Court Opinion

ID: 9637522
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:08:52.269698+00
Date Added: 2024-06-11T18:09:56.585588
License: Public Domain

DAVIS, Circuit Judge.
This is an appeal from a decree of the District Court holding that it was against public policy for a national bank to pledge its assets to secure the deposits of a private depositor.
On February 23, 1928, the Baltimore & Ohio Railroad Company, hereinafter called the "railroad,” had on deposit in the First National Bank of Connellsville, Pa., $30, 593.39. On that day an agreement was entered into between the bank and the railroad whereby the bank agreed to deposit, and thereafter did deposit, certain of its bonds aggregating $54,000' in value with the Bank of Pittsburgh, N. A., Pittsburgh, Pa., as trustee to secure the deposits which the railroad then had in the bank and any additional sums which it might in the future deposit; therein.
On March 28, 1928, the First National Bank assigned and transferred substantially all of its assets, including its securities with the Bank of Pittsburgh, N. A., to the Citizens’ National Bank of Connellsville, which assumed and agreed to pay and discharge all the liabilities and obligations of the bank.
The amount on deposit in the Citizens’ National Bank on July 30, 1930, to the credit" of the railroad was $40,000. On that day, the railroad deposited $2,915.83 with the Citizens’ National Bank which drew its draft on the First National Bank of Pittsburgh, a correspondent, for that amount to the order of the Bank of Pittsburgh, N. A. The draft was mailed to the Bank of Pittsburgh, N. A., with instructions to place it to the credit of the railroad, but before it was presented for payment the following day, July 31, 1930; the Citizens’ National Bank was declared to be insolvent by the Comptroller of the Currency and the bank closed. Shortly thereafter the draft was presented to the First National Bank of Pittsburgh for payment, but it refused. When the Citizens’ National Bank closed, the amount due the railroad was $42,-915.83, which included the amount of the draft. A receiver was immediately placed in charge of the closed Citizens’ National Bank. On September 25, 1930, the railroad drew its two checks upon the Citizens’ National Bank, one for $40,000 and the other for $2,915.83, and presented them to the receiver for payment, but he refused to pay.
On January 13, 1931, the railroad requested the bank of Pittsburgh, N. A., to sell at the market price so much of the securities deposited with it as was necessary to pay the two cheeks. Three days thereafter, January 16, 1931, the receiver filed a bill in equity in .the District Court against the Bank of Pittsburgh, N. A., and the railroad, as defendants, because the Bank of Pittsburgh, N. A., which had not yet sold the securities, was threatening to do so and prayed for a restraining order against it. Answer was filed and the ease was heard on a stipulation of facts. The court entered a decree enjoining the Bank of Pittsburgh, N. A., from *801selling or disposing of the securities deposited with it other than by delivery of them to the receiver and directing it to deliver to the receiver the securities free from any pledge, right, title, interest, or claim the bank or the railroad had to them.
An appeal was taken to this court, and the sole question is whether or not the First National Bank of Connellsville had power to pledge its property to secure the deposits of the railroad; or, to state it generally, does a national bank have power to pledge its property to secure a deposit of a private depositor?
Admittedly it has no express power, and if it has any implied power, it must be found in paragraph 7 of section 5130 of the Revised Statutes of the United States (12 USCA § 24 (7), which reads as follows: “Seventh. To exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this chapter.”
Power is thus given to conduct a banking business and all incidental power necessary to carry it on. First National Bank of Charlotte v. National Exchange Bank of Baltimore, 92 U. S. 122, 23 L. Ed. 679; Aldrich v. Chemical National Bank, 176 U. S. 618, 20 S. Ct. 498, 44 L. Ed. 611. Implicit power must be found, if at all, in the words, “all such incidental powers as shall be necessary to carry on the business of banking.” The final question comes to this: Is the power to pledge a bank’s property to secure private deposits necessary to carry on the business of banking?
There is no evidence showing that it is necessary. On the other hand, inference is fairly reasonable that thousands of successful banks have never exercised such power. It cannot be concluded from the evidence that the exercise of such power is necessary in order to carry on the business of banking successfully.
It is admitted that whenever the Comptroller was asked for an opinion as to the power of national banks to pledge collateral to secure private deposits, in every instance, he has disapproved of such pledges and held that, in his opinion, national banks do not have that power. Such uniform and long-continued interpretation and practice of an act by the department charged with administering it has great weight and is persuasive as to its correct construction. Corsicana National Bank v. Johnson, 251 U. S. 68, 40 S. Ct. 82, 64 L. Ed. 141; Kern River Co. v. United States, 257 U. S. 147, 42 S. Ct. 60, 66 L. Ed. 175; First National Bank in St. Louis v. State of Missouri, 263 U. S. 640, 44 S. Ct. 213, 68 L. Ed. 486.
The National Banking Act of 1864 (13 Stat. 113, § 45 [12 USCA § 90 and note]) authorized the Secretary of the Treasury to designate national banks as “depositories of public money,” but provided that he “shall require the associations thus designated to give satisfactory security, by the deposit of United States bonds and otherwise, for the safe-keeping and prompt payment of the public money deposited with them.”
The next act authorizing national banks to pledge assets to secure deposits was in 1910 when Congress passed the Postal-Savings Act (36 Stat. 816, § 9 [39 USCA § 759]), which permitted deposits of postal savings funds in banks, but provided that the administrative officers “shall take from such banks” security to insure the safety and prompt payment of such deposits.
In 1916 the National Banking Act (section 50) was amended (12 USCA § 192) so as to authorize the Comptroller of the Currency to permit the deposit of money by receivers of insolvent national banks in state or national banks, but provided that they should require the deposit of “United States bonds or other satisfactory securities” for the safe-keeping and prompt payment of such deposits.
Again in 1930, section 45 of the National Banking Act was amended (12 USCA § 90) by the addition of the following: “Any association may, upon the deposit with it of public money of a State or any political subdivision thereof, give security for the safekeeping and prompt payment of the money so deposited, of the same kind as is authorized by the law of the State in which such association is located in the case of other banking institutions in the State.”
These acts, together with three other acts—one in 1911 (36 Stat. 1070, § 17 [25 USCA § 156]) regarding the deposit of Indian moneys, one in 1917 (40 Stat. 291, § 8 [31 USCA § 771]) with regard to the deposit of moneys received from the sale of United States bonds, and one in 1918 (25 USCA § 162) providing for the deposit of certain In*802dian funds in banks to be designated by the Secretary of the Interior—permit the deposit of public money in national banks, but in each ease require the funds to be secured.
A national bank has only the power expressly given to it and such incidental powers as are necessary to carry on the business of the powers expressly given. In none of these acts is any mention whatever made of the power to pledge assets to secure private deposits. If Congress had intended to give such power to national banks, it would have expressly indicated such intention. The fact that it did authorize national banks to pledge their property to secure public deposits, but was silent as to private deposits, clearly indicates that it did not intend to give that power in the case of private deposits.
The reports of the Senate and House committees, on the amendment of 1936 to the Banking Act, show that Congress intended to .deny that power to national banks in the case of private deposits:
“In Senate Report No. 67, 71st Cong. 2nd Sess., the committee based its favorable report upon a letter from the Attorney General of Minnesota, reading in part as follows: ‘The United States district court for this district has held that it may not thus pledge its assets to secure private deposits and the trend of authority generally seems to be to the effect that a bank may not in any case pledge its assets to secure a deposit unless authorized by law so to do. The national banks of this State have pledged with the State and the various subdivisions thereof millions of dollars in Government and other bonds as security for public deposits. They are anxious to be permitted to do so, and we are willing that they should. Under the law as it now stands we may be taking a ehance in accepting such pledges from the national banks, and we should like to have the ehance removed by legislation in Congress which will specifically authorize such pledges by national banks.’ ”
“From House Report No. 1657, 71st Cong. 2d Sess., it appears that the committee reported favorably upon the bill (S. 486) because of a request from the Acting Secretary of the Treasury,, reading in part as follows : ‘While the office of the Comptroller of the Currency has consistently taken the position that national banks have the right to give security for the safe-keeping and prompt payment of public moneys of the State or political subdivision thereof deposited with such national banking associations, several recent decisions have thrown some doubt on 'his question with the result that in some States the State banks may secure the public deposits, but the officers of the State are in doubt about depositing with the national banks in the absence of any specific law by Congress on the subject. It would be extremely helpful, therefore, if it is possible for your committee to report out, and the House pass, S. 486.’ ”
The charter of a corporation is the measure of its powers, and the enumeration of those powers implies the exclusion of all others not fairly incidental. All contracts made beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts. Central Transportation Co. v. Pullman’s Palace Car Co., 139 U. S. 24, 48, 11 S. Ct. 478, 35 L. Ed. 55. The pledging of the assets of a national bank to secure a private deposit is not fairly incidental or necessary to carry on the business of banking. Such a contract is not only voidable but wholly void and of no legal effect.
The appellant contends that if the bank did not have power to pledge its assets to secure the private deposit in question, the receiver cannot compel the return of the securities without paying the deposit balance.
 Courts have nothing to do with determining .the policy which national banks should pursue. That is a question for the Comptroller of the Currency and the banks themselves so long as that policy is not unlawful and does not offend against public policy. But when it is unlawful and contrary to public policy, then the courts have jurisdiction. It was entirely legal and proper for the railroad to deposit its money in the bank, but it and the bank went further and entered into an illegal agreement which resulted in an illegal act. The receiver repudiates this agreement and demands the return of the securities. The railroad has called on the bank or the receiver for its deposit. This it has the right to have and to that extent the bank is its debtor, but in the meantime the bank has become insolvent and is unable to pay in full. Accordingly the railroad must stand with, and not ahead of, the other depositors. All must share alike. The railroad now stands just where it would have stood, had it continued as other depositors did and not required the bank to do an unlawful act which is null and void. The agreement and deposit of these securities are of no effect, just as though they did not exist. Therefore the railroad must now *803be accorded the same treatment as other depositors and share pro rata with them. It cannot now take advantage of the illegal agreement and thus accomplish exactly what Congress sought to prevent by withholding power from national banks to pledge their assets to secure private depositors.
If a national bank has power to pledge its assets to secure the deposit of one private depositor without the knowledge of its other depositors, the mere possibility of the exercise of this favoritism and preference would breed distrust in depositors and lessen their number. The power conferred upon national banks should not be so interpreted as to authorize an injurious policy unless a fair construction of the language clearly requires it.
It follows that the receiver has the right to disaffirm the contract and recover the pledged securities.
The decree is affirmed.