Bank of America v. Federal Reserve Bank

• Decision Date: 03 August 1965
• Docket Number: No. 19650.,19650.
• Citation: 349 F.2d 565
• Parties: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, Appellant, v. FEDERAL RESERVE BANK OF SAN FRANCISCO, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

349 F.2d 565 (1965)

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, Appellant, v. FEDERAL RESERVE BANK OF SAN FRANCISCO, Appellee.

No. 19650.

United States Court of Appeals Ninth Circuit.

August 3, 1965.

Samuel B. Stewart, Robert H. Fabian, Harris B. Taylor, Geo. L. Beckwith, Los Angeles, Cal., for appellant.

John W. Douglas, Asst. Atty. Gen., Morton Hollander, Richard Salzman, Attys., Dept. of Justice, Washington, D. C., Manuel L. Real, U. S. Atty., Los Angeles, Cal., for appellee.

Before HAMLEY and JERTBERG, Circuit Judges, and JAMESON, District Judge.

HAMLEY, Circuit Judge.

Bank of America National Trust and Savings Association paid out $14,500 to one Carl Witten in cash in exchange for three checks purportedly drawn on the Treasurer of the United States. It forwarded the checks to the Treasurer for payment via the Los Angeles office of the Federal Reserve Bank of San Francisco (Reserve). Reserve initially credited Bank of America's account with the face amount of those checks. It later withdrew that credit when the Treasurer, upon his examination of those checks, refused payment on grounds of forgery. Bank of America then instituted this suit against Reserve under 48 Stat. 184 (1933), as amended, 12 U.S.C. § 632 (1958) to recover the amount lost on the checks. Following a trial without a jury the district court entered judgment for Reserve. Bank of America appeals.

Appellant advances two arguments in opposition to the judgment. The first is that, under applicable regulations, the Treasurer and Reserve have until midnight of the next succeeding business day after the day of receipt in which to reject checks drawn on the Treasurer. It is conceded that the Treasurer did not reject these checks within that period. The Treasurer's office received the checks on March 20 and 21, 1961. Not until March 30, 1961, did the Treasurer discover that the checks had been forged and notify Reserve by telegram that payment was refused. On March 31, 1961, Reserve notified Bank of America by telephone of the Treasurer's action.

Reserve's Circular 90 of August, 1960, at page 4 provides that United States Government checks will be handled in accordance with the provisions of Treasury Department Circular 176, 31 C.F.R. § 202.25. Circular 90 further provides that with respect to matters not covered by Circular 176, "* * * the provisions of Regulation J and this circular and time schedules shall be deemed applicable to all Government checks." Section 25(a) (4) of Circular 176, 31 C.F.R. § 202.25(e) (1) (iv), provides that in cases of checks raised or bearing a forged signature of the drawer, "not discovered upon first examination by the Treasurer," credit will be given in the Treasurer's account only when payments are made by the indorser of the checks.

Circular 176 contains no express provision as to the time within which the Treasurer must make his "first examination." Bank of America argues from this that the quoted provision of Circular 90 therefore makes it necessary to apply a time limit derived from the provisions of "Regulation J and this Circular and time schedules." Section 5(4) of Regulation J, 12 C.F.R. § 210.5(d) provides that any check which a Federal Reserve Bank presents to the drawee bank for payment or collection, and for which remittance or settlement is made by the drawee on the day which it receives such check "* * * may be returned for credit or refund at any time prior to midnight of the drawee's next business day following such day of receipt. * * *"

While Circular 176 contains no express provision as to the time within which the Treasurer must reject a tendered check, it does provide, in effect, that he may reject a forged check "upon first examination." The necessary implication from this provision is that the Treasurer is to have sufficient time within which to conduct the first examination. See Cooke v. United States, 91 U.S. 389, 397, 23 L.Ed. 237. Because of this implicit provision in Circular 176 for a reasonable time within which to make such an examination, the quoted provision of Circular 90 with regard to matters not covered by Circular 176 is inapplicable. Thus the "midnight of the drawee's next business day" rule may not be invoked in this case.¹

Appellant's second argument in opposition to the judgment is that the Treasurer did not discover the forgeries "upon first examination" as required under Circular 176.

Because of the great number of Government checks, aggregating 450,000,000 in 1961 alone, the examination...