DISSENTING OPINION. This was an action brought in the name of the State of Indiana, on the relation of the Attorney General, upon the official bond of Louis Middleton, former clerk of the Howard Circuit Court, to recover from the defendants the unpaid balance of all funds, including costs, fees, and trust funds, which said defendant Middleton *Page 233 had collected and received as said clerk, and which at the expiration of his term and ever since, he has failed to pay over to his duly elected and qualified successor in office. By this suit recovery was sought for the total sum of $4,775.54, of which $4,476.46 is the balance charged to the defendant Middleton as such clerk, at the expiration of his term of office, as shown by the records of said office and at the time of trial remaining unpaid to his successor. The balance of said total amount ($299.08) was alleged to be money received by defendant Middleton as such clerk, as costs in certain proceedings, with which the defendant did not charge himself upon the records of said office, and did not account for or pay over to his successor.
Appellees answered the complaint by general denial, and by a second paragraph of answer wherein it was stated that defendant Middleton had paid over to his successor in office all money with which he was chargeable at the end of his term except $4,476.46; that he had deposited the funds coming into his hands as clerk in certain banks which had been designated public depositories by the board of finance of Howard County, but that said money was not deposited under the terms of the depository act because said act was not applicable to a clerk of the circuit court; that said banks failed before the expiration of said Middleton's term; that at the expiration of his term he had $18,011.25 on deposit in said banks, of which $13,534.79 had been paid to his successor and that the balance of $4,476.46 is the money described in plaintiff's complaint, except the items in Exhibit D, which was the sum of $299.08 mentioned above. Appellees further alleged that the defendant Middleton was relieved of liability for said sum of $4,476.46 by the virtue of the provisions of ch. 121, p. 697, Acts 1937, section 61-664 Burns' Supp. 1938, § 13844-85, Baldwin's Supp. 1937. *Page 234
Plaintiffs filed a demurrer to the second paragraph of answer for insufficient facts to constitute a defense to the complaint. The memorandum attached to the demurrer in effect alleged that said ch. 121, of the Acts 1937 was ineffective to release the defendants or either of them from the liability claimed because said act contravenes Art. 1, section 23, of the constitution of Indiana, and section 1, of the Fourteenth Amendment to the Constitution of the United States in that said act attempted to grant to certain citizens privileges and immunities which upon the same terms belong equally to all citizens and has attempted to abridge the privileges and immunities to the citizens of the United States. That said act contravenes Art. 1, section 24, of the Constitution of Indiana, in that it impairs the obligation of contract.
The court overruled appellant's demurrer to the second paragraph of answer. There was a third paragraph of answer filed by the defendants which we need not consider in this opinion. The decision of this case depends upon the constitutionality of ch. 121, of the Acts of 1937. Sections 1, 2, and 3 of the above entitled act read as follows:
"Section 1. Be it enacted by the General Assembly of the State of Indiana, That every officer and former officer of and in any municipal corporation in this state who, in his official capacity, deposited any funds payable to any municipal corporation, or who deposited any public funds or any trust funds received by or coming into the possession of such officer, by virtue of his office, in any bank or trust company which had been designated, as provided by law, as a depository of public funds, and which at such time was a depository, but when such funds could not be deposited under the terms and provisions of the depository act, be and is hereby relieved, released and discharged from any and all personal liability on account of the loss of any such money caused by the failure or insolvency of any such bank or trust company, and such liability shall be *Page 235 assumed by the municipal corporation for or in which such officer served or is serving in an official capacity. Such municipal corporation shall have the right to receive any dividends arising from the liquidation of such bank or trust company, to the extent of its interest.
"Sec. 2. That the legal claim of any officer or former officer contemplated in section 1 of this act to any funds on deposit in any such bank or trust company shall inure to the municipal corporation for, in and on behalf of which such officer has officially served or is serving, and such municipal corporation shall be charged with full liability for the proper distribution of all such fees and funds so deposited by such officer. Any person or any municipal corporation to whom or to which such funds, or any part thereof, may be due and owing, is hereby authorized to prosecute his or its claim for the recovery of such funds, in his name or its corporate name, or otherwise, against such municipal corporation charged with the liability for such funds, and which is hereby declared to be fully subrogated to all of the rights which such officer or former officer would have had if this act had not been passed.
"Sec. 3. Any person who may have any money due and owing to him from such fund may file his claim therefore (therefor) with such municipal corporation taking over such deposits, as provided herein, and such claim, if found correct, shall be approved and shall be paid out of the general fund of such county, township, city or town with appropriation therefor."
Sections 4 and 5 of said act defines the meaning of municipal corporations and other terms used in said act; section 6 is the emergency clause.
Before the passage of ch. 30, Acts 1937, the clerks of circuit courts of the various counties in Indiana were not required to deposit the funds coming into his hands as such clerk in a public depository, but was governed by section 49-2719 Burns' Ind. Statutes Ann. 1933, § 1438 Baldwin's 1934, ch. 24, § 1, p. 37, Acts 1875, which provides: *Page 236
"The clerks of the several courts throughout this state are hereby authorized to receive money in payment of all judgments, dues and demands of record in their respective offices and all such funds as may be ordered to be paid into the respective courts of which they are clerks by the Judges thereof; and said clerks with their sureties shall be liable on their official bonds for all monies so received by said clerks and so paid into such courts under the order of the Judges thereof, to any person who may be entitled to demand and receive such money or funds from them."
By article 6, § 2, of the constitution of the State of Indiana the office of clerk of the circuit court is created by the constitution of the State of Indiana. Prior to the enactment of the depository law in Indiana all public officials in the state were held as insurers of the funds in their custody. Holbert v.State ex rel. (1864), 22 Ind. 125; Inglis v. State (1878),61 Ind. 212; Mount v. State (1883), 90 Ind. 29; McClelland v. State (1894), 138 Ind. 321, 37 N.E. 1089; and under this rule, which is known as the insurance rule and which was adopted in this state, such officer was absolutely liable for the loss of said funds whatever the cause of such loss might have been, with one exception, that exception being when such loss was occasioned by what was designated as the Act of God or the Public Enemy. SeeInglis v. State, supra; Mount v. State (1883), 90 Ind. 29;McClelland v. State, supra. In the first above cited cases the loss was occasioned through the failure of the bank in which the deposits had been made and such deposit was made without knowledge on the part of the officer that such bank was in failing circumstances, and it was not contended or charged that the deposit was made without diligence or care on the part of the officer making such deposits.
After the depository act was passed it was held that any officer coming within the provisions of the depository *Page 237 act and who deposited funds as designated would be relieved from liability for the loss of such funds caused by the failure of the bank in which such funds were so deposited, and it might be noted that there is no provision made by such depository laws for the reimbursement to the party suffering loss.
By section 49-2703 Burns 1933, § 1430 Baldwin's 1934, the clerks of the circuit courts of this state were required to give bond conditioned for the faithful discharge of the duties of his office and the payment to the proper person or persons of all monies that may come into his hands as such clerk. This statute provides:
"The respective boards of commissioners of the several counties throughout the state shall, at their first regular meeting after the taking effect of this act, determine the amount of bond which shall be required to be given by the respective clerks of the counties for which they are acting respectively, and every clerk shall give bond with surety as is now required by law, in the penal sum fixed by the board of commissioners of the county of which he is clerk, to be approved by said board, conditioned for the faithful discharge of the duties of his office, and the payment to the proper person or persons of all monies that may come into his hand as such clerk . . ."
Section 49-2704 Burns' Indiana Statutes 1933, § 1431 Baldwin's 1934, provides:
"All clerks hereafter elected shall give bond as is required in the foregoing section."
It is urged by appellant that ch. 121, Acts 1937, supra, is unconstitutional for the reason that the classification therein made is unauthorized and that it discriminates in favor of a certain class of citizens and against another class of citizens in a like situation and with the same inherent needs and qualifications as the favored class. In order to determine whether or not the *Page 238 classification made by the legislature in the enactment of a statute is a constitutional classification, the purpose of the act is important to consider.
We take as fundamental the proposition that the taxing power of a state can only be exercised to affect a public interest and a legislative act requiring tax for a private purpose is unconstitutional because it amounts to taking property without due process of law in violation of the fourteenth amendment of the United States Constitution. The learned author Grey in his work entitled "Limitation of Taxing Power" (sections 169 and 170) says:
"In all the definitions of tax and taxes one element appears most prominently, to-wit, the necessity for a public purpose to justify the exercise of the taxing power. No principle of law is better established than this: That taxes can only be laid for public purposes; and that a tax laid for a private purpose, or to bestow some private benefits upon some individual or individuals is void regardless of the absence of express constitutional prohibitions . . .
"This limitation upon the taxing power is based upon and derived from the inherent purpose of the state as a social organization."
Cooley on taxation, Volume 1, § 174, 4th edition, says:
"It is implied in all definitions of taxation that taxes can be levied for public purposes only; and the rule that taxes can be levied only for public purposes is so well settled that a lengthy citation of decisions so holding is unnecessary. This is said to be `an underlying principle of our government.' Differences of opinion frequently arise concerning the power to impose taxation in particular cases, but all writers who treat the subject theoretically and all jurists agree in the fundamental requirement that the purpose shall be public, and they differ, when they differ at all, upon the question whether the particular purpose proposed is within the requirement, i.e., is a public purpose."
So the first question to determine is whether or not *Page 239 we can find in this act a public purpose that would justify a levy of tax by the county to discharge the obligation imposed upon them by this act. If the clerk and his bondsmen are relieved from liability and such liability is assumed by the county then in order to discharge the liability and to secure funds with which to pay the different ones having claims against the clerk by reason of money having been deposited with the clerk or by reason of having deposited money with the clerk for their benefit, it goes without argument that a general tax must be levied upon the people and property of the county by the authorized officer, to raise such funds. The "public purpose" as pointed out in the majority opinion in the latter part thereof is found in these words (p. 231):
"Much might be said in support of the moral responsibility resting upon the state to make good the loss of funds in the hands of circuit clerks. The judiciary is one of the co-ordinate branches of government; circuit courts are an integral part of the judicial system of the state; clerks of such courts are very important officers thereof; and monies placed in the hands of such clerks, pursuant to judgments and court orders are regarded as in custodia legis. Notwithstanding the fiduciary character of the authority under which clerks received and held monies of private citizens the state failed until after the passage of the act here complained of to provide a public depository law applicable to these officers although it had done so with respect to the custodian of its own funds.
"We are not at liberty to say that the General Assembly abused its power when it recognized a moral responsibility on the part of the state to make good the losses suffered by persons whose funds were on deposit to the credit of circuit clerks in closed banks. . . . It may have reasoned that the burden placed upon the taxpayers was necessary and proper to the end that confidence in the government and respect for its courts should not be materially weakened." *Page 240
If the purpose of the act is to maintain public confidence in the courts, then to justify a classification, made by the legislature, we must be able to point out a substantial difference in the different classes that would necessitate different legislation for the different classes. In DavisConstruction Company v. Board, etc. (1921), 192 Ind. 144, 150, 132 N.E. 629, this court very clearly stated the rule governing class legislation as follows:
". . . while some classification of the subjects of legislative action is necessary, and a reasonable classification based upon actual differences which inhere in the different subjects and embrace all within the class and the reason for the classification will be upheld, a classification, to be valid, must be based on substantial distinctions which make one class so different from another as to suggest the necessity for different legislation with respect thereto. An artificial, arbitrary, and unreasonable classification, as by designating certain individuals by name or description out of a larger number whose situation and needs do not differ from theirs, is forbidden by the constitution."
Let us keep in mind the public purpose of the act above pointed out. Only one way can this be accomplished, and that is by the state paying the creditors of the clerk. By paying in full those who were entitled to recover money deposited with the clerk, so no one would lose by reason of the failure of the bank. This result is accomplished by the provisions of the act, in that it provides for full payment by the state; but payment by the state is limited, by the classification made in the statute, to those where the clerk had deposited the funds in a public depository and withheld the benefits of the act from another class of citizens, namely all those who had money due them from the clerk in counties where the clerk did not deposit the funds in a bank that had been designated a public depository.
The real beneficiaries of the act are the creditors of *Page 241 the clerk; those who were entitled to receive funds that had been paid to the clerk as such, and which he held for them. While it is true the clerk is a beneficiary of the questioned legislation, yet it will be seen that he was not the beneficiary the legislature really intended to protect. So I think it is clear that the legislature had in mind two classes of citizens; one class, namely, those persons who are creditors of the clerk in counties who had deposited the funds in a bank that had been designated a public depository, and those that are creditors of clerks, who did not deposit the funds in a bank that had been so designated. Now, what justification exists that would justify such a classification? Just how is the one class different from the other that would reasonably justify different legislation for each? Isn't it just as important to the state in order to maintain respect and confidence in the court, or in other words to accomplish the public purpose designed by the act, for the state to assume and pay those persons who had funds deposited with the clerk in counties that did not deposit the fund in a bank or other depository, that were not designated a public depository, as it is to pay those persons who had funds deposited with the clerk, that perchance had deposited such funds in a bank that had been designated a public depository? It seems to me that it is just as important to the state, that it maintain the respect and confidence of one of the classes as the other, and if the public purpose of the act be to maintain the respect and confidence of the public in our courts, then no classification should be made at all but the state should assume and pay all persons who were entitled to receive funds held by the clerk for their benefit, and not classify them, and make the classification depend upon what the clerk did, over whom they had no control, or had no voice in determining where the funds should be deposited. Such a classification *Page 242 in my judgment does not meet the constitutional requirements and is void. Fountain Park Co. v. Hensler (1927), 199 Ind. 95,155 N.E. 465.
It may also be noted that in this case the record affirmatively shows that the bond given by the clerk is altogether sufficient to pay all creditors of the clerk and that if the conditions of the bond are enforced there will be no loss whatever to any individual by reason of the failure of the banks of Howard County.
If the purpose of the legislation is construed to be to relieve the individual clerks and their bondsmen from liability another serious question is presented, namely, whether or not the legislature has authority to relieve such clerks and their bondsmen and to impose upon the local taxing districts, which is the county in this case, the burden of raising by taxation funds to reimburse and to pay the liabilities of such clerk. The funds in the hands of the clerk were not raised by general taxation. In other words, the question would be presented as to whether or not the taxing power can be exercised for the benefit of a private individual to relieve him from individual obligation which he voluntarily assumed. The rule is stated in Carmichael v.Southern Coal Coke Co. (1937), 301 U.S. 495, 57 S.Ct. 868, 109 A.L.R. 1327-1336, as follows (p. 514):
". . . since the adoption of the Fourteenth Amendment, state taxing power can be exerted only to effect a public purpose and does not embrace the raising of revenue for private purposes. See Green v. Frazier, 253 U.S. 233, 238, 64 L.Ed. 878, 881, 40 S.Ct. 499; Milheim v. Moffat Improv. Dist., 262 U.S. 710, 717, 67 L.Ed. 1194, 1199, 43 S.Ct. 694; Fallbrook Irrig. Dist. v. Bradley, 164 U.S. 112, 158, 41 L.Ed. 369, 388, 17 S.Ct. 56; Jones v. Portland, 245 U.S. 217, 221, 62 L.Ed. 252, 255, 38 S.Ct. 112, L.R.A. 1918C 765, Ann. Cas. 1918E 660."
The majority opinion attempts to justify the act on *Page 243 the theory that the purpose of the act was to discharge a moral duty owing to the clerks, because the legislature was negligent and derelict in its duty in that when they enacted the depository law covering county officers, they did not include the clerks of the circuit courts, and that because some of the clerks of the state attempted to follow the depository law by depositing the funds placed in their hands, in banks that had been designated public depositories for other public officials, they thereby created a situation that would justify the legislature in considering such fact, to determine that an obligation rested upon them to pass an act which would relieve such clerks of the legal liability imposed by § 49-2703 Burns (§ 1430 Baldwin's),supra, provided the funds were lost by failure of such public depository. The act here in question not only relieves certain clerks of such legal liability imposed by § 49-2703 Burns (§ 1430 Baldwin's), supra, but transfers such liability to the taxpayers of the local county, and compels them to pay by the exercise of the taxing power the obligation theretofore resting upon the clerk. The majority opinion, as I interpret it, in effect, holds that the moral obligation created by the several clerks, in attempting to follow the public depository act as above pointed out, was sufficient to meet all constitutional objections urged against it.
I am unable to follow the reasoning of the majority opinion. It is my judgment that no such moral obligation was created, nor that the legislature was derelict in not including the clerks of circuit courts in the provisions of the public depository law at the time such law was enacted.
The clerks of circuit courts are elected by the legal votes of the county, and when they voluntarily assumed the responsibilities that accompanied the office and gave bond to secure that obligation there could be nothing *Page 244 immoral in enforcing the liability thus assumed. By § 49-116 Burns 1933, § 13059 Baldwin's 1934, Acts 1925, ch. 30, p. 80, the cost of such bond is paid for out of the general fund of the county. It seems to me that the state would not be under any moral obligation to relieve such clerks of any liability which might be incurred during their terms of office and the clerks could not by any act of their own, in attempting to comply with some statute that had no application to them whatever, create a moral obligation on the part of the state to relieve them of such responsibility. It is not contended that the state or citizens of Howard County have done anything in the instant case that was wrong, or that by any imagination could be construed as creating a moral obligation to come to the rescue of such clerk and his compensated surety.
The decided cases involving the question of the constitutionality of statutes relieving public officers from liability where public funds are involved, or funds raised by taxation are clearly distinguishable from the case at bar, and have no decisive effect upon the question here involved except that such decisions clearly point out that the taxing power can only be exercised in the interest of the public, and not for private purpose.
How could there be any public interest here involved? Only the clerk and his bondsman are benefited. The record clearly shows that no creditor of the clerk would lose one penny. Every person who had a claim against the clerk would be paid in full. The bond was more than sufficient to cover the liability of the clerk. Who, then, other than the clerk and his compensated surety could be the beneficiary of such an act? Where is the public interest served by the enforcement of this law? What would justify the classification made by the statute? What public interest is protected and what benefit will inure to the state by compelling the taxpayers of Howard *Page 245 County to assume and pay the obligations the clerk voluntarily assumed? I can see none whatever.
It is my opinion that the above statute is clearly unconstitutional on the ground that there is no justifiable basis for the classification made by the statute, and that it is an unjustifiable exercise of the taxing power in that it is used for a private and not a public purpose.
It is my opinion that the judgment of the trial court should be reversed.