[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR210.5]

[Page 314-315]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 210--COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE (REGULATION J)--Table of Contents
 
Subpart A--Collection of Checks and Other Items By Federal Reserve Banks
 
Sec. 210.5  Sender's agreement; recovery by Reserve Bank.

    (a) Sender's agreement. The warranties, authorizations, and 
agreements made pursuant to this paragraph may not be disclaimed and are 
made whether or not the item bears an indorsement of the sender. By 
sending an item to a Reserve Bank, the sender:
    (1) Authorizes the sender's Administrative Reserve Bank and any 
other Reserve Bank or collecting bank to which the item is sent to 
handle the item (and authorizes any Reserve Bank that handles settlement 
for the item to make accounting entries), subject to this subpart and to 
the Reserve Banks' operating circulars, and warrants its authority to 
give this authorization;
    (2) Warrants to each Reserve Bank handling the item that:
    (i) The sender is a person entitled to enforce the item or 
authorized to obtain payment of the item on behalf of a person entitled 
to enforce the item; and
    (ii) The item has not been altered; but this paragraph (a)(2) does 
not limit any warranty by a sender or other prior party arising under 
state law or under subpart C of part 229 of this title; and
    (3) Agrees to indemnify each Reserve Bank for any loss of expense 
sustained (including attorneys' fees and expenses of litigation) 
resulting from (i) the

[[Page 315]]

sender's lack of authority to make the warranty in paragraph (a)(1) of 
this section; (ii) any action taken by the Reserve Bank within the scope 
of its authority in handling the item; or (iii) any warranty made by the 
Reserve Bank under Sec. 210.6(b) of this subpart.
    (b) Recovery by Reserve Bank. If an action or proceeding is brought 
against (or if defense is tendered to) a Reserve Bank that has handled 
an item, based on:
    (1) The alleged failure of the sender to have the authority to make 
the warranty and agreement in paragraph (a)(1) of this section;
    (2) Any action by the Reserve Bank within the scope of its authority 
in handling the item; or
    (3) Any warranty made by the Reserve Bank under Sec. 210.6(b) of 
this subpart, the Reserve Bank may, upon entry of a final judgment or 
decree, recover from the sender the amount of attorneys' fees and other 
expenses of litigation incurred, as well as any amount the Reserve Bank 
is required to pay because of the judgment or decree or the tender of 
defense, together with interest thereon.
    (c) Methods of recovery. (1) The Reserve Bank may recover the amount 
stated in paragraph (b) of this section by charging any account on its 
books that is maintained or used by the sender (or by charging a Reserve 
Bank sender), if--
    (i) The Reserve Bank made seasonable written demand on the sender to 
assume defense of the action or proceeding; and
    (ii) The sender has not made any other arrangement for payment that 
is acceptable to the Reserve Bank.
    (2) The Reserve Bank is not responsible for defending the action or 
proceeding before using this method of recovery. A Reserve Bank that has 
been charged under this paragraph (c) may recover from its sender in the 
manner and under the circumstances set forth in this paragraph (c). A 
Reserve Bank's failure to avail itself of the remedy provided in this 
paragraph (c) does not prejudice its enforcement in any other manner of 
the indemnity agreement referred to in paragraph (a)(3) of this section.
    (d) Security interest. When a sender sends an item to a Reserve 
Bank, the sender and any prior collecting bank grant to the sender's 
Administrative Reserve Bank a security interest in all of their 
respective assets in the possession of, or held for the account of, any 
Reserve Bank to secure their respective obligations due or to become due 
to the Administrative Reserve Bank under this subpart or subpart C of 
part 229 of this chapter (Regulation CC). The security interest attaches 
when a warranty is breached or any other obligation to the Reserve Bank 
is incurred. If the Reserve Bank, in its sole discretion, deems itself 
insecure and gives notice thereof to the sender or prior collecting 
bank, or if the sender or prior collecting bank suspends payments or is 
closed, the Reserve Bank may take any action authorized by law to 
recover the amount of an obligation, including, but not limited to, the 
exercise of rights of set off, the realization on any available 
collateral, and any other rights it may have as a creditor under 
applicable law.

[45 FR 68634, Oct. 16, 1980, as amended at 51 FR 21745, June 16, 1986; 
Reg. J, 59 FR 22965, May 4, 1994; 62 FR 48171, Sept. 15, 1997]