Elmira Savings Bank v. Davis , 73 Hun 357 ( 1893 )

MERWIN, J.

By section 130 of the banking law (chapter 689 ■of the Laws of 1892) it is provided as follows:

“Sec. 130. Debts due savings banks from insolvent banks preferred. All the property of any bank or trust company which shall become insolvent, •shall, after providing for the payment of its circulating notes, if it has any, ¡be applied, by the trustees, assignees or receiver thereof in the first place, to the payment In full of any sum or sums of money deposited therewith by any savings bank, hut not to an amount exceeding that authorized to be so deposited by the provisions of this chapter, and subject to any other preference provided for in the charter of any such trust company.”

By section 118 of the same act, it is provided that the trustees of every savings bank—

“Shall as soon as practicable invest the moneys deposited with them in the securities authorized by this article; but for the purpose of meeting current payments and expenses in excess of the receipts, there may be kept an available fund not exceeding ten per centum of the whole amount of deposits with such corporation, on hand or deposit in any bank in this state organized under any law of this state or of the United States, or with any trust company incorporated by any law of the state; but the sum so deposited in any one bank or trust company shall not exceed twenty-five per centum of the paid-up capital and surplus of any such bank or company.”

Provisions to the same effect existed in chapter 409 of the Laws of 1882, which was in force up to the passage of the. act of 1892.

It is claimed on the part of the plaintiff that section 130 applies to national banks as well as state banks, and was so intended by the legislature. This proposition does not seem to be disputed by the defendant. By section 118 authority was given to make deposits “in any bank in this state organized under any law of this state or of the United States.” Section 130 refers to the same subject-matter, and the design naturally would be to afford protection to all deposits authorized to be made. The expression used is “any bank.” This is broad enough tó cover national banks, as named in the 118th section. The evident object and purpose of the provision would not be obtained unless it did cover them. Taking both sections together, that is, I think, the fair construction.

Assuming, then, that the provision in question applies to national banks, is there any reason why it should not be operative? The argument of the defendant’s counsel is based mainly on the propositions that the state has no authority to exercise in this respect any control over national banks, and that the state legislation is inconsistent with the national legislation on the subject, and therefore inoperative. In Waite v. Dowley, 94 U. S. 527, the question was whether the statute of a state was void as to national banks which required the cashier of each national bank within the state, and the cashiers of all other banks, to transmit to the clerks of the several towns in the state in which any stockholder of such bank resided a list of the names of such stockholders, the number of shares held by each, and the amount actually paid in on each share. It was held thát the law was valid, although congress had legislated upon the subject, in that it had required of each national bank that a list of its stockholders shall be kept posted up in some place in its business office. In the opinion of the court, at page 533, it is said:

“We have more than once held in this court that the national banks organized under the acts of congress are subject to state, legislation, except where such legislation is in conflict with some act of congress, or when it" tends to impair or destroy the utility of such banks as agents or instrumentalities of the United States, or interferes with the purposes of their creation. This doctrine was clearly and distinctly announced in National Bank v. Com., 9 Wall. 353, and that case has often been referred to since with approval in this court.”

In the case in 9 Wall, it was held that a state law requiring the national banks to pay the tax which is rightfully levied on the shares of its stock is valid: It is there said, (page 362:)

“That the agencies of the federal government are only exempted from state legislation, so far as that legislation may interfere with, or impair, their efficiency in performing the functions by which they are designed to serve that government. Any other 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. * * * So of the banks. They 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.”

This doctrine is reiterated in W. U. Tel. Co. v. Attorney General, 125 U. S. 551, 8 Sup. Ct. 961.

Applying these principles to the present case, it is difficult to see how the state act interferes with the utility of the national bank as an agent or instrumentality of the general government. No possessory right is given until after the bank, by reason of its insolvency, has ceased to be of any utility as an agent or instrumentality of the government, and after its circulating notes are provided for. The logic of the case in 9 Wall, will uphold the law in question here, unless it is in conflict with some provision of the United States statute on the subject.

Upon this line it is argued that the state act is in conflict with those provisions of the national act which provide for a pro rata distribution of the assets, and prohibit preferences. Those provisions are sections 5236 and 5242 of the United States Revised Statutes, and are as follows:

“Sec. 5236. Prom time to time, after full provision has been made for refunding to the United States any deficiency in redeeming, the notes of such association, the comptroller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction, and, as the proceeds of the assets of such association are paid over to him, shall make further dividends on all claims previously proved or adjudicated; and the remainder of the proceeds, if any, shall be paid over to the share holders of such association, or their legal representatives, in proportion to the stock by them respectively held.”

“Sec. 5242. All transfers of the notes, bonds, bills of exchange, or other evidences of debt owing to any national banking association, or of deposits to its credit; all assignments of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its share holders or creditors; and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in the manner prescribed by this chapter, or with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void; and no attachment Injunction or execution shall be issued against such association or its property before final judgment in any suit, action, or proceeding, in any state, county, or municipal court”

In Scott v. Armstrong, 146 U. S. 499, 13 Sup. Ct. 148, the ordinary-doctrine of equitable set-off in case of insolvency was applied against the receiver of an insolvent national bank. It was there argued that the sections above quoted forbade it, because they required that, after the redemption of the circulating notes had been provided for, the assets should be ratably distributed among the . creditors, and that no preferences given or suffered in contemplation of or after committing the act of bankruptcy should stand; and it was insisted that the assets of the bank existing at the time of the insolvency included all its property, without regard to any existing liens or set-offs. To this the court say:

“We do not regard this position as tenable. Undoubtedly, any disposition by a national bank, being insolvent or in contemplation of insolvency, of its choses in action, securities or other assets, made to prevent their application to the payment of its circulating notes, or to prefer one creditor to another, is forbidden; but liens, equities, or rights arising by express agreement, or implied from the nature of the dealings between the parties, or by operation of law, prior to insolvency, and not in contemplation thereof, are not invalidated. The provisions of the act are not directed against all liens, securities, pledges, or equities, whereby one creditor may obtain a greater payment than another, but against those given or arising after or in contemplation of insolvency. Where a set-off is otherwise valid, it is not perceived how its allowance can be considered a preference, and it is clear that it is only the balance, if any, after the set-off is deducted, which can justly be held to form part of the assets of the insolvent. 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.”

In Casey v. La Societe de Credit Mobilier, 2 Woods, 77, it was held that the preference of one creditor by a national bank, mentioned in section 5242 of the Revised Statutes, is a preference given to the creditor to secure or pay a pre-existing debt; that when a national bank receives a loan on condition that the lender shall be secured therefor, and security is accordingly given by pledging a part of the assets of the bank, this is not a preference within the meaning of section 5242, although the bank is then in an embarrassed state; that the fact that the assets pledged were changed from time to time as they fell due, and others substituted in their stead, according to the contract between the bank and the pledgee, did not make the pledge of the substituted assets void; that the title of the receiver is the same as that of an assignee in bankruptcy, and is subject to all equities. In Clark v. Iselin, 21 Wall. 360, it was held that the giving by a debtor of a confession of judg-' ment for a consideration of equal value, passing at the time, is not an act of bankruptcy, though such confession be not entered of record, but kept in the creditor’s custody, and its existence unknown to others. In the opinion it is said that the question whether a transfer of securities is a preference depends on whether it was a transfer of property for a present sufficient consideration, or was a transfer to satisfy or secure an antecedent debt or liability; that the fact that years before the entry of the judgment the debtor contemplated the possibility that a judgment might be obtained, and by the confession of judgment put it in the power of the creditor to obtain one without Ms knowledge or subsequent assent, was wholly impertinent to the inquiry whether the debtor intended an unlawful preference at the time of the entry of the judgment, and that the intention at that date was the material question. In Re Craft, 2 Ben. 221, it is said by Judge Blatchford that the words, “in contemplation of bankruptcy,” as used in the act of 1867, mean in contemplation of committing what was made by the act an act of bankruptcy, or of voluntarily applying to be decreed a bankrupt.

In the present case it must be presumed that the national bank, when from time to time it received the deposits from the savings bank, knew of the law which authorized such deposit, and provided for the preference. The savings bank was not bound to deposit in that particular bank, nor was the latter bound to receive the deposit; but if the one made and the other received the deposit, it must be assumed that both parties then intended that the security provided for by the statute should at the proper time be operative. There was then, in effect, a contract that if the deposit or loan was made the security should be given. This was a part of the transaction in each case of deposit. It was not a case of a security for a prior indebtedness, but it was a case where, on each occasion, a consideration passed of equal value with the security or right given. In this view, and within the rulings in the cases above referred to, there was not a preference in violation of the provisions of section 5242. By virtue of the state act and the conduct of the parties the savings bank had at least an equitable lien, which is effective within the principles laid down in Scott v. Armstrong, and is not antagonistic to the pro rata distribution provided for in section 5236. The receiver took subject to any valid liens or equities. The bank that he represents received the deposits subject to the condition imposed by the state statute; and whether it be said that a trust was impressed or a lien imposed, the statute bound the bank, and its assets when they passed to the receiver, and interfered with no rights of the government. The principles laid down in the Scott Case are quite applicable, and justify the claim of plaintiff to a preference. The right of the plaintiff to a preference was preserved within the principles laid down in that case, and was not, therefore, in conflict with the national law.

The foregoing considerations lead to the conclusion that the plaintiff is entitled to judgment against the defendant for the amount claimed, and that the same be decreed a preferred claim, to be paid in full out of the assets which have or may come into the hands of the said receiver, and be paid by said receiver, or by him certified to the comptroller to be paid as a preferred claim in due course of administration.

Judgment for the plaintiff as stated in the opinion, with costs. All concur.