frsbog_mim_v24_0145.pdf

( C O P Y ) X-4528 S'SDERAL BlSMVB BAM

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February 8, 1926

The Federal Reserve Board, Washington, D.C.

Attention Mr. Walter Wyatt

Dear Mr, Wyatt:

On last Saturday, we obtained an instructed verdict in the case styled "Vacuum Oil Company vs The Federal Reserve Bank of Dallas11.

This case involved the alleged negligence of the Federal Reserve Bank of Dallas and the Mercantile National Bank of Dallas in the collection of a check in the sum of $357.02." The facts were sub-stantially these:

The Vacuum Oil Company received a check from one of i t s debtors in payment of an account. They deposited the check in the Mercantile National Bank for collection. At the time of the deposit# the Mer-cantile National Bank had no agreement on i t s deposit slips or otherwise with reference to the handling of checks for collection. The check was transmitted by the Mercantile National Bank to the Federal Reserve Bank of Dallas, and by the latter forwarded direct to the drawee bank, the Citizens Bank of Desdemona.- The drawee bank received the check and charged the same to i t s depositor1s account, and remitted the Federal Reserve Bank of Dallas exchange on a correspondent bank for this and several other items included in the Federal Reserve Bank's cash letter. Before the remittance draft could be presented for payment, the Citizens Bank of Desdemona closed, and the remittance draft was therefore uncollected.* The Vacuum Oil Company f i l e d suit against the drawer of the check, the Citizens Bank of Desdemona - which was a co-partnership - the Mer-cantile National Bank of Dallas, and the Federal Reserve Bank of Pallas.

The drawer of the check was discharged upon instructions of the qourt at the end of the pla int i f f ' s testimony, upon the theory that the check was paid, and the drawer discharged from l iabi l i ty . Be-fore the case was presented for trial , an interlocutory judgment by default was taken against the co-partnership.

In the trial of the case, we plead and introduced in evidence Regulation " J ,f, Series of 1920, of the Federal Reserve Board, and also our1 circular letter No.13, Series of 1922,' on transit operations. Our circular No. 13 contained provisions placing l iabi l i ty practically the same as those which are now incorporated in al l the circulars of Federal Reserve Banks; We also plead and attempted to prove certain other defences which are ndt material at this time.

At the conclusion of a l l the evidence, the court directed a verdict for the Federal Reserve Bank of Dallas on the theory that the Mercan-t i l e Bank was the agent of the Vacuum Oil Company, and that i t s knowledge

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of the terms and conditions under which the Federal Reserve Bank of Dallas accepted the check for collection was binding upon i t s principal. The court also took the view that under the Massachusetts rule, which, prevails in Texas, the Mercantile Bank was the agent of the Vacuum Oil Company for the purpose of selecting a sub-agent in the collection of this check, and that i t s contract with the Federal Reserve Bank of Dallas as evidenced by Circular No.13, Series of 1922, was binding upon i t s principal.

After disposing of the parties other than the Mercantile National Bank as aforesaid, the court submitted the case on special issues to the jury. It developed that the Mercantile National Bank held the check for two days before sending the same to the Federal Reserve Bank for col-lection. The f i r s t issue was predicated on this fact, and was in sub-stance whether or not the Mercantile National Bank was guilty of negli-gence in holding the check in question for two days# The jury answered this question affirmatively* The succeeding question was whether or not this act was the proximate cause of the loss, and this question was answered by the jury in the negative. The next question submitted was whether or not the Mercantile National Bank was negligent in authorizing the Federal Reserve Bank of Dallas to collect the check in cash or by bank draft, and this question was answered by the jury in the negative.

Thus from the answers of the jury to the questions submitted, the Mer-cantile National Bank is entitled to judgment. In presenting our tes-timony, eleven witnesses were introduced on the question of custom among banks with reference to the accepting of remittance-drafts in settlement of cash letters . Two of these witnesses were from the Federal Reserve Bank of Dallas, and nine from the various commercial banks in this City, All tes t i f ied substantially that i t had been the general custom among a l l banks in this district for many years to settle for out-of-town items through the medium of remittance drafts; and I am inclined to be-lieve that the jury answered the question relating to the l i ab i l i ty of the Mercantile National Bank favorably due to this testimony,

M r . Dreibelbis tried the case, and I am very much pleased with the re-sult which he obtained, as I think he not only succeeded in obtaining an instructed verdict for us, but was also largely instrumental in securing a favorable decision for the Mercantile National Bank,

The case, of course, involves such a small amount that i t i s doubtful whether the same wil l be appealed, but if i t should be, I think tiie record i s in such a shape that i t will give us a very favorable oppor-tunity to establish a precedent which will be of some value in this question of remittance.

Yours very truly,

(Signed) E. B# Stroud, Jr.

Office Counsel.

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FEDERAL RESERVE BOARD X-4530-a

147 WASHINGTON

ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD

February 16, 1926.

SUBJECT; Opinion of U. S. Circuit Court of Appeals in Pascagoula Case.

Dear Sir;

There i s enclosed for your information a copy of an opinion rendered. February 11th by the United States Circuit Court of Appeals for the Fifth Circuit confirming the decision of the United States District Court in the case of Pascagoula National Bank v. Federal Reserve Bank of Atlanta, and also a copy of a dissenting opinion rendered by Judge Foster.

It is expected that the plaintiff will petition the Supreme Court for a writ of certiorari bringing this case again before that Court for review, but the granting of such a writ i s dis-cretionary with the Supreme Court and if the writ i s denied the decision of the Circuit Court of Appeals will be f ina l .

Yours very truly,

Walter L. Eddy, Secretary.

TO GOVEMOHS OF ALL F.B.BANKS Alffi TO ALL AGENTS.

Enclosure;

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