Opposition Brief — Willing v. Binenstock

Supreme Court brief1937

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Text

- ‘ ; BB ot te t,

| ao Hay 12°1937

ARLES ELMORE enter

CLERK’

” ~ :

Aa * :

. y / p "e

5 +

Ses JOSEPH Ki ‘WILLING, Recéiver of Commercial . <

x National Bank, Philadelphia, Pennsylvania é:

te ee a RTOS NT PisieeT _ Petitioner

~ ISRAEL, BINENSTOCK, individually, and as. ‘sueviving

* partner of the ‘partnership. firm of SWINGER AND -

~~ BINENSTOCK, and BESSIE SWINGER, individually, .

“ahd as .executrix’ of. the: Estate of Benjamin | “2

.» Swinger, deceased, ‘ee aed pila SEAR ee

™ i ; J Pr.

= < . cs . ws ‘ ~

: nts iS wssendcdte ss

P > ‘ ¥ ie e ps1 z VP ig:

Pi y é mene Leet, ; 2 ; Ls

° * 2 ¥ he M4

thet for Respondents | in’ > * to : 3

~ the: Petition. for Writ of Cortiorari PENG

INDEX

< ibe | , Page

Me ey pre rrr Ee

2. UNDER THE FEDERAL CASES THE SET-OFF

SHOULD BE ALLOWED ..--=.......... nae

3. UNDER THE PENNSYLVANIA DECISIONS

, PHE SET-OFF WOULD BE ALLOWED......

4. THE FEDERAL COURTS WILL GIVE WEIGHT

TO STATE COURT DEGISIONS IN DECIDING

A QUESTION OF GENERAL LAW............

5. SOME OF THE CASES CITED IN THE PETI-

TION ARE NOT IN POINT...........:.. ere

INDEX OF AUTHORITIES

; | Page

Black & White Taxicab and Transfer Company |

v. Brown & Yellow Taxicab and Transfer

Company 276 U.S. 518 . oe eee es 18

Cochran v. Cutter, 18 Pa. net Go.me...

Conflict of Laws, Vol 1, page 25 sec. 3.5. a

25 Corpus Juris page 846, sec.185 .......

Childerston, et al v. Hammon, 9 S. & R. 68 .

First National Bank of San wi v. noel

262 U.S. 366 ..... ee ere

First National Bank v. Selden, 120 Fed. 212

FAS . : Pee ee

Gray. vy: Rollo,-18 Wallace: &9 - coe ea ea 10

37 Harvard Law Review, 49 ates Sickie ae

McCandless v. Dyar, 34 Fed. 2d, 989 > (1928) :

D.C. S.D. South Dakota ........” 27

Roelker v. Bromley-Shepard Co. Inc. et al, 73

Fed. 2d 618, C.C.A. 1, 204 U.S. 713 .. 6

‘ Scott v. Armstrong, 146 U.S. 499... =... 8

Sim v. Edenborn, 242 U.S. 131...... . 22

Stewart v. Coulter, 12 S.&R. 252 ..... 12

Swift v. Tyson, 41U.S.1 ....... i ae

Trainor Co. v. Aetna Casualty & Surety Co. 290

U. Se a ares ae a a ee ree 23

«BRIEF FOR RESPONDENTS IN OPPOSI-.

‘TION TO THE PETITION FOR WRIT’ OF

CERTIORARI |

1. INTRODUCTION

The statements contained in the petition under.

the headings ‘‘Summary Statement of Matters

Involved,” ‘Opinions of the Courts Below,”

‘¢ Jurisdiction’”’ and “Statutes Involved”’ are cor-

rect. |

The ‘petition, however, makes a fundamental

error in stating the Respondents’ premise and a —

further error of argument. |

The Respondents do not contend that Commnen,

if it chooses, may not provide by statute when set-

off shall be allowed in liquidating a national bank.

_ The Respondents’ position is that Congress has

not done so. The pertinent statute* provides only

that there shall be a ‘‘ratable dividend.”” Whomay _ \

be a creditor and to what extent is not covered at \

all. To extend in the statute the provisions neces-

sary for such a defermination would require a

TSection 5236 U. S. B.S. (U.S. C. Title 12 Sec. 194); petition p. 6.

et a

—

Brief for Res pondents &

statement of all known civil law with daily amend- |

ments. The determination of who ,afe-créditors

and to what extent depends on the law of the local-

_ ‘ity or upon general law according as local or gen-

eral -‘maiters-are involved. Many facts may be

_eenceived which would establish a creditor posi- | ~

tion in one state and not in another: There can no

more be unformity upon this subject than upon

many others. There might be uniformity upon the

single subject of set-off if all the states’ legisla-

tures so required. They have not done so and there

are differences of result in different. states. -

Congress might have required uniformity upon

the question of set-off in the liquidation of national

banks but it has not done so. Consequently, there

may be lack of uniformity but that lack has not

-yet appeared. All the cases on the subject in, the

liquidation of national banks arrive at the same

. result upon the“point involved in this case.- The

_ only ease cited in the petition as being in point is

In re Schults, 132 Fed. 573 (D. C.N. Y.) petition,

page 13. The facts im that case are not given in

the petition. It appears that the bank in that case .

was a private bank in bankruptcy in New York

and not a national bank in liquidation. The court

relied on the New York rule. |

At page 14 the petition cites a case from Tedtene

and urges the adoption of the Indiana rule as the

-eorrect one. There is no reason why it should not .

ee!

~ ‘ >

. Brief for Respondents < 3

be thé°rule if Indiana. But an Indiana case goes

no further to establish a uniform federal rule than

do the Pennsylvania cases which reach an oppo-

site result. |

As will be shown below the decisions of the fed-

“ral courts are in‘accord with the decision of both

courts below in this case.. But if this were not so,

it might well be questioned whether there should -

be a gerreral uniform rule to establish the right of

set-off in national bank liquidations.. Banks are

‘not created to be liquidated and there is no rea-

son es the converlfence of ‘the Confptroller of

Currency should for no other reason than his con- ©

venience prevail over other considerations. The ~

operation of national banks necessarily should be

uniform because the right to operate is derived

from a single source. But the property rights and —

contractual considerations which determine who

_ Shall be a creditor and to-what extént originate in

Jocal law. If local law is not recognized, two banks,

side by side will liquidate in different ways. Local

uniformity rather than national uniformity is de-

sirable in such a case.

Realizing that local law is the primary origin of

| creditor rights against a national bank Congress

has not attempted to replace that law with a whole

body of law applicable only to national banks. .

Even the provision Yor a ‘‘ratable dividend” is not

peculiar to the liquidation of national banks.

4 |. Brief for Respondents.

: —

Respondents agree\ with the petition (P. 10)

‘‘The National Banking Act is not affected by state

statutes or decisions-in\ conflict therevgth. ” There . -

is however provision in the act to resolve the

question in hand. The only recent féderalgdecision

is in accord-with the decision in this case. What-

ever ‘‘Federal rule’”’ there is has been followed. —

As a, matter of fact there are not enough eases to

make much of a “Federal rule.” So the court —

below accepted the Respondents’ invitation to

observe that the Pennsylvania cases are it.accord,

thus producing at least local uniformity.

’ A brief-disecussion of the cases follows:

‘2, UNDER THE FEDERAL CASES THE SET-OFF.

' SHOULD BE ALLQWED

| THe bill of complaint is filed to take advantage of

> the rule recognized, i in. the federal courts as well

as in the Pernsylvania courts that equitable set-

off will be allowed under the circumstances recited

- because, the bank being insolvent, it would deprive

| | |

‘

Brief for Respondents 5

the plaintiffs of a remedy they had before the

failure, not to allow the set-off. .

The theory is that while the obligation bf” the

- partnership firm to the bank is a joint obligation,

liability therefor is both joint and several. In

other words, if the bank sues the partnership firm

it may ‘secure a joint judgment, but at that point

“oO

the lack of mutuality, if any exists, ceases. The

partners are Bidividually liable each for the entire

amount of the partnership indebtedness in execu-

tion upon the judgment against the firm. There-

fore, as a matter of equitable fact, the individual -

partners are liable severally to the bank pn the

partnership. obligation. Under these ¢ircum-

stances, it would be inequitable to allow the Dank

to enforce its claims and not allow the set-off.

1 Williston on Contracts, Sec. 316

‘The idea (of a joint obligation) .ceases to

be practical when a judgment has been ren-

dered against joint contractors and the plain-

tiff wishes to satisfy that judgment.”’

Therefore, if the bank brought an action against

the partnership firm on these notes, it couM claim

in execution the assets of the individual partners.

Suppose then the individual partners should bring

suit against the bank for their individual deposits

amt secure judgments. The case would then be one

of complete and perfect mutuality. The indi-.

bn?

Fee

’ *

° . )

. . . o

6 Brief for Respondents

viduaj*partners could then come into equity and

demand an offset. of the-elaims. The only reason

this procedure cannot take place at law is by reason

of the insolvency of the bank making # impossible |

for the individual depositors to bring suit to re- ..

cover their deposits. It is inequitable that the

bank should be permitted to secure rights Which

it would not otherwise possess by reason _of its

own insolvency and consequent default.

The cases generally allow an equitable set-off

at the outset under these circumstances where one

of the debtors-is either insolvent or a non-réSident.

The precise case has arisen in the First Circuit

and the equitable set-off has been allowed. This

is the only case in the federal courts directly in -

point. : , e] _¢ Sie

. Roelker v. Bromley-Shepard Co., Inc. et al

? 73 Fed. 2d, 618 (1934) C.C.A. 1

Certiorari denied, 294 U.S. 713:

¢e Pe od

In this case a corpofation and an individual were

‘ obligated to a national bank on a joint note. Wher

the bank closed both the corporation and the indi-

vidual had deposits at‘the bank in excess of the

note. A bill in equity was brought to compel the

offset. First, a motion‘to dismiss was filed and

“overruled. The case went to trial on.an agreed

statement of facts, and a final decree was entered

allowing the offset. This decree was appealed by

Brief for Respondents ee

the receiver of the bank to the Circuit Court of —

Appeals for the wut Circuit and the decision was

affirmed. Co ‘

* All of the arguments here edvanced by the peti-

‘tioner were advanced in that case. Reference was

first made to the provisions of the National Bank-

ing Act (12 U. 8. C. A. See. 21 et seq.) which re-

quire a ratable distribution of the bank’s ‘assets

among its creditors. It®was contended that this

, precluded the possibility of set-off. This argu-

.. Ment, manygears ago, was rejected by this Court

in a case which will bé referred to below. In the.

Bro roriléy-Shepard case the Circuit Court of Ap- *

peals for the First Circuit states, at page 619:

‘‘We do not think Congress intended by the

National Bank Act to deprive depositors of

the right of equitable set-off when justice re-

quires it. The language of the court in Seott

v.- Armstror%, supra, in. discussing ad ie

statute, is applicable to the situation here :’

Fas pe : *

Upon the merits, the same court stated: | ,

‘©(2) Conceding that at law, and generally

_in equity, a‘claim of one of two joint obligors .

cannot be set off against the joint debt, it is

well established that, where justice requires,

ge. and there is no adequate remedy at law, a

court of equity under such circumstances will

8 ie Brief for Respondents

order a set-off, and a bill in equity to compel

such set-off is a proper form of remedy.’’

* * *

‘*(4) Under the circumstances of this case,

- we think that ju&tice requires that so much of

the deposit of the Bromley-Shepard Company,.

Inc., in the insolvent bank as was negessary to’

pay the joint note, should be set off against

_ the corporate note of the eee |

Company, Inc., though the note was also »

Signed by the treasurer of the corporation as

a comaker.’’

This Court denied a petition for certiorari (294

U. 8. 713). The only change in the authorities

since then is the decision of the case at bar in

accord. Nie :

Scott v. Armstrong, 146 U. S. 499 (1892)

In this case a national bank became insolvent

_ and its assets were taken over by a receiver. Upon

the date of the insolvency it held a note against a

depositor who had a deposit at the bank: Because

. the note was not due at the date of insolvency, it-

was contended that the set-off should not be:

allowed and that in any event set-off was not allow-

able under the provision of the National Banking

Act providing for a ratable distribution of the

_ assets of a closed bank. Chief Justice FULLER, in

| Brief for Respondents : 9

an opinion allowing the set- off, dealt with this

argument at page 510:

| -*¢OWhere a set-off is otherwise valid, it is not

perceived how its allowance can be considered

a preference, and. it is clear that it is only the

balance, if any, after the set-off is deducted

which can justly be held to form part of the

assets of the insolvent. The requirement as to.

- yatable dividends, is to make them from what

belongs to the bank, and that which at the time

of the insolvency belongs of right to the

debtor does not belong to the bank. ”

and at page 511:

‘‘We are dealing in this case with an equit-

able set-off, but if on June 20 the note had

matured and each party had a cause of action ~

. eapable of enforcément by suit at once, upon

the argument for the receiver the legal set-off

would be destroyed just as effectually as it is

contended the equitable set-off is. We cannot

believe Congress intended such a result, or

to destroy by implication any right vested at

the time of the suspension of a national bank,’’

The question: of allowing a joint claim to be set |

- _ off against the separate claims of the joint debtors

had’ been previously dealt with i way of dictum

by this Court. | ¢

10. Brief for Respondents

Gray v. Rollo, 18 Wallace, 629 (1873)

In the case cited above the faets were as follows:

The insolvent claimant was a fire insurance com-

pany. -It held notes on which Moses Gray and one

Gaylord were jointly liable. It owed money upon

a fire loss, not to Moses Gray individually, but to

a partnership consisting of Moses Gray and his

- brother Franklin Gray. Moses Gray.attempted by -

a bill in equity to compel the insurance company

_to set off the amount due on the policies to Gray

Brothers against the joint obligation of himself

and Gaylord. He alleged in his bill that his brother

Franklin assented to and authorized the appro-

priation of half of the amount due on the policies

_ to the extinguishment of his liability upon his joint

note to Gaylord, but this Court apparently con-

- sidered that this allegation was unimportant. This |

‘Court distinguished from the facts before it a num-

ber of other cases, among: them, Tucker v. Oxley,

‘ § Cranch, 34. At page 634, in the opinion in Gray

v. Rollo, Justice BRADLEY says:

‘*But the case of Tucker v. Oxley will be

found to differ from the present. There two

persons by the name of Moore, being partners,

became indebted to Tucker. They afterwards

‘dissolved partnership, and Tucker became in-

debted to one of them, who continued the busi-

ness, and who afterwards became bankrupt.

——— the assignee, sued Tucker for this debt,

Brief for Respondents’ - 11

but the latter was allowed to set off his claim

against the two. The court put the decision

upon the ground that.the debt due from the -.

two Moores to Tucker could have been col-

lected from‘the property of either of them, and

was provable. under the bankruptcy proceed-

ings against the estate of him who became

bankrupt, and hence it might be set off against -

any claim which the bankrupt had. against

Tucker.”’ Aaa

c a '

It is clear that under the federal bectctainn the

' set-off should be allowed.

3. UNDER THE PENNSYLVANIA DECISIONS —

SET-OFF WOULD BE ALLOWED

- The court below states (R. 12) 7

“The law of the State of Pennsylvania .if |

applicable wduld clearly sustain the bill. The

decisions ofthat state allow individual claims

’ to be set off in equity against a joint liability

even though the party asserting the joint lia-

bility is solvent. Stewart v. Coulter, 12S. & R.

12 | “Brief for Respondents

252; Cochran v. Cutter, 18 Pa. Sup. “st. 282.

See also Mintz v. Tri-County Natural Gas

Company, 259 Pa. 477.” - pei

Childerston, et al v. Hammon, 9S. & R.

68 (1822) |

Ini this case an action was brought, upon a single

pill, against two defenders jointly. The defendants -

proved that the plaintiff did not own the action —

but that it was owned by a third party, named

—J ohn Hammon, and that the action was being

brought for his benefit. The defendants further

proved that John Hammon was indebted to one of

the defendants in a. sum greater than the amount

due upon the single bill. The trial court rejected

‘this evidence. This decision was reversed and a

new venire ordered upon the theory that if these

- facts were true the set off should be allowed.

Stewart v. Coulter, 12 S. & R. 252 (1825)

In this case an action was brought upon a claim

by Stewart against two joint defendants, Coulter

and Day. The trial court allowed as an offset a

claim by Coultér alone against Stewart. The action

- was brought in the Supreme Court sitting at nisi

prius. Upon motion for a new trial the trial judge

. stated, at page 253: |

‘At the trial, my opinion was, that the in-

debtedness of the plaintiff. to one defendant

2 f

Brief for Respondents 13

was, of itself, unless. there. was some superior

“equity i in a third person, a subject of set-off by

— that defendant, although he had:been sued »

- with others, and might be set off on the trial

under our act of assembly, which has been

always considered -as more comprehensive

.* than the British statutes of 2 Geo. II, Ch. 22,

and 8 Geo. II, Ch. 24. That opinion has not

been changed, and is unchangeable ; for if the’

very able arguments of the counsel of the

plaintiffs could not change it, it cannot be

shaken. 5 =

Justice Gipson filed’a pane cuibaieis in which he .

- states as follows:

‘Ror myself, I cannot atiwit that this set-

off could be claimed at law, or that there is in

this respect any material difference between

our act of assembly and. the Stat. 2 Geo. IT,

Ch..22: But whatever difference does-exist, is

against the set-off, our act having regard to

cases where a balance may be recovered. by the

defendant, and it cannot be said that partners

may recover a debt separately due to.one of

them. But I throw this out only as my own

opinion, and as we all agree that the debt due

by Stewart to Coulter was a proper ‘subject

for equitable defalcation, -I shall rest the

~ opinion of the court \ on that ground alone.’’

14 ~~ ~—, Brief for Respondents

Cochran v. Cutter, 18 Pa. Super. Ct. 282

@ (1901)

‘In this case the surviving partner of a firm com-

posed of two persons engaged the plaintiff, one of

their customers who was indebted to them, to work

for a new firm formed to carry on the business

after the death of his co-partner. The persons con-

stituting the new firm were the surviving partner,

the widow and the sole heir of the deceased part-

ner. The question was whether they could set off

- the plaintiff’s debt to the old firm agaizist his claim

against the new firm. At page 284 Judge Rice

says: .°

‘ Accordingly it has been held repeatedly in

Pennsylvania although the rule seems to be.

different in some of the other states of the

Union, that two or more defendants jointly —

sued may set off — owing by the plaintiff

‘to one of them:’

The foregoing three cases were cited by the

Supreme Court of Pennsylvania in the case of

Mintz v. Tri-County Natural Gas Company, 259

Pa. 477 (1918) at page 482. ‘They were distin-

guished‘ but-in no manner criticized and it may,

‘therefore, be taken that they-still represented the

views of the Supreme Court of Pennsylvania.

There are no later cases.

Brief for Respondents 15

4. THE FEDERAL COURTS WILL GIVE WEIGHT

| TO STATE COURT DECISIONS IN DECIDING

A QUESTION OF GENERAL LAW ”

The 34th Section of the J udicature Act of 1789

provides:

‘‘That the laws of the several States, pane

where the constitution, treaties or statutes of

_ the United States shall otherwise require or

“provide shall be regarded as rules of decision

in trials at common law, in the Courts of the

United States, in cases where they apply.’’

In the early case of ©

Swift v. Tyson, 41 U. S. 1 (1842)

this Court announced the doctrine that this sec-

tion of the. Judicature Act applies only to the

statutes of the States as construed by their courts

and to purely local matters, such as the title to

real estate and that the so-called common law or

decision: law of the States on matters of general

law is not binding upon the federal courts.

This case has been the subject of an enormous:

amount of controversy and it is now generally

16 > — Brief for Respondents

recognized that the decision was probably wrong.

-It has never. been overruled, is still sometimes

cited, and very frequently distinguished: ~

- There is an article of some 83 pages in length in ©

37 Harvard Law Review, 49

This article refers to the original documents to

which Justice Srory, who wrote the opinion in

Swift v: Tyson, did not have access, and shows

that if he had known the facts back of the drafting

of Section 34 his decision would have been other-

wise. The article states, at page 52:

‘“‘Had J udge Story seen this original draft ©

of the amendment, it is almost certain that his

decision would -have been the reverse of what

it was.’’.

and at page 85:

' - “Tt now appears from an examination of

the Senate Files, however, that if Judge

Story and the Court had had recourse to those

Files in preparing the decision in Swift v.

Tyson, it is highly probable that the decision

. would have been different, and that the word

‘laws’ in Section 34 would have been con-

strued to include the common law of a State

as well as the statute law. This conclusion

will probably be reached by anyone who

examines the original slip of paper on which

Brief for Respondents 17

the amendment containing Section 34 was

written, and which. is, with little doubt, in

* Ellsworth’s handwriting.’? '

Professor Beale, in his new book

The Conflict of Liwa, Vol. 1, page 25,

section 3.5 (1935)

says, concerning the parry in Swift v. Tyson,-at

page 26:

“This decision, unfortunate in that it un-

settled the minds of lawyers as to the law and

_ thus made it difficult to advise clients, ’ was

nevertheless quite within the right of the

court; the federal-court in the state was given

by the Constitution of the United States‘ as

full power to declare the law as the state

court.’The law thus declared was of course the

law of the state, but the way in which it was

decided, the weight given by the cgurt to the

decisions of courts, and especially o£ federal

‘ courts, in other states, led lawyers to apply the

name of ‘federal common law’ to the doctrine.

‘This: phrase ‘the Federal Common Law’

leads to a natural assumption that there is a

law of the United States parallel to the law

the states and administered by the United

St&tes courts. This common law is supposed |

to be a law’of the United States on almost

18 Brief for Réspondentg

every point which is administered by the

federal courts. This led to a curious contro- _

versy both of courts and. of periodicals as to

the possibility of such a law. After thé con-

troversy had subsided legal thought went on as

usual and the Supreme Court of the United

States decided that therewas xo such thing as

a law of the nation apart from the laws of the

states.’’ }

Since Swift v. Tysgn has not been definitely

overruled, it is impossible to find decisions in lower

courts which directly criticize it. They merely

avoid it in many cases. The real criticism is to be

- found in some of the disseriting opinions to deci-

- sions of this Court. One of these is found in the

case of . |

Black & White Taxicab and Transfer

) Company v. Brown & Yellow Taxi-:

cab and Transfer Company 276 U. S.

518 (1928)

In\this case a Taxicab Company had a contract

with the Railroad Company giving the Taxicab

Company the exclusive rights to serve a particular

station. The question was whether this contract

was enforceable. Under the law of the State of

Kentucky, where the station was, the contract

would have been held invalid. This Court held

that the question of the validity of the contract

Brief for Respondents . 19

‘was a matter of general law and disregarded ‘the

state. decisions. Justice Hotmes filed a dissent-

ing opinion in which Justices BRANDEIS and: STONE

joined.

The fallacy back of Swift ¥. Tyson was s discussed

_ imthe following language, at page 533:

“Tf I am right the fallacy has resulted in

an unconstitutional gsstmption of powers by

the Courts of the” United States which no

_ lapse of time or respectable array of opinion.

should make us hesitate to correct. Therefore

I think it proper to state what I think the

fallacy is. The often repeated proposition of

this and the lower Courts is that the parties

are entitled to an independent judgment on

matters of general law.

* +

It is-very bend to resist the impression that -

there is one august corpus, to understand

which clearly is the only task of any Court

concerned. If there were such a transcendental

body of law outside of any particular State

but obligatory ‘within it. unless and | until

changed by statute, the Courts of the United

States might be right in using their independ-

ent judgment as to what it was. But there is

no such body of law. The fallacy and illusion —

that I think exist consist in supposing that

nan.

Brie f for Respondents

ieee is this outside thing to be found. Law is |

a word used with different meanings, but law

in the sense in — speak of it today

does not exist without~some definite authority

behind it. The common law so far as it is

enforced in a State, whether called common

law.or not, is not the common law generally

but the law of that | State existing by the —

authority of that State” without regard to what

it ‘may have been in "England or anywhere

cise. .

and at page 584:

Peal

ee within the enaee' of the ‘Conatiiation a

‘State should declate one of the disputed rules

of general). law by statute there would be no

doubt of the duty of all Courts to bow, what-

ever their private opinions might be. * * *

I see no reason why it should hayg less effect

‘when it speaks by its other voice. * * *

- * Ifa state constitution should declare that on

~~ all matters:ef general law the decisions of the

. highest Court shoyld. establish the law until

modified. by. statute or by a ‘later decision of

P the same Coyrt, I don ot perceive how it would

“be possible for a Court of the Uttited St&tes to

refuse to. follow what the State Court decided

in that domain. Ad

Brief for Respondents 21

and at page 535:

“Mr. Justice Story in Swift v. Tyson, 16

Peters, 1, evidently under the tacit domina-

tion of the fallacy to which I have referred,

devotes some energy to showing that Sec. 34 of

the Judiciary. Act of 1789, c. 20, refers only to

statutes when it provides that except aS eX- +.

-eepted the laws of the several States shall be

regarded as rules of decision in trials at com-

mon law in Courts of the United States. An —

examination of the original document by a

most competent hand has shown that Mr.

Justice Story probably was wrong if anyone

is interested to inquire what the framers of the

instrument meant. 37 Harvard Law Review,

49, at pp..81-88. |

* * *

‘‘T should leave Swift v. Tyson undisturbed,

as I indicated in Kuhn v. Fairmount Coal Co.,

but I would not allow it to spread the assumed |

-dominion into new fields.’’

The suggestion of Justice Houmes of limiting -

Swift v. Tyson has been adopted by many cases,

and the rule has grown up that while the federal

courts are ‘not bound by state decisions upon

‘matters of general law they will give weight to

them in order to avoid confliet as far as possible.

| :

22 _ Brief for Respondents

This rule is stated in

25 Corpus Juris, Page 846, Section 185

as follows:

“If a question depends upon principles of

general jurisprudence, or rests upon generak

or commercial law, the federal courts: will

decide for themselves and are not bound by

state decisions. But although such courts are

not absolutely controlled by state decisions,

yet they will give weight thereto if they are

called upon to construe the general commercial

law of a state upon a new question, and they

will also act upon principles of comity,.to |

avoid conflict as far as possible, without sacri-

ficing their own dignity, and in case of doubt

may for the sake of harmony lean toward the

views of the state court.”’ -

‘A great many eases’ are cited for the latter

proposition. It is impractical to brief all the cases

*, upon the subject. The following are in point

-and themselves cite many other cases to the same

effect: . |

In this case a question of general: commercial

law came up for decision. The Circuit Court of

Appeals for the Second Circuit declined to follow

Brief for Respondents 23

‘the decisions of the New York state courts. In

discusses the effect to be given to the decision -

the state courts, at page 135:

‘This court has many times gonsidered how -

far federal tribunals, when undertaking to

enforce laws of the States, should follow —

opinions of their courts. The authorities | yere

reviewed, and rule announced in Burgess v.

_ Seligman, 107 U. S. 20, 33, 34, 35, which.

declared that, as to doctrines of commercial

law and general jurisprudence the former

exercise their own judgment, ‘ But even in such

cases, for the sake of harmony and to avoid

confusion, the Federal courts will lean_ to-

wards an agreement of views with the state .

- courts if the question seems to them balanced

with doubt.’ This has been often reaffirmed.”’

Ning decisions by this Court are cited immedi-

ately — this quotation.

Trainor Co. v. Aetna Casualty & sow

Co. 290 U. S. 47 (1933)

In this case the holder of a mortgage took a bond

to assure the completion of a building upon the

and the question was the measure of damages

against the bonding company. The — of

24 - Brief for Respondents

Pennsylvania have stated that under such cireum-

stances the measure of damages is the cost of the

building, notwithstanding the mortgage was ade-

. quately secured without the building. The trial

-eourt refused to follow this rule and allowed

nominal damages only. The decision was affirmed

by the Cireuit Court of Appeals’ for the Third

Cireuit. This Court reversed the decision and held

that the decisions of the Supreme Court of Penn-

sylvania should be followed. In limiting the rule

of Swift v. Tyson, Mr. Justice SUTHERLAND states

as follows at pages 54-55: |

“The circuit court of appeals bef that the

Pennsylvania decisions merely declared the

common law of that state with regard to sur-

etyship, and, since that law is derived from the

principles of general jurisprudence common

to all the states, a federal court in determin-

ing what it is might. exercise an independent

judgment. We do not deem it necessary to

discuss the principle enunciated or to decide

whether the Pennsylvania decisions come

within it. It is enough to say that even where

the principle applies, ‘for the sake of harmony

and to avoid confusion, the Federal courts will

lean towards an agreement of views with the

State courts if the question seems to them

_ balanced with doubt.’ Burgess v. Seligman,

107 U. 8. 20, 33-34." And see Sim v. Edenborn,

242 U. S. 131, 135, where the authorities are .

collected; Community-Bldg. Co. v. Maryland

Casualty Co., 8 F. (2d) 678, ‘680. In the pres- -

ent case it would not be going far enough to

~ say merely that the question is ‘balanced with

doubt,’ for it seems to us that the Pennsyl-

vania decisions, and those of the other states

cited above, are plainly right.’

As shown by the footnote to the citation from

Corpus Juris a very great many cases could be

cited to the same effect. |

Turning to the case at bar we find the rule in |

Pennsylvania settled by decisions of long standing.

The federal rule, it is contended by appellant

should be different. The federal cases are in

accordance with the decisions of the courts of

‘Pennsylvania. -

It is submitted, therefore, that whether or not

Swift v: Tyson is still in effect the decision below

was correct and the petition should be dismissed.

ase”

26 = Brief for Respondents

5. SOME OF THE CASES CITED IN THE PETI-

TION ARE NOT IN POINT

As already pointed out in the introduction the

case of In re Schults, 132 Fed. 572 (D. C. N. Y.)

is cited on page 13 of the petition followed by the

-bracket: ‘‘ (involving precisely the same question

here under consideration).’’ The bank in the.

‘Schults case was a private bank and was being

liquidated in bankruptcy within the state of New

York. The decision relies on New York decisions.

The liquidation of a national bank was not in-

volved. o 3

On page 10 the petitioner cites the case of First

National Bank of San Jose v. California, 262

U. S. 366. In this case the state of California filed

a proceeding against a national -bank requiring

that a deposit inactive upon the books of the bank

for more than twenty years be escheated to the

state of California under a state statute providing

for such procedure. The state courts sustained the

action- and on a writ of error to the judgment of

the Supreme Court of California, the decision was

reversed on the ground that the state legislature

could not pass an act abrogating the deposit ad

Brief for Respondents | 27

tract in a national bank. The case stands simply

for the point that a state legislature cannot pro-

vide for the escheat of a deposit-in a national bank.

This is a question of operation, not of liquidation.

~ Again on page 10 the petition cites First

National Bank v. Selden, 120 Fed. 212 (C. C. A. 7).

In this case Selden-was the receiver of a closed:

national bank which had on deposit a sum of

money with the First National Bank of Chicago.

Before closing the insolvent bank had drawn

checks against this deposit fund sufficient to ex-

haust it. Under the law of Illinois, the drawing

of checks against the fund is an assignment pro

tanto of the deposit. Under the federal cases, this.

is not so. The receiver of the closed bank brought

an action to recover the deposit whereupon the

First National Bank of Chicago filed a bill in

equity to enjoin the suit. The bill was dismissed on

the ground that in the case of this irreconcilable

conflict between the federal and state decisions,

the federal authorities would prevail. In the case

at bar this conflict is not present. —

On page 11 the petitioner cites McCandless v.

_Dakota. In this case a national bank issued cer-

tificates of deposit which .were guaranteed by the

defendant and five others. After the bank sus-

pended the defendant was obliged to pay out on

his guaranty and took up the certificates. At the

28 Brief for Respondents

time of the endorsement the defendant was in- |

debted to the bank. The receiver of the bank

brought an action on ‘this indebtedness and the

defendant sought to offset the amount he had paid

under his endorsement. The offset was denied on

the theory that, while the endorsement of guaranty

was made prior to the closing of the bank, there

was no debt owing from the bank to the defendant

until afterwards when the defendant was obliged

to pay on account of his endorsement. Therefore, .

the ‘set-off was not allowed. The case did not in-

volve the point under consideration in the case.

at bar. ; .

The authorities cited in the petition do not sup-

_ port its contention and it is submitted that the —

petition should be dismissed. - ~

| Respectfully submitted,

IsaDORE Katz

C. RussELL PHILLIPS

Rosert T. McCracKEN

Attorneys for Respondents

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