drawee bank to p r o m p t l y p a y s a i d c h e c k s o r r e t u r n t h e same." To t h i s s e c o n d amended c o m p l a i n t , t h e d e f e n d a n t demurred upon t h e ground t h a t i t d i d n o t s t a t e f a c t s s u f f i c i e n t t o c o n s t i t u t e a c a u s e o f a c t i o n . The l o w e r c o u r t s u s t a i n e d t h e demurrer. The p l a i n t i f f e l e c t e d t o s t a n d on i t s s e c o n d amended c o m p l a i n t , a n d t h e r e u p o n judgment was e n t e r e d d i s m i s s i n g t h e a c t i o n a t t h e c o s t of p l a i n t i f f . From t h i s judgment, t h e p l a i n t i f f s u e d o u t a w r i t o f error to t h i s c o u r t . At the h e a r i n g on t h e demurrer p l a i n t i f f announced t h a t i t s o u g h t r e c o v e r y , n o t upon any l i a b i l i t y d i r e c t l y from d e f e n d a n t t o p l a i n t i f f b u t s o l e l y upon t h e a s s i g n e d c a u s e o f a c t i o n . The a s s i g n m e n t s o f e r r o r r a i s e one p r i n c i p a l q u e s t i o n : Does the s e c o n d amended c o m p l a i n t s t a t e f a c t s s u f f i c i e n t t o c o n s t i t u t e a c a u s e of a c t i o n a g a i n s t t h e d e f e n d a n t ? The d e f e n d a n t c o n t e n d s t h a t t h e r e was no p r i v i t y o f c o n t r a c t b e t w e e n t h e Lumber Company and t h e d e f e n d a n t , and t h a t t h e r e f o r e t h e f o r e g o i n g q u e s t i o n s h o u l d be answered i n t h e n e g a t i v e . A l t h o u g h t h e c h e c k s were e n d o r s e d i n b l a n k , t h e y were e n d o r s e d and d e p o s i t e d t o be t r a n s m i t t e d f o r c o l l e c t i o n , and t h e c r e d i t g i v e n t h e r e f o r i n t h e a c c o u n t o f t h e lumber Conpany w i t h t h e p l a i n t i f f bank was s u b j e c t t o t h e r i g h t t o c h a r g e t h e c h e c k s b a c k t o s u c h • a c c o u n t i f payment t h e r e f o r i n c a s h was n o t r e c e i v e d . Such b e i n g t h e f a c t s t h e endorsement d i d n o t t r a n s f e r t h e t i t l e t o t h e c h e c k s t o t h e p l a i n t i f f . F i r s t N a t i o n a l Bank o f Bads v . F l e m i n g S t a t e Bank, 74 C o l o . 3 0 9 , 2 2 1 P a c . 8 9 1 ; Burton v . U . S . , 196 U . S . 2 8 3 , 3 0 3 ; Note 7 1 . R. A. ( N . S . ) 694; 3 R. C. L. S e c . 1 5 2 , p . 5 2 4 ; 7 C. J . S e c . 245, p . 597, S e c . 246, p . 600. There e x i s t two r u l e s among t h e s t a t e c o u r t s t o u c h i n g t h e r e s p o n s i b i l i t y o f b a n k s u n d e r t a k i n g c o l l e c t i o n s a t a d i s t a n c e . One known a s t h e New York r u l e , i s t h a t where a bank u n d e r t a k e s t o 476 5 . F i r s t N a t . Bk. o f Denver v s . F e d . R e s . Bkt o f K.C» X-4370-a c o l l e c t a c h e c k or o t h e r b i l l o f e x c h a n g e , i t i s l i a b l e f o r n e g l e c t o f d u t y i n i t s c o l l e c t i o n a r i s i n g from the d e f a u l t e i t h e r o f i t s own o f f i c e r s o r any s u b - a g e n t employed t o a s s i s t i n c o l l e c t i n g t h e p a p e r , i n t h o a b s e n c e o f c o n t r a c t or s t a t u t e v a r y i n g such l i a b i l i t y . The o t h e r r u l e known a s t h e M a s s a c h u s e t t s r u l e , i s t h a t t h o i n i t i a l bank i s l i a b l e o n l y f o r t h e s e l e c t i o n o f a s u i t a b l e l o c a l a g e n t w i t h whom t o e n t r u s t t h o c o l l e c t i o n and f o r t h e t r a n s m i s s i o n o f the p a p e r t o s u c h a g e n t w i t h p r o p e r i n s t r u c t i o n s . Exchange N a t i o n a l Bank v . T h i r d N a t i o n a l Bank, 112 U, S . 2 7 6 , 281; F e d e r a l R e s e r v e Bank of Richmond v . M a l l o y , e t a l . 2 6 4 , U. S . 160, 1 6 4 . Under t h o New York r u l e t h e r e i s no p r i v i t y o f c o n t r a c t b e t w e e n t h e owner and t h e s u b - a g e n t . Under t h e M a s s a c h u s e t t s r u l e , t h e bank t o w h i c h t h e i n i t i a l bank f o r w a r d s t h e p a p e r f o r c o l l e c t i o n becomes t h e a g e n t of t h e owner. Bank v . M a l l o y , s u p r a . The New York r u l e h a s b e e n a d o p t e d and f o l l o w e d by t h e n a t i o n a l c o u r t s . Bank v . M a l l o y , s u p r a ; Exchange N a t i o n a l Bank v . Third N a t i o n a l Bank, s u p r a ; C a l . N a t i o n a l Bank v . Utah N a t i o n a l Bank, (C. C. A . 8 ) 190 F e d . 318; Smith v . N a t i o n a l Bank o f D.O. M i l l s & C o . , 191 F e d . 226; C i t y o f Douglas v . F e d e r a l R e s e r v e Bank o f D a l l a s , (C. C. A . 5 ) 2 F . ( 2 d ) 8 1 8 . The u n d e r l y i n g p r i n c i p l e o f t h e New York r u l e i s t h a t t h e i n i t i a l bank, i n t h e a b s e n c e of s t a t u t e or c o n t r a c t t o t h o c o n t r a r y , u n d e r t a k e s t h e c o l l e c t i o n o f t h e p a p e r a s an i n d e p e n d e n t c o n t r a c t o r . I n Exchange N a t i o n a l Bank o f P i t t s b u r g h v . T h i r d N a t i o n a l Bank o f New York, s u p r a , t h e Exchange N a t i o n a l Bank h a v i n g d i s c o u n t e d b e f o r e a c c e p t a n c e e l e v e n d r a f t s , drawn by Rogers and B u r c h f i e l d , a t P i t t s b u r g h , i n f a v o r of J . D. Baldwin, on W a l t e r M. Conger, S e c ' y Newark Tea Tray Company, Newark, Now J e r s e y , t r a n s m i t t e d them t o t h e T h i r d N a t i o n a l Bank f o r c o l l e c t i o n . The l a t t e r s e n t them t o i t s c o r r e s p o n d e n t , t h e F i r s t N a t i o n a l Bank o f Newark. The Exchange N a t i o n a l Bank s o u g h t to h o l d t h e Third N a t i o n a l Bank f o r t h e d e f a u l t s o f t h e Newark bank. The c o u r t i n p a r t s a i d : "The agreement o f t h e d e f e n d a n t i n t h i s c a s e was t o c o l l e c t t h e d r a f t s , n o t m e r e l y t o t r a n s m i t them to t h e Newark Bank f o r c o l lection. T h i s d i s t i n c t i o n i s m a n i f e s t ; and t h o q u e s t i o n p r e s e n t e d i s , w h e t h e r t h o Now York bank, f i r s t r e c e i v i n g t h e s e d r a f t s f o r c o l l e c t i o n , i s r e s p o n s i b l e f o r t h e l o s s o r damage r e s u l t i n g from t h e d e - 477 6. F i r s t Nat.Bank of Denver v s . Fed. Res.Be. of K,C. X-4370-a f a u l t of i t s Newark agent. There i s no s t a t u t e or usage or s p e c i a l contract in t h i s c a s e , t o q u a l i f y or vary the o b l i g a t i o n r e s u l t i n g from the d e p o s i t of the d r a f t s w i t h the New York hank f o r c o l l e c t i o n . On i t s r e c e i p t of the d r a f t s , tinder these circumstances, an imp l i e d undertaking by i t a r o s e / to take a l l necessary measures to make the demands of acceptance necessary to p r o t e c t the r i g h t s of the holder a g a i n s t previous p a r t i e s to the paper. * * * The cont r a c t , then, becomes one to perform c e r t a i n d u t i e s necessary f o r the c o l l e c t i o n of the paper and the p r o t e c t i o n of the h o l d e r . The bank i s not merely appointed an a t t o r n e y , authorized to s e l o c t other agents t o c o l l e c t the paper. I t s undertaking i s to do the thing,and not merely to procure i t to be done. In such case, the bank i s h e l d to agree t o answer f o r any .default i n the performance of i t s c o n t r a c t ; and, whether the p a p # i s t o be c o l l e c t e d i n the p l a c e where the bank is s i t u a t e d , or a t a d i s t a n c e , the contract i s to use the proper means to c o l l e c t the paper, and the bank, by employing sub-agents to perform a part of what i t has contracted to do, becomes r e s p o n s i b l e to i t s customer. This general p r i n c i p l e a p p l i e s to a l l who contract to perform a s e r v i c e . * * * "The d i s t i n c t i o n between the l i a b i l i t y of one who c o n t r a c t s to do a thing and t h a t of one who merely r e c e i v e s a d e l e g a t i o n of a u t h o r i t y to a c t f o r another i s a fundamental one, a p p l i c a b l e to the p r e s e n t c a s e . I f the agency i s an undertaking to do the b u s i n e s s , the o r i g i n a l p r i n c i p a l may look to the immediate contractor with h i m s e l f , and i s not o b l i g e d to look to i n f e r i o r or d i s t a n t underc o n t r a c t o r s or sub-agents, when d e f a u l t s occur i n j u r i o u s t o h i s interest. ••Whether a d r a f t i s payable i n the p l a c e where the bank r e c e i v i n g i t f o r c o l l e c t i o n i s s i t u a t e d , or i n another p l a c e , the h o l d e r i s aware that the c o l l e c t i o n must be made by a competent a g e n t . In e i t h e r c a s e , there i s an implied contract of the bank that the proper measures s h a l l bo used to c o l l e c t the d r a f t , and a r i g h t , on the part of i t s owner, to presume that proper agents w i l l bo employed, he having no knowledge of the a g e n t s . There i s , t h e r e f o r e , no reason f o r l i a b i l i t y or exemption from l i a b i l i t y i n the one case which does not apply to the o t h e r . And, while the rule of law i s thus general, the l i a b i l i t y of the bank may be varied by consent, or the bank may r e f u s e to undertake the c o l l e c t i o n . I t may agree to r e c e i v e the pa- 478 7 . F i r s t N a t . 3 k . o f Denver v s . F e d . R e s . of K.C. X-4370-a p e r o n l y f o r t r a n s m i s s i o n t o i t s c o r r e s p o n d e n t , and t h u s make a d i f f e r e n t c o n t r a c t , and "become r e s p o n s i b l e o n l y f o r good f a i t h and due d i s c r e t i o n i n t h e c h o i c e o f an a g e n t . I f t h i s i s not done, o r t h e r e i s no i m p l i e d u n d e r s t a n d i n g t o t h a t e f f e c t , t h e same r e s p o n s i b i l i t y i s assumed i n t h e u n d e r t a k i n g t o c o l l e c t f o r e i g n p a p e r and i n t h a t t o c o l l e c t p a p e r p a y a b l e a t home. On any o t h e r r u l e , no p r i n c i p a l c o n t r a c t o r would he l i a b l e f o r t h e d e f a u l t o f h i s own a g e n t , where from t h e n a t u r e o f t h e b u s i n e s s , i t was e v i d e n t he mast employ sub-agents. The d i s t i n c t i o n r e c u r s , b e t w e e n t h e r u l e o f m e r e l y p e r s o n a l r e p r e s e n t a t i v e a g e n c y and t h e r e s p o n s i b i l i t y imposed by t h e l a w o f commercial c o n t r a c t s . This s o l v e s t h e d i f f i c u l t y and r e c o n c i l e s t h e a p p a r e n t c o n f l i c t of d e c i s i o n i n many c a s e s . The n a t u r e of t h e c o n t r a c t i s t h e t e s t . I f t h e c o n t r a c t be o n l y f o r t h e immediate s e r v i c e s of t h e a g e n t , and f o r h i s f a i t h f u l c o n d u c t a s r e p r e s e n t i n g h i s p r i n c i p a l , the r e s p o n s i b i l i t y c e a s e s w i t h the l i m i t s o f t h e p e r s o n a l s e r v i c e s u n d e r t a k e n . But where t h e c o n t r a c t l o o k s m a i n l y t o t h e t h i n g t o be dene, and t h e u n d e r t a k i n g i s f o r t h e due u s e o f a l l p r o p e r means t o p e r f o r m a n c e , t h e r e s p o n s i b i l i t y e x t e n d s t o a l l . n e c e s s a r y a n d p r o p e r means t o a c c o m p l i s h t h e o b j e c t , by whomsoever u s e d . " From t h e f o r e g o i n g i t w i l l be o b s e r v e d t h a t t h e d u t i e s and r e s p o n s i b i l i t i e s o f t h e i n i t i a l bank depend upon t h e c o n t r a c t made b e t w e e n i t and t h e owner. I n s t e a d o f c o n t r a c t i n g t o u n d e r t a k e t h e c o l l e c t i o n o f t h e i t e m t h e i n i t i a l bank "may a g r e e t o r e c e i v e t h e p a p e r o n l y f o r t r a n s m i s s i o n t o i t s c o r r e s p o n d e n t , and t h u s make a d i f f e r e n t c o n t r a c t , and become r e s p o n s i b l e o n l y f o r good f a i t h and due d i s c r e t i o n i n t h e c h o i c e o f an a g e n t . " What was t h e agreement i n t h e i n s t a n S : c a s e ? Under t h e e x p r e s s a l l e g a t i o n s o f t h e s e c o n d amended c o m p l a i n t ; w h i c h f o r t h e p u r p o s e s o f t h e demurrer s t a n d a s a d m i t t e d , t h e c h e c k s were e n d o r s e d and d e l i v e r e d t o t h e p l a i n t i f f , n o t t o c o l l e c t . b u t "to t r a n s m i t f o r c o l l e c t i o n " under a c o n t r a c t e x p r e s s l y l i m i t i n g the l i a b i l i t y o f p l a i n t i f f , t h e i n i t i a l h a n k . As s a i d by t h e Supreme Court, i n Exchange N a t i o n a l Bank v . T h i r d N a t i o n a l Bank, s u p r a , t h e d i s t i n c t i o n b e t w e e n an a g r e e m e n t t o c o l l e c t and an agreement t o t r a n s m i t f o r collection i s manifest. In t h e f o r m e r , t h e i n i t i a l bank u n d e r t a k e s a s an i n d e p e n d e n t c o n t r a c t o r t o c o l l e c t t h e p a p e r , "the c o n t r a c t l o o k s m a i n l y t o t h e t h i n g t o be done, t h e u n d e r t a k i n g i s f o r t h e due u s e o f 479 X-4370-a propel 4 means t o performance"* ajad "the r e s p o n s i b i l i t y e x t e n d s t o a l l n e d e s s a r y and p r o p e r iheans t o a c c o m p l i s h t h e o b j e c t , b y whomsoever used V i . i n t h e l a t t e r ^ t h e agreement i s t o t r a n s m i t f o r c o l l e c t i o n and t h e s o l e r e s p o n s i b i l i t y of t h e i n i t i a l b a n k e t s t o s e l e c t and t r a n s m i t to a c o m p e t e n t a g e n t w i t h p r o p e r i n s t r u c t i o n s • C l e a r l y , under t h e c o n t r a c t p l a i n t i f f l i m i t e d i t s u l i a b i l i t y t o t r a n s m i t t h e c h e c k s t o a c o m p e t e n t agent- w i t h p r o p e r i n s t r u c tions, .. The r i g h t o f t h e i n i t i a l bank to. so. l i m i t i t s l i a b i l i t y by c o n t r a c t i s c l e a r l y r e c o g n i s e d by t h o s e j u r i s d i c t i o n s w h i c h f o l l o w t h e New York r u l e . They s a y t h e M a s s a c h u s e t t s r u l e may be i m p o r t e d i n t o t h e c o n t r a c t by s t a t u t e or by a g r e e m e n t , e x p r e s s or i n j p l i e d . Bank v . M a l l o y , s u p r a ; Exchange N a t i o n a l Bank v . T h i r d N a t i o n a l Bank, s u p r a ; C a l . N a t i o n a l Bank v . Utah N a t i o n a l Bank, s u p r a ; C a p i t a l Grain & F e e d Co. v . F e d e r a l He s e r v e Bank of A t l a n t a , 3 F . ( 2 n d ) 614, 615; Note 52 L. R. A. ( N * S . ) 6 3 4 . The p l a i n t i f f e n d o r s e d and t r a n s m i t t e d t h e c h e c k s t o t h e d e f e n d a n t " f b r c o l l e c t i o n " and t h e d e f e n d a n t r e c e i v e d and a c c e p t e d them for collection. Where t h e owner of ,a b i l l o f e x c h a n g e e n d o r s e s and d e l i v e r s t h e same t o a bank, n o t t o c o l l e c t b u t a s t h e a g e n t o f t h e owner t o t r a n s m i t f o r c o l l e c t i o n , t h e f i r s t bank, a c c e p t i n g t h e p a p e r f o r c o l l e c t i o n , becomes t h e a g e n t o f and l i a b l e t o t h e owner. McBride v . 1 1 1 . N a t , Bank, 148 N. Y. S , 6 5 4 , 121 N . Y . S . 1041; Columbia O v e r s e a s Corp. v . Banco N a c i o n a l U l t r a - M a M n o , 1 9 1 N. Y. S . 8 5 , 8 7 ; K e l l y v . P h o e n i x N a t i o n a l Bank, 4 5 N. Y. S . 5 3 3 ; Bank of Washington v . T r i p l e t t and N e a l e , 26 U. S . ( 1 P e t . ) 2 5 . In McBride v . Bank, s u p r a , t h e f a c t s were s u b s t a n t i a l l y t h e s e : On May 1 0 , 1 9 0 7 , t h e Western Tool Works o f G a l e s b u r g , I l l i n o i s , made i t s p r o m i s s o r y n o t e , due September 10, 1 9 0 7 , t o t h e o r d e r o f t h e Goodyear T i r e and Rubber Company o f Akron, Ohio, f o r $ 6 , 4 3 2 . 4 4 * p a y a b l e a t t h e G a l e s b u r g N a t i o n a l Bank, G a l e s b u r g , I l l i n o i s . The Rubber Company e n d o r s e d t h e n o t e f o r d i s c o u n t t o t h e N a t i o n a l C i t y Bank o f Akron, O h i o . S h o r t l y b e f o r e t h e m a t u r i t y o f t h e n o t e , t h e N a t i o n a l C i t y Bank s e n t i t to i t s c o r r e s p o n d e n t , t h e F i r s t N a t i o n a l Bank of C l e v e l a n d , Ohio, f o r c o l l e c t i o n . The l a t t e r a c k n o w l e d g e d r e c e i p t o f the same i n a l e t t e r c o n t a i n i n g t h e f o l l o w i n g ; "In r e c e i v i n g a n d f o r w a r d i n g p a p e r o u t s i d e o f t h i s c i t y , t h i s bank a c t s o n l y a s your a g e n t , u s i n g i t s b e s t e f f o r t s i n s e l e c t i n g i t s 480 9 . F i r s t N a t . 3 k . o f Denver v s . F e d . B e s . 3 k . o f K.C. X-4370-a c o r r e s p o n d e n t s , and w i l l assume no r e s p o n s i b i l i t y e x c e p t f o r i t s own a c t s ." The C l e v e l a n d bank f o r w a r d e d t h e n o t e t o t h e Commercial N a t i o n a l Bank o f C h i c a g o , I l l i n o i s . The l a t t e r a c k n o w l e d g e d the same on a p o s t a l c a r d upon w h i c h was p r i n t e d t h e f o l l o w i n g : "All i t e m s n o t p a y a b l e i n Chicago r e c e i v e d by t h i s bank f o r c o l l e c t i o n o r c r e d i t , a r e t a k e n a t owners r i s k . T h i s bank, a s a g e n t f o r owner, w i l l f o r w a r d such i t e m s to banks o u t o f t h i s c i t y , and assumes no r e s p o n s i b i l i t y f o r n e g l e c t , d e f a u l t o r f a i l u r e o f s u c h banks,nor f o r l o s s e s occurring i n the m a i l . S h o u l d any bank con,-, v e r t t h e p r o c e e d s or remit t h e r e f o r i n c h e c k s o r d r a f t s , which a r e d i s h o n o r e d , t h e amount f o r which c r e d i t h a s b e e n g i v e n w i l l be charged back and dishonored paper r e t u r n e d . " B i e Chicago bank t r a n s m i t t e d t h e n o t e t o t h e I l l i n o i s N a t i o n a l Bank, f o r c o l l e c t i o n , and t h e l e t t e r TxmJr a c c e p t e d t h e n o t e f o r c o l l e c t i o n . The I l l i n o i s n a t i o n a l Bank f o r w a r d e d t h e n o t e t o t h e P e o p l e s T r u s t & S a v i n g s Bank o f G a l e s b u r g , I l l i n o i s . McBride, a s a s s i g n e e of t h e N a t i o n a l C i t y Bank, s o u g h t t o h o l d t h e I l l i n o i s N a t i o n a l Bank f o r t h e n e g l e c t of t h e P e o p l e ' s Trust & S a v i n g s Bank i n f a i l i n g t o p r o p e r l y p r e s e n t t h e n o t e f o r payment, whereby an e n d o r s e r was d i s c h a r g e d from l i a b i l i t y . The c o u r t h e l d t h a t t h e u n d e r t a k i n g o f t h e C l e v e l a n d and Chicago banks were n o t t o c o l l e c t b u t t o t r a n s m i t f o r c o l l e c t i o n , t h a t t h e P e o r i a bank was t h e f i r s t bank t o u n dertake without q u a l i f i c a t i o n or l i m i t a t i o n of l i a b i l i t y the c o l l e c t i o n of t h e n o t e , a n d t h a t t h e P e o r i a bank became t h e a g e n t o f t h e N a t i o n a l C i t y Bank f o r t h e c o l l e c t i o n of t h e n o t e and was l i a b l e f o r t h e n e g l i g e n c e of i t s c o r r e s p o n d e n t * I n t h e r e c e n t c a s e o f C a p i t a l Grain & F e e d Co. v . F e d e r a l R e s e r v e Bank of A t l a n t a , ( D . C . ) 3 F. ( 2 d ) 614, where a check was d e p o s i t e d i n t h e bank f o r c o l l e c t i o n and c r e d i t s u b j e c t t o an agreement t h a t "This bank a c t s o n l y a s c o l l e c t i n g a g e n t and a s s u m e s no l i a b i l i t y on a c c o u n t o f d e l a y o r l o s s w h i l e i t e m s a r e i n t r a n s i t , or u n t i l i t r e c e i v e s f i n a l a c t u a l payment f r o m i t s c o r r e s p o n d e n t s " t h e c o u r t h e l d t h a t t h e c o r r e s p o n d e n t s t h r o u g h which t h e i n i t i a l bank s e n t t h e c h e c k f o r c o l l e c t i o n were n o t t h e a g e n t s o f t h e i n i t i a l bank b u t a g e n t s o f t h e d e p o s i t o r , - a n d t h a t any r i g h t o f a c t i o n a g a i n s t t h e c o r r e s p o n d e n t s f o r d e l a y o r d e f a u l t was i n t h e d e p o s i t o r . 481 10. F i r s t H a t . Bk. of Denver v s . F e d , R e s . Bk» o f K. C. X-4370-a But c o u n s e l f o r d e f e n d a n t c o n t e n d t h a t , n o t w i t h s t a n d i n g t h e c h e c k s were e n d o r s e d and d e l i v e r e d "by t h e Lumber Company t o t h e p l a i n t i f f s o l e l y t o be t r a n s m i t t e d f o r c o l l e c t i o n and t h e d e f e n d a n t r e c e i v e d t h e c h e c k s from t h e p l a i n t i f f f o r c o l l e c t i o n , s t i l l t h e r e was no p r i v i t y o f c o n t r a c t b e t w e e n t h e Lumber Company and d e fendant. Thoy s a y t h i s i s t r u e b e c a u s e t h e c h e c k s were e n d o r s e d by t h e Lumber Company i n b l a n k , t h e d e f e n d a n t h a d no k n o w l e d g e t h a t t h e p l a i n t i f f had so l i m i t e d i t s d u t i e s and l i a b i l i t i e s b y c o n t r a c t , and p l a i n t i f f d i d n o t i n e m p l o y i n g d e f e n d a n t t o c o l l e c t t h e c h e c k s a d v i s e t h e l a t t e r t h a t p l a i n t i f f was a c t i n g a s t h e a g e n t o f t h e Lumber Company. Under t h e f a c t s now d i s c l o s e d by t h e p l e a d i n g s we c a n n o t s e e how want o f k n o w l e d g e o f t h e c o n t r a c t and t h e a g e n c y s h o u l d make any d i f f e r e n c e . The p r e s u m p t i o n i s t h a t t h e d e f e n d a n t a c c e p t e d t h e c h e c k s f o r c o l l e c t i o n w i t h o u t agreement e x p r e s s o r i m p l i e d limiting its liability. The burden i s upon i t t o show t h e c o n t r a r y . N a t i o n a l R e v e r e Bank v . N a t i o n a l Bank of R e p u b l i c , 172 N. T . 102, 1 0 8 , 64 N. E. 799; McBride v . I l l i n o i s N a t i o n a l Bank, s u p r a , Theref o r e , i t s d u t i e s i n t h e p r e m i s e s were e x a c t l y t h e same w h e t h e r i t was a c t i n g a s t h e a g e n t o f t h e p l a i n t i f f o r o f t h e Lumber Company, and i t c a n make no d i f f e r e n c e t o d e f e n d a n t w h e t h e r i t i s c a l l e d upon t o a n s w e r f o r i t s n e g l e c t o f duty t o t h e p l a i n t i f f o r t o t h e Lumber Company, a s i t s p r i n c i p a l . F u r t h e r m o r e , i t i s w e l l s e t t l e d t h a t , where an a g e n t , a c t i n g w i t h i n h i s a u t h o r i t y a s s u c h , e n t e r s i n t o a s i m p l e c o n t r a c t i n h i s own name w i t h a t h i r d person f o r the b e n e f i t of h i s u n d i s c l o s e d p r i n c i p a l , the c o n t r a c t i n u r e s t o t h e b e n e f i t o f t h e p r i n c i p a l , a n d such p r i n c i p a l may a p p e a r , c l a i m t h e b e n e f i t s o f such c o n t r a c t , a n d s u e i n h i s own name f o r a b r e a c h o f t h e c o n t r a c t o r o f a l e g a l d u t y g r o w i n g o u t o f t h e same. New J e r s e y Steam N a v i g a t i o n Co. v* Merchants Bank o f B o s t o n , 4 7 U. S . ( 6 How.) 343, 3 7 8 , 3 7 9 , 380; B l o c k , e t a l . v . Mayor, e t c . o f C i t y of M e r i d i a n , M i s s . , ( C . C. A. 5 ) 169 F e d . 5 1 6 , 521; Morris v . Chesapeake & 0 . S . S . C o . , (D. C . ) 125 F e d . 6 2 , 66, 148 F e d . 11; F e r n a n d i n a S h i p b u i l d i n g & Dry Dock Co. v . P e t e r s , e t a l . , (D. C . ) 2 8 3 F e d . 621, 626; Ford v . W i l l i a m s , 62 U. S . , ( 2 l How.) 2 8 7 ; B a l d w i n v . Bank of Newbury, 68 U. S . ( 1 W a l l . ) 2 3 4 ; 2 C. J . 873; 2 1 R. C. L. S e c . 72, p . 8 9 7 . 482 1 1 . F i r s t N a t . Bk. of Denver v s . F e d . R e s e r v e B e . o f K. C. X-4370-a In Ford v . W i l l i a m s , supra, an a g e n t o f Ford made a w r i t t e n c o n t r a c t i n t h e a g e n t ' s name f o r t h e b e n e f i t of Ford w i t h W i l l i a m s v . i t h o u t d i s c l o s i n g F o r d ' s name or i n t e r e s t . The c o u r t h e l d Ford might m a i n t a i n an a c t i o n a t law on t h e o a n t r a c t i n h i s own name a g a i n s t W i l l i a m s . The c o u r t s a i d : "The c o n t r a c t of t h e a g e n t i s t h e c o n t r a c t o f the p r i n c i p a l , and he may sue o r he s u e d t h e r e o n , though n o t named t h e r e i n . 1 1 In an a c t i o n "by t h e u n d i s c l o s e d p r i n c i p a l a g a i n s t t h e o t h e r p a r t y t o such a c o n t r a c t , t h e l a t t e r , i f he e n t e r e d i n t o t h e c o n t r a c t w i t h o u t knowledge of the a g c n c y o r of f a c t s which c h a r g e him w i t h n o t i c e t h e r e o f , may a v a i l h i m s e l f o f any d e f e n s e w h i c h e x i s t e d i n h i s f a vor a g a i n s t t h e a g e n t a t t h e t i m e o f t h e d i s c l o s u r e t o him of t h e e x i s t e n c e of t h e r e a l p r i n c i p l e . New J e r s e y Steam N a v i g a t i o n Co. v . Bank, s u p r a ; 2 C. J . p . 877; 2 1 R. C. L. S e c . 77, p . 9 0 1 ; N o t e 28 L. R. A. ( N . S . ) 2 2 7 . In t h e c a s e o f Bank of Washington v . T r i p l e t t & N e a l e , 26 U. S . ( 1 P e t . ) 2 5 , t h e f a c t s wore t h e s e : T r i p l e t t & N e a l e wore t h e owne r s of an i n l a n d b i l l o f exchange d a t e d June 1 9 , 1 8 1 7 , drawn by W. H. B r i s c o e , f o r $ 6 2 5 . 3 4 , a t f o u r months a f t e r d a t e , i n f a v o r of T r i p l e t t & N e a l e , upon P e t e r A. Carnes, of Washington, D. C. T r i p l e t t & N e a l e d e l i v e r e d t h e b i l l t o t h e c a s h i e r of M e c h a n i c s Bank o f A l e x a n d r i a , t o be t r a n s m i t t e d t o . d .bank i n Washington f o r c o l l e c t i o n , and e n d o r s e d i t i n b l a n k f o r t h a t p u r p o s e . The c a s h i e r of t h e Mechanics Bank o f A l e x a n d r i a e n d o r s e d t h e b i l l t o t h e o r d e r o f S . E i l l i o t t , J r . , C a s h i e r of the Bank of Washington, and f o r warded t h e same by m a i l t o t h e Bank o f Washington f o r c o l l e c tion. T r i p l e t t & N e a l e b r o u g h t a n a c t i o n a g a i n s t t h e Bank o f Washi n g t o n t o r e c o v e r damages f o r m a l - a g e n c y i n c o n n e c t i o n w i t h t h e c o l l e c t i o n of t h e b i l l . At t h e t r i a l , t h e Bank of Washington moved the court to i n s t r u c t the jury to f i n d a v e r d i c t i n i t s f a v o r . Two o f t h e grounds t h e r e f o r were t h e same a s a r e h e r e s u g g e s t e d i n t h e c o n t e n t i o n s made by t h e d e f e n d a n t . Chief J u s t i c e M a r s h a l l , i n p a s s i n g on t h e s e c o n t e n t i o n s , s a i d : "The p l a i n t i f f s i n error (Bank of Washington) i n s i s t , that the c i r c u i t court ought to have given the i n s t r u c t i o n s f i r s t asked, b e c a u s e , 1 s t , no p r i v i t y e x i s t e d between the r e a l holder".of the b i l l and the Bank of Washington; that bank was not the agent" of T r i p l e t t 1 2 . F i r s t Nftt. Bk. of Denver v s . Fed. R e s e r v e Bk. of K. C. & N e a l c , b u t was t h e a g e n t o f "i'vic M e c h a n i c s ' Bank o f A l e x a n d r i a . Some c a s e s h a v e b e e n c i t e d , to show, t h a t i f an a g e n t employed t o t r a n s a c t a p a r t i c u l a r b u s i n e s s , e n g a g e s a n o t h e r p e r s o n t o do i t , that other person i s not r e s p o n s i b l e t o the p r i n c i p a l . On t h i s p o i n t , i t i s s u f f i c i e n t t~ s a y , t h a t t h e s e c a s e s , however c o r r e c t l y t h e y may have b e e n d e c i d e d , o,re i n a p p l i c a b l e t o t h e c a s e a t b a r . The b i l l was n o t d e l i v e r e d t o t h e M e c h a n i c s ' Bank of A l e x a n d r i a f o r c o l l e c t i o n , b u t f o r t r a n s m i s s i o n t o some bank i n Washington, t o be c o l lected: t h a t bank w o u l d , o f c o u r s e , bocomo t h e a g e n t o f t h e h o l d e r . By t r a n s m i t t i n g t h e b i l l , a s d i r e c t e d , t h e Mechanics'- Bank p e r f o r m e d i t s d u t y , and t h e whole r e s p o n s i b i l i t y o f c o l l e c t i o n d e v o l v e d on the bank which r e c e i v e d t h e b i l l f o r t h a t p u r p o s e : t h e M e c h a n i c s ' Bank was t h e more c h a n n e l through which T r i p l c t t & N e a l e t r a n s m i t t e d t h e b i l l t o t h e Bank of Washington. "The d e p o s i t o f a b i l l i n one bank, t o be t r a n s m i t t e d f o r c o l l e c t i o n , t c a n o t h e r , i s t h e common u s a g e , o f g r e a t p u b l i c c o n v e n i e n c e , the e f f e c t of which i s w e l l u n d e r s t o o d . T h i s t r a n s a c t i o n was, u n q u e s t i o n a b l y , of t h a t c h a r a c t e r : and t h e r e i s no r e a s o n f o r s u s p e c t i n g t h a t t h e Bank of Washington d i d n o t so u n d e r s t a n d , i t . The duty o f t h a t bank was p r e c i s e l y t h e same, whoever m i g h t be t h e owner of t h e b i l l : raid i f i t was u n w i l l i n g t o u n d e r t a k e t h e c o l l e c t i o n , w i t h o u t p r e c i s e i n f o r m a t i o n on t h e s u b j e c t , t h a t d u t y ought to have been d e c l i n e d . The custom t o i n d o r s e a b i l l p u t i n bank for collection, i s universal: and t h e Bank o f Washington had no more r e a s o n f o r s u p p o s i n g t h a t T r i p l e t t & N e a l e h a d c e a s e d to be t h e r e a l h o l d e r s , f r o n t h e i r i n d o r s e m e n t , than f c r s u p p o s i n g t h a t t h e c a s h i e r of t h e Bank of Washington, had become the r e a l h o l d e r , by t h e i n d o r s e m e n t to them. I t i s the customary p r o c e e d i n g f o r c o l l e c t i o n , i n such c a s e s ; and i s f o r t h e a d v a n t a g e o f the p a r t y i n terested. " Assuming t h e t r u t h of t h e f a c t s a l l e g e d i n t h e c o m p l a i n t , we c o n c l u d e t h a t t h e d e f e n d a n t u n d e r t o o k i n b e h a l f o f the Lumber Company, t h e c o l l e c t i o n o f t h e c h e c k s , and i s d i r e c t l y a n s w e r a b l e t o the Lumber Company f o r any b r e a c h of i t s l e g a l d u t i e s i n c o n n e c tion therewith. Sfe f a r a e t h e r e c o r d now d i s c l o s e s , t h e d e f e n d a n t h a d no a u t h o r i t y t o a c c e p t a n y t h i n g o t h e r t h a n money i n payment o f t h e c h e c k s . When i t s u r r e n d e r e d t h e c h e c k s and a c c e p t e d t h e d r a f t 1 3 . F i r s t N a t . Bk. of Denver v s . F e d . R e s . tic. o f K. C. X-4370-a of t h e C i t i z e n s Bank i n payment t h e r e o f , i t became l i a b l e t o t h e owner o f t h e c h e c k s f o r any r e s u l t i n g l o s s . F e d e r a l R e s e r v e Bank v . M a l l o y , 264 U. S . 160, 1 6 5 . Counsel f o r d e f e n d a n t u r g e t h a t under t h e p r o v i s i o n s o f R e g u l a t i o n J . ( 8 ) S e r i e s 1920 p r o m u l g a t e d by t h e F e d e r a l R e s e r v e Board, i t was a u t h o r i z e d to a c c e p t t h e d r a f t o f t h e C i t i z e n s Bank i n p a y ment of t h e c h e c k s . This i d e n t i c a l q u e s t i o n was p a s s e d on i n Bank V. M a l l o y , s u p r a , and d e c i d e d a d v e r s e l y t o d e f e n d a n t ' s c o n tention. I t f o l l o w s t h a t t h e s e c o n d amended c o m p l a i n t s t a t e d a c a u s e o f a c t i o n a g a i n s t t h e d e f e n d a n t , and t h a t t h e l o w e r c o u r t e r r e d i n s u s t a i n i n g t h e demurrer t h e r e t o . The judgment i s t h e r e f o r e r e v e r s e d , and t h e c a u s e remanded f o r f u r t h e r p r o c e e d i n g s i n c o n f o r m i t y w i t h this opinion. F i l e d May 2 5 , 1 9 2 5 . Trieber, D i s t r i c t Judge, ( c o n c u r r i n g ) , I c o n c u r i n a r e v e r s a l o f t h i s judgment upon t h e ground t h a t t h e c o m p l a i n t a l l e g e s t h a t t h e c h e c k s i n c o n t r o v e r s y were d e p o s i t e d w i t h t h e p l a i n t i f f "to t r a n s m i t f o r c o l l e c t i o n " , and upon t h e e x p r e s s agreement b e t w e e n i t and i t s d e p o s i t o r , t h a t : " A l l i t e m s a r e c r e d i t e d s u b j e c t t o f i n a l c a s h payment and a r e h a n d l e d a t r i s k o f d e p o s i t o r . " These a l l e g a t i o n s a r e a d m i t t e d by t h e demurrer t o t h e complaints The p l a i n t i f f was t h e r e f o r e a c t i n g o n l y a s a g e n t o f t h e d e p o s i t o r i n e n d o r s i n g and d e l i v e r i n g them t o t h e d e f e n d a n t f o r c o l l e c t i o n , and s u e s a s a s s i g n e e o f t h e H a l l o c k & Howard liumber Company, i t s p r i n c i p a l , a l t h o u g h u n d i s c l o s e d a t t h e t i m e t h e c h e c k s were d e l i v e r e d t o t h e d e f e n d a n t . So f a r a s t h e d e f e n d a n t i s c o n c e r n e d , t h e u n d i s c l o s e d p r i n c i p a l may m a i n t a i n an a c t i o n a g a i n s t t h e a g e n t s e l e c t e d by i t s agent?' t o c o l l e c t t h e c h e c k s a s e s t a b l i s h e d by t h e a u t h o r i t i e s c i t e d i n t h e o p i n i o n o f Judge P h i l l i p s . But c o u n s e l f o r t h e d e f e n d a n t i n h i s b r i e f a n d argument i n s i s t e d t h a t S e c t i o n 1 1 o f paragraph "i" o f t h e F e d e r a l R e s e r v e A c t a u t h o r i z e d t h e F e d e r a l Reserve Board "to make a l l r u l e s and r e g u l a - 485 14k F i r s t N a t . Bk. of Denver v s . F e d . R e s . Bk of K» C. X-4370-a t i o n s n e c c s s a r y t o e n a b l e s a i d Board e f f e c t i v e l y t o p e r f o r m t h e same, ( r e f e r r i n g t o t h e powers g r a n t e d t o t h e F e d e r a l R e s e r v e B a n k ) . That i n p u r s u a n c e o f t h a t a u t h o r i t y t h e F e d e r a l R e s e r v e Board by R e g u l a t i o n "J", S e r i e s o f 1920, p r o m u l g a t e d t h e f o l l o w i n g r u l e : " ( 8 ) . I n h a n d l i n g i t e m s f o r member and nonmember c l e a r i n g banks, a F e d e r a l R e s e r v e Bank w i l l a c t a s a g e n t o n l y . The Board w i l l r e q u i r e t h a t e a c h member and nonmember c l e a r i n g bank a u t h o r i z e i t s F e d e r a l R e s e r v e Bank t o s e n d c h e c k s f o r c o l l e c t i o n t o banks on w h i c h c h e c k s a r e drawn, and, e x c e p t f o r n e g l i g e n c e , s u c h F e d e r a l R e s e r v e Bank w i l l assume no l i a b i l i t y . Any f u r t h e r r e q u i r e m e n t s t h a t t h e Board may deem n e c e s s a r y w i l l be s e t f o r t h by t h e F e d e r a l R e s e r v e Banks i n t h e i r l e t t e r s o f i n s t r u c t i o n t o t h e i r member and nonmember c l e a r i n g b a n k s . Each F e d e r a l R e s e r v e Bank w i l l a l s o p r o m u l g a t e r u l e s and r e g u l a t i o n s to be b i n d i n g upon a l l member and nonmember banks which a r e c l e a r i n g t h r o u g h t h e F e d e r a l R e s e r v e Bank." That by t h a t r e g u l a t i o n e a c h F e d e r a l R e s e r v e Bank i s a u t h o r i z e d t o p r o m u l g a t e r u l e s and r e g u l a t i o n s t o be b i n d i n g upon a l l member and nonmember banks which a r e c l e a r i n g t h r o u g h t h e F e d e r a l Res e r v e Bank. That p u r s u a n t t o t h i s a u t h o r i t y 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 Bank i s s u e d General L e t t e r No. 2 2 3 , d a t e d November 1 5 , 1 9 1 9 , c o n t a i n i n g among o t h e r r e g u l a t i o n s , t h e f o l l o w i n g : "In a c c e p t i n g c h e c k s and d r a f t s from member and c l e a r i n g member b a n k s , t h e F e d e r a l R e s e r v e Bank of Kansas C i t y w i l l a c t a s a g e n t o n l y , and w i l l be l i a b l e i n no c a s e , e x c e p t f o r n e g l i g e n c e . The F e d e r a l R e s e r v e Bank o f Kansas C i t y r e s e r v e s t h e r i g h t t o c h a r g e back a g a i n s t t h e member of c l e a r i n g member b a n k ' s a c c o u n t , a l l u n p a i d i t e m s and a n y o t h e r i t e m s , r e t u r n s f o r w h i c h c a n n o t be c o n v e r t e d i n t o a v a i l a b l e f u n d s . Such i t e m s w i l l be c h a r g e d b a c k w h e t h e r or n o t t h e o r i g i n a l c h e c k s o r d r a f t s can b e r e t u r n e d t o t h e member o r c l e a r i n g member bank. "The s e n d i n g o f i t e m s by member and c l e a r i n g member banks t o t h e F e d e r a l R e s e r v e Bank of Kansas C i t y f o r c r e d i t w i l l be c o n s t r u e d as adopting the i n s t r u c t i o n s s t a t e d h e r e i n ; a c c e p t i n g the prov i s i o n s h e r e d e t a i l e d a s t o r e l a t i o n s h i p o f t h e F e d e r a l R e s e r v e Bank o f Kansas C i t y i n h a n d l i n g t r a n s i t b u s i n e s s ; and a u t h o r i z i n g t h e F e d e r a l R e s e r v e Bank o f Kansas C i t y i n i t s d i s c r e t i o n to f o r w a r d any i t e m s f o r payment d i r e c t t o t h e bank on w h i c h t h e y a r e drawn*" 4r 15» F i r s t N a t . B k . o f Denver v s . Fed.. R e s . Be. o f K.C. X-4370-a And i t i s c l a i m e d t h a t t h e s e r e g u l a t i o n s o f t h e F e d e r a l R e s e r v e Board a n d 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 Bank have t h e same f o r c e and e f f e c t , a s i f a p a r t of t h e A c t o f C o n g r e s s , and t h e c o u r t s w i l l t a k e j u d i c i a l n o t i c e o f them, w i t h o u t b e i n g p l e a d e d o r e s t a b l i s h e d "by e v i d e n c e a t t h e t r i a l o f t h e c a u s e , c i t i n g Caha v . U n i t e d S t a t e s , 152 U. S . 2 1 1 , and t h e many c a s e s f o l l o w i n g i t . Whether t h e a u t h o r i t y t o make r u l e s and r e g u l a t i o n s a p p l i e s t o any o t h e r powers o f t h e F e d e r a l R e s e r v e Board t h a n t h o s e s p e c i f i e d i n t h a t p a r a g r a p h M i " , o r a p p l i e s t o a l l t h e powers enumerated i n S e c t i o n 11 o f t h e A c t , or w h e t h e r C o n g r e s s can g r a n t t h e power t o make r e g u l a t i o n s , which a r e t o h a v e t h e f o r c e a n d e f f e c t o f a l a w , t o o t h e r s t h a n t h e P r e s i d e n t o r t h e h e a d o f a department o f t h e government, i t i s u n n e c e s s a r y t o d e t e r m i n e a t t h i s h e a r i n g , f o r t h e r e i s c e r t a i n l y no p r o v i s i o n i n t h e A c t of Congress a u t h o r i z i n g t h e F e d e r a l R e s e r v e Banks t o make r e g u l a t i o n s , which s h a l l have t h e f o r c e and e f f e c t o f law and o f w h i c h t h e c o u r t s must -take j u d i c i a l n o t i c e , w i t h o u t "being p l e a d e d and e s t a b l i s h e d a t t h e t r i a l by c o m p e t e n t e v i d e n c e . I t w i l l b e n o t i c e d t h a t i n F e d e r a l R e s e r v e Bank v . M a l l o y , 2 6 4 U. S . 1 6 0 , 1 6 4 , t h e c o u r t d i d n o t d e t e r m i n e w h e t h e r t h e F e d e r a l Res e r v e Bank was n e g l i g e n t i n s e n d i n g t h e c h e c k d i r e c t t o the drawee bank, a s a u t h o r i z e d by t h a t r e g u l a t i o n of t h e Board, s a y i n g : "For t h e p u r p o s e o f t h e c a s e , we assume t h e c o r r e c t n e s s o f t h e d e c i s i o n b e l o w , h o l d i n g t h a t t h e Richmond Bank was n o t n e g l i g e n t i n s e n d i n g t h e c h e c k d i r e c t l y t o t h e bank on w h i c h i t was drawn, and c o n s i d e r o n l y w h e t h e r t h e a c c e p t a n c e of a n e x c h a n g e d r a f t , f o u n d t o be w o r t h l e s s , i n s t e a d o f money, c r e a t e d an e n f o r c e a b l e l i a b i l i t y . " I t then p r o c e e d e d t o h o l d t h a t the a c c e p t a n c e of an exchange d r a f t , w h i c h p r o v e s w o r t h l e s s , makes t h e c o l l e c t i n g bank l i a b l e t o the payee of the check f o r the r e s u l t i n g l o s s . H c i t h e r o f t h e r e g u l a t i o n s , t h a t o f t h e F e d e r a l R e s e r v e Board, o r t h a t o f t h e F e d e r a l R e s e r v e Bank was t a k e n j u d i c i a l n o t i c e o f by the court i n i t s o p i n i o n . I f t h e s e r e g u l a t i o n s o r e i t h e r o f them h a v e n o t t h e f o r c e a n d e f f e c t o f a l a w , t h e c o u r t c a n n o t t a k e j u d i c i a l n o t i c e of them, b u t t h e y must be p l e a d e d and a t t h e t r i a l e s t a b l i s h e d by p r o p e r e v i d e n c e . As t h e r e was no s u c h p l e a , t h e c a s e h a v i n g b e e n d i s p o s e d o f on t h e demurrer t o t h e amended c o m p l a i n t , I c o n c u r i n a r e v e r s a l . F i l e d May 2 5 , 1 9 2 5 .
@FedFRASER