Central Law Journal.

ST. LOUIS, MO., APRIL 8, 1921.

THE CONTROVERSY BETWEEN THE FEDERAL RESERVE BANKS AND THE STATE BANKS IN CERTAIN RESERVE DISTRICTS OVER COLLECTION CHARGES.

Several Federal Reserve Banks, particularly those at Richmond and Atlanta, are in open warfare against the practice of local state banks charging exchange on all checks paid by them to correspondent banks. This deduction is called a charge for the remission of the proceeds of the check. There has always been objection by merchants to this practice which has been regarded as an unjust toll upon the commerce of the country. The principal offenders are small country banks, the large city banks having for many years declined to make a charge for "collection."

When the Federal Reserve Bank was organized it was distinctly provided in the act that "no such charges (for remission) shall be made against the federal reserve banks." (Sec. 13.) When the Reserve Banks began to handle the collections of its member banks the state banks objected to being deprived of the revenue from their "collections" and contended that it was not the duty of the Reserve Banks to handle such collections. But the Reserve Banks in several districts insisted upon their right to handle such collections and also contended that they are not permitted to pay exchange or charge for remission. Upon the refusal of state banks in several states to make remission of collections on checks which were sent to them by the Reserve Banks the latter banks adopted the expedient of sending such checks to agents who presented them over the counters of the drawee banks. In North Carolina, Georgia and other states the state banks have sought in

junctions against the Federal Reserve Banks to compel them to refrain from

handling checks for correspondent banks otherwise than in the ordinary channels.

In North Carolina a temporary injunction was granted by the state courts with the result that many checks sent by foreign. banks to that state are coming back with printed statements by the Federal Reserve Bank of Richmond that they are unable to present said checks for collection because of the restraining order. This order also specifically enjoins the Federal Reserve Bank "from returning as dishonored, checks drawn on the plaintiffs in the suit even though such checks have been presented by

said Reserve Bank to the drawee bank and payment demanded and refused."

This controversy presents some legal phases of interest to lawyers. First, can suits against Federal Reserve Banks be removed to the Federal Courts on the ground that said bank is a national corporation and said suit is one arising under the laws of the United States? Second, are such banks permitted to make collections for member banks and, if so, can they adopt methods of collection which will deprive state banks of the customary profit thereon? A recent decision by the Circuit Court of Appeals (5th Cir.) has decided both of these questions in the affirmative. American Bank & Trust Co. v. Federal Reserve Bank of Atlanta, 269 Fed. 4.

The difficulty with the question of removal of such cases to the Federal Courts is in reference to Sec. 24 of the Judicial Code, which provides that "all national banking associations established under the laws of the United States shall for the purpose of all other actions against them, real, personal, or mixed, and all suits in equity, be deemed citizens of the states in which they are respectively located."

The Court of Appeals held that this section did not apply to Federal Reserve Banks for the reason such banks are not "national banking institutions" of the kind referred to since they do not serve the public generally like the national banks. On the main point in the case, namely the right

of the Federal Reserve Bank to make collections for non-member banks the Court said:

"The usage of the complaining banks. had been to make a deduction from the amount of the check in remitting the proceeds to cover the so-called "exchange" cost of remitting. This charge could only be applied in cases in which the check was forwarded through the mails to the drawee bank. If the check was presented over the counter of the drawee bank, either by the payee or his agent, the full amount of the check was required to be paid, and the drawee bank was defeated in its endeavor to collect exchange on it. The purpose of the bill was to prevent the Federal Reserve Bank from handling checks on appellants and on other nonmember state banks, except through the regular channel of correspondence or clearing. Section 13 of the Federal Reserve Act, as amended, prohibited the Federal Reserve Bank from paying for the cost of remission. quently it was disabled from collecting through the regular channel from all banks which insisted on deducting for the cost of remission. In the case of all such banks it had the alternatives of not handling their checks at all, or of presenting them for collection over the counters of the drawee banks by agents, express companies, or the postal authorities.

Conse

"One contention of the appellants is that the Federal Reserve Act prohibited the reserve banks from handling any checks, the collection of which entailed any expense, to whomsoever payable, and that their endeavor to collect checks by presenting them at the counter of the drawee was ultra vires, because expense was necessarily incident to that method. Another contention of appellants is that, though the Federal Reserve Bank had the lawful right to handle such checks, it was making or intending to make an oppressive use of its right, by so exercising it as to amount to coercion or duress and with a wrongful and malicious motive. If the Federal Reserve Bank had availed itself of the services of the complaining banks in the remission of the proceeds of checks sent them for collection through the mails, in view of their known usage to deduct for exchange, it would have been liable for the reasonable value of such services, except for the statutory inhibition against it. The

purpose of the bill, however, is not to collect compensation for services rendered and to which the banks had a property right, but to compel the Federal Reserve Bank to avail itself of services which it was unwilling to and disabled from accepting, by restraining it from using any method which did not require the use of such services. Complaining banks had no property right that was infringed by the refusal of the Federal Reserve Bank to avail itself of their services in remitting, or that a court of equity could be called upon to protect. It was under no legal duty to accept the services of the complaining banks, even had there been no statutory obstacle to its doing so. It also had the legal right to present the checks of the complaining banks to them for payment singly or in numbers over their counters, and it was the absolute duty of the complaining banks to pay the full amount of such checks without deduction, when so presented."

The state banks object to being cut off from a rich source of revenue. They resent the action of the Federal Reserve Banks in lending their aid to the merchants of the country in destroying this charge on the business of the country which they regard as a legitimate burden on commerce in return for the service which the country banks render in clearing checks and remitting the proceeds. They contend also that the provision of the Federal Reserve Bank law which prohibits the Reserve Banks from paying exchange to remitting banks on which checks are drawn also prohibits them from employing agents to collect such checks over their counters. In other words the argument of the state banks is that this provision was intended to keep the Reserve Banks out of the collection field by refusing to allow them to incur any expense whatever for that purpose. This argument appears to us to be highly fanciful. If Congress did not wish the Reserve Bank to make collections it could have said so in unequivocal terms. On the other hand it seems to us that the intention of Congress in providing that the reserve banks should not pay exchange to banks remit

ting for collections was in fact to destroy the unjust and indefensible tribute exacted by the state banks from the commerce of the country through the so-called exchange. It expected to accomplish this by making it impossible for the Reserve Banks to pay this charge and thus attract to the Reserve Bank all of the business of this character ultimately establishing a form and universal system of par clearance throughout the country.

NOTES OF IMPORTANT DECISIONS.

CARRIER LIABLE ONLY FOR WANT OF ORDINARY CARE WHEN DANGERS ARE TRIFLING AND NOT WHOLLY UNDER ITS CONTROL Where a passenger on a Pullman chair car fell over a hassock in the aisle the railroad company was held in the instructions of the Court "to the extent of only ordinary care to see that hassocks provided in a chair car, and which are moved about by passengers at their pleasure, are not allowed to project into the aisle. Bassel v. Hines 269 Fed. 231. This decision by the Circuit Court of Appeals (6th Cir.) distinguished the cases where extraordinary care is demanded and those where only ordinary care is required by this test, namely, is the danger causing the injury a trifling one which is not peculiar to railway traffic? If so the care demanded is only ordiHere is what the Court has to nary care. say on that particular point:

"The instructions put upon defendant the duty to exercise ordinary care to see that the aisle was not obstructed by a footstool. The court declined to charge that the defendant was bound to exercise the highest degree of care and prudence consistent with the conduct of its business. The stricter rule imposing the more extreme liability is the one which expresses the duty of a common carrier as to all the special perils of transportation. The cases to this effect are familiar. Some of them are cited in the opinion of this court, in Memphis v. Bobo, 232 Fed. 708, 711, 146 C. C. A. 634. The leading cases and the textbook discussions indicate (see Indianapolis Co. v. Horst, 93 U. S. 291, 296, 23 L. Ed. 898) that the reason of the rule is that the passenger delivers himself into the custody and control of the carrier, that he is helpless against these perils, and that he is compelled to, and rightly does, rely upon the carrier for protection. This reason extends to and supports the great bulk of the cases where the

rule of the highest practicable care has been enforced. The cases where a passenger has been injured by an assault by another passenger (like Meyer v. St. Louis Co., 54 Fed. 116, 4 C. C. A. 221) or by one of the crew (like Lee Line v. Robinson [C. C. A. 61 218 Fed. 559, 563, 134 C. C. A. 287, L. R. A. 1916C, 358) are not exceptions, because the duty of police protection, for which the citizen ordinarily relies upon the peace officers of the community, is one which the passenger necessarily abandons to the carrier when he becomes a passenger. Cases of injury from a falling berth (like Penn. Co. v. Roy, 102 U. S. 451, 26 L. Ed. 141) or from an imperfectly secured trolley rope (Denver Co. v. Hills, 50 Colo. 328, 116 Pac. 125, 36 L. R. A. [N. S.] 213), or from an exposed rudder chain (Garoni V. Compagnie [Com. Pl.] 14 N. Y. Supp. 797), are nearer the margin line, but are not beyond the reason of the rule. All of these agencies were peculiar to the instrumentality of transportation, and their proper management and control, so that they would not harm a vassenger, were wholly in the hands of the carrier.

"Plainly, the reason of the rule does not extend to those comparatively trifling dangers which the passenger meets while upon a railway car only in the same way and to the same extent as he meets them daily in his home or in his office or on the street, and from which he easily and completely habitually protects himself. He may, more or less excusably, stumble and fall over a footstool or chair in his home, or an obstacle on the sidewalk, or a hassock in a car; he need never do any of these things, if he takes sufficient care. It did not need evidence to show that these hassocks were under the control of the passengers, and were by them placed and replaced as they desired; and this destroys the basis-sole management and control-for the extreme rule. There is, in our judgment, no sound reason why anything more than ordinary care, fitted to the circumstances, should be required, nor why the rule highest practicable care should be applied to such a subject; we do not find any controlling authority, or any weight of authority, which so requires."

of

The principles here announced are sustained by most of the recent cases where the rule of reasonable or ordinary care, to be measured by the circumstances of each case, has been frequently applied under closely analogous circumstances. Such are the falling of a package from the parcel rack (Louisville Co. v. Rommele, 152 Ky. 719, 154 S. W. 16, Ann. Cas. 1915B, 267; Morris v. New York Cent., 106 N. Y. 678, 13 N. E. 455), the falling of a car window (Irwin v. Louisville Co., 161 Ala. 489, 50 South. 62, 135 Am. St. Rep. 153, 18 Ann. Cas. 772; Strembel v. Brooklyn Co., 110 App. Div. 23, 96 N. Y. Supp. 903), a door sill or platform slippery with ice (Connell v. Oregon Co., 51 Utah, 26, 168 Pac. 337; Palmer v. Penn. Co., 111 N. Y. 488, 18 N. E. 859, 2 L.

R. A. 252), baggage in the aisle (Burns V. Pennsylvania R. Co., 233 Pa. 304, 82 Atl. 246, Ann. Cas. 1913B, 811), a slippery deck (Pratt v. North German Co. [C. C. A. 2] 184 Fed. 303, 304, 106 C. C. A. 445, 33 L. R. A. [N. S.] 532), a cuspidor in the doorway (Hawkins v. Louis. ville Co., 180 Ky. 295, 202 S. W. 632, 3 A. L. R. 637), or fingers caught in a door (Shaughnessy v. Railroad, 222 Mass. 334, 110 N. E. 962 Ann. Cas. 1918C, 371.)

INDIRECT REFERENCE TO FAILURE OF DEFENDANT IN CRIMINAL CASE TO TESTIFY.-There can be no doubt that public opinion as well as the attitude of the legal profession is gradually changing with respect to the protection given to an accused person in the rule which permits him to refuse to testify and prohibits any mention to the jury of his failure so to do. Prosecuting attorneys chafe at this rule more than against any other rule of criminal procedure and often resort to clever subterfuges to bring the matter to the attention of the jury. How such subterfuges may sometimes succeed is illustrated by the recent case of Gowling v. United States, 269 Fed. 215.

This was an action under the White Slave Act. The defendant refused to testify. The woman whom he was charged with transporting to another state for immoral purposes, however, did testify. In his argument to the jury the district attorney referred to "some clever things done by the defendant" in the trial "except one that the law forbids me to mention." Defendant's counsel objected to the remark as detrimental to the defendant, and on the Court's demand for a reason, said he did not. know. The Court insisted that unless defendant's counsel was willing to say what he thought the district attorney meant by the phrase he could not pass on it. The defendant's counsel said he did not know what the district attorney meant. The Court then allowed the argument to go on. The district attorney, emboldened by the victory, went further and told the jury that the cleverest thing defendant did at the trial was "to hide himself behind the skirts of Mrs. Northcutt." Again defendant's counsel objected, but again he refused to say what he thought the district attorney meant by the remark. On appeal, the judgment against the defendant was sustained on the theory that if, as defendant's counsel on appeal argued, the district attorney was commenting on defendant's failure to testify, he should have communicated that belief to the trial Court. On this point the Court said:

"We do not see how error can be predicated upon the remark of the district attorney. Counsel now argues that it is apparent that the prosecuting attorney referred to the fact that the defendant did not testify and that the jury could have understood nothing else; but, as the quotation from the record discloses that counsel for defendant stated he did not know what counsel for the government meant by the remark objected to, and as he did not suggest to the court that it was evident counsel meant to comment upon the failure of the defendant to testify, counsel should not now be heard to say that the language had a meaning which counsel for defendant was not able to give to it at the time of the trial."

This case seems to offer a way for district attorneys to avoid the effect of the decision of the Supreme Court in Wilson v. United States. 149 U. S. 60, 13 Sup. Ct. 765. In that case the district attorney, in summing up the case, commented upon the failure of the defendant to testify by stating that if he (the district attorney) were charged with a crime he would not stop by putting witnesses on the stand to testify to his good character, but would go upon the stand and hold up his hand before high Heaven and testify to his innocence of the crime. The Court's attention was called to the language of the district attorney, exception was preserved, and the Court said that "he supposed counsel should not comment upon the defendant not taking the stand." The Supreme Court reversed the conviction upon the ground that the district attorney had intimated to the jury as plainly as if he had said in so many words, that the circumstance referred to operated against the innocence of the defendant, and that the remark of the Court to the effect that he supposed counsel should not comment upon the defendant not taking the stand conveyed the impression to the minds of the jury that, if defendant were an innocent man, he would have gone on the stand as the district attorney stated he himself would have done.

Under the decision in the Gowling case, if the district attorney makes an equivocal remark intended to reflect adversely on defendant's failure to testify, he will "get away with it," to use the language of the street, if neither the Court nor defendant's counsel are willing to admit openly in the presence of the jury what they think the district attorney meant by the remark. It is easy to understand the hesitation of defendant's counsel; it is not so easy to understand why the trial Court should not be quick to see the drift of the district attorney's argument and reprimand counsel for the state as well as to instruct the jury with respect to defendant's rights.

RECENT DECISIONS IN THE BRITISH COURTS.

The essential difference between the constitution of the United States of America and the British constitution namely, that the former is written and the latter is unwritten is suggested by a recent decision in which the Divisional Court in the case of Owners of Steamship Crown of Leon v. Lords Commissioners of the Admiralty, 1920, 150 L. T. J. 280, gave an important decision in respect of the rights of the Crown when vessels were requisitioned by the Admiralty. The Government requisitioned a steamer in January, 1916, under the Royal Prerogative, on the authority of a Proclamation dated Aug. 3, 1914. The Admiralty chartered her to a firm of American munition makers, and claimed to pay the owners Blue Book rates, which were below the open market rates. In those circumstances the questions were raised whether the Government had any right to employ a vessel requisitioned for war purposes on a commercial voyage, and whether the owners ought not to have a share in the additional payments made under the charter-party. The Court held that the Government had a right to the use of the vessel, and the question whether freight was payable to the owners did not matter.

The contention that, although the Government properly requisitioned the ship in January, 1916, the commercial voyage was an improper one, and in excess of the prerogative of the Crown, was held to be unsustainable, since it was the intention of the Proclamation, which was made for the defense of the realm on the eve of war, to give the Executive the fullest power; that "the instant urgent necessity" which justifies the exercise of the prerogative only means present urgent necessity, which undoubtedly existed in January, 1916, and does not mean such a state as will involve national collapse if the prerogative is not used; and that, when once the Court had come to the conclusion that there was the right to use the ship, the mere fact that freight was payable to the Government does not affect the question.

In commenting on this decision, The Times observed that in the interests of commerce the prerogative power should be defined and delimited, but as against this demand there is reason for the decision that the powers

should remain undefined so as to be exercised to meet any particular emergency. These powers are now exercised not autocratically by the Crown, but by the Cabinet, who really are not the servants of the Crown, but of the House of Commons, which, in turn is under the control of the electors; therefore, as has been well said, the prerogatives of the Crown have now become the privileges of the people. In Lewcock v. Bromley & Cooper, 1920, 65 S. J. 75, Sargant J. held on the evidence that a binding contract of sale had not been concluded in respect that the authority of the agent who had made the contract was not clear. He was doubtful as to what the exact instructions given by the principal were, whether to sell or to find a purchaser, and accordingly he refused to hold that the agent's contract bound the principal.

The general question of an agent's position in the like circumstances has been several times the subject of decision. In Hamer v. Sharp (L. R. 19, Eq. 108), the authority was in the words: "I request you to procure a "purchase and to insert particulars in your monthly estate circular till further notice.' In Godwin v. Brind (186h, L. R. 5 C. P. 229), the advertisement intimated that "to treat and view" applications were to be made to a certain person. In Chadburn v. Moore (67, L. T. 257) the instructions were not in writing, but the learned Judge found that the agent was authorized to find a purchaser for the houses and to negotiate a sale. In Prior v. Moore (67 L. T. 257) the owner instructed an estate agent to put the property on his books for sale and informed him of the lowest price he would accept. In all these cases it was held that the agent was not authorized to sign a contract.

The case of Rosenbaum v. Belson (1900, 2 Ch. 267) next arose for decision. There the authority was in the terms: "Please soll for me my houses, and I agree to pay you a commission on the purchase price accepted." It will be observed that this case differs from those already referred to in respect of definiteness and precision of use of the word "sell." Buckley, J., held that a sale meant a sale effectual in point of law, including the execution of a contract where the law requires a contract in writing, and he construed the letter of authority as virtually a power of attor ney, and held that the agent acting on it could make a binding contract. After reviewing the