Davis v. Elmira Savings Bank/Opinion of the Court
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, wherever 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 efficiency of these agencies of the federal government to discharge the duties for the performance of which they were created. These principles are axiomatic, and are sanctioned by the repeated adjudications of this court.

The question which the record presents is, does the law of the state of New York on which the savings bank relies conflict with the law of the United States upon which the comptroller of the currency rests to sustain his refusal? If there be no conflict, the two laws can coexist, and be harmoniously enforced; but, if the conflict arises, the law of New York is, from the nature of things, inoperative and void as against the dominant authority of the federal statute. In examining the question it is well to put in juxtaposition a summary statement of the federal and state statutes. The first directs the comptroller 'from time to time, after full provision has been made for the refunding to the United States of any deficiency in redeeming the notes of such association, * * * to make a ratable dividend of the money paid over to him * * * on all such claims as may have been proved.' The second-the state law-directs 'the trustee, assignee or receiver' of 'any bank or trust company which shall become insolvent' to apply the assets received by him 'in the first place to the payment in full of any sum or sums of money deposited therewith by any savings bank, but not to an amount exceeding that authorized' by law.

It is clear that these two statutes cover exactly the same subject-matter. Both relate to insolvent banks; both ordain that the right of preference on the one side and the duty of ratable distribution on the other shall only result from insolvency; both cover the assets of such banks coming, after insolvency, into the hands of the officer or person authorized to administer them. It is equally certain that both statutes relate to the same duty on the part of the officer of the insolvent bank. The one directs the representative to make a ratable distribution; the other requires, if necessary, the application of the entire assets to payment in full, by preference and priority over all others of a particular and selected class of creditors therein named. We have, therefore, on the one hand, the statute of the United States, directing that the assets of an insolvent national bank shall be distributed by the comptroller of the currency in the manner therein pointed out; that is, ratably among the creditors. We have, on the other hand, the statute of the state of New York giving a contrary command. To hold that the state statute is operative is to decide that it overrides the plain text of the act of congress. This results not only from the fact that the two statutes, as we have said, cover the same subject-matter, and relate to the same duty, but also because there is an absolute repugnancy between their provisions; that is, between the ratable distribution, commanded by congress, and the preferential distribution directed by the law of the state of New York.

The conflict between the spirit and purpose of the two statutes is as pronounced as that which exists between their unambiguous letter. It cannot be doubted that one of the objects of the national bank system was to secure, in the event of insolvency, a just and equal distribution of the assets of national banks among all unsecured creditors, and to prevent such banks from creating preferences in contemplation of insolvency. This public aim in favor of all the citizens of every state of the Union is manifested by the entire context of the national bank act.

In Cook County Nat. Bank v. U.S., 107 U.S. 448, 2 Sup. Ct. 561, speaking through Mr. Justice Field, the court said: 'We consider that act as constituting by itself a complete system for the establishment and government of national banks. * * * Everything essential to the formation of the banks, the issue, security, and redemption of their notes, the winding up of the institutions, and the distribution of their assets, are fully provided for.'

In National Bank v. Colby, 21 Wall. 613, 614, the court said:

'As to the general creditors, the act evidently intends to secure equality among them in the division of the proceeds of the property of the bank. * * * The fifty-second section, further to secure this equality, declares that all transfers by an insolvent bank of its property of every kind, and all payments of money made after the commission of an act of insolvency, or in contemplation thereof, with a view to prevent the application of its assets in the manner prescribed by the act, or 'with the view to the preference of one creditor over another, except in the payment of its circulating notes,' shall be utterly null and void. There is in these provisions a clear manifestation of a design on the part of congress-First, to secure the government for the payment of the notes, not only by requiring, in advance of their issue, a deposit of bonds of the United States, and by giving to the government a first lien for any deficiency that may arise on all the assets subsequently acquired by the insolvent bank; and, second, to secure the assets of the bank for ratable distribution among its general creditors. This design would be defeated if a preference in the application of the assets could be obtained by adversary proceedings.'

Nearly 25 years ago (in September, 1871) the secretary of the treasury submitted to the attorney general of the United States the question of whether the ratable division provided for in the act of congress deprived the United States, as a creditor of an insolvent national bank, of the power to avail of the preference given by the statute, which provides that the United States shall be preferred out of the effects of an insolvent debtor. 1 Stat. 515. The opinion of the attorney general was that the ratable distribution required, when read in connection with other sections of the national bank law, deprived the United States of all preference, except that given for the payment of the notes issued by such banks. 13 Op. Atty. Gen. 528.

This construction has been the rule administered by the comptrollers of the currency in the liquidation of national banks from that date, and was directly sustained in Cook County Nat. Bank v. U.S., supra, where Mr. Justice Field, as the organ of the court, said: 'The sections directing ratable distribution provide for the distribution of the entire assets of the bank, giving no preference to any claim, except for moneys to reimburse the United States for advances in redeeming the notes.' After holding that the United States could not exercise as a creditor the preference in its favor created by a general law of the United States, the conclusion is thus summed up: 'These provisions could not be carried out if the United States were entitled to priority in the payment of a demand not arising from advances to redeem the circulating notes. The balance, after reimbursement of the advances, could not be distributed as directed by ratable dividends to all holders of claims; that is, to all creditors.' Thus, although for many years in the administration of the act, under a construction given by the attorney general of the United States, sanctioned by the decisions of this court, the ratable distribution provided by the act of congress has been deemed so important as to repeal, in so far as it prevented ratable distribution, the general preference given the United States by its own statute, the contention now advanced maintains that this ratable distribution is of so little consequence that it can be overthrown, and rendered nothing worth, by the provisions of a general insolvent statute of the state of New York. In other words, that the statute of the state of New York operating upon the national bank law is more efficacious than would be a statute of the United States.

Nor is it an answer to say that the ratio decidendi of the ruling in Cook County Nat. Bank v. U.S. was the fact that the statute provided that the United States should take security for the debts to become due her by a national bank. In the case presented by the secretary of the treasury to the attorney general for consideration the security in favor of the United States was inadequate, and therefore the question which arose was the right of the United States to collect an unsecured claim in disregard of the rule of ratable division. And such was the state of facts contemplated by the opinion of this court in the Cook County Case. This makes it evident that the controlling thought which gave rise to the interpretation sanctioned by this court was the fact that to have allowed the preference in favor of the United States ordained by one of its statutes would have destroyed the rule of ratable distribution established as a protection to and for the benefit of all the creditors of a national bank.

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, the proposition is advanced that the deposit here considered of the savings bank with a national bank imported a contract to pay the claim of the former with the preference allowed by the New York statute. But this overlooks the plain terms of the New York law. That statute does not profess to deal with the bank and its relations as a going concern; it wholly and exclusively undertakes to regulate the distribution of the assets after insolvency. Insolvency, and insolvency alone, is made the criterion from which the preference is to arise. Indeed, the statute in terms directs its mandate to discharge the claim with preference, not to the bank eo nomine, but to the assignee, trustee, or agent charged with administering its effects after insolvency has become flagrant. The claim of contract therefore conflicts with the very terms of the statute upon which it is based, and there is, therefore, no room for implying a contract. If such implication, however, could be invoked, it must rest on the contention that, inasmuch as the state statute gave a savings bank making a deposit the right to be preferred in case of insolvency, therefore the general state law must be presumed to have entered into the contract of the parties; and hence also engender the presumption that in case of insolvency such deposit should be preferred. If the law of the state is to be read into the contract, then, of course, the law of congress should also be read into it. We should thus have to consider all the deposits as made with an implication that they were subject to the federal law, and hence the conflict between the two laws would become evident, and the federal law, being paramount, would prevail.

The New York statute does not profess, however, to change the legal relation which results from a deposit made in a bank. The deposit of money by a customer with his banker is one of loan, with a superadded obligation that the money is to be paid when demanded by a check. Scammon v. Kimball, 92 U.S. 362; Marine Bank v. Fulton Bank, 2 Wall. 252. The argument, therefore, of implied contract, not only is contrary to the letter of the New York statute, but also destroys the very essence of the legal relation resulting from the dealings between the parties. Nor is the repugnancy between the state statute and the act of congress removed by the contention that, inasmuch as ratable distribution applies only to that which belongs to the bank, therefore there is no conflict between the state statute and the act of congress. This argument can only mean that the effect of the state statute is to make the savings bank, in the event of insolvency of the national bank, the owner of a sum equivalent in amount to the sum of money which was by it deposited. But to say this aggravates the conflict between the state law and the act of congress. If the state statute is to be read as saying that whenever the persons named therein deposit money with a national bank they shall be treated as the owners of an equal sum of the assets of the bank when it becomes insolvent, then the state statute precludes in a most flagrant way the possibility of the ratable distribution ordered by the act of congress. True it is that where, by state law, a lien is made to result from a particular contract, that lien, when its existence is not incompatible with the act of congress, will be enforced. True, also, where a particular contract is made by a national bank, which, from its nature, gives rise at the time of the contract to a claim on a specific fund, such claim, if not violative of the act of congress, will be allowed. To that effect are the authorities relied on.

Thus it was said by this court in Scott v. Armstrong, 146 U.S. 499, 13 Sup. Ct. 148, when dealing with the question of set-off: 'The requirement as to ratable dividends is to make them from what belongs to the bank, and that which at the time of the insolvency belongs of right to the debtor does not belong to the bank.' So in the case of San Diego County v. California Nat. Bank, 52 Fed. 59, it was decided that the funds received by a national bank, which the party depositing had no authority of law to deposit, were not part of the assets to be 'ratably distributed,' but must be returned in full to the rightful owner. And again, in Massey v. Fisher, 62 Fed. 958, which was a case where an indorser paid the amount of a note to a bank, and took a receipt, but before he took the note from the bank the bank failed, the substance of the decision was that the money did not belong to the bank, but was held by it in trust; and of course in that case it was not part of its assets.

None of these cases are apposite here. On the contrary, by an affirmative, pregnant with a negative, they deny the preference which is now advanced. This clearly results from the context of the opinions in these cases. They all reason to demonstrate that from the particular facts stated the relation was not that of an ordinary creditor, but was one giving rise to a specific lien or right resulting from the contract, and which was in being before the insolvency took place. Here there is no such condition; there is simply an ordinary creditor asserting the right to a preference arising from an insolvent law. This distinction is well illustrated by Scott v. Armstrong, supra, cited and relied on in the opinion of the court below. In that case the facts as to the set-off, which was allowed, are thus stated: 'The credits between the banks were reciprocal, and were parts of the same transaction, in which each gave credit to the other on the faith of the simultaneous credit, and the principle applicable to mutual credits applied.'

The difference between Scott v. Armstrong and the present case is this: There this court was called on to determine whether a claim which had been extinguished by operation of law prior to the insolvency was still due after the insolvency, but here the question is whether a claim existing at the time of the insolvency, and up to that date unsecured, shall, by the operation of an insolvent statute, be converted, after the insolvency, into a preferred claim, to be paid by preference over all other creditors. This distinction between the two questions was clearly stated in Scott v. Armstrong, where, speaking through Mr. Chief Justice Fuller, this court said: 'The state of case where the claim sought to be offset is acquired after the act of insolvency is far otherwise, for the right of the parties become fixed as of that time, and to sustain such a transfer would defeat the objects of these provisions [the act of congress]. The transaction must necessarily be held to have been entered into with the intention to produce its natural result,-the preventing of the application of the insolvent assets in the manner prescribed. Bank v. Taylor, 56 Pa. St. 14; Cotel v. Brown, 12 Gray, 233.'

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 general objects and purposes of congressional legislation. Much was said in argument as to the public policy embodied in the law of the state of New York, and the wisdom of upholding it. Our function is judicial, and not legislative. Did we, however, consider motives of public policy, we should not be unmindful of the wise safeguard in favor of all the people of the United States resulting from the provision which secures to every one dealing with a national bank a ratable distribution of the assets thereof, thereby stimulating confidence and uniformity of treatment.

Judgment reversed, and case remanded to the court of appeals of the state of New York, with instructions to remit the cause to the court in which it originated with directions to dismiss the action. 

Notes