255 U.S. 180 (1921), 19, Smith v. Kansas City Title & Trust Company

Docket Nº:No.19
Citation:255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577
Party Name:Smith v. Kansas City Title & Trust Company
Case Date:February 28, 1921
Court:United States Supreme Court
 
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Page 180

255 U.S. 180 (1921)

41 S.Ct. 243, 65 L.Ed. 577

Smith

v.

Kansas City Title & Trust Company

No.19

United States Supreme Court

Feb. 28, 1921

Argued January 6, 7, 8, 1920

Restored to docket for reargument April 26, 1920

Reargued October 14, 15, 1920

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE WESTERN DISTRICT OF MISSOURI

Syllabus

1. A bill by a shareholder of a trust company to enjoin the directors from investing its funds in bonds of Federal Land Banks and Joint Stock Land Banks upon the ground that the act of Congress authorizing the creation of such banks and the issue of such bonds is unconstitutional, and that the bonds therefore are not legal securities in which the company's fund may be lawfully invested states a cause of action arising under the laws of the United States. P. 199. Jud.Code, § 24.

2. The provision of the Federal Farm Loan Act of July 17, 1916, c. 246, 39 Stat. 360, amended January 18, 1918, c. 9, 40 Stat. 431, making the Federal Land Banks and Joint Stock Land Banks

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established thereunder depositaries of public money when designated by the Secretary of the Treasury, authorizing their employment as financial agents of the government, requiring them to perform, as such depositaries and agents, such reasonable duties as may be laid upon them, and authorizing them to purchase government bonds justify their creation as an exercise of the constitutional power of Congress. P. 208.

3. The necessity for such federal agencies is for Congress to determine, and the motives actuating Congress in exercising its power to create them are not a subject for judicial scrutiny. Pp. 209-210.

4. The extent to which these institutions have so far been employed as government depositaries or fiscal agencies is irrelevant to the power to create them. P. 210.

5. Nor does their legitimacy depend on their being, technically, banks, or on the extent of their banking powers. Id.

6. The fact that these banks were intended to facilitate the making of loans upon farm security at low rates of interest does not invalidate the enactment. P. 211.

7. These banks being federal agencies, Congress had power to exempt their bonds from state, as well a federal, taxation. P. 212.

Affirmed.

This was a direct appeal to review a decree of the district court dismissing a bill brought by a shareholder to enjoin a trust company from investing its money in bonds of Federal and Joint Stock Land Banks. The case is stated in the opinion, infra, p. 195.

Page 195

DAY, J., lead opinion

MR. JUSTICE DAY delivered the opinion of the Court.

A bill was filed in the United States District Court for the Western Division of the Western District of Missouri by a shareholder in the Kansas City Title & Trust Company to enjoin the company, its officers, agents, and employees from investing the funds of the company in farm loan bonds issued by Federal Land Banks or Joint-Stock Land Banks under authority of the Federal Farm Loan Act of July 17, 1916, 39 Stat. 360, as amended by Act Jan. 18, 1918, 40 Stat. 431.

The relief was sought on the ground that these acts were beyond the constitutional power of Congress. The bill avers that the board of directors of the company are

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about to invest its funds in the bonds to the amount of $10,000 in each of the classes described, and will do so unless enjoined by the court in this action. The bill avers the formation of twelve Federal Land Banks and twenty-one Joint-Stock Land Banks under the provisions of the act.

As to the Federal Land Banks, it is averred that each of them has loaned upon farm lands large amounts secured by mortgage, and, after depositing the same with the Farm [41 S.Ct. 244] Loan Registrar, has executed and issued collateral trust obligations, called "farm loan bonds," secured by the depositing of an equivalent amount of farm mortgages and notes, and that each of said Federal Land Banks has sold, and is continuing to offer for sale, large amounts of said farm loan bonds. The bill also avers that various persons in different parts of the United States have organized twenty-one Joint-Stock Land Banks the capital stock of which is subscribed for and owned by private persons; that the Joint-Stock Land Banks have deposited notes and mortgages with the Farm Loan Registrar, and issued an equivalent amount of collateral trust obligations called "farm loan bonds," which have been sold and will be continued to be offered for sale to investors in large amounts in the markets of the country. A statement is given of the amount of deposits by the Secretary of the Treasury with the Federal Land Banks, for which the banks have issued their certificates of indebtedness bearing interest at 2% per annum. It is averred that, on September 30, 1919, Federal Land Banks owned United States bonds of the par value of $4,230,805, and the Joint-Stock Land Banks owned like bonds of the par value of $3,287,503 on August 31, 1919; that, pursuant to the provisions of the act, the Secretary of the Treasury has invested $8,892,130 of the public funds in the capital stock of the Federal Land Banks, and that, on July 1, 1919, the Secretary of the Treasury, on behalf of the United States, held $8,265,809 of the capital stock of the Federal Land Banks;

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that, pursuant to the provisions of § 32 of the act as amended, the Secretary of the Treasury has purchased farm loan bonds issued by the Federal Land Banks of the par value of $149,775,000; that, up to September 30, 1919, bonds have been issued under the act by the Federal Land Banks to the amount of $285,600,000, of which about $135,000,000 are held in the Treasury of the United States purchased under the authority of the amendment of January 19, 1918; that up to September 30, 1919, 27 Joint-Stock Land Banks have been incorporated under the act, having an aggregate capital of $8,000,000, all of which has been subscribed, and $7,450,000 paid in; that bonds have been issued by Joint-Stock Land Banks to the amount of $41,000,000, which are now in the hands of the public; that the Secretary of the Treasury, up to the time of the filing of the bill, has not designated any of the Federal Land Banks nor the Joint-Stock Land Banks as depositaries of public money, nor, except as stated later in the bill, has he employed them or any of them as financial agents of the government, nor have they or any of them performed any duties as depositaries of public money, nor have they or any of them accepted any deposits or engaged in any banking business. The bill avers that, during the summer of 1918, the Federal Land Banks at Wichita, St. Paul, and Spokane were designated as financial agents of the government for making seed grain loans to farmers in drought-stricken sections, the President having at the request of the Secretary of Agriculture set aside $5,000,000 for that purpose out of the $100,000,000 war funds. The three banks mentioned made upwards of 15,000 loans of that character, aggregating a sum upwards of $4,500,000, and are now engaged in collecting these loans, all of which are secured by crop liens; that these banks act in that capacity without compensation, receiving only the actual expenses incurred.

Section 27 of the act provides that farm loan bonds

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issued under the provisions of the act by Federal Land Banks or Joint-Stock Land Banks shall be a lawful investment for all fiduciary and trust funds, and may be accepted as security for all public deposits. The bill avers that the defendant Trust Company is authorized to buy, invest in, and sell government, state, and municipal and other bonds, but it cannot buy, invest in, or sell any such bonds, papers, stocks, or securities which are not authorized to be issued by a valid law or which are not investment securities, but that nevertheless it is about to invest in farm loan bonds; that the Trust Company has been induced to direct its officers to make the investment by reason of its reliance upon the provisions of the Farm Loan Acts, especially §§ 21, 26 and 27, by which the farm loan bonds are declared to be instrumentalities of the government of the United States, and as such, with the income derived therefrom, are declared to be exempt from federal, state, municipal, and local taxation, and are further declared to be lawful investments for all fiduciary and trust funds. The bill further avers that the acts by which it is attempted to authorize the bonds are wholly illegal, void, and unconstitutional, and of no effect, because unauthorized by the Constitution of the United States.

The bill prays that the acts of Congress authorizing the creation of the banks, especially §§ 26 and 27 thereof, shall be adjudged and decreed to be unconstitutional, void, and of no effect, and that the issuance of the farm loan bonds, and the taxation exemption feature thereof, shall be adjudged and decreed to be invalid.

The First Joint-Stock Land Bank of Chicago and the Federal Land Bank of Wichita, Kansas, were allowed to intervene and became parties defendant to the suit. The Kansas City Title & Trust Company filed a motion to dismiss in the nature of a general demurrer, and, upon hearing, the district court entered a decree dismissing the bill. From this decree appeal was taken to this Court.

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No objection is made to the federal jurisdiction, either original or appellate, by the parties to this suit, but that question will be first examined. The company is authorized to invest its funds in legal securities only. The attack upon the proposed investment in [41 S.Ct. 245] the bonds described is because of the alleged unconstitutionality of the acts of Congress undertaking to organize the banks and authorize the issue of the bonds. No other reason...

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