## Facts

- A national bank pledged $50,000 in Liberty bonds from its own assets, held in its trust department, to secure a private depositor’s general checking account.
- The depositor (a railroad company) maintained a substantial checking balance at the bank and relied on the pledged bonds as security.
- The bank failed on September 4, 1931, and a receiver was appointed to administer the bank’s assets.
- At failure, the depositor’s balance was $54,646.94, exceeding the bond amount; it filed a claim asserting secured status based on the pledge.
- The receiver approved the claim amount but rejected the pledge’s validity and offered only the dividend available to unsecured creditors.
- The depositor sued for delivery or liquidation of the bonds (or full payment with interest); the receiver sought a decree confirming the bonds belonged to the general estate.
- The district court held the pledge void and treated the bonds as general assets; the court of appeals affirmed.

## Issues

1. Whether a national bank has statutory power to pledge its assets to secure a private (nonpublic) general deposit.
2. Whether the bank or its receiver is estopped from denying the pledge’s validity because the bank obtained deposits in reliance on the pledge.
3. Whether, before disaffirming the pledge, the receiver must restore the consideration by paying the depositor in full.

## Decision

- The Supreme Court unanimously affirmed.
- A national bank has no power to pledge its assets to secure a private deposit; such a pledge is ultra vires and void.
- Neither the bank nor (especially) the receiver of an insolvent bank is estopped from asserting the pledge’s invalidity.
- Reliance on an ultra vires pledge does not create a constructive trust or otherwise give the depositor priority over other general creditors.
- The receiver may repudiate the pledge without first paying the depositor’s claim in full.

## Legal Principles

- National banks possess only powers granted by statute and those incidental powers necessary to conduct banking; pledging general assets to secure private deposits is not within those powers.
- Statutory permission to secure certain public deposits does not imply a general power to secure private deposits.
- Deposits and loans are not equivalent for bank-power purposes; authority to pledge assets for borrowing does not imply authority to pledge assets to secure general deposits.
- Ultra vires security arrangements cannot be enforced to obtain priority in a receivership; bank assets must be distributed ratably among general creditors.
- A receiver, acting for the creditor body under the statutory scheme, is not bound by unauthorized preferences and may treat pledged assets as part of the general estate.

## Conclusion

The Court held that a national bank cannot lawfully pledge its assets to secure a private general deposit, and that upon insolvency the receiver may void such a pledge without estoppel or repayment as a precondition, leaving the depositor to share pro rata with other general creditors.


Tex. & Pac. Ry. Co. v. Pottorff, 291 U.S. 245 (1934)