268 U.S. 449 (1925), 367, Sowell v. Federal Reserve Bank of Dallas, Texas

Docket Nº:No. 367
Citation:268 U.S. 449, 45 S.Ct. 528, 69 L.Ed. 1041
Party Name:Sowell v. Federal Reserve Bank of Dallas, Texas
Case Date:May 25, 1925
Court:United States Supreme Court

Page 449

268 U.S. 449 (1925)

45 S.Ct. 528, 69 L.Ed. 1041

Sowell

v.

Federal Reserve Bank of Dallas, Texas

No. 367

United States Supreme Court

May 25, 1925

Argued May 1, 1925

ERROR TO THE CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

1. An action brought on a promissory note by a federal reserve bank, a federal corporation, is an action "arising under the laws of the United States" within the meaning of Jud.Code § 24, "First" (a). P. 453.

2. A federal reserve bank is not a national bank, subject to the provisions of Jud.Code § 24, "Sixteenth." Id.

3. The Assignee Clause, Jud.Code § 24, "First" (a), which forbids the district court to take cognizance of an action on a chose in action by an assignee which could not have been prosecuted in that court if no assignment had been made, applies where the sole ground of jurisdiction is diversity of citizenship, but not where the ground is that the action arises under the laws of the United States. Id.

4. Failure to present a promissory note for payment at the payee bank, where it was payable and where the maker had sufficient funds, or to give notice of dishonor, held not a defense to an action against the maker by the endorsee holder, in view of provision in the note waiving "protest, notice thereof, and diligence in collecting," and the Negotiable Instruments Law in Texas, giving effect to such provisions. P. 456.

5. A note made to the order of a bank in which the maker had a deposit was endorsed by the payee to another bank as partial security for a larger indebtedness owed by the first bank to the second. The payee bank became insolvent, and the endorsee sued the maker on the note. Held that the maker was not entitled, merely in virtue of his equitable right of set-off as against the payee, to have the action stayed until the endorsee had exhausted other collateral held by it as security for the debt owed it by the payee -- at all events, not in the absence of the payee as a party. Id., .

294 F. 798 affirmed.

Error to a judgment of the circuit court of appeals affirming a judgment recovered in the district court by

Page 450

the bank in an action against Sowell on his promissory note.

Page 452

STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

Writ of error to the United States Circuit Court of Appeals for the Fifth Circuit to review its judgment, affirming a judgment for the plaintiff below of the district court of the United States for the Northern District of Texas, in an action upon a promissory note.

Plaintiff in error, defendant below, a resident of Texas, executed his promissory note payable to the order of a national bank domiciled in Texas. The note was indorsed, before maturity, to defendant in error, also domiciled in Texas, as collateral security for an indebtedness owing by indorser to defendant in error, in excess of the amount of the note. Three principal grounds of error are assigned: (1) that the district court was without jurisdiction as the plaintiff below was an indorsee of the note sued upon and as its indorser could not have brought suit upon the note against the maker in that court, Judicial Code, § 24, Subdivision First (c); (2) that defendant in error, as holder of the note, failed to present the note for payment at the indorser bank where it was payable and where the maker had funds on deposit sufficient to pay it; (3) that the district court refused to stay the suit until such time as the defendant should exhaust

Page 453

other collateral held by it as security for the indebtedness of the indorser.

Suit being brought by a federal reserve bank, incorporated under the laws of the United States, it is a suit arising under the laws of the United States. Judicial Code, § 24, First (a); American Bank & Trust Co. v. Federal Reserve Bank of Atlanta, 256 U.S. 350. And as the defendant in error is not a national bank subject to the provisions of the Judicial Code, § 24, Subdivision Sixteenth, the district court had jurisdiction of the suit unless jurisdiction is excluded by the so-called "assignee clause," Judicial Code, § 24, Subdivision First (c), which reads as follows:

No district court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made. . . .

It is unquestioned that, where the sole ground of jurisdiction is diversity of citizenship, such jurisdiction is excluded by the operation of this clause, and the question now presented is whether the clause has a like effect where the sole ground of jurisdiction is that the suit arises under the laws of the United States.

No inference as to the meaning of the assignee clause can be drawn from its relative position in § 24, and that of the clause giving jurisdiction of suits arising under the laws of the United States. Judicial Code, § 295.

The history of the clause, however, shows clearly that its purpose and effect at the time of its enactment were to prevent...

To continue reading

FREE SIGN UP