McClellan v. Chipman Traders' National Bank/Opinion of the Court
Although these two cases were brought here by separate writs of error, they depend on the same facts, and involve the same legal question, and were passed upon by the court below in one opinion. 159 Mass. 363, 34 N. E. 379. We shall therefore consider them together.

The only federal question for our consideration is whether there was conflict between the statutes of the United States and the provisions of the general law of the state of Massachusetts referred to, and heretofore fully set out. Two propositions have been long since settled by the decisions of this court:

First. National banks 'are subject to the laws of the state, and are governed in their daily course of business far more by the laws of the state than of the nation. All their contracts are governed and construed by state laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on state law. It is only when the state law incapacitates the banks from discharging their duties to the government that it becomes unconstitutional.' National Bank v. Com., 9 Wall. 362.

Second. '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, whenever 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 efficiencies of these agencies of the federal government to discharge the duties for the performance of which they were created.' Davis v. Bank, 161 U.S. 283, 16 Sup. Ct. 502.

These two propositions, which are distinct, yet harmonious, practically contain a rule and an exception,-the rule being the operation of general state laws upon the dealings and contracts of national banks; the exception being the cessation of the operation of such laws whenever they expressly conflict with the laws of the United States, or frustrate the purpose for which the national banks were created, or impair their efficiency to discharge the duties imposed upon them by the law of the United States. The provisions of the statutes of the Unites States upon which the plaintiffs in error rely are as follows:

'The national banking association may purchase, hold and convey real estate for the following purposes, and for no others:

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'Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted.

'Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings.'

Rev. St. § 5137.

The argument is that, as this statute permits national banks to take real estate for given purposes, therefore the Massachusetts law, which forbids a transfer of property, with a view to a preference, in case of insolvency, where the transferee has reasonable cause to believe that the transferror is insolvent or in contemplation of insolvency, in no way controls the contracts or dealings of a national bank. But this position denies the general rule just referred to, and amounts to asserting that in every case where a national bank is empowered to make a contract such contract is not subject to the state law. In the case in hand there is no express conflict between the grant of power by the United States to the bank to take real estate for previous debts and the provisions of the Massachusetts law, which, although allowing, as a general rule, the taking of real estate as a security for an antecedent debt, provides that it cannot be done under particular and exceptional circumstances. Nor is there anything in the statutes of the state of Massachusetts, here considered, which in any way impairs the efficiency of national banks, or frustrates the purpose for which they were created. No function of such banks is destroyed or hampered by allowing the banks to exercise the power to take real estate, provided only they do so under the same conditions and restrictions to which all the other citizens of the state are subjected, one of which limitations arises from the provisions of the state law which, in case of insolvency, seeks to forbid preferences between creditors. Of course, in the broadest sense, any limitation by a state on the making of contracts is a restraint upon the power of a national bank within the state to make such contracts; but the question which we determine is whether it is such a regulation as violates the act of congress. As well might it be contended that any contract made by a national bank within a state in violation of the state laws on the subject of minority or coverture was valid because such state laws were in conflict with the act of congress, or impaired the power of the bank to perform its functions. Indeed, reduced to its last analysis, the position here assumed by the plaintiffs in error amounts to the assertion that national banks, in virtue of the act of congress, are entirely removed, as to all their contracts, from any and every control by the state law. The argument that the concession of a right on the part of a state to forbid the taking of real estate by a national bank for an antecedent debt, under any circumstances, implies the existence of a power in the state to forbid such taking in all cases, begs the question, and amounts simply to a restatement of the proposition already answered. As long since settled in the cases already referred to, the purpose and object of congress in enacting the national bank law was to leave such banks, as to their contracts in general, under the operation of the state law, and thereby invest them as federal agencies with local strength, while at the same time preserving them from undue state interference wherever congress, within the limits of its constitutional authority, has expressly so directed, or wherever such state interference frustrates the lawful purpose of congress, or impairs the efficiency of the banks to discharge the duties imposed upon them by the law of the United States.

It is said that section 98 of the Massachusetts statute is in conflict with the statutes of the United States in so far as it provides that, 'If such sale, assignment, transfer or conveyance is not made in the usual and ordinary course of business of the debtor, that fact shall be prima facie evidence of such cause of belief'; that is, the belief on the part of the creditor of the insolvency of the debtor by whom the transaction was made. The reasoning is thakt, as the United States law allows the taking by a bank of real estate for an antecedent debt, and the state statute makes such taking of real estate prima facie evidence of a reasonable belief on the part of the bank of the insolvency of the debtor from whom the real estate is so taken, therefore the state law violates the national bank law, since it attributes to the doing of the act which the national bank law authorizes, a presumption which virtually annuls the contract unless proof be made to the contrary. But this view gives to the words 'ordinary course of business' in the state statute a strained and unreasonable construction. The state statute does not provide that the mere fact that a security is taken for an antecedent debt renders the contract one not in the actual course of the debtor's business, thereby engendering the presumption of knowledge on the part of the creditor, but affixes such presumption only to cases where the particular nature of the dealings between the parties is such as to make the contract not one in the actual course of business, from which fact the statutory presumption arises. However, this objection does not arise on the record before us, since the supreme court of Massachusetts held that the effect of the charge of the trial court was substantially to instruct the jury that, before the plaintiff in the entry suit could recover, he must satisfy the jury by a preponderance of evidence that Hall, at the time of the conveyance, was insolvent.

The claim that the security vested in the bank by the conveyance of the land is taken away from it in violation of the United States law, because, under the Massachusetts law, a contract by a debtor giving a fraudulent preference to one creditor over another is voidable, and not void, is without merit. This contention concedes that, if the state law rendered the transaction void, there would be a valid exercise of state authority. But the power to do the greater necessarily carries with it the right to do the lesser. Nor is there anything in the opinion of this court in Davis v. Bank, supra, which supports the argument of the plaintiffs in error. There the conflict between the state and the federal law was found to be express and irreconcilable, bringing that case, therefore, under the exception to the general rule. The opinion carefully confined the ruling there made to such a case, so as to render it inapplicable in a case like the one now before it. It said:

'It is certain that, in so far 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.'

And the whole opinion was qualified by this language:

'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 object and purposes of congressional legislation.'

Finding no conflict between the special power conferred by congress upon national banks to take real estate for certain purposes and the general and undiscriminating law of the state of Massachusetts subjecting the taking of real estate to certain restrictions, in order to prevent preferences in case of insolvency, we conclude that the judgments of the supreme court of the state of Massachusetts were right, and they are, therefore, in both cases affirmed. 

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