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Farmers & Merchants Bank v. Federal Res. Bank, 262 U.S. 649 (1923)

Farmers & Merchants Bank of Monroe, North Carolina v.

Federal Reserve Bank of Richmond, Virginia

No. 823

Argued April 30, May 1, 1923

Decided June 11, 1923

262 U.S. 649


1. Many state banks, in satisfying checks drawn upon them by their depositors and sent through other banks for collection, were accustomed to remit by draft on their reserves elsewhere, and to make a small charge, called exchange, deducted from the remittance. The Federal Reserve Board, and the federal reserve banks, being forbidden to pay exchange charges but believing it their duty to accept checks on any bank for collection and to make par clearance and collection of checks universal throughout the United States, adopted the practice of causing checks drawn on state banks which refused par clearance to be presented to such banks at the counter for payment in cash. To protect North Carolina banks from serious loss of income which would ensue from this practice, both through reduction of exchange charges and through transference of income-producing assets to their vaults, the legislature of that state enacted, (Pub.Laws 1921, c. 20) that any check drawn

Page 262 U. S. 650

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.

Page 262 U. S. 651

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.

183 N.Car. 546 reversed.

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.

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