Priest v. Whitney Loan & Trust Co.

• Decision Date: 14 May 1935
• Docket Number: 42749.
• Citation: 261 N.W. 374,219 Iowa 1281
• Parties: PRIEST v. WHITNEY LOAN & TRUST CO.
• Court: Iowa Supreme Court

261 N.W. 374

219 Iowa 1281

PRIEST v. WHITNEY LOAN & TRUST CO.

No. 42749.

Supreme Court of Iowa.

May 14, 1935

Appeal from District Court, Cass County; Ernest M. Miller, Judge.

This action involves the constitutionality of chapter 159 of the Acts of the 45th General Assembly of Iowa, under which the defendant bank was reorganized. The plaintiff, being the owner and holder of a certificate of deposit issued by said bank prior to its reorganization, brought suit thereon in an action at law. The answer, in brief, was a plea of the statutory provisions pertaining to reorganization of banks to which the plaintiff filed a motion to strike, on the ground that chapter 159 of the 45th General Assembly was unconstitutional as impairing the obligation of contracts and violating the due process provision of the Federal Constitution. The motion was overruled, and plaintiff appeals. Opinion states the facts.

Affirmed.

That statute authorizing bank reorganization with approval of superintendent of banking and of majority of depositors holding 75 per cent. of unsecured and unpreferred deposits over $10 permitted payment of deposits not in excess of $10 held not to render statute repugnant to due process clause of Constitution as applied to nonassenting larger depositor since cost of making partial payment to such small depositors would equal or exceed cost of paying them in full (Acts 45th Gen.Assem. c. 159; Const.U.S. art. 1, § 10, and Amend. 14; Const.Iowa art. 1, § 21).

Clark Byers, Hutchinson & Garber, of Des Moines, for appellant.

Swan, Martin & Martin and Boorman & Whitmore, all of Atlantic, and Earl C. Mills, of Des Moines, for appellee.

Edward L. O'Connor, Atty. Gen., and Lehan T. Ryan, Asst. Atty. Gen., amici curiae .

HAMILTON, Justice.

This is an appeal by plaintiff from an order of court overruling a motion to strike the entire affirmative defense of defendant's answer. Plaintiff is the owner and holder of a certificate of deposit issued by the defendant bank under date of September 1, 1931. Defendant is a banking corporation organized under the laws of Iowa governing state and savings banks and trust companies. The certificate of deposit in question is in the usual form of interest coupon certificates, in the amount of $4,000, with six coupons of $80 each, due each six months. The certificate contains a provision for payment in full at any interest paying date, if desired. Only the first two coupons were paid. Plaintiff asks for judgment for $4,160, being the balance due. The answer admits the allegations of the plaintiff, but pleads as affirmative defense the general financial depression; the emergency under which the President of the United States declared a legal holiday closing all banks; the enactment by the Iowa General Assembly of Senate File No. 111 (chapter 156, 45th Gen. Assem.); the operation of said bank by the superintendent of banking under said act; the enactment of chapter 159 of the Acts of the 45th General Assembly; the reorganization of the bank under a plan approved by the superintendent of banking, which was joined in by a large majority of the depositors holding in the aggregate more than 75 per cent. of the direct, unsecured, and unpreferred deposits above $10, by which depositors agreed to accept a settlement of their depository liabilities by taking new certificates of deposit for 50 per cent. of the original deposits, to bear interest at 2 per cent., with deferred payments over a period of three years, and by taking trust certificates for the remaining 50 per cent., to be paid from the earnings and collections of an equal segregated amount of the poorer assets of said bank to be held by certain named trustees, augmented by the amount required to be paid into the trust fund by the stockholders, and in addition thereto the earnings of the bank, pledged to the extent of 100 per cent. of the amount of the capital stock of said bank, or until said trust certificates are paid in full, all to be prorated and paid by annual dividends to the holders of the trust certificates; all deposits of $10 and under to be paid in full.

This plan was put in writing in what was known as a " Depositors' Agreement" and was sent out to all the depositors of the bank; it was approved by the superintendent of banking, and the stockholders of the bank, at a meeting called for that purpose, approved and ratified the same and pledged the earnings of the bank to the extent of 100 per cent. of the capital stock. Plaintiff did not join in this plan of reorganization. A new certificate of deposit for $2,022.67 was issued to the plaintiff the same as other depositors, which amount, with interest according to the terms thereof, has been made available to the plaintiff, and the same is tendered to her in the pleadings, but she has refused to accept the same. Likewise, a trust certificate was issued to the plaintiff for the other 50 per cent. in the amount of $2,022.66. This was likewise offered and tendered to her, which she has refused to accept. The bank, under the new organization plan, opened up for business unrestricted on May 1, 1933.

Defendant attaches to its answer copies of the agreement and the resolution of the board of directors, and the new certificate of deposit and trust certificate issued to plaintiff, and alleges that under the statutory provisions plaintiff is bound the same as if she had joined therein. There is no claim of bad faith, or that the law was not complied with in every respect, or that plaintiff has in any way been injured. By her motion to strike, plaintiff says that the matters contained in the answer are incompetent, irrelevant, and immaterial, and constitute no defense to her cause of action, and that chapter 159 of the Acts of the 45th General Assembly is unconstitutional as impairing the obligation of plaintiff's contract under the provisions of the Federal and State Constitutions, and as violating the due process clause of the Fourteenth Amendment to the Federal Constitution. The merits of the plan of rehabilitation and reorganization and partial liquidation of the bank and its assets are not involved. The only question presented and argued is the constitutionality of said chapter 159. The constitutional questions involved in this case are so interwoven and so often presented and treated together in the cases, and the same reasoning and discussion advanced as to one is usually applicable to the other, that we shall not attempt a definite separate treatment of the same in this opinion.

To correctly apply legal principles we must keep in mind the particular character of the issues involved and the parties or persons in interest; in the instant case, a depository agreement between an individual and a banking corporation. The relations of the parties and the rules of law applicable are not in all respects the same as those between individuals or private corporations. This is due to the fact that the business of banking is affected with a public interest. In a recent case, Leach v. Beazley, 201 Iowa, 337, 207 N.W. 374, 376, this court, in an opinion by Justice Albert, said:

" The relation existing between a banking corporation and the general public is wholly different from that of the relation between the general public and a private corporation. We have recognized the thought that banks are affected with a public interest by the Legislature's establishment of a state banking department under whose supervision these banking institutions are established, controlled, and conducted, and, in cases of insolvency, liquidated. This we have not done with any private corporations." (Italics ours.)

And, again, in the case of Harris' Estate v. West Grove Savings Bank, 207 Iowa, 41 at page 46, 217 N.W. 477, 480, the late Justice Morling said: " The chief purpose of state supervision is to protect and safeguard the public in their relation to the bank as depositors, and in the acceptance of checks as a convenient circulating medium. Their safety, and, in case of closing, their liquidation, is a matter of general public interest. State supervision and administrative liquidation are therefore a proper exercise of the police power of the state . Noble State Bank v. Haskell, 219 U.S. 104, 31 S.Ct. 186, 55 L.Ed. 112, 32 L.R.A.(N.S.) 1062, Ann.Cas. 1912A, 487; Shallenberger v. First State Bank, 219 U.S. 114, 31 S.Ct. 189, 55 L.Ed. 117; Kentucky Union Co. v. Commonwealth of Kentucky, 219 U.S. 140, 31 S.Ct. 171, 55 L.Ed. 137; Commissioner of Banks v. Prudential Tr. Co., 242 Mass. 78, 136 N.E. 410; 7 C. J. 474, 480. The banking laws must be construed in the light of the purpose of their enactment, the evils to be cured, and the remedy designed, as well as in connecting with statutes in pari materia and in harmony, with general principles of law." (Italics ours.)

Banks are universally recognized as quasi public corporations. 3 R.C.L. page 379; McConville v. Ft. Pierce Bank & Trust Co., 101 Fla. 727, 135 So. 392.

We have also said that, " when the constitutionality of a legislative act is challenged by a litigant, the burden is upon him to show why the legislation thus should be overthrown and rejected." Loftus v. Department of Agriculture, 211 Iowa, 566 at page 569, 232 N.W. 412 415.There is no presumption against the validity of an act of the Legislature. On the contrary, all presumptions are in its favor, and a statute will not be held unconstitutional unless its contravention of constitutional guaranties is so clear, plain, and palpable as to leave no reasonable doubt on the subject. City of Des Moines v. Manhattan Oil Co., 193 Iowa, 1096 at page 1117, 184 N.W. 823, 188 N.W. 921, 23 A.L.R. 1322.The unconstitutionality must plainly, clearly, and palpably appear, and if the constitutionality of a...