Sec. 16.) Under our constitution we have no king. The king, therefore, and the prerogatives that were personal to him being repugnant to our constitution, are abrogated. But his sovereignty, powers, functions and duties, in so far as they pertain to civil government, now devolve upon the people of the state and consequently are not in conflict with any of the provisions of our constitution. Inasmuch, therefore, as the claims or moneys due the king, for the support and maintenance of the government, whether derived from taxes or other sources of income, were preferred over the claims of others, it follows that under the first subdivision of the provisions of the constitution of 1777, quoted, such preference became a part of the common law of our state, and is so continued under our present constitution." The court then cited with approval the earlier opinion of Porter, J., which it suggested might have been obiter when written, and then said:30 * * * We do not think it makes any difference whether it was the canal fund or the general fund, so long as it bellonged to the people of the state. It was a public fund raised by taxation or by the sale of bonds which ultimately must be paid by the people; and inasmuch as the sovereign power of the king devolves upon the people, they have the right to have the public funds preferred over those of the common creditors." The people of the state of New York must have been much heartened by this statement of their sovereign powers. The opinion of Mr. Chief Justice White five years later, in the Michigan case, made it clear that the Supreme Court did not believe the state was entirely shorn of its powers, when he said: "Of course as the general subject of regulating the character of business just referred to is peculiarly within state administrative control, state regulations for the conduct of such business, if not discriminatory or so unreasonable as to justify the conclusion that they necessarily would so operate, would be controlling upon banks chartered by Congress when they came in virtue of authority conferred upon them by Congress to exert such particular powers." The New York state legislature, and not the congress, had the power to say under these decisions, who might be executors, administrators, etc., by appointment of its courts, and under what conditions as to liability for their acts, they might be appointed. It was apparent that the national scheme and the state scheme, in respect to liability, were considerably at variance. Human ingenuity with the groundwork furnished by the New York state legislation, could have created conditions which would 30 Supra, note 28, at p. 399. have been neither discriminatory nor unreasonable as related to national banks, by which all such corporate fiduciaries in New York would have been upon an equal basis. It was a matter of vast importance in New York, because it could not be expected that it would take the position which New Hampshire had taken, and deprive its state corporations of the right to act as fiduciaries. Between 1887 and 1919, trust companies had increased in New York to ninety-nine, with aggregate reported resources of almost three and one-quarter billion dollars. The New York Banking Department voiced its surprise at the language of the Federal Reserve Act of 1918, when that department reported to the legislature, and said that: "It seems strange as well as inconsistent with any theory of state rights that, in order to protect national banks from competition or to enable them to compete with state institutions, it should be considered proper to take from the states the right to determine the qualifications of executors, administrators and trustees, or to provide that, when the exercise of such powers by national banks is expressly in contravention of state laws, it shall not be deemed in contravention of such laws, if any competing institutions are permitted to exercise them." Thereupon, however, the New York legislature threw the door wide open, by authorizing state banks which undoubtedly did compete with national banks, to be permitted by the Superintendent of Banks to exercise any fiduciary privileges granted to trust companies by the Banking Law. The only limitation on this privilege was that the state banks so to be authorized, had to obtain a permit from the Superintendent of Banks, based somewhat on the same theory as the permit to exercise fiduciary powers authorized to be granted to national banks by the Federal Reserve Board.31 The New York legislature went indeed further. By Chapter 299 of the Laws of 1919, it added section 39-a to the Banking Law, which granted powers of visitation and examination of the trust department of every national bank "which has been granted a special permit by the federal reserve board to act in a fiduciary capacity under the provisions of sub-section k. of section 11 of the Federal Reserve Act ***." It also authorized the Superintendent of Banks to receive from every such national bank a deposit of the securities of the kind and in the amount which would be required of a trust company having the same capital, located in a place of the same population, under the provisions of section 184 of the Banking Law hereinbefore referred to. It provided that those securities should be held by the Superintendent of banks "as trustee for the beneficiaries of private and court trust 31N. Y. Banking Law, sec. 24-a, added by chap. 159 of the laws of 1919. funds held by such national bank, and securities so deposited shall be held for the protection of such private and court trusts and subject to sale and transfer, and to the disposal of the proceeds thereof by the superintendent only on the order of a court of competent jurisdiction." Section 184 of the Banking Law had required such deposits to be made by trust companies and held in trust for "the creditors of and depositors with such trust company." The legislature, in 1919, entirely disregarded this, but followed the language of the Federal Reserve Act on the same subject matter, finding that course easier than attempting to lay down any rules with which the national banks would have found some difficulty to comply. Section 39-a, as added in 1919, did not in terms repeal the prohibition contained in section 223, against encroachments upon the powers of trust companies. It cannot, however, from that fact alone, be said to have been intended solely to refer to the case of a federal reserve bank, which by section 223 had conferred on it, if authorized by the laws of the United States, the fiduciary powers mentioned in subdivision 1 of section 185 of the Banking Law. I Section 39-a in terms refers to every national bank which has been granted a special permit by the Federal Reserve Board "to act in a fiduciary capacity under the provisions of sub-section k. of section II of the Federal Reserve Act * * *." It would seem clear that the "fiduciary capacity" there referred to, is any fiduciary capacity mentioned in the Federal Reserve Act, especially because section 39-a permits the state Superintendent of Banks to receive deposits of securities "as trustees for the beneficiaries of private and court trust funds held by such national bank," when a federal reserve bank was no where by sub-section 1 of Section 185 of the Banking Law, authorized to receive "court trust" funds in any capacity. I There would seem to be no question, therefore, whether from the standpoint of the open door of the New York legislature, or by reason of the state of facts which existed in New York without this legislation, that national banks, when they have obtained the requisite federal reserve permit, and comply with the rules as to a small deposit of securities, will be permitted to exercise the full fiduciary powers in their permit stated, within the state of New York. This seems to be well settled, whether New York has prohibited, or has not prohibited national banks from exercising these powers.32 32Since this paper was written the New York Supreme Court has held in the case of In re Mollineaux, Kings County Special Term, reported in N. Y. L. J., Oct. 16, 1919, that a national bank may be appointed special guardian of an infant in proceedings to sell the infant's real estate. From the opinion of the court it does not appear that its attention was called to the New York banking legislation One may well ask, where will the "just discretion" of Congress be held to end? The states have been sufficiently admonished, it would appear, that their courts of last resort may not attempt to override this "just discretion" by judicial discretion, in an effort to ascertain the relevancy of the powers granted to the constitutional reason for the existence of national banks. The state courts may, therefore, be assumed, to be wary of considering such matters as the abuse of congressional discretion, and how far the Supreme Court of the United States may consider such abuses remains for the future to disclose. If the states may not interpose a constitutional objection to the relevancy of added powers of national banks, Congress may well be importuned to grant many powers of title insurance, mortgage insurance and even life insurance to national banks. Life insurance powers have in one state at least been granted to banks, and it would not be difficult in some cases to make a surface showing at least, of the need of these powers as a means of protecting these federal agencies against competition. What was said by the Michigan Supreme Court as to the danger that Congress might grant to national banks the powers of a trading company, does not now seem so wide of the mark as it did before the United States Supreme Court decision. Indeed, the air is full of plans of the collectivist and the nationalist for the governmental operation or incorporation of all the great industries of the country. Let Congress adopt any of these plans and create into national agencies the railroad, the coal and the steel corporations of the United States, and the inexorable logic of the Michigan decision will permit Congress, without let or hindrance from the states, to grant to such corporations all such powers as in its "just discretion" may be deemed necessary to protect those federal agencies against competition of state institutions. of 1919, nor to the explicit prohibitions contained in Section 223 of the banking law. A title company is said to have contested, in this proceeding, the national banks' power and to have made certain concessions as to the powers of Congress, which concessions it probably would not have made had Congress expressly conferred title insurance powers on national banks. Nevertheless the court, citing National Bank v. Union Trust Company, supra, note 17, says: "In my judgment the state no longer has power to prohibit the exercise within its domain of the powers and functions so conferred upon such (national) banks, and no power to accomplish this result indirectly by discrimination in favor of local corporations and against national banks or organizations of a similar character." The Cornell Law Quarterly Published in November, January, March and May by the faculty and students of the Cornell University College of Law, Ithaca, New York Subscription Price $1 a Year Single number 35 cents EDITORS AND MANAGERS GEORGE GLEASON BOGERT, Faculty Editor MARY HONOR DONLON, New York, Student Editor-in-Chief At the recent November elections held in New York state, a number of Cornell lawyers were elected to office. The following were elected county judges: Reuben L. Haskell, B.L., '97, Republican, Kings County; Edgar S. Mosher, A.B., '00, LL.B., '02, Republican, Cayuga County; Gerald B. Fluhrer, A.B., 'or, Democrat, Orleans County; and George F. Bodine, LL.B., '98, Republican, Seneca County, reelected. The following were elected to the Assembly: Simon L. Adler, B.L., '89, Republican, from Monroe County, Republican leader in the last session, reelected; William Duke, Jr., LL.B., '05, Republican, from Alleghany County, reelected; Charles M. Harrington, LL.B., '15, Republican, from Clinton County; Albert H. Henderson, LL.B., '14, Democrat, from the Bronx; Guernsey T. Cross, Law, '14, Democrat, from Sullivan County; Alan V. Parker, LL.B., '13, Republican, from Niagara County; and William W. Pellet, LL.B., 'or Republican, from New York County, reelected. The following State Senators are Cornell men: Henry Walters, LL.B., '96, Republican, from Syracuse, in the last session Republican leader; and Clayton R. Lusk, LL.B., '02, Republican, of Cortland, who is chairman of the joint legislative committee, popularly known as the "Lusk Committee," to investigate seditious activities. |