Transcontinental Oil Co. v. Federal Reserve Bank of Minneapolis

• Decision Date: 01 July 1927
• Docket Number: 26,054
• Citation: 214 N.W. 918,172 Minn. 58
• Parties: TRANSCONTINENTAL OIL COMPANY v. FEDERAL RESERVE BANK OF MINNEAPOLIS
• Court: Minnesota Supreme Court

214 N.W. 918

172 Minn. 58

TRANSCONTINENTAL OIL COMPANY v. FEDERAL RESERVE BANK OF MINNEAPOLIS

No. 26,054

Supreme Court of Minnesota

July 1, 1927

Plaintiff appealed from an order of the district court for Hennepin county, Dickinson, J., denying its motion for a new trial. Affirmed.

SYLLABUS

Federal Reserve Bank of Minneapolis not negligent in sending checks for collection direct to payer bank.

Defendant received from the First National Bank of Chicago, a member bank of the Federal Reserve Bank of that city, two cashier's checks issued by a bank of South Dakota, a member bank of defendant. The checks bore the unrestricted indorsement of plaintiff, the payee. Under the arrangement existing between the Chicago banks and defendant, as expressed in regulation J, series of 1917 of the federal reserve board, and defendant's circular No. 193 defendant accepted the collection of the checks upon the terms that it might forward the same to the payer bank with instruction to remit by draft upon a Minneapolis bank. The statute of South Dakota authorized the collecting bank, doing business in that state, to send the checks direct to the payer bank. And the court found an established general banking custom, existing in Minnesota and South Dakota, to forward items for collection direct to payer bank with instructions to remit by draft. Ti is held:

Defendant was not guilty of negligence in sending the checks direct to the payer bank.

Nor in instructing the payer bank to remit by draft on bank in Minneapolis.

Banks and Banking, 7 C.J. p. 613 n. 32; p. 620 n. 10; p. 623 n. 48.

Customs and Usages, 17 C.J. p. 471 n. 70.

See note in 30 A.L.R. 647; 31 A.L.R. 1269.

Rockwood & Mitchell, for appellant.

Ueland & Ueland, for respondent.

OPINION

HOLT, J.

Appeal from an order denying plaintiff's motion for a new trial.

The action is one to recover damages of defendant, the Federal Reserve Bank of the ninth reserve district, located at Minneapolis, this state, for negligence in the collection of two cashier's checks, issued by the First National Bank of Eureka, South Dakota, both dated August 2, 1920, payable to plaintiff and transmitted to its office in Chicago, Illinois. The aggregate amount of the checks was $2,670.35. Plaintiff indorsed them by unrestricted indorsement and deposited the same on August 5, 1920, in the First National Bank of Chicago, the amount being credited to plaintiff's checking account and entered on its pass book, which contained a provision that the bank in so receiving such checks acted only for plaintiff as agent to collect the same and assumed no responsibility beyond care in selecting agents at other points to whom to forward such checks. The Chicago bank was a member bank of the Federal Reserve Bank of Chicago, and the Eureka bank was a member bank of defendant at this time. The general supervision and control of the federal reserve banks is lodged in the federal reserve board. (U.S. Comp. St. 1916, §§ 9785-9805.) This board promulgated regulation J, series of 1917, which governed the reserve banks in 1920, and contained these provisions:

"(9) In handling items for member banks, a Federal Reserve Bank will act as agent only. The Board will require that each member * * * bank authorize its Federal Reserve Bank to send checks for collection to banks on which checks are drawn, and, except for negligence, such Federal Reserve Bank will assume no liability. Any further requirements that the Board may deem necessary will be set forth by the Federal Reserve Banks in their letters of instructions to their member * * * banks. Each Federal Reserve Bank will also promulgate rules and regulations governing the details of its operations as a clearing house, such rules and regulations to be binding on all member * * * banks which are clearing through the Federal Reserve Bank."

Pursuant to authority thus given defendant issued check clearing and collection circular No. 193, which was in force during August, 1920, and which had prior to that month been received by the First National Bank of Chicago and the Federal Reserve Bank of Chicago, the here material part reading:

"2. Checks received by the Federal Reserve Bank drawn on its member banks will be forwarded direct to such member banks and are to be remitted for by the member banks on day of receipt if possible, by their draft on the Federal Reserve Bank provided they have a balance in excess of their required reserve, or by their draft on a bank in Minneapolis or St. Paul. Member banks are required by the Federal Reserve Bank to provide funds to cover at par all checks received from, or for account of, their Federal Reserve Bank."

"6. In handling items for member banks, the Federal Reserve Bank of Minneapolis acts as agent only. It is understood that each member bank authorizes it to send checks for collection direct to banks on which checks are drawn, and except for negligence the Federal Reserve Bank of Minneapolis assumes no liability until funds are actually in its hands, and is authorized to charge back any item for which it has not received final payment, including items lost in transit."

Member banks of the federal reserve banks send their items for clearance and collections to the reserve bank of which they are members; but to save time and work there existed an arrangement, in August, 1920, between the First National Bank of Chicago, the Federal Reserve Bank of Chicago, and the defendant whereby the former might send direct to defendant for collection items upon banks within its district, the proceeds of such items so routed being credited by defendant to the Federal Reserve Bank of Chicago, it being agreed by and between all these banks that their rights and liabilities should in all respects be the same as if items so routed had been first deposited by the First National Bank of Chicago with the Federal Reserve Bank there and by the latter deposited for collection with defendant. The two cashier's checks were under this arrangement sent directly to defendant by the First National Bank of Chicago and were received by defendant on August 6 and 7, respectively, and immediately forwarded with other similar items, totaling $8,277.30, direct to the Eureka bank with instructions to remit for the same by draft on a Minneapolis or St. Paul bank. On August 10 the Eureka bank attempted to remit to defendant for said checks and the other items by drawing its draft in the sum of $8,277.30 upon the First & Security National Bank of Minneapolis, which draft was received by defendant either after banking hours on the 11th or early on the 12th of August, and on that day presented to the First & Security National Bank for payment, but payment was refused for lack of funds to the credit of the Eureka bank. On August 11 the Eureka bank suspended payment and a receiver was appointed for said bank by the comptroller of currency. The draft has never been paid.

The court found that if the checks had been presented separately over the counter to the Eureka bank at any time between the 7th and 11th of August there would have been sufficient money on hand to pay them, but not enough to have paid all the items forwarded at the one time stated. The trial court also found the existence during August, 1920, of an established, general, uniform and certain usage and custom among banking institutions in Minnesota and South Dakota in accordance with which defendant was authorized to send the checks direct to the Eureka bank and to direct that bank to remit by its draft upon a bank in Minneapolis or St. Paul. Neither this established custom, nor the arrangements between the Chicago banks and defendant, nor the contents of regulation J, series of 1917, nor of defendant's clearing and collection circular No. 193 were known to plaintiff. There was another bank at Eureka besides the one here involved. The American Railway Express Company also maintained an office at Eureka with an agent authorized to collect money on checks and drafts on banks there and remit the same for a consideration. A statute of South Dakota was in force in 1920 reading:

" Any bank, banker or trust company, hereinafter called bank, organized under the laws of, or doing business in, this state, receiving for collection, or deposit, any check, draft, note or other negotiable instrument drawn upon or payable at any other bank located in another city or town whether within or without this state, may forward such instrument for collection directly to the bank on which it is drawn or at which it is made payable, and such method of forwarding direct to the payer shall be deemed due diligence, and the failure of such payer bank, because of its insolvency or other default, to account for the proceeds thereof, shall not render the forwarding bank liable therefor, provided, however, that such forwarding bank shall have used due diligence in other respects in connection with the collection of such instrument." [Supp. Comp. L.N.D. 1913-1925, § 6954a1.]

Because of the agreement between plaintiff and the First National Bank of Chicago, stated in plaintiff's pass book, that bank was merely the agent to select a subagent for the collection of the checks, so that the New York rule will not shield defendant from accountability to plaintiff. We then come to the proposition whether the facts found show actionable negligence. Plaintiff claims negligence is two respects only: First, in forwarding the checks direct to the payer bank; and second, in authorizing that bank to remit by draft on a Minneapolis or St. Paul bank instead of by cash.

It is contended that the South...