Gonzales v. French, 164 U.S. 338 (1896)

Emma J. Gonzales, in October, 1891, filed a bill of complaint in the District Court of the Fourth Judicial District of the Territory of Arizona, against E. W. French, probate judge of the county of Yavapai and Territory of Arizona, and former trustee of the inhabitants of the town of Flagstaff, of the county of Coconino, and J. E. Jones, probate judge of said county of Coconino, and the successor as trustee of the inhabitants of the said town of Flagstaff, and therein alleged that she was the equitable owner of a certain tract of land containing 120 acres, and forming part of section 16, T. 21N., R. 7 E. of the Gila and Salt River meridian. The facts, as alleged by her, were substantially these : Prior to the survey of said township, Thomas F. McMillan, Frank Christie and Conrad Farriner, who were citizens of the United States, over the age of twenty-one years, and qualified preemptors, while prospecting for a home upon the public lands of the United States subject to preemption, or that might so become when the same should be surveyed, settled on this land, intending to claim the same as preemptors, and were on said land at the date of survey in 1878 ; that they had built dwelling [p. 339] houses thereon and reduced portions of it to cultivation prior to such survey; that they continued to improve and claim the same until in June, 1883, when the plaintiff bought from the said occupants all their improvements and took possession thereof; that she afterwards, and while living on the land she now claims, built a dwelling house thereon and made other improvements, prior to April 2, 1885, of the value of $3000; that, on said date, she made formal application to the register and receiver of the United States Land Office at Prescott, Arizona, to be allowed to file a preemption declaratory statement for the land, and to enter the same, tendering to said officers the proper price therefor, said application being made before any adverse claimant was known, but her application was rejected on the ground that the land was reserved for schools ; that on February 3, 1889, Congress passed an act for the relief of the inhabitants of Flagstaff, Arizona, the tract involved in this suit being embraced in the half section mentioned in said act, by which it was provided that the probate judge of Yavapai County might enter the south half of section sixteen, township twenty-one north, range seven east, in trust for the occupants and inhabitants of Flagstaff. The bill further alleged that the tracts settled on at the date of the survey were excepted by section 2275 of the Revised Statutes of the United States from the reservation of the sixteenth and thirty-sixth sections in each township for school purposes, but that, if not so excepted, the land claimed by her was released from any such reservation by said act of February 13, 1889, and became subject to her settlement claim; that the said French, probate judge, had been permitted, on January 17, 1889, to make townsite declaratory statement for the benefit of the inhabitants of Flagstaff for said half section ; that she, the plaintiff, contested the right of the said French to make townsite entry, and prosecuted her protest by successive appeals to the Commissioner of the General Land Office and the Secretary of the Interior, but that a patent of the mted States was issued to said French on said entry for said and; that at the time she purchased said improvements and

settled on the land, the town of Flagstaff was unorganized [p. 340] and unknown, and none of the inhabitants were then settled on said land or claiming any part of it; and that on the organization of Coconino County the land in suit became a part thereof, and the defendant Jones became probate judge of the new county and the successor to French in the trust. The plaintiff asked a decree declaring that the settlement and occupancy of said land, at the date of survey, by qualified preemptors, excluded the same from the reservation for school purposes; that, by reason of defendant’s purchase of the improvements and her own occupancy and improvements, a right of entry attached thereto in her; that the refusal of the local officers to allow her filing in 1885 was unlawful; that the act of February 13, 1889, did not take away any of her rights, but, if anything, released any claim the Territory of Arizona might have to the land, and that, under the townsite laws referred to in said act, her rights as a settler were and are superior to those of the inhabitants of Flagstaff, as to the particular part of the section covered by her claim ; and that the said patentee, as trustee for the said inhabitants, in so far as the land claimed by the plaintiff is embraced in said patent, should be decreed to be the trustee of the plaintiff, and be required to deliver a deed for the same to the plaintiff.

aBe it enacted by the Senate and House of Representatives f the United States of America in Congress assembled, That the probate judge of Yavapai County, Territory of Arizona, be, and he is hereby, authorized to enter, in trust for the occupants and inhabitants of Flagstaff for townsite purposes, the south half of section sixteen, township twenty-one north, range seven east, Gila and Salt River meridian, in the Territory of Arizona, subject to the provisions of sections twenty-three hundred and eighty-seven, twenty-three hundred and [p. 342] eighty-eight and twenty-three hundred and eighty-nine of chapter eight of the Revised Statutes of the United States relating to townsites.

The language of the seventh section of that act, “ Where any settlement, by the erection of a dwelling house or the cultivation of any portion of the land, shall be made upon the sixteenth and thirty-sixth sections before the same shall be surveyed, . . . other land shall be selected by the authorities of the State in lieu thereof,” is widely different from that of section 2275; “Where settlements, with a view to preemption, have been made before the survey of the lands in the field, which are found to have been made on sections sixteen and thirty-six, those sections shall be subject to the preemption claim of such settler, and . . . other lands of like quantity gire appropriated in lieu of such as may be patented by preemptors.” And Mr. Justice Miller, in delivering the opinion of the court in Mining Co. v. Consolidated Mining Co., 102 U. S. 175, was careful to say that “ the qualifying incidents,” prescribed in the act of 1853, “are not the same required under the general preemption law,” but [p. 344] are intended “ to convey the idea of a settlement and a settler according to the terms of thè statute under consideration.”

The bill discloses that the plaintiff in error first appeare in the land office and proposed to file her declaratory [p. 345] statement on April 2, 1885, more than six years after the filing of the plat.

As was said in Shepley v. Cowan, supra, “ In those cases, Frisbie v. Whitney and the Yosemite Yalley case, the court decided that a party, by mere settlement upon the public lands, with an intention to obtain a title to the same under •the preemption laws, did not thereby acquire such a vested [p. 346] interest in the premises as to deprive Congress of the power to dispose of the property; that, notwithstanding the settlement, Congress could reserve the lands for sale whenever they might be needed for public uses, as for arsenals, fortifications, light houses, custom houses and other public purposes for which real property is required by the government; that the settlement, even when accompanied with an improvement of the property, did not confer upon the settler any right in the land as against the United States, or impair in any respect the power of Congress to dispose of the land in any way it might deem proper; that the power of regulation and disposition conferred upon Congress by the Constitution only ceased when all the preliminary acts prescribed by law for the acquisition of the title, including the payment of the price of the land, had been performed by the settler. When these prerequisites were complied with, the settler for the first time acquired a vested right in the premises of which he could not - be subsequently deprived. He was then entitled to a certificate of entry from the local land officers, and ultimately to a patent of the United States. Until such payment and entry, the acts of Congress gave to the settler only a privilege of preemption in case the lands were offered for sale in the usual manner; that is, the privilege to purchase them in that event in preference to others.”

Proper effect would not be given, as we think, to the ac of February 13, 1889, by subjecting the patentee and his [p. 347] grantees to the claims of persons who have no vested rights under the preemption laws. Such claims would, in the present case, oust the townsite settlers from large portions of the grant, and defeat the manifest purpose of Congress.

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 & Company, 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 [p. 348] to keep its deposit account with the former, the firm was to be considered as entitled to a line of discount 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 line of discount, borrowed from the bank an additional sum of $12,500, which was evidenced by a note of Dudley C. Hall at one month, endorsed by the firm and secured by the pledge of certain shares of the ^Etna Mining Company and by two notes of that company, amounting to about $2500. 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, cancelled and surrendered. This new note was drawn like the preceding one by Hall and endorsed 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.

“ Sec. 96. If a person, being insolvent or in contemplation of insolvency, within six months before the filing of the petition by or against him, with a view to give a preference to a creditor or person who has a claim against him, or is under any liability for him, procures any part of his property to be [p. 349] attached, sequestered or seized on execution, or makes any payment, pledge, assignment, transfer or conveyance of any part of his property, either directly or indirectly, absolutely or conditionally, the person receiving such payment, pledge, assignment, transfer or conveyance, or to be benefited thereby, having reasonable cause to believe such person is insolvent or in contemplation of insolvency, and that such payment, pledge, assignment or conveyance is made in fraud of the laws relating to insolvency, the same shall be void ; and the assignees may recover the property or the value of it from the person so receiving it or so to be benefited.”

We respectfully submit to the court that in the case at bar [p. 356] the provisions of the state law are much more antagonistic to the provisions of the statute of the United States, both in letter and spirit, than they were in the case of Davis v. Elmira Savings Bank. It might have been argued, and was argued, with equal force in that case, that the provisions of the statute of the United States were general in their character, and that the statute of the United States in making the distribution must have regard to the provisions of the state statute which gave savings banks, in certain cases, a preference. But the court held otherwise, and declared that there was a conflict in spirit, as well as in letter, between the two acts. How much more in the present case is there such conflict? As has been shown above, the provisions of the statute of the United States were not merely general but were specific in relation to security in land which a national bank might take and hold. The provisions of the state statute, if it is operative, forbid such holding in the cases pointed out in the insolvent law.

First. National banks “ are subject to the laws of the btaw, and are governed in their daily course of business far more y [p. 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. Commonwealth, 9 Wall. 362.

“ Third. Such as shall be conveyed to it in satisfaction of [p. 358] debts previously contracted in the course of its dealino’s.” Rev. Stat. § 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 transferrer 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 réal 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 thé bank to perform its functions. Indeed, reduced to its last analysis, the [p. 359] position here assumed by the plaintiff 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 circumstance, 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, whilst, 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 that 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 [p. 360] construction. 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.

“ Nothing, of course, in this opinion is intended to deny the [p. 361] operation of general and undiscriminating state laws on the contracts of national banks, so long as such laws do not conflict with the letter or the object and purposes of Congressional legislation.”