Bassett v. City Bank & Trust Co.

• Decision Date: 26 July 1932
• Citation: 161 A. 852,115 Conn. 393
• Parties: BASSETT, Bank Com'r v. CITY BANK & TRUST CO.
• Court: Connecticut Supreme Court

161 A. 852

115 Conn. 393

BASSETT, Bank Com'r v. CITY BANK & TRUST CO.

Supreme Court of Errors of Connecticut.

July 26, 1932

Case Reserved from Superior Court, Hartford County; Arthur F Elis, Judge.

Proceeding by George J. Bassett, Bank Commissioner, against the City Bank & Trust Company, wherein a temporary receiver appointed. Application by the State Treasurer for a preference in the payment of claims of the state for deposits in the defendant bank, brought to the superior court and reserved by the court for the advice of this court on a question of law.

Question answered.

Argued before MALTBIE, C.J., and HINMAN, HAINES, BANKS, and AVERY JJ.

Ernest L. Averill, Deputy Atty. Gen., and Warren B. Burrows, Atty. Gen., and William H. Nelson, Asst. Atty Gen., for the State.

Lucius F. Robinson, William W. Fisher and Barelay Robinson, all of Hartford, for Thomas Hewes.

Arthur L. Shipman, of Hartford, for certain depositors.

Frederic J. Corbett, Corp. Counsel, and David Haymond, Asst. Corp. Counsel, both of Hartford, amici curiae.

HINMAN, J.

The facts stipulated on this reservation which we find to be material to the question propounded are as follows: On January 2 1932, the state bank commissioner issued an order restraining the defendant from paying out funds or receiving deposits. On January 7, 1932, upon application of the commissioner, a temporary receiver was appointed by the superior court, and the bank has ever since remained in the hands of a receiver.

On January 2, 1932, the state had on deposit in the commercial department of the defendant in the name of the " State of Connecticut. Treasurer's Account," certain of its civil list funds which had been raised by taxation and had been deposited by the state treasurer a substantial part thereof during the month of December, 1931, to be checked against in meeting current pay rolls of the state. This deposit amounted to $318,732.35. On that date the state also had on deposit in the commercial department certain funds in the name of " State of Connecticut Agricultural College Fund" amounting to $8,557.85, which amount included $5,076.40 principal, and $3,481.45 accrued interest. The principal is a portion of the sum of $135,000 which was allotted to the state of Connecticut under the provisions of an Act of Congress approved July 2, 1862, now found in USCA, title 7 § § 301-308, both inclusive.

The state also had on deposit in the savings department of the defendant certain funds in the name of " Treasurer, State of Connecticut. Gilbert Fund, C. A. C." amounting to $12,000. In 1906 Edwin Gilbert died, leaving a will by which certain real estate and all tools, machinery, agricultural implements, and live stock thereon at his death were devised and bequeathed to the Stores Agricultural College, upon condition that the real estate be taken and maintained in connection with the college as a farm and for the purpose of instruction in farming. There was also bequeathed twelve hundred shares of the capital stock of the Gilbert Manufacturing Company, which stock was not to be sold, and the income thereof to be devoted to the care of the real estate and to instruction farming. The Storrs Agricultural College is a state institution, now known as Connecticut Agricultural College, and all the income received therefor is the property of the state. The deposit of $12,000, which was made on November 24, 1931, represents income received by the state from the stock and receipts from the sale of produce raised upon the farm.

The state also had in the savings department a deposit in the name of " Treasurer, State of Connecticut, Custodian of Fitch Fund of Fitch's Home for Soldiers," amounting to $11,262.79. On September 6, 1927, a majority of the trustees of the Fitch Home for Soldiers, acting under authority of No. 215, p. 678, Special Acts, 1887; No. 333, p. 1060, special Acts, 1917, and No. 344, p. 299, Special Acts, 1919, transferred all the personal properly and other assets belonging to the Fitch Home for Soldiers to the state of Connecticut, subject to the provisions of sections 4, No. 215, p. 679. Special Acts. 1887. Under that transfer the state treasurer received several investments and securities, of which he still holds, as a part of the fund, bonds amounting to $9,000; the balance of the fund is represented by this deposit.

The defendant corporation was legally authorized and empowered to receive all of the above-mentioned funds on deposit. The question upon which advice is desired is: Is the state of Connecticut entitled to have any or all of these deposits paid either in full or in part as a preferred claim or as preferred claims before the payment of the claims of other depositors?

It is claimed and urged by the Attorney General ably and exhaustively in brief and argument that, by virtue of the common law, this state, as the sovereign and representative of all the people, is entitled, as between its deposits and those of others, to the same priority as that appertaining to the British crown, by prerogative right in the payment of debts due it out of the sets of an insolvent debtor. Marshall v. New York, 254 U.S. 380 41 S.Ct. 143, 65 L.Ed. 315. The object of that right was to secure and conserve the revenues in order that the state might be maintained and its obligations discharged, and it maintained to the king as universal trustee for the people. It constituted a reservation or exception to the general course of law, in favor of the public and for its good. American Bonding Co. v. Reynolds (D. C.) 203 F. 356, 357. " We think it clear that at common law the king was entitled to preference in the payment of debts due to him from an insolvent before that of a subject. This is stated in 1 Coke on Littleton (131b). Under the statute (33 Hen. VIII, c. 39, § 74) it was enacted that the king's debt shall, in suing out execution be preferred to that of every other creditors who has not obtained judgment before the king commenced his suit. This apparently has remained the law of England down through and since the American Revolution. Giles v. Grove, 9 Bing. 128." In re Carnegie Trust Co., 206 N.Y. 390, 396, 99 N.E. 1096, 1098, 46 L.R.A. (N. S.) 260.

It has been held, as a general proposition, in many states which by constitutional provision or otherwise have adopted the common law, that they succeeded to this prerogative right so that the state is entitled to preference over private creditors whose claims otherwise stand on equal footing with those of the state, 2 Michie, Banks & Banking, p 231. See cases collected 51 A.L.R. 1356 et seq. The rule is regarded as grounded on and in accord with public policy in order that the state's funds may not be lost but may be available to meet the expenses of government and discharge the state's obligations. State ex rel. Rankin v. Madison State Bank, 68 Mont. 342, 218 P. 652.

While Connecticut has not formally adopted the common law of England by constitutional or legislative provisions, we have made it out own by " practical adoption" with such exceptions as diversity of circumstances and customs require. Lewis Oyster Co. v. West 93 Conn. 518, 526, 107 A. 138; Baldwin v. Walker, 21 Conn. 168, 181; Fitch v. Brianerd 2 Day, 163, 189; 1 Swift's Digest, p. 10, If the point were determinative, we could readily recognize the common-law right of priority as applied to banks and trust companies in receivership as within the scope of this policy of practical adoption. " The right is *** one that is adapted to the circumstances, conditions, and necessities of the people because essential to sustain the public burdens and discharge the public debts, and unless some provision of statute can be found which clearly evinces a legislative intent to abandon or waive this preference right of the state it is the duty of the courts to preserve rather than to defeat it" United States G. & G. Co. v. Bramwell, 108 Or. 261, 269, 217 p. 332, 335, 32 A.L.R. 829. However, as stated in the above quotation, this weight may be waived, abrogated, or modified by a statute which so provides, either expressly or by necessary implication. Commonwealth v. Commissioner of Banks, 240 Mass. 244, 133 NB. E. 625; In re Devin (D. C.) 180 F. 170. According as we must, due observance to this principle, we find an insurmountable obstacle to the giving effect of the common-law priority rule in the present case in the construction we fell compelled to give to the stationery provision which is now section 3935 of the General Statutes of 1930. This read as follows: " Sec. 3935. Marshaling of Claims. The avails of the property of any bank or trust company in the hands of a receiver or receivers shall be appropriated ratably to the payment of: (1) The charges and expenses of settling its affairs; (2) the circulating notes if any; (3) all deposits: (4) all sums which have been subscribed and paid in for its stock by the state or the school fund; (5) all other liabilities; and the surplus shall be distributed among the stockholders."

This statute originated in an act passed in 12897 (Compilation of 1938, title 6, pp. 94 96). After providing for the appointment of receivers of bank (sections 14, 15 and 16), it provided (section 17) that " the avails of the property of the bank shall be appropriated by said receivers in the following manner, viz:-1st. To the payment of the charges and expenses of settling its concerns-2nd. To the payment of the bank notes and bills in equal proportion-3rd. To the payment of all deposits by the treasurer of the state or by other persons-4th. To the payment of all sums which have been subscribed and paid in by the state or the school fund-5th. To the payment of all the other liabilities in equal proportions. Lastly the surplus shall be paid...