First National Bank of San Jose v. California

Background

The dispute began when California’s Attorney General sued a national bank to take money credited to a customer, P. A. Campbell. The trial court found $1,192.25 had been on Campbell’s account with no deposits, withdrawals, or contact since November 10, 1880. The bank’s 1917 annual statement listed Campbell’s name, the last transaction date, and the amount, and the Attorney General had been informed. Under California law (§1273) money unclaimed for more than twenty years could be taken by the state. The state courts entered judgment for California and ordered the bank to hand the funds to the state.

Reasoning

The Court addressed whether that California rule can be applied to national banks. It noted that federal law (§5136) gives national banks the power to receive deposits, and that national banks are federal instrumentalities created to serve national purposes. The Court explained that states can apply general, non-discriminatory laws but may not define duties or dissolve deposit contracts in a way that conflicts with federal law or frustrates Congress’s purposes. Allowing each state to seize long-dormant deposits would produce varying time limits across states, undermine banks’ ability to obtain deposits, and discourage lending by depositors. Because the California statute, as applied here, conflicted with the federal scheme for national banks, the Court reversed the state court’s judgment.

Real world impact

The ruling protects deposit contracts at national banks from state seizure after long inactivity and preserves uniform federal treatment of those banks. It affects national banks and customers whose accounts cross state lines or international borders and prevents states from confiscating deposits simply because they sit idle for many years. By reversing the state judgment, the Court stopped California from taking the $1,192.25 in this case and reinforced that similar state laws cannot be applied to national banks.