State v. Scougal

• Decision Date: 05 April 1892
• Citation: 51 N.W. 858,3 S.D. 55
• Parties: STATE OF SOUTH DAKOTA, Plaintiff in error, v. SCOUGAL, Defendant in error.
• Court: South Dakota Supreme Court

3 S.D. 55

51 N.W. 858

STATE OF SOUTH DAKOTA, Plaintiff in error,

v.

SCOUGAL, Defendant in error. South Dakota Supreme Court Error to County Court, Yankton County, SD Hon. Edwin T. White, Judge Affirmed Robert Dollard, Attorney General, Pierre, SD Attorney for plaintiff in error. Bartlett Tripp, Yankton, SD Hugh J. Campbell Attorneys for defendant in error. Opinion filed April 5, 1892

CORSON, J.

This case comes before us on a writ of error issued on behalf of the state to the county court of Yankton county to review the judgment of that court sustaining a demurrer to the information filed against the defendant in error, and quashing the same. The legislature of this state at its last session passed an act for the organization of state banks, entitled “An act to provide for the organization and government of state banks,” approved March 10, 1891, and constitutes chapter 27 of the Laws of 1891. The first section of the act is as follows:

“Associations for carrying on the business of banking under this title may be formed by any number of natural persons, not less than three (3), one-third-of whom shall be residents of the state. They shall enter into articles of association, which shall specify in general terms the object for which the association is formed, and may contain any other provisions not inconsistent with law, which the association may see fit to adopt for the regulation of its business and the conduct of its affairs. These articles shall be signed by the persons uniting to form the association, and a copy of them shall be forwarded to the secretary of state of the state of South Dakota.”

The second section provides what the certificate of incorporation shall contain, and the third section provides for the manner of its execution, filing, etc. The fourth section confers upon such corporations or associations the following powers: (1) To adopt and use a corporate seal; (2) to have succession for 20 years; (3) to male contracts; (4) to sue and be sued; (5) to elect officers, and prescribe their duties; (6) to make by-laws to govern and control the business; and (7) “to exercise by its board of directors or duly-authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, bills of exchange, drafts, and other evidences of debt, by receiving deposits, by buying and selling exchange, coin, and bullion, by loaning money on personal security. …” And section 27 provides as follows: “It shall be unlawful for any individual, firm, or corporation to continue to transact a banking business, or to receive deposits, for a period longer than six months immediately after the passage and approval of this act, without first having complied with and organized under the provisions of this act. Any person violating the provisions of this section, either individually or as an interested party in any association or corporation, shall be guilty of a misdemeanor, and, on conviction thereof, be fined not less than five hundred dollars nor more than one thousand dollars, or imprisonment in the county jail not less than ninety days, or either or both, at the discretion of the court.” These are all the provisions of the law that it is necessary to give to a proper understanding of the questions presented for our decision.

On the 22d day of September, 1891, the state’s attorney filed an information against the defendant in error in the county court of Yankton county, containing 11 counts, charging him in the various counts with carrying on the business of banking “discounting and negotiating promissory notes, bills of exchange, drafts, and other evidences of debt, by receiving deposits, by buying and selling exchange, coin, and bullion, by loaning money on personal property,” without having complied with the provisions of the banking act. A demurrer was interposed to each count of the information on the ground that it did not state facts sufficient to constitute a public offense. The demurrer was sustained by the county court, and judgment rendered quashing the information. The principal ground relied on to sustain the demurrer and judgment of the court below is the unconstitutionality of section 27 of the act, under which the information was filed, and this presents the only question we shall discuss or consider, as the other objections to the information were purely technical, and, in our opinion, are without merit.

The learned attorney general contends—First, that the privilege of banking is or may be made by the legislature a franchise, and as such is subject to the control of the legislature of the state, and that, it being a franchise, or made such, the legislature has the power of conferring upon or granting the privilege to such persons, associations, and corporations as it may deem proper, and of excluding all other persons from the exercise of such privilege; and second, if the privilege of banking is not a franchise, and cannot be made such by the legislature, then the legislature, by virtue of the police power vested in the state, may regulate the business, and may, under such power, prescribe the manner in which the business shall be conducted, and may exclude all persons from exercising the privilege of banking, except in the manner prescribed by the law.

The learned counsel for the defendant in error contend: First. That only the banking privilege proper, namely, the privilege of issuing demand notes to circulate as money, or, as defined in the state constitution, the power “to issue bills or, paper credit, designed to circulate as money,” constitutes, or can by legislative power be made, a franchise, and that carrying on a banking business by exercising the incidental powers of banking specified in subdivision 7 of section 4 of the act, is a right belonging to the citizens of the country generally, and not a franchise, and cannot be made such by legislative power. Second. That under the police power vested in the state the legislature may regulate, but it cannot prohibit or destroy, a business, calling, or occupation, not necessarily offensive to the senses, injurious to the health, or otherwise detrimental to the public interest; that it is only trades, occupations, and pursuits that are at all time, and under all circumstances necessarily offensive to the community, or injurious to society, that can be absolutely prohibited by legislative action; and that, as the business of banking is not of this character, the legislature cannot prohibit, individuals from pursuing it, though, like all other classes of business, it may be regulated. And, third, they further contend that the act conflicts with sections 1, 2 and 18 of article 6 of the state constitution, and section 1, art. 14, of the constitution of the United States, in that the law makes an unjust discrimination in granting privileges and immunities to citizens, classes, and corporations which, upon the same terms, are not open to all, in that the law, and particularly section 27, is an unlawful interference with the liberty and property of the citizen; in that it discriminates against the individual citizen by conferring upon corporations the right to transact a banking business, and prohibiting the same privilege to such individual citizen; and in that the act deprives the individual citizen of his right to pursue a lawful calling, occupation, or business which is inoffensive, and not injurious to the community.

1. Are the incidental powers of banking conferred upon corporations by subdivision 7 of section 4 franchises; or has the legislature power to make them such, and to prohibit individual citizens from exercising them? What is a franchise? Blackstone defines it “as a royal prerogative, or branch of the king’s prerogative, subsisting in the hands of a subject.” 2 B1. Comm. 37. Chief Justice Taney defines them as follows: “Franchises are special privileges conferred by government upon individuals which do not belong to citizens of the country generally by common right. It is essential to the character of a franchise that it should be a grant from the sovereign authority, and in this country no franchise can be held which is not derived from the law of the state.” Bank v. Earle, 13 Pet. 595. The qualification by the chief justice, “which does not belong to the citizens of the country generally by common right,” is an important one, and constitutes the distinguishing feature of it franchise. What is meant by this qualification is made clear by Mr. Justice Bradley, in a recent case decided by the supreme court of the United States. After quoting the above definition of a franchise, given by Blackstone, he says: “No private person can establish a public highway, public ferry, or railroad, or charge tolls for the use of the same, without authority from the legislature, direct or derived. These are franchises. No person can take another’s property, even for public use, without such authority; which is the same as to say that the right of eminent domain can only be exercised by virtue of a legislative grant. This is a franchise. No persons can make themselves a body politic without legislative authority. Corporate capacity is a franchise.” California v. Central Pac. R. Co., 127 U.S. 40, 8 SCt 1073. Of course, as the learned judge says, this list might be continued indefinitely. But this quotation clearly illustrates the nature of a franchise. Over all public property highways, navigable rivers, and seas, over everything that belongs to the sovereign, the power of the government is absolute, whether that power is derived from the common law or from the state or the national constitution. When, therefore., the state grants a right thus belonging to the government, and not to the citizens generally as a matter of right, it is the grant of a franchise. But at common law, banking in all its branches...