The Cornell Law Quarterly

Published in December, February, April and June by the faculty and students of the Cornell Law School, Ithaca New York.

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CORNELL LAW ASSOCIATION NOTES

During the next few months, the Cornell Law Association will put forth especial efforts to increase its own membership and to bring the total number of Association scholarships in the Law School to fifteen. Eleven scholarships having been made available, it is greatly desired to round out the quota to fifteen, at the earliest possible moment, so that the Association may devote itself to other tasks. During the transition of the Law School to a graduate basis, these scholarships have performed an invaluable service in the upbuilding of the school.

The next task, also in a sense preliminary in character, is the increasing of the Association membership, so that it will include virtually all Cornell men and women who are lawyers. The Association should have at least 1000 members, instead of about 700. To that end, President Ransom of the Law Association asks that each reader of the CORNELL LAW QUARTERLY constitute himself a special committee of one, forthwith to canvass all the Cornell lawyers in his community, and also to write to all the Cornell lawyers of his class, whose names do not appear in the first edition of the Law List. A new edition of the Law List is contemplated, and it is desired to enroll all Cornell lawyers before that time. So please look over your copy of the Law List, see who are missing, and then write or telephone these persons.

Some members of the Law Association who have not yet contributed toward a scholarship may prefer to contribute toward a "revolving loan fund," to be administered by the Law Faculty, to

assist deserving students to carry on and complete their courses. Such loans are repaid by the beneficiaries, and the fund thereby becomes permanent. Now that the Law School is on a graduate basis, the regular "loan funds" of the University are not available to students in the Law School, so there is a need that the Law School develop its own "loan fund." Some of the Law Alumni groups are at work along this line.

Members of the third year class in the Law School are reported by the officers of the Law Association to have made a most excellent impression, in their mid-winter canvassing for positions in the larger cities upon graduation. The demand for Cornell graduates, in the first-grade offices, now substantially exceeds the supply.

THE CORNELL LAW SCHOOL

Hon. Leonard C. Crouch, '91, Justice of the Appellate Division of the Supreme Court of New York, has been appointed non-resident lecturer on Practice for the current academic year, and will lecture on that subject before the second and third year classes on April 28th, 29th and 30th.

As announced in the last issue of the QUARTERLY, James Leslie Brierly, O.B.E., Chichele Professor of International Law and Fellow of All Souls College, Oxford, is visiting professor of International Law in the Cornell Law School during the present term, being brought to Cornell on the Jacob Schiff Foundation.

Professor Morris R. Cohen, of the department of Philosophy in the College of the City of New York, will deliver the Phi Delta Phi address on the Frank Irvine Foundation at 11 o'clock on the morning of Saturday, April 30th. Professor Cohen is particularly well known to the law school world and to the legal profession for his writing in the field of legal philosophy.

Announcement was made in the December issue of the QUARTERLY of the organization of the first year class in the Law School into law clubs for moot court work under the direction of Assistant Professor Farnham. This work has been highly successful, and has afforded excellent training to members of the first year class in the use of the Library and in the drafting of briefs and the presentation of oral arguments. As the present issue of the QUARTERLY goes to press, the fourth and final round of inter-club arguments is being prepared. The club in each league which has had the highest score during the four rounds will choose from its membership a team to participate in a final moot case which will be argued on the afternoon of Friday, April 29th, before a most distinguished bench. Hon. Frank H. His

cock, former Chief Judge of the New York Court of Appeals, will preside, and with him will be associated Hon. Leonard C. Crouch, Justice of the Supreme Court, Appellate Division, Fourth Department, and Hon. Rowland L. Davis, Justice of the Supreme Court, Appellate Division, Third Department. Plans are being made for a dinner for all of the first year class, who have participated in the moot court work, to be held at the close of the final moot case.

It is of interest to note from the law school records that at the present time twenty-three colleges and universities are represented in the law student body, and that students in the law school come from nineteen states.

William D. P. Carey, a graduate of the law school, established last fall the William D. P. Carey Exhibition. The prize provided by Mr. Carey was this year awarded to Nathan Katz of the third year class. According to the terms of the Exhibition, the prize was awarded by the faculty of law as a result of two examinations which covered the principal fields of law, and which were planned to test the general legal knowledge of those participating in the examinations, of whom there were fifteen this year.

Notes and Comment

Banks and Banking: Collections: Payment by drawee by draft as discharging drawer. Suppose that X pays a debt to Y by check on Bank A. Y deposits the check in Bank B for collection. Bank B sends the check to Bank A, the drawee, for payment, and accepts as such payment a check or draft on Bank C, according to the general banking custom. Bank A becomes insolvent before the draft is paid. The resulting situation is not precisely covered by the Uniform Negotiable Instruments Act, and has been the source of a steady stream of cases on the liability of all the parties to the transaction. The most famous and most numerous class is that which involves the liability of the collecting banks, and particularly that of the original collecting bank for the wrongful or negligent acts of its subagent banks. There is another question, however, always present in these cases, which has more rarely been the subject of decision: that is, has the debt from X to Y been paid by the transaction? The whole situation covered by the hypothetical case given above was raised in the case of City of Douglas v. Federal Reserve Bank of Dallas, 46 Sup. Ct. 554 (1926). Though the main question in that case was the liability of the collecting bank, the question of the liability of the original debtor is raised, and the language the court uses seems to leave no doubt but that the federal rule is that the debt has been paid when the check has been marked "paid" by the drawee bank, the account of the drawer debited, and a draft for the amount remitted to the collecting bank.

The question seems never to have been fully discussed by the writers. The discussion has been confined to the courts and the result there has been a clear-cut division of opinion-the majority holding that such a transaction amounts to a payment of X's check, and the minority holding that the payment is only conditional on the honoring of the second draft, the one remitted to the collecting bank. The majority view is simply this: when X gave the check to Y, the delivery amounted to a conditional discharge of the debt, a discharge conditioned on payment of the check when presented. When the check was paid, the liability of X would be at an end. This payment, however, was to be made on presentation, and the rights of the parties should be determined as of that time. When the check was presented, the collecting bank had the option offered it of taking its payment in cash or in something else (here a draft on another bank). If it had taken cash as it could have, the debt and check would have been paid, and X would have been discharged. The check called only for payment in cash: "Pay to the order of Y so many dollars."

12 Daniel, NEG. INST. (6th Ed. 1914), § § 1624-1625; and see notes in (1925), 13 CALIF. L. REV. 231, (1922) 22 COL. L. REV. 278, (1922) 7 MINN. L. REV. 55 and (1925) 34 YALE L. J. 323.

This parenthesis is intended to be only illustrative. Of course, in practice most of the payments are made by balancing the reserves maintained at clearing houses, and rectifying shortages by covering drafts. However, the principle of all these methods is the same, and the draft situation is the simplest.

Therefore, X having given the order for payment in cash on presentation, if the collecting bank or the payee takes anything but cash, they take it at their own option, and should take it at their own risk. If the agreement implied at the time of the delivery of the check had been carried out, Y would have had the cash, and X would have been discharged. Since Y or his agent have seen fit to take their performance in some other manner, their choice should not be allowed to prejudice X, who has done all he could. The taking of the draft in lieu of the cash which might have been taken is to be considered as a matter entirely between the payee and the drawee, which does not affect the drawer in the slightest.

The minority base their contention on a double ground-a legal argument plus the policy and custom of the banking business. They argue: first, that the agreement between X and Y was that their debt should be paid when the check was paid at the drawee bank; but that the remitting or acceptance was not an absolute payment any more than the giving of the check from X to Y was an absolute payment; that it was a conditional payment only, conditioned on the honoring of the draft of the drawee bank; that therefore, until the second draft has been honored there has been no absolute payment of the first draft. Second: that it is the general custom of the banking business to remit balances due in this manner by paper or credit rather than by cash; that the shipment of large amounts of cash, or the shipments of any cash at all except when the creditor bank is in need of increased cash reserves, is absolutely unknown. It follows as a corrolary from the argument of the majority, that if the collecting bank has taken a draft as payment in place of cash, when the only authorization it had from its principal was to receive payment in cash, that it is liable to the principal for its negligence. (This is the usual case in which this general situation gets into court-which has given rise to the various rules as to the liability of agent and subagent banks.) But it seems hardly fair to hold the collecting bank liable for doing what it is the regular custom of banks to do what is, in fact the practically universal rule of conduct among banks—that is, to settle accounts by draft rather than by cash. That would in fact be placing an absolute liability on banks: unless they do what no bank in reason would do, they are liable for any loss which results. The clear majority of courts hold, as has been indicated, that X is discharged, either in directly decided cases, or in cases which hold that in accepting payment by draft, the collecting bank is guilty of negligence. The rule that X's debt has been paid follows from this rule of negligence necessarily, for if Y's debt against X is still in existence, the negligence of the collecting bank would be non-actionable because of the absence of loss, and would give rise to no such substantial damages as are the rule in jurisdictions following the negli

5

Supra, note 3.

For instance, Jensen v. Laurel Meat Co., 71 Mont. 582, 230 Pac. 1081 (1924). See infra, note 6.

"For instance, Federal Reserve Bank of Richmond v. Malloy, 264 U. S. 160, 44 Sup. Ct. 296 (1925). See infra, note 6.