Pennsylvania Bankers Ass'n v. Secretary of Banking

• Decision Date: 05 October 1978
• Citation: 481 Pa. 332,392 A.2d 1319
• Parties: , 25 UCC Rep.Serv. 486 PENNSYLVANIA BANKERS ASSOCIATION, Allegheny Valley Bank of Pittsburgh, Bucks County Bank and Trust Company, Century National Bank and Trust Company and the Dale National Bank, Appellants, v. SECRETARY OF BANKING, and Philadelphia Saving Fund Society, Appellees.
• Court: Pennsylvania Supreme Court

Page 1319

392 A.2d 1319

481 Pa. 332, 25 UCC Rep.Serv. 486

PENNSYLVANIA BANKERS ASSOCIATION, Allegheny Valley Bank of Pittsburgh, Bucks County Bank and Trust Company Century National Bank and Trust Company and the Dale National Bank, Appellants, v. SECRETARY OF BANKING, and Philadelphia Saving Fund Society, Appellees.

Supreme Court of Pennsylvania.

Argued April 17, 1978.

Decided Oct. 5, 1978.

Dechert, Price & Rhoads, John J. Brennan, Gordon W. Gerber, Philadelphia, for appellants.

Drinker, Biddle & Reath, Robert S. Ryan, Edward M. Posner, Philadelphia, for appellee, P. S. F. S.

Vincent X. Yakowicz, Sol. Gen., Harrisburg, for appellee, Secretary of Banking.

Before EAGEN, C. J., and O'BRIEN, ROBERTS, POMEROY, NIX, MANDERINO and LARSEN, JJ.

OPINION OF THE COURT

MANDERINO, Justice.

In this case of first impression in Pennsylvania, we must decide whether the Department of Banking exceeded its rule-making authority in promulgating a regulation which allows mutual savings banks to offer depositors a noninterest bearing account from which money can be withdrawn by means of a negotiable order of withdrawal payable to a named third party. The relevant factual background, in no way disputed, is as follows.

Some time before December 27, 1976, the Secretary of Banking sought the legal opinion of the Attorney General of Pennsylvania as to whether savings banks operating under the Banking Code of 1965, As amended, 7 P.S. §§ 101-2202 (1967 & Supp.1978-79), could offer these notice of withdrawal (NOW) accounts to their depositors. Under the terms of a typical NOW account, money may be withdrawn by means of a negotiable order of withdrawal which requires the bank to pay the specified sum to a named third party. These sight drafts are "payable through" drafts, naming a commercial bank at which the draft can be presented for payment. The drafts then clear through the banking system much the same as other drafts. The similarity of a NOW draft to the traditional check, at least from a functional viewpoint, is self-apparent.

After a review of the pertinent Banking Code sections, including those delineating the Department's regulatory and rule-making authority, the Attorney General advised the Secretary that it was the view of the attorney general's office that the Banking Code empowered the Department to allow NOW accounts, if done by proper regulation. Official Opinion No. 76-33, 7 Pa.Bull. 172, Reprinted In 1 Pa.D. & C.3d 123 (1977). The Attorney General did add the caveat that because of § 503(a) of the Code, any such regulation must require each NOW account draft to contain language which indicates that the bank may require 14 days notice before making payment.

On January 15, 1977, the Department of Banking published notice of proposed rule-making in the Pennsylvania Bulletin. The Department invited interested parties to submit comments, in response to which comments were received both in favor of, and in opposition to, a regulation permitting savings banks to offer NOW accounts. The Pennsylvania Bankers Association, one of the appellants in this case, submitted comments in opposition to such a regulation. On March 12, the Department of Banking adopted regulations allowing savings banks to offer NOW accounts, provided each draft bore the legend reserving to the bank the right to require 14 days notice before paying NOW drafts. See 7 Pa.Bulletin 699 (March 12, 1977).

On March 14, 1977, appellants, the Pennsylvania Bankers Association and four commercial banks, filed a petition for review in the Commonwealth Court challenging the validity of the regulations. Appellants also sought to stay the effective date of the regulations. Appellee, Philadelphia Savings Fund Society (PSFS), a mutual savings bank, was permitted to intervene. After a hearing before Judge Blatt, appellants' application for a stay was denied.

Appellants then filed in the same court a motion for summary judgment. Appellees PSFS and the Secretary of Banking filed cross-motions for summary judgment. A unanimous Commonwealth Court granted appellees' cross-motions for summary judgment and denied appellants' motion. Pennsylvania Bankers Association v. Commonwealth, Secretary of Banking, 32 Pa.Cmwlth 439, 379 A.2d 1062 (1977). Appellants filed a notice of appeal in this Court and appellee PSFS countered with a motion to quash. We denied the motion to quash and treated the notice of appeal as a petition for allowance of appeal. The Appellate Court Jurisdiction Act of 1970, § 204, 17 P.S. § 211.204(b) (Supp.1977-78). Such petition was granted and this appeal followed. See 17 P.S. § 211.204(a). We now affirm.

All parties agree that the Banking Code of 1965 does not expressly prohibit savings banks from offering NOW accounts. Neither do the parties dispute that NOW accounts are but one method of withdrawing deposits from a savings account. And all agree that the Banking Code places few restrictions on savings banks insofar as the withdrawal of deposits is concerned, leaving it to the individual savings banks to provide for the terms of withdrawal in their articles or by-laws "except that deposits may not be accepted which are legally subject to withdrawal within a period of less than fourteen days." 7 P.S. § 503(a). (Section 503(b) provides that absent such an article or by-law, savings banks can require 60 days notice before permitting withdrawals). Finally, there is no dispute, as indeed there could not be, that the area of savings bank withdrawals is one presumptively within the ambit of the Department's "rule-making power and administrative discretion" expressly delegated it by the Banking Code. 7 P.S. § 103(a)(viii).

Appellants claim that the Department exceeded its statutory authority in promulgating regulations which allow NOW accounts. Appellants argue that savings banks have a defined role under the Banking Code, namely to hold savings deposits; that the authority to hold savings deposits does not include the authority to offer NOW accounts which, according to appellants, "are checking accounts or the equivalent of checking accounts;" and that to permit savings banks to offer this service would distort the Banking Code's purpose of creating savings banks to function solely as savings institutions. Appellants thus glean from the Banking Code a legislative intent to deny savings banks the power to offer NOW accounts, and from that conclusion argue that there is no basis for the exercise of administrative rule-making on the subject.

We believe that neither the language nor the spirit of the Banking Code sustains the construction sought to be given it by appellants. Moreover, well settled and jurisprudentially sound principles of administrative law, principles that delineate our function as an appellate court reviewing administrative action, counsel us to reject appellants' argument that the Banking Code forbids the Secretary from administratively sanctioning NOW accounts.

The Banking Code delegates to the Department of Banking

"adequate rule-making power and administrative discretion, subject to the provisions of this act and to the purposes stated in this subsection (a), in order that the supervision and regulation of institutions subject to this act may be flexible and readily responsive to changes in economic conditions and to changes in banking and fiduciary practices." 7 P.S. § 103(a)(viii).

Section 103(a)(viii) thus makes it clear that the Department, in exercising its rule-making power to permit NOW accounts, did not exceed its delegated authority unless permitting such accounts (1) contravenes some provision of the Banking Code, or (2) derogates from the purposes of the Code as set forth in subsection (a) of section 103.

First, we are satisfied that NOW accounts contravene no section of the Banking Code. As previously noted, only § 503 of the Code speaks to withdrawals of funds from savings banks, and nothing in that section prohibits withdrawals by means of a negotiable sight draft presented by a third party, provided that payment cannot be demanded on less than 14 days notice. Appellants argue, however, that NOW drafts are checks, both functionally and legally, and that savings banks cannot offer checking services under the Code's provision. We agree with the Commonwealth Court that the legend on NOW drafts giving savings banks the option to require 14 days notice before making payment significantly and sufficiently distinguishes NOW drafts from the traditional check. There is no requirement that savings banks actually exercise this right to take 14 days to pay a draft, and whether or not they ordinarily do so, such an instrument is obviously not "payable on demand" and hence not a check within the Uniform Commercial Code definition. See 12A P.S. § 3-104(2)(b) (1970). Appellants claim, however, that savings banks such as appellee PSFS have advertised that NOW drafts "work just like checks." Legally these instruments are not checks, and savings banks' advertising campaigns are not relevant to appellant's challenge under the Banking and Uniform Commercial Codes.

Having determined that the challenged regulations do not violate any specific Code provisions, we turn our attention to the purposes of the Banking Code to ascertain whether the Department's regulations sanctioning NOW accounts runs afoul of those purposes. Our examination of the Code's avowed purposes leads to precisely the opposite conclusion.

To guide the Department of Banking in the exercise of its rule-making powers, the legislature expressly set forth its intent in enacting the Banking Code. The Code was to provide for:

"(v) The opportunity for institutions subject to this act to remain competitive with each other, with financial organizations existing under other laws of this Commonwealth, and with banking and financial organizations existing under the laws of other states, the United States and foreign countries,

(vi) The opportunity for institutions subject...