Cameron's Account

135 A. 295, 287 Pa. 560, 1926 Pa. LEXIS 395

• Court: Supreme Court of Pennsylvania
• Decided: October 4, 1926
• Docket: Appeal, 115
• Status: Published

Opinions

Opinion by

Me. Justice Simpson,

The Carnegie Trust Company was incorporated by and was subject to the laws of Pennsylvania, one of which provides “that, in case of any distribution [of the assets of such a company]......in the course of its liquidation by legal process or otherwise,” priority is to be given to the claims of depositors. The First National Bank of Carnegie was organized under the acts of Congress relating to national banks, one of which provides that for its “contracts, debts and engagements” each stockholder shall be individually responsible “to the amount of his stock therein, at the par value thereof, in addition to the amount invested in such stock.” Both institutions became insolvent, and, on the same day, finally closed their doors. The trust company in accordance with the laws of the State, passed into the control of the secretary of banking, and its affairs are being wound up by that official. The bank, in accordance with the acts of Congress, passed into the control of the comp troller of the currency, and a receiver appointed by him is winding up its affairs. In due course, the comptroller assessed against the stockholders of the bank, one of whom was the trust company, the additional liability above referred to, and directed the receiver to take all necessary steps to collect the amounts.

The secretary of banking having collected and converted into cash a portion of the assets of the trust company, filed his first and partial account thereof, together with a schedule of distribution of the balance shown thereby. He allowed the claim of the receiver as a debt due by the trust company, but refused to award him a share in the amount then for distribution, because that fund was insufficient to pay the depositors of the trust company in full. The receiver did not object to the partial account, but filed exceptions to the schedule of distribution on two grounds: (1) that the statute which directed a preference to be given to depositors, violates article III, section 7, of the state Constitution; and (2), in so far as it attempted to give such a preference, the statute is void, because in antagonism to section 23 of the Federal Reserve Act of 1913. The court below dismissed the exceptions and entered a decree awarding the net balance to the depositors pro rata. From this, the receiver appeals, and renews in this court his objections as above stated.

So far as relates to the alleged unconstitutionality of the Act of May 23,1913, P. L. 354, 355, but little need be said. The- constitutional provision alleged to be infringed, provides that “The General Assembly shall not pass any local or special law......providing or changing methods for the collection of debts.” If the statute declared that a depositor should have a special compulsory remedy against the trust company, through the appointment of a receiver or otherwise, as a means of collecting his debt, it might well be held to be within the constitutional inhibition. But the Act of 1913 gives no such right. It simply says “That, in case of any dis tribution of the money......of any trust company, in the course of its liquidation by legal process or otherwise, distribution shall be made and preferred in the following order, namely: First, To the payment of all depositors in the trust company......” Many statutes provide for such preferences on distribution, and no one has contended until now, so far as we are aware, that they are constitutionally forbidden. Rent claims, wage claims, debts due to the United States and the State, are familiar instances in which preferences on distribution were allowed long beftxre the adoption of the Constitution of 1874, and then, as now, met with a practically unanimous approval. It is not to be supposed that the people intended to prevent the passage of any other such acts, when a real reason for the preference is made to appear. It is rather to be believed that the intention was that no debtor, or class of debtors, should have imposed on him or them, by legislation, a method for the collection of his or their alleged debts, which is not common to all other debtors of the same general character. This being so, the Act of 1913 does not infringe the constitutional provision.

Appellant’s second claim that the Act of 1913, in so far as it gives, on distribution, a preference to depositors, is void, because in antagonism to section 23 of the Federal Reserve Act of December 23,1913, 38 Stat. at L. 273, is based entirely on the following language from that section: “The stockholders of every national banking association shall be held individually responsible for all contracts, debts and engagements of such association, each to the amount of his stock therein, at the par value thereof, in addition to the amount invested in such stock.” The receiver contends that this entitles him to share pari passu with the depositors, and apparently, though not explicitly, claims a'preference over all other creditors. He repeatedly states that he does not claim a right paramount to the depositors, but on what line of reasoning this limitation rests is not stated, and is not known to us* If that provision of the Federal Reserve Act is valid for the purpose claimed, it must be because Congress has the power, and has thereby exercised it, to give to debts due a national bank, a status over and above all other obligations of the stockholder. Appellee in terms concedes the existence of the power, but denies that it has been exercised, and in this conclusion we agree.

Appellant’s contention, oft repeated, is that national banks are instrumentalities of the National Government, and hence state laws are void which may affect such banks, even indirectly and remotely. This proposition is stated too broadly. Of course, to the extent that the National Government has spoken, the door is closed to any action by a state. The true rule is that “Any attempt by a state to define their [a national bank’s] duties, or control the conduct of their affairs, is void whenever it conflicts with the laws of the United States,......or impairs the efficiency of the bank to discharge the duties for which it was created”: First National Bank of San Jose v. California, 262 U. S. 366, 369; Davis v. Elmira Savings Bank, 161 U. S. 275, 283; First National Bank in St. Louis v. State of Missouri ex rel., 263 U. S. 640. Eo converso, a state statute which does not define the duties or control the conduct of a national bank’s affairs, and does not conflict with the laws of the United States, or impair the efficiency of the bank to discharge its duties, is valid. On this rock appellant’s contention is wrecked. The state statute under consideration, which gives a preference to the depositors of a trust company, cannot possibly offend against the foregoing rule, merely because, — and this is the only effect of section 23 of the Federal Reserve Act,— a national bank may become a creditor of a trust company, if it owns stock of the bank. It requires a very wide stretch of the imagination to even guess that.Congress intended to prevent a state from declaring. the order in which the assets of one of its creatures shall be distributed, in case a national bank should become a creditor. Far less is it possible to conceive that, by the Federal Reserve Act, Congress intended not to give the receiver of the bank a preference over all other creditors of the state corporation, but only to place him on the same plane with the most favored of such creditors.

If Congress had so intended, it could easily have said so, but it did not. There is not, in the language quoted from the Federal Reserve Act, the slightest hint of such an intention. When it purposed to give priority, Congress found no difficulty in expressing its intention. Thus, section 3466 of the Revised Statutes of the United States, provides that “Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied.” Notwithstanding the broad language of this section, it has been held that the states have power to pass laws, allowing exemptions to debtors, which shall take preference over a debt due to the United States: Fink v. O’Neil', 106 U. S. 272; Jones’s Est., 84 Pa. Superior Ct. 170.- This conclusion was reached because of section 916 of the Revised Statutes, which reads as follows: “The party recovering a judgment in any common law cause, in any circuit or district court, shall be entitled to similar remedies upon the same, by execution or otherwise, to reach the property of the judgment debtor, as are now provided in like causes by the laws of the state in which such court is held, or by any such laws hereafter enacted which may be adopted by general rules of such circuit or district court; and such courts may, from time to time, by general rules, adopt such state laws as may hereafter be in force in such state in relation to remedies on judgments, as aforesaid, by execution or otherwise.” It is true the proceedings in the present instance have not been by way of suit and judgment, as normally they would have been, since the whole amount of the statutory liability is sought to be recovered (Kennedy v. Gibson, 8 Wall. 498; Studebaker v. Perry, 184 U. S. 258), but it would hardly be claimed, because the State does not require a judgment to be recovered before the claim is presented, that this operates to enlarge the right of the receiver. Unless it is expressly declared otherwise, and it is not here, the statutory rights of a debtor are not affected by the method employed by a creditor to collect his claim. It should be added that the District Court of the United States for the Western District of Pennsylvania, where both institutions were located, did adopt a general rule, as provided by section 916 of the Revised Statutes, above quoted, giving to judgment creditors “similar remedies......by execution or otherwise to reach the property of the judgment debtor, as are now provided in like cases by the laws of the State of Pennsylvania.”

Evidently, when Congress said that the “stockholders of every national banking association shall be held individually responsible for all contracts, debts and engagements of such association,” it meant just what it said, and no more. Of course, if that which the State attempted, was, in effect, a fraud on the federal statute, the action by the State would fall; but this is not pretended here. The preference given to depositors has back of it a substantial reason. For a long series of years, in all common law countries, certain classes of creditors have been given a preference on distribution. If the receiver’s claim is valid, it would be so, also, if the preferred creditor was the landlord of the bank building, an employee of the bank, or a mechanic’s lien claimant. The underlying basis for such preferences is that the use of the landlord’s property, of the employee’s labor and of the builder’s labor and materials, made possible the assets to be distributed. Depositors, in the nature of things, are also in a preferential class- Without them a banking insti tution would perish from dry rot. “The success of almost all commercial banks depends on their ability to obtain loans from depositors”: First National Bank of San Jose v. California, 262 U. S. 366, 370. Hence, the preference to depositors was given in order to induce those having funds to deposit them.

The public policy of the State in favor of depositors contravenes no public policy of the Nation, so far as we have been advised, or are aware. On the contrary, the double liability of stockholders of national banks, was imposed by Congress for the same reason. True, if the receiver’s claim is sustained, the depositors of the bank .would, in the present instance, be benefited, but this circumstance is purely fortuitous, growing out of the fact that this receiver has no claim save for the amount of the assessment. The next claim may be by a receiver as depositor, and, in that event, the creditors of the bank would be benefited. Such chance circumstances play no part in determining the intention of Congress.

Like counsel for the respective parties, we have found no authority directly on the point involved here, possibly because no one has heretofore supposed that an act of Congress which is, by its terms, limited to declaring the right to recover a judgment or decree fixing a liability, has any determinative influence in the matter of distribution of the assets of the debtor, in the course of their liquidation by the courts; but we have found expressions which bear out the conclusion reached in this opinion. Thus, in Davis v. Elmira Savings Bank, 161 U. S. 275, it appeared that by the laws of New York, —where the national bank was located, — deposits by savings banks were given preference on distribution of the assets of insolvent banks. It was sought, by a savings bank, to enforce this preference against the assets of a national bank in the hands bf a receiver. The right thereto was denied because it was directly antagonistic to the act of Congress, which, — beyond giving a preference to the United. States, to cover possible losses when national bank notes had been issued, — directed that the balance of the assets should be divided ratably among all the creditors of the bank. As the federal law was paramount, the savings bank’s claim was necessarily overruled. The Supreme Court was careful to say, however, that its conclusion was reached solely on the ground of the conflict between the state and federal statutes, adding (page 283), “If there be no conflict, the two laws, can coexist and be harmoniously enforced”; and (page 289), “True it is that where, by state law, a lien is made to result from a particular contract, that lien, when its existence is not incompatible with the act of Congress, will be enforced.” In the instant case, presumptively, the depositors became creditors of the trust company in reliance upon the statutory provision that they should have a first lien on the assets in case of insolvency.

So, too, when it was sought in Peters v. Bain, 133 U. S. 670, to set aside an assignment for the benefit of creditors, made by stockholders of an insolvent national bank, on the same ground as that made by the receiver in this case, the Supreme Court of the United States held that the assignment was good unless shown to be fraudulent in fact, and added (page 692) that the bank’s creditors had “the same right to insist upon their payment [i. e. by the stockholders under the double liability provision] as upon the payment of any other debt due to the corporation.” It would hardly be claimed that as against “any other debt,” the provision for a priority to depositors would not be valid.

The decree of the court below is affirmed and the appeal is dismissed at the cost of appellant.