State Ex Rel. Sorlie v. First National Bank , 57 N.D. 574 ( 1929 )

It is conceded that if a bank be subject to the provisions of the Depositors' Guaranty Fund and the bank neglects to file "a statement in writing verified by the oath of its president, vice-president, or cashier, showing the average daily deposits in its bank for the preceeding twelve (12) months" a writ of mandamus will issue to compel the furnishing of such statement, so we need not worry about the method of procedure.

It is said that the defendant bank is not subject to the provisions of this law because though originally a state bank it has changed into a national bank; that a national bank carries no insurable deposits unless such national bank has "been permitted to avail its depositors of the protection of the Depositors' Guaranty Fund" either "by the act of Congress, or by decision of the Federal court, or departmental construction of the national banking act;" that this defendant bank has not been permitted to avail its depositors of this protection and therefore has no insurable funds; and that the provision of this law cannot apply in general to national banks.

It must be conceded that at the time this state bank changed to a national bank there was a certain and definite indebtedness due depositors of closed banks from the Depositors' Guaranty Fund, and the defendant was liable for its share. While by the provisions of law the annual rate of the assessment is limited, and the amount of annual assessment to be paid and which is available for the liquidation of this indebtedness is more or less uncertain, yet it must be conceded that owing to the limitation of the assessments this indebtedness can not be discharged for many years, as the liability is a continuing one.

The statute provides a guaranty fund for the protection of depositors in state banks and it is obligatory on all state banks to contribute to this fund. It is not a matter of option on the part of a state bank as it may be on the part of a national bank. All banks, state or national, which avail their depositors of the protection of this fund must file this statement in writing on the 30th day of June of each year. This statement must specify all kinds of deposits — insurable and non-insurable. Even where the bank may be of the opinion that certain funds held by it are not "eligible to guaranty under the provisions of this act" it must set these facts forth in the statement. Even where a bank has given security for deposits other than the provision of the Depositors' Guaranty Fund law, or has promised or paid a rate of interest in excess of the rate limited by the act nevertheless it must make a return on those deposits. See § 5220b11. It is for the commission to determine in the first place what deposits are insured. This is the plain intent of the law. To permit the bank to determine for itself might result in such restricted report that the amount of the premium would be materially lessened. It is not for the bank to pass on the "eligibility" of its deposits, otherwise it could diminish the amount of assessment which it is required to pay. It is the commission which passes upon this fact, not the bank. Hence the question of the insurability of the funds, is not determined by the bank itself.

Section 5220b14 of the 1925 Supp. to the Comp. Laws of 1913 clearly contemplates a continuing liability even where banks "go into voluntary liquidation or change to a national bank." It is true the exact amount for which such bank is liable may not be known at the time of voluntary liquidation or at the time of change to a national bank but the liability is there. The amount of assessment may vary but the amount to be paid by all banks is known though the individual bank may not know its proportionate share. Therefore at the time of the change to a national bank there was a certain defined liability. We are not concerned here with the method or lack of method for compelling a liquidating bank to contribute its just share.

It will be noted this is not an attempt to compel a bank, originally organized as a national bank, to contribute to the fund. This is the attempt of a state bank, converting into a national bank without the consent of the Depositors' Guaranty Fund Commission, to evade its responsibilities under the law and to escape the payment of its just share of the liability. The majority opinion realizes this but holds the legislature has provided no remedy hence the court is powerless to prevent it. It is true that after a state bank has been converted into a national banking association it may cease to exist as a state bank. But though it "becomes a national bank and its name is changed accordingly, this does not affect its identity." In Michigan Ins. Bank v. Eldred, 143 U.S. 293, 36 L. ed. 162,12 Sup. Ct. Rep. 450, plaintiff sued under its state name and not its converted name. It was argued the state bank had gone out of existence but the court held the corporate existence was not destroyed. Then, again all the liability against the state bank still exists and this converted bank is liable for all the debts and obligations contracted by the state bank. Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 35 L. ed. 841,12 Sup. Ct. Rep. 60; Michigan Ins. Bank v. Eldred, supra.

If the stockholders had organized a national bank and liquidated the state bank, returning the deposits and going out of business, we would have a different situation entirely; but here we have the same institution, same insured deposits, same business carried on, but under a different name yet liable for the same debts. This national bank therefore is liable for the debts and other obligations which the bank itself created while it was operating as a state bank. They are its own debts.

Because a banking institution is organized under a national banking act and is known as a national bank does not say that the state has no power over it. It was not the intention of Congress to permit such an institution to enter a state, transact business therein, avail itself of the protection of the state and under no circumstances be under the supervision or control of the state. This is no new doctrine. In First Nat. Bank v. Kentucky, 9 Wall. 353, 359, 19 L. ed. 701,703 it is said:

"It is argued that (national) banks, being instrumentalities of the Federal Government, by which some of its important operations are conducted cannot be subjected to such state legislation. . . . The principle we are discussing has its limitation, a limitation growing out of the necessity on which the principle itself is founded. That limitation is, that the agencies of the Federal government are only exempted from state legislation so far as legislation may interfere with or impair their efficiency in performing the functions by which they are designed to serve that government. Any further rule would convert a principle founded alone in the necessity of securing to the government of the United States the means of exercising its legitimate powers, into an unauthorized and unjustifiable invasion of the rights of the states. . . . They (National banks) are subject to the laws of the state and are governed in their daily course of events 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."

See also Guthrie v. Harkness, 199 U.S. 148, 50 L. ed. 130,26 Sup. Ct. Rep. 4, 4 Ann. Cas. 433. The Federal Government is not a party to repudiation nor an assistant in the defiance of state law.

It is true that the conversion of a state bank into a national bank is done under the authority of the national bank act and that no authority other than that which is conferred by Congress is required. Casey v. Galli, 94 U.S. 673, 24 L. ed. 168. It will also be conceded, as the majority opinion states, that when the Comptroller of the Currency issues "his certificate approving the conversion, the regularity of such conversion cannot be challenged in a collateral proceeding, though the conversion was made without the state bank having received permission in writing from the Depositors' Guaranty Fund Commission as required by § 29 of the Guaranty Fund Act." Nevertheless this does not decide the issue. So far as this bank, formerly a state bank and now a national bank, is concerned, the state still demands it pay its liabilities. It, together with other state banks, is liable for the debt and its annual payment on the deficit is determined by the amount of its deposits, which would be received as a state bank determined by the commission and according to a certain specified rate.

It is said the depositors are not insured. We must remember this is not the case of a bank incorporated originally as a national bank. If it were there might be good reason for saying its deposits are not insured. This is a case of a state bank still operating but operating now under the national bank system. The national bank act recognizes the distinction between the two classes. Just as our state law makes provision for a national bank to convert into a state bank, so the Federal act provides for a state bank converting into a national bank. In each case the converted bank is somewhat different from a bank which was organized originally as a state bank or national bank as the case may be. So far as the settlement of liabilities is concerned a converted state bank is still a state bank. We are not concerned with the difficulties which arise between the bank and its depositors. If the bank be in a dilemma through its defiance and evasion of the state law that is its concern. So far as the liability is concerned and the payments the state considers its deposits as the deposits of a state bank. It must be admitted that if the deposits are insured deposits the bank can be commanded to make this statement but the question of whether they are insured deposits is not to be determined by the bank itself. We may concede that the state bank, in defiance of the laws of this state, has become converted into a national bank without receiving the consent of the Depositors' Guaranty Fund Commission. But surely it cannot be permitted to evade its liability for this reason. It may be that it has complicated the rights of its depositors by this unauthorized act but that is a matter between it and its depositors. There is nothing to indicate that the commission refuses to give protection to its depositors; there is provision made for protection of such depositors. We cannot assume that the commission will insist upon the bank shouldering its share of the liability, and discharging its legal duties and at the same time deny the corresponding rights and privileges. That is not involved here. As said before our law makes provision for national banks taking advantage of the law and having its deposits insured, and the commission may well consider that where a state bank converts to a national bank it is done with full knowledge of liability, no intent to evade, and a desire to avail its depositors of the benefit of the act. Hence the commission would not deny the privilege. If it could allow the privilege in one case, it would in another.

While the Federal law permits a state bank to become a national bank it never contemplated that the state bank should thus evade a responsibility nor was it intended to be a cover for repudiation of debt. Hence, I dissent.