Mr. Justice BRADLEY
delivered the opinion of the eourt.-
The first question for us to decide is whether the eleventh section of the act of 1865 did, as alleged, amount to, or did become, a contract with the appellants.
When that act was passed the bauk was hopelessly insolvent. The section referred to was intended to prescribe the manner in which its assets were to be distributed and its affairs wound up. The State was the sole stockholder, and the bank, as a corporation, could not complain of any course of action which the legislature saw fit to adopt or prescribe. In relation to the State, it was alter et idem. In this respect its position was very different from that of private corporations. The action of the legislature could only be'questioned by the creditors of the bank. As to the bank itself, the wishes of the legislature were commands. When, therefore, the legislature, by the eleventh section of the act of 1865, declared that “ the president and directors [of the bank] are hereby authorized and required to collect the assets and property of the bank, and hold the same specially appropriated, first, to the payment of the principal and interest of the bonds known as the Fire Loan bonds, payable-in Europe; second, to the payment of the principal and interest of the Fire Loan bonds, payable in the United States; and third, to the redemption of outstanding notes hitherto issued by the bank,” this declaration, if valid, was not only a direction, but a law. It was a law which the bank could not question; only creditors, whose interests were in conflict [9]*9with it, could question it. As an enactment, it created ipso facto, a trust, and made the bank a trustee for the parties provided for by it. It was a trust on which the bondholders, when made acquainted with its terms, had a right to rely. They became, if they assented to it, cestuis que trust with vested rights. Being made for their benefit, it will be presumed that they did assent to it, if they expressed no dissent.
It is unnecessary to go into the learning of voluntary assignments for the benefit of creditors. It is clear law that such an assignment, if assented to by the creditors, or a considerable portion of them, becomes irrevocable; and in this country assent will be presumed if dissent is not expressed.
In this case, it is true, no actual assignment was made. But for the purpose of creating a trust it was not necessary. The act was a law of the State making the corporation a trustee. What special rights were thus created in favor of the cestuis que trust will be uoticed hereafter.
The creation of this trust in favor of the bondholders, if valid, was a coutract with them. Confiding in it, they would desist from further efforts to secure the payment of their claims by adverse proceedings. It would be unjust to them to abrogate it, and place them where they stood when the trust was created. The repeal of the section in question, therefore, did impair the validity of this contract, and, if the latter was valid, was a violation of the Constitution.
This conclusion, however, is based on the assumption that the law itself, namely, the eleventh section of the act of 1865, was a valid law. If it was not valid its repeal cannot be questioned. It is contended before us that it is invalid because it appropriates the assets of the bank to persons who are not creditors of the bank, but creditors of the State only. The objection taken, if valid in fact, is a good one. It was expressly decided in Curran v. The State of Arkansas,† that if the capital of a State bank, like the one in question, be [10]*10withdrawn by the State, either for the payment of its own debts or for deposit in the State treasury, it is a violation of the pledges by which the capital of the bank, though derived from State resources or State obligations, was set apart and appropriated as the basis of the independent credit of the bank; and that a law passed to effect such a withdrawal or misappropriation .impaired the validity of the contracts held by the creditors of the bank.
That case had in it many features of the present one. The legislature of Arkansas, amongst other things, required the bonds of the State held by the Bank of Arkansas to be given up and cancelled; and authorized the bank officers to receive in payment of debts due the bank bonds of the State, issued to raise capital stock for the bank, notwithstanding the bills of the bank might not have been taken up. “ We cannot attribute to this provision of the law,” says the court,* “any other meaning or effect than what is plainly apparent on its face. It authorizes and requires the assets of the bank to be appropriated to pay debts of the State; and we cannot conceive howT this can be reconciled with the rights of creditors to those assets.” The bank in that ease, as in this, was insolvent, and .the court held that all its assets formed a trust fund for the payment of its creditors; and that a stockholder could not lawfully withdraw any part of this fund from appropriation to that object; and that a law passed for that purpose was unconstitutional. The majority of the court was clearly of opinion that a right on the part of the State to withdraw the funds of the bank for the uses of the State, or to pay the debts of the State, would render the bank itself obnoxious to the tenth section of the first article of the Constitution, wdiich prohibits a State from emitting bills of credit, inasmuch as it would destroy the distinctive existence and independent credit of the bank, which independent credit is founded on the inviolability of the capital pledged for the payment of its debts.
Now, in this case, the assets of the Bank of the State of [11]*11South Carolina, which still remained in 1865, were the resultant of all its capital and operations. We hold with the Supreme Court of the State that they were not profits, nor the subject of any previous pledge of profits to any specific class of debts. Any question, therefore, arising upon any such previous pledge may be laid out of the case. The only question is, whether the appropriation by the State legislature of these assets to the payment, first, of the Fire Loan bonds, and, secondly, of the Fire Loan stock, was valid and effectual.
As to the latter, we think the Supreme Court was clearly right. The Fire Loan stock was clearly not a debt of tbe bank, but a debt of the State alone; and the appropriation of the assets of the bank to its payment was directly within the case of Curran v. The State of Arkansas.
As to the Fire Loan bonds-, there is more room for doubt. These bonds were the debts of the State, and not of the bank, it is true, but their payment was guaranteed by the bank; and it is strenuously insisted that this circumstance rendered them so far obligations of the bank that the latter might be justified in providing for their payment in preference to their other creditors. Had the bank done this, the question as thus presented would have fairly arisen. • But the bank, as a distinct entity, never did make such an appropriation of its assets. The appropriation which was made was an appropriation by law ; and that law was made by the State itself — the principal debtor. The case was the same, in principle, as the Arkansas ease. The legislature of South Carolina, by law, appropriated the assets of the bank to pay the debts of the State.
Free access — add to your briefcase to read the full text and ask questions with AI
Mr. Justice BRADLEY
delivered the opinion of the eourt.-
The first question for us to decide is whether the eleventh section of the act of 1865 did, as alleged, amount to, or did become, a contract with the appellants.
When that act was passed the bauk was hopelessly insolvent. The section referred to was intended to prescribe the manner in which its assets were to be distributed and its affairs wound up. The State was the sole stockholder, and the bank, as a corporation, could not complain of any course of action which the legislature saw fit to adopt or prescribe. In relation to the State, it was alter et idem. In this respect its position was very different from that of private corporations. The action of the legislature could only be'questioned by the creditors of the bank. As to the bank itself, the wishes of the legislature were commands. When, therefore, the legislature, by the eleventh section of the act of 1865, declared that “ the president and directors [of the bank] are hereby authorized and required to collect the assets and property of the bank, and hold the same specially appropriated, first, to the payment of the principal and interest of the bonds known as the Fire Loan bonds, payable-in Europe; second, to the payment of the principal and interest of the Fire Loan bonds, payable in the United States; and third, to the redemption of outstanding notes hitherto issued by the bank,” this declaration, if valid, was not only a direction, but a law. It was a law which the bank could not question; only creditors, whose interests were in conflict [9]*9with it, could question it. As an enactment, it created ipso facto, a trust, and made the bank a trustee for the parties provided for by it. It was a trust on which the bondholders, when made acquainted with its terms, had a right to rely. They became, if they assented to it, cestuis que trust with vested rights. Being made for their benefit, it will be presumed that they did assent to it, if they expressed no dissent.
It is unnecessary to go into the learning of voluntary assignments for the benefit of creditors. It is clear law that such an assignment, if assented to by the creditors, or a considerable portion of them, becomes irrevocable; and in this country assent will be presumed if dissent is not expressed.
In this case, it is true, no actual assignment was made. But for the purpose of creating a trust it was not necessary. The act was a law of the State making the corporation a trustee. What special rights were thus created in favor of the cestuis que trust will be uoticed hereafter.
The creation of this trust in favor of the bondholders, if valid, was a coutract with them. Confiding in it, they would desist from further efforts to secure the payment of their claims by adverse proceedings. It would be unjust to them to abrogate it, and place them where they stood when the trust was created. The repeal of the section in question, therefore, did impair the validity of this contract, and, if the latter was valid, was a violation of the Constitution.
This conclusion, however, is based on the assumption that the law itself, namely, the eleventh section of the act of 1865, was a valid law. If it was not valid its repeal cannot be questioned. It is contended before us that it is invalid because it appropriates the assets of the bank to persons who are not creditors of the bank, but creditors of the State only. The objection taken, if valid in fact, is a good one. It was expressly decided in Curran v. The State of Arkansas,† that if the capital of a State bank, like the one in question, be [10]*10withdrawn by the State, either for the payment of its own debts or for deposit in the State treasury, it is a violation of the pledges by which the capital of the bank, though derived from State resources or State obligations, was set apart and appropriated as the basis of the independent credit of the bank; and that a law passed to effect such a withdrawal or misappropriation .impaired the validity of the contracts held by the creditors of the bank.
That case had in it many features of the present one. The legislature of Arkansas, amongst other things, required the bonds of the State held by the Bank of Arkansas to be given up and cancelled; and authorized the bank officers to receive in payment of debts due the bank bonds of the State, issued to raise capital stock for the bank, notwithstanding the bills of the bank might not have been taken up. “ We cannot attribute to this provision of the law,” says the court,* “any other meaning or effect than what is plainly apparent on its face. It authorizes and requires the assets of the bank to be appropriated to pay debts of the State; and we cannot conceive howT this can be reconciled with the rights of creditors to those assets.” The bank in that ease, as in this, was insolvent, and .the court held that all its assets formed a trust fund for the payment of its creditors; and that a stockholder could not lawfully withdraw any part of this fund from appropriation to that object; and that a law passed for that purpose was unconstitutional. The majority of the court was clearly of opinion that a right on the part of the State to withdraw the funds of the bank for the uses of the State, or to pay the debts of the State, would render the bank itself obnoxious to the tenth section of the first article of the Constitution, wdiich prohibits a State from emitting bills of credit, inasmuch as it would destroy the distinctive existence and independent credit of the bank, which independent credit is founded on the inviolability of the capital pledged for the payment of its debts.
Now, in this case, the assets of the Bank of the State of [11]*11South Carolina, which still remained in 1865, were the resultant of all its capital and operations. We hold with the Supreme Court of the State that they were not profits, nor the subject of any previous pledge of profits to any specific class of debts. Any question, therefore, arising upon any such previous pledge may be laid out of the case. The only question is, whether the appropriation by the State legislature of these assets to the payment, first, of the Fire Loan bonds, and, secondly, of the Fire Loan stock, was valid and effectual.
As to the latter, we think the Supreme Court was clearly right. The Fire Loan stock was clearly not a debt of tbe bank, but a debt of the State alone; and the appropriation of the assets of the bank to its payment was directly within the case of Curran v. The State of Arkansas.
As to the Fire Loan bonds-, there is more room for doubt. These bonds were the debts of the State, and not of the bank, it is true, but their payment was guaranteed by the bank; and it is strenuously insisted that this circumstance rendered them so far obligations of the bank that the latter might be justified in providing for their payment in preference to their other creditors. Had the bank done this, the question as thus presented would have fairly arisen. • But the bank, as a distinct entity, never did make such an appropriation of its assets. The appropriation which was made was an appropriation by law ; and that law was made by the State itself — the principal debtor. The case was the same, in principle, as the Arkansas ease. The legislature of South Carolina, by law, appropriated the assets of the bank to pay the debts of the State. This it could not do without violating the pledges made to the creditors of the bank, even though the particular debts thus preferred were guaranteed by the bank. The Fire Loan bonds were not due by several years when this act of appropriation was attempted to be made. No claim had yet accrued thereon against the bank. So far as appears, there were not even any arrears of interest due. It did not then appear that the bank ever would be liable for the debt. It was the duty of the State to prevent [12]*12such liability from ever arising. These special circumstances under which the law of 1865 was passed bring it still more clearly within the decision of Curran v. The State of Arkansas.
The decree of the Supreme Court of South Carolina must be.
Affirmed.
The cases on this subject will be found collected in Burrill on Assignments, 84, 309, 418.