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LOUISVILLE & NASHVILLE RAILROAD t COMPANY. 1 * V, : DAVIDSON CHANCERY NASHVILLE BRANCH OF THE FEDERAL RESERVE BANK OF ATLANTA ET AL : COURT OF APPEALS, MIDDLE SECTION. APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY, PART 2 HONORABLE JAMES B. NEWMAN, CHANCELLOR. A. W. STOCKELL AND JNO. B. KEEBLE, OF NASHVILLE, FOR APPELLANT RAILROAD COMPANY. JOHN J. VERTREES AND E. J. SMITH, OF NASHVILLE, AND RANDOLPH & PARKER, OF ATLANTA, GA., FOR APPELLEE NASHVILLE BRANCH OF THE FEDERAL RESERVE BANK. BASS, BERRY & SIMS, OF NASHVILLE, FOR APPELLEE AMERICAN NATIONAL BANK. W. W. FAW: "P. J. X-6063 i 499 LOUISVILLE & NASHVILLE RAILROAD COMPANY : V. : : •: DAVIDSON CHANCERY NASHVILLE BRANCH OF THE FEDERAL : RESERVE BANK OF ATLANTA ET AL : MEMO. OPINION. The L o u i s v i l l e & Nashville Railroad Company f i l e d the M i l in this case against Nashville Branch of Federal Reserve Bank of Atlanta and American National Bank, seeking to recover of the defendants the amount of three c a s h i e r ' s checks drawn "by the Peoples Bank of Springfield, Tennessee, aggregating $3,995, which, i t i s alleged and admitted, were deposited by complainant With the defendant American National Bank f o r c o l l e c t i o n , and were "by the American National Bank indorsed and forwarded to the defendant Nashville Branch of the Federal Reserve Bank of Atlanta, and by the l a t t e r bank forwarded d i r e c t l y to the bank on mhich they were drawn, the Peoples Bank of S p r i n g f i e l d , which was closed by the State Bank Examiner as an insolvent bank shortly a f t e r s a i d checks were received by i t and while they were in i t s possession. Complinant a l l e g e s in i t s b i l l that the bank which i s to pay a check i s not a suitable agent for i t s c o l l e c t i o n ; that % X-6063 1 500 there we^e several other "banks at S p r i n g f i e l d , which were r e l i a b l e and solvent, to e i t h e r of which these checks could have been forwarded for c o l l e c t i o n , and any one of which would have, in due course, presented the same for c o l l e c t i o n to the Peoples Bank of Springfield, and c o l l e c t e d the same "before the Peoples Bank went into the hands of an examiner, and "before payment of checks on that i n s t i t u t i o n was stopped "by the examiner. The complainant farther avers in i t s "bill that the defendant American National Bank was negligent in s e l e c t i n g an improper agency through which to clear or c o l l e c t these checks, in that, the American national Bank knew, or in the exercise of ordinary care should have known, that the Hashville Branch of the Federal Reserve Bank of Atlanta was not handling items of this character on Springfield "banks in the proper manner; that the defendant Hashville Branch of the Federal Reserve Bank of Atlanta was negligent i n not forwarding said checks promptly to some bank a t Springfield, other than the Peoples Bank oh which these checks were drawn; that when said checks were not paid the day following the forwarding of same to the Peoples Bank, complainant should have been immediately advised that the same had not been paid; that the defendants nerre * negligent i n permitting the Peoples Bank to hold said checks without remitting thereon; that the negligence of the d e fendant Hashville Branch of the Federal Reserve Bank of Atlanta in forwarding these checks direct to the bank on which they 2 ' . X-6063 were drawn, proximately resulted in complainant losing the opportunity of making c o l l e c t i o n thereon and occasioned the complainant to l o s e the entire amount represented "by said checks; that a f t e r the Peoples Bank was taken over "by the Bank Examiner and closed, i t developed that said bank was wholly i n s o l v e n t , having paid out p r a c t i c a l l y a l l of i t s available funds to other persons presenting checks for payment at said bank prior to the day on which i t was closed, v i z : July 15, 1924; That said checks would have been paid promptly i f presented through any other bank at Springfield, of which there were several, on any date prior to July 15, 1924. In their answer, the defendants deny that they were negligent in handling the checks in question, and they r e l y upon a certain "regulation" adopted and promulgated by the Federal Reserve Board, known as "Regulation J", which, i f v a l i d , authorizes Federal Reserve Banks to "send such checks f o r . c o l l e c t i o n direct to the bank on which they are drawn or at which they are payable", or to "forward them to another agent with authority to present them for payment or send them for c o l l e c t i o n direct to the bank on which they are drawn or at which they are payable", and which Regulation J also provides that "a Federal Reserve Bank w i l l act only as agent of the bank from which i t receives such checks and w i l l assume no l i a b i l i t y except for i t s own negligence and i t s guaranty of prior indorsements". 3 X-5063 I.. -- Conceding t h a t , under the law p r e v a i l i n g i n t h i s S t a t e a s r e p e a t e d l y d e c l a r e d by our Supreme Court, the p a r t y who i s to pay a check i s n o t a s u i t a b l e agent f o r i t s c o l l e c t i o n , and a bank r e c e i v i n g a check f o r c o l l e c t i o n i s n e g l i g e n t i n sending the same d i r e c t l y to the drawee bank f o r c o l l e c t i o n , and t h a t each s u c c e s s i v e bank handling an item f o r c o l l e c t i o n i s a g e n t of the owner, and l i a b l e to him f o r the d i s c h a r g e of the d u t i e s incumbent on c o l l e c t i n g a g e n t s , ( M i l l i n g Co. v . Bank, 120 Tenn. 225, 111 S, W. 2 4 8 ) , the l e a r n e d c h a n c e l l o r h e l d i n the p r e s e n t c a s e , i n s u b s t a n c e , t h a t the above s t a t e d r a l e s of law had been s u p e r s e d e d ( i n s o f a r as they might o t h e r w i s e a f f e c t F e d e r a l Reserve Banks) by the a f o r e s a i d R e g u l a t i o n J , and t h e r e f o r e " t h e c o l l e c t i o n s involved were not handled by the d e f e n d a n t s i n a n e g l i g e n t manner" • The b i l l was thereupon d i s m i s s e d a t t h e c o s t of complainant, and the complainant a p p e a l e d to t h i s court# The l e a r n e d c h a n c e l l o r was of the o p i n i o n , and, i n e f f e c t , a d j u d g e d , t h a t by the Act of December 25, 1913, c r e a t i n g the F e d e r a l Reserve System* the F e d e r a l Reserve Board was a u t h o r i z e d and empowered to make and promulgate t h e a f o r e s a i d R e g u l a t i o n J , and t h a t s a i d R e g u l a t i o n had the f o r c e and e f f e c t of a F e d e r a l s t a t u t e . This r u l i n g of t h e c h a n c e l l o r i s c h a l l e n g e d by the a p p e l l a n t , through i t s assignments of e r r o r , b r i e f and o r a l argument of counsel a t t h e b a r , and i t i s contended t h a t a s o - c a l l e d "Regulation" whi.ch, i f given e f f e c t , s u p e r s e d e s and / X-6053 I annuls as an established general rule of law i s an exercise of l e g i s l a t i v e power, and that, (for lack of constitutional authority) , "Congress cannot delegate the power to make laws" to a hoard or commission, such as the Federal Reserve Board. (Cooley's Constitutional l i m i t a t i o n s , 8th Ed., Vol. 1, p . 33l)* As we see i t , the decision of the question thus presented involves an interpretation or construction of the Constitution of, the United S t a t e s , and by the Tennessee Act of 1925, Chapter 100, Sec. 10, exclusive appellate j u r i s d i c t i o n of a l l c i v i l cases "involving constitutional questions" i s reserved to the Supreme Court. * In order to give the Supreme Court j u r i s d i c t i o n , i t i s e s s e n t i a l that a constitutional question s h a l l "be "directly involved - not as an abstract, theoretical or merely incidental * i s s u e , but as an issue presented in good f a i t h , substantially determinative of the rights asserted, or the defense r e l i e d on". (152 Tenn. 162, 165). We think that the constitutional question above stated i s d i r e c t l y involved, as a determinative question, in the issues presented by the pleadings in this case, and i t was squarely decided by the chancellor. 5 ' X-6063 4,504 » . I t i s not necessary, ip. order to give, the Supreme Court j u r i s d i c t i o n , that the constitutional question be the only issue in the case. State ex r e l v. Hefferman, 243 Mo. 442, 449, 148 S. W. 90; State ex r e l v. Scott County Macadamized Boad Co., 207 Mo. 54, 13 Anno. Cas. 656, 659, Memphis St. Ey. Co. vs. Rapid Transit Co. 133 Tenn. 99, 105, 179 S. W. 635. An order w i l l he entered transferring t h i s cause to the Supreme Court. FAW P. J. Judges Crownover and Devitt concur. 6
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