Story Case

In Athens, Illinois, Jacob Spencer and Cyrus Bates were engaged in the banking business as partners, under the firm name of Spencer and Bates Banking Company. Bates had at various times, with the consent of his partner, borrowed from the bank. At one time, when heavily indebted, he had suddenly disappeared. After a long search, Spencer located his defaulting partner in Aberdeen, Washington, and there brought a suit against him to compel an accounting of the firm. Bates maintained in his answer that the firm had been doing a banking business and had never received a charter or license from the state of Illinois. Belying on the well-known rule, that in a trial in one state, the statutes of another state, where they apply, will not be ascertained by the judge but must be proved, he insisted that Spencer's failure to prove any statutory authority to do a banking business required the court to hold that they had been unlawfully engaged in the business. In such a case, no recovery could be allowed, because the court will not aid one criminal or wrongdoer by enforcing the unlawful arraignment on the other. Is Spencer entitled to the accounting, or should the court refuse its aid?

Ruling Court Case. State Vs. Richcreek, Volume 167 Indiana Reports, Page 219; Volume 119 American State Reports, Page 491

In 1905, the legislature of the state of Indiana passed a law to regulate banks and banking. It was provided, among other things," that from and after July 1,1905, it shall be unlawful for any partnership, firm, or individual to transact a banking business in this state, unless such partnership, firm, or individual has property of the cash value of at least $10,000." It was further provided that any person, or organization, before entering into such business, should file with the Auditor of the State a sworn statement containing the name of the bank, the place where it is to be conducted, and the amount of capital to be used in the business.

Richcreek, without making any attempt to comply with these regulations, opened up a private banking establishment. This was an action by the state to prevent him from engaging in this business, without complying with the statutory requirements. He contended that the right to engage in banking was an inherent right which any person might exercise, and that any law which interfered with this right was unconstitutional.

Decision: In the absence of statutory changes, each individual has an inherent right to engage in banking business. However, the state has the right and power to regulate all banking business, because of the nature of the business, but such regulation must be reasonable and just. In this case, the court was of the opinion that the rules and regulations were just and reasonable, and that, therefore, Richcreek was unlawfully engaged in the banking business, since he had not complied with the statutory requirements.

Mr. Justice Montgomery said in part: "The right of banking in all its departments, at Common Law, belonged to the individual citizen, to be exercised at pleasure. It is conceded by counsel, and it is unquestionably settled that the sovereign authority of the state may regulate and restrain the exercise of such right. The quasi-public nature of the banking business, and the intimate relation which it bears to the fiscal affairs of the people and the revenues of the state, clearly bring it within the domain of the internal police power, and make it a proper subject for legislative control. Bankers invite general deposits primarily for their own profit, and usually obtain a measure of public patronage, and the expediency of guarding the people against imposition, extortion, and fraud, of affording efficient means of detecting irregular practices, and learning the true financial conditions of the bank, and the necessity of preserving the confidence of patrons in its solvency, and of protecting their interests in case of insolvency, justify inspection and control of the state." Judgment was held that Eich-creek was unlawfully engaged in the banking business.

Ruling Law. Story Case Answer

The business of banking originated with private individuals. In England, the banking business was conducted by the London goldsmiths, of Lombard Street, long before the Bank of England was established. However, because the nature of the business is such, especially when it becomes large and complex, that fraud, extortion, and impositions may be practiced and easily concealed, the states generally have assumed the right to regulate the conditions under which the banking business may be conducted. In many states, private banks are forbidden; only banks under state supervision are permitted to engage in the business.

The contention of Bates, in the Story Case, cannot be upheld. This other well established rule bears in the case: where the statute law of the other state has not been proved, the court will presume that the general Common Law is in force. Granting that Spencer has shown no statutory authority to the firm to engage in banking, the question then is whether or not such a business would be unlawful without any statutes. There is no doubt that under the Common Law, which the court must apply, this is a lawful business. Bates has a defense, only if he proves a statute making it unlawful. "Without such proof, the court has before it a case of a partnership engaged in a lawful business, and it will grant one partner an accounting and settlement from the other.