Federal Reserve Bank v. Malloy,
264 U.S. 160 (1924)

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U.S. Supreme Court

Federal Reserve Bank v. Malloy, 264 U.S. 160 (1924)

Federal Reserve Bank of Richmond v. Malloy

No. 553

Argued January 9, 1924

Decided February 18, 1924

264 U.S. 160


1. Generally, as held in Exchange Natl. Bank v. Third Natl. Bank, 112 U. S. 276, where a check, deposited by the owner in a bank, is forwarded by it in due course to another bank for collection, the second bank does not become responsible, as an agent, to the owner. P. 264 U. S. 164.

2. But it is otherwise where, by a state statute with reference to which the first bank and the check owner presumably contract, the forwarding of such instruments for collection, in the regular course of banking, is to be deemed due diligence acquitting the forwarding bank of liability until it has received actual payment, for, in such case, the initial bank has implied authority to employ another bank as subagent, and this, in turn another, and the risk of their default or neglect is with the depositor of the instrument. Id.

3. If a bank, responsible to the payee for the collection of a check, surrender the check to the drawee bank and accept in payment an exchange draft of that bank which proves worthless, the collecting bank is liable to the payee of the check for the resulting loss. P. 264 U. S. 165.

Page 264 U. S. 161

4. A regulation of the Federal Reserve Board providing for authority to Federal Reserve Bank "to send check for collection" to bank on which they were drawn cannot be enlarged by implication to include authority to accept a draft of the drawee of a check in payment. P. 264 U. S. 166.

5. A practice of banks to end checks for collection to the banks on which they are drawn, with the expectation that they will be cancelled and charged to the maker and remittance returned either in currency or by the drawees' exchange drafts, lacks the certainty and uniformity essential to make it a custom binding the owner of a check who did not know of it. P. 264 U. S. 169.

6. Assuming that the legal principle forbidding that a check be entrusted for collection to the bank on which it is drawn, and requiring payment in money, can be supplanted by custom, the custom must be as definite and specific as the principles themselves. P. 264 U. S. 171.

291 F. 763 affirmed.

Error to a judgment of the circuit court of appeals which affirmed a recovery in the district court of the amount of a check.

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