Earl Warren: Number 10, United States, Petitioner, v. Ethel Mae Yazell. Mr. Solicitor General.
Thurgood Marshall: Mr. Chief Justice, may it please the Court. Assume I am called upon to answer the question about our brief in the former case. While the brief was being prepared there were many conferences with the Department of Agriculture and indeed other agencies of the Federal Government. We tried to corral everybody's idea into a brief. When the brief was in final form the Secretary of Agriculture notified us he did not agree with the Government's position on the preemption point however he did not desire to have that point set out in the brief. It's best I can explain what happened.
Earl Warren: Thank you.
Thurgood Marshall: On the other case.
William J. Brennan, Jr.: Excuse Mr. Solicitor General?
Thurgood Marshall: Yes sir?
William J. Brennan, Jr.: This is only the preemption point?
Thurgood Marshall: Only the preemption point.
William J. Brennan, Jr.: On the conflict point getting over the preemption point, are we to assume the -- that would express the fact (Voice Overlap) --
Thurgood Marshall: I'd explain the statement on that. Yes.
William J. Brennan, Jr.: Thank you.
Thurgood Marshall: The reason is most of this happened before I took over.
William J. Brennan, Jr.: The Secretary did agree with you on the conflict?
Thurgood Marshall: Right.
William J. Brennan, Jr.: Yes.
Thurgood Marshall: Its -- the one point is the preemption and he flatly disagreed. In the present case is an action filed in the District Court in the western district of Texas by the United States of America on behalf of small business administration seeking to recover balance due on a promissory note executed by one Delbert Yazell doing business as Yazell's Little Lake agent and Ethel Mae Yazell. The amount involved was $47,019. A copy of the note was attached and there was also a modification of the note attached. Immediately thereafter the defendant Ethel Mae Yazell filed a motion for summary judgment asserting that no action could lie against their separate estate and this was accompanied by an affidavit asserting her covertures. And that the defendant's original answer after Yazell again asserted her coverture and dealt with -- Yazell pleaded a whole lot of set off claims etcetera. Now the plaintiff's motion for summary judgment was granted against Delbert but except as to the set off point and the defense of coverture of Ethel Yazell was deferred for briefing, etcetera and finally in the opinion by Judge Hutcheson, summary judgment was given for Ethel Mae Yazell. And the -- in his opinion Judge Hutcheson was very plain to the point and he pointed out that the sole issue was whether the law of Texas where the contract was made that married women is protected by coverage of a personal liability under contract is controlling here or whether since the transaction was a transaction with the Federal Government, the Texas law of coverture was nullified and abrogated and then he specifically held no and he disagreed with the case of United States versus Helz in the Sixth Circuit. On the other hand Judge Prettyman sitting by assignment relying on the Clearfield Trust case held that it is opinioned along from the Federal Government as a federal manner and should be governed by a federal law and not the state statutes. The case itself is by no means difficult. In the first place there's no question with the facts and the only question is as to how far federal agency or the Federal Government is bound by local state procedures. The first part of our brief we set out that federal law alone controls in this. I don't believe there's any question about it and that is so unless Congress provides to the contrary like in the Federal Tort Claims Act or one of those types of statutes. But here, there's no question that federal law governs, indeed the respondent agrees that federal law governs the case. The respondent also insists that the State of Texas has no interest at all in this matter and he says that the Texas statutes are not involved. It's just the Texas property rules that's concerned. On the other hand when you take the Clearfield case and U.S. against Standard Oil, we find that in the absence of an applicable act of Congress, the Federal Courts must fashion the governing rule of law according to their own standards, the federal standards. And in fashioning this rule of law would be applied due consideration must be give to cases where the Government's purse is affected. And the Federal Courts may adopt state law of course in fashioning their own as they did in other cases. For example the Bozeman case and there are several other cases relied on by the respondent here. However, we must bear in mind especially with small business administration that it is not a separate governmental corporation rather it's an integral part of the United States Government itself. As for example the Farm Credit Administration about which this Court held as the Farm Credit Administration, there's not an unincorporated agency of the United States Government administrative and lending funds, its lending funds appropriated by Congress of the United States Treasury and returning the money to the Treasury upon repayment. In short, it is an integral part of the Government mechanism itself. Now the cases where you'll find the Court agreeing to the state laws recording instruments etcetera and even indeed on the question of priority of liens and all such actions, one or two cases the Court is going so far as to say we do this because in doing so we're following the law of all of the states or we're doing it because the majority of the states have the same rule. But in this case as we point out in our brief, there are only at best we can find 11 states that still have some vestige of married woman disqualification. On the other hand the other states have the regular law that everybody follows. This Court has taken note of the fact that covertures about is archaic as any rule still remaining around in the law.
Speaker: General, supposing a state passed a law that says that they didn't -- would not permit any of its citizens to take small loans on a business -- loans into the small business administration, would the United States have to respect that law?
Thurgood Marshall: Oh, I cert -- I don't think so sir.
Speaker: You don't think so?
Thurgood Marshall: No sir. It seems to me that on the question of this governmental function of distributing funds and lending funds out, I don't believe that the state could interfere with right of the United States citizen to obtain aid from its Government. The Sovereignty Clause would be gone then it seems me, Article 6. And the -- it start -- it seems to me that when you realize on the other hand that in Texas alone as we pointed out in our brief as of the end of 63 there were $46 million in business loans and 15 million in disaster loans outstanding and then we outlined a lot of money in the other 11 states that have this. Certainly this is the place where we want a uniform rule. We don't want a rule that will apply to one group of married women in one state and a group of married women in another state to the contract. The congressional purpose of cost with aid and assist people but as pointed out in our brief they are required to get as much security as can be had. I believe that the cases if I may for a moment get to the respondent's position which I think of course deserves great attention but the main thrust is that since Congress gave small business the right to make rules and small business in one obvious rules involving warehousing of the assets provides that they shall be put in a bonded warehouse unless the state law protects the lien otherwise. As I understand the respondent position as said by putting that one provision and one regulation they adopted all of the state laws of all of the 50 states rather than 48 when the law is adopted. This is of course not true and in every case where this Court has so -- made the federal claim subject to state rule. It has been to get uniformity, not to destroy uniformity and I think that's the difference between those cases in this case. The only thing --
Potter Stewart: I suppose there's no uniformity in the form of the instruments or the mortgages or the various credit documents I suppose each one has to conform with this state law where it's made, isn't it?
Thurgood Marshall: I -- been unable to find that out but I -- in reading the -- reading the instruction finance law and this other business cases and the SBA cases it appears to me that they used a local form. Indeed in this case a part of the chattel mortgage was a separate Texas affidavit that she was a married woman which was I assume was the Texas law.
Potter Stewart: And in some states have these as trusts, others have mortgages. There all -- there'd be different sets of laws on this? But I (Voice Overlap) --
Thurgood Marshall: I think render some of the cases they're bound to do it because of the recording cases where they said where the chattel mortgage wasn't properly recorded, the Federal Government was lost.
Potter Stewart: Yes.
Thurgood Marshall: So it would be good business to comply with the local rules and I'm sure they're different.
Potter Stewart: And I suppose -- how about minors, states -- most states --
Thurgood Marshall: Well, the minors --
Potter Stewart: A couple of minors to their contracts.
Thurgood Marshall: And minors and insane and the third group which the restatement set out as normal incapacities. I imagine that the federal rule could very well be -- we recognize here because they're the same in most of the states although --
Potter Stewart: I don't know that they are the same, the rules as to minorities (Voice Overlap) --
Thurgood Marshall: I'm sure that they're quite the same.
Potter Stewart: Yes.
Thurgood Marshall: But I mean, if there's any uniformity there but the whole point is a need for uniformity in a business as large as these businesses are becoming.
Potter Stewart: I understand the argument of course but I'm just suggesting you don't have much uniformity in various other aspects of these small (Voice Overlap) --
Thurgood Marshall: We have to let those go as we get to him because this Court has said, yes here and no there about recording. Yes here and no there as to the liens but in this case the only uniformity we're asking is that coverture not be a defense absolute in and of itself. Now she might have a thousand other defenses but bring them out but don't by summary judgment throw the case out on coverage and that's the rule we would ask the Federal Court to lay down as was done in the other case, the Helz case. If please the Court if they have no further question I think that's about our position as set out in the brief.
Earl Warren: Mr. Hammett.
J. V. Hammett: Mr. Chief Justice, may it please Your Honors. I would say that I occupy a rather curious position in this case because I stand here and say that small business administration and its predecessor, Reconstruction Finance Corporation has performed and is performing one of the great services to the citizens in this country. And so in a sense I stand here defending the methods of business employed by those two agencies in their lending functions to private enterprise. They've done a good job and they've done that good job upon the sole basis of utilizing as a ready made vehicle to property laws of the several states in which they operate. First, the one simple question in this case is whether the United States was entitled to a personal judgment against this mad woman who had been sued jointly with her husband. The District Court Judge Ben Rice ruled that personal liability against the married woman did not lie basing it upon a community property rule as it affects the married woman and her obligations or a lack of obligation in joining with the husband in executing community debts where a community property only is involved. That judgment was affirmed in the Circuit Court with a divided or a dissenting opinion by Judge Prettyman. Now, coverture as such as I see it is not important in this case and certainly not to this Court. If there's any federal law on quote (Inaudible) I don't know where it is. I think that the one thing that should be said here is that conseq -- grave consequences can result easily from a failure to grasp the importance of the lending agencies not just this one, the Farmers Home Administration and the others. In the state of the federal law they've got to use the local property laws and each of the states where they're doing business. If they fail to do that then you have this curious position. Reconstruction Finance Corporation I believe is created somewhere about 1930 and it operated until the Small Business Act of 1953 when the succession was created. And none of this legislation did the Congress provide a set of property laws for the federal administrators to use in discharging the public policy placed upon them by the Congress. In some other cases the omission to provide those property laws for their operation has been persuasive I think that was true in the Kramer case by the Eight Circuit. So, to get right along with it, there are two things that I would submit in behalf of the respondent in this case which I believe are worthy of profound consideration. One is that in the legislation creating small business administration the Congress adopted directly and indirectly and I repeat this, the Congress did adopt local property rules to be used by the small business administration as appropriate federal rules governing the validity of the security instruments to be taken by -- I said appropriate federal rule because there is not in this case any conflict between the laws of the State of Texas and the authority of the Federal Government in this field. There is no conflict if there is then the federal authority prevails without any question but this Court has always recognized that the Congress has the right to adopt state laws or to absorb them as it were to borrow a phrase from one of the cases and use those local property laws in the discharge of the federal function which is the lending of money to private enterprise.
Hugo L. Black: May I ask you in reference to this particular law, would it be any different or is it -- would it be about an equivalent, the state had adopted law which made it illegal for a wife to borrow money from the Federal Government?
J. V. Hammett: I think that such a law would be an unconstitutional law Your Honor. I don't think the state can interfere if the Congress says we want to lend money to two year old boys and to women who've been married five times and to nobody else. I don't think the state would have any standing to question that. On the other hand if the Congress does not place any limitation by definition or otherwise upon who is or is not legally capable of contracting but just have -- it says that you can lend money and take note some security instruments for it and not another word, then I think you must look somewhere to determine who is legally capable of contracting.
Hugo L. Black: Well, is there any? Does the law indicate one way or the other whether women are eligible for loaning?
J. V. Hammett: It does not specifically. I'm sure it does not.
Hugo L. Black: Do you think they are?
J. V. Hammett: I think they are. They were in Texas both before and after the -- this coverture law of statute was amended.
Hugo L. Black: But the effect of this is to make it impossible isn't it, as it (Voice Overlap) --
J. V. Hammett: No sir, not at all sir.
Hugo L. Black: For the wife to borrow?
J. V. Hammett: Not at all. That's one of the misconceptions about this lawsuit.
Hugo L. Black: But why would they lend it if they couldn't collect it?
J. V. Hammett: I didn't mean to say that. I meant to say that a married woman could sign a valid contract even under the Texas state law.
Hugo L. Black: But can it be collect -- is it collectible?
J. V. Hammett: Yes sir. It was before this 1963 stat -- Texas statute amendment and it is since then.
Hugo L. Black: Well, your position is then that the Texas Law does not relieve a woman from -- married woman from liability to the Government on this particular contract?
J. V. Hammett: My -- I don't believe that I am conveying what I am trying to say to you sir. I say this that there's nothing in the federal statute that says that a loan to a married woman is or is not valid or invalid or anything about it specifically. The Texas law of coverture says this that on a community debt a wife signing the note with her husband is not personally liable but she can create personal liability for her separate estate and she can even before the amendment she could have her disabilities of coverture removed and engage in business and borrow money just like any other adult person.
Hugo L. Black: May I just want to understand perfectly what your law is and as I understand it, under your Texas law a woman who's engaged in business with her husband who borrows money from the Government, small business administration is free from being liable for that debt so that can be collected, so that its collected?
J. V. Hammett: No sir. That's not the way it works. That -- now, you can't take a personal judgment --
Hugo L. Black: That just (Voice Overlap) --
J. V. Hammett: -- against that wife unless she has had her disabilities or coverture removed under the statute then she's fully liable but if it's as just a regular community debt where she has not qualified to do business then if she merely signs the note with her husband there is no personal liability on her part for the simple reasons sir that she has not one thing on earth to say about the community property or its management in Texas. Now I suppose in the other community property estate, that's solely vested in the husband.
Hugo L. Black: But what is (Voice Overlap) --
J. V. Hammett: Now the reason she didn't --
Hugo L. Black: What is a community property? Is it all -- both of them on? Is it --
J. V. Hammett: No sir, it would not be. They -- each one or either one could own property that we call separate property depending upon whether they received it and owned it before marriage or received it by gift or device. Without some rule of that kind the community property laws would be a mess to administer. You just got to fixed the management in one or the other. It's hard enough for them to get along although sometimes in those areas where they have to talk the business over but you'll all better designate a husband or a wife. I heard Judge Slaton say at one time about his wife after she'd already make a speech that what thought, it was (Inaudible), I thought it was old, talking about the community property where she had half of it and he had half and she was kidding about thinking she owned it all up until that night.
Hugo L. Black: Well, you have to reach the proposition and we have to face that under the law there the Government makes a loan the man and his wife. He does it and it's terrible because the chances are that it would not be able to collect it from the wife.
J. V. Hammett: Not at all sir.
Hugo L. Black: Is it --
J. V. Hammett: Not at all.
Hugo L. Black: That's what I'd like to --
J. V. Hammett: That is not correct. The Government in this very case recovered a judgment that is as plenary as it could recover in any case anywhere so long as you recognize the contract law in that or any given contract. In this case it happens to be that the judgment runs against all the community property they own or ever will own. But the Government got everything that it contracted to get when that lady signed that note. Why did she sign the note? One of the main reasons and it's a common practice in Texas because when she signs it to eliminate any possibility of her later claiming that's my separate property and my husband has no right to give you that mortgage. That's the primary reason. There are one or two others but they are not so important here. I would say sir that whatever the wisdom may be that this is covered, this question and this lawsuit is covered by the federal act itself that Congress did adopt the local property laws in each state where a small business administration is to operate. And I will say this to you that that's been the unquestioned interpretation by the small business administration throughout its suggestions and I understand it was also of the Reconstruction Finance Corporation.
William J. Brennan, Jr.: Mr. Hammett, may I ask just one question. From what -- your colloquy with Mr. Justice Black, does this mean that all that the Texas laws saves the wife, his execution of this judgment against her separate property?
J. V. Hammett: Right sir.
William J. Brennan, Jr.: But it maybe executed against the community property?
J. V. Hammett: Right sir, absolutely correct.
William J. Brennan, Jr.: And -- as on the facts of this case does this wife have separate property?
J. V. Hammett: Not yet sir. There is an expectation unless he probably does something else that she will a small inheritance.
William J. Brennan, Jr.: But that can't be reached to satisfy this judgment.
J. V. Hammett: That's correct sir.
Byron R. White: Mr. Hammett, I thought the Government's position was that unless the Congress has said this that the state law is to apply the federal contracts that when you've got a federal contract you apply the federal law to it. And that the state law had anything to do with it and they're just preemption or there's occupation of the field that you don't have to get around this thing whether the Congress has specifically said anything or any agencies specifically said anything if you don't get around with the conflict problem?
J. V. Hammett: Sir I believe that if the Congress expresses itself or if that's the interpretation of this Court then and there was a conflict then by all means the federal statute would prevail.
Byron R. White: Well, yes, but the -- what about just the narrow -- much narrower point that at any time you have a federal contract -- that the Federal Government enters into a contract that's authorized by the statute that this federal law governs the -- all aspects of that contract and that state law has nothing to do with it unless Congress expressly says that it does.
J. V. Hammett: I think that it does not. A state law does not have anything to do with it unless it's used as a federal rule as the appropriate federal rule. I don't think the states, any state can control what the Congress does. I don't -- if I'm -- understand your question, if there should be a conflict the federal statute would prevail. But --
Byron R. White: (Inaudible) but you don't even get to the conflict question. Government's position as I read its brief is that once you have a government contract with one party on the one side and one on another and it's a government contract. The federal law controls all aspects of that contract, liability, everything and all.
J. V. Hammett: Yet from the standpoint of source our sovereignty yes sir I agree with that position.
Byron R. White: And you never -- and that the state law has nothing to do with it until and unless that Congress says that, well this is a federal contract but nevertheless we'll adopt state law.
J. V. Hammett: I think that's right and then if Congress fails to say that this Court can.
Byron R. White: Well, (Voice Overlap) --
J. V. Hammett: But using it as an -- the appropriate federal rule.
Byron R. White: Is this a federal contract, this note?
J. V. Hammett: Yes, I think it is. I think --
Byron R. White: Why shouldn't federal law --
J. V. Hammett: Because the United States Government is a party to the contract --
Byron R. White: Yes, why --
J. V. Hammett: -- and this Court --
Byron R. White: Why does state law got anything to do with it then?
J. V. Hammett: Well, I don't think that the small business administration can operate in a void or a vacuum. I mean that's exactly the position they're in, if you can't find some body of property law somewhere that they can use in performing their functions and the only place you can find that body of law is in the state property laws.
William J. Brennan, Jr.: But your argument doesn't conclude in reaching into the law of Arkansas instead of Texas, as I understand it?
J. V. Hammett: I beg your pardon sir.
William J. Brennan, Jr.: If they may reach out and pick up state law they don't necessarily have to adopt your state law, do they?
J. V. Hammett: Oh, I think that would -- I -- the Congress can pick any standard it wants.
William J. Brennan, Jr.: Yes.
J. V. Hammett: I --
William J. Brennan, Jr.: You agree that the state law that the fact that it's a Federal Government -- that it's a federal contract, does it preempt state law or that federal law governs (Voice Overlap) --
J. V. Hammett: Let me answer it this way as I see it. This is a contract with the Government. Therefore federal questions are involved. Therefore the laws that govern or control will be federal rules. Now those federal rules may find their origin and context and their cohesiveness in the state property laws.
William J. Brennan, Jr.: And you say you ought to --
J. V. Hammett: I say that --
William J. Brennan, Jr.: -- as a matter of just good common sense and that where better can you go doesn't rule all the state where the lady lives?
J. V. Hammett: I'd hate the job of having to provide that body through a set of regulations.
Byron R. White: The United States -- if the United States now says, "We don't want to go to this law of Texas, its federal law and we're going to find the federal law somewhere else.
William J. Brennan, Jr.: In any other case and this very suit the Government, the petitioner would be a estopped because of an inconsistent position when that -- I don't understand why the petitioners not estopped as a matter of law in this case. The regulation that Mr. Marshall referred to it adopts the state law itself in plain expressed terms and not only does it do that but that is this case. The mortgage in this case covered a stock of merchandise that would have had no standing. No validity except that given to it by the state statute which was adopted by the Congress, by the administrator of Small Business Administration in the form of his regulations and more importantly in this contract in this case, their note and the chattel mortgage. Their reference is to the -- to Article 4000 of the Texas statute
Abe Fortas: Mr. Hammett.
J. V. Hammett: -- which authorize that mortgage and --
Abe Fortas: Mr. Hammet.
J. V. Hammett: Yes sir.
Abe Fortas: I beg your pardon sir. Mr. Hammett, I noticed in footnote 5 in the Government's brief they list California as a state having some limitations upon the capacity of married women to contract. And that suggest to me this question you happen to know whether there is -- whether community property states generally restrict in some way the capacity of married women to contract as a part of the community property scheme?
J. V. Hammett: Mr. Justice Fortas, I haven't said this. I don't claim to know much about the laws of another state but of the two or three other community property states but I have just a small knowledge of. First their law places, their management in control of the community of the state in the husband and secondly as a corollary to that there must be some kind of limitation on the contracts of the wife only to this extent perhaps but this is necessary that it appeared clearly at all times what she is contracting when she signs her name and --
Abe Fortas: I --
J. V. Hammett: -- if you don't have that --
Abe Fortas: I don't quite understand from the Government's brief whether they have thoroughly considered the possibility that some limitations on the capacity of married woman to contract maybe an integral part of the states community property system and if it is a community -- an integral part of the state's community property system, would that have a bearing upon the result to be reached in this case, I merely suggest the question far from knowing the answer.
J. V. Hammett: I think it does sir. I think that's absolutely right.
Hugo L. Black: The regulation?
J. V. Hammett: Yes sir, it's -- you mean the small business regulations?
Potter Stewart: On page 5 of your brief?
J. V. Hammett: On page 5 of the brief, Regulation 122.17 F. and Regulation 123.7 AA
Speaker: Thank you.
J. V. Hammett: And I would like to close by this one comment that this is a -- what they call a disaster loan, this was following flood. The small business administration if it did nothing else that this fade and the disaster loan program is a tremendous program and it could not function literally, could not function without using the state laws that we're using in this case. This judgment ought to be affirmed Your Honors.
Speaker: (Inaudible)
J. V. Hammett: I beg your pardon?
Speaker: (Inaudible)
J. V. Hammett: Only in a sense judge it was a community of man and wife. There were no --
Hugo L. Black: What business were they in?
J. V. Hammett: Dry goods, retail dry goods. It was not a partnership though when the usual sense of the word.
Potter Stewart: I suppose the Government could always have insisted that the wife go through the procedure which used to be provided by Article 4626 while the statute in Footnote 1 on page 7 of your brief, couldn't it?
J. V. Hammett: Yes.
Potter Stewart: As a condition of borrowing the money.
J. V. Hammett: That was --
Potter Stewart: And that would've --
J. V. Hammett: -- the way we did it before 1963 when that statute was changed so as to now permit her to simply say I make this contract in my own name by -- in my own property and now she can do anything she wants to do when it's done that way.
Potter Stewart: But even back when this loan was made the Government could just said do you have to go through this for (Voice Overlap) --
J. V. Hammett: Absolutely, absolutely, thank you very much.
Earl Warren: Mr. Solicitor General.
Thurgood Marshall: May it please the Court on the one point strikes me as to requiring this procedure under the Texas law which requires you filing a piece of paper and is lying in the judges' chambers until some time he gets around to doing it. That's as I read the statute and with the disaster loan that wouldn't be much help.
Potter Stewart: There are other creditors neither would -- neither party here has talked of -- about the -- maybe it's not important or relevant but about the effect of one rule or the other here on other creditors of residents of Texas who all of them are governed by the state law and who are competing as a creditor with the United States which has not given any particular priority, is it under these --
Thurgood Marshall: Yes sir. When we're dealing with the United States' money the only credits we are interested in are the United States.
Potter Stewart: We'll, you're representing the United States but there are other creditors who might of these debtors?
Thurgood Marshall: There I think have to -- they have to borrow with a notice of the Texas law --
Potter Stewart: Well, and why shouldn't you?
Thurgood Marshall: -- because they're bound by it.
Potter Stewart: Why shouldn't you?
Thurgood Marshall: It's because this Court has said over and over again we're not starting with Clearfield. Clearfield said and the Standard Oil Company was even made specifically clear that despite Errie and Thompkins, there still was enough law left that were solely controlled by the federal courts.
Potter Stewart: Is the federal law --
Thurgood Marshall: Is this --
Potter Stewart: -- of coverture --
Thurgood Marshall: There is none.
Potter Stewart: -- where was it to be found?
Thurgood Marshall: It said coverture is not a defense. That's all we're asking this Court to say. That coverture is not defense. If she's got a defense let her raise it but she should not give summary judgment on the bare fact of coverture alone. That I think is the only federal law that makes any sense when you compare -- this Court is on two occasions said that coverture is so archaic it should be almost disregarded and that's the only thing we ask and we therefore ask that the petition be granted. Thank you.