Elmira Savings Bank v. Davis

The defendant is the receiver of an insolvent National bank and the plaintiff, a savings bank created under the laws of this state, claims, with respect to its deposits theretofore made with the former, to be entitled to be preferred in payment, under § 130 of the Banking Law of this state. Laws of 1892, chap. 689. The circulating notes have been provided for and all other conditions of the Banking Law. have been complied with, so as to entitle the claim to be allowed, if not in conflict with the provisions of the National Banking Law. The State Banking Law permits the trustees of savings banks to keep an "available fund * * *, on hand or deposit in any bank in this state, organized under any law in the stifle or of the United States,” etc., etc. § 118. Section 130 provides as follows: -

“ All the property of any bank or trust company which shall become insolvent shall, after providingdor the payment of its circulating notes, if it has any, bé applied by the trustees, assignees or receiver thereof in the first place to the payment in full of any sum or sums of money deposited therewith by anjr savings bank, but not to an amount exceeding that authorized to be so deposited by the provisions of this chapter, and subject to any other preference provided for in the charter of any such trust company.” •

The sole contention is whether this provision can be given effect in the distribution of the property of insolvent National banks. The appellant insists that it conflicts with certain provisions of the National Banking Law; which were framed to prohibit preferences, and relies upon the following sections of the Revised Statutes of the United States.

*‘§ 5236. From time to time, after full provision has been made for refunding to the United States any deficiency in redeeming the notes of such association, the comptroller shall make a ratable dividend of the money so paid over to him bjr such receiver on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction, and, as the. proceeds of the assets of such association are paid over to him, shall make further dividends on all claims previously proved or adjudicated; and the remainder of the proceeds, if any, shall be paid over to the shareholders of such association, or their legal representatives in proportion to the stock by them respectively held.”

“ § 5242. All transfers of the notes, bonds, bills of exchange, or other evidences of debt owing to any National banking association, or of deposits to its credit; all assignments of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its shareholders or creditors; and all payments of money to either, made after the commission of an act of

The provisions of the Federal law as to National banks constitute a complete system for their establishment, government and winding up. Cook Co Nat. Bank v. United States, 107 U. S. 445 . As agencies of the government, in .the administration of a branch of the public service, the states are without authority to exercise any control over them, or to affect their operation (except so far as Congress may permit),; where the legislation will conflict with the National law, or will tend to impair or destroy their utility and efficiency in performing the functions, by which they are designed to serve the government. National Bank v. Commonwealth, 9 Wall. 353 ; Farmers' National Bank v. Dearing, 91 U. S. 83 ; Waite v. Dowley, 94 id. 527; Western Union Tel Co. v. Mass., 125 id. at p. 551. If the State Banking Law, in these provisions which we are considering, comes into conflict with the operation of the Federal Law, the former must be held ineffectual to impede the due execution of the latter, in all respects therein intended and provided for. Is that the case here? We are not now concerned with questions of the propriety or justice of the state law, in directing the claims of savings "banks to be preferred in payment over those of other depositors. That is the law of the state, enacted by its legislature in furtherance of the protection and security designed to be afforded to the savings of the people and if the inhibition of § 5242 of the U. S. Revised Statutes does not extend so far as to prevent its operation in such a case, it must be given its full effect. That effect would be to preserve and enforce a right or preference, which had accrued to the savings bank in making deposits, of its funds witli the National bank, and which will be deemed to have been in the contemplation of the parties and assented to. Their contractual relations were necessarily influenced and shaped by the provisions of this public law; which gave to that class of depositors a superior claim or lien to that of other depositors or creditors upon the property of the bank. Are these provisions for security against a possible loss of the -deposits of savings banks inconsistent with that equal distribution among creditors, which was intended by the National law to be effectuated, when the moment of insolvency arrived ? The language of § 5242 does not seem to convey that idea, in providing that “ all payments of money to either,” (¿ e. shareholders or creditors) “ made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of assets in the manner-prescribed by this chapter, or with a view to the preference of one creditor to another, expept in payment of its circulating notes, shall be utterly null and void.” In Corn Exchange Bank v. Blye,

But we have upon this question a very recent and emphatic declaration by the United States supreme court, in the case of Scott v. Armstrong, 146 U. S., 499 . In that case, the question related to the right of one who was debtorto a^National bank to an equitable offset, as against its receiver; appointed by the comptroller of the currency to close up its affairs for insolvency. Sections 5236 and 5242 were relied upon as forbidding it; because of their requirements that there should be a ratable disposition among the hreditors and that there should be no preference given or suffered, in contemplation of, or after committing the act of insolvency. Chief Justice Fuller, delivering the opinion of the court, said: “ We do not regard this position as tenable. Undoubtedly any disposition by a National bank, being insolvent or in .contemplation of insolvency, of its choses in action, securities or other assets, made to prevent their application to the payment of its circulating notes, or to prefer one creditor to another, is forbidden; but liens, equities or rights arising by express agreement, or implied from the nature of the dealings between the parties, or by operation of law, prior to insolvency and not in contemplation thereof, are not invalidated. The provisions of the - act are not directed against all liens, securities, pledges' or equities, whereby one creditor may obtain a greater' payment than another, but against those given or arising after or in contemplation of insolvency.^ Where a set-off is otherwise valid, it is not perceived how its allowance can be considered a preference, and it is clear that it is only the balance, if any, after the set-off is deducted which can justly be held to form part of the assets of the insolvent. The requirement as to ratable dividends, is to make them from what belongs to the bank, and that, which at the time of the insolvency belongs of right to the debtor, does not belong to the bank."

This is very explicit language and must be regarded as controlling upon us, as a construction placed by the highest federal court upon these provisions of the national banking law. In that case anu in those of Waite v. Dowley and National Bank v. Commonwealth we have authoritative expressions of opinion from which to imply the doctrine, that state legislation in regulation of the general conduct of the National bank with its depositors is not an interference’ with any exercise of the govermental power. If in the course of its business, through force of state laws, lights are accorded to, or liens are acquired by, depositors or creditors,

I think the judgment of the general term below was right and that it should be affirmed; with costs. ,

Judgment affirmed.

All concur, except Earl and Peckham, JJ., not voting.