The Traders' National Bank, a corporation organized under the banking laws of the United States, carried on its business in the city of Boston. The firm of Dudley Hall & Co., composed of Dudley Hall and Dudley C. Hall, were likewise engaged in business in Boston, and were customers of the bank, having a deposit account therein. By an understanding between the bank and the firm, made to induce the latter [164 U.S. 347, 348] to keep its deposit account with the former, the firm was to be considered as entitled to a line of discourt on its paper to the extent of $20,000. On the 16th of October, 1890, the partnership then being in the enjoyment of its full agreed-on discount, borrowed from the bank an additional sum of $12,500, which was evidenced by a note of Dudley C. Hall at one month, indorsed by the firm, and secured by the pledge of certain shares of the Aetna Mining Company and by two notes of that company, amounting to about $ 2,500. When this note matured, on the 16th of November, 1890, a new demand note in an equal amount was given in renewal thereof, and was secured by the same collaterals. On the 17th of December, 1890, payment of this note was demanded, and, the debtor being unable to meet it, a new note at two months was given, the sum thereof was passed to the credit of the firm, and the old note was debited, canceled, and surrendered. This new note was drawn, like the preceding one, by Hall, and indorsed by the firm, and was secured, not only by the same collaterals, but also by a conveyance of two pieces of land made by Dudley C. Hall to A. D. McClellan, a director of the bank, he giving to Hall a writing, in which it was declared that the conveyance was made for the sole purpose of securing the note held by the bank, and that on its payment the land would be retransferred. In March, 1891, the firm suspended payment, and the members thereof were adjudged to be insolvent under the insolvency laws of the state of Massachusetts, and made to their assignees an assignment of all their property, as required by the statutes of the state. In May the assignees brought a writ of entry against McClellan to recover the two pieces of land.
Sections 96 and 93 of chapter 157 of the Public Statutes of the state of Massachusetts, relied on by the assignees to sustain their action to recover the land, are as follows:
The action was tried before a jury, and there was a verdict in favor of the surviving assignee, and exceptions were filed and allowed. While these exceptions were pending before the supreme judicial court, the Traders' Bank filed its bill in equity against the surviving assignee of the estate of Dudley C. Hall and Dudley Hall and A. D. McClellan, setting up its right under the conveyance made to McClellan, the bringing of the writ of entry, and the fact that the bank had not been made party defendant therein. The bill charged [164 U.S. 347, 350] that the complainant, as a national bank, was entitled to take the conveyance of the real estate to secure the debt of Hall, and that the provisions of the statutes of Massachusetts which were relied on by the assignees were in conflict with sections 5136, 5137, Rev. St. U. S. The bill prayed that he assignee and McClellan be permanently enjoined from proceeding under the writ of entry and the exceptions filed therein; that McClellan be ordered to apply the proceeds of the property to the payment of the note and loan secured thereby. After due pleading, the issues tendered were reported by the presiding justice for the consideration of the full court upon certain questions of law reserved, and the full court affirmed the verdict of the jury and judgment thereon in the writ of entry case, and dismissed the bill in equity.
So far as concerned the federal question, the court held that there was no conflict between sections 5136 and 5137 of the Revised Statutes of the United States and sections 96 and 98 of chapter 157 of the Public Statutes of Massachusetts. Both cases were brought here by writ of error.
A. A. Strout and Wm. H. Coolidge, for plaintiffs in error.
[164 U.S. 347, 356] Wm B. French, for defendant in error.
Mr. Justice WHITE delivered the opinion of the court.
Although these two cases were brought here by separate writs of error, they depend on the same facts, and involve the same legal question, and were passed upon by the court below in one opinion. 159 Mass. 363, 34 N. E. 379. We shall therefore consider them together.
The only federal question for our consideration is whether there was conflict between the statutes of the United States and the provisions of the general law of the state of Massachusetts referred to, and heretofore fully set out. Two propositions have been long since settled by the decisions of this court:
First. National banks 'are subject to the laws of the state, and are governed in their daily course of business far more by [164 U.S. 347, 357] the laws of the state than of the nation. All their contracts are governed and construed by state laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on state law. It is only when the state law incapacitates the banks from discharging their duties to the government that it becomes unconstitutional.' National Bank v. Com., 9 Wall. 362.
Second. 'National banks are instrumentalities of the federal government created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt by a state to define their duties, or control the conduct of their affairs, is absolutely void, whenever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation, or impairs the efficiencies of these agencies of the federal government to discharge the duties for the performance of which they were created.' Davis v. Bank, 161 U.S. 283 , 16 Sup. Ct. 502.
These two propositions, which are distinct, yet harmonious, practically contain a rule and an exception,-the rule being the operation of general state laws upon the dealings and contracts of national banks; the exception being the cessation of the operation of such laws whenever they expressly conflict with the laws of the United States, or frustrate the purpose for which the national banks were created, or impair their efficiency to discharge the duties imposed upon them by the law of the United States. The provisions of the statutes of the Unites States upon which the plaintiffs in error rely are as follows:
Rev. St. 5137.
The argument is that, as this statute permits national banks to take real estate for given purposes, therefore the Massachusetts law, which forbids a transfer of property, with a view to a preference, in case of insolvency, where the transferee has reasonable cause to believe that the transferror is insolvent or in contemplation of insolvency, in no way controls the contracts or dealings of a national bank. But this position denies the general rule just referred to, and amounts to asserting that in every case where a national bank is empowered to make a contract such contract is not subject to the state law. In the case in hand there is no express conflict between the grant of power by the United States to the bank to take real estate for previous debts and the provisions of the Massachusetts law, which, although allowing, as a general rule, the taking of real estate as a security for an antecedent debt, provides that it cannot be done under particular and exceptional circumstances. Nor is there anything in the statutes of the state of Massachusetts, here considered, which in any way impairs the efficiency of national banks, or frustrates the purpose for which they were created. No function of such banks is destroyed or hampered by allowing the banks to exercise the power to take real estate, provided only they do so under the same conditions and restrictions to which all the other citizens of the state are subjected, one of which limitations arises from the provisions of the state law which, in case of insolvency, seeks to forbid preferences between creditors. Of course, in the broadest sense, any limitation by a state on the making of contracts is a restraint upon the power of a national bank within the state to make such contracts; but the question which we determine is whether it is such a regulation as violates the act of congress. As well might it be contended that any contract made by a national bank within a state in violation of the state laws on the subject of minority or coverture was valid because such state laws were in conflict with the act of congress, or impaired the power of the bank to perform its functions. Indeed, reduced to its last analysis, the [164 U.S. 347, 359] position here assumed by the plaintiffs in error amounts to the assertion that national banks, in virtue of the act of congress, are entirely removed, as to all their contracts, from any and every control by the state law. The argument that the concession of a right on the part of a state to forbid the taking of real estate by a national bank for an antecedent debt, under any circumstances, implies the existence of a power in the state to forbid such taking in all cases, begs the question, and amounts simply to a restatement of the proposition already answered. As long since settled in the cases already referred to, the purpose and object of congress in enacting the national bank law was to leave such banks, as to their contracts in general, under the operation of the state law, and thereby invest them as federal agencies with local strength, while at the same time preserving them from undue state interference wherever congress, within the limits of its constitutional authority, has expressly so directed, or wherever such state interference frustrates the lawful purpose of congress, or impairs the efficiency of the banks to discharge the duties imposed upon them by the law of the United States.
It is said that section 98 of the Massachusetts statute is in conflict with the statutes of the United States in so far as it provides that, 'If such sale, assignment, transfer or conveyance is not made in the usual and ordinary course of business of the debtor, that fact shall be prima facie evidence of such cause of belief'; that is, the belief on the part of the creditor of the insolvency of the debtor by whom the transaction was made. The reasoning is thakt, as the United States law allows the taking by a bank of real estate for an antecedent debt, and the state statute makes such taking of real estate prima facie evidence of a reasonable belief on the part of the bank of the insolvency of the debtor from whom the real estate is so taken, therefore the state law violates the national bank law, since it attributes to the doing of the act which the national bank law authorizes, a presumption which virtually annuls the contract unless proof be made to the contrary. But this view gives to the words 'ordinary course of business' in the state statute a strained and unreasonable con- [164 U.S. 347, 360] struction. The state statute does not provide that the mere fact that a security is taken for an antecedent debt renders the contract one not in the actual course of the debtor's business, thereby engendering the presumption of knowledge on the part of the creditor, but affixes such presumption only to cases where the particular nature of the dealings between the parties is such as to make the contract not one in the actual course of business, from which fact the statutory presumption arises. However, this objection does not arise on the record before us, since the supreme court of Massachusetts held that the effect of the charge of the trial court was substantially to instruct the jury that, before the plaintiff in the entry suit could recover, he must satisfy the jury by a preponderance of evidence that Hall, at the time of the conveyance, was insolvent.
The claim that the security vested in the bank by the conveyance of the land is taken away from it in violation of the United States law, because, under the Massachusetts law, a contract by a debtor giving a fraudulent preference to one creditor over another is voidable, and not void, is without merit. This contention concedes that, if the state law rendered the transaction void, there would be a valid exercise of state authority. But the power to do the greater necessarily carries with it the right to do the lesser. Nor is there anything in the opinion of this court in Davis v. Bank, supra, which supports the argument of the plaintiffs in error. There the conflict between the state and the federal law was found to be express and irreconcilable, bringing that case, therefore, under the exception to the general rule. The opinion carefully confined the ruling there made to such a case, so as to render it inapplicable in a case like the one now before it. It said:
And the whole opinion was qualified by this language:
Finding no conflict between the special power conferred by congress upon national banks to take real estate for certain purposes and the general and undiscriminating law of the state of Massachusetts subjecting the taking of real estate to certain restrictions, in order to prevent preferences in case of insolvency, we conclude that the judgments of the supreme court of the state of Massachusetts were right, and they are, therefore, in both cases affirmed.