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C O P Y X-6851
March
31,
1931.
Mr. Walter S. Lo^an,
Counsel an d Deputy Governor,
Federal leserve Bank of New York,
New
York City.
My dear 'al ter •
I
have received your let ter
o f
March 26th requesting
my
views on the question whether Section 11 of t he Uniform Bank Collection
Code (Section 350j of the Hew York Negotiable Instruments Law) , giving
t h e
col lect ing bank
t h e
option
to
t r e a t
a
check
a s
dishonored when
th e
drawee's remittance draft therefor drawn
on
another bank
i s n o t
pa id
i n
due course, would b e held to be appl icable to na t iona l a s v e i l a s State
banks.
As I
t o l d
you
over
t h e
telephone yesterday afternoon,
I am
inc l ined
to
agree with your view that this section does
n o t
c o n f l i c t
in
any way with an y provis ions of the national Bank Act and tha t i t would
b e appl icable to checks drawn on national banks. I t seems to me that
i t
dea ls only with
t h e
respec t ive r ights , dut ies
an d
l i a b i l i t i e s
o f
t h e
drawer, drawee, endorsers
and
holders
of
such check
an d i s n o t i n -
tended to in t e r f e r e w ith t h e r a t ab l e d i s t r i bu t i on o f t h e a s s e t s of an
insolvent national bank which i s required b y t h e provis ions of the Na-
tional Bank A c t . I t i s t rue that i t contemplates that, where such a
check
h a s
been charged
t o t h e
drawer's account,
t h e
ent r ies wi l l
b e
reversed thus increasing
t h e
amount
of th e
drawer 's claim against
th e
in so lv en t bank. Th is, however, merely h a s t h e e f f e c t of t r a n s f e r r i n g
t h e claim o f t h e holder o f t h e check back to t h e drawer, where i t b e -
longs; i t does n o t diminish t h e as se t s o f t h e bank n o r increase i t s l i a -
b i l i t y ;
a n d i t
does
n o t
give
any one a
preferred claim against
t h e
bank.
O ff hand, t h e only way in which I can see tha t i t wi l l e f f ec t t h e l i -
quidat ion o f t h e bank will be by increas ing t h e o f f s e t o f t h e drawer
o f t h e check against any indebtedness he has to the bank.
I have discussed this subject br ief ly i t h M r. Await and
Mr. Barse; b u t this quest ion was e n t i r e l y new to them and they were
unwi l l ing
to
express
any
opinion
o n i t
unt i l they
had had
time
to
give
i t
careful s tudy.
As
soon
a s I
hear from them,
I
shall communi-
cate with you.
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-? 2 —
X-6851,
O
Mr.
Walter
S .
Logan.
I n t h e meantime, I am sending a cooy of your l e t t e r to
Counsel
f o r
each
o f t h e
othe r Federa l re se rv e banks v i t h
a
reques t
f o r
an expression d f their views On the question which you have raised
a nd fo r a c i t a t i o n of any aut hor i t i e s they may know o f vfhich may have
a hear ing on this question, t am asking them t o wr i te d i rec t to you,
sending me copies of the i r l e t t e r s .
If I can be of any fur ther ass i s tance to you, n l ease do
n o t
h e s i t a t e
to
call uoon
me.
Cordially yours,
Walter TTyatt
General Counsel
W 0:IC
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C O P Y X-6851-a
F~rr?JiL ?^STIV2 BANK 8 9 6
of :nr r york
March 25 , 1 931.
Walter Tyatt, E s q . , General Counsel,
Federal leserve Board,
Washington,
D. C.
Dear ' alter;
You
wi l l rec a l l tha t
a
short time
ago we
exchanged letters
on t he question o f whether t h e provis ions o f t he rank Collection Code
granting preferences against closed banks were applicable t o na t iona l
banks.
The
information
you
gave
me at
that time
and our own
examina-
t ion
of
some
o f t h e
authori t ies convinced
me
tha t
t h e
provisions k'ere
n o t appl icable t o closed national banks.
I t
seems
to me,
however, that
t h e
provis ions
o f
Section
11 of
t h e
Bank Collection Code (which
i s
Section 350-j
of the New
York Nego-
t iable Inst ruments
l a w ) ,
giv ing
t h e
col lect ing bank
t h e
opt ion
t o
t rea t
a n item a s dishonored when t h e drawee's remittance draft therefor drawn
on
another bank
i s g o t
paid
in due
course, would
b e
held
t o be
appl icable
t o
na t iona l
a s
well
a s
| t a te banks .
F or
your convenience
I
quote below
a p a r t o f t he sec t ion i n question:
§ 1 1 .
Elect ion
to
t r e a t
a s
dishonored items
p r e -
sented
b y
mai l. There
an
item
i s
duly prese nted
b y
t o t h e
dravee
o r
payor, whether
o r n o t t h e
same
h a s
been charged
t o t h e
account
o f t he
maker
o r
draw-
e r
thereof
o r
re turned
to
such maker
o r
drawer,
t h e
agent collecting bank so present ing ma y, a t i t s e l ec -
t io n, exer cise r ' i th reasonable dil ige nce , tr ea t such
item
a s
dishonored
b y
non-payment
a n d
recourse
may be
h a d
upon pri or pa rt i es t heret o
i n a ny o f t he
following
cases:
( 1 )
'There
t h e
check
o r
d r a f t
o f t he
drawee
o r p a y -
o r
bank upon another bank received
i n
payment therefor
sha l l n o t b e Paid in due course;
H
This section does
n o t
c o n f l i c t r i t h
any
provis ion
of the Na-
tional Bank
Act so f a r as I
know-;
a nd t he
exercise
o f t he
option would
n o t i n any way
harm
t h e
general credi tors
of a
closed national bank,
b u t
would merely operate t o t r a n s f e r t o t he maker o f t h e check t h e general
claim which
t h e
owner
o f t he
check r.ould otherwise have against'
t h e
c los-
ed
bank.
On th e
other hand,
t h e
exercise
o f t he
option would prevent
any
l o s s
t o t he
owner (unless
t h e
drarer
o f t he
check were als o in so lv en t) ,
a nd vould resul t i n t h e loss being t ransferred t o t he maker o f t h e check
where
i n
f a i r n e s s
i t
bel ong s. Moreover,
and
t h i s
i s o f
course
t h e
reason
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.
' » ' . : 3 9 7
X-5851-a
F~DELAL 2ESriVB 3AI-TK
OF 1T3W
Y03K
.. 2...
Walte r Wyatt,
E sq .
March
26, 1931.
t ha t t h e Federal l e se rv e Banks a r e p a r t i c u l a r l y i n t e r e s t e d i n this question,
b y t h e exerc i se o f t h e opt ion a collecting bank could in most cases p r o -
t e c t i t s e l f a ga i ns t l i a b i l i t y t o t h e owners o f t h e items who might claim
tha t
t h e
col lec t ing bank
h a d
been negligent
i n
forwarding
t h e
items direct
t o t h e drawee bank i n view o f t h e drawee bank's condition.
I am sor ry to bother you again, b u t I would greatly appreciate
a n y information o r expression of opinion on th i s po in t . I would have
telephoned to you about th is , i nste ad of writ ing, except that I thought
i t
would
b e
more sa ti sf ac to ry from your standpoint
t o
have
a
d e f i n i t e
statement
o f t h e
question
I
have
i n
mind.
I
s h a l l ,
o f
course,
b e
del ight-
ed to t a l k to you about i t o n t h e telephone, and so f a r a s I am concerned
any informat ion you can give me by telephone will b e j u s t a s u s e f u l and
s a t i s f a c t o r y a s i f conveyed b y l e t t e r .
With best regards an d thanking y o u f o r an y help you can give
me, I am
Yours fa i thfu l ly ,
(Signed) Walter
5 .
Logan,
Walter S . Logan,
General Counsel.
i
