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X-4303 EE COED OF THE CONFEEETTCE OF COUNSEL OF FFDEBAL EESEBVE BAMS HELD AT w^tthTOTON.D.C. ,ON DECEMBER 5 and 6,1934. The Confarsncs of Counsel 6f a l l Fad^i'al r s s s r v s "banks convened on ths morning of December 5,1924, a t 10 o 1 clock in the Board Boom of the Federal Rsaorvs Board, Treasury Department, Washington, D.C. Those present wars: From From From From From From From From From From From the ths the the the the the the the the the Federal Federal Fedaral Federal Foderal Federal Federal Federal Federal Federal Federal Eeserve Bassrve Easervo Eeserve Eeserve Reserve Eeserve Eeserve Eeserve Eesorve Easerve Bank Bank Bank Bank Bank Bank Bank Bank Bank Bank Bank of of of of of of of of of of of Boston r Mr. Arthur H.Weed New York - Mr- L. Eandolph Mason P h i l a d e l p h i a - Mr. Parker S. Williams Cleveland - Mr. S t e r l i n g B. Newell Eichnond - Mr. M. G. Wallace Atlanta - Mr. B. S. Parker Chicago - Mr. Charles L. Pave 11 St.Louis - Mr. James G.McConkey Minneapolis - Mr. A. Ueland Kansas City - Mr. H. G. Leedy Dallas - Mr. Paschal Dreibelbis a r r i v e d a f t e r the lunch hour on December 5 and Mr. E. B. Stroud,Jr. arrived a f t e r ths lunch hour on December 6. From the Federal Eeserve Bank of San Francisco-Mr. Albert C. Agnew From the Federal Hasarvo Board -Mr. Walter Wyatt, Mr. Edgar 1 v . Fraeman, Mr. George B. Vest and Mr. B. M. w i n g f i e l d . In a d d i t i o n to the Counsel f o r the Federal reaorve banks and the Federal Eeserve Board, above l i s t e d , Honorable Newton D. Baker, S p e c i a l Counsel to the Federal Eeserve Bank of A t l a n t a in the case of Pascagoula National Bank v. Federal Eeserve Bank of Atlanta e t a l . Mr. K. K. C a r r i c k , S e c r e t a r y to the Federal Beserve Bank of Boston, Mr. George L. Harrison, Deputy Governor of the Federal Eeserve Bank of New York and S e c r e t a r y to the Governors 1 Conference, Mr. H. F. S t r a t e r , A s s i s t a n t Cashier of the Federal Eeserve Bank of Cleveland and Chairman of the Standing Committee on C o l l e c t i o n s , were present upon s p e c i a l invitation. Mr. Hamlin, Member of the Federal Eeserve Board, made a short address of welcome to the Conference of Counsel a t i t s opening on the morning of December 5. Mr. Wyatt was then e l e c t e d Chairman of the Conference and he appointed Mr. Vest as S e c r e t a r y , 794 Page 2. The Conference then proceeded to the consideration of the topics l i s t e d on t h e program which had been prepared and sent out in advance of the meeting by Counsel to the Federal Reserve Board, All matters on the program were discussed informally bat formal action was taken in only a few instances. With regard to the topics which had been r e f e r r e d to the Conference of Counsel by the Governors' Conference, however, formal action was taken in each case. The f i r s t question r e f e r r e d t o the Conference by the Governors' Conference was "Whether or not a Federal reserve bank in forwarding checks or non-cash collection 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 r e mittance consisting of a bank d r a f t drawn by the r e mitting 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 f o r the f i r s t bank d r a f t . " In answer to t h i s question two resolutions were proposed and adopted. The f i r s t was submitted by Mr. Agnew as follows: "RESOLVED t h a t i t i s the opinion of t h i s conference t h a t the Federal Reserve banks are uot p r o tected l e g a l l y "under the terms of the Board's regulations or the uniform c i r c u l a r s in accepting an exchange d r a f t or d r a f t s in purported settlement of a f i r s t exchange d r a f t given for t r a n s i t or non-cash items". This resolution was adopted by the Conference without d i s s e n t i n g vote. The second r e s o l u t i o n in answer to t h i s question was one o f f e r e d by Mr. Weed. This resolution was as follows: "WHEREAS, Mr.Harrison, Secretary of t h e Governors' Conference,has stated that in h i s opinion the Governors' Conference would welcome an expression of opinion from this Conference as to the a d v i s a b i l i t y of amending Regulation J or taking other steps in such manner as to p r o t e c t Federal reserve banks from l i a b i l i t y in accepting another bank d r a f t in remittance f o r the f i r s t bank d r a f t ; "BE IT RESOLVED, that i t i s the opinion of t h i s conference t h a t Federal reserve banks should not seek to be protected against l i a b i l i t y which might r e s u l t from the acceptance of a second or subsequent bank d r a f t . 1 1 V95 Page 3. This resolution was ad op ted-"by the Conference with one d i s s e n t i n g vote Judge Ueland voting "no." The second question submitted "by the Governors' Conference to the Conference of Counsel was as follows: "Whether or not i t would be advisable as a matter of law to have the Federal reserve banks issue a uniform c i r c u l a r containing a form of contract between banks and t h e i r depositors, requesting member and clearing-member banks to amend their c o n t r a c t s (contained on deposit s l i p s and signature cards) in accordance with the form proposed in the c i r c u l a r . " In reply to t h i s question^a resolution was submitted to the conference by Mr.Powell with an amendment by Mr. Baker, in the ^following form: "That i t be the sense of t h i s conference that i t would not be advisable to have the Federal reserve banks issue a uniform c i r c u l a r containing a form of contract between banks and t h e i r depositors requesting member and non-member clearing banks t* amend t h e i r contracts in accordance with the form proposed in the c i r c u l a r . BE IT FURTHER RESOLVED that t h i s conference expresses i t s sympathy with any p u b l i c i t y through the Federal Reserve Board or t h e Federal reserve banks which w i l l inform member banks, non-member clearing banks and the public as to the legal e f f e c t of Regulation J . " This resolution was unanimously adopted by the Conference. The t h i r d topic suggested by the Governors 1 Conference was as follows: "Whether or not i t would be advisable f o r the Federal reserve banks to amend t h e i r check c o l l e c t i o n 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." A f t e r discussion of this question, a resolution was offered to t h e Conference by Mr. Newell as follows: 796 Page 4. *1* i s the sense of thif conference'that i t i s not advisableifor the Federal rsterve banks to amend their collection circulars so as tQ provide that the act of submitting checks to Federal reserve banks for collection will be construed as a warranty that the depositor has lodged with the depositing brinks appropriate agreements. * This resolution was thereupon unanimously adopted. 2Sae fourth and f i f t h questions submitted tp the Conference of Counsel by the Governors'* Conference were thai considered together. These questions were as follows; "Necessity of Federal reserve banks' guaranteeing prior endorsements on non-cash collection items." ".Advisability of Federal reserve banks using words in their endorsement# on both checks and non-cash items to limit their l i a b i l i t y when guaranteeing prior endorsements. * After a short discussion these topics were referred to a comnittee consisting of Messrs. Wallace, Agnew and Mason, with the understanding that the committee would confer with Mr. St rater and Mr. Harrison. The comnittee met and drafted a report and submitted the same to the Conference. The report was as follows: "The undersigned members of the committee appointed te consider and report upon Questions 4 and 5 submitted by the Governors' Conference, wish to report as follows: "In many states the courts have held that a forwarding bank endorsing a non-cash item 'for collection 1 or in similar terms thereby warrants to i t s correspondent the genuineness of prior endorsements. In other states the courts have held that in such cases the forwarding bank does not warrant the genuineness ef prior endorsements unless express words to that effect are added to the endorsement. There is alas conflict in the authorities as to whether or not the ordinary endorsement 'Pay the order of any bank or banket* i s to be considered as equivalent to a qualified endorsement or a general endorsement. * "If the Federal reserve banks receive non-cash item# without requiring a warranty of prior endorsements stated in express , terms, and transmit or c'ollect such items either with or without a warranty of prior endorsements, there i s danger that the payer or some person mA sequent to the Federal reserve bank may be able 797 Page 5 to recover from the Federal reserve bank i f any endorsement p r i o r to that of such "bank "be found, a f t e r payment to to a forgery, and the Federal reserve tank may Ids tillable t o recover from the tank which transmitted the non-cash item to the Federal reserve tank. Thus the loss w i l l f a l l on the Fedoral reserve bank, t y reason of the f a c t that the legal e f f e c t of an endorsement containing no express words of warranty may te diffar-snt in the State in which the Federal roserva tank collected the non-cash i t am and the S t a t e in which i t would te compelled to a s s e r t i t s remedy against the tank which had transmitted the item to i t , and t y reason of other possible complications a r i s i n g under c o n f l i c t of laws. "We t e l i e v e the Federal reserve tanks should determine whether or not they desire to warrant the genuineness of prior endorsements upon non-cash items handled t y them. The determina t i o n of t h i s question is a matter of tanking p o l i c y and must t e decided t y considering what her or not the business put l i e can t e s t te. served t y a rule under which the Federal reserve tank assumes r e s p o n s i t i l i t y to the p a r t y from which i t c o l l e c t s or to which i t remits a non-cash item and requires indemnity from the party from which i t receives non-cash items. Your committ e e , ho-vev^r, believes t h a t the policy of requiring a guaranty and guaranteeing prior endorsements i s economically sound, and should t e adopted as a uniform practice throughout the Federal fiaserve System. "If the Federal reserve tanks desire to assume the r e s p o n s i t i l i t y for the genuineness of prior endorsements, they should incorporate an express guaranty to that e f f e c t in t h e i r endorsement stamp and should require the tanks from which such items a r e received to make a a i m i l a r guaranty f o r the protection of the Federal reserve tanks. "If the Federal reserve tanks do not desire to assume r e s p o n s i t i l i t y for the genuineness of p r i o r endorssments .they should protect themselves t y adding to t h e i r c o l l e c t i o n endorsement express words negativing t h e i r r e s p o n s i t i l i t y for prior endorsements. "We t e l i e v e that Questions 4 and 5 are so c l o s e l y a s s o c i ated t h a t i t i s e a s i e r to answer both of them a t the same time and, t h e r e f o r e , in the atove report we have endeavored to answer both questions a t once. (Signed) M. G. Wallace L. E. Mason A. C. Agnew Committee" 791 Page 6, X-4303 This report of the committee was accepted "by the Conference, and a f t e r discussion the report was on motion unaniimusly adopted as the report of the Conference. On the morning of December 6, Mr« Awa.lt representing the Treasury Department appeared "before the Conference to discuss the matter of charging tack War Savings Stanps found to be c o u n t e r f e i t a f t e r they had been credited by the Treasury Department to the Federal Bes3rve banks from which they had been received and by which thay had been cashed as f i s c a l agents of the Government. The questions considered were whether or not the Treasury Department had a r i g h t to charge back such c o u n t e r f e i t War Savings Stamps against the Federal reserve banks from which they were r e ceived, and whether and to what extent the Federal reserve banks should a s s i s t the Treasury Department in recovering the losses represented by cashing such c o u n t e r f e i t War Savings Stamps. These questions were discussed in some d e t a i l w i t h Mr. Await and a f t e r he had r e t i r e d , the following r e s olution was submitted to the Conference by Mr. Newell: "RESOLVED That i t i s the opinion of t h i s conference : "1. That the several Federal reserve banks are under no legal obligation to reimburse the Treasurer wf the United States for the amount of c o u n t e r f e i t War Savings Stamps now or h e r e a f t e r paid by them as f i s c a l agents of the United States unless said Federal reserve banks have f a i l e d to use due care a t the time said stamps were paid by them. "2. That the several Federal resarve banks should not comply with the request of the Treasurer of the United States to c r e d i t him with the amount of such stamps now d i s covered to be c o u n t e r f e i t . "3. That the several Federal reserve banks which have now or nay h e r e a f t e r pay such c o u n t e r f e i t stamps should cooperate with the Treasurer of the United States in recovering from the persons or banks by whom such stamps were presented to said banks for payment of the amounts t h e r e o f , but that such cooperation should not extend to charging to the account of any. member or nonmember clearing bank with any Federal reserve bank the amount of any such stamp and no suit should be i n s t i t u t e d by any Federal reserve bank (as F i s c a l Agent of the United States) to recover back the amount paid on any such stamps. "4. That as to the amounts for which the several Federal reserve banks have reimbursed postmasters for payments made by them on such c o u n t e r f e i t stamps the several Federal reserve banks, as f i s c a l agents of the United S t a t e s 7 9 9 Page 7 should make counter-entries in t h e i r accounts with the Treasurer of the United S t a t e s , a s requested by him." This resolution was unanimously adopted. Topic 1 of the f i f t h main division of the program was d i s cussed informally in some d e t a i l , a n d i t was decided to make a formal , recommendation to the Standing' Committee on Collections with regard to ' t h i s matter. This topic reads as follows: "Incorporation into non-cash c o l l e c t i o n c i r c u l a r s of warranty by member and non-member c l e a r i n g 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 a u t h o r i t y to give Federal reserve banks such authority;and they a g r e e . t o 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 banks to have such a u t h o r i t y . " Mr. Lfesan made t h e following motion: "MOVED that we recommend that the Standing Committee on Collections include in i t s proposed form of non-cash collection c i r c u l a r a provision that es.ch menber and nonmember c l e a r i n g bank which sends non-cash items to any Federal reserve bank for collection shall by such a c t i o n be deemed to have warranted to the Federal reserve bank that i t has authority to empower the reserve bank to handle the items in the manner herein provided and to have agreed to indemnify any Federal reserve bank for any loss r e s u l t i n g from the f a i l u r e of such sending bank to have such a u t h o r i t y . " This motion was duly seconded and unanimously adopted by the Conference. Although a l l the matters on the program were considered and discussed by the Conference, formal action was taken only in the i n stances above noted. The Conference adjourned on December 6th a t 4:30 P.M. (Signed) George B. Vest Secretary#
@FedFRASER