1. Under the national banking laws, a national bank has no power
to pledge its assets to secure a deposit of public money of a
state, or of a subdivision of a state, unless it is located in a
state in which state banks are so authorized. Act of June 25, 1930.
P.
291 U. S.
268.
2. The State of Illinois has not conferred upon its banks the
power to pledge assets to secure deposits of political subdivisions
of the state. P.
291 U. S.
269.
3. Where a national bank, before becoming insolvent, made an
ultra vires pledge of bonds to secure a deposit, its
receiver was entitled to recover them unconditionally for the
benefit of the general creditors of the bank.
Texas &
Pacific Ry. Co. v. Pottorff, ante, p.
291 U. S. 245. P.
291 U. S. 272.
64 F.2d 721 affirmed.
Certiorari, 290 U.S. 617, to review a decree which reversed a
decree of the District Court, 58 F.2d 341, dismissing a bill
brought by the receiver of an insolvent national bank to obtain
possession of bonds which the bank had pledged as collateral
security for a deposit of public moneys by a city.
Page 291 U. S. 266
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
The Act of June 25, 1930, c. 604, 46 Stat. 809, amends § 45 of
the National Bank Act of 1864 [
Footnote 1] by adding thereto the following:
"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."
The controlling question is whether Illinois has conferred upon
banks organized under its laws power to pledge assets as security
for deposits of public moneys of political subdivisions of the
state.
In 1931, the city of Marion, Illinois, was operating under the
"Commission Form of Government." Cahill's 1931 Rev.Stat. Chap. 24,
Pars. 323-384. That statute
Page 291 U. S. 267
required the treasurer of a city to give a bond, and to:
"make his daily deposits of such sums of money as shall be
received by him from all sources of revenue whatsoever, to his
credit as treasurer of said city . . . in one or more banks . . .
to be selected by the president of said council, the commissioner
of accounts and finance, and the treasurer of such city . . . or by
any two of them, and any such bank, before any such deposit is made
therein . . . shall also execute a good [and] sufficient bond with
sureties to be approved by the president of the said council, and
conditioned that such bank will safely keep and account for, and
pay over said money. . . ."
Par. 374.
Carroll, having been appointed treasurer of Marion, applied to
the Fidelity & Casualty Company of New York to become surety on
his official bond. Although Marion has a population of 9,000, it
was then without a bank. The Fidelity Company agreed to become
surety on Carroll's bond provided he would get elsewhere a bank
which would give satisfactory collateral security for the repayment
of his deposits of the public moneys. The City National Bank of
Herring agreed to do this. Thereafter, it delivered to the
Continental Illinois National Bank & Trust Company of Chicago,
as escrow agent, negotiable bonds of the par value of $23,000,
under an agreement so to secure the city's deposit; the Fidelity
Company executed Carroll's official bond, and he made his initial
deposit in the Herring bank of the city's moneys. That bank was
then solvent. On October 31, 1931, it failed and a receiver was
appointed. At the time of the failure, the city's deposit was
$16,430.00.
Ben Sneeden, the receiver, brought, in the federal court for
eastern Illinois, this suit against the city, its treasurer, the
surety, and the escrow agent. Setting forth the above facts, he
prayed that the pledge be declared
ultra vires and void;
that the bonds be delivered to him as receiver, and that,
meanwhile, the defendants be enjoined from disposing
Page 291 U. S. 268
of them. The District Court dismissed the bill. 58 F.2d 341. Its
decree was reversed by the Circuit Court of Appeals, one judge
dissenting. 64 F.2d 721. This Court granted certiorari.
The petitioners contend that the pledge is valid because the Act
of 1864, as originally enacted, conferred upon national banks, as a
necessary incident of the business of deposit banking, the power to
pledge assets to secure deposits, and that the amendment of June
25, 1930, did not limit the power so originally conferred. They
contend further that, even if the 1930 amendment be construed as
denying to a national bank power to make such a pledge unless it is
located in a state which grants the power to its state banks, the
pledge here challenged is valid because, in Illinois, state banks
have the power to pledge assets as security for deposits of public
moneys of any political subdivision of the state. The petitioners
contend also that, even if the pledge was without authority in law,
the bill was properly dismissed by the District Court because the
bank could not have required return of the bonds without repaying
the deposit, and that it would be inequitable to permit the
receiver to do so. We think these contentions are unsound.
First. For the reasons stated in
Texas &
Pacific Ry. Co. v. Pottorff, ante, p.
291 U. S. 245, we
are of opinion that the Act of 1864 did not confer the power to
pledge assets to secure and public deposits except those made under
§ 45 by the Secretary of the Treasury of the United states. The
power conferred by each later act, except that of 1930, was limited
to securing specific federal funds. [
Footnote 2] A national bank could not legally pledge
assets to secure funds of a state, or of a political subdivision
thereof, prior to the 1930 amendment, and since then it
Page 291 U. S. 269
can do so legally only if it is located in a state in which
state banks are so authorized. In some states, national banks had,
prior to the 1930 amendment, frequently pledged assets to secure
public deposits of the state or of a political subdivision thereof;
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. The contention that such power is
generally necessary in the business of deposit banking has not been
sustained.
Second. Banks organized under the laws of Illinois do
not appear to possess the power of pledging assets to secure the
deposit of public moneys of a political subdivision of the state.
Illinois corporations have only such powers as are conferred by
statute either expressly or by implication, and only those powers
are conferred by implication which are reasonably necessary to
carry out the powers expressly granted,
People v. Chicago Gas
Trust Co., 130 Ill. 268, 22 N.E. 798;
Calumet Dock Co. v.
Conkling, 273 Ill. 318, 112 N.E. 982. No Illinois statute
confers in express terms upon banks organized under its laws either
the general power to pledge assets to secure a deposit or the
general power to pledge assets to secure public deposits. A statute
confers in terms the power to pledge assets to secure deposits of
the states, but there is none which so confers the power to pledge
assets to secure public deposits of a political subdivision of the
state. [
Footnote 3] No
Page 291 U. S. 270
reported decision rendered by any Illinois court since the
enactment of the General Banking Law of 1887 holds that the alleged
power exists as one incidental to the business of deposit banking.
Nor is there any evidence that, in Illinois, such power is
necessary in the conduct of the business of deposit banking.
Ward v. Johnson, 95 Ill. 215, 217, decided in 1880, is
relied upon as authority for the proposition that Illinois banks
have power to pledge assets to secure deposits. That case arose
under the charter of "The Merchants, Farmers and Mechanics' Savings
Bank," which was granted long before the General Banking Act of
1887. The pledge involved therein was given to secure a transaction
which appears to have been a loan, as distinguished from a deposit.
The transaction dealt with private funds. The statement was there
made that banks have authority to pledge assets to secure deposits.
If that statement expresses the law of the state, Illinois banks
have had for more than half a century power to pledge their assets
to secure private deposits as well as deposits of public moneys of
its political subdivisions. But the case has never been referred to
since on this point in any reported opinion of any Illinois court.
[
Footnote 4] During that
period, many state
Page 291 U. S. 271
banks have failed, [
Footnote
5] and there must have been much litigation arising therefrom,
but no exertion of the alleged power on the part of any state bank
has been shown.
An authoritative determination of the question whether Illinois
banks have power to pledge assets to secure the deposit of public
moneys of a political subdivision of the state can be given only by
its highest court. The District Court discussed, but did not
decide, that question. Its decision dismissing the bill was rested
on the ground that the National Bank Act, as enacted in 1864, had
conferred the general power to pledge assets to secure deposits,
and that the power so granted had not been lessened by the later
legislation. The majority of the Circuit Court of Appeals, being of
opinion that national banks lacked the power to pledge assets to
secure deposits (except so far as conferred by the 1930 amendment),
necessarily passed upon the applicable Illinois law. After careful
consideration, it reached the conclusion that Illinois had not
conferred upon its banks the power to pledge assets to secure
deposits of political subdivisions of the state. Its reasons set
forth fully and persuasively, and the decisions of the courts of
other states
Page 291 U. S. 272
involving similar questions are fully reviewed. We cannot say
that the Circuit Court erred in the conclusion reached.
Third. Since the Herring bank was without power to make
the pledge of bonds here in question, its receiver is entitled to
recover them unconditionally in order that they may be administered
for the benefit of the general creditors of the bank.
See Texas
& Pacific Railway Co. v. Pottorff, ante, p.
291 U. S. 245.
Affirmed.
[
Footnote 1]
Act of June 3, 1864, c. 106, § 8, 13 Stat. 101; R.S. § 5136; 12
U.S.C. § 24, Seventh.
[
Footnote 2]
See Texas & Pacific Ry. v. Pottorff, ante, p.
291 U. S. 245,
note 11.
[
Footnote 3]
In the Banking Act of 1919, Cahill's 1931 Ill.Rev.Stats. c. 16a,
Par. 1, which, reenacting the law of 1887, provides for the
organization of banks "for the purpose of . . . deposit," there is
complete silence on this subject. The only references in any
Illinois statute concerning the pledge of assets to secure a
deposit are the following:
(a) Section 10 of the state Depositary Act of 1919 (Cahill's
1931 Ill.Rev.Stat. . 130, Par. 29) provides:
"No moneys in the State Treasury shall be deposited in any bank
approved as a depositary under the terms of this Act until such
bank shall have deposited securities with the State Treasurer equal
in market value to the amount of moneys deposited."
(b) Section 11 of the Banking Act as amended in 1929 (Cahill's
1931 Ill.Rev.Stat., c. 16a, Par. 11) provides that a receiver of a
closed bank:
"Shall deposit daily all moneys collected by him in any state or
national bank selected by the auditor, who shall require of such
depository satisfactory securities or satisfactory surety bond for
the safekeeping and prompt payment of the money so deposited."
[
Footnote 4]
Courts of other states have referred to it as authority for the
proposition that banks have the power to pledge assets to secure
deposits.
See Williams v. Earhart, 34 Ariz. 565, 273 P.
728;
First Amer. Bank & T. Co. v. Palm Beach, 96 Fla.
247, 117 So. 900;
United states Fidelity Co. v. Bassfield,
148 Miss. 109, 114 So. 26;
Melaven v. Hunker, 35 N.M. 408,
299 P. 1075;
Page Trust Co. v. Rose, 192 N.C. 673, 135
S.E. 795;
Cameron v. Christy, 286 Pa. 405, 133 A. 551;
Griggsby v. People's Bank, 158 Tenn. 182, 11 S.W.2d 673;
Pixton v. Perry, 72 Utah, 129, 269 P. 144.
[
Footnote 5]
The auditor of public accounts, in his annual statement on the
condition of state banks (p. 42) gives (Dec. 31, 1932) 1,866 as the
aggregate number of the banks existing on December 6, 1888, and
organized since. Of these, 26 had charters granted prior to
December 6, 1888, and 1840 were organized thereafter under the
general law. The number of banks in operation December 31, 1932,
was 742. The number then in receivership was 444. Between December
31, 1932, and March 1, 1933, 32 more state banks failed. Federal
Reserve Bulletin, 1933, pp. 105, 201.