1. Concurrent findings of two lower courts accepted here, to the
effect that withdrawals of deposits from a national bank were made
when there was reason to believe that the bank would be unable to
repay its depositors in due course, and with intent to prefer. P.
309 U. S.
2. National banks have no implied power to pledge assets as
security for deposits. P. 309 U. S.
3. Rescission by a national bank of an unauthorized pledge
securing deposits is not conditioned upon return of the amounts
deposited. P. 309 U. S.
4. The Act of June 25, 1930, permits national banking
associations to give security for deposits of public money of a
State or any political subdivision thereof "of the same kind as is
authorized by law of the State in which such an association is
located in the case of other banking institutions in the State."
that such pledges are not "authorized" by the law of
a State (New York) which forbids them as ultra vires,
though it conditions rescission upon repayment of deposits made in
reliance upon them. P. 309 U. S.
106 F.2d 69 affirmed.
Certiorari, 308 U.S. 547, to review the affirmance of recoveries
by a receiver of a national bank of deposits withdrawn from it
while insolvent. The case was tried to the court without a jury.
23 F. Supp.
Page 309 U. S. 593
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
By these companion suits, begun during 1936, the Receiver of The
First National Bank and Trust Company of Yonkers ("The Bank"),
seeks to recover fifty percentum of deposits withdrawn by
petitioners from the association while insolvent. Thus, it is said,
they obtained unlawful preferences within the meaning of the
National Banking Act. [Footnote
] From corporate assets, general creditors have been paid
dividends amounting to fifty percentum of their claims -- forty,
December, 1933; ten, November, 1937.
Page 309 U. S. 594
The Bank was located in New York. In each cause, the points of
law and fact are substantially alike. It will suffice to consider
them as presented by the Record in No. 542.
Petitioner's deposits with The Bank, March 4, 1933, amounted to
$277,000. To secure this and other smaller public ones, bonds of
the association totalling $535,000 were in pledge.
The Governor of New York proclaimed Saturday, March 4th and
Monday, March 6th, 1933, bank holidays. Later, the President and
the Governor extended such holidays through March 9th. The Bank was
not opened for unrestricted business after March 3rd. A
Conservator, appointed March 20th, remained in control until
January 23, 1934, when a Receiver took charge.
Between March 9th and 20th, 1933, petitioner withdrew deposits
amounting to $89,000; between March 20th and 28th, $67,000. On the
latter day, under direction of the Conservator, petitioner's
remaining deposits were paid, and The Bank retook the pledged
A jury having been waived, the cause was tried to the court upon
pleadings and evidence. Among other things, it found:
"The pledge of assets by The Bank to secure the deposits was
"The Bank was insolvent March 6th, 1933, and as of that day the
rights of creditors became fixed."
"The payments of deposits to petitioner were not allowed by any
Presidential Proclamation or Executive Order. They were made
voluntarily under mistake of law by an officer of the United
States, and are recoverable. Also, they were made with intent to
give petitioner preference over other creditors."
"No statute of New York confers upon state banks general power
to pledge assets to secure deposits. They have no such power under
the common law of New York. "
Page 309 U. S. 595
Judgment went for the Receiver for fifty percentum of the
amounts withdrawn by the petitioner after March 9, 1933, with
The Circuit Court of Appeals affirmed this action, 106 F.2d 69.
It held all withdrawals after March 9th occurred when the facts
indicated The Bank would be unable to pay depositors in due course,
and that adequate evidence supported the trial court's finding of
an intent to prefer. We find no reason to disregard these findings
by two courts, and accept them as correct.
The Circuit Court of Appeals further held national banks have no
implied power to pledge assets to secure deposits; that, here, The
Bank was not empowered so to do by the Act June 25, 1930; [Footnote 2
] that the pledge might
Page 309 U. S. 596
be rescinded without return by the Receiver of the sums
withdrawn. With these conclusions we agree.
Unless empowered by the Act June 25, 1930, or concerning federal
funds (not here claimed) as in Inland Waterways Corp. v. Young,
p. 309 U. S. 517
national banks may not secure deposits by pledge of assets.
Texas & Pacific Ry. v. Pottorff, 291 U.
, 291 U. S.
-255, and Marion v. Sneeden, 291 U.
, authoritatively interpreted the National Banking
Act and approved the view that, under this, a national bank
possesses no inherent power to secure deposits, public or private,
by pledging assets, and that such a pledge is both ultra
and contrary to public policy. "The measure of their
powers is the statutory grant, and powers not conferred by Congress
are denied." Also, that in case of insolvency, assets so pledged
may be reclaimed without payment of the deposits.
"To permit the pledge would be inconsistent with many provisions
of the National Bank Act which are designed to ensure, in case of
disaster, uniformity in the treatment of depositors and a ratable
distribution of assets."
The results in these causes was not influenced by consideration
of local law.
We cannot accept the suggestion of counsel for petitioner that
the cited opinions merely declare a pledge of assets ultra
and leave the consequences to be determined by the law
of the state where it occurs. This view is not in harmony with the
language of the opinions, nor with the general purposes of the
National Banking Act there pointed out.
Under the common law as interpreted in New York, pledge of
securities by a state bank to secure deposits is "contrary to law
and beyond the power and authority
Page 309 U. S. 597
vested in the officers." Although forbidden, such a pledge will
not be set aside unless deposits made in reliance upon it are first
repaid. State Bank of Commerce v. Stone,
261 N.Y. 175,
187, 188, 184 N.E. 750; City of Mount Vernon v. Mount Vernon
270 N.Y. 400, 406, 1 N.E.2d 825.
The Act of June 25, 1930, permits national banks to give
security for public deposits "of the same kind as is authorized by
the law of the State in which such association is located in the
case of other banking institutions in the State." Counsel maintain
that, within the fair intendment of this, state banks in New York
are "authorized" to pledge bonds to secure public deposits. They
rely upon the rulings of the local courts, in the causes last
cited, concerning conditions which must be met before an ultra
act will be set aside.
They submit that corporations have capacity to accept the result
of their actions. "That the capacity to accept the consequences of
an ultra vires
act is itself a power." Further, that
"giving' a power is but another word for `authorizing' its
exercise." Hence, the argument seems to run, as a state bank may
hold the fruit of a pledge until return of the thing pledged,
therefore it is "authorized by law" to make a pledge thus
In this procession, obviously, different meanings are attributed
to the word "power," and it is confused with "capacity" and
"authority." In one sense, every corporation has "power" to do
wrong, also "capacity" to suffer the consequences of wrongdoing.
But no corporation has authority to violate an inhibition or go
beyond the limits of its charter. Authorization to do a forbidden
thing cannot be inferred from capacity to accept the prescribed
consequences. The law forbade local institutions to make pledges
such as the one here in question.
The challenged judgments must be
* Together with No. 543, Condon, Mayor, et al. v. Downey,
No. 544, Condon, Mayor, et al. v. Downey,
and No. 545, Yonkers, Trustee v. Downey,
also on writs of certiorari, 308 U.S. 547, to the
Circuit Court of Appeals for the Second Circuit.
Title 12 U.S.C.:
"Sec. 91. All transfers 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 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, and no attachment,
injunction or execution, shall be issued against such association
or its property before final judgment in any suit, action, or
proceeding, in any State, county, or municipal court."
R.S. § 5242.
"Sec. 194. 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
R.S. § 5236.
Act June 25, 1930, c. 604, 46 Stat. 809:
"All national banking associations, designated for that purpose
by the Secretary of the Treasury, shall be depositaries of public
money, under such regulations as may be prescribed by the
Secretary, and they may also be employed as financial agents of the
Government, and they shall perform all such reasonable duties, as
depositaries of public money and financial agents of the
Government, as may be required of them. The Secretary of the
Treasury shall require the associations thus designated to give
satisfactory security, by the deposit of United States bonds and
otherwise, for the safekeeping and prompt payment of the public
money deposited with them, and for the faithful performance of
their duties as financial agents of the Government:
That the Secretary shall, on or before the 1st
of January of each year, make a public statement of the securities
required during that year for such deposits. And every association
so designated as receiver or depositary of the public money shall
take and receive at par all of the national currency bills, by
whatever association issued, which have been paid into the
Government for internal revenue, or for loans or stocks:
That the Secretary of the Treasury shall
distribute the deposits herein provided for, as far as practicable,
equitably between the different States and sections."
"Any association may, upon the deposit with it of public money
of a State or any political subdivision thereof, give security for
the safekeeping and prompt payment of the money so deposited, of
the same kind as is authorized by the law of the State in which
such association is located in the case of other banking
institutions in the State."