US SUPREME COURT DECISIONS

On 29 November, 1820, the Legislature of Kentucky passed an act establishing a bank by the name of "The Bank of the Commonwealth of Kentucky." The first section of the act declares the bank shall be established "in the name and behalf of the Commonwealth of Kentucky" under the direction of a president and twelve directors to be chosen by the legislature. The second section enacts that the president and directors shall be a corporation, capable of suing and being sued and of purchasing and selling every description of property. The third section declares the bank to be exclusively the property of the commonwealth. The fourth section authorizes the issuing of notes, and the fifth declares the capital to be two millions of dollars, to be paid by all moneys afterwards paid into the Treasury for the vacant lands of the state, and so much of the capital stock as was owned by the state in the Bank of Kentucky, and as the treasurer of the state received those moneys, he was required to pay them into the bank. The bank had authority to receive money on deposit, to make loans on good personal security or on mortgage, and was prohibited increasing its debts beyond its capital. Limitations were imposed on loans, and the accommodations of the bank were apportioned among the different counties of the state. The bank was by a subsequent act authorized to issue three millions of dollars, and the dividends of the bank were to be paid to the treasurer of the state. The notes of the bank were issued in the common form of bank notes in which the bank promised to pay to the bearer on demand the sum stated on the face of the note. The pleadings excluded the court from considering that any part of the capital had been paid by the state, but in the argument of the case it was stated and not denied that all the notes which bad been issued, and payment of which bad been demanded had been redeemed by the bank. By an act of the Legislature of Kentucky it was required that the notes of the bank should be received on all executions by plaintiffs, and if they failed to endorse on such execution that they would be so received, further proceedings on the judgment

were delayed for two years. The Bank of the Commonwealth of Kentucky instituted a suit against the plaintiffs in error on a promissory note for which the

notes of the bank had been given as a loan to the drawers of the note. The defendants in the suit claimed that the note given by them was void, as the same was given for the notes of the bank, which were "bills of credit" issued by the State of Kentucky, against the provisions of the Constitution of the United States which prohibits the issuing of "bills of credit" by the states of the United States and that the act of the Legislature of Kentucky, which established the bank, was unconstitutional and void. By the court:

"The act incorporating the Bank of the Commonwealth of Kentucky was a constitutional exercise of power by the State of Kentucky, and the notes issued by the bank are not bills of credit within the meaning of the Constitution of the United States."

The definition of the terms "bills of credit," as used in the Constitution of the United States, if not impracticable, will be found a work of no small difficulty. chanrobles.com-red

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The terms "bills of credit," in their mercantile sense, comprehend a great variety of evidences of debt which circulate in a commercial country. In the early history of banks, it seems their notes were generally denominated "bills of credit," but in modern times they have lost that designation and are now called either bank bills or bank notes. But the inhibitions of the Constitution apply to bills of credit in a limited sense.

Description of the bills of credit which were issued in the early history of the colonies, afterwards the United States of America.

The case of Craig v. State of Missouri, 4 Pet. 410, cited.

The definition of a bill of credit, which includes all classes of bills of credit emitted by the colonies and states, is a paper issued by the sovereign power containing a pledge of its faith and designed to circulate as money.

If the legislature of a state attempts to make the notes of any bank a tender, the act will be unconstitutional, but such attempt could not affect in any degree the constitutionality of the bank. The act which related to the receiving the notes of the Bank of the Commonwealth of Kentucky was not connected with the charter.

The federal government is one of delegated powers; all powers not delegated to it or inhibited to the states are reserved to the states or to the people.

A state cannot emit bills of credit, or in other words it cannot issue that description of paper to answer the purposes of money which was denominated before the adoption of the Constitution "bills of credit." But a state may grant acts of incorporation for the attainment of these objects, which are essential to the interests of society. This power is incident to sovereignty, and there is no limitation on its exercise by the states, in respect to the incorporation of banks, in the federal Constitution.

At the time of the adoption of the Constitution, the "Bank of North America" and "the Massachusetts Bank" and some others were in operation. It cannot therefore be supposed that the notes of these banks were intended to be inhibited by the Constitution, or that they were considered as "bills of credit" within the meaning of that instrument. In many of their most distinguishing characteristics, they were essentially different from bills of credit in any one of the various forms in which they were issued. If then the powers not delegated to the federal government nor denied to the states are retained by the states or the people, and by a fair construction of the terms "bills of credit," as used in the Constitution, they do not include ordinary bank notes, it follows that the powers to incorporate banks to issue these notes may be exercised by a state.

A uniform course of action involving the right to the exercise of an important power by the state government for half a century, and this almost without question, is no unsatisfactory evidence that the power is rightfully exercised.

A state cannot do that which the federal Constitution declares it shall not do. It cannot "coin money." Here is an act inhibited in terms so precise, that they cannot be mistaken. They are susceptible but of one construction. And it is certain that a state cannot incorporate any number of individuals, and authorize them to coin money. Such an act would be as much a violation of the Constitution as if money were coined by an officer of the state under its authority. The act being prohibited cannot be done by a state, directly or indirectly. The same rule applies to bills of credit issued by a state.

To constitute a bill of credit within the Constitution, it must be issued by a state on the faith of the state, and designed to circulate as money. It must be a paper which circulates on the credit of the state, and so received and used in the ordinary chanrobles.com-red

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business of life. The individual or committee who issue it must have power to bind the state; they must act as agents, and of course not incur any personal responsibility nor impart as individuals any credit to the paper. These are the leading characteristics of a bill of credit, which a state cannot emit. The notes issued by the Bank of the Commonwealth of Kentucky have not these characteristics.

When a state emits bills of credit, the amount to be issued is fixed by law, as also the fund out of which they are to be paid, if any find be pledged for their redemption, and they are issued on the credit of the state, which in some form appears upon the face of the notes or by the signature of the person who issues them.

No sovereign state is liable to be sued without her consent. Under the Articles of Confederation, a state could be sued only in cases of boundary. It is believed that there is no case where a suit has been brought at any time on a bill of credit against a state, and it is certain that no suit could have been maintained on this ground prior to the Constitution.

The case of Craig v. State of Missouri, 4 Pet. 410, is not authority to sustain the claim that the notes of the Bank of the Commonwealth were bills of credit. The decisions in that case applied to obligations of an entirely different character.

There is no principle decided by this Court in the case of Craig v. State of Missouri which at all conflicts with the views presented by the Court in this case. Indeed the views of the Court are sustained and strengthened by contrasting the present case with that.

The case of Bank of the United States v. Planters' Bank of Georgia, 9 Wheat. 904, cited.

The case of Bank of the Commonwealth v. Wister, 2 Pet. 315, cited.

In the Mercer Circuit Court of the State of Kentucky, the president and directors of the Bank of the Commonwealth of Kentucky, on 15 April 1831, filed a petition of debt stating that they hold a note upon the defendants, George H. Briscoe, Abraham Fulkerson, Mason Vannoy and John Briscoe, in substance, as follows, to-wit:

"2048 Dollars, 37 cents."

"One hundred and twenty days after date, we jointly and severally promise to pay the president and directors of the Bank of the Commonwealth of Kentucky or order 2048 dollars, 37 cents, negotiable and payable at the branch bank at Harrodsburg, for value received. Witness our hands this 1 February 1830."

"G. H. BRISCOE"

"A. FULKERSON"

"MASON VANNOY"

"JOHN BRISCOE"

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The defendants appeared and filed the following pleas:

"The defendants, after craving oyer of the note, and the same being read to them, say that the note was executed on no other or further consideration than that of another note which had been previously executed by them to the plaintiffs for a certain sum, negotiable and payable at the branch of the said bank at Harrodsburg, and that the note so previously executed was executed by them on no other or further consideration than that of the renewal of another note of the like tenor, and the defendants aver that previous to the time of executing the note last mentioned, the Legislature of the Commonwealth of Kentucky, in the name and on behalf of the said commonwealth, by an act which passed on 29 November 1820, established a bank the capital stock of which was declared to be $2,000,000, which said capital stock the said bank never received, or any part thereof, as these defendants aver; that by the provisions of said act, the president and directors of the said bank, and their successors in office, were declared and made a corporation and body politic, in law and fact, by the name and style of 'The President and Directors of the Bank of the Commonwealth of Kentucky;' that also by said act the president and directors of the said bank were illegally and contrary to the provisions of the Constitution of the United States empowered and authorized, for and on behalf of the said commonwealth and upon her credit, to make bills of credit, to-wit, bills or notes to an amount not exceeding $2,000,000, signed by the president and countersigned by the principal cashier, promising the payment of money to any person or persons, his, her or their order, or to the bearer, and the said bills or notes were so made illegally, in violation of the said Constitution, to emit, issue and circulate through the community for its ordinary purposes as money; that under the authority of the said act of the legislature, and in violation of the said Constitution of the United States, the said president and directors had, before the date of the note last aforesaid, for and on behalf of the commonwealth and on her credit, made various bills of credit, to-wit, notes of various denominations in amount from one to one hundred dollars, signed by the president of the said bank and countersigned by the principal cashier, promising therein and thereby to pay the person in each note mentioned, or bearer, on demand, the amount therein mentioned in money, and were transferable on delivery, and that for the purpose of circulating said notes through the community for its ordinary purposes

Page 36 U. S. 261

as money, the legislature of the said commonwealth, by an act passed on 25 December in the year 1820, had, amongst other things, provided and declared in substance that upon all executions of fieri facias which should be thereafter issued from any of the courts of the said commonwealth, endorsed that notes on the Bank of Kentucky or its branches, or notes on the bank of the Commonwealth of Kentucky or its branches 'might by the officer holding such execution be received from the defendant in discharge thereof,' such executions, so endorsed, should only be replevied and delayed in their collection for the space of three months; but that all executions of fieri facias which should thereafter be issued from any of the courts of the said commonwealth, without any endorsement for the reception of notes on the Bank of Kentucky or its branches or notes on the Bank of the Commonwealth of Kentucky or its branches, should be replevied and delayed in its collection for the space of two years, or, if not so replevied, that property levied upon under the same should be sold upon a credit of two years."

"The said president and directors, for the like purpose and with the like intent, afterwards, to-wit, on the ___ day of _____ (that being the date of the note executed by the defendants last above mentioned), did, for and on behalf of the said commonwealth, for her benefit, and on her credit, illegally and contrary to the said Constitution of the United States, emit and issue the notes or bills of credit, so made as aforesaid, by the president and directors of said bank, to the amount of $2,048.37 by loaning at interest, and delivering the same to the defendant Briscoe. And the defendants in fact aver that the only consideration for which the note last above mentioned was executed by them was the emission and loan of the said bills of credit, so made and issued as aforesaid to said Briscoe by the plaintiffs, who are the president and directors of the bank aforesaid; wherefore they say that the consideration of the said last above mentioned note, executed by them, was illegal, invalid, and in violation of the Constitution of the United States, and that each of the notes thereafter executed by them as aforesaid, by way of renewal as aforesaid, of the said last above-mentioned note, was also founded upon the illegal, invalid, and insufficient consideration aforesaid, and none other, and this they are ready to verify and prove; wherefore, they pray judgment, &c."

"And the defendants, for further plea in this behalf, say that the plaintiffs their action aforesaid against them ought not to have and

Page 36 U. S. 262

maintain because they say that the only consideration for which the note in the petition mentioned was executed was the renewal of a note which had been previously executed by them to the plaintiffs for the sum of $2,048.37, negotiable and payable at the branch of the Bank of the Commonwealth of Kentucky located at Harrodsburg. And they aver that previous to the date of the note, so renewed as aforesaid, the plaintiffs, under the provisions, and by the authority of the act of the Legislature of the Commonwealth of Kentucky establishing the Bank of the Commonwealth of Kentucky, approved 29 March 1820, and contrary to that provision of the Constitution of the United States which inhibits any state from emitting bills of credit, had, on behalf of the said commonwealth and upon her credit, made various bills of credit, signed by the president of said Bank of the Commonwealth of Kentucky and countersigned by the principal cashier therein, and thereby promising to pay to the person in each of said bills mentioned, or bearer, on demand, the respective amounts in each of said bills expressed, in money, and the said bills so made and signed by the said president and cashier, the plaintiffs, afterwards, to-wit, on the day of the date of the note last aforesaid, for the purpose of circulating the said bills of credit, so as aforesaid made, through the community as money, did, for and on behalf of the said commonwealth and for her benefit and upon her credit, illegally and contrary to the aforesaid provisions in the Constitution of the United States, emit and issue said bills of credit, so made as aforesaid, to the amount of $2,048.37, of the said bills, by loaning and delivering the same to the defendant Briscoe at interest, reserved and secured upon said loan for the benefit of the said commonwealth at the rate of six percentum per annum upon the amount aforesaid, and the defendants in fact aver that the only consideration for which the note last above mentioned was executed by them was the emission and loan of the said bills of credit, so issued as aforesaid, by the plaintiffs to the defendant Briscoe. And so they say the consideration of the said last-mentioned note was illegal, invalid, and in violation of the Constitution of the United States, and that the consideration of the note sued on, executed by these defendants, in renewal of the said last-mentioned note as aforesaid, is likewise illegal, invalid, and contrary to the Constitution of the United States, and this they are ready to verify and prove, wherefore, they pray judgment, &c."

To these pleas, the plaintiffs demurred, and the defendants joined chanrobles.com-red

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in the demurrer. The Circuit Court of Mercer County gave judgment for the plaintiffs, and the defendants appealed to the Court of Appeals of Kentucky. In the Court of Appeals the following errors were assigned by the appellants.

1. The court erred in sustaining the demurrer of the defendant in error, to the first plea of the plaintiffs in error.

2. The court erred in sustaining the demurrer to the second plea.

3. The decision of the court upon each demurrer, as well as in rendering final judgment against plaintiffs in error, is erroneous and illegal.

On 5 May 1832, the Court of Appeals affirmed the judgment of the circuit court. That court delivered the following opinion:

"We are called upon in this case, to readjudicate the question of the constitutionality of the Bank of the Commonwealth and its right to maintain an action upon an obligation given in consideration of a loan of its notes. We consider this question as having been settled in the case of Lampton v. Bank, 2 Litt. 300. If it be true, as contended in argument on behalf of the appellants, that the question is presented on the face of the charter, that case has been incidentally recognized and confirmed by a hundred cases that have since passed through this Court. The case of Craig v. Missouri, 4 Pet. 410, has been relied on as ruling this. We do not think that it does; they are distinguishable in at least one important and essential particular."

The appellants prosecuted this writ of error. chanrobles.com-red

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