CHAPTER I. BANKING A CONSTITUTIONAL AND LEGISLATIVE § 1. Right of banking controlled by legislation. The right of banking was originally a common-law right. The privilege was without restriction and open to all. The privilege of private banking, however, has, by constitutional and legislative enactments passed by many of the States, been either prohibited or placed under control and regulation of law. The privilege of private banking, it is held by leading authorities, is one which the Constitution or Statute of a State may forbid. Some of the courts, however, question this doctrine and hold that the Legislature may make the issuing of notes a franchise; but as to the other branches of banking, they deny the right of a Legislature to interfere. The reasoning is based upon the constitutional grounds that "no State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any State deprive any person of life, liberty, or property, without due process of law, nor deny to any person within its jurisdiction the equal protection of law." This question as early as 1818 was presented to the Supreme Court of Judicature of the State of New York in the case of the People v. Utica Insurance Co., 15 Johns. (N. Y.) 358. The action was an information in the nature of a quo warranto by the Attorney-General against the defendant for exercising banking privileges without authority from the Legislature, and was based upon an act of the Legislature commonly called the Restraining Laws," which provided that "no person unauthorized by law shall subscribe to or become a member of any association or proprietor of any bank or fund for the purpose of issuing notes, receiving deposits, making discounts, or transacting any other business which incorporated banks do or may transact by virtue of their respective acts of incorporation." The court, in defining the right of private banking under this 66 Statu says, The right of banking, since the Restraining Act, is a privilege or immunity subsisting in the hands of citizens by grant of the Legislature. The exercise of the right of banking, then, with us, is the assertion of a grant from the Legislature to exercise that privilege, and consequently it is the usurpation of a franchise, unless it can be shown that the privilege had been granted by the Legislature.” The Legislature, by the above act, did not confine the restriction to the issuing of notes, but included the receiving of deposits, and the making of discounts, unlawful and prohibitive, unless the person conducting this branch of banking had the privilege or authority from the Legislature. In the case of Nance v. Hemphill, 1 Ala. 551, the court in substance says: "Where the Constitution or Legislature does not prohibit private banking, it is a common-law privilege; and is a right that any individual may exercise until forbidden by the Legislature." The Supreme Court of the State of North Dakota, in the case of the State of North Dakota ex rel. Marshall T. Goodsill v. Thomas Woodmansee, 1 N. Dak. 246, held that a legislative act which prohibits all persons from doing a banking business within the State, except corporations, which are organized under the law, is constitutional. The court says, " As a matter of fact, we have been unable to find an authority, and we have searched diligently, which has ever questioned the right of the Legislature in the exercise of police power to regulate, restrain, and govern the business of banking." It is interesting to note the fact that the question is again brought before the Supreme Court of the State of South Dakota in the case of State v. Scougal, 3 S. Dak. 55. In this case the court holds that the Banking Act of the State, in so far as it prohibits an individual from carrying on the business of banking other than the issuing of notes, and circulating the same as money, is in conflict with the Constitution of the State, which reads as follows: "No law shall be passed, granting to any citizen, class of citizens, or corporation, privileges or immunities which upon the same terms shall not equally belong to all citizens or corporations." In the absence of a constitutional provision or inhibition, the Constitution being silent on the subject, it remains a question whether the legislative body of the State has the right to deprive a citizen under the Fourteenth Amendment of the Constitution of the United States of the rights and privileges guaranteed to him by said constitutional provision.' The business of banking in its very nature creates a confidential and trust relationship, which exists betwen the bank and its patrons; and the difficulties that depositors and those dealing with the bank necessarily encounter in detecting irregular practices, and in ascertaining the real financial conditions of the same, seem to be sufficient to justify inspection and control.2 The question has never been directly presented to the Supreme Court of the United States, and until it passes upon the same, which it must do when judicially brought before it, the States are left in control of the privilege; and the right or privilege of private banking being a franchise, which may be granted, governed, controlled, or prohibited either by constitutional or legislative provisions of a State, the power is vested in the State, and is denominated a police power; which may be exercised and imposed upon the theory that all private interests are made subservient to the general interests of the community, and in the interest of public safety. The law seems to be settled that a State may, by constitutional enactment or legislative provisions, prohibit private banking within its domain, upon the principle "that the power of the States over police regulations is supreme." That this power is not restrained by the Constitution of the United States to the States, is the doctrine as enunciated and established by the Supreme Court of the United States in Slaughter-House Cases, 16 Wall. 36, and Bartemeyer v. Iowa, 18 Wall. 129. The right of banking, therefore, in a State, being a privilege or business under the control of the State, it cannot be conducted where prohibited by the law of the State. 1 Attorney-General v. Utica Ins. Co., 15 Johns. (N. Y.) 357; Bank of Augusta v. Earls, 13 Pet. 519; Nance v. Hemphill, 1 Ala. 551; State v. Scougal, 3 S. Dak. 55; Du Quoin v. Kelley, 176 Ill. 218, 52 N. E. 919; Bank v. Henne, O. & L. Co., 105 Cal. 376; Way v. Butterworth, 106 Mass. 75. 2 People v. Brewster, 4 Wend. 498; Blaker v. Hood, 53 Kan. 499. The United States, under the Constitution and the laws of Congress, is supreme in its authority to form a bank and conduct the same. It is supreme in its authority, "to coin money, regulate the value thereof and of foreign coin." It is also within the privilege of Congress to make gold and silver, or anything else it may designate as money, a legal tender. The States are prohibited from this power, but they may form a bank and conduct the same and issue notes and circulate the same as money and manage the bank wholly in the interest of the State; but the States are prohibited from forming through constitutional conventions and indorsement thereof by the people, Constitutions empowering them to make notes or anything but gold and silver coined by the government of the United States a "legal tender." The reasons for these prohibitive provisions, which were enacted and became a part of the Constitution of the United States, are historically and judicially stated in the case of Edwards v. Kearzy, 96 U. S. 595. The Supreme Court, in explaining the reasons for the adop tion of the constitutional provisions, says: "The history of the National Constitution throws a strong light upon this subject. Between the close of the War of the Rebellion, and the adoption of that instrument, unprecedented pecuniary distress existed throughout the country. The discontents and uneasiness, arising in a great measure from the embarrassment in which a great number of individuals are involved, continued to become more extensive. At length, two great parties were formed in every State, which were distinctly marked, and which pursued distinct objects with systematic arrangement. 5 Marshall L. of Wash. 75. One party sought to maintain the inviolability of contracts, the other to impair or destroy them. The emission of paper money, the delay of legal proceedings, and the suspension of the collection of taxes, were the fruits of the rule of the latter, wherever they were completely dominant. 5 Marshall L. of Wash. 86. The system called justice was, in some of the States, iniquity reduced to elementary principles. In some * * of the States creditors were treated as outlaws. Bankrupts were armed with legal authority to be persecutors, and by the shock of all confidence, society was shaken to its foundations. Fisher Ames Works (ed. of 1859), 120. Evidences of acknowledged claims on the public would not command in the market more than one-fifth of their nominal value. The bonds of solvent men, payable at no distant day, could not be negotiated but at a discount of 30, 40, or 50 per cent. per annum. Landed property would rarely comn.and any price; and sales of the most common articles for ready money could be made only at enormous and ruinous depreciation. "State Legislatures, in too many instances, yielded to the necessities of their constituents, and passed laws by which creditors were compelled to wait for the payment of their just demands on the tender of security, or to take property at a valuation, or paper money falsely purporting to be the representative of specie. Ramsey Hist. U. S. 77. "The effects of these laws interfering between debtors and creditors were extensive. They destroyed public credit and confidence between man and man, injured the morals of the people, and in many instances insured and aggravated the ruin of the unfortunate debtors for whose temporary relief they were brought forward. 2 Ramsey Hist. S. C. 429. "Besides the large issues of Continental money, nearly all the States issued their own bills of credit. In many instances the amount was very large. 2 Phillip's Hist. Sketches of Am. Paper Currency, 29. "The depreciation of both became enormous. Only one per cent. of the Continental money was assumed by the new government. Nothing more was ever paid upon it. Act of Aug. 4, 1790, § 4, 1 Stat. at L. 140; 2 Phillips' Hist. Amer. Paper Currency, 194. It is needless to trace the history of the emissions by the State. "The Treaty of Peace by Great Britain declared that the creditors on either side shall meet with no lawful impediment to the recovery of the full amount in sterling money of all bona fide debts heretofore contracted. The British Minister complained earnestly to the American Secretary of State of violation of this guaranty. Twenty-two instances of laws in conflict with it in different States were specifically named. 1 Am. St. Papers, 195, 196, 199, and 237. In South Carolina, laws were passed in which property of every kind was made. |