Pascagoula Nat. Bank v. Federal Reserve Bank of Atlanta

WALKER, Circuit Judge. This is an appeal from a .decree dismissing a bill filed by the appellant, a national bank located in Mississippi. The questions raised are well stated as follows in the opinion rendered by the District Judge: “The present case involves the handling of cheeks between the Federal Reserve Bank and one of its members, under regulation J of the Federal Reserve Board. That regulation, adopted to execute the collection and clearing house powers granted in section 13 and section 16 of the Federal Reserve Act (Comp. St. §§ 9796, 9799), requires that each Federal Reserve Bank shall exercise the function of a clearing house, and collect che.eks on terms and conditions particularly set forth, whose effect, so far as here material, is that each Reserve Bank will receive at' par cheeks which can be collected at par, and only such, whether they be sent it by its own member and affiliated banks, or by or for the account of other Reserve Banks, and whether the cheeks are drawn on its own member banks or nonmember banks, and that the cheeks sent each Reserve Bank will be counted as reserve or become available for withdrawal by the bank sending them (subject to final payment) only in accordance with a time schedule based on experience of the average time requiied to collect cheeks drawn on the different points. The observance of this regulation by the Reserve Bank of Atlanta results in a refusal by it to permit the complainant, one of its members, to deduct the previously charged ‘exchange’ or compensation for remitting payment for checks drawn on complainant, and prevents com [867] plainant getting immediate credit for cheeks sent by it to the Reserve Bank when drawn on points at a distance from Atlanta, whereby it loses the use of the credit during the period of delay. The complainant contends, first, that by the provision of section 16 of the Reserve Act it is entitled to immediate credit, at par, for cheeks drawn on any of the depositors in the reserve bank of Atlanta, no matter at what distance from Atlanta the drawee may be; second, that under the Hardwick Amendment of section 13 (section 4, e. 32, 40 Stat. 234 [Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 9796]), it has the right to make a charge for remitting payment to the Reserve Bank of Atlanta of checks drawn on itself when these are not the property of the Reserve Bank, but are handled for collection; third, that under section 13 the Reserve Bank of Atlanta has no right to have or collect any cheeks drawn on complainant which come to the Reserve Bank from a source outside of the Sixth reserve district; fourth, that, if the Reserve Act authorizes this deprivation of complainant’s right to charge for remittance, it takes its property without due process of law, contrary to the Constitution.” Pascagoula National Bank v. Federal Reserve Bank of Atlanta (D. C.) 3 F.(2d) 465. The claim that, for cheeks drawn upon any of the depositors of the Federal Reserve Bank of Atlanta (herein referred to as appellee), sent or delivered by appellant to appellee for deposit, appellant was entitled to immediate credit at par as deposits subject to -be checked or drawn on is based upon the provision of section 16 of the Federal Reserve Act'(38 Stat. 265, U. S. Comp. St. § 9799, par. 12) that “every Federal Reserve Bank shall receive on deposit at par from member banks * * * cheeks and drafts drawn upon any of its depositors.” That provision is explicit in imposing on a Federal Reserve Bank the duty of receiving on deposit from member banks checks and drafts drawn upon any of its depositors, and in requiring that such checks be so received at par. The amount of the credit to be given the depositor is prescribed, but not the time of giving it, únless the language used means that the amount called for by such' a check, upon the receipt of it by the Reserve Bank, at once becomes subject to be withdrawn on the depositor’s cheeks. In the absence of a statute otherwise providing, the express or implied agreement or understanding of the parties determines whether a bank accepting from a depositor a check on another bank is required to give credit therefor at the time of the acceptance or at a subsequent time, the bank not being required to give immediate credit for the check as for cash, if it clearly manifests its intention not to do so. National Bank v. Burkhardt, 100 U. S. 686, 25 L. Ed. 766; Burton v. United States, 25 S. Ct. 243, 196 U. S. 283, 49 L. Ed. 482; St. Louis & S. F. Ry. Co. v. Johnston (C. C.) 27 F. 243. The opinion in the first-cited ease shows that it was distinctly recognized that, where a bank takes from a depositor a check on another bank, the depositor is not entitled to credit for the check at the time of its delivery, if at that time he has notice that the giving of credit therefor would be deferred to a time in the future. The following is from the opinion in the last-cited ease: “It is quite certain that bankers do not invariably credit their customers for sight paper as for cash, but are generally influenced by the financial responsibility of the customer, or the drawee of the paper, or both. If a bank does not wish to assume the relation of a debtor for the paper to the depositor, this intention may be manifested in a very explicit manner by crediting the paper as paper.” The relation between a bank and a customer having a cheeking account with it does not necessarily imply that for cheeks on other banks sent or delivered for deposit the customer is entitled to be credited as for cash prior to the presentation and collection of such checks. The receipt by a bank of checks on other banks for collection and credit, and making the amount to be credited therefor subject to withdrawal by the depositor only after collection are ordinary incidents of such a relation. 'It could not well be said that banks so receiving cheeks on other banks do not thereby engage in receiving on deposit cheeks. Appellee’s above-mentioned regulation disclosed its intention as to the time the amount of a check required to be received by it on deposit would become a part of the customer’s cheeking deposit. That regulation is not inconsistent with the requirement that appellee “shall receive on deposit at par” such a check, unless that requirement gave appellant the right to be credited for such sight paper as for cash. As above indicated, the duty of a bank, whether imposed by statute or by agreement, to receive on deposit cheeks on other banks, does not necessarily imply that the amount to be credited for a check becomes, immediately upon the bank’s receipt of it, part of the depositor’s balance, subject to be checked against and withdrawn. Uneontroverted evidence in this case showed that there is a [868] general custom among banks to refuse to pay cheeks drawn against uncollected funds. The provision in question is to be construed in the light of customs affecting the relations of banks and their customers. Furthermore, if that provision has the meaning attributed to it in behalf of the appellant, practically it has the effeet of requiring a Reserve Bank to buy from member banks cheeks on its- depositors and to pay in cash therefor the amount they call for, or to lend without interest that amount on such cheeks for whatever time may elapse between the bank’s receipt of them and the presentation of them to the drawees for payment, the obligation incurred by the member bank in such a transaction being to repay to the Reserve Bank the amount of cheeks not paid by the drawees. That the lawmakers did not intend the provision in question to have that effeet is persuasively indicated by other provisions of the Federal Reserve Act. A member bank’s cheeking deposit in a reserve bank constitutes also its reserve balance provided for by section 19 of the act, as amended (Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 9801). That reserve balance is required to be “an actual net balance” equal to not less than a prescribed per centum of the aggregate amount of its demand deposits and a prescribed per centum of its time deposits. So far as a balance is represented by uncollected cheeks on other banks received from a depositor, it could not well .be considered to be either actual or net. The value of such paper may consist wholly in the depositor’s obligation to repay the amount credited therefor or advanced thereon. Evidently it was not intended to permit the depositor’s promises to make good to be counted in determining the amount of its “actual net balance.” Section 13 of the act, as amended (Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 9796), prescribes the character of paper which a Reserve Bank may discount for, or make advances on-to its member banks. Neither the provision of that section nor any other provision of the act indicates an intention to authorize a Reserve Bank to invest its funds in uncollected checks on other banks presented by a member bank. If under the provision in question a Reserve Bank is required, upon the receipt by it for deposit from a member bank of cheeks drawn on any of its depositors located where there is no office of a Reserve Bank, to credit the amount thereof in the reserve account of such member bank, it is apparent that the Reserve Banks would constantly have many millions of dollars of their resources invested in noninterest-bearing paper in transit* That result is not consistent with due effect being given to the provision as to what a member bank may obtain advances on from a Reserve Bank. For reasons above indicated, we conclude that the provision in question does not require the appellee, upon its receipt from appellant for deposit of checks drawn upon any of the appellee’s depositors and prior to the payment of such checks, to credit the amount thereof as for cash, thereby making such amount at once subject to be withdrawn by appellant. In view of the unequivocal language of paragraph 1 of amended section 13 of the .Federal Reserve Act as to collection charges against Federal Reserve Banks, and of the decisions in the cases of American Bank v. Federal Reserve Bank, 43 S. Ct. 649, 262 U. S. 643, 67 L. Ed. 1153, and Farmers’ Bank v. Federal Reserve Bank, 43 S. Ct. 651, 262 U. S. 649, 67 L. Ed. 1157, 30 A. L. R. 635, we think it would be superfluous to add anything to what was said in the opinion rendered by the District Judge in support of the-conclusion that appellant was not entitled to make exchange or remitting charges on cheeks on itself received from appellee, whether appellee was the owner of those cheeks or held them for collection, pursuant to authority conferred by the Federal Reserve Act. The decree is affirmed.