Federal Reserve Bank of Kansas City v. First Nat. Bank of Denver

• Decision Date: 03 March 1930
• Docket Number: 12143.
• Citation: 286 P. 116,87 Colo. 158
• Parties: FEDERAL RESERVE BANK OF KANSAS CITY, MO., v. FIRST NAT. BANK OF DENVER.
• Court: Colorado Supreme Court

286 P. 116

87 Colo. 158

FEDERAL RESERVE BANK OF KANSAS CITY, MO., v. FIRST NAT. BANK OF DENVER.

No. 12143.

Supreme Court of Colorado, En Banc.

March 3, 1930

Rehearing Denied March 24, 1930.

Error to District Court, City and County of Denver; Henry Bray Judge.

Action by the First National Bank of Denver against the Federal Reserve Bank of Kansas City, Missouri. Judgment for plaintiff, and defendant brings error.

Affirmed.

Lewis & Grant, of Denver, and H. G. Leedy, of Kansas City, Mo., for plaintiff in error.

Hughes & Dorsey and Benedict & Phelps, all of Denver, for defendant in error.

BURKE J.

For convenience, plaintiff in error is hereinafter referred to as 'defendant'; defendant in error as 'plaintiff'; the Citizens' State Bank of Ordway Colo., as 'the Ordway State Bank'; the receiver of said Citizens' State Bank of Ordway as 'the receiver'; the First National Bank of Ordway, Colo., as 'the Ordway National Bank'; the Central Savings Bank and Trust Company of Denver, Colo., as 'the Trust Company'; the State Bank Commissioner of Colorado as 'the commissioner'; John Amicon Brother & Co. of Ordway, Colo., is 'the Amicon Co.'; the Hallack &amp Howard Lumber Company of Denver, Colo., as 'the Lumber Co.'; and Federal Reserve District No. 10 as 'Dist No. 10.'

Plaintiff sent certain checks to defendant for collection which was not made. Alleging that this business was improperly handled to its damage in the sum of $8,851.46, it brought this action to recover that amount with interest. The cause was tried to the court which found for plaintiff in the sum of $7,528.40. To review the judgment entered accordingly, defendant prosecutes this writ.

Defendant is organized under the Act of Congress creating Federal Reserve Banks. Plaintiff and the Ordway National Bank are both national banks, citizens of Colorado, and members of defendant.

The Amicon Co. had a checking account in the Ordway State Bank, with a balance therein to its credit of over $8,000. It drew thereon to the Lumber Co. nine checks for various sums, totaling its balance. September 27, 1921, the Lumber Co. indorsed these checks and deposited them with plaintiff for collection. The deposit slip used for that purpose contained the following conditions: 'This Bank will observe due diligence in its endeavor to select responsible agents, but will not be liable in case of their failure or negligence or for loss of items in the mail. Checks on this Bank will be credited conditionally; if not found good at the close of business on day deposited they will be charged back to the depositor and the latter notified. All items are credited subject to final cash payment and are handled at the risk of depositor.'

Plaintiff credited them to the checking account of the Lumber Co., and sent them to defendant for collection. Defendant thereupon indorsed them and sent them for payment to the Ordway State Bank on which they were drawn. Said bank received them on September 29, and on October 5, 1921, issued in payment thereof its draft on the Trust Company, stamped the checks 'Paid,' returned them to the Amicon Co., and charged that company's account with their face. Said draft on the Trust Company was sent by mail to defendant, and received by it October 6, presented to the Trust Company for payment, and by it dishonored. October 8, the Ordway State Bank was closed by the commissioner. Three weeks later, defendant notified plaintiff of this failure of the collection. Plaintiff thereupon notified the Lumber Co. and charged the paper back to it. The checks, however, remained in possession of the Amicon Co. All interest of the Lumber Co. has been assigned to plaintiff. Defendant thereafter filed, with the commissioner, its claim, based upon the dishonored draft above mentioned, and has received dividends thereon.

The negligence specifically charged to defendant, and whereon it is alleged its liability rests, consists in: (1) Forwarding said checks direct to the bank on which they were drawn, instead of collecting them through a third party; (2) surrendering said checks for the draft of the Ordway State Bank instead of demanding payment in cash; (3) failing to collect within a reasonable time or notify plaintiff of that failure. A demurrer to the complaint for want of facts was overruled.

Aside from essential denials in the answer, the second defense pleaded a banking custom to remit collections by draft instead of cash; also the provisions of 'General letter No. 233' of defendant, issued under authority of an Act of Congress, and regulation J, series of 1920, of the Federal Reserve Board; all which it is alleged, were a part of its contract with plaintiff and justified its conduct. A third defense asserted that plaintiff was not the real party in interest, because, not being the owner of the Amicon Co. checks, it had lost nothing by reason of their cancellation uncollected. This was the contention upon which the demurrer to the complaint was based. A demurrer for want of facts was sustained to said second and third defenses.

The cause was tried to the court without a jury. Findings were for plaintiff, and to review the judgment thereupon entered, defendant prosecutes this writ.

Plaintiff first brought suit in the United States District Court for Colorado. The history of it there will be found in First Nat. Bank v. Federal Reserve Bank (D. C.) 283 F. 700, and Id. (C.C.A.) 6 F. (2d) 339. Meanwhile, by a United States statute and its construction [Federal Land Bank v. U.S. Natl. Bank (C.C.A.) 13 F. (2d) 36], the United States District Court lost jurisdiction, and dismissed the cause without prejudice. Plaintiff thereupon filed the present action.

For the purpose of further consideration of this cause, we will treat the second defense as standing and, in so far as material, admitted.

In sustaining the demurrer to the complaint in the United States District Court for Colorado, on August 16, 1922, Judge Symes did so on the ground that the Lumber Co. and defendant 'are entire strangers, and the former, according to the rule of the federal courts and the courts of Colorado, has no right of action against the defendant. * * * The assignor having no right of action, its assignee can be in no better position.'

First Nat. Bank v. Fed. Reserve Bank, 283 F. 700, 701.

February 18, 1924, a cause reached final judgment which involved the liability of the Federal Reserve Bank of Richmond, Va., on a check drawn in North Carolina, on a bank in that state, first deposited for collection with a bank in Florida, and passing thence through two others to said Richmond bank which sent it for collection to the drawee, where it was paid with paper thereafter dishonored. In that cause the Supreme Court of the United States held that the rule announced by Judge Symes supra, was the rule in the federal courts, but that it 'may, of course be varied by contract, express or implied,' and that...