Source: https://supreme.justia.com/cases/federal/us/291/262/
Timestamp: 2019-04-18 14:42:13+00:00

Document:
1. Under the national banking laws, a national bank has no power to pledge its assets to secure a deposit of public money of a state, or of a subdivision of a state, unless it is located in a state in which state banks are so authorized. Act of June 25, 1930. P. 291 U. S. 268.
2. The State of Illinois has not conferred upon its banks the power to pledge assets to secure deposits of political subdivisions of the state. P. 291 U. S. 269.
3. Where a national bank, before becoming insolvent, made an ultra vires pledge of bonds to secure a deposit, its receiver was entitled to recover them unconditionally for the benefit of the general creditors of the bank. Texas & Pacific Ry. Co. v. Pottorff, ante, p. 291 U. S. 245. P. 291 U. S. 272.
Certiorari, 290 U.S. 617, to review a decree which reversed a decree of the District Court, 58 F.2d 341, dismissing a bill brought by the receiver of an insolvent national bank to obtain possession of bonds which the bank had pledged as collateral security for a deposit of public moneys by a city.
The controlling question is whether Illinois has conferred upon banks organized under its laws power to pledge assets as security for deposits of public moneys of political subdivisions of the state.
"make his daily deposits of such sums of money as shall be received by him from all sources of revenue whatsoever, to his credit as treasurer of said city . . . in one or more banks . . . to be selected by the president of said council, the commissioner of accounts and finance, and the treasurer of such city . . . or by any two of them, and any such bank, before any such deposit is made therein . . . shall also execute a good [and] sufficient bond with sureties to be approved by the president of the said council, and conditioned that such bank will safely keep and account for, and pay over said money. . . ."
Carroll, having been appointed treasurer of Marion, applied to the Fidelity & Casualty Company of New York to become surety on his official bond. Although Marion has a population of 9,000, it was then without a bank. The Fidelity Company agreed to become surety on Carroll's bond provided he would get elsewhere a bank which would give satisfactory collateral security for the repayment of his deposits of the public moneys. The City National Bank of Herring agreed to do this. Thereafter, it delivered to the Continental Illinois National Bank & Trust Company of Chicago, as escrow agent, negotiable bonds of the par value of $23,000, under an agreement so to secure the city's deposit; the Fidelity Company executed Carroll's official bond, and he made his initial deposit in the Herring bank of the city's moneys. That bank was then solvent. On October 31, 1931, it failed and a receiver was appointed. At the time of the failure, the city's deposit was $16,430.00.
of them. The District Court dismissed the bill. 58 F.2d 341. Its decree was reversed by the Circuit Court of Appeals, one judge dissenting. 64 F.2d 721. This Court granted certiorari.
The petitioners contend that the pledge is valid because the Act of 1864, as originally enacted, conferred upon national banks, as a necessary incident of the business of deposit banking, the power to pledge assets to secure deposits, and that the amendment of June 25, 1930, did not limit the power so originally conferred. They contend further that, even if the 1930 amendment be construed as denying to a national bank power to make such a pledge unless it is located in a state which grants the power to its state banks, the pledge here challenged is valid because, in Illinois, state banks have the power to pledge assets as security for deposits of public moneys of any political subdivision of the state. The petitioners contend also that, even if the pledge was without authority in law, the bill was properly dismissed by the District Court because the bank could not have required return of the bonds without repaying the deposit, and that it would be inequitable to permit the receiver to do so. We think these contentions are unsound.
can do so legally only if it is located in a state in which state banks are so authorized. In some states, national banks had, prior to the 1930 amendment, frequently pledged assets to secure public deposits of the state or of a political subdivision thereof; comptrollers of the currency knew that this was being done, and they assumed that the banks had the power so to do. But the assumption was erroneous. The contention that such power is generally necessary in the business of deposit banking has not been sustained.
reported decision rendered by any Illinois court since the enactment of the General Banking Law of 1887 holds that the alleged power exists as one incidental to the business of deposit banking. Nor is there any evidence that, in Illinois, such power is necessary in the conduct of the business of deposit banking.
banks have failed, [Footnote 5] and there must have been much litigation arising therefrom, but no exertion of the alleged power on the part of any state bank has been shown.
involving similar questions are fully reviewed. We cannot say that the Circuit Court erred in the conclusion reached.
Third. Since the Herring bank was without power to make the pledge of bonds here in question, its receiver is entitled to recover them unconditionally in order that they may be administered for the benefit of the general creditors of the bank. See Texas & Pacific Railway Co. v. Pottorff, ante, p. 291 U. S. 245.
See Texas & Pacific Ry. v. Pottorff, ante, p. 291 U. S. 245, note 11.
"No moneys in the State Treasury shall be deposited in any bank approved as a depositary under the terms of this Act until such bank shall have deposited securities with the State Treasurer equal in market value to the amount of moneys deposited."
"Shall deposit daily all moneys collected by him in any state or national bank selected by the auditor, who shall require of such depository satisfactory securities or satisfactory surety bond for the safekeeping and prompt payment of the money so deposited."
Courts of other states have referred to it as authority for the proposition that banks have the power to pledge assets to secure deposits. See Williams v. Earhart, 34 Ariz. 565, 273 P. 728; First Amer. Bank & T. Co. v. Palm Beach, 96 Fla. 247, 117 So. 900; United states Fidelity Co. v. Bassfield, 148 Miss. 109, 114 So. 26; Melaven v. Hunker, 35 N.M. 408, 299 P. 1075; Page Trust Co. v. Rose, 192 N.C. 673, 135 S.E. 795; Cameron v. Christy, 286 Pa. 405, 133 A. 551; Griggsby v. People's Bank, 158 Tenn. 182, 11 S.W.2d 673; Pixton v. Perry, 72 Utah, 129, 269 P. 144.
The auditor of public accounts, in his annual statement on the condition of state banks (p. 42) gives (Dec. 31, 1932) 1,866 as the aggregate number of the banks existing on December 6, 1888, and organized since. Of these, 26 had charters granted prior to December 6, 1888, and 1840 were organized thereafter under the general law. The number of banks in operation December 31, 1932, was 742. The number then in receivership was 444. Between December 31, 1932, and March 1, 1933, 32 more state banks failed. Federal Reserve Bulletin, 1933, pp. 105, 201.

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