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x-4i95 769 PROGRAM FOR THE CONFERENCE OF COUNSEL OF FEDERAL RESERVE BANKS TO BE HELD AT WASHINGTON, D. C. ON DECEMBER 5,1924. I. DISCUSSION OF CASES. The f i r s t p a r t of the program will be taken tip vVith a discussion of the cases brought aga.inst Federal reserve banks involving c o l l e c t i o n problems similar to those a r i s i n g in the case of Federal Reserve Bank of Richmond v. Malloy Brothers. These cases w i l l be considered individually and the Coun- s e l for the Federal reserve bank involved in each p a r t i c u l a r case will make a brief statement of the f a c t s and the decision in h i s case and follow t h i s with a discussion of the legal p r i n c i p l e s involved. This in turn will be followed by a general discussion by the conference of the l e g a l p r i n c i p l e s involved in the case under consideration. This course of procedure will be followed by taking up the cases in the following order: 1. Federal Reserve Bank of Richmond v. Malloy Brothers, 44 Sup. c t . 296; 2. City of Douglas v. Federal Reserve Bank of Dallas, 300 Fed. 573J 3. F i r s t National Bank of Denver v. Federal Reserve Bank of Kansas City, 283 Fed. 700; 4. National Bank of Commerce v. Federal Reserve Bank of San Francisco; 5. Jack and Jake v. Federal Reserve Bank of Atlanta, et a l . (Apparently not r e p o r t e d ) . 6. Federal Reserve Bank of Richmond v. P e t e r s , Receiver, 123 S.E. 379J ?. Olive v. Federal Reserve Bank of Dallas (Not r e p o r t e d ) . S. C.M. & S t . Paul Railway v. Federal Reserve Bank of San Francisco (Pending). 9. Southern Power Co. v. Federal Reserve Bank of Richmond (Pending). 10. Any other cases of t h i s character which Counsel may d e s i r e to discuss. • -2- X-4195 II. IMPORTANT GENERAL PROBLEMS The following topics suggest important l e g a l problems of a general nature which probably will have been discussed more or less thoroughly in connection with the discussion of the above cases, and i t w i l l only be necessary to discuss such of these topics as have not been f u l l y covered by the discussion of the cases: 1. E f f e c t of Regulation J , as amended, and new check c o l l e c t i o n c i r c u l a r s on common law doctrine regarding l i a b i l i t y f o r losses r e s u l t i n g from sending checks d i r e c t to %»ayee banks and accepting exchange d r a f t s in remittance. 2. What e f f e c t , if any, have Regulation J , as amended, and new check c o l l e c t i o n c i r c u l a r s on legal r i g h t s of owners of checks as against Federal reserve banks: 3. 4. (a) Where New York rule applies; (b) Where Massachusetts r u l e a p p l i e s . P r i v i t y of contract between owner of check and Federal reserve bank (a) Where Massachusetts rule a p p l i e s ; (b) Where New York r u l e applies. C o n f l i c t s of laws (e. g. where depositary bank i s located in State in which New York rule i s in e f f e c t and Federal reserve bank and payee bank are located in s t a t e s where Massachusetts rule a p p l i e s . ) 5. J u r i s d i c t i o n and venue of actions against Federal reserve banks: (a) In Federal courts; (b) In State c o u r t s . -3- (c) x-ui55 7 7 1 Bight of Federal reserve bank to question venue of s u i t a f t e r removing same from State to Federal court. (d) Is a Federal reserve bank doing business in a State within i t s d i s t r i c t , in which i t maintains no branch o f f i c e , subject to process of State courts in that State? (e) If i t i s not doing business in such a S t a t e as that above mentioned i s i t subject to attachment as a nonresident or foreign corporation? (f) Whether a s u i t brought in a S t a t e court j o i n t l y against a Federal reserve bank and the payee of a check may be removed to a United States D i s t r i c t Court when the payee of the check r e f u s e s to join in the p e t i t i o n f o r removal. (g) Various defenses which may be interposed by Federal r e serve banks in such s u i t s . III. TOPICS REFERRED TO CONFERENCE OF COUNSEL BY GOVERNORS' CONFERENCE. At the conference of Governors of Federal reserve banks held during the early part of November, c e r t a i n questions were r e f e r r e d to the forthcoming conference of Counsel of Federal reserve banks with the request that i t consider these questions and make a report or recommendation concerning them.' The t h i r d division of the program w i l l be given over to a consideration of these topics, - which are as follows: 1. Whether or not a Federal reserve bank in forwarding checks or non-cash c o l l e c t i o n items to a bank f o r c o l l e c t i o n , and in accepting t h e r e f o r a remittance consisting of a bank d r a f t drawn -4- X-4195 7 7 by the remitting bank upon another bank, has the r i g h t to accept s t i l l another bank d r a f t in remittance for the f i r o t bank draf t . 2. Whether or not i t would be advisable as a matter cf law to have the Federal reserve banks issue a uniform c i r c u l a r containing a form cf contract between banks and their depositors, requesting member and clearing-member banks to amend t n e i r c o n t r a c t s (contained on deposit s l i p s ana signature cards) in accordance with the form proposed in the c i r c u l a r * 3. Whether o r n o t i t would be a d v i s a b l e f o r the Federal r e s e r v e banks to amend t h e i r check collection c i r c u l a r s so as to provide t h a t the act of submitting checks to Federal reserve banks f o r c o l l e c t i o n w i l l be construed as a warranty that the depositor has lodged with the depositing bank the required agreements. 4. Necessity of Federal reserve banks* guaranteeing p r i o r endorsements on nou-casia c o l l e c t i o n items. 5. Advisability of Federal reserve banks using words in t h e i r endorsements on both checks and non-cash items to l i m i t t h e i r l i a b i l i t y when guaranteeing p r i o r endorsements. IV. SPECIAL TOPICS. The f o u r t h p o r t i o n of the program will ne devoted to tne discussion of special topics suggested by various Counsel. A large number of such topics have been suggested, but those l i s t e d below are believed to be the most important. Other topics vvhich have been suggested will be considered if time permits, under Division V of this program. -5- X-4195 D e s i r a b i l i t y of uniform provision in check c o l l e c t i o n c i r c u l a r s covering Government checks. The courts have been very l i b e r a l in allowing the Government to assert claims f o r f o r g e r i e s - in one case a f t e r a period of more than two years had elapsed. (This topic suggested by Mr. Mason, Counsel to Federal Reserve Bank of New York). How should a Federal reserve bank handle items on non-par points where previous notice has not been given to member banks of the f a c t t h a t such points are non-par p o i n t s . (Suggested by Mr. Powell). .Right of Federal reserve banks to preference on claims growing out of t h e i r sending items d i r e c t to national bank on which drawn, or at which payable f o r c o l l e c t i o n and remittance when such bank f a i l s before i t s remittance d r a f t can be c o l l e c t e d . (Suggested by Mr. IVfoConkey, Federal Reserve Bank of St. Louis). Refusal of member bank to permit Federal reserve bank to charge to i t s reserve account the amount of checks sent to i t f o r payment and remittance as provided in Section V l l - l - ( c ) of Kansas City Check Collection Circular, (Letter from Governor B a i l e y ) . Contention made by numerous bankers t h a t while Federal reserve banks have legal r i g h t to exempt themselves from l i a b i l i t y in coll e c t i o n s f o r anything except t h e i r own negligence, y e t as a. pract i c a l matter they ought not to do so. Collecting checks drawn on banks known by the Federal reserve oank to be in an extended or weakened condition: (a) Whether or not under the p r e s e n t regulation and the * i -6- x-4195 774 uniform collection c i r c u l a r s , a Federal reserve bank i s l i a b l e for r e s u l t i n g loss if i t sends checks d i r e c t to the drawee bank and accepts remittances in the form of exchange d r a f t s a f t e r knowing or having reason to know t h a t the drawee bank i s in a weakened condition, and such drawee bank closes i t s doors before the remittance d r a f t i s collected. (Suggested by Mr, Wallace and Messrs. Randolph and Parker). (b) E f f e c t of State s t a t u t e s expressly permitting in general terms the sending of checks d i r e c t to the drawee banks. (Suggested by Messrs. Randolph and Parker). (c) What precautions should a Federal reserve bank adopt in such cases in order to avoid r e s p o n s i b i l i t y f o r sending checks d i r e c t tc the drawee bank. (Suggested by Mr. Wallace and Randolph and Parker.) 7. Advisability of requiring indemnity of member banks when Federal reserve banks are held l i a b l e for losses r e s u l t i n g from sending checks d i r e c t to drawee banks or accepting exchange d r a f t s in remittance. V. NON-CASH ITEMS AND OTHER MISCELLANEOUS TOPICS. Several problems a r i s i n g in the collection of non-cash items by Federal reserve banks and other matters not d i r e c t l y connected with check c o l l e c t i o n s have been suggested f o r discussion, and if time i s available consideration w i l l next be given to these questions. Explanation of these topics will be ma.de by Counsel f o r the p a r t i c u l a r Federal reserve banks -7- • X--.15J 7 7 5 where the problems have arisen and such explanation will be followed by a general discussion by a l l attending the conference. The following are the topics of t h i s character which have been suggested: 1. Incorporation into non-cash collection c i r c u l a r s of warranty by member and nonmember clearing banks sending items to Federal reserve banks f o r deposit or c o l l e c t i o n that by such action they authorize the Federal reserve banks to handle checks subject to the terms and conditions of Regulation J; warrant that they have authority to give Federal reserve banks such a u t h o r i t y ; and they agree to indemnify the Federal reserve banks f o r any loss r e s u l t i n g from the f a i l u r e of the sending bank to have such authority. (Suggested by Mr. Mason). 2. To what extent, if a t a l l , should Federal reserve banks f i l e and prosecute claims against receivers of f a i l e d banks f o r the b e n e f i t of member banks where, having received items f o r c o l l e c t i o n on the f a i l e d bank while i t was a going concern i t has sent those items to the f a i l e d bank and received the remittance d r a f t of the f a i l e d bank, which d r a f t was not paid because of the f a i l u r e of such bank. (Suggested by Mr. Powell). 3. Right of Federal reserve bank to r e t a i n rediscounted paper and excess c o l l a t e r a l a f t e r proving claim against insolvent member bank for f u l l amount due Federal reserve bank. (Suggested by Mr. McConkey). 4. Practice of some country banks of not remitting d i r e c t to Federal reserve bank but requesting t h e i r correspondents to remit f o r them -s- x-4195 and n o t i f y i n g Federal reserve batu. that they ha.V3 dene so. Does t h i s make the correspondent bank the agent of the Federal reserve bank so that the f a i l u r e of the correspondent r e s u l t s in loss to the Federal reserve bank rather than the country bank on which the original checks were drawn? gested by Mr. McConkey). (Sug-
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