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Copy UNIVERSITY OF THE SOUTH Complainant VS FEDERAL RESERVE BAM OF ATLANTA, NASHVILLE BRANCH. Defendant. i The defendant, the Federal Reserve Bank of Atlanta, N a s h v i l l e Branch, for answer to so much and such parts of the o r i g i n a l b i l l heretofore f i l e d a g a i n s t i t i n the above e n t i t l e d cause, as i t i s advised i t i s material for i t to answer, answering says: - I _ I t b e l i e v e s i t to be true that the complainant i s a charitable corporation, chartered, and e x i s t i n g under the laws of Tennessee, and i s an educat i o n a l i n s t i t u t i o n with i t s buildings and equipment located a t Sewanee i n Franklin County, Tennessee. The Federal Reserve Bank of Atlanta, on the day named i n the o r i g i n a l b i l l , and for sometime p r i o r thereto, had maintained a branch a t N a s h v i l l e , Tennessee known as the Nashville Branch of the Federal Reserve Bank of Atlanta, but t h i s Branch i s not a separate corporation, or in any l e g a l sense a d i f f e r e n t e n t i t y from the Federal Reserve Bank of Atlanta, but on the contrary, i s the Nashville o f f i c e of the Federal Reserve Bank of Atlanta, a body corporate, organized and e x i s t i n g by virtue of the laws of the United S t a t e s . -IIThe defendant admits i t to be true that the National Bank of Frankl i n was a corporation, chartered under the laws of the United S t a t e s , and i n September 1926, and for many years prior thereto, was engaged i n the banking business i n Franklin, Williamson County, Tennessee; and the defendant b e l i e v e s i t to be true that E. E. Green was the cashier and Bates L. Green was the Digitized for a sFRASER s i s t a n t cashier of the National Bank of Franklin. X-6076 -2- This defendant i s not advised as to whether or not prior to September 1926, the Misses Claybrooke had on deposit in said National Bank of Franklin a considerable sum of money, more than $20,000.00, and also a fund in excess of $8,000.00, which was in the name of Miss Eliza M. Claybrooke, as administrat r i x of their deceased s i s t e r , Miss Annie Claybrooke, The defendant avers that the records of the Bank of Franklin are the best evidence in this regard, and this defendant has no knowledge of what amounts of money were s e t to the credit of the above named parties in the National Bank of Franklin prior to September 1926. The defendant i s not advised, as to any arrangement or agreement made between the University of the South and the Misses Claybrooke to the e f f e c t that the l a t t e r intended to make a g i f t to the University of the South i n the sum of $8000 for the purpose of endowing a scholarship at the Univ e r s i t y of the South. -IIIThe defendant has no knowledge of any conversations, arrangements, or transactions, which may have occurred between the Misses Claybrooke and the cashier of the National Bank of Franklin about September 1, 1926, and this defendant has no knowledge, and i s not concerned with any statements that may have been made by the cashier of the National Bank of Franklin to the Misses Claybrooke as to the method to be pursued by depositors i n withdrawing funds standing to their credit in the National Bank of Franklin, and the defendant neither admits nor denies the averments in Paragraph III of the Original B i l l , and further avers that so far as i t i s concerned, i -3- X-6076 they are immaterial and do not require an answer from i t . £ 2 8 The defendant admits that the form of check which appears in the original b i l l as the l a s t paragraph of section III of said b i l l i s a true and correct copy of the original check which a f t el-wards came into i t s possession, and which i t attempted to c o l l e c t from the Bank of Franklin, but without success, as hereinafter more particularly s e t out* The o r i g i n a l chetik had priol* tti October 7 ^ 1926 been sent to defendant for c o l l e c t i o n by the Hamilton National Bank of Chattanooga, Tennesee, and the same was, as herinafter' tnore p a r t i c u l a r l y s e t out, sent by defendant * to said National Bank of Franklin for payment and remittance. Said National Bank of Franklin, Tennessee, refused payment of said check, assigning as reason for such dishonor the lack of s u f f i c i e n t funds to the credit of the drawer; a f t e r such dishonor, defendant returned said check, t o - w i t , on October 7, 1926 to said Hamilton National Bank of Chattanooga, Tennessee from which i t had been received by defendant. -IV- . The defendant i s not advised as to when the check for $8,000. was sent to the complainant, nor i s the defendant advised as to the course of conduct of the Bank of Sewanee in forwarding the item for c o l l e c t i o n to the Hamilton National Bank of Chattanooga, Tennessee, but i t b e l i e v e s the averments of the b i l l in regard to these matters to be correct. I t i s true that on October 5, 1926, the defendant received the check in controversy as well as other items from the Hamilton National Bank of Chattanooga, Tennessee, for c o l l e c t i o n . On October 5, 1926, the defendant forwarded this $8,000 item together with various other items to the drawee bank, the National Bank of Franklin, and this defendant believes X-6076;. . # « -4- i t to be t r u e t h a t the $8,000 check, and such o t h e r items embraced i n i t s l e t t e r of October 5, 1926 reached the N a t i o n a l Bank of F r a n k l i n on October 6, 1926, b u t i f b y the averment t h a t s a i d check was l i s t e d by t h e N a t i o n a l Bank of F r a n k l i n as a cash i t e m a t the c l o s e of b u s i n e s s hours on October 6, 1926, i t i s meant to s t a t e t h a t s a i d i t e m was p a i d on October 6, 1926 by the N a t i o n a l Bank of F r a n k l i n , t h i s averment of the o r i g i n a l b i l l i s denied a s w i l l more f u l l y appear from a subsequent p a r t of t h i s answer. The d e f e n d a n t admits t h a t no p r o t e s t f o r dishonor was made by the drawee bank, and as no l i a b i l i t y of any e n d o r s e r was to be f i x e d , and a s the # check i n c o n t r o v e r s y was drawn and p a y a b l e i n the S t a t e of Tennessee, p r o t e s t t h e r e o f f o r dishonor was u n n e c e s s a r y . Promptly upon the r e t u r n to d e f e n d a n t by s a i d N a t i o n a l Bank of F r a n k l i n of s a i d check u n p a i d , n o t i c e by t e l e g r a m was g i v e n the Hamilton N a t i o n a l Bank from whom s a i d check had been t h e r e t o f o r e r e c e i v e d f o r c o l l e c t i o n as h e r e i n b e f o r e s t a t e d . Defendant admits t h a t on October 6 t h , a n d on October 7 t h , 1926, the N a t i o n a l Bank of F r a n k l i n had to i t s c r e d i t i n i t s account w i t h the F e d e r a l Reserve Bank of A t l a n t a more than $ 2 0 , 0 0 0 . 0 0 . Defendant i s a d v i s e d , however, t h a t the averments of the b i l l i n t h i s r e g a r d a r e i m m a t e r i a l , and need not be answered s i n c e s a i d check of $8000 p u r p o r t e d to have been drawn upon an account i n f a v o r of the d r a p e r of s a i d check i n s a i d N a t i o n a l Bank of F r a n k l i n , and not upon funds s t a n d i n g to the c r e d i t of s a i d N a t i o n a l Bank of F r a n k l i n i n the F e d e r a l Reserve Bank of A t l a n t a . V Defendant i s a d v i s e d t h a t i t i s t r u e t h a t s a i d N a t i o n a l Bank of F r a n k l i n opened i t s doors f o r b u s i n e s s on the morning of October 7, 1926, o n -5- X-6076 i 530 and that before the close of business hours, i t suspended, payment and closed ; t * i t s doors. I t i s not advised as to the reasons why said bank became i n s o l vent, nor as to why i t s doors were closed and a receiver appointed, nor as to the amount which w i l l be paid to depositors by way of dividends. Defendant s&ys, however, that the averments of Paragraph V of the b i l l in this regard are immaterial, and irrelevant to cause of action in said b i l l attempted to be s e t up, and for said reason no answer thereto i s required. -6- Defendant denies that on October 7, 1926, the defendant sent an employee and agent to Franklin upon any matter related to or a r i s i n g from or connected with the said $8,000 check. I t denies that the said $8,000 check had been paid by said National Bank of Franklin as a cash item or in any other way or in the course of business of that bank on October 6, 1926, or at any other time. I t denies that said defendant, through i t s agent and employee, brought said check back to Nashville, and thereafter returned the same to the Hamilton National Bank, the fact being on the contrary that said National Bank of Franklins, i t s e l f returned said check to defendant on the morning of October 7, 1926, assigning as a reason for said non-payment the lack of s u f f i c i e n t funds to the credit of the drawer as hereinbefore stated. With such non-payment this defendant was in no way involved, and in nowise concerned. I t had nothing to do with the return of said check. Upon i t s receipt unpaid, as aforesaid, the same was returned to the Hamilton National Bank of Chattanooga, Tennessee, as heretofore stated, along with the information that the drawee bank had refused payment because of the lack of s u f f i c i e n t fufids to thp credit of the drawer. Defendant admits that on and prior to October 7, 1926, the said National Bank of Franklin was indebted to the defendant in a large amount of money for the payment of which defendant held c o l l a t e r a l , "but defendant denies that i t caused said $8,000 check to be dishonored or that i fc took the same from the drawee bank to obtain for i t s e l f any b e n e f i t as alleged in Section VI of said b i l l . Defendant denies that i t had anything to do with the non-payment of said check or with i t s dishonor, and denies any other averment of Section VI of said b i l l which i s not in this answer admitted. VII Defendant denies each and every averment of Section VII of said bill. I t denies that any relationship of principal and agent e x i s t e d between complainant and defendant, that i t had anything to do with the return unpaid of said $8000.00 item, or that i t was g u i l t y of any breach of trust or v i o l a t i o n of any duty, either to complainant or any other person at any time handling or interested in said check. I t denies that i t i s l i a b l e to complainant as the holder of said check, or to anyone e l s e because of any matter or thing in said Paragraph VII or elsewhere in said b i l l alleged. Defendant i s one of the twelve Federal reserve banks, organized and e x i s t i n g under that certain Act of Congress known as the Federal Reserve Act, as from time to time amended. Pursuant to the provisions of said Federal Reserve Act, as amended, the Federal Reserve Board has required each Federal Reserve Bank, including this defendant, to exercise the functions of a clearing house for member banks to the end that such member banks may c o l l e c t checks deposited with them and drawn on banks in other l o c a l i t i e s through jfe6 0 ^ 8 2 -7- the c o l l e c t i o n f a c i l i t i e s afforded "by such Federal reserve hanks. The re- quirement of the Federal Reserve Board in this regard was embodied in a regulation which was in force at the times and upon the dates mentioned, known as Regulation J, Series of 1924, a true copy of which i s attached hereto, and made a part hereof, and marked Exhibit A, but the same need not be copied as i t w i l l be produced i f required at the hearing. Said Regulation was made and promulgated pursuant to the power and authority vested in said Federal Reserve Board by the Act of Congress aforesaid as w i l l appear by reference to said Regulation, A Federal reserve bank receives checks for c o l l e c t i o n only from other banks, who are members o f , or otherwise a f f i l i a t e d withsaid Federal Reserve System, and in the event of the receipt of such checks for c o l l e c t i o n w i l l act only as agent of the bank from which same are received. Defendant avers, therefore, that, with respect to said check, i t s r e c e i p t , or the handling thereof, i t stood in no contractual relationship with the complainant and that there was and i s no p r i v i t y of contract between complainant and defendant, which would authorize the bringing of maintenance of this action. This defendant, pursuant to the power and authority vested in i t - by said Federal Reserve Act, and by Regulation J, which i s hereinbefore referred to, issued, promulgated, and sent to each of i t s member banks a certain circular issued under date of June 1, 1925, and e n t i t l e d "Check Clearing and Collection - General Conditions under which Cash Items w i l l be Handled." Said check c o l l e c t i o n circular was in force at a l l the times and dates mentioned in said b i l l . A copy of the same i s hereto attached marked Exhibit B and mb.de a part h e r e o f , but need not be popied as i t w i l l be produced i f required at the hearing. The defendant e s p e c i a l l y pleads and r e l i e s upon Regulation J, Series of 1924, and the Circular Letter aforesaid, as defining i t s l i a b i l i t y when acting as a c o l l e c t i o n agent, and i t avers that the terms and conditions prescribed by the Regulation and the Circular Letter constitute the contract entered into by i t when acting as agent of the Hamilton National Bank of Chattanooga, Tennessee in c o l l e c t i n g the item now i n controversy, and the same prescribed the s o l e and only conditions under which defendant could have undertaken the c o l l e c t i o n of said $8,000 check. Defendant avers that on or about the f i f t h day of October 1926 i t received from the said Hamilton National Bank of Chattanooga, Tennessee, the said $8,000 check along with other checks drawn on said National Bank of Franklin, Tennessee. Said checks were placed with defendant to the end that the same might be c o l l e c t e d under the conditions and pursuant to the terms of Regulation J and the cognate c o l l e c t i o n circular of defendant. Said checks so received from said Hamilton National Bank along with other checks drawn on said National Bank of Franklin and received from other banks were enclosed with a cash l e t t e r bearing date, October 5, 1926, and sent through the mails by defendant to said drawee bank. On the morning of October 7, 1926, said National Bank of Franklin sent a messenger to the Federal Reserve Bank, Nashville Branch, with a l e t t e r signed by Mr. Thomas B. Johnson, president of the National Bank of Franklin, to which l e t t e r were attached the $8,000 check now in controversy and several other small checks which the l e t t e r stated were returned by the National Bank bf Franklin to the Federal Reserve Bank of Atlanta, Nashville Branch, "because of i n s u f f i c i e n t funds standing to the credit of the drawers on the books of the National Bank of Franklin. The defendant on the receipt of said l e t t e r from Mr. Johnson wired to i t s correspondent, the Hamilton National Bank of Chattanooga, Tennessee, that said $8,000 check had "been dishonored "by the drawee hank, the National Bank of Franklin, and the defendant on the same day returned said check to i t s correspondent, the Hamilton National Bank of Chattanooga, Tennessee. VIII All other a l l e g a t i o n s of the original b i l l , not herein admitted or denied, are generally denied, but with the same p a r t i c u l a r i t y as i f s p e c i f i c a l l y denied, and now having f u l l y answered, t h i s defendant prays to be hence dismissed with i t s reasonable c o s t s . FEDERAL RESERVE BANK OF ATLANTA, NASHVILLE BRANCH, By Manager.
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