*2
SPARKS,
Before
ALSCHULER
District
Judges,
LINDLEY,
Circuit
Judge.
stating
(after
SPARKS,
Judge
Circuit
above).
the facts as
questions presented
(1)
are:
Wheth-
er the
within the
securities was
powers
valid;
Bank
and therefore
assuming
lack
(2)
to be invalid for
power,
recover
whether the receiver
pledged.
the securities so
country
courts
are not in ac-
cord as to
national or state
whether
pledge their
as
for de-
posits
money.
di-
private
This
versity
has arisen
reason of the
contrariety
statutes,
difference of state
applying
views in
the Federal
economic
formulating
policies.
statute and in
state
powers
National
banks have
given by
as are
statute. Their
pow
applicable
which
ers
be
1864,
fore us
found in the Act
are to be
par. 8,
101;
amended,
7,
106,13
clause
e.
Stat.
5136,
seventh,
R.
clause
§S.
USCA §
and are
follows:
directors,
“To
exercise
its board of
duly
agents, subject to
authorized officers or
law,
nec-
potoers
all such incidental
as shall be
essary
carry
banicing;
on
the business of
negotiating promissory
by discounting and
drafts,
exchange,
notes,
bills of
and other
debt; by receiving deposits;
evidences
* * *
(Our italics.)
.”
Act
amеnded
of June
Under the
.
c.
Stat.
USCA
public moneys
depositories
relates
Government,
pro
it is
agents
financial
that:
vided
“Any
may, upon
association
money
of a
State or
thereof, give
political subdivision
safe-keeping
prompt payment
deposited, of
the same kind as
'by the
is authorized
law the State in which
association is located
the ease of oth-
banking
institutions
State.”
er
Ferrell
Hay,
Hosea V.
and John
both of
Banking
did not
The National
Act
Marion,
appellant.
Ill., for
pledge a
expressly give
bank's
if it
Meyer,
were there
Mayer,
Carl
Richard
F.
and David
granted
implied
virtue of an
Rosenthal,
Chicago, Ill.,
Pope
all of
C. E.
such inci
power contained in the clause “all
Driemeyer,
Louis, Ill.,
II. F.
East
both
St.
postal
as to
§
depositories,
Acts of
U. S.
bute of
lon
Ins. Co.
form 308; United States v. State
Bank of
national hanks in the
granted by that
thought already existed under
ute.
debts
kind of
incidentally recognized
city
ferred to. This
tained
right
money
state in
hanks relative
utes
cure, by pledge
thereof
enactment,
prompt
indirectly pertinent only
upon
S. Ct.
sive of the
eys
clude
controversy
did
power to national
amended Act
1864 it seems
Appellant, however,
to
land hank
state
course
one
receiving
dental
[1]
[1]
192;
USCA
As
United
USCA
The Federal
Those
the business of
deposited
of
powers relating
grant
depositories
253,
of national banks to
that in
service
as
due
Michigan
as
511,
powers
of a state
because
Congress did not intend to
which such hank located. The 1930
intend
receivership
§
as is authorized
relative
payment
§
deposit
v. Johnson
States
sovereignty but
government.
North
intention of
well
Congress.
332;
enactments, however, are not deci-
deposits;
43 Ct.
deposits, provides for
39 Stat.
question
70 L. Ed.
therefore,
to a
making
additional
funds,
enacting
operating
S.
to
as
as to Indian
bonds,
to
state banks. Hence
Carolina,
each
to
courts
Trust
state
of their
oí
June
land bank and
government
create additional
priority in
construction of the law of
moneys
shall he
position cannot be
40 Stat.
moneys,
Congress
39 Stat.
of certain
the
public moneys,
295,
land
Shipyards Corp. (C.
contends
40 Stat.
hanking;
national
United States
before
of
treasurer
Congress
to its own banks to se-
respect
25, 1930,
Co.,
924;
narrows the
under the commission
respective
powers to
67 Ed.
the
political
received
assets, public mon-
6
authority,
depends upon
moneys,
39 Stat.
as
USOA
pledge their
* ”
necessary
to
safe-keeping
271
L.
Pet.
statutes
power
us,
consistently
has assumed
acts,
Liberty
joint
the law of the
is not an attri-
they
that those stat
mentioned, but
give
hanks, and
Oklahoma,
39 USCA
a former stat
supra. Since
of an Illinois
U. S.
which
1?*
29,
from the sale
J? 701;
payment
USCA
passing
121,
joint stock
subdivision shall
36 Slat.
deposits in
stock banks
except the
638;
USCA
power for
the same
which it
Congress
8
they
national
Stat.
we con
if
[12]
present
Mutual
236,
enlarge
funds.1
L. Ed.
grants
main
*3
assets here
§
§
State
carry
USOA
Mel-
hear Tlie fact that Federal
hold organized
any,
261
162;
759;
the has held
771.
re
46
C.
of
it had loaned
had received as
as a
the bank was
rate
ly
hands of a trustee for
suant
far as
ing a new name
vides in effect that national hanks-in Illinois
powers as the laws of
right
ists
those powers
or a new
holding
N.
319; Calumet, etc., Dock.
ly recognized
the only
ted
them. Those
to
273
ple Chicago
or
jurisdiction.
of
express statutory power
curity
posits by pledge
cided in
curity
stances relative to
answer the
granted by the charter
57 A. L. R.
814. In this
by implication оut
A.)
from
Stale.
States Oil
created an “investment
within the
carry
Illinois to
implied,
E.
Ward
ease
expressly granted
appellees
to
general banking
it must be
Ill.
basis,
controverted.
not he
is authorized
thereto
798,
F.(2d)
Illinois
prevail
ten
that such
318,
done
out those of the former class. Peo
1880,
Federal
otherwise,
agency;
the bank to
deposits.
deposits;
must be conceded that Illinois has
under a
other
record
Corp. (C.
8 R.L. A.
other
per
mortgage
848. We
and the latter class is limited to
Johnson,
112
original corporate power.
which are
receiving
In that
such a
by creating
respect
money,
powers may
is relied
752;
it must
Gas Trust
hank
corporations
by implication.
to branch
security from
segregated
cent.
corporations.
hanking'
N.
statute heret
implied
it was done merely giv
discloses, gave
of their assets unless that
special
national
and that
After it had
United
E.
instant case are
thereupon
procedure
now before
business for some time
know no
banks are no different
C.
notes
95 Ill.
statutes have
497,
Using
annual interest at the
that state have
upon
982,
reasonably
to receive
A.)
department.”
Co.,
institutiоns in that
guaranty
a new
given
right,
purpose,
of
charter
law
be either
Co.
17
States v. Middle
L. R.
hanks,
have
principle
215,
express power
the hank as se
18 F.(2d)
130 Ill.
those whom
hank had been
pertinent
business clear
Am. St.
issued
of Illinois in
placed
exists
v. Conkling,
If therefore
power
by the State
appellees
which loans
and if it ex
corporation
theory
ns,
state
engaged
trust
certain
for the se
a ease de
A.
necessary
which,
the hank
their de
does not
deposits.
implied
because
permit
express
268,
1917B,
in the
is not
arises
given
fund
Rep.
Pur
This
pro
that;
in-
in
22
as
It is
guaran-
first
using
which it
obvious that
vestment certificates
just
two
per
quoted
sentences
dis
rate of 7.3
Court was
teed
interest at
annual
certificates, cussing
corporation
quarterly.
to re
eent,
These
payable
exchangeable
deposit.
ceive
either
loan or
transfer, were
after sale or
last
hands,
quotation
sentence of the
refers
course
certificates in the trustee’s
like
currency,
powers
assign
the bank’s
were redeemable in
mortgage negotiable instruments which it is
presentation,
of the funds
order
out
might
take,
necessаry
trustee,
authorized
whenever it is
or which
hands of
and proper
incident 'to the conduct
collection
next come to his hands
sup
business. The
pledged for the
Melntire Case cited in
*4
port of the last
proposition
an Illinois
redemption
purchasing of these
thereof. The
all,
merely
decision which
held
open
including the
insurance
alike to
certificates was
corporation
power
general de-
the
to take a note and
depositors
bank. Some
the
negotiate
to
init
the
certain of the
transaction of its ordi
purchased
bank
positors of the
nary
question pre
business.
they paid
trans-
There was no
eertifieates,
by
for which
preference
policy
sented
to
gen-
relative
the
corresponding ferring a
depositors,
holders
department,
or
and no bank was in
to the investment
deposits
eral
controversy.
terested
In the
certificates of investment
Planters’
purchased
Others
cited,
which
Bank Case
had never been de-
was also
the Court
not then and
who were
Mississippi
held
in-
which
un
bank became
statute
made it
bank. The
positors of the
any
lawful fоr
within
question
the
bank
that state to
solvent,
the
arose whether
by
transfer
endorsement or
assigned
trustee
held
otherwise
the
note, bill receivable, or other
protection
of the certificate
evidence
primarily for
debt,
payment
unconstitutional. That
cited as
for
of de-
ease
holders, or were available
authority
opinion
depositors
of Chief
Mar
generally. The court
Justice
mands of
Robertson,
shall in United
States v.
U.
was valid and that the
held that
S.
(5 Pet.)
Ed.
by
primarily
L.
which case
securities were held
trustee
holders,
authority
it was assumed
citation
without
protection
for
of the certificate
many
the United States had a
se
has
cited
That decision
been
other
for a
jurisdietions
cured
funds.
In the
holding that Illinois state
Case,
counsel,
Robertson
Court and
gen-
pledge their assets to secure
construing
question
bond which
the entire
but we think that
eral
Case,
deposits
bank
nor decided
the Ward
neither raised
officer, ignored any question
customs
of its
enumerating
express powers of the
After
possible
although
invalidity,
power
to re-
corporation, which includes
very strong
constituted the basis
dis
(at
money
deposit,
ceive
on
the court said
opinion
Baldwin,
senting
Mr. Justice
page 237):
which he called
that the
attention
fact
express powers
“In
addition
these
no
was neither raised
counsel nor
P°int
corporations pos-
doubt that
can be no
tieed
Court. The fact
implied
sess, also,
power to borrow mon-
right United
be se
tbat the
States to
ey.
Banking,
4;
Morse Banks and
Plant-
as
eured
funds was
(U.
Sharp,
S.)
ers’ Bank
6 How.
323 [12
counsel,
sumed
the court and
inwas
b5r
Leavitt,
447]; Curtis
L. Ed.
N.
52-Y.
probability
of Congress
due to the Act
53;
Vires,
(Seward’s
on Ultra
Brice
Ed.
(chapter 20,
§
March
1 Stat.
209).
§191),
force,
31 USCA
then in
not, therefore,
important
“It will
i’-
priority of
established
the United
holders,
determine whether the certificate
^hlch “
wbieb lt
have
States
elalms
mlSbt
claiming
deed,
under
re-
trust
estates,
persons
insolvent
or
a8'aiIlst
garded
having
or
made
loans for
obtained,
merely
which their
Up
point
certificates were
for in
to this
the Ward Case
receiving
premised
propositions upon
one ease
elemental
deposits]
three
[that
requisite power
expressly given
to the cor-
it based its conclusions:
(1)
which
The
poration by
charter,
еxpress power
its
deposits, (2)
the other ease had
receive
borrowing money]
possesses
implied power
(3).
money,
the had
to borrow
[that
by necessary
implication.
business,
implied
Nor can the as an incident to its
it had
corporation
assign
assign
general power
mortgage negoti-
or
mort-
g’age negotiable instruments which
instruments
it was
it is au- able
authorized to
questioned.
take
thorized to
taken
Melntire
take and
it had
the'
'
Preston, 5
Am.
Gilman
course of its business.
Court then con-
321];
Dee.
[48
supra.”
Planters’ Bank
Sharp,
particular
pre-
eluded
facts there
ed them. This
is quite clearly
of the hank which had
fact
seated that the assets
estab-
a lished
first
opinion,
delivered to
constituted
sentence of
been
the trustee
principal
payment
question arising
of “The
valid
of securities for the
holding
is,
record
did
Merchants,
the certificates of investment to
‘The
Farmers and
expressly
Savings
them;
and this
without
stat- Mechanics’
Bank’
it did
ing,
mentioned,
money
borrow
than hereafter
‘investment
otherwise
issue
certifi-
moneys
therefor,
received from
deed,
whether the
the certifi- cates’
secured
trust
as was
cаte
or deposits.
holders constituted loans
here done?” Under those circumstances we
Court, however,
following
moneys
used the
lan- are convinced
paid by
guage (at page
111.),
corpo-
238 of 95
“The
certificate holders for
investment
certifi-
agree
ration was authorized
contract
cates constituted loans to the
and were
persons desiring
meaning
to make
or not
within
ordinary
might
Hence,
loan
toas
terms.
execute that word.
cannot be said that
bond,
note or certificate as evidence of
the Ward Case Illinois has
authorized
indebtedness,
and secure the same
banks to
their assets as
mortgage,
note,
payment
chattel
securi-
general depositors,
ties, etc.,
mortgage
nor
real estate
or trust
brought
been
*5
just
deed,
mutually agreed.
as should be
to our attention which
proce-
authorizes such
suggested,
And there has been
and
no reason
dure. The
comes to us
therefore
none, why
sys-
we
providing
helpful precedent
can conceiveof
a
without
from that State.
securing
generally
tem for
loans and
Much has
by
been said
counsel as to the
particular way
in
objectionable,
a
is
when it
necessity
procedure
of such
and the reasona
objectionable
Would
single
not be
conduct
thereof,
quite
bleness
but it is
obvious to us
way.”
language
transaction in that
This
it is
that
neither necessitous nor reasonable.
altogether
the Court
pertinent
is
necessity urged
The
based
competi
is
question presented,
moiiey
for if the
received
among
tion
banks in
growing
their ever
de
loans,
from certificate holders constituted
deposits.
sire
employment
to obtain
right
then
bank to
its as-
such
for
purpose
means
that
seems to
tous
sets
general depositors
to secure some of its
wholly unworthy of,
and
with,
inconsistent
the exclusion
of others was not before the
object
for which
organized,
banks are
and
Court,
in
event whatever
that
the Court
is
means
it
certain from this record
said about the
assets for the
procedure
that
demand for such
gen
is
question,
was beside the
extent,
eral
or that
is not
actuated
and must be considered as dictum. The mere
depositors
rather
than
fact that the Court failed to characterize the
apparent necessity
banks.
arises out of
moneys thus received
as loans or
either
wrongful practice,
if
all banks he
posits
language
does not
such
render
less ob-
prevented
making
practice
use
jectionable
moneys
if in
fact
were loans.
result will he the
to all.
same
areWe
they
That
did constitute loans we think there
prevention
1hat
convinced
will
result
question,
can be no
and as such it may be
depletion
any appreciable
n concededthat the bank had a
length
time,
for the risk and inconvenience
payment.
its assets for their
It is not con-
personally earing
one’s
money,
own
they
tended that
or trust de-
especially
considerable,
if
amount is
is
posits,
they
very
few characteris-
greater
people
assume,
than most
desire
tics,
any,
if
of limited
pay-
time
is
say
only deposits
and it
fair to
that it is
currency
ment of the
certificates
could bo
proportion
sought
thus
sizable
are
only
demanded
presen-
the order of their
secured. But whatever value
be ascribed
tation and
from funds in the hands of
increasing
to the method as a means of
de
trustee,
might
or whiсh
next come to his
outweighed
posits,
is
that value
far
hands from the collection of the notes and
likely
evil results which
than
are more
to fol
pledged
redemption
securities
for the
thereof.
We are convinced that
low.
is
The certificates were characterized on their
reasonably necessary
carrying
out
investments,
face as
and interest thereon was
statutory
powers
which have
guaranteed by the bank.
granted
banks,
been
national
or to state
Regardless of the Court’s statement that
in Illinois.
unnecessary
it was
to decide whether the
argued
transactions between the
It is
inasmuch
hank and the
as'a bank
certificate
holders constituted loans
its bills
or de-
receivable to secure
posits,
quite
by analogy
is
obvious that
loams,
the Court and
a de
argument
in like manner
posit
them as loans and so treat-
exists. That
counsel considered
thereby
is no real
premise
that there
increased
the amount of the de-
based
tbe
posit.
loan,
Appellees, however,
posi-
and a
not in a
difference between a
urge
and tion to
point,
relation of debtоr
because
value of
either ease the
pledged
amount
creditor arises.
It is true that there are cer
exceeded the
tain
are common to
several thousands
dol-
characteristics which
sure,
pledged
lars. To
each,
and better rea
if the securities
but we think
later
dif
retained their
excess would eventu-
opinions
soned
hold that there is a vast
value the
ally return
with ex
to the bank for the benefit
To
that difference
ference.
define
depositors;
the other
retain
difficult,
they
and for
hut if
did not
actness
indeed be
would
unnecessary
they might
value
never return and
purposes
of this ease
depositor
say
participate
secured
in a
the dif
would thus
to do
sufficient to
so.
greater
always
proportion of
bank’s
than
recognized by
been
ference
be entitled.
that which it would otherwise
theory
practice,
bankers both
If
value of the
should fall
bookkeeping
pub
and their
their method of
deposit,
below the
reports fail to reveal
basis for an
lished
might
deposit,
order to retain
be com-
government
tbe
analogy.
The United States
pelled
pledges
to make additional
thus
recog
states, including Illinois,
tbe various
deplete
prejudice
further
the assets
reports
tbe difference as shown
nize
.to
depositors.
the other
require
published. Con
legislatures
rec
gress
the various
inequitable
apparent
Another
feature is
many
period
ognized the
over
difference
subsequently
in case
insol-
the bank
becomes
years by making it
criminal
offense for
vent,
happened
here.
In that event if the
deposits.
to receive
This has
insolvent bank
pay
pledged assets are sufficient to
the se-
obviously
purpose
pro
for the
been done
deposit,
expenses winding up
cured
*6
tecting depositors; while on
other hand
paid
the un-
the affairs of the bank are
out of
weight
authority
that
overwhelming
of
is
upon
fall
assets and
tbe unsecured
power
money
borrow
to
a
has the
to
bank
depositors.
emergency
exigency,
an
such as
meet an
right
A bank’s
to
its assets as
insolvency.
temporary
See
threatened
general depositors to
for some
of
Baird,
County
45,
v.
55 N. D.
212 N.
Divide
others
constituted the
tbe exclusion of
236,
L. R. 296.
W.
51 A.
legal
in this
many
basis for
controversies
diversity of
country, and as a
there is a
is
bear in
result
It well to
mind that the busi
opinion.
diversity
That
not
intimately
judicial
is
banking
ness
is
connected
of
due
economic views but
to the differences of
Congress
interest that
and alone
with the
to
the statutes involved.
legislatures may prohibit
altogether,
differences
or also
every
practically
phase of the
In those eases
may prescribe the conditions under which it
very ably discussed, and
question
we
has been
on.
In
that
be carried
exercise of
the.
unnecessary
except
refer to them
to
deem
legislative power there manifested in all
is
general
classify
relation to the
to
them with
legislation-bearing
banking
bn American
Ap-
presented.2
statutes there
and the
facts
every possible
disposition to throw
safe
a
rights-
guard
gen
around the
and interests of
2 Pledge
by virtue
depositors,
fairly,
public funds valid
eral
and to treat them all
to secure
581,
Hall,
statute: Williams v.
30 Ariz.
of state
249
equitably,
impartially. The
and
doctrine
(1926);
Earhart,
34 Ariz.
P. 755
Williams
(1929);
Sanguinetti,
guaranty
deposits
bank
has its ad
*Button v.
11
565,
P.
273
728
1932)
(Ariz.
Highway
P.(2d)
;
Im
*Ark.-La.
1085
opponents,
vocates and also its
but we have
S.W.(2d)
Ark.
Taylor,
Dist. v.
177
6
provemеnt
yet
voluntary public
bear
advocacy
(1928);
Edwards, 185 Ark.
48
*McCown v.
533
(1932);
(2d)
Foss,
Bank
96
First Nat.
558
S.W.
guaranteeing
part
general
deposi
a
of tbe
Imperial
App. 107, 273 P.
*Wood v.
Cal.
Irr.
(1928);
others,
securing
tors to the exelusion of
and
(Cal.
1932);
P.(2d)
Sup.
Dist.,
*Porter
County
Co.,
Idaho,
guaranty ¡by pledge
Canyon
Fire Ins.
a
of tbe bank’s as
(1928);
Butler,
185 N. E.
Schornick
P.
Legislation looking
sets.
to that
ap
end we
Supreme
Indiana,
March
Court
decided
(This
prehend would
unpopular
as
it-
however,
decision,
reverses
the de
1933.
originally
down
cision on
same
handed
publicly
would be for a bank
to advertise
published
in 172 N. E.
July 3,
indulging
that it
practice
the fact
tbe
permitting-
deposi
lieu of
held that
statute
which it was
tories
personal
of
or
specified
guise
an implied
under the
incidental
given
surety
bonds
power.
assign
did not authorize them to
public funds
types of
other
the sure
secure
however,
is said,
general deposi-
It
given
deposits.
bonds
secure
Since
ties on
wis,e
who
is
injured
tor
is
in no
decision,
rendered,
personnel
secured
changed,
Indiana has
Court of
and the
Supreme
if at
time
transaction
is
the bank
remains
is one
who*
who dissented
only member
solvent,
because the. bank’s сash assetsare
decision.)
original
*City
Louisville
-weight
greater
of au- assets
pellces
general
ci/niend that the
inci-
is an
thority
pledge. However, per-
power
dental
upholds
“necessary
carry
on
the busi-
that soma ness of banking,”
of those
discloses
equi-
usal
decisions
is so inconsistent with
expressly ty-
good
upon
are
statutes which
fraught
based
conscience and is
grant
upon
wrongful
statutes
possibilities
others
power,
that we
from,
power willing
provisions
which contain
to foist it
the State of Illinois
rightfully
legislature
Since none
until its
be inferred.
or its
spoken
courts have
stat-
provisions present
clearly
in the Illinois
is
that effect. That those bodies have
opin-
majority
right
utes,
appears
what
to be a
if they
approve
pol-
choose to
sueh
reality
icy
is not
supporting
pledge, in
denied,
ions
merely
but we
hold that
authority
they
array
yet
on
have not
done so.
sueh a formidable
Illinois statutes.
presented under the
argued
inasmuch
money
to deal with
Some of the cases referred
deposited
general deposit
when
as a
becomes
others deal with
posits
public monеy,
immediately
property
hank,
than
corporate
individual and
the relation of
thereupon
debtor and creditor
princi-
public money, but
think the same
we
arises,
therefore has an inherent
applies
power
as-
ple
to each. The
right
to deal with those
in the con
not,
can
sets for
of its business
pleases.
duct
as it
Personal
Court,
Supreme
under the decisions
our
property rights
terms,
are relative
sovereignty
upon any
based
attribute
they
can be exercised
so far as
do
part
pledgee,
power
hut such
must
rights
not conflict with the
of others. Illinois
express
implied legisla-
be based
an
power
virtue of
charters have
grant.
express
an
tive
the absence of
general banking business,
to do
in
grant
power,
by implication
deposits.
cludes the
receive
prevail
should bo
unless the
assets,
To be
such bank owns its
sure
presented render it
neces-
reasonably
facts
general deposits,
term includes
but to
implication
sary
in order ful-
that such
arise
thq
say that
bank in
conduct
sueh
of its busi
ly
fairly
express powers
to effectuate
as
has an unrestricted
to use its
ness
granted.
that that condi-
We are convinced
going further,
pleases
think,
sets as it
we
implica-
not exist
tion does
here. Such
than the law authorizes. Those who become
specific
tion, viz., that the
transfer
depositors
do so
of an
result
[181]
v.
App.
Com.
v.
Mothersead
the
1932.
A.
269
bolt
Fulton,
[75]
prohibited
749,
Dist.,
160, 45 L. R.
French
ing
State
286,
v.
beyond
Counties
ties
Trust
v.
So.
statute
S.W.(2d)
involved
(2d)
(a
Pledge
’"Tlmse
State
Iowa,
Ohio
Anderson,
5th
City
*7
Fidelity
VGiy strictly
County
N.
[1913]
[26]
P.
[219]
Court
[12]
Sav.
[644]
1980);
[122]
Bank v.
See,
App.
Co.
&
(1927) Huntsville
E.
S.W.
Circuit,
[144]
N.
and the
[44]
Bank,
Kentucky
(8th
Guaranty
707,
Road Dist.
cases hold
[40]
does have
Bank,
815, a
Neb.
pledged,
v.
right
express
School
W.
Ohio
1932).
(1928)
also,
Com'rs,
(2d) 751
Longview,
v. U.
*A
& Columbia
;
1930)
(1932).
ustin
45 N.
C.
Cit.
Appeals
[38]
163,
A.
statute:
107 Or.
Consolidated
1933); Pixton
203,
[203]
case
C.
App.
:
Wyo.
leading
construed,
Ward
; Pottorff
S.
Dist.,
*Maryland Casualty
(N.
Trust
[65]
terms,
Co.
or the funds
pledge)
*U.
294W.
A.
case decided
the facts in the instant ease are concerned. exception tended remain in force as discussing Rodgers States, We have refrained from act. the the v. United 816; authorities from other courts, cited because U. S. S. Ct. 46 L. Ed. they than, Washington Miller, deal with statutes other dif- 235 U. S. 35 S. ferent from, statutes; they the Illinois Ct. 59 L. Ed. 295. repudiate not be the contract as of this ease Under the circumstances against part State, party. an innocent third was intention think there no wo phase On that we do repeal or modi Legislature to of the Illinois ease, prefer choose to that para follow but rather 316 and fy provisions section rely reasoning perlinent on the to that 374, supra, enactment graph subject in & Baltimore Ohio R. v. Smith former Co. Banking Act in 1919. The General (C. A.) 56 799. F.(2d) C. powers of deals with the special a act and con generally. two are not to be The banks 316, 24, Section c. Smith-Hurd Rev. St. repugnant nor offensive positively as sidered paragraph 374, Ill. supra, express might well that ly inconsistent. ly provides may that before Illinois Legislature good and sufficient deposit funds, receive of the kind with sureties preferring bonds reasons herein described, shall execute bond with security instead approved by city sureties president com under the operating cities council, for the return of the mon government. This it had a form mission ey deposited; not authorized to desired, its reasons if it to do give, nor is the treasurer authorized to ac Subsequent questioned. cannot therefor Any cept, security. other other construction fairly judicial take events of which we meaningless. would render the statute In the having somewhat considered as notice present given by Bank, case no bond was justified ehoiee. deposited and the assets which viola Wil- Appellees urge our consideration of approved tion of the neither statute were 565, 273 P. Earhart, Ariz. liams president council, nor were de of a bank sued In 730. that case the receiver posited city except with the treasurer in es there- treasurer to recover collateral state joint surety crow under control with the bank to tofore and delivered original bond, on the treasurer’s these the treasurer to secure a appellees acts hope to circumvent the ex money. not consist pledge did things press the statute. Those nei terms of statute, bond provided state which that a the Bank author ther the treasurer nor was given with sureties should or that law the Fed ized to do under the Illinois interest-hearing bonds of United States supra. 25,1930, Act of eral June should be made state treasurer. with the called Our attention been to Pottorff beneficiary, real state of Arizona was the Paso-Hudspeth v. El Counties Road Dist. deciding Court, assuming without (C. A.) F.(2d) Texas 498. that case C. taking contrary law, appellee organized special under a might repudiate held that the receiver Act, among things, provided that other against contract interests gov- depository the Treasurer or should be beneficiary, State, was an innocent provided for erned same laws as are agree party. third said: “We The Court depositories county funds; provided specified in of the kind the stat- depository such treasurer or before taking kind of which utе is the any funds of the entitled receive should he to' exempt would from liabil- the state treasurer give district, it should bond to the district deposited his ity on official bond in case he equal deposited. Article designated depository bank, state relating Tex., St. 517a Vernon’s Ann. Civ. necessarily but it follows means funds, provided depositories county security, though even it does not ex- *9 company, ex- and trust bank, or bank that empt liability the treasurer from for specifically authorized statute cept where protec- for posit, cannot he used him public of a except in the ease us tion of the latter.” The before preference any deposi- funds, give should Court, pow- was not decided that and the corporation of the pledging tor pledge national hank to its assets as er a security. giving a Instead collateral under a statute sim- part appellee’s deposit, of the protect bond not in to the us was issue. ilar one before pledged. Appellee con- assets were quotation to, bank’s From above referred how- statutes should be construed tended that the that the state ever, the Court said treasurer such construction the together on and that liable to the his bond still would he State valid. con- authorized and This statute, pledge was because had not followed the anti he sustained and the Court further from tention was not he released this means that he would 517a, ample au- from article not that aside his bond because was authorized said he found in other statutes thing thority he did. The was to be that statute do general in the law. held, however, upon, relied Court that the receiver would may depositor It that the secured take advan- not cited. other statutes referred to tage and as- of the ultra vires act the bank statutes that the Illinois remembered will be upon act. It estoppel grounded sert an such re- resembling provisions nothing contain rely making in had no this lied in case. preference a form of an unlaw-' equities sur- may urged It that par- transfer both ful of assets. Otherwise appeal even rounding should the transaction illegality ties, to realize the bound arriving at its conclusions a court of law in in unlawful- transfer, might, the face of such in made ground pledge that tile saying nеss, agree transfer, each make the approval of the board good faith and with the au- other, “though transfer is not also be remem- directors; it should but yet ac- by law, will make thorized we probability pledge in bered' that the despite ille- complish result desired without in of and made the absence rescind gality, neither hereafter depositors. It knowledge unsecured of the original We restoring without status.” surety treasur- on the that obvious accomplishment of an approve not do moving spirit in this contro- er’s bond is the way illegal any such unconsciona- result perfect right to be. It versy, a estoppel. hold the doctrine of We ble use of penalized on nor neither be criticised should eases cited that with the decisions fact, speaking equi- but account of that repudiate invalid receiver that it volun- be borne mind ties should that returning deposit, and the valid without tarily contract for which entered into the other appellees must share with considera- it received a cash assume that we Bank’s depositors in the distribution of the the risk of ac- voluntarily It assumed tion. assets. assets of аn Illinois cepting a notwithstanding the fact is re- judgment District Court im- granted neither nor State for further versed, and the cause remanded to, pledge. plied power its banks make opin- not proceedings inconsistent with surety is think the Under conditions we ion. complain. position in no (dissent- Judge ALSCHULER, Circuit Appellees’ contention that the receiver ing). authority maintain this action is is without holding not I do concur v. Baltimore R. Co. without merit. & O. policy against permit Imperial Irr. Dist. Smith, supra; Wood v. securing pub ting banks to 128; (Cal. (2d) Austin Lamar Sup.) 17 P. I authorized a statute. lic unless S.W.(2d) 1062. The (Tex. App.) Com. Johnson, Ward 95 Ill. believe that than represents the insolvent receiver more Supreme sufficiently indicates the view of the represents all the credi institution. He also op not public policy Illinois is Court that insolvent institution. Davis tors of that has been Wall.) pledges. 447; posed 21 Ed. Gray, (16 L. U. S. Whitehead, jurisdictions to quite frequently Nat’l Bank v. 149 Ind. in other Franklin cited L. R. A. 63 Am. 560, N. E. St. in Illinois such proposition that support ordinarily when two Rep. 302. is true that contrary to the state’s assets is into a contract parties have entered which public policy. fully sides, on both will has been executed one People rel. Nelson The recent ex ease up to set the defense of ultra be allowed 266 Ill. Maywood, Peoples State Bank of making some sort of restitution. vires without respects in all like App. while here, However, in such case as has arisen recognizes bind- my judgment bar, in at parties there are considered reviewing pledge; and the ing force contracting parties, to the two addition Supreme Illinois, Court decision of namely, general depositors rights whose E. 1932, - N. filed October infringed by been the action of the two However, conflict therewith. -, does not contracting sim parties. Restitution would parties rehearing petition both upon the *10 wrong against par ply continue that innocent writing present which at is granted, been Further, as in Balt. & R. was stated O. ties. pending. Imp. Dist., Smith, and in Wood v. Irr. v.Co. in a state so commer- significant that It is in involved the supra, there were two acts Illinois, presumably where cially important as consideration, one, the de transaction under many such been transactions not valid, oth have perfectly and the there posit which was any statute, provisions of falling the within invalid. It does not er, the was contrary the pledges, if deemed judicial approval such appear worthy to us of as long depositor the public policy, who, upon slate’s have since been the faith of the pledge, deposited denounced its courts. the in the bank. The bank itself could not urge properly its want pointed out, support in of such a It is of to make pledge, support the in ordinarily policy state, that the undertaking to recall pledge, the without pledges secrecy in of which the there is making good first deposit; the and, fully general public notice, de- has no and that reasoned in the New York case, rights the usually positors not so secured would the receiver are not in regard different knowing means much no how of the bank’s from those of the bank itself if no there were reported segregated. assets are so receiver. It is not seems me that with the the vice It is said that this rule apply would not assets, pledging of the but with laws and because there party is another to the transac- regulations concerning reports and advertise- tion, namely, the depositors unsecured and fully agree ments banks. I that banks creditors of the bank. As to this contention required frequent public make should be New York case is like this one, both hav- reports condition, of their in such ing party” as the “third de- unsecured reports specifically it disclosed should what positors and creditors. Without further elab- part reported pledged. oí the is so To oration thereon I refer to that case and its my practice permit mind it is vicious discussion proposition. of the their “resources” at an advertise deposits, amount total with- In inclusive this connection I think it should be time, requiring out that at the same considered that in a one as this prominently, as. stated the liabilities bank’s he depleted. arc not subject. posit which the resources are of the funds made on the strength pledged of the assets becomes the pointed pledging that such is also out property gives bank, of the bank and to the may, bank’s bank’s assets ease in additional assets, cash the substantial disaster, depositors threatened enable equivalent of the pledged. securities against This, favored others. bring course, picture into the collusion would But is further based on the probably fraud, which would be dealt conclusion the Illinois Commission appears, but which not in- with when Form of Government city Act and its eoneededly here, volved where there was disqualified treasurer are depositing, from favoritism, suggestion of circumvention and the 'receiving, city bank from deposit of where, pledge, the time of the the bank at any funds on other terms than pre- act solvent. scribes, subsequent Congress act of referring specifies. laws stale This first policy if that the But said act specifies city treasurer shall make States, state, even of the United daily deposits receipts all sources pledges, giving against such revenue one or more banks situated prop vires another them was ultra city, president to be selected judgment my arises osition would council, the commissionerof accounts and the any require event restoration treasurer, them, two of and that good upon faith ultimate securi made deposit before is made therein the bank shall pledge, bank or its ty of the bank’s before the requirеd obligation enter into representativo permitted lie to take back pay said council to interest on Bank, etc., The case of State the securities. than per per at a rate of not less three cent Stone, 261 N. Y. 184 N. E. de annum, bond, shall execute with sureties New of Appeals York Court cided approved by president council, con- 28, 1933,specifically In February decides. will safely keep ditioned the bank that, while the that case it held bank money. account for said pledge assets to secure a without “private deposit,” receiver of insol provisions prescribe These the duties and pledgor bank must back the pay vent conduct the treasurer direct the and other deposit he city before is entitled to a re depositing in the matter of mon- officers judgment ey, my turn of the securities. the case but no sense at degree limitation good faith bar was the of the bank’s the- its assets as for de- city’s securities that enabled treasurer to procure making protect city against posits. a bond If treasur- through statute, may deposit; comply loss er does nоt with the the bank municipality or its receiver personally should not be to remain liable withdraw making deposit, without does safety whole but the act *11 priving to deny right the further secure Illinois banks right state to to banks municipality pledge or its treasurer their assets to depositing deposits secure made the by pledge assets, of even Commission I am sureties, municipalities, or his Form of requirements opinion though statutory have the the amended of June Act 1930, 12 USCA to re been observed. was intended limit strict or national banks in their there only comparatively It is to noted that quite 'generally recognized right tofore to municipalities Illinois the few under pledge pub- their assets of deposits to secure act, policy in Form the Commission and that many lie funds. While in relations such se pledging permitting of the of curity required specifically is federal stat security publie of deposit bank’s assets as for ute, I believe this is no inhibition act applicable to mu- funds those continues pledging publie assets funds in to secure nicipalities unaffected the Commission instances is where there no such statu by the Form act. I cannot coneeive that tory requirement. it intended to dis- CommissionForm act was munici- tinguish classes of between two providing by the Act of 1930 that na- the-right pledge to palities as to of banks may give tional banks for the deposits of mu- their assets make secure to safe-keeping publie payment of funds as regulation nicipal in of funds. The act was is authorized of the state in which law cities, not banks. the national in of hank is located the case state, banking of institutions right general I am well satisfied that the placed upon national bank same was foot- se- bank to its assets to of an Illinois ing respect bidding publie in to publie was not with- cure of funds which, quite banks, were the state with act, and that Commission Form drawn naturally, in Far competition.' right had have to Illinois banks thereby withdrawing from from national deposits mu- assets to secure pledge their had to it theretofore gov- nicipalities under Commission Form public funds, its municipalities. ernment, as of other as well was, my enlargement in judgment, act city in it is But ease of the of Marion that, in power, addition to this time particularly to be noted that at right to secure city, in the there were nо banks whatever notwithstanding right, thereafter impossible with the comply was statu any upon’ banks prior inhibition national city tory selecting a bank mandate in doing things from some or deposit city’s funds. What which to regard particular might in some state n thenwas city done? Must thereof. The act was be done the banks and fire treasurer risk of thieves assume doubt of the calculated remove by keeping funds perils and other on foot- national the same banks to physical possession for statu lack ing of the several states. state banks as the depositary tory to .select a else authority interesting light An in connection side where? In the of October appears mar- passage of this act Peoples People ex rel. Nelson v. State gin.3 Maywood, supra, it is said: “There Bank necessity no for a or an ordinance was law appears legislation Referring this village authorizing deposit treasurer Congress, Sess., Report 2nd 71st No. House Secretary Treasury Acting this letter in his in a bank. funds hands That the customarily McFadden: ** Lowman to Committee Chairman * of no done. We know “My made to Reference is dear Mr. Chairman: legality the S. this State which the of the Re- act to amend section 5153 ‘An Statutes, passed the Sen- as amended’ (cid:127)which vised publie custodian by their pending April 1, now be- ate fore the questioned. reason, a bank has been Currency Banking Committee Representatives. is, the House doubt, has been practice universal Comptroller of the Cur- office of the “While the recognized necessary.” has been position rency consistently that na- taken give evidently situation was one which the statute hanks have tional the payment safekeeping prompt my not contemplate, and mind did stat political moneys of the State or subdivision there- contingency ute did not cover banking deposited with such national associa- tions, decisions thrown some recent several applicable therefore not to this ease. If with the result that in some doubt on application statute has no ato situation such the State banks secure the States posits, but this, the officers of the State are in doubt bank’s its assets depositing with the national about not affected it. any specific by Congress law on the absence subject. extremely helpful, therefore, It would be But, even if were concluded that the possible your report out, if it committee Commission Form act had the effect of .de and the House pass, S. 486.“ *12 parted se bank with an the withdrawing re- “The interest thereby or Instead of subject the to equal curities to the to hanks right of national stricting any re that, condition to the extent to pub- secure their assets to pledge paid cash, it reclaim securities. only the would the Congress undertook funds, act lic the amounts to no more than sale of se It any, possible doubt whatever, if remove to The their actual value for cash. curities at might of the states. be light there sueh genera] nothing' creditors the bank lost opinion of copy of an received Wo have transaction, and, they affected at the if March Supreme Court the Indiana filed all, bank is more they are benefited since the Butler, 185 N. E. in Schornick liquid by having cash rather reason the opinion herein. in note referred to appellees gained The than the securities. the here, and The facts there are so like nothing. public deposit proceeds The its the conclu discussion is so corroborative used, used, payment be for was or will the justi I feel dissent, that sions staled general No more creditors of the bank. commenting thereon. fied equal pledged *13 power assets, but enforced, pledge of the bank to will be deposit a certificate “merely trans fixed the terms and conditions that the the contention in answer to public in ordinary deposit deposits and which officers make an action constituted banks.” said: the eourt loan, not a “ this regarded in it should 'As to how In contend- place, referring another deposit loan or a as a respect deposit a loan to —is ed difference between —whether for, ease; in this facts material, under the pledge lat- its for the ordinary deposit, its anas if it be considered says: former, opinion ter not’ of debt- relation create effect would be obligation pay is “The basic contractual appel appellee creditor between or and and, the same if when is received Randolph Coun al. et bank.’ Harris lаnt’s assigns guaranty collateral as a 1025, 1032. 120, 60 N. E. ty Bank, Ind. repayment, or reason we know of no rule ** permit be re- would the collateral to right of recognized tained in in another.” one ease and not Legislature “The pay- to secure the collateral a bank The note refers to unusual circum- enacted ordinary deposits when it ment of prior opinion stance in a in same title examination depository An law. July 3, 1930, court, filed ease the same clearly discloses body that act reported N. E. conclusions powers affect the intended to was not diametrically opposite were stated ' and condi- terms merely fixed the It banks. the first opinion. announced in the later make public officers upon which tions and, opinion reversed; Court was Circuit posits in banks.” granted, rehearing having been petition for gen- respecting statute Indiana judgment second was affirmed. dif- does not essence eral the fact The note also calls attention to subject. on* same from that of Illinois fer personnel the eourt the interim the recognizes opinion The Schorniek changеd, leaving beneh one of banks to make participated of'the members five who private funds; public secure opinion, dissenting first therefrom. Case, supra, opinion in the Harris and the true that the first involving private transaction holds (two therefrom). dissenting unanimous assets as bank’s agreement to materiality beyond apparent, of this is not trans- immaterial whether the security it was indicating the likelihood that each instance deposit. bank or a loan action was the ease had the careful consideration of the distinguish as between Although cases some court. private public and pledges to secure loans, I can see public Whether tested the laws and and between distinctions. How- adequate for the policy reason the state of or of the United those distinctions' are my judgment I ever, States, both, or of believe here, where sustained; that, material but bank’s assets should directing event, funds. an order return of upon pay- the securities should be conditioned paragraph indicates quoted above The last of the amount of ment Indiana, in statute which, directly indirectly, the seсurities deposits mu- security for specifying what pledged. require, must did not affect nicipality notes
Notes
than an amount of: notes the directors of appellees, who were The equi will be The action sounds withheld. to bank’s bond hank, sureties on the became ty. general of the bank or the The creditors municipality pubLc funds which for the be appellant, representative, their cannot mu- deposited the bank would be say pledging that the of the securi heard to becoming nicipality. In consideration illegal they ties was retained the bene while suf- agreed them that sureties, with fits of transaction. Melaven v. Hunker to from time time assets should ficient al., et N. M. 1075. It would P. as a col- turned over to them aside and be set permit be unconscionable to credi up- against loss insure them pledge to lateral profit loss, tors to where had no at the (which The bank bond as sureties. their expense appellees, profited who have insol- found to have been Circuit Court wrong. nothing and have done no It must agreement security vent at time the insu unless there is some up- receivership, and action went made) into perable requires it.” rule law which municipality brought bond was on the court depository The refers to thereupon demand- against sureties, who Indiana, (Burns’ 1926) section law of turned over to agreed ed collateral be that the receiving requires de- hank refused them. the receiver This posits give municipality bond to se- brought by the sureties do. Suit provides Section 12622 cure same. possession of against receiver to secure may pledge sueh lieu of bond the bank judgment of collateral, and the the Cir- specified bonds, municipal classes of or bonds found for the sureties. cuit Court or of the state of Indi- the United States affirming judgment opinion The deposits. ana, to secure such The upon propositions touches several I agreed pledged were not sueh as opinion have considered. The held above municipality take, the statute authorized whether given immaterial given to the mu- and were or to he directly municipality, ease, nicipality itself; and so in as in municipality bond sureties comply bar, pledge did case at securing It of its funds. statute, to sustain the resort pledging discusses thе contention that the general power must bo of a bank the bank’s assets is con- to secure assets as for such de- trary public policy, and after some con- opinion says: posits. As to this the question says: sideration of that find “We banking (see law Burns’ Ann. St. “Our statutory no enactments, no constitutional or gives et seq.) pow banks ‘all the practices judicial officials, decisions in proper, ers incidental and or which pledging indicating this state of col- necessary carrying oil and usual the busi against public lateral banking.’ ness of of a bank to bor inherently wrong nothing There policy. pay its assets for row immoral in sueh a de- transaction. beyond question. thereof is serious It ment subject that cision of this court we urged, however, deposit is loan that a not a upholding agreement sueh have found and that banks no policy.” nies sueh a deposits. assets to There is reason Respecting the distinction. either ease the rela equities of sueh a situa tion, and creditor is created. bearing proposition on the of debtor tion expressly held this court that an pledges vires the bank and been are ultra assign against agreement collateral as public policy, the states: