The provisions of §§ 96 and 98 of c. 157 of the Public
Statutes of Massachusetts, invalidating preferences made by
insolvent debtors and assignments or transfers made in
contemplation of insolvency, do not conflict with the provisions
contained in Rev.Stat. §§ 5136 and 5137, relating to
national banks and to mortgages of real estate made to them in good
faith by way of security for debts previously contracted, and are
valid when applied to claims of such banks against insolvent
debtors.
National Bank v.
Commonwealth, 9 Wall. 353, affirmed to the point
that it is only when a state law incapacitates a national bank from
discharging its duties to the government that it becomes
unconstitutional, and
Davis v. Elmira Savings Bank,
161 U. S. 275,
affirmed to the point that 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, and the two distinct propositions held to be
harmonious.
The Traders' National Bank, a corporation organized under the
banking laws of the United States, carried on its business in the
City of Boston. The firm of Dudley Hall & Company, composed of
Dudley Hall and Dudley C. Hall, were likewise engaged in business
in Boston, and were customers of the bank, having a deposit account
therein. By an understanding between the bank and the firm, made to
induce the latter
Page 164 U. S. 348
to keep its deposit account with the former, the firm was to be
considered as entitled to a line of discount on its paper to the
extent of $20,000. On the 16th of October, 1890, the partnership
then being in the enjoyment of its full agreed-on discount,
borrowed from the bank an additional sum of $12,500, which was
evidenced by a note of Dudley C. Hall at one month, endorsed by the
firm, and secured by the pledge of certain shares of the Aetna
Mining Company and by two notes of that company, amounting to about
$2,500. When this note matured, on the 16th of November, 1890, a
new demand note in an equal amount was given in renewal thereof,
and was secured by the same collaterals. On the 17th of December,
1890, payment of this note was demanded, and, the debtor being
unable to meet it, a new note at two months was given, the sum
thereof was passed to the credit of the firm, and the old note was
debited, cancelled, and surrendered. This new note was drawn, like
the preceding one, by Hall and endorsed by the firm, and was
secured, not only by the same collaterals, but also by a conveyance
of two pieces of land made by Dudley C. Hall to A.D. McClellan, a
director of the bank, he giving to Hall a writing, in which it was
declared that the conveyance was made for the sole purpose of
securing the note held by the bank, and that, on its payment, the
land would be retransferred. In March, 1891, the firm suspended
payment, and the members thereof were adjudged to be insolvent
under the insolvency laws of the State of Massachusetts, and made
to their assignees an assignment of all their property, as required
by the statutes of the state. In May, the assignees brought a writ
of entry against McClellan to recover the two pieces of land.
Sections 96 and 93 of chapter 157 of the Public Statutes of the
State of Massachusetts, relied on by the assignees to sustain their
action to recover the land, are as follows:
"SEC. 96. If a person, being insolvent or in contemplation of
insolvency, within six months before the filing of the petition by
or against him, with a view to give a preference to a creditor or
person who has a claim against him, or is under any liability for
him, procures any part of his property to be
Page 164 U. S. 349
attached, sequestered, or seized on execution, or makes any
payment, pledge, assignment, transfer, or conveyance of any part of
his property, either directly or indirectly, absolutely or
conditionally, the person receiving such payment, pledge,
assignment, transfer, or conveyance, or to be benefited thereby,
having reasonable cause to believe such person is insolvent or in
contemplation of insolvency, and that such payment, pledge,
assignment or conveyance is made in fraud of the laws relating to
insolvency, the same shall be void, and the assignees may recover
the property or the value of it from the person so receiving it or
so to be benefited."
"SEC. 98. If a person, being insolvent or in contemplation of
insolvency, within six months before the filing of the petition by
or against him, makes a sale, assignment, transfer, or other
conveyance of any description of any part of his property to a
person who then has reasonable cause to believe him to be insolvent
or in contemplation of insolvency, and that such sale, assignment,
transfer, or other conveyance is made with a view to prevent the
property from coming to his assignee in insolvency, or to prevent
the same from being distributed under the laws relating to
insolvency, or to defeat the object of, or in any way to impair,
hinder, impede, or delay the operation and effect of, or to evade
any of said provisions, the sale, assignment, transfer or
conveyance thereof shall be void, and the assignee may recover the
property or the value thereof as assets of the insolvent. And if
such sale, assignment, transfer, or conveyance is not made in the
usual and ordinary course of business of the debtor, that fact
shall be
prima facie evidence of such cause of
belief."
The action was tried before a jury, and there was a verdict in
favor of the surviving assignee, and exceptions were filed and
allowed. While these exceptions were pending before the Supreme
Judicial Court, the Traders' Bank filed its bill in equity against
the surviving assignee of the estate of Dudley C. Hall and Dudley
Hall and A.D. McClellan, setting up its right under the conveyance
made to McClellan, the bringing of the writ of entry, and the fact
that the bank had not been made party defendant therein. The bill
charged
Page 164 U. S. 350
that the complainant, as a national bank, was entitled to take
the conveyance of the real estate to secure the debt of Hall, and
that the provisions of the statutes of Massachusetts which were
relied on by the assignees were in conflict with sections 5136,
5137, Revised Statutes of the United States. The bill prayed that
he assignee and McClellan be permanently enjoined from proceeding
under the writ of entry and the exceptions filed therein; that
McClellan be ordered to apply the proceeds of the property to the
payment of the note and loan secured thereby. After due pleading,
the issues tendered were reported by the presiding justice for the
consideration of the full court upon certain questions of law
reserved, and the full court affirmed the verdict of the jury and
judgment thereon in the writ of entry case, and dismissed the bill
in equity.
So far as concerned the federal question, the court held that
there was no conflict between sections 5136 and 5137 of the Revised
Statutes of the United States and sections 96 and 98 of chapter 157
of the Public Statutes of Massachusetts. Both cases were brought
here by writ of error.
Page 164 U. S. 356
MR. JUSTICE WHITE delivered the opinion of the Court.
Although these two cases were brought here by separate writs of
error, they depend on the same facts, and involve the same legal
question, and were passed upon by the court below in one opinion.
159 Mass. 363. We shall therefore consider them together.
The only federal question for our consideration is whether there
was conflict between the statutes of the United States and the
provisions of the general law of the State of Massachusetts
referred to, and heretofore fully set out. Two propositions have
been long since settled by the decisions of this Court:
First. National banks
"are subject to the laws of the state, and are governed in their
daily course of business far more by
Page 164 U. S. 357
the laws of the state than of the nation. All their contracts
are governed and construed by state laws. Their acquisition and
transfer of property, their right to collect their debts, and their
liability to be sued for debts, are all based on state law. It is
only when the state law incapacitates the banks from discharging
their duties to the government that it becomes
unconstitutional."
National Bank v.
Commonwealth, 9 Wall. 362.
Second.
"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 whenever 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 efficiencies of these agencies of the federal
government to discharge the duties for the performance of which
they were created."
Davis v. Elmira Savings Bank, 161
U. S. 283.
These two propositions, which are distinct yet harmonious,
practically contain a rule and an exception -- the rule being the
operation of general state laws upon the dealings and contracts of
national banks, the exception being the cessation of the operation
of such laws whenever they expressly conflict with the laws of the
United States or frustrate the purpose for which the national banks
were created or impair their efficiency to discharge the duties
imposed upon them by the law of the United States. The provisions
of the statutes of the Unites states upon which the plaintiffs in
error rely are as follows:
"A national banking association may purchase, hold and convey
real estate for the following purposes, and for no others:"
"
* * * *"
"Second. Such as shall be mortgaged to it in good faith by way
of security for debts previously contracted."
"Third. Such as shall be conveyed to it in satisfaction of
Page 164 U. S. 358
debts previously contracted in the course of its dealings."
Rev.Stat. § 5137.
The argument is that, as this statute permits national banks to
take real estate for given purposes, therefore the Massachusetts
law, which forbids a transfer of property, with a view to a
preference, in case of insolvency, where the transferee has
reasonable cause to believe that the transferor is insolvent or in
contemplation of insolvency, in no way controls the contracts or
dealings of a national bank. But this position denies the general
rule just referred to, and amounts to asserting that in every case
where a national bank is empowered to make a contract, such
contract is not subject to the state law. In the case in hand,
there is no express conflict between the grant of power by the
United States to the bank to take real estate for previous debts
and the provisions of the Massachusetts law which, although
allowing, as a general rule, the taking of real estate as a
security for an antecedent debt, provides that it cannot be done
under particular and exceptional circumstances. Nor is there
anything in the statutes of the State of Massachusetts here
considered which in any way impairs the efficiency of national
banks, or frustrates the purpose for which they were created. No
function of such banks is destroyed or hampered by allowing the
banks to exercise the power to take real estate, provided only they
do so under the same conditions and restrictions to which all the
other citizens of the state are subjected, one of which limitations
arises from the provisions of the state law which, in case of
insolvency, seeks to forbid preferences between creditors. Of
course, in the broadest sense, any limitation by a state on the
making of contracts is a restraint upon the power of a national
bank within the state to make such contracts, but the question
which we determine is whether it is such a regulation as violates
the act of Congress. As well might it be contended that any
contract made by a national bank within a state in violation of the
state laws on the subject of minority or coverture was valid
because such state laws were in conflict with the act of Congress,
or impaired the power of the bank to perform its functions. Indeed,
reduced to its last analysis, the
Page 164 U. S. 359
position here assumed by the plaintiffs in error amounts to the
assertion that national banks, in virtue of the act of Congress,
are entirely removed, as to all their contracts, from any and every
control by the state law. The argument that the concession of a
right on the part of a state to forbid the taking of real estate by
a national bank for an antecedent debt, under any circumstances,
implies the existence of a power in the state to forbid such taking
in all cases, begs the question, and amounts simply to a
restatement of the proposition already answered. As long since
settled in the cases already referred to, the purpose and object of
Congress in enacting the national bank law was to leave such banks,
as to their contracts in general, under the operation of the state
law, and thereby invest them as federal agencies with local
strength, while at the same time preserving them from undue state
interference wherever Congress, within the limits of its
constitutional authority, has expressly so directed, or wherever
such state interference frustrates the lawful purpose of Congress
or impairs the efficiency of the banks to discharge the duties
imposed upon them by the law of the United States.
It is said that section 98 of the Massachusetts statute is in
conflict with the statutes of the United States insofar as it
provides that,
"If such sale, assignment, transfer or conveyance is not made in
the usual and ordinary course of business of the debtor, that fact
shall be
prima facie evidence of such cause of
belief;"
that is, the belief on the part of the creditor of the
insolvency of the debtor by whom the transaction was made. The
reasoning is that, as the United States law allows the taking by a
bank of real estate for an antecedent debt, and the state statute
makes such taking of real estate
prima facie evidence of a
reasonable belief on the part of the bank of the insolvency of the
debtor from whom the real estate is so taken, therefore the state
law violates the national bank law, since it attributes to the
doing of the act which the national bank law authorizes, a
presumption which virtually annuls the contract unless proof be
made to the contrary. But this view gives to the words "ordinary
course of business" in the state statute a strained and
unreasonable construction.
Page 164 U. S. 360
The state statute does not provide that the mere fact that a
security is taken for an antecedent debt renders the contract one
not in the actual course of the debtor's business, thereby
engendering the presumption of knowledge on the part of the
creditor, but affixes such presumption only to cases where the
particular nature of the dealings between the parties is such as to
make the contract not one in the actual course of business, from
which fact the statutory presumption arises. However, this
objection does not arise on the record before us, since the Supreme
Court of Massachusetts held that the effect of the charge of the
trial court was substantially to instruct the jury that, before the
plaintiff in the entry suit could recover, he must satisfy the jury
by a preponderance of evidence that Hall, at the time of the
conveyance, was insolvent.
The claim that the security vested in the bank by the conveyance
of the land is taken away from it in violation of the United States
law, because, under the Massachusetts law, a contract by a debtor
giving a fraudulent preference to one creditor over another is
voidable, and not void, is without merit. This contention concedes
that if the state law rendered the transaction void, there would be
a valid exercise of state authority. But the power to do the
greater necessarily carries with it the right to do the lesser. Nor
is there anything in the opinion of this Court in
Davis v.
Bank, supra, which supports the argument of the plaintiffs in
error. There, the conflict between the state and the federal law
was found to be express and irreconcilable, bringing that case
therefore under the exception to the general rule. The opinion
carefully confined the ruling there made to such a case so as to
render it inapplicable in a case like the one now before it. It
said:
"It is certain that, insofar as not repugnant to acts of
Congress, the contracts and dealings of national banks are left
subject to the state law, and upon this undoubted premise, which
nothing in this opinion gainsays."
And the whole opinion was qualified by this language:
"Nothing, of course, in this opinion is intended to deny the
Page 164 U. S. 361
operation of general and undiscriminating state laws on the
contracts of national banks so long as such laws do not conflict
with the letter or the object and purposes of congressional
legislation."
Finding no conflict between the special power conferred by
Congress upon national banks to take real estate for certain
purposes and the general and undiscriminating law of the State of
Massachusetts subjecting the taking of real estate to certain
restrictions, in order to prevent preferences in case of
insolvency, we conclude that the judgments of the Supreme Court of
the State of Massachusetts were right, and they are therefore in
both cases
Affirmed.
