245

Opinion of the Court.

there exists the practice of securing by surety bonds some private deposits. If there has been such a practice, it must have been a secret one; for reference to it has not been found in either official reports, or the books on banking or other publications dealing with financial affairs." Whether a national bank could legally engage in such a practice we have no occasion to decide.10

The Railway insists that Congress in providing that the Secretary of the Treasury might deposit public money in national banks upon receiving satisfactory security by "the deposit of United States bonds or otherwise," Act of June 3, 1864, c. 106, § 45, 13 Stat. 113," assumed a gen

10

'See note 4. However, compare Lunt, Surety Bonds (1930), 206. Nebraska v. First National Bank of Orleans, 88 Fed. 947, and Interstate National Bank v. Ferguson, 48 Kan. 732; 30 Pac. 237, held in the case of a deposit of public funds that the practice was legal. Two Attorneys General have expressed the opinion that national banks lacked the power to pay for guaranteeing all depositors. 27 Op. Atty. Gen. 37, 40; 272, 279. But see 30 Op. Atty. Gen. 341, contra.

11

The original national bank act of 1863 had provided merely that the Secretary of the Treasury might deposit public moneys in national banks. By legislation subsequent to 1864 national banks have been made depositaries of moneys of bankrupt estates, Act of July 1, 1898, c. 541, § 61, 30 Stat. 562; of Indian moneys, March 3, 1911, c. 210, § 17, 36 Stat. 1070; May 25, 1918, c. 86, § 28, 40 Stat. 591; of funds in the hands of the receivers of insolvent national banks, May 15, 1916, c. 121, 39 Stat. 121; of postal funds, May 18, 1916, c. 126, § 2, 39 Stat. 159; of proceeds from the sale of bonds, Sept. 24, 1917, c. 56, § 8, 40 Stat. 291; April 4, 1918, c. 44, § 5, 40 Stat. 504; July 9, 1918, c. 142, § 4, 40 Stat. 845; and of a number of other public funds. In all of these statutes the depositor is required to take security; but therein likewise nothing is said as to the power of the bank to pledge the required securities. Two of these statutes, those relating to deposits of the funds of insolvent banks and of bankrupt estates, have reference to the deposit of private funds. In some of the legislation, not only national, but state, banks also are made depositaries. It is true that Congress cannot make valid a pledge by a state bank, but that does not make it any the less likely that Congress intended to make valid every pledge by a national bank that would be called for

46305-34-17

eral power in national banks to pledge their assets to secure deposits; and that the assumption indicates that it intended this power to be among the "incidental" powers granted by § 8. But without such assumption, the duty of the Secretary to demand a pledge authorizes a national bank to make it.12 We may not import into § 8 a meaning not derivable from the words of that section and inconsistent with other provisions of the Act. Moreover, if the Railway's argument were sound it would have been unnecessary to amend § 45 as was done by the Act of June 25, 1930, c. 604, 46 Stat. 809, which provides:

"Any association may, upon the deposit with it of public money of a State or any political subdivision thereof, give security for the safe-keeping and prompt payment of the money so deposited, of the same kind as is authorized by the law of the State in which such association is located in the case of other banking institutions in the State."

This amendment indicates that Congress believed that the original Act had not granted general power to pledge assets to secure deposits.13 The fact that the amendment was made to § 45 indicates that the power to pledge was granted only as an incident of the public officer's duty to demand a pledge. If, as is sugunder the statute. It would be the duty of a public officer depositing in a state bank to make sure that it had the power to give the security required by Congress.

"Where a statute specifically forbids a preferential pledge, it has been held that a public officer's duty, to demand a pledge impliedly gives power to pledge in that specific case. Maryland Casualty Co. v. Board of Comm'rs, 128 Okla. 58; 260 Pac. 1112; 31 Op. Atty. Gen. (U.S.) 41.

"Senator Thomas, in introducing the bill, stated in the Senate: "It is a bill simply to confer on a national bank the same opportunity for the giving of security for the safe-keeping and prompt payment of state and county moneys, as is authorized with reference to state banking institutions." 72 Cong.R. 6243.

245

Opinion of the Court.

gested, the 1930 amendment was passed merely in order to settle doubts as to the power of a national bank to pledge its assets to secure deposits, the amendment would naturally have been made not to § 45, but to § 8 which contains the grant of "incidental" powers.

The Railway urges also that since the relation of the bank to its depositors is that of debtor to creditor, and since a national bank may borrow money, Aldrich v. Chemical National Bank, 176 U.S. 618; Auten v. U.S. National Bank, 174 U.S. 125, and pledge its assets therefor, Wyman v. Wallace, 201 U.S. 230, it may likewise pledge assets to secure a private deposit. The fallacy of this contention has been many times exposed." The difference between deposits and loans is fundamental and far-reaching. The amount of the deposits is commonly accepted as a measure of the bank's success; an increase of deposits as evidence of increased prosperity. The depositor does not think of himself as lending money to the bank. The modern deposit grew out of the older form of deposit in which the fund was held separate and intact, and the sole purpose of the deposit was safe-keeping. Safe-keeping is still a very important function of deposit banking; and from the point of view of most depositors the chief one.1 Borrowing by a bank (as distinguished from a re-discount) is commonly regarded as evidence of weak

"Farmers & Merchants Bank v. Consolidated School District, 174 Minn. 286, 291; 219 N.W. 163; State Bank of Commerce v. Stone, 261 N.Y. 175; 184 N.E. 750; Divide County v. Baird, 55 N.D. 45, 52; 212 N.W. 236; Commercial Banking & Trust Co. v. Citizens Trust & Guaranty Co., 153 Ky. 566, 574; 156 S.W. 160; 27 Col. L. Rev. 88; 79 U. of Penn. L. Rev. 608, 614.

15 Though large deposits frequently represent loans by the bank to the depositor, this is less likely to be true of small accounts. Out of 30,556,105 accounts reported by 5,500 licensed member banks of the Federal Reserve System, 29,482,384 were under $2,500 and the average size of these accounts was $189. Federal Reserve Bulletin, July 1933, p. 454. [See order, post, p. 649.]

Opinion of the Court.

291 U.S.

ness.16 Often the loan is made in the hope of averting insolvency. Loans made by one bank to another commonly involve a pledge of assets, since only upon such a condition is the transaction possible. Wyman v. Wallace, supra.

Second. The receiver is not estopped to deny the validity of the pledge. The Railway's argument is that the bank could not set up the defence of ultra vires since it had the benefit of the transaction; and that the receiver, as its representative, can have no greater right. Neither branch of the argument is well founded. The bank itself could have set aside this transaction. It is the settled doctrine of this Court that no rights arise on an ultra vires contract, even though the contract has been performed; and that this conclusion cannot be circumvented by erecting an estoppel which would prevent challenging the legality of a power exercised. California Bank v. Kennedy, 167 U.S. 362; McCormick v. Market Bank, 165 U.S. 538; Central Transportation Co. v. Pullman Co., 139 U.S. 24. But even if the bank would have been estopped from asserting lack of power, its receiver would be free to challenge the validity of the pledge. The unau

16

17

10 The Comptroller of the Currency has insisted on the distinction between deposits and borrowings and has stated that to list borrowings as deposits-e.g., as certificates of deposit-is a grave misrepresentation of the condition of the bank. Annual Report 1890, p. 13; 1892, p. 39.

"The fact that more than one-half of the national banks reporting were not borrowing from any source is additional evidence of the stability of the national banking system." Annual Report of Comptroller of the Currency (1922), p. 26.

17

See also Pearce v. Madison & I. R. Co., 21 How. 441; Thomas v. Railroad Co., 101 U.S. 71; Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U.S. 290; Oregon Ry. & N. Co. v. Oregonian Ry.

thorized pledge reduced the assets available to the general creditors. It is the duty of the receiver of an insolvent corporation to take steps to set aside transactions which fraudulently or illegally reduce the assets available for the general creditors, even though the corporation itself was not in a position to do so."

Third. The receiver may assert the invalidity of the pledge without making restitution by paying the pledgee's claim in full. The Railway's argument to the contrary is that when as a result of an ultra vires contract one of the parties is enriched at the expense of the other, the law creates an obligation to repay ex aequo et bono to the extent of the enrichment. The argument if applicable would not help the Railway. Such claim under the doctrine of unjust enrichment is assimilated to an obligation of contract; and does not, in the absence of an identifiable 19 and a constructive trust based on special circum

res

Co., 130 U.S. 1; Concord First Nat. Bank v. Hawkins, 174 U.S. 364; De La Vergne Co. v. German Savings Inst., 175 U.S. 40.

And on the matter of estoppel in pledge cases, see authorities cited in note 14. Also Smith v. Baltimore & Ohio R. Co., 48 F. (2d) 861, 869; affirmed 56 F. (2d) 799; contra: State Bank of Commerce v. Stone, 261 N.Y. 175; 184 N.E. 750. Also compare West Penn Chemical & Mfg. Co. v. Prentice, 236 Fed. 891.

18

'King v. Pomeroy, 121 Fed. 287; Hamor v. Taylor-Rice Engineering Co., 84 Fed. 392, 399; In re O'Gara & Maguire, Inc., 259 Fed. 935, 936; In re K-T Sandwich Shoppe, 34 F. (2d) 962, 963; Shooter's Island Shipyard Co. v. Standard Shipbuilding Corp., 293 Fed. 706.

The claimant has the burden of identifying the property in its original or altered form. Schuyler v. Littlefield, 232 U.S. 707. It is not enough to show that at the time of receipt the general assets of the insolvent were increased or that debts were discharged. Wuerpel v. Commercial Germania Bank, 238 Fed. 269, 272-3; Knauth v. Knight, 255 Fed. 677; State Bank of Winfield v. Alva Security Bank, 232 Fed. 847; In re See, 209 Fed. 172; In re Dorr, 196 Fed. 292; City