Evening star., 1929-06-30
NEW RULINGS MADE.
IN BANKING CASES
n
Vital Decisions by Supreme
Court Are Reviewed by
Research Expert.
BY GREGORY HANKIN.

BY GREGORY HANKIN.
The constitutionality of the McFad-
den banking act and the Georgia
law were the outstanding banking ques-
tions before the Supreme Court during
the last term. There were also q con-
siderable number of cases involving tax
alton of national banks, the civil and
criminal liability of officers and direc-
tors and the double liability cf stock
holders of Joint Land Banks.
National Banks Must Qualify.
Under section of the McFadden
banking act, whenever a national bank
consolidates with State bank or trust
company all the rights, powers and
I privileges enjoyed by the State bank
may be exercised by the consolidated
bank. Among these powers is the right
to act as executor of an estate. The
| question arose in Massachusetts whether
this provision meant that the national
| bank becomes an executor by virtue of
the consolidation or whether the COM
solidated bank must also qualify as an
| executor under the State laws.
| The problem came up when the Fitch
burg Bank G. Trust Co, a State bank,
and the Merchants National Bank of
| Worcester. a national bank consoli-
dated and formed the Worcester County
| National Bank. The trust company, at
the time of the consolidation, acted as
executor of an estate. After tho con-
| solidation the report of the executor
was filed by the consolidated bank. The
Probate Court refused to accept the re-
port, for the reason that the consoli-
dated bank had never been appointed
as executor. 1t held that, under the
law, the consolidated bank is not en-
powered to act as executor unless it also
qualities under the State law: further
more. that if the McFadclen act permits
the bank to act as executor without ap-
| pointment by the Probate Court, the
act is unconstitutional as usurping the
powers reserved to the STATE.
| This decision was upheld by the higher
courts Of Massa sachusetts. The Supreme
Court of the United States affirmed
their decision, but renlanded the case
for further proceedings to give the con-
ssoiidated bank an opportunity to quail
ity as executor.
National Bank Retains Lien.
The consolidation of national and
State banks gave rise to another con-
| troversy, in which it was held that the
rights of the State bank had been taken
| over by the national bank In Okla
homa, II stockholder of State bank
is indebted to the bank the latter has
a lien On the stock to the amount of
the indebtedness. The question arose
whether the lien is retained if the State
| bank Is converted into, or is consolidat-
ed with, national bank. The SUI
preme Court of the State held that the
national bank retains the lien and the
supreme Court of the United States
denied the stockholders petition 70 re-
view the case.
Taxation of National Banks.
1t has long been established that ma
tlonaI banks are inStrumentalities of
the Federal Government, and there
lore may not be taxed by the States,
except as permitted by Congress. The
national banking act specifically pro
vidcs that, in imposing taxes on the
shares OF stock of the national banks,
or on dividends derived from the
shares, or on the income of the bank
| ing associations, the States may not
impose a greater burden of taxation
| than is imposed on other moneys or
credits competing with national banks
Since the passage of the act numer-
GUS cases have come to the Supreme
/ Court in which the banks complained
OF discrimination by the States. During
the past term an appeal came from the
decision of the Supreme Court of
South Dakota, in which the national
bank attacked the State statutes as
putting the national banks at disad-
! vantage
The particular complaint was that
the rate of taxation on national bank
shares was greater than the rate on
money, credits. real estate. mortgages
and contracts for deeds in the State, a
substantial amount of which was used iE
competition with national banks. The
banks paid the tax under protest and
| then applied for refund, which was
denied. The State courts dismissed the
complaint because in applying for the
refund the bank did not specify its
reasons in the manner provided by the
| State statute. The bank appealed to
the Supreme Court, but the appeal was
dismissed for lack of jurisdiction, since
the decision of the State court was
based on a non-Federal ground.
2 Since, strictly speaking, the taxes i'm
posed on national bank shares are i'm
| posed on the shareholders, and not on
the bank itself, it was ma ntained by
the taxing authorities in Kansas that
national bank has no standing in a
suit brought to recover such taxes paid
bunder duress; that the action should
be brought by the shareholders them
! selves. The Circuit Court of Appeals
held that the national bank was the
proper plaintiff in the case. and the
Supreme Court refused to 60 into the
matter.
Criminal Liability of Directors.
The provision in the banking law of
| Georgia that whenever a State bank
| becomes insolvent the president and
| directors shall be presumed to have
| fraudulently caused the insolvency was
held to be violative of the due process
/ clause of the Federal Constitution.
| Under this law, w. d. Manley of At
lanta was convicted and sentenced to
penal service for 10 years, because the
bank of which he was president be-
came insolvent. The Supreme Court Of
the United States held that, in view
of the other provisions of the law, and
in view of economic facts, there is no
reasonable connection between the pre-
sumption of fraud and the fact of in
solvency One of the provisions
stressed by the court is that in Geor-
gia banks are permitted to make loans
up to 85 per cent of the deposits Un-
foreseen demands on q bank may cause
its insolvency, though the president
and directors may have exercised ut
most good faith. Under such circun-
stances, the court held, Inference of
crime and guilt may not reasonably be
drawn from mere inability to pay de-
nand deposits and other debts as they
mature"
The decision in this case goes far
| beyond its application to banking cases.
] Within the past number of years stat
utes were enacted by the Federal Gov
ernment and by the States, in which
| the burden of proof is shifted on the
! defendants. The rule laid down by
the Supreme Court in this Georgia
! Banking case Is. that mere Legislative
! fat may not take the place OF fact in
| the determination of issues involving