Michigan National Bank v. Michigan

RESPONDENT:Michigan Nat. Bank
LOCATION:Huntington National Bank

DECIDED BY: Warren Court (1958-1962)

CITATION: 365 US 467 (1961)
ARGUED: Jan 18, 1961 / Jan 19, 1961
DECIDED: Mar 06, 1961

Facts of the case


  • Oral Argument – January 19, 1961
  • Audio Transcription for Oral Argument – January 19, 1961 in Michigan National Bank v. Michigan

    Audio Transcription for Oral Argument – January 18, 1961 in Michigan National Bank v. Michigan

    Earl Warren:

    Number 155, Michigan National Bank et al., Appellants, versus Michigan et al.

    Mr. Klein.

    Victor W. Klein:

    Mr. Chief Justice, may it please the Court.

    This is an appeal from a judgment of the Michigan Supreme Court.

    The basic question in this case is whether or not, the National Bank Tax Act known as Revised Statute 5219 was violated by the State of Michigan under Act 9 of the Public Acts of 1953, taxing shares of national banks at a rate 13 times greater than the state taxes shares of savings and loan associations.

    Now, although Act 9 was enacted in 1953, it relates back to the 1952 taxes.

    There had been a tax in effect, the appellant paid that tax some $18,000 and then this Act 9 of 1953 also imposed this new tax of $5.5 per thousand of paid up capital surplus and undivided profits has contrasted with a tax of only 40 cents a thousand on shares of savings and loan associations.

    The appellant paid the tax, the additional $49,000 tax under protest took the proper procedure, tried it in front of the Court of Claims in Michigan, then to the Supreme Court and we are now here.

    There are other taxes from 1953 to 1959 or 1960 the date in which there are cases pending awaiting the determination of this case.

    Before giving even a preliminary outline, I want to point out one thing to the Court that this is not a case of tax immunity or tax avoidance.

    This is a tax — this is a case in which the appellant urges on this Court that under the federal statute, national banks are entitled to be taxed equally but at no greater rate than other moneyed capital which comes into competition with the business of the national banks.

    And we say in this case, if that injunction of the federal statute were observed, the State of Michigan would collect additional taxes from savings and loan associations shareholders in the annual amount of $8,000,000 a year.

    Now preliminarily, I’d like to point out to the Court that we submit that savings and loan associations are the dominant and principle competitors of national banks in the residential mortgage loan business, that that business is a substantial business.

    In the year in question, it was over — over a half of billion dollars was employed in the State of Michigan by savings and loan in their business, the day over a billion and a half dollars and that type of business, your residential mortgage loan business, is a vital, essential, substantial, important phase of the business of national banks.

    In the case of appellant, that residential mortgage loan business amounted to 40% of appellants’ total loans, three times more than its commercial loans accounted for 32% of its total income and constituted over 20% of its gross assets.

    I gave to that in a preliminary way only.

    We’ll get into the details.

    So, the Court has the proper background.

    I should like to point out that in the year 1952 which is the year which — which we’re here concerned, there were 77 national banks operating in the State of Michigan and there were 67 savings and loan associations, about half were domestic Michigan saving and loan associations and the other half federal savings and loan associations.

    The Appellant Bank is a national bank which operates in seven cities throughout the State.

    They are not large metropolitan cities like Detroit where commercial loans are of greater importance than they are to the out state bank mortgage loans, residential mortgage loans are very important in fact, the most important, I would say operation of the out state national banks.

    The Appellant operates in cities like Battle Creek, Michigan population 48,000, Port Huron population 35,000, Lansing 92,000, Saginaw 92,000, Flint 163,000, Grand Rapids 176,000 and then one small community of Marshall 5700.

    But they’re all medium, small medium modern size cities not comparable to the big city banks although the city banks are now more and more engaged in the residential mortgage.

    Now, with that background, we come to the power of the state to tax.

    I believe this Court has clearly stated that absent congressional grant of authority of the State, no State has the power to tax national banks or their shares at all, because national banks are governmental agencies instrumentalities actually performing in many respects.

    The basic physical policies of the United States Government, and this Court has therefore held that because national banks perform that essential government function, the State of Michigan, no State absent congressional authority would have power to tax either national banks or their shares at all, and you so held in two cases cited in our brief.

    However —

    Potter Stewart:

    One of these banks in the Jackson, Michigan?

    Victor W. Klein:

    No sir, but one of — there are five intervening banks sir and one of Jackson Banks did intervene the — the National Bank of Jackson intervened sir.

    The — in the case of the intervenors was held in advance because the time consumed in preparing this voluminous record and the burden upon us was so great that we elected to defer trial of the intervening cases until the disposition of this case.

    Victor W. Klein:

    Now, Congress did authorize and empower states to tax originally in 1864, to tax only shares of national banks and that wasn’t broadened until 1923 when there were two other methods of taxation permitted the tax on the dividens from shares and also in income tax on the bank itself as contrasted with shares.

    And in 1926, there was authorized.

    States were permitted to impose a franchise tax measured by income.

    But Congress provided that when a State, elected one method of taxation, that method was in lieu of all others, it could not employ both methods at the same time.

    In this case, Act 9, I’ll call it Act 9 of Michigan, imposed a tax on shares.

    It is a share tax just as the original Act permitted to be imposed, on shares of national banks which it imposed upon the bank which in turn could or could not pay it for its shareholders but the assessment was made and is made on the banks.

    Now, Section R.S. Section Revised Statute 5219, the tax on shares, the empowering of a State to tax on shares, specifically provide Section 1 (b) that such tax by a State and I quote, “shall not be at a greater rate, than as assessed upon other moneyed capital in the hands of individual citizens of such State coming into competition with the business of national banks.”

    Now, this Court has held that a State so empowered to tax, national bank shares may only do it in the manner and through the extent and subject to the expressed limitations provided by Congress in this R.S. 5219.

    One, the injunction is that the tax shall not be at a greater rate than it’s assessed upon other moneyed capital.

    The other moneyed capital must come in the competition with the substantial phase of the business of the national bank.

    And three, such competition when compare is substantial when compared to the total capitalization of national banks in the State.

    In this case, it’s three times the total capitalization.

    Now, looking at this empowering statute of Congress, we first determined what is meant by other moneyed capital.

    Originally, when this Act was passed other moneyed capital meant any kind, all kinds of intangible personal property, stocks, bond, judgments, anything, coming in the competition was not in the statute and it wasn’t a requirement.

    But in 1887, this Court redefined moneyed capital in the Mercantile case, and it said, and this becomes important, and I quote, “That moneyed capital include shares of stock or other interests owned by individuals in all enterprises in which the capital employed in carrying on its business is money where the object of the business is the making of profit by its use as money reduced again to money and reinvested.”

    In other words, moneyed capital means that its money either employed by an individual, in an individual capacity partnership by investing in shares and that business employing it in a business where the inventory so to speak is money, money is loaned out and money is the business carried out and it’s a business of money.

    And we submit, and we’ll get into this more in detail, that shares in a savings and loan associations are moneyed capital.

    In other words, an individual buy some shares.

    Those shares are employed by a corporation, whose business is money, loaning out the money primarily on real estate residential mortgages.

    So we say, initially and we’ll get more into detail on that, that investment in shares in savings and loan association is other moneyed capital because its business is money, the loaning of money.

    John M. Harlan II:

    Is there — is there any dispute between you on that issue?

    Victor W. Klein:

    Well, there wasn’t up until through the Supreme Court, sir.

    I think the Supreme Court of Michigan assumed it was moneyed capital but I do believe at this point the appellee questions asked, and we will discuss that because we will — if you wish I will answer it now appropriately.

    Up through the Supreme Court of Michigan including its opinion, I believe it was assumed that it was other moneyed capital.

    And that other moneyed capital did not have to be in stock.

    It could be an individual.

    I could go in the real estate mortgage business and put a certain amount of money in it, loan it out on residential mortgages, get paid back and loan some more out, and then if l think I had too much in the business, I could retire that and keep a lesser amount of this.

    Now, the second part of the statute, the question of coming into competition, it must be moneyed capital, coming into competition with the substantial phase of the business of national banks.

    Originally, as up till Mercantile, the moneyed capital did not have to come into competition with the business of national banks.

    It was all kinds of intangible money.

    Victor W. Klein:

    Then in Mercantile, the Court — this Court said, it had to come into competition and there was lot of backing and filling and finally in 1923 Congress codified that determination of this Court into the statute and provided that it had to be not only other moneyed capital, but it had to come into competition with the business of national banks.

    And this Court has go on further that it had to be substantial in amount, and that it had to come into competition with the substantial phase of the business of national banks.

    I, again, will come back to the history.

    Now, what are the facts in this case?

    Today, in 1952, these savings and loan associations in Michigan in fact throughout the country will come into this are nothing more than commercial enterprises for profit of its stockholders seeking residential mortgages primarily from the general public of all economic classes, rich, middle class, poor, just like any borrower from a bank, the testimony is uncontroverted from all the savings and loan officers and they were all hostile, that the borrower on the mortgage of the savings and loan association was no different than a borrower of bank that they passed upon that mortgage solely on his personal credit and on the security of his home.

    There was no difference.

    Now, what is the competition?

    We called as witnesses, 16 executive officers of each of the 16 savings and loan associations in the city, is where we did business.

    And each one of them admitted and I, again, say they were hostile that they — their associations were the principal, dominant competitors of national banks, our bank, in other banks, in the business of residential mortgage loans.

    We obtained the recordings in the seven counties were we did business of all of the mortgages recorded in those counties for the year 1952, it’s a very voluminous exhibit and there’s abstract showing that the savings and loan associations were the largest principle mortgage lender in those counties.

    We subpoenaed the association reports showing the competition and we have the bank officers testified that in their opinion, the savings and loan associations or the principle and dominating competitor of Appellant Bank in the communities in which they awkward it.

    Their loans were on the same pro-types of property, they loaned of the same types of individual, they loaned to all classes of people, rich, middle class, poor, of all professions, business not just wage earners.

    That is undisputed.

    Now, if Your Honors would be good enough to look at page 17, because I think that tells the story —

    Hugo L. Black:

    (Voice Overlap)

    Victor W. Klein:

    — of our principle brief, our principle brief.

    We have a chart on page 17 of our principle brief.

    Page 17 sir.

    Now, the top line and this is all back by the testimony.

    The top line shows the seven cities in which the Appellant Bank operates.

    In 1952, our bank, in the seven cities had $60,000,000 of residential mortgage loans, some contract did in that year and in some priorities.

    The 16 savings and loan associations had $97,000,000 of loans in those same cities.

    Now, the next chart and these numbers might be helpful if you would write on the left side of the page 77 because that’s the national banks in Michigan and on the right side of page 67, there were 77 national banks in Michigan, that’s the left side of the page, and the right side of the page 67 associations, it shows that in 1952 the banks had $300,000,000 of residential mortgage loans, and the 67 101, savings and loan associations had $433,000,000, many contracted during the year 1952 on the same basis.

    Now, the next chart shows a comparison of national basis and then the very extraordinary and interesting thing is the 1957 figure which shows that in the five-year period from 1952 to 1957, savings and loan mortgage business increased three times greater than the mortgage loan business on residences of national banks.

    And we say with all humility and we’ve read the records in most of the leading cases on this subject, that we doubt that there’s any case in which there has been such a showing of extensive and dominating competition by the other moneyed capital with the business of a national bank as we have demonstrated in this record.

    We say on the showing that we’ve made under the decisions of this Court, that the rate is greater the money invested by savings and loan associations and shares is other moneyed capital that this is substantial in amount, and it competes with the substantial phase of the business of national banks.

    You so decided in Hartford, Minnesota, Anderson, and Richmond.

    Now, we submit to the Court, that notwithstanding this showing of competition in a substantial vital phase of our business and I again point out that the residential mortgage loans in Appellant Bank were $60,000,000 and its commercial loans were only $22,000,000.

    In other words, their residential mortgage loan business was three times greater than our commercial loan business.

    We say notwithstanding that showing, the lower court in the appellee statute admitted extensive competition.

    Victor W. Klein:

    In fact, you cannot have competition as a matter of law, because savings and loan associations are of a different character, purpose and organization.

    In other words, the appellee puts this question in its brief, how can fundamentally different institutions be in substantial competition under R.S. 5219?

    Pointing out that savings and loan associations under the Michigan law, under the federal law cannot accept deposits, cannot engage in the general banking business.

    Competition in fact is extensive, at minute, they dominate the fee.

    Carried to its final conclusion, this decision of the lower court in our opinion and the contention of appellee, means that there could be no business that could engage in the business of deposits or general banking except the bank.

    And following further, the only conclusion you can reach from that argument is that other moneyed capital means other banks.

    This Court in Hartford and in Richmond and in Minnesota has held directly to the contrary.

    Congress was act — asked on two or three different occasions to limit the term “other moneyed capital” to other banks, and it refused to do so.

    The Michigan court and appellee contend contrary that the position taken by this Court and contrary to the act of Congress.

    The next point appellee makes — says “Well, savings and loan don’t engage in all of the banking activities and therefore, you can’t be in competition.”

    And this Court also has decided in Hartford and in Minnesota that competition may exist under the statute even though the competition be with some but not all phases of the business of national banks.

    And on this character and nature proposition, this Court has said, competition in the sense intended arises not from the character of the business of those who compete, but from the manner of the employment of the capital at their command and pointed out the gross of various businesses not in the banking business, in phases of the business of national banks which if permitted to enjoy favored state taxation would place the national bank shares, those who invested in national bank shares any distinct and decided disadvantage.

    Then, the next argument appellee makes well even if one competitors in one phase and some competitors in another phase, you’ve got to show that this competes in all phases of the banking business have been favored by taxation.

    And this Court certainly has held to the contrary we believe, when it says a particular phase so long as that phase is substantial, substantial in amount and substantial when compared to the total capitalization of all banks.

    That this residential mortgage business is substantial in the case at bar, I again say is demonstrated when I tell you that 40% of Appellant’s loans are in the residential mortgage business.

    We get 32% of our income, total income from the residential mortgage loans and it constitutes over 20% of our assets.

    And furthermore, this competition of savings and loan associations at that time $1.5 billion dollars in 1959 over $1.5 billion invested in shares was three times the total capitalization of all national banks in the State of Michigan which is the test this Court has laid down.

    Appellee says, or — or the lower court says, this is too narrow field of the banking business, which as I pointed out.

    It’s probably the most important field in the out state national banks today, and it’s gotten to be a very important field in all nations.

    Earl Warren:

    Mr. Klein —

    Victor W. Klein:

    Yes, sir.

    Earl Warren:

    — I don’t know whether it makes any difference, but I’m just wondering, is there any difference in the size of these loans —

    Victor W. Klein:

    No, sir.

    Earl Warren:

    — that comes from the billing of loans in those companies.

    Victor W. Klein:

    They’re all comparable size sir.

    The record is replete with.

    I don’t — we have exhibits, we asked witness after witness.

    They’re the same type of loans and the same locality, the same type the houses.

    In fact, we have dozens and dozens of exhibits where, they, the associations refinanced the bank loans and the banks refinanced the association loans.

    We have pictures that we didn’t put it in this exhibit showing the identical houses, the neighborhoods, the character, the type of people, they’re the same, sir.

    Victor W. Klein:

    They’re all types of loans.

    There are some conventional loans, there are FHA loans, and there are VA loans.

    At that time, the associations took more conventional loans percentage-wise than we did, although we have many conventional loans.

    We took percentage-wise more FHA and VA loans then the savings and loan associations.

    Although — yes, sir?

    Charles E. Whittaker:

    Do I correctly understand that the question is not one of the facts of competition with one law —

    Victor W. Klein:

    Yes sir.

    Charles E. Whittaker:

    — where there couldn’t be competition.

    Victor W. Klein:

    Yes, sir.

    Charles E. Whittaker:

    Is that it?

    Victor W. Klein:

    That is it sir.

    William O. Douglas:

    What year was the last case involved in this question before this Court?

    Victor W. Klein:

    20 — 912 involved in this competition question.

    In 1926, you had a subsequent case but this phase of the case was not discussed.

    There was the Hartford case and the Minnesota case —

    William O. Douglas:


    Victor W. Klein:


    William O. Douglas:

    Is that under the national banks where they were the business?

    Victor W. Klein:

    They were to a small degree but they were sufficient for this Court to recognize that the competition of mortgage contenders individual partnerships and incorporations in the State of both Wisconsin and Minnesota was substantial enough to have the Court say that the discriminatory tax could not be maintained because of the competition sir, and that was the unanimous court in both to those cases.

    Now, the one point of shares the appellee claims, the lower court didn’t get into this and I think Mr. Justice Harlan have said.

    The lower court didn’t raise this question.

    But appellee now says, “All these shares and savings and loan associations are not other moneyed capital, because they’re like bank deposits, and commercial bank deposits aren’t other moneyed capital.”

    They raised this for the first time.

    Now, that position is directly contrary to the Michigan statute which provides that a payment for shares is for capital stock, capital stock.

    It’s contrary to the bylaws of these associations which cause these payments, capital and provides for the issuance of shares and stock.

    It’s contrary to the stock certificates which are — coupled of which are attached to our reply brief wherein its whole capital stock and they’re transferable in the manner of capital stock now in some instances, the certificates in a booklet.

    This — this question was raised before the Michigan Supreme — and — and there’s also a provision in the Michigan statute, that these associations cannot take deposits and that a shareholder of an association is not a creditor.

    So, how a shareholder could be a depositor if he couldn’t be a creditor, and if the association couldn’t take deposits as suggested by appellee is beyond us, but to go further, this counsel, the Attorney General of Michigan argued before the Michigan Supreme Court two years ago just as we are arguing before you today, and he took the position successfully in a case where the question was whether a state agency could invest in shares of savings and loan associations.

    The Savings & Loan League of Michigan attempted to have a determination that in substance, a share was lightly deposit and therefore, it didn’t violate the constitutional injunction of Michigan against agencies purchasing shares in a corporation.

    Charles E. Whittaker:

    In other words, is that means of a — they’re speaking of some deposited state funds?

    Victor W. Klein:

    Yes sir.

    And the Attorney General very enabling a sale the position of the Savings & Loan League, and pointed out and we put the quotation in our reply brief that payments on shares of savings and loan associations do not constitute deposits.

    And the Michigan Supreme Court said, in substance, in substance, they do not constitute deposit, but purchases of stock in a private corporation for profit.

    Those are the Attorney General’s work on “private corporation or profit.”

    So we submit that this is moneyed capital, and it fits within the definition of this Court shares in a corporation or other interest of an individual put in an enterprise engaged in a business or profit.

    These are shares, they’re stock, the statute says so, the case is so hold, the Attorney General of Michigan has always been of that opinion because there are a number of opinions which we’ve have cited.

    And the Michigan Supreme Court says that that is their relationship.

    And the language of the federal statute is also in terms of shares and capital.

    Now, we come to the next question, they say its other moneyed capital coming in competition was a substantial business of national banks and substantial in comparison with the capitalization of national banks.

    We say the question of greater rate requires no great debate.

    It can’t be controverted that the rate is 13 times greater; it just takes simple mathematics $5.5 of thousand versus 40 cents of thousand.

    Now, on domestic corporation –associations in Michigan, there was a 25 cents of thousand in your privilege tax.

    So, even giving the domestic corporations credit for that, that would be $5.5 to 65 cents, eight times, 8:1, 13:1 in case of federal association.

    Now —

    Tom C. Clark:

    (Voice Overlap) — the other taxes?

    Victor W. Klein:

    The other taxes were unimportant sir.

    The both banks and associations have to pay the same type of real estate tax valued in the same manner at the same rate also unemployment taxes, both were subject.

    So, it becomes out — there’s an examination fee which we say it’s for a service that banks have to pay an examination fee.

    There were few other taxes which we’ve listed in our brief, but it’s very inconsequential sir, and I think for all practical purposes, we can say 13:1 in cases of federal associations, 13 — 8:1 domestic corporations.

    So what does the appellee do in the court below?

    He urged the proposition directly contrary to the position of this Court and the Michigan Court followed.

    He said, “Because, we’re dealing with two different types of organizations here, one that takes deposit does lot of business with deposits and one that does not.”

    This tax shouldn’t be on shares, it ought to be measured by the tax burden on total assets of each institution.

    In other words, if we figured out how many dollars of taxes banks paid or the bank in our bank pay and took the ratio of total assets without deducting the deposit liability of it and did the same thing for savings and loan which didn’t borrow very much because they are a more conservative operation in banks in that respect that we have that liability.


    They said there is substantial equality.

    Now, to do that required and rewriting in the statute, this is a tax on shares not on gross assets of the corporation.

    And this Court held, when this very same proposition was urged to this Court in Minnesota in 1926.

    The argument ignores the fact that the tax authorized by 5219 is against the holders of the bank shares, and is measured by the value of the shares and not by the assets of the bank without deduction of its liabilities.

    In other words, it’s a tax on the shares not on the assets of a corporation without deducting its liabilities to ascertain the equity of the shares.

    Victor W. Klein:

    The Minnesota — this Court Minnesota completely rejected without qualification that argument.

    Now, the appellee — and the Michigan Court followed the rule which is directly contrary to this Court in Minnesota.

    Now, the appellee urges that this Court considered a different tax, just ignored the fact that the share of capital, and only take the reserves and undivided profits of the savings and loan associations.

    And if you did that, you might get approximate equality.

    First place, the Michigan statute doesn’t permit that.

    The Michigan statute says, “This is a tax on the shares of savings and loan and only the paid up capitals for that part.”

    It talks not about the undivided profits, and if the tax under paid up capital of the national bank and its undivided profits and its service.

    We submit that under the rulings of this Court going back to Weaver and Hepburn which cited in our brief, that where you have the same type of taxation which you do here, this is not a question of different methods of taxation.

    Any tax which exacts from the owner of the shares, a larger sum in proportion to their actual value than it does from the owner of other moneyed capital, valued in a light manner thus tax them at a greater rate.

    It doesn’t just decide in one case, the shares are invested in a corporation which borrows little money and some shares are invested in the corporation which borrows more money and a bank has a lot of indebtedness to bank deposit.

    It doesn’t say that that Congress has said, once we determine that this is other moneyed capital and it comes in competition substantially, rate valued in the same manner, if it’s the same type of tax is the determining bank.

    Now, the last point, and that’s the point upon which I think appellee and the lower court relied very heavily a so-called “partial exemption ordinance.”

    There were some old cases, going back to the 1800s up till 1899 are originally when moneyed capital was not as its now defined when it wasn’t — its inventory wasn’t money.

    It’s all intenders of any kind didn’t have to come in competition with the bank in the old days.

    And some portion, not material, was exempt noncompeting.

    The Court in those days said, “There could be a partial exemption.

    It was not in competition and it was not moneyed capital as now defined.”

    If it was a material, even though not in competition, there was violation.

    Then when the Court decided Mercantile and throughout the years and limited moneyed capital to only those businesses share — which — which shares were had, which business was moneyed.

    The competition became the dominant factor, and not for 61 years has this Court ever mentioned partial exemption anymore in any case.

    But even if there is a partial exemption doctrine now, we say there is not.

    We say that’s been gone with this new principle of coming into competition was a substantial phase of the business through the bank.

    But even if that doctrine applies, the appellee presents to this Court the most extraordinary proposition.

    He contends that the State of Michigan having granted partial exemption to shares of savings and loan associations, this Court is foreclosed from considering whether or not there was just cause from the — for the State exempting from taxes something which might violate that federal statute which have just caused to exempt something under a federal statute and he suggests this Court can’t even consider that question.

    We submit in the first place, that although originally savings and loan associations were exempt by Michigan statute, they no longer are.

    They are subject to taxes, and there is no partial exemption that tax is on all of the shares but add 1/13th of the rate.

    That isn’t a partial exemption, that’s a preference a tax of discrimination.

    Charles E. Whittaker:

    Did the privilege allowed (Inaudible) tax?

    Victor W. Klein:

    Yes, sir.

    Charles E. Whittaker:

    Just as a bank saving.

    Victor W. Klein:

    Yes, sir.

    Now, in arriving at this so-called just cost, appellee relies on old cases at a time one, when national banks could not be in the mortgage business.

    It’s only been permitted to have mortgages since 1916 and really in real volume since 1933, a work permitted to take savings until 1927 by statute.

    They weren’t in the competition factually or otherwise with savings and loan associations in those days.

    Now, on the just cause for exemption —

    Hugo L. Black:

    What was the reason for the exemption?

    Victor W. Klein:

    In the old days, sir?

    Hugo L. Black:


    Victor W. Klein:

    First, the savings bank cases.

    They dealt with poor people of limited means who had no place to put their savings and no place to get mortgages.

    And they — in the savings bank cases, they were publicly managed.

    The — the trustees were appointed by the State not by the depositors.

    Now, the savings and loan associations in the older days and Justice Taft — then Judge Taft commented in an early case in 1890 or something that they were comprised of poor people who banded together under a mutual thrift plan to afford a facility from which they could borrow money.

    And that, and that I — that worked in this way and Michigan had the same case.

    It was quasi charitable, nonprofit, noncommercial, because you had to be a borrower, you had to be a stockholder, and he could only bid for a loan to the extent that he has subscribed for his stock.

    He couldn’t bid more.

    In other words, in the old days if I were a poor man which I might qualify filed — I had to be a stockholder, I’ve signed up for $1000 worth of stock and agreed to pay $2 or $5 a week.

    And then, when the money was bid on, I could come and bid for it in competition with other stockholders, but I can only bid up to the amount of my stock subscription.

    Hugo L. Black:

    Did have.

    Victor W. Klein:

    — or a mortgage against the other members who own stock.

    Hugo L. Black:

    For a loan?

    Victor W. Klein:

    For a loan.

    He had to pay a premium in those days.

    Then he would get a loan for $1000 and he’d have to pay on his stock subscription.

    The only thing he paid on his mortgage was interest.

    He paid so much a week on his stock subscription and if the — there was money profit made, the dividends would pay — be paid to him and he could then use that to pay his interest.

    If there were losses, he got no dividends or received no dividends.

    And in case of a failure, and this is the importance, he had to pay his mortgage loan 100% in full, received no credit for what he had paid on the stock.

    In fact, he might have had to pay the balance of his subscription of general creditors when it’s answered.

    So, he was on both sides of the deal.

    Victor W. Klein:

    It was a cooperative, noncommercial neutral enterprise.

    Hugo L. Black:

    On that basis, the State decided a good (Voice Overlap) —

    Victor W. Klein:

    Exempt, but it doesn’t exempt in anymore sir.

    The Federal Government removed the exemption in 1951 and we quoted the part in there and they’re to be taxed, it was the intent of Congress that these associations be taxed just like other corporations.

    Now, in 1935, the State of Michigan amended the Home Owners Act and we’ve got a little writer on page 72 of our principle brief.

    I hope it’s been appended to all of your briefs.

    It’s page 76, Your Honor.

    Pointing out that in 1935, the stat — this Section was amended so no longer does a stockholder — does a borrower have to own stock in order to take a loan.

    In other words, he doesn’t have to be an investor and he doesn’t — he can borrow any amount regardless of what his stock ownership may be.

    He doesn’t even have to be a stock ownership before he can only borrow to the extent of his stock ownership.

    Hugo L. Black:

    So you’ve appended a right (Voice Overlap) —

    Victor W. Klein:

    Well, we’ve asked that it’d be appended on page 76.

    We asked the clerk to do it.

    Now, he may have failed to do so.

    Earl Warren:

    No, it is (Inaudible)

    Victor W. Klein:

    Well, we will — we will ask the clerk to do it again.

    We have extra copy because that calls your attention to this one.

    Felix Frankfurter:

    It carried it out but not by fixing it under the case.

    Victor W. Klein:

    I see, sir.

    Now, that is a significant change because now, there is no mutuality and stockholders are from all economic classes, corporations, trust, pension trust, professional men, businessmen, they’re out solely for the profit and borrowers are out solely to get the best loans they have.

    There’s no mutuality of interest.

    One is just like a — any stock in a — in a corporation where you’re out to get as much profit as you can and the borrower is out to get as much as he — to the best loan he can get.

    And the class of investors are all classes across the board, no longer poor people.

    As I say, there is advertising campaigns locally, statewide, nationally.

    In fact, over the weekend, there were two national, big national corporations, football games, savings and loan people seeking to get investors of all classes, corporations otherwise to invest in their stock or savings and loan associations seeking to get borrowers of all classes.

    And it’s no different in a bank they compete for the mortgage business just as they do in the case of banks and there is no just reasons, no just reasons why they should enjoy a preference, and it is a preference, it’s not an exemption in state taxation in view of the injunction of Congress that a State shall not pass this other moneyed capital at a greater rate than national banks.

    And if there’s every been a time when our fiscal policy and our economic stability had to be safeguard, I think most responsible people are in agreement that such time is now and in encroachment of this kind against national banks would be very serious indeed.

    Earl Warren:

    We’ll recess now.