Hoff v. First State Bank of Watson
| Decision Date | 02 March 1928 |
| Docket Number | 26,495 |
| Citation | 218 N.W. 238,174 Minn. 36 |
| Parties | ALVA HOFF v. FIRST STATE BANK OF WATSON |
| Court | Minnesota Supreme Court |
Action in the district court for Chippewa county to recover upon a certificate of deposit. From an order, Qvale, J. overruling a demurrer to the answer, plaintiff appealed, the court having certified the question presented as important and doubtful. Affirmed.
Valid existing laws do not impair obligation of a contract.
1. Valid laws in force at the time a contract is made enter into and become a part of the contract and cannot be said unconstitutionally to impair the obligation of such contract.
L 1925, c. 38, governs contracts made thereafter.
L 1925, c. 38, does not tend to impair the obligation of contracts made after the law went into effect.
1925 act not special legislation because applying only to state banks.
2. State banking corporations are properly placed in a class by themselves for purposes of legislation, and the act mentioned is not class or special legislation because it applies only to such corporations.
Discrimination against unsecured creditors not class legislation.
Secured and unsecured creditors have different rights and may properly be distinguished and classified in insolvency laws, and the act in question is not discriminatory or class legislation because of the fact that secured creditors are not affected thereby.
Municipal corporations.
The state and municipal corporations may be placed in a separate class.
Liberty of contract defined.
3. Liberty of contract means freedom to contract within the law governing the subject and the persons making the contract, and the act here in question does not infringe such right.
Banks subject to regulation by law.
The business of banking is affected with a vital public interest and is subject to regulation by law in the interest of public welfare.
Liquidation of state banks by commissioner.
4. The commissioner of banks is given practically entire control over the liquidation of state banks and in such proceeding represents and acts for the bank, its stockholders and all of its creditors.
Nonassenting creditors not concluded by reorganization agreement.
5. The action of the commissioner in approving a reorganization agreement under this act is not conclusive upon creditors who do not assent thereto, and such creditors may, in an action to recover on their certificates or claims, or in other appropriate action, contest the reorganization agreement and litigate all questions which could have been raised on a hearing before the commissioner.
Banks and Banking, 7 C.J. p. 480 n. 55; p. 482 n. 64; p. 491 n. 39.
Constitutional Law, 12 C.J. p. 949 n. 13; p. 988 n. 41; p. 1200 n. 30.
Contracts, 13 C.J. p. 560 n. 37.
Statutes, 36 Cyc. p. 993 n. 92; p. 1000 n. 18; p. 1013 n. 64.
See 6 R.C.L. 855; 2 R.C.L. Supp. 229; 4 R.C.L. Supp. 447.
See note in 5 L.R.A.(N.S.) 874; 25 L.R.A.(N.S.) 1217; 3 R.C.L. 379; 1 R.C.L. Supp. 816; 5 R.C.L. Supp. 170.
C. E. Purdy and O. G. Haugland, for appellant.
C. A. Fosnes and John C. Haave, for respondent.
Albert F. Pratt, Attorney General, and W. H. Gurnee, Assistant Attorney General, filed a brief amici curiae in support of the contention of the respondent.
Appeal by plaintiff from an order overruling a demurrer to the answer, the court having certified that the question raised is important and doubtful.
Defendant is a state bank. On May 26, 1925, plaintiff deposited in this bank $233.73 and received therefor a certificate of deposit in the usual form, payable in six months with interest. The certificate has not been paid and plaintiff sues to recover thereon.
The answer, as a defense, alleges that the defendant bank became insolvent and was closed and taken over by the commissioner of banks on February 27, 1926; that thereafter a reorganization of the bank was had under and in accordance with the provisions of L. 1925, p. 37, c. 38, and the bank, as so reorganized, was reopened on July 29, 1926; that a reorganization agreement was duly made and entered into by more than 90 per cent of the depositors and unsecured creditors, and the reorganization duly approved by the commissioner of banks; that by the agreement holders of certificates of deposit and other unsecured creditors agreed to a reduction of 50 per cent of the amount owing each of them, and agreed that new certificates of deposit in the reduced amount, with payment thereof spread over a number of years, were to be issued, and that certain assets of the bank were to be placed in a trust account and, if and when collected, were to be paid pro rata to holders of certificates of deposit and other unsecured creditors, in addition to the 50 per cent.
It is not claimed that plaintiff signed or consented to the reorganization agreement, but it is claimed that he is bound thereby, and hence that he is limited to the provisions made for him in said agreement and cannot recover in this action on the old certificate.
The question presented and argued is the constitutionality of the law mentioned. That the law was complied with is not denied.
1. L. 1925, p. 37, c. 38, went into effect March 3, 1925. It became part of the state laws governing and regulating the liquidation of insolvent banks. It is a part of our insolvency laws as to state banks. The federal bankruptcy law does not apply to banking corporations, and the liquidation of national banks only is regulated by federal law; hence the states are left free to enact laws governing the liquidation of insolvent state banks.
Due to the financial situation existing at the time and since the law was passed, many state banks were then in course of liquidation or have since failed, and many such banks (stated in one of the briefs to be 28 in number) have been reorganized and reopened pursuant to this law. The question presented is therefore important and affects many banks and individuals. The law is remedial. Its purpose was to meet the existing situation and assist and benefit depositors and unsecured creditors of these banks by giving them an opportunity to work out of their difficulties with less loss and to better advantage than by carrying through liquidation by the commissioner.
Plaintiff contends that the law indirectly impairs the obligations of contracts and in that way violates art. 1, § 11, of the state constitution, and art. 1, § 10, of the federal constitution, prohibiting the passage of laws impairing the obligation of contracts. These constitutional provisions prohibit the enactment of any law which attempts to change the contract rights of parties to any contract made before the law is enacted so as to impair the obligations of such existing contracts, but as to the contracts made after the enactment of the law a state statute cannot be said unconstitutionally to impair the obligation of contracts made subsequent to its enactment. Abilene Nat. Bank v. Dolley, 228 U.S. 1, 33 S.Ct. 409, 57 L.Ed. 707; C.B. & Q.R. Co. v. Cram, 228 U.S. 70, 33 S.Ct. 437, 57 L.Ed. 734. As to such a law, " all the substantial provisions of the law * * * became part of the contract between the parties." O'Brien v. Krenz, 36 Minn. 136, 138, 30 N.W. 458; Bohn v. McCarthy, 29 Minn. 23, 11 N.W. 127; Farmers & Mer. Bank v. Federal Res. Bank, 262 U.S. 649, 43 S.Ct. 651, 67 L.Ed. 1157, 30 A.L.R. 635. The laws existing at the time and place of the making of the contract, and where it is to be performed, enter into and form part of it. Monthly Instalment Loan Co. v. Skellet Co. 124 Minn. 144, 144 N.W. 750; Walker v. Whitehead, 16 Wall. 314, 21 L.Ed. 357; Edwards v. Kearzey, 96 U.S. 595, 24 L.Ed. 793. State insolvency laws are not invalid so far as they discharge the person and after-acquired property of the debtor from liability for any contract made with citizens of the state subsequent to their enactment. Denny v. Bennett, 128 U.S. 489, 9 S.Ct. 134, 32 L.Ed. 491; Brown v. Smart, 145 U.S. 454, 12 S.Ct. 958, 36 L.Ed. 773.
The objection that L. 1925, p. 37, c. 38, tends to impair the obligation of contracts made subsequent to its enactment is not tenable.
The case of Goenen v. Schroeder, 8 Minn. 344 (387), relied on by plaintiff, is readily distinguished from the case at bar. At the time the mortgage there in question was given, the law of 1858, then in force, gave the mortgagor one year in which to redeem from a foreclosure sale. This provision was followed by the clause in parentheses, "(or such other time as may be prescribed by law)." The court properly held this clause inoperative, and held that a subsequent act passed by the legislature, extending the time for redemption to three years, did not apply to mortgages made prior to its passage. That this clause in the act of 1858 was mere surplusage and did not grant or withhold any right or remedy, hence did not enter into or affect and contract made, is apparent. The Goenen case has been cited a number of times as authority on the proposition that the law in force at the time a contract is made enters into and becomes a part of the contract and that a law enacted after the contract is made, changing the prior law, cannot affect the contract or impair the obligation thereof. The decision has been given no other effect.
2. Is L. 1925, p. 37, c. 38, class or special legislation, or discriminatory? Article 1, § 2, and art. 4, §§ 33, 34, of the state constitution, and the 14th amendment to the federal constitution are invoked. The act is not special or class legislation because of the fact that it applies only to state banking corporations. These corporations are a class by themselves in this state and justify laws applying only to that class. 1 Dunnell, Minn. Dig. (2 ed.) § 763a; State v. Elliott...
To continue reading
Request your trial