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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1954
- **Citation:** 347 U.S. 373

## Text

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.
|

\

'

| 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

—

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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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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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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386408_0036%3A10. Public record. Not legal advice.