State ex rel. Attorney General v. President & Directors of the Bank of South Carolina

Per Curiam. This cause came on to be heard' on the transcript of the record from Associate Justice Willard, sitting in Chambers, at Charleston, and was argued by counsel. On consideration whereof, it is now here ordered and adjudged by this Court, that the rule for the mandamus be dismissed, because so much of the Act (No. 17) entitled “An Act to close the operations of the Bank of the State of South Carolina,” as authorizes and requires the Governor, “for and on behalf of the State, to take possession of all the real and personal estate, assets, choses in action and books of account of the corporation known as the President and Directors of the Bank of the State of South Carolina, in whose hands soever found, and sell at public auction, at such times and upon such terms as he shall deem most advantageous to the State, all the real and personal estate, stocks, bonds of the corporation, and other assets of said corporation, and the personal bonds, notes and bills of exchange owned by said corporation,” is in conflict with Article 1, Sectioh 10, Par. 1, of the Constitution of the United States, Avhich provides that “ no State shall pass any law impairing the obligation of contracts.” The opinion of the Court will be filed hereafter. The opinion of the Court was now delivered by Moses, C. J. The information before us was filed by the Attorney General of the State, on behalf of the State, praying a rule against the respondents to show cause why a writ of mandamus should not be awarded, commanding them to deliver to His Excellency the Governor of the State all the real and personal estate, assets, choses in action, and books of account of the corporation known as “ The President and Directors of the Bank of the State of South Carolina,” required by the Act entitled “ An Act to close the operations of the Bank of the State of South Carolina,” passed by the General Assembly on the 15th day of September, 1868. The respondents submitted cause, and the matter came for hear — 75 — ing before Associate Justice Willard, at Chambers, who, after full argument, discharged the rule, and, by writ of error, it is brought to this Court. Among the grounds urged by the respondents against the rule, it is averred that so much of the said Act as authorizes and requires the Governor, for and in behalf of the State, to take possession of all the assets, real and personal estate, choses in action, and books of account of the corporation known-as the Bank of the State of South Carolina, and sell, &c., and directs that the proceeds of sale and all collections shall be deposited in the Treasury of the State, subject to the order of the Governor, is in violation of Article I, Section 10, Paragraph 1, of the Constitution of the United States, which declares that “ no State shall pass any law impairing the obligation of contracts.” As this objection is sustained by this Court, it is not necessary to review the ground on which the Associate Justice rested his decision, or the other points submitted by the respondents. In 1812, the General Assembly, by Act, (8 Stat. at Large, 24,) established “a bank in the name and on behalf of the State of South Carolina.” It was “ made a corporation and body politic, by the name and style of the President and Directors of the Bank of the State of South Carolina.” Under the charter,- extended from time to time, it was, as such, to continue until the first day of January, 1871. — Act of 1833, 8 Stat. at Large, 07 ; Act of 1852, 12 Stat. at Large, 149. It was made able and capable, in law, to have, purchase, receive and possess real and personal estate,' and the same to sell, demise, grant, or dispose of, to sue and to be sued, to ordain and establish by-laws, ordinances and regulations for its government, and, generally, to do and execute all and singular such acts, matters and things which to them it shall or may appertain to do, subject to the rules, regulations, restrictions, limitations and provisions prescribed in the Act. The whole capital 'was furnished by the State, consisting of all the stocks, bonds and notes belonging to the State, and the unex-pended money in the Treasury; and all taxes hereafter to be collected on account of the State were to be therein deposited, to aid and facilitate its operations, subject to drafts on the part of the State, authorized by legal appropriations; and “the faith of the State was pledged for the support of the said bank, and to supply any deficiency in the funds specifically pledged, and to make good all losses arising from such deficiency.” — 76 — It was invested, by its charter, with all the rights and powers generally used, exercised and enjoyed by banking companies. In December, 1865, the General Assembly, by Act, authorized the President and Directors to close the branches and agencies of the said institution, and required that the principal bank in Charleston should cease to be one of issue, but should continue to act as a bank of deposit until further action of the Legislature. The bank-was a distinct corporation. Although its capital was furnished by the State, its profits to inure to the benefit of the State, and “ the faith of the State was pledged for its support, and to supply any deficiency in the funds specifically pledged, and to make good all losses arising from such deficiency,” still, though brought into existence by the State, the legitimate administration of its affairs, within .the limits of its charter, created business relations and associations, founded upon the credit of its capital, property and profits. In all its transactions, these were looked to and accepted as the basis of its credit and responsibility. AVhile it continued solvent, it was a matter of little consequence to a creditor how far, or to what extent, the Legislature interfered by its control. When, however, the fact of its insolvency is apparent, whether the State is the sole stockholder or a co-stockholder with individuals, the fund which it supplied as capital no longer remains, and to allow it to claim and hold the assets of the Company would be depriving the creditors of their right, and, in fact, using the assets as the means of reimbursing the stockholder, to their utter wrong and injury. The assets of the bank are all that is left to meet the debts of the corporation, and, if they are taken by the State from the hands of those who hold the title for the purposes designed by the charter, and who are amenable to suit, where is the remedy which the creditor held in his right of action ? It does not at all change the nature of the relation of the bank to its creditors, that the State was the sole owner of the capital. The State, in its sovereign capacity, is distinct and separate from the bank. When it established a trading corporation, did it invest it with any of its sovereign power ? or, because the State was the sole stockholder, did the charter which it conferred acquire any higher power by reason of the status of the stockholder, or were the judicial tribunals of the State to construe it by any other rule — 77 — than that by which they would be guided if the corporation consisted alone of private persons ? On the contrary, when a State invests its funds, either alone or with others, in a banking or other company, it does not carry into it any of the elements of its sovereign powers, but occupies the bare position of any other stockholder.— The Bank of the United States vs. The Planters’ Bank of Georgia, 9 Wheat., 907; Bank of Commonwealth of Kentucky vs. Wister, 2 Pet., 318. In the case last referred to, Mr. Justice Johnson, delivering the opinion of the Court, remarks, “that the case of the Bank of Georgia was much stronger for the defendant, for there the State of Georgia was not only a proprietor, but a corporator.” Here, as in the Kentucky ease, the State was only proprietor, for, by the Act, the President and Directors were the real corporators. It was conceded, in the learned argument for the relator, “ that where a common bank becomes insolvent, its assets should be distributed to its creditors, but that this proposition is not applicable to the present case : 1st, Because the capital of the bank was, and is, the property of the State, furnished and deposited by the State, consisting of specific funds, the annual accumulations thereof, and the unexpended money of the State derived from taxes ; and, 2d, Because the faith and credit of the State was, and is, pledged to the support of the bank.” The authorities above referred to, and many others which may be cited from the reported decisions of the Supreme Court of the United States, abundantly shew that the fact of the capital having been furnished by the State does in no way vary or affect the responsibilities of the corporation to its creditors, and the rights of those creditors, as against a corporation with which they dealt, looking to the grants in the charter as the security for their debts. Then, is this conceded proposition (by the counsel of the relator) as to private banks, affected by the consideration of the pledge of the faith of the State to the support of this bank ? We desire to be understood as not committing ourselves to any expression of opinion as to the extent (if any) the State may be regarded as bound for the liabilities of the bank under the language of its charter. To give, however, full effect to the point made by the relators’ counsel in this regard, we will, for the purpose of the argument, adopt their language, in the sense they desire it understood. This view of the counsel presents the case as if the bank was the debtor, and the State the surety or guarantor. — 78 — If that be the relation, and the State holds the assets of the bank for its protection as surety, has not the creditor the right to claim the benefit of them, and that they shall be specifically bound for application to his debt? Has he not the right to demand all the securities which the guarantor holds for his protection ?— Maure vs. Harrison, 1 Eq. Cases, Abr., 93; Yonge vs. Reynell, 9 Hare, 809; Moses vs. Murgatroyd, 1 Johns. Ch., 129; Phillips vs. Thomson, 2 Johns. Ch., 418-422; McCollum vs. Hinckley, et al., 9 Vermont, 143-149. Although this doctrine of*subrogation, or substitution, is a creature of the Court of Equity, yet it attaches, in all its force, whenever the relation of debtor, .creditor and surety exists, and extends its protection, not as part or parcel of the contract, but as an incident attaching to the remedy, by which the various rights of these several parties are guarded and protected. If the State, at its own option, can, then, transfer the assets of the bank from the hands in which they were placed by the charter, the creditor at least loses the indemnity which they constitute; and, even assuming that the State is bound, he is cut, off from one of the sources through which his debt may be made available. “ The obligation of a contract, in the sense in which those words are used in the Constitution, is the duty of performing it, which is recognized and enforced by the laws. And if the law is so changed that the means of legally enforcing this duty are materially impaired, the obligation of the contract no longer remains the same.” This is the language of Mr. Justice Curtis, while in the Supreme Court. The learned and chaste opinion of Chief Justice Dunkin, in the State vs. Carew, 13 Rich., 498, reviews, with so much care and ability, the various authorities to which we have been referred as giving the just and proper construction to the clause of the Constitution now in question, that it would be a fruitless work to enter on a field where he has left nothing untouched. His examination adopts, as a principle consequent to the said clause of the Constitution, the language of Mr. Justice Washington, in Green vs. Biddle, 8 Wheat., 1, (followed by various decisions, both Federal and State,) that “if the Acts so change the nature and extent of existing remedies as materially to impair the rights and interests of the owner, they are just as much a violation of the compact as if they directly overturned his rights and interests.” If the property of the debtor is withdrawn from the operation of — 79 — all legal process, the remedy is virtually lost. It can not be urged that, because the right of action is left, the remedy is untouched. When that which renders the right of action alone valuable — because, through it, satisfaction of the debt may be obtained — is entirely destroyed, is it not as virtually affected as if prohibited by law? The right to sue remains, but with the certain knowledge that the judgment will be a barren one. What does this Section of the Act propose ? To take from the custody of the bank — a separate and distinct corporation — all its real and personal property, place it in the hands of the Governor, who shall sell the same, and the proceeds, with the collections that may be made of its dioses in action, shall be deposited in the Treasury, to be held subject to his order. Not only are the funds of the bank to be abstracted from the custody where, by the charter, they are committed, and, without even a direction that they shall be held as a trust for the benefit of its creditors, they are to be in a position where they may be appropriated by the- Legislature to any purpose, with no guide but its will. The case of Curran vs. The State of Arkansas, 15 Howard, 304, is so analagous to this, that it is difficult for a mind ingeniously bent on discovering a difference to find it. In fact, the case before us is weaker in one particular than that of Curran. The Bank of the State of Arkansas was incorporated by that State in 1836, with the usual banking powers. The capital was raised by the sale of bonds of the State, with other certain sums paid by the State. In January, 1843, the bank being insolvent, the Legislature passed an Act to liquidate and settle its affairs, but continued its operation, and subjected its management to a financial receiver and attorney, who were to collect its assets and apply them to the redemption of the outstanding circulation of the bank. At the same time, bonds of the State, held by the bank for money borrowed by the State, were required to be given up and cancelled, and their amount to be credited to the bank, against a part of the capital stock it furnished. From time to time Acts were passed withdrawing specie and other funds from the bank, and all its real and personal property was declared to be vested in the State. Curran, who was a billholder, instituted suit, recovered judgment, the executions on which were returned unsatisfied. He then filed a bill .in equity against the State, the bank, the receiver and attorney, following the assets of the bank, and requiring that they — 80 — should be subjected to the payment of his debt. The Supreme Court of the United States, disaffirming the order of the Supreme Court of the State of Arkansas, dismissing the bill, granted the relief sought, on the ground that a law which deprives a creditor of all legal remedy against the property of his debtor impairs the obligation of the contract, and is invalid. The case before us is, in fact, more obnoxious to the prohibition of the Constitution, for the State of Arkansas, by its Constitution and laws, may be made a party in Court by suit. Here the creditor is remediless, for- there is no legal liability on the part of the State. It cannot be held to answer before the judicial tribunals of the country; and when a contract was entered into with a corporation created by it, the party contracting looked not to the faith of the State, which was intangible and beyond its reach,, but to the property of the corporation, which, by due course of legal procedure, could be subjected to the satisfaction of his debt. There are other sections of the bill not depending on or connected with the first, and distinct and separate from it. We are not to be understood as passing upon them. The order dismissing the rule in this case has been already filed.. Carpenter, J., sitting in place of Willard, A. J., concurred. Sope, A. J., not present to sign opinion, also concurred.