D'Oench, Duhme & Co. v. Federal Deposit Insurance

Mr. Justice Frankfurter:

The Chief Justice and I concur in the result on the ground that in the circumstances of this case respondent is entitled to recover, whatever law be deemed controlling. If Illinois law governs, respondent is admittedly entitled to recover as a holder in due course. If Missouri law governs, petitioner is estopped to assert the defenses on which it now relies. Whether the case is governed by the law of one State or the other, or by “federal common law:” drawn here from one State or the other, the result is the same.

When the original accommodation notes were executed in 1926, petitioner fully knew that the whole transaction was aimed at giving the bank an appearance of assets where there were none. Petitioner’s representative admitted that the bank “suggested that we issue a note to the Bank,” which would enable it “to carry this note and not show any past due paper.” He had been in the investment security business since 1910; he “knew what the bank meant,” and that it was subject to periodic examinations by the state bank examiner, and he assumed the bank did not want past due paper. On these facts the trial judge held that petitioner is estopped to assert absence of consideration as a defense.

Nothing in Missouri statutes or decisions brought to our notice would warrant us in setting aside this ruling. A case decided in 1901, Chicago Title & Trust Co. v. *463 Brady, 165 Mo. 197 , 65 S. W. 303 , might have called for a different result. There an accommodation maker was held not estopped to assert absence of consideration as a defense against the bank’s receiver, even though he had known that the note was part of a scheme to deceive the state banking authorities by swelling the apparent assets of the bank. But in 1920 the Missouri Supreme Court made it clear that the Brady decision can no. longer be taken to represent the law of that state. Such is the purport of Bank of Slater v. Union Station Bank, 283 Mo. 308, 320 , 222 S. W. 993 , 996:

“The facts in this case inevitably suggest the question [of estoppel] we have discussed in this paragraph. Counsel for respondent, however, have not raised it — being deterred, doubtless, by the decision in Title & Trust Co. v. Brady, 165 Mo. 197 , where a contrary doctrine is countenanced — and we therefore refrain from ruling upon the proposition. We have touched upon it, for the reason that if the Brady case, supra, is considered as announcing The Missouri rule’ upon this topic, as some commentators have said, that rule is apparently in conflict with numerous and respectable authorities, and its soundness may admit of question.”

No subsequent decision was cited, nor have we found any, to show that the court has since reverted to the doctrine of the Brady case. It cannot be said, therefore, that in holding petitioner estopped the trial judge departed from Missouri law.

There is no federal statute to override either the Missouri law as to estoppel or the Illinois law which treats respondent as a holder in due course. Were this Court, in the absence of federal legislation, to make its own choice of law, compare United States v. Guaranty Trust Co., 293 U. S. 340 ; O’Brien v. Western Union Telegraph Co., 113 F. 2d 539 ; and Hinderlider v. La Plata Co., 304 *464 U. S. 92 , decided the same day as Erie R. Co. v. Tompkins, 304 U. S. 64 , Illinois or Missouri law would furnish the governing principles. See Board of Comm’rs v. United States, 308 U. S. 343 ; Royal Indemnity Co. v. United States, 313 U. S. 289, 296 ; Just v. Chambers, 312 U. S. 383, 387 .

We are unable to find an estoppel created by federal statute. Reliance is placed upon Deitrick v. Greaney, 309 U. S. 190 . But that case rested on a plain violation of an explicit provision of a federal statute in force at the time of its occurrence. This is not true here. An accommodation note deposited in a bank before an Act of Congress is on the books can hardly become a violation of the Act after it is passed merely because the note remains in the bank. One cannot violate a statute before it comes into being. Insofar as the statute may apply to arrangements whereby the Federal Deposit Insurance Corporation might have been misled to its detriment into insuring an insolvent bank, the record is barren of any indication that the $5,000 note in question had any relation to the bank’s solvency or to the Corporation’s undertaking as an insurer.

The Federal Deposit Insurance Corporation is bringing this suit as pledgee. As to the note sued upon, it is in no different position than would be any other pledgee. Indeed, from the business point of view, its position is less favorable. For it became pledgee only in 1938, three years after the note had been charged off on the books of the bank. The Corporation had since 1934 been making a regular annual examination of the bank’s books, which showed this fact; and the schedule of collateral given to respondent when it became pledgee made it perfectly clear that the note had been charged off.

We are not concerned here with liability based on any doctrine of “equitable estoppel” evolved as a principle of *465 federal common law having no statutory roots. For we have put to one side, as unnecessary to the disposition of this case, the duty of this Court to make law “interstitially” (as Mr. Justice Holmes put it in Southern Pacific Co. v. Jensen, 244 U. S. 205, 221 ) in controversies arising in the federal courts outside their diversity jurisdiction.

Of course the policy expressed by the Federal Deposit Insurance Act might be violated, as the National Bank Act was violated in the Deitrick case, wholly apart from any question of estoppel or proof of loss to the Corporation. Our difficulty is that the statute cannot be stretched to fit this case. And it seems unnecessary to force such a result when a solution according to settled doctrines is available.