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Federal Reserve Bank of St. Louis
Are 5fnfe 664! C/45-e
Number 34881
IN THE
SUPREME COURT
OF THE
UNITED STATES
October Term, 1930
Number 63
ABLE STATE BA N.
A P PELLA NT,
VS.
WEAVER. AS GOVERNOR OF THE
STATE Or NE BRASKA, CLARENCE G. BLISS,
AS S EC R ETA RV OF"niE DEPARTMENT 1.1F
TRADE A ND 'UM M EH('E. A PPELLEES,
mmirlt
NVI LI,18 NI. STEBBINS, AS TR EA SURER oF"rup:
STATE OF NEBRASKA, I NTER VE NE R. AND
MARY E. GANDY. ET AL, INTERVENERS. A PPEL LE ES
APPEAL
Flt(INI
THE s( pEENiE coula
op' THE sTATE
4)1'
NEP.ItAS,K A
Brief of Arthur J. Weaver, as Governor, Clarence G. Bliss,
as Secretary, Etc., and Willis M. Stebbins, as State
Treasurer, Intervener, Appellees.
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Federal Reserve Bank of St. Louis
I,
!
,1 FR.
li‘, itiricenth St., LinColti. 7sTel1
INDEX TO SUBJECT MATTER
Page
1. The Question of Jurisdiction—heretofore post2
poned for hearing
2. Statement of the Case
3. Appellants' Contentions are limited to the special
assessment section as having "become oppressive and
confiscatory"; they do not attack the other sections of
the Guarantee Fund Law under which they exist and
enjoy benefits
4. The Answers of Defendants and Interveners on
their own behalf and on behalf of all public and private
depositors in failed banks:
(a) Denied specifically the averments of fact of plain4
tiffs' petition
(b) Pleaded acts, representations and conduct of all
the banks constituting waiver and estoppel, and especially those inducing the deposits of depositors with
adjudicated claims; the latter's vested rights to continuance of assessments; and the prior adjudication of
4
the validity of the act
(c) The State Treasurer further pleaded specifically
his status as claimant and the acts of the banks inducing his deposits of public funds without bonds in banks
4
now failed
That no cause of action was stated by plaintiffs, the
question presented being in any event a legislative one
and not judicial, was raised by motions and timely ob4
jection to introduction of evidence
5. The Opinion and Judgment of the Supreme Court
of Nebraska in Appellees' favor was a general one on all
the issues on a trial de novo in that court; such trial
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Federal Reserve Bank of St. Louis
INDEX TO SUBJECT MATTER—Continued
Page
de novo in equity suits being a statutory requirement;
the opinion and judgment of the Supreme Court therefore necessarily and properly contained no reference to
8
any finding of fact of the trial court
6. The Supreme Court of Nebraska inter atia expressly found aud adjudged that the banks were estopped;
the evidence was overwhelming as to all the Banks
9
and uncontradicted
Where the Supreme Court of the State has decided
a case on the basis of waiver and estoppel, we understand the rule to be that this court will concern itself
only with an examination of the .record to determine
, . 9
that there was basis in fact for such finding
7. The volunteer memorandum opinion of the trial
court on which appellants so largely rely on this appeal
was wholly ignored by the Nebraska Supreme Court in
its trial de novo and has no place in this record; in
fact the trial court itself expressly found waiver and
estoppel but applied erroneous principles of law thereto
as well as to the other facts involved; and wholly ig9
nored controlling undisputed testimony
8. The status of this case in the Supreme Court of
the United States:
(a) The decisions of this court in the Bank Guarantee Fund cases, Oleomargarine cases and cases similar in principle are conclusive of this case on the plead20
ings; and on the facts
(h) The evidence of the banks wholly failed to support their contentions, even on their theory; in fact;
a contrary state of facts was conclusively established by
20
defendants' evidence
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Federal Reserve Bank of St. Louis
INDEX TO SUBJECT MATTER—Continued
Page
(c) The evidence of defendants and interveners supporting estoppel was overwhelming as against all the
banks; (estoppel was found by both Nebraska Supreme
20
Court and trial court)
(d) The Nebraska Supreme Court adjudication on
20
basis of estoppel in pals is final and conclusive
SUMMARY OF THE EVIDENCE:
9. There was a complete failure of proof by the
banks on their own theory on their contentions of fact;
a contrary state of facts was conclusively established...21
The appellees have omitted from the Transcript
brought to this court defendants' Exhibit 37, containing
21
the only data on each of the 726 banks separately
10. The Guarantee Fund Law and its small assessments never caused nor contributed materially to the
failure of a single Nebraska state bank, but diminished
the number of failures and was of inestimable benefit to
the banks generally during the period of failures; the
cause of excessive losses in going banks and of "chargeoffs" and failures are not attributable to the Guarantee
Fund assessments
25
11. The law was determined constitutional in 1911 in
Shallenberger v. Holstein, 219 U. S. 114, 55 L. Ed. 117;
the special assessment was then double the one of
which complaint is now made
28
12. Every issue made in this Able case was fully
28
pleaded and determined in the Holstein case
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Federal Reserve Bank of St. Louis
INDEX TO SUBJECT MATTER—Continued
Page
ACTS AND REPRESENTATIONS OF BANKS
CONSTITUTING WAIVER AND ESTOPPEL; ESPECIALLY AS TO DEPOSITORS WITH MATURED
UNPAID CLAIMS:
13. All the banks specifically accepted this adjudicated valid law and its benefits and its obligations and
have operated thereunder without question for 17 years. 28
14. The banks continuously and broadly front 1911
to time of suit in 1928 utilized the Guarantee Fund
Law by tepresenting and advertising its adjudicated
validity by the United States Supreme Court; that it
was a mutual insurance plan for depositors' protection,
and their own express obligations and agreement to pay
assessments, etc., to induce deposits of publir and private funds; this was accomplished by continuous and
broad newspaper publicity, by conspicuous signs on
the interior and exterior of banks, pamphlets, statements on checks and certificates of deposit and on deposit slips, by moving pictures, public speakers, resolutions at bankers' conventions, personal solicitation and
argument; the largest exploiting was in the two years
29
immediately preceding the filing of this suit
(a) Representations on printed matter in use and
circulated; and by signs on and in bank buildings; public addresses, etc.
32
(b) Forms of checks, certificates, deposits, etc., in
use, (Exhibits)
35
(c) Form of certificate of deposit of State Bank of
35
Omaha up to time of instituting suit (Exhibits)
(d) Typical signs and letter heads (facsimile ex35
hibits)
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Federal Reserve Bank of St. Louis
iv
1
INDEX TO SUBJECT MATTER—Continued
Page
(e) The advertising in Omaha Bee (with facsimile
exhibits of some)
38
(f) The questionnaire circulated by the banks (with
43
facsimile exhibit)
(g) Other newspaper advertising; a typical county
45
and the plight of its claimant depositors
(h) Resolutions of State Bankers re-affirming strict
adherence to law
(i) Pamphlet "The Bank Guarantee Law Challenged
and a Red Hot Answer by a Nebraska Banker"
15. Growth of banks and benefits received from 1911
to 1928 (to time of suit)
(a) Tabular departmental compilation by years -for
the period Ex. 10
55
(b) Increased deposits-4100,000,000 of deposits carrying annual earnings of 1;2,000,000 to $4,O00,000 are
57
attributable solely to Guaranty Fund
(c) Public funds were demanded by the banks and
received for deposit by every state bank in Nebraska
without bond on the "security of the Guarantee Fund";
under an option in the law to do this or to give bond
and avoid assessment
61
(d) The surety company rates to national and state
banks on depository bonds (thus avoided by state banks)
were higher than the Guarantee Fund assessments
64
(e) State banks under the Guarantee Fund Law are
given twice the loan limit available to national banks;
state banks carry their reserves in other banks at in-
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Federal Reserve Bank of St. Louis
INDEX TO SUBJECT MATTER—Continued
Page
terest, while national banks are required to carry funds
in Federal Reserve banks without interest; under the
existing law state banks have a practical monopoly in
towns they serve; each of these facts adds to the value
of a state charter
66
16. The cause of failures and heavy losses in going
banks. From 1920 to 1927 there were a large number
of bank failures and losses to going banks through
gradual liquidation by banks of previously acquired
loans and after shrinkage of values
67
17. By the maximum exploitation and featuring of
the Guarantee Fund during this liquidation period
there were even larger benefits to the banks, the banking situation was stabilized, and many of the present
strongest banks were able to survive
67
(a) The stabilizing influence of the Guarantee Fund
through the period of readjustment
70
18. Condition of banks has steadily improved since
1923; present condition is incomparably better than
in 1923
72
19. Present claimant depositors (private and public) with adjudicated claims, are those who relied on
and yielded to the acts and representations of the
banks during the last three years; there are $2,000,000
of public funds in failed banks
73
20. Material facts with reference to the status of
claimant depositors were stipulated
74
21. Reliance by depositing public on acts and representations
77
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Federal Reserve Bank of St. Louis
vi
INDEX TO SUBJECT MATTER—Continued
Page
22. The maximum special assessment was reduced
from I% to 1/2 of 1% by the legislature of Nebraska,
1923, at the instance of the banks
79
23. The administration of the Guarantee F :nd has
79
been in the hands of the state bankers since 1923
24. The maximum interest rate on time deposits was
reduced from 5% to 4% in 1925 at the instance of
the banks on account of Guarantee Fund assessments;
the resulting increased annual earnings aggregated onehalf the total -annual assessments
79
CONDITIONS AND EARNINGS OF THE BANKS:
25. The earnings of and data on all state banks
as shown by their reports for the 18 months, January
1, 1927, to June 30, 1928, the fiscal period immediately preceding this suit (Ex. 37 and 38 produced
by defendants)
82
(a) Compiled tabular statement by Banking De84
partment, Ex. 38
(h) The banks earned an average profit of 7.12%
per annum on their capital after all Guarantee Fund
assessments had been paid and after charging off to
losses over $2,200,000 (about 7.72% per annum on capital)
87
(c) 570 of the 726 banks had net earnings ranging
up to "extravagant profits"; the other 156 banks were
affected by "charging off" excessive amounts; four-fifths
could have paid dividends; the other one-fifth could
have except for their extraordinary "charge-offs" through
liquidation of wartime acquired assets
87
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Federal Reserve Bank of St. Louis
vii
INDEX TO SUBJECT MATTER—Continued
Page
(d) The trial court in its opinion was
indisputedly
misled by a clever but fallacious grouping of banks
and
manipulation of figures by plaintiffs' witnesses, Fulk
and Mooney; the principle exhibits, Exs. 6, 7 and
8,
they prepared were not even brought to this court
90
(e) The "Other Real Estate" item is worth amount
at which carried by banks; it was not increased, but
has been minimized by the Guaranty Fund and the
featuring of it by the banks
97
26. The earnings and data on all state banks for
the year ending June 20, 1926, classified aorording to
capital; the earnings averaged 4.47% to 11.45%; (not
including Omaha State Bank with its larger earnings) 99
(a) Compiled Tabular Statement by Banking Department, Ex. 39
100
27. Present condition of banks; their reports at time
of institution of this suit showed healthy condition...102
28. The large profits and prosperity of the three
large city banks sponsoring this suit
103
29. The small Abie State Bank in a town of 200
people earned and paid dividends of 10% to 15% until
causes other than the Guarantee Fund stopped them;
the bank in its environment was not a typical member
of any class of banks
106
30. A comparison with national banks in Nebraska
as to earnings and losses
10!)
(a) National banks have declined one-fourth in number; their increase in deposits has not been comparable
to the state banks; 50 have converted into state banks-109
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Federal Reserve Bank of St. Louis
viii
INDEX TO SUBJECT MATTER
Continued
Page
(b) in recent years the percentage of earnings of national banks has been approximately one-half that of
the state banks and the percentage of losses almost
109
double
31. The relatively small amount of the annual assessment through the years; no special assessment
113
levied in each of seven years
32. Threats of banks to liquidate or nationalize....114
33. The "Eight Per Cent of Capital deception
116
34. The assets and liabilities of the Guaranty Fund;
and its aggregate net liabilities; there was no concealment of amount; the bankers' knowledge was greater
than that of depositors; extent of knowledge immaterial;
the amount adds nothing to the maximum permissible
annual assessment against the banks; it affects the
claimant depositors; no interest is paid on claims;
117
stockholders' payments
35. The alleged conversational guesses as to future
losses and failures; and possible future losses as indi123
eated by statements in examiner's reports
36. The Benefits of the Law to the Bank—past and
126
future; the courts cannot measure them
37. The bringing of this suit by the banks and their
attempted repudiation of their liability has impaired
public confidence in the banks and has been the principal source of reduced benefits from the Guarantee Fund
129
and has resulted in bank failures
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Federal Reserve Bank of St. Louis
ix
INDEX TO SUBJECT MATTER—Continued
Page
35. The alleged "Public Interest" asserte
d by the
banks is but the camouflage of the large state
banks;
they only sponsor this suit; the defendant public
officials are asserting the public interest
130
39. Messages of the outgoing and incoming
governors
are in harmony with the statements of this brief
130
40. The Nebraska legislature in March, 1930,
some
time after the decision in this case, passed an act
reducing the future total annual assessment from
sixtenths of one per cent to two-tenths, and limitin
g the
latter to a period of ten years; and to application
on
accrued liabilities
131
PROPOSITIONS OF LAW (Nos. 1 to 21) AND
ARGUMENT:
No. I. Legislative determination of questions of reciprocal obligations and benefits of Guarantee Fund
Law, and that public welfare is served thereby, is not
subject to judicial review on grounds of wisdom or practicability of operation of law or oppressiveness of obligations imposed. (Oleomargarine and Bank Guarantee
Fund cases)
137
No. II. Independent of the bank's failure of proof,
and of waiver and estoppel, the depositors with accrued
claims acquired under the operation of the law while
admittedly valid, have vested contract rights which can
be divested, if at all, only by the legislature in exercise
of its police power. Judicial action cannot take away
these vested rights
142
No. III. The rights of stockholders to dividends are
inferior to rights of depositors with matured claims
150
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INDEX TO SUBJECT MATTE?.
Continued
Page
No. IV. Change of economic conditions cannot affect
these vested rights
154
No. V. Shallenberger v. State Bank of Holstein is res
adjudicata of this case
No. VI. Acceptance of, operation under and representations with reference to the Guarantee Fund Law by
banks for twenty years, constitute waiver and estoppel
to question law's constitutionality against depositors
161
with matured claims
No. VII. Depositors Guarantee Fund law is primarily for the protection of depositors
183
No. VIII. State has right to prescribe requirements
for carrying on banking
187
No. IX. Payment of assessments is condition required by state and does not constitute an involuntary
189
taking of property
No. X. Rate and taxation cases not applicable in
determining constitutionality of state's regulatory
193
measures for banking business
No. XI. The incidental depreciation or destruction
of values of property by proper legislative exercise of
police power does not violate either the Fourteenth or
Fifth constitutional amendments
195
No. XII. Banks now making "extravagant profits,"
cannot avail themselves of alleged condition of few
198
small banks in escaping operation of law
No. XIII. Effect of bank's failure of proof to show
Guarantee Fund assessments responsible for alleged
202
conditions
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Ii
INDEX TO SUBJECT MATTER—Continued
Page
No. XIV. State can never lose its right under police
power to alter or amend bank charters
204
No. XV. When estoppel in pais determined by state
court has basis in fact, this court will not review propriety of state court's decision
207
No. XVI. Case tried de noro by Ne13s1:n !-Imir•eme
Court on appeal in equity case
209
No. XVII. Nebraska Supreme Court's decision on
waiver and estoppel in both syllabus and opinion should
not be disregarded on appeal
210
No. XVIII. Nebraska Supreme Court required to report and publish its opinions
212
No. XIX. Where by statute or practice opinion is
part of records, it. will be considered on appeal
213
No. XX. If pending appeal, statute is enacted rendering matters involved moot questions, appeal should
he dismissed
214
No. XXI. Judicial notice of United States Supreme
Court includes statutes of state where appeal originated 216
Appellants' statements as to the Guarantee Fund Law
in other states are wholly outside the record
217
The banks have no standing in a court of equity... 218
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Federal Reserve Bank of St. Louis
xii
CASES CITED
Page
Abie State Bank vs. Weaver, 119 Neb. 153", 227 N. W
922
2
Aetna Ins. Co. vs. Hyde, 72 U. S. (L. Ed.) 357, 47
198, 199,202
S. Ct. Rep. 113
American Life Ins. Co. vs. Palmer, 238 Mich 580, 214
165
N. W. 208
Arkansas So. R. Co. vs. German Nat'l Bank, 207 U. S
270, 28 S. C. Rep. 78
207,208
Battle Creek Valley Bank vs. Collins, 3 Neb. (Unof ) 38,
90 N. W. 921
158
Booth Fisheries Co. vs. Industrial Commission, 46 S. Ct
491
165, 166
Boston Beer Co. vs. Massachusetts, 97 U. S. 25
205
Burbank vs. Ernst, 232 U. S. 162, 34 Sup. Ct 299,
58 L. Ed. 551
210, 213, 214
Chapman Commission vs. Guaranty State Bank (Tex.)
267, S. W. 690
184
Chicago, B. & Q. R. R. Co. vs. State, 170 U.. S. 57,
47 Neb. 549
138, 141,205
Chicago R. R. Co. vs. Wiggins Ferry Co., 119 U. S. 615.216
Citizens State Bank of Stratton vs. Strayer, 114 Neb.
567, 208 N. W. 662
184, 185
City of Grand Island vs. Postal Tel. Cable Co., 92 Neb.
253, 138 N. W. 169
198, 201, 202
City of Fremont vs. Postal Tel. Cable Co., 103 Neb. 476,
172 N. W. 525
202, 203
Colby vs. Foxworthy, 80 Neb. 239, 115 N. W. 1076
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Federal Reserve Bank of St. Louis
209
CASES CITED—Continued
Page
Cuyahoga River Power Co. vs. Northern Realty
Co.,
244 U. S. 300,37 S. Ct. 643
211, 213,214
Daniels vs. Tearney, 102 U. S. 422, 26 L. Ed. 187,
189
165, 168
Dartmouth College vs. Woodward, 4 Wheaton, 518, 17
U. S. 518, 4 L. Ed. 629
145
Douglass vs. Kentucky, 168 U. S. 488
205
Egan vs. Hart, 165 U. S. 188, 41 L. Ed. 680...211, 213, 214
Enterprise Irrig. Dist., et al. vs. Farmers Mutual Canal
Co., 243 U. S. 157, 37 S. Ct. Rep. 318
207
Enterprise Planing Mill Co. vs. Methodist Episcopal
Church, 100 Neb. 29, 158 N. W. 386
209
Fairbank vs. United States, 181 U. S. 283, 21 S. Ct.
Rep. 648
138
Farmers State Bank of Mineola vs. Mincher (Tex.)
267 S. W. 996
184
Farmers State Bank vs. Smith, 50 S. D. 250, 209 N. W.
358 •
146, 184, 186, 189
First Nat'l Bank vs. Hirning, 48 S. D. 417, 204 N. W.
901
184
First Nat'l Bank of Claremont vs. Smith, 49 S. D. 518,
207 N. W. 467..143, 154, 156, 165, 169, 187, 189, 193, 194
Grand Rapids & Indiana Ry. Co. vs. Osborn, 193 U. S.
17, 49 L. Ed. 598, 604
165, 167
Gulf R. R. Co. vs. Dennis, 224 U. S. 503
Hadacheck vs. Sebastian, 239 U. S. 394
196
Hanley vs. Donahue, 116 U. S. 1
216
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Federal Reserve Bank of St. Louis
xiv
214
CASES CITED--Contlymed
Page
Hendrick vs. Lindsay, 93 U. S. 143
Holliday vs. Brown, 34 Neb. 232
143,145
10, 211, 212, 213
Lankford vs. Platte Iron Works, 235 U. S 461
143, 144, 147,154,155
Lewis Publishing Co. vs. Wyman, 228 U. S. 610
214
Lexington Life Ins. Co. vs. Page, 17 R. Mon. (Ky.) 412,
151,133
66 Am. Dec. 165
Liverpool Steam Co. vs. Phoenix Ins. Co., 129 U. S.
397
216
Lloyd vs. Matthews, 155 U. S. 222
216
Lochner vs. New York,198 U. S. 45, 25 S. Ct. Rep.539.. 195
Lubetich vs. Pollock, 6 Fed. (2nd) 237, Dist. Ct.
W. D. Wash.
138
Mellen Lumber Co. vs. Industrial Commission of Wis.,
154 Wis. 114, L. R. A. 1916 A 374, 377
165, 168
Meyer vs. City of Alma, 117 Neb. 511, 221 N. W. 438....165
Meyer vs. Shamp, 51 Neb. 424
143, 145
Michigan Trust Co. vs. City of Red Cloud, 69 Neb 585,
98 N. W. 413
209
Milwaukee Mechanics Fire Ins. Co. vs. Fuller, 53 Neb
815
209
Mobile R. Co. vs. Tennessee, 153 U. S. 486, 14 Sup. Ct
968, 38 L. Ed. 793
151
Mugler vs. Kansas, 123 U. S. 623
143, 195, 196,205
New Orleans Gaslight Co. vs. Louisiana Light & Heat
Co., 115 U. S. 650
205
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Federal Reserve Bank of St. Louis
xv
CASES CITED-Continued
Page
Noble State Bank vs. Haskell, 219 U. S. 104
143, 154, 158, 159, 187,188,189,190, 194,205
Northwestern Fertilizing Co. vs. Hyde Park, 97 U. S.
659
205
Ohio River Ry. Co. vs. Dittey, 203 Fed. 537....198, 201,
202
Old Colony Trust Co. vs. Omaha, 230 U. S. 100
10, 210,211,212
Omaha Loan & Bldg. Ass'n vs. Hendee, 77 Neb. 12....209
Parrotte vs. Dryden, 73 Neb. 291, 102 N. W. 610
158
People vs. Fidelity & Casualty Co., 222 Mich. 296, 192
N. W. 658
165, 166
Pierce Oil Co. vs. City of Good Hope, 248 U. S. 498...196
Powell vs. Commonwealth of Pennsylvania, 127 U. S.
678
137, 139, 195, 196, 202, 203, 206
Purity Extract Co. vs. Lynch, 226 U. S. 192
138, 140
Schaake vs. Dolley, 85 Kan. 598, 118 Pac. 80
138, 142
Shallenberger vs. First State Bank of Holstein, 219
U. S. 114, 31 S. Ct. Rep. 189, 55 L. Ed. 117
5, 138, 157, 163, 184, 187, 189,205
Sinking Fund Cases, 99 U S. 700
137, 140,151
Standard Oil Co. vs. Engel, 55 N. D. 163, 212 N. W.
822
148
State vs. Drayton, 82 Neb. 254, 117 N. W. 768
195
State vs. Richcreek, 167 Ind. 217, 77 N. E. 1085....138, 141
State vs. Withnell, 91 Neb. 101, 135 N. W. 376
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xvi
195
CASES CITED—Continued
Page
St. Louis Malleable Casting Co. vs. Prendergast Construction Co., 260 U. S. 469, 43 Sup. Ct. Rep. 178..
16,207
Stone vs. Mississippi, 101 U. S. 814
205
Tarnowski in re, 191 Wis. 279, 210 N. W. 836
165
Thompson vs. Bone (Kan.), 251 Pac. 178
143,149,154
Thompson vs. Maxwell Land Grant Railway Co., 168
U. S. 451, 42 L. Ed. 539
213,214
United States vs. Evans, 213 U. S. 297
215
Western Union Tel. Co. vs. Borough of New Hope, 187
U. S. 419
202, 204
Williams vs. Miles, 68 Neb. 790
11, 212
Wingert vs. Hagerstown First Nat'l Bank, 223 U. S.
670
215
Winthrop vs. Fellows, 230 Fed. 702
165,167
Wirtz vs. Nestos, 51 N. D. 603, 200 N. W. 524..147,189,192
Wurtz vs. Hoagland, 114 U. S. 606
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Federal Reserve Bank of St. Louis
143
TEXT BOOKS AND STATUTES
Page
Comp. St. Neb. 1922, Sec. 1074
214
Comp. St. Neb. 1922, Sec. 1075, as amended by Ch. 84,
Laws Neb. 1929
.214
Comp. St. Neb. 1922, Sec. 8024
3,184
Comp. St. Neb. 1922, Sec. 8025
62
Comp. St. Neb. 1922, Sec. 8026
3
Comp. St. Neb. 1922, Sec. 8027
62
Comp. St. Neb. 1922, Sec. 8028, as amended by Sec. 26,
Ch. 191 Laws of 1923
3
Comp. St. Neb. 1922, Sec. 8033
151
Comp. St. Neb. 1922, Sec. 9150
10,208
Constitution of Nebraska, Sec. 7, Art. XII
151
Cooley ConNt. Lim., 200, 587, 706 and notes
143
12 Corpus Juris, pp. 769-71, Secs. 190, 194, Constitutional Law
165
21 Corpus Juris, p. 1216, Sec. 220, Estoppel
165
34 Corpus Juris, p. 742, Sec. 1154; P. 799, Sec. 1220;
p. 988, Sec. 1407; p. 1028, Sec. 1459, res adjudicata.158
6 Ruling Case Law, Sec. 12, p. 12
138
6 Ruling Case Law, p. 106, Sec. 105
143
6 Ruling Case Law, p. 242, Sec. 230
143
6 Ruling Case Law, p. 243, Sec. 230
195
7 Ruling Case Law, p. 106, Sec. 105
10 Ruling Case Law, p. 836, Sec. 140, Estoppel
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Federal Reserve Bank of St. Louis
xviii
205,206
165
TEXT BOOKS AND STATUTES—Continued
Page
Senate File No. 3, Session Laws of 46th Special Ses135,215
sion of Nebraska Legislature, March, 1929
Session Laws Neb. 1909, Ch. 10, Sec. 1
183
Session Laws Neb. 1909, Ch. 10, Sec. 44
184
Session Laws Neb. 1923, Sec. 45, Ch. 191
67
U. S. C. A., Sec. 84, Ch. 2, Title 12
66
U. S. C. A., Secs. 461 and 462, Ch. 3, Title 12
66
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Federal Reserve Bank of St. Louis
xis
Number 34881
IN THE
SUPREME COURT
OF THE
UNITED STATES
October Term, 1930
Number 63
ABIE STATE BANK, APPELLANT,
VS.
ARTHUR J. WEAVER, AS GOVERNOR OF THE
STATE OF NEBRASKA, CLARENCE G. BLISS,
AS SECRETARY OF THE DEPARTMENT OF
TRADE AND COMMERCE, APPE-LLEES,
WILLIS M. STEBBINS, AS TREASURER OF THE
STATE OF NEBRASKA, INTERVENER, AND
MARY E. GANDY, ET AL., INTERVENERS, APPELLEES
APPEAL FROM THE SUPREME COURT OF THE STATE OF
NEBRASKA
Brief of Arthur J. Weaver, as Governor, Clarence G. Bliss,
as Secretary, Etc., and Willis M. Stebbins, as State
Treasurer, Intervener, Appellees.
C. A. SORENSEN, Attorney General,
C. E. ABBOTT, Special Counsel,
Attorneys for Said Appellees.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
1. THE QUESTION OF JURISDICTION—HERETOFORE POSTPONED FOR LATER CONSIDERATION.
The appellants have appealed from a decision of the
Nebraska Supreme Court in Abie State Bank v. Weaver,
119 Neb. 153, 227 N. W. 922.
Appellees, Arthur J. Weaver, as Governor of the State
of Nebraska, and Clarence G. Bliss, as Secretary of the
Department of Trade and Commerce, have heretofore, in
compliance with Rule Twelve of this court, filed a "Statement of Matters Against Jurisdiction" with brief in support thereof and consideration of the same was, by order
of this court, postponed until the hearing on the merits.
These appellees respectfully refer to the said Statement
and brief and to the abstract of the evidence in this
brief. It will conclusively show that the estoppel in pais
found and adjudged by the Nebraska Supreme Court was
established beyond question and that the banks' evidence
failed to establish a state of facts putting any constitutional right in issue.
The authorities on this issue are further assembled
and discussed under Propositions of Law Numbers 15 to
19, inclusive, of this brief. To these also we respectfully
refer on this issue.
Attention is also called to the fact that on "suggestion of
diminution of record" there was an additional printed record prepared and it is referred to herein as "Supp. Rec."
2.
STATEMENT OF THE CASE.
This suit was commenced in the District Court of Lancaster County, Nebraska, by the appellants to enjoin the defendant officers from levying and collecting special assessments under the Nebraska Guarantee Fund Law for application on claims against the fund for deposits which
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ABIE STATE BANK VS. WEAVER, ET AL.
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had been adjudicated against and ordered paid from the
fund by the several District Courts of Nebraska during the
two years preceding. The law had been fully operative as
an adjudicated valid act for seventeen years prior to the
institution of this suit.
3. Appellants' contentions are limited to the special
assessment section as having "become oppressive and
Confiscatory"; they do not attack the other sections of
the Guarantee Fund Law under which they exist and
enjoy benefits.
Appellants give in outline on pages 4 to 5 of their
brief some of the provisions of the Nebraska Guarantee
Fund Law. They assail only one section of this law,
to-wit, Section 8028, Compiled Statutes of Nebraska for
1922 (as amended by sec. 26, ch. 191, Laws of 1923,
page 452), which provides that special assessments, in
an amount not exceeding one-half of one per cent of the
average daily deposits in any one year, may be levied
when the amount in the Depositors' Guarantee Fund
is reduced below a specified amount.
The remainder of the law providing for the creation of
the Guarantee Fund (Sec. 8024), the regular assessments
of one-tenth of one per cent on the average daily deposits (Sec. 8026), the sections relating to the management of the fund and the liquidation of failed banks,
and Section 8027 providing that banks operating under
the Guarantee Fund Law shall not be required to give
depository bonds for public money deposited with them,
are not questioned. Only Section 8028 providing for the
special assessment is claimed to be unconstitutional (Petition, Rec. p. 1). Their question is one, then, as to degree
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ABIE STATE BANK VS. WEAVER, ET AL.
of assessment. The grounds upon which this section is
assailed are set forth in substance in appellants' statement.
4. The answers of defendants and interveners on their
own behalf and on behalf of all public and private depositors in failed banks (Ans., Rec., p. 21; Sup. Rec.,
p. 1):
(a) Denied specifically the
plaintiffs petition;
averments
of fact
of
(b) Pleaded acts, representations and conduct of all
the banks constituting waiver and estoppel, and especially those inducing the deposits of depositors with adjudicated claims; the latter's vested rights to continuance
of assessments; and the prior adjudication of the validity
of the act;
The State Treasurer further pleaded specifically his
status as claimant and acts inducing his deposits of public funds in banks now failed (Sup. Rec., p. 1).
That no cause of action was stated by plaintiffs, the
question presented being in any event a legislative one
and not -judicial, was raised by motions and timely objection to introduction of evidence.
Defendants Pleaded Affirma ti rely (Rec., p. 22):
The existence of all statutory prerequisites to the making of the levy.
The existence of large public and private deposits adjudicated as claims against the Guarantee Fund and
ordered paid therefrom.
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Federal Reserve Bank of St. Louis
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ABIE STATE BANK VS. WEAVER., ET AL.
That the United States Supreme Court's decision in
1911 (Shallenberger v. First State Bank of Holstein, et al.,
219 U. S. 114, 55 L. ed. 117) was conclusive of every
issue involved in this case and was res adjudicata.
The recognition by the banks of the Holstein case
decision and representation to the public by the banks
that said decision was conclusive of the validity of said
law and the banks' liability to assessment thereunder.
That all the banks after 1911 applied for licenses under
the law; operated thereunder; and received the benefits
and exercised the privileges thereof until this suit was
filed.
The obligation to pay the Guarantee Fund assessments
had become and was a part of the banks' articles of
incorporation and charters.
The original maximum special assessment of one per
cent adjudicated as valid in the Holstein case was reduced
to one-half of one per cent by the legislature in 1923 at
the instance of the banks.
The deposits by individuals and of public money by the
state and other political subdivisions had been induced by
the concerted acts and representations of all the banks
that the deposits were protected by the Guarantee Fund
Law; that its validity had been adjudicated by the Supreme Court of the United States; that each state bank
was subject to assessment under the provisions of the
law and that they would each pay the general and special
assessments under the law until any deposits made under
it were fully paid by said banks, and made other representations and statements (more fully set out in the
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ARIE STATE BANK VS. WEAVER, ET AL
quotation of evidence hereinafter); that the plaintiff and
said other banks each and all, continuously gave their
representations and statements large publicity in their
respective communities and throughout the state by newspaper advertisements, printed recitals on the stationery of
the respective banks, personal solicitation and argument,
by circulization of the public and by signs on the interior
and exterior of the state banks generally; and otherwise.
All the state banks knew of and acquiesced in all of
the representations and acts of each other.
Every state bank demanded and received deposits of
public funds for more than fifteen years without bond on
the "security of the Guarantee Fund" under an option
given by the law to do this or to give bond and avoid
assessments.
The legislature in 1923 at the instance of the banks
intrusted the management of the Guarantee Fund to a
commission selected from persons chosen by the state
banks and the banks thereby actively participated in the
administration of the law.
In 1923 the legislature at the request of the banks
reduced the maximum rate of interest permitted to be paid
on deposits from 5 per cent to 4 per cent on account of
the Guarantee Fund assessments and the protection of
deposits by the law and the obligations assumed by the
banks thereunder.
Through the Guarantee Fund Law and the utilization
thereof, the state banks more than trebled their deposits,
increased their earnings, bank conditions were stabilized
and banking rendered profitable.
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ABIE STATE BANK V. WEAVER, ET AL.
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The maximum annual assessment of $6 per $1,000 of
deposits had not caused or materially contributed to any
bank failure and that the number and extent of failures
had been reduced by the operation of the Guarantee Fund
Law. That adjudicated claims against the fund aggregated
several millions of dollars and those unpaid were adjudicated and became a fixed ant final charge against and
liability of the Guarantee Fund after October 1, 1927.
All of the depositors relied on and deposited their
money on the faith of the aforesaid acts and representations of the banks.
The depositors in failed banks have a vested right to
the payment of the amounts due them out of the Guarantee Fund and a vested contract right as against the
banks to the continuation of the payment of said assessments.
The banks having stood by and permitted and actively
induced deposits on the strength of the Guarantee Fund
Law were guilty of gross ladies in standing by without
denial of their liability or the validity of the law ano
that by reason of said representations and statements and
acts and laches, the banks are estopped to question the
constitutionality of the law or the reasonableness of the
assessments thereunder.
The defendant, A. J. Weaver, as Governor, further
averred that he answered also on behalf of the private
depositors having claims against the Fund, including the
state and other governmental subdivisions with over
$2,000,000 in failed banks.
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ABIE STATE BANK VS. WEAVER, ET AL.
The answer and cross-petition of Willis M. Stebbins,
Treasurer of the State of Nebraska (Supplemental Record,
p. 1), incorporated all of the foregoing defenses and
further alleged:
That said representations and statements were made to
him personally and to his predecessors in office by all of
the state banks of the State of Nebraska to induce the
State Treasurer to deposit the public funds of the state
in said respective banks without any bond being given
therefor and upon the express demand of each and all
of said banks that they receive public deposits without
bonds because of the Guarantee Fund Law exempting
them therefrom.
That there were public funds in 45 state banks then
insolvent and in receivership. That the deposit of these
funds was induced by the acts and representations of the
state banks and that these deposits had been adjudicated
as claims and ordered paid from the Guarantee Fund.
That he had deposited said funds without bonds, relying
on the acts and representations and promises of the banks.
That the banks were estopped and had waived their
right to object to the constitutionality of the law and
assessments thereunder.
That he, as Treasurer, had vested rights against the
Guarantee Fund and vested contract rights against the
banks for continuation of the payment of the assessments
necessary.
5. The opinion and judgment of the Supreme Court of
Nebraska in appellees' favor was a general one on all
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ABIE STATE BANK VS. WEAVER, ET AL.
the issues on a trial de novo in that court; such trial
de novo in equity suits being a statutory requirement;
the opinion and judgment of the Supreme Court therefore
necessarily and properly contained no reference to any
finding of fact of the trial court (Rec., pp. 58, 59-65).
6,
The Supreme Court of Nebraska inter alia expressly found and adjudged that the banks were estopped;
the evidence was overwhelming as to all the banks and
uncontradicted (Rec., p. 59)•
Where the Supreme Court of the State has decided
a case on the
basis of waiver and estoppel, this court
will concern itself only with an examination of the record
to determine
that there was basis in fact for such finding.
7. The volunteer memorandum opinion of the trial
court on which appellants so largely rely on this appeal
was wholly ignored by the Nebraska Supreme Court in
its trial de novo
and has no place in this record; in
fact the trial court itself expressly found waiver and
estoppel but applied erroneous principles of law thereto
as well as to
the other facts involved; and wholly ignored
controlling undisputed testimony.
The appellant banks quote from the memorandum opinion
and decision of the trial court and then seek to carry the
deduction that the Supreme Court of Nebraska inferentially
adopted some portions thereof. Nowhere in its opinion
and decision did the Nebraska Supreme Court expressly
or by implication quote or give any weight to any finding
of fact by the trial court. The issue of waiver and estoppel
and other issue were tried de novo.
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ABLE STATE BANK VS. WEAVER, ET AL
The laws of Nebraska (Sec. 9150, Comp. Stat., 1922)
provide that on appeal from the district courts to the
Supreme Court of Nebraska in equity cases
"It shall be the duty of the Supreme Court to retry
the issue or issues of fact involved * * * * and
upon trial de novo of such question or questions of
fact, reach an independent conclusion as to what
finding or findings are required under the pleadings
and the evidence without reference to the conclusion
reached in the district court."
So the opinion and judgment of the Supreme Court
of Nebraska is an opinion and judgment in appellees' favor
on trial de novo of all of the issues presented, both of
law and of fact. Appellants' contention that the Nebraska
Supreme Court did not pass on waiver and estoppel, although practically the entire syllabus and opinion is
devoted to that issue and the evidence establishing it,
seems nothing less than frivolous under the record in
this case. The major portion of three volumes of evidence
was on that issue.
May it here be noted that under the procedure in Nebraska, the syllabi is also prepared by the court and states
the law of the case (Proposition of Law No. XVIII).
Appellants refer to Holliday v. Brown, 34 Neb. 232, as
giving controlling importance to the syllabi over the opinion.
In this Abie case the syllabi and the opinion are in perfect
accord on the issues. However, this court had before it a
contention similar to appellants' in the Nebraska case of
Old Colony Trust Co. V. Omaha, 230 U. S. 100, in which
the court said:
"To the state decisions here cited, counsel for the
city interposes the objection that they are not well
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grounded, and that some of them go beyond what is
* * The other
'
expressed in the syllabus.
branch of the objection is not based upon any statute
or rule of court in Nebraska, giving controlling effect
to the syllabus. At most it rests upon a statement in
Holliday v. Brown, 34 Neb. 232, 51 N. W. 839, respecting 'an unwritten rule' to that effect, but what was said
upon the subject in that case has been so pointedly
criticized and so far restrained in Williams v. Miles,
68 Neb. 479, 62 L. R. A. 383, 110 Am. St. Rep. 431, 94
N. W. 705, 96 N. W. 151, 4 Ann. Cas. 306, that it is
not controlling."
In this Abie State Bank case in the very first paragraph
of its syllabi in passing on the acts, representations and
Promises of the banks alleged to constitute estoppel, the
Nebraska Supreme Court held (Rec., p. 59):
"Where a state bank has accepted the benefits
arising from the deposits of money pursuant to the
terms of the bank Depositors' Guarantee Fund Law,
such bank should not be heard, in a proper case, to
make complaint of a special assessment which has
been levied for the benefit of the Depositors' Guarantee Fund."
A large part of the opinion of the Nebraska Supreme
Court is devoted to a discussion of the evidence on estoppel
and an application of that evidence to the decision on
estoppel as set forth in the syllabus. In reviewing some of
the evidence on estoppel that court said (Rec., p. 62):
"It appears from the evidence of the president of
one of the largest Nebraska state banks, that he
was active in the publication of 2,000 pamphlets
which were distributed generally in respect of the
establishment of the guaranty fund. * • * *
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ABIE STATE BANK VS. WEAVER, ET AL.
"In 1926, during the months of June, July, August, and September, twenty-six, full page newspaper
advertisements, attractively featured with pictures
and aptly prepared reading matter, appeared in one
of Omaha's leading newspapers. These advertisements stressed the proposed protection that was shortly to be afforded the depositors of money in the state
banks throughout Nebraska. And on one page of
these advertisements, 336 banks are listed as having
paid their pro rata share of the cost of the publication. The largest state bank, located in Omaha, paid
between $500 and $600 as its share of the expense of
this newspaper publicity. The enterprise was given
wide circulation in practically every town and its
suburbs where a state bank was located, by illustrated newspapers with reading matter that was calculated to attract favorable attention and the patronage as well, of those having money for bank deposit. Following are some of the headings of the
illustrated pages:
"'A Story no other State Can tell'; 'No Mattress Banks in Nebraska ;"Strong Banks make
Strong States;' In the Hands of Skilled Bankers;'
'State Banks protect their deposits in Nebraska;'
'Nebraska is a Remarkable State;' 'Pushing your
money Through the Window.' In Nebraska the
Guarantee Works both Ways.' All Work together
in Nebraska;' Safe through the Slump of Deflation
Days.'
The Men Who told the Story that no
other State Can Tell' concludes the series of illustrated pages, and is followed by an enumerated list
of the 336 state banks that sponsored the depositors
guaranty fund enterprise.
"From the evidence it clearly appears that a
majority of the state bankers throughout Nebraska,
and many others as well, counted the bank depositors
guaranty fund, in its inception, a valuable asset, and
many predicted that this beneficent plan would add
greatly to the stability of the state banks. To illus-
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ABIE STATE BANK VS. WEAVER, ET AL.
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trate this feature of the guaranty fund law, a brief
excerpt from an advertisement which appeared in
January, 1928, in one of the Nebraska papers having
a large circulation may be noted:
"First, there are a few state bankers here and
there who have good banks and who think they are
greatly imposed upon by being compelled to pay an
assessment to the Guarantee Fund. This is a natural feeling as they are in no way responsible for
the banks that'
The guarantee fund,
fail. *
so-called, is merely an insurance company whereby the
state banks of Nebraska are the members and must
PaY through an assessment each other's losses up
to the maximum amount of six-tenths of one per cent
(i year. * * * * Any good bank, making a fair
profit, can pay this assessment without injury to itself
and can do so to the great benefit of the state.
"First State Bank v. Smith, 207 N. W. (S. Dak.)
467, is cited by defendants and is in point. The
court there observed that the banks had for many
years accepted the benefits of the guaranty fund law
and in consequence were not then in position to
resist the just claims of depositors. The court also
Observed that the personal rights of the individual
must always yield to the 'rightful exercise of the
Police power.'
"It may here be noted that the maximum amount
of the guaranty fund special assessment was reduced
by the legislature in 1923 from one per cent, to onehalf of one per cent, but. subsequently the department of trade and commerce, pursuant thereto, levied
the special assessment of one-fourth of one per cent,
Within the maximum amount now fixed by the legislature, and of which complaint is now made by the
plaintiff bank on its own behalf and in behalf of 556
other state banks, as above noted.
"The paramount object, and clearly the legislative
Intention in the creation of the depositors bank guar.
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ABIE STATE BANK VS. WEAVER, ET AL.
anty fund law was first for the protection of the
depositors' money in the state banks. And from the
fact that, under normal banking conditions, such act
would likewise benefit the state banks such banks
were, at least, not unfriendly to the enactment of
the law in question. But it goes without saying that
there never was, nor could be, any compulsion upon
the state banks to accept deposits of money on the
bank guaranty basis. But money was accepted by
the state banks, pursuant to the terms of the depositors guaranty fund law, and by that law such
banks are clearly bound.
"The demands on the guaranty fund are burdensome but the situation before us was created, or in
any event was made possible, by the legislature in
the enactment of the law. It is a basic principle that
it is, ordinarily, not within the province of the courts
to annul a legislative act except as a last resort and
in a ease where no other remedy is at hand. In
view of the benefits arising from the deposits of large
sums of money in state banks, pursuant to the terms
of the bank depositors guaranty fund, should the banks
now be heard to make complaint of the special assessment of one-fourth of one per cent upon their deposits?"
In discussing its finding that the Guarantee Fund assessments had not been a material factor in causing bank
failures during the six years prior to the bringing 0!
the suit and were not oppressive or confiscatory, the Nebraska Supreme Court in its opinion further said (Rec.,
p. 62):
"In respect of the many failures of banks about
this time, the cashier of a Lincoln state bank testified
that, in his opinion, the failure of nearly 300 Nebraska state banks was caused largely by the general economic condition existing prior to 1928; that he did
not think the bank assessments from 1923 to July 1,
1928, were a contributing factor in the failure of
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ABIE STATE BANK VS. WEAVER, ET AL.
15
banks during that period, and that, in his opinion, the
guaranty fund law and the assessments collected
thereunder had a steadying influence on the deposits
of every state bank. Continuing, he testified that
'it is no exaggeration to say that it has accounted
for at least one hundred million dollars deposited
in the state banks of Nebraska which would not otherwise have been made except for the bank guaranty
law.' In his opinion, the conditions of the banks and
their ability to pay the assessments is 'incomparably
better than in 1923'."
In concluding its opinion that court stated (Rec., p. 65):
"In view of the benefits which arose from the deposits of large sums of money in state banks, pursuant
to the terms of the bank depositors' guaranty fund,
Should the banks now be heard to make complaint of
the special assessment of one-fourth of one per cent
uPoo their deposits? Have the observations of Mr.
Justice Holmes in the Noble State Bank Case, above
cited, ever been answered? If so, our attention has
not been directed thereto."
Sections 1074 and 1075, Compiled Statutes of Nebraska
for 1922, require the Nebraska Supreme Court to cause
all of its opinions to be reported and published and they
are therein referred
to as the decision (Propositions of
Law, Numbers 18 and 19, infra,). This has always been
the practice in that court and in this case as in all
Others coming to this court on appeal, the opinion as
I ncorporating the decision was included as a part of the
record by the appellants and appears at pages 59 to 65 of
the Record.
Where the Supreme Court of the State has decided a
case on the basis of waiver and estoppel, this court
will concern itself only with an examination of the record
to determine that there was basis in fact for such finding.
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ABIE STATE BANK VS. WEAVES, ET AL.
We understand this to be the rule in St. Louis Malleable Casting Co. v. Prendegrast Construction Co., 43 Sup.
C. Rep. 178, 260 U. S. 469 (Proposition of Law Number
XV).
In that case as here, the appellants were urging that
the decision of the Missouri Supreme Court on the question of waiver and estoppel was a mere statement of abstract law not applied. In the opinion by the court Justice McKenna said:
"The only reply that counsel makes is that the court
meant nothing more by its conclusion and the cases
cited 'than the statement of an abstract legal principle' which was 'in no way connected up with the
evidence.' It is further said that:
"'Nowhere in the statement does the Supreme Court
find any facts constituting an estoppel.'
"The comment is not justified. Our quotation.
from the court's opinion established the contrary, and
that the plaintiff did something more than stand by
and make no protest; it availed of the benefits of the
sewer."
In addition to its finding and decision with respect to
waiver and estoppel, the Nebraska Supreme Court expressly held that under the facts disclosed by the Record,
the special assessments as levied were not confiscatory
or in violation of the 14th amendment as taking private
property without due process.
Paragraph two of the syllabus is (Rec., p. 59):
"Where a special assessment has been levied upon
the state banks pursuant to the provisions of Section
8028, Comp. St. 1922, as amended by Section 26, c.
191, Laws, 1923, such assessment does not constitute
the taking of private property without due process."
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ABIE STATE BANK VS. WEAVER, ET AL.
17
The memorandum opinion of the trial court as hereinbefore pointed out has no place in this record.
But in view of the extensive quotations made therefrom
by the appellants, we shall necessarily devote some space
in this brief to it.
The figures used by the trial court in arriving at some
of its indisputably erroneous conclusions will later lw
clearly pointed out under appropriate headings. The trial
court held that the banks had waived the right to question the constitutionality of the depositors guaranty fund
law and were estopped
to repudiate their obligations to
the depositors
with accrued claims. This conclusion was
unavoidable on the evidence. In his opinion the trial
Judge said (Rec., p. 52):
"I am of the opinion that the banks have waived the
right to raise the constitutionality of the Depositors'
Guarantee Fund Law."
However, he erroneously (as later decided by the Nebraska Supreme Court) held that public policy denied
the banks the right to waive or to be estopped to question
the constitutionality
of the law (Rec., p. 54). He based
this latter deductio
n on the premise that the banks were
unable to pay the special assessments, charge off old losses
and at the same time pay what he terms "compensatory
dividends". This deduction was wholly unsupported by
the evidence
and not in harmony with the court's own
figures. This proposition was also premised on the court's
conception that the stockholders of banks as a whole were
entitled to demand and receive "compensatory returns"
after the banks had charged off large unrelated losse:,
before the banks should be required to pay the Guarantee
Fund Assessments required to pay the depositors with
vested adjudicated claims. The premises of fact. were incor-
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ARID STATE BANK VS. WEAVER, ET AL.
rect and the conclusion of law erroneous. The court wholly
ignored the rights of claimant depositors. The angle from
which the court approached the matter will be evidenced
by a few quotations from its opinion.
The trial court said (Opinion, Rec., p. 46):
"The figures I have already given deal with the
banks as a whole. They plainly show that a majority
of the banks are not receiving compensatory returns
upon their investment, while a fourth are receiving
rather extravagant profits.
WHAT IS MEANT BY CONFISCATORY?
"In order that the assessments levied shall be declared confiscatory it is not neecssary to show the
banks in the red; it is sufficient that they do not bring
results commensurate with the capital invested. This
question has been before the Supreme Court of the
United States in connection with the different public
utilities and that court has held that the rate established must be such as will bring returns equal to those
of kindred organizations operated in the same general
locality.
"Now the only possible purpose in levying special
assessments under the Guarantee Fund Law is to pay
depositors in failed banks whose claims have already
been adjudicated."
The only persons who ever have need of recourse to the
(1 uaranty Fund are those who become adjudicated claimants.
Noting the item of "other real estate" in the reports of
going banks and disregarding the evidence that such real
estate was in value all that it was carried at, the trial
court said in the opinion (Rec., p. 45):
"If the banks had not been required to pay the
special assessment they would have been able to
charge off part or all of this 'other real estate'."
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ABIE STATE BANK VS. WEAVER, ET AL.
19
As will hereinafter appear the trial court clearly disregarded the evidence as to the benefits that the banks
had received from
the operation of the Guarantee Fund
Law during the period when the claims had
been maturing
and this "Other Real Estate" item accruing;
he wholly
disregarded the evidence that but for the Guarantee Fund
Law many of the banks that are carrying this item of
a
'
other real
estate" would not be existent.
The trial court, while recognizing the large earnings of
the banks as a
whole, recites the fact of the large losses
and "charge_offsii arising and the reasons therefor and
recites the advisability of "charging-off" "other real estate"
acquired through the liquidation period. He then in effect
imposes the responsibility for all this on the present
claimant depositors, and holds that the enforcement or
their right to
special assessments for their benefit should
be enjoined
until the banks can, after charging off said
1088es and real estate, "receive in addition compensatory
returns upon their capital" (Judgment, Rec. p. 57).
" These
and decision were made in the face of
the trial
court's own prior finding and decision (a decifindings
sion beyond
controversy required by the evidence), that
the banks by
their acts and conduct were chargeable with
Waiver and estoppel. But these lie perniittd them to avoid
in the
alleged public interest.
The opinion of the trial court is mainly premised on the
figures prepared by the banks attempting to show the
number of banks that did not make 6 per cent on their
capital and surplus after charging off all losses and paving
all Guarantee Fund assessments. This was the theory
Upon which the trial court tried the case. It is not
Practical to take up and devote large space to analyzing
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Federal Reserve Bank of St. Louis
20
ABIE STATE BANK VS. WEAVER, ET AL.
the opinion. Some of the figures used in the trial court's
calculation were clearly erroneous as will hereinafter appear, but we can not at this point go further into the
facts found by and theories of the trial court without unduly burdening this brief. The extensive quotations from
the record hereinafter will show how clearly erroneous
how clearly erroneous were the trial court's premise
were the trial court's premises.
8.
The status of this case in the Supreme Court o
the United States:
(a) The decisions of this Court in the Bank Guar
antee Fund cases, Oleomargarine cases and cases simila
in principle are conclusive of this case on the pleading
and on the facts;
(b) The evidence of the banks wholly failed to sup
port their contentions, even on their theory; in fact
a contrary state of facts was conclusively established b:
defendants' evidence;
(c)
The evidence of defendants and interveners sup
porting estoppel was overwhelming as against all the
banks; (estoppel was found by both Nebraska Supreme
Court and trial court).
(d) The Nebraska Supreme Court adjudication on
basis of estoppel in pais is final and conclusive.
The enactment of the Guarantee Fund Law was a proper
exercise of the "police power" by the legislature. That
was decided by this court in 1911 in the Holstein Bank
case. Any modification or repeal of the law, especially
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Federal Reserve Bank of St. Louis
Mir
AB1E STATE BANK VS. WEAVER, ET AL.
21.
as against those with vested rights, must be, if at all,
by the further exercise of that power. For these reasons
and others set out in the "Propositions of Law" in 01.:
brief, defendants and interveners were entitled to judgment on the pleadings, independent of any question of
fact involved.
The Bank Guarantee Fund cases, the Oleomargarine
cases and others cited and quoted from hereinafter are
conclusive of this case on the pleadings.
As disclosed by the record, defendants and interveners
Properly raised these legal questions by objections to the
introduction of evidence, Record, page 80, and by motion
for judgment
at the conclusion of plaintiff's testimony,
Record, page 213.
The detailed argument and presentation of evidence
and facts as to
these propositions will follow later in
the brief.
SUMMARY OF THE EVIDENCE
9. There was a complete failure of proof by the banks
on their
contentions of facts; a contrary state of facts
was conclusively
established.
The appellants have omitted defendants' Exhibit 37 from
the transcript
brought to this court, and which contained
the Only data
on each of the 726 banks separately.
No state bank of Nebraska, aside from the small Al&
bank, appeared in the case or offered any detailed facts
and figures as to its income and operating expense and
the distribution thereof.
No evidence was offered by any
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Federal Reserve Bank of St. Louis
29
ABIE STATE BANK VS. WEAVER, ET AL.
bank or on its behalf as to the actual operation of o
effect of the Guarantee Fund Law within that bank,
the effect of the law and its assessments upon its opera
tions or its income, or of the relation of its assessme;
to its operations.
No attempt was made by plaintiffs to show normal
income and disbursements and the distribution thereof;
or the Guarantee Fund assessments' relation to and effect
on the banks' income. No effort was made to show that
banks actually operating could not pay the assessment
or that the operation of the Guarantee Fund law detrimentally affected the banks' operations, earnings, etc.
Appellants do not point out any evidence of the foregoing
character.
The plaintiff banks had it wholly within their power to
have furnished readily and conveniently to auditors or
accountants figures with respect to the details of the
operation of the Guarantee Fund within their respective
banks and to have made compilations thereof in a sufficient number of banks to support their contentions in
this case, if such contentions were susceptible to proof.
Their failure to supply a scintilla of evidence in this regard as to the relative benefit of the Guarantee Fund to
banks and its effect on the operating income, raises the
unavoidable deduction that their contentions were not
susceptible to proof.
The plaintiffs undertook to treat the assessments paid
by banks in the past as wholly without compensatory benefits and to disclaim all responsibility for accrued liabilities.
They undertook arbitrarily to treat the amount of the'
assessment as a total loss.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
They relied simply on showing the gross receipts and
then the expenditures (including the Guarantee Fund
assessments).
Even this evidence was not produced as to individual
banks. The plaintiffs produced their Exhibits 6, 7 and 8
made up by the grouping of numbers of banks as to net
earnings in each six months period. Even these exhibits
were thoroughly
discredited and appellants omit them from
the transcript of
the record in this court. This matter is
covered hereinafter in detail.
The trial court
having ruled adversely to the defendants
on their
objection to the sufficiency of the character of
proof offered by
the banks (motion for judgment, Rec., p.
213), the
defendants then produced evidence to meet this
class of evidence
introduced by plaintiffs and to show the
actual earnings of
the banks and the cause of reduced earnlags, and that these causes were unrelated to the Guarantee
Fund.
We challenge
especial attention of the court at this
time to this
complete lack of any evidence that could have
811PPerted plaintiffs' case under their theory of the prineiPle applicable
to rate cases.
The °lily evidence with respect to the individual bank
Was Exhibit 37,
prepared by the banking department and
introduced by defendant officers and the interveners. This
exhibit consisted of
data taken from the reports of the
individual banks to the banking department for the period
of eighteen
months from January 1, 1927, to June 30,
1928, the fiscal
period immediately preceding this suit.
This was
prepared by Payson D. Marshall, Chief of the
Bureau of Banking, and was
a correct reflection of the
report of each of the 726 banks separately enumerated
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Federal Reserve Bank of St. Louis
24
ABIE STATE BANK VS. WEAVER, ET AL.
(Mr. Marshall's testimony, Rec., pp. 427-31). This exhibit
was introduced in evidence (Rec., p. 432). This was the
only evidence and data on each individual bank separately
named and appellants have omitted this exhibit from their
record in this court. A recapitulation of Exhibit 37 showing the totals as to all the banks, appearing as Exhibit
38 (Rec., 437) and reproduced later in this brief, was prepared and introduced by defendants (pp. 431-2). This
exhibit completely negatives the contentions of the plaintiffs. Exhibit 37 as stated showed the data with respect to
individual banks.
Plaintiffs' witnesses and accountants, Fulk and Mooney.
whose testimony is hereinafter referred to, were given
free access to all the records of the banking department
(Rec., pp. 132-3, Qs. 357-9), and the statement of appellants' brief that "the Department of Trade and Commerce refused at all times to permit the banks or their
representatives to see or have access to the records" is I
untrue; there is no evidence whatever to that effect.
The defendant state officials in the public interest assumed a burden not properly required of them in a eas
involving the constitutionality of an act, and affirmatively
showed from records of the banking department and otherwise, facts completely negativing each contention of the
banks. They further showed acts and representations of
the banks inducing deposits and especially the deposits
of claimant depositors, that are more forcible in support
of the equities of the depositors than any argument that
could be advanced.
May it at this time be stressed that not only did the
evidence show that the acts and representations werc
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Federal Reserve Bank of St. Louis
•••.,
ABIE STATE BANK VS. WEAVER, ET AL.
by all the
banks, but no attempt was made by any bank
or banks to
show that such bank or banks were not
Participants.
Appellants brief omits important evidence and inaccurately abstracts material
parts of the record. It is not
practical to take up and analyze each erroneous statement; so appellees will brief this case by copying freely
from the evidence and
letting such quotations show the
errors of appellants'
brief.
10.
The Guarantee Fund Law and its small assessments never
caused nor contributed materially to the
failure of a
single Nebraska state bank, but diminisly-A
the number
of failures and was of inestimable benefit
to the
banks generally during the period of failures; the
cause of
excessive losses in going banks, and of "charge Offs" and failures are not attributable to Guarantee
Fund
assessments.
The whole case
of the banks was premised and argued
and ig presented in this court on the theory that there
were
Guarantee Fund assessments and that there were
bank failures
and from those two facts they argue that
the
Guarantee Fund assessments were responsible for
hank
failures.
There was no evidence supporting their deduction.
Before affirmatively showing the cause of failures and
the great
benefit of the operation of the Guarantee Fund
in reducing failures,
let it be said that no witness testified as to any
bank in the State of Nebraska, either heretofore failed or now financially embarrassed, whose condition Was caused or
materially contributed to by the Guar-
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
4(;
antee Fund assessments. In the case of the banks that
failed the amount of the previous payments to the Guarantee Fund compared to their total liabilities was insignificant.
Dan V. Stephens, president of the Fremont State Bank,
principal witness for plaintiffs and one of the three sponsors of the suit, was asked to name a single bank that was
in receivership or in the hands of the Guarantee Fund
Commission whose condition was the result of the Guarantee Fund assessments, but he could not name a single
one. We quote his testimony (Rec., pp. 541-2), Qs.
3466-7-8):
Q. "You can't name a single bank, can you, Mr.
Stephens, that is in receivership or in the hands of the
Guaranty Fund Commission, whose condition is the
result of the Guaranty Fund assessment?"
A. "I don't know whether I could or not. By refreshing my mind I might."
Q. "Will you take two or three minutes and think?"
A. "Now what is the use of thinking when I told
you I didn't recall any?"
Q. "That is your final answer, is that, that yoll
can't recall?"
A. "I can't recall it, I haven't made a specialty ot
that."
No other witness even attempted to name one bank
whose failure was attributable to the assessments.
Referring to the condition of some banks as existing in
May, 1927, and those then having capital impairment o
capital impairment if criticized items were charged oif,
Mr. Bliss stated that the Guarantee Fund assessments paid
by those banks had cut no appreciable figure in their then
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, BT AL.
27
condition as he found them (Rec., p. 199, Q. 941) and
that as to existing banks they had charged the assessments
out of their earnings and taken care of them from year
to year (Rec.,
p. 202, Q. 965).
Mr. Woods, a banker, and highly qualified witness, as
Will hereinafter
appear, testified (Rec., p. 246, Q. 1263):
Q. "In your opinion, Mr. Woods, has the Guarantee
Fund assessments of six-tenths per cent from 1923 to
July 1, 1928, been a materially contributing factor in
the failure of banks during that period?"
A. "I think not."
In January,
1928, the state banks through their spokesman, Dan V.
Stephens, chief witness in this case, and by
Paid advertising
broadcast the following statement (Orig.
Trans., P. 474,
vol. 3, Exh. P):
)11
"This limit (of assessment) in the case of the Bank
uarantee Fund, which fund is used for the benefit of
Paying depositors in failed banks, is fixed at 6/10 of
1%• * * * * In other words, a bank that fails
fails not because it had to
pay $6 a thousand to the
Guarantee
Fund, but for other and vital reasons."
The evidence
with respect to bank failures and heavy
losses in
going banks for the period from 1920 to 1927
and the beneficial influence of the Guarantee
Fund in
Iii
or
[i11
diminishing each is more logically covered under later.
subdivisions
of this brief, where evidence will be quoted.
This will show
without dispute that "in every respect and
Without any
exception the condition of the banks is incomparably better than at any time since 1923" (Subdi?isions 16, 17 and 18).
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
28
The law was determined constitutional in 1911 ill
Shallenberger v. Holstein; the special assessment was
then double the one of which complaint is now made.
11.
Every issue made in this Abie case was full
pleaded and determined in the Holstein case.
12.
A complete analysis of the issues represented and d e•
termined in the Holstein bank case appears under Proposition of Law Number V of this brief and the petition
therein is quoted from at some length. To avoid duplication, we shall omit further reference thereto at this point.
ACTS AND REPRESENTATIONS OF BANKS CONSTITU1
ING WAIVER AND ESTOPPEL; ESPECIALLY AS T0
DEPOSITORS WITH MATURED UNPAID CLAIMS.
13. All the banks thereafter specifically accepted this
adjudicated valid law and its benefits and its obligations
and have operated thereunder without question for seventeen years.
The decision of the United States Supreme Court upholding the Guarantee Fund Law was announced i11
January, 1911. The state banks then had their optio11
of doing any one of three things:
1. Liquidate and invest their capital in some othe
business.
2. Nationalize if they thought it would be more profit
able to operate under a charter from the federal gor.
ernment.
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Federal Reserve Bank of St. Louis
JI
ABIE STATE BANK VS. WEAVER, ET AL.
as
hf
o.
on
ca•
T-
ro
I.
us
flo
3. Apply to the state banking
department for a certificate of authority to
operate under the new Depositors'
Guarantee Fund Law.
The banks
exercised their choice; they filed with the
banking department their application
in which they agreed
to comply with all the terms and conditions of the law.
In due course
each of the banks received a certificate of
authority permitting it to operate
under the law and
to accept
deposits to be "secured and protected', by the
Guarantee Fund. The law directed
that this certificate
be posted in
the bank. Several state banks had nationalized pending
the decision of the United States Supreme
Court, but
thereafter, during the operative period of the
law. up
—
until the trial of this case, only nine state banks
nationalized while fifty national banks converted
into
state banks
and filed their applications for license to
do business
under the state bank law (Rec., p. 396, Qs.
2344-50)• These state banks have
operated under the law
after their
acceptance thereof and without question for
seventeen years up to the time of starting this
suit.
14.
oll
)v-
29
The banks continuously and extensively from
1911
to time
of suit in 1928 untilized the
Guarantee Fund Law
by re presenting
and advertising its adjudicated validity
by the United
States Supreme Court, that it was a
Inutual insurance plan
for depositors' protection, and
their Own
express obligations and agreements to pay assessments, etc., to induce deposits of
public and private
fund3; this was
accomplished by continuous and extensive
newspaper publicity, by signs
on the interior and exterior of banks,
pamphlets, statements on checks and
certificates of deposit and on
deposit slips, by moving
Pictures, public speakers,
resolutions at bankers' conven-
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Federal Reserve Bank of St. Louis
30
ARIE STATE BANK VS. WEAVER, ET AL.
tions, personal solicitation and argument; the largest exploiting was in the three years immediately preceding
the filing of this suit.
The evidence supporting this statement of fact is the
principal part of three large volumes of the transcript
and is so voluminous that we will burden this brief with
but partial reference thereto and by the insertion of exhibits typical of those in general use. The activities were
general with all the banks through the period in varying
degrees of intensity as will appear. The largest activities
in this regard were in the last three years, and were headed
by the large state banks whose officers now sponsor this
suit. For the court to have an accurate perspective of
the relations that exist between the claimant depositors
and these existing state banks, it is indispensable that
the court read the representations and statements that
were made by these banks to the depositors. The arguments that the banks used to get the deposits of these
depositors are more forceful in support of the equities
of the depositors than any argument that the writers of
this brief can advance.
The evidence is overwhelming and undisputed of representations and conduct of the state banks, and which will
be hereinafter quoted, which operated as an effective and
complete waiver and estoppel of any right to assert the
unconstitutionality of the special assessments. This applies especially to the existing depositor claimants who
believed in and relied on said representations and conduct
in making the deposits on which the claims are faunde.
This portion of the brief therefore will be almost wholly
devoted to the acts and conduct of the banks during the
last five years which directly induced the deposits of the
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
31
present claimants against the Guarantee Fund. The assessments levied and to be levied for a period of year:will naturally go to these partic
ular depositors.
The principal acts
were the inducing of deposits by
the following means
:
1. The use of consp
icuous signs of varying sizes on
the interior and/o
r exterior of the banks.
2. The issua
nce by the banks of certificates of deposit
for deposits
with a recital thereon that the deposits were
protected by the Depos
itors' Guarantee Fund; similar recitals on check
forms, deposit slips, letter-heads, and other
printed matter,
delivered to depositors.
a The general
and universal imparting to the public
and depositors
by word of mouth, circulars, questionnaires
and extensive and large newspaper advertisements and
other means that
all the state banks in Nebraska were
associated together for the mutua protection
of depositors;
l
that the
banks were a giant co-operative insurance association under the law;
that each would pay assessments
until am
Claims were paid; that their liability had been
adjudicated by the Supreme Court
of the United States;
that a
depositor in a failed bank would be paid in
any
event by the
existing banks; that the administration of
the law
was in their hands; that there was no longer any
need to keep
money in mattress banks; and that the
receiving bank and all
other banks were back of the
deposit, and other
similar representations.
Some newspaper advertisements were illust
rated and
headed with pictures of
the United States Supreme Court
in session
determining the validity of the law, the Nebraska
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Federal Reserve Bank of St. Louis
,
I
a
ABIE STATE BANK VS. WEAVER, ET AL.
I
State Capitol, Abraham Lincoln, the American flag an
similarly effective illustrations.
The largest publicity and exploiting of the Guarantee
Fund was during the three years preceding the filing of
this suit, and by all the means recited above. Included
therein were twenty-six full-page advertisements over a
period of months, in the Omaha Bee, with a large circulation covering the whole state. These advertisements were
procured to be published, contracted for and paid for by
336 state banks. The details of arrangements therefor were
made at several meetings of bankers at Fremont. The
Last advertisement carried the names of the banks with the
heading "The Men Who Told the Story That No Other
State Can Tell."
The only legal requirement of the banks was to hang a
eertificate in their bank to the effect that they had complied with the provisions of the law. All other acts, representations, advertisements and promises on the part of the
banks were purely voluntary and for the advancement of
their own interests.
(a) Representations on printed matter in use and
circulated; and by signs on and in bank buildings; and
public addresses, etc.
The testimony showed and was uncontradicted that a11
the state banks of Nebraska were featuring and repre
senting on some portion or all of their stationery, and
almost universally on their checks and by advertisements
on certificates of deposit, windows of bank buildings and
on the exterior of the banks, the fact that their deposits
were guaranteed.
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Federal Reserve Bank of St. Louis
ABIB STATE BANK VS. WEAVER, ET AL.
id
ee
of
a
hi
e1
1
fl
0
33
Ray W. Hammond, for twenty-five years manager of the
Hammond Printing Company, which had printed supplies for
two or three hundred of the banks, testified in this regard
and produced typical printed samples of checks and certificates of deposit printed by his firm for these banks
(Exhs. L-1 to L-5, inc., p. 435, vol. 3, Orig. Trans.). Robert
Chappel, manager of the Chappel Printing Company, commercial and bank printers, also testified (Rec., p. 325)
that he traveled for his firm throughout northern Nebraska
and six counties in
southern Nebraska and that practically
all the banks
used the circle insignia "Deposits Protected
by the
Guarantee Fund of the State of Nebraska" and
other signs featuring
the Depositors' Guarantee Fund
(Rec., I/ 328,
Q. 1877). He identified Exhibits H-1 to
11-9 as samples of checks and certificates of deposit with
'Protected by Depositors' Guarantee Fund" thereon printed
and 501d by his
firm (Rec., p. 327, Q. 1867). The exhibits
appear at Page 432, volume 3, orig. transcript. The foregoing exhibits
have been omitted in printing record.
Mr. Chappel stated that Guarantee Fund signs were displayed
an practically all of the windows and inside the
cages of the banks and that practically all the cheeks,
letter-heads and
printing that was distributed to his customers had the Guarantee Fund "cut" on them (Rec., pp.
331-2, Qs. 1903-33).
1
1(
t•
1(
STIPULATION
AS TO CHECKS, DRAFTS, etc.: At
Page 583, volume 3, original record, are 100 different forms
of checks, certificates of
deposit and deposit slips (omitted
in printing),
featuring the Guarantee Fund protection,
and which it was
stipulated were those in use for many
Years last past by the respective banks named thereon and
furnished to their customers for their use and used by
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Federal Reserve Bank of St. Louis
34
ABIE STATE BANK VS. WEAVER, ET AL.
1 hem in their business relations with the respective banl
(Stipulation, Rec., p. 399).
Referring to the photographs of exterior signs (El- hibits 27 to 33, p. 586, Vol. 111, Orig. Trans.), Secretary
Bliss of the Banking Department stated that they were
characteristic pictures of the signs used generally by the
state banks of Nebraska throughout the period referred
to and that the 100 forms of certificates, deposit slips,
and checks (Exhibits 24-1 to 24-100, p. 583, Vol. 3, Orig.
Rec.) were those used generally by the state banks of
the state (Rec. pp. 407-8, Q. 2439-41). These have been
emitted in printing and the court's attention. is especially
urged thereto in the transcript. One feature of the publicity used was that of bankers addressing public and
other meetings of citizens advocating the protective feature of the Guarantee Law and showing that it existed
in favor of state banks and not national hanks. These
addresses received publicity through the newspape
(Rec., pp. 408-9, Qs. 2442-46).
The foregoing mentioned publicity had a favorable
and stimulating effect on state banks generally, more
particularly in the country towns (Rec., p. 409, Q. 2447).
These exhibits contained the above referred to wording
as to the deposits being guaranteed. Typical of these
exhibits are those reproduced on the immediately Succeeding pages. In view of the arrangement of the words
thereon and the variation in size of type (please note)
some of the people came to rely on the deposits as guaranteed by the State.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVLE, ET AL.
35
May we call attention to the fact that no attempt was
made to show that there was any bank in the state either
Plaintiff or other, which was not using this character
of advertising and representation, and for that matter the
Other advertising in this brief referred to.
11
)-
4l
1-
The certificate of deposit forms in use by the State
Bank of Omaha, Nebraska's largest state bank, from
the time of its organization to the time of the trial are
also reproduced here. It will be noted that the last
one is dated within ninety days of the trial. The organization of this bank under the Guaranty Fund Law, its
featuring of the law and its enormous growth and prosperity will be hereinafter specifically adverted to.
We here reproduce a few of the more than one hundred
exhibits of similar character referred to above by exhibit numbers:
41
(b) Forms of checks, certificates, deposits, etc., in
use (exhibits) ;
.s4
(c) Form of certificate of deposit of State Bank of
Omaha up to time of instituting suit (exhibits) ;
(d)
Typical signs and letterheads (facsimile exhibits):
As follows:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
FIRPIERS STATE BAH
DEPOSITED BY
KEARNEY',NEB
- _192_ _No.
FARMERS STATE BANK
76-
PAY Tyliff.tor
192_ Nc
INLAND. NEBR.
ritaugaSimilitwili76-7
DEPOSITS
-
HARDY, NEBRAS
r
P
NIATE;4ittsk
40.
Harlington, Nebr.,
191_ No.
_BANK
ii
191_ No._
Cedar County State Bank
(1) 8.,0
Iorthe,
0.
der or
p.
-,
-- ---_.N ..,---_____
71
S-7--Do
TYPic21 Certificate of de-oosit forms, check forms,
and. deposit
slip forms in use (Ex. 24-51 to 24-100,
P.
583, V. 3 rind P. 432, V. 3, H1 to H9, Ex. 17,
P. 432,
Orig. Trans.)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
27-57
do
«sif
CIEDOSITS
ARE PROTECTED
BY TIM
DEPOSITORS
GUARANTEE FUND
,
I
,
r
„S
itij
#
14i
s
q
••
" :eat
• •
tir,IGIIMA.301311 V4 ail MAI*40-16•••
•
•
!Z. • •
•
AINIApi
eilittikNtin
‘
4•4"•••••
QE THE
STATE or
AAAAAS.'
71'
EX ACTL1 ExAci
LI
ONE THJi
,
4,7
14./
•
,
..-!.••1.-)40
•
No.
I0
•••
tiA$6DEPOSITED IN THIS BANK
•
•
•
• •
•
•••
DOL L..4
DOLLARS $
PAYABLE TO THE ORDER OF
S'y
0
— eC.•
IN CURRENT FUNDS
ON THE RETURN
E0
'
OF THIS CERTIFICATE. PROPERLY
AT
PER CENT PER ANNUM
NO INTEREST AFTER MAT RITY
CERTIFICATE OF DEPOSIT
MONTHS AFTER DATE WITH INTEREST
4 r
NOT SUBJECT TO CHECK
"ee
27-57
9
.
4 No.
j#105
•
•
•IF
23559
HAS DEPOSITED IN THIS BANK
e
C0.40
•
•
•
•
•••
PAYABLE TO
tg
1:00ANDOOc
DOLLARS Sll 6' CP
OR ASSIGNSIN CURRENT FUNDS
ON THE
RETURN OF THIS CERTIFICATE PROPERLY ENDORSED —
AT
PER CENT PER ANNUM. NO INTEREST AFTER MATURITY.
OF DEPOSIT
NON-NEGOTIABLE
CERTIFICATE
'TQCSIDENT
ASHIER
NOT SUBJECT TO CHECK
Certificate of deposit froms continuously in use by State 3ank of Omaha
since its organization (Stiou17,tion P. 225, Vol. 2, Ex. 31 and 32, P. 269,
Orig. Trans.); the lower one being in use in 1928 at time of starting suit.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Pots
B
J
:4,1141Woosmkorarnm
--,.....,Yr`r*"°11
by
W
RANSO.
V
OP
PM..
1 .-
woroi.K*j_.
•7
• _
CAPITAL
SURPLU
/NOlt1=L1
6-NOV"0
•-
Sample of letter head in use (Ex. 41, P.
64, V. 4, Orig. Trans.)--on the letter
head are also printed the 7:ords "All
Deposits Guaranteed" in red letters one
inch high and four inches long.
(Ex. 27 and 29, P. 586 and 587, V. 3,
pical sins on exOr 1g. .Crans.)--ty
terior of bank buildings.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
37
Other typical signs:
In 1929 after this suit was started (in December, 1928)
the defendants took
the deposition of President Schantz
of the State Bank
of Omaha in Omaha. This is Nebraska's largest state bank. Mr. Schantz and Mr. Stephens
were the two witnesses for the banks at the trial in this
ease. Mr. Schantz was chairman of the committee of
three instituting this
suit. At the time of taking these
depositions large signs were conspicuously displayed on
both the exterior
and interior of the banking room.
They were
as follows (Rec., pp. 230-2, Q. 1184-91):
On the door of
the Harney Street entrance to the bank
in large
letters were the words:
"Deposits Protected by the Depositors
Guarantee Fund of the State of
Nebraska"
Over each the customers' counte
rs inside the bank, six
In number, were
signs fifteen inches high and twenty
inches wide, as follows
:
"SAFETY FIRST
The Deposits in This Bank Are
Protected by the Depositors Guarantee
Fund of the State of Nebraska."
Over the discount
and paving tellers' windows was a
Sign 8iX feet
ten inches long and three inches high, as
follows:
"Deposits Protected by the Depositors
Guarantee Fund of the State of Nebraska."
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
38
ABIE STATE BANK VS. WEAVER, ET AL.
And over each of the receiving tellers' and statement
windows appeared a sign of the same size and lettering.
Over the entrance on the 16th Street side was a large
sign.
"Deposits Protected by the Depositors Guarantee
Fund of the State of Nebraska."
And above the doors on a large glass in the way of a
transom entering from the lobby on the Sixteenth Street
side was a large sign thirty inches high and forty-eight
inches wide:
"STATE BANK OF OMAHA
Deposits Protected by the Depositors
Guarantee Fund of the State of Nebraska."
The bank occupied a business corner at Sixteenth and
Harney Streets, and the foregoing advertisements on the
doors appeared on the main entrance doors, and had been
there since October, 1915 (Mr. Shantz, Rec., p. 232, Q.
1195).
(e)
The advertising in The Omaha Bee:
The representations and advertisements by the banks
reached their highest peak in a number of pamphlets broadcast by them over the state and a series of twenty-six full
page advertisements in the Omaha Daily Bee. These were
published and paid for by 336 state banks in 1926. Similar advertising was carried in other papers throughout
the state until shortly prior to filing of the suit.
These 336 banks procured and paid for the publicatioi
and each had a written contract providing each pay it
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I-
ABIE STATE BANK VS. WEAVER, ET AL
39
pro rata cost of the publication (Mr. Wilson of the Bee,
Rec., pp. 217-8, Qs. 1079-83). The State Bank of Omaha
contributed between $500 and $600 (Rec., p. 604, Q. 3864).
Mr. Stephens and Mr. Shantz of the Fremont State
Bank and First State Bank of Omaha respectively were the
prime movers in procuring these publications. Mr. Stephens
caused a part of the series to be reinserted in the Fremont Evening Tribune (Rec., p. 315, Qs. 1744-5). The
series of advertisements in the Bee were approved and
endorsed and publication authorized by a representative
group of the state bankers at Fremont. Mr. Shantz and
Mr. Stephens were among those present (Rec., pp. 604-5,
PP- 647-48). Mr. Wilson, representative of the Bee,
conferred with them several times (Rec., p. 221, Qs. 1111-3).
Mr. Kirk Griggs, the then Secretary of the Department
of Trade and Commerce, was consulted for the purpose
Of avoiding
conflict with the national banks (Rec., p.
652, Q. 4234) but he had nothing to do with advertisements and ,furnished none of the material. (Mr. Griggs,
Rec., P. 649, Qs. 4215-7).
Appellants statement that the Bee newspaper advertisements were initiated, sponsored and recommended by
the State
Departments is wholly without support in the
record and was not a fact.
A letter signed by the bankers was sent out to the state
banks commendatory of the plan and Mr. Shantz's name
headed the list, as Mr. Griggs recalled (Rec., p. 650, Qs.
422-4).
The Omaha Bee had a daily circulation inside the city
of 29,940, and
outside of the city of Omaha in Nebraska
of 22,000, and
the list of towns served by it was sub-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ARID STATE BANK VS. WEAVER, ET AL.
40
stantially the same as the list of towns having state
banks. An audit of the circulation of the Bee was introduced (Rec., p. 219, Ex. 28) and showed the list of
towns and the distribution.
Facsimiles (in reduced size) of these 26 page advertisements appear inserted following page 238, Record, and
twelve of them are reproduced in this brief on a miniature
scale. Exact reproductions are at pages 240 to 265, Vol.
II, Original Record. We hope the court will inspect the
originals as contained in the original record.
This series was entitled "The Story No Other State
Can Tell." The last of the series contained a list of the
336 banks which sponsored and paid for them. It was
headed "The Men Who Told The Story That No Other
State Can Tell." The plaintiff, Abie State Bank, heade.1
the list. In the last of the series the 336 banks listed
themselves and said of themselves (Exh. 27 of Exit. 13.
inserted following page 238, Record; facsimile reproduced )
as twelfth of exhibits next following):
"They (the banks) raised the funds, they laid out
the plans and directed the writing of the chapters
in this Nebraska story that has gripped the attention
of the nation."
Certainly there can be no question of the authorship
and responsibility of the banks for these advertisements,
in view of such a statement.
Want of space above prevents our including the entire
26 in this brief. The following are typical:
https://fraser.stlouisfed.org
Imp Reserve Bank of St. Louis
Federal
A Story no other State can tell
L.IEBRASKA today tells a story to her
sister States that no other State can
tell. It is a story with a background of
shadow but with highlights of courage and
stamina.
The Shadows came with deflation days, but
back
of those shadows there was a sound law
and sound
bankers in Nebraska. They had
the courage and the grit to
see it through.
Were a title needed for. this story it
might be
written."Seeing It Through." Under the operation of Nebraska's sound
law,the Bank Guarantee law, and
in the hands of
Nebraska's solnd bankers, not a dollar has
been lost to the depositors in
Nebraska's state banks. The
funds of these depositors are
intact. As the liquid capital of
the business firms,of the
farmers, and of the workers these
Protected deposits are continuing
to do the work of the state.
'•••
(50.9'
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(
P.2,440)
Seeing it through has called for the payment of millions of dollars to the Guarantee Fund by the
state bankers of Nebraska. Under efficient supervision.
with the finest spirit of co-operation and with a sacrifice of
personal gain that has proved the mettle of every state
banker. the Nebraska plan has been carried oA until it is possible to tell this story that no other state can tell.
Each Sunday and Wednesday will appear
in THE OMAHA BEE this story of Nebraska's flY
strength.
It will hold a thrill for the people of
Nebraska,for the men and women in business, for the farm
ens and the workers in field and factory. Read the chapters told in graphic form as the story unfolds. Mail them
to friends in other states that they may learn of the strength
and courage that has made it possible.
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In the hands of
skilled bankers
inntkers
Nene.la Ia., lkial teenh,s the der...
on Nebraska wine !ankle Ti.. GY•r•Rlee FLINI Comment,. Is the off wt.! born and
under the... mrelehmehele to h.' menntesnon
he limited In tate hank.,
Tht
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e hanker Melnik,.itri•Sinsteinlet1 bs
the sotto-nor
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ittai,1 In On Inniters of thy slate Thin the
hocI. of tele romonsramm
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The Secrete, of Trads.ndI ofll.Wte tro Iho
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the enneens,
en4 sml at that•se the clotted of-
A-0 rownell
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f tale of Ow 4,10 goe ern rnent erynsorst. n h
the hanker twinned members of the coml.,
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lenn of the Ina.
Front headquarter' at the Rtate hoti.e
in I ant oln hs- ...a.,1„..',he I h.tsreseetent ol
Trines en.1 ontme-rm ,.,,tt.....-h.ithetn
look en Ile...ate *I.....nen. effort .4th.
oennetnnem
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tler
Nam 1...n1...e...enrol+ the 11.rfeN le•eeti•le
returns from the dinsna I of
to the entl
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Federal Reserve Bank of St. Louis
P.2,40
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The Opinion of the Highest Court
HE constitutionality of the
Guarantee
Bank
law of the State of Nebraska was submitted to the highest court in the
nation.
In sustaining
the law the court said:
th: state of Nebraska
the banks within
the state banking system "co-operat
e for
the protection of
deposits" as outlined In the excerpts
here
Printed from the opinion
of the Supreme court of the United
States.
'1 (1/../4_,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
of the co-operation among the state banks is to "make a
failure unlikely and a general panic almost impossible."
The prevention of individual failures has
ee area...(a
.erevolge) /41.4. I. as 14.41,4
W41_ MeememIlm
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rier••••4fhb man eorle14
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any. The mom lemeMM
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Coml.
Under the laws of
The purpose of the laws of Nebraska and
not yet been accomplished by the state banking system, but
not a depositor in a State hank in Nebraska has lost a dollar
since the law was enacted. Further experience and further
operation of the Nebraska banking laws are moving in the
direction of cutting individual failures to a minimum by
bringing to the state banking system the counsel and experience of the state's best bankers. The program of bank cooperation has, however, made a general financial panic
"almost impossible." The protected deposits in the failed
banks have been kept intact and thus large portions of the
liquid capital of the people of the state, have been continued
at work in the business life of the state. It has increased
safety and built confidence,the foundatfon stone of prosperity.
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MOM" 114 — MOTO,. 1.110“
Do YOU believe in
nsurance?
IKE a giant insurance company the state
4
banks of Nebraska are aiwociated under the laws id NI
,
lwask• for the protection of the deposits of the State Banks Men
provide for the insurance that goes to their dependents after
death by paying for it The insurance of the deposits placed in the
state banks in Nebraska is paid for by the bankers. It i held by
seine that if private funds build up an estate through life insurance
it would be equally Just that private funds stioukl contribute to
wards the insurance of the estat- built up through hank ilemisits
Hut it mitt Whether there Meyer any modification of tho plan is
in the hands of the future and depends upon how the isionle Ink
at d as a matter of justice. As things now stand a IS all tel hy
the state hanks To many of the state banks it hips meant the tar.
rifler of profits over it period of years
The purpose of this chapter in the story that
only Nebraska can tell vast to &rum this point, however,. it into
r3II attention to the fact that the system that has sth this so
mlile is like a giant insurance company.
*low do/
The combined deposits in the banks of the
banking system on Nebraska ta $246.000,000. the funds of more than
011),0110 depositors The inen and women who are these depositors
and whose money k in these hanks know that its safe because under the workings id the giant insurance plan, these denciwts urn
iwotected.
This insurance plan not only protects the de-
['mils in the bank, it protects the sleep of WPM depositors and
their peace of miml It [detects the business that is dependent upli+ It protrel+ the farmer whose funds on deposit
,
on these depo
are to he used for the clearing of the mortgage is the stocking of
the feed lot It ...
the worker whose funds in the bank are
twiner saved against the day when he and his wife and little once
can more into the new home on the hillside
A giant insurance plan, filled with the spirit
of confidence and tru.ii Imemde the money in the hank is safe
Occident
actinic do/
'Tornado Sufferer' do,/
rn ihfinfli dof
isedcir_
(
Litt e-,-“A,1-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
A,4/4)
•••••••
gat 8.1a0S• V /SW M.., 11.1.411.47 S. SM. k
Pushing your money
throuqif the indow
611
ONFIDENCE in the banks of
which their business was conducted To them, the lose
of these deposits would have meant real hardship and in
many cases disaster.
well placed. The great
banking structure of the
nation is sound. Bank failures,
whether they Nsult from
poor
banking practices, from
runs on banks, which if
continued, no bank can withstand, or from
dishonesty on the part of bank
-are relatively few
officials,
in number. As an
expression of confidence in State banks in
deposits of nearly S2 Nebraska these banks have total
8O000.000.
The deposits in the state
banks in Nebraska that
have failed during the last fifteen
Years---during which time
the nation has gone
one of the
greatest financial crises in its through
history -amounted only to about 2
$ 6,000,000, less than 10 per cent
of the total.
In the State Bank System of Nebraska
happily, the depositors who pushed their
the United States is the
greatestexpression of confidence of which
there is
any record. It is a confidence
money through the windows of the failed banks, as well
as those who pushed their money through the windows
of the sound banks, have not lost a dollar.
The sound character of the state banking system in Nebraska has been built
up under the Nebraska Bank Guarantee law. It is the
one law of its kind that has stood the test of the financial crisis that came with the deflation period. The Nebraska state banking system stands alone with its record
of not a dollar lost to depositors. When you push your
money through the window remember that the
of
the Nebraska state banks—
Those who pushed
their money through
the teller's window
of these failed bank
May have had in their
deposits
the total of their life sayjilt It may have b n
tel4=ie bulk
.
f.„.....4
%!apital with
...
'z
(1(4.et
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4.1
Is a Story That No Other State Can Tell
•Ss
,
essiss
have we got
our money John?,
•,&,1
Mother--"I notice in the paper John that some
banks down south have failed. Think of all the money those people
down there will lose. I'm just wondering where we've got our
money."
Father--"It's all right Mary, the money is in the
State bank in town. I tell you that Guarantee law in Nebraska is a
mighty fine thing. We can go on about our affairs and know that
even if our bank goes under we will get all our money because the
other state banks will make it good."
When the news was printed recently of the failure of a group of banks in two southern states it is probable
there were conversations similar to that reproduced here all over
Nebraska. The sense of security that is the possession of the depositors in state banks in Nebraska is one of the greatest benefits of the
Nebraska Bank Guarantee law. In the old days, before the Guarantee
law, a feeling of terror ran through a community whenever there was
a rumor that a bank was in danger.
Now there are only a few casual inquiries. The
depositors go about their business without uneasiness and without
worry. They know that the deposits in the state banks in Nebraska are
protected deposits and that even if a bank is closed and finally liquidated they will have their money returned to them in full under the
operation of the Nebraska Bank Guarantee law, to which all state
banks in the Nebraska state system subscribe
This is a Story No Other State Can Tell
CANA.« II.'A Slav, No 0•1., Dia. Cam TAO
(1/
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Nor--
TA Omaha So., AAA... 4, IOU
C4.7.41.. 101d, To Orka See
,p Asv
Ink St SUnt
Unklin. ALA,. in. Inn
95,000 Years ofLabor
r
41.
2;
ONEY is a medium of exchange we are told.
But it is
much more than that If we will remember the means
nonny—n
ipfnn__..Inry, wags_-Me will realise that
which we get I
money isthrough
that thing whieh represents
our service, oar labor. We do not get any menet
mi.. we render
tor everyone, but service of some tare unless we do some sort of labor. We cannot work
the money we get for our labor at the place where we work, either es
Proprietor or it employee,
enable., to trade that money to others for what their labos
him created.
Some of the money we
get we save. In saving our money we save a part of
our labor. Thus
our
money In the bank is saved up labor that we can take out when we
need it to trade
to Wien forth. fruim of their labor.
In the state banks
of Nebraska there is on deposit the stored up labor of
men and women.
rate of $10•day, represented in $288,000,000. If one man could earn this sum at the
it would take him 28,800.0 day•
if we could
00
That is impossible of course. But
command the labor of 95,000
▪ day it would
men and women and put them to work at 110
take the,, all of the 500 working
days of a year.
They could use
none
Pot tall in the
bank.
of their earnings during that time but would have to
Thus the money on
deposit
in the state banks in Nebraska represents a
huge total in
stored up labor.
It hm been stored away Mahe static banks for me some
day when the deposito
re need it
Now we begin to
realize why it is so
important that these stored up milI..
.of dollar.,
banks In Nebraskthese stored up centuries of labor,of men and women. which the state
a have in their custody, shall
be at all tims safe and certain.
When
state banks
Under the oswestio fail in Nebraska the money of the depositors is not lost
n of the Nebraska
to absorb the
Guarantee law all of the banks join
lomat This GuaranteeBank
law has been in operation in Nebraska for
Years and
in itaelf is during that time the deposita in failed banks have totaled $25,000,000. This
nearly %NO yeals at $10
a day of the saved up labor of the men and women
of Nebraska
Small wonder that in the
fifteen years the Guarantee law has been in operation among the date
banks in
a
Nebraska the deposits
little more than $70,000
000 to nearly 112811.000,01:nt in theme banks have grown horn
thing to five in Nebraska and
in the state
to know that the money placed
hanks in this state is
safe. As• Nebrasstan to, tea• splendid
know that this
thing to
It is a splendid
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AeZTORY p10 OTIIER
SLATE CAN TELL
-
11UND•
MICK
1,OUVI
1•10.
Giving up Profits to Support a Principle
HE funds from which have been drawn
the money needed to make good the deposits in the
failed state banks in Nebraska have come from the
profits of the banks in the Nebraska state banking system. To
many of these banks the payment of the assessments needed to
makegood these protected deposits has taken all of their profits
over a period of years. In some of the state banks not only did it
take all the profits. but th,
,stockholders were called upon to
make up the needed funds out of their personal resources.
During this period the strength of the Ne-
braska state bankers was tested to the utmost It is no easy
thing to see profits used to pay the losses of others. One of the
leading state bankers has declared that it was a picture of Abraham Lincoln in his office that gave him the courage to stick it
out
"Lincoln had a dozen opportunities to quit,"
he said."hut because he stuck to it America is today the greatest nation in the world." Because the state bankers in Nebraska
stuck to it, this state is today famous among the great sisterhood of states as the only state in which not a dollar of deposits
haa been lost through the failure of state banks.
When the people of Nebraska realize the full
meaning of this they will have an even greater pride in their
state bankers.
There are those unfamiliar with the workings of the Bank Guarantee law who have believed that the payment of the deposits in the failed state banks was made out
of state funds. Some, even, have believed that money for this
purpose has been raised through taxation. Others have believed that the state bankers increased their interest rates or in
some other way "passed on" this obligation to their borrowers.
No, the money to make good these protected
deposits has come out of the profits of the individual banks. Interest rates in the state banking system in Nebraska are the
same as the interest rates in all banks in Nebraska. The state
banks in Nebraska give to their depositor,all the courtesies, all
the benefits that are given by all banks. The customers of the
state banks in Nebraska have had none of this treat load sassed
on to them. The people of Nebraska have said none of these
losses through taxes or in any other way. The money has come
out of profits and only out of profits.
A STORY NO OTHER STATE CAN TELL
-(0, ••
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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•
Safe Through the Slump of Deflation Days
The test of men and of instit
utions
comes with adversity.
If all days were fair
days the record of life
might be a record of
constant climb without
ever a setback. But
all days are not fair
days. Dark days come
when strength and courag
e are put to the test.
The state banks
in Nebraska have gone
through this test. They
have come out of it
stronger and better.
It took 14 years,
witho
ut the gifarantee
law to climb
from $10,000,000 to $71,000,000. Under the law,
only
9
years were needed
to climb from
$72,000,000 to $270,000,000.
The slump of deflati
on lasted 5 years,through
the last three
years of which period there was
a steady climb
upward from the low point of
1921. Then came a new high record in 1925
and a still further climb in 1926.
During this period, in which the largest
number of state banks were forced to suspend, 1921-26, the state banking system, operating under the guarantee law, made good
to the depositors of these failed state banks
some $26,000,000.
With a fine courage and a strength of
character developed by adversity, the Nebraska state banks have climbed back to the
level of pre-deflation days and passed on beyond that level. They have won a reputation
for financial soundness that has earned the
praise of the nation.
A STORY NO OTHER STATE CAN TELL
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'A Moro No
OoLoy State Cam Ton." To Omaha
Nos. UN.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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What others think ofus
The eyes of the nation are on the state
banks in Nebraska. The Nebraska state
banks won this attention through their
record of financiaL soundness_standing up
loyally in support of the Nebraska Bank'
Guarantee Law.
In every section of the country the
record of the Nebraska state banks is
known but in many places only in a general
way. Because it was a record to be proud
of, a group of state bankers in Nebraska determined to tell the story in full--a story
that no other state can tell.
but in Nebraska alone has the plan worked
out It has not been wholly because the law
of Nebraska is a better law, chiefly it has
been because the state bankers in Nebraska
have been better bankers.
The state bankers in Nebraska realized that the law placed an obligation upon
has been an increasing demand for copies of
the various chapters. All around our borders and in distant states the interest in this
story has been keen and active.
them and that when the word went out that
state bankers in Nebraska were associated
under the law to protect depositors there
was but one thing to do—protect them. They
have protected them. The weathering of the
financial stress of deflation has brought a
new fame to the state bankers in Nebraska.
Sound banking, loyalty in meeting obligations and the courage to make the Guarantee law means what it says, has come to be
known as the Nebraska Idea.
As a result of its telling, figuratively,
This is what others think of us. The
there has been written across the state in
letters that all may read, the words: "State
Banks in Nebraska Protect Their Deposits"
Other states have sought to provide by law
for the protection of deposits in state banks,
state bankers in Nebraska are proud that it
is so. They are proud of their record. It is
a record of which all the people in Nebraska
may be proud. It has brought added fame
to a great state.
As the story has unfolded there
(
"A Story No Other State Can Tell"
7
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Federal Reserve Bank of St. Louis
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TM SUNDAY SE, (MAN.
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MI.
STRONG BANKS MAKE STRONG STATES
Vail HE banks of Nebraska are the
individual bank. They are associated together under the Bank Guarantee law. The
strength of the individual banks therefore
is the strength of all the banks.
custodians of the working capital of
the people
of
tal is the lifeNebraska. This working capiblood of the business of the
state. Business
cannot be carried on without capital.
Banks as the custodians of capital are
inseparably
business in the state.connected with every
Whether the business
enterprises
in cities, in be large or small, whether they be
towns
or
on
the farms the banks
of the state
are a part of those businesses.
The importance
During the deflation period a few individual state banks were not abte to meet the
situation and they were closed. United to- 4
gether under the law, the banks in the Nebraska state system met the losses of deflation days however, and conquered them. "'
Those depositors who had their working capital in the individual banks that failed, were 1'
paid dollar for dollar by the state banks, acting together, under the Guarantee Law.
of the
state banks in
Nebraska is fully
appreciated when we
realize the part
they
thus play in the life of
the state. The
state banks is strength and solidity of the
reflected
in the strength and
solidity of the
strong states. state. Strong banks make
The state banks
4
The strength of these banks has kept
the working capital of the state intact. Their -strength has made the state strong.
4
in
Nebraska are strong
banks. They
their conduct have proven their strength by
during the
In
Nebraska the strength ofdeflation period.
does not
the state banks
depend upon the strength
of any
Farmers in other states, business men pi
in other states, men and women everywhere t
who know the value of strong banks can V
find that strength in Nebraska.
"A Story No Other State Can Tell"
• • D -A .
ns.
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,
z
tk
0;1.1. NNE
7be MEN who told
the story that no other state can tell
HE men who told the story that no other state can tell are the men who control and operate the state
banks in Nebraska. A group of these Nebraska state bankers felt that this story should be told to the
people of the state and to the people of other states. They felt that such a record should be known to
all, that there might come to Nebraska the benefits to which a strong financial foundation rightfully entitled
her. They raised the funds, they laid out the plans and directed the writing of the chapters in this Nebraska
story that has gripped the attention of the nation. The names of the banks which they control and operate
are therefore here presented in bringing to a close the story that no other state can tell.
6II
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7'
A
ABIE STATE BANK VS. WEAVER, ET AL.
(f)
INN*
trIla
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mob
-
43
The questionnaire circulated by the banks:
This questionnaire printed and circulated by many of
the banks constituted one of the most effective induceluents to deposits. It was written by Mr. Stephens, chief
witness in this case, and it so effectively meets the position
of the banks in this case that we reproduce it on the
following page in full. For the State Bank of Omaha
the Chappell Printing Company printed one order of
these questionnaires and the Hammond Printing ComPanY printed four different orders, to-wit: December 4,
1925, 2,000; January 25, 1926, 2,000; July 7, 1926, 2,000;
January 5, 1927, 2,000; (Rec., p. 336, Qs. 1952-6) and
Printed for the Fremont State Bank 10,000 (Rec., p. 336,
Q. 1957). The Chappel Printing Company printed copies
of the questionnaire for the Fremont State Bank and for
other state banks and identified Exhibits I, J and K as
some of those that were printed (Rec., p. 329, Qs. 1881-91).
These questionnaires contained on one page thereof a
financial statement of the particular bank circulating it.
The one here reproduced is the one circulated by the
State Rank of Omaha.
It follows:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OW.
Nebraska
Guarantee
Fund
PROTECTING DEPOSITS
IN STATE BANKS
QUESTION: What is the object of this questionnaire on the subject of the Guaranty of Bank
Deposits?
ANSWER: Its object is education. Sa many
do not understand what it means, whom it protects, and who pays for the protection, that it seems
timely and proper to set out the facts.
QUESTION: Do the State Banks pay for the
cost of the protection given depositors under the
Guaranty Law?
ANSWER: The State Banks pay the entire cost
of the protection given to Depositors and because
they do pay this heavy tax for the benefit of all,
they feel they are entitled to have the people whom
they protect know that they are protected and
that the State Banks pay the entire cost of it.
QUESTION: Then what is the Nebraska Guarantee Fund Law?
ANSWER: Is is a law creating in effect a gigantic insurance comPanY composed of all of the State
Banks of Nebraska for the purpose of insuring
bank deposits.
QUESTION: Has the law been in effect long
enough to prove its Practical value to the state?
ANSWER: Yes, it has been in effect 16 years
and during that time not a single depositor has
lost a single dollar in a single State Bank in Ne•
braska.
COMPLIMENTS OF THE
STATE BANK OF OMAHA
Omaha,
Nebraska
The Largest State Bank in Nebraska
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
QUESTION: Has there been a money panic or
depression during that period?
ANSWER: Yes, from 1920 to 1923 was probably
the greatest financial depression ever known in
the history of this emintry.
OUESTION: Did this put a heavy strain on the
lic—G
Guarantee Fund?
ANSWER: Yes, but the Guarantee Fund proved
capable of sustaining every strain that was put
upon it and successfully met every emergency that
arose during, before and since that distressing
period?
QUESTION: Did the Guarantee Fund pay any
losses to depositors during that period?
ANSWER: It certainly did. More than Eleven
Million Dollars were paid to depositors in banks
that were liquidated, who would have otherwise
lost
Fu ndtheir
eir money had there been no Guarantee
QUESTION: What is the condition of the Guarsntee Fund at the present time?
ANSWER: The Guarantee Fund at the present
time has more than Ten Million Dollars of resources, which are gradually being made available for the payment of losses and in addition to
this large reserve it has the power to raise more
than One and One-half Millions in assessments
each year against the State Banks of Nebraska.
These funds are ample to meet all possible losses
that ma)occur.
QUESTION: How are the assessments made
for maintaining the State Guarantee Fund?
ANSWER: The law authorizes the Secretary
of the Department of Trade and Commerce to
make an annual levy on the average deposits of
the State Banks of not more than one-half or one
per cent, plus, one-tenth of one per cent, which
makes an aggregate assessment of six-tenths of
one per cent on the average deposits of all the
State Bank. of Nebraska. The average deposits
of State Banks at the last report amounted to
nearly 290 million dollars.
w/A )
.
f
.54a—,-,t,-45">64.—
e
QUESTION: Is this method, then, similar to
the processes of levying taxes on property for the
payment of the running expenses of the Government?
ANSWER: It is.
QUESTION: Is it a fact, as often claimed, that
the Guarantee Law protecting depositors in State
Banks from loss, actually saved the State from
financial disaster during the recent deflation
period.
ANSWER: It is beyond question a fact, because Nebraska has recovered from the depression
of that period with greater rapidity than has any
other neighboring state, which has not had the
benefit of a practical Guarantee of Deposits Law.
QUESTION: Do the depositors in State Banks
have absolute confidence in the protection of their
deposits?
ANSWER: They certainly do. There has never
been a case of a run on a State Bank caused by
uneasiness, misrepresentation or fear of the safety
of their funds since the law was enacted in 1909.
Depositors in State Banks do not withdraw their
deposits from fear of loss, no matter what may be'
the condition of the Bank, for the reason that they
know beyond question of doubt their deposits will
be paid in full either by the Bank itself or by the
State trom the Guarantee Fund, in the event the
bank is unable to do so.
QUESTION: Is it a fact, then, that when a depositor places his money in a State Bank, t1itit-{111
of the State Banks in Nebraska guarantee its return to him reccardless of what may happen?
ANSWER: In effect that is exactly the situation. Nearly a thousand State Banks will be
taxed by the State annually to the extent of sixtenths of one per cent on their average deposits
until every dollar deposited in any failed bank is
paid in full.
QUESTION: Can there be any greater security
than this given to a depositor?
ANSWER: No better security is known to have
yet been devised to protect a depositor from loss.
It has survived 16 years including three years of
the most depressed financial conditions ever
known in the history of the country. It is safe to
assume, therefore, that it will survive through the
piping times of peace and prosperity that lie
ahead of us.
in
QUESTION: How many State Banks are there
Nebraska?
ANSWER: Approximately 913.
QUESTION: How many National Banks are
there?
ANSWER: Approximately 170.
QUESTION: Does the Guarantee Fund protect
the depositors against loss in National Banks?
ANSWER: It does not. The state does not
have control over National Banks. The law only
applies to State Banks and deposits only are in•
sured against loss in State Banks.
QUESTION: Are the National Bank depositors
protected by a National Bank Guarantee Law?
ANSWER: They are not so protected. There
is no such thing as a National Guarantee Law affecting National Banks.
QUESTION: Why has there not been enacted
a National Guarantee Law protecting National
Bank depositors?
ANSWER: Because National Bankers, as a
rule, are opposed to the passage of such a law and
Congress has not seen fit to overcome their opposition.
-(-4n-to1 Sit.44.-4,• ,e7
QUESTION: Why do they oppose it?
ANSWER: Because they do not wish to pay
for the expense of maintaining it. It costs a great
deal of money to insure the depositors against loss
in banks. The State Banks in Nebraska have paid
up to date over Eleven Million Dollars.
QUESTION: Does the Federal Reserve Act in
any way protect depositors from loss in National
Banks in case ef failure?
ANSWER: It does not in the least The Federal Reserve is a great credit reservoir for National
Banks as going concerns and is of great service to
the country. It mobilizes the reserves of National
Banks and makes them available for credit so
that National Banks can borrow money freely
from it, thus enabling them to meet the demandi.
of their customers in an emergency, but it does
not pay depositors in case of Inas or failure.
QUESTION: Do not National Bankers sometimes claim that it does?
ANSWER: Some may do so, but they do it
through ignorance or in an attempt to mislead their
customers. High class National Bankers make no
such false claims, nor do they wish to profit
through a misrepresentation of that kind.
QUESTION: Has the Federal Reserve Act
strengthened sound banking among National
Banks by exacting better practices?
ANSWER: It certainly has. It has made examinations of banks more rigid than formerly and
has created higher ideals of banking than formerly existed.
QUESTION: Has the Guarantee Fund Law
strengthened sound banking in the State Banks
by exacting better practices?
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ANSWER: It certai .y has. As a result of
banks being compelled to guarantee each other's
losses in case of failure, they have demanded
stricter and more rigid examinationl and have insisted upon licenses to Bankers being issued only
to men of high character and known integrity.
QUESTION: Then if the banking situation has
been greatly strengthened by The Guarantee Fund
Law and the Federal Reserve Act, is there any use
of a Guarantee of Deposits Law any longer?
ANSWER There is as much use for a Guarantee of Deposits Law as there is for fire insurance.
One can get along without either but he sleeps better for having them and in case of loss he is better able to go head with his business as a result of
being able to have his money returned to him in
full.
QUESTION: What effect has the Guarantee
Law had on the prosperity of the state?
ANSWER: Without the Guarantee of Deposits
Law, which has made possible the payment to
the depositors of banks that have liquidated in
Nebraska during the last sixteen years, their deposits in fu/l, thousands of people would have
been more or less impoverished through their
losses, but this has been entirely avoided and absolute confidence maintained enabling the people
to go on with their business without any financial disturbances whatever. When a merchant's
store is destroyed by fire the insurance he carries
enables him to immediately replace his stock
and continue his business. When a bank
fails anywhere in the State system all of the depositors are paid in full out of the Guarantee Fund
with the result that the depositors continue their
business without any interruption. The confidence
of the people in their banks is maintained and
their money is constantly flowing through the
banks for the purpose of carrying on the commerce of the state without any interruption. Industry is stimulated with the funds that are conconstantly available in the banks and the prosperity of the state has gone forward without let-up or
hindrance in spite of the greatest price depression
in all history. No surrounding state has prospered
to the extent that Nebraska has. That has been
the effect of the maintenance of public confidence
in our financial institutions through the payment of
depositors in full for every dollar they had on deposit in State Banks that were closed.
QUESTION: What is the financial situation now
in Nebraska?
ANSWER: It was never sounder or better than
at the present moment. Deposits in banks are increasing at a very rapid rate, indicating that the
people are accumulating a surplus and gradually
paying their debts. The banks never have been
in such a sound position as they are now and there
has never been a time when there was more available credit for business and industry than at the
present
QUESTION: What would have been the effect
on the state if there had been no Guarantee of Deposits Law?
ANSWER: The effect would have been similar to that existing in one or two neighboring
states, that cannot with propriety be mentioned,
whose financial status is now in a state of chaos
as a result of the lack of confidence due wholly
to the fact that there is no insurance backing their
financial institutions.
QUESTION: Does the law in Nebraska recognize State Banks as depositories for public funds?
ANSWER: It does. Every State Bank may be
used as a depository for public funds for unlimited
amounts without bonds of any kind.
a
QUESTION: Does the State law authorize National Banks as depositories without bonds?
ANSWER: It does not. A National Bank must
give bonds for public funds held on deposit because its deposits are not insured, as they are in
State Banks under the Guarantee Law.
QUESTION: Do National Bankers object to
the Nebraska Guarantee Law?
ANSWER: Some of them do. Others recognize the great value of the law as a stabilizer of
the financial situation in the state and heartily approve it Those who do not have the broader view
try to discredit the Guarantee Law so as to avoid
its competition, notwithstanding the fact it has
made Nebraska prosperous beyond that of any of
its sister states not so protected. The solvent banks
of the state have paid to depositors of failed banks
more than Eleven Millions of Dollars in losses,
which is a great sacrifice for them to make in elle
interests of the maintenance of the high honor and
trust that banks deserve as depositories of the
people.
A STRONG BANK STATEMENT
ALBERT L. SCHANTZ, President
JOHN S. ItcOURK, Vice-President and Cashier
A. A. NELSON. Assistant Cashier
W. L. IDELL, Assistant Cashier
The State Bank of Omaha
Report of Olndition at Close of BUSiness Sept 28, 1925
RZSOURCES
boans and Discounts
Bonds .
Real Estate . .
Furniture and Fixtures
Overdrafts
Cash
$6,770,734,86 1
Capital Stock
Surplus
Undivided Profits
Depositors Guarantee Fund ...
Bills Payable
Deposits
in
St
ad
lea
tiE
del
Th
LIABILITIES
QUESTiON: Is this statement concerning National Banks a criticism?
ANSWER: It is not a criticism. Our National
Banking System ranks with any system of banking
known in the world. The only object of this educational program is to acquaint the people with the
two kinds of commercial banks we have in this
state, namely the State and National, and to make
clear the fact that the Nebraska Guaranty Law
protects only the Depositors in Nebraska State
Banks and not in National Banks.
$4,502,t;78.11
1,125,528.4
104.286.5i
30,000.00
I 27.4b
1,008,113.32
at
an
at
th
* 30(),000.00
130,000.00
39,048.70
24,3000
Non
6,277,8190'
Cal
of
06,770,73410
t1i;e1
All Deposits in This Beak Are Protected by the Deposita°
Guarantee Pad of the State of Nebrreke
WE INVITE YOUR BUSINESS
THE LARGEST STATE BANK IN NEBRASKA
Safe Deposit Boxes *5.00 Per Year and Up
DIRECTORS
Albert L. Schantz
Oscar KeelInv
John 8. McGull
I) C. Eldredge
Frank H. °ones
10
1
the
ant
Oni
ABIE STATE BANK VS. WEAVER, ET AL.
(g) Other newspaper advertising in a typical
county
and the plight of
its claimant depositors.
The undisputed
situation in Dodge county, Nebraska,
and surrounding
territory affords a striking and unanswerable illustration of the main points that we are
attempting to make by this brief. It is fairly typical of
the conditions
throughout Nebraska.
,44
)0
rle
86
4.1
Dodge county had fourteen
state banks, the outstanding one of
course being the large and prosperous Fremont
State Bank. In 1926,
they all joined in THE OMAHA BEE
advertising campaign. For many years past,
under the
leadership of the Fremont State
Bank, they have advertised the
Guarantee Fund and induced and procureo
deposits by the use of the
means in this brief set forth.
This advertising
continued up until in the year 1928.
They participated in the
advertising campaign in 1926
earried on in THE
OMAHA BEE; they published in facsimile in THE
FREMONT DAILY TRIBUNE in the latter part
of 1926 ten of
the page advertisements published in the
OMAHA BEE. At
the bottom of each advertisement were
the names of
all the Dodge comity state banks.
They induced and
persuaded deposits on their joint
representations carried on over a long term of years.
Of the
fourteen banks, four have now failed. After
the
exhaustion of all the assets claims against the Guarantee Fund will
approximate $278,000 (Ex. 35, p. 589,
Orig. Rec., omitted
in printing).
The
arguments used in the advertising campaign carried on are
persuasive; we feel that while it burdens
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Federal Reserve Bank of St. Louis
46
ABIE STATE BANK VS. WEAVER, ET AL.
this brief, it is of overwhelming importance that this con'
read it as indicating the means used to persuade and induce depositors, not only in Dodge county, but in other
counties of the state. We have selected typical advertisements through the years to reproduce in this brief, commencing in 1923 and ending in 1928. They were published
in THE FREMONT DAILY TRIBUNE which has a circulation
of approximately 7,000 extending over Fremont, Dodge
county, and the surrounding counties (Manager Hammond, Rec., p. 338). Mr. Hammond stated that he kneA
there was an average of four adult readers for each copy
of the circulation (Rec., p. 350, Q. 2040).
The Fremont State Bank published February 2, 1923,
an advertisement occupying three columns wide, full
length of the page, headed "The Community Service" at
the top, and "Fremont State Bank" at the bottom, and
among other things stated (Rec., p. 340):
"If you put your money in our savings department
you will not only receive compound interest but also
have absolute insurance. One thousand state banks
are assessed by law for the purpose of protecting
your deposits. You cannot lose a dollar in this bank
by fire, flood, theft or failure.
"Let us make this community prosper by placing
our surplus funds in our own banks for the use of
our own people. We do not expect to get all of th
people's money into the Fremont State Bank, although we have paid $11,500 the last year for th
purpose of insuring our depositors against possibl
loss. This is the measure of safety offered our de
positors for the sake of inducing them to patroniz
home industry where safety and profits are greate
by leaving their money here for the use of the pe
pie who are making the community a fit place :
which to live."
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
47
Later in the same year was an advertisement headed
"Safety and Service" wherein the bank extolled its size
and strength, and among other things stated (Rec., p.
342)
"Notwithstanding this unparalleled solvency and
ability to meet all demands, we have the added safety
of having our depositors protected by the Guarantee
Fund of the state of Nebraska. Approximately a
thousand state banks are taxed not more than one
and one-tenth per cent a year if need be on their
deposits of 220 millions, for the purpose of paying
depositors in full in the event of failure.
"This Guarantee Fund now consists of more than
two millions in cash and eight millions in assets,
making a total of resources belonging to the Guarantee Fund of ten million dollars, available only for
the security of depositors.
"This vast sum is sufficient to pay all the depositors of fifty ordinary banks without collecting an
additional dollar under the power of the state to levy
a one and one-tenth per cent tax on deposits against
the banks each year. It is the largest insurance fund
available to pay depositors anywhere and available for
state banks only. National banks are not protected by
thts fund." (Italics are ours.)
In the same year (Rec., p. 344) there was the following
advertisement two
columns wide, headed "Safety First",
"
a
signed at the bottom "Fremont State Bank":
"Today the bankers in Nebraska are meeting in the
various districts to choose a body of men from which
the governor will
select the personnel of the Nebraska
Guarantee Fund Commission. This action will conclude the preliminary steps in perfecting the Guarantee of Deposits Law which has rendered the people of
Nebraska a tremendous service during the recent
inattey stringency when business failures were re-
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Federal Reserve Bank of St. Louis
48
ABIE STATE BANK VS. WEAVER, ET AL.
ported daily by the hundreds and banks failed her
and there, our depositors were undisturbed becau•
their money in our state banks was insured and coul
not be lost. The test of a great disaster proved it.
"In brief, a practical, workable, mutual insuran
company has been perfected that absolutely protect
the money of the people when placed in the stat
banks of Nebraska. It builds confidence, relieves th
depositor and his family from worry over the safet
of the nest egg they are adding to, bit by bit, fo
the building of a home of their own, and it will en
courage the wary to bring their money out of hidin
and put it to work. It develops faith in industry an
inspires the farmer and business man to bigge
enterprises. It will maintain prosperity.
"Everybody appreciates the advantage of insuranc
in other fields as a safeguard of the people's wealt
but never before has the public in any state, throug
a safe, sane and practical law tested by years of ha
'knocks, been afforded the advantage of safe insuran
where their money is concerned.
"We are proud to be a part of this beneficial pla
and are glad that we can offer the people of Franc
through our bank the protection the Nebraska Guar
antee Fund affords.
"Both our savings and checking accounts are in
cluded under this act, and their safety is given ts
you as a part of our service.
"Remember that every dollar you deposit in thi
bank has in effect a dollar's worth of insurance backei
by practically a thousand other banks. Nebraska ha:
a wonderful banking system. It has no equal in al
the states. It is better today than ever after a tw
year deflation period when financial disaster overtoo:
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Federal Reserve Bank of St. Louis
t.
a
ABIE STATE BANK VS. WEAVER, ET AL.
49
large numbers of people, but not a single dollar was
lost by a depositor in a state bank.
"FREMONT STATE BANK
"Deposits protected by the Depositors Guarantee
Fund of the State of Nebraska.
"DAN V. STAMENS, President."
(Names of other officers also attached.)
(Italics are ours.)
Other advertisements were identified in the immediately
succeeding pages of the record.
On December
31, 1923, an advertisement four columns
Wide and the
full length of the page appeared, headed
With the words:
"Rest in Security", and signed by The
Pretnent State Bank by Dan V. Stephens, president, in
Which the following
paragraph appeared (Rec., p. 347):
"The second protection is that offered by the Guarantee Fund of the State of Nebraska to the depositors
Of this bank.
The state of Nebraska collects assessments from all of the state banks of Nebraska, which
assessment is used to pay depositors, who lose their
ileposits through state bank failures. In the thirteen
Years that this law has been in effect, not a single
depositor ill a single bank in the state of Nebraska
has lost one penny of the money he had on deposit in
a bank that
failed.. Therefore; this insurance, carried
by this bank.
at a very great expense, protects absolutely every dollar that is carried on deposit in. this
hank from loss. No greater protection, for depositors
(*an be offered than this." (Italics are ours.)
On Saturday,
November 7, 1925, four-fifths of a page
()f TiE FREMONT TRIBUNE contained in large letters the
clli"tionnaire herein elsewhere set forth headed with a
heading
across the page "The Nebraska Guarantee Law
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Federal Reserve Bank of St. Louis
50
ABIE STATE BANK VS. WEAVER, ET AL
for Insuring Deposits in Banks" and signed by Fremon
State Bank, by Dan V. Stephens, president (Rec., p
348). This appears as Exhibit "0," in Orig. Rec. at pal
471, Vol. III, and is omitted in printing).
Advertisements of similar kind and character, as shol
elsewhere in the Record, continued for many years, at
until in 1928, the year of the institution of suit.
The fourteen banks of Dodge county, from Septembe
11, 1926, to November 3, 1926, ran the duplicates of TrBEE advertisements in THE FREMONT DAILY TRIBUN
with the names of the Dodge county banks attachu
(Exhibits N-1 to N-10 inclusive, p. 441, Vol. III, On 1.1
Rec.). These advertisements included:
N-1. "Building Business on a Certainty"
N-2. "Surely, That Check is Drawn on a Nebraska Sta
Bank"
N-3. "A Message of Strength"
N-4. "95,000 Years of Labor"
N-5. "No Mattress Banks in Nebraska"
N-6. "Giving Up Profits to Support a Principle"
N-7. "All Work Together in Nebraska"
N-8. "Strong Banks Make Strong States"
N-9. "In Nebraska the Guarantee Works Both Ways"
N-10. "It Has Been a Wonderful Story".
Mr. Stephens prepared the questionnaire, Exhibit
about November 7, 1925, and the Fremont State Bai
circulated 5,000 copies of it; he prepared the droll
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
int
p.
oil
a
[a
51
Exhibit F (p. 406,
vol. III, Orig. Rec., also Ex. 30, p.
268, vol. IX,
Orig. Rec.) in 1926, entitled "The Bank
Guarantee Law Challenged and a Red-Hot
Answer by a
Nebraska Banker" (Rec., p.
317). In 1923 Mr. Stephens
was a
member of the legislative committee of the State
bankers
Association which presented the Guarantee Fund
(onunission
Act to the legislature and secured the passage
of the bill
with but minor amendments (Rec., p. 318,
Qs.
1772-7).
At Pages
445 and 449, vol. III, Orig. Rec., is facsimile
of two of
the ten-page advertisements run by the Dodge
county banks
in THE FREMONT EVENING TRIBUNE, generally
Similar in size and appearance to the entire ten
run as a
part of THE BEE series. As Ex. P, p. 474, Vol.
I II) and Ex.
50, p. 727, Vol. IV, Orig. Rec., are two letters
by Dan
V. Stephens, published January, 1928, in full
Page8 Of THE
FREMONT EVENING TRIBUNE, Which state the
condition
of the depositors in the banks graphically;
they
were published in
the same year of the filing of this case
and at a
time when Mr. Stephens knew all the facts as
to the
Guarantee Fund and the respective obligations of
the
banks to the
depositors as well as he did when in
the sante
year he caused this suit to be filed. They are
quoted from
hereinafter.
(h)
Resolution of Meeting of State Bankers.
In August,
1926, at a meeting of bankers in Omaha
at
which representatives
were present from each county
the
following resolution was adopted and received publicity
A Rep., P. 416, Q.
2492):
"We re-affirm our strict adherence to the Guarantee Fund
Law, under which no depositor in any
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Federal Reserve Bank of St. Louis
52
ABM STATE BANK VS. WEAVER, ET AL.
Nebraska bank has suffered loss. We are opposl
to any change in the law which will in any wise tel
to obstruct, hinder or delay any depositor in N
braska."
(i) Pamphlet "The Bank Guarantee Law Challeng
and a Red Hot Answer by a Nebraska Banker."
One of the most effective pamphlets issued and cirx
lated was one entitled "The Bank Guarantee Law Chi
lenged. and Red Hot Answer by Nebraska Banker" (E
30 of Ex. 13, P. 268, Vol. II, and Ex. F, p. 406, Vol. I]
Orig. Rec., omitted from the printed record).
Among other banks the State Bank of Omaha circulat
the pamphlet. There were about 2,000 of these distributed
it over the customers' counters to customers with a print
endorsement on the back "With the Compliments of t
State Bank of Omaha, the Largest State Bank in /
braska" (Rec., p. 228, Qs. 1170-6).
This pamphlet was an answer to an article by o
R. B. Clark of North Carolina appearing in the Bank(
Association Journal. This article was printed and c
culated in April, 1925. It is so typical of the propagan
and representation of the state bankers as testified
and as shown by other exhibits herein that we quote soi
typical paragraphs from its eight pages.
Taking up Mr. Clark's statements, he was answer
in the pamphlet:
"FOURTH, his statement, 'that to compare gua ,k'
antee of deposit laws with legitimate insurance
without reason and absurd,' is not in harmony wi
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
ca
rid
;'e•
ed
no
to
111
53
the thousands of mutual insurance organizations, that
'have been conducted successfully throughout the
Country and that are now carrying uncounted millions
of risk on the property of the people and paying their
losses promptly. The state banks of Nebraska are
bound together into a mutual insurance company carrytheir own risks and paying their own losses.
There is nothing about this that is unreasonable or
absurd. It is Mr. Clark's position that is absurd."
(italics are ours.)
"FIFTH, his statement, 'that it jeopardizes the solvency of all banks and the safety of all depositors for
the theoretical safety of a few,' is not supported by the
facts because the Guarantee Law has not assessed the
banks of Nebraska at a higher rate even in the peak of
our losses during the period following the war than the
ordina,ry bonding companies charge for the protection
of special favored depositors in these banks. Mr. Clark's
idea seems to be that it is absurd to insure the deposits
Of an ordinary citizen but perfectly proper to insure
the deposits through a bonding company of favored dePositors, who will not trust banks without this insurance.
Prior to the war and during the long period of peace
and prosperity the assessments of the banks of Nebraska amounted to one-fifth of one per cent on their
deposits. Bonding companies charge ordinarily onehalf of one per cent for the same protection and banks
Other than state banks in Nebraska are constantly insuring their special depositors, such as insurance
companies, cities, counties and states while at the
same time making hypocritical speeches against guaranteeing the deposits of the ordinary citizen.
"SEVENTH, *
* In Nebraska, instead of
there being applications for state banks to nationalize,
there have been scores of applications from national
banks to take out state charters during the last two
Years and so far as we have any record, there has
been only one application for a national charter made
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Federal Reserve Bank of St. Louis
111
54
ABIE STATE BANK VS. WEAVER, ET AL.
since the deflation period began and we have
ever,'
reason to believe that other reasons than the Guarante
e
Law caused the change.
"EIGHTH, his statement, 'that guarantee schemes
always have been, are and always will be impotent.
futile and disastrous,' is disproven by the experience of
tens of thousands of mutual insurance companies and
by
Nebraska's own experience as a state with a guarantee of
bank deposits that has been successfully administered
and is entirely satisfactory to the state banks of Nebraska, as proven by the fact that they have not taken
out national charters and that there are no applicatio
ns
pending-, that I have ever he.a.rd of, or of one
of theta
desiring to do so, excepting as above indicated.
"TENTH, his statement, 'that well paid, intelligent.
competent supervision will afford all the guarante the
e
depositing public is entitled to, as compared with
all
other human affairs,' is not supported by any facts at
all, because all other human affairs are supported
by insurance of every kind and charac,ter and it is only
the
ezipositors in banks that are not, generally speaking,
insured. Good bankers everywhere, refuse
to carry the
risks of men who will not support their busin
ess solvene9
by insurance. It is the rankest inconsiste
ncy to apply
the principle of insurance to everything
that a banker
does for himself and in the same breath
refuse to protect the depositors who do business with
him. It is not
only inconsistent but it smacks of unfai
rness and dishonesty.
15. Growth of banks
and benefits received from 1911
to 1928 (to time of
suit).
The Department of Trad
e and Commerce (Banking Department) produced on
request of defendants and Intervener, Stebbins, in comp
iled form a printed and statistical
abstract of data as to all the
banks from 1911 to 1928, a
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Federal Reserve Bank of St. Louis
ABIE STATE BA N IC VS. WEAVER, ET AL.
Period of eighteen years. This showed the growth of the
(Inks through the period and is reproduced on the next
Page, being Exhibit 10, Rec., p. 422.
It.
of
by
of
ed
reen
as
,n1
This abstract shows that the deposits in state banks
increased three and one-half times, from approximately
seventy-four million dollars in 1911 to two hundred fiftytwo million dollars at the end of 1928. This amount at
lhe end of 1928 did not take into account thirteen million
dollars then on deposit in the Commission-operated banks
which would increase the total accordingly. While a
8light diminution of deposits is shown by this statement
eutnmencing with December 31, 1926, it is explained by
the separating of the deposits in the Commission-operated
hanks. With these added there has been, except for two
Years, a consistent increase for the eighteen years operation of
the Guarantee Fund Law.
The 669 banks in December, 1911 (effective beginning
of Guarantee Law), had surplus and undivided profits of
N,306,768. The 796 banks on December 31, 1928, had,
surplus and undivided profits of $8,975,755, having
doubled. This increase was after paying all assessments
th the Guarantee Fund and dividends to stockholders and
charging-off against the earnings the shrinkage in value
of assets
during the deflation period.
There was an increase in the number of banks and
then a decrease but neither the increase nor the decrease
°Perated to affect the steady growth of deposits through
the
period, with the exceptions stated. The reduction
111 number of banks was partly attributable to seventyconsolidations that have taken place (Rec., p. 405,
Q. 2422).
t (a) Tabular departmental compilation by years for
he period, Exhibit 10, as follows:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
STATE OF NEBRASKA
DEPARTMENT OF TRADE AND COMMERCE
BUREAU OF BANKING
LINCOLN
Report of Last Call Reports for the Years 1911 to 1928, Inclusive
bikte
it:z
s: 1
Dee ,
N01;6,01911
oet.461010
a "4
04 199134
31
1\101;,9,1915
11 ..kr
\,?v•2011916
917
i\‘1`0
ov•13N•151919
tt
1920
0
•311921
beee' 0 1922
,3,11923
1)--• 011924
bef,
et,
311925
bee,411926
I:I - 41927
1928
669
695
695
719
762
809
842
928
190312
7
1010
986
938
928
872
839
793
726
Capital Stock
$12,827,240.00
$13,833,500.00
$14,455,100.00
$15,798,100.00
$17,118,600.00
$18,461,300.00
$21,056,300.00
$22,210,800.00
$24,881,800.00
$26,349,700.00
$25,699,800.00
$24,754,700.00
$24,300,700.00
$24,108,71)0.00
$22,482,700.00
$21,866,500.00
$20,648,500.00
$19,001,000.00
Surplus
$2,582,299.39
$2,950,844.20
$3,295,242.03
$3,807,242.84
$4,170,85260
$4,713,018.46
$5,383,109.58
$6,266,807.29
$7,400,255.30
$8,174,341.33
$7,954,163.56
$7,449,463.40
$7,070,117.31
$7,062,881.44
$6,736,397.92
$6,586,830.84
$6,327,996.66
$6,075,741.87
Net
Undivided
Profits
$1,724,469.27
$1,818,039.69
$1,729,459.69
$1,857,808.81
$2,234,466.71
$2,628,597.09
$2,925,914.11
$2,924,063.97
$3,797,555.21
$3,742,631.54
$1,051,998.12
$1,040,086.91
$1,512,383.19
$1,643,161.24
$1,154,274.37
$1,911,250.03
$2,077,474.40
$2,900,014.22
Total Deposits
$73,886,047.05
$82,454,163.90
$91,738,896.74
$93,490,843.95
$114,470,498.08
$165,507,506.95
$223,469,644.05
$240,264,131.65
$276,429,320.93
$256,839,662.43
$204,886,633.74
$238,542,626.29
$242,965,383.55
$271,477,988.34
$272,367,328.23
$265,430,844.71
$261,311,586.83
$252,375,577.95
Other
Real Estate
Owned
Total looses charged
Total Dividends rotal Assessments off annually from
paid to
paid by
sources other than
Stockholders
assessments on
Stockholders
Stockholders
$211,001.37
Figures below were compiled from
$286,747.70
Special Report oi 618 Banks
$352,434.21
$428,572.39
$534,475.15
$580,817.25
$622,791.64
$606,585.88
$641,450.88
$818,514.10 $1,545,533.48
$6,044.01 $366,109.35
$1,541,575.78 $968,586.70 $175,961.24 $719,205.29
$3,514,291.12 $680,064.90 $258,378.24 $852,400.02
$6,217,645.03 $591,140.06 $225,435.75 $901,517.17
$9,101,185.36 $738,743.31 $220,056.51 $913,874.84
$10,794,120.19 $877,260.41 $404,738.29 $986,751.39
$11,588,295.72 $857,416.08 $164,843.27 $1,093,116.13
$11,494,098.79 $866,470.43 $196,458.12 $1,356,931.72
$9,872,647.21 $629,556.30 $454,766.72 $1,158,042.49
$7,754,771.67$2,106,682.15 $8,347,948.40
Totals
-prhe bara„ I;
'
"nd
"15ed below for 1925, 1926 and 1927 were operated
by the Guarantee
Innussion as
going concerns and are not included in figures above.
Dee „
tProfit Account
(31199
Overdrawn
h'.311
"'" 31
$855,000.00
•,
Et.li 1926
$149,605.85
$588,783.68
$9,158,019.28 $1,424,474.21
9,7
44 $1,182,700.00
$178,698.60 $1,402,849.12 $10,086,352.49 $2,087,597.89
tRep
r49-' 62 $1,615,700.
,
00
$1,673,699.17 $13,150,075.19 $2,366,971.50
'
nts losses and expenses paid$216,942.01
in excess of earnings.
(.
;4 / ,
("27
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Federal Reserve Bank of St. Louis
Statistics Relating to Depositors
Guarantee Fund
Total Refunds
Total levies
paid to
to
Guarantee Fund Guarantee Fund
$176,863.36
$406,858.07
$271,806.68
$140,647.34
$144,684.92•
$421,471.81
$219,904.49
$318,028.79
$802,476.74
$639,243.93
$2,317,807.70
$1,971,579.92
$2,046,320.39
$1,004,860.01
$1,616,329.85
$1,672,338.75
$1,653,206.76
$885,412.60
Total Drafts
against
Guarantee Fund
$54,526.17
$79,051.81
$23,715.55
$35,550.09
$370,927.42
$182,658.71
$193,286.78
$533,700.11
$427,282.82
$157,219.92
$257,716.76
$737,709.25
$2,697,222.35
$2,172,765.40
$2,061,961.62
$1,010,025.65
$3,586,093.35
$2,625,757.27
$2,270,436.26
$1,256,909.74
$16,709,842.11 $2,182,058.16 $18,552,458.87
ABIE STATE BANK VS. WEAVER, ET AL.
(b) Increased Deposits.—$100,000,000 of deposits
carrying annual earnings of $2,000,000 to $4,000,000
are
attributed solely to the Guarantee Fund.
While the Guarantee Fund is by its terms primarily
for the
protection of depositors in state banks specific
and large benefits to the banks were disclosed by the
evidence aside from the general benefits to the public.
It Was
authoritatively testified to and undisputed that
100,000,000 of
deposits, carrying an annual earning of
2,000,000
to $4,000,000 to the banks, were solely attributable to the Guarantee Fund.
Mr- George W. Woods, then a banker of Lincoln and
a Wholly disinterested and highly qualified witness, testified in detail and convincingly as to the large benefit to
the banks
by way of increased deposits and otherwise;
and later testified in detail and from his intimate knowledge as to the
causes of failures and heavy losses and
eharge.offs
to the banks. This latter testimony will be
quoted later, but at this point it is well that we refer
to the
qualifications of Mr. Woods before here and also later
quoting him.
Mr. Woods had lived in Lincoln thirty years; had been
an
"deer of both state and national banks; was secretary
of the Lincoln Clearing House Association and had been
for twelve
years (Rec., p. 281, Qs. 1459-61); at the time
of the
trial was the cashier of the Lincoln State National
Bank and Trust
Company; prior to that he had been
cashier of the Lincoln State Bank, which bank had on
deposit money of the various country banks, and was
their city
correspondent; he was familiar with banking
e_onditions generally in Nebraska (Rec., p. 241, Q. 1239).
-Vrom 1901 to 1917
he was a representative of R. G. Dun
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Federal Reserve Bank of St. Louis
58
ABlE STATE BANK VS. WEAVER., ET AL.
& Co. (Rec., pp. 238-9, Qs. 1225-7). Being city corr
spondent for the country banks meant that the count
banks carried a portion of their reserve with his ban
in the form of deposits and from time to time the bank
would borrow money from it.
Such connection ha
brought him in very close and confidential connectio
with these correspondent banks and he would call o
them and go through their note cases and familiariz
himself with their profits and losses, charge-offs, expense
etc. (Rec., p. 239, Qs. 1228-30).
He had been on the legislative committee of the N
braska Bankers' Association for ten years, and had serve
on the council of the Association which was equivalent t
the board of directors and which determined the gener
policies of the State Association (Rec., p. 239, Qs. 1231
to 1235). As a member of the legislative committee foi
the ten years preceding, he with the other members had
drawn the bills enacted into laws which provided for the
present Guarantee Fund Commission, the reduction o
the maximum assessments on state banks from 1.1 pe
cent per annum to .6 per cent per annum, the licensing o
state bankers and discretionary powers in the banking de
partment in granting charters (Rec., p. 240, Q. 1237).
As to his service on the Agricultural Loan Association'
he further testified that as a member of the Association
he dealt with failed banks in practically the same manner
as the Guarantee Fund dealt with them, issuing receiver's
certificates which were endorsed and guaranteed by the
Association and that in fact the only difference between
what the Association did and what has been done since
by the Guarantee Fund Commission was that under the
latter the proceedings were legalized by law, while the
former was more or less voluntary (Rec., p. 240, Q. 1238).
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
re
ad
011
or
?g.1'
.
re.
0
59
Testifying as to growth of deposits and earnings Mr.
Woods said (Rec., p.
247):
Q. 1265. "Now, Mr. Woods, you state that the
Bank Guarantee Law had an influence on deposits;
in your opinion what effect, if any, has the Guarantee
und Law and its operation had on the amount of
nioney deposited in state banks? From 1910 up to
July 1, 1928?"
A. "It is no exaggeration to say it has accounted
for at least one hundred million dollars deposited in
the state banks of Nebraska which would not otherwise have been made except for the Bank Guarantee
Law. I do not think there is any exaggeration in
that, statement at all."
Q. 1312. "Now, Mr. Woods, when you stated that
in your opinion the Guarantee Law had added a
hundred millions to deposits in state banks, did you
Inenn that otherwise those deposits would have been
In national banks or in building and loan companies?"
A. "Yes, and other investments; they would have
been either in national banks, or building and loans
or stocks."
Alul in answer to question (Q. 1318, p. 257, Rec.), he
said:
* * * * "I have made studies of the increase
of deposits in state banks, perfectly marvelous
growth, in places where there were splendid state
banks, Hastings for example, and I have studied the
general trend of the national banks in denationalizing,
in going over to the state banks where of course they
could benefit by that, and I have also made studies
of the individual deposits in state banks in Nebraska
Where from first hand knowledge I know that exces8Ively large deposits were made in lieu of other investments because more confidence was felt; they were
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Federal Reserve Bank of St. Louis
fl
ABIE STATE BANK
vs.
WEAVER, ET AL
considered just as good as government bonds and pal
more interest. This is taking all the comparisons
have made up to a year ago, I couldn't say the exa
date because this has been true generally under the
law."
He testified further (Rec., pp. 276-7):
Q. 1434. "Would you be able to make an estimate
as to the amount of profit that has accrued to th
banks from such additional deposits which you est',
mated at one hundred millions of dollars over th
period?"
A. "I have made no calculation; that runs into
very large figures; if my assumption is correct it
runs into very large figures, the total. I would have
to do quite a little figuring. I couldn't answer that
off hand, what that amounts to."
Q. 1438. "Under normal conditions before the i
flation period and under the operation of the Guat
antee Law and taking normal banks and then basing!
it on capital stock, plus surplus what would you sal1
would be the average that such banks made on their
deposits?"
A. "On their deposits?"
A. "I would say from 2 per cent to 4 per cent 11
the deposits."
Q. 143. "You were speaking annually?"
A. "Yes, annually. Some made more than 4 pet'
cent but that would be conservative for the average.'
Mr. Woods' testimony that state banks had gained [0°
million dollars in deposits on account of the Guarantee LaTI
and the average they made on such deposits was not die'
puted, and the cross-examination of him emphasized the •
sound basis for his statements. Among other things, be
noted the rapid growth in the number of state banks, the
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
aid
s7
act
the
61
conversion of national banks into state banks, and the
kiteady increase in deposits of state banks (Rec., p. 282,
Q.
1471).
Testifying as to
the competition for deposits Mr. Woods
QM (Bee., p. 247):
1te
tle
the
Ito
it
tve
at
jir
it
ll
4iy
Oil
ct
Q. 1266. "Now what effect, within your knowledge,
has the Guarantee Fund Law had on the competition
for deposits between
national banks and state banks
from 1910 to July 1, 1928?"
Q. 1267. "Just generally?"
A. -1 know from first hand knowledge that depositors who have changed their location to other
Places and made inquiry with regard to banks have
met the banker with this question, 'Are
deposits in
.this bank guaranteed by the state of
Nebraska?'
and
If
they were told `No' that particular bank didn't get
t!le deposit.
That has been commonplace in the last
nix or seven years all over
Nebraska."
Mr. Woods
added (Rec., p. 282, Q. 1472):
" * * * * in the larger cities the national
"alihs continued to grow and on the whole made a
Yery satisfactory growth right along, notwithstanding the Guarantee Fund Law. In
the smaller towns.
!owns
below the size of Fremont, Grand Island, FIastIngs, Beatrice and towns of that size, for the most
part the state banks had a very material advantage
and have made
the larger growth in deposits."
(c) Public funds were demanded by the banks
and
received for
deposit
by
every
state
bank
in
Nebraska
with
out bond
on the "Security of the
Guarantee Fund" under
an option
in the law to do this or to give bond and
avoicr
aSSessraent on such deposit of public
money.
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Federal Reserve Bank of St. Louis
62
ABIE STATE BANK VS. WEAVER, ET AL.
There are two million dollars of state, county, sac
district, township, city, village and other public funds
failed state banks (Rec., p. 426, Ex. 36).
The Governor on behalf of the State and its municipal
subdivisions and the State Treasurer in his own behalf
each pleaded the rights of the State and its governmental
subdivisions based on these public deposits as against the
Guarantee Fund and plaintiff banks.
The Guarantee Fund law gives the State Banks 1 ll
option to demand public funds as "secured by it" withoug
giving bonds, or in lieu thereof, to "otherwise secure pa
lie deposits" and such deposits would thereupon be exempt
from levies for the Guarantee Fund (Secs. 8027, 802'
Compiled Statutes, Nebr. 1922). The state banks o
Nebraska for seventeen years have elected to demand an
receive the public funds under the "security" of th
Guarantee Fund instead of giving bonds.
In 1911, concurrently with the decision of this cour
holding the Nebraska Guarantee Fund law valid, th
Legislature of Nebraska amended the law (Session Law
1911, p. 84) by adding the following proviso (Comp. Sta
of Nebr. 1922, Section 8027):
"Provided further, that no bank which has conl,
plied in full with all of the provisions of this a
shall be required to give any further security or bon
for the purpose of becoming a depository for an
public funds, but depositary funds shall be secur
in the same manner that private funds are secured.
(Italics are ours.)
Another section of the law (Section 8025, Comp, Sta
of 1922), exempted "public money otherwis
e secured" fro
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
63
assessment. So a bank thus had the option to demand
deposits
"under the security of the Guarantee Fund Act"
or "otherwise
secure them."
NI;
111
[al
be
1)1
of
jie
et
?(1
III
Every state bank in Nebraska had public deposits at
'the time
of the institution of this suit save one and it
had but
recently had them (Rec., p. 456, Qs. 2738-4).
Witness Bliss, Secretary of the Banking Department,
testified that prior to the institution of this suit and
notice of the fact that it was to be instituted, the banks of
the state
were not giving bonds for public deposits so far
as his
information went and the records of the depart'neat disclosed (Rec., p. 456, Q. 2742).
Isolated instances
of banks recently giving bonds appeared;
but no bank
was cited that
had not availed itself of the right to demand
Public deposits on the security of the Guarantee Fund.
The .Abie State Bank had county deposits continuously
from 1912 down to July, 1928, without giving any bonds
therefor (Rec., p. 184, Qs. 838-9). About the time of the
conimencement of
this suit it had given bond (Rec., p.
186, Q. 859).
After public notice that this suit was to be filed the
State
Treasurer commenced to demand bonds (State
Treasurer Stebbins', Supp. Rec., p. 57); as did some other
°Metals; though under the Guarantee Fund Law such
bonds could not
be demanded.
Witness Shantz's State Bank of Omaha had state, city
and county
money, and for fifteen years gave no bond for
any public moneys (Rec., p. 226, Q. 1156). Witness
Stephens' Fremont State Bank had some public funds
for. years without
giving depository bonds and had been
giving security for about a year before the trial (Rec.,
I)* 313) Qs. 1726-32).
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Federal Reserve Bank of St. Louis
64
ABIE STATE BANK VS. WEAVER, ET AL.
Willis M. Stebbins, state treasurer and intervener has
,
occupied that office since January, 1927; all his deposits
had been made on the faith of the Guara
ntee Fund protection. (Mr. Stebbins, Supp. Rec., p. 64). He
had adjudicated claims against the Guaranty Fund for $104,561
(Orig. Rec., p. 702, omitted in printing).
The 726 banks in Nebraska had state treasurer deposits
of $984,399.59, county deposits- of $10,230,61
9.10, and city
deposits of $2,739,695.96, making a total of $13,9
54,514.55,
(Exhibit 38, Rec., p. 437; reproduced in this brief)
. These
figures do not include other public deposits.
(d) The surety company rates to national and state
banks on depository bonds (thus avoided by state banks
)
were higher than the Guarantee Fund asses
sments.
The banks demanding and receiving publi
c funds for
deposit without giving bonds paid less to the Guarantee
Fund with reference to said deposits, than
they would
have had to pay for bonding premiums to
surety companies, had they given bond. For at least
six years
prior to the trial the surety company rate
on bank bonds
for public deposits had been uncha
nged and had been
uniform over the state and varied from one-h
alf of one
per cent to one per cent on depos
its, depending on the
capital of the bank. The average annua
l rate was seventenths of one per cent or $7.10 per
thousand dollars of
deposits as against the maximum aggre
gate general and
special Guarantee Fund assessments
of six-tenths of one
per cent or $6 per thousand
dollars of deposits. The Surety
Company rate on national banks
was the same as on state
banks. (Bee., pp. 496-7.)
An.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
65
The national banks thus pay an average of $7.10 a
thousand to a bonding company to insure public funds.
They also pay interest as do the state banks. As between
Paying $7.10 a thousand to a bonding company and $6.00
a thousand
to a Guarantee Fund on public funds, the
balance is in favor of the Guarantee Fund aside from all
Other benefits attached to the Guarantee Fund. The Guarantee Fund, incidentally, puts all depositors, both public
and private, on the same plane with public deposits in
the matter of security; and at less percentage of cost than
surety bond protection.
We submit, that if the banks can pay $7.10 per thousand dollars
of deposits to bonding companies for bonds
14suring public deposits, on all of which deposits they ara
also paying interest, it is reasonable to pay $6.00 a thousand dollars
to a Guarantee Fund to insure and put all
clePositors on the same basis when as to a substantial
share of such
private depositors they pay no interest.
The statute exempting state banks from giving bonds
f°1
' Puddle deposits provides that such depository funds
Shall be thus
“secured in the same manner that private
funds are secured" (Sec. 8027, Comp. St., 1922). That is,
by the
Guarantee Fund.
The "security of the Guarantee Fund" was the obliga"
ti
of the going banks to contribute a maximum of
4-00 per
thousand of deposits annually to a fund to pay
Public deposits and others in those of their number that
faded.
sar the la
Swuc
;h was the contemplated and actual operation
otherwise there would be no security; there
..arg
W
nn necessity for security except as applied to a bank
taut failed. The
banks state and reiterate that the Depos-
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Federal Reserve Bank of St. Louis
rar.
ABIE STATE BANK VS. WEAVER, ET AL.
itors Guarantee Fund is for the protect
ion of deposits in
going banks, a most fallacious statement. There could be
no matured liability ever except to those depositors in
banks that fail.
These public deposits were made in the state banks of
Nebraska under the foregoing law and under all the
representations in this brief set forth and while the law
was admittedly constitutional and valid and operative
Appellants now assert no equitable or appealing reasor
why a court of equity should cancel their obligation t(
contribute $6 per thousand dollars of deposits to tin
Guarantee Fund to apply on the claims arising as afore
said.
(e) State banks under the Guarantee Law are give.
twice the loan limit available to national banks; state
banks carry their reserves in other banks at interes
while national banks are required to carry funds in federal reserve banks without interest; under the law existing state banks have a practical monopoly in towns they
serve; each of these facts adds to the value of a stat
charter.
The loan limit of national banks to one customer is 1
per cent of the bank's capital as provided by federal la
(Sec. 84, Ch. 2, Title 12, U. S. C. A.). They are require
to carry 3% of time deposits and 7% of demand deposi
in Federal Reserve Banks without interest. (Secs. 46
462, Ch. 3, Title 12, U. S. C. A.).
On the other hand under the Nebraska Guarantee Fund
Act the loan limit of state banks to one customer is ?()
per cent of the bank's capital (Sessi
on Laws of Nebrask at
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
67
in
in
1923) Sec. 45, Ch. 191). Thus a state bank can loan
twice as much to one customer as a national bank with
the same capital, enabling a state bank to do business on
less capital
investment.
There is no requirement of a state bank to be a member.
of or carry any balance in the Federal Reserve Banks
So the
state banks carry their reserve at interest in Reserve
cities.
cI
Again under existing law, a state bank charter amounts
te a
state bank monopoly in almost every community in
tvlew of statutory power vested in the banking department-,
° deny charters except upon proof of public necessity
(Rec. 7990, Comp. St., 1922).
, 16. The cause of failures and heavy losses in going
uanks. From 1920 to 1927 there were a large number
°f bank failures and losses to going banks through gradual
liquidation by banks of previously acquired loans and
after shrinkage of values.
17' By the maximum exploitation and featuring of
the
Guarantee Fund during this liquidation period there
Were large
benefits to the banks, the banking situation
was stabilized, and many of the present strongest banks
Were able
to survive.
I
The banks as a whole through the entire operative
iod of the Guarantee Fund Law have each year made
arge earnings. However, the net earnings during recent
'
3ear8 have been materially affected by losses developing
because
of loans made during the period of high prices
Prior to 1920,
and the depreciation of securities following.
r
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Federal Reserve Bank of St. Louis
68
ABlE STATE BANK VS. WEAVER, ET AL.
Theme loans were in a greater or less degree in all ban
The losses as arising through the years following hi
been absorbed by earnings, generally in this brief des
nated as "charge-offs". The banks have been applyi
their earnings to the extent necessary to liquidate thi
developing losses, which to that extent reduced their
earnings and dividends. The stabilizing influence of I
Guarantee Fund made possible this gradual absorpti,
This absorption was retarded to some extent in 11
and 1926 by a partial state crop failure in 1925 and
similar condition over a large part of southern Nebras
in 1926 (Rec., p. 653, Qs. 4239-40).
Mr. Woods, whose high qualifications have been he
inbefore referred to, and a disinterested witness, grap
cally outlined the conditions producing the losses and 1
influence of the Guarantee Fund in permitting tit
absorption.
Mr. Woods, referring to the banking conditions
Nebraska from 1910 down to July 1, 1928, testified (11(
p. 241, Q. 1240 et seq.):
That from his knowledge and experience he was al
to state the general banking conditions from 1910 doi
to July 1, 1928; that he knew the cause of bank fi
tires generally, the amount, the general extent, and 1
cause of eharge-offs by banks during that period; ti
he knew the financial condition of the banks of t
state during the period and the reasons for the c(
ditions that existed; that during the period from 191
to 1920, prices increased and all banks made mom
that loans were made on equities and on basis of cha
acter and the giving of banking credit generally was
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Federal Reserve Bank of St. Louis
1
ABIE STATE BANK VS. WEAVER, ET AL.
uks•
lave
!sir
iIJ
iese
nel
the
69
e"nive; that in 1920 livestock and grain prices dropped
which very quickly
had an effect on land prices; that
)
itla to losses
on real estate mortgages the same did not
eenIne evident, or rather acute, until later; that in tlw
Yfear 1919 many mortgages were written to secure loan:.
°,r live or more years and that as to them the foreedlogures began from 1924 to 1927 as the mortgages became
lie and delinquent; that the foreclosures were much
larger in
number in those years than in the previous
Years.
[
Van Peterson, secretary of the Guarantee Fund Comaussion, testified (Rec., p. 107, Q. 213):
re'
lit'
111
le
if
That.in his judgment perhaps 75 per cent of the banks
taken over
by the Department incurred their losses during the years preceding 1923 and that said losses devet°lied during
the ensuing years.
On cross-examination, Mr. Schantz stated that from
1920 to
1928 was an abnormal period so far as banks and
bank losses were concerned. He refused to state how
illuch he would add to the percentage of losses on account
nf deflation
(Rec., p. 623, Qs. 4048-51).
•The foregoing
evidence of the origin in the period of
high
prices of the loans that through the past seven or
,
ei.ght Years have gradually developed into losses was not
uinPuted and is not controverted in the record.
_ The Nebraska Supreme Court in its opinion adopted the
h
`tineontradicted
evidence of Mr. Woods; we quote from
e °Pillion (Rec., p. 62):
."In respect of the many failures of banks about this
tune, the
cashier of a Lincoln state bank testified that,
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Federal Reserve Bank of St. Louis
70
ARID STATE BANK VS. WEAVER, ET AL.
in his opinion, the failure of nearly 300 Nebraska
state banks was caused largely by the general economic
condition existing prior to 1928; that he did not thil
the bank assessments from 1923 to July 1, 1928, were
a contributing factor in the failure of banks during
that period, and that, in his opinion, the guarantY
fund law and the assessments collected thereunder
had a steadying influence on the deposits of ever!'
state bank."
(a) The stabilizing influence of the Guarantee Fupc1
through the period of readjustment.
The Bank Guarantee Fund Law has been of inestimabl'
stabilizing benefit to the existing banks through the ltst
eight years in preventing runs and withdrawal of finds
and by instilling confidence, permitting a large number 01
the existing banks to survive and all of the existing batiV
to hugely profit in improved financial condition. Thi:'
testimony was not controverted upon the trial and we nce
not go into it in detail: The Nebraska Supreme Coat'
recognized this stablizing influence in the above quotation
from its opinion.
Mr. Bliss, head of the Department of Trade and Co
merce, testified in this connection (Rec., p. 411):
Q. 2455. * * * * "Now, Mr. Bliss, there ho
been some failures in Nebraska banks that have bee
testified to. Now, what effect if any, has the exister
of the Guarantee Fund Law had upon the going belt(/'
in the particular town or location where these failure0
have occurred from time to time, that is with respect
to the deposits of going banks?"
A. "It has been common knowledge that when".
ever a bank fails that the going bank has not,
fered; right across the street from the bank tl
failed the going bank has gone right along."
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Federal Reserve Bank of St. Louis
led
114
115
ABIE STATE BANK VS. WEAVER, ET AL.
71
Q. 2457. "Is there any general reason for that
aside from, perhaps, the strength of the going bank?
I-las the Guarantee Fund had any application in
that
resPect?"
A. "It certainly has."
Q. 2458. "What has been that effect, Mr. Bliss?"
A. "It has given those depositors and customers
in the town where the bank failed—it has
given them
confidence in the banking situation that they would
be taken care of
and has been relied upon."
Q. 2459. "And what would you say, Mr. Bliss, as
the conditions that prevailed from 1911 down until immediately prior to the filing of this suit, as
to
the element of confidence in banks generally,
incident
to this
Guarantee Fund Law?"
A. "It has been very general during that period."
Q. 2460. "In other words, the Guarantee Fund
Law has instilled general confidence in the people
as to the status of their
banks?"
A. "Yes."
Mr. Woods testified (Rec., p. 275,
Qs. 1430.33):
That in his
opinion this confidence or belief in the
tillarantee Fund had been a stabilizing
factor in pre"ating runs on state
banks and also had prevented withthawal of
deposits.
lie
further testified (Rec., p. 284, Qs. 1481-3):
That the
operation of the Guarantee Fund Law from
923 up to the end of the
last six months made possible an
k°,11erlY adjustment of the banking
situation and made possi"
wle the
recovery of a good many banks that otherwise
6°11,1d have gone under; that bankers now owning
sound
'
nag had told
him that they could not have withstood
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Federal Reserve Bank of St. Louis
72
ABIE STATE BANK VS. WEAVER, ET AL.
the heavy withdrawals in 1923 because they had so
frozen paper at that time and that the law gave them A'
ficient time to earn money, charge off losses, and I
their banks into good shape; that it gave banks a f
years to realize on frozen assets.
That this stabilization based on confidence in
Guarantee Fund was real is indicated by the consist(
increase in deposits, notwithstanding the number of bat
that were failing.
Is it conceivable that these going banks which p
moted and featured the Guarantee Fund to the extent ti]
did to stabilize the banking situation for their profit a
for their preservation can now say to the depositors tl
helped them over the hill that they owe them no legal
equitable obligation?
18. Condition of banks has steadily improved sif ce
1923; present condition incomparably better than in 19(43
The undisputed evidence is that there has been a grad]
improvement in the condition of the going state bat
since 1923 and that they are now in the best conditi
they have been during the post-war period. Mr. Wot
testified (Rec., p. 248, Qs. 1270-75):
Q. 1270. "What was the relative financial 0
dition of the state banks in Nebraska as of July
1928, as compared with previous years since 1922
Q. 1271. "Not figures, just generally?"
A. "Well, if I may supply my own data 1
comparison, I think maybe I could answer—I do'
know how to answer it."
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
73
A. "If I understand the question I would say that
comparing the ability of the state banks of Nebraska
On the whole now to pay depositors upon demand, to
Meet expense of any kind and to make earnings and
Pay dividends that the situation in 1928 is vastly im
proved over 1923. In every respect, without any exception, their condition is incomparably better than
fl 1923."
Q. 1273. "You have testified as to the comparison
between the situation as of July 1, 1928, and 1923?"
A. icyeto
110
11:11
or
'or
Q. 1274. "Would you make the same comparison
for the succeeding years?"
A. "The degree would go down because there has
been more or less steady improvement since 1923.
Let me make it plain, I am talking about surviving
banks. There have been bank failures and there may
ire more, because of conditions or what not, but sum-hying banks have been improving their conditions
and are now better able to meet all obligations of
whatever nature than they have been at any time
nce 1923."
Q. 1275. "In other words, there has been a t.:.emuly
i mprovement from 1923 up to 1928?"
A. "That is my judgment."
l'h' icNlititony of Mr. "Woods was not controverted.
.19.
with
Present claimant depositors (private and public)
adjudicated claims are those who relied on and
:
3 1eleled to the acts and representations of the banks durfilg the last three years. There are $2,000,000 of public
unds in failed banks.
I The bankers state they were not responsible for their
(litiBe8 on loans developing through deflation and that the
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Federal Reserve Bank of St. Louis
74
ABIE STATE BANK VS. WEAVER, ET AL.
depositor lost in the same manner through the shrinks
of assets.
If this could have any weight as an argument,
weakness is that neither the claimant depositors nor
depositors in going banks are wartime depositors. Ti
made their deposits in the last few years. They are
/101
identified in any way with the developing losses on old
loans that these banks have been charging off agai sl
earnings.
These individual depositors took losses in their resp
tive business activities during the years immediately so
sequent to the war, and there could be no reason in equi
or good conscience to nullify their claims against the
gua
antee fund on deposits that they made in banks in tb
years subsequent, to-wit, 1926, 1927 and 1928, in ord
that the going banks may take the earnings that won
otherwise be applicable on assessments to pay their oS
losses and have compensatory to extravagant profits.
Appellants say that "the depositors in failed ba
have had the full benefit of all the assessments levie'l
under the law while they were depositors". There is 110
evidence of and it is not a fact that the claimant deposi.
tors in failed banks have received any payment of aW'
sum from assessments.
01
.1
20. Material facts with reference to the status
the individual claimant depositor were stipulated.
Rev. J. C. Peterson, of Dannebrog, a depositor, testified
as to his deposit and the representations inducing snot'
and his reliance thereon and other related
facts as foi'
lows (Rec., p. 352):
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
the
TheY
riot
ol(1
Per
it.0
lar
iel
0
75
That he lives at Dannebrog, in Howard county, Nebraska, where he
has lived since 1892; that he has been
illlnister of the
gospel during all those years; that he was
la„,.dePositor in the failed Boelus bank and in the failed
State Bank of Dannebrog, then in the hands of
reeivers and wherein he had been allowed his claims, the
nlei°r one for $5,460.35 on which he would receive WO
to
b $1,000 from bank assets; that while they were going
aehe be was told by the bankers and by people interested
le the bank, directors, etc., that his money was perfectly
safe; that
its repayment was guaranteed by the State
earantee Fund and that if the bank should fail it would
u114 be a matter of from thirty to sixty days until hi.
dWould have his money; that two banks in which hi
ePeeita were made had signs similar to those introduced
'
;
I evidence
advertising the Guarantee Fund and the safety
to the depositors money; that the signs stated "Your
°IleY is guaranteed by the State Guarantee Fund of Nethat on their checks they had printed the same
t1
brka";
1g;
that Exhibit 18, page 490, volume 3, original record
th°1111tted in printing), is a check drawn by witness on
8 e f°11na of the First State Bank of Boelus on which it
aaYe "Deposits are guaranteed by the Guarantee Fund
Of
hi the State of Nebraska"; that some of the advertisements
at Tilt FREMONT TRIBUNE that had been previously read
the trial that afternoon were
some that he had read.
(These
e
exhibits included those in which the banks had
Presented the Guarantee Fund as a giant mutual insurthee cwitpany in which the banks paid the premiums for
ti e Protection of all
depositors. They also contained posie st
atements to the effect that the banks pledged them .11).e8 to
the assessments necessary to protect all de8.)
He testified there was one about depositors not
17el-8•In
g a cent that he remembered especially and that it
Z
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111111.0.—._
Federal Reserve Bank of St. Louis
1
76
ABIE STATE BANK VS. WEAVER, ET AL.
applied to him; that he believed these signs and stat
ments and advertising to be true with reference to ti
Guarantee Fund; that he relied upon these representatioi
in making his deposits in the banks and that he won]
not have made the deposits but for the representatioi
about which he testified; that all the banks in Dannebr(
had failed; that he renewed his certificates of deposit fro
time to time after reading the advertisement Exhibit f);
of Exhibit 13 and other advertisements. (The named
e
hibit is the last one of a series in THE OMAHA
BEE pu 1)
lishing the names of the state banks of Nebras
ka pu
Hsiang the series, and reproduced in this brief).
After Mr. Peterson had testified and Mr. Carl M. Joi
gensen had been called and sworn (Rec., p. 358) the plain
tiffs asked the court for a rule fixing the number of ( e
positor witnesses who might testify, stating that an i
mense number of witnesses might be called on this sane'
proposition. Counsel for defendants stated that they caitel
only to bring such number of depositors to testify as woi
show beyond a doubt the representations of the bat 1:F
hereinbefore set out (referring to the advertisements 01
representations that the banks were united into a gif
mutual insurance company, that they positively promil
641
to pay the assessments and their other similar statement°
and that the depositors were protected by
the Guarantee
Fund of the State of Nebraska), that the deposit
ors relie6
upon these representations and made deposit
these
s in
bant°
which they otherwise would not have made
etc. (Rec., P.
358). The interveners expressed willingness
to not u°
necessarily encumber the record with a number of witneEs
e°
if there was a stipulation that they
made their deposits or
representations of the banks in which they had their
fund°
when the banks were taken
over by the Guarantee Fund
Commission (Rec., pp. 358-9).
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
ate
the
010 '
77
It was thereupon stipulated by the parties to that effect (Rec., p. 359), to-wit:
That defendants and interveners were able to and would
ferthwith produce as witnesses, a large number of del'neitors in different failed state banks throughout the state,
Who had adjudicated unpaid claims ordered paid from
the Guarantee Fund.
0-,
e
ill
That these witnesses if called would testify that prior
t° Making their deposits in the several banks they had
seen the same signs exhibited and had had the same reprei8entations made to them as had been made to the wit°egg Peterson; that they had read and relied upon the
salne advertisements as testified to by Peterson (referring
t° the representations that the state banks under the
G uarantee Fund Law constituted a giant insurance cam Pal% wherein the banks paid the premiums for the protection of all the depositors; that the banks pledged them :
elves to the payment of the assessments necessary to prole
"(ill deposits in state banks; that no depositor could
i°14e One cent, etc.).
That these depositors believed and relied upon these
ePresentations, advertisements, etc., and would not have
st° Posited their money except for their reliance upon
uent; that the said witnesses were in the same situation
4
,8 the witness Peterson with respect to their respective
uePosits and banks; and that the stipulated testimony of
Ram
Witnesses should be treated and given the same effect
as if they had been sworn and testified to the stipulated
facts.
21. Reliance by depositing public on acts and representations.
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Federal Reserve Bank of St. Louis
t
ABM STATE BANK VS. WEAVER, ET AL.
It is, of course, apparent that the intention of the bank
was that the depositing public should rely upon all the I
tesentations that were made to them. Being interroga
specifically as to TIIE BEE advertisements, Mr. Stephens 1
tified that the purpose of himself and the other bankers PI
publishing THE BEE and TRIBUNE advertisements was ami
other things to impress the people with confidence in tilt
banking situation in Nebraska and confidence in the GoII'
antee Flout so that it might have the effect of calls 11'1
the people to leave deposits they then had in state
and place other funds on deposit (Rec., p. 534, Qs. 30
90); that he intended the people to believe the statement'
in the advertising and never indicated to the public
advertisement or otherwise that the statements were Intf
true or withdrew them in any way; and that the publit
continued to rely upon them (Rec., p. 535, Qs. 3400-3).
Mt. Schantz stated that he had never repudiated
part of the advertising or told any of the depositors
customers that there was anything in the same that
disapproved of (Rec., p. 606, Qs. 3892-3).
bo
In attempting to excuse the running of the advert'se
ments in THE OMAHA BEE, Mr. Stephens testified tlnit
he believed at the time that the accrued liabilities of Ole
Guarantee Fund were not more than two or three millioo
dollars. just what they were at that time does not fir
pear. It is in evidence that in May, 1927, he knew theY
were seven million dollars. Mr. Stephens' belief in ti
regard would not in any sense be a defense to waiver
and estoppel created by his acts.
But a more forceful answer to his contention iE
reference to his two-page advertisement published in 1
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Federal Reserve Bank of St. Louis
II
ABTE STATE BANK VS. WEAVER, ET AL.
79
PREMONT TRIBUNE in January, 1928, at a time when he
did know what the liabilities were, wherein
he continued
the same character of advertising and the same representattcme and which have been hereinbefore quoted from.
Referring to the advertising, personal solicitation, and
81gus, using the Guarantee Fund feature, and the protective
feature, Mr. Woods said (Rec., p. 275):
tar
iIl
iil
S!1'
tits
1),1
nor
Q. 1426. "Mr. Woods, what has been your observation covering the period of the operation of the law,
from 1912, as to the influence that such representations by the state banks have had upon depositors
in inducing theni to make their deposits in the state
banks."
A. "It has been effective."
it
01'
lie
11
22. The maximum special assessment was reduced
from one per cent to one-half of one per cent by the
legislature of Nebraska, 1923, at the instance of the
banks.
23. The administration of the Guarantee Fund has
been in the hands of the state bankers since 1923.
24. The maximum interest rate on time deposits was
reduced from 5 per cent to 4 per cent in 1925 at the
Instance of the banks
on account of Guarantee Fund assessments and the resulting increased annual earnings
aggregated one-half the total annual assessments.
The activities of the bankers as a whole in the legislature
In Procuring such amendments to the law as they desired,
;rid increasing the benefits to them of the Guarantee Fund
4117, are clearly established by the evidence and undis'
puted.
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Federal Reserve Bank of St. Louis
80
ABlE STATE BANK VS. WEAVER, ET AL.
Hon. Charles W. Bryan, governor of Nebraska in 1921
and again elected governor in 1930, called by the inter
veners, testified, among others, as to the activity of the
banks in procuring control of the administration of tile
Guarantee Fund. He declared that it was during his ad'
ministration that the Bank Guarantee Fund Law WO
amended, the Guarantee Fund Commission created
and the
special assessment reduced from one per cent
to one-half
of one per cent; that he was familiar with the manner
ie
which the legislation was advocated and finally passed; that
the banking committees and groups met in the governor
uffice; that it was his observation that the bills were pusl*
and advocated by the bankers of the state; and who de'
manded that the Guarantee Fund Commission be composed
of bankers of their own nomination (Sup. Rec., p. 52).
The legislature of 1925 at the solicitation of the banks04
to aid them in paying the Guarantee Fund assessment$
amended the banking act to reduce the maximum rate 01
interest permitted to be paid on time deposits from five per
cent to four per cent; thereby adding to the earnings of
the banks more than $750,000 per year; this amounts an'
n,ually to approximately one-half of the gross assessments
that they were paying to the Guarantee Fund, both gen'
eral and special.
The facts were also testified to more in detail by gr'
Bliss, now secretary of the department of trade and cony
tnerce, who was chairman of the banking committee in the
senate in the 1923 and 1925 sessions. The attempt t°
amend the act was made in the sessions of 1921 and 1923'
but finally successful in 1925.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL
81
Ins testimony in this connection was as follows (Rec.,
13- 379)
(1
is
le
If
at
C(1 I
1
Mr. Bliss testified that he had been in the banking business since 1907 and a member of the State Bankers Assoelation; was its president in 1926 until he took the office
Of secretary of the Banking Department; he served in the
state senate in the sessions of 1921, 1923 and 1925; was
chairman of the banking committee in 1923 and 1925:
that all the bankers of the state, with possibly twenty to
twenty-five exceptions, are members of the State Association.
, that the Association maintains a permanent office in
%paha with a force of employees and has for twenty years:
that he was in the legislature of 1923 that amended the
4aarantee Fund Act by reducing the rate of interest paid
by the state banks on certificates of deposit and interest
hearing funds; that the effective date of the act was April.
1926; that he had examined the records of his office (state
banking department), and on June 30, 1926, there was on
flePosit in the state banks of Nebraska $167,462,943.00, interest bearing deposits; that a year later, on June 30, 1927,
sneh interest bearing deposits were $173,203,955.00 (Rec.,
P. 384, Q. 2275). Notwithstanding the reduction of one per
cent in the interest rate, interest bearing deposits had increased $6,000,000.
Mr. Bliss, continuing, testified that in the sessions of
extenthe legislature of 1921, 1923 and 1925 there were
banking;
on
sive hearings on the act before the committee
that prominent bankers appeared in promotion of the legislation during the session of 1925 (Rec., p. 388, Qs. 230910); that he did not recall that anyone other than bankers
aneared in favor of the reduction (Ree., p. 289, Q. 23111 ;
that the bankers felt, and agitated to the committee in
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Federal Reserve Bank of St. Louis
82
ABlE STATE BANK VS. WEA
VER, ET AL.
1923 that by paying four per
cent for money, plus the then
one per cent special asse
ssment, it would make their time
money cost them too muc
h; that the bankers generallY
requested this reduction and
that the committee thereupou
made a favorable report to
the senate upon the bill (Rec..
p. 390).
Mr. Bliss stated that at
the time of the enactment of
the law, 646 of the state ban
ks were paying as high as
5%
interest on deposits and that
these banks had $110,520,588
of deposits at interest, and
that he was able to state With
reasonable accuracy the
amount of these deposits then
drawing 5% (Rec., p. 449,
Qs. 2703-13). The trial court
sustained an objection to
his answering and defendants
offered to prove that more tha
n two-thirds of the deposits.
to-wit, at least $74,000,000
of deposits were bearing 5Y(
interest (Rec., p. 451, Q. 2714).
The interest bearing deposits increased instead of dimi
nished thereafter so they'
was a saving to the banks of
approximately $740,000 a
year on this item.
CONDITION AND EARNINGS
OF BANKS
25. The earnings of and data
on all state banks as
shown by their reports for the
eighteen months, January 1, 1927, to June 30,
1928, the fiscal period immediately preceding this suit
(Ex. 37 and 38 produced
by defendants).
The operating expenses,
income and net earnings of the
state banks of Nebraska
were shown by their reports for
two and one-half years prec
eding the suit (Ex. 37, 38 ano
39, produced by defendan
ts). The Department of Trade
and Commerce produced com
prehensive tabular statements
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
83
covering all the banks of the state (Exhibits 37 and 38):
the last available data on the banks, covering the period of
eighteen months, January 1, 1927, to June 30, 1928, the
fiscal six months period immediately preceding this suit.
txhibit 39 covered the twelve month period from July 1,
1925, to June 30, 1926.
These three exhibits give all the available official data
for the two and one-half year period.
Inasmuch as the tabular statements for the eighteen
konths ending June 30, 1928, gave the figures of the dePartment for the last available period, we will refer to
them first.
As hereinbefore shown, Exhibit 37 contained the data
to each bank individually by name. The appellants have
omitted that exhibit from the record in this court.
as
Eight employes in the Department of Trade and Comtoerce worked two weeks in getting out this Exhibit 37
(Rec., p. 424, Q. 2567). It was the desire of defendant
°fficials to make a complete showing of all the available
facts. Exhibit 37 was recapitulated by the department in
t'xhibit 38 (Ree., p. 431, Qs. 2587-8). Exhibit 38 is reProduced immediately hereafter in this brief. It will therefrom be noted that in Exhibits 37 and 38 the facts were
compiled separately on those banks organized prior to
1909, the date of passage of the Guarantee Fund Law and
those organized since. It appears that of the banks now
oPerating in Nebraska, 435 were organized prior to 1909
ELIA 291 since. As to those banks organized since 1909
their growth and profits have been under the protective
Period of the Guarantee Fund Law. We are unable to
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Federal Reserve Bank of St. Louis
81
AM. STATE RANK VS. WEAVER, HT AL
refer to specific banks by reason of the omission of Exhibit.
37, but sufficient appears in Exhibit 38, the recapitulation
to completely negative the contention of the banks hereil
Following Exhibit 38 is an analysis thereof.
(a)
Exhibit 38 is as follows:
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Federal Reserve Bank of St. Louis
im
RECAPITULATION
(Exhibit 38, Page 610, Vol. 2, B. of Ex.)
as to all of the 726
(Note—Being a totaling of the data
by individual banks
ized
item
and
ed
list
aska
of
s
Nebr
Bank
each bank there
and
2,
V.
P.
60,
37,
Ex.
16
ts,
in
shee
eet forth in detail.)
CaPital -1909-$10,856,000,00
455 banks organized prior to
9,500.00
1909 and after- 8,01
•
•
291
$16,875,500.00
Total 726 banks
8,-rPlus -4,058,280.22
435 banks organized prior to 1909-$
7.40
1909 and after- 2,024,77
•
"
291
$26,083,057.62
Total 726 banks
4,958,-557.62
4tal Capital and Surplus 726 banks
984,399.59
$
To,
val State deposits in 726 banks
10,230,619.10
4tal County deposits in 726 banks
2,739,695.96
Total City deposits in 726 banks
T°tal Dividends for all banks 12
months ending 12/31/27
Total Dividends for all banks 6 months
ending 6/30/28
Total for 18 months
$
867,231.76
540,036.91
$ 1,407,266.67
Total Net Profits after charge-offs since
organization to 6/30/28:
1909-$18,063,801.62
435 banks organized prior to
7,088.43
1909 and after- 6.22
"
"
291
$24,290,890.05
Total for 726 banks
Total Net Earnings before charge -offs, 18
months ending 6/30/28:
2,450,067.56
435 banks organized prior td 1909-$ 1,719,420.04
1,
rafte
and
1909
9,487.52
•
291
$ 4,16
Total for 726 banks
Grose
Charge -offs 18 months ending
6/30/28:
1,324,509.22
435 banks organized prior to 1909-$
909,459.18
II
1909 and after3,968.40
"
291
$ 2,23
s
bank
726
for
l
Tota
Net
Earnings after charge-offs, 18
months ending 6/30/28:
1,474,408.22
349 banks organized prior to 1909-$
019,910.72
M
1
r
4
1909 and afte
"
221
-4 2,494,318.9
Total for 570 banks
4et Deficits in earnings after charge-offs
18 months ending 6/30/28:
348,849.88
86 banks organized prior to 1909--$
209,949.66
r-afte
and
"
1909
"
70
s
bank
156
e
(Total charge -offs in abov
cit)
558 799.54
were $851,433.22, creating this defi
5,519.40
1,93
Total 156 banks
$
s
Total Net Earnings after charge -offs, 726 bank
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Federal Reserve Bank of St. Louis
Net Undivided Profits and Surplus:
435 banks organized prior to 1909
-$ 5,344,850.24
291 banks organized 1909 and afte
r 3,003,563.62
Total 726 banks
$
Percentage Net Earnings befo
re charge-offs,18
months ending 6/30/26 to Capital:
435 banks organized prior to
1909
23.40
(Note - Annual average is 15.6
6%)
291 banks organized 1909 and
after
21.4e'
(Note - Annual average is 14.2
9%)
Percentage Net Earnings afte
r charge -offs, 18
months ending 6/30/28 to Capi
tal:
(349 banks less 86 deficits)
prior to 1909
10.30
(Note - Annual average is 6.91
%)
(221 banks lese 70 deficits)
1909 and after
10.90
(Note - Annual average is 7.33
%)
Grose Earnings for year 1927
in 435 banks organized
prior to 1909
$ 9,310,984.34
Gross Earnings for 6 months
period ending June 30,
1928, in 435 banks organize
d prior to1909 4,997,139.78
Gross Earnings for year
1927 in 291 banks organized
since and including 1909
6,359,891.23
Gross Earnings for 6 mont
hs period ending June 30,1928
in 291 banks organized sinc
e and
including 1909
3,303,646J:
Total Gross Earnings 726
banks, 18 months ending
June 30, 1928
$23,977,661.98
(Note - Annual average is $15,985,
107.99:
or 85% of capital and 64% of
capital and
surplus.)
Total assessments paid
into Depositors' Guaranty
Fund by 726 banks for 18 mont
hs ending
June 30, 1928
$ 2,412,324./8
(Note - Annual average is $1,6
18,216.52)
Percentage of asse
ssments paid into Depositors'
Guaranty Fund to gross earn
ings of 726
banks totalling $23,749,077.
47 for 18
months ending June 30. 1928
10.00
(Copy of Exhibit 38; exce
pt in several instances
where figures are shown for
18 months we have
added also for convenie
nce of Court as a "Note"
a calculation of the annu
al average of the 18
months' figure.)
(
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.
A/37 — f
90
9%
012
5%
••
'8
3
8
ABlE STATE BANK VS. WEAVER, ET AL.
87
The foregoing exhibit 38 discloses that
The banks earned an average profit of 7.12 per
cent per annum on their capital after all Guarantee Fund
(b)
assessments had been paid and after "charging off" over
$2,200,000 (about 7.72 per cent per annum of capital)
to losses.
(c) 570 of the 726 banks had net earnings ranging
up to "extravagant profits"; the other 156 banks were
affected by "charging off" excessive amounts; four-fifths
Could have paid dividends; the other one-fifth could have
except for their extraordinary "charge-offs" through liquidation of wartime acquired assets.
The capital is shown to be $18,875,500 and surplus
K083,057.
EARNINGS. Attention is especially called to the fact
that after all charge-offs of losses and after the deduction
•°f all deficits of those banks that showed a deficit, the net
earnings on capital for the 18 months period of the 726
hanks were 10.36 per cent as to those banks organized
Prior to 1909 and 10.99 per cent as to those banks organited since 1909, or an average of 10.67 per cent for all the
hanks on their capital for the eighteen months period.
equal to 7.12 per cent per annum on their capital. If we
ilgure the net earnings of the 726 banks on both capital
and Surplus we find that the capital and surplus of all the
bankti after paying all Guarantee Fund assessments and
'
1 aking all charge-offs was $1,935,519, amounting to 7.75
Per cent on the entire capital and surplus for the eighteen
konths or 5.17 per cent per annum.
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Federal Reserve Bank of St. Louis
88
ABIE STATE BANK VS. WEAVER, ET AL.
CHARGE-OFFS. It is especially to be noted that ti"
banks "charged off" to losses during the 18 months period
$2,233,968, an amount practically equivalent to 7.72 per ceni
on capital and 6 per cent annually on their capital and
surplus; and all charged out of earnings. We have else
where in this brief shown that these extraordinary lossel
were the liquidation losses through realization on asset'
acquired in the inflation period long prior to the makin:
of the deposits on which present claims are based. Thes1
losses were in effect stockholders' investment losses, an(
were in no sense attributable to the Guarantee Fund Law
NET EARNINGS BEFORE CHARGE-OFFS. After
paying Guarantee Fund assessments and before making
these charge-offs, the 435 banks organized prior to 1900
had net earnings on their capital of 23.49 per cent, or all
annual average of 15.66 per cent. Those organized afte
1909, 21.44 per cent or an annual average of 14.29 pe
cent. On both capital and surplus, the earnings were on(
fourth less.
GUARANTEE FUND. As disclosed, the payments t
the Guarantee Fund were 10.06 cents out of each dollar ('
gross earnings for the entire eighteen months.
BANKS WITH NET DEFICITS. It will be noted thf
570 of the 726 banks reporting had total earnings (
$2,494,318 after all "charge-offs" of bad debts, and aft(
paying Guarantee Fund assessments. There were, hoc
ever, 156 banks that failed to make net earnings aft(
heavy charge-offs of bad debts, their net deficit bell'
$558,799 for the eighteen months. During that perk
they charged off as bad debts 851,433.22, making the
actual earnings 292,633, the difference between the
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Federal Reserve Bank of St. Louis
yd
It
id
e.
,$
ABIE STATE BANK VS. WEAVER, ET AL.
89
"eharge-offs and their net deficit". It is not denied tha
this deficiency was attributable to excessive charge-off oi
bad debts instead of to the payment of the Guarantee Fund
assessments. The banks would still have had to charge
Off these losses occasioned as above even if there had been
00 Guarantee Fund Law.
DIVIDENDS. Appellants make some point of the fact
that only one-third of the banks of the state paid dividends in 1927 and 1928. They carefully ignore the earnings
of the banks. The foregoing statement shows that fourfifths (570) of the banks of the state had net earnings for the eighteen months period ending June 30,
1928, after all charge-offs and the payments of the Guarantee Fund assessments, so that four-fifths of the banks
could have declared dividends in some amount ranging up
to "extravagant profits" had they elected to do so (Exhibit 38). The amount of earnings is the important fact.
Again, these net earnings were after the large "charge.
off" against earnings to absorb losses arising during deflation; to which the going banks had so largely devoted
their earnings (Bliss, Rec., p. 208, Qs. 1043-4).
The banks actually paid dividends for the eighteen
months of $1,407,268.00, which was an average for all the
banks of 7.45 per cent on the capital of $18,875,500.00 and
5.62 per cent on total capital and surplus of $24,958,557.00.
ligured on an annual basis the percentage would be re
'Need one-third.
In their brief, plaintiffs stress their Exhibit 52. Witness
E. L. Fulk, certified public accountant, checked up defendants Exhibit 37, and prepared, and plaintiff introduced
na evidence, the compilation identified as Exhibit 52 (Rec.,
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Federal Reserve Bank of St. Louis
90
ABIE STATE BANK VS. WEA
VER, ET AL.
p. 567). The accuracy
of the net earnings as shown in
Exhibit 37 are not questione
d, but in this Exhibit 52 of
Mr. Fulk the computations
and compilations are made up
by him on percentage of
numbers of banks, which of course
is not a fair criterion.
For instance, he shows that 24.24
per cent of the total banks
in number earned 76.21 per cent
of the total net earnings
of all the banks for the eighteen
months period ending June
30, 1928, but he fails to indicate
anywhere on his exhibit the
ratio of the capital and surplus
of those 176 banks to the
total capital and surplus, or the
ratio of the deposits of those
176 banks to the total deposits.
Such information is indi
spensable. As illustrative of the
point, the strong and pro
sperous State Bank of Omaha, in
capital and surplus, is equ
al to 30 banks like the Able
State Bank and has fort
y-nine times the deposits; and
still a larger ratio of ear
nings.
(d)
The Trial Court Misled.
An unfair and deceptive
statement in Exhibit 52 and
one which misled the trial cou
rt is the statement "that 410
banks, whose net earnings
after charge-offs for the eighteen
months period ending June
30, 1928, were less than
6 per
cent on combined capital and
surplus, had a loss of $179,170.00." In these 410 banks
is included the list of banks
that had profits up to 6
per cent, and 156 banks that had
excessive charge-offs as abo
ve noted; these latter are combined with the profitearning banks to produce a
net red
figure for the 410. As
a matters of fact plaintiffs' own exhibit shows in another
place in harmony with the defend ants' exhibit that 156
banks had excessive bad debts
of
058,889.00. Throwing
these banks in with the banks
earning less than 6 per
cent wipes out the earnin
gs of the
other 254 banks included
. This juggling of figures
is clever
but unfair and mis
leading.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
91
.The trial court evidently was misled, for he stated in
ins opinion: "56.47 per cent of the total banks were not
°Illy earning less than 6 per cent per annum on their comblued capital and surplus, as of June 30, 1928, but also
8h0var their earnings in the red, in the sum of $179,170.O0.'
The trial court also said: "These same banks paid assesstnents into the Depositors' Guarantee Fund for the eighteen months period of $2,412,724.78, which sum is $476,805-38 more than the total net earnings of said banks for
the same period."
This statement is liable to be misunderstood and the
trial court apparently misunderstood the record in that
regard. The net earnings of the banks, after paying thr
Guarantee Fund assessments and before making charge-offs
for bad debts, were $4,169,487.52. Against this the banks
charged off had debts of $2,223,968.40, leaving net earnings,
after bad debt charge-offs and after payment of Guarantee
Pund assessments, of $1,935,519.12. The net earnings after
charge-offs and after paying Guarantee Fund assessments
of 570 of the banks were $2,494,318.94.
Appellants state in their brief that Mr. Marshall, a
deputy in the office of the Secretary of the Department of
Trade and. Commerce, testified to the necessity of "chargeOff'during the eighteen months period which would have
Wiped out entirely the net earnings for that period. Mr.
Marshall did not testify to any such facts.
The supposed basis for appellants' statement is the examcriticism of items in different going banks; which
criticisms were made in the ordinary course of examination
and which were taken care of by the banks; the evidence
°t Mr. Marshall and Mr. Bliss with reference to this is
fully covered under subdivision No. 35 of this brief.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET
AL.
Plaintiffs prepared and introduced Exhibits 6,
7 and 8.
Theypurported to reflect the condition of the
state banks
for three six-months periods beginn
ing January 1, 1927, and
ending July 1, 1928.
These exhibits were prepared by Witnes
s Mooney (an
employee of Mr. Fulk). They were compil
ed from the records of the banking department to which
he was given access. As collected together they were
grossly unfair and
misleading as will hereafter appear.
They were the only
data produced by appellants at the
trial from the official
records of the banking department,
nor for that matter
was any produced from the records
of the banks (except
Able State). These Exhibits 6, 7 and
8 are not even included in the record brought to this
court, but appellants
refer to them on page 28 of their brief
by quoting Witness
Mooney with reference to these exhibits as
follows:
"Ws testimony from his examination was that during the period from January 1, 1928, to June 30, 192S
(Rec., p. 134. Q. 369), 353 of the 726 banks showed
earnings to each of less than 6 per cent per annum
(Rec., p. 135, Q. 380), and that the combined aggregate
net loss of this class of banks was 356,076.18 (Rec..
p. 136, Q. 391), and that these 353 banks contributed
to the Guarantee Fund in assessments during
that same
period $301,006.98 (Rec., p. 137, Q. 392).
"During the period from January 1, 1927, to
June
30, 1927, he testified that there were 413 banks (Rec.P- 138, Qs. 395-397) of the 726 existing banks, each
which made less than 6 per cent per annum
on its
capital.
"He further testified that, during the period from'
July 1, 1927, to December 31, 1927, of
the 726 existing
banks there were 376 (Rec., p. 139, Q. 407;
p. 140, (1411), each of which received less
than 6 per cent per
annum earnings.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
93
A full disclosure of the method of compilation is prevented by the omission of these exhibits from the record, but
anDicient appear from the oral testimony of the Witness
Mooney, commencing on Record, page 137, question 357, to
give a substantial insight.
Mr. Mooney was given access in the department to the
semi-annual reports of all the banks for each of the three
813( months periods. Instead of listing them all for the
eighteen months, or for that matter listing such banks
as
he desired for the entire eighteen months, or even for a
Year, he picked out a different list of banks for each six
months period; for instance, making
one list as Exhibit 6,
another as Exhibit 7, and another as Exhibit 8. By this
Illeihod if a bank's net income was largely contained in the
Arst six months period of the year, and its outgo in the
second six months' period, or vice versa, Mr. Mooney listed
lt in the six months' period in which it had earnings of
le
"than 6% and omitted it from the other period. In
this Way he made banks which had good or high average
net earnings for a year or more
appear among the list of
1"ing banks. Thus the above 353 banks were picked for
°Ile six months' period, a different list of 376 banks was
Picked for another six months' period and still a different
list of 413 banks
for another six months' period.
There were only 112 banks that appeared in all of the
lists as earning less than 6% (Rec., p. 43).
Now these reports in the Department he thus juggled
show the income and earnings of all 726 banks of Nebraska
for the full eighteen months. Defendants compiled its
1:4xhibits 37 and 38 from them. Why did the banks
thus seek to avoid the full disclosure? Because for the
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Federal Reserve Bank of St. Louis
9
ABIE STATE BANK VS. WEAVER, ET AL.
eighteen months' period four-fifths (570) of the banks
had net earnings, ranging from fair to "extravagant profits" after charging off bad debts
and paying Guarantee
Fund assessments. It appeared that the only reason the
other one-fifth did not have net earnings was on account
of exorbitant bad debt charge-offs.
Again as to this evidence please note Mr. Mooney showed
that the 353 banks covered in one six months' period had
aggi egate net losses of $356,076; but only cross-examination developed that these same banks had $636,000 of undivided profits accumulated against which these losses were
charged (Mooney, Rec., p. 143, Q. 450). A fair reflection of
the full facts is the compilations, Exhibits 37 and 38, made
from the same bank reports, but for a period of 18 months.
The accuracy of these exhibits is unquestioned.
In the brief of plaintiffs and in the opinion of the trial
court frequent comparison is made as between assessments
paid and net earnings and the statement is
made that the
assessments were more than the earnings or total net ear"'
ings by a specified amount.
The court's attention is especially called to the fact
that this statement does not mean that there was $
shortage in earnings of that amount. The TOTAL la'
NAMING NET EARNINGS, AFTER the payment of Guar'
antee Fund assessments, charging off losses, etc., was bi
comparison less than the amount theretofore paid to the
guarantee fund, by the amount stated.
For instance, in the trial court's opinion, in apparentli
drawing a deduction favorable to the 726 banks,
the court
says (Rec., p. 44):
"These same banks paid assessments into the depositors' guarantee fund for the eighteen months 01
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Federal Reserve Bank of St. Louis
ABLE STATE BANK VS. WEAVER, ET AL.
95
$2,412,324.78, which sum is $476,805.38 more than
the total earnings of said banks for the same period."
Now what are the illustrative facts (see Exhibit 38)?
For the eighteen months the total net earnings after pay'g guarantee fund assessments and before charging off
bad debts was $4,169,487.52; the guarantee fund assessMerits had been $2,412,324.76. So the earnings before
Paying guarantee fund assessments and charging off bad
debts were a total of $6,681,812.28.
So we have this situation:
Total earnings 726 banks before paying guarantee fund and charging off of bad debts $6,681,812.28
Paid to guarantee fund
2,412,324.76
Net earnings 726 banks before charge-offs of
bad debts
4,169,487.52
Cbarge-off of bad debts
2,233,968.40
Net remaining after both deductions...$1,935,519.12
While the guarantee fund assessments theretofore paid
Were greater in the aggregate than the net earnings reMaining, it is also true that the bad debts charged off
Were about $300,000 greater than
the net remaining. The
11nPortant thing is that $1,935,512 remains after deducting
betb assesSments and losses.
It is important to note that of the $2,233,968 charged
Off by all the 726 banks in the eighteen months as
bad
debts, $851,432 was charged off by 156 banks, and the rell'ainder ($1,382,535.18) by 570 banks. The 570 banks all
had net earnings remaining after these charge-offs and
PaYinent of guarantee fund assessments, and ranging up
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Federal Reserve Bank of St. Louis
96
ABIE STATE BANK VS. WEAVER, ET AL.
to "extravagant profits". The
156 banks with charge-offs
of $851,433.22 had net losses
of P58,799.54, so their profit's
before charge-offs had been $292,633.6
8. Manifestly these
156 banks are now in impro
ved condition. There is n°
evidence that they are not in good condi
tion, and the court
of course could not presume the
contrary. The 570 barlkS
earned $3,876,854.12 after paying guara
ntee fund asse0a.
tnents, took losses of $1,382,535.18,
and had $2,494,318.94
remaining; and all had net earnings therea
fter.
Some effort was made to show that the
charge-offs made
during the eighteen months were only
normal ones, hot
this argument completely disappears
in the face of the
tables of operations in other jurisdiction
s, and especiallY
in the face of the fact that it was
the 156 banks that charged
off the huge and excessive losses, and
they were the ones
that had the losses exceeding earnings, and
that the losses
of these 156 were 60 per cent of the
losses of the 570,
conclusively showing the very excessive chara
cter of the
losses of the 156 banks. If 156 banks with
$292,633.68
of net earnings before charging off bad
debts charged off
$851,433.00, or an amount equivalent to 60
per cent of
what the 570 banks charged off against
their $3,876,854.00
of earnings, the experience of the 156
is certainly not to be
the criterion for judging this case and
relieving the entire
726 banks of the state from their obligation
to the guarantee
fund. The logical and inevitable deduc
tion to be dravill
from the figures is that 570 of the
banks were during the
preceding period on a solid footing and
earning net profits
over and above all obligations, inclu
ding payments to the
guirantee fund and the losses charg
ed off, and that the
other 156 improved their condition
during the eighteeo
months and did so as against accumulate
d earnings. In n°
event can it be said that the
guarantee fund was 10/
adverse factor.
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Federal Reserve Bank of St. Louis
0
1
ABIE STATE BANK VS. WEAVER, ET AL.
97
The "Other Real Estate" item is worth amount
at which carried by banks; it was not increased but hat
been minimized by the Guaranty Fund and the featuring
(e)
of it by the banks.
While the item "Other Real Estate" shown in the rePorts of the state banks is not a desirable asset the fact Is,
as Mr. Bliss testified, that many of the banks have a profit
in the real estate they are carrying and neither his records
nor the examiners' reports show that this item of real
estate is carried at an excessive value (Rec., pp. 157-8,
Q. 580-1). There is no evidence that it is worth less than
the amount carried at in the reports of the banks, and appellants cite no evidence to support their statement that
it is of less value.
Appellants take Secretary Peterson's testimony as to the
Guarantee Fund Commission's realization of 43% on real
estate in failed banks in receivership and uses this as a
basis for estimating the value of real estate in the going
banks. By the same token they could take the realization
Oil other assets of insolvent failed banks and state that
the assets in the going banks were of the same percentage
Of value.
The item "Other Real Estate" largely grows out of the
taking over by the banks of property upon which they had
The origin of the loans admittedly nearly all date
back to the inflation period and this item has been swelled
"re by the liquidation and conversion of such loans.
This item has no relation to the Guarantee Fund, or the
adjudicated claims of depositors.
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Federal Reserve Bank of St. Louis
98
ABIE STATE BANK VS. WEAVER, ET
L.
It has been argued that but for the Guarantee Fund the
assessments paid thereon could have been applied to ro"
duce this item. This ignores the benefits and earnings
accruing from and by reason of the Guarantee Fund, dis'
regards the fact that the real estate is not carried at fol
excessive figure and wholly disregards the priority of right
of the claimant depositor over that of the stockholder.
A large number of the banks now asked to pay these
assessments would admittedly not have been in existence
but for the Guarantee Fund. But for the fact of the Guar
antee Fund and its benefits and the faith of the depositors
in the Fund and their reliance thereon inducing them t°
keep their deposits in the existing banks many of the banks
that now hold "Other Real Estate" would admittedly now
not be open. The amount used to pay Guarantee Fund
assessments could not have been applied to reduce this
item, because the earnings that paid the Guarantee Fund
assessments largely came by reason of the Guarantee Fund
Law and its operation. Without the benefits
of that laW
there would not have been the earnings.
.11
So it is unsound to state that the amount applie
d to Pal
Guarantee Fund assessments could have been used t0
reduce real estate or charge off bad loans. The benefits of
the Guarantee Fund are admitted of record
and cannot he
fairly measured in dollars and cents.
It is the theory of the banks, shared
by the trial court,
that on this record the banks as a, whole
are entitled t0
charge off old bad debts from earnings, then reduce
t°
extinction the amount at which "other
real estate" is oar.
ried (though not shown- to be
excessive), then pay cony
pensatory returns to stockholders, and
lastly pay the guar'
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
e-
99
antee fund assessments, and that any other course is con0seatory. This also ignores the fundamental principles of
the law.
to
0
26. The earnings and data on all state banks for
the year ending June 20, 1926, classified according to
capital arranged from 4.47 per cent to 11.45 per cent
(not including Omaha State Bank with its larger earnings).
The defendants produced at the trial a compiled stateIllent of data as to .all the state banks showing their exincome and net earnings for the year ending June
30, 1926, being for a period immediately preceding the
f°1'egoing 18 months except for an interval of six months
for which figures were not available. This exhibit had been
Prepared in the latter part of 1926 by Epes Corey, auditor
c't the banking department from answers to a questionnaire
to the banks and was published at that time (Rec., p. 489).
The banks are classified as to capital up to $200,000.
here was one bank omitted from this compilation,—the
tate Bank of Omaha with a capital in excess of $200,000,
°II account of its being the only bank in that classification.
Its large profits and earnings as herein elsewhere set forth
Would increase, rather than decrease the percentages in
txhibit 39.
We here reproduce Exhibit 39 and follow it with an
analyBis thereof:
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Federal Reserve Bank of St. Louis
Analysis of Operating Expenses and Income of 845 Nebraska State Banks
From July 1, 1925 to June 30, 1926
CAPITAL
Ih
-terest on Deposits and Savings
erest on Borrowed Money
rantee Fund Assessments
,e,alaries and Wages
uther Expenses
1'04641 Expenses
I,etal Income
.set •Income .
4",,,L41 Deposits
A„erage Deposits
ksverage Capital Per Bank
:iet Profit on Capital and Surplus
-',i v"age Income Per Bank
-Nerage Expense Per Bank
10,000
to
20,000
20,000
to
40,000
40,000
to
76,000
76,000
to
100,000
100,000
to
200,000
206 Banks
426 Banks
177 Banks
18 Banks
18 Banks
845 I3ankst
$800,024
30,264
166,120
496,890
332,321
$3,295,204
115,483
636,258
1,721,821
1,377,074
$2,583,324
92,060
486,573
1,267,654
1,069,137
166,460
142,491
$698,033
7,132
142,813
294,061
232,070
$7,624,961
256,125
1,495,608'
3,936,876
3,153,093
$1,825,609
$7,145,840
$6,498,748
$721,347
$1,274,109
$16,465,653
$18,$13303,,254450
$1,664,891
$259,923,784
$307,602
$1,965,140
$139,631
$27,131,711
$131,773
$15,157
Average Net Profit Per Bank
/ DISTRIBUTION OF $1.00 OF EXPENSE
11:Iferest on Deposits and Savings
erest on Borrowed Money
'rftilt.ee Fund Assessments
0.4it!ftries and Wages
aer Expenses
e
$7,735,871
090,031
$111,344,441
$2641.25,37:
$27,963
3
19
4
66
4
6
$363
1
418,:8
$6,082,979
$548,231
$86,517,996
$4808.28,80;
$62,484
$807,239
$85c0,895,2
$12,219,191
$678,844
$80,921
$1,539,315
$266,206
$22,710,445
$1,261,691
$128,639
L1.4_5%
$85,517
$70,784
5.924%
$21,466
$19,486
$
49
3
,5
73
%
9
$8,862
$18,159
$16,774
$$3314,036667
$44,846
$40,075
$677
$1,385
$3,301
$4,771
$14,733
$1,970
43.82c
1.66c
9.09c
27.22c
18.21e
46.11e
1.61c
8.90e
24.10e
19.28e
46.98c
1.67e
8.85c
23.06c
19.44e
48.30c
1.55c
8.85c
21.66c
19.75c
46.94c
0.56c
11.21c
23.08c
18.21c
46.31c
1.56c
9.08c
23.90c
19.15c
21.08050.00%c
100.00c
100.00c
2.633%
.032%
2.931%
.099%
1..29
634
0%
1.021%
1.513%
5 7°
51;%
1.
.27
6.610%
6.330%
6.777%
6.97%
1.167%
.64%
I EXPENSE (Per Cent of Deposits)
ieterest
on Deposits and Savings
rPterest on Borrowed Money
'parantee Fund Assessments
oittk
laries and Wages
"ler Expenses
100.00c
100.00c
100.00c
2.947%
.111%
.611%
1.831%
1.225%
2.959%
.103%
.571%
1.647%
1.237%
2.1915806362i
1.464%
1.236%
.091%
.622%
1.271%
1.170%
Average Pei. Cent of Expense on Deposits
6.725%
6.417%
6.350%
6.904%
Average Per Cent of Income on Deposits
Averaise Per
Cent Net Profit on Deposits
7.23%
6.947%
7.03%
.51%
.53%
.68%
6..6711%4%
tThirty-eight Guaranty Fund Commission Banks and ten delayed reports not included.
893 State Banks in Nebraska June 30, 1926.
*Total assessments levied during period aggregate six-tenths of one per cent. Deficiency arises
entered.
because of different dates assessments were
7/0,
477
°
(14fr. 3
COMPILED BY
,
/
(v -.
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Federal Reserve Bank of St. Louis
us, e5
p
DEPARTMENT OF TRADE AND COMMERCE
LINCOLN, NEBRASKA
ABIE STATE BANK VS. WEAVER, ET AL.
101
With this compilation for the year ending June 30, 1926,
and the compilation, Exhibit 38, we have definite reports
11 the banks on their income and disbursements from July
1, 1925, to June 30, 1928, with the exception of one six111"th5 period between the two reports (for which no rePorts were available). A striking similarity as to income
1f8 evidenced by a comparison of the two. Exhibit 39 as
"
11 be noted, is classified between banks as to size.
The banks shown in this Exhibit 39 had gross income
fnr the twelve months of $16,465,653. Exhibit 38 shows
that the income of all the banks for the eighteen months
etiod referred to therein was $24,958,557. The one period
'
ell:1g twelve months and the other eighteen, it will be
.13ted
11
that their annual averages are about the same. During the fiscal year July 1, 1925, to June 30, 1926, there were
In(n'e banks and with the addition of the State Bank
"
t Omaha there would be a little larger relative income for
ihe Period but about the same considering the number ot
lanks• The exhibit discloses that the net profit on capital
and surplus of all the banks for the fiscal year ending
4nne 30, 1926, was an average of 5.924 per cent; this after
PaYing all Guarantee Fund assessments. The banks with
ebaldtal of $10,000 to $20,000 earned 4.47 per cent; those
etween $20,000 to $40,000 earned 4.95 per cent; those between
$40,000 and $75,000 earned 6.28 per cent; those beIstWeen $75,000 and $100,000 earned 5.90 per cent; and those
:
tWeen $100,000 and $200,000 earned 11.45 per cent. Mr.
;Ieltaritz's State Bank of Omaha far exceeded this
°ter figure, as herein otherwise appears.
it Will be noted also that of each dollar of disbursements
all average of only 9.08 cents went to the Guarantee Fund.
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Federal Reserve Bank of St. Louis
102
ABlE STATE BANK VS. WEAVER, ET AL.
and that the banks in the highest capital classification, paid
the highest percentage to the Guarantee Fund, to-wit, 11.21
cents on the dollar.
It further appears that the average income per bank
and the average expense per bank in each classification
bears approximately the same ratio to capital. This average of 5.924 per cent net profit of all the banks was on
both capital and surplus and after paying $1495,698.00 to
the Guarantee Fund on deposits of $259,923,784.00
.
27. Present condition of the banks; their reports at
the time of institution of suit showed healthy condition.
This case was filed in the latter part of December, 1928.
In connection with the then condition of the state
banks
especial reference is called to exhibits showing
their condition as of June 30, 1928 (Rec., p. 664, Ex.
61), and Dece
her 31, 1928 (Rec., p. 423, Ex. 22), being compi
lations Of
their semi-annual call reports as of those
dates. The last
one being within 10 days after the filing
of this suit, ana
showing a very healthy condition. Inspection
and analysis
thereof shows that on December 31,
1928, the banks 1191
more than twenty per cent cash reser
ve, to-wit, $48,792,700
in cash and cash in banks
and in addition had 36,900,831
in bonds and securities
which are readily convertible and
which banks are now carry
ing largely as the equivalent Of
cash. The banks thus had
in cash and its equivalent W."
692,531 or about 331/3 per
cent of their deposits. Thi.'
splendid showing confirmed
the testimony of Mr. Wood"
and Mr. Bliss as to the
condition of the banks.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
id
103
The December 31 reports, compared with the June 30,
1928, reports (Ex. 61) show that while the number of banks
had declined nineteen in the six months' period the aggregate surplus and profits had increased; $8,603,791.14 for
745 banks on June 30, 1928, as against $8,951,829.06 for
726 banks on December 31, 1928.
)1)
IS
The condition of existing banks has improved consistently and steadily since 1923. As the witness, Mr. Woods,
heretofore quoted, put it, In every respect, and without
44 exception, their condition is incomparably better than
in 1923." This evidence was not questioned. It stands
admitted.
28. The large profits and prosperity of the three large
banks sponsoring this suit.
It appears from the evidence that the principal bankers
this suit are officers of a few state banks which
have highly prospered largely because of and by virtue of
the Guarantee Fund Law and who have been its foremost
advocates. It affirmatively appears that their banks are
alnply able to pay the Guarantee Fund assessments from
large earnings. These men are A. L. Schantz, president
and majority owner of the State Bank of Omaha, Nebraska's
largest state bank; Dan V. Stephens, president and majority
°Wner of the Fremont State Bank; and William Seelenfreund, president of the Continental State Bank of Lincoln. With the exception of an Abie bank officer, they
Were the only bankers appearing in the trial of the case.
ban V. Stephens, president of the Fremont State Bank,
Called a meeting of a few bankers, including Mr. Schantz
t't the State Bank of Omaha, at Fremont, where a corn3lionsoring
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Federal Reserve Bank of St. Louis
104
ABIE STATE BANK VS. WEAVER, ET AL.
mittee was appointed to have charge of this suit (Ber"
p. 307, Qs. 1662-72). The use made by these banks of the
Guarantee Fund Law as an effective ladder upon whiel'
to climb is elsewhere referred to in this brief, but it 0
desirable at this point to quote some figures as to thelt
enormous growth and enormous profits under the Guar
antee Fund Law.
STATE BANK OF OMAHA: This bank was organized
in 1912. Its original capital was $300,000.00 and surp100
$37,500.00. At the time of the trial, 17 years after orgs0.
ization, the surplus was $200,000.00, of wili(1 $112,500.0°
was from earnings. During the same period the bank Paid
$294,000.00 in dividends. For seven years before the trial
it had been paying 10 per cent dividends on the capitol
besides the amount that had been passed to surplus (Bee
:
p. 224, Qs. 1138-43). Its deposits have grown to approal
.
mately seven million dollars. In 1915 it absorbed another
bank with two million, two hundred thousand dollars of
deposits (Rec., p. 361, Q. 2097).
FREMONT STATE BANK OF FREMONT: Dan Ir*
Stephens was majority owner of this bank. He becaule
actively connected with the Fremont State Bank in 190
and from then on down to practically the commenconelit
of this suit he was an active exponent of
the Guarantee
Fund Law and his bank probably one of the chief bets'.
ficiaries of the law. He gave wide circulation to his vieWS,
during the two years preceding the suit, his bank
used
from 1,200 to 1,500 inches of advertising
space a year la
THE FREMONT EVENING TRIBUNE, in advanci
ng its interest0
by featuring the Guarantee Fund Law
(Mr. Sorensen, vice
'
president, Q. 1838, p. 324, Rec.).
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
105
In November, 1920, when Mr. Stephens began promotion of the Guarantee Fund Law, his bank had capital,
(turPins and undivided profits of $68,277 and deposits of
$390,037 (Ex. A, p. 412, vol. 3, Orig. Rec.). The aggregate capital and surplus September 20, 1928, was $136,704.00. Of this the stockholders had paid in $87.500, possibly $5,000 more, leaving $44,204 accumulated from earnings and more than $30,000 of which had been accumulated
tunce 1920. Furthermore, the bank had continuously paid
dividends of 8 per cent per annum (p. 311, Rec., Qs.
1(00-7). The bank in September, 1928, had deposits of
1-,744,684, four and one-half times its deposits eight years
Prior. Mr. Stephens testified that his bank had prospered
(luring the last eight years and it had become the largest
bank in the city of Fremont, measured by deposits (Rec.,
375'6, Qs. 2202-6).
'••
)(
CONTINENTAL STATE BANK OF LINCOLN: This
bank was organized in 1909, concurrently with the enacttnent of the Guarantee Fund Law (Rec., p. 14). On Noveinber 13, 1920, it had deposits of $1,313,908; seven and
cme-half years later, on June 30, 1928, it had deposits of
$4,056,056 (Rec., p. 398, Qs. 2369-70). By reason of the
omission by the appellants of Exhibit 37 from the record,
are unable to give further details in this brief as to
.48 net earnings for the eighteen months period ending
'Inne 30, 1928, immediately prior to the institution, of this
Stilt. In that exhibit this information appeared as to each
6f the individual banks. Recapitulated as to all banks in
xhibit 38. (Mr. Marshall, Rec., pp. 429-30, Qs. 2568-7S).
It is fairly inferred from the record that but for tiles!.
feW large state banks, the present suit would not have
started.
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Federal Reserve Bank of St. Louis
106
ABIE STATE BANK VS. WEAVER, ET AL.
29. The small Abie State Bank in a town of 200
people earned and paid dividends of 10 per cent to 16
per cent until causes other than the Guarantee Fund
stopped them; the bank in its environment was not :typical membor of any class of banks.
The Able State Bank is really not the plaintiff in Oh'
suit; it fairly appears that it is but the screen under
which several large city state banks prosecute this suit'
It is not a representative bank and it is ridiculous V-)
treat it as illustrative of banking conditions generally 111
Nebraska. It was the only state bank with reference t()
which plaintiffs made any attempt to show any details or
operation and even as to it, the facts in no degree Or
ported plaintiff's case. In view of its position as the oulY
bank offering some details of operation, we have abstracted
the testimony as to it fully as follows:
Mr. Svoboda, cashier of the Abie State Bank for sever
teen years and its chief acting officer, testified (Rec., P
167, Qs. 650, et seq.):
That the Able State Bank did not know of the filing °f
the suit in its name until the president was so informed
by some person who had heard the fact stated over the
radio; that he was willing to have it continued inasmuch
-as it was already filed"; that he had received a circular
stating that 100 or more banks had joined in the 014
of the suit and if his bank wanted to join all right and
if not all right; that it joined in; that he had never read
the petition filed in the case and did not know its eontent''.
That Abie is a town of 200 people, located in Butler
county; that the bank has capital of $15,000 and surplo'
of $2,500; that it was organized in 1904 with $10,000 eapl"
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Federal Reserve Bank of St. Louis
ABM STATE BANK VS. WEAVER, ET AL.
00
is
er
it.
to
ii
Ii
107
tal and started paying dividends after the first year; that
the capital was increased from $10,000 to $15,000 in 1917
from, the earnings; that $2,000 was added to the surplus
from earnings—$1,000 in 1920, $500 in 1921, $500 in 1926;
that the bank declared dividends of 10 per cent and some.
tunes 15 per cent per annum after he went in as an office,
111 1912; that he owned 1121/2 of the 150 shares of stock of
the bank;
that annual dividends continued to be paid up
.to 1921 and then ceased until 1926 when a 6 per cent din-(lend was paid; that the officers did some land and insurailee busines and paid the proceeds therefrom, which were
sitall, into the bank.
No evidence was offered on the trial as to the loans
ond discounts of the Abe State Bank, or the rate of interest
If received on loans. No statement of its assets and liabiliflee, nor any other evidence was introdzwed to show what
Percentage of its assets were productive or "frozen" and
n°n-productive. No evidence was offered that its condition had been normal during the last several years. It affirinatively appeared, however, that it had a number or
notes, criticised by the banking department, made by relatives of officers, amounting to more than $4,000.00 and that
It had an equity in a real estate mortgage taken from a
brother-in-law or brother, of the managing officer, Mr.
gvohod a (Rec., p. 174, Qs. 801-5).
Mr. Svoboda testified further (Rec., p. 175, Q. 762):
That for the six months ending June 30, 1928, the bank
had gross earnings of $6,860.13, of which $332.10 was rea
estate and insurance commissions; that it disbursed to
salaries, $1,590.00; interest on borrowed money, $115.50:
interest on deposits, $3,972.50; taxes, $157.08; Guarantee
Pond $596.24, and other expense, $425.80; that for the six
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Federal Reserve Bank of St. Louis
I08
ABIE STATE BANK VS. WEAVER, ET AL.
months ending December 31, 1928 (Rec., p. 174, Q. 744).
the bank had gross earnings of $5,343.
55, of which there
was derived from interest on loans,
$5,088.36; commission
on farm lands, $106.71; commission on insura
nce, $148.5S;
that of this amount there was paid in salaries, $1,590.00:
interest on deposits, $1,834.88; Guarantee Fund, $91..S:
other expense, $1,439.75; and that the net profit for ti'
year was $333.05, after charging off bad
debts of $690.70.
It will be noted that its gross income for the year
Nra`
$12,203.68, of which $5,707.38, or almost 50 per cent, was
paid as interest on deposits; and the bank paid more than
25 per cent of gross receipts as salaries.
Mr. Svoboda further testified that the surrounding tow"
were strong competitors for deppsits, the town of Abi(
being within four miles of Bruno, where there are tir0
banks, six miles of Linwood, where there is one ban1.
and within nine miles of another town, where there is
another bank (Ree., pp. 174-5, Qs. 749-58).
The deposits at the end of 1928 were $182,000.00 (Re
p. 173, Q. 739). The bank was paying interest on so large
a percentage of its deposits that it amounted in the aggregate to an average of more than three per cent on all the
deposits, a condition manifestly due to competition. Elt
the bank paid the full Guarantee Fund assessment,
would have been about nine cents on the dollar of its grosQ
income, which is the same relative proportion
paid by the
other banks of the state.
Mr. Svoboda further testified that his bank
had had
county deposits continuously from 1912 down
to July, 192S.
without giving any bonds therefor; after
the commencement
of the suit, they had given a bond;
that he stated to bi
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Federal Reserve Bank of St. Louis
0.
ABIE STATE BANK VS. WEAVER, ET AL.
109
flePositors that they were protected by the Guarantee Fund
(Rec., p. 184, Qs. 839-42).
The Abie State Bank was one of the banks joining in
the state-wide Omaha Bee advertising herein referred to.
Its name headed the list of banks on the last advertisement.
30. A comparison with national banks in Nebraska
as to earnings and losses:
National banks have declined one-fourth in number;
their increase in deposits has not been comparable to
the state banks; fifty have converted into state banks.
In recent years the percentage of earnings of national
banks has been approximately one-half that of the state
banks and the percentage of losses almost double.
In connection with the progress of the state banks durleg the period of the Guarantee Fund Law it is important
to note the history of the national banks during the saint.
Period, in number, earnings and losses.
It appears that the number of national banks on October 1, 1909, was 219, and on June 30, 1928, 158; a cleclino
Of more than 25 per cent (Rec., p. 397, Qs. 2358-60). Dm'rig the same period there had been a net increase of state
14Inks (Ex. 10, Rec., p. 422).
Since the Guarantee Fund Law became operative in
1911, 50 national banks have been converted into state
hanks, two of which were in the year ending June 30,
1927. On the other hand, while some state banks were coill'erted into national banks before the law became operative,
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Federal Reserve Bank of St. Louis
110
ABIE STATE BANK VS. WEAVER, ET
AL.
only nine have converted from
state to national banks dal
lug the period that the fifty banks
were converted from notional into state banks (Rec., p. 396, Qs.
2348-9).
From 1911 to the close of 1927 deposits
of state bank'
increased from $73,886,000 to $261,311,000 (Ex. 10,
Rerp. 422, also in this brief) while national banks increased
from $83,360,000 to $193,621,000 (Rec., p.
397, Q. 2356)•
Thus while the national and state banks incre
ased their
deposits 353 per cent during the period, natio
nal banks increased theirs 232 per cent.
Appellants seek to make some point of the, amount of
deposits per bank, but of course, the important consideration is the total deposits in each class of banks and the
relative growth.
John Flannigan, a well known banker, forme
r presi'
den of the state association, denational
ized within the last
three years; Phil Hall, present president of the Nebraska
Bankers Association, Greenwood State Bank, denational
ized in the last three years; both on account
of the Guar
antee Fund (Rec., p. 257, Q. 1319). Minic Crawfor(1.
k
former president of the Rankers Associatio
n, Crawford.
Nebraska, also denationalized (Rec., p. 278,
Qs. 1441-2)•
The list of nationalizations included
two past Presidents or
the Nebraska Bankers Associatio
n and the present president (Rec., p. 279, Qs. 1444-5).
EARNINGS. The slump of national bank net earnings
during the deflation period in
Nebraska, was greater than
that of state banks, and shows
strikingly that the Guarantee Fund minimized the loss of state
banks rather the,'
han ced it.
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Federal Reserve Bank of St. Louis
ABlE STATE BANK VS. WEAVER, ET AL.
1.11
luring the period from 1922 to 1928, inclusive, the national banks of Nebraska outside Lincoln and Omaha
earned annually an average of 2.74 per cent, or less than 3
Per cent net on their capital and surplus, and during the
last five years averaged only 2.01 per cent per annum
(Compilation from comptroller's report, plaintiff's Exhibit
page 910, vol. 4, Orig. Rec.; omitted in printing).
A striking comparison with the earnings of state banks
tor the year June 1, 1925, to June 30, 1926 (Exhibit 39),
4'Id for the 18 months ending June 30, 1928 (Exhibit 38).
LOSSES. That the national banks took larger losses in
Xebraska through the deflation period compared to the average Of the balance of the United States and about double
tile percentage of Nebraska state banks is indicated by
comparison of the losses of state banks hereinbefore given
and the losses of national banks on plaintiff's Exhibit 56
from comptroller's reports.
THE LOSS OF NATIONAL BANKS (EX. 56, VOL. 4,
RAGE 910, ORIG. REC.):
Per Cent Net Losses to Gross Earnings
Nebraska
Lincoln
Omaha
Total U.S.
6.2
12.4
10.1
20.2
17.2
19.3
18.5
12.7
11.7
14.4
12.9
-0.7
6.7
11.2
13.0
13.3
16.1
18.4
20.6
32.5
14.0
19.4
22.3
5.8
12.8
14.1
10.4
10.5
9.0
8.5
8.7
8.7
1921
1929
1923
1924
1995
1926
1927
1928
The year 1921 in Nebraska indicates the normal losses;
then, as in state banks, comes the peak percentages through
1924, 1925, 1926 and 1927, with a recession in 1928.
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Federal Reserve Bank of St. Louis
112
ABIE STATE BANK VS. WEAVER, ET AL.
Especially note that the percentage of net losses to
gras'
earnings of national banks in Nebraska in
1926 was 19.°
per cent, and 1927, 18.05 per cent, and
that as against tliis.
the percentage of gross charge-offs
or bad debts by the
state banks of Nebraska for the 18 month including the
s,
entire year 1927 was $2,233,968 out of gross earnings
af
$23,977,661, or at the rate of approximately 10 per cent of
gross earnings. In other words, the losses in natio
nal bank'
were approximately twice what they were in state
banks
and the loss in national banks was
almost equivalent ill
percentage to the charge-offs in state bank, plus the pat
ments to the Guarantee Fund. The stabil
izing influence
of the Guarantee Fund was effective.
The losses of national banks in the Kansa
s City Be'
serve District as compared with the Unite
d States as rt
whole is further shown by data from page
877, Federal
Reserve Bulletin for December, 1928 (Exh.
60, Orig. Re'
p. 912-a), and data from page 879, same
exhibit; onlY
partially printed in record):
Kansas City District
1928
1927
All Member Banks
1928
1927
Losses on Loans
per $100 of Loans
Loss on Investments
per $100 of Investment
1.12
1.57
.33
.39
.52
.53
.40
.40
A comparison shows that the Kansa
s City District on
investments—bonds--runs lower than the averages. The
substantial purchase of bonds is a
recent development in
this agricultural country.
The losses on loans in the Kansas City District appears
double and treble the average'
in the country as a whole
; another evidence of deflation.
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Federal Reserve Bank of St. Louis
11
ABlE STATE BANK VS. WEAVER, ET AL.
113
A striking drop appears in the year 1928; further confirIllation that in national as well as in state banks, the deflation losses have been practically eliminated.
31. The relatively small amount of the annual Guarantee Fund assessments through the years; no special assessment levied in each of seven years.
The law as originally enacted and as held valid by the
trnited States Supreme Court provided for regular assessraents of one-tenth of one per cent and maximum special
assessments of one per cent on average deposits. The
1)(17ihers of the state procured legislation in 1923, cutting
the authorized assessments practically in half by reducing
the maximum special assessment to one-half of one per cent.
The maximum special assessment that this court now
has under consideration is exactly one-half of the amount
held valid by the Supreme Court of the United States.
There is included in the printed record an exhibit showing a list of the regular and special assessments, the rate,
total assessment and the average deposit for the years
1911 to 1928, inclusive (Rec., p. 487, Exh. 44).
Then the act was amended at the instance of the banks
to reduce the maximum special assessment from one per
cent to one-half of one per cent. Since the amendment of
the act only five-tenths per cent special assessment could
be levied in any one year.
It is worthy of note that for the nine years, 1919 to 1927,
inclusive, including the three years above when the largest
anfount was levied, the average special assessment for the
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Federal Reserve Bank of St. Louis
114
ABIE STATE BANK VS. WEAVER, ET
AL.
nine years was five-tenths of one
per cent ($500 on $100,000
deposits), and that for the four years 1924
to 1927, 111'
elusive, the average special assessment
was .045 per cent
($450 on each $100,000 of deposits).
of
During the eighteen years from 1911 to 1928, both years
inclusive, and including the last unpaid assessment now
in
controversy, the average assessments for the
period, j1
eluding both regular and special, have
averaged less than
four-tenths of one per cent ($400
a year per $100,000 of
deposits): to-wit, sixty-nine-tenths for
the eighteen year'
and less than a million a year
for the period.
AMOUNT AGAINST EACH BANK OF THE SPECIAL ASSESSMENT IN ISSUE.
The interveners offered
in evidence Exhibit A, Recor
d, page 568, showing the
amount of the current enjoined assessment asses
sed against
each bank listed in Exhibit A attac
hed to plaintiff's petition.
We challenge the court's attention to
this exhibit as
showing how small, relatively, is the
amount to be paid
by each bank.
32.
Threats of the banks to liquidate or nationalize.
The argument that certain banks
will possibly liquidate
or nationalize affords
no reason for judicial nullification
of the law. The court is
asked to take into consideration
and speculate as to the effect
thereof. There is no evidence
on the proposition. This
same threat was made at the
time of the enactment of the
law but a very few banks did
withdraw. But that question is not
in this case.
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Federal Reserve Bank of St. Louis
0
ABIE STATE BANK VS. WEAVER, ET AL.
115
Mr. Schantz on cross-examination testified that he was
unable to name any strong state bank that would nationalize or any state banks that would liquidate if the
assessments were continued (Rec., p. 637, Qs. 4158-60).
lie refused to express and had no opinion as to when such
assessments would have that effect (Rec., p. 637, Q. 4161).
A fair consideration of this matter, if the same were
Pertinent, would involve broad and extensive evidence as to
the advantages and disadvantages of the national and state
banking systems, and an appraisal of the various benefits
attaching to a state banking charter as distinguished from
a national. There are many advantages attached to a state
charter as distinguished from a national one. Some of
these are statutory of which the court will take judicial
notice. Among these are: A national bank is required t:,
keep a certain percentage of its deposits with a federal
reserve bank without interest. A state bank is not undei
this obligation; it gets interest from its depository.
state bank may loan to one borrower 20 per cent of it
capital and surplus; a national bank only 10. A state
bank can make individual loans to its customers as larg
as a national bank with twice the capital.
These and other benefits and advantages the legislature;
conferred on state banks in imposing the Guarantee Fun(1
°bligation are illustrative of the impossibility of a court
Jildicially inquiring into and passing on the matter. Manifestly an inquiry into the matter of the continuance of the
guarantee Fund Law involves an inquiry into all related
'natters and the law as a whole.
Such threats are no more competent now than they
Were twenty years ago, at which time they were made
freely.
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Federal Reserve Bank of St. Louis
:
ABIE STATE BANK VS. WEAVE11, ET AL.
Take the case of these unorganized
thousands of claimant
depositors; men and women who trusted these banks; be.
lieved their representations; relied
on the decision of the
Supreme Court of the United States; men and women
Alb°
respect their own legal and moral obligations; depositors jfl
the plight of Rev. Peterson and
the stipulated wit"
nesses. On what tenable theory of law or equity
or good
conscience can they thus be judicially deprived of such
perventage of relief as the assessments to
be paid by go
banks in the system will afford?
33.
The "Eight Per Cent of Capital" Deception.
The banks have adopted as a slogan in this case and
constantly reiterated the misleading statement that theY
pay eight per cent tax on their capital
to the Guarantee
Fund. They pay nothing on their capital to the Guarantee
Fund. The Guarantee Fund payment is an expense of
operation, a charge against operation and for the privilege
of doing business as a bank. It is no more
to be figured
as a per cent on capital than is any other expens
e of
operation.
For instance, take the analysis of operating expense and
income of the banks for the year ending June 30, 1926
(Exhibit 39). This shows that of each dollar of income of
the banks there was paid to the Guarantee Fund nine
and
eight-tenths cents, or about one-eleventh of the income
and
that there was paid as salaries
and wages 23.90 cents out ot
each dollar, or approximately one-fo
urth of all income.
Inasmuch as the salaries and wages amount
to about two
and one-half times the contribution
s to the Guarantee Fund
it would be just as relevant
and reasonable to state that
the banks paid twenty per
cent of their capital as wage4
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
117
Slid salaries as to say that they paid eight per cent or
their capital as contributions to the Guarantee Fund. The,
same illustration will apply and the same figures hold good
With respect to interest on deposits on savings accounts
Paid by the banks and which amount to more than five
tnnes the payments to the Guarantee Fund. With the same
reasoning they could state that they paid forty per cent
their capital as interest on deposits and savings.
These assessments are an expense of operation; a charge
against earnings for the privilege of doing business as
hanks, and largely and actually come out of the carryings
which the Guarantee Fund itself creates. The annual gross
itleome of the banks is approximately the same amount
the capital (Exh. 39). The banks pay from nine cents to
tea cents out of each dollar of gross earnings to the
guarantee Fund.
34. The assets and liabilities of the Guaranty Fund;
and its aggregate net liabilities; there was no concealkent of amount; the bankers' knowledge was greater
than that of depositors; extent of knowledge immaterial;
the amount adds nothing to the maximum permissible
annual assessment against the banks; it affects only the
Claimant deposits; no interest is paid on claims.
It appeared at the time of the trial that the gross book
'Wile of the assets in the hands of the Guarantee Fund
Canimission was $39,511.701. The liability in receivership
hailka was fiXed but the liabilities in commission—operated
hanks and the probable realization on their assets was a
hiatter of estimate. The evidence fairly disclosed that the
net liabilities would be less than $12,000,000.
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Federal Reserve Bank of St. Louis
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ABIE STATE BANK VS. WEAVER, ET AL.
Secretary Peterson of the Guarantee Fund Commission
made an estimate of net liabilities of $16,000,000 in
statement prepared for plaintiffs (Rec., p. 122, Exh, 1)•
His cross-examination thereon, however, develop
ed:
That he omitted the asset of stockholders' liability (Rec.
,
p. 120, Q. 316), which in a previous statement he had ineluded and expected a realization on, of 25 per cent; tbe
experience of his department showed a realization of '3°
per cent on such assets (Rec., p. 114, Q. 268); this real"
zation would be more than $1,000,000 as the assets
the hands of the commission were much larger than at
the date of the previous statement. In this Exhibit 1 in'
admitted be listed the item of "sale assets" at about half
their value (Rec., p. 95, Qs. 112 to 118, inc.).
The assets on hand (book value) had increased front
$28,700,000 to $39,500,000 between his statement of M:iy.
1027 (Roe., p. 126, Exh. 4), and his statement of Deconber 31, 1928 (prepared for the trial), (Rec., p. 122, Exh. 1);
still he placed the expected realization at the same amount
in each, to-wit, approximately $10,000,000. In the latter
statement Mr. Peterson did not disclose that $2,239,691 of
the assets listed in said Exhibit 1 were cash until he was
recalled to the stand and specifically asked the amount of
money therein (Rec., p. 196, Q. 916). Of the $39,000,000
listed as gross assets of which he expected a realization
of only 25 per cent or $10,451,932, approximately onefourth of said realization was already in cash and
1r17,000,000 of the $39,000,000 of assets was in going banb.
being operated by the commission (Rec., p. 122, Exh. 1.)•
In referring to Exhibit 1 it should
also be noted that the
number of banks is duplicated and that 70 banks in which
there were "sale assets" are the same
banks included ill
the other banks listed (Rec., p. 99, Qs.
145-6).
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
19
llowever, the aggregate net liabilities primarily concerns the depositor in a failed bank, for it affects the time
When, and the extent to which he will receive his money,
it does not inereas,, the bank's annual assessment or contribution for that is fixed by law.
The regular and special assessments approximate
1,600,000 per annum and would pay this liability in about
seven and one-half years.
AS showing the comparative value of the Guarantee
Vuud, it appeared that the total liabilities of all failed
banks since June 30, 1914, had been $75,650,933 and of
Which $50,000,000 had been liquidated and paid; 70 per
cent having been paid from the assets of the failed banks
and 30 per cent from the Guarantee Fund (Rec., p. 121,
Qs. 320-4) leaving, roughly, $26,000,000 of liabilities as
against which there are the assets of book value of
39,031,605.
CAPITAL ASSESSMENTS ON STOCKHOLDERS.
Comment is made by appellants on the fact that $2,000,000
0f capital assessinents have been paid by stockholders.
' llere is not the slightest evidence that the cause for these
payments was in any wise related to the Guarantee Fund
assessments; on the contrary the evidence hereinbefore
quoted was that the Guarantee Fund had been a stabilizing influence and prevented losses and the inevitable conclusion is that but for the Guarantee Fund the banks in
Which these capital assessments were collected, being weak
by reason of losses, would many of them have failed or had
illus on account of their apparent weakened condition. As
°Ile witness expressed it, it was common knowledge that
Under the operation of the Guarantee Fund law and
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12.0
ABIE STATE BANK VS. WEAVER, ET AL.
through the period of stress a bank on one side of the
street could fail and close without causing the slightest
embarrassment to the bank on the other side because of
the confidence in the fund (Evidence hereinbefore quoted).
INTEREST ON LIABILITIES. In line with plaintiffs'
policy of exaggeration they say it will take the assessment
to pay the interest on the liabilities.
The interest on adjudicated claims, if paid, would be
less than one-half the amount thus extravagantly stated,
and the same claimants would get it, and in the swot'
proportion, and benefit thereby in the same amount as If
it were paid as principal.
But, quite important, the guarantee fund has not bee's
paying, nor the depositors asking, interest except in a fell'
isolated litigated claims reaching the supreme court, 89
was testified to. In fact adjudicated claims were paid nl'
until October 1, 1927, and those now unpaid have bee"
allowed since from that time down to the time if the
trial (Exh. 54, p. 820, vol. 4, Orig. Rec.)
Again, if the item of interest becomes important, it
within the power of the legislature to provide that all
assessments paid shall apply on principal of deposits.
•
Reference is made in the governor's message to accrue'l
interest on certificates of deposit, and accrued interest on
liabilities of the guarantee fund. The reference to accrued
interest on certificates of deposit had reference to that ac"
crued at the time the bank went into reeeivership, as of
course no interest is allowable on deposits while a bank
is in receivership and pending adjudication; it is in C118toctia legis.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
121
KNOWLEDGE OF EXTENT OF LIABILITIES. Appellants state their lack of knowledge of the net liabilities
Of the Guarantee Fund. Failed banks have been under
the control of the Guarantee Fund Commission since 1923,
and it has operated a large number of banks taken over.
The members of the Commission are appointed by the
governor from names chosen by the state bankers.
Mr. Kirk Griggs, secretary of the Department of Trade
and Commerce in 1925 and 1926, testified: That about
January 20, 1925, he had a meeting with Mr. Schantz atm
Other representative bankers in Lincoln and that lie had
made a resume of conditions and asked them their advice.
and he told them that he "figured the losses then existing
payable out of the Guarantee Fund would amount to over
$6,000,000 (Rec., pp. 650-1, Qs. 4226-32) and that he meant
net losses (Rec., p. 653, Q. 4241); and he told them that.
to his judgment the number of banks probably involved
Would amount to 215 (Rec., p. 652, Q. 4233).
In May, 1927, the bankers' committee met in Lincoln
and an estimate was made at that time of the assets and
liabilities; the assets then being $28,720,257 and it wa.h
eetimated that the net loss would be over $6,000,000 (Rec.,
P. 126, Exh. 4).
As will be noted, the amount of the net liability of the
fund from time to time is a matter of opinion, largely
hosed on estimate and value of assets. The book value of
the assets of the fund has at all times been vastly in excess
Of the liabilities. At the time of the trial the book value
of the assets of the Guarantee Fund was $39,000,000 and
the liabilities about $26,000,000. So the net amount was
a matter of judgment as to realization on assets.
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Federal Reserve Bank of St. Louis
22
ABIE STATE BANK VS. WEAVER, ET AI..
At the time the advertising was done in 1926 the bankerS
apparently then knew that the net liabilities of the ft na
were in excess of f7,000,000.
In March, 1928, Mr. Schantz prepared and circulated
two thousand copies of a pamphlet concerning the
Guarantee Fund Law (Rec., p. 627, Qs. 4096-4105).
He quoted in this document "The Story No Other
State Can Tell". He therein referred to the tote
net liabilities of the fund as ten million dollar°
and recommended a system of paying the depositors It ith
receiver's certificates in order to make the claim availcble
as security for loans and give the depositors the use of tl eir
deposits. There was then no question about ability of the
banks to pay assessments, or of repudiation of liabilities
or of diminishing benefits.
Mr. Bliss, a state banker, has been in active charge °f
the banks. There is absolutely no evidence that either
Secretary Bliss or Secretary Peterson deceived the hank'
era, or anyone else, in the premises. But of course the
extent of the losses and the character of liability cannot
under any proper theory of the law be a basis for the
banks denying liability for the fixed maximum assessmen'
t
Plaintiffs state: "Estoppel must be based on acts per
formed by one party with knowledge to the detriment
another party having no knowledge or means of knowl'
edge." To support this statement they argue voluminonsli
as to the time when they ascertained the liabilities of the
guarantee fund.
They had knowledge in fact; but the knowledge or 1 aet
of knowledge apparently cuts no figure in the principJe
applicable.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER., ET AL.
123
The aggregate of the net liabilities did not add anything
to the
permissible assessment against the banks. It
kerely went to the question of the time when and the
aluount of the payments on accrued claims. It chiefly
Concerned the claimant depositor.
Certainly, there is no evidence that the depositors knew
anYthing about the extent of the liabilities.
35. The alleged conversational guesses as to future
1°sses and failures; and possible future losses as indicated
bY statements in Examiners' Reports.
.M1101 time was devoted by appellants to a cross-examination _.
0i Mr. Bliss, secretary of the Department of Trade
and Commerce, with reference to what he might have theretofore said in conversation with their Witnesses Stevens
and Schantz with respect to the number of banks which
blight have capital impairment and might thereafter fail,
and to Stevens and Schantz recollection thereof. Mr. Blis.ty
did not recall making the statements. Appellants have
1)1clied out a few isolated questions and answers from this
.e
t etiniony. A fair analysis of such testimony would require
quotation here verbatim. We will not burden this brief
With it.
We submit that such testimony of conversations was
*holly incompetent. If held competent for any purpose
they would not be binding upon the banks from any angle
alld would not be binding upon the depositors. Manifestly
taleh expressions of opinion if made as to what could or
blight happen would have slight weight. Mr. Bliss exPlained it all by his statement that anything he might
gave said had reference to his estimate as incorporated in
the bankers' committee's report of May, 1927, that after
that report 100 banks had been closed; that other banks
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124
ABIE STATE BANK VS. WEAVER, ET AL.
had taken care of their losses by assessment
or otherwise
(Rec., p. 192, Q. 898), and that at the time of the trial
nearly all the banks that he had referred to in said report
as having probable capital impairment had been clean( d
up and disposed of in some way (Rec., p. 198, Q. 934).
As a matter of fact, the testimony of Mr. Bliss and (II
other witnesses as to facts and figures on earnings, con(
tion, etc., negative the probability of 1,ict over 1—virg made
any such a statement. Manifestly, an isolated statement
of that character, if made in a conversation, would bo/e
no substantial evidential value in any event and should
have no prejudicial bearing on the rights of depositors.
Analogous are the statements of Mr. Stephens and M"
Schantz that they thought if the assessments were Wt
tinned the majority of the banks would operate with ilo"
paired capital or be forced into liquidation. Neither 01
them gave a single figure that would support such a guess'
In fact, the acts, conducts, representations and statemel
of each prior to the trial had been just the reverse of
such a position.
Examiner's Estimates of Probable Losses in Going Ban10
Long after the plaintiffs had rested their case they ask ed
Mr. Marshall of the banking department to run on an a( (1ing machine from examiners' reports made from time to
time during a fifteen months period, the total amounts no'ea
by the examiners as losses and probable losses, the amol nt
of loans and discounts in all the banks six months
due na
demand paper carried twelve months or more. This v as
done. Appellants stress such figures; but do not include 1 he
related facts.
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Federal Reserve Bank of St. Louis
ABIE STATE RANK VS. WEAVER, ET AL.
125
It appeared that none of these examinations had been
11lade at the same time nor for the same period. Some items
°I)Jected to by the examiners had been collected in or other-
1
removed; some of the objections were disputed by the
)4114 The criticized items were distributed through the
t`tte banks without reference to whether the bank was
or weak, dividend paying or non-dividend paying
Rec-, p. 559, Qs. 3608-9).
Ilr• Marshall testified that in the case of the notes six
IlloOths past due and demand notes carried 12 months or
ill°re, it was merely a classifying and the question of
I'llether they were good or bad did not enter in (Rec., p.
'69, Qs. 3615-7). Plaintiffs had referred to these as "statut°17 bad debts."
;
There was no foundation for the introduction of thc
totals from these examiners' reports and they should not
}Italie been admitted without an opportunity to examine
hem and cross-examine in detail with reference to them.
The total amount thereof based on the total loans and in'
l eNtments of $216,342,687 was 1.82 per cent (June 3u,
1928, statement, p. 664, Record). As stated, testimony of
/11% Eliss was offered that more than one-third of this had
been disposed of. It was further testified to that many or
the items were not admitted by the banks to be loss Or
Illtbable loss.
• Raving in mind the commendable disposition of examto closely scrutinize and criticise with a view to
keePing the banker diligent in the matter of his loans and
theeounts, we think it is a fair statement that the percentttge of items criticised as above would prevail under any
el)ntlitions in the banking business. The strong banks get
'le criticisms as well as the weak.
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Federal Reserve Bank of St. Louis
1 1;
ABIE STATE BANK VS. WEAVER, ET AL.
We submit this evidence was entitled to little pro"
tive force on the issues. The trial court in its opinion did
not refer to it.
36. The benefits of the law to the banks—past 9,0
future; the courts can not measure them.
The evidence is overwhelming and not denied as to tpe
benefits of the Guarantee Fund to both depositors Oa
banks. The only reason suggested by the plaintiff as t°
why it would not be of a continuing benefit was its large
liability. This the banks urge by way of argument rather
than by way of evidence. The public does not urge it'
the public authorities do not assert it. The extent of the
liabilities did not add a dollar to the maximum $600 Pet
$100,000 of deposits annual payment of assessments 1):*
the banks.
The banks admit past benefits to them from the Guars,It'
tee Fund. The evidence of impaired benefits now is scant.
They raise it by inference and imply it from the amount of
the accrued liabilities of the Fund; this is a matter of argn"
tent and is covered hereafter. It is in evidence that the
acts of the banks in giving notice of their intention to file,
and the filing of this suit was the disturbing factor. It is
the only tangible evidence of reduced confidence.
Inasmuch as the Guarantee Fund provisions were cre'
ated for the benefit of depositors the benefits to the banlo'
necessarily arise indirectly although, as has been hereill
shown, there were large benefits to the banks. Manifestly•
the extent of the benefits to depositors in the past has
not
been at any time a matter for judicial computation and
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
127
susceptible to judicial measurement. In considering
the present and future the court is asked to nullify the law
ell the ground that it has ceased to be beneficial to the
tlePositors in existing banks and to the banks. We submit
that the future benefits of the law to the depositors or the
not
hanks cannot be judicially measured or ascertained. No
authority has been or can be produced supporting such
course,
The fact of whether the fund has accumulated liabilities
Ilas two effects; it affects the time within which depositors
HI failed banks will receive payment, and it no doubt dikinishes some the extent to which a present day depositor
l'elies on the protection of his deposits. But it adds nothlag to the maximum assessment to be paid by the banks.
If the liability of the bank was unlimited a different question might be presented.
If the law is for the benefit of depositors in failed banks
It Would seem absurd to contend that they should forego
their claims because of the extent of the claims arising.
They are not responsible for that situation.
Appellants contend that the fund is for the benefit of
Ileting depositors in going banks. It is of course for the
benefit of all depositors. From the depositors in going
()links today trusting in and relying on the law, its adjudicated validity and the express and implied promises of the
hallick, come the claimant depositors of tomorrow—includ111g public officials with unsecured public deposits. Such
are the claimant depositors as now exist in many thou''ands—public and private.
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128
ABIE STATE BANK VS. WEAVER, ET AL.
Claimant depositors are the only ones that have 01 co
sion to actually participate in the fund or opportunity to
ea;
participate in the assessments levied and now enjoin
in that sense the depositors are the real defendants;
that sense they avail themselves of its protection.
ill
At the time this suit was started, there were depositors.
adjudicated claims of $10,536,518.59 (Rec., p. 87, Qs. 56 7)
The annual regular and special assessments of $6
$1,000 of deposits produces annually around $1,600,0°'
which is equivalent to 15 per cent of these adjudiesteti
claims.
'
In determining the benefits of the guarantee fund 10
relatively, at any stage, as between depositors who
become claimants through failure of banks and the
positors in going banks, the benefit to the former is tile
more tangible and visible, and definitely ascertainable. I°
is necessarily so. Only a portion of the depositors
going banks ever become claimants against the itind•
The depositor in a going bank places reliance on the f1101
to the extent of depending on the measure of security wr
to
the assessments will give in the event that he is added
the existing claimants.
This benefit to the depositor in the going bank or I/I
4r0014
the closed bank is not in the same degree that it N
tor
be if the Fund had no accrued liabilities. But the depos
r(
in the going bank has exactly the same benefit and IP'
tection as the depositor in the failed bank, in that be
60
knows that should the bank fail, he will participate
instanti in the depositors' guaranty fund.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
ed:
fl
00,
ad
i,
11
129
The enjoined assessment for the last half of 1928 was
622,947.76. The regular and special assessments since
then amount to less than $2,400,000, none of which the
banks have paid, so that the total assessments now in issue
al'e little less than $3,000,000. The banks have accumulated the same in their hands pending the determination
of this suit.
37. The bringing of this suit by the banks and their
attempted repudiation of their liability has impaired pub he
Confidence in the banks; has been the principal source
Of reduced benefits from the Guarantee Fund and has reilled in bank failures.
The state Bankers Association meeting was held in
()Inaba, Nebraska, in November, 1928, and the newspapers
tarried the report that certain state banks would contest
the assessment and refuse to pay it. The president of the
al4suciation announced that the banks were not going to
Pay the assessment. The banks thereafter did commence
a suit and the agitation, including the suit, created nev"usness and distrust in the people (Rec., p. 285, Qs.
1486-90; Rec., pp. 469-70, Qs. 2862-3).
Thereupon public officials commenced to demand bonds
and in December, 1928, about the time the suit was filed,
state Treasurer Stebbins learned of the proposed contest,
°f assessments and as he stated, he "played safe and asked
for bonds" in the latter part of December, 1928 (Supp.
'
lee., pp. 60 and 61); public officials also had commenced
t° ask for bonds insuring public deposits (Bliss, Rec., pp.
469-70, Qs. 2862-3).
Appellants have gone outside of the record and stated
the alleged number of banks that have failed in 1929 and
1930; the number is grossly exaggerated; and the bank
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Federal Reserve Bank of St. Louis
130
ABIE STATE BANK VS. WEAVER, ET AL.
failures that have occurred are largely attributable t()
the bringing of this suit. Reference to Exhibit 10 Will
show that the banks, through the period from 1920 to 19.2.
held their deposits substantially intact, notwithstanding
the large number of failures. Whatever losses they have
suffered since the bringing of this suit are solely attribli
table thereto.
There is no evidence of any diminution in the benefit of
the law to them until they precipitated this controversY.
Until then the depositors in. failed banks had confidence
them; and the depositors in going banks gave no evidene`
of impaired confidence.
38. The alleged "Public Interest- asserted by the
banks is but the camouflage of the large state baill(5;
they only sponsor this suit; the defendants' public offlcial5
are asserting the public interest.
39. Messages of the outgoing and incoming gover.
nors are in harmony with the statements of this brief
But, say the banks, these liabilities having accrued t°
claimant depositors of failed banks, the present-day de'
positors in going banks will receive no future benefit all4
the payment of existing obligations will affect the public
interest and decrease the ability of the banks to wee
their obligation to present-day depositors and
to Inal
'
ef
compensatory earnings. Thus hiding under the cloak
the public interest and that of the present
-day depositors.
their asserted grave concern for both is purely camoufl
age
to increase their own earnings at
the expense of the dr
positor.
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Federal Reserve Bank of St. Louis
E STATE BANK VS. WEAVES, ET AL
131
Appellants have quoted a few isolated excerpts from the
laugural address of Governor Weaver. That both Gov"nor Weaver, the incoming governor in January, 1929,
lid Governor McMullen, the retiring governor, held views
holl in harmony with the position of appellees in this
ecLfle is shown by the following quotations from their re8Peetive addresses on that occasion.
of
10
Lie
0;
10
If
Governor McMullen, in his farewell message to the 1929
legislature, in concluding his reference to banking condit
Ona and these assessments, said (Exh. 11, Senate Journal,
P' 197, vol. II, Orig. Rec.):
"So long as these bank losses remain unpaid, the
guarantee law should not be repealed and its provisions should be protected from nullification.
DePositors of failed banks are legally and morally
entitled to their money. They have taken the word
Of the banks that their deposits would be secure and
they have depended on the integrity of the state to
see that the guarantee laws are carried out in good
faith."
And prior thereto, in the course of the address, he had
tated (pp. 42-43, vol. II, Orig. Rec., Senate Journal):
"When the bank guarantee bill was under discussion by the legislature of 1909, the point was stressed
that only the small depositor, such as the day laborer,
the widow with her meager savings, and similar accounts, should come under its provisions, but as the
bill passed it included all deposits of whatever size
OP kind. According to available records, the measure
met the opposition of three-fourths of the state bankers. Counsel was retained by opposing bankers and
the constitutionality of the law tested in the federal
supreme court. The law was sustained by that body
In a decision rendered in 1911 and state bankers have
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
paid, their assessments as levied annually until the
second half of the special assessment for the yea'
1928 just closed. On December 21, 1928, notice Was
served on the state that payment of the special assW
ment mentioned would be resisted and a restraining
order asked of the courts on the ground that the
assessment is confiscatory. While many state banke0
opposed the law when it was first enacted, there were,
others who engaged in the banking business because 01
the law and in spite of the payment of assessment
for nearly a score of years have been benefited to the
extent that their banks have grown into large 01
substantial institutions. During the years of the
development of their banks under the guarantee 10,
they were outspoken advocates of the elnitable and,
protective features of the measure and emphasize
the advantage to the depositor in having his account
secured. However, when banks to Le c.Ls:-.1, ins!reased
in number and losses to the guarantee f7:-..1 7,701.v 11)
volume, it was the larger banks, those that forme"l:'
had extolled the law, that first protested against
paying their proportion of the special levy and Prttposed to other state bankers that organized effort he
made to have the special assessment feature of the
law declared null and void. These protestants assert
their willingness to pay the regular assessment, whicb
is one-tenth of one per cent, but are anxious to he
relieved of the special assessment, constituting five,"
tenths of one per cent. If the courts hold the specis'
assessment unconstitutional and the regular assess'
ment is not increased to make up for it, the guarantee
law is doomed.
"In 1909, before the guarantee law was in full
operation, the 659 state banks reported $71,000,000
of deposits with a capital investment
of $12,000,000.
In 1920 with 1,012 banks reporting
there were
$243,000,000 of deposits with a capital of over
$26,000,000. In 1928 from the latest compiled re.
ports of the 730 state banks there are $268,000,000
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Federal Reserve Bank of St. Louis
1
ABIE STATE BANK V. WEAVER, ET AL.
12)3
of deposits with a reserve in cash and bonds of over
$37,000,000 and a total capital stock of $19,000,000.
In other words, 273 fewer state banks in 1928 than
1I1 1920 and $7,000,000 less capital investment, the
deposits have increased $20,000,000. The low reserve
Position of the banks of 1920-1921 compared to the
large volume of deposits has been completely changed.
The banks now show cash and bonds of $97,000,000,
Which when added to their commercial and feed lot
loans, should enable the average state bank to pay
One-half of its deposits practically on demand. Excluding the sixty-one banks in receivership and the
seventy-four banks in the hands of the guarantee fund
commission, together with an estimated number that
may be taken over in the future. It may be said that
the remaining banks are stronger, more prosperous,
more elastic and more able to meet demands than any
time in the history of the state."
Governor. Weaver, in his inaugural message to the 1929
legilature, and in commencing his reference to the state
banh8 and the guarantee fund said Exhibit 11, Senate
4011rna1 (p. 197, Orig. Rec.):
"Both the republican and democratic state platforms declared in opposition to the repeal or weakening of the bank guarantee law. Regardless of either
the merits or defects of the law, and the guarantee
FITstem thereunder, general assent as to its need and
usefulness has been given by our people for more
than seventeen years. Undoubtedly the protective
Purposes and features of this agency accepted by the
People until recently as adequate, have served as a
great stabilizing influence in both the banking and
other business of the state, and especially during the
adverse financial conditions of recent years. During
this trying period the benefit to an business was so
apparent that I feel sure that the business of the state
could well have afforded and would have been willing
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ABIE STATE BANK VS. WEAVER, ET AL.
to have generously contributed to sustain the guar"
antee fund, had its solvency been then threatened.
In view therefore of the expressed opinion of hot"
political parties in this state and of the recognized
benefits which have already accrued, we should seek
only legislation pertaining thereto which aims t°
strengthen and protect the bank guarantee systeal.
Our joint efforts in this public endeavor should be
undertaken in spirit entirely free from partisan bias!
and for the sole purpose of serving the state and its
people."
Governor Weaver, in a special message to the 1929 legis"
lature, on February 4, 1929, of which the court takes ill&
cial notice, said that since his inauguration message, eon'
ferences had been had with committees of both houses, as
well as with many citizens; and said among other things
in discussing banking and the guarantee fund:
"In taking stock of this whole situation, our afti"
cials and citizens should be firm in meeting the attack made upon our present laws by a large number
of state banks. The operation of banks under the
laws of Nebraska is based on a franchise right granted
by the state. A corporation which has sought, obtained, and used such a franchise cannot be heard t°
assert that it will keep only a part of the contract.
It must always operate under the laws of the state
whatever they are. Any modifications as to the
present law should be made, not because modifications
are demanded by the banks, but because the interest
of the state will be better served thereunder. Until
we go to a new basis for the new guarantee fund,
the present rate of assessment should stand."
40. The Nebraska legislature, in March, 1930, after
the decision in this case, passed an act reducing the future
total annual assessments from six-tenths of one per cent
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to two-tenths of one per cent, and limiting the latter to a
Period of ten years, and to application on accrued liabilities
(Son. File No. 3, 46th Spec. Ses.).
We can not in this case consider the reasons which
Ptompted the Nebraska legislature to take this action in
lliareh, 1930, over fifteen months after this suit was brought,
nor consider the sufficiency of such reasons. This act and
't5 effect are further discussed under Proposition of Law
\ limber 20.
ARGUMENT AND PROPOSITIONS OF LAW
Cases testing the validity of Guarantee Fund laws have
always heretofore been submitted on demurrers to the
banks petitions. Invariably the laws have been sustained.
The defendant state officials in this case, however, were
Of the opinion that the interests of the state and its
People would be served best by a complete showing 0.
how untrue and how groundless the contentions of the
banks were, as well as raising the legal questions.
In this, we believe, the court will appreciate that Gov
ernor Weaver and the other officials were right. Th •
Public interests and business interests of the state are
better served by a full and complete showing of the facts
than by a tacit admission of the groundless economic col,tentions of the banks, as a demurrer would have done.
Even a technical admission of these untrue assumptions
4nd complaints would have been seriously injurious from
economic standpoint.
, Upon the trial, as the court will appreciate, the banks
tailed wholly to show that the Guarantee Fund assessments
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ABIE STATE BANK VS. WEAVER, ET AL.
ever materially influenced the failure of any bank or that
the assessments are now oppressive. A contrary state nt
facts was conclusively established. We have summarize°
and quoted the evidence at length in this brief; perhaps teu
much. But it is in line with the policy of the Nebraske
state officials to have the case fully and fairly tried 01
'
the facts as they exist and not from a fictitious assumption
of conditions.
Appellants by ingenious argument, attempt to submit
the issue in this case as one between the depositors with
unpaid claims against the Guarantee Fund and present
depositors in going banks. They contend that payment of
the assessments by going banks is unfair to present de'
positors because such payment does not give them fo"
tection.
This is not a correct statement of the practical isell"
presented by facts and conditions as they now are noi
were when this suit was brought.
The true controversy is whether or not the present
stockholders in going banks are entitled to have the
court by injunction suspend the operation of the Guarantee Fund Law (admitted and adjudicated a proper police measure), until all losses, current and those caused
by the deflation period, are charged off, and the stoc1;holders receive larger earnings than the banks were
earning (average annual net earnings in excess of 7.0
per cent on capital and 5.26 per cent on combined capitni
and surplus) before the banks are required to meet their
obligations to depositors with unpaid deposits. If relieved of these assessments the stockholders would ad"
mittedly, after both current and deflation period losse°
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137
are charged off, receive an average annual return of in
excess of 11.18 per cent on the combined capital and
surplus of their banks.
The Nebraska Supreme Court in its opinion and syllabus sets out in detail part of the evidence showing that
the Guarantee Law had been of tremendous benefit to the
state banks; that it never has been a materially contributing cause of bank failures; that it is not confiscatory ot•
burdensome and that a complete case
of waiver and estopWas made out against the banks. That court was
clearly right on the facts and we believe our full presenta
ton of those facts and the evidence to that court and to
this, the highest court of the country, has been the best
Policy.
PROPOSITION OF LAW NUMBER ONE
Where the legislature has had before it the question
of the benefits of a guarantee fund law to the depositors,
to the banks themselves and to the general public, and the
question of the obligations to be imposed for the public
good as conditions to engaging in the banking business,
aM the legislature under its police power has determined
that the good of the public justifies the enactment of
the law with its reciprocal benefits and obligations, the
Judiciary, under the rule applied by this court in the
oleomargarine and bank guarantee fund cases, will not
undertake to weigh benefits which have been and will be
derived from the law against the obligations imposed by
it or "to determine whether the law is unwise
or unnecessarily oppressive" in its operation.
•
Powell v. Permsylva,nia, 127 U. S. 678.
Sinking Fund Cases, 99 U. 5. 700.
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Fairbank v. U. S., 181 U. S. 283, 21 S. Ct. Rep'
648.
Purity Extract Co. v. Lynch, 226 U. S. 192.
6 R. C. L., section 12, page 12.
Shallenberger v. First State Bank of Holsteis,
219 U. S. 114, 31 S. Ct. Rep. 189, 55 L. ed. 217.
C. B. & Q. R. R. Co. v. State, 170 U. S. 57, 41
Neb. 549.
State v. Richcreek, 167 Iud. 217, 7 N. E. 1085.
Lubetich v. Pollock, 6 Fed. (2nd) 237 Dist. Ct.
W. D. Wash.
Schaake v. Dolley, 85 Kan. 598, 118 Pac. 80.
Many elements which must obviously have been of great
importance with the legislature in the determination nt
the provisions and the enactment of the Guarantee Fund
law, are not and never could become proper subjects 01
investigation by the courts. The determination of fact'
on which the validity and advisability of the adoption aud
operation of such statutes may depend, is primarily fnr
that body.
The Supreme Court of the United States has steadfast
refused to usurp the legislative functions by attemptirel
to review the questions of fact and public policy 11P°11
which a statute grounded upon the police power is bast'
and is operating. The respective advantages to the dep081
tors, banks and public, arrayed against the obligations fur
posed by the law, present questions of policy for the dis"
cretion of the lawmaking body or for the voters at the
ballot box.
And the evidence in this case must convince any
une
who has reviewed it, that the banks'
claim that the 110
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139
lla8 become oppressive and burdensome, has no foundation
In fact.
This court and numerous state courts have adhered to
the principle under consideration in all bank Guarantee
hind cases. It is forcefully stated in the oleomargarine
ease, Powell v. Pennsylvania, 127 U. S. 678:
Whether the manufacture of oleomargarine, or
imitation butter of the kind described in the statute,
is or may be conducted in such a way, or with such
skill and secrecy, as to baffle ordinary inspection, or
Whether it involves such danger to the public .health
as to require, for the protection of the people, the
entire suppression of the business rather than its
regulation in such manner as to permit the manufacture and sale of articles of that class that do not
contain noxous ingredients, are questions of fact and
of public policy which belong to the legislative department to determine. And as it does not appear upon
the face of the statute, or from any facts of which
the court must take judicial cognizance, that it infringes rights secured by the fundamental law, the
legislative determination of those questions is conclusive upon the courts. It is not a part of their
functions to conduct investigations of facts entering
into questions of public policy merely, and to sustain
or frustrate the legislative will, embodied in statutes,
as they may happen to approve or disapprove its
determination of such questions. The power which
the legislature has to promote the general welfare is
very great, and the discretion which that department
of the government has in the employment of means
to that end, is very large.
The legislature of Pennsylvania, upon the fullest
Investigation, as we must conclusively presume, and
Upon reasonable grounds, as must be assumed from
the record, has determined that the prohibition of the
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ABIE STATE BANK VS. WEAVER, ET AL.
sale, or offering fur sale, or having in possession to
sell, for purposes of food, of any article manufactured
out of oleaginous substances or compounds other
than
those produced from unadulterated milk,
cream
or
from unadulterated milk, to take the place
of butter
produced from unadulterated milk, or cream front
unadulterated milk, will promote the public health,
and prevent frauds in the sale of such articles. If
all that can be said of this legislation
is that it
unwise, or unnecessarily oppressire to t,')R" n utiofacturing or selling wholesome oleomargarine as ail
article of food, their appeal must he to the legislature,
or to the ballot-bor. not to the judiciary.
The latter
cannot interfere without usurping powers committed
to another department of government.
In Purity Extract Co. v. Lynch, 226
U. S. 192, in an
opinion by Justice Hughes, this court said:
The court has no concern with the wisdom of exercising the police power, and unless the enactment
has
no substantial relation to a proper purpos
e, cannot
declare that the limit of legislative power has been
transcended.
The question is whether the legislature had power
to establish it. The exercise of this power
, as the
authorities we have cited abundantly demonstrate.
is not to be denied simply because
some innocent
articles or transactions may be found within the prescribed class. The inquiry must be whether, considering the end in view, the statute passes the bounds
of reason and assumes the character
of a mere arbitrary fiat.
In Sinking Fund Cases, 99 U.
5. 700, it was said:
Every possible presumption is in favor of the'
validity of a statute, and this continues until the
contrary is shown beyond a rational doubt. One
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141
branch of the government cannot encroach on the
domain of another without danger. The safety of our
institutions depends in no small degree on a strict
observance of this salutary rule.
Chkago B. & Q. R. Co. v. State, 47 Neb. 549, affirmed
by the Supreme Court of the United States in 170 U. S.
572 it was said:
It is enough that the courts will not interfere to
prevent the enforcement of the statutes on account of
any mere difference of opinion between them and the
law-making branch of the government respecting the
wisdom or necessity of particular measures.
Nor is such legislation violative of any contract
Obligation, since the power to subserve the general
welfare of the people by all needful and proper regulations in the interest of health and safety cannot be
bartered away by contract or otherwise.
The principle is well stated in State v. Richereek, 167
Ind. 217, 77 N. E. 1085: •
The circumstances that for a time it may inflict
hardship, inconvenience, and possibly loss to certain
individuals does not amount to a constitutional objection so long as such burdens or losses are not
needlessly and unreasonably imposed, but result as an
incident of a general enactment fairly designed to
subserve the public welfare. If the mere fact of resulting inconvenience and loss to an established business, admittedly subject to public control, were sufficient to preclude control under the police power, then
regulation would be practically impossible, and this
most salutary and necessary power of sovereignty be
seriously abridged or wholly destroyed.
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ABIE STATE BANK VS. WEAVER, ET AL.
In Schaake v. Dolley, 85 Kan. 598, 118
Pac. 80, it sirto
said in upholding the bank law of
Kansas:
When once a subject is found to be within the scope
of the state's police power, the only limitations upon
the exercise of the power are that regulations must
have reference in fact to the welfare of society, and
must be fairly designed to protect the public against
evils which might otherwise occur. Within these
limits, the legislature is the sole judge of the nature
and extent of the measures ne7.€:
• .1c Anplisil
its purpose. It may even go so far as to establish
monopoly. Slaughter-House Cases, 16 Wall. 36, 21
L. ed. 394; Re Lowe, 54 Kan. 757, 762, 26 T.. R.
A•
545, 39 Pac. 710.
This issue in the Noble State Bank case, supra, was dis
posed of by the following statement:
We fully understand the practical importance of
the question and the very powerfn/ argument that can
be made against the wisdom of the legislature, but
on that point, we have nothing to say, as it is not our
concern.
If the court were to undertake to review and adjudicate the weight to be given to the various considerations
which induced this legislation in the first instan
ce or the
economic fairness of its operation as between different
classes affected thereby, it would be a radical departure
from the attitude heretofore taken by this court
on those
questions. Omitting for the moment the complete failure
of the evidence of appellants, the questi
ons urged are
fundamentally legislative and not within the province
of the courts.
PROPOSITION OF LAW NUMBER TWO
Where a guarantee fund law is enacted, adjudicated t°
be constitutional and a valid exercise
of the police power,
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143
reraains in operation for twenty years while the banks
and the general public receive benefits from it and depositors acquire matured, adjudicated claims
under it against
the fund, if the
authority exists at all to divest these
depositors of their rights and to relieve the banks from
an assessment made and from future assessments on
alleged grounds of public need or welfare, it lies wholly
With the legislature in the further exercise of the police
Power; for the matured claims of these depositors acquired while the law was admittedly constitutional and
Properly operative and while the banks and the public
were receiving the benefits of the law, can,
because of
the rights guaranteed under the constitution, be taken
away, if at all, only through the exercise of the police
PoWer, which power the courts can not exercise.
Lankford v. Platte Iron Works, 235 U. S. 461.
Mugler v. Kansas, 123 U. S. 623.
First State Bank of Claremont v. Smith, et at.,
49 S. D. 518, 207 N. W. 467.
Thompson V. Bone, 251 Pac. (Kan.) 178.
Noble State Bank v. Haskell, 219 U. S. 104.
6. R. C. L., Sec. 105, Page 106.
6 R. C. L., Sec. 230, Page 242.
Cooley, Const. Lim. 200, 587, 706 and notes.
Wurtz v. Hoagland, 114 U. S. 606.
Dartmouth College v. Woodward, 17 U. S. 518,
4 Wheat. 518, 4 L. Ed. 629.
Hendrick v. Lindsay, 93 U. S. 143.
Meyer v. Shamp, 51 Neb. 424.
The Guarantee Fund Law prescribes a contract between the banks and depositors. Practically all deposits
involved originated during the past few years and while
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ABIE STATE BANK VS. WEAVER, ET AL.
the law was admittedly valid and operative. ThousandS
of these deposits have been reduced to judgment and
ordered by the courts paid out of the Guarantee Fund'
These depositors have a vested contract right under
the law against the banks of the state bank system. This
contract is a valuable property right which cannot he
taken or divested by judicial decree.
This court has passed squarely upon the question er
the rights acquired by depositors under Guarantee Fund
laws. The case of Lankford v. Platte Iron TVorks, 23
'1
State
U. S. 461, was decided upon the proposition that the
of Oklahoma was a necessary party to the suit and could
not be sued without its consent. But in a dissenting
opinion by Justice Pitney, concurred in by Justices "MY'
Van de Vanter and Lamar, the unanimous opinion of the
court on this issue was stated as follows:
It is submitted that for the proper interpretation
of the statute—or for its construction, if construction
be needed—we should observe the fundamental rules
that apply to contracts; for while there is disagree:
ment upon the question whether the state is a pare
to it, we all agree that the act prescribed a contract.
and one of wide importance, between the banks o'd
the depositors, and that the public interest is as mach
concerned in seeing it carried out and enforced ne"
cording to its true intent and meaning as in requiring
that the contract be made. Not only has the state
obliged the banks to make this contract with then'
depositors, but in the law it has expressed the terms
in which it shall be made. The murts, therefore, ought
by all means to adopt an interpretation such (al
reasonably would have been placed and Oresumably
placed upon the statute by ordinary bankers and banlv
depositors in advance of judicial interpretation ; read'
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145
lug it according to the fair import of its terms, without resort to legal subtlety in order to overthrow or
Weaken it, but seeking rather to uphold it and give
it effect, "lit re8 magis valeat quam pereat;" and if
construction be needed adopting that meaning which
the promisor had reason to believe the promisee relied
upon in accepting the offer.
The state banks claim that there is no contractual relation between them and the claimant depositors.
The rule of property pertains in this court and in Ne
hruska, that a contract between two parties for the benefit of a third, is enforcible for the benefit of the third party,
either at the instance of one of the parties to the conti
or at the instance of such third person. There can be no
question about this rule.
Kendrick v. Lindsay, 93 U. S. 143.
Meyer v. Shamp, 51 Neb. 424.
The banks contend, and rightfully so, that their charter8 and the provisions of the law pertaining to the same
Constitute a contract between the state banks and the
State. This proposition has been recognized ever since
the famous Dartmouth College case and is unquestionably
the rule in Nebraska. Therefore, we have in this inetance, a contract between the State of Nebraska and
every state bank in the state, by which the banks under
the operation of the law prior to the commencement of
thin suit, became obligated to pay assessments to a fund
for the benefit of these claimant depositors. That contractual right is enforcible by the depositors for their
°Nrn benefit or by the officers of the state as trustees for
the benefit of these depositors.
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ABLE STATE BANK VS. WEAVER, ET AL.
The contract right of the depositors with maturea
claims against the state banks is of the same nature as the
tight of the insured under an insurance policy to demand
and receive payment from the insurer. The state banks'
prior to the institution of this suit continuously repre"
sented to the depositors that the Guarantee Fund law
was "like a giant insurance company." Here was their
construction of the rights of the depositors at that time,
as published and signed by them in the OMAHA BLE series,
"The Story No Other State Can Tell" and other adverthg"
ing.
"The purpose of this chapter in the story that on11
Nebraska can tell is not to discuss this point, however,
it is to call attention to the fact that the system that
has rnade this possible is like a giant insurance coalpony." (Rec., p. 246, Exh. 8 of Exit. 13.)
"A giant insurance plan, filled with the spirit of
confidence and trust because the money in, the baill
is safe." (Rec., p. 246, Exh. 8 of Exh. 13.)
"If you put your money in our savings department
you will not only receive compound interest, but als°
have absolute insurance. One thousand state hooks
are assessed by law for the purpose of protectilia
your deposits.
You can not lose a dollar in this
bank by fire, flood, theft or failure." (Rec., p. 340.)
In Farmers State Bank v. Smith (S. D.), 209 N. Vr*
358, the assessments due from the banks to the Guarantee
Fund were held to be similar to "loss payments due frnel
the insurer to the insured."
In its opinion the court said:
"Treating the depositors' guarantee fund law as so
insurance scheme, the assessments are not insurance
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147
premiums due from the insured, but in the present
state of the fund are loss payments due from the
insurer to the insured; payment to the fund being a
means of payment to insured depositors who are not
appellant's debtors.
The banks' own interpretation of their own obligatious and the depositors' rights under the law is entitled
to great weight. As said by this court in the Lankford
Case, supra:
"The courts, therefore, ought by all means to adopt
an interpretation such as reasonably would have been
placed and presumably was placed upon the statute
by ordinary bankers and bank depositors in advance
of judicial interpretation; * • * * and if construction be needed adopting that meaning which the
promisor had reason to believe the promisee relied
upon in accepting the offer."
Appellants cite the case of Wirtz v. Nestos (N. D.) 200
'• W. 524, as authority against the holding by this court
in the case of Lankford v. Steele, supra. Analysis of that
decision, however, supports the propositions we have been
The Guarantee Fund Law of North Dakota providing
that depositors should be paid in the order the banks
Closed, was by the legislature of that state amended in
1923 to provide that the commissioner should pro rate
Pannents to depositors in all closed banks without regaro
to the order of closing. That court held that the legislature of North Dakota had enacted the Guarantee
Fund
Law in the exercise of the police power and that the law
Could be modified by the legislature as against those who
b ad not perfected their claims.
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ABIE STATE BANK VS. WEAVER, ET AL.
The North Dakota legislature in the further exercise
of police power changed the order in which the depositors should be paid from the guaranty fund and to this
extent modified the rights acquired by depositors. But n°
court could divest these rights by judicial decree.
In Standard Oil Co. v. Engel (N. D.), 212 N. W. 822,
cited by appellants, the court held that thP Gliarantee
Fund law properly vested final judicial authority to pass
upon claims against the fund, in the commission, although
no appeal would lie to the courts from the decision of
the commission, and that mandamus would not lie t°
control the judicial discretion of the commission in poss.
ing on claims.
In both of these cases cited by appellants, reference i8
made by dictum to the nature of the rights of the depositors. Neither of these cases were, however, decided 11P°11
that issue and are not authority upon it.
It is urged since the banks at the time suit was brought
had an average annual earning of only 5.26% on eon'
bined capital and surplus after charging off in 18 months
over two million two hundred thousand dollars of current
and deflation period losses, that there has been a chanr
of economic conditions which will warrant the court
divesting these depositors of their vested contract rights'
This proposition is neither sound in fact nor in law. But
if this were a sound economic proposition and if sonw
economic necessity for change did exist, the courts would
not for that reason be empowered to divest or diminish
these depositors' vested contract rights.
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In the case of Thompson v. Bone, 251 Pac. (Kan.) 178,
an attempt was made to invoke court action because the
4narantee Fund Law of that state had large accumulate0
°aims and it appeared that some of the depositors by
'
l eason of claims being paid in the order of their priority
Would not receive payment for a long period. The court
held that the question was one for the legislature and that
tile court could not exercise a judicial function with reaPect to it. In the opinion it was said: .
"It is argued on behalf of defendant. that the Hank
Guarantee Law contemplates unity of treatment of dePositors, that the fund is hopelessly insolvent and
that some method of equitable distribution of the
fund should be devised and carried out. This is a
legislative problem rather than a judicial one.
"The bank depositors' guarantee fund is insolvent
in the sense that certificates thereon have been issued
to depositors of failed banks greatly in excess of the
fund now on hand to pay them, but this is a situation
made possible by the Hank Guarantee Law—although
that situation, perhaps, was not anticipated when the
law was enacted. Even if this court should ignore
the statute above quoted, a thing it would not be
Justified in doing, and attempt to disburse the bank
depositors' guarantee fund among all holders of certificates thereon, we could not do it without ordering
a termination of the operation of the 1-lank Guarantee
Law—an order we would have no authority to make."
If the Guarantee Fund Law had not fixed the exact
amount of the special assessment but had left that to the
Illseretion of the Department of Trade and Commerce and
the Department of Trade and Commerce were about to
levY an assessment greatly in excess of the assessments
that had been levied in the past, then there might lg.
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ABIE STATE BANK VS. WEAVER, ET AL.
something to the argument of the plaintiff bank witli
reference to changed conditions. But the maxima°
amount of the assessment is set out in the statute and
the plaintiff bank when it decided in 1911 to come under
this law knew exactly how much it might be required
to pay. When the law was before the United States Sn'
preme Court that court knew the maximum liability thal
the law placed on banks. There has been a change in
conditions since 1909, but that change consisted of the
legislature in 1923 reducing the maximum assessment
from 1 per cent to one-half of 1 per cent.
This court has held the enactment of the law was a
proper exercise of the police power. Under the °pull'
tion of the law vested contract rights have been acquired
by depositors. The legislature of Nebraska has seen fit
to modify the law so that the banks will have to pay onlY
the unpaid assessments now levied and a very small as'
sessment for a limited term of years. At the expiratiou
of that time the whole law becomes inoperative.
But action by the legislature is the only way, if allY•
their vested contract rights can be affected. Once vesteil
as they are, they cannot be divested by judicial decree.
PROPOSITION OF LAW NUMBER THREE
The right of stockholders to receive dividends is
ferior to the right of depositors with matured claims for
deposits to have the banks pay the assessments provided
by the law and upon the strength of which their deposit°
were made.
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ABIE STATE BANK VS. WEAVER, ET AL.
151
Mobile R. Co. v. Tennessee, 153 U. S. 486, 14 Sup.
Ct. 968, 38 L. Ed. 793.
Lexington Life Ins. Co. v. Page, 17 B. Mon. (Ky.)
412, 66 Am. Dec. 165.
Appellants urge that the rights of the stockholders in
;tate banks in Nebraska to receive a fully compensatory
return on their investment, after charging off all losses.
Is of prime and controlling importance. These rights.
however, have always been held subject and inferior to
the rights of other parties having contract rights against
the corporation.
The Guarantee Fund Law places the rights of the dePoWors above even those of general creditors. Sec. 8033,
e. S. Neb., 1922, provides:
Priority of Claims. The claims of depos.tors, for
deposits (not otherwise secured), and claims of
holders of exchange, shall have priority over all other
claims, except federal, state, county and municipal
taxes, and subject to such taxes, shall at the time of
the closing of a bank be a first lien on all the assets
of the banking corporation from which they are due
and thus under receivership, including the liability of
stockholders, * * * • •
And See. 7, Art. XII, Constitution of Nebraska, provides:
Every stockholder in a banking corporation or
institution shall be individually responsible and liable
to its creditors over and above the amount of stock by
him held to an amount equal to his respe-ti ye stock
or shares so held, for all its liabilities accruing while
he remains such stockholder, and all banking corporations shall publish quarterly statements under
oath of their assets and liabilities.
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These provisions were in force when the stockholders
went into the banking business in the state bank systeni.
They were chargeable with knowledge of these provisions
for the protection of depositors. The proposition of 10
we have just stated is for these reasons doubly appl1ca.
ble to the relative rights of depositors and stockholders
in this case.
The Sinking Fund cases, 99 U. S. 700, is conclusive
on the issue we have stated. In that case it was said:
If a state under its reserved power of charter amend'
limit were to provide that no dividends should be
paid to stockholders from current earniup: until solve
reasonable amount had been set apart to meet Ina'
turing obligations, we think it would not be seriouslY
contended that such legislation was un,..oustitutional•
either because it impaired the obliptions of the
charter contract or deprived the corporation of As
property without due process of law. Take the case
of an insurance company dividing its unearned pre'
flaunts among its stockholders without laying by an1.
thing to meet losses, would any one doubt the powel
of the state under its reserved right of amendment t°
prohibit such dividends until a suitable fund had beet,'
established to meet losses from outstanding risks•
Clearly not, we think, and for the obvious reason that
while stockholders are entitled to receive all dividends'
that may legitimately be declared and paid out of the
current net income, their claims on the property Of
the corporation are always subordinate to those of
creditors. The property of a corporation constitutes
the fund from which its debts are to be paid, and if
the officers improperly attempt to divert this fund
from its legitmate uses, justice requires that thei
should in some way be restrained. A court of equitY
would do this, if called upon in an appropriate man'
nor; and it needs no argument to show that a legls-
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lative regulation which requires no more of the corporation than a court would compel it to do without
legislation is not unreasonable.
Under these circumstances, the stockholders of today have no property right to dividends which shall.
absorb all the net earnings after paying debts already
due. The current earnings belong to the corporation,
and the stockholders, as such, have no right to them
as against the just demands of creditors.
In Lexington Life Ins. Co. v. Page, 17 B. Mon. (Ky.)
412, discussing this principle the court said:
The board of directors, in making the dividends in
question, considered as profits the premiums on unexpired risks, and unless this was proper, the dividends
which were made were not authorized by the charter,
inasmuch as, independent of these premiums, the
means of the corporation, over and above its liabilities, were insufficient for their payment. We think it
is very evident that these premiums could not be
Properly regarded as profits. Only so much thereof
as might remain after paying the amount of such
losses as should occur would in reality constitute the
actual profits on the insurances upon which they had
been paid.
The right to dividends, essential as it is in the operation
of business, cannot be used as an excuse for refusal to
fulfill obligations imposed upon the banks both by the
law under which they operated and by their own volun•
tary acceptance and promises. If an annual net earningof 7.12% on capital and of 5.26% annually on capital
and surplus after charging off current and deflation period
losses, could possibly be said to amount to confiscation,
we still submit the contract rights of these depositors
With matured claims would take precedence over the right
of stockholders to dividends.
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PROPOSITION OF LAW NUMBER FOUR
Change of conditions, even if material, as to the future
operation of the law, will not affect the validity of the
law as to rights acquired thereunder, while the law Was
admittedly valid and operative and the banks were re•
ceiving benefits from it.
Thompson v. Bone (Kan.) 251 Pac. 178.
First State Bank of Claremont v. Smith, 49
S. D. 518, 207 N. W. 467.
Lankford V. Platte Iron "Works, 235 U. S. 461.
Noble State Bank v. Haskell, 219 U. S. 104,
L. R. A. (N. S.) 1062.
This court has held that a regulation compelling contributions to a Guarantee Fund for the safety of depositors was a regulation having a rational relation to the
public good and that the advisability of the imposition ef.
the condition or its continuance was an economic question
for the legislature. This proposition was decided is
Noble State Bank v. Haskell, 219 U. S. 104, 32 L. R. A.
N. S. 1062, in which the court, in discussing the proprietY
of compulsory contribution to the Guarantee Fund, said:
"So far is that from being the ease, that the devise
is a familiar one. It was adopted by some states the
better part of a century ago and seems never to have
been questioned until now.
"We fully understand the practical importance Of
the question and the very powerful argument that can
be made against the wisdom of the legislation, but
on that point we have nothing to say, as it is not our
concern."
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After the adjudication by this court in the case of Shallenberger v. First State Bank of Holstein, supra, that an
assessment of one per cent was reasonable, the banks did
not and do not claim that the assessment was unreasonable or excessive prior to 1928.
Assume for the purpose of argument only, that thii
future operation of the Guarantee Fund Law would result
la the imposition of an unreasonable burden upon the
hanks. Certainly the court cannot relieve the banks from
their obligations arising during the period when the
regulation was admittedly reasonable.
As we have said earlier in this brief, the legislatur.
May perhaps, in a proper case and in the further exereisc
of the police power, affect the rights of depositors. But
beyond question, the court cannot do so. These depositors have vested contract rights as this court said in Lankford v. Platte Iron Works, 235 U. S. 461.
If the continued operation of the law were to be held
by this court to have no rational relationship to the public safety and public good, the court would be compelled
to do so in the face of all precedent and all judicial interpretation of the Guarantee Fund Laws. But even if
the court were to do this, it could not relieve the banks
from the obligations incurred while the regulation was
admittedly a proper and reasonable one.
If 1 per cent and later I/9 of 1 per cent on the averagr
daily deposits was not confiscatory prior to 1929, it is
not confiscatory or prohibitive at the present time. The
strongest basis of estoppel in this case is the positive
representations of the banks, not that they would pay all
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losses which might occur in the state banking system,
but that they would ply the amount which could be
assessed against them, namely $6 on every $1,000 deposited. They frankly stated in their advertisements that
this assessment would not affect the solvency of any bank
and that "no bank ever failed because of the insignificant.
assessments of 6/10 of 1 per cent.
That fact is as true as it ever was and if we can believe
the bankers themselves, it is beyond controversy. The as
sessment of 6/10 of 1 per cent is not, never has been, and
never will be confiscatory or unreasonable. This court has
passed upon that question and the evidence in this case
establishes it beyond question. It is not open for discussion here.
This brings us again to the case of First State Bank 01
Claremont v. Smith (S. D.), 207 N. W. 467. Apparently
the attorneys for the banks do not understand the import
of this ease, since they have selected one isolated sentence
from the opinion which is not essential to the decision in
the case and have ignored the real basis of the court's
decision. And their statement that the South Dakota
court has flown "right in the face of the decisions of the
Supreme Court of the United States and of the Supreme
Court of the state of Nebraska" conclusively shows their
misapprehension of the import of the decision. There is
no conflict whatever between the decision in that case and
the holdings of this court. In the following paragraph is
stated the real basis of the decision of the South Dakota
court:
"While counsel for plaintiff do not expressly admit
that the law was constitutional at its inception, they
have not devoted much time in argument on that
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point. They contend that, even though it may have
been constitutional when enactel, cbange:1 conditions
now render the act violative of the constitution. They
reason from railroad rate cases which have at one
time been held constitutional because the rates Ped
by statute are reasonable and no confiscatory, and
later under changed conditions Nit c•li rates became
unconstitutional. But there does nr,t appear to be any
analogy between those cases and this. It is well
known that in trade and commerce prices are subject
to fluctuation, and what is a reasonable charge for a
service today may not be tomorrow, because not in
just proportion to other prices and charges. In this
case the objection is not to the amount of the charge.
but to the purpose for which it is made. Changed
conditions have not changed the purpose. If the purpose of the law was legitimate. and the act therefore
constitutional at the time of its enactment, perforce
it must remain so. although because of changed conditions its purpose is no longer useful or desirable.
Its uselessness may be a cogent reason for its appeal
by the lawmakers, but it can have no weight with the
court, in construing it. If the law was constitutional
when enacted it now is, and all that portion of the
complaint pertaining to changed conditions is immaterial in the inquiry now before um." (Italics ours.)
This court in the case of Shellenberger V. First State
Bank of Holstein, supra, decided that the condition that
the state banks be required to pay the special assessment
of one per cent on their average daily deposits to the
Guarantee Fund was reasonable and within the police
power of the legislature. That proposition is concluded.
The reduction from 1 per cent to 1/2 of 1 per cent was
in favor of the banks.
And so the banks in this case are in exactly the same
position the banks were in South Dakota, in that they
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ABIE STATE BANK VS. WEAVER, ET AL.
cannot again litigate the reasonableness of the assessments, but only insist that by reason of changed conditions the law has ceased to perform its purpose. Changed
conditions have not changed the purpose. If the law has
failed to accomplish its purpose, that may be a cogent
reason for its repeal by the lawmakers, but it can have
no weight with the court in construing it. Instead of being
contrary to the decisions of the other courts, the South
Dakota case is wholly in harmony with them.
PROPOSITION OF LAW NUMBER FIVE
The decree of the United States Suprern-; Court in
the case of ShaLlenberger v. First State Bank of Holstein,
219 U. S. 114, 31 S. Ct. 189, 55 L. ed. 117, is a bar
to the maintenance of this suit by the plaintiff either
on its own behalf or on the behalf of other banks; and
is res adjudicata.
34 C. J. (Res Adjudicata) page 742, Sec. 1154:
page 799, Sec. 1220; page 988, Sec. 1407; page
1028, Sec. 1459.
Battle Creek Valley Bank v. Collins, 90 N. W.
921 (Neb.).
Parrotte V. Dryden, 73 Neb. 291, 102 N. W. 610.
Noble State Bank v. Haskell, 219 U. S. 104, 155
L. ed. 117.
It is important in this connection to determine just what
matters were before this court for decision in the Holstein
ease. That case was decided by this court on demurrer to
the petition of the banks; and controlled by Noble State
Bank V. Haskell. The petition of the banks in the case of
Ad/en/wryer v. Holstein is set forth in full as Exhibit 49page 724, Vol. 4, Original Record, but omitted
in printing
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19
the record. Since it was submitted on demurrer, every fact
alleged in the petition stood admitted. The able attorneys
for the banks in that case pleaded specifically and fully the
facts which they contended made the assessments unreasonable and confiscatory.
In this connection it must be remembered that at that
time the maximum special assessment which could be
levied was 1% and that before this Abie Bank case was
brought, it had been reduced to one-half of 1 per cent. At
state
time the Holstein case was determined deposits in
banks were a little over $75,000,000, whereas at the time
this suit was brought these deposits had increased to over
$252,000,000.
The issues presented in the Holstein case as abstracted
from the pleadings were:
act
"1. The banks alleged that the guarantee fund
conwhich
charters
their
of
impaired the obligations
stituted contracts between the banks and the state.
in"2. They alleged the property rights of the
the
by
divested
were
banking
dividuals engaged in
on
requirement that only corporations should carry
the banking business.
"3. They alleged that their property was taken
without due process of law, because their banking
buildings and fixtures acquired under the prior
existing law would be rendered less valuable or confiscated.
"4. They alleged that there was no reserve power
in the constitution of the state to alter or amend
corporate charters when once granted.
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They alleged that the total deposits in the state
La k8 amounted to $76,644,015.00, and that the special
assessment provided for would amount to the sum of
$766,440.15 annually, and that the said special assessment was unreasonable and confiscatory.
"6. They further alleged that all of the banks.
would be made 'to contribute out of their assets the
sums of money to be assessed against them, not for
the payment of their own liabilities, but for the payment of liabilities of some other bank or banks.'
"7. They further alleged that the effect of the law
would be to extend the credit of some of the banks
for the benefit of the weaker blinks an 1 that the public credit was being extended for private purposes."
It is fundamental that a judgment is conclusive on the
parties thereto as to all matters or claims which either
party could make or might have made relative to the
matter in controversy. It is perhaps unnecessary to cite
authorities on this point.
The demurrer to the petition admitted all facts well
pleaded and so this court had before it the contention
that the special annual assessment of $766,440.15 on banks
having deposits of only $76,644,015.00 was confiscatory and
unreasonable. This issue as well as every other issue presented by the pleadings was adjudicated against the banks
by the sustaining of the demurrer and the dismissing of
the case. The Abie bank was then in existence, and accepted the adjudicated act. The allegations and the proof
offered by the banks in the instant case on this question
of the reasonableness or oppressiveness of the special assessment are much weaker than those admitted by the
demurrer in the Holstein case. In the instant case, with
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deposits of over $252,000,000.00, the special assessment
can be only y2 of 1 per cent or a little over $1,250,000
annually. The relative amount is just one-half.
In the Holstein case too, the banks pleaded that they
would be forced to contribute out of their assets sums 'of
money to be used in the payment of liabilities of other
banks. That also was admitted by the demurrer and that
issue adjudicated by the court. That objection was of
just as much force and entitled to just as much consideration then, as it is now.
Likewise, the questions as to the authority of the state
to regulate the banks as proposed, after a charter had
been granted, the possible loss of the value of the bank
buildings and fixtures by reason of their being adapted to
no other purpose, and that the public credit was being
extended for the benefit of private enterprise, were all
presented and decided in that case. Only the legislature
can alter the law fixed by that decision. All these matters
are adjudicated and concluded under the existing law.
Appellants contend vigorously in their brief that this
court did not have before it in the Holstein case in passing upon the validity of the Guarantee Fund Law, the
question of the oppressiveness nor the confiscatory character of the assessments. They also contend that this
court did not have before it in that case the contention
that the assessments would be taken to pay depositors in
other banks than the banks contributing such assessment.
These are exactly the issues which the court did have
before it. The pleadings in that case amply presented
these very propositions. The decision of this court in the
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Holstein case decided all the legal questions presented ill
this case. All other matters are purely economic and are
solely for the decision and action of the legislature. The
wisdom of the legislation is not for the court. The Guarantee Fund Law is sound as a legal proposition and is not
confiscatory. That has been decided. If it were an eco"
nomic hardship or were unsound from a business stand-point, that is an entirely different matter and one wit!'
which the courts are not concerned.
The phrase "insignificant taking" as used in Noble
State Bank case.
'11). appellants refer to this phrase from the opinion of
Justice Holmes in the Noble State Bank case. In explaining the fallacy of the Oklahoma bank's argument in that
ease, that the property of the banks was being taken io
violation of Art. 1, Sec. 10 and the 14th amendment to
the Constitution of the United States, Justice Holmes said
that even in those cases where the police power was not
involved and private parties were actually deprived of
their property for public use, a comparatively insignificant
taking was justified for a purpose which was priniarily a
private use, but which had some ulterior public advantage.
As illustrating the meaning of this statement in his
opinion Justice Holmes cited the cases of Clark V. Nash,
198 U. S. 361, Strickley v. Highland Boy Gold Min. Co..
200 U. S. 527, and other cases of similar nature. Both of
these cases referred to had to do with the constitutionality
of statutes of the state of Utah authorizing private individuals to condemn right of way across other private land
for the purpose of irrigation or mining. While the proPorty of one person was taken for the immediate benefit Of
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another private person, still the court held that it was not
in a position to say but that there was some ulterior public
Purpose, because of peculiar natural and economic facts
and circumstances, such as would suffice to sustain the
law. And the decision was that, although the property of
the individual was taken under a statute having no relation to the police power, still there appeared to be a sufficient relation to the public good to justify a comparatively
insignificant taking.
Justice Holmes then proceeded to the discussion of the
Police power of the state upon which the decision was
based. The case of Camfield v. U. S., 167 U. S. 518, was
cited. This ease had to do with police power and did not
refer at all to the extent to which the value of private
Property might be affected in the exercise of that police
Power.
Apparently the extent to which the value of the property and property rights will be affected never has been
and was not intended by the court to be a test as to th
validity of a law passed in the exercise of the police
Power.
In the case of Shallenberger v. First State Bank of
holstein, following the Noble State Bank case, the -court
held that a special assessment of one per cent annually
did not affect the validity of the Guarantee Fund Law;
such assessment was double the one now contested.
If ever there was an occasion where the court was urged
to invade the province of the legislature, it is in this Able
case. It is indeed not always an easy matter to mark the
line where the police power of the state is limited by the
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ABIE STATE BANK VS. WEAVER, ET AL.
federal and state constitutions. As stated by Justice
Holmes in the Noble State Bank case, judges should be
slow to undertake to place their conception of the ne,cessity or expediency of measures above the opinion of the
law-making body as to those questions. In the opinion
he said:
"We have few scientifically certain criteria of lees'
intim, and as it often is difficult to mark the line
where what is called the ii:orce p, wc o
ates IS
limited by the constitution of the United .States, judge8
should be slow to read into the latter a autumns
mutare as against the lawmaking power."
Not only was this Holstein case determined on demurrer,
but every other Bank Guarantee Fund case that we have ex
amined has been determined on demurrer—in favor of the
law and some of them i as in this case, after large liabilities
had accrued. These cases form a consistent record, holding that the questions involved are all a matter of legis'
lative wisdom and policy.
The depositors relied upon and acted under the Holstein
decision. The banks featured it to obtain public and Pri"
rate deposits, some of which have resulted in claims
against the Guarantee Fund. It does not seem conceivable that such claims. 80 arising, can now be cancelled bg
judicial decree.
PROPOSITION OF LAW NUMBER SIX
The plaintiff bank and those banks for which it purports
to bring this action by voluntarily and without protest operating under and accepting the benefits and privileges of
the bank depositors' guarantee law have waived their
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ight, if any, and are estopped, to bring this suit; and
Specially by their acts, representations and conduct dur
ig the last several years of inducing deposits on the
trength of alleged guarantee fund protection, have said
anks waived their right, and are now estopped to main in this suit against depositors with matured claim
gainst said fund.
12 C. J., Sec. 190, 194, pages 169-71 (Constitu
tional Law).
10 R. C. L., Sec. 140, page 836 (Estoppel).
21 C. J., page 1216, Sec. 220 (Estoppel).
Winthrop v. Fellows, 230 Fed. 702.
Grand Rapids & Indiana Ry. Co. v. Osborn, 193
U. S. 17, 49 L. Ed. 598, 604.
Daniels v. Tearney, 102 U. S. 415, 26 L. ed. 187,
189.
Mellen Lumber Co. v. Industrial Commission of
Wis., 154 Wis. 114, L. R. A. 1916-A, pages 374,
377.
American Life Ins. Co. v. Palmer, 238 Mich. 580,
214 N. W. 208.
Meyer v. City of Alma, 117 Neb. 511, 221 N. W.
438.
Booth Fisheries Co. V. Industrial Commission,
271 U. S. 208, 46 S. Ct. 491.
In re Tarn,owski, 191 Wis. 279, 210 N. W. 836.
People v. Fidelity & Casualty Co., 222 Mich. 296,
192 N. W. 658.
First State Bank of Claremont V. Smith, 49 S. D.
518, 207 N. W. 467.
Parties will not be allowed to operate under a law as
as they deem it to be advantageous and then a„s
ICIUg
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ABIE STATE BANK VS. WEAVER, ET AL.
against persons with whom they have dealt, claim the
same law to be invalid when it appears to them that
they may be able to escape liabilities incurred while operating under it. This matter of estoppel and waiver applies
with equal force to constitutional questions. The courts
are unanimous on the subject. We shall cite the authorities without further discussion.
Booth Fisheries Co. v. Industrial Com rlissi^,,, 46 U. S.
S. Ct. 491, 70 L. Ed. 908, in an opinion by Chief Justice
Taft:
"More than this, the employer in this ease having
elected to accept the provisions of the law, and such
benefits and immunities as it gives, may not escape
its burdens by asserting that it is. unconstitutional.
The election is a waiver and estops such complaint.'
In the case of People v. Fidelity & Casualty Co., 222
Mich. 296, 192 N. W. 658, the validity of a law was involved which required persons who desired to engage in
the business of selling foreign steamship tickets to obtain
a certificate of authority from the commissioner of banking of the state and to file a bond. One Weinberger tendered the bond of the defendant insurance company and
received the certificate. Ostapow paid Weinberger for
two tickets. The money was misappropriated. Suit was
brought on the bond and the insurance company answered
by attacking the constitutionality of the act providing for
the giving of the bond. In its opinion, the court said:
"Defendant cannot under the facts of the ease question the constitutionality of the act. Both it and its
principal, Weinberger, have had the benefits of it,
and under such circumstances cannot question its
validity. Defendant has had its premiums for executing the bond and Weinberger, until he absconded, all
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the benefits the act conferred; by the favorable action
on his application to the commissioner of banking he
obtained a certificate from that officer representing
the state authorizing him to engage in the business of
selling steamship and railroad tickets for transportation to or from foreign countries. The fact this
particular customer did not deal with him with knowledge of the statute is unimportant. Under the law
the certificate was displayed in his place of business:
it was in effect a certificate of moral character and
financial stability. Neither he nor his surety can
now claim the act is unconstitutional." (Italics ours.)
In the case of Grand Rapids
Indiana Railimy Co. v.
Osborn,, 193 U. S. 17, 49 L. Ed. 598, 604, the court said:
"It results from the foregoing that Sims—the purchaser of the railroad property in question at the
sale under foreclosure—and his associates could not
demand to .be incorporated under the statutes of
Michigan as a matter of contract right. Possessing no
such contract right, they or their privies cannot now
be heard to assail the constitutionality of the conditions which were agreed to be performed when the
grant by the state was made of the priv:loge to operate as a corporation the property in question. flaying
voluntarily accepted the privileges and benefits of the
incorporation law of Michigan the company was bound
by the provisions of existing laws regulating rates of
fares upon nilroads, and it is estopped from repudiating the burden attached by the statute to the privilege
of becoming an incorporated body."
In Winthrop v. Fellows, 230 Fed. 702, an attack was
made upon a two-cent passenger fare rate statute. The
court said (p. 704):
"It follows that the railroad company, its stockholders, as such, and all claiming under it by right
of representation, are effectually estopped to question
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the validity of the statute here under consideration.
Having sought and accepted the rights and privileges
thereby granted and conferred, they must perform the
duties and obligations therein imposed. Grand Rapids
(G Indiana 1?y. Co. v. Osborn. 193, U. S. 17, 24 Sup
Ct. 310, 48 L. Ed. 598; Co»Imissioner of Railroads
v. 0. R.
I. Ry. Co., 130 -AIM'. 248, 89 N. W. 967;
Interstate Ry. Co. v. Massachusetts, 207 U. S. 79, 28 Sup. Ct. 26, 52 L. Ed. 111, 12 Ann. ('as. 555. The
last word upon this subject is f9rny1
tite flecision
of the supreme court in the very recent rate case
of Northern Pacific R. R. Co. v. North Dakota-, 236 G.
S. 585, 35 Sup. Ct. 429, 59, L. Ed. 735."
In Daniels V. Tearney, 102 U. S. 415, 26 L. Ed. 187, 189/
the question involved was the effect of receiving the benefits of an invalid bond given under an unconstitutional
statute. The court said:
"It is well settled as a general proposition, subject
to certain exceptions not necessary to be here noted,
that where a party has availed himself for his benefit
of an unconstitutional law, he cannot in a subsequent
litigation with others not in that position, aver its
unconstitutionality as a defense, although such unconstitutionality may have been pronounced by a competent judicial tribunal in another suit. In such cases
the principal of estoppel applies with full force and
conclusive effect. Ferguson v. Landram, 5 Bush 230;
see Same V. Same, 1 Bush 548; l'«nhook v. Whitlock,
26 Wend. 43; Lee v. Tillotson, 24 Wend. 337; People
V. Murray, 5 Hill 468; Burlington v. Gilbert, 31 Iowa
356; R. R. Co. v. Stewart, 39 Iowa 267."
In Mellen Lumber Company v. Industrial Commission'
of Wisconsin. 154 Wis. 114, 142 N. W. 187, 1916 L. R. A.
374, 377, an employer questioned the constitutionality of
the Workman's Compensation Act. The court said:
"The argument that the provision under discussion
is violative of the 'due process of law' clause of the
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Federal Constitution, cannot prevail. It was optional
with the appellant to come in under the compensation
act or stay out. It accepted the provisions of the act
as they were, the burdens as well as the benefits, and
so long as it remains under the law it must take the
statute as it finds it. Daniels v. Tearney, 102 U. S.
415, and cases cited page 421, 26 L. ed. 187, 189;
Grand Rapids it I. R. Co. v. Osborn, 193, U. S. 17, 29,
48 L. ed. 598, 604, 24 Sup. Ct. Rep. no."
Exactly the same issue of estoppel was involved as in the
ease at bar in the case of First State Bank of Claremont v.
Smith, 49 S. D. 518, 207 N. W. 467:
"State Banks, who for ten years have operated
under the benefits of depositors' Guarantee Law, giving
them the right to hold public money and deposit
without additional security, and other benefits, held,
not in a position to now claim that they have not consented thereto.
"So far as the banking corporations are concerned
the assessment sought to be prohibited is not a tax
or involuntary taking of their property, but a part
of the consideration exacted by the state for the corporate franchise. So, also, is the law a part of the
privileges and conditions under which the unincorporated banks were organized and have been doing business. Such banks for ten years, accepted the benefits
of the depositors' guarantee fund, which gave to them
the right to hold, on deposit, public moneys without
additional bond or security, to enjoy the confidence
of the public by reason of the existence of such guarantee fund, and all other benefits, real or supposed,
emanating therefrom, and they are not now in. a
position to claim they have not consented thereto."
(Italics ours.)
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Typical representations made by the Banks.
At the risk of unnecessarily extending this brief we
have assembled some of the most typical representations
made by the banks in regard to the benefits they were receiving from the operation of the law and their repeated
pledges to meet and pay their obligations to depositors io
failed banks.
The banks now attempt to minimize their utilization of
the law and the benefits they were obtaining from it during
the period prior to this suit. During those years when
they were using the law as a most effective weapon and
were bending every effort to increase the deposits in the
state bank system, these banks spoke openly and often
boastingly of what the law had done for them.
Their own words, uttered when flushed with their success
made possible by the guarantee fund law, and in an attemPt
to further advance their interests, are perhaps entitled to
greater weight than the view expressed in their brief. At
that time they advertised with appropriate and appealing
illustrations.
The twenty-six BEE advertisements are reproduced
printed Record, but without page numbering, and inserted
betwen pages 238 and 239.
In Exhibit 21 of Exhibit 13, Record, page 238, insert,
full page advertisement of the banks in OMAHA BEE:
,,It took 14 years, without the guarantee law to
climb from $10,000,000 to $71,000,000. Under the
law, only nine years were needed to climb front
$72,000,000 to $270,000,000."
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ABIE STATE 'RANK VS. WEAVER, ET AL.
in Exhibit 22 of Exhibit 13, Record, page 238, insert,
full page advertisement in OMAHA BEE:
"First, the guarantee law was strong because the
state banking system was strong. Second,. the state
banking system had been developed to an even stronger position through the operation of • the law."
In Exhibit 29 of Exhibit 13, Original Record, volume II,
Page 267, a questionnaire given large circulation by the
banks, and reproduced in this brief, they said:
"QUESTION: What would have been the effect on
the state if there had been no guarantee of deposits
law?
"ANSWER: The effect would have been similar to
that existing in one or two neighboring states, that
cannot with propriety be mentioned, whose financial
status is now in a state of chaos as a result of the
lack of confidence due wholly to the fact that there is
no 'insurance backing their financial institutions.
"QUESTION: Does the law in Nebraska recognize
state banks as depositories for public •funds?
"ANSWER.. It does. Every state bank may be
used as a depository for public funds for unlimited
amounts without bonds of any kind."
In another pamphlet, "The Bank Guarantee Law Challenged and a Red Hot Answer by a Nebraska Banker"
(Exh. 30 of Exh. 13, p. 268, Orig. Rec.), circulated by
them, they said:
"In Nebraska, instead of there being applications
for state banks to nationalize, there have been scores
of applications from national banks to take out state
sharters during the last two years and so far as we
have any record, there has been only one application
for a national charter made since the deflation period
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ABIE STATE BANK VS. WEAVER, ET AL.
began and we have every reason to believe that other
reasons than the guarantee law caused the change."
In Exhibit 16 of Exhibit 13, Record, page 238, insert,
a full page OMAHA BEE advertisement had a picture of a
money pouch with $288,000,000 thereon, and underneath:
"95,000 Years of Labor
"Small wonder that in the fifteen years the guarantee law has been in operption nmor^: ne state
banks in Nebraska the deposits in these banks have
grown from a little more than $70,000,000 to nearly
$288,000,000.
"It is a splendid thing to live in Nebraska and to
know that the money placed in the state banks in this
state is safe. As a Nebraskan, it is a splendid thing
to know that this is A STORY NO OTHER STATB
('AN TELL." .
From Exhibit 7 of Exhibit 13, Record, page 238, insert,
a full-page OMAHA BEE advertisement, in quote:
"A Message of Strength
"The bankers in Nebraska's state banking system
send a message of strength to the people of the nation.
Fifteen years ago the state banks of Nebraska associated together under the law for the purpose of
making certain that in this state depositors should
no longer be dependent upon the turn of the business
cycle, nor upon the skill or lack of skill of the individual banker for the safety of his capital or of his
savings, entrusted to their care."
In Exhibit 6 of Exhibit 13, Record, page 238, insert,
another OMAHA BEE advertisement, appropriately illustrated, appears:
"No Mattress Banks in Nebraska
•
"In Nebraska there is no longer any need to keeP
the money in the mattress, in an old woolen sock or
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173
hidden away in a tin can. The state banks in Nebraska are associated together under the law for the
mutual protection of their deposits. There have been
bank failures in Nebraska. But there has been a
lower proportion of failures in Nebraska than in most
states."
In Exhibit 4 of Exhibit 13, Record, page 238 insert,
an OMAHA BEE advertisement, is a conversation between
travellers, and illustrated, from which we quote:
"Third Traveler—'But that is not the whole story.
Nebraska's financial institutions are on a solid foundation. Bank failures have been fewer here, and
under the state law the deposits in state banks are
protected'."
Did the state banks benefit to the extent of over $100,000,000 of deposits because of the guarantee fund law?
Did the whole state bank system benefit by the stability
created by that law? Were many of the state banks saved
from ruin and all strengthened by the operation of the
law? Was it of any benefit to the state banks to carry
millions of deposits of public funds without bonds?
Certainly the statements of the banks at that time are
worthy of belief. They said they were the facts. Most
certainly they were. And they stated then one further fact
Which time alone will determine to be true or false. They
stated repeatedly, directly and by subtle implication, designed most surely to inspire the confidence of the depositor
Whose deposit they sought to secure, that they would keep
faith with the depositor and would make payment to the
depositor as they had represented and promised they would.
The banks are estopped by their representations of
fact and by their representations and promises that they
would pay depositors in state banks.
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ABIE STATE BANK VS. WEAVER, ET AL.
The banks now say in their brief they are not estopped
because they were not aware of all the facts regarding the
condition of the guarantee fund. They were in a better
position to know the facts than anyone else. In their
advertisements and representations to the public they
claimed to know what the facts were. Through newspapers
and pamphlets, they spoke positively of the facts as being
within their knowledge, proclaimed that a committee of
"skilled bankers" from their own ranks and nominated bY
them was administering the guarantee fund law, and again
and again pledged themselves to meet and pay their obligations to the depositors in failed banks.
Here let us use their own words again, spoken at a time
when worthy of the greatest credibility, spoken at a tirne
when thousands of the present claimant depositors had not
yet entrusted their savings to the member state banks.
Theirrepresentations were not as to how much the guarantee fund owed or what its assets were, but as to the intention, purpose and pledge of the state banks to meet the
obligations which the operation of the law placed upon
them, and assurance to the depositors that they would be
able to meet these obligations and that they would do so.
Without comment we quote further their statements at that
time in various OMAHA BEE advertisements, all aptly illus•trated and some of them reproduced in miniature in this
brief.
From Exhibit 3 of Exhibit 13 of insert, at Record, page
238:
In the Hands of Skilled Bankers
that
“skilled bankers administer the Nebraska law
protects the deposits in Nebraska state banks. The
guarantee fund commission is the official body, and
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175
under the law membership on this commission is
limited to state bankers."
From Exhibit 5 of Exhibit 13, page 238, insert:
"Further experience and further operation of the
Nebraska banking laws are moving in the d're,.tion of
cutting individual failures to a mininiiim by bringing
to the state banking system the counsel awl experience
of the state's best bankers."
From Exhibit 6 of Exhibit 13, inserts at Record, page
238:
"The deposits of the big business house, the money
that is being laid away for the purchase of a home and
the dimes and pennies that are deposited in the baby's
savings account are all safe in the state banks of Nebraska because deposits are protected!' (Rec., p. 244.)
From Exhibit 8 of Exhibit 13, inserts at Record, page
238:
"Do You Believe in Insurance?
"The purpose of this chapter in the story that only
Nebraska can tell is not to discuss this point, however; it is to call. attention to the fact that the system
that has made this poss.:hie is like a giant insurance
company.
"The combined deposits in the hanks of the banking
system in Nebraska is $286,000,000, the funds of more
than 500,000 depositors. The men and women who
are These depositors and whose money is in these
banks know that it is safe because under the workings
of the giant insurance plan, these deposit-8 are protected.
"This insurance plan not only protects the deposits
in the bank, it protects the sleep of 500,000 depositors
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.74k
ABIE STATE BANK VS. WEAVER, ET AL.
and their peace of mind. It protects the business that
is dependent upon these deposits. It protects the
farmer whose funds on deposit are to be used for the
clearing of the mortgage or the stocking of the feed
lot. It protects the worker whose funds in the bank
are being saved against the day when he and his wife
and little one can move into the new house on the
hillside."
From Exhibit 9 of Exhibit 13, insert at Record, Page
238:
"Your deposits in this bank are protected under a
plan whereby the state banks as a whole are associated under the law and through a system of assess'
ments and central control, your deposits are safe. 1/,
a bank fails for any reason we jointly pay the logs(Rec., p. 247.)
From Exhibit 23 of Exhibit 13, insert at Record, page
238:
"The state bankers in Nebraska realized that the
law placed an obligation upon them and that when the
word went out that state bankers in Nebraska were
associated under the law to protect depositors there
was but one thing to do—protect them. They have
protected them. The weathering of the financial stress
state
of deflation has brought a new fame to the
bankers in Nebraska. Sound banking, loyalty Is
meeting obligations and the courage to make the guar"
antee law mean what it Rays, has come to be knoWn
as the Nebraska Idea."
From Exhibit 25 of Exhibit 13, insert at Record, page
238:
"Building Business on a Certainty
oati
"When the balance in the bank is always assuredlY
a balance, and not in danger of being wiped
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177
through bank failure, business can build on a certainty.
This is the guarantee that the state banks in Nebraska
furnish to business.
"Under the bank guarantee law the state banks of
Nebraska absorb the losses of individual banks that
go under, thus furnishing to business the certainty
that their bank balances will always be balances, so
long as the business is sound and balances are maintained. If there is any wavering, any loss of balances,
it will be the individual business that wavers, it will
be the individual business that loses its funds, it will
not be the state banking system."
And to show who were making these promises and
representations they published a final page article ot
THE OMAHA BEE series to which the names of 336 banks
were attached in which they said (Exh. 27 of Exh. 13,
insert at Record, p. 238):
"The men who told the story that no other state
can tell are the men who control and operate the state
banks in Nebraska. A group of these Nebraska state
bankers felt that this story should be told to the
people of the state and to the people of other states.
They felt that such a record should be known to all,
that there might come to Nebraska the benefits to
which a strong financial foundation rightfully entitled her. They raised the funds, they laid out the
plans and directed the writing of the chapters in this
Nebraska story that has gripped the attention of the
'nation."
Then followed other articles, pamphlets and propaganda,
published and broadcast by banks to further enlighten
the prospective and existing depositor, to disparage the
national banks and to render assurance of the ability and
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ABIE STATE BANK VS. WEAVER, ET AL.
intention of the state banks to keep their promises to
depositors:
In Exhibit 29 of Exhibit 13, page 267, volume II, Original Record, one of the pamphlets of the banks:
"QUESTION. Is it a fact then, that when a depositor places his money in a state bank, that all
of the state banks in Nebraska guarantee its return to
him regardless of what may happen?
"ANSWER. In effect that is exactly the situation.
"QUESTION: Does the guarantee fund protect
the depositors against loss in national banks?
"ANSWER: It does not. The state does not have
control over national banks. The law only applies
to state banks and deposits only are insured against
loss in state banks."
"QUESTION: Are the national bank depositors
protected by a national bank guarantee law?
"ANSWER: They are not so protected. There
is no such thing as a national guarantee law affecting
national banks."
a FREMONT EVENING TRIBUNE advertisement (Rec..
p. 340):
From
"If you put your money in our savings department
you will not only receive compound interest but also
have absolute insurance. One thousand state banks
are assessed by law for the purpose of protecting
your deposits. You cannot lose a dollar in this bank
by fire, flood, theft or failure."
From Exhibit 30 of Exhibit 13, page 268, volume IT,
original record, The Red Hot Answer by a Nebraska
Ranker pamphlet, circulated by the banks:
"The state banks of Nebraska are bound together
unto a mutual insurance company carrying their own
risks and paying their own losses."
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179
These advertisements of the banks took on various forms
intended to affect most strongly the public mind with
reference to the guarantee fund law. On July 6th, 1926,
they published as a part of their propaganda a representative picture of the Supreme Court of the United States
and under it in bold type (Exh. 5 of Exh. 13, insert at
Rec., p. 238, an OMAHA BEE advertisement):
"The Opinion of the Highest Court"
Then followed an excerpt of the opinion of that court
in the Holstein case:
"In sustaining the law the court said:
"'When the legislature (of Nebraska) declares in
its banking laws that incorporation, inspection and
cooperation for the protection of deposits are necessary safeguards, this court certainly cannot say that
it is wrong. The power to compel beforehand, cooperation and thus, it is believed, to make a failure
unlikely and a general panic almost impossible, must
be recognized if government is to do its proper work.
"'In our opinion the statute before us is well within
the state's constitutional power.'—United States Supreme Court."
And on September 12th, 1926, they published a cut of
the imposing capitol building of Nebraska. And under
this picture, representing the ultimate in stability, strength
and progress, they said (Exh. 24 of Exh. 13, insert at
Rec., p. 238, a full-page OMAHA BEE advertisement):
"Strong Banks Make Strong States"
"The state banks in Nebraska are strong banks.
They have proven their strength by their conduct
during the deflation period. In Nebraska the strength
of the state banks does not depend upin the strength
of any individual bank. They are associated to-
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180
ABIE STATE BANK VS. WEAVER, ET AL.
gether under the bank guarantee law. The strength
of the individual banks therefore is the strength of
all the banks."
We must admit that the banks in this form of advertising displayed a most thorough understanding of the
psychology of the great mass of depositors. Nothing could
better tend to engender a feeling of security in the public
mind than the use of the likeness of Nebraska's capitol.
Nothing could better lull to rest any incipient fears arising
in the public mind, than the assurance that the supreme
court had sanctioned the law and held it constitutional.
In order to impress indelibly upon the mind of the
depositor their sincerity and steadfastness of purpose
in promising to perform their obligation to the depositors.
they printed on August 26, 1926, in the Sunday OMAHA
BEE, a large portrait of Abraham Lincoln and compared
their adherence and promise to perform their duty under
the Guarantee Fund Law to the loyalty and steadfastness
of Lincoln. Here, most certainly, was an appeal which the
average depositor with his small earnings and small savings could not withstand. Here is what they said in bold
letters under the picture of Abraham Lincoln (Exhibit 20
of Exh. 13, insert at Rec., p. 238, a full-page OMAHA BED
advertisement):
"Giving Up Profits to Support a Principle"
"One of the leading state bankers had declared that
it was a picture of Abraham Lincoln in his office that
gave him the courage to stick it out.
"'Lincoln had a dozen opportunities to quit,' be
said, 'but because he stuck to it. America is today
the greatest nation in the world.' Because the state
bankers in Nebraska stuck to it, this state is today
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181
famous among the great sisterhood of states as the
only state in which not a dollar of deposits has been
lost through the failure of state banks."
A more potent means of inculcating confidence would
be difficult to imagine. To the average depositor no name
would be so impressive in imparting a feeling of security.
It must be admitted the banks were quite astute observerm
of human nature.
Their representations went further than as to the condition of the Guarantee Fund Law or the facts involved
in its operation. They amounted to a positive statemenr
that the banks would make good their promises. In Exhibit 13 of Exhibit 13, insert at Rec., p. 238 (an OMAHA
BRE advertisement), they ostensibly put their words upon
the lips of a mother and father who were discussing the
probable safety of their savings. Under a caption,
"Where Have We Got Our Money, John?"
they publish this mythical conversation, conceived in their
own minds and intended ingeniously to inspire confidence
in the minds of depositors.
"Mother—'I notice in the paper John that some
banks down south have failed. Think of all the
money those people down there will lose. I'm just
wondering where we've got our money.'
Father—'It's all right, Mary, the money is in the
state bank in town. I tell you that guarantee law in
Nebraska is a mighty fine thing. We can go on about
our affairs and know that even if our bank goes under
we will get our money because the other state banks
will make it good'."
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ABIE STATE BANK VS. WEAVER, ET AL.
"When the news was printed recently of the failure
of a group of banks in two southern states it is
probable there were conversations similar to that reproduced here all over Nebraska."
Is it any wonder the state banks thrived under the
operation of the Guarantee Fund law, utilized and exploited as it was? Is it strange that, as they say,
"It took 14 years without the guarantee law to
climb from $10,000,000 to $71,000,000. Under the
law, only 9 years were needed to climb from $72,000,000 to $270,000,000."
All that the state of Nebraska and the depositors arc
asking in this case is that the banks fulfil their parts of
the undertaking as they promised and as the depositor'
relied upon.
The few banks now prosecuting this suit claim that the
banks cannot afford to pay the assessments and that its
collection would mean a wrecking of the state banking
system. The facts established by the evidence absolutely
fail to show any semblance of foundation for such contention. Here again the representations made by the banks
to the depositors are very material. Here was their position before they started this suit in January, 1928 (BOP, p. 474, vol. III, Orig. Rec.):
"This limit, in the case of the bank guarantee fund.
which fund is used for the purpose of paying depositors in failed banks, is fixed at 6/10 of 1 per cent.
Therefore for each thousand dollars of deposits that
a hank has, it must pay annually a tax of not to
exceed $6.00 for the support of the guarantee fund.
You can readily see that such an assessment, can be
paid by any bank that is solvent. In other words, 0
bank that fails, fails not because it had to pay $6.00
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ABIB STATE BANK VS. WEAVER, ET
183
a thousand into the guarantee fund but for other and
vital reasons. No bank fails as a result of the losses
sustained in other banks.
"If a bank loans $1,000 to a customer at 8 per cent
in the course
interest it would collect $80.00 interest
e of $80.00
incom
this
with
,
rison
of a year. In compa
the sum
state,
the
by
taxed
we have the same $1,000
fund.
ntee
guara
the
into
of $6.00, which must go
rebeen
has
0
$80.0
of
ng
Therefore, the bank's earni
be
must
which
tax,
the
duced to $74.00 as a result of
fund.
paid into the state guarantee
of just what
"This gives a very rind comparismt
tar that can
st
highe
it means to the bank to pay the
present law.
the
be possibly levied against it under
you, and
nce
convi
to
It is a comparison that ought
cannot
rty
prope
every other stockholder, that your
be
hurt
t
canno
be confiscated, and going banks
In
fact.
tax.
this
materially through the payment of
you can pay
the banks can pay this tax as easily as
your school tax."
possible element
We have perhaps quoted enough. Every
facts as such,
of estoppel exists, representations of alleged
perform and an absorepresentations of their intention to
as to their ability
lute promise to do so, representations
ask the aid of the
and intentions to pay. And now they
quences but with no
court to relieve them from the conse
whole these depositors
offer to do equity, no offer to make
right to recover their
whom they attempt to divest of their
deposits.
N
PROPOSITION OF LAW NUMBER SEVE
ed priThe depositors' guarantee fund was not enact
marily for the welfare of the banks but specifically for
the protection of depositors in state banks.
Sec. 7983, C. S. Neb. 1922, Sec. 1, ch. 10, Laws
1909.
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ABIE STATE BANK VS. WEAVER, ET AL.
Sec. 8024, C. S. Neb. 1922, Sec. 44, ch. 10, LaWS
1909.
Citizens State Bank of Stratton v. Strayer, 114
Neb. 567.
Shallenberger v. First State Bank of Holstein.
31 S. Ct. Rep. 189, 55 U. S. (L. ed.) 117, 219,
U. S. 114.
First National Bank v. Hirning, 204 N. W. (SD.) 901.
Farmers State Bank V. Smith, 209 N. W. (S. D.)
358.
The courts have said:
"The paramount purpose of Bank Deposit Guarantee Law is to secure depositors and guarantee
prompt payment; * * * * It must Le liberally
construed to accomplish its paramount purpose."
Chapman, Commission v. Guarantee State Bank.
267 S. W. Rep. (Tex.) 690.
Farmers State Bank of Mineola V. Mineher, 267
S. W. Rep. (Tex.) 996.
"It is a fund created by statute, der:ve:1 from
assessments of the banks operating under the law, to
insure the depositors of such banks against loss."
First National Bank V. Hirning, 204 N. W. (S.
D.) 901.
Farmers State Bank V. Smith, 209 N. W. (S. D.)
358.
Section 1 of the Nebraska act of 1909 made this fundamental declaration:
"Sec. 1. (Banking a (luasi-public business.) The
business of banking * • * * is hereby declared
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185
to be quasi-public business and subject to rogolation
and control of the state."
And Section 44 of the act provided:
"Sec. 44. (Guarantee Fund Assessment.) For the
purpose of providing a guarantee fund for the protection of depositors in banks, every corporation engaged in the business of banking under the laws of
this state, shall be subject to assessment, be levied,
kept, collected and applied as hereinafter provided."
The primary purpose of this act is the general protection of the public and the depositors' guarantee fund is
"for the protection of depositors in banks". Benefit to
the banks is not the principal objective, though such benefits have followed. This theory of the law has been directly affirmed by this court, in the Holstein case. The
Nebraska Supreme Court in Citizen State Bank of Stratton
V. Strayer, 114 Neb. 567, passing on a regulatory provision of the banking act, stated that "the banking business
carried on pursuant to a state charter, is quasi-public, and
for the protection of the public and its interests, and is
subject to reasonable regulations by the state."
The issues have been somewhat simplified by the apparent position of the banks that they do not challenge
any part of the act except the section applicable to special
assessments and that as to such section they challenge
it as having become confiscatory and as being of no future
benefit to the banks. The act having been passed for the
"protection of the depositors" manifestly its effective benefits could only be available to or be invoked by such depositors as might be depositors in failed banks. Depositors in going banks have no necessity to avail themselves
of its provisions. Hence the section might properly have
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ABIE STATE BANK VS. WEAVER, ET AL.
read "for the protection of depositors in failed banks'.
The obligation of the going banks is thus to pay assessments to indemnify and protect depositors in failed banks.
So generally and specifically the inquiry in this case has
to do directly with the equities and legal rights as between
the going banks and the depositors of private and public
funds in failed banks.
Whether the assessments levied on tl:^ hns fire sufficient to pay the depositors in full is not of large concern to the banks. Any payment to the depositors is a
benefit regardless of its amount or when paid. The banks
are not required by law to pay assessments sufficient to
reimburse depositors in full; all the banks have to do is
to pay the assessments provided by law even if not enough
10 pay the depositors.
In Farmers State Bank v. Smith, 209 N. W. (S. D.)
358, the plaintiff sought to restrain the collection of a
guarantee fund assessment claiming the right to set off an
amount equal to the assessment upon indebtedness due it.
The court in denying the plaintiff's prayer, discussed the
Depositors' Guarantee Fund Law as an insurance scheme
and the status of depositors holding claims against it
and said:
"Treating the depositors' guarantee fund law as all
insurance scheme, the assessments are not insurance
premiums due from the insured, but in the present
state of the fund are loss payments due from the insurer to the insured: payment to the fund being a
means of payment to insured depositors who are not
appellant's debtors.
"As soon as the assessment was made, it was the
duty of appellant to place the money at the disposal
of the guarantee fund commission to be distributed
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IS;
according to law, and from that time the money due
upon assessment was impressed with a trust, and
belonged to those designated by statute as entitled
thereto. The bank became the trustee of such money
until delivered to, or placed at the disposal of, the
commissions."
The Nebraska state banks repeatedly advertised and
represented to the present claimant depositors that the
banks constituted one giant insurance company in which
the depositors' money was secured. The banks were the
insurers, the depositors, the insured. In short they at that
time, when seeking depositors, made a true representation.
The primary and ultimate of the law was to protect
the depositor—to give him insurance on his money. The
banks profited incidentally as an incident to their business
venture—in the same way an insurance company would
from a law prescribing sound statutory insurance regulations.
A depositor needs the protection of this law for the
first time when the bank fails. His protection is the
primary and ultimate object of the law.
PROPOSITION OF LAW NUMBER EIGHT
Banking is a quasi-public business which the state in
the exercise of its police power may take under its control to the extent of prohibiting the business of banking
entirely except upon such conditions as it may prescribe
Noble State Bank V. Haskell, 219 U. S. 104.
First State Bank of Claremont v. Smith, 49 S. D.
518, 207 N. W. 467.
Shallenberger v. First State Bank of Holstein.
219 U. S. 114.
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ABIE STATE BANK VS. WEAVER, ET AL
We do not believe that this proposition is controvertible.
Justice Holmes, in Noble State Bank v. Haskell, 219
U. S. 104, said with reference to the Bank Guarantee
Fund Law that as to banks the legislature "may go on
from regulation to prohibition except upon such conditions as it may prescribe." This power of regulation of
banks by the legislature has been repeatedly recognized by
the courts. We will not encumber the rnco,41 by further
quotations from the cases.
When Nebraska adopted the Guarantee Fund Law in
1909 the act included a section prohibiting private banking.
The state banks then in existence had three courses
open to them. First: they could nationalize and avoid
the law. Second: they could comply with and operate
under the Guarantee Fund Law. Third: they could go
out of business along with the individual bankers who
did not care to incorporate.
All state banks organizing since 1909 have of course
done so with full knowledge of the conditions imposed by
the act.
The limit to which the state may go in imposing obligations as a condition to engaging in the banking business
in the state is clearly not important in this case. Under the
facts it is clearly evident that it is not a question of any
bank being compelled to go out of business by reason of
the special assessments.
Here it is not a question of banks going out of business
because of the special assessments. It is merely a ques-
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ABIE STATE BANK VS. WEAVER, ET AL.
189
tion of some of the banks desiring to make a greater profit
than their present earnings which in some cases were
characterized by the trial court as "extravagant". It is a
question of all the banks of the state bank system desiring
to make an average annual net income of more than 11.18
per cent on their combined capital and surplus before complying with the obligation imposed by the legislature of
Nebraska as a condition to operating a state bank.
PROPOSITION OF LAW NUMBER NINE
The statutory assessments for the benefit of the guar.
antee fund are not an involuntary taking of the property
of the banks but constitute a charge and contribution,
definite and certain and known in advance, the payment.
of which is a condition precedent for commencing and
continuing to do business as a state bank and which at
any time can be avoided by going out of the banking
business; in order to engage in the banking business the
banking corporation had to get a charter from the
state and to get the charter and keep it the bank had to
comply with the conditions made a part of the chartel
by the state for the safety and protection of the public,
and to obtain the benefits and privileges the law gave.
Noble State Bank V. Haskell, 219 U. S. 104.
Sluzllenberger v. First State Bank of Holstein,
219 U. S. 114.
Wirtz v. Nestos, 51 N. D. 603, 200 N. W. 524.
First State Bank of Claremont v. Smith, 49 5. D.
518, 207 N. W. 467.
Farmers State Bank V. Smith, 50 S. D. 250, 209
N. W. 358.
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ABIE STATE BANK VS. WEAVER, ET AL.
The legislature in enacting the Guarantee Fund Banking Act created certain privileges and certain obligations.
It is quite impossible for a court to compare and to measure them and their relative value and burden. For instance, state banks were permitted to loan one customer
up to 20 per cent of the capital of the bank as against
one-half that percentage permitted to national banks. The
act enabled state banks to accommodate borrowing customers with one-half the capital investment. Py the act.
state banks were absolved from giving depository bonds
for public funds. State bank charters enabled the carrying of reserves at interest while national banks were required to carry reserves without interest in Federal Reserve Banks.
Unquestionably. tl,e best considered opinion on Guarantee Fund law was delivered by Justice Holmes in the
case of Noble State Bank v. Haskell, 219 U. S. 104. The
rule above is there vigorously announced and it has not
been questioned to this day except as the Nebraska banks
are now trying to do so. Several parts of the opinion
are relevant:
"The power to compel, beforehand, co-operation,
and thus, it is believed, to make a failure unlikely
and a general panic almost impossible, must be
recognized, if government is to do its proper work,
unless we can say the means have no reasonable relation to the end:"
The banks now contend that the end Justice Holmes anticipated the law would accomplish has not been realized.
To anyone, however, who has observed the effects of the
deflation period on the banks of other states throughout
the agricultural middle west it is clearly evident that
Justice Holmes was not badly mistaken in his predictions.
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191
The banks' own statements and advertisements during that
period and the evidence in this case show that the bank
failures in Nebraska would have been many times more
disastrous than they would have been if it had not been
for the existence of the bank Guarantee Fund Law during
the period of deflation. Of course there were failures. There
were bound to be failures and always will be failures under
the most favorable circumstances during such a period. But
there was no panic and the state banks of Nebraska during
that period received the benefits of the stability given t(t
the banking system and the confidence of the public.
Of course no one can now tell how many banks would
have failed or what the condition of the present banks
would be now if it had not been for the existence and operation of the Guarantee Fund Law. No one can tell how
much more severe the reaction would have been in Nebraska. But no one can deny but that the state and the
banks were saved from the full force of the blow that fell
at that time.
Justice Holmes goes on in the opinion to further state:
"We cannot say that the public interests to which
we have adverted, and others, are not sufficient to
warrant the state in taking the whole business of
banking under its control. On the contrary, we are
of opinion that it may go on from regulation to prohibition except upon such conditions as it may prescribe. In short, when the Oklahoma legislature declares by implication that free banking is a public
danger, and that incorporation, inspection, and the
above-described co-operation are necessary safe-guards,
this court certainly cannot say that it is wrong."
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ABIE STATE BANK VS. WEAVER, ET AL.
And on petition for rehearing he further said:
"The analysis of the police power, whether correct
or not, was intended to indicate an interpretation of
what has taken place in the past, not to give a new
or wider scope to the power. The propositions with
regard to it, however, in any form, are rather in the
nature of preliminaries. For in this case there is no
out-and-out unconditional taking at all. The payment
can be avoided by going out of the hanlem; business,
and is required only as a condition for keeping on.
from corporations created by the state. We have
given what we deem sufficient reasons for holding that
such a condition may be imposed."
We have here no tax upon the property of the banks
which amounts to an involuntary taking of property. Tt
is an imposition of a condition under the police power of
the state. The property of the banks is not taken for pub•
lie use. It is merely incidentally affected by a proper exercise of the police power.
The Supreme Court of North Dakota in discussing the
Guarantee Fund Law of that state in the case of Wirtz V.
Nestos, 51 N. D. 603, 200 N. W. 524, applied the rule laid
down by Justice Holmes to the conditions which existed in
North Dakota. In the opinion the court said:
"It was settled early in the history of this state
that the legislature could permit it to be conducted
upon such conditions and subject to such regulations
as it saw fit to prescribe, or even 'forbid it altogether.'
In State v. Woodmasnee, 1 N. D. 246, 46 N. W. 970,
11 L. R. A. 420, this court sustained the validity of
the original act providing for the organization and
government of state banks, saying, among other
things, at page 250, in the official report (46 N. W.
971):
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193
"'But as a matter of precedent and authority, the
legislative perrogative, in the exercise of its police
power in promoting the public safety, not only to
regulate and restrict the business of banking, but
also to grant the right to one class, and to prohibit
to others, or even to forbid it altogether, has never
been questioned in the courts, and the legislature of
other states have frequently exercised the right of
supreme control over the business'."
the
The Supreme Court of South Dakota also applied
rule in the case of First State Bank of Claremont v. Smith,
the
supra. In this case also the contention was made that
Guarantee Fund was wholly insolvent, served no public
purpose and was a burden to the banks to such an extent
as to amount to an involuntary taking of their property.
But the court followed the reasoning of Justice Holmes
and upheld the rule. In the opinion it was said:
"So far as the banking corporations are concerned,
the assessment sought to be prohibited is not a tax
or involuntary taking of their property, but a part
of the consideration exacted by the state for the corporate franchise. So, also, is the law a part of the
privileges and conditions under which the unincorporated banks were organized and have been doing
business."
PROPOSITION OF LAW NUMBER TEN
The distinction between rate and taxation cases and
the case at bar involving the question of whether a
special assessment levied under the Guarantee Fund Law
is confiscatory is that the Guarantee Fund Law is not a
revenue nor rate regulation measure but an act passed
under the state's police power to stabilize banking condi
tions generally and in particular to protect deposits in
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ABIE STATE BANK VS. WEAVER, ET AL.
state banks, creating thereby intangible public benefits
which cannot be judicially measured, and the payment of
the Guarantee Fund assessment being a condition precedent to the operating of a state bank regardless of
the earnings of the bank.
First State Bank of Claremont V. Smith, et
49 S. D. 518, 207 N. W. 467.
Noble State Bank V. Haskell, 219 U. S. 104.
The proposition above set forth has been largely argued
in connection with other propositions wherein the twn
cases referred to and other cases are cited and fully quoted.
En the case of First State Bank of Claremont v. Smith, 49
S. D. 518, 207 N. W. 467, the court said:
"So far as the' banking corporations are concerned,
the assessment sought to be prohibited is not a tax
or involuntary taking of their property, but a part of
the consideration exacted by the state for the corporate franchise. So, also, is the law a part of the
privileges and conditions under which the unincorporated banks were organized and have been doing
business."
And in Noble State Bank v. Haskell, 219 U. S. 104, the
third paragraph of the syllabus is as follows:
"The police power of a state extends to the regulation of the banking business, and even to its prohibition except on such conditions as the state may
prescribe."
Manifestly, it is not competent for a court to consider
the assessments wholly from the standpoint of their monetary value to the banks when there were other and controlling reasons of public welfare and benefit prompting
the legislature to provide for these assessments and permit
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19:i
their continuation. The question of the value of the assessments to the public and to the banks, and the related
matter of the amount of and the effect of the assessments,
on banks must be considered as an entirety by the legislature and by the court.
PROPOSITION OF LAW NUMBER ELEVEN
Where a law is enacted in the exercise of the police
power and has for its object the advancement of the
public good, public safety or public welfare, there may be
an incidental destruction of the value of private property
or even destruction of the property itself without violation
of the fifth or fourteenth amendments to the constitution
of the United States, for it is not taken for public use
without compensation or without due process of law,
since it is not taken by the public at all, and the court will
consider and determine only whether or not the law as
enacted has any rational relation to the public good with
every possible presumption indulged in the law's favor.
Powell v. Pennsylvania, 127 U. S. 678.
Mugler v. Kansas, 123 U. S. 623.
Lochner v. New York, 198 U. S. 45, 25 Sup. Ct.
Rep. 539.
State v. Drayton', 82 Neb. 254, 117 N. W. 768.
State v. Withnell, 91 Neb. 101, 135 N. W. 376.
6 R. C. L., Sec. 230, page 243.
The Guarantee Fund Law has heretofore been finall
determined by the United States Supreme Court to have,
a rational relation to the public good. The state has always
had the right in exercising its police power to enact measures which affect the property rights of citizens. This
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196
ABM STATE BANK VS. WEAVER, ET AL.
right was inherent in the state before the adoption of the
fifth and fourteenth amendments to the Constitution of
the United States. And the Supreme Court of the United
States has repeatedly held that these amendments are not
violated by the proper exercise of the police power by the
state.
With regard to statutes enacted by the state under their
police power, there is only one quemtien
tirs courts
can determine, and that is whether the law as enacted has
any rational relation to the public good, safety or welfare,
with every possible presumption indulged in its favor. If
it does not effect a palpable invasion of rights secured by
fundamental law, judicial inquiry is at end. Even though
the property of an individual may be rendered valueless
as an incident to t!. e operation of the law, still there has
been no taking of the property for public use without just
compensation as prohibited by the 5th amendment to the
federal constitution or any taking without due process of
law as prohibited by the fourteenth amendment.
The liquor and oleomargarine cases settled that question.
Mugler v. Kansas, 123 U. S. 623, 688, 699.
Powell v. Pennsylvania, 127 U. S. 678, 682..
Hadacheck v. Sebastian, 239 U. S. 394.
Pierce Oil Corp, v. City of Good Hope, 248 U. S.
498.
In Powell v. Commonwealth of Pennsylvania, supra,
plaintiff in error was the owner of machinery and equiPment of value only for the manufacture of oleomargarine.
He contended that the law of Pennsylvania prohibiting the
manufacture and sale of this article, rendered his property of no value and violated the Fifth and Fourteenth
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197
amendments. This court held that the state had the inherent right under the police power and wholly apart from
the provisions of the federal constitution to enact laws for
the protection of the public interest and that the Fifth and
Fourteenth amendments to the constituion of the United
States did not prohibit the exercise of such power even
though as an incident to the operation of the law the
Property of individuals was destroyed or the value of their
property diminished. It held that the police power of the
state existed before the adoption of the Fifth and Fourteenth amendments to the constitution and that the said
amendments were not intended to and do not relate to the
exercise of that power.
In the opinion it was said:
"It is contended that the last statute is void in that
it deprives all coming within its provisions of rights
of liberty and property without due process of law
and denies to them the equal protection of the law,—
rights which are secured by the fourteenth amendment to the constitution of the United States. It is
scarcely necessary to say that if this statute is a
legitimate exercise of the police power of the state
for the protection of the health of the people, and
for the prevention of fraud, it is not inconsistent with
that amendment; for it is the settled doctrine of this
court that, as government is organized for the purpose, among others, of preserving the public health
and public morals, it cannot divest itself of the power
to provide for those objects, and that the fourteenth
amendment was not designed to interfere with the
exercise of that power by the states. Mugler v. Kansas.
123 U. S. 663, Ante, 273; Union Co. V. Crescent City
Co., 111 U. S. 746, 751, 4 Sup. Ct. Rep. 652; Barbier
V. Connolly, 113 U. S. 27, 5 Sup. Ct. Rep. 357; Yiek
IVo v. Hopkins, 118 U. S. 356, 6 Sup. Ct. Rep. 1064."
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198
ABIE STATE BANK VS. WEAVER, ET AL.
The banks complain in this case that they may by the
further enforcement of this law be deprived of their proP"
erty without just compensation because their building.
;
are adapted to and are valuable only as banking buildingsSuch a result arising from their refusal to abide by the
conditions imposed by the state and their going out of the
banking business would not be depriving them of their
property. It would, as in the above case, merely be a
lessening of the value of their property as an incident to
the exercise of the police power. That is not "taking without just compensation" or "without due process of laite
as forbidden by the state and federal constitutions.
PROPOSITION OF LAW NUMBER TWELVE
The banks which are making fair or "extravagant
profits" as admitted even by the trial court are not entitled to be relieved of their responsibilities to depositors
with accrued claims by showing that hardship may be
imposed by the operation of the law upon other banks of
the state banking system.
Aetna Ins. Co. v. Hyde, 72 I -. S. (L. Ed.) 357, 47
S. Ct. 113.
City of Grand Island v. Postal Tel. Cable Co., 92
Neb. 253, 138 N. W. 169.
Okio River Ry. Co. v. Dittey, 203 Fed. 237.
The court is confronted in this case with a rather unusual circumstance. The officers of two banks, the State
Bank of Omaha and the Fremont State Bank, according
to the evidence, initiated and caused this suit to be brought.
The officers of these banks were the only bankers except
an officer of the plaintiff bank, to appear upon the trial of
the case as witnesses for the plaintiff.
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199
Since its organization in 1912 the Omaha State Bank
had accumulated surplus of $112,000.00 from earnings and
in addition for seven years consecutively before trial had
paid an annual dividend of 10% (Rec., p. 224, Qs. 1138-43).
The Fremont State Bank had accumulated more than po,Nom additional surplus since 1920 and had continuously
in addition paid an annual dividend of 8% (Rec., p. 311,
Q. 394).
It hardly seems consonant with equitable principles for
these banks with their "extravagant profits" to select oily
of the smallest banks in the state, one operated under the
most adverse trade conditions, and one which is not in the
least typical or representative of state banks of Nebraska,
to be plaintiff in a suit for their benefit. The president of
the Abie State Bank testified that he did not even know
the case had been brought or that his bank was named as
party plaintiff until told by someone who heard the fort
stated over the radio (Rec., p. 178, Q. 785).
It is a well settled principle of law that no party rs
entitled to equitable relief against the enforcement of a
law by showing that it works a hardship on others. (Though
there was in fact no showing that it worked a hardship on
any bank.)
This court in the case of Aetna Ins. Co. v. Hyde, 72 L.
Ed. 357, had before it a case brought by the Aetna Insmance Company on behalf of itself and 155 other stock insurance companies doing business in Missouri, to contest
a reduction of rates made under the state statute. The
evidence showed that a hardship would be worked upon
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ABIE STATE BANK VS. WEAVER, ET AL.
some of the insurance companies of the state, but not upon
the plaintiffs. The court in denying equitable relief, said:
"No company receiving just compensation is entitled to have higher rates merely because of the
plight of its less fortunate competitors. Companies
whose constitutional rights are not infringed may not
better their position by urging the cause of others.
Albany County v. Stanley, 105 U. S. 305, 311, 26 L.
ed. 1044, 1049; Heald v. District of Columbia, 259 U.
S. 114, 123, 66 L. ed. 852, 854, 42 Sup. Ct. Rep. 434.
As a practical matter of business, it is impossible in
the long run for some companies to collect higher
premiums than those charged by others in the same
territory. Rates sufficient to yield adequate returns
to some may be confiscatory when applied to the business of others. But the latter have no constitutional
right to prevent their enforcement against the former.
The 14th Amendment does not protect against competition. Moreover, 'aggregate collections' sufficient
to yield a reasonable profit for all do not necessarily
give to each just compensation for the contracts of
insurance written by it. It has never been and cannot
reasonably be held that state-made rates violate the
14the Amendment merely because the aggregate collections are not sufficient to yield a reasonable profit
or just compensation to all companies that happen to
be engaged in the affected business."
The evidence showed that the state banks as a whole were
in a better condition and making more money than they
had been for several years past. A few of them may still be
in poor condition, but nearly all of them are paying off
and charging out their losses incurred during the deflation.
Many are making very satisfactory and in some cases unconscionable profits. Will this court in order to enable
the real parties instigating this suit to enhance their
already "extravagant profits", hold that they can take
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201
advantage of the condition or fancied condition of a few
of the smallest banks operating under the most adverse
circumstances to escape payment of the special assessments
levied under the Guarantee Fund Law for the benefit of
the public generally and depositors in failed banks in particular? We cannot conceive of this being done.
In City of Grand Island v. Postal Telegraph Cable Co.,
92 Neb. 253, the court said in part:
(,* * * *
We are not aware of any case which
holds that when the business transacted by one person
or corporation of a class has proved largely remunerative, and the business of another of the same was
less remunerative, or was in fact conducted at a loss,
a court of justice can for that reason declare an occupation tax ordinance void."
In Ohio River & W. Ry. Co. v. Dittey, 203 Fed. 237, the
court said that courts are not arbiters who "may overthrow
a law which imposes a tax on privileges and franchises
merely because in isolated cases such law imposes a hardship."
As a matter of fact it is the desire of the banks to charge
off old bad debts which has prevented them practically all
from paying from good to very large dividends.
There are 726 banks. On the matter of earnings it
affirmatively appears that 570 of them had net earnings
extending up to "extravagant profits", and after paying
guarantee fund assessments and charging off admittedly
old bad debts; and that these net earnings average with
the 570 banks a fair return on the investment. Where
in this record will the court find any evidence of the caust.
for the variation in earnings of the 570 banks; or find any
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ABIE STATE BANK VS. WEAVER, ET AL.
evidence as to the distribution to operating expense, operating income or other details with respect to such banks?
The fact that they paid a specific amount to the guarantee
fund took that amount of their earnings, but that of itself
would prove nothing unless accompanied by proof of the
effect of the guarantee fund on the earnings, eliminating
for the purpose of the argument the main purpose of the
guarantee fund, the protection of depositors, and not benefit to the banks.
PROPOSITION OF LAW NUMBER THIRTEEN
Even if the rule in the rate and taxation cases were
applicable to the case at bar as contended by plaintiff,
then plaintiff would have had the burden of producing
detailed proof not attempted in this case to show the
volume of business available to the several banks that
have failed to make compensatory earnings, the facilities
of such banks for handling the business offered, the efficiency and economy of the operation of such banks, that
the condition complained of is not unusual or merely tern
porary, and to exclude all causes other than the effec'
of assessments paid; mere proof of loss or difficulty of
operation for a period of a few years not being sufficient.
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City of Grand Island v. Postal Telegraph Co., 92
Neb. 253, 138 N. W. 169.
City of Fremont v. Postal Telegraph Co., 103 Neb.
476, 172 N. W. 525, affirmed in 255 U. S. 124.
Powell v. Pennsylvania, 127 U. S. 678.
Ohio River and TV. Ry. Co. v. Dittey, 203 Fed. 537.
Western Union Telegraph Co. v. Borough of New
Hope, 187 U. S. 419.
Aetna Insurance Co. v. Hyde, 47 S. Ct. Rep. 113,
72 U. S. (L. Ed.) 357.
ABIE STATE BANK VS. WEAVER, ET AL.
203
It is established that the reasonableness of a tax cannot
be determined by the profit that some individuals make in
their business. The fact that they are unable to conduct
their business in such a way as to realize a profit which
would warrant the amount of the tax is no argument as
to the reasonableness or unreasonableness of the tax.
Inefficiency in management, peculiar local trade conditions, temporary business depression and in fact numerous
simliar matters may affect the ability of one or a limited
number of the banks to operate at a profit. Tinder the
rule that "Every possible presumption is in favor of the
validity of a statute, and this continues until the contrary
is shown beyond a reasonable doubt," Powell v. Pennsylvania, 127 U. S. 678, the burden is upon the banks as to
every one of these issues to show that a condition exists
which would beyond question make the further operation
of the banks impractical and to negative every possible
state of facts consistent with the constitutionality of the
law.
So, proof that a few individual banks are operating at a
loss is not proof of the unreasonableness of the special
loss
assessment levied. Proof must be adduced that the
is not due to mismanagement, lack of available business,
abnormal losses due to depression following the war or
other causes. Furthermore, an operating loss for a fem
years is not proof of anything; the period of time considered must be long enough to cover various business periods
and show normal operating conditions.
In City of Fremont v. Postal Telegraph Cable Co., 103
Neb. 476, affirmed by this court in 255 U. S. 124, the Nebraska Supreme Court said:
"The proof in support of these allegations shows
that during the years 1914 and 1915 defendant's Fre-
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ABIE STATE BANK VS. WEAVER, ET AL.
mont office was operated at a loss, and that a payment of the tax for these two years would occasion
deficits on defendant's intrastate business at Fremont
of $143.73 and $128.45 respectively. No figures are
offered for any of the preceding years. But, even
if
the evidence at hand is sufficient to warrant us in
assuming antecedent and prospective losses in. the
operation of defendant's business at Fremont, we do
not regard this as a satisfactory test of the reasonableness or unreasonableness of the tax involved. Defendant's losses may be due to conditions for which it
is itself responsible.'
-Western Union Telegraph Co. v. New Hope, 187 U. S. 419:
"And 'that the courts will not declare such ordinance void because of the alleged unreasonableness of
the fee charged, unless the unreasonableness be so
clearly apparent as to demonstrate an, abuse of discretion on the part of the municipal authorities'.'
The banks failed entirely to produce the necessary proot
on these points. No law will be declared
invalid or unconstitutional by the courts unless it is manife
stly so:
unless there is no state of facts upon which
it can be held
valid. In order for the banks to prevail they must show
that conditions as they exist are not the result
of othelcauses than the assessments made under this law. This
they have not done.
PROPOSITION OF LAW
NUMBER FOURTEEN
Regardless of the general power reserved in the state
of Nebraska by its constitution, to alter or amend banks'
charters, the state would have this right under the police
power; the only restriction being that any measure
adopted in the exercise of that power must be rationa
lly
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, ET AL.
ABIE STATE BANK VS. WEAVER
205
ose. Those questions
intended to serve some public purp
d Law are no
in respect to the Nebraska Guarantee Fun
longer open to question.
U. S. 104.
Noble State Bank v. Haskell, 219
k of Holsteiu. •)19
Shallenberger v. First State Ban
U. S. 114.
e, 170 U. S. 57, 47
Chicago, B. tE Q. R. Co. v. Stat
Neb. 549.
U. S. 488.
Douglass v. Kentucky, 168
S. 814.
Stone v. Mississippi, 101 U.
V. Hyde Park. 97
Northwestern Fertilizing Co.
U. S. 659.
sets, 97 U. S. 25.
Boston Beer Co. v. Massachu
7 R. C. L., Sec. 105, page 106.
623.
Mugler V. Kansas, 123 U. S.
Louisiana Light (k
New Orleans Gaslight Co. v.
Heat Co., 115 U. S. 650.
their brief to the power
Appellants devote large space in
the charters of the banks
of the state to alter or amend
Fund Law. This is no
by the passage of the Guarantee
longer an open question.
rnmental function which can
The police power is a gove
abridged by contract or
not be alienated, surrendered or
Boston Beer Co. v. Massagrant of corporate charter. In
was said:
chusetts, 97 U. S. 25, 33, it
by any contract, divest
The legislature cannot,
ide for these objects (the
itself of the power to prov
ng emphatically to tint
public welfare). They belo
and the application of the
class of objects which dem
a lea'; and they are to be
rem
sup
maxim, Salus populi
such appropriate means:
by
for
ided
attained and prov
devise. That dismay
on
reti
disc
as the legislative
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'206
ABIE STATE BANK VS. WEAVER, ET AL.
cretion can no more be bargained away than the
power itself.
The only limitation under the reserve power or police
power is that the alteration or amendment must have a
rational relation to the public welfare. No one has or does
question this. The Shallenberger case decided that issue
in the affirmative with respect to the Nebraska law.
The courts are not concerned with any economic hardship or oppressiveness so long as the constitutional provisions are not violated. In Powell v. Pennsylvania, 127 U.
S. 678, it was said:
If all that can be said of this legislation is that it
is unwise, or unnecessarily oppressive to those manufacturing or selling wholesome oleomargarine as au
article of food, their appeal must be to the legislature.
or to the ballot-box, not to the judiciary. The latter
cannot interfere without usurping powers committed
to another department of government.
In 7 R. C. L., Sec. 105, page 106, the principle is well
stated:
"105. Harshness and Unreasonableness.—The general rule is that the question of the reasonableness
of an act otherwise within constitutional bounds, is
for the legislature exclusively, and in ordinary cases
the courts have no revisory power concerning it, or
to substitute their opinion for the judgment of the
legislature. Courts are not at liberty to declare
statutes invalid although they may be harsh, and may
create hardships or inconvenience, or are oppressive
or are mischievous in their effects and burdensome on
the people and of doubtful propriety."
This court has held the enactment of the Nebraska law
was a proper exercise of the police power. That quer!,
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_
ABIE STATE BANK VS. WEAVER, ET AL.
207
tion is settled. With that decision the jurisdiction of the
judiciary ended. Since it was a proper exercise of the
police power only the legislature can alter or repeal the
law. The courts are not concerned with the results of
the operation of a law enacted in the proper exercise of
that power whereas under the record in this case, the
tutionsi
evidence has shown conclusively that no consti
limitations are being transgressed.
EN
PROPOSITION OF LAW NUMBER FIFTE
the basis
Where the decision of a state court was on
on and
of estoppel in pais involving a non-federal questi
g,
holdin
it appears that there was basis in fact for such
will not take
the supreme court of the United States
l question may
jurisdiction although an independent federa
deral
be involved. This court will not, where such non-fe
to
decide
ake
question has some basis in fact, undert
on
questi
such
on
court
whether the decision of the state
was right or wrong.
Nat'l Bank, 207
rkansas So. R. Co. v. German
IT. S. 270, 28 S. C. Rep. 78.
et al. v. Farmer.
Eillcrprise Irrigation District,
Ct.
Mutual Canal Co., 243 U. S. 157, 37 Sup.
Rep. 318.
V. Pretuferga,st
St. Louis Malleable Casting Co.
Ct. Rep. 178.
S.
Cons& Co., 260 U. S. 469, 43
d in EnterThis question is fully considered and decide
l
Co.,
prise irrigation District v. Farmers Mutua Canal
juris243 U. S. 157, 37 Sup. Ct. Rep. 318. In denying
diction it was said:
"A decision of the highest court of a state adverse
to the contention that, consistently with the clue
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Federal Reserve Bank of St. Louis
208
ABIE STATE) BANK VS. WEAVER, ET AL.
process of law and equal protection of the laws
clauses of U. S. Const. 14th Amend., an adjudication
of the state board of irrigation in favor of the asserted right of a canal company, under an alleged
priority of appropriation, to divert through its canal
a certain amount of water from a stream, could not
be treated as binding upon those claiming under other
appropriations, because it was made without lawful
notice or opportunity to be heard, is not reviewable
in the Federal Supreme Court on writ of error, where
the state court also decided that the canal company
was entitled to prevail for the reason that its adversaries were estopped by their own conduct to question the canal company's claims.
"The contention that the highest court of a state,
in disposing of some or the questions WI-Jived in a
clause (case) including that of a defense of an estoppel in pais, misconceived or misapplied the statute
and common law of the state, and thereby infringed
the due process of law and equal protection of the
laws clauses of U. S. Const. 14th Amend.,—presents
no Federal question which will sustain a writ of
error from the Federal Supreme Court."
In Arkansas Southern R. Co. v. German National Bank,
207 U. S. 270, 28 S. Ct. Rep. 78, 52 L. ed. 201, the
court said:
"Ordinarily this court will not inquire whether the
decision upon the matter not subject to its revision
was right or wrong."
The Nebraska Supreme Court was right in its findings
of fact on the failure of proof by the banks and the
question of estoppel. We submit no other decision was
possible on the facts and record in this case.
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Federal Reserve Bank of St. Louis
ER, ET AL.
ABIE STATE BANK VS. WEAV
209
TEEN
PROPOSITION OF LAW NUMBER SIX
, 1922, the Ne.
Under Section 9150, C. S. Nebraska
al in equity cases, is
braska Supreme Court upon appe
and to "reach an inderequired to try the case de novo
finding or findings are
pendent conclusion as to what
all the evidence."
required under the pleadings and
239, 115 N. W. 1076.
Colby V. Foxworthy, 80 Neb.
(hereinbefore quoted)
Sec. 9150, C. S. Neb. 1922
V. Episcopal Church.
Enterprise Planing Mill Co.
386.
100 Neb. 29, 158 N. W.
of Red Cloud, 69 Neb.
Michigan Trust Co. v. City
585, 98 N. W. 413.
. v. Hendee, 77 Neb. 12.
Omaha Loan & Bldg. Assn
Ins. Co. V. Fuller, 53
Milwaukee Mechanics Fire
Neb. 815.
the Nebraska statute by
The interpretation placed upon
is well stated in Colby v.
the Nebraska Supreme Court
N. W. 1076, in which it was
Foxworthy, 80 Neb. 239, 115
said:
authorities it seems quite
From the citations of
overlooked the fact that,
evident that counsel have
rules now in force for the
under the statutes and the
cases, we are not at all
trial of appeals in equity
judgment of the trial court,
bound by the findings and
novo, reach our own inbut must try such cases de
to the weight, credibility
dependent conclusions as
and refuler our judgment
,
ence
evid
and effect of the
lusion reached by the
conc
without reference to the
the record contains
that
fact
district court, or the
it.
ort
some evidence to supp
of a trial court under
Furthermore, a voluntary opinion
not a proper part of the
the procedure in Nebraska is
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210
ABIE STATE BANK VS. WEAVER, ET AL.
record on appeal and will be disregarded. In Milwaukee
Mechanics Fire Ins. Co. v. Fuller, 53 Neb. 815, the
court said:
A second argument here is that the judgment must
be reversed because the only issue in the case has not
been passed upon or decided by the district court;
but this argument assumes that the opinion of the district judge is an essential part of the record of the
case brought here; but it is nGt. Ii re-.1 vii a case
brought here, either on error or appeal, while
this
court is always pleased to have the benefit
of the
written opinion of the trial judge, still the judgment
of the district court must stand or fall upon the
statutory record of the case—that is, the pleadings.
the finding and judgment of the district court, and the
bill of exceptions made a part of the record.
So upon this appeal the findings of fact and of
law
made by the Nebraska Supreme Court are the proper basis
for review. The volunteer opinion of the trial court
has
no proper place at this stage.
PROPOSITION OF LAW NUMBER SEVENTEEN
Where the state supreme court has in the syllabu
s
based its decision upon estoppel and has devoted
fully
two-thirds of its opinion to the discussion of the
evidence
and facts establishing estoppel, it is frivolous to
contend
as appellants do, that because the words "waiv
er" and
"estoppel" were not actually used in the opinion
itself
that it does not constitute one of the grounds of
that
court's decision.
Old Colony Trust Co. v. Omaha, 230 U. S. 100.
Burbank v. Ernst, 34 Sup. Ct. 299, 232 U. S.
162, 58 L. ed. 551.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
211
Cuyahoga River Power Co. V. Northern Realty
Co., 37 S. Ct. 643, 244 U. S. 300.
Egan v. Hart, 165 U. S. 188, 41 L. ed. 680.
The banks now contend that the decision of the Ne
braska Supreme Court on estoppel as announced in paragraph one of the syllabus should be disregarded as being
only an abstract proposition of law not applied to the
case. They ask this court to disregard the decision and
In
discussion on estoppel as incorporated in the opinion.
support of this they cite Holliday v. Brown, 34 Neb. 232.
This question, in an appeal coming to this court from
Colony
Nebraska, was before this court in the case of Old
Trust Co. v. Omaha, 230 U. S. 100.
In that case it was contended by the City of Omaha
should
that the opinion of the Nebraska Supreme Court
s
finding
and
be disregarded in considering the propositions
stated in the syllabus. In deciding against the city on this
point the court said:
To the state decisions here cited, counsel for the
city interposes the objection that they arc not well
what is
grounded, and that some of them go beyond
of
more
expressed in the syllabus. We need not say
the
as
the first branch of the objection than that,
namely, the
decisions relate to matters of local law,
and statutes
construction of the state constitution
, they
and the powers of local municipal corporations
their apmust be regarded by us as controlling, when
any right granted
plication involves no infraction of
States.
or secured by the Constitution of the United
it
could
nor
ted,
sugges
not
is
ion
Such an infract
is
on
objecti
the
of
branch
other
The
reasonably be.
in Nenot based upon any statute or rule of court
s. At
syllabu
the
to
effect
ling
control
braska, giving
most it rests upon a statement in Holliday v. Brown.
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Federal Reserve Bank of St. Louis
212
ABIE STATE BANK VS. WEAVER, ET AL.
34 Neb. 232, 51 N. W. 839, respecting "an unwritten,
rule" to that effect, but what was said upon the subject in that case has been so pointedly criticized and
so far restrained in Williams v. Miles, 68 Neb. 479,
62 L. R. A. 383, 110 Am. St. Rep. 431, 94 N. W. 705,
96 N. W. 151, 4 Ann. Cas. 306, that it is not controlling. Of course, it ought not to be given greater effect
here than in the courts of the state.
Both the opinion and syllabus by the Nebraska Supreme
Court in this case are based on estoppel and Giey are in
perfect harmony.
Clearly both the syllabus and opinion are before this
court for consideration on all issues involved on this
appeal.
PROPOSITION OF LAW NUMBER EIGHTEEN
The Nebraska Supreme Court is required by sections
1074 and 1075, C. S. Nebraska, 1922, to cause all 01
its opinions to be reported and published and they are
therein referred to as the decision. Appellants have included the syllabus and opinion in the record brought
to this court. Such syllabus and opinion are properly referred to in this court to establish the grounds of the
judgment.
Old Colony Trust Co. V. Omaha, 230 U. S. 100.
Holliday V. Brown, 34 Neb. 232.
Williams v. Miles, 68 Neb. 790.
Section 1074, C. S. Nebraska, 1922, is in part as follows:
"The court shall cause to be reported with as much
brevity as practicable each of its decisions which
reverses or modifies the judgment of the district court
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
213
Section 1075, C. S. Nebraska, 1922, as amended by Laws
of Nebraska, 1929, chapter 84, insofar as material, is as
follows:
"It shall be the duty of the reporter of the supreme
court to prepare the opinions of said court for publication as fast as they are delivered to him. * •
* * He shall cause the same to be printed, and
bound in a good and substantial manner, equal to
volume fifty of said reports."
As shown by these statutes, the opinion is prepared by
the court and is required to be published. The syllabus is
also prepared by the court. Holliday v. Brown,34 Neb. 232.
PROPOSITION OF LAW NUMBER NINETEEN
Where by statute or settled practice the opinion of the
state court is a part of the record, this court will examine the grounds of the opinion in order to ascertain the
grounds of the judgment.
Thompson v. Maxwell Land Grant Railway Co.,
168 U. S. 451, 42 L. ed. 539.
Burbank v. Ernst, 34 Sup. Ct. 299, 232 U. S. 162,
58 L. ed. 551.
Cuyahoga River Power Co. V. Northern Realty
Co., 37 S. Ct. 643, 244 U. S. 300.
Egan v. Hart, 165 U. S. 188, 41 L. Ed. 680.
The decision of the state supreme court with the
grounds and reasons for the decision as given in the
syllabus and opinion of the court are the basis upon
which the Supreme Court of the United States has always decided the question of the grounds of jurisdiction.
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Federal Reserve Bank of St. Louis
214
ABIE STATE BANK VS. WEAVER, ET AL.
Thompson v. Ilfaxu;e11 Land Grant Railway Co.,
168 tr.
S. 451, 42 L. ed. 539:
"Whenever a case comes from the highest court of
a state for review, and by statute or settled practice
in that state, the opinion of the court is a part of the
record, we are authorized to examine the grounds of
such opinion for the purpose of ascertaining the
grounds of the judgment."
The same rule is applied in the following cases:
•
Burbank V. Ernst, 34 Sup. Ct. 299, 2:12 U. S. 162,
58 L. ed. 551.
Cuyahoga River Power Co. v. Northern Realty
Co., 37 S. Ct. 643, 244 U. S. 300.
Egan v. Hart, 165 U. S. 188, 41 L. ed. 680.
The Supreme Court of Nebraska is required by sections
1074 and 1075, C. S., Nebraska, 1922, to cause all of its
opinions to be reported and published, and they are therein
referred to as the decision. This has always been the
,practice in that court and in this case as in
all others
corning to this court on appeal, the opinion as incorporating the decision, was included as a part of the
record.
PROPOSITION OF LAW NUMBER TWENTY
If, pending a decision on appeal, a statute is enacted
or an event occurs which renders a decision unnecessary,
the appeal will be dismissed. The occurrence of such event
may be shown by extrinsic evidence, or noticed by the
court where it is a matter of judicial notice.
Lewis Publishing Co. v. Wyman, 228 U. S. 610.
Gulf, etc. R. Co. v. Dennis, 224 U. S. 503.
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Federal Reserve Bank of St. Louis
ABIE STATE BANK VS. WEAVER, ET AL.
215
Wingert v. Hagerstown First Nat'l Bank, 223 U.
S. 670.
U. S. v. EVa1t8, 213 U. S. 297.
The major contention of the banks is that they will
be unable to pay the annual special assessment of fivetenths of one per cent for an unlimited length of time,
and that they will be unable to pay the existing losses to
the depositors which they claimed totaled about sixte
r asmillion dollars. They do not object to the regula
estabsessment of one tenth of one per cent. The record
law.
or
lished that their contentions had no basis in fact
independent of
However, for all practical purposes, and
future,
this record, the contention of the banks as to the
has
d,
conten
if it were a judicial question as they
the
been rendered a moot question by the action of
notice
Nebraska legislature. This court will take judicial
the
of an act of that body. By Senate File Number 3 of
the
Session Laws passed by the 46th Special Session of
months
Nebraska legislature in March, 1930, about three
was
after the case was decided, the Guarantee Fund Law
ing
includ
,
modified so that the assessments for the future
of one
both the original regular assessment of one-tenth
of one
s
-tenth
per cent and the special assessment of five
s of one
per cent, were reduced to a total of two-tenth
a
years; total or
per cent per annum for a period of ten
$2.00 per thousand dollars of deposits.
Nebraska legislature
Section four of this same act of the
and Commerce
also provided that the Department of Trade
an extension of
might in its discretion, grant to any bank
which to pay any
time not exceeding three years within
ment
of the assessments theretofore levied. These assess
l
specia
r
and
the
of
regula
referred to were the accumulation
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216
ABIE STATE BANK VS. WEAVER, ET AL.
assessments for the years 1928, 1929 and 1930. This accumulation was caused by the banks refusing to pay these
assessments after this suit was brought and even after
the Supreme Court of Nebraska had held against them.
It may be assumed that they have largely set it aside and
created a reserve fund against these accruing assessments.
So the only assessments now in issue are the special
assessments which had already been levied and which
amount to less than three million dollars and a future
total assessment of only two-tenths of one per cent for
ten years. That is the actual literal effect of the new act.
Assuming for the moment that the issue urged by the
banks in this action as to the future were in any sense
judicial, the practical effect of this action of the legislature
is to render such
ue a moot question. Under the facts
and the record in this case We do not believe even the banks
will contend that the payment of the special assessments
already levied and the two-tenths of one per cent for ten
years will in any way affect the state bank system of Nebraska.
PROPOSITION OF LAW NUMBER TWENTY-ONE
The judicial notice of the Supreme Court of the United
States when reviewing a judgment of a state court is
coextensive with that of the court whose judgment it
is reviewing and includes notice of all the laws of that
state.
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Federal Reserve Bank of St. Louis
Lloyd v. Matthews, 115 U. S. 222.
Liverpool, etc., Stearn Co. v. Phoenix Ins. CO.,
129 U. S. 377.
Chicago, etc. R. Co. v. Wiggins Ferry Co., 119
U. S. 615.
Hanley v. Donoghue, 116 U. S. 1.
ET AL.
ABIE STATE BANK VS. WEAVER,
217
t will take judicial
Under the foregoing rule this cour
antee Fund Law
notice of the modification of the Guar
of 1930.
by the Nebraska legislature in March
the Guarantee Fund Law
Appellants' statements as to
rd.
in other states are wholly outside the reco
brief, they purport to
On pages 45 and 46 of appellants'
reference to the Guargive some facts and figures with
There is not a scintilla
antee Fund Law in other states.
the pleadings as to
of evidence in the record or a word in
and their statements
any of the matters they refer to
to prejudice the issue.
are manifestly made in an attempt
likewise going outWe are unable to meet them without
statements under the cirside the record. We feel their
disregarded; they have m)
cumstances will be entirely
pertinent bearing on the issues.
is now or through the
Whatever the situation of fact
been it does appear
years in those other states may have
STATES HAS EVER
that NO COURT IN ANY OF THOSE
RANTEE FUND LAW
HELD ADVERSELY TO ANY' GUA
case in every state
OR ANY PART THEREOF. Every
Supreme Court has
and every one in the United States
favor of the law.
been determined ON DEMURRER in
questions raised to
The courts have consistently held all
no guarantee fund
be legislative matters. Plaintiffs cite
are none; they try
case supporting their theory; there
them. Their own
to differentiate the cases cited against
law in other states
recitals outside the record as to the
n has been by the
show that such action as has been take
legislature—not by the courts.
extensively from a
In the same connection they quote
c policy" of the law.
"financial writer" as to the "economi
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Federal Reserve Bank of St. Louis
WI•M
218
ABIE STATE BANK VS. WEAVER, ET AL.
Appellants' whole case in reality is based on
the "economic
policy" of the law. A matter exclusively for the
legislature.
The banks have no standing in a court of equity.
The pitiful plight of depositors with accrued claims
like Reverend Peterson and others is sufficiently disclosed
by this record.
The old maxim of equity, "He who seeks equity must
do equity", applies with special force in this case
in favor
of those depositors with accrued claims. It is difficult
to understand how the banks can ask in equity to be
relieved of their responsibilities under the law, when at
the same time having received the benefits of the law,
they seek to repudiate their liabilities to the depositors;
on
depositors' claims based on,deposits the banks by their acts
induced.
The banks are seeking affirmative equitable relief. Courts
of equity have always refused to interfere in behalf of
any litigant until he himself has done justice, according
to equitable rules, to his opponent.
CONCLUSION
For the reasons given these appellees submit that the
appeal herein should be dismissed for want of jurisdiction;
or the decision of the Supreme Court of Nebraska be
affirmed.
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Respectfully submitted,
C. A. SORENSION, Attorney General,
C. E. ABBOTT, Special Counsel,
Attorneys for Arthur J. Weaver,
as Governor, Clarence G. Bliss, as
Secretary, etc., and Willis M. Stebbins, as Treasurer, Appellees.
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Federal Reserve Bank of St. Louis
.11o:
_I.\ 1 I) lo
.
PrIritc,
, N
