F't Nat. Bk. of Elizabethtown v. Commonwealth

• Decision Date: 25 May 1911
• Citation: 143 Ky. 816
• Parties: First National Bank of Elizabethtown, Ky. v. Commonwealth, For Use, et al.
• Court: Kentucky Court of Appeals

Page 816

143 Ky. 816

First National Bank of Elizabethtown, Ky. v. Commonwealth, For Use, et al.

Court of Appeals of Kentucky.

Decided May 25, 1911.

Appeal from Jefferson Circuit Court (Chancery Branch, First Division).

HELM & HELM for appellant.

JAMES C. POSTON, LAWRENCE S. POSTON and WALLACE A. McKAY for appellee.

OPINION OF THE COURT BY JUDGE CARROLL — Affirming.

This action was brought in 1908 by the Commonwealth for the use of the Louisville School Board to escheat certain lots of land in the city of Louisville owned by the appellant bank and worth some $2,000. The lower court granted the relief sought, and the bank appeals.

Authority to maintain an action like this is found in section 192 of the Constitution, reading:

"No corporation shall engage in business other than that expressly authorized by its charter, or the law under which it may have been or hereafter may be organized, nor shall it hold any real estate, except such as may be proper and necessary for carying on its legitimate business, for a longer period than five years, under penalty of escheat."

And scetion 567 of the Kentucky Statutes, reading:

"No corporation shall engage in business other than that expressly authorized by its articles of incorporation or amendments thereto; nor shall any corporation, directly or indirectly, engage in or carry on in any way the business of banking, or insurance of any kind, unless it has become organized under the laws relating to banking and insurance; nor shall any corporation hold or own any real estate, except such as may be necessary and proper for carrying on its legitimate business, for a longer period than five years under penalty of escheat."

These sections have been fully upheld and construed in German Insurance Co. v. Commonwealth, 141 Ky., 606; Louisville School Board v. King, 127 Ky., 824; Commonwealth v. Chicago, &c., R. Co., 124 Ky., 497; Commonwealth v. Louisville Property Co., 139 Ky., 689; Commonwealth v. Thomas, 140 Ky., 789; and, except for the fact that the appellant is a national bank there would be no difficulty in affirming upon the authority of the cases cited the judgment appealed from.

But, as the appellant corporation is a national bank and the record presents questions that have not heretofore been before the court, we will carefully consider the argument of counsel in support of the proposition that the State can not escheat land owned by a national banking corporation although it would be subject to escheat if owned and held by any other corporation.

The appellant bank is located in Elizabethtown, Hardin County, Kentucky, and the real estate sought to be escheated is situated in Louisville, Jefferson County, Kentucky. It appears that in 1902 the bank acquired this property in satisfaction of a pre-existing indebtedness, and that at all times since it acquired the property it has been anxious to dispose of it, but has not done so because a purchaser could not be found who would pay such a sum as would enable the bank to realize a fair price for the property. It is also conceded that the acts of the bank relating to the manner in which it acquired this property and the reason it is holding it have been reported from time to time to national bank examiners and the Comptroller of the Currency, all of whom have approved the action of the bank in holding the real estate.

In section 5137, of the Revised Statutes of the United States, it is provided that:

"A national banking association may purchase, hold and convey real estate for the following purposes and for no others: (1) Such as shall be necessary for its immediate accommodation in the transaction of its business (2) Such as shall be mortgaged to it in good faith by way of security for debts previously contracted; (3) Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; (4) Such as it shall purchase at sales under judgments, decrees or mortgages held by the association, or shall purchase to secure debts due to it. But no such association shall hold the possession of any real estate under mortgage or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years."

Upon the facts and the Federal law relating to national banks, it is contended that as the appellant bank is an agency of the Federal government, and Congress has provided a complete system of laws controlling and regulating the creation and organization of national banks, the manner in which they shall conduct their business, and the conditions under which they may acquire and hold real estate, that the State has no authority to in any manner interfere with the affairs of these banks. And so the State laws applicable to domestic and other corporations are wholly inoperative as to these institutions, and the Commonwealth is without power to limit the quantity of real estate a national bank may own and hold or the time during which it may own and hold it or to escheat land owned and held in violation of the laws of the Commonwealth.

It may be conceded at the outset that the State is without authority to enact laws, either in the form of constitution or statute that in any manner conflict with the national banking act or interfere with or undertake to regulate or control the business that national banks are authorized by the Federal statute to carry on.

As said in Davis v. Elmira Savings Bank, 161 U. S. 275, 40 L. Ed., 700:

"National banks are instrumentalities of the Federal government, created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt by a State to define their duties or control the conduct of their affairs is absolutely void, wherever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the Federal government to discharge the duties for the performance of which they were created. These principles are axiomatic and are sanctioned by the repeated adjudications of this court."

This much being conceded, it is manifest that if the Commonwealth can succeed in this action, it must be upon the ground that in the escheat of this property no at tempt is made to conflict with the laws of the United States or to impair the efficiency of the bank or control the conduct of its legitimate business as a banking institution. The Federal government created the national banking system and reserves to itself the exclusive right through Federal legislation to direct and control its conduct, but we do not think it was intended by Congress to confer upon these banks the power to own and hold lands in such a manner as to violate...