McNair v. Knott

Background

In 1929–1930, the First National Bank of Perry agreed with Taylor County officials to pledge collateral to protect county funds they deposited in the bank. The bank later closed (October 18, 1930). The bank’s receiver at first paid income from the pledged securities to the county but in 1935 sued to cancel the pledge as beyond the bank’s legal power when made. The lower federal courts dismissed the receiver’s suit, and the case reached this Court.

Reasoning

The Court asked whether the 1930 National Bank Enabling Amendment — which allowed national banks to give security for public money — was meant to make earlier, technically unauthorized pledge agreements enforceable. Looking at the amendment’s language, congressional committee reports, the longstanding practice of bank regulators, and the need to protect public funds, the Court concluded Congress intended the law to validate past pledges. The Court therefore held the contested pledge became enforceable as of the amendment’s effective date.

Real world impact

The ruling means local governments and other public entities can enforce collateral that national banks promised before June 25, 1930. It limits a receiver’s ability to cancel those earlier security agreements and makes it easier for counties to recover from pledged assets. The decision applies from the date the enabling law took effect and so affects past contracts retroactively.

Dissents or concurrances

A Justice wrote separately to say the judgment could rest on the simpler ground that both parties treated the pledge as binding after the amendment and acted accordingly, but he agreed the result should be affirmation.