frsbog_mim_v34_0245.pdf

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C 0 > t

FEDERAL RESERVE BASK

0 ?

RICHMOND

X-6813.

February 4 , 1931 ,

Federal Seserve Board,

Washington,

D. G»

At ten t ion

Mr .

Walt er Hy at t, General Counsel.

Dear

M r.

Wyattj

I

enclose herewith

tw o

copies

of a

complaint

in a n

ac t ion

o f

W. I*

Skinner

a n d

Company

v .

Federal Reserve Bank

of

Richmond

and W. P.

Wright, Receiver

o f the

National Bank

of

Greenvi l le ,

N. C.

While

the

complaint does no t contain a complete description o f the check upon which

i t i s

"based,

i t

appears from

our

records that

on

December

8 , 1 930 , we r e -

ceived from

t h e

F i r s t

an d

Merchants National Bank

a

check

f o r

$4,748.53

drawn on the National Bank of Gr ee nv il le . This check was sent to the

drawee frank i n o u r cash le t ter o f t h e date mentioned, which contained checks

aggregating $27,289.01. The checks i n th is cash le t ter wi th th e exception

of those returned were cancelled and charged to the drawers on December 9 th

a nd the National Bank o f Greenville sent u s t h e usual s l ip o r receip t d i -

r e c t i n g u s t o charge i t s reserve accnmit with th e sum of $27,234.28, which

wa s the amount o f t h e checks contained in ou r cash le t ter less a few checks

returned unpaid. The check mentioned i n t h e complaint was not returned

unpaid.

The above mentioned authority t o charge was received by u s on

December 1 0 t h , probably a t o r about th e opening o f bus iness . At the open-

i ng o f business on December 1 0 t h t h e National Bank of Greenvil le had an

apparent ly avai lable balance i n i t s reserve account o f $17,903.96. No

ac t ion was taken on the au tho r i ty t o charge i t s reserve account with the

l e t t e r of December 8 t h because t h e account was not s u f f i c i e n t t o cover the

charge. During the day of December 10th we received cer ta in t ra nsf er s and

c r e d i t s f o r t h e account of the National Bank of Greenville which totaled

$8,820.43. $8,000.00 of t h i s sum appears to have been a credit made t o

t h e account o f t h e National Bank of Greenvil le b y a wire t ra ns fe r; $818.93

appears t o have been th e proceeds of a cash let ter deposi ted b y t h e National

Bank of Greenville which became available on tha t da y ; a nd $1 .50 appears

t o

have been

a

c r e d i t

f o r a n

exchange charge.

At 1:00 P. M. on

December

10th we

received

a

telegram sent from

Greenvil le

a t 12 :58 P . M .

advising

u s

t h a t

th e

National Bank

of

Greenville

was closedE. When t h i s te legram was received we had not charged i t s account

with th e amount o f th e cash l e t t e r of December 8 t h a n d the re fo re d i d n o t

do so bu t charged t h e amount of these checks back t o o u r endorsing banks i n

t h e u sua l n a y .

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- 2 -

X-6813

Subsequent

t o t h e

f a i l u r e

of the

National Bank

of

Greenvil le

a few returned, items were charged t o t h e reserve account, bat th e amount

of

such return items

was not

l a rge

and we at

present hold

a

reserve "balance

of

$26,625.00.

The National Bank of Greenvil le had rediscounted notes with,us

greatly exceeding

t h e

amount

of the

reserve "balance

and we - ha d

taken

no

margina l col la te ra l a s i t s borrowings had no t exceeded i t s "basic line*

The complaint i n th is ac t ion i s a s you w i l l s e e rather informal

and

does

not

ind ica te c lea r ly

th e

exact theory

of

l iabil i ty upon which

t h e p l a i n t i f f i n te nd s t o r e l y . The a t torneys who are br inging ac t ion, how-

ever, have a very good reputation, and I am inc l ined t o think that they

a r e

bas ing t he i r claim both upon

th e

so-called Malloy case

and t he

decis ion

i n t h e

Early case.

I

expect

t o

wr i t e

t o

them

and

ca l l the i r a t t en t ion

t o

t h e fac t tha t t h e Regulat ions of the Federal Reserve Board and our c i rcu-

lars have been radical ly al tered s ince those decis ions; but my pas t experi-

ence with lawyers i n North Carolina gives me l i t t l e r ea so n t o hope that

they will withdraw this suit before

a

t r i a l . They

d i d n o t

wri te

t o u s b e -

fo r e i n s t i t u t i n g t h e s u i t and so I d id no t have a n opportunity t o ca l l

the i r a t t en t ion t o o u r defenses .

I t seems very probable that this case will eventually depend

upon th e determination of the v a l i d i t y of Regulat ion J , Ser ies of 1930,

and may the re fo re be a case of far-reaching importance t o a l l Federa l r e -

serve ban ks. There

a r e , o f

course, many circumstances which make

i t u n -

fortunate that this sui t should be brought i n t h i s d i s t r i c t . I en te r t a in

no doubt of the v a l i d i t y of the present form of Regulation

J ,

b u t having

cvr ''past? t o live down, my arguments may be somewhat discounted by the

c o u r t .

I f

this case

i s

removed

t o a

federa l cour t ,

t h e

Circuit Court

of

Appeals of th i s c i rcu i t wi l l na tu ra l ly be on the a l e r t f o r a n y reasons

which may enable i t t o follow i t s own dec is ion. I f we leave th e case i n

th e

s ta te cour t ,

t h e

s tate court

of

North Carolina

may be

l ikewise incl ined

t o

fol low

t h e

Circuit Court

of

Appeals

and t he

Supreme Court

o f t he

United

Sta te s t o t he same result a s that reached i n t h e Early case without regard

t o t h e change in«the regulations.

We, of

course, could

n o t

determine whether

o r no t

th is sui t

should b e removed t o a federa l cour t a s i t could .only be removed on motion

of the r e c e i v e r . Of course, i n this case t h e rece ive r of the failed bank

and t he Federal Reserve Bank would have a common interest and I should be

disposed

t o

u n i t e

i n any

move made

by the

rece ive r ;

b u t

because

t h e

case

seems important a n d h a s some interesting angles besides th e bare questions

of law involved, I am immediately transmitting to you a copy of th e com-

p l a i n t i n order that you might study i t c a r e f u l l y . I t i s , of course,

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—» 3 -

X S 8 1 3

unnecessary fo r me to sa y tha t a n y suggestions from y ou would be highly

apprec ia ted , a nd i f you consider i t wise t o send copies of the complaint

t o

Counsel

f o r

other Federal reserve hanks

a nd a sk

their opinion

as to

whether or ,not th is l i t igat ion should he handled a s a System matter, i t

would h e en t i re ly agreeable to me to have you do so*

With ki nd es t reg ards ,

I am

Very truly yours

t

( s ) M. G. WALLACE

Counsel.

7/17/2019 frsbog_mim_v34_0245.pdf


(

COPY

)

r s

X-6813-a

W THE SUPERIOR COURT

C O M P L A I N T

NORTH CAROLINA

MARTIN COUNTY

W. I. SKINNER & COMPANY, INCORPORATED

v s

FEDERAL RESERVE BANK

OF

RICHMOND,

VIR-

GINIA, NATIONAL BANK

OF

GREENVILLE,

AND

W. P. WRIGHT, RECEIVER OF NATIONAL BANK

OF GREEUVlLLfi

P la in t i f f , compla in ing

of

defendants, al leges

n says

1 ; P l a i n t i f f i s a corporation* duly organized

under t h e laws o f t h e S ta te of Delaware, doing bu si ne ss i n t h e State

of North Carolina, with an o f f i c e a t Williamston in said State.

2 :

Defendan t Federa l Reserve Bank

o f

Richmond,

Virg in ia , i s a corporation, organized under t h e laws o f t h e United

Sta tes o f America, doing business i n North Carolina, with an o f f i c e

a t Charlotte.

3fc Defendant Nati ona l Bank of Greenville is a

banking corporation, organized under

t h e

laws

o f t h e

United States,

and W. P.

Wright

h a s

been appointed

a s

Receiver

f o r i t .

4; On December 6 , 1930 , p l a in t i f f d epo si t ed f o r

collection with Branch Banking & Trust Company, a banking corporation

organized under t h e laws o f t h e S ta te of North Carolina, a t Williams-

t o n , North Carolina, a check drawn by Person-Garrett Company, a V i r -

gin ia corporat ion ,

on i t s

account

in

National Bank

o f

Greenville.

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— 2 — X-6813-a

5: As p l a i n t i f f i s advised and b e l i e v e s , t h e

Branch Banking & Tr us t Company promptly t ra ns mi tt ed sa id check to

F i r s t & Merchants Nat io na l BaAk of Richmond f o r c o l l e c t i o n a s

agent f o r p l a i n t i f f , an d i t , a s agent f o r p l a i n t i f f , sen t sa id check

t o t h e Federal Reserve Bank of Richmond to be by i t c o l l e c t e d a s

agent f o r p l a i n t i f f .

6: As p l a i n t i f f i s advised and b e l i e v e s , F e d -

eral Reserve Bank of Richmond on December 8 , 1930 , mailed said check

d i r e c t t o t h e national Bank of Greenvil le f o r co ll e c ti on *and p a y -

ment,

b u t

c a r e l e s s l y

and

neg l igen t ly f a i l ed

to

r e q u i r e

a s a

condition

precedent t o t h e surrender a n d cance l l a t ion of said check that t h e

National Bank o f Gr een vill e should re ce iv e and transmit only money

i n

payment

of

said check.

7: As p l a i n t i f f i s advised and b e l i e v e s , N a-

tional Bank o f Greenvil le was insolvent when Federal Reserve Bank

o f

Richmond mailed

t o i t t h e

check

o f P e r

so n- Ga rr et t Company, which

f a c t was or should have been known t o t h e Federal Reserve Bank o f

Richmond.

8: As p l a i n t i f f i s advised a nd bel ieves, Nat ional

Bank of Greenvil le upon receipt o f the check given b y Person-Garret t

- -

Company

to

p la in t i f f cancel led sa id check

and

charged

t h e

same

to the

account of Person-Garrett Company, bu t due to th e c a r e l e s s a n d n e g l i -

gen t f a i lu re of defendant Federal Reserve Bank o f Richmond t o requi re

only money

to be

t r ansmi t t ed

i n

payment

of

said check, mailed

to F e d-

eral Reserve Bank

o f

Richmond

on

December

9, 1 930 , a

check

o r

l e t t e r

authorizing Federal Reserve Bank of Richmond to charge t h e amount of

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- 3 —

P

X-6813-a

t h e

check given plaint iff

to the

account

o f the

National Bank

o f

Greenville with Federal Reserve Bank

of

Richmond.

9 ; i s p l a i n t i f f i s advised and "believes, d e -

fendant Federal Reserve Bank,

on

December

10 , 1930 ,

received

t h e

check

o r

order from

t h e

National Bank

of

Greenvi l le d i rec t ing

F e d -

eral Reserve Bank

t o

charge

t o t h e

account

of

National Bank

o f

Green-

v i l l e t h e amount o f th e check given plaint iff by Person-Garret t

Company, but defendant Federal Reserve Bank wrongfully refused to

honor

and pay

said check

o r

other order

o f the

National Bank

of

Greenville, although,

a s

p l a i n t i f f

i s

advised

and

be li eve s, Nation-

a l

Bank

of

Greenvil le

had on

deposit

a n d t o i t s

credit with

t h e F e d -

eral Reserve Bank

o f

Richmond

a t t h e

time said check

o r

order

was

drawn an d mailed a sum more than s uf fi ci en t to pa y said check o r

order.

10; As

p l a i n t i f f

i s

advised

and

b e l i e v e s ,

d e -

fendant Federal Reserve Bank

of

Richmond

h a d

made loans

o r

r e d i s -

counted notes

f o r

National Bank

o f

Greenville, none

of

which were

due

when National Bank

o f

Greenville mailed

i t s

check

o r

order

to the F e d-

eral Reserve Bank o f Richmond, n o r were any of said notes due when

Federal Reserve Bank of Richmond received said check o r order,

a s

p l a i n t i f f

i s

advised

and

be l i eves ,

b u t

Federal Reserve Bank,

a s

p l a i n t i f f

i s

advised

and

be l i eves ,

on th e

same

day

t h a t

i t

received

t h e

check

o r

order

o f

National Bank

o f

Greenville, charged against

t h e

account

o r

deposit owing

to

National Bank

of

Greenvi l le

t h e

notes given i t b y National Bank o f Greenvil le o r papers which ha d

been re-discounted

f o r

National Bank

of

Greenville, thereby caus-

ing an

o v e r -d ra f t

i n t h e

account

of

National Bank

o f

Greenvil le

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- 4 - X-3813-a '

with Federal Reserve Bank, o r reducing t h e same to a sum i n s u f f i c i e n t

t o p a y t h e check o r o rd# sen t by National Batik 6f Greenvi l le t o

Federal

He

se rve Bank.

H i A s

p l a i n t i f f

i s

advised

and

b e l i e v e s ,

d e -

fendant Federal Reserve Bank

h a s i n

hand collateralsand notes more

than su f f i c i en t to discharge and pay any sums "borrowed from i t b y

National Bank of Greenvil le o r re-discounted with i t b y National

Bank o f Greenvi l le , a n d , a s p l ' i n t i f f i s advised and b e l i e v e s , t h e

a c t o f defendant Federal Reserve Bank i n chrrging against said d e -

p o s i t

t h e

notes given

b y

Rational Bank

of

Greenvil le

o r

re-discounted

by i t was wrongful and un lawful , o r i f Federal Reserve Bank ha d th e

r i g h t to charge t h e amount owing t o i t agains t t h e deposi t o f Nation-

a l Bank of G r e e n v i l l e , p l a i n t i f f , a s i t i s advised and b e l i e v e s , i s

subrogated

t o t h e

r i g h t s

o f

Federal Reserve Bank

of

Richmond

to the

c o l l a t e r a l a n d other papers held b y i t .

12$ As p l a i n t i f f i s advised and b e l i e v e s , the

defendants National Bank o f Greenvil le and W. P. Wright, a s Receiver,

claim

and

assert some interest

in

sa id co l l a t e ra l s

o r

make some

c o n -

tent ion with respect

t o t h e

moneys

on

deposit with

t h e

Federal

R e-

serve Bank o f Richmond, which rights, i f a ny , a r e subordinate to the

r i g h t s o f t h e p l a i n t i f f .

WHEREFORE p l a i n t i f f p rays tha t i t recover o f de -

fendant Federal Reserve Bank of Richmond th e sum of $4,748.53, with

i n t e r e s t ,

a n d

t h a t

t h e

amount owing

t o i t b e

declared superior

t o

a n y

claims which defendant National Bank

of

Greenvil le

or W. P.

Wright,

a s Receiver o f said Bank, may have against t h e Federal Reserve Bank

of

Richmond;

f o r

cos ts

and

such other

and

f u r t h e r r e l i e f

a s to the

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— 5 ~

X-6813-a

Court may seem proper,

( s g d ) MacLean & Rodman

Attorneys

NORTH CAROLINA

MAHTIN COTOTY

J . E . King, being duly sworn, says: That he i s

Pres ident

o f W, I .

Skinner

&

Company, In co rp or at ed ,

t h e

above named

p l a i n t i f f ; t h a t t h e foregoing complaint i s t rue of h i s own knowledge

except

a s t o

those matters therein stated upon information

a n d b e -

l i e f , and as to those, h e be l ieves i t t o be true.

( s g d ) J . S .

King

Subscribed a nd sworn to befo re me

th is January 28 , 193 1.

(sg d) C. D. Carstarphen

Notary Public

My Commission Expires

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