Federal Deposit Ins. Corporation v. Tremaine, 140.

• Citation: 133 F.2d 827
• Decision Date: 04 February 1943
• Docket Number: No. 140.,140.
• Parties: FEDERAL DEPOSIT INS. CORPORATION v. TREMAINE et al.
• Court: U.S. Court of Appeals — Second Circuit

133 F.2d 827 (1943)

FEDERAL DEPOSIT INS. CORPORATION v. TREMAINE et al.

No. 140.

Circuit Court of Appeals, Second Circuit.

February 4, 1943.

John J. Bennett, Jr., Atty. Gen., of New York, William C. Chanler, Corp. Counsel of City of New York, Berle & Berle, and Adolf A. Berle, Jr., all of New York City (James S. Regan, Howard F. R. Mulligan, and Hyman Wank, Asst. Attys. Gen., and Seymour B. Quel, Bernard Newman, Hortense M. Wittstein, and Winthrop H. Kellogg, all of New York City, of counsel), for appellants.

Sidney R. Nussenfeld, of New York City (Francis C. Brown, and Russell D. Miller, both of Washington, D. C., on the brief), for appellee.

Before L. HAND, CHASE and CLARK, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal by the defendants from a summary judgment, holding them liable for the conversion of certain bonds which had belonged to the Fort Greene National Bank of Brooklyn, N. Y. and which it had pledged as security for deposits made with it. The deposits were of moneys which had been paid into state courts in actions between private persons: payments for the benefit of infants in actions for personal injuries, or of beneficiaries of trusts, or the like. The Comptroller of New York had designated the bank as a depositary of court funds under § 44-c of the New York State Finance Law, Consol.Laws, c. 56, and the bank had delivered to him $115,000 in bonds to secure the deposit of such funds. The bank became insolvent, the Comptroller sold the bonds and transmitted the proceeds to that one of the other defendants who chanced at the time to be acting as Chamberlain of the City of New York, or as its City Treasurer; and these proceeds that official either deposited in another bank, or paid out to the persons entitled. The theory of the action, which was brought by the bank's receiver is that the bank had no authority to pledge the bonds under the amendment of 1930 to § 90 of Title 12 U.S.C.A., 46 St.L. 809; and that the defendants in dealing with them or with their proceeds were guilty of conversion, and made themselves personally liable. So the district court held upon motion for summary judgment, and the defendants have appealed. The only question which we need discuss is whether the pledge was valid, since if it was, the defendants were justified in their dealings with the property.

It is indeed settled law that a national bank, unless expressly so authorized, has no power to pledge its assets as security for any deposit, and that the pledge is void. Texas & Pacific Ry. Co. v. Pottorff, 291 U.S. 245, 54 S.Ct. 416, 78 L.Ed. 777; City of Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787; Yonkers v. Downey, 309 U.S. 590, 60 S.Ct. 796, 84 L.Ed. 964. Section 90 of Title 12 U.S. C.A., however, created an exception; it directed the Secretary of the Treasury to "require" any national banks which he designated as "depositaries of public money * * * to give satisfactory security, by the deposit of United States bonds and otherwise, for the safekeeping and prompt payment of the public money deposited with them." So § 90 stood from the time of its enactment in 1864 until 1930, and up to that time the pledge here at bar would have been undoubtedly void. In that year, however — avowedly in order to enable national banks to compete with state banks for the deposit of the "public money" of the states in which they did business — § 90 was amended by providing that a national bank might also, "upon the deposit with it of public money of a State or any political subdivision thereof, give security * * * of the same kind as is authorized by the law of the State * * * in the case of other banking institutions in the State." Since the bonds pledged by the insolvent bank in the case at bar were of the same kind as those authorized by the State of New York in the case of New York banks (§ 4, sub. 8, State Finance Law of New York), the question resolves itself into whether the deposits were of "public money." The Fourth Circuit held in Hood v. Hardesty, 94 F.2d 26 that that phrase was to be determined as a federal question: i. e., that Congress did not mean to make it dependent upon whether the deposits secured were deemed "public money" according to the law of the state where the security was given. We agree; the only condition upon the privilege which depends upon state law is that state banks shall be "authorized" to give security in similar cases, and there is no reason to import any other. Conceivably a state may "authorize" its banks to give security for deposits, although it does not consider the deposit as "public money"; a national bank would be "authorized" to give similar security, provided Congress should be deemed to regard the deposit as "public money." Conceivably, a state may "authorize" its banks to give security for deposits which it considers as "public money" but which Congress should not be deemed so to regard; a national bank would not be "authorized" to give similar security.

There can be no doubt that the deposits here involved were "public money," if we follow what the Supreme Court actually decided in Inland Waterways Corporation v. Young, 309 U.S. 517, 60 S.Ct. 646, 84 L.Ed. 901 and Woodring v. Wardell, 309 U.S. 527, 60 S.Ct. 652, 84 L.Ed. 908. In the first of these cases a national bank had pledged bonds to secure three deposits: one, that of the Inland Waterways Corporation; another, that of the Fleet Corporation; the third, that of the Secretary of War on behalf of the Canal Zone; and a majority of the court held that the pledge was valid as to all three accounts. The deposit of the Inland Waterways Corporation was made up of its own funds, and the only question was whether it made a difference that the depositor was not the United States, but a corporation all of whose shares it owned. So far the decision did not touch the issue here at bar. The Fleet Corporation, however, had two deposits: one, made up of its own money, like the deposit of the Inland Waterways Corporation; but the other — called the "Agent Good Faith Deposit Account" — made up of moneys paid as security for the "performance of sales or purchase proposals submitted" to the Fleet Corporation; that is of the money of bidders for contracts to purchase vessels from the Corporation. Those bidders who were not awarded any contract were entitled to reclaim their deposits — the money belonged to them. Those to whom contracts were awarded were not so entitled; if they performed, it became part of the purchase price; if they defaulted, it was forfeited. Thus a part — presumably much the greater part — of this deposit was beneficially that of private persons. The deposit of the Canal Zone was made up, substantially in whole, of money deposited by individuals for money orders, or as postal savings deposits. The United States was liable to make good any deficiency of the "Good Faith" deposit of the Fleet Corporation and of the money order and postal savings deposits of the Zone, just as the City of New York was liable...