Amicus Curiae Brief — Franklin Nat. Bank of Franklin Square v. New York

wea?

| MAR:

I HAROLD B. Will

IN THE ,

“FSupreme Court of the United States

: OCTOBER TERM, 1953

No. 427

<>.

>

e HE FRANKLIN NATIONAL BANK OF FRANKLIN SQUARE,

Bs. Appellant,

Wa

Tur PEOPLE OF THE STATE OF NEW YORK.

) On APPEAL FROM THE CouRT OF APPEALS OF THE

StaTE OF New York

BRIEF OF NEW YORK STATE BANKERS

__ ASSOCIATION AS AMICUS CURIAE

r Fé PETER KEBER,

a 44 Wall Street,

i: New York 5, N. Y.,

» 3 Counsel for New York State

4 Bankers Association,

= Amicus Curiae.

a THEODORE G. METZGER,

» a Of Counsel.

THE Court Press, N.Y. C.

‘

;

EP EE SEE ARIE I eA IE ee

~~ SAORI AA IE in Sr

INDEX.

feet On Bees COPE 6 occ ii evecciveecceieress 1

Argument:

I—A fundamental conflict exists between the

Federal statutes governing the functions and

operations of national banks and Section 258(1)

of the New York Banking Law .............. 2

Ii—The asserted differences between commercial

banks and savings banks are in any event not

sufficiently significant to justify the prohibition

contained in Section 258(1) of the New York

SE Ne ee css ary bree eev ev enevorse 8

llI—By granting savings and loan associations and

savings banks the exclusive privilege of using

the word “savings” in their dealing with the

public Section 258(1) of the Banking Law has

created an arbitrary and unreasonable classi-

fication between savings banks and savings and

loan associations on the one hand and national

rr i ou oe se beaver eae eed oe 15

I1V—The Legislature of the State of New York has

in effect abandoned the original objective sougiit

to be obtained under Section 258(1) by author-

izing the deposit of the savings of school

children in state or national banks having an

i ns ars oi saa hears role he xe 19

(NS ig irs SAN NE Pi Bel TA cA, I RNe- Gene 21

li

Tas_e oF Cases Cirep:

PAGE

eee eee SETS ee: Se ri

Air-Way Electric Appliance Corp. v. Day, 266 U.S.

"aE Ne tne Se EPS ee ASR RT LL es hd NN dw i

Davis v. Elmira Savings Bank, 161 U.S. 275 ........ 3

Downey v. City, 106 Fed. (2) 69, aff'd 309 U.S. 590.. 5

Easton v. lowa, 188 U. 8. 200 ................. meee

Fidelity National Bank & Trust Co. of Kansas City

7. COPE, Be WW ia ioe nlds vo cksc ales: 4

First National Bank v. California, 262 U.S. 366 ..... 4,5

F.S. Royster Guano Co. v. Commonwealth of Virginia,

adie Pe Sy ee ARSE S delonts S Dnelega oe = ic 15

Hartford Steam Boiler Inspection and Insurance Com-

pany v. Harrison, 301 U.S. 459 ................ 15

People v. Mechanics and Traders Savings Institution

ey Ee Te ose teh ceatesies aces lc 17,18

Springfield Inst. for Savings v. Worcester F. S. & L.

-Assn., 107 N. FE. (2) 315, cert. denied 344 U. S.

DOW. be Berea ine seeds avs u Su pekeienewo eo a

STATUTES AND ReGuiatioys:

Federal Reserve Act, Section 24, as amended (238 Stat.

275, 12 USC ¢ 371) RET ERTS. Pere eee fe

Laws of 1858, Chapter 132, Section 1 .............. 15, 16

Laws of 1875, Chapter 371 (General Savings Bank

IE Wik arta cae ehaen cows usconin es ee 8,9

Laws of 1878, Chapter 374 ......................... 9

Laws of 1904, Chapter 568 ........................ 19, 20

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ill

PAGE

Laws of 1905, Chapter 564 ......-06- essere eerie: 16

Laws of 1909, Chapter 497, Sec. 160.0... 66. cere eee YY)

Laws of 1914:

Chenier DOD... cece rsccnsreccsccssrsnasrenness 10

Chapter 369, Section 279 .....-.--+-e5e reer res 16

Laws of 1920, Chapter 167 .....---- +65 sere errr: i)

Laws of 1923, Chapter G69 .......---- esse errr: Ps

Laws of 1925, Chapter 278 .....-----see ere eer errs 9

Laws of 1926, Chapter 631 ......--6- +202 sere eres 32

Laws of 1934:

Cheber DOD occ es cccccccrncsenarrcsarresers 13

Changer GOR o.oo c cece sereceereseeracrersss 15

Laws of 1936, Chapter 805 .......--- 05s errr eee 3

Laws of 1937:

Ceptet GOB. 5 on. ccc cer ternsrernrerensianerses 12

Chapter GOG ......--. cers cree ewerceserescrees 10

Laws of 1938, Chapter 392, OE ONE Tabatha, eae me one 10,13

Laws of 1930, Chapter 882, Article SEE oho orn eae 12

Laws of 1940, Chapter 449, Se eS er rer rrr rT 13

Laws of 1942, Chapter 434 .....------5e5 rere 13

Laws of 1945:

Cel SI ecko cao estes cercdrcens tere terns 10

Reet TUN oo as dec ccewes vee terete Sete Fee e ee 13

Laws of 1946:

CUR TE a xs crs pate een errr nts Peer tease 11

Cinater BO... -. vane cerar sete deren ner rres 11

Re TE oan ow vnve renee yrecswerr herr t en ees 11

CN TOP aw ce ccec ern crersncrexe renter 14

Caer FOR on vers ences sewed eeee tron nsnet ese 10

Laws of 1948, Chapter 296 .....------ererrr rere’ 15

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rd RY ape 2

iv

Pac}

Laws of 1949:

RINE Saco dani wdu 04 bar ep evened Oeew ree 11

is hoe see Vd ir CN 5 oo bev < Poe Oa Bee 1!

EE cen pees ode kvaressdes us eire rowcs I!

Bawa Of 1051, Chanter G02 2... cccececcccccecvcece 4

Laws of 1952:

RIE Sinbad vat evev epee ey euid deve eoertes 2)

NE Snel bus da dod eee pes oe eww enb aver eon 1]

National Bank Act, Section 24(7), as amended (R. S,

oe RB 2 be bt) ne }

New York Banking Law:

Section 2 nosy ate eddie hath ae he da hed meee ead 12

EE or Gs letras ad do LY Ree eo alee 4

RI oe ec) roan tel a 15, 19, 20

Section 258(1) ..........2,5,6, 8, 14, 15, 16, 19, 20, 21

Section 258(2) .......... arr taeas £ 2)

Section 258(5) ........... e on Gece ee

Section 378 .............. Peaeevecus sce ae

Rules and Regulations of the Federal Savines and

Loan Association, (Chapter I(c), Title 24, Code

of Federal Regulations ....................... Is

Rules of the Supreme Court of the United States,

Se I re ee aren ee rene l

ME EE oh yeep Pee eee ede he re reer oe Coe veo rs 1h

As eS I 55S caer rca bru bwr own keno“ de ve Is

atic. co Sato

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_—_—

IN THE

Supreme Court of the United States

OCTOBER TERM, 1953

No. 427

™™

~~

Tur FRANKLIN NaTIONAL BANK OF FRANKLIN SQUARF,

Appellant,

v.

Tur Pror.Le OF THE STATE OF New York.

Ox APPEAL FROM THE COURT OF APPEALS OF THE

SraTe oF NEW York

&

~~

BRIEF OF NEW YORK STATE BANKERS

ASSOCIATION AS AMICUS CURIAE

This brief is submitted by the New York State

Bankers Association as amicus curiae with the written

consent of all parties to the case pursuant to Rule

27.9(a) ef the Rules of this Court.

Interest of Amicus Curiae

The New York State Bankers Association is com-

posed of more than 650 banks and trust companies

located throughout New York State. Included are

“69 national banks. One of the principal functions

of the Association is to promote in the public interest

sound banking practices. It has been stipulated by

the parties to this case that savings deposits (desig-

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2

nated in the stipulation as time deposits) in national

banks in New York State represent a substantial

percentage of all deposits in su«h banks. Thus in

1949 a total of 388 national banks in New York State

had $10,332,772,000 in demand deposits and $1,812.-

125,000 in time deposits (R. 652). The percentage

of time deposits to demand depesits is substantially

higher outside the City of New York. Specifically, in

Nassau County, where appellant’s bank is located,

national banks in 1949 had total demand deposits of

$152,981,000 and time deposits of $124,798,000.

The judgment and decision of the New York Court

of Appeals, therefore, affects not only the appellant

but all national banks located in New York with

respect to a most important if not, indeed, vital phase

of their business.

ARGUMENT

A fundamental conflict exists between the Federal

statutes governing the functions and operations of

national banks and Section 258(1) of the New York

Banking Law.

The judgment from which this appeal is taken

enjoins appellant, a national bank, from advertising

or otherwise using the word ‘‘saving’’ or ‘“‘savings”’

in relation to its banking or financial business in its

dealings with the public (R. 694). The judgment is

grounded on Section 258(1) of the New York Bank-

ing Law which prohibits the use, except by a savings

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3

hank or a savings and loan association, of the word

“saving” or ‘savings’? or their equivalent in the

advertising and conduct of banking or financial busi-

ness.

Section 24 of the Federal Reserve Act, as amended

(38 Stat. 273, 12 USC § 371), expressly authorized

national banks **to receive time and savings deposits”

and Section 24(7) of the National Bank Act, as

amended (R. 8. 5136, 12 USC § 24(7)) confers upon

national banks the power to exercise *‘all such inci-

dental powers as shall be necessary to carry on the

business of banking.”

The express statutory authority to receive savings

deposits when read in conjunction with the incidental

powers conferred by Section 24(7) of the National

Bank Act compels the conclusion that national banks

are not only authorized to accept savings deposits, but

are empowered to do all things appropriate and

necessary in order to obtain such deposits, Including

bringing home to the public that this type of banking

service is available to them in national banks.

The appellant's brief clearly demonstrates that

both the legislative history and administrative inter-

pretations of the Federal statute point irresistibly to

the same conclusion. Granting that this is so, the

attempt by the State of New York to enjoin appellant

from exercising the powers thus conferred is in direct

conflict with the purpose of Congress and paramount

Federal laws. It is firmly established that under such

circumstances the state statute must vieid.

Davis v. Elmira Savings Bank, 101 U. 8S. 275;

Easton vy. Lowa, 188 U. 8. 220;

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4

)

i

First National Bank vy. California, 262 U. §,

366 ;

Fidelity National Bank & Trust Co. of Kansas

City v. Enright, 264 Fed. 236.

The majority of the Court of Appeals purport to

recognize this principle, but argue that it is not appli-

cable here because no conflict in fact exists. The

Court found merely ‘ta superficial, or seeming, con-

tradiction between the phrasing of the two enact-

ments’? (R. 687). It disavowed any intention to

**prevent defendant from carrying on a_ particular

kind of banking business’? (It. 687) and stated that

it did not claim for savings banks a monopoly on the

receipts of deposits of the ** ‘savings’ type’? (R. 688).

It justified the restriction upon the use of the word

‘‘savings’’ by other than savings banks and savings

and loan associations with the claim that the use of

the word by a national bank would constitute a mis-

leading description of its business. Other phrases

such as ‘*‘deception of our people’? (R. 687), ‘de-

ceptive verbiage’ (R. 688), ‘fairness in business

transactions’’ (R. 687), ‘*misleading words’’ (R. 689),

are seattered throughout the opinion.

In the final analysis, however, the Court’s attack

is not upon the action of the appellant, but upon the

Congressional intent. It is Congress which used the

words ‘*savings deposits’’ no less than three times in

the statute. It is completely unrealistie for the Court

of Appeals to assert that Congress did not intend that

national banks should use the identical words found

in the statute when advising the public of the banking

function it is prepared to furnish. The Court might

as well have said that anyone who reads Section 24

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5)

of the Federal Reserve Act is in danger of being

misled into believing that a uational bank is similar

to a savings bank.

General Congressional acts are to be interpreted in

the light of the policy therein expressed and not upon

the statutes of the particular states.

Downey V. City, 106 Fed. (2) 69, 73, aff’d 309

U. 8S. 590;

First National Bank V. California, 262 U. 8.

| 366; 369, 370, supra;

Springfield Lust. for Savings V. Worcester F.

S. & L. Assn., 107 N. E, (2) 319, cert. denied

344 U. S. 884.

The Court of Appeals, in violation of this principle,

disregarded the Congressional policy expressed in the

Federal statutes and upheld Section 258(1) on its

construction of the intention of New York State Leg-

islature. This approach destroys the independence

and uniformity of the powers and purposes of na-

tional banks which the Federal laws were intended

i to secure.

Nor is the existence of a contiict between Federal

and state enactments avoided by the claimed salutary

motives behind the state statute.

Easton v. Lowa, 188 U. 8. 220, 238, supra.

While the Court of Appeals may disavow any

desire to create a monopoly for savings banks and

savings and loan associations in deposits of the “sav-

ings’? type there is no question that New York has

Easton v. Lowa, 188 U. 8. 220, 229, supra.

|

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'

| is

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6

attempted to create such a monopoly with respect to

the very word used by Congress in describing the

permissible functions of a national bank.

It is no answer to suggest, as does the Court of

Appeals, that national banks in New York, other than

the appellant’s, have found it possible to receive say-

ings deposits by the use in their advertising of expres-

sions which the Court characterizes as *‘synonymous,”

such as ‘‘special interest account,”’ ‘‘thrift account.”

and ‘‘compound interest account’. If these expres-

sions are actually synonymous with the word ‘*say-

ings’’ then it is difficult to pereeive how harm <an

result from the use by national banks of the word

‘“‘savings.’’ Since Section 258(1) of the New York

Banking Law applies not only to the use of the word

‘“‘savings’’ but to its ‘‘equivalent,’’ it would seem that

the state recognizes that the statute cannot be validly

applied as written. therwise, the synonymous ex-

pressions would come within the ban of being equiv-

alent.*

The only true explanation, therefore, of the Court's

reasoning is that, despite its statement to the con-

trary, it did not regard the expressions as synon-

ymous. The whole import of its decision is that the

word ‘‘savings’’ had certain connotations which the

so-called **synonymous expressions’? did not contain.

This rationale emphasizes the conflict between the

enactinents. National banks are in effect required to

use different words having different meanings than

the term used by Congress in authorizing the func-

tion. Congress having authorized national banks to

accept savings deposits, the New York statute in

* Mr. Seaton, a State Bank Examiner, testified that these ex-

pressions are the *‘equivalent’’ of ‘‘savings’’ (R. 63).

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o— —

‘

effect would require them to advise the publie dif-

ferently.

The Court of Appeals further observes that ma-

) tional banks operating in New York, other than

| appellant, have not used the word **saving’” or **sav-

ings.’ While there is at least one example in the

| record which contradicts this statement (RR. 583), the

more important criticism is that a state statute which

otherwise conflicts with paramount Federal law is not

validated by compliance therewith by national banks

operating in the state. National banks by such com-

pliance are not estopped from asserting that the state

enactment is unconstitutional, nor does their conduct

constitute a waiver of their rights so to do. Cf. Abie

v. Weaver, 282 U. 8. 765, 775-776.

In directing the Court’s attention to the conflict

between the Federal and state legislation it is not

intended to overlook the discrimination against na-

tional banks implicit in the state statute and the

competitive advantage thereby created in favor of

savings banks and savings and loan associations over

national banks who compete for the same type of

deposit. In addition to the argument in the appel-

lant’s brief on these points the Court's attention is

respectfully directed to the following considerations.

.

’

|

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The asserted differences between commercial banks

and savings banks are in any event not sufficiently

significant to justify the prohibition contained in Sec-

tion 258(1) of the New York Banking Law.

There appears to be no dispute with respect to the

competition between commercial banks, both national

and state, and savings banks and savings and loan

associations for the ‘‘savings type’’ deposit.

While it is true that savings banks in New York

State have continued to be mutual institutions, never-

theless, they have long since departed from their

original philanthropic concept (R. 284-285). Growth

in size has been accompanied by expansion in func-

tions. Their development has been particularly

marked during the past 20 years. Their growth

measured by deposits in New York State was in ex-

cess of 26% in the five years ended 1950 (R. 651).

The differences that may once have existed between

commercial banks and savings banks have tended to

disappear as a result of favorable legislation in New

York which has gradually enlarged the activities of

savings banks and permitted them to encroach further

and further into the commercial field of banking.

Savings banks were originally restricted in the

scope of their banking and investment powers. When

the General Savings Bank Law was adopted as Chap-

ter 371 of the Laws of 1875, all existing miutual sav-

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9

ings banks became subject to its provisions and were

brought under the supervision of the Superintendent

of Banks. Investments authorized to be made were

limited to (1) obligations of the United States and of

the State of New York. and with reservations, to

those of other states and of «ities, counties, towns and

villages of New York, and (2) mortgages on real

estate situate in New York worth twice the amount

loaned thereon, but in no event to exceed 60 of the

whole amount of deposits so invested.

Over the years, the Legislature has gradually ex-

panded the powers of mutual savings banks and

thereby narrowed the differences which once existed

between them and commercial banks.

A brief review of legislation during the last twenty

years only will document this contention:

(1) Amount of deposits received from any one in-

dividual: The General Law adopted in 1875 did not

set any limit on the amount of deposits which could

he received and the charters of the ‘rarious mutual

savings banks varied in this respect. In 1878, the

Legislature restricted the amount which could be

deposited by any one person to $3,000 (Laws of 1878,

Chapter 374). This limitation was subsequently in-

ereased to $5,000 (Laws of 1920, Chapter 167); to

$7,500 (Laws of 1925, Chapter 278) ; and to $10,000

(Laws of 1951, Chapter 592). It is significant that

subdivision 1(b) of Section 927 of the Banking Law

provides that in computing the amount of such de-

posit of an individual there may be excluded all

amounts credited to him as a trustee up to a maxi-

mum of $10,000. Presumably he could also be a

beneficiary of a trust to the extent of $10,000 and thus

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—— pcabereet. ~ perc. ace = AIO AA PIL PEEL CFG LEI BSP tS Be Sa

10

with his individual account have an aggregate of

$30,000 on deposit in one savings bank.

(2) Branch offices: Chapter 369 of the Laws of

1914 had restricted a mutual savings bank to one

office except for a branch acquired as a result of

merger with another mutual savings bank. This re-

striction was lifted in 1938. In that year, it was

provided that, where the principal office of a mutual

savings bank was located in a city in excess of 250,000

people, such bank might have one branch within the

city (Laws of 1938, Chapter 352, Section 1). In 1945,

authorization was given to a mutual savings bank

located in a city having a population of more than

one million to maintain three branch offices in such

city (Laws of 1945, Chapter 298). In 1946 branch

banking was further extended by authorization to a

mutual savings bank located in a city having a popnu-

lation of more than 30,000 and not more than 250,000

to maintain one branch office in such city, and to a

bank in a city having a population of more than

250,000 and not more than one millien, to maintain

two branch offices, in such city (Laws of 1946, Chap-

ter 788).

(3) Broadened investment powers: In the area of

authorized investments, the mutual savings banks

have demanded and received a continuous succession

of permissive legislation to open new channels for use

of their vast deposits. These permissive legislative

enactments favoring mutual savings banks have been

far too numerous to enumerate. Chief among these

have been:

1937—Permission to invest in Canadian secu-

rities (Laws of 1937, Chapter 686).

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11

1946—Permission to invest in obligations of the

International Bank for Reconstruction

and Development (Laws of 1946, Chapter

507). Permission to make loans for the

modernization and rehabilitation of real

estate (Laws of 1946, Chapter 185).

1949—Permission to invest in corporate interest

bearing securities not otherwise eligible

for investment (Laws of 1949, Chapter

522). Permission to invest in FHA mort-

gages secured by property located any-

where in the United States (Laws of 1949,

Chapter 545).

1952—Permission to invest in the preferred and

common stocks of corporation (Laws of

1952, Chapter 705).

National banks have no power to invest in common

or preferred stock and in this respect savings banks

have broader and less conservative investment powers

(Sec 24(7) of National Bank <Act, as amended (12

USC §24(7)).

(4) Transmission of funds: The general powers of

mutual savings banks were extended in 1946 so as To

permit them to perform a function normally carried

on by commercial hanks. and other specialized insti-

tutions. A mutual savings bank may now receive

money for transmission through any bank or through

any other corporation having power to so transmit

moneys (Laws of 1946, Chapter 184).

(5) Payroll savings deposits: Section 958 of the

Banking Law was amended by adding a subdivision 5

authorizing acceptance of deposits from an employer

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or employee group to be credited to the individual

accounts of the group (Laws of 1937, Chapter 463).

In order to make this type plan of deposits workable

from the standpoint of the employer, who is charged

with supervision over the deposits, no passbook is

now required in connection with the deposits (Laws

of 1949, Chapter 692). Mutual savings banks have

thus been empowered to tap a new source of deposit

by relaxing the usual safeguards that are inherent in

the use of a passbook.

(6) Safe deposit bores: Laws of 1923, Chapter

669, provided that savings banks should have the

power to rent boxes for storage of securities and

valuable papers only, ‘‘in cities of first class.’’ In

1926, this section was amended so as to include all

savings banks (Laws of 1926, Chapter 631). The

limitation previously imposed upon mutual savings

banks to accept only securities and valuable papers in

safe deposit boxes controlled by them was extended

to include jewelry (Section 234(9) of the Banking

Law). The difficulty in supervising the character of

property placed’ by customers in safe deposit boxes is

apparent.

(7) Establishment of authorization to issue life in-

surance policies: In 1939, the Legislature granted the

authority to savings banks to establish insurance de-

partments and to issue life insurance policies in an

amount not in excess of $1,000 (Laws of 1939, Chap-

ter 882, Article IX-D). Allegedly, this bill was for

the purpose of providing direct control between the

insurer and the policyholder without the intervention

of an agent or broker. In 1942, the above section was

amended to extend the maximum sum allowable on

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Se7o~”~” StS FSR st a 8

Be,

13

individual policies from 1.000 to $3,000 (Laws of

1942, Chapter 434). This amount was again in-

creased in 1948 to $5,000 (Laws of 1948, Chapter

25).

(8) Further legislation: A list of other permissive

legislation in the savings bank field includes:

1934—-Granted right to assume and discharge

obligations to Federal Deposit Insurance

Corp. as required for deposit insurance.

(Laws of 1934, Chapter 505).

Granted right to become member of Fed-

eral Reserve Bank (Laws of 1934, Chapter

503). <Authorized creation of Savings

Bank Trust Company (Laws of 1934,

Chapter 255).

1936—Permitted to make F. H. A. insured loans

(Laws of 1936, Chapter 805).

1938—Grauted power to act as agent in sale

ot travelers’ checks (Laws of 1938, Chap-

ter 352, Section 1).

1940—Permitted to invest in certificates of in-

vestment in savings banks life insurance

fund, and in certificates of contribution to

the surplus fund of its life insurance de-

partment (Laws of 1940, Chapter 449,

Section 3).

1945—Permitted to invest in obligations of any

corporation organized under any law of

this state for the purpose of dealing in

housing projects (Laws of 1945, Chapter

319).

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se

ae

14

1946—Right to invest in mortgages extended to

permit investments in property upon

which improvements were under construc-

tion for business, manufacturing, agricul-

tural, or residential purposes (Laws of

1946, Chapter 560).

It is apparent from the foregoing that the original

concept of a savings bank as a mutual organization,

the fundamental purpose of which was the protection

of small deposits, has gradually tended to disappear.

Savings banks now perform many of the functions of

commercial banks. They have grown in size in the

State of New York to a point where in 1950 their

aggregate deposits were $11,102,297,000 (R. 651).

They actively compete with national banks for the

same type of savings deposits (R. 155, 411).

While expanding the powers of savings banks and

permitting them to encroach more and more in the

field of commercial banks the state, nevertheless, has

continued to permit savings banks and savings and

loan associations to monopolize the word ‘savings’.

With the passage of time, therefore, the prohibitions

contained in Section 258(1) of the Banking Law

have more and more tended to assume the form of an

artificial and unreasonable barrier which is not only

unconstitutional in its operation but preventive of

the free and healthy growth of national banking serv-

ice to the community.

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aE” suEEetemseeneee

By granting savings and loan asscciations and sav-

ings banks the exclusive privilege of using the word

“savings” in their dealing with the public Section

258(1) of the Banking Law has created an arbitrary

and unreasonable classification between savings banks

and savings and loan associations on the one hand

and national banks on the other.

The general rule in determining whether or not

there has been a proper classification for purposes

of exercising police power by a state is that the

classification must be reasonable and not arbitrary,

and must rest upon some ground of difference having

a fair and substantial relation to the object of the

legislation so that all persons similarly circumstanced

shall be treated alike.

Hartford Steam Boiler Inspection and In-

surance Company V. Harrison, 301 U.S. 459;

F.S. Royster Guano Co. v. Commonwealth of

Virginia, 253 U.S. 412, 415;

Air-Way Electric Appliance Corp. v. Day, 266

U.S. 71, 85.

The forerunner of Section 258 of the New York

Banking Law here in issue, was enacted originally in

1858. Chapter 152, Section 1, read as follows:

“It shall not be lawful for any bank, bank-

ing association or individual banker, authorized

to issue circulating notes, by the laws of this

state, established in any city or village where a

chartered savings bank is located to advertise or

oe.

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nnn ral

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16

put forth a sign as a savings bank, and any bank,

banking association or individual banker, which

shall offend against these provisions shall forfeit

and pay for every such offense the sum of one

hundred dollars for every day such offense shall

be continued, to be sued for and recovered in the

name of The People of the State, by the district

attorneys of the several counties in any court

having cognizance thereof, for the use of the

poor, chargeable to said county in which such

offense shall be committed.”

The provision continued substantially the same

until 1905 when by Chapter 564, Laws of 1905, the

Section was amended to specifically prohibit the use

of the word ‘‘savings’’. Contemporaneously building

and loan associations were included for the first tine

within the privileged class of those permitted to usc

the forbidden word. Thus, after a period of forty-

seven vears during which mutual savings banks alone

were allowed to hold themselves out as ‘‘savings”’

banks, savings and loan associations were given a

similar privilege.

In 1914, national banks were specifically added to

the list of banking institutions barred from either

holding themselves out as savings banks or using the

word ‘‘savings’’ in their dealings with the public

(Chapter 369, Section 279, Laws of 1914). It is un-

necessary to determine whether Section 258(1) of the

Banking Law as amended in 1914 was in conflict with

the authority conferred upon national banks at that

time to receive time deposits. It was not until 1927

that the words ‘‘savings deposits’? were expressly

included in the authorizing Federal statute (44 Stat.

1232).

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While the majority of the Court of Appeals states

that the character and purposes of savings and lean

associations are under New York laws so similar te

those of savings banks as to call for the same kind of

protection it is appropriate to note that the word

“savings’’ when applied to a savings and loan asso-

ciation has quite a different connotation than when

applied to a savings bank. It is only necessary to

observe the fundamental differences in the relation-

ship between the savings bank and its depositors and

the savings and loan association and its sharenolders

to realize that the meaning of the word **savings”’ as

used in the statute is not the narrow one which the

court below attributed to the Legislature.

The relationship between a mutual savings bank

and its depositors is that of creditor and debtor.

People Vv. Mechanics and Traders Savings Tustitution

(1893), 92. N. Y. 7. In that case this Court said:

“The primary relation of a depositor in a sav-

ings bank, to the corporation, is that of creditor

and not that of a beneficiary of a trust. The

deposit when made becomes the property of the

corporation. The depositor is a creditor for the

amount of the deposit, which the corporation

becomes liable to pay according to the terms of

the contract under which it is made. When pay-

ment is made, the claim of the depositor is extin-

guished and he has no further claim upon the

funds or assets of the bank. Upon insolvency the

assets and property of the corporation, as in the

ease of other corporations, is a trust fund for the

payment of creditors, and depositors we think

stand as other creditors having no greater, but

equal rights to be paid ratably out of the insolv-

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18

ent estate. The fact that savings banks are

public agencies created by law to receive ané

invest the money deposited in them does not

change the status of the depositors, upon insoly-

ency of the bank, from that of creditors to that

of beneficiaries of a trust, so as to subject the

assets of the bank to the payment in the first

instance of other creditors.”’

The relationship between a savings and loan asso-

ciation and its shareholders, however, is that of a

corporation and its stockholders, This is true whether

the savings and loan association is state or federally

chartered. (See: New York Banking Law, Section

378; 12 USC See. 1464(b)). The differences in

legal relationship are significant. A savings and loan

association does not receive deposits, it merely sells

shares. Its ‘‘capital’’ consists of its ‘‘savings ac-

counts’’. The so-called ‘‘depositors’’ never become

creditors but only shareholders, and, as such, never

can sue for payment as a creditor. The holders of

‘savings accounts’? may vote on vorporate matters,

having one vote for each $100 of withdrawal value of

their respective ‘‘accounts’’. The method of payment

is regulated by statute so that there is no absolute

right to payment as there is in the case of the savings

deposits received by national banks and savings

banks. (Rules and Regulations of the Federal Sav-

ings and Loan Association, Chapter 1(C), Title 24.

Code of Federal Regulations).

In contrast to savings and loan associations the

account in a national bank which is authorized ‘to

receive time and savings deposits and to pay interest

on the same’’ is substantially similar to an account in

a savings bank. Like the savings bank, the relation

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between the bank and its depositors is that of creditor

and debtor.

; We submit, therefore, that once having opened the

door to the use of the word *‘savings”’’ and the solici-

tation of ‘‘savings accounts’? by savings and loan

| associations, the Legislature, in effect, removed what-

ever basis may have previously existed for restricting

the word to a particular type of banking operation.

The classification made in Section 258(1) ceased to

have any objective validity at that time. The wide

and substantial difference between savings accounts

in savings banks and national banks on the one hand

and in savings and loan associations on the other

destroys any basis for claiming that the word ‘‘sav-

ings’? has a peculiar or limited meaning appropriate

only to savings banks,

IV

The Legislature of the State of New York has in

effect abandoned the original objective sought to be

obtained under Section 258(1) by authorizing the

deposit of the savings of school children in state or

national banks having an interest department.

As has been seen, the Court of Appeals has placed

its entire justification for Section 258(1) of the Bank-

ing Law on the purpose of preventing a deception

from being practiced upon the public.

In 1904 a provision was added to Section 258 of

the Banking Law permitting the principal or super-

intendent of the school to accept deposits of children

to be placed in savings banks only (Chapter 568, Laws

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of 1904). This provision was later enlarged to cover

situations where there was no regularly established

office of a savings bank in a town or city where the

school was located. Under such conditions the money

might ‘‘not later than the day following the collection

(a) be deposited in any trust company or state or

national bank located in the state and having an in-

terest department, or (b) be used for the purchase of

shares in any savings and loan association located in

the state * * *”’,

It was further provided that even if a savings in-

stitution should be opened in that city or town, savings

already deposited in institutions other than savings

banks might continue to remain there (Laws of 1909,

Chapter 497, See. 160).

This provision existed as Sub-section 2 of Section

258 of the New York Banking Law up to 1952.

In 1952 the New York Legislature finally placed all

banks, whether savings or commercial, on precisely

the same footing with respect to the receipt of sav-

ings collected from school children.

By Chapter 546, Laws of 1952, money collected

from school children could ‘*be deposited in some say-

ings bank in the state to be used for purchase of share=

in any savings and loan association organized under

this law or under the laws of the United States, whose

principal office is located in the State of New York,

or be deposited in any trust company or state or na-

tional bank located in the state and having an interest

department.’” (Italies supplied.)

The classification contained in Section 258(1) has.

therefore, been completely abandoned for children

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21

making deposits through school savings programs. It

is difficult to conceive how any distinction between

savings accounts in national banks and savings ac-

eounts in savings banks can any longer have any rea-

sonable validity. In the case of deposits of the funds

of school children, not only is the depositor divorced

from choosing a depository, his savings may be placed

in any banking institution without his knowledge. It

ix clear that the basis for the original enactment of

Section 258(1) no longer exists in fact or law.

CONCLUSION.

A direct conflict exists between Section 258(1) of

the New York Banking Law and the paramount laws

of the United States which authorize national banks

to receive savings deposits. Section 258(1) also dis-

criminates against national banks and impedes their

ability to compete with state banking institutions.

National banks are thereby rendered less effective in

providing the banking and financial services for which

they were designed. All national banks in the State

of New York are affected. The judgment appealed

from should, therefore, be reversed.

Respectfully submitted,

Perer NEBER,

44 Wall Street,

New York 5, N. Y..

Counsel for New York State

Bankers Association,

Amicus Curiae.

TuHropore CG. METZGER,

O;7 Counsel,

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