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In the X-3572 SUPERIOR COURT OF PENNSYLVANIA ) Nos. 232, 233, 2}4, Octob9r Term ( 1922 Appeals of Corn Exchange National ) Bank of Philadelphia, individually ( and as Guardian of Estates of Dudley ) B. Turner, Jr., and Edna Frisbie ( Turner, minors, from decree of ) Orphans' Court of Philadelphia County. Estate of EDNA FRISBIE TURNER Nos. 99 and 100 Filed Nov. 23, 1922. Opinion by LINN, J.; This appeal challenges the refusal to approve a national bank as a fiduciary. Approval was denied on the single ground that the federal legislation is 11 conferrin~ fiduciary powers on national banks in contravention of ti:e law and established pract.ice of this Commonwealth .. " The question arose in distributing the estate of Edna Frisbie Turner, deceased, letters testamentary having been granted in 1920. Her minor children ware beneficiaries under her will. 1921 the court below appointed the Rittenhouse ~rust ln Company, a cor- poration of Pennsylvania, guardian of the estates of th<3 minors. May On 3, 1922 the account of the executors came on for adJudication. It showed a balance for the minors. tribution stated that since it~ The executors• petition for dis- appointment as guardian the Rittenhouse Trust Company was conl'qrted into a national bank, and, thereafter was consolidate~ into the Corn Exchange National Bank. bank, as guardian, was therefore asked. Distribution to the X-3572 '"'2- In referring to the subject, the; auditing judge said: 11 In the rratter of the National Bank of Germantown, 30 District Rep. 603, it appears that this court has rafused to recognize or approve national banks for appointment as fiduciaries by this court. It does not appear that the merged corporation Corn Exchange National Bank - has been approved by this court for appointment as a fiduciary. ~ne award to the Turner minors will therefore re made subJect to the mergad corpora"':' tion being approved, and in the event of their failing to obtain the approval of this court, the award will be payable to a succeeding guardian when duly appointed and qualified.,~ Accordingly the bank then filed a petition drawn pursuant to the proper rule of court, setting forth its incorporation under the national banking law, various facts concerning its management and assets, and the consolidation with tile Rittenhouse National Bank, formerly the Rittenhouse Trust Company; that it was authorized by the Federal Reserve Board to transact a general fiduciary business; had complied with the law of Pennsylvania. governing the transaction of such business; had accepted the provisions of the Act of May 9, 1889, P. L. 159, and also of the Act of May 20, 1921, P. L. 991, making itself subJect to supervision and examination by the Banking Departrr.ent of Pennsylvania the same as corporations of Pennsylvania. A number of evidential exhibits were attached to the petition, among them a stipulation under rule 21, by which the applicant "hereby stipulates and undertakes irrevocably that securities and other property received by the corporation both in a fiduciary capacity and from the person or persons for whom it is -3- X-3572 surety shall not be taken out of the jurisdiction of the Court and shall be kept separate and apart from all money, securities and property of the said Bank so that the same can at all times be easily identified as belonging to the estate of the person or persons for whose account the same has been received, and that the trust funds received by said Ban1: either as fiduciary or for the person or persons for whom it is surety shall be deposited in a separate account in a Bank or Banks or Trust Company or Trust Companies other than said Corn Exchange National Bank of Philadelphia, of good standing in Philadelphia County. 11 On the same day the petition was refused for reasons previously given in the case of ti.1e National Bank of GermantoJVn (supra). From that refusal this appeal, to No. 232, October Term 1922, was taken. Three days later, the ban}., as guardian of the estates of the childr<Om, filed anot.ner petition setting forth that pursuant to 11 the adJudication of the executors 1 account, its petition for approval as fiduciary under rule 21 had been filed and dismissed; that it was advised by counsel that by specified acts of Congress with the approval of the Federal Reserve Board, it was authorized to trar.. sact a fiduciary business, and having accepted the provisions of applicable state law specified, it was "fully quahfied and a'.1thorized to continue to act as ~ardiah of the estate~ of Dualey B. Turner, Jr., and Edna Frisbie Turner, minors, and in all ot:her fiduciary capacities, and that the dismissal of the petition for approval under Rule 21 ·.. was without -4legal justification or authority. 11 X-3572 Petitioner asked. for an order t1irecting the executors ,.to pay to it as guardian of the estate of the ndnors, the money awarded to them by the adjudication. ~Y supplemen- tal adJUdication, this petition was dismissed for the reasons previously given. Exceptions to these adJudications were then filed; after they were dismissed, two appeals were taken, one by the bank as guardian, the other individually (Nos. 233 and 234, October Term 1922). appeals were ar~ued The together and shall be so disposed of. As no particular or special obJeCtion to petitione~ is made, we need consiQ.er in the· light of tile record the problem as thus stated by the court below: "The question is, therefore, raised as to whether this court should approve them (national bar.Ucs) for appointment in fiduciary capacities and accept t~3m as surety. We should approve them unless the federal acts are in contravention of the law and established practice of this Comnonwealth 11 : In re National ~ank of Germantown, 30 District Reports, b03· The Act of Congress approved December 13, 1913 enacted that "T'ne Federal Reserve ~oard shall be authorized and empowered • • . (k) to grant by special permit to national banks applying therefor when not in contravention of State or local law, the right to act as trustee, executor, administrator, or registrar of stocks and bonds under such rules and regulations as the said Board may prescribe. 11 (c. 6, sec. 11, par. k. 3g Stats. 211; U. S. Comp. Stats. 1918, s. 9794).. Later some definition of the words "In contravention of state X-3572 -5- or local law" became desirable, and wa.s supplied lly an d.I!lendment of 967, U. S. Comp. Stats. 1913 Suppl. SJptember 26, 1918 (4J Stats. 9497 k). It was as follov•s: 11 (k) To grant by special permit to national barks applying therefor, when not in contravention of State or local law, the right to act as trustee, executor, administrator. registrar of stocl:s and bonds, guardians of estat:ls, assignee, recaiver, committee ·of estat2s of lunatics, or in any other fiduc1ary capacity in wh1ch State banks. trust com_panies or other corporations which coroo into com~etition with national banks are permi tt<Jd to act under tue laws of trw State in which the national bank is located. 11 VV:'1anever the laws of ~uch State authorize or parmi t the exercise of any or all of the foregoing powers by State banks, trust companies, or other corporations w:1ich compete with national banks, the granting to and the exercise of such powers by national banks shall not be deemed to be in contravention of State or local law within the meaning of this Act. ~ational banks exercising any or all of the powers enumerated in this subsection shall segregate all assets neld in any fiduciary capacity from the general assets of tha bank and shall keep a separate set of books and records showing in proper detail all transactions engaged in under authority of this subsection. Such books and records shall ba open to inspection by the State authorities to th-e same extent as tha books and records of corporations organized under State law which e~ercise fiduciary powers, but nothing in t1.is Act shall oe construed as authorizing the State authorities to examine the books, records and assets of the national banl.-'. which are not held in trust under authcri ty of this subsection. - G- X-3572 "No national bank shall receive in its Trust Department deposits of current funds subject to Check or the deposit of checks, drafts, bills of exchange or other items for collection or exchange purposes. Funds deposited or held in trust by thB bank awaiting investment shall be carried in a separate account and shall not be used by the bank in the conduct of its business unless it shall first set aside in the trust department United States bonds or other securities approved by the Federal Reserve Board. "In the event of the failure of such bank the owners of the funds held in trust for investment shall ha.ve a lien on the bonds or other securities so set apart in addition to their claim against the estate of the bank. "Whenever the laws of a State require corporations acting in a fiduciary capacity to deposit securities with the State authorities, for the protection of private or court trusts, national banks so acting shall be required to make similar deposits and securities so deposited shall be held for the protection of private or court trusts, as provided by the State law. 11 ~Tational banks in such cases shall not be required to execute the coni usually required of individuals if State corporations under similar circurr.stances are exempt from this requirement. 11 National banks sP.all have the power to execute such bond when so required by the laws of the State. "In any case in which the laws of a State require that a corporation actin~ as trustee, executor, administrator, or in any •• - 7- .X-357~ capacity sepecified in this sectiqn, shall take an oath or make an affidavit, the president, vice-prebident, cashier or trust officer of such national bank may ta.k.e the necessary oath or execute the ne oossary affidavit. "It shall be unlawful for any national banking association to lend any officer, director or employee any funds held in trust under the powers conferred by this section. Any officer, director, or employee making such loan, or to whom such loan is made, may be fined not. more than $5,000 or imprisoned not more.than five years, or may be both fined and imprisoned, in the discretion of the Court. "In passing upon applications for permission to exercise the powers enumerated in this subsection, the Federal Reserve Board my take into consideration the ar;;ount of capital and surplus of the applying bank, whether or not such capital and surplus is sufficient under the circumstances of the case, the needs of the community to be served and any other facts and circumstances that seem to 1t proper, and rmy grant or refuse the applic?..tion according}.y; Provided, that .. no permit shall be issued by aqy national banking association having a capital and surplus les(3 than the capital and surplus required by State law of State banks, trust companies and corporations exercising f such powers." Since Con~ress has provided that if the state la~ authorize or permit the exercise of •.••. (guardianship) by state banks, trust companies or othe~ c~rporations w~ich compete with national banks" .# C?f)~ .k··~·-N X-3572 ·8- the granting to and the exercise of such powers by national ba."lks shall not be deemed to be in contravention of State or local law within the meaning of this actn, the decision of these appeals rrust depend on whether Pennsylvania permits such competing co~porations to act in that capacity; if the state law so provides, the national bank must be per-mitted to enjoy fiduciary powers. As f arnil iar state laws confer that power on such corporations, the learned court below misinterpr3ted the acts of Congress in holding them to be in contravantion of the state law. The federal legislation is constitutional, First National :Bank v. Fellows, 244 u. S. 416, and the congressional power is plenary. Except as Congress permits, a state cannot stand in t!.e way of corporate activjty so authorized by Congress; such auti1ority confer~ imraxnity from state interference legislative or judicial; N.P.R. Co. vs. North Dakota, 250 u. S. 135 and Telephone Co. v- South Dakota, 250 U. S. 163; Second Employers' Liability Cases, 223 U. S. l; P. & R. Rwy. Co. v. Polk, 256 U. S. 332, 335· The effect of the amen~nt of 1918 on the act of 1913, as a mere rearrangement of the words will show, was to authorize the Federal Reserve :Board to grant by special permit to national banks applying therefor, (having the required the right to act in ~ 11 capi tal and surplus" supra) , fiduciary capacity in which state banks or other corporations which come into competition with national banka are permit ted to act unde 1' tha laws of the s ta. te in which the national bank is located, whenever the laws of such state authorize ( - 9- X-3572 or permit the exercise of any or all sucp powers by_state banks or other corporations competing with gtessional definition or natio~Al ba~~s. determinatio~ The con- of what shall not be con- sidered in contravention of state law, for the purposes of the enactment, takes no account of the fact that details of adminis · tration in the federal system may or may not differ from administrative matters prescribed in the state system. the aole ,iud~e Con~ress was of the means appropriate to the end to be accomplish- ed by the exercise of tbis additional power conferred on national banks; Congress knew that throughout the states, widely divergent systems of fiduciary law prevailEd. The administrative differences in which the court below found decisive conflict between state and federal law ~ay be important elements in the competition for business and in the market may or may not operate in favor of the state corporations, but these differences in themselves, are not sufficient to deprive a national bank of the enjoym&nt of fiduciary powers, and :particularly is that so in the circumstances disclosed by this record. See First National Bank v. Fellows, (supra); People v. Russell, 283 Ill. 520 compared with the prior decision of the srune court in People v. Brady, 271 Ill. 100; Woodbury's Appeal, 73 N. H. 50; Hamilton v. State, 94 Conn. 643; Stanchfield's Estate, 171 VTis. 553; In re Mollineaux, 179 N. Y. Supp. 90; Fidelity, etc. Trust Company v. Enrig;ht, The first reason 264 Fed. 236. ~iven to support its conclusion that the federal statute was in contravention of the state law, was based on - 10compa~ison X-3572 i of provisions of the two systems concerning the_ deposit of trust funds. The federal provision has been quoted. state, the Acts of May 9, 1839, P. L. 159 and June For the 27, 1895 P. L. 402, provide that such "companies shall keep all trust funds and investments separate and apart from the assets of the companies and all investments made by the said companies as fiduciaries shall be so designated as that the trust to which such investments shall belong shall be clearly kno,v.n." In addition, we_ are ad- vised, the state banking department requires trust funds to be deposited in a separtl.te bank~ The Acts o~ Congress and the state laws are not alike but a difference in permitted corporate ma.naQ:ement does not establish that the federal statute is in contravention of the state law, in the light of the explicit congressional definition of those words, and the difference is further unimportant in the decision of this case, because the record shows; that petition-, 'er .has agreed to comply with the state law on the subje ct. The petition also contains a stipulation whereby petitioner irrevocably covenants with the court below pursuant to rule 21, that it \vill not remove securities or other property by it held in a fi.duciary capacity out of the jurisdiction of the court and that it will deposit trust funds in a separate account with another bank or tru.st company .. The second point of alleged conflict the court found by comparing the part of section 11 k, (supra) authorizing examination by state examiners of the affairs of a national bank, with the state •• • .Jt__.· X-3572 - 11 - law of May 21, 1919, P. L. 209, provi:lin~ in section 14 (a) for by state exeminers; but th_; record sho"'·s that petitioner ex~ination has stipulated both with the court and with th·s state bankinp; department that the state banking dep,">rtment shall make like examination of all its property and assets as is made in ths case of The record also sho;rvs that petitionar has filed a state banks. stipulation with the banking department to be and remain subject to supervision by the.t cl.epartment to the same e:-:tent as state corporations pursuant to the Act of May 20, 1921, ?. L. ~Jl, entitled "Restricting the appointmant of corporate fiduciaries by testators or by any court or register of wills to corporations fully subject to supervision and examination by the bankin~ department. 11 The learned court belo•·r found its third conflict "in the case of insolvency or suspension of a national bank". law provides tho~t The federal in such cases the Comptroller of the Currency appoint a receiver who, under the dj,rection of the Comptroller shall take possession, administer, etc. pursuant to appropriate jildicial action. The practice has lon~ prevailed and is well understood. The court remar¥-s that such receiver ••rill not be under the control of th.:; state courts. the federal court But, <:>,s to supervisin~ th"~ court below, it would seem that a receivership under the national bankinP: la,v, is neithEor mor<: nor less foreign than a state court supervising a receiver appointed by the bankinP: commissioner administering the affairs of a state bank pursuant to state law. It \VoaS for Con~ress to deterrrine whether the details of Ct30··.. --~ .- - 12 - X-3572 corporate management prescribed by it were better adapted for the exercise of the plenary federal power it desired exerted, tr..an other methods of corporate administration effecti~e in the states, but its provisions for the conduct of business or the administration in insolvency, though different from the state system, cannot be regarded as in contravention of state law ~'Jithin th~ terms of the amendment of 1918. The oriers appealed from are reversed and the record remitted with instructions to entar an order consistent with this opinion. Porter, J. dissents. Gawthrop J. , did not hear the argument and did not participate in the decision.
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