A national bank may pledge assets to secure deposits of
government funds made by governmental agencies even though the
deposits may not be "public money" within § 45 of the National Bank
Act. P.
309 U. S.
523.
The power is to be implied in accordance with traditional
government policy and is supported by administrative practice.
69 App.D.C. 268; 100 F.2d 678, reversed.
Certiorari, 306 U.S. 626, to review the affirmance of judgments
recovered by the receiver of a national bank against certain public
agencies and officials.
Page 309 U. S. 518
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
The question before us is whether a national bank may pledge
assets to secure deposits of funds made by governmental agencies,
even though they may not be "public money" within the scope of § 45
of the National Banking Act, 13 Stat. 99, 113, 12 U.S.C. § 90.
The deposits in question were made with the Commercial National
Bank by three separate governmental agencies -- by the Inland
Waterways Corporation and the
Page 309 U. S. 519
United States Shipping Board Merchant Fleet Corporation,
[
Footnote 1] and by the
Secretary of War on behalf of the Panama Canal Zone. After the
bank's insolvency, the present suit was instituted by the receiver,
respondent here, for the recovery of the pledged assets or their
proceeds to the extent of the amount in excess of the dividends
paid to the general depositors. The District Court granted
respondent's motion to strike out portions of the petitioners'
answers asserting the validity of the pledges. The petitioners
stood their ground, and decrees
pro confesso for the
respondent followed. The Court of Appeals for the District of
Columbia affirmed,
Inland Waterways Corp. v. Hardee, 69
App.D.C. 268, 100 F.2d 678, and we granted certiorari, 306 U.S.
626, because the controversy raised matters of importance in the
administration of the National Banking Act.
At the threshold, we are met by two recent decisions of this
Court,
Texas & Pacific Ry. v. Pottorff, 291 U.
S. 245, and
Marion v. Sneeden, 291 U.
S. 262. In view of the thorough consideration which
these two cases received and the added weight which they derive
from the authority, in the field of banking, of Mr. Justice
Brandeis, the writer of the opinions, we start with full acceptance
of what they decided.
The
Pottorff case held that a national bank was without
authority to pledge its assets as security for private deposits. In
the absence of specific authority to make such pledges, the general
policy of the Act and principles of sound banking practice were
drawn upon to establish the prohibition. To allow the withdrawal of
assets of the bank from general availability would impair the
bank's liquidity -- its ability to meet unexpected demands by
depositors -- and thereby restrict the national banking system as a
reliable instrument of national finance. In the
Sneeden
case, the banking standards relied upon in
Page 309 U. S. 520
the
Pottorff case were applied likewise to deny to
national banks power to pledge their assets as security for
deposits by state and local governmental agencies except where
permission is given by the Act of June 25, 1930, 46 Stat. 809, 12
U.S.C. § 90. [
Footnote 2]
But the function of national banks as depositaries of federal
funds was not before the Court in the
Pottorff and
Sneeden cases, and the power of the banks in relation to
such funds could not have been decided there. That power is the
exact issue here. The solution of this problem, however, must be
found by application of those standards for judgment which were
decisive in the former cases. In other words, the history and
purposes of the statute and the traditional policy of the National
Government in utilizing the national banks as fiscal agencies must
give meaning to the silence of the Act.
Congress has necessarily been concerned from the beginning to
provide appropriate safeguards for government funds. One of the
motives in the establishment of the first Bank of the United States
was its availability as a safe depositary for such funds. They were
kept there until the expiration of that Bank's charter in 1811.
Thereafter, and until the second Bank of the United States was
chartered, government monies were kept in state banks. These
deposits were without security, and, as a consequence, severe
losses followed the financial dislocation which came with the War
of 1812. This experience led the Government to exact security, and
losses became negligible. Phillips, Methods of Keeping the
Page 309 U. S. 521
Public Monies of the United States, pp. 620; H.Rep. No. 358, 21
Cong., 1st Sess., Vol. 3, p. 12; IV McMaster, History of the the
United States, p. 295
et seq.; III American State Papers,
Finance, p. 11. The second Bank of the United States, established
partly to serve as a Government depositary, kept most of the
federal funds until their withdrawal in 1833 by Secretary Taney.
But, as a condition to their deposit in various state banks after
1833, Taney, acting upon the earlier experience of the Treasury
under Secretaries Gallatin and Crawford, exacted appropriate
security. [
Footnote 3] By the
Act of June 23, 1836, 5 Stat. 52, Congress translated Treasury
practice into legislative policy. It thereby became the Secretary's
duty, whenever wisdom dictated, to require collateral for
Government funds. As a result, security was demanded of almost all
the depositaries. Phillips,
op cit., p. 63. The panic of
1837 brought another modification. Government monies were held by
the local collectors and by the Treasury itself, and a little later
deposited in the new Sub-Treasury. But, in 1841, the old method of
deposit in state banks was resumed under the practice which had
been introduced in 1833. Exec.Doc. No. 123, 27th Cong., 2d Sess.,
p. 2; Phillips,
op cit., p. 113. This arrangement -- that
is, deposits secured by collateral -- continued until the
Sub-Treasury Act of 1846, 9 Stat. 59, led to the withdrawal of
Government funds from private banks. The sub-treasury system
persisted until the establishment of the modern national banking
system.
Page 309 U. S. 522
The policy of securing Government deposits thus antedates the
National Banking Act. It was the practical response to disastrous
experience. It began without any statutory authorization, and was
continued both with and without specific Congressional sanction.
Long practice and Congressional approval lodged in the Secretary of
the Treasury authority to take appropriate measures to safeguard
the nation against loss of its funds. The integrity of Government
monies was naturally considered an object of great national
importance, the attainment of which properly belonged to those
entrusted with their disposition.
It is against this background that the National Banking Act of
1864, 13 Stat. 99, must be projected, intended as it was to provide
facilities for the deposit of Government funds. Congress was alive
to the Treasury's experience with deposits, secured and unsecured,
during the preceding decades, together with the policy which had
evolved from that experience. Cong.Globe, 37th Cong., 3d Sess., Pt.
I, pp. 843-845. The banking system which Congress thus established
embodied a blend of governmental and private purposes.
See
Mercantile Bank v. New York, 121 U. S. 138,
121 U. S. 154;
Davis, The Origin of the National Banking System, S.Doc. No. 582,
61st Cong., 2d Sess.
By § 45 of the Act, Congress specifically commanded the
Secretary of the Treasury to exact security for "public monies"
deposited by him in national banks. R.S. § 5153, 12 U.S.C. § 90. We
read this as an exaction of duty from the Secretary as to monies
subject to his control,
see Cook County Nat. Bank v. United
States, 107 U. S. 445,
107 U. S. 449,
and not as a limitation upon the power of the bank to give security
when it may be required by other Government officers and agencies
charged with the custody of federal funds. Placing § 45 in the
setting of its history, we do not think it should be read in a
niggardly
Page 309 U. S. 523
spirit, as though it expressed a gingerly departure from public
policy. On the contrary, it is a manifestation of historic national
practice, which is to be given scope consonant with the reason for
its development.
Compare Keifer & Keifer v. Reconstruction
Finance Corp., 306 U. S. 381. By
a series of specific statutory commands, Congress has recognized
the power of national banks to give security for deposits of a
governmental nature by laying upon various agencies, charged with
the custody of such funds, a duty to exact collateral.
See
§ 61 of the Bankruptcy Act, 30 Stat. 562; § 9 of the Postal Savings
Act, 36 Stat. 816, and Acts relating to Insolvent Bank Funds, 39
Stat. 121; Porto Rican Funds, 39 Stat. 951; Government Obligations,
40 Stat. 291, and Indian Monies, 40 Stat. 591. With one exception,
all these special statutory requirements pertain to funds held by
the Government for the benefit of others. It is difficult to
suppose that what Congress has commanded with respect to funds held
by its agencies in an immediate fiduciary capacity it would deem a
violation of law if done with respect to funds beneficially owned
by the United States itself. What may be inimical to the private
aspects of the national banking system, and therefore
ultra
vires, has no such relevance to the public aspect of national
banks and to the enforcement of the public interest by those
charged with primary responsibility for its guardianship.
So far as the powers of a national bank to pledge its assets are
concerned, the form which Government takes -- whether it appears as
the Secretary of the Treasury, the Secretary of War, or the Inland
Waterways Corporation -- is wholly immaterial. The motives which
lead Government to clothe its activities in corporate form are
entirely unrelated to the problem of safeguarding governmental
deposits, and therefore irrelevant to the issue of
ultra
vires. Compare Skinner & Eddy
Corp. v. McCarl,
Page 309 U. S. 524
275 U. S. 1,
275 U. S. 8.
[
Footnote 4] The true nature of
these modern devices for carrying out governmental functions is
recognized in other legal relations when realities become decisive.
Compare Clallam County v. United States, 263 U.
S. 341;
Emergency Fleet Corp. v. Western Union,
275 U. S. 415. The
funds of these corporations are, for all practical purposes,
Government funds; the losses, if losses there be, are the
Government's losses.
Compare United States Grain Corp. v.
Phillips, 261 U. S. 106,
261 U. S. 113.
See Seventeenth Annual Report, U.S. Shipping Board, 1933,
pp. 88-89, for summary of losses borne by Treasury on behalf of the
Merchant Fleet Corporation,
and compare Annual Report,
Inland Waterways Corporation, 1936, pp. 16-22.
The policy underlying Congressional legislation and reflected in
the history of governmental deposits is confirmed by the explicit
recognition of that official in whom is centered oversight of the
administration of the National Banking Act. S.Doc. 175, 73d Cong.,
2d Sess. The Comptroller of the Currency, to be sure, must himself
move within the orbit of the National Banking Act. Illegality
cannot attain legitimacy through practice. But, when legality
itself is in dispute -- when Congress has spoken, at best, with
ambiguous silence -- a long continued practice pursued with the
knowledge of the Comptroller of the Currency is more persuasive
than considerations of abstract conflict between such a practice
and purposes attributed to Congress. More than half a dozen
agencies have thought it their duty to safeguard deposits in nearly
a hundred banks by transactions similar to those before us. This
practice had the approval of the Comptroller because he believed it
within the scope of the National
Page 309 U. S. 525
Banking Act. Even constitutional power, when the text is
doubtful, may be established by usage.
See United States v.
Midwest Oil Co., 236 U. S. 459,
236 U. S. 473.
When dealing with such necessarily argumentative concepts as those
of which the law of
ultra vires is so largely composed,
the responsible and pervasive practice of public officers bent on
safeguarding the public interests ought to carry the day even were
the issue more in doubt than we believe it to be.
Deeming the challenged pledges to have been validly made, we
think petitioners were entitled to judgment. It is therefore
unnecessary for us to consider the other arguments here urged in
their behalf. The judgments below should be
Reversed.
MR. JUSTICE REED and MR. JUSTICE MURPHY took no part in the
disposition of this case.
[
Footnote 1]
Both these corporations are wholly owned by the United
States.
[
Footnote 2]
Lewis v. Fidelity & Deposit Co., 292 U.
S. 559, involved merely the application of the
Sneeden doctrine to the special circumstances presented by
Georgia legislation in the case of national banks situated in that
State. The
Lewis case, like the
Pottorff and
Sneeden cases, did not bring into issue the power of
national banks with reference to federal deposits. Of course, the
Lewis case neither professed to enlarge, nor could it, the
scope of the
Pottorff and
Sneeden decisions.
[
Footnote 3]
These conditions, incorporated in contracts between the Treasury
and the banks, required collateral to be pledged for all deposits
in excess of one-half the bank's paid-in capital. In addition, the
Treasury reserved the right to demand additional security whenever
it was thought prudent. Exec.Doc. No. 2, 23rd Cong., 1st Sess.,
Vol. 1, p. 36; Phillips,
op cit., pp. 53-55; Girard, The
Independent Treasury, p. 17.
[
Footnote 4]
See McDairmid, Government Corporations and Federal
Funds, 31 Am.Pol.Science Rev. 1095; Federal Corporations and
Corporate Agencies, 16 Harv.Bus.Rev. 436. The corporations, of
course, perform "governmental" functions.
Graves v. New York ex
rel. O'Keefe, 306 U. S. 466.
MR. JUSTICE ROBERTS dissenting.
The court below followed and applied the decisions of this court
in
Texas & Pacific Ry. Co. v. Pottorff, 291 U.
S. 245,
Marion v. Sneeden, 291 U.
S. 262, and
Lewis v. Fidelity & Deposit
Co., 292 U. S. 559.
It is true that those cases presented the question whether
national banks are authorized to give security for private deposits
and those of state agencies. But the basis of each of the decisions
was that national banks are without power to pledge assets as
security for any deposits, in the absence of express legislative
sanction. Paradoxically, the opinion of the court, while
recognizing the authority, in the field of banking, of Mr. Justice
Brandeis, who announced the opinions in all three cases for a
unanimous court, rejects the fundamental principle of the opinions.
Whereas in the
Lewis case Mr. Justice Brandeis announced
in plain terms that, in the absence of express authorization, a
national bank has "no power
Page 309 U. S. 526
to make any pledge to secure deposits except the federal
deposits specifically provided for by acts of Congress," the
opinion of the court spells out such power despite "the silence of
the act."
In the
Texas & Pacific and
Marion cases,
the opinions point out that, whenever Congress has intended that
security should be taken for deposits of government funds, specific
authority has been granted. [
Footnote
2/1] That what was thus said by Mr. Justice Brandeis was deemed
necessary to the decisions and was the deliberate conclusion of the
court is evidenced by his statement in
Lewis v. Fidelity
Co. at p.
292 U. S.
564:
"In
Texas & Pacific Ry. Co. v. Pottorff,
291 U. S.
245, and
Marion v. Sneeden, 291 U. S.
262, . . . we held that a national bank had, prior to
the Act of June 25, 1930, no power to make any pledge to secure
deposits except the federal deposits specifically provided for by
acts of Congress."
Now it is said that these cases incorrectly state the governing
principle. That principle is now said to be that Congress cannot
have intended to limit the authority of banks to give security in
cases where administrative officers in charge of government funds
have deemed it appropriate that security should be given. In other
words, despite the withholding of any grant of power to
institutions whose powers are only those granted, [
Footnote 2/2] a power is spelled out.
The attempt to buttress the implication of the power from the
fact that federal agencies have heretofore exacted security, and
that the Comptroller of the Currency has been of the view that such
pledges were not
Page 309 U. S. 527
in violation of the Act, is answered by what was said in
Marion v. Sneeden, (p.
291 U. S.
269):
"comptrollers of the currency knew that this was being done, and
they assumed that the banks had the power so to do. But the
assumption was erroneous."
I think that as the Court of Appeals followed the principle
rightly applied in the decisions of this court its judgment should
be affirmed.
THE CHIEF JUSTICE and MR. JUSTICE McREYNOLDS join in this
opinion.
[
Footnote 2/1]
See Texas & Pacific Ry. Co. v. Pottorff, p.
291 U. S. 257,
Note 11;
Marion v. Sneeden, p.
291 U. S.
268.
[
Footnote 2/2]
"The measure of their powers is the statutory grant, and powers
not conferred by Congress are denied."
Texas & Pacific Ry.
v. Pottorff, p.
291 U. S.
253.