Section 130 of chapter 689 of the laws of New York of 1892,
providing for the payment by the receiver of an insolvent bank, in
the first place, of deposits in the bank by savings banks, when
applied to an insolvent national bank, is in conflict with § 5236
of the Revised Statutes of the United States, directing the
Comptroller of the Currency to make ratable dividends of the money
paid over to him by such receiver, on all claims proved to his
satisfaction or adjudicated in a court of competent jurisdiction,
and is therefore void when attempted to be applied to a national
bank.
Page 161 U. S. 276
In March, 1893, the Elmira National Bank, a banking association
organized under the laws of the United States and doing business in
the State of New York, suspended payment, and the Comptroller of
the Currency of the United States appointed Charles Davis,
plaintiff in error, the receiver thereof. The Elmira Savings Bank,
which was incorporated under the laws of the State of New York,
from November, 1890, kept a deposit account with the Elmira
National Bank, and at the time of the appointment of the receiver
of the latter corporation, there was to the credit of this account
of the savings bank the sum of $42,704.67. The opening of the
deposit account by the savings bank was sanctioned by the general
banking laws of the State of New York as expressed in sections 118
and 119 of chapter 689 of the laws of 1892, which were as
follows:
2 Laws of 1892, p. 1898, c. 689.
"§ 118. AVAILABLE FUND FOR CURRENT EXPENSES, HOW LOANED. -- The
trustees of every such corporation shall as soon as practicable
invest the moneys deposited with them in the securities authorized
by this article; but for the purpose of meeting current payments
and expenses in excess of the receipts, there may be kept an
available fund not exceeding ten percentum of the whole amount of
deposits with such corporation, on hand or deposit in any bank in
this state organized under any law of this state or of the United
States, or with any trust company incorporated by any law of the
state, but the sum so deposited in any one bank or trust company
shall not exceed twenty-five percentum of the paid-up capital and
surplus of any such bank or company. . . ."
Ib.
"§ 119. TEMPORARY DEPOSITS. -- Every such corporation may also
deposit temporarily in the banks or trust companies specified in
the last section the excess of current daily receipts over the
payments until such time as the same can be judiciously invested in
the securities required by this article."
In the process of liquidating the affairs and realizing the
assets of the national bank, all its circulating notes were
provided for, and the receiver had on hand in cash for distribution
among its creditors a sum exceeding the amount due as aforesaid
Page 161 U. S. 277
to the savings bank. Thereupon the latter demanded of the
receiver payment of the sum to the credit of its deposit account in
preference to the other creditors of the national bank, basing its
demand on a provision of the general banking law of the State of
New York, which is as follows:
Ib. 1903.
"§ 130. DEBTS DUE SAVINGS BANKS FROM INSOLVENT BANKS PREFERRED.
-- All the property of any bank or trust company which shall become
insolvent shall, after providing for the payment of its circulating
notes, if it has any, be applied by the trustees, assignees, or
receiver thereof in the first place, to the payment in full of any
sum or sums of money deposited therewith by any savings bank, but
not to an amount exceeding that authorized to be so deposited by
the provisions of this chapter, and subject to any other preference
provided for in the charter of any such trust company."
The receiver, under the authority of the Comptroller of the
Currency of the United States, declined to accede to this demand,
predicating his refusal on the provisions of sections 5236 and 5242
of the Revised Statutes of the United States, which are as
follows:
"§ 5236. From time to time after full provision has been first
made for refunding to the United States any deficiency in redeeming
the notes of such association, the Comptroller shall make a ratable
dividend of the money so paid over to him by such receiver on all
such claims as may have been proved to his satisfaction or
adjudicated in a court of competent jurisdiction, and, as the
proceeds of the assets of such association are paid over to him,
shall make further dividends on all claims previously proved or
adjudicated, and the remainder of the proceeds, if any, shall be
paid over to the shareholders of such association or their legal
representatives in proportion to the stock by them respectively
held."
"§ 5242. All transfer of the notes, bonds, bills of exchange or
other evidences of debt owing to any national banking association,
or of deposits to its credit; all assignments of mortgages,
sureties on real estate or of judgments or decrees
Page 161 U. S. 278
in its favor; all deposits of money, bullion, or other valuable
thing for its use or for the use of any of its shareholders or
creditors, and all payments of money to either, made after the
commission of an act of insolvency or in contemplation thereof,
made with a view to prevent the application of its assets in the
manner prescribed by this chapter or with a view to the preference
of one creditor to another, except in payment of its circulating
notes, shall be utterly null and void."
In consequence of this refusal, the savings bank brought an
action in the supreme court of the State of New York to enforce the
payment by preference, which action was resisted by the receiver.
Ultimately the case was taken to the Court of Appeals of the State
of New York, where the claim of preference asserted by the savings
bank was maintained. The case is reported in 142 N.Y. 590. To that
judgment the present writ of error is prosecuted.
Page 161 U. S. 283
MR. JUSTICE WHITE, after stating the case, delivered the opinion
of the Court.
National banks are instrumentalities of the federal government,
created for a public purpose, and as such necessarily subject to
the paramount authority of the United States. It follows that an
attempt by a state to define their duties or control the conduct of
their affairs is absolutely void wherever such attempted exercise
of authority expressly conflicts with the laws of the United States
and either frustrates the purpose of the national legislation or
impairs the efficiency of these agencies of the federal government
to discharge the duties for the performance of which they were
created. These principles are axiomatic, and are sanctioned by the
repeated adjudications of this Court.
The question which the record presents is does the law of the
State of New York on which the savings bank relies conflict with
the law of the United States upon which the Comptroller of the
Currency rests to sustain his refusal? If there be no conflict, the
two laws can coexist, and be harmoniously enforced, but if the
conflict arises, the law of New York is, from the nature of things,
inoperative and void as against the dominant authority of the
federal statute. In examining the question, it is well to put in
juxtaposition a summary statement of the federal and state
statutes. The first directs the Comptroller
"from time to time, after full provision has been made for the
refunding to the United States of any deficiency in redeeming the
notes of such association, . . . to make a ratable dividend of the
money paid over to him . . . on all such claims as may have been
proved."
The second -- the state law -- directs "the trustee, assignee or
receiver" of "any bank or trust company which shall become
insolvent" to apply the assets received by him
"in the first place to the payment in full of any sum or sums of
money deposited therewith by any savings bank, but not to an amount
exceeding that authorized"
by law.
It is clear that these two statutes cover exactly the same
subject matter. Both relate to insolvent banks; both ordain
Page 161 U. S. 284
that the right of preference on the one side and the duty of
ratable distribution on the other shall only result from
insolvency; both cover the assets of such banks coming, after
insolvency, into the hands of the officer or person authorized to
administer them. It is equally certain that both statutes relate to
the same duty on the part of the officer of the insolvent bank. The
one directs the representative to make a ratable distribution; the
other requires, if necessary, the application of the entire assets
to payment in full, by preference and priority over all others of a
particular and selected class of creditors therein named. We have
therefore, on the one hand, the statute of the United States
directing that the assets of an insolvent national bank shall be
distributed by the Comptroller of the Currency in the manner
therein pointed out -- that is, ratably among the creditors. We
have, on the other hand, the statute of the State of New York
giving a contrary command. To hold that the state statute is
operative is to decide that it overrides the plain text of the act
of Congress. This results not only from the fact that the two
statutes, as we have said, cover the same subject matter and relate
to the same duty, but also because there is an absolute repugnancy
between their provisions -- that is, between the ratable
distribution commanded by Congress and the preferential
distribution directed by the law of the State of New York.
The conflict between the spirit and purpose of the two statutes
is as pronounced as that which exists between their unambiguous
letter. It cannot be doubted that one of the objects of the
national bank system was to secure, in the event of insolvency, a
just and equal distribution of the assets of national banks among
all unsecured creditors, and to prevent such banks from creating
preferences in contemplation of insolvency. This public aim in
favor of all the citizens of every state of the Union is manifested
by the entire context of the National Bank Act.
In
Cook County National Bank v. United States,
107 U. S. 448,
speaking through MR. JUSTICE FIELD, the Court said:
"We consider that act as constituting by itself a complete
system for the establishment and government of national
Page 161 U. S. 285
banks. . . . Everything essential to the formation of the banks,
the issue, security, and redemption of their notes, the winding up
of the institutions, and the distribution of their assets, are
fully provided for."
In
National Bank v.
Colby, 21 Wall. 613,
88 U. S. 614,
the Court said:
"As to the general creditors, the act evidently intends to
secure equality among them in the division of the proceeds of the
property of the bank. . . ."
"The fifty-second section, further to secure this equality,
declares that all transfers by an insolvent bank of its property of
every kind, and all payments of money made after the commission of
an act of insolvency, or in contemplation thereof, with a view to
prevent the application of its assets in the manner prescribed by
the act, or 'with the view to the preference of one creditor over
another, except in the payment of its circulating notes,' shall be
utterly null and void."
"There is in these provisions a clear manifestation of a design
on the part of Congress, 1st. to secure the government for the
payment of the notes, not only by requiring, in advance of their
issue, a deposit of bonds of the United States, and by giving to
the government a first lien for any deficiency that may arise on
all the assets subsequently acquired by the insolvent bank; and 2d,
to secure the assets of the bank for ratable distribution among its
general creditors. This design would be defeated if a preference in
the application of the assets could be obtained by adversary
proceedings."
Nearly twenty-five years ago (in September, 1871), the Secretary
of the Treasury submitted to the Attorney General of the United
States the question of whether the ratable division provided for in
the act of Congress deprived the United States, as a creditor of an
insolvent national bank, of the power to avail of the preference
given by the statute, which provides that the United States shall
be preferred out of the effects of an insolvent debtor. 1 Stat.
515. The opinion of the Attorney General was that the ratable
distribution required, when read in connection with other
Page 161 U. S. 286
sections of the National Bank Law, deprived the United States of
all preference, except that given for the payment of the notes
issued by such banks. 13 Opinions 528.
This construction has been the rule administered by the
Comptrollers of the Currency in the liquidation of national banks
from that date, and was directly sustained in
Cook County
National Bank v. United States, ubi supra, where MR. JUSTICE
FIELD, as the organ of the Court, said:
"The sections directing ratable distribution provide for the
distribution of the entire assets of the bank, giving no preference
to any claim except for moneys to reimburse the United States for
advances in redeeming the notes."
After holding that the United States could not exercise as a
creditor the preference in its favor created by a general law of
the United States, the conclusion is thus summed up:
"These provisions could not be carried out if the United States
were entitled to priority in the payment of a demand not arising
from advances to redeem the circulating notes. The balance, after
reimbursement of the advances, could not be distributed as directed
by ratable dividends to all holders of claims; that is, to all
creditors."
Thus, although for many years in the administration of the act,
under a construction given by the Attorney General of the United
States, sanctioned by the decisions of this Court, the ratable
distribution provided by the act of Congress has been deemed so
important as to repeal, insofar as it prevented ratable
distribution, the general preference given the United States by its
own statute, the contention now advanced maintains that this
ratable distribution is of so little consequence that it can be
overthrown, and rendered nothing worth by the provisions of a
general insolvent statute of the State of New York. In other words,
that the statute of the State of New York operating upon the
National Bank Law is more efficacious than would be a statute of
the United States.
Nor is it an answer to say that the
ratio decidendi of
the ruling in
Cook County National Bank v. United States
was the fact that the statute provided that the United States
should take security for the debts to become due her by a national
bank. In the case presented by the Secretary of the
Page 161 U. S. 287
Treasury to the Attorney General for consideration, the security
in favor of the United States was inadequate, and therefore the
question which arose was the right of the United States to collect
an unsecured claim in disregard of the rule of ratable division.
And such was the state of facts contemplated by the opinion of this
Court in the
Cook County case. This makes it evident that
the controlling thought which gave rise to the interpretation
sanctioned by this Court was the fact that to have allowed the
preference in favor of the United States ordained by one of its
statutes would have destroyed the rule of ratable distribution
established as a protection to and for the benefit of all the
creditors of a national bank.
It is certain that, insofar as not repugnant to acts of
Congress, the contracts and dealings of national banks are left
subject to the state law, and upon this undoubted premise, which
nothing in this opinion gainsays, the proposition is advanced that
the deposit here considered of the savings bank with a national
bank imported a contract to pay the claim of the former with the
preference allowed by the New York statute. But this overlooks the
plain terms of the New York law. That statute does not profess to
deal with the bank and its relations as a going concern; it wholly
and exclusively undertakes to regulate the distribution of the
assets after insolvency. Insolvency, and insolvency alone, is made
the criterion from which the preference is to arise. Indeed, the
statute in terms directs its mandate to discharge the claim with
preference not to the bank
eo nomine, but to the assignee,
trustee, or agent charged with administering its effects after
insolvency has become flagrant. The claim of contract therefore
conflicts with the very terms of the statute upon which it is
based, and there is therefore no room for implying a contract. If
such implication, however, could be invoked, it must rest on the
contention that inasmuch as the state statute gave a savings bank
making a deposit the right to be preferred in case of insolvency,
therefore the general state law must be presumed to have entered
into the contract of the parties, and hence also engender the
presumption that,
Page 161 U. S. 288
in case of insolvency, such deposit should be preferred. If the
law of the state is to be read into the contract, then, of course,
the law of Congress should also be read into it. We should thus
have to consider all the deposits as made with an implication that
they were subject to the federal law, and hence the conflict
between the two laws would become evident, and the federal law,
being paramount, would prevail.
The New York statute does not profess, however, to change the
legal relation which results from a deposit made in a bank. The
deposit of money by a customer with his banker is one of loan, with
a superadded obligation that the money is to be paid when demanded
by a check.
Scammon v. Kimball, 92 U. S.
362;
Marine Bank v. Fulton
Bank, 2 Wall. 252. The argument therefore of
implied contract not only is contrary to the letter of the New York
statute, but also destroys the very essence of the legal relation
resulting from the dealings between the parties. Nor is the
repugnancy between the state statute and the act of Congress
removed by the contention that inasmuch as ratable distribution
applies only to that which belongs to the bank, therefore there is
no conflict between the state statute and the act of Congress. This
argument can only mean that the effect of the state statute is to
make the savings bank, in the event of insolvency of the national
bank, the owner of a sum equivalent in amount to the sum of money
which was by it deposited. But to say this aggravates the conflict
between the state law and the act of Congress. If the state statute
is to be read as saying that whenever the persons named therein
deposit money with a national bank, they shall be treated as the
owners of an equal sum of the assets of the bank when it becomes
insolvent, then the state statute precludes in a most flagrant way
the possibility of the ratable distribution ordered by the act of
Congress. True it is that where, by state law, a lien is made to
result from a particular contract, that lien, when its existence is
not incompatible with the act of Congress, will be enforced. True
also, where a particular contract is made by a national bank which,
from its nature, gives rise at the time of the contract to a claim
on a specific fund, such claim, if not violative
Page 161 U. S. 289
of the act of Congress, will be allowed. To that effect are the
authorities relied on.
Thus, it was said by this Court in
Scott v. Armstrong,
146 U. S. 499,
when dealing with the question of set-off:
"The requirement as to ratable dividends is to make them from
what belongs to the bank, and that which at the time of the
insolvency belongs of right to the debtor does not belong to the
bank."
So in the case of
San Diego County v. California Nat.
Bank, 52 F. 59, it was decided that the funds received by a
national bank, which the party depositing had no authority of law
to deposit, were not part of the assets to be "ratably
distributed," but must be returned in full to the rightful owner.
And again, in
Massey v. Fisher, 62 F. 958, which was a
case where an endorser paid the amount of a note to a bank and took
a receipt, but before he took the note from the bank. the bank
failed, the substance of the decision was that the money did not
belong to the bank, but was held by it in trust, and, of course, in
that case it was not part of its assets.
None of these cases are apposite here. On the contrary, by an
affirmative pregnant with a negative, they deny the preference
which is now advanced. This clearly results from the context of the
opinions in these cases. They all reason to demonstrate that from
the particular facts stated the relation was not that of an
ordinary creditor, but was one giving rise to a specific lien or
right resulting from the contract, and which was in being before
the insolvency took place. Here, there is no such condition; there
is simply an ordinary creditor asserting the right to a preference
arising from an insolvent law. This distinction is well illustrated
by
Scott v. Armstrong, supra, cited and relied on in the
opinion of the court below. In that case, the facts as to the
set-off, which was allowed, are thus stated:
"The credits between the banks were reciprocal, and were parts
of the same transaction, in which each gave credit to the other on
the faith of the simultaneous credit, and the principle applicable
to mutual credits applied."
The difference between
Scott v. Armstrong and the
present
Page 161 U. S. 290
case is this: there, this Court was called on to determine
whether a claim which had been extinguished by operation of law
prior to the insolvency was still due after the insolvency, but
here the question is whether a claim existing at the time of the
insolvency, and up to that date unsecured, shall, by the operation
of an insolvent statute, be converted, after the insolvency, into a
preferred claim, to be paid by preference over all other creditors.
This distinction between the two questions was clearly stated in
Scott v. Armstrong, where, speaking through MR. CHIEF
JUSTICE FULLER, this Court said:
"The State of case where the claim sought to be offset is
acquired after the act of insolvency is far otherwise, for the
right of the parties become fixed as of that time, and to sustain
such a transfer would defeat the objects of these provisions [the
act of Congress]. The transaction must necessarily be held to have
been entered into with the intention to produce its natural result
-- the preventing of the application of the insolvent assets in the
manner prescribed.
Venango National Bank v. Taylor, 56
Penn.St. 14;
Colt v. Brown, 12 Gray 233."
Nothing, of course, in this opinion is intended to deny the
operation of general and undiscriminating state laws on the
contracts of national banks so long as such laws do not conflict
with the letter or the general objects and purposes of
congressional legislation. Much was said in argument as to the
public policy embodied in the law of the State of New York and the
wisdom of upholding it. Our function is judicial, and not
legislative. Did we, however, consider motives of public policy, we
should not be unmindful of the wise safeguard in favor of all the
people of the United States resulting from the provision which
secures to everyone dealing with a national bank a ratable
distribution of the assets thereof, thereby stimulating confidence
and uniformity of treatment.
Judgment reversed, and case remanded to the Court of Appeals
of the State of New York with instructions to remit the cause to
the court in which it originated with directions to dismiss the
action.