Porter v. State , 46 Wis. 375 ( 1879 )

Ryan, O. J.

The argument of this cause was learned and able, taking a wide range on both sides; and many questions were discussed which are immaterial to the view upon which the court rests the judgment. These will therefore not be considered.

The cause will be determined under the original banking law of 1852, adopted by the people. It is now too late to assume that the law might be materially amended by mere statute, not submitted to the people. State v. Hastings, 12 Wis., 47; Van Steenwyck v. Sackett, 17 Wis., 645; Brower v. Haight, 18 Wis., 102; Rusk v. Van Norstrand, 21 Wis., 159.

At the time of the adoption of the constitution, there was wide difference of opinion on the policy of establishing local banks of issue. There was great distrust, not so much of banks proper, as of their power to issue a local paper currency. And the constitution, as a compromise on the subject, took from the legislature the power to create banks; but permitted it to submit the question to the people; and if they should vote for banks, to submit to them a general banking law for their adoption or rejection. Thus came the banking law of 1852.

As might have been expected, in the circumstances, this law contains many safeguards to protect the paper currency which it authorizes, and no control over the banks to be established under it, in any other respect. The only concern of the state was to secure, as far as it could, a safe local paper currency. The state had no interest in the banks. It is a great mistake to suppose that the tax required to be paid by them was an emolument coming to the state from the bank comptroller’s office. That is their share of the public burdens, imposed by an exercise of the taxing power. The state had a public policy in the system, but no interest; no pecuniary connection with the banks; no interest in their currency, except as a possible holder of their bills, in common with all other holders.

Doubtless, the bank comptroller was a public officer, having duties to perform towards the state. But these concerned the policy of the state, not its interest. They all looked to the protection of the holders of the currency to be issued by the banks. Indeed, that appears to be the object of every provision of the banking law, except the power conferred upon the banks themselves. And not only are the duties of the bank comptroller directly towards the state, for the benefit of the holders of the currency issued by the banks; but the gi’eat burden of that officer’s duties is towards private corporations and private persons, the banks themselves and the holders of their currency; wholly for the protection of the latter. These, therefore, if not all strictly private, partake largely of a private character. Their object is the protection of private, not of public right.

The primary security of the holders of the currency is the deposit of public bonds with the state treasurer, in trust to secure the currency. The state takes no title to these bonds; has no interest in them, except as a possible holder of the currency which they secure. The title to them remains in the banks, but they are held by the treasurer by way of pledge, in trust for the holders of the currency. The treasurer was selected as the pledgee, instead of the bank comptroller, not for any interest of the state, but presumably for the greater safety of the bonds themselves.

Upon dishonor of the currency of any bank, the bank comptroller is required to sell the bonds, and to apply the proceeds to the payment of the currency. But the law throughout recognizes the possibility that the proceeds of the public bonds might prove insufficient to pay the dishonored currency in full. And it therefore provides for a personal bond to the bank comptroller, as an additional security for the holders of the currency, against loss which might otherwise be sustained through the insufficiency of the proceeds of the public bonds. This is a secondary security, to which resort can be had only upon failure of the primary security, and to supply any deficiency of the latter. The cestvÁ que trusts of both securities are the same — the holders of the currency secured by them. The state takes no title to this personal bond; has no interest in it, except as a possible cestui que trust with other holders of the currency. The public bonds pledged with the treasurer, and the personal bond to the bank comptroller, are primary and secondary securities for one trust fund, to indemnify the holders of the currency secured by them against loss.

Thus the state requires both securities, and furnishes the machinery to enforce them, without right or interest as a state, solely to protect the private rights of private persons ; solely as a matter of public policy, that the holders of the currency which it authorizes should have the securities provided against loss. The state assumes no liability; gives no guaranty of the currency; goes no further, than to provide such security for it as legislative wisdom devised. Having done this, the state has no further concern in the premises. The holders of the currency take it at their own risk only, under the securities provided by the state in trust for them.

By the law, the state assumes the compensation of the comptroller; but assumes no other expense; assumes no risk of other expense. There is not a provision, not a phrase, throughout the law, indicating any assumption by the state of any other expense in the administration of the law, for the protection of holders of the currency. Beyond the bank comptroller’s compensation, the only obligation assumed by the state is the proper application of the bonds pledged with the treasurer for the redemption of the currency; a mere guaranty of the integrity of its public officers.

The law expressly designates this pledge as a trust, and the proceeds of the pledge, when sold, as a trust fund, to redeem the currency secured by the pledge. And the trust fund, as other trust funds, is properly chargeable with the expense of administering it; and is so left by the law. The sale of the public bonds deposited with the treasurer, and any action on the personal bond to the comptroller, are successive steps in one proceeding to realize the trust fund for the benefit of the cestui que trusts, in which the state has no interest; and all expenses of the proceeding are a burden upon the fund, and not upon the state. That is the obvious effect of the law, to be gathered from what it provides, and what it does not provide.

The deficiency of the securities pledged with the treasurer to pay the outstanding currency, occurs upon their sale by the comptroller. Then the right of action accrues upon the personal bond. It is quite remarkable that the law imposes no duty on the bank comptroller to take any steps towards enforcing this right of action. It is entirely silent upon the subject. It directs the bank comptroller to sell the public bonds, in a stock market where they are always salable. That was an obvious necessity in all cases. Put the failure of the bank or other causes might well affect the solvency of the obligors in the personal bond. That and other contingencies might well make action on the bond injudicious. And the silence of the law appears to leave proceedings to enforce the personal bond to the discretion of the bank comptroller. Doubtless, if the bond should remain good, it would be the duty of that officer to his oesiui que trusts to supply the deficiency by action upon it. In that case it would be his right to retain sufficient of the trust fund in his hands, to cover the expenses of the action. He had no power from the state to pay out the entire proceeds of the sale of the public bonds, and to bring the action at the risk of the state, or to charge the state with the expenses of it. He owed no duty to his cestui qv,e trusts to commence the action without reserving enough of the trust fund to indemnify himself. Doing so, he would do it at his own risk, not at the risk of the state. The state would have no interest in any action on the bond. And the bank comptroller took no authority to bring any action on behalf of the state, or to charge the state with the costs of any action he might bring for his cestui que trusts. And, bringing the action at his own risk of the expense, if there is any remedy over, it is against them only. If he should so conduct the proceeding as to have none against them, it is Ills own loss, arising by bis own lacbes, with which the state has no concern.

Of course, if the bank comptroller himself cannot charge the state with the costs of an action brought on a personal bond which failed, the defendant in the action, recovering costs against him, cannot. The only right to which the latter could pretend would be under the bank comptroller, and could be no greater than his.

State v. Rusk, 21 Wis., 214, and State v. Rusk, 23 Wis., 636, have been carefully considered. There is nothing in either of those cases apparently in conflict with the views now held. On the contrary, there are things said in both cases, especially, in the latter, which tend to confirm, and indeed to suggest, the position now taken.

This discussion has assumed the validity of the bond sued by the bank comptroller in this case. If the bond were invalid, as the judgment against him seems to suggest, the discussion applies with double force. For it would be difficult to hold that the bank comptroller acted officially in bringing an action on an unofficial bond.

By the Court. — The demurrer is sustained.