Statement of the Case. SOWELL v. FEDERAL RESERVE BANK OF ERROR TO THE CIRCUIT COURT OF APPEALS FOR THE No. 367. Argued May 1, 1925.-Decided May 25, 1925. 1. An action brought on a promissory note by a federal reserve bank, a federal corporation, is an action "arising under the laws of the United States," within the meaning of Jud. Code § 24, First (a). P. 453. 2. A federal reserve bank is not a national bank, subject to the provisions of Jud. Code § 24, "Sixteenth." Id. 3. The Assignee Clause, Jud. Code § 24, "First" (a), which forbids the District Court to take cognizance of an action on a chose in action by an assignee which could not have been prosecuted in that court if no assignment had been made, applies where the sole ground of jurisdiction is diversity of citizenship, but not where the ground is that the action arises under the laws of the United States. Id. 4. Failure to present a promissory note for payment at the payee bank, where it was payable and where the maker had sufficient funds, or to give notice of dishonor, held not a defense to an action against the maker by the endorsee holder, in view of provision in the note waiving "protest, notice thereof and diligence in collecting," and the Negotiable Instruments Law in Texas, giving effect to such provisions. P. 456. 5. A note made to the order of a bank in which the maker had a deposit was endorsed by the payee to another bank as partial security for a larger indebtedness owed by the first bank to the second. The payee bank became insolvent and the endorsee sued the maker on the note. Held that the maker was not entitled, merely in virtue of his equitable right of set-off as against the payee, to have the action stayed until the endorsee had exhausted other collateral held by it as security for the debt owed it by the payee at all events, not in the absence of the payee as a party. Id. 294 Fed. 798, affirmed. ERROR to a judgment of the Circuit Court of Appeals affirming a judgment recovered in the District Court by Argument for Plaintiff in Error. 268 U.S. the Bank in an action against Sowell on his promissory note. Mr. James D. Williamson, for plaintiff in error. The assignee clause is a limitation upon the jurisdiction of the federal courts. Were this not so, the clause would be meaningless and ineffective. Any national bank of a foreign State could file suit as the assignee in the federal courts. The purpose of the clause would be defeated and, as Justice Story says in United States v. Green, 4 Mason 427, the door opened for fraud. As an original proposition, the Federal Reserve Bank at Dallas had no cause of action against the defendant Sowell; there was no suit arising under the Constitution and laws of the United States. It is only by virtue of being assignee that it comes in and says a federal question is presented. Kolze v. Hoadley, 200 U. S., 76, lays down the rule very broadly that under the Act of 1888, where the suit, no matter in what guise it shall be presented, is a suit to recover upon a promissory note or other chose in action by an assignee, the District Court has no jurisdiction unless the suit might have been prosecuted in such court to recover on the note if no assignment or transfer had been made. The Court further says that the bill or other pleading must contain an averment showing the suit could have been maintained by the assignor if no assignment had been made. United States National Bank v. McNair, 56 Fed. 323; Parker v. Ormsby, 141 U. S. 81. Federal Reserve Bank v. Webster, 287 Fed. 579, is not supported by authority. Weyman v. Wallace, 201 U. S. 230, distinguished. See Houck v. Bank of Brinkley, 242 Fed. 882; Act of January 28, 1915, 38 Stat., 803; Bankers Trust Co. v. Texas Pacific Railroad, 241 U. S. 295. How can it be said that a suit on a promissory note as against the maker is one arising under the laws and 449 Argument for Plaintiff in Error. Constitution of the United States, when Congress has repeatedly said that the assignee of such note cannot sue thereon unless the assignor could have maintained his suit in the federal court? Is the language of the Act of 1915 as to jurisdiction more restrictive than the language of the assignee proviso of the Act of 1888, which is now a part of § 24 of the Judicial Code? If jurisdiction exists in this case why not in favor of any national bank of a foreign state which, as an assignee, sues in the federal court on a note assigned to it by a citizen of the same State as the maker? The laws of the United States are just as much in controversy as in this suit. The national bank is organized under the laws of the United States. None of the provisions of its charter or its national incorporation are taken away by the proviso of 1882 that, for jurisdictional purposes, it shall be considered as a citizen of the state in which it is domiciled. It is still a federal corporation. See cases above cited and Petrie v. Commercial National Bank, 142 U. S. 644; Leather Manufacturers' National Bank v. Cooper, 120 U. S. 778. In Commercial National Bank v. Simmons, 6 Fed. Cas. 226, jurisdiction was expressly conferred under the Act of February 25, 1863, and in United States v. Planters' Bank, 9 Wheat. 904, by the Act under which the bank was organized. The Federal Reserve Act, § 4, provides: "It [a federal reserve bank] shall have the power to sue and be sued, complain and defend in any court of law or equity." This does not confer jurisdiction on the federal court of suits by or against that bank, but leaves § 24 of the Judicial Code in full force and effect as to all of its provisions; and, for jurisdictional purposes, it cannot invoke its federal charter in violation of the assignee clause. Under the Negotiable Instruments Law, where a note is payable at a bank, it is the duty of the holder to present it at the bank in due course of business for payment. Where the holder of a negotiable note, payable at a bank which is, under the Negotiable Instruments Act, authorized to charge the note to the account of the maker, knows of the impairment of the financial condition of such bank, the holder is negligent in failing to notify the maker that his note is not paid, or to present the note to the maker for payment. If the maker be damaged on account of the negligence, he is relieved from liability. Mr. Ethan B. Stroud, Jr., with whom Messrs. Charles C. Huff and Joseph Manson McCormick were on the brief, for defendant in error. MR. JUSTICE STONE delivered the opinion of the Court. Writ of error to the United States Circuit Court of Appeals for the Fifth Circuit to review its judgment, affirming a judgment for the plaintiff below of the District Court of the United States for the Northern District of Texas, in an action upon a promissory note. Plaintiff in error, defendant below, a resident of Texas, executed his promissory note payable to the order of a national bank domiciled in Texas. The note was endorsed, before maturity, to defendant in error, also domiciled in Texas, as collateral security for an indebtedness owing by endorser to defendant in error, in excess of the amount of the note. Three principal grounds of error are assigned: (1) That the District Court was without jurisdiction as the plaintiff below was an endorsee of the note sued upon and as its endorser could not have brought suit upon the note against the maker in that court (Judicial Code, 24, Subdivision First (c)); (2) that defendant in error as holder of the note failed to present the note for payment at the endorser bank where it was payable and where the maker had funds on deposit sufficient to pay it; (3) that the District Court refused to stay the suit until such time as the defendant should ex haust other collateral held by it as security for the indebtedness of the endorser. Suit being brought by a federal reserve bank, incorporated under the laws of the United States, it is a suit arising under the laws of the United States (Judicial Code, § 24, First (a)). American Bank & Trust Co. v. Federal Reserve Bank of Atlanta, 256 U. S. 350. And as the defendant in error is not a national bank subject to the provisions of the Judicial Code, § 24, Subdivision Sixteenth, the District Court had jurisdiction of the suit unless jurisdiction is excluded by the so-called "Assignee Clause", Judicial Code, § 24, Subdivision First (c), which reads as follows: "No District Court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made, It is unquestioned that where the sole ground of jurisdiction is diversity of citizenship, such jurisdiction is excluded by the operation of this clause, and the question now presented is whether the clause has a like effect where the sole ground of jurisdiction is that the suit arises under the laws of the United States. No inference as to the meaning of the assignee clause can be drawn from its relative position in § 24, and that of the clause giving jurisdiction of suits arising under the laws of the United States. Judicial Code, § 295. The history of the clause, however, shows clearly that its purpose and effect, at the time of its enactment, were to prevent the conferring of jurisdiction on the federal courts, on grounds of diversity of citizenship, by assignment, in cases where it would not otherwise exist, and |