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PEOPLES BANK v. ECCLES

March 14, 1946

PEOPLES BANK
v.
ECCLES et al.



The opinion of the court was delivered by: HOLTZOFF

This is an action for a declaratory judgment. The plaintiff is the Peoples Bank, a banking corporation organized under the laws of the State of California. The defendants are members of the Board of Governors of the Federal Reserve System. The purpose of the action is to secure an adjudication that one of the conditions attached to the plaintiff's admission to membership in the Federal Reserve System is invalid, null and void. The defendants move to dismiss the complaint on the ground that no justiciable controversy is presented and that, therefore, the action does not lie.

It appears from the complaint that the Peoples Bank was admitted to membership in the Federal Reserve System on May 6, 1942, subject to the following condition:

 In other words, if the Transamerica Corporation, or any of its affiliates or subsidiaries, were to acquire any interest in the Peoples Bank, the latter is to withdraw from membership in the Federal Reserve System on notice from the Board of Governors.

 The complaint further alleges that subsequently to the admission of the Bank to membership in the Federal Reserve System, the Transamerica Corporation, without the plaintiff's assistance or prior knowledge, purchased 540 shares of the plaintiff's capital stock, and now owns the stock so acquired. The Bank informed the defendants of these transactions and demanded a cancellation of the above-mentioned condition. This demand has not been complied with. It is further alleged in substance that in the light of the circumstances, the existence of the condition is a hindrance to the plaintiff's business, as the plaintiff is subject to the constant and continuing threat or possibility of an incalculable loss, which would accrue if the bank were deprived of its membership in the Federal Reserve System. It is not denied that the Board of Governors of the Federal Reserve System is empowered to prescribe conditions on which banks may join the System (U.S.C.A., Title 12, Sec. 321). It is contended, however, that the imposition of the condition here involved was beyond the authority of the Board. The bank seeks an adjudication that the condition is invalid.

 The question presented on this motion to dismiss the complaint is whether a justiciable controversy is involved, which may form the basis for a declaratory judgment. In order to reach a determination of this issue, it is first necessary to consider the basic principles governing actions for declaratory judgments.

 Actions for declaratory judgments represent a comparatively recent development in American jurisprudence. The traditional and conventional concept of the judicial process has been that the courts may act only in case a litigant is entitled to a coercive remedy, such as a judgment for damages or an injunction. Until a controversy had matured to a point at which such relief was appropriate and the person entitled thereto sought to invoke it, the courts were powerless to act. At times, however, there may be an actual dispute as to the rights and obligations of the parties, and yet the controversy may not have ripened to a point at which an affirmative remedy is needed. Or, this stage may have been reached and yet the party entitled to seek the remedy may fail or decline to take steps to enforce it. For example, the maker or indorser of a promissory note may have stated to the payee that the instrument would not be honored at maturity, because, perhaps, his signature is claimed to have been forged or procured by fraud or affixed without his authority. The payee had to wait until payment was due before appealing to the courts. It might have been important for him to ascertain in advance whether the note was a binding obligation and whether he might rely on it and list it among his assets. Nevertheless, he could receive no judicial relief until the instrument became due and was dishonored. Or it might have been necessary for a person to determine whether he was bound by some contractual provision which he deemed void. In that event, if he desired to contest the matter, he had to assume the risk and to hazard the consequences of committing a breach and then await a suit. Or, the owner of a patent might assert that a manufacturer was infringing his monopoly, while the latter contended that his product was not an infringement or that the patent was invalid. The manufacturer was helpless, however, to secure an adjudication of the issue, but had to pursue his course of action and await suit for infringement, unless he preferred to yield and discontinue his activity.

 The purpose of actions for declaratory judgments is to provide a means by which rights and obligations may be adjudicated in cases involving an actual controversy that has not reached the stage at which either party may seek a coercive remedy, or in which the party entitled to it fails to invoke it. The privilege of bringing such actions places a new weapon or implement at the disposal of the courts. It does not expand their jurisdiction. It introduces merely a new and more flexible procedure for determining controversies and adjudicating rights and obligations. It enlarges the judicial process and renders it more pliant and malleable.

 As judicial tribunals exist for the purpose of deciding actual controversies, it is not within the purview of this highly desirable and wholesome innovation that the courts shall render advisory opinions or answer abstract questions to satisfy the convenience or the curiosity of the inquirer. If the action is brought in a Federal court, this limitation and qualification is emphasized by the constitutional provision restricting the jurisdiction of the Federal judiciary to the decision of 'cases and controversies.' U.S.C.A. Const. art. 3, Sec. 2. Actual controversies frequently arise, however, under circumstances requiring solely a declaration of rights without an award of coercive relief. In such a situation of action of declaratory judgment may be maintained.

 The declaratory judgment procedure has been known in England for a great many years. In 1922, after its adoption by a number of States, the National Conference of Commissioners on Uniform State Laws drafted and recommended a uniform Declaratory Judgment Act, which has been enacted by a great many of the States. *fn1" The Federal Declaratory Judgment Act became law in 1934. *fn2" The report of the Senate Committee on the Judiciary, which recommended the passage of the legislation (S. Rept. No. 1005, 73rd Cong., 2d Sess.) contains the following illuminating statements

 'The procedure has been especially useful in avoiding the necessity, now so often present, of having to act at one's peril or to act on one's own interpretation of his rights, or abandon one's rights because of a fear of incurring damages. So now it is often necessary, in the absence of the declaratory judgment procedure, to violate or purport to violate a statute in order to obtain a judicial determination of its meaning or validity. * * * So now it is often necessary to break a contract or a lease, or act upon one's own interpretation of his rights when disputed, in order to present to the court a justiciable controversy. In jurisdictions having the declaratory judgment procedure, it is not necessary to bring about such social and economic waste and destruction in order to obtain a determination of one's rights. * * * Persons now often have to act at their peril, a danger, which could be frequently avoided by the ability to sue for a declaratory judgment as to their rights or duties.'

 The statute should be liberally construed, in accordance with the general cannon of statutory construction applicable to remedial statutes. Reliance Life Ins. Co. v. Burgess, 8 Cir., 112 F.2d 234; Mississippi Power & Light Co. v. City of Jackson, 5 Cir., 116 F.2d 924; Oil Workers Inter-Union v. Texoma Nat. Gas Co., 5 Cir., 146 F.2d 62.

 One of the leading cases interpreting and applying the Federal statute is Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 57 S. Ct. 461, 81 L. Ed. 617, 108 A.L.R. 1000, in which an insurance company was permitted to maintain an action for a declaratory judgment to secure an adjudication that a life insurance policy had lapsed for non-payment of premiums and had not matured by an alleged total and permanent disability of the insured. The court held that this dispute presented a justiciable controversy cognizable by the courts under the Declaratory Judgment Act. Mr. Chief Justice Hughes made the following observations on this subject (pages 239-241 of 300 U.S.,page 463 of 57 S. Ct., 81 L. Ed. 617, 108 A.L.R. 1000):


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