Downey v. City of Yonkers
| Decision Date | 18 December 1939 |
| Docket Number | No. 230-233.,230-233. |
| Parties | DOWNEY v. CITY OF YONKERS and three other cases. |
| Court | U.S. Court of Appeals — Second Circuit |
Leonard G. McAneny, Corp. Counsel, of Yonkers, N. Y. (Leonard G. McAneny, of Yonkers, N. Y., E. J. Dimock, of New York City, Morris L. Rosenwasser, of Yonkers, N. Y., J. Donald Rawlings, of New York City, and Harold T. Garrity, of Yonkers, N. Y., of counsel), for appellants.
Benjamin W. Moore, of Yonkers, N. Y. (Benjamin W. Moore and Milton L. Romm, both of Yonkers, N. Y., of counsel), for appellee.
Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
Writ of Certiorari Granted December 18, 1939. See 60 S.Ct. 298, 84 L.Ed. ___.
The legal principles applicable to Action No. 230 against the City of Yonkers are determinative of the issues in the other three cases which need not, therefore, be separately discussed.
This is an action by the receiver of The First National Bank & Trust Company of Yonkers (herein called the Bank) against The City of Yonkers (herein called the City) to recover fifty per cent of certain money paid out by the Bank, between March 8, 1933, and January 23, 1934, inclusive on the checks of the City. Since September 30, 1929, the Bank has been a national banking corporation organized and existing under the laws of the United States and the City a municipal corporation organized and existing by virtue of the laws of the State of New York.
On March 4, 1933 the City had funds on deposit in checking accounts in the Bank as follows:
(1) Treasurer of the City ......... $275,105.53
(2) City of Yonkers ............... 1,502.84
(3) Nepperham Sewer Fund of City of
Yonkers ...................... 621.88
On March 4, 1933, the Governor of the State of New York proclaimed a bank holiday, and on March 6, 1933, the President of the United States proclaimed a bank holiday which was extended by further proclamation on March 9, 1933, Nos. 2039, 2040, 12 U.S.C.A. § 95 note, and ratified by Congress on the latter date. The Bank never reopened for regular business after March 4, 1933, but operated under restrictions imposed by the Secretary of the Treasury until a Conservator was appointed. On March 20, 1933, the Comptroller of the Currency appointed a Conservator of the Bank and on January 23, 1934, appointed a receiver in liquidation. A dividend of 40% was made available to the general depositors of the Bank on December 16, 1933, and a second dividend of 10% was made available on November 3, 1937.
On March 4, 1933, the City held various bonds having a par value of $535,000 which had been delivered to it by the Bank as security for the above three accounts, among others. These bonds, to the amount at par of $534,000, were later returned in connection with withdrawals from the accounts.
By a series of withdrawals beginning on March 8, 1933, and ending on January 23, 1934, the City withdrew almost all of the balance in each of the three accounts as follows:
1. Account with Treasurer of City .......... $275,105.53
Withdrawals
March 8 to March 19 ...... $ 89,226.06
March 20 to March 27 ..... 67,735.99
March 28 on .............. 118,016.99
___________
Total .............................. $274,979.04
___________
2. Account with City of Yonkers ............ $ 1,502.84
Withdrawals
May 23 to July 21, 1933 ............... 1,502.84
___________
3. Account with Sewer Fund ................. $ 621.88
Withdrawals
May 4, 1933 ........................... 621.88
___________
The complainant seeks to recover fifty per cent of the above withdrawals on the ground that they constituted an unlawful preference within Sections 91 and 194, 12 U.S.C.A., the National Bank Act.
If the pledge of bonds to secure the deposits was authorized by the National Bank Act, 12 U.S.C.A. § 21 et seq., it is clear that the City had a valid lien on the bonds to the extent of its deposits and this action by the receiver must fail. Lewis v. Fidelity & Deposit Co. 292 U. S. 559, 54 S.Ct. 848, 78 L.Ed. 1425, 92 A.L.R. 794; McNair v. Knott, 302 U.S. 369, 58 S.Ct. 245, 82 L.Ed. 307. It is likewise settled that national banks have no implied power to pledge assets to secure either private or public deposits. Texas & Pac. R. Co. v. Pottorff, 291 U.S. 245, 54 S.Ct. 416, 78 L.Ed. 777; Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787. Express authority for the pledge made in this case depends upon whether the requirements of the Act of June 25, 1930, 12 U.S.C.A. § 90, have been met. That section provides that: "Any association may, upon the deposit with it of public money of a State or any political subdivision thereof, give security for the safe-keeping 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."
The purpose of the Act of June 25, 1930, was to equalize the positions of national and state banks in competing for deposits, and is in line with a long series of acts, beginning in 1864, designed to apply the policy of equalization. Lewis v. Fidelity & Deposit Co., 292 U.S. 559, at page 564, 565, 54 S.Ct. 848, 78 L.Ed. 1425, 92 A.L.R. 794.
It is conceded that there was no express statutory authority in New York authorizing state banks to give security for these deposits during the times involved. In the absence of express enabling statutes state banks in New York are not authorized to pledge assets to secure either private or public deposits, and it is the duty of the Superintendent of Banks to compel them to recover any assets so pledged upon the return of the deposits when demanded. State Bank of Commerce v. Stone, 261 N.Y. 175, at page 187, 188, 184 N.E. 750, 87 A.L.R. 1449. As was said by Judge Finch in his opinion in City of Mt. Vernon v. Mt. Vernon Trust Co., 270 N.Y. 400, 406, 1 N.E.2d 825, 827: "No question remains that this pledge by the defendant securing the deposit of public money was ultra vires as to both parties." So far as the Act of June 25, 1930, may be thought to require an authorization of state banks to make pledges as a prerequisite for pledges by national banks it does not apply here.
But the law of New York is that pledges by state banks to secure deposits, even though ultra vires, may not be set aside until the deposits have been repaid in full, whether or not insolvency has intervened. State Bank of Commerce v. Stone, 261 N. Y. 175, 184 N.E. 750, 87 A.L.R. 1449; Mt. Vernon v. Mt. Vernon Trust Co., 270 N.Y. 400, 1 N.E.2d 825. The parties conceded that the law of New York with respect to the effect of an ultra vires pledge does not bring the pledges here within the Act of June 25, 1930. The policy of the statute would appear to lead to the same conclusion. The Act was designed to equalize competition for public deposits and it does not appear to give national banks authority to do what the state banks are forbidden to do and what the State Superintendent of Banks is under a duty to undo. The banks of the State could not give security in a case like this without violating their charters; Congress could not have intended to meet that type of competition. The use of the term "authorized" in the Act accords with this view; a pledge which is "ultra vires" cannot be said to be "authorized".
The City argues, however, that the pledge made by the national bank in this case, even though not authorized and outside the scope of its charter powers, should be given the same effect as State law gives to similar pledges by state banks. Such a result would be contrary to the result reached in Texas & Pac. R. v. Pottorff, 291 U.S. 245, 54 S.Ct. 416, 78 L.Ed. 777, and Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787, in which the Court held that a national bank might recover assets which had been pledged to secure deposits even though the depositor would not be paid in full because of supervening insolvency of the bank.
The City says that these decisions are not controlling because in neither did it appear that the law of the State where the transaction occurred gave any different effect to an ultra vires pledge by a bank than that given under the federal law. Nevertheless both decisions make it plain that, unless the right to pledge is expressly granted by a federal statute, a pledge to secure deposits in national banks is wholly unauthorized and, as Justice Brandeis said in Texas & Pacific R. v. Pottorff, 291 U.S. 245, 255, 54 S.Ct. 416, 418, 78 L.Ed. 777:
It is true that in spite of the foregoing general policy of the Act, Congress has seen fit to permit national banks to give security to depositors "of the same kind as is authorized by the law of the State", but it seems unreasonable to suppose that the...
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