# Petitioners Brief — Howard National Bank & Trust Co. v. Morgan

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA34086415_1563%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petitioners Brief
- **Published:** January 1, 1943
- **Citation:** 319 U.S. 757

## Text

BEEN CRON TAR MO PSD BLL A NE, BAT LEE RARE ATS Fl . aC a oe ; “ —ay

SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1942
NO.

IN THE MATTER OF THE
ESTATE OF
HARRIS R. WATKINS,

Deceased,

HOWARD NATIONAL BANK
AND TRUST COMPANY, -

Petitioner.

BRIEF IN SUPPORT OF PETITION FOR CERTIORARI

The salient facts and the questions involved in the Petition for
Certiorari to which this brief is addressed have been stated in the
petition. A specification of particular rulings of the Vermont
Supreme Court and particular facts in the light of which they
were made should be helpful in considering the questions of law
herein briefed. Such a specification is included as ‘‘I’’ hereof.

I

THE VERMONT SUPREME COURT HELD THAT
THE CONSOLIDATION INVOLVED WAS NOT IN CON-
TRAVENTION OF THE LAW OR PUBLIC POLICY OF
VERMONT, DID NOT REQUIRE SPECIFIC STATUTORY
AUTHORITY FROM THE STATE, WAS VALIDLY
EFFECTED, DID NOT DESTROY THE CORPORATE
IDENTITY OF THE STATE BANK OR TERMINATE ITS

2

EXECUTORSHIP, ALTHOUGH ALL THE ASSETS OF
THE ESTATE WERE IN THE POSSESSION OF AND
WERE MANAGED BY THE CONSOLIDATED BANK.

1. The Vermont Supreme Court said with reference to the
legality of the consolidation, “Specific authorization was not neces-
sary (citing cases). We hold that the consolidation of the City
Trust Company and the Howard National Bank was not in con-
travention of our law, or of our public policy.” (Op. par. 12,
Rec. 54.)

2. The court noted that no question was made but that the
steps prescribed by law were taken and certificate of approval issued
by the Comptroller; it declared the objection as to contravening
state law unfounded (Op. par. 12, Rec. 54) and throughout treated
the consolidation as valid.

3. The consolidation did not destroy the corporate identity of
the state bank or terminate its executorship. This destruction
and termination was held to have been effected by taxation and
control exercised by the state after consolidation. (Op. par. 14,
Rec. 55, par. 20, Rec. 58, par. 24, Rec. 60.) The Court said:

_..."No statute of this state declared the charter of the
trust company void upon the event of consolidation.” (Op.
par. 14, Rec. 55.)

_... “City Trust Company, not having paid its annual
license tax ceased to exist as a corporation upon April | of
that year (1932). Its authority as executor was thereupon
extinguished” .... (Op. par. 20, Rec. 58.)

_..."The Court might, after the dissolution of City Trust
Company’s charter, have appointed the petitionee adminis-
trator with the will annexed”... . (Op. par. 24, Rec. 60.)

4. The Vermont Supreme Court recognized that at the time
of consolidation the consolidated national bank took possession of
the assets of the estate and managed the affairs previously con
ducted by City Trust Company. (*Op. par. 10, Rec. 53.) The
Court said:

* From F. 7 Rec. 26 and F. 17 Rec. 28.

—

3

“On or about the date of the consolidation the petitionee
took possession and control of the assets of the estate and
proceeded to act as executor, although it did not apply for
appointment as administrator or furnish a bond and it has
never received an appointment as administrator from the
Probate Court. On July 31, 1931, it was appointed trustee
of the trust fund established by the will, but the fund has
never been decreed to it as such trustee. After March 12,
1931, the directors of the City Trust Company never took
action as a board and the affairs previously conducted by
that company were directed and controlled by the directors
and officers of the petitionee.”’

5. In Vermont the office of executor is held by virtue of the
testator’s selection and not as the result of judicial appointment.
(Op. par. 10, Rec. 56.) The Court said:

“In our law an executor is a person, or corporation em-
powered to discharge the duties of a fiduciary, appointed as
such by the testator in his will. The Probate Court has
no power of choice, for the office is held by virtue of the
testator’s selection.”

II

THE VERMONT SUPREME COURT ASSERTS THAT,
BECAUSE OF LACK OF AFFIRMATIVE CONSENT BY
THE STATE OF VERMONT, THE CONSOLIDATION
DID NOT OPERATE UPON THE RIGHT OF CITY
TRUST COMPANY “TO BE A CORPORATION”; AND
THAT THEREBY THE CONSTITUENT CORPORATION
REMAINED SUBJECT TO STATE CONTROL, TAXA-
TION AND DESTRUCTION. THIS IS A QUESTION OF
FEDERAL POWER AND LAW.

In its opinion (Pars. 19-20, Recs. 57-58) the Vermont
Supreme Court said:

“As we have seen, the petitionee asserts that since the date
of the consolidation the State of Vermont has been with-

out power to regulate, control or terminate its corporate
existence. We do not adopt this view. The ‘franchise’

— HOSSAIN MaRS RAT

4

of the state bank, the transfer of which is provided for in
the Act of Congress (12 U.S.C. A. § 34a), ‘cannot mean
its right to be a corporation. The right to transfer fran.
chise powers of a corporation organized under the laws oj
one sovereignty to a corporation organized under the laws
of a different sovereignty is extraordinary. It cannot be
implied in the absence of explicit, statutory enactment to
that end.’ (Citing cases discussed below.) At the time
of the consolidation in the present case there was no statute
of this State permitting the transfer of the City Trust Com
pany’s right to bea corporation.’ This right therefore, re
mained subject to our law.”

“It follows that the State of Vermont had the power to
terminate the corporate existence of the City Trust Com-
pany in accordance with G. L. 1046 (now P. L. 1000) pro-
viding that : ‘Every corporation shall . . . . cease to exist a
such corporation on the first day of April in any year dur-
ing which such corporation has not, on or before such date,
filed its annual license tax returns for the fiscal year be
ginning with the first day of the preceding February and
has not on or before the first day of April in such year paid
to the state the annual license tax for such fiscal year’ ...."

Thus, the Vermont court asserts that :

(1) It is not the intent of the federal consolidation statute to |
include the primary corporate franchise.

(2) This result cannot be accomplished by the consolidation
without affirmative permission of the state.

(3) The state retains jurisdiction to regulate, control, tax and
destroy the state corporation.

Each of these assertions raises a federal question, the first a
to the meaning of the federal statute, the second as to the power ol
the federal government and the third as to power of the state te
affect consolidated national banks after consolidation by continued
regulation, control, taxation and destruction of constituent state
banks. On these questions federal law is paramount.

Ex parte Worcester County National Bank, 279 U. S. 34/,

at 359, 49 S. Ct. 368, 73 L. ed. 733.
And see infra V.

_——ae

The Vermont court cites as its authority decisions of courts of
other states and an affirmance by this court of one of those de-
cisions. -\s indicated below that affirmance is no authority for the
rule asserted by the Vermont court; and the decisions relied upon
are not in accord with the law of the United States, as shown
by the discussion below (III, TV and V). This is the more readily
apparent when the authorities relied upon by the Vermont Court
are examined in the light of the law and facts of the instant case,
as shown by the record, including the opinion of the Vermont
Supreme Court. The cases relied upon by the Vermont Court
are Petition of Worcester County National Bank, 263 Mass. 444
(45) 162 N. E. 217, 220"; affirmed 279 U. S. 347, 357,*
Com. to use of Grammes v. Merchants National Bank, 323 Pa.
145, 185 A. 823, 826,* and Com. v. First National Bank and Trust
Company, 303 Pa. 241, 154 A. 379, 382.*

In the Massachusetts case, reviewed by this Court, the holding
of the Massachusetts court was summarized by this court. In
Massachusetts an express statute rendered void the charter of any
tate bank merging into another bank (279 U. S. at 356). After
quoting that statute, this court said of the decision of the Massa-
chusetts Court :

“With this qualificationt the court found the field to be left
open, under Massachusetts law, to the exercise by Congress
of whatever power it possessed over the subject” (of con-
solidation of a state bank with a national bank) (279 U. S.
356)

“It (the Massachusetts court) referred again to the pro-
vision of the state law that upon the consolidation, the
charter of the trust company should be ‘void except for the
purpose of discharging existing obligations and liabilities.’
It held that the word ‘franchises’ directed to be transferred
to the national bank by virtue of section 3 did not mean its
charter of its right to be a corporation, for that would be
in contravention of the law of the Commonwealth :* that it

*Local citations by the Court.
t Italics supplied.

4 SPY AMS IO PLES IS EAE EO BI SOL Ie SG APSE LOLI NE 0 8 ROR

6

was only the national bank that retained its corporate iden-
tity ; that the certificate of the Comptroller did not consti-
tute a charter, but only his approval of the consolidation;
that the Trust Company had gone out of existence* and all
its property had become the property of the consolidated
bank and that the latter was not a newly created organiza-
tion but an enlargement of the continuously existing na-
tional bank. Thus the court found that the identity of the
trust company had not been continued in a national bank,
but had been extinguished”* (279 U.S. 357, 338).

Thus it was the holding of the Massachusetts court, as inter-
preted by this court, that a Massachusetts statute operated as a
qualification of the “open” field for the operation of the federal
statute and the Massachusetts charter could not be transferred

99 66

under the designation of “franchise,” “for that would be in con-
travention of the law of the Commonwealth” of Massachusetts.
But the law of Vermont has no such “qualification” of the
“open” field for the operation of the federal statute. The decision
in the Worcester Bank case is therefore not an authority with re-
spect to consolidation of a Vermont trust company into a national
bank. |
The next case cited by the Vermont court, Commonwealth v.
First National Bank and Trust Company (303 Pa. 241, 154 A.
379), arose in 1931 following the consolidation of a Pennsylvania
trust company with a national bank. The Pennsylvania Commis-
sioner of Banking directed the trust company after the consolida-
tion to petition the Pennsylvania court for a decree of dissolution.
The consolidated bank and trust company entered as respondent
claiming that the effect of the consolidation under the federal
statute “‘was to extinguish the trust company.” Pennsylvania had
no statute in contravention of the consolidation or recognizing the
consolidation as working a dissolution of the state corporation.
It did have a statute providing for dissolution of the corporation
by petition: The Pennsylvania court held that as a result of the

* Italics supplied.

_

7

separate sovereignty of the state and nation “The United States
has no power to create or destroy Pennsylvania corporations.”
The court held that it was not the intent of the federal act to merge
the charter of the trust company with that of the national bank,
relying upon the decision of the Massachusetts court in the
Worcester case, supra, and the affirmance of that decision by this
court and quoting from the summary of the ruling of the Massa-
chusetts court, which appears in the decision of this court. _ It fails,
however, to recognize that the opinion of the Massachusetts court,
so quoted, was based, as above indicated, upon the Massachusetts
statute.

The Pennsylvania court found the case ‘‘analogous to that of a
state bank or trust company organized under state laws converting
itself into a national bank.’’ It said: “Such a conversion of the
state bank does not dissolve the state corporation. It is merely a
change of title and governmental supervision” (154 A. at 381).
In support of the foregoing statements the court quoted from
Michigan Insurance Bank v. Eldred, 143 U. S. 293, and Metro-
politan National Bank v. Claggett, 141 U.S. 520, to the effect that
the result of conversion is that the state bank becomes a national
bank without affecting its identity; it is under a changed juris-
diction, but it remained ‘‘one and the same bank, . . . . doing busi-
ness uninterruptedly."” The Court concluded that

“It would be derogatory to the rights and dignity of this
sovereign state for her courts to hold that an act of the
Congress of the United States, or something done pursuant
thereto could extinguish the life of the Pennsylvania cor-
poration, without Pennsylvania's consent” (154 A. at 382).

The other case relied upon by the Vermont Court, Common-
wealth v. Merchants National Bank, 323 Pa. 145, 185 Atl. 823,
involved an action against a consolidated national bank on account
of the obligation of a constituent state bank. It was claimed by
way of defense that the liability was not assumed and that there
was “no legal consolidation of the two corporations from which

8

liability could be implied.” The court held that under the local
law the state bank might have been converted into a national bank
and then under the federal law, consolidated with another nationai
bank. But the Court felt that in view of Hopkins Federal Sa-
ings and Loan Association v. Cleary, 296 U.S. 315, “342,” 568.
Ct. 235, 80 L. ed. 251, 100 A. L. R. 1403, the decision in Casey v.
Galli, 94 U. S. 673, 24 L. ed. 168, ‘cannot be given the compre-
hensive effect, as limiting the power of the commonwealth’’ claimed
for it; that the Tenth Amendment did not permit federal legisla-
tion to confer authority on the trust company to consolidate its
franchise and property with those of the bank. “What was lack-
ing to make the consolidation de jure was authority from the com-
monwealth pursuant to whose law the trust company existed. The
consolidation described did not, therefore, transfer to the bank
the trust company’s franchise to be a corporation and work its
dissolution.” But the court held that there was a de facto consoli-
dation, carrying with it the obligation to pay the debt in question.

The Pennsylvania court thus holds that, without the express
consent of the state, the national government could not absorb the
corporate franchise of the state corporation, although it took over
its property and obligations (185 A. at 826), and left the state
corporation “in a state of suspended animation” (154 A. 380).
If the Pennsylvania decision in the Merchants National Bank case
makes express consent necessary to de jure consolidation, that re-
quirement is not in accord with the Vermont rule. For the Ver-
mont Supreme Court said as to consolidation in the instant case,
“Specific statutory authorization was not necessary,’ citing Casey
v. Galli, and Petition of Worcester County National Bank, “162
N. E. at page 230.”

Thus the Vermont court declines to follow the above implica-
tions of the holding of the Pennsylvania court in Commonwealth
v. First National Bank. Instead it held that while the federal
government may take over a state corporation without affirmative

———_

9

permission from the state, it may not absorb the corporate fran-
chise unless it has affirmative permission from the state, and that
the state retains power to regulate, control, tax and destroy the
constituent state corporation after consolidation notwithstanding
resultant injury to the consolidated national bank. The error of

this holding is shown below.

Il

THE UNITED STATES HAS THE POWER TO CON-
SOLIDATE A STATE BANK INTO A NATIONAL BANK
WITH TRANSFER OF ALL RIGHTS, AS SPECIFIED IN
THE STATUTE, EXCEPT AS SUCH A CONSOLIDA-
TION IS IN CONTRAVENTION OF STATE LAW. AF-
FIRMATIVE CONSENT IS NOT REQUIRED TO GIVE
FULL EFFECT TO SUCH A CONSOLIDATION.

In the only case in which this court passed upon the question
of state consent, the Massachusetts court had concluded that no
state legislation was necessary to accomplish the consolidation of a
Massachusetts trust company with a national bank under the
authority of the federal statute. This court said that it was in
agreement “with the conclusions of the Supreme Judicial Court in
respect to legality of the consolidation of the trust company and the
national bank.”

Ex parte Worcester County National Bank, 279 U.S. 347,
357, 360.

In accord upon this point :

Adams v, Atlantic National Bank, 115 Fla. 399, 155 S. 648.

First National Bank v. Chapman (1929), 160 Tenn. 72,
22 S. W. (2d) 245.

Central United National Bank v. Abbott, 135 Ohio. St. 37.

Hopkins Federal Savings, etc., Association v. Cleary, 296 U. S.
315,56 S. Ct. 235, 80 L. ed. 251, 100 A. L. R. 1403, is relied upon

in the later Pennsylvania case cited by the Vermont Court. But

RENEE aN GP eee yi SONS EERIE LBP IMLAY SNOT IITA! PME IIL ANE wT ee Ae, Baas

10

that case is no authority for the theory of the necessity of affirma-
tive consent. There this court had under consideration a statute
which omitted the proviso that the conversion shall “not be in con-
travention” of the state law, which since 1913 has been a part of
the bank conversion statute and has been incorporated in other
conversion statutes and in the statute as to consolidation of state
banks into national banks. The court held that the omission indi-
cated the intention of Congress too distinctly to be ignored; and
that “the Home Owners Loan Act, to the extent that it permits
conversion of state associations into federal ones in contravention
of the laws of the place of their creation,* is an unconstitutional
encroachment upon the reserved powers of the state’ (296 U.S.
at 335). The court did not assert the necessity of affirmative con-
sent to conversion; and it recognized the possible distinction be-
tween the powers of Congress in “respect of banks of issue and de-
posit and its power in respect of associations to encourage industry
and thrift.” The concluding paragraph of the opinion discloses
the scope of the decision:

“Confining ourselves now to the precise and narrow ques-
tion presented upon the records here before us, we hold that
the conversion of petitioners from state into federal asso-
ciations is of no effect when voted against the protest of
Wisconsin. Beyond that we do not go... ."” (296 U. S. at
343).

The Pennsylvania court stressed the effect of the decision in
the Savings and Loan Association case upon the decision of this
court in Casey v. Galli, 94 U. S. 673, 24 L. ed. 168. It is true
that the court in the Savings and Loan case concludes that the
Galli case did not decide a question of constitutional power ; but
it points out (296 U. S. at 342-343) that the contravention clause
was later inserted in the statute and this court clearly implied that
this amendment cured the constitutional difficulty.

It is thus apparent that the Savings and Loan case does not sup-
port the theory that affirmative consent of the state is required to

* Italics supplied.

11

effectuate the purpose of Congress in the consolidation statute.
On the contrary, that decision clearly implies that consolidations
are valid if they are not in contravention of the state law.

The decisions of this court thus indicate unmistakably that
silence of the state statutes and policy as to consolidation of state
banks into national banks, is not negation but consent; that the
jederal statute operates according to its terms unless in contraven-

tion of state law.

IV

IT WAS THE EXPRESSED INTENT OF CONGRESS
TO EXERCISE ITS POWER TO VEST IN THE CON-
SOLIDATED BANK EVERY RIGHT OF THE STATE
BANK EXCEPT TO THE EXTENT BARRED BY THE
POSITIVE LAW OF THE STATE.

As appears from the discussion above (“ITT’’), expressed con-
sent of the state is not required to supplement the power of the
national government to absorb a state bank into a national bank.
Silence is consent. When, as in Vermont, there is no law in
contravention, the effect of consolidation is to be determined from
the intent of Congress as manifested by the language of the
statute. That statute gives the sanction of law to the transforma-
tion of the corporate status.

The terms of the federal statute having to do with the vesting
of the franchise and property of the state corporation in the con-
wlidated corporation are of all-inclusive scope. They cover “all*
the rights, franchises and interests” of the state bank in every
species of property and “all* rights of property, franchises and
interests including the right of succession as trustee, executor or
in any other fiduciary capacity.” The untrammeled scope of this
statute has a single limitation—the provision that the consolida-
tion shall not be “in contravention” of the state law.

‘Italics supplied.

12

In the absence of contravening state law, the terms of the
statute make apposite the language used by Mr. Justice Cardozo
at the close of his opinion in Baltimore National Bank v. State Tax
Commission, 297 U. S. 209 at 218.

“Across the petitioner's path there still lies the stumbling
block of that uncompromising ‘all.’ ”’

State courts have passed upon the effects of consolidations
under the federal statute as it was at the time of the consolidation
involved here. They have recognized the persistence of the state
corporate entity within the consolidated national bank.

Central United National Bank v. Abbott (1939, 135 Ohio
St. 37, 18 N. E. (2d) 981, 983.

Guardian Depositors Corp. v. Currie (1940), 292 Mich.
549, 560, 291 N. W. 2, 6.

This court has held that upon conversion of a state bank into
a national bank, the identity of the state bank persists in the na-
tional bank, as one and the same bank ‘“‘under a changed juris-
diction.”

Metropolitan National Bank v. Claggett, 141 U.S. 520, 12
S. Ct. 60, 35 L. ed. 841.

Michigan Insurance Bank v. Eldred, 143 U. S. 293, 125.
Ct. 450, 36 L. ed. 162.

See, also,

Coffee v. The National Bank of the State of Missouri (1870),
46 Mo. 140, 2 Am. Rep. 488.
In re Barriero (1932), 125 Cal. App. 153, 13 P. (2d)
1017.

Thus without any affirmative action of the state, the federal
statute could have authorized a conversion of City Trust Company
into a national bank without disturbing its identity. After this

13

conversion the same identity could have been preserved upon con-
solidation with Howard National Bank.

Cannon v. Dixon (C. C. A. 4, 1940), 115 F. (2d) 913.

It would be strange indeed if it were the intent of Congress
that direct consolidation should be less effective than conversion
followed by consolidation, to preserve a continued corporate iden-
tity within the consolidated national bank.

After the consolidations considered in the above cited Ohio,
Michigan and Circuit Court of Appeals cases had been effected,
and before the times of the decisions, amendment had been inserted
in the federal statute which in terms provided that ‘‘upon such a
consolidation or upon a consolidation of two or more national
banking associations under section 33 of this title, the corporate
existence of each of the constituent banks and national banking as-
sociations participating in such consolidation shall be merged into
and continued in the consolidated national banking association and
the consolidated association shall be deemed to be the same corpora-
ton as each other constituent institution.” And that the con-
solidated corporation ‘‘without any order or other action on the
part of any court or otherwise, shall hold and enjoy the same and
all rights of property, franchises, and interests including appoint-
ments, designations, and nominations and all other rights and in-
terests as trustee, executor, administrator,” etc.

The amendment also contained considerable changes with re-
spect to the rights of stockholders and other matters.

Before this insertion there had been no provision with respect
tothe transfer of fiduciary capacity in the case of the consolidation
of national banks.

The amendment was contained in the Act of June 16, 1933, c.
89, § 24, 48 Stat. 100 and originated in the House Bill. The report
of the House committee as to this change (Report No. 150 May
1933, to accompany House Rule 5661) merely says:

14

“This section also amends such act with respect to the
property rights and the duties and powers of consolidated
national banking institutions.”

Thus with respect to the continuance of the identity of a con-
stituent bank in a consolidated national bank, the act amplifies the
statement but does not appear to have been intended to change
existing law. The amendment in this regard falls within that
class of legislative changes which was referred to by this court
when it said:

“We think it clear that the provision of the later act was
intended to clarify the former rather than to change its im-

port...

Lawrence v. Shaw, 300 U. S. 245, 249, 57 S. Ct. 443, 81
L. ed. 623.

That this was the view of the Circuit Court of Appeals for
the 4th Circuit because it is indicated by its language used after
the amendment, with reference to a consolidation before the amen¢-
ment ;

“ ... the great weight of authority is to the effect that
in a consolidation of two national banks the identity of the
banks is continued in the consolidated bank.

‘The purpose of the federal statute as to consolidation of
national banks is to continue the identity of the old national
bank in the bank into which it is consolidated.’ ”’

Cannon v. Dixon (1940), 115 Fed. (2d) 913.

In the Ohio case above cited in was urged that at the time of
consolidation no statute provided any continuance of the state cor-
porate entity in the consolidated bank and that subsequently the
Ohio Legislature so provided. The Ohio Court said:

“The defendants insist upon implication that the Legisla-

ture thereby manifested the intention to change the existing
law. The difficulty with this contention is that there 's

15

nothing in this language or in the context to so indicate.
Legislatures frequently reduce existing general rules of law
to statutory form.”

Central United National Bank v. Abbott, 135 Ohio (1939),
37, 42,18 N. E. (2d) 981, 983.

The language of the Ohio court is as applicable to the amend-
ment of the national act as it is to the state legislation.

Vv

NO STATE MAY BURDEN OR CONTROL A NA-
TIONAL BANK OR IMPAIR ITS EFFICIENCY TO EXER-
CISE ITS POWERS UNDER THE LAWS OF THE
UNITED STATES.

NO STATE MAY TAX A NATIONAL BANK, DI-
RECTLY OR INDIRECTLY EXCEPT AS CONGRESS
PERMITS.

The immunity of national banks from state control arises
out of the paramount character of the national sovereignty within
its jurisdiction and the immunity from taxation is a part of the
broader immunity. A short extract from the brief filed by this
petitioner in the Vermont Supreme Court, printed as an appendix
hereto, discloses the claim which this petitioner made below in sup-
port of its pleading.

A

A state may not control or share in the control of a national
bank as an instrumentality of the United States.

The Vermont Supreme Court holds that the federal statute
authorizing consolidation of state and national banks may operate
in Vermont and that it is not in contravention of the laws of that
state. But it asserts that notwithstanding the legal consolidation,
the state retains the power to regulate, control, tax and destroy a
state corporation after it has been consolidated into a national bank.

16

It thus asserts that the national government is without power to
protect from state injury, the national instrumentality created, un-
less the state expressly abdicates its power. But this is in sharp
conflict with correct legal principles.

The paramount authority of the United States with refer-
ence to national banks and their immunity from any kind of state
control except to the extent which Congress may authorize, has
been frequently stated by this Court. It is true, of course, that
the activities and transactions of national banks in their daily
course of business are governed to a large extent by state law, but
state laws may not operate when “they expressly conflict with the
laws of the United States or frustrate the purpose for which the
national banks are created, or impair their efficiency to discharge
the duties imposed upon them by the laws of the United States.”

McClellan v. Chipman, 164 U. S. 347, 17 S. Ct. 85.

Davis v. Elmira Savings Bank, 161 U.S. 175, 16 S. Ct.
502, 40 L. ed. 700.

See, also, Smith v. Kansas City T & T Co., 255 U.S. 180,
208, 41 S. Ct. 243, 65 L. ed. 577.

In a case dealing with taxation of national banks under a state
statute claimed to be in violation of their rights under federal law,
this court held that the question was not oné of constitutionality
of the state statute but of its conflict with federal law. It said:
“The declaration of the supremacy clause (Article VI, cl. 2 of the
Constitution ) gives superiority to valid federal acts over conflicting
state statutes.”

Ex parte Bransford, 310 U. S. 354, 358, 359, 60S. Ct. 947,
84 L. ed. 1249.

So in a case dealing with the enforcement of a stock assessment
against a stockholder of the national bank and to collect from him
a note payable to the bank, this court recently said:

“The national Act (12 U. S.C. A. § 21 et seq.) constitutes
‘by itself a complete system for the establishment and

—_

17

government of national banks’ Cook County National Bank
v. United States, 107 U. S. 445, 448, 2S. Ct. 561, 564, 27
L. ed. 537.”

Deitrick v. Greaney, 309 U.S. 190, 194, 60S. Ct. 480.

In a case which involved the status of a state insolvency law
while a national bankruptcy statute was in effect, this court said:

“It is apparent, without comparison in detail of the pro-
visions of the Bankruptcy Act with those of the Arkansas
statute, that intolerable inconsistences and confusion would
result if that insolvency law be given effect while the na-
tional act is in force. Congress did not intend to give in-
solvent debtors seeking discharge, or their creditors seeking
to collect claims, choice between the relief provided by the
Bankruptcy Act and that specified in state insolvency laws.
States may not pass or enforce laws to interfere with or
complement the Bankruptcy Act or to provide additional or
auxiliary regulations.”

International Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49
S. Ct. 108, 73 L. ed. 318.

The supremacy of the national laws with respect to national
banks and the completeness of that system of laws require that
the government of national banks and all of their corporate affairs
shall be free from “intolerable inconsistencies and confusion”
which would result if the state might exert a power to regulate,
control, tax and destroy a corporation which had been consolidated
with a national bank under national law not in contravention of
statelaw. Indeed the unified control is so essential that this court,
in passing upon a state statute with respect to receipt of deposits
while insolvent, said :

“But we are unable to perceive that Congress intended to
leave the field open for the states to attempt to promote

* the welfare and stability of national banks by direct legis-
lation. If they had such power it would have to be exer-
cised and limited by their own discretion, and confusion -

18

would necessarily result from control possessed and exer-

cised by two independent authorities.”

Easton v. lowa, 188 U.S. 220, 232, 23'S. Ct. 288, 47 L. ed.
452.

Petitioner therefore submits that the national power to effectu-
ate complete consolidation when not in contravention of state law,
is not dependent upon the state’s assent and is inconsistent with a
continuance of state control.

B

The states are precluded from burdening a national bank by
direct or indirect taxation, except as Congress permits.

In Owensboro National Bank v. Owensboro, 173 U. 5S. 664.
666, 43 L. ed. 850, 852, 19 S. Ct. 537, this court had under con-
sideration the validity of a franchise tax assessed upon a national
bank. In denying the tax, it applied the rule enunciated by this
court in Davis v. Elmira Savings Bank (supra), and applied to the
Bank of the United States in W’Culloch v. Maryland, + Wheaton,
16, 4 L. ed. 579, and Osborn v. Bank of the United States, 9
Wheaton 738, 6 L. ed. 204. After stating the rule of immunity
from state interference, the court said :

“It follows then necessarily from these conclusions that
these respective states would be wholly without power to
levy any tax, either direct or indirect,* upon the national
banks, their property, assets, or franchises, were it not for
the permissive legislation of Congress.” (173 U.S. 668.)

It was the decision in the Owensboro case, since frequently
quoted, that the federal statute permitting taxation “prescribes
the full measure of the power of the several states to impose taxes
upon national banking associations or their stockholders. Any
assessment not in conformity is unauthorized and invalid.”

First National Bank of Gulfport v. Adams, 258 U. S. 362,
364, 42 S. Ct. 323, 66 L. ed. 661.

* Italics supplied.

—

19

Bank of California vy. Richardson, 248 U.S. 476, 39S. Ct.
165, 63 L. ed. 372.

Maricopa County v. Valley National Bank, No, 449, De-
cided March 1, 1943, 63S. Ct. 587.

In determining whether a national instrumentality is subjected
to an unlawful state tax, the court looks to the incidence of the
burden, not merely to the designation of the taxpayer. “The per-
son liable for the tax, primarily, cannot always be said to be the
real taxpayer. The taxpayer is the person ultimately liable for the
tax itself.”

Colorado National Bank v. Bedford, 310 U.S. 41, 52, 60
S. Ct. 800, 84 L. ed. 1067, citing Stahman v. Vidal, 305
U.S. 61, 59S. Ct. 41, 83 L. ed. 41.

And see Bank of California N. A. v. Richardson, 248 U.S.
476, 485, 39 §. Ct. 165, 63 L. ed. 372.

Federal Land Bank v. Crossland, 261 U.S. 374, 43 S. Ct.
385, 67 L. ed. 703.

Pittman v. Home Owners Loan Corp., 308 U. S. 21, 60
S. Ct. 15, 21, 84 L. ed. 11.

This immunity from tax burden is protected from impairment
of its functions. In the case last named this Court said:

“Congress has not only the power to create a corporation
to facilitate the performance of governmnetal functions,
but has the power to protect the operations thus validly
authorized. ‘A power to create implies a power to pre-
serve.” McCulloch v. Maryland, supra, 4 Wheat. Page
426, 4 L. ed. 579.”

In striking down a sales tax upon purchases by federal land
hanks in furtherance of its lending power this Court recently said :

‘

‘.... when Congress constitutionally creates a corporation
through which the federal government lawfully acts, the
activities of such corporation are governmental.”

Federal Land Bank v. Bismark Lumber Co., 314 U. S. 95,
102, 62 S. Ct. 1, 86 L. ed. 146.

Thus the protection goes to all functions.

20

VI

THE ACTS OF THE STATE OF VERMONT IN Iy.
POSING A LICENSE TAX UPON CITY TRUST Coy.
PANY AFTER ITS CONSOLIDATION AND IN REVOK.
ING ITS CHARTER CONSTITUTED A BURDEN UPON
THE CONSOLIDATED NATIONAL BANK WHICH VIO.
LATED ITS IMMUNITIES AND IMPAIRED ITS EFFIC.
ENCY TO EXERCISE ITS POWERS CONFERRED By
NATIONAL LAW.

The Vermont Supreme Court sanctioned the control of the
state corporation, after consolidation, exercised by the state
through a license tax, nominally upon the constituent state bank
but actually upon the consolidated national bank, and _ through
denial to the national bank, if it failed to.pay that tax, of the right
to continue to enjoy, through the state bank, rights which the
national law conferred upon the national bank.

A

The tax which operated to destroy the constituent state bank
was in effect a tax upon Howard National Bank and Trust Com-
pany.

The consolidated national bank was under the compulsion of
paying the tax, if valid, to protect its powers and rights, whatever
the status of the state corporation,—whether the tax was upon the
right of a constituent part of the consolidated national bank to con-
tinue to preserve its identity within the consolidated bank, or was
a tax upon a franchise not integrated with the consolidated national
bank but held by it as a right in the nature of property.

1. The state corporation had neither the means nor the c-
pacity to pay a separate tax.

As shown above (I, 1) City Trust Company had been validly
consolidated into Howard National Bank and Trust Company.
All of the affairs of the constituent state bank were under the

_—

21

management of the consolidated bank (supra 1, 3). All of its
property, general and special, and all of its rights had passed to
the consolidated bank and all of its business.* Thus, independ-
ently of the consolidated bank, the constituent state bank had no
capital, property or assets, no “business,”’ no stockholders, no
oficers. Whatever affected its finances or its business equally
affected the consolidated bank. None of these foregoing facts
find denial in the opinion of the state court.

2. If the charter rights of the state corporation did not merge
in the consolidated national bank it acquired rights in them. In
effect the two banks became one as contemplated by the federal
statute. A tax on the state franchise was a tax on a franchise
owned by a national bank.

The Vermont Courts said that “there was no statute of this
state permitting the transfer of the City Trust Company's right to
bea corporation. This right, therefore, temains subject to our
law.” (Op. par. 19, Rec. 57.)

The Vermont court does not say, and does not imply, that the
charter franchise remained unaffected by the consolidation.

It cannot have meant that the persons named in the charter or
the former stockholders retained a right to do business as a cor-
poration independently of the consolidated corporation, so that
after the consolidation there were, as before, two banks, each en-
titled to function indepentently of the other.

*The Vermont Court recognized that ‘the consolidation was
not a sale, lease or exchange of assets,” citing ‘Petition of
Worcester County National Bank, 263 Mass. 444, 162 N. E. 217,
219." That case holds that a similar Massachusetts statute did
not apply to a similar consolidation but a statutory provision that
“The charter of a trust company, the business of which shall... .
be consolidated or merged with or absorbed by another bank or
trust company shall be valid... . The Vermont court thus indi-
cates that all the “business” of the constituent bank passed to the
consolidated bank as an incident of consolidation. Certainly such
was the effect of consolidation under the federal statute.

22

It cannot have meant that the stockholders of the state bank
who had taken the steps necessary to merge the business of th
state bank with the national bank, were at liberty to conduct a
banking business as “City Trust Company” by virtue of the charter
which City Trust Company held before the consolidation.

At the least, the acts of the stockholders, taken under th
authority of the national law, operated through the national law to
vest in the consolidated corporation ownership of the proper
rights in the state corporate franchise. This construction is with-
in the express terms of the federal statute. It declares that “a
.... franchises shall be transferred to and vested in such nationa!
banking associations” which shall “hold and enjoy them,’—la»-
guage apposite to ownership of property rights. Under such «
constuction the corporate franchise passes under the control of th
national bank. It becomes a part of the mass of assets whic!
the bank owns and manages. The benefits of that ownership, an¢
the right to them, are the property of the bank. This property i
the corporate franchise created by the state and the benefits thereof,
is held with the same incidents as other property, held by a national
bank.

In such circumstances the two banks would become one, witha
single ownership, a single business and a single management, under
the authority of national law. There would be two charter fran-
chises, but only one bank and that bank a national bank.

A tax upon either charter franchise was a tax upon the national
bank. It was none the less a tax and none the less illegal because
not assessed directly. See, supra, V, B.

If the rights in the state franchise which upon this theory was
held in its entirety by the consolidated national bank had been
divided into shares, and the bank owned a share of the stock repre-
senting the franchise and the other property of the state corpora-
tion, it could not have been taxed on account of that share. Bank
of California v. Richardson, 248 U. S. 476, 39 St. Ct. 165, 63
L. ed. 372. There is an entire absence of reason why the bank

23

should bear the burden of the tax upon the gross franchise when it

could not be taxed with respect to ownership of any part.

B

The destruction of the charter of City Trust Company um-
paired the right of Howard National Bank and Trust Company to
perform its functions and exercise the powers conferred upon it by

national law and deprived it of benefits therefrom.

As indicated above (I, 2) the Vermont Court held that no
vacancy occurred in the office of executor of the Watkins’ will
until City Trust Company ceased to exist. Thus, the Court said:
“Its authority as executor was thereupon extinguished.” (Op.
par. 20, Rec. 58.)

The assets of the estate were in the custody of the consolidated
hank. The consolidated bank had an interest in them as the result
of consolidation. Thus, this Court said in /.x parte Worcester
County National Bank (279 U.S. at 360):

“Because of the interest of the national bank in all of the
assets of the Trust Company, including the estate at bar,
transferred to its custody, the bank would seem to have
a right to make such an application to the probate court
and await action of that court.’ (The application referred
to was for appointment as administrator because the charter
of the state bank which, previous to consolidation had been
administrator, was made void by statute at the time of con-
solidation. )

In the interval of more than a year from the date of consolidation
to the date of revocation of the charter of City Trust Company,
April 1, 1932, the duties of the executor must of necessity have
been performed by the consolidated bank. Otherwise the admin-
istration of the estate would have been completely immobilized dur-
ing this entire period. City Trust Company having been enabled
through the consolidated bank to perform the functions of an
executor, was entitled to payment for that service but City Trust
Company could have no separate treasury because of the effect of

24

the consolidation. The emoluments of the office of executor
would inure to the benefit of the consolidated bank. Thus, the
consolidated bank in the right of its constituent state bank was
performing the duties and entitled to receive the emoluments of the
office of executor.

Whether the state bank entity was merged in the national
association or its franchise held as in the nature of a property right,
in either event the continued existence of City Trust Company per-
mitted the consolidated bank to exercise through the Trust Com-
pany entity, fiduciary powers conferred upon national banks by
national law. Destruction of City Trust Company destroyed the
opportunity to exercise those powers in the instant case, if the
national bank could not itself succeed as executor.

C.

The tax sanctioned by the Vermont court, in effect upon the
consolidated national bank, was illegal as a tax not within the per-

mission of Congress.

1. The State of Vermont, in 1932 and since, has included divi-
dends derived from shares of national banks located within the
state in the taxable income of the owners or holders (Subd. II of
Sec. 3 of Part I, read with Sec. 18 of Part II of No. 17 of the Acts
of 1931). By the provisions of subd. (e) of said subd. I] of
Sec. 3, dividends from domestic corporations taxed on account of
their franchises are exempt from inclusion in individual income for
taxation.

By the terms of the federal statute* the imposition of this
method of taxing national banks or their stock is in lieu of any
other tax except upon real estate.

The tax involved in the instant case is not a tax upon real
estate. It is not a tax such as Congress has authorized, even if it
were the sole tax assessed against the national bank.

*R. S. Sec. 5219 as amended March 4, 1923, c. 267, 42 Stat. 1499 and March
25, 1936, c. 88, 44 Stat. 223, subd. 1 (a) 12 U.S. C. A. Sec. 548, subd. 1 (a).

25

2. The tax here challenged is a corporate license tax of arbi-
trary amount, which may not be imposed with respect to activity
of corporations which are entitled to do business in the State of
Vermont, by virtue of paramount federal law.

In International Text Book Company v. Lynch, 81 Vt. 101,
69 Atl. 541, reversed, 218 U. S. 664, 31S. Ct. 225, 54 L. ed. 1201,
the Vermont Supreme Court and this court had under considera-
tion the license tax statute invoked in this case as the basis of
destruction of the state corporation.

Both the State Supreme Court and this Court recognized that
the tax was imposed upon the right of a foreign corporation to do
business in the state as a corporation. Both recognized that the
tax was invalid if the corporation had a right to do business in
the state without the permission of the state. The question turned
upon whether the business done was iriterstate commerce. This
court held the business to be interstate and the tax invalid upon
the authority of Jnternational Text Book Co. v. Pigg, 217 U.S.
91, 30S. Ct. 481, 54 L. ed. 678.

It is thus the settled law of this court that the State of Vermont
may not impose the tax involved in this case upon a corporation
which functions within the state under sanction of the law or Con-
stitution of the United States.

D

The tax here involved was not within the permission of
Congress and is an unauthorised burden upon the exercics of
rights and privileges conferred by paramount federal law.

In any aspect, the tax sanctioned by the state court is beyond
the power of the state because “the measure adopted is essentially
inimical to national banks, frustrating the purpose of the national
legislation, or impairing their efficiency as federal agencies.”

Clement National Bank v. Vermont, 231 U.S. 120, 135, 34
S. Ct. 31, 58 L. ed. 147.

26

Bank of California v. Richardson, 248 U.S. 476, 483, 39
S.Ct. 165, 63 L. ed. 372.

The fact that the tax is not incurred unless the taxpayer elects
to act to protect itself from other losses or damages makes it no
less burdensome than if unconditionally assessed.

Federal Land Bank vy. Crossland, 261 U.S. 374, 43S. Ct
R. 385.

Pittman v. H. O. L.C., 308 U.S. 21, 60S. Ct. 15, 84 L. ed.
8.

Louisville Gas & Electric Co. v. Coleman, 277 U. S. 32,

48 S. Ct. 423, 72 L. ed. 770.

Vil

THE DETERMINATION BY THE VERMONT COURT
THAT THE CONSOLIDATED BANK DID NOT BECOME
EXECUTOR IN THE RIGHT OF THE CONSTITUENT
STATE BANK WAS AN ERRONEOUS DECISION UPON
A QUESTION RAISED UNDER THE CONSTITUTION
AND LAWS GF’ THE UNITED STATES.

The probate law of Vermont is to be determined by the courts
of that state and that determination is binding on the federal
courts. The application of the national banking laws to the state
probate law, so determined, is a question of federal rather than
state law.

Here the determination of the non-federal question will not
sustain the judgment without the determination of the operation
and effect of the national law. It follows that this court may re
view and redetermine whether the executorship vested in the con-
solidated bank. See

Ex parte Worcester National Bank, supra (279 U. S. 347
at 359, 49 S. Ct. 368, 73 L. ed. 733.

Abie State Bank v. Weaver, 282 U. S. 765, 773, 51 S.C
252, 75 L. ed. 690.

_—

27 .

1. The state court determined that the consolidated bank did
not become the legal executor because it was not named in the will.

The court held that under Vermont law an executor is one
“appointed as such by the testator in his will. The probate court
has no power of choice’’ and there is no right of assignment or
succession. (Op. par. 17, Rec. 50-51.)

The Vermont court points out that by statute there is in
Vermont no right of succession of an executor or administrator
of a deceased executor. No other provision of Vermont law
which varies from generally accepted rules of executorship is sug-
gested, unless it is by the court's denial that a testator who names
acorporation as an executor contemplates and assents to consoli-
dation and merger. Neither proposition is counter to the right of
a corporate executor, continued in life in a consolidation, to con-
tinue to hold the office of executor.

The Vermont Court held that the executorship of City Trust
Company continued after consolidation until that corporation was
dissolved, as discussed above, notwithstanding the facts show that
the consolidated bank had all the assets, that its management was
the management of the state bank and that the constituent state
bank neither did, nor could do, an independent business.

If the executorship of City Trust Company could continue
when all its assets including the assets of the estate were in the
possession of the consolidated bank and it neither had, nor could
have, independent management or an independent business, it is
clear that the executorship could continue if the City Trust Com-
pany’s corporate entity continued within, rather than outside, the
consolidated bank. The denial of the executorship to the consoli-
dated bank is because it was a different corporation than the state
bank which was named as executor. If, however, the Vermont
Court had determined that the whole corporate entity of the state
bank had been taken over and persisted in the consolidated national
bank, it must have reached the conclusion that the consolidated
bank was the corporation named in the will and therefore was the
executor.

—

28

The right of the consolidated bank to executorship is thus
dependent upon the continuance of the corporate entity of the state
bank within the consolidated bank.

2. The intent and the effect of the federal statute as to consoli-
dation was to provide that the state corporate entity shall continue
in the consolidated national bank.

This intent is discussed above under “IV.” As there shown it
was the expressed intent of Congress that “all” franchises of the
state bank should continue in the consolidated national bank to
use the language of the Act “in the same manner and to the same
extent as was held and enjoyed by such State... . bank.” The
persistence of the state entity in the national bank notwithstanding
the change in charter was a concept long before established by
this court in conversion cases (National Bank v. Claggett (1891),
141 U. S. 520, and Michigan Insurance Bank v. Eldred (1892),
143 U. S. 293) and must be deemed to have been within the knowl
edge of Congress. In Ex parte Worcester County National
Bank, supra (279 U. S. 347), effect could not be given to this in-
tention because of the controlling fact that continuance of the state
corporate entity was in contravention of the statute law of the
state. But other courts have held that the state entity continued
in the consolidated national bank as a consequence of consolidation
effected under the statute as it stood when the consolidation here
involved was effected. (C entral United National Bank v. Abbott,
supra, 135 Ohio St. 37; Guardian Depositors Corporation v. Cur-
rie, supra, 292 Mich. 549, 560.) The Circuit Court of Appeals
of the Fourth Circuit has reached a similar conclusion with respect
to the continuance of the consolidating corporations when national
banks consolidate (Cannon v. Dixon, 115 F. (2d) 913).

Petitioner therefore urges that, since the Vermont Court has
determined that consolidation under the federal statute was not in
contravention of Vermont law, that statute operated to continue
the state corporate entity within the consolidated national bank;

29

and that the consolidated national bank was, therefore, the person
named as executor and holding the office of executor.

3. Effect should have been given to the intent of the national
legislation and thereby the executorship recognised as continuing
in the consolidated national bank.

Since, as held by the Vermont Court, City Trust Compamy con-
tinued as executor, and, since, as intended by the national statute,
City Trust Company continued, with identity preserved, in the con-
solidated national bank, the national bank was the executor ‘‘in the
same manner and to the same extent” as its constituent entity City
Trust Company had been. This was the conclusion reached by
the Florida court in

Adams vy. Atlantic National Bank (1934), 115 Fla. 399,
155 S. 648.

It is in harmony, as pointed out by the Florida Court, with the
decision of this court in Ex parte Worcester County National
Bank, supra, and with general principles of law as to consolidation
where the constituent entities are preserved in the consolidated cor-
poration. See Thomas v. National Bank, 187 Wash. 521, 60 P.
(2d) 264.

The result differs from that reached by the Vermont Court,
not because of the determination of Vermont law by that court,
but by reason of the failure of that court to give effect to the lan-
guage and intent of the federal statute under which the consoli-
dation was effected.

Vill
A CORRECT DECISION OF THE INSTANT CASE IS
OF GENERAL IMPORTANCE.

It is apparent that the decision of this case is of great impor-
tance to petitioner because if the decision of the state court is
allowed to stand, petitioner will not only lose the benefits of the
executorship but be subjected to liabilities as an intermeddler,

i

30

which will have arisen because of its reliance upon the effectiveness
of national legislation.

But the effect of the decision of the Vermont Supreme Court
extends to the situation of a large number of consolidated national
hanks in states where the state charter is not destroyed by consoli-
dation.

If states may exact license taxes from a state corporation the
substance of which has passed into a national corporation, the
power may be exercised without substantial restraint. The es-
sential difference between an operating corporation and such a
shell as the Vermont and Pennsylvania Courts recognize, would
furnish a basis of classification permitting onerous burdens upon
the shells without equally burdening other state corporations.
Thus, it would be difficult, if not impossible, to set limits to the
exercise of the power of the states as to such taxation, if not re-
strained by the immunity of national banks.

The injury which a national bank would suffer from the
destruction of the state corporate entity, might compel payment of
large and burdensome exactions as less injurious than loss of the
property and earning power connected with the state bank. Loss
of guaranties and fiduciary rights, suggested by cases hereinbefore
discussed, are by no means the measure of the possible injury from
destruction of the state entity.

A reasonable protection of instrumentalities of the United
States from injury by the states demands the review and reversal
of the decision of the Vermont Court in the instant case.

Respectfully submitted,

JoserH T. STEARNS, Guy M. Pace,
G. J. MurpHY, 172 College Street,
Both 172 College Street, Burlington, Vt.
Burlington, Vt. Joun J. DESCHENEs,
Of Counsel. 158 Bank Street,

Burlington, Vt.
Attorneys for Petitioner.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA34086415_1563%3A2. Public record. Not legal advice.