Aetna Cas. & Sur. Co. v. Moore

• Citation: 181 P. 40,107 Wash. 99
• Decision Date: 14 May 1919
• Docket Number: 15183.
• Court: Washington Supreme Court
• Parties: AETNA CASUALTY & SURETY CO. v. MOORE, State Bank Examiner.

181 P. 40

107 Wash. 99

AETNA CASUALTY & SURETY CO. v. MOORE, State Bank Examiner.

No. 15183.

Supreme Court of Washington

May 14, 1919

Department 1.

Appeal from Superior Court, King County; Clay Allen, Judge.

Action by the AEtna Casualty & Surety Company, formerly the AEtna Accident & Liability Company, against Louis H. Moore, State Bank Examiner. Judgment for defendant, and plaintiff appeals. Affirmed.

J Speed Smith, Henry Elliott, Jr., and James B. Murphy, all of Seattle, for appellant.

M. M Richardson, Hugh C. Todd, and F. C. Reagan, all of Seattle for respondent.

MITCHELL, J.

By the complaint two alleged causes of action are set up. The first in substance, is that the plaintiff was and is still engaged in carrying on, in this state, a general surety business that the Northern Bank & Trust Company was, on and prior to January 30, 1917, conducting in the city of Seattle a general banking business; that the bank was a regularly designated depositary for the funds of the state of Washington; that the plaintiff became surety on the statutory bond of the bank as such depositary in the sum of $5,000; that the bond was duly approved by the state board of finance and in force on January 30, 1917; that on January 30, 1917, the bank became insolvent, and the defendant as state bank examiner took charge of the affairs of the bank, and proceeded to close up its business as required by law; that when it failed there was on deposit with the bank state funds amounting to the sum of $30,000; that after the insolvency of the bank was established and it was found to be unable to pay the state, the state made demand upon the plaintiff for its proportionate share of said deposits (there being other bonds given to protect the state), and the plaintiff upon demand of the state paid to it on February 24, 1917, in fulfillment of its surety obligation, the sum of $4,292.86; that the state thereupon assigned to the plaintiff its claim against the bank; that plaintiff thereafter filed with the state bank examiner having charge of the affairs of said bank a claim, in which it claimed and demanded a prior right of payment over the general creditors of the bank, upon the theory that the state, by reason of its sovereignty, possessed a prior right of payment, and that the plaintiff, upon reimbursing the state, became subrogated and succeeded to the right of the state to be first paid out of the funds of the bank before the general creditors received any dividend; and that the state bank examiner rejected the claim of plaintiff as a preferred claim and allowed it only as a common one.

The second cause of action was in substantially the same form as the first, differing in that the plaintiff alleged that it became surety for the bank upon certain bonds executed and delivered to the treasurer of the city of Seattle, indemnifying the city against loss on account of deposits made by it with said bank; and that, after the bank was unable to repay the city moneys deposited with it, upon demand of the city the plaintiff paid to the city, as surety upon said bond and not otherwise, the sum of $25,441.81, and that it filed a similar preferred claim with the defendant, which claim was rejected as such and allowed only as a common claim. The prayer of the complaint is that the claims be established as preferred claims.

The defendant interposed a general demurrer to each alleged cause of action. The court sustained the demurrer. Plaintiff elected to stand upon its complaint, and the court thereupon entered a judgment dismissing the complaint, with costs, from which this appeal has been taken.

The questions of law involved are whether or not the state of Washington, by reason of its sovereignty and its qualified adoption of the common law, succeeded to and possesses a right corresponding to the prerogative of the crown of England to be first paid, that was enforceable in this case, and, if so, was the appellant subrogated to this preference right of payment upon satisfying the debts owing to, and taking assignments from, the state and the city? Of course it is admitted by appellant that the office of king and all prerogatives purely personal to him as such, being repugnant to our form of government, have been abrogated. But it is insisted that his sovereignty, powers, functions, and duties, in so far as they relate to the maintenance of civil government, are substituted by and devolve upon the people of the state, that they are not in conflict with any of our written law nor incompatible with our institutions of society, and that, inasmuch as claims or moneys due the king for the support and maintenance of the government, from whatever sources derived, were preferred over the claims of others, therefore it follows such preference became and continues to be the law of this state, because of an act of the Territorial Legislature of 1863, now Rem. Code, § 143, which provides:

'The common law, so far as it is not inconsistent with the Constitution and laws of the United States, or of the state of Washington, nor incompatible with the institutions and condition of society in this state, shall be the rule of decision in all the courts of this state.'

One of the prerogatives of sovereignty of the crown of England was the right to have its debts paid as against its subjects. Many of the American states have held that this attribute of sovereignty exists and is applicable here by virtue of constitutional law or legislative enactments adopting the common law, while other states have expressed and hold the opposite view. Among those declaring or favoring the rule, and collecting the cases, English and American, on both sides of the question, are State v. Bank of Maryland, 6 Gill & J. (Md.) 205, 26 Am. Dec. 561; In re Carnegie Trust Co., 206 N.Y. 390, 99 N.E. 1096, 46 L. R. A. (N. S.) 260; United States Fidelity & Guaranty Co. v. Borough Bank of Brooklyn, 213 N.Y. 628, 107 N.E. 1086; Hoke v. Henderson, 14 N.C. (3 Dev.) 12; and the recent case of AEtna Accident & Liability Co. v. Miller, 54 Mont. 377, 170 P. 760, L. R. A. 1918C, 954. Among those to the contrary, and collecting authorities on both sides, are Freeholders of Middlesex County v. State Bank at New Brunswick, 29 N. J. Eq. 268, affirmed by the Court of Errors and Appeals, 30 N. J. Eq. 311; Potter v. Fidelity & Deposit Co. of Maryland, 101 Miss. 823, 58 South, 713; Brown v. American Bonding Co., 210 F. 844, 127 C. C. A. 406, by the Circuit Court of Appeals for Montana prior to the case of AEtna Accident & Liability Co. v. Miller, supra; and the recent case of Commissioner of Banking v. Chelsea Savings Bank, 161 Mich. 691, 125 N.W. 424, affirmed on rehearing 161 Mich. 704, 127 N.W. 351.

We may and shall assume, without deciding, that the common law in this respect is in force in this state, and yet we think the state or its assignee is not entitled to the preference claimed in this action, for the reason it was lost prior to the state or appellant, its assignee, making any attempt to assert it, as we shall later see.

In the case of State v. Bank of Maryland, 6 Gill & J. (Md.) 205, 227 (26 Am. Dec. 561), an assignment case, in which the court confessed and declared the common-law rule of priority of payment to the sovereign, it was said:

'That right in England is enforced by the process in the writ of extent in chief, or in aid, according to circumstances, and may be here, by proceedings known to our courts. But in either case, to make it available, the proceeding must be resorted to, before other vested rights to the property sought to be subjected to the claim are acquired.'

Then, after discussing the English cases showing how the right may be lost, the court said (6 Gill & J. 229, 26 Am. Dec. 561):

'We have endeavored to show that this is a fair and bona fide assignment for a valuable consideration, and passed the property from the bank, and beyond its power or control. If so, and a similar assignment in England has the effect to protect the property against the king's extent, and to defeat his priority (as we have seen it does), it has equally the effect here to protect the property in the hands of the trustees against the common-law priority of the state.'

In the case of Freeholders of Middlesex County v. State Bank at New Brunswick, 29 N. J. Eq. 268, a receivership case, it was said:

'My judgment is, the state does not possess the prerogative claimed. But if my examination of the question had led me to a different conclusion, still, I think, the claim could not be sustained. The authorities of both countries unanimously agree that the right dies the moment the debtor's title is divested. No claim was made by the state in this case until after a receiver had been appointed. That appointment invested him with full power to sell, assign,

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