1. A bill by a shareholder of a trust company to enjoin the
directors from investing its funds in bonds of Federal Land Banks
and Joint Stock Land Banks upon the ground that the act of Congress
authorizing the creation of such banks and the issue of such bonds
is unconstitutional, and that the bonds therefore are not legal
securities in which the company's fund may be lawfully invested
states a cause of action arising under the laws of the United
States. P.
255 U. S. 199.
Jud.Code, § 24.
2. The provision of the Federal Farm Loan Act of July 17, 1916,
c. 246, 39 Stat. 360, amended January 18, 1918, c. 9, 40 Stat. 431,
making the Federal Land Banks and Joint Stock Land Banks
Page 255 U. S. 181
established thereunder depositaries of public money when
designated by the Secretary of the Treasury, authorizing their
employment as financial agents of the government, requiring them to
perform, as such depositaries and agents, such reasonable duties as
may be laid upon them, and authorizing them to purchase government
bonds justify their creation as an exercise of the constitutional
power of Congress. P.
255 U. S.
208.
3. The necessity for such federal agencies is for Congress to
determine, and the motives actuating Congress in exercising its
power to create them are not a subject for judicial scrutiny. Pp.
255 U. S.
209-210.
4. The extent to which these institutions have so far been
employed as government depositaries or fiscal agencies is
irrelevant to the power to create them. P.
255 U. S.
210.
5. Nor does their legitimacy depend on their being, technically,
banks, or on the extent of their banking powers.
Id.
6. The fact that these banks were intended to facilitate the
making of loans upon farm security at low rates of interest does
not invalidate the enactment. P.
255 U. S.
211.
7. These banks being federal agencies, Congress had power to
exempt their bonds from state, as well a federal, taxation. P.
255 U. S.
212.
Affirmed.
This was a direct appeal to review a decree of the district
court dismissing a bill brought by a shareholder to enjoin a trust
company from investing its money in bonds of Federal and Joint
Stock Land Banks. The case is stated in the opinion,
infra, p. 195.
Page 255 U. S. 195
MR. JUSTICE DAY delivered the opinion of the Court.
A bill was filed in the United States District Court for the
Western Division of the Western District of Missouri by a
shareholder in the Kansas City Title & Trust Company to enjoin
the company, its officers, agents, and employees from investing the
funds of the company in farm loan bonds issued by Federal Land
Banks or Joint-Stock Land Banks under authority of the Federal Farm
Loan Act of July 17, 1916, 39 Stat. 360, as amended by Act Jan. 18,
1918, 40 Stat. 431.
The relief was sought on the ground that these acts were beyond
the constitutional power of Congress. The bill avers that the board
of directors of the company are
Page 255 U. S. 196
about to invest its funds in the bonds to the amount of $10,000
in each of the classes described, and will do so unless enjoined by
the court in this action. The bill avers the formation of twelve
Federal Land Banks and twenty-one Joint-Stock Land Banks under the
provisions of the act.
As to the Federal Land Banks, it is averred that each of them
has loaned upon farm lands large amounts secured by mortgage, and,
after depositing the same with the Farm Loan Registrar, has
executed and issued collateral trust obligations, called "farm loan
bonds," secured by the depositing of an equivalent amount of farm
mortgages and notes, and that each of said Federal Land Banks has
sold, and is continuing to offer for sale, large amounts of said
farm loan bonds. The bill also avers that various persons in
different parts of the United States have organized twenty-one
Joint-Stock Land Banks the capital stock of which is subscribed for
and owned by private persons; that the Joint-Stock Land Banks have
deposited notes and mortgages with the Farm Loan Registrar, and
issued an equivalent amount of collateral trust obligations called
"farm loan bonds," which have been sold and will be continued to be
offered for sale to investors in large amounts in the markets of
the country. A statement is given of the amount of deposits by the
Secretary of the Treasury with the Federal Land Banks, for which
the banks have issued their certificates of indebtedness bearing
interest at 2% per annum. It is averred that, on September 30,
1919, Federal Land Banks owned United States bonds of the par value
of $4,230,805, and the Joint-Stock Land Banks owned like bonds of
the par value of $3,287,503 on August 31, 1919; that, pursuant to
the provisions of the act, the Secretary of the Treasury has
invested $8,892,130 of the public funds in the capital stock of the
Federal Land Banks, and that, on July 1, 1919, the Secretary of the
Treasury, on behalf of the United States, held $8,265,809 of the
capital stock of the Federal Land Banks;
Page 255 U. S. 197
that, pursuant to the provisions of § 32 of the act as amended,
the Secretary of the Treasury has purchased farm loan bonds issued
by the Federal Land Banks of the par value of $149,775,000; that,
up to September 30, 1919, bonds have been issued under the act by
the Federal Land Banks to the amount of $285,600,000, of which
about $135,000,000 are held in the Treasury of the United States
purchased under the authority of the amendment of January 19, 1918;
that up to September 30, 1919, 27 Joint-Stock Land Banks have been
incorporated under the act, having an aggregate capital of
$8,000,000, all of which has been subscribed, and $7,450,000 paid
in; that bonds have been issued by Joint-Stock Land Banks to the
amount of $41,000,000, which are now in the hands of the public;
that the Secretary of the Treasury, up to the time of the filing of
the bill, has not designated any of the Federal Land Banks nor the
Joint-Stock Land Banks as depositaries of public money, nor, except
as stated later in the bill, has he employed them or any of them as
financial agents of the government, nor have they or any of them
performed any duties as depositaries of public money, nor have they
or any of them accepted any deposits or engaged in any banking
business. The bill avers that, during the summer of 1918, the
Federal Land Banks at Wichita, St. Paul, and Spokane were
designated as financial agents of the government for making seed
grain loans to farmers in drought-stricken sections, the President
having at the request of the Secretary of Agriculture set aside
$5,000,000 for that purpose out of the $100,000,000 war funds. The
three banks mentioned made upwards of 15,000 loans of that
character, aggregating a sum upwards of $4,500,000, and are now
engaged in collecting these loans, all of which are secured by crop
liens; that these banks act in that capacity without compensation,
receiving only the actual expenses incurred.
Section 27 of the act provides that farm loan bonds
Page 255 U. S. 198
issued under the provisions of the act by Federal Land Banks or
Joint-Stock Land Banks shall be a lawful investment for all
fiduciary and trust funds, and may be accepted as security for all
public deposits. The bill avers that the defendant Trust Company is
authorized to buy, invest in, and sell government, state, and
municipal and other bonds, but it cannot buy, invest in, or sell
any such bonds, papers, stocks, or securities which are not
authorized to be issued by a valid law or which are not investment
securities, but that nevertheless it is about to invest in farm
loan bonds; that the Trust Company has been induced to direct its
officers to make the investment by reason of its reliance upon the
provisions of the Farm Loan Acts, especially §§ 21, 26 and 27, by
which the farm loan bonds are declared to be instrumentalities of
the government of the United States, and as such, with the income
derived therefrom, are declared to be exempt from federal, state,
municipal, and local taxation, and are further declared to be
lawful investments for all fiduciary and trust funds. The bill
further avers that the acts by which it is attempted to authorize
the bonds are wholly illegal, void, and unconstitutional, and of no
effect, because unauthorized by the Constitution of the United
States.
The bill prays that the acts of Congress authorizing the
creation of the banks, especially §§ 26 and 27 thereof, shall be
adjudged and decreed to be unconstitutional, void, and of no
effect, and that the issuance of the farm loan bonds, and the
taxation exemption feature thereof, shall be adjudged and decreed
to be invalid.
The First Joint-Stock Land Bank of Chicago and the Federal Land
Bank of Wichita, Kansas, were allowed to intervene and became
parties defendant to the suit. The Kansas City Title & Trust
Company filed a motion to dismiss in the nature of a general
demurrer, and, upon hearing, the district court entered a decree
dismissing the bill. From this decree appeal was taken to this
Court.
Page 255 U. S. 199
No objection is made to the federal jurisdiction, either
original or appellate, by the parties to this suit, but that
question will be first examined. The company is authorized to
invest its funds in legal securities only. The attack upon the
proposed investment in the bonds described is because of the
alleged unconstitutionality of the acts of Congress undertaking to
organize the banks and authorize the issue of the bonds. No other
reason is set forth in the bill as a ground of objection to the
proposed investment by the board of directors acting in the
company's behalf. As diversity of citizenship is lacking, the
jurisdiction of the district court depends upon whether the cause
of action set forth arises under the Constitution or laws of the
United States. Judicial Code, § 24.
The general rule is that, where it appears from the bill or
statement of the plaintiff that the right to relief depends upon
the construction or application of the Constitution or laws of the
United States, and that such federal claim is not merely colorable,
and rests upon a reasonable foundation, the district court has
jurisdiction under this provision.
At an early date, considering the grant of constitutional power
to confer jurisdiction upon the federal courts, Chief Justice
Marshall said:
"A case in law or equity consists of the right of the one party
as well as of the other, and may truly be said to arise under the
Constitution or a law of the United States whenever its correct
decision depends upon the construction of either,"
Cohens v.
Virginia, 6 Wheat. 264,
19 U. S. 379,
and again when
"the title or right set up by the party may be defeated by one
construction of the Constitution or law of the United States and
sustained by the opposite construction."
Osborn v. Bank of the United
States, 9 Wheat. 738,
22 U. S. 822.
These definitions were quoted and approved in
Patton v.
Brady, 184 U. S. 608,
184 U. S. 611,
citing
Gold Washing Co. v. Keyes, 96 U. S.
199,
96 U. S. 201;
Tennessee v. Davis, 100 U. S. 257;
White v. Greenhow, 114 U. S. 307;
Railroad Company v. Mississippi, 102 U.
S. 135,
102 U. S.
139.
Page 255 U. S. 200
This characterization of a suit arising under the Constitution
or laws of the United States has been followed in many decisions of
this and other federal courts.
See Macon Grocery Co. v.
Atlantic Coast Line, 215 U. S. 501,
215 U. S.
506-507;
Shulthis v. McDougal, 225
U. S. 569, paragraph 3. The principle was applied in
Brushaber v. Union Pacific Co., 240 U. S.
1, in which a shareholder filed a bill to enjoin the
defendant corporation from complying with the income tax provisions
of the Tariff Act of October 3, 1913. In that case, while there was
diversity of citizenship, a direct appeal to this Court was
sustained because of the constitutional questions raised in the
bill, which had been dismissed by the court below. The repugnancy
of the statute to the Constitution of the United States, as well as
grounds of equitable jurisdiction were set forth in the bill, and
the right to come here on direct appeal was sustained because of
the averments based upon constitutional objections to the act.
Reference was made to
Pollock v. Farmers' Loan & Trust
Co., 157 U. S. 429,
where a similar shareholder's right to sue was maintained, and a
direct appeal to this Court from a decree of the circuit court was
held to be authorized.
In the
Brushaber case, the Chief Justice, speaking for
the Court, said:
"The right to prevent the corporation from returning and paying
the tax was based upon many averments as to the repugnancy of the
statute to the Constitution of the United States, of the peculiar
relation of the corporation to the stockholders and their
particular interests resulting from many of the administrative
provisions of the assailed act, of the confusion, wrong, and
multiplicity of suits and the absence of all means of redress which
would result if the corporation paid the tax and complied with the
act in other respects without protest, as it was alleged it was its
intention to do. To put out of the way a question of jurisdiction,
we at once say that, in view of these averments and
Page 255 U. S. 201
the ruling in
Pollock v. Farmers' Loan & Trust Co.,
157 U. S.
429, sustaining the right of a stockholder to sue to
restrain a corporation under proper averments from voluntarily
paying a tax charged to be unconstitutional on the ground that to
permit such a suit did not violate the prohibitions of § 3224,
Rev.Stats., against enjoining the enforcement of taxes, we are of
opinion that the contention here made that there was no
jurisdiction of the cause, since to entertain it would violate the
provisions of the Revised Statutes referred to, is without merit. .
. ."
"Aside from averments as to citizenship and residence, recitals
as to the provisions of the statute and statements as to the
business of the corporation contained in the first ten paragraphs
of the bill advanced to sustain jurisdiction, the bill alleged
twenty-one constitutional objections specified in that number of
paragraphs or subdivisions. As all the grounds assert a violation
of the Constitution, it follows that, in a wide sense, they all
charge a repugnancy of the statute to the Sixteenth Amendment under
the more immediate sanction of which the statute was adopted."
The jurisdiction of this Court is to be determined upon the
principles laid down in the cases referred to. In the instant case,
the averments of the bill show that the directors were proceeding
to make the investments in view of the act authorizing the bonds
about to be purchased, maintaining that the act authorizing them
was constitutional, and the bonds valid and desirable investments.
The objecting shareholder avers in the bill that the securities
were issued under an unconstitutional law, and hence of no
validity. It is therefore apparent that the controversy concerns
the constitutional validity of an act of Congress which is directly
drawn in question. The decision depends upon the determination of
this issue.
The general allegations as to the interest of the shareholder,
and his right to have an injunction to prevent the purchase of the
alleged unconstitutional securities by misapplication
Page 255 U. S. 202
of the funds of the corporation, gives jurisdiction under the
principles settled in
Pollock v. Trust Company and
Brushaber v. Union Pacific Company, supra. We are
therefore of the opinion that the district court had jurisdiction
under the averments of the bill and that a direct appeal to this
Court upon constitutional grounds is authorized.
We come to examine the questions presented by the attack upon
the constitutionality of the legislation in question. The Federal
Farm Loan Act is too lengthy to set out in full. It is
entitled:
"An act to provide capital for agricultural development, to
create standard forms of investment based upon farm mortgage, to
equalize rates of interest upon farm loans, to furnish a market for
United States bonds, to create government depositaries and
financial agents for the United States, and for other
purposes."
The administration of the act is placed under the direction and
control of a Federal Farm Loan Bureau, established at the seat of
government in the Treasury Department under the general supervision
of the Federal Loan Board, consisting of the Secretary of the
Treasury and four members appointed by the President, by and with
the advice and consent of the Senate. The United States is divided
into twelve districts for the purpose of establishing Federal Land
Banks. Each of the banks must have a subscribed capital of not less
than $750,000, divided into shares of $5.00 each, which may be
subscribed for by any individual, firm or corporation, or by the
government of any state, or of the United States. No dividends
shall be paid on the stock owned by the United States, but all
other stock shall share in dividend distributions without
preference. The Federal Farm Loan Board is to designate five
directors who shall temporarily manage the affairs of each Federal
Land Bank, and who shall prepare an organization certificate,
which, when approved by the Federal Farm Loan Board and filed with
the Farm Loan Commissioner,
Page 255 U. S. 203
shall operate to create the bank a body corporate. The Federal
Farm Loan Board is required to open books of subscription for the
capital stock of each Federal Land Bank, and if, within thirty days
thereafter, any part of the minimum capitalization of $750,000 of
any such bank shall remain unsubscribed, it is made the duty of the
Secretary of the Treasury to subscribe the balance on behalf of the
United States.
The amendment of January 18, 1918, authorizes the Secretary of
the Treasury to purchase bonds issued by Federal Land Banks, and
provides that the temporary organization of any such bank shall be
continued so long as any farm loan bonds shall be held by the
Treasury, and until the subscription to stock in such bank by
National Farm Loan Associations shall equal the amount of the stock
held by the United States government. When these conditions are
complied with, a permanent organization is to take over the
management of the bank, consisting of a board of directors composed
of nine members, three of whom shall be known as district directors
and shall be appointed by the Farm Loan Board, who shall represent
the public interest, six of whom to be known as local directors,
shall be chosen by and be representative of national farm loan
associations.
Federal Land Banks are empowered to invest their funds in the
purchase of qualified first mortgages on farm lands situated within
the Federal Land Bank district within which they are organized or
acting. Loans on farm mortgages are to be made to cooperative
borrowers through the organization of corporations known as
National Farm Loan Associations, by persons desiring to borrow
money on farm mortgage security under the terms of the act. Ten or
more natural persons, who are the owners of or are about to become
the owners of farm land qualified as security for mortgage loans,
and who desire to borrow money on farm mortgage security, may unite
to form a National Farm
Page 255 U. S. 204
Loan Association. The manner of forming these associations, and
the qualifications for membership, are set out in the act.
A loan desired by each such person must be for not more than
$10,000 nor less than $100, and the aggregate of the desired loans
not less than $20,000. The application for loan must be accompanied
by subscriptions to stock of a Federal Land Bank equal to 5% of the
aggregate sum desired on the mortgage loan. Provision is made for
appraisal of the land and report to the Federal Farm Loan Board. No
persons but borrowers on farm loan mortgages shall be members or
shareholders of National Farm Loan Associations.
Shareholders in Farm Loan Associations are made individually
responsible for the debts of the association to the extent of the
amount of the stock owned by them respectively, in addition to the
amount paid in and represented by their shares.
When any National Farm Loan Association shall desire to secure
for any member a loan on first mortgage from the Federal Land Bank
in its district, it must subscribe to the capital stock of the
Federal Land Bank to an amount of five percent of such loan, which
capital stock shall be held by the Federal Land Bank as collateral
security for the payment of the loan, the association shall be paid
any dividends accruing and payable on the capital stock while it is
outstanding. Such stock may, in the discretion of the directors and
with the approval of the Federal Farm Loan Board, be paid off at
par and retired, and shall be so retired upon the full payment of
the mortgage loan. In such event, the National Farm Loan
Association must pay off at par and retire the corresponding shares
of its stock which were issued when the Land Bank stock so retired
was issued, but it is further provided that the capital stock of
the Land Bank shall not be reduced to less than five percent of the
principal of the outstanding farm
Page 255 U. S. 205
loan bonds issued by it. The shares in National Farm Loan
Associations shall be of the par value of $5 each.
At least 25% of that part of the capital of any Federal Land
Bank for which stock is outstanding in the name of National Farm
Loan Associations must be held in quick assets. Not less than 5% of
such capital must be invested in United States government
bonds.
The loans which Federal Land Banks may make upon first mortgages
on farm lands are provided for in § 12 of the act. By § 13, these
banks are empowered, subject to the provisions of the act, to issue
and sell farm loan bonds of the kind described in the act, and to
invest funds in their possession in qualified first mortgages on
farm lands, to receive and to deposit in trust with the Farm Loan
registrar, to be held by him as collateral security for farm loan
bonds, first mortgages upon farm lands, and, with the approval of
the Farm Loan Board, to issue and to sell their bonds secured by
the deposit of first mortgages on qualified farm lands as
collateral in conformity with the provisions of § 18 of the act. By
the amendment of January 18, 1918, the Secretary of the Treasury
was empowered during the years 1918 and 1919 to purchase farm loan
bonds issued by Federal Land Banks to an amount not exceeding
$100,000,000 each year, and any Federal Land Bank was authorized at
any time to repurchase at par and accrued interest, for the purpose
of redemption or resale, any of the bonds so purchased from it and
held in the United States Treasury.
It is also provided that the bonds of any Federal Land Bank so
purchased and held in the Treasury one year after the termination
of the pending war shall, upon thirty days' notice from the
Secretary of the Treasury, be redeemed and repurchased by such bank
at par and accrued interest. By § 15, it is provided that,
whenever, after the act shall have been in effect for one year, it
shall appear to the Federal Farm Loan Board that National Farm
Loan
Page 255 U. S. 206
Associations have not been formed and are not likely to be
formed, in any locality because of peculiar local conditions, the
board may, in its discretion, authorize Federal Land Banks to make
loans on farm lands through agents approved by the board, on the
terms and conditions and subject to the restrictions prescribed in
that section.
The act also authorizes the incorporation of Joint-Stock Land
Banks, with capital provided by private subscription. They are
organized by not less than ten natural persons, and are subject to
the requirements of the provisions of § 4 of the act so far as
applicable. The board of directors shall consist of not less than
five members. Each shareholder shall have the same voting
privileges as the holders of shares in National Banking
Associations, and shall be held individually responsible, equally
and ratably, and not one for another, for all contracts, debts, and
engagements of such bank to the extent of the amount of stock owned
by them at the par value thereof, in addition to the amount paid in
and represented by their shares. The Joint-Stock Land Bank is
authorized to do business when capital stock to the amount of
$250,000 has been subscribed, and one-half paid in cash, the
balance remaining subject to call by the board of directors, the
charter to be issued by the Federal Farm Loan Board. No bonds shall
be issued until the capital stock is entirely paid up. Except as
otherwise provided, Joint-Stock Land Banks shall have the powers of
and be subject to all the restrictions and conditions imposed on
Federal Land Banks by the act, so far as such conditions or
restrictions are applicable.
Federal Land Banks may issue Farm Loan Bonds up to twenty times
their capital and surplus. Joint-Stock Land Banks are limited to
the issue of Farm Loan Bonds not in excess of fifteen times the
amount of their capital and surplus. Joint-Stock Land Banks can
only loan on first mortgages upon land in the state where located,
or in a state
Page 255 U. S. 207
contiguous thereto. No loan on mortgage may be made by any bank
at a rate exceeding 6% per annum exclusive of amortization
payments. Joint-Stock Land Banks shall in no case charge a rate of
interest on farm loans which shall exceed by more than 1% the rate
established by the last series of farm loan bonds issued by them,
which rate shall not exceed 5% per annum.
Provisions for the issue of farm loan bonds secured by first
mortgages on farm lands or United States bonds, as collateral, are
made for Federal Land Banks and Joint-Stock Land Banks; in each
case, the issue is made subject to the approval of the Federal Farm
Loan Board. The farm loan mortgages or United States bonds which
constitute the collateral security for the bonds must be deposited
with the Farm Loan Registrar.
Section 26 of the act provides as follows:
"That every Federal Land Bank and every National Farm Loan
Association, including the capital and reserve or surplus therein
and the income derived therefrom, shall be exempt from federal,
state, municipal, and local taxation, except taxes upon real estate
held, purchased, or taken by said bank or association under the
provisions of section eleven and section thirteen of this act.
First mortgages executed to Federal Land Banks, or to Joint-Stock
Land Banks and farm loan bonds issued under the provisions of this
act shall be deemed and held to be instrumentalities of the
government of the United States, and as such they and the income
derived therefrom shall be exempt from federal, state, municipal,
and local taxation."
"Nothing herein shall prevent the shares in any Joint-Stock Land
Bank from being included in the valuation of the personal property
of the owner or holder of such shares in assessing taxes imposed by
authority of the state within which the bank is located, but such
assessment and taxation shall be in manner and subject to the
conditions and limitations contained in section fifty-two
Page 255 U. S. 208
hundred and nineteen of the Revised Statutes with reference to
the shares of national banking associations."
"Nothing herein shall be construed to exempt the real property
of Federal and Joint-Stock Land Banks and National Farm Loan
Associations from either state, county or municipal taxes to the
same extent, according to its value, as other real property is
taxed."
Since the decision of the great cases of
McCulloch
v. Maryland, 4 Wheat. 316, and
Osborn v.
Bank, 9 Wheat. 738, it is no longer an open
question that Congress may establish banks for national purposes,
only a small part of the capital of which is held by the government
and a majority of the ownership in which is represented by shares
of capital stock privately owned and held, the principal business
of such banks being private banking conducted with the usual
methods of such business. While the express power to create a bank
or incorporate one is not found in the Constitution, the Court,
speaking by Chief Justice Marshall in
McCulloch v.
Maryland, found authority so to do in the broad general powers
conferred by the Constitution upon the Congress to levy and collect
taxes, to borrow money, to regulate commerce, to pay the public
debts, to declare and conduct war, to raise and support armies, and
to provide and maintain a navy, etc. Congress, it was held, had
authority to use such means as were deemed appropriate to exercise
the great powers of the government by virtue of Article I, § 8, cl.
18, of the Constitution, granting to Congress the right to make all
laws necessary and proper to make the grant effectual. In
First
National Bank v. Union Trust Co., 244 U.
S. 416,
244 U. S. 419,
the Chief Justice, speaking for the court, after reviewing
McCulloch v. Maryland and
Osborn v. Bank, and
considering the power given to Congress to pass laws to make the
specific powers granted effectual, said:
"In terms, it was pointed out that this broad authority
Page 255 U. S. 209
was not stereotyped as of any particular time, but endured, thus
furnishing a perpetual and living sanction to the legislative
authority within the limits of a just discretion, enabling it to
take into consideration the changing wants and demands of society
and to adopt provisions appropriate to meet every situation which
it was deemed required to be provided for."
That the formation of the bank was required in the judgment of
the Congress for the fiscal operations of the government was a
principal consideration upon which Chief Justice Marshall rested
the authority to create the bank, and for that purpose being an
appropriate measure in the judgment of the Congress, it was held
not to be within the authority of the Court to question the
conclusion reached by the legislative branch of the government.
Upon the authority of
McCulloch v. Maryland and
Osborn v. Bank, the national banking system was
established, and upon them this Court has rested the
constitutionality of the legislation establishing such banks.
Farmers' & Mechanics' National Bank v. Dearing,
91 U. S. 29,
91 U. S.
33-34.
Congress has seen fit in § 6 of the act to make both classes of
banks, when designated for that purpose by the Secretary of the
Treasury, depositaries of public money, except receipts from
customs, under regulations to be prescribed by the Secretary of the
Treasury, and has authorized their employment as financial agents
of the government, and the banks are required to perform such
reasonable duties as depositaries of public moneys and financial
agents as may be required of them. The Secretary of the Treasury
shall require of the Federal Land Banks and the Joint-Stock Land
Banks thus designated satisfactory security, by the deposit of
United States bonds or otherwise, for the safekeeping and prompt
payment of the public money deposited with them, and
Page 255 U. S. 210
for the faithful performance of their duties as the financial
agents of the government.
Section 6 also provides that no government funds deposited under
the provisions of the section shall be invested in mortgage loans
or farm loan bonds.
It is said that the power to designate these banks as such
depositaries has not been exercised by the government, and that the
Federal Land Banks have acted as federal agents only in the case of
loans of money for seed purposes made in the summer of 1918 to
which we have already referred. But the existence of the power
under the Constitution is not determined by the extent of the
exercise of the authority conferred under it. Congress declared it
necessary to create these fiscal agencies and to make them
authorized depositaries of public money. Its power to do so is no
longer open to question.
But, it is urged, the attempt to create these federal agencies
and to make these banks fiscal agents and public depositaries of
the government is but a pretext. But nothing is better settled by
the decisions of this Court than that, when Congress acts within
the limits of its constitutional authority, it is not the province
of the judicial branch of the government to question its motives.
Veazie Bank v.
Fenno, 8 Wall. 533,
75 U. S. 541;
McCray v. United States, 195 U. S. 27;
Flint v. Stone-Tracy Co., 220 U.
S. 107,
220 U. S. 147,
220 U. S. 153,
220 U. S. 156,
and cases cited.
That Congress has seen fit, in making of these banks fiscal
agencies and depositaries of public moneys, to grant to them
banking powers of a limited character in no wise detracts from the
authority of Congress to use them for the governmental purposes
named if it sees fit to do so. A bank may be organized with or
without the authority to issue currency. It may be authorized to
receive deposits in only a limited way. Speaking generally, a bank
is a moneyed institution to facilitate the borrowing, lending and
caring for money. But, whether
Page 255 U. S. 211
technically banks or not, these organizations may serve the
governmental purposes declared by Congress in their creation.
Furthermore, these institutions are organized to serve as a market
for United States Bonds. Not less than 5% of the capital of the
Federal Land Banks, for which stock is outstanding to Farm Loan
Associations is required to be invested in United States bonds.
Both kinds of banks are empowered to buy and sell United States
bonds.
In
First National Bank v. Trust Co., supra, this Court
sustained the power of Congress to enable a national bank to
transact business, which, by itself considered, might be beyond the
power of Congress to authorize. In that case, it was held to be
within the authority of Congress to permit national banks to
exercise, by permission of the Federal Reserve Board, when not in
contravention of local law, the office of trustee, executor,
administrator, or registrar of stocks or bonds.
We therefore conclude that the creation of these banks, and the
grant of authority to them to act for the government as
depositaries of public moneys and purchasers of government bonds,
brings them within the creative power of Congress although they may
be intended, in connection with other privileges and duties, to
facilitate the making of loans upon farm security at low rates of
interest. This does not destroy the validity on these enactments
any more than the general banking powers destroyed the authority of
Congress to create the United States Bank, or the authority given
to national banks to carry on additional activities destroyed the
authority of Congress to create those institutions.
In the brief filed upon reargument, counsel for the appellant
seem to admit the power of Congress to appropriate money for the
direct purposes named, and in that brief they say: "Tax exemption
is the real issue sought to be settled here." Deciding, as we do,
that these institutions
Page 255 U. S. 212
have been created by Congress within the exercise of its
legitimate authority, we think the power to make the securities
here involved tax exempt necessarily follows. This principle was
settled in
McCulloch v. Maryland and
Osborn v. Bank,
supra.
That the federal government can, if it sees fit to do so, exempt
such securities from taxation seems obvious upon the clearest
principles. But it is said to be an invasion of state authority to
extend the tax exemption so as to restrain the power of the state.
Of a similar contention made in
McCulloch v. Maryland,
Chief Justice Marshall uttered his often quoted statement:
"That the power to tax involves the power to destroy; that the
power to destroy may defeat and render useless the power to create;
that there is a plain repugnance, in conferring on one government a
power to control the constitutional measures of another, which
other, with respect to those very measures, is declared to be
supreme over that which exerts the control, are propositions not to
be denied."
4 Wheat.
17 U. S.
431.
The same principle has been recognized in the National Bank
cases, declaring the power of the states to tax the property and
franchises of national banks only to the extent authorized by the
laws of Congress.
Owensboro Nat. Bank v. Owensboro,
173 U. S. 664,
involved the validity of a franchise tax in Kentucky on national
banks. In that case, this Court declared (
173 U. S.
668-669) that the states were wholly without power to
levy any tax directly or indirectly upon national banks, their
property, assets, or franchises except so far as the permissive
legislation of Congress allowed such taxation, and the Court
declared that the right granted to tax the real estate of such
banks, and the shares in the names of the shareholders, constituted
the extent of the permission given by Congress, and any tax beyond
these was declared to be void.
Page 255 U. S. 213
In
Farmers' Bank v. Minnesota, 232 U.
S. 516, this Court held that a state may not tax bonds
issued by the municipality of a territory; that to tax such bonds
as property in the hands of the holder is, in the last analysis, an
imposition upon the right of a municipality to issue them.
The exercise of such taxing power by the states might be so used
as to hamper and destroy the exercise of authority conferred by
Congress, and this justifies the exemption. If the states can tax
these bonds, they may destroy the means provided for obtaining the
necessary funds for the future operation of the banks. With the
wisdom and policy of this legislation we have nothing to do. Ours
is only the function of ascertaining whether Congress, in the
creation of the banks and in exempting these securities from
taxation, federal and state, has acted within the limits of its
constitutional authority. For the reasons stated, we think the
contention of the government, and of the appellees, that these
banks are constitutionally organized and the securities here
involved legally exempted from taxation, must be sustained.
It follows that the decree of the district court is
Affirmed.
MR. JUSTICE BRANDEIS took no part in the consideration or
decision of this case.
MR. JUSTICE HOLMES, dissenting.
No doubt it is desirable that the question raised in this case
should be set at rest, but that can be done by the Courts of the
United States only within the limits of the jurisdiction conferred
upon them by the Constitution and the laws of the United States. As
this suit was brought by a citizen of Missouri against a Missouri
corporation, the
Page 255 U. S. 214
single ground upon which the jurisdiction of the district court
can be maintained is that the suit "arises under the Constitution
or laws of the United States" within the meaning of § 24 of the
Judicial Code. I am of opinion that this case does not arise in
that way, and therefore that the bill should have been
dismissed.
It is evident that the cause of action arises not under any law
of the United States, but wholly under Missouri law. The defendant
is a Missouri corporation, and the right claimed is that of a
stockholder to prevent the directors from doing an act -- that is,
making an investment -- alleged to be contrary to their duty. But
the scope of their duty depends upon the charter of their
corporation and other laws of Missouri. If those laws had
authorized the investment in terms, the plaintiff would have had no
case, and this seems to me to make manifest what I am unable to
deem even debatable -- that, as I have said, the cause of action
arises wholly under Missouri law. If the Missouri law authorizes or
forbids the investment according to the determination of this Court
upon a point under the Constitution or Acts of Congress, still that
point is material only because the Missouri law saw fit to make it
so. The whole foundation of the duty is Missouri law, which, at its
sole will, incorporated the other law as it might incorporate a
document. The other law or document depends for its relevance and
effect not on its own force, but upon the law that took it up, so I
repeat once more -- the cause of action arises wholly from the law
of the state.
But it seems to me that a suit cannot be said to arise under any
other law than that which creates the cause of action. It may be
enough that the law relied upon creates a part of the cause of
action, although not the whole, as held in
Osborn v.
Bank of United States, 9 Wheat. 738,
22 U. S.
819-823, which perhaps is all that is meant by the less
guarded expressions in
Cohens v.
Virginia, 6 Wheat. 264,
19 U. S. 379. I
am content to assume this to be so, although the
Osborn
case
Page 255 U. S. 215
has been criticized and regretted. But the law must create at
least a part of the cause of action by its own force, for it is the
suit, not a question in the suit, that must arise under the law of
the United States. The mere adoption by a state law of a United
States law as a criterion or test, when the law of the United
States has no force
ex proprio vigore, does not cause a
case under the state law to be also a case under the law of the
United States, and so it has been decided by this Court again and
again.
Miller v. Swann, 150 U. S. 132,
150 U. S.
136-137;
Louisville & Nashville R. Co. v.
Western Union Telegraph Co., 237 U. S. 300,
237 U. S. 303.
See also Shoshone Mining Co. v. Rutter, 177 U.
S. 505,
177 U. S.
508-509.
I find nothing contrary to my views in
Brushaber v. Union
Pacific R. Co., 240 U. S. 1,
240 U. S. 10. It
seems to me plain that the objection that I am considering was not
before the mind of the Court or the subject of any of its
observations, if open. I am confirmed, in my view, of that case by
the fact that, in the next volume of reports is a decision, reached
not without discussion and with but a single dissent, that "a suit
arises under the law that creates the cause of action." That was
the
ratio decidendi of
American Wells Works Co. v.
Layne & Bowler Co., 241 U. S. 257,
241 U. S. 260.
I know of no decisions to the contrary, and see no reason for
overruling it now.
MR. JUSTICE McREYNOLDS concurs in this dissent. In view of our
opinion that this Court has no jurisdiction, we express no judgment
on the merits.