# First Federal Savings & Loan Ass'n v. Loomis

> Court of Appeals for the Seventh Circuit · May 20, 1938 · 97 F.2d 831

URL: https://www.frixlaw.com/law-library/cases/9651571

## Case

- **Full name:** FIRST FEDERAL SAVINGS & LOAN ASS’N OF WISCONSIN v. LOOMIS, Atty. Gen. of Wisconsin, Et Al.
- **Court:** Court of Appeals for the Seventh Circuit
- **Decided:** May 20, 1938
- **Citations:** 97 F.2d 831; 121 A.L.R. 99; 1938 U.S. App. LEXIS 4765
- **Precedential status:** Published
- **Opinion:** Dissent by Sparks
- **Judges:** Sparks, Major, and Treanor, Circuit Judges
- **Cited by:** 20 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9651571

## Opinion text

SPARKS, Circuit Judge
(dissenting).
I am unable to concur in the majority opinion. It holds that the power here challenged exists as a fiscal power, derived by implication from the aggregate of express powers granted to Congress. The fiscal powers • relied upon to sustain the validity of the entire Act, are- found in subsection (k) which was added to the original bill by the amendment of 1934." The original Act did not purport to create fiscal agents for the Government, in the sense that they were necessary to carry out any delegated power expressly granted to Congress, and its validity was attempted to be based only upon the general welfare clause. It -is obvious that its dominating thought and stated purpose was to create savings and loan associations for the purpose of encouraging local mutual thrift and home-financing institutions, but they were not to be banks of discount and deposit. These were not only to compete with state institutions of the same character, but, under subsection (i) which was held invalid (Hopkins Federal Savings Loan Ass’n v. Cleary, 296 U.S. 315 , 56 S.Ct. 235 , 80 L.Ed. 251 , 100 A.L.R. 1403 ), they were intended to supplant the state institutions even over the objections of their minority stockholders, and the state which gave them birth. It is not apparent that any relationship exists between the objects of the original bill and the fiscal powers and duties, if any, added by the amendatory subsection (k). It is obvious that the amendment was an effort merely to furnish a delegated power upon which to base the right to do that which otherwise might be unlawful.
In Linder v. United States, 268 U.S. 5 , 45 S.Ct. 446, 449 , 69 L.Ed. 819 , 39 A.L.R. 229 , the Court said:
“ * * * Congress cannot, under the pretext of executing delegated power, pass laws for the accomplishment of objects not entrusted to the Federal Government. And we accept as established doctrine that any provision of an act of Congress ostensibly enacted under power granted by the Constitution, not naturally and reasonably adapted to the effective exercise of such power but solely to the achievement of something plainly within power reserved to the States, is invalid and cannot be enforced. * * * ”
In United States v. Butler, 297 U.S. 1 , 56 S.Ct. 312, 316 , 80 L.Ed. 477 , 102 A.L.R. 914 , in holding the Agricultural Adjustment Act, 7 U.S.C.A. § 601 et seq., invalid, the Court said:
“ * *• * Beyond cavil the sole object of the legislation is to restore the purchasing power of agricultural products to a parity with that prevailing in an earlier day; * * *
“ * * * The exaction cannot be wrested out of its setting, denominated an excise for raising revenue and legalized by ignoring its purpose as a mere instrumentality for bringing about a desired end. To do this would be to shut our eyes to what all others than we can see and understand. * * *
“It is an established principle that the attainment of a prohibited end may not be accomplished under the pretext of the exertion of powers which are granted.”
*841 That the amendment with respect to fiscal powers is a mere pretext to accomplish that which otherwise may be prohibited, is supported by the language of subsection (k) which is the only part of the enactment mentioning fiscal agents. The creation of these agencies is merely permissive at the will of the Secretary of the Treasury, and no necessity for additional fiscal agents is disclosed either by the enactment, or by counsel. This of itself, of course, would not render the law invalid, but it should be considered together with all the other circumstances, in discovering the intention of Congress.
In support of this contention appellee relies upon Smith v. Kansas City Title & Trust Company, 255 U.S. 180 , 41 S.Ct. 243 , 65 L.Ed. 577 , and other cases, more or less analogous: McCulloch v. Maryland, 4 Wheat. 316 , 4 L.Ed. 579 , Osborn v. United States Bank, 9 Wheat. 738 , 6 L.Ed. 204 , and Farmers’ & Mechanics’ National Bank v. Dearing, 91 U.S. 29 , 23 L.Ed. 196 . In all of these cases Congress merely enacted means through which it actually and directly exercised at least one of its expressly enumerated powers, that is to say it created banks through which it directly exercised the power to borrow money on the credit of the United States.
The Kansas City Case involved the right of Congress to establish Federal Loan Banks and Joint Stock Land Banks, pursiiant to the Federal Farm Loan Act, 12 U.S.C.A. § 641 et seq. Section 5 of that Act, 12 U.S.C.A. § 697 , required that a Federal Land Bank should invest not less than five per cent of its capital in United States bonds, the exercise of the Government’s expressed power to borrow money. Section 6, 12 U.S.C.A. § 701 , provided that such banks, under certain conditions, should be depositories of public money, excepting receipts from customs, thus becoming a part of the United States Treasury. Section 13, paragraph 8, 12 U.S.C.A. § 781 , par. 8, provided that they should have power to btty and sell United States bonds, thus becoming an agency for the disposition of Government bonds. It is clear that Cotigress, in this Act, had exercised an express delegated power, and, as the end was legitimate and the means reasonable, it had acted within the scope of the Constitution. In sustaining the Act the Court based its conclusion on the fact that the banks were required to invest in Government bonds and were made Government depositories. The Court said:
“We, therefore, conclude that the creation of these banks, and the grant of authority to them to act for the Government as depositaries of public moneys and purchasers of Government bonds brings them within the creative power of Congress although they may be intended, in connection with other privileges and duties, to facilitate the making of loans upon farm security at low rates of interest, * * * ”
Under these circumstances, when it was urged that the attempt to create these federal agencies, and make the banks fiscal agents and public depositories of the Government, was but a pretext, the Court said:
“ * * * when Congress acts within the limits of its constitutional authority, it is not the province of the judicial branch of the Government to question its motives.” (Our italics.)
Under the Act here involved no bank is created or authorized, and banking powers are expressly denied to the institutions sought to be established. It is obvious that the Act is not in aid of the Government’s power to borrow money. No question is raised as to the scope of the war power, or of the power of eminent domain, or of the power to regulate transactions affecting interstate or foreign commerce. Indeed, no express power under the Constitution, save that of the general welfare clause, has been suggested as a basis to support the fiscal powers referred to in the enactment. Likewise, the fiscal powers and duties created do not in any manner affect the institution and operation of the Building and Savings Associations authorized under the Act. They are entirely separate and either can function or be eliminated, without the least effect upon the other. Wisconsin is not complaining of the creation of as many fiscal agents as Congress may deem necessary or proper. Its complaint is that these so-called fiscal agencies have been given power to commit, acts, not related to the Government’s fiscal powers, in violation of Wisconsin’s laws relating entirely to its local affairs. These federal corporations might be created for the sole purpose of performing all the fiscal duties set forth in subsection (k), and if they did not attempt or threaten to do a building and loan business in Wisconsin, we assume she would not urge the objections here presented. Whether under such *842 circumstances she would be in a position to question the Government’s right to create the corporations and have them perform the unrelated fiscal duties only, is not here presented. I think that subsection (k) adds nothing to the validity of the Act.
The only other delegated power upon which appellee seeks to base the validity of the enactment is, the general welfare clause, which provides that Congress shall have power to lay and collect taxes to provide for the general welfare of the United States, which of course implies the power, to spend, for the same purpose, the money so collected. The power to tax and spend is said to be a separate and distinct power, and its exercise is not confined to the fields committed to Congress by the’other enumerated grants of power. This was Mr. Hamilton’s view, after the adoption of the Constitution, and it is said to have been adopted by the Supreme Court. United States v. Butler, 297 U.S. 1 , 56 S.Ct. 312 , 80 L.Ed. 477 , 102 A.L.R. 914 . In that case the Court said: (page 320):
“ * * * Every presumption is to be indulged in favor of faithful compliance by Congress with the mandates of the fundamental law. Courts are reluctant to adjudge any statute in contravention of them. But, under our frame of government, no other place is provided where the citizen may be heard to urge that the law fails to conform to the limits set upon the use of a granted power. When such a contention comes here we naturally- require a showing that by no reasonable possibility can the challenged legislation fall within the wide range of discretion permitted to the Congress. * * * But, despite the - breadth of the legislative- discretion, our duty to hear and to render judgment remains. If the statute plainly violates the stated principle of the' Constitution we must so declare.”
In that case the Government conceded, and the Court held, that the phrase “to provide for the general welfare” qualified the power “to lay and collect taxes,” and the Court said:
“ * * * The view that the clause grants power to provide for the general welfare, independently of the taxing power, has never been authoritatively accepted.”
In Carter v. Carter Coal Company, 298 U.S. 238 , 56 S.Ct. 855 , 80 L.Ed. 1160 , in considering the Bituminous Coal Conservation Act, 15 U.S.C.A. §§ 801-827 , the Court said (page 864) :
“The proposition, often advanced and as often discredited, that the power of the federal government inherently extends to purposes affecting the Nation as a whole with which the states severally cannot deal or cannot adequately deal, and the related notion that Congress, entirely apart from those powers delegated by the Constitution, may enact laws to promote the general welfare, have never been accepted but always definitely rejected by this Court.”
In Helvering v. Davis, 301 U.S. 619 , 57 S.Ct. 904 , 81 L.Ed. 1307 , 109 A.L.R. 1319 , the Court said (page 908):
“Congress may spend money in aid of the ‘general welfare.’ Constitution, Art. 1, § 8; United States v. Butler, 297 U.S. 1, 65 , 56 S.Ct. 312 , 80 L.Ed. 477 , 102 A.L.R. 914 ; Steward Machine Co. v. Davis, supra. There have been great statesmen in our history who have stood for other views. We will not resurrect the contest. It is now settled by decision. United States v. Butler, supra. The conception of the spending power advocated by Hamilton and strongly reinforced by Story has prevailed over that of Madison, which has not been lacking in adherents. Yet difficulties are left when the power is conceded. The line must still be drawn between one welfare and another, between particular and general. Where this shall be placed cannot be known' through a formula in advance of the event. There is a middle ground or certainly a penumbra in which discretion is at large. The discretion, however, is not confided to the courts. The discretion belongs to Congress, unless the choice is clearly wronga display of arbitrary power, not an exercise of judgment.” (Our. italics.)
It seems clear that in both United States v. Butler, and Helvering v. Davis, the Court proceeded on the theory that the language of the “general welfare clause” was ambiguous. In the Butler Case the Court, in construing that language to effectuate the intent of the instrument, said that since the foundation of the Nation sharp differences of opinion had persisted as to the true interpretation of the phrase. It.said:
“ * * * Madison asserted it amounted to no more than a reference to the other powers enumerated in the subsequent clauses of the same section; that, as the United *843 States is a government of limited and enumerated powers, the grant of power to tax and spend for the general national welfare must be confined to the enumerated legislative fields committed to the Congress. * * * Hamilton, on the other hand, maintained the clause confers a power separate and distinct from those later enumerated, is not restricted in meaning by the grant of them, and Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for the general welfare of the United States. Each contention has had the support of those whose views are entitled to weight. This court has noticed the question, but has never found it necessary to decide which is the true construction.”
The Court then proceeds to decide that question by adopting the Hamiltonian position as supported by Mr. Justice Story. The main question presented, however, as stated in the first sentence of the opinion, was “whether certain provisions of the Agricultural Adjustment Act, 1933, conflict with the Federal Constitution.” U.S.C.A. Const, art. 1, par. 8. The Court held there was such conflict and that the challenged portions of the Act were invalid, regardless of whether Hamilton’s or Madison’s interpretation were adopted. That is to say the Government did not contend they were valid under Madison’s position, and it is clear that if they were valid under any theory, it must be that of Hamilton. If I am correct in this conclusion, then it is quite perplexing to determine why it was necessary in the decision of the case for the Court to adopt either Hamilton’s or Madison’s theory. If it was unnecessary then it is the same as if the Court had not spoken on that question. See Pokora v. Wabash Railway Co., 292 U.S. 98 , 54 S.Ct. 580 , 78 L.Ed. 1149 , 91 A.L.R. 1049 . In such a case, as I understand the law, it is altogether proper for an inferior court, or any of its members, to suggest the same question to the appellate tribunal at any subsequent opportune time, provided there appears to be a reasonable ground for a reconsideration, and the suggestion is not a captious one.
I have no quarrel with the Supreme Court’s determination to accept Hamilton’s interpretation, if based on the facts set forth in the Butler opinion. However, there are certain undeniable historical facts, not referred to in the opinion, of which no court could consistently fail to take judicial notice if brought to its attention, and which, in my opinion, conclusively demonstrate that Madison’s interpretation was that of the Constitutional Convention, including Hamilton, and also that of the citizens who voted on the question of adoption.
Mr. Madison interpreted the general welfare clause to mean that its exercise was confined to the fields committed to Congress by the other enumerated grants of power. Federalist, Essay XLI. He said this interpretation was intended by the framers, of which body he hnd Hamilton were members. An interesting fact is that this essay was subscribed by Hamilton, Madison and Jay; that is to say, it was subscribed “Publius,” the name which each of the authors adopted in subscribing each of the essays. At this time the adoption of the Constitution was in grave doubt. The general welfare clause was one which gave great, if not most, concern. Those who were jealous of the prestige and power of the states vigorously opposed it because they were fearful of a construction of it which would extend the powers of the federal government beyond those powers specifically enumerated in the subsequent-clauses. It was under these circumstances that Essay XLI was written by Madison, with the knowledge and assent of both Hamilton and Jay. It was written for the purpose of securing support for the adoption, and we find not a word of opposition to Madison’s interpretation of the framers’’ intention until after the Constitution was adopted. There is much reason to believe that this interpretation of the general welfare clause was as influential in securing the adoption of the Constitution as any other one thing. It is said that Hamilton expressed a different interpretation of it in his state paper “Manufactures,” and that his interpretation was accepted by Justice Story. This is no doubt true, but their interpretations were given several years after the Constitution was adopted. Hamilton’s interpretation was communicated to the House of Representatives on December 5, 1791. Justice Story was about eight years of age when the Constitution was adopted, and it was forty-six years-thereafter that he wrote his “Commentaries” in which he approved Hamilton’s interpretation. Neither Hamilton nor Story, however, at any time, so far as I have been able to ascertain, purported to- *844 say that the intention of the framers was different from the interpretation given by Madison. Having acquiesced in Madison’s interpretation when the adoption was in issue, Mr. Hamilton’s views to the contrary ought not to be controlling after the adoption. When construing ambiguous language we are primarily concerned with the intention of the parties who used it, rather than the interpretation of those who subsequently read it. It is not a question of modern thought nor of progressive vision, it is a question of honor. If courts can ascertain the lawmakers’ intention it is their duty to follow it (Foster v. United State, 303 U.S. 118 , 58 S.Ct. 424 , 82 L.Ed.-), provided always there is an ambiguity in' the language used. This we apprehend is as applicable to the makers-of our fundamental law as ' it is to statutory enactments, and it is binding on courts and Congress alike. So far as we are informed Madison is the only witness whose testimony prior to the adoption is preserved, in relation to the Convention j intention with respect to the general welfare clause. There may be other such testimony, but it is not relied upon in the decided cases. Certainly there is none other more worthy of belief, and it enjoys the distinction of having been approved by both Hamilton and Jay, and questioned by no one, prior to the adoption, except those who were fearful of subsequent legal construction to the contrary.
It is said that Madison’s interpretation would result in mere tautology. Such a suggestion is aways to be considered when construing ambiguous language. Madison anticipated this criticism, however, and said that the tautology was used, according to well-known custom, for emphasis merely. Moreover, history informs us that the founding fathers did not consider tautology a grievous sin, for most of the first ten amendments were tautological in effect, and were consented to almost unanimously out of an abundance of precaution, for the purpose of emphasis, and to keep faith with those who demanded them at the time the Constitution was adopted, and to whqm a promise was given to add them later.
In the Butler Case the Court noted that even with the adoption of the broader, or Hamiltonian construction of the clause, it- was still subject to limitation, that is to say, the powers of taxation and appropriation extend only to matters of national, as distinguished from local welfare, citing Hamilton, Story and Monroe. With respect to this limitation appellants urge that the object sought to be accomplished by the Act. is purely local and not of a national character, hence they say the enactment exceeded the powers of Congress under the tenth amendment. I think this contention should prevail.
In the past the organization and conduct of building and loan associations have been considered and treated as local, and have been attended with remarkable success so long as the citizens were home-minded, and were able and inclined to pay their dues. Each state had its own laws governing such institutions according to the needs of the respective states, and in many instances they are quite different, because local conditions are different. It is not claimed that Wisconsin, in her legislation on this subject, has been lax in protecting the interests and needs of her savings and loan patrons. She has placed the supervision of such institutions in charge of her banking Commission with adequate power to protect them, and has wisely given that Commission power to issue or deny certificates to those desiring to engage in that business. Such corporations are quasi-public in their character, and for the past sixty years their conduct in Wisconsin under the state laws, so far as this record discloses, has been beyond reproach. It is no doubt true that during the last several years their loan funds have been much depleted by the inability of their members to pay their dues, but in order to remedy this condition Wisconsin promptly enacted legislation authorizing such associations to fully cooperate with the federal government in securing temporary loans, when needed. She has never objected to her associations receiving aid from the federal government, but her objection is urged to the federal government incorporating such institutions under the Act in question and authorizing them to do business in Wisconsin in competition with her own institutions, and in violation of the Wisconsin laws. The objection seems not to be directed to relief from the federal government, when needed, but to the manner in which it is attempted to be given.
I think the contention is sound, and that the relief sought to be extended by the Act is local rather than national. Here we have a sovereign state objecting not only on that ground but on the further ground *845 that the relief as extended is not necessary, and is in violation of her laws. Her determination as to lack of necessity should be given great weight, and if that determination is correct, and there is a necessity for relief in other states, it would support the conclusion that the question is local rather than national.
Even though there were necessity for such local relief in each state, that of itself would not support the enactment.
“ * * * It does not help to declare that local conditions throughout the nation have created a situation of national concern; for this is but to say that whenever there is a widespread similarity of local conditions, Congress may ignore constitutional limitations upon its own powers and usurp those reserved to the states. * * * ” United States v. Butler, 297 U.S. 1 , 56 S.Ct. 312, 323 , 80 L.Ed. 477 , 102 A.L.R. 914 .
Many cases have been cited and discussed by counsel, but they relate to Acts based on other express Constitutional powers and their implications, and not on the right to tax for the general welfare.
I think the court erred in its conclusions of law and in its decree, and that the cause should be reversed with instructions to dissolve the injunction and dismiss the action for want of equity.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9651571. Public record. Not legal advice.