Source: https://supreme.justia.com/cases/federal/us/262/649/
Timestamp: 2019-04-26 16:16:27+00:00

Document:
Farmers & Merchants Bank of Monroe, North Carolina v.
upon a local bank (other than checks in payment of obligations to the federal or state governments) unless specified to the contrary on its face by the maker, should be payable, at the option of the drawee, in exchange drawn on the drawee's reserve deposits when such check was presented by or through any federal reserve bank, post office, or express company or their agents, and further that state banks might charge a fee, within specified limits, on remittances covering checks.
(a) That the North Carolina Act does not violate the provision of the federal Constitution, Art. I, § 10, cl. 1, which prohibits a state from making anything except gold and silver coin a tender in payment of debts. P. 262 U. S. 659.
(b) That it does not deprive the respondent Federal Reserve Bank, without due process of law, of its right to engage in the business of collecting checks payable on presentation within its district (which it claims it may make a source of revenue), nor of its liberty of contract, by compelling it to accept payment in drafts, good or bad, and so driving it from that branch of business. The statute is not to be construed as authorizing payment in bad drafts, and is an exercise of police power not offensive to the due process clause. P. 262 U. S. 660.
(c) That it does not deprive the Federal Reserve Bank of equal protection of the laws by obliging it to accept payment in drafts while leaving other banks free to demand cash, since it was reasonable classification for the legislature to limit the regulation to the particular existing condition sought to be remedied. P. 262 U. S. 661.
(d) That it does not conflict with duties imposed by Congress on the Federal Reserve Board and the federal reserve banks. P. 262 U. S. 662.
2. Neither § 13 nor any other provision of the Federal Reserve Act imposes on reserve banks any obligation to receive for collection checks for which it is impossible to obtain payment except by incurring serious expense, as by presenting them by special messenger at a distant place. P. 262 U. S. 662.
3. In declaring that reserve banks may receive checks on nonmember banks "payable on presentation," the Federal Reserve Act, § 13, as amended, would seem to imply that the checks must be payable in cash or in such funds as are deemed by the reserve bank an equivalent. P. 262 U. S. 663.
4. The federal reserve legislation does not impose on the Federal Reserve Board or the federal reserve banks a duty to establish in the United States a universal system of par clearance and collection of checks. P. 262 U. S. 664.
5. The contention that Congress imposed this duty is irreconcilable with the provision of the Hardwick Amendment to § 13 (Act of June 21, 1917, c. 32, § 4, 40 Stat. 232) allowing members and affiliated nonmembers to make a limited charge (except to federal reserve banks) for "payment of checks and . . . remission therefor by exchange or otherwise." P. 262 U. S. 666.
6. The Hardwick Amendment in no way interferes with the right of a depositor in a nonaffiliated state bank to agree with his bank that his checks in certain cases (unless otherwise indicated on their face) should be payable, at its option, by exchange. P. 262 U. S. 667.
Certiorari to a decree of the Supreme Court of North Carolina reversing a decree which perpetually enjoined the respondent Federal Reserve Bank from refusing to accept payment of checks on petitioner banks in exchange drafts, as permitted by a North Carolina statute, and from returning, as dishonored, checks for which payment had been tendered only in that way.
bank when any such check is presented by or through any Federal Reserve Bank, post office, or express company, or any respective agents thereof."
Section 1 authorizes banking institutions chartered by the state to charge a fee not in excess of one-eighth of one percent on remittances covering checks, the minimum fee on any remittance therefor to be 10 cents. Section 4 exempts from the operation of §§ 1 and 2 all checks drawn in payment of obligations to the federal or the state government. Whether this statute conflicts with § 13 of the Federal Reserve Act (December 23, 1913, c. 6, 38 Stat. 251, 263, as amended by Act Sept. 7, 1916, c. 461, 39 Stat. 752, and Act June 21, 1917, c. 32, § 4, 40 Stat. 232, 234) or otherwise with the federal Constitution is the question for decision.
injunction. The supreme court of the state reversed the decree, 183 N.C. 546, and the case is here on writ of certiorari, 261 U.S. 610. Defendant admits that, if the North Carolina statute is constitutional, plaintiffs are entitled to an injunction.
"The Federal Reserve Board shall, by rule, fix the charges to be collected by the member banks from its patrons whose checks are cleared through the Federal Reserve Bank and the charge which may be imposed for the service of clearing or collection rendered by the Federal Reserve Bank. "
bank or the United States. Few of the many state banks had then elected to become members. In September, 1916, § 13 was amended, so as to authorize a Reserve Bank to receive for collection from any member (including other reserve banks) also checks drawn upon nonmember banks within its district. Thereby the Federal Reserve Board was enabled to extend par clearance to a large proportion of all checks issued in the United States. But the regulation (J) then issued expressly provided that the federal reserve banks would receive from member banks at par only checks on those of the nonmember banks whose checks could be collected by the federal reserve bank at par. It was recognized that nonmembers were left free to refuse assent to par clearance. By December 15, 1916, only 37 of the state banks within the United States, numbering about 20,000, had become members of the system, and only 8,065 of the state banks had assented to par clearance.
"[s]olely for the purposes of exchange or of collection, may receive from any nonmember bank . . . deposits of . . . checks . . . payable upon presentation: . . . Provided such nonmember bank . . . maintains with the federal reserve bank of its district a balance sufficient to offset the items in transit held for its account by the federal reserve bank."
"That nothing in this or any other section of this Act shall be construed as prohibiting a member or nonmember bank from making reasonable charges, to be determined and regulated by the Federal Reserve Board, but in no case to exceed 10 cents per $100 or fraction thereof, based on the total of checks and drafts presented at any one time for collection or payment of checks and drafts and remission therefor by exchange or otherwise, but no such charges shall be made against the federal reserve banks."
"The Federal Reserve Act, however, does not command or compel these state banks to forego any right they may have under the state laws to make charges in connection with the payment of checks drawn upon them. The act merely offers the clearing and collection facilities of the federal reserve banks upon specified conditions. If the state banks refuse to comply with the conditions by insisting upon making charges against the federal reserve banks, the result will simply be, so far as the Federal Reserve Act is concerned, that, since the federal reserve banks cannot pay these charges, they cannot clear or collect checks on banks demanding such payment from them."
their income-producing assets by compelling them to keep in their vaults in cash a much larger part of their resources than theretofore. That such loss must result was admitted. That it might render the banks insolvent was clear. But the federal reserve banks insisted that no alternative was left open to them, since they had to collect the checks, and were forbidden to pay exchange charges. The state banks denied that the federal reserve banks were obliged to accept these checks for collection, and insisted that federal reserve banks should refrain from accepting for collection checks on banks which did not assent to par clearance.
company, or any respective agents thereof." The option was so limited because the only purpose of the statute was to relieve state banks from the pressure which, by reason of the common law requirement, federal reserve banks were in a position to exert and thus compel submission to par clearance. It was expected that depositors would cooperate with their banks and refrain from making the prescribed notation, and that, when the reserve banks were no longer in a position to exert pressure by demanding payment in cash, they would cease to solicit or to receive for collection checks on nonassenting state banks. Thus, these would be enabled to earn exchange charges as theretofore. Such was the occasion for the statute and its purpose. Whether this legislative modification of the common law rule which requires payment in cash violates the federal Constitution is the question for decision. That it does is asserted on five grounds.
dissent, consent shall be presumed. Laws which subsist at the time and place of the making of a contract and where it is to be performed enter into and form a part of it as fully as if they had been expressly referred to or incorporated in its terms. This principle embraces alike those laws which affect its construction and those which affect its enforcement or discharge. See Ogden v. Saunders, 12 Wheat. 213, 231 [argument of counsel -- omitted]; Von Hoffman v. Quincy, 4 Wall. 535, 71 U. S. 550. If therefore the provision of § 2 authorizing payment by exchange draft is otherwise valid, it is binding upon the drawer of the check. Since it binds the drawer, it binds the payee and every subsequent holder, whether he be a citizen of North Carolina or of some other state, and wherever the transfer of the check was made. Brabston v. Gibson, 9 How. 263. For the holder of a check has, in the absence of acceptance by the drawee bank, no independent right to require payment under the general law. Bank of the Republic v. Millard, 10 Wall. 152. He takes it subject to the construction and with rights conferred by the laws of North Carolina, the place of the bank's contract and of performance. Pierce v. Indseth, 106 U. S. 546. Compare Rouquette v. Overmann, L.R. 10 Q.B. 525.
of its business, since that of collecting checks cannot be conducted under such limitations. To this argument the answer is clear. The purpose of the statute, as its title declares, was to promote the solvency of state banks. We should, in the absence of controlling decision of the highest court of the state to the contrary, construe the statute not as authorizing payment in a "bad" draft, but as authorizing payment in such exchange drafts only as had customarily been used in remitting for checks. So construed the statute is merely an exercise of the police power, by which the banking business is regulated for the purpose of protecting the public, and promoting the general welfare. Noble State Bank v. Haskell, 219 U. S. 104, 219 U. S. 575. The regulation here attempted is not so extreme as inherently to deny rights protected by the due process clause. Compare Chicago, Burlington & Quincy R. Co. v. McGuire, 219 U. S. 549, 219 U. S. 567-568; Central Lumber Co. v. South Dakota, 226 U. S. 157, 226 U. S. 162. If the regulation exceeds the state's power to protect the public, it must be because some other provision of the federal Constitution is violated by the means adopted or by the manner in which they are applied.
against a policy which it deems wise to adopt, it may direct its legislation specifically and solely against that instrument. Central Lumber Co. v. South Dakota, supra, p. 226 U. S. 160. If it finds that the instrument is used only under certain conditions or by a particular class of concerns, it may limit its prohibition to the conditions and the concerns which it concludes alone menace what it deems the public welfare. The facts recited above disclose ample ground for the classification made by the legislature. Hence, there was no denial of equal protection of the law. There remains to consider whether § 2 exceeds the state's power because Congress has imposed specifically upon federal reserve banks duties the performance of which § 2 obstructs, and that in this way it conflicts with the Federal Reserve Act. This is the ground on which the invalidity of the North Carolina act has been most strongly assailed.
"such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this [the Federal Reserve] Act"
which are granted. No duty or right of the federal reserve bank to collect checks is obstructed by the North Carolina statute, which merely gives to the drawee bank the right to pay in the customary exchange draft where its depositor has, by the form used in drawing the check, consented that this be done.
"may, at its discretion, exercise the functions of a clearing house for such federal reserve banks, . . . and may also require each such bank to exercise the functions of a clearing house for its member banks."
There is no reference whatever to "par" in § 13, either as originally enacted or as amended from time to time.
"Every federal reserve bank shall receive on deposit at par from member banks or from federal reserve banks checks and drafts drawn upon any of its depositors, and when remitted by a federal reserve bank, checks and drafts drawn by any depositor in any other federal reserve bank or member bank upon funds to the credit of said depositor in said reserve bank or member bank. Nothing herein contained shall be construed as prohibiting a member bank from charging its actual expense incurred in collecting and remitting funds or for exchange sold to its patrons."
The depositors in a federal reserve bank are the United States, other federal reserve banks, and member banks. It is checks on these depositors which are to be received by the federal reserve banks. These checks from these depositors the federal reserve banks must receive. And when received they must be taken at par. There is no mention of nonmember banks in this section. When, in 1916, § 13 was amended to permit federal reserve banks to receive from member banks solely for collection other checks payable upon presentation within the district, and when, in 1917, § 13 was again amended to permit such receipt solely for collection also from certain nonmember banks, § 16 was left in this respect unchanged. In other respects § 16 was amended both by the Act of 1916 and by the Act of 1917. The natural explanation of the omission to amend the provision in § 16 concerning clearance is that the section has no application to nonmember banks, even if affiliated.
right of members and affiliated nonmembers to make the charge therefor fixed as reasonable by the Federal Reserve Board. No bank could make such a charge against the federal reserve banks, because these were prohibited from paying any such charge. Member and nonmember affiliated banks, because they were such, performed the service for the federal reserve banks without charge. Unaffiliated nonmember banks were under no obligation to do so. Thus construed, full effect may be given to all clauses in the Hardwick Amendment as enacted. It in no way interferes with the right of a depositor in a nonaffiliated state bank to agree with his bank that the checks which he might draw should (unless otherwise indicated on their face) be payable at the option of the drawee, in exchange in certain cases.
The North Carolina statute here in question does not obstruct the performance of any duty imposed upon the Federal Reserve Board and the federal reserve banks. Nor does it interfere with the exercise of any power conferred upon either. It is therefore consistent with the Federal Reserve Act and with the federal Constitution.
MR. JUSTICE VAN DEVANTER and MR. JUSTICE SUTHERLAND dissent.
See Annual Reports of the Federal Reserve Board, 1914, pp. 19, 20, 174; 1915, pp. 14-17; 1916, pp. 9-12; Regulation I, Series of 1916, p. 169; 1917, pp. 23, 24; Regulation J, Series of 1917, pp. 181-183; 1918, pp. 74-77; 204-206; 810, 811, 817, 821; 1919, pp. 40-44; 222-228; 1920, pp. 63-69; 1921, 68-73; 228-230; Letter from the Governor of the Federal Reserve Board of January 26, 1920, Senate Document No. 184, 66th Congress,2d Session; also "Par Clearance of Checks," by C. T. Murchison, 1 No.Car.Law Review, 133.
See Report, Federal Reserve Board, 1915, pp. 14-17; ibid., 1916, pp. 9-11.
North Carolina was placed on the par list on November 15, 1920. There were on January 1, 1921, in the United States 30,523 banks, state and national. Of these 1,755 state banks had refused to enter the par list. About 250 of the banks so refusing were in North Carolina. During the year 1921, the number which refused to consent to par clearance increased to 2,353. Annual Report of Federal Reserve Board, 1921, p. 71.
See American Bank & Trust Co. v. Federal Bank of Atlanta, supra; Brookings State Bank v. federal reserve bank of San Francisco, 277 F. 430, 281 F. 222; Farmers' & Merchants' Bank of Catlettsburg, Ky. v. Federal Reserve Bank of Cleveland, 286 F. 610.
Statutes similar in purpose were enacted in Alabama, Florida, Georgia, Louisiana, Mississippi, South Dakota, and Tennessee. See Annual Report of Federal Reserve Board, 1921, p. 70; Alabama, Gen. & Loc. Acts 1920, No. 35; Florida, Laws 1921, c. 8532; Georgia, Laws 1920, p. 107; Louisiana, Acts 1920, No. 23; Mississippi, Laws 1920, c. 183; South Dakota, Laws 1921, c. 31; Tennessee, Pub. Acts 1921, c. 37.
"The Secretary . . . shall designate . . . cities to be known as Federal Reserve cities, and shall divide the continental United States . . . into districts. . . . The districts . . . may be readjusted. . . . Such districts shall be known as Federal Reserve Districts, and may be designated by number."
"Each federal reserve bank shall establish branch banks within the federal reserve district in which it is located and may do so in the district of any federal reserve bank which may have been suspended."
"Outstanding capital stock shall be increased . . . as member banks increase their capital stock . . . , and may be decreased as member banks reduce their capital stock. . . ."
Section 13: " . . . may receive . . . deposits . . . may discount . . . shall at no time exceed." Section 16: "Every federal reserve bank shall maintain reserves. . . ." "Every federal reserve bank shall receive on deposit."
"That a relatively small number of nonmember banks should not want to become members of the clearing system, or should not want to remit at par is, of course, their own concern, and the Federal Reserve Board and the federal reserve banks have not and will not dispute their right to decline to do so."

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