Court Opinion

ID: 6739572
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:20:54.815513+00
Date Added: 2024-06-11T16:01:54.597437
License: Public Domain

On Petition for- Behearing, Piled April 4, 1921.
Birdzell, J.
The petition for rehearing states six distinct grounds in support of the motion. The first is that the decision is contrary to law. In support of this contention the following assertions are made: (a) That the decision is not in conformity with the laws and Constitution of the state of North Dakota; (b) that it is judicial legislation in that it amends an act of the legislature which had been referred to the people and approved by them; (c) that it annuls the constitutional provision which authorizes the state in its sovereign capacity to engage in any industry, enterprise, or business other than the manufacture and sale of intoxicating liquors.
*605The second ground of the motion is that the comparison made in the principal opinion between the manner in which the Bank of North Dakota is organized and that disclosed in the legislation of certain southern states does not warrant treating the United States Supreme Court decisions, based upon the latter, as authorities in support of this decision.
The third ground is that the court erroneously assumes that a department of the state may be sued or be subject to suit depending upon the powers conferred and liabilities imposed.
Fourth, that the court failed to consider § 5188, Comp. Laws 1913, which exempts hanks from attachment and execution; also § 7583, which relieves from garnishment property which is exempt from execution.
The fifth and sixth grounds do not go to the merits of the decision and need not he stated.
On account of its extraordinary importance, this case merits most careful consideration. Every point presented as having any bearing on the soundness of the conclusions heretofore reached in the decision of the case has received the undivided attention of every member of the court. A careful weighing of all the contentions advanced in the light of express constitutional and statutory provisions has served but to confirm the majority of the court in the views previously expressed. While added reasons in support of these conclusions may be superfluous, it is nevertheless deemed proper to state more fully than has been done before some of the principal considerations leading inevitably to the original result.
It is said: “The court holds that the Bank of North Dakota is not the state of North Dakota, but something else which it has not been able to clearly define, and this, for the reason that it is not something else, but that it is the state.”
And then it is asserted: “It has been made the state by the laws and the Constitution of the state.”
Section 185 of the Constitution, as amended by article 33, is referred to as authorizing the state to engage in any industry, enterprise, or business not prohibited by article 20, and since .the same section and article prohibits the state from loaning or giving its credit or making donations in aid of individuals, associations, and corpora*606tions, it is argued that the bank cannot be considered in any sense an entity apart from the state. To treat it as a separate entity, it is said, is to involve the state in a violation of the latter clause. We think this argument clearly proves too much. It would prove that ¿the state could make no donation to any public institution where it invested the same with a corporate or quasi corporate character. Yet it is constantly lending its support to fair associations, educational institutions, etc., upon which it has conferred corporate capacity. On the contrary, we are clearly of the opinion that the violation of the prohibition against lending public credit in aid of coiporations, etc., is openly countenanced- by considering the state and the bank as the same entity, as is done by the petitioners.
Let us first examine the petitioners’ argument in the light of the act creating the bank. Section 2 of the act (Sess. Laws 1919, chap. 147) provides:
“The business of the bank, in addition to other matters herein specified, may ixxelude axxything that any bank may lawfully do, except as herein restricted; but this px’ovisioxx shall not be held in any way to lixnit or qualify either the powers of the Industrial Commission herein created, or the powers of said bank, hexúfix defined.”
Section 15 provides:
“The Bank of North Daktoa may transfer fund& to other departments, institutions, utilities, industries, enterprises or business projects of the state, which shall be retxxrned with interest to the bank. It may meike loans to counties, cities or political subdivisions of the state, or to slate or national banks oxx such terxxxs and under such rules and regulatioxxs as the Industrial Commission may determine; but it shall not make loaxxs or give its credit to any individual, association or private corporatioxx, except that it may make loans to any individual, association or private corporation secured by duly executed first mortgages in amounts xxot to exceed one-half the security or secured by warehouse receipts issued by the Industrial Commission or by axxy licensed warehouse in the state in amounts not to exceed 90 per ceixt of the value of the commodities evidenced thereby.”
The first quotation (from § 2) clearly gives the Bank of Nox*th Dakota power to borrow money unless there are restrictive words elsewhere in the act. For it appears that it is given every power in this *607respect that any other bank has. A reading of the remainder of the act fails to disclose any restrictions upon the power to borrow money, and it is a well-known fact that the bank has in fact, within the past year, exercised this power by borrowing $1,000,000, for which loan it pledged as collateral bonds of the state in a larger amount held among its assets. This loan has recently been repaid. There will be occasion to refer to this matter in another connection. The language quoted from § 15 expressly confers upon the bank power to loan money not only to political subdivisions, but to state and national banks. That its power to loan has been exercised clearly appears from its last statement (March 15, 1921), where the following items appear as resources :
Loans to banks ............................... $2,312,865.05
Loans on warehouse receipts .................... 70,656.90
Loans to public institutions and departments....... 1,195,000.00
Loans on real estate............................ 2,881,089.92
So, again, referring to the constitutional provision upon which counsel so urgently stress the argument that the Bank of North Dakota is the state of North Dakota, we find that this section relied upon prohibits the state from doing the very thing that the legislature has expressly authorized the bank to do, and which it has done, namely, loan its credit to individuals, associations, or corporations. If the Bank of North Dakota is the state of North Dakota, it could not, therefore, possess any such authority as the legislature has expressly conferred in § 15. It surely would not be contended that the state, when acting as the Bank of North Dakota, can do the things which the Constitution says the state cannot do at all. The state, when functioning .as a bank, is still subject to the express limitations of the Constitution. The creation of this agency of the sovereign power cannot result in a superstate, — a government functioning without constitutional restraint. It (the bank) may hazard the capital it has been authorized to use in whatever way may be deemed expedient, and within the law, in order to make the banking business a success, but it cannot involve the state by attempting to pledge its credit in transactions the state is expressly prohibited from entering into.
*608"When we extend the examination of statutory and constitutional provisions with a view to determining the character of the agency of the bank, additional provisions are found which demonstrate that the bank, though owned by the state, is not in fact the state. Turning now to chapter 148 of the Session Laws of 1919, which provides for the issuing of the bank scries of bonds; after prescribing the formalities for preparation and issuance, the law provides in § 4:
“Nothing in this act, however, shall be construed to prevent the purchase of any of said bonds with any funds in the Bank of North Dakota.”
Similar provisions are found in the acts authorizing the issuance of $5,000,000 of the bonds of the mill and elevator series (chap. 153, § 7), in the act providing for the issuance of $10,000,000 of bonds of the real estate series (chap. 154, § 6), and also in the act authorizing the home building series (Laws Special Session 1919, chap. 24, § G). Section 7 of the Bank Act provides for the deposit of all the state funds in the Bank of North Dakota. Note, however, the exception of the sinking fund of real estate series (Laws 1919, chap. 154, § 7). This, of course, would include the proceeds of the sale of bonds. These proceeds are, in the case of the bank bonds “designated as the capital of the Bank of North Dakota” (§4, chap. 148), and, in the case of the mill and elevator series, the proceeds are required to be “placed by the Industrial Commission in the funds of the association” (§7, chap. 153). Again, referring to § 15 of the Bank Act, it provides that the bank may transfer funds to other departments, institutions, utilities, industries, enterprises, or business projects of the state, which shall be returned with interest to the bank. Now, referring to § 175 of the Constitution, which reads: “No tax shall be levied except in pursuance of law, and every law imposing a tax shall state distinctly the object of the same, to which only it shall be applied,” it is pertinent to inquire what relation the bank or the state sustains with reference to the various deposits of public funds required to be deposited therein ?
If the bank is but the state holding these funds as a mere custodian, as a treasurer would hold them, they would not lose their character as public funds; and if the bank, in all its business relations, is but the state, whenever it would follow the express direction contained in the *609law to transfer, invest, or loan its funds, it would do so in the direct pursuit of a governmental object. Manifestly, if this governmental object should differ from that for which the funds were originally raised by taxation, the mandate of § 175 of the Constitution, requiring tax moneys to be applied to the purpose for which they were raised, would clearly be violated. Can it be seriously contended that moneys raised by taxation for the 'support of the public schools in a remote section of the state are authorized to be used for the purpose of building a home for a bank cashier in the capital city of the state ? This is the logical result of the petitioner’s argument. The steps are these: The bank is the state, because the Constitution authorizes the state to engage in the banking business. The things that are done by the bank are therefore done by the state in pursuit of whatever governmental object the bank is authorized to attain. To attain those objects, public moneys are required to be deposited in the bank, there to be used through loan or transfer to finance any of the authorized operations. The flaw in the argument, as we see it, is this: It not only ignores the effect of express constitutional limitations upon the powers of the state government itself, but it ignores as well the legal effect of what the legislature actually did when it authorized the use of the credit of the state for the purpose of supplying capital funds to be used to form a separate organization through which it might seek to accomplish certain governmental ends. In attaining these ends, if the state should act directly, it would he hampered by reason of express constitutional limitations. But it can hazard whatever money, lawfully obtained, it may be authorized to use in conducting the particular business. To make the business a success, it may be necessary to vest in its agencies powers that could not be conferred on public officers whose acts as such would bind the state unqualifiedly. These agencies hazard only the appropriated capital, not the public credit. Doubtless it was partly on account of these limitations that it was thought best to appropriate a certain capital for use in the banking business, and to create a bank organization which, using this capital fund as its basic security, could so handle the funds deposited with it as to realize the governmental objects sought, without trenching . upon the constitutional limitations applicable to the state itself. It *610cannot be reasonably contended that the constitutional authority to engage in certain businesses nullifies by implication express limitations on the powers of the state government, especially where these limitations are embodied in amendments adopted concurrently with those giving the authority.
We have no doubt that under the Bank Act the bank sustains the relation of debtor with respect to all of the deposits, both public and private, that are placed in it. It is simply the authorized depositary of the public funds, and holds them in'the same capacity that private depositary banks customarily held them before the Bank of North Dakota was created. There is a vast difference between this relationship and an official custodianship, in which the official is using the funds in furtherance of the particular purpose for which they were raised by taxation.
Pursuing the subject of legislative intent further in the light of still another constitutional provision: article 31 of the Amendments to the Constitution so amends § 182 of the original Constitution as to authorize the issuance of unsecured bonds to the extent of $2,000,000, certain real-estate bonds, and bonds secured'by real or personal property or state-owned utilities up to $10,000,000. It then provides as follows: “No future indebtedness shall be incurred by the state unless evidenced by a bond issue, which shall be authorized by law' for certain purposes.”
We have previously referred to the fact that the Bank of North Dakota had borrowed $1,000,000, thereby, of course, becoming indebted in that sum. It is doubtless authorized by the Bank Act to borrow money. If it could borrow $1,000,000, pledging bonds held by it as collateral, it could borrow such greater sums as its business seemed to warrant, without collateral or with whatever collateral there demanded by the lender, and for every dollar So borrowed, if the contentions of the petitioner are correct, the state would be liable. Not only would the state be liable, but the creditor could obtain a judgment only against it which he could satisfy only by resort to the state treasury, being denied access to the resources of the bank. Thus, the limitation contained in article 31 of the Amendments, which was adopted at the same election as article • 32, authorizing the state to engage in business, would be effectually nullified.
*611Some attempt is made to show that the limitation against future indebtedness does not apply where, as a result of the transaction, there is a corresponding amount of funds available for meeting liabilities. Conceding that this argument is to some extent applicable where a municipal corporation desires to borrow money for an authorized purpose, and where it already has certain funds in the treasury applicable to outstanding obligations, so that the debt limit may be properly calculated by subtracting from outstanding debts the available funds in the treasury (Anderson v. International School Dist. 32 N. D. 413, L.R.A.1917E, 428, 156 N. W. 54, Ann. Cas. 1918A, 506), it is clear that it has no application to such a situation as that presented here. If the argument is valid as applied to the borrowing power of the state in its present circumstances, considering the bank as the state, it is obvious that the language, “no future indebtedness shall be incurred by the state unless evidenced by a bond issue, which shall be authorized by law for certain purposes,” means nothing. There would be no limit, as every exercise of the power to borrow would simply result in increasing available funds, and the transaction could be repeated ad infinitum. A concrete example may serve to illustrate the fallacy of the argument. If the funds on deposit, public or otherwise, in the Bank of North Dakota, seemed to the management to justify it, the bank might purchase $5,000,000 of the bonds of the mill and elevator series. It would still owe to the depositors thé amount of deposits thus invested, but the state would owe the bank a like sum. Then the bank might borrow $4,000,000 elsewhere, pledging these bonds as collateral, in which event the state, if petitioner’s argument is sound, becomes indebted to the extent of $9,000,000,. only $5,000,000 of which is represented by bonds. Then this $4,000,000 could be used to buy more bonds to serve as collateral for another loan, and so on. What then has happened to this provision of the Constitution %
“No future indebtedness shall be incurred by the state unless evidenced by a bond issue, which shall be authorized by law for certain-purposes.”
No bonds were issued for the $4,000,000 of obligations, and the purpose for which the loan is made is not clearly defined by law. It may be any purpose the managers of the bank should deem proper. *612The proceeds could be transferred to any department or industry, or reloaned under the Bank Act, or used to purchase other bonds of the state.
In this case the court is, of course, concerned merely with the question of ascertaining the legislative intention in adopting the Bank Act. One of the primary canons of interpretation, so well known as to have become trite, is that as between two possible constructions of a legislative act, one of which will render it constitutional and the other unconstitutional, that construction is to be adopted which renders it consistent with the Constitution. We are confronted by the alternative of so construing the act in question as to make the bank and the state identical for all purposes, on the one hand, which would clearly render it unconstitutional in toto for the reasons stated; or of considering the act as one in which the legislature, in carrying out the authority vested in it by. the Constitution, has hazarded a certain amount of capital furnished by the state in the transaction of the business of banking, subject to such regulations as appear in the act. In the handling of this capital fund in carrying on the banking business, it has clearly been thought necessary to vest in the managers of the enterprise powers which could not be given to officers authorized to bind the state by their acts. We are clearly of the opinion that under § 185 of the Constitution as amended, the state may engage in the business of banking and hazard a certain amount of capita] therein. In conducting that business it may render that capital subject.to the fulfilment of contracts which the bank may be authorized to enter into, and upon which the state itself is precluded from assuming an unlimited liability. A constitutional authorization to engage in the banking business may well carry with it by implication the power to do the things necessary to malm a business successful, but where all these things can be done without nullifying other express constitutional restraints imposed for the protection of the people as a whole, it is the sworn duty of this court to' uphold the express limitations.
Much stress has been laid upon the wording of § 22 of the Bank Act. It reads:
“Civil actions may be brought against the state of North Dakota on account' of causes of action claimed to have arisen out of transactions connected with the operation of the,Bank of North Dakota, *613upon condition that the provisions of this section are complied with. In such actions the state shall be designated as “the State of North Dakota, Doing Business as the Bank of North Dakota,” and the service of process therein shall be made upon the manager of said bank.”
In the light of the statutory and constitutional provisions herein-before considered, we do not see that particular importance attaches to this language. In so far as legal analogy may be resorted to to determine its real meaning, it clearly points to- the meaning that only such liability is to be determined in any such action against the state as has arisen in connection with the bank. The closest analogy occurring to us is that of a suit against a partnership. In such an action the partners are individually named, and they are described as doing business in their firm name. But in an action so brought the partners are apprised that the matter is to be litigated as a partnership transaction, and not an individual one. At common law the partners could not even interpose a counterclaim based upon a debt owing by the plaintiff to one of the members of the firm individually. The law affords still another and closer analogy, possibly, in the limited partnership where the firm is similarly described, but yet where one or more of the partners has hazarded only a limited amount of capital in the" venture. We are of the opinion that the qualifying portion of the expression designating the defendant as doing business as the Bank of North Dakota is the legally appropriate description of the capacity in which the defendant is sued, and that it implies the existence of all inherent limitations which existed with reference to the imposition of such a liability. These limitations, for the reasons hereinbefore stated, are such that the judgment obtained is. only binding upon the state to the extent of the capital it has put into the bank. Bor the purpose of determining this liability, the bank is, in legal effect, an entity, for it is legally incapable of binding the state beyond its interest in its capital funds.
Turning now to the argument that the court has failed to give proper consideration to § 5188, Comp.. Laws 1913, which exempts banking associations from the legal processes of attachment and execution: It is said that garnishment is but a form of attachment, and wo are referred to the case of Safford v. Plattsburgh Nat. Bank, 61 Vt. 373, 17 Atl. 748, where it was held that the trusteeing of a debt *614clue to a national bank is in fact an attachment of the property of the bank within the provision of the National Banking Act, Rev. Stat. § 5242. Comp. Stat. § 9834, 6 Fed. Stat. Anno. 2d ed. p. 903. That provision reads: and no attachment, injunction, or execution, shall be issued ag’ainst such association or its property before final judgment in any suit, action or proceeding, in any state, county, or municipal court.”
It seems that the portion of the section above quoted came into the act of June 3, 1864, by way of amendment adopted in 1873. Its history is set forth in the New York case of Van Reed v. People’s Nat. Bank, 173 N. Y. 314, 105 Am. St. Rep. 666, 66 N. E. 16.
The construction of the above act was for a long time involved in some difficulty, and there is a lack of harmony in the earlier cases. See 2 Morse, Banks & Bkg, § 257. It had been held, for instance, in New York (Southwick v. First Nat. Bank, 7 Hun, 96), that the act did not prohibit attachment against the property of a national bank located in another state, when attachment afforded the only means for creditors of the jurisdiction to pursue their claims within it. This case, as well as others of similar import, were later overruled in Van Reed v. People’s Nat. Bank, supra. In the latter case the New York court of appeals was influenced by the decision of the United States Supreme Court in Pacific Nat. Bank v. Mixter, 124 U. S. 721, 31 L. ed. 567, 8 Sup. Ct. Rep. 718. The Van Reed Case went to the United States Supreme Court on writ of error, and that court (Van Reed v. People’s Nat. Bank, 198 U. S. 554, 49 L. ed. 1161, 25 Sup. Ct. Rep. 775, 3 Ann. Cas. 1154) reaffirmed its holding in the Mixtor Case, so that by an authoritative interpretation of the Federal statute by the United States Supreme Court it is now thoroughly established that there may be no attachment, execution, or injunction against a national bank before judgment, whether there be any other means of acquiring jurisdiction or not, and whether the bank be solvent or insolvent .or approaching insolvency..
In the light of this construction it is indeed interesting to note the decisions of the United States Supreme Court in garnishment proceedings. In construing the same statute that court has clearly recognized the distinction between garnishment and attachment, injunction, *615or execution. In two cases the court was called upon to determine whether or not a national bank could properly be made a garnishee where no judgment had been previously obtained against it. ' The eases are Earle v. Pennsylvania, 178 U. S. 449, 44 L. ed. 1146, 20 Sup. Ct. Rep. 915; and Earle v. Conway, 178 U. S. 456, 44 L. ed. 1149, 20 Sup. Ct. Rep. 918. It was held in the first case that an attachment against a national bank as garnishee is not an attachment against the bank or its property, nor a suit against it within the meaning-of § 5242. In that case one Mary Eogers had obtained a judgment in the common pleas court of Philadelphia against one James Long. A writ of attachment issued upon the judgment, and an alias writ issued against the Chestnut Street National Bank as garnishee. The bank answered interrogatories as garnishee, and the plaintiff obtained a rule for judgment against it as garnishee on its answers. A few days later the bank suspended payment. The receiver attempted to vacate the attachment as being null and void under § 5242. The court held it valid, saying:
“Whatever may be the scope of § 5242, an attachment sued out against the bank as garnishee is not an attachment against the bank or its property, nor a suit against it, within the meaning of that section. It is an attachment to reach the property or interests held by the bank for others. After the Chestnut Street- National Bank had been served as garnishee with the attachment sued out in the Long suit, but before it went into the hands of a receiver, it admitted in its answers to special interrogations in the suit against Long that it was indebted to Long on a clearing-house due bill, and also that it held as collateral security for his debt to it certain shares of the stock o-f the Eighth National Bank of Philadelphia. By the service of the attachment upon the bank, the plaintiff in the attachment acquired a right to have the money and properly belonging to Long in the hands of the banle applied in satisfaction of its judgment against him, subject, of course, to the bank’s lien for any debt due to it at that time from him. The bank, therefore, became bound to account to the plaintiff in the áttaehment for whatever property or money it held for the benefit or to the use of Long at the time the attachment was served upon it. And the right thus acquired by the service of the attachment was not lost by the suspension of the bank and the appointment of the reecdver. *616The asset's of the bank passed to the receiver burdened, as to the interest that Long had in them, with a lien in favor of the plaintiff in the attachment, which could not be disregarded nor displaced by the Comptroller of the Currency.” (Italics are ours.)
In the Conway Case, which involves the same bank, Conway had obtained a judgment against one Schall. A writ of attachment was issued and served on May 24 and 25, 1898, upon the Chestnut Street Bank and upon Earle, receiver, as garnishee, he having been appointed the previous January. The court held, for the reasons stated in the other case, that the attachment could not create any lien upon physical assets of the bank in the hands of the receiver, nor disturb his custody of these assets, but that it became the duty of the Comptroller of the Currency to hold any funds coming into his hands as proceeds of the sale of the bank’s assets, subject to any interest which the plaintiff may have legally acquired as against his debtor under the attachment issued on the judgment in his favor.
It will be seen then that, under the Federal statute upon which the Vermont case cited is based, the decisions of the United-States Supreme Court distinctly recognize the difference between an attachment in a suit against a national bank, where it is sought to obtain a judgment against the hank, holding the attached property subject thereto, and a garnishment, where it is sought only to subject a claim the bank owes to the defendant in the main action to the payment of his debt, — a proceeding, in other words, which effects an assignment by operation of law of a claim against a bank. If the object of the proceeding is the latter, it is not regarded as an attachment against the bank such as prohibited by the Federal statute. These decisions supporting garnishment under the Federal statute were ref ex-red to in the later case of Van Reed v. People’s Nat. Bank, 198 U. S. 554, 49 L. ed. 1161, 25 Sup. Ct. Rep. 775, 3 Ann. Cas. 1154, and it was said that they in no way qualified the decision in the Mixter Case, 124 U. S. 721, 31 L. ed. 567, 8 Sup. Ct. Rep. 718. Thus, the construction of the Federal statute, in so far as it affords an analogy to the instant case, is distinctly in support of the garnishment.
To hold that a bank may not be made a garnishee is, in effect, to read ixxto the statute, § 5188, Comp. Laws 1913, a px-ohibition that is not there. The legislature, it must be assumed, was just as familiar *617with garnishment as it was with attachment and execution, and with the differences in the operation of those remedies. It was just as cognizant of all of these terms as this court is. "When it prohibited attachment and execution against banking associations, therefore, omitting garnishment, it must'be assumed that the omission was intended. We think it clear that § 7583, which relieves from garnishment property that is by law exempt from execution, has no application to the garnishment proceedings in question. Nor it is the clear purpose of that statute to give effect to the exemption laws. Exemption laws exist to secure to debtors the right to enjoy “the comforts and necessaries of life.” N. D. Const. § 208.
Entertaining no doubt as to the correctness of the conclusions stated in our former opinion, the petition for rehearing should be denied. It is so ordered.
Robinson, Ch. J., and Christianson, J., concur.