Barings v. DabneyAnnotate this Case
86 U.S. 1 (1873)
U.S. Supreme Court
Barings v. Dabney, 86 U.S. 19 Wall. 1 1 (1873)
Barings v. Dabney
86 U.S. (19 Wall.) 1
1. Though the stock of a bank be altogether owned by a state, if the bank is insolvent, its assets cannot be appropriated by legislative act or otherwise to pay the debts of the state, as distinguished from the debts of the bank. Those assets are a trust fund first applicable to the payment of the debts of the bank.
2. An act of the legislature requiring the managers of an insolvent bank belonging to the state to hold its assets appropriated to the payment of certain specified debts creates a trust in favor of the creditors holding said debts, and, if assented to by them, amounts to a contract with them to carry out said trust.
3. If such an act, however, has the effect to appropriate the assets of the bank to pay the debts of the state, to the prejudice of bill holders and other creditors of the bank, it is repugnant to that clause of the Constitution which prohibits a law impairing the obligation of contracts, and is void.
4. Such an act passed by the Legislature of South Carolina in reference to the assets of the Bank of the State of South Carolina declared to be void.
In 1812, the Legislature of South Carolina, by a legislative act, created a bank by the name of the Bank of the State of South Carolina. The capital was to consist of various stocks, bonds, and securities specified, then belonging to the state, the same being in fact all the stocks, bonds, and securities
which the state owned. The bank thus belonged to the state. The president and directors were to be elected by the legislature, and were made a corporation and body politic. The faith of the state was pledged for the support of the bank, for the supply of any deficiency in the funds specially pledged, and for making good all losses arising from such deficiency. The usual powers were conferred upon the corporation to purchase, hold, and transfer property of all kinds; to sue and be sued; to adopt its own rules and bylaws; to issue notes, and to make loans by way of discount, secured by mortgage; and to do all acts which might appertain to its functions as a bank.
In December, 1821, by another legislative act, the future profits of the bank were pledged and set apart for the payment of a certain 6 percent stock, which the state had previously issued.
In 1838, the City of Charleston suffered from an extensive fire, and the legislature passed, in that same year, an act entitled "An act for rebuilding the City of Charleston."
By the first section of this act, the governor was directed and required, in the name of the state, to issue bonds or other contracts not exceeding $2,000,000, for the purpose of procuring a loan on the credit of the state to rebuild the burnt portion of the said city, and the faith and funds of the state were pledged for the punctual payment of the bonds or contracts, with interest.
By the third section the money, when obtained in Charleston, was to be deposited in the bank, and become a part of its capital.
By the tenth, eleventh, and twelfth sections it was enacted as follows, to-wit:
"SECTION 10. It shall be the duty of the president and directors of the Bank of the State of South Carolina to make proper provisions for the punctual payment of the interest of such loan, and also for the ultimate payment of the principal thereof."
"SECTION 11. It shall be the duty of the president and directors of the Bank of the State of South Carolina to cause to be opened in the books of said bank an account in which they shall
debit themselves with the profits arising out of the additional capital created out of the two millions loan aforesaid, for the year ending October 1st, 1839, and with all the future profits of the said loan as the same shall hereafter be annually declared; which said fund, with its annual accumulations, shall be considered solemnly pledged and set apart for the payment of the interest on said loan and the final redemption thereof; and it shall be the duty of the president and directors of the said bank annually to report to both branches of the legislature the exact state of that fund."
"SECTION 12. When the profits of the said Bank of the State of South Carolina shall have paid the interest of certain stocks for which they have been heretofore pledged and set apart, the said profits shall also be considered solemnly pledged and set apart for the payment of the interest on the said loan and the final redemption thereof."
Under this act, a large amount of bonds, known as "Fire Loan bonds," were issued and negotiated, of which