# Bank of Bethel v. Pahquioque Bank

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United States Supreme Court
81 U.S. 383
Bank of Bethel v. Pahquioque Bank
IN error to the Supreme Court of Connecticut; the case being thus:
On the 3d of June, 1864, Congress passed its well-known 'act to provide a National currency, secured by a pledge of United States bonds;' under which act numerous new banks were organized, and numerous State ones, availing themselves of power given by the act, were converted into National ones, and like those first created by the act placed under the control of the laws and officers of the United States, including specially a Comptroller of the Currency, under whose directions a limited amount of notes were to be given to the banks; these notes being the only ones that the banks could issue.
The act, after providing for the mode in which the new banks were to be organized under articles of association, enacts:
SECTION 8. That every association formed pursuant to its provisions shall 'be a body corporate,' and 'have succession by the name designated in its organization certificate for a period of twenty years from its organization, unless sooner dissolved.
(1st.) According to the provisions of its articles of association, OR,
2d.) By the act of its shareholders, owning two-thirds of its stock, OR,
(3d.) Unless the franchise shall be forfeited by a violation of this act.'
'By such name,' continues the section, 'it may sue and be sued, complain and defend as fully as natural persons.'
The 32d section, after enacting that all the banks in certain cities of the United States shall redeem their circulating notes at par in New York, provides:
'That nothing in this section shall relieve any association from its liability to redeem its circulating notes at its own counter, at par, in lawful money on demand.'
The 46th section enacts:
'That if any such association shall, at any time, fail to redeem in the lawful money of the United States any of its circulating notes when payment thereof shall be lawfully demanded . . . the holder may cause the same to be protested, in one package, by a notary public, . . . and such notary public on making such protest or upon receiving such admission shall forthwith forward such admission, or notice of protest, to the Comptroller of the Currency. . . . And after such default, . . . It shall not be lawful for the association suffering the same to pay out any of its notes, discount any of its notes, or otherwise prosecute the business of banking, except to receive and safely keep money belonging to it, and to deliver special deposits.'
The 50th section enacts:
'That on becoming satisfied, as specified in this act, that any association has refused to pay its circulating notes as therein mentioned and is in default, the Comptroller of the Currency may forth with appoint a receiver . . . who . . . shall take possession of the books, records, and assets of every description of such association, collect all debts, dues, and claims belonging to such association, and upon the order of a court of competent jurisdiction may sell or compound all bad or doubtful debts, and on a like order sell all the real and personal property of such association, on such terms as the court shall direct. . . . And such receiver shall pay over all money so made to the Treasurer of the United States, subject to the order of the comptroller. . . . And from time to time the comptroller, after full provision shall have been first made for refunding, &c., . . . shall make a ratable dividend of the money so paid over to him on all such claims as may have been proved to his satisfaction, or adjudicated in a court of competent jurisdiction.'
A proviso to this section says, however,
'That if such association against which proceedings have been so instituted on account of any alleged refusal to redeem its circulating notes as aforesaid, shall deny having failed to do so, such association may . . . apply to the nearest circuit or district or territorial court of the United States to enjoin further proceedings in the premises, and such court . . . after the decision of the court or the finding of a jury that such association has not refused to redeem its circulating notes . . . shall make an order enjoining the comptroller or any receiver from all further proceedings on account of such alleged refusal.'
The 45th section enacts:
'That all associations under this act when designated for that purpose by the Secretary of the Treasury, shall be depositories of the public money (except receipts from customs), under such regulations as may be prescribed by the secretary; and they may also be employed as financial agents of the government; and they shall perform all such reasonable duties as depositories of the public moneys and financial agents of the government as shall be required of them.'
The 52d section enacts:
'That all transfer of the notes, bonds, bills of exchange, and other evidences of debt owing to any association, or of any 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 shareholders or creditors; and all payments of money for either, 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 this act, 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.'
The 53d section enacts:
'That if the directors of any association shall knowingly violate or knowingly permit any of the officers, agents, or servants of the association to violate any of the provisions of this act, all the rights, privileges, and franchises of the association derived from this act shall be thereby forfeited. Such violation shall, however, be determined and adjudged by a proper circuit, district, or territorial court of the United States, in a suit brought for that purpose by the Comptroller of the Currency, in his own name, before the association shall be dissolved.'
The 57th section ( and this is an important one to be noted in the case) enacts:
'That suits, actions, and proceedings against any association, under this act, may be had in any circuit, district, or territorial court of the United States, held within the district in which such association may be established; or in any state, county, or municipal court in the county or city in which said association is located; having jurisdiction in similar cases. Provided, however, that all proceedings to enjoin the comptroller under this act shall be had in a circuit, district, or territorial court of the United States, held in the district in which the association is located.'
In this state of statutory law about National banks, the First National Bank of Bethel, in Connecticut, on the 21st of February, 1868, failed to redeem some of its circulating notes. They were protested, and on the 26th of February a receiver was appointed under the above-quoted 50th section of the Currency Act, who immediately entered on the duties of his office.
The National Pahquioque Bank of Danbury, Fairfield County, in the same State, asserted that it was a creditor of the Bethel Bank, and presented its claim to the receiver. The receiver, however, disallowed it.
The Pahquioque Bank thereupon, on the 30th of May, 1868, brought assumpsit in the Superior Court of Fairfield County, a court of Connecticut having jurisdiction in similar cases, against the Bethel Bank. The Bank of Bethel defended itself against the claim on these, in substance, among other grounds:
1. That the courts of the United States alone had jurisdiction after the appointment and acceptance of the receiver.
2. That prior to the suit brought the Bank of Bethel had forfeited its charter by a violation of the Currency Act, in not paying its notes, and could not be sued anywhere.
3. That it could not be sued because it was, at the time, under the control and in possession of a duly appointed receiver, 'incapable of self-defence, and entitled to the legal protection and guardianship thrown about it by the law.'
4. That the decision of the receiver on the presentation of the claim was conclusive on the parties to the suit as an adjudication, unless set aside by the Comptroller of the Currency, or by some court of the United States having jurisdiction.
But the court give judgment for the Pahquioque Bank for the full amount of its claim. The Bethel Bank then took the case on error before the Supreme Court of the State, where the judgment of the Superior Court of Fairfield County was affirmed. To review this final judgment of the Supreme Court this writ of error was brought.
Messrs. C. B. Goodrich, Roger Averill, and L. D. Brewster, for the Bank of Bethel, plaintiff in error:
1. The National banks, under the act of 3d June, 1864, have been established as instruments by which the government may perform some of its trusts. They are controlled by the Treasury department. They are allowed to receive from the Comptroller of the Currency notes which they may circulate as money. They cannot issue any instrument for circulation or use as money, or as a substitute for money, except the notes intrusted to them by the comptroller. Their existence, as bodies corporate, can be sustained under the Constitution, only, because they may be employed by the government in the execution of its functions. The act imposes upon the Comptroller of the Currency certain duties of a public character, to perform which he is clothed with certain powers. The legality and propriety of the supervision and control which is exercised by the Comptroller of the Corrency of the United States over National banking associations, and the effect of his acts in relation thereto, are to be determined, exclusively, by the laws of the United States; the construction of which is ultimately to be given by the courts of the United States. The suit brought in the Superior Court of Fairfield County, a State court of Connecticut, was thus brought in a court without jurisdiction.
2. An association under the act is to have succession (that is to say, corporate existence) for the period of twenty years from its organization, unless the franchise (which consists in a right of banking) shall be forfeited by a violation of the act. Now the Bank of Bethel committed a violation of the act, a 'default,' as the act itself calls it, on the 21st of February, 1868, at which time in failed to redeem some of its circulating notes; which failure was duly ascertained by the Comptroller of the Currency, who, on the 26th of February, acted thereupon, by the appointment of a receiver. This action of the comptroller was not enjoined by any District, Circuit, or Territorial Court of the United States; the only courts competent to enjoin or act in the matter. The result is that the power of succession (corporate capacity) ceased to exist prior to the 30th May, 1868, on which day the Pahquioque Bank instituted their suit. The association was dissolved; the receiver was clothed with power to reduce the assets to money, by suit in his own name; was directed to pay the money to the Treasurer of the United States, subject to the order of the Comptroller of the Currency, for the use of those entitled as creditors, giving priority of payment to the United States; the remainder or surplus of the proceeds, after the payment of debts, to be paid by the comptroller to the shareholders of the association or their legal representatives, in proportion to the stock by them respectively held, and not to the association in its corporate capacity.
3. On the 30th May, 1868, on which day the Pahquioque Bank commenced its suit, the Bank of Bethel had no authority to pay, was prohibited from paying, any creditor; it had no means within its control with which to pay. If the bank had authority, after notice by the comptroller, to pay a creditor, it might by such payment defeat the provision of the act which gives to the United States, from the assets of the association, priority of payment for any deficiency in the redemption of its circulating notes after applying the bonds deposited for their redemption. It results, from the want of authority to pay a creditor, at the time the suit by the Pahquioque Bank was instituted, that no suit at law, in any court, State or National, could be instituted against the Bank of Bethel. If one creditor, after the appointment of a receiver, may institute a suit in a court of law, every creditor can, and by such course of proceeding disregard the winding up under the direction of the comptroller.
4. After an association has been placed in the hands of a receiver, the statute prescribes the mode of winding up, which includes an ascertainment of the creditors, and the amount severally due to them. This mode of proof excludes all others. This cannot be doubted, except by holding that the act conferring authority upon the Comptroller of the Currency to appoint a receiver, to receive proof of claims, to wind up the affairs of the corporation, is unconstitutional.
Messrs. W. F. Taylor and O. S. Seymour, contra:
1. The whole argument against the jurisdiction of State courts is answered by the 57th section of the act which in cases like that where the Pahquioque Bank sued, gives the jurisdiction in express words to 'any state, county, or municipal court in the county or city in which said association is located, having jurisdiction in similar cases.'
2. The association does not become extinct, ipso facto, by the appointment of a receiver. The 50th section speaks of it as existing. The powers of the receiver may be superseded, if the bank shows that it did not fail to redeem its notes. Default in paying notes only curtails its privileges. But even if it were a cause for forfeiture, still by the undoubted rules of the common law and by the express provisions of the 59th section of the act, a judgment of forfeiture by a judicial tribunal is necessary, and the corporate existence continues till such judgment is had. Questions of forfeiture cannot be tried in a collateral way. The only evidence which the law admits is the copy of the judgment of forfeiture, by a competent tribunal, in a proceeding instituted directly for the purpose of an adjudication of forfeiture.
3. A judgment by a State or other court, for a sum of money (such a judgment was given in the courts below), does not take things out of the receiver's hands. It does not interfere with any duties which the Currency Act imposes on him. It merely ascertains the justice of a claim and fixes its amount. Payment of the claim can be made only in subordination to the Currency Act. No number of judgments would prevent 'the winding up under the direction of the comptroller.' The only result is that the claim being 'adjudicated by a court of competent jurisdiction' the creditor under it comes in for a dividend.
Then is the disallowance by the receiver of the claim presented to him before the judicial adjudication, a decisive adjudication of that claim? Certainly not. The comptroller and receiver are not judges of the United States. They cannot hold a court, summon a jury, compel the appearance of witnesses, or swear witnesses if they should appear. Every citizen of the republic may of common right appeal to a judicial tribunal for the adjudication of his rights. The right of trial by jury is secured by the Constitution to controversies of the character of that between these two banks, and the right of trial by jury implies that the controversy may be brought before a court that has power to summon a jury. There is in the act no provision for the establishment of a special tribunal to adjudicate claims against the insolvent bank. The failure to make any, leaves their adjudication to the courts in the ordinary course and manner of settling disputed claims. This would be the necessary inference from mere silence, and is confirmed and established by the provision in the 50th section, that the comptroller is to make a ratable dividend 'on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction.'
Mr. Justice CLIFFORD delivered the opinion of the court.

## Notes

* ↑ 13 Stat. at Large, 99.
* ↑ Atlas Bank v. Nahant Bank, 23 Pickering, 480; Hubbard v. Hamilton Bank, 7 Metcalf, 340.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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