Opinion
No. 29399.
June 8, 1931.
1. CONSTITUTIONAL LAW.
Duty arising by operation of law is not contract in constitutional sense (Const. Miss. 1890, section 16; Const. U.S., art. 1, section 10).
2. CONSTITUTIONAL LAW.
Generally, no vested rights exist in prevailing laws which will preclude their amendment or repeal.
3. BANKS AND BANKING, CONSTITUTIONAL LAW.
State bank guaranty statute providing for issuance of noninterest-bearing guaranty certificates held not invalid as impairing obligation of contract of holder of interest-bearing certificate of deposit (Laws 1930, c. 22, section 6-B; Const. Miss. 1890, section 16; Const. U.S. art. 1, section 10).
4. CONSTITUTIONAL LAW.
State bank guaranty statute authorizing issuance of noninterest-bearing guaranty certificates held not invalid as depriving prior holder of certificate of deposit, to interest bearing guaranty certificate under earlier statute, of vested right (Laws 1930, c. 22, section 6-B; Const. Miss. 1890, section 14; Const. U.S. Amend. 14, section 1).
APPEAL from chancery court of Simpson county; HON. T.P. DALE, Chancellor.
Butler Snow, Flowers, Brown Hester and Geo. T. Mitchell, all of Jackson, for appellant.
When money is deposited in bank, the contract that is made is between that bank and the depositor. Notwithstanding the provisions of the Bank Guaranty Law, there is, properly speaking, no contract between the depositor and other banks.
Abie State Bank v. Bryan, United States Supreme Court Advance Opinions, No. 10, 75 L.Ed., pages 420, 429-430.
Butler Snow and Flowers, Brown Hester, all of Jackson, for appellant.
Mangum had no contract for a guaranty certificate. That there was a certificate providing for it, may have influenced him to put his money in the bank, but there was no contract with respect to it. The bank did not contract with him that he should have it. The banking department had no contract with him. The state of Mississippi did not have any. The superintendent of banks could not issue the certificate, except as he might be authorized and directed by the Legislature so to do.
Banking is recognized as a public business. To promote it is to promote the public welfare. Police power can be used for that purpose. Police regulations are changed at the will of the Legislature.
On the question as to the impairment of Mr. Mangum with D'Lo Guaranty Bank, it should be sufficient to say that Mr. Mangum had but one contract, and that was evidenced by his time certificate of deposit, a paper generally construed to operate as a promissory note. But whether it has that character or not, is not here material. There was no other party to that contract.
Advance Sheets No. 6, Vol. 234 of N.W. Rep.; Wirtz v. Nestos, 200 N.W. 524.
In the Abie State Bank case, 75 L.Ed. 420, recently decided, it was recognized that a depositor looking forward to or expecting contributions from the guaranty fund to save them from loss cannot assert a contract right to such aid or assistance.
Earle N. Floyd, of Jackson, for appellees.
The nature of appellee's contract prohibits its impairment with reference to its interest bearing provisions.
So careful was the Legislature to provide for the recognition of all interest bearing contracts when the former banking law was enacted, it provided that "any existing contract for higher rates of interest than allowed herein which might have been entered into before its effective date shall be carried out unimpaired, and shall not subject the banks to the penalties provided for a violation of the terms of the act.
Sec. 37, ch. 172, Laws of 1922.
Under section 6-b the Act of 1930, the Legislature has completely disregarded the contract entered into by the bank with the depositor for the payment of interest according to the terms of such time certificates.
The Legislature in its zeal to eliminate all interest obligations which, as pointed out by appellant in his answer in the court below, had become onerous to the scheme of liquidation, attempted to relieve every deposit of its obligation for interest, whether secured by valid contract or the former provisions of the Guaranty Law, or both.
The inducement to the depositor was, as alleged in the petition, the payment of the interest thereon and as such became a consideration and condition precedent to the issuance of the certificate of deposit, and, therefore, any legislation impairing the depositor's right thereto renders unconstitutional such legislative act.
6 R.C.L., secs. 347 and 353, et seq.; Pate v. Bank of Newton, 77 So. 601, 116 Miss. 666.
The repeal of the provision for interest was an arbitrary and unnecessary disregard of a vested right that had accrued under the former act, and was not necessarily related to the exercise of the police power necessary to effectuate the chief object of the new act.
The repeal of the guaranty feature deprives the appellee of security underlying the contract.
We have urged the unconstitutionality of the 1930 act as against the denial of interest on the time certificate in question, and we now submit that the repeal of the guaranty law, although ordinarily validly within the police power, is as to the appellee and others of like status a denial of a substantive right vouchsafed by the constitution.
There can be no reasonable classification between depositors in banks failing prior to March 11, 1930, and those who have under the provisions of the same protecting act irrevocably placed their deposits subject to the same hazards or the same protection.
We do not controvert the general protection that the guaranty law was repealed. The Legislature has a broad power to do some particular way acts that it cannot do in some other manner. A just and reasonable and indiscriminatory exercise of the police power in this respect would require the recognition by way of a saving clause of the rights of those whose funds were irrevocably held under the former law. No imperious public necessity demanded the ruthless exercise of such legislative power in effecting the instant repeal of the act in question, only to revive it in toto upon the fulfillment of certain contingencies.
It cannot be said to be predicated upon any sound public policy, nor was it a measure to preserve the health, morals or safety of the people.
To hold that the contract with the appellee in this case may be disregarded or abrogated by the repeal of the statute in question would be enunciating the same principle of law as involved in the legislative repeal of an act pertaining to insurance companies when a statute required of them the maintenance of a reserve and the re-insurance of risks over a given amount.
The police power of the state may be broad, but it cannot rise above the constitution. It cannot justify the enactment of a law which amounts to an arbitrary and unwarranted interference with the rights of the citizens which are guaranteed by the constitution.
State v. Armstead, 60 So. 778, 781, 103 Miss. 790.
The equal protection of the laws as secured by the fourteenth amendment to the Federal Constitution is denied to the appellee.
Black's Constitutional Law, p. 544.
The obligation of a contract is that duty of performing it which the law recognizes and enforces. It is the means provided by law, by which it can be enforced and by which the parties can be obligated to perform it. Whatever legislation lessens the efficiency of these means impairs the obligation.
La. v. New Orleans, 102 U.S. 203, 26 L.Ed. 132; Planters Bank v. Sharp, 6 How. 301, 327, 12 L.Ed. 447.
Appellee filed his bill in the chancery court of Simpson county against the appellant, Love, superintendent of banks, for a mandatory injunction, requiring appellant, who was liquidating the affairs of the insolvent D'Lo Guaranty Bank, of which bank appellee was a depositor at the time of its failure, to issue to appellee an interest-bearing guaranty certificate for the amount of his deposit, as provided by law prior to the going into effect of chapter 22 of the Laws of 1930, instead of a noninterest-bearing certificate, as provided by the latter statute. The cause was heard on bill, answer, and agreed facts, resulting in a final decree in favor of appellee. From that decree appllant prosecuted this appeal.
The D'Lo Guaranty Bank was a state bank; it failed and went into liquidation on the 14th day of April, 1930. Appellee was a depositor in the bank, and held a certificate of deposit for fifteen thousand dollars, which certificate was dated December 31, 1929, and payable six or twelve months after date, at the option of appellee. If payment was demanded at the end of six months, the certificate was to bear interest at the rate of three and one-half per cent per annum; if at the end of twelve months, it was to bear four per cent interest per annum. After the failure of the bank, when its affairs had gone into the hands of appellant for liquidation, appellee demanded of appellant that the latter issue to him an interest-bearing guaranty certificate, as provided by law prior to the adoption of chapter 22 of the Laws of 1930, which went into effect on the eleventh of March of that year. Appellant refused appellee's demand, and offered to issue to him a noninterest-bearing certificate, as provided by section 6-B of chapter 22 of the Laws of 1930, which provides as follows:
"That said depositor's protection fund for the year 1930 be applied to the payment of depositors in sums representing their respective losses through failed banks for that year. If said application of said fund is insufficient to take care of said losses to depositors in failed banks for the year 1930, then said application of said fund shall be determined on a pro rata basis, namely, each depositor of each bank operating under this Act and failing in the year 1930, and after this Act becomes effective, shall participate in said depositor's protection fund in the proportion that depositor's individual loss, after the liquidation of the failed bank carrying depositor's deposit, bears to the total losses of all depositors as determined and shown after the liquidation of each failed bank, for that year. If a deficit occurs in the depositor's protection fund for that year, said deficit shall not be carried into any succeeding year. If a surplus is shown, said surplus shall be carried into the succeeding year. It shall be the duty of the superintendent of banks, immediately after taking charge of any insolvent bank, to issue noninterest-bearing certificates to each depositor of each failed bank for the amount of the depositor's deposit entitled as now provided by law, to participate in the depositor's protection fund. Subsequent to the year 1930 the assessments for the depositor's protection fund are to be continued, to be made annually, until such time as outstanding or present guaranty certificates are paid in full, as provided in this Act, and each year's distribution or application of said depositor's protection fund shall be made in accordance with the plan set out in this section for the year 1930."
Appellee challenged the constitutionality of chapter 22 of the Laws of 1930 upon various grounds, all of which except two, were decided against him in City of Jackson v. Deposit Guaranty Bank Trust Co. (Miss.), 133 So. 195. For a history of the state bank guaranty legislation, reference is made to the opinion in that case. As we understand, the two grounds which were not disposed of in that case, upon which the constitutionality of chapter 22 of the Laws of 1930 are challenged by appellee, are, first, that the act impairs the obligation of the contract embodied in appellee's certificate of deposit, in contravention of section 16 of the state constitution, and of section 10 of article 1 of the constitution of the United States; and, second, that appellee had a vested right, when the law went into effect, to have issued to him, under the old law, an interest-bearing guaranty certificate, which was taken away from him by the new statute, thereby depriving him of a property right in violation of the due process provisions of the constitutions of the state and of the United States (Const. U.S. Amend. 14, sec. 1; Const. Miss. 1890, sec. 14).
In view of a decision of the supreme court of the United States, and of the state of South Dakota, to be presently cited, the principles laid down in which we fully approve as being sound, and controlling of the questions here involved, we think there is little, if anything, further to be said, except to call attention to those cases. The suspended Bank Guaranty Law provides for a fund to be raised by assessment upon all state banks; this was evolved as a safeguard for depositors in the banks. It was a police regulation, "the sanction of which lay in the constitutional power of the state, and not in contract." A duty arising by operation of law is not a contract, in the sense of the constitution. Generally citizens of a state have no vested rights in the existing laws of the state which will preclude their amendment or repeal. There is no implied promise of the state to protect its citizens against incidental injury occasioned by a change in its laws. Appellee had neither a contract right, nor a vested right, under the suspended guaranty statute. Abie State Bank v. Weaver, 51 S.Ct. 252, 75 L.Ed., page ____; State v. Smith, State Supt. of Banks (S.D.), 234 N.W. 764. If the D'Lo Guaranty Bank, in its liquidation, turns out to be solvent, appellee and all other creditors will be paid in full with interest. On the other hand, if insolvent (as no doubt it is, otherwise it would not have gone into liquidation) appellee will be paid his just pro rata share of the assets of the bank; and if the result is that he loses the interest on his certificate of deposit, or the interest and part of the principal, it will not be the result of the obligation of his contract being impaired. Appellant's claim against the bank is in nowise abated by the suspending statute. If the assets of the failed bank are insufficient to pay all the depositors and creditors in full, they will still have valid claims against the bank for their unpaid balances. Both the old and the new bank guaranty statutes are mere police regulations; under them appellant acquired no contract rights, either with the state, or with the other state banks. Neither, for the same reason, did he acquire any vested right under the old statute which was in anywise taken away from him by the new statute.
Appellee's argument that the operation of the new statute is violative of the equality clause of the Fourteenth Amendment to the Federal Constitution is without any merit; and we do not think it is of sufficient gravity to call for discussion by the court.
Reversed and judgment here for appellant.