Bd. of Com'rs v. People's Bank & Trust Co. (melaven

• Decision Date: 19 June 1929
• Docket Number: No. 3275.,3275.
• Citation: 279 P. 60,34 N.M. 166
• Court: New Mexico Supreme Court
• Parties: BOARD OF COM'RS, SAN MIGUEL COUNTY,v.PEOPLE'S BANK & TRUST CO. et al. (MELAVEN, Intervener).SAMEv.LAS VEGAS BANK et al. (DELGADO, Intervener).

34 N.M. 166

279 P. 60

BOARD OF COM'RS, SAN MIGUEL COUNTY,

v.PEOPLE'S BANK & TRUST CO. et al. (MELAVEN, Intervener).SAME

v.LAS VEGAS BANK et al. (DELGADO, Intervener).

No. 3275.

Supreme Court of New Mexico.

June 19, 1929.

Syllabus by the Court.

Assuming, but not deciding, that the state, for a debt due it, has a preference in the assets of an insolvent bank, before title passes to receiver, such preference does not extend to a county as a political subdivision of the state.

A cestui que trust, in order to recover his property from the receiver of an insolvent bank, in preference to creditors, must trace it in its original or a converted form into the receiver's possession.

Mere proof of making deposits, without showing their nature or disposition, does not satisfy the requirement of tracing.

Appeal from District Court, San Miguel County; Armijo, Judge.

Actions by the Board of County Commissioners, San Miguel County, against the People's Bank & Trust Company and another, in which John W. Melaven, receiver of said bank and trust company, intervened, and against the Las Vegas Bank and another, in which Francisco P. Delgado, receiver of said bank, intervened. From the judgment, interveners appeal, and plaintiff cross-appeals. Reversed and remanded, with directions.

Mere proof of making deposits, without showing their nature or disposition, does not satisfy the requirement of tracing.

Chas. W. G. Ward, of East Las Vegas, for appellants.

Tom W. Neal, of Las Vegas, M. E. Noble, of East Las Vegas, for appellee and cross-appellant.

WATSON, J.

Of the two appeals here consolidated for submission and decision, that of Board of County Commissioners of San Miguel County v. People's Bank & Trust Co. et al. (No. 3274), is selected for discussion; it being understood that the decision of that appeal will be controlling of the other.

The amended complaint sets up that on August 20, 1927, the said bank closed its doors and went into possession of the state bank examiner; that on said date there was on deposit in the name of the county treasurer of San Miguel county something over $23,000 of public moneys, of which about $18,000 was secured by depository bond, and some $5,000 was not. These facts are not in dispute. It was further alleged that the unsecured deposit was in an open checking account, was illegally made, to the knowledge both of the county treasurer and of the bank; that the title thereto did not pass to the bank; that all of the money so deposited had been so mingled with the bank's assets as to be impossible of identification or recovery in kind; that defendant Saunders, the state bank examiner, contemplated making application for the appointment of a receiver; that, so long as the title to such assets remained in the bank, a lien existed thereon for the satisfaction of the debts owing to the state and its governmental agencies. The prayer was for an injunction restraining the bank from disposing of title to its assets until such lien had been declared, or, if such receiver should be appointed, an adjudication that he take title subject to such lien.

The defendants named, the bank and the state bank examiner, suffered default; but John W. Melaven, receiver, appointed after commencement of the suit, was permitted to intervene.

It was found by the trial court that the deposits in question were “of the public moneys of the state of New Mexico and of the county of San Miguel and the different governmental subdivisions thereof”; that the bank knew the nature of said deposit; that the action was commenced prior to the appointment of the receiver; that the amount of the deposit in excess of the security was illegal and unlawful and known so to be by the county treasurer and by the bank; that the cash and sight exchange of the bank was at all times, up to the closing thereof, greater than the amount of said unsecured deposit; and that “the assets coming into the hands of the receiver were swelled by the said sum so illegally and unlawfully deposited in said bank by said treasurer.”

Upon these findings the court concluded, as matter of law, that the plaintiff was entitled to a lien or preference for the unsecured deposit, less a small sum for which the county treasurer had issued checks, and which the payees had negligently failed to present, but that the plaintiff was not entitled to a lien or preference for the secured deposit.

Upon these conclusions, judgment was rendered requiring preferential payment to the plaintiff of the sum of $4,952.74. The receiver has appealed and the board of county commissioners has taken a so-called cross-appeal. The latter will be considered first. since, if cross-appellant's contention is correct, it will be unnecessary to proceed further.

[1] Cross-appellant contends that it is entitled to preferential payment of the whole of its claim. It reasons that at common law the king was a preferred creditor; that the common law has been in force in New Mexico since 1876 (Code 1915, § 1354); that sovereignty, which once resided in the king, now resides in the people constitutionally organized as a state; that such of the king's prerogative as was not personal merely now appertains to the people in their capacity as the state; and, finally, that the county of San Miguel, as a political subdivision of the state, enjoys and may claim the same prerogative.

The contention that the state is entitled to a preference as among creditors, by reason of the adoption of the common law, has been twice made in this court. State v. First State Bank, 22 N. M. 661, 167 P. 3, L. R. A. 1918A, 394; State v. People's Bank & Trust Co., 23 N. M. 282, 168 P. 526. In neither case was it necessary to decide the question. In both it was determined that, if the state enjoyed such right while the title remained in the debtor, it lost it when the title passed to a receiver. Those decisions doubtless explain the commencement of suit in the present case against the bank and the examiner prior to the appointment of a receiver, as an attempt to preserve the preference. Whether such an attempt could succeed, we need not consider, since another question precedes it.

We may assume, for the purposes of this decision, that the state's preference over other creditors exists in New Mexico as it did at common law. We may even assume that the state may preserve its preference in the assets of an insolvent bank by commencing suit to enforce it before title has passed to a receiver. In the present case, however, it is not the state that is claiming such preference. The only party plaintiff is the board of county commissioners; that is to say, the county. We may further assume that in a suit by the county treasurer, brought in his official capacity, his special property in the deposits, with proof as to what part thereof was the general property of the state, might have been successful. But this suit is brought by the county itself, and must be upon the theory of general ownership. As we understand our fiscal system, the county has no ownership or property right, either general or special, in the funds of the state. There has been no effort in the proof or findings to segregate that which is the county's from that which is the state's. It may be doubted, therefore, whether any recovery could have been justified. We disregard that question, however, since it was not decided below, nor urged here. Cross-appellant relies upon the proposition that the county, in respect to its own funds, as a subdivision of the state, enjoys the same priority that the king had at common law. That proposition we shall consider.

Our attention is called to an annotation, 51 A. L. R. 1336, entitled, “Right in absence of statute to preference in respect of deposit of public funds in insolvent bank.” After considering the state's prerogative of preference at common law, the annotator passes to the question of its “extension to political subdivisions.” See page 1339 of 51 A. L. R. He there states it as “the generally accepted view that the prerogative right is the right of the state alone, and is not available to its political subdivisions.” Examination of the cases there cited shows the following to be directly in point: Bignell et al. v. Cummins, 69 Mont. 294, 222 P. 797, 36 A. L. R. 634; County of Glynn v. Brunswick Terminal Co. et al., 101 Ga. 244, 28 S. E. 604, approved in Knight et al. v. State of Georgia et al., 137 Ga. 537, 73 S. E. 825; Cannon County v. McConnel, 152 Tenn. 555, 280 S. W. 24; Calhoun County Court v. Mathews, 99 W. Va. 483, 129 S. E. 399, 52 A. L. R. 751; Ætna Casualty & Surety Co. v. Bramwell (D. C.) 12 F.(2d) 307 (applying Oregon law). In re Northern Bank of New York, 85 Misc. Rep. 594, 148 N. Y. S. 70, affirmed in 212 N. Y. 608, 106 N. E. 749, though perhaps not directly in point, reaches the same result as respects the claim of the city of New York.

Leach v. United States Bank, 205 Iowa, 987, 213 N. W. 528, is cited by the author of this annotation as apparently constituting an exception to the rule. Syllabus No. 1 perhaps is a declaration to that effect, but the opinion, as we read it, is merely to the effect that the county's claim of a preference right can only be worked out “on the theory that it is a part of the state.” The court has held, apparently, that, if the state has no such right, the county cannot have; but has not held that the county has such right because the state has. Nor have we found any such holding by the Iowa Supreme Court in any of the decisions which have been brought to our attention. Cross-appellant does not cite this authority. We have carefully examined numerous other authorities which it cites, and find but one of them in point, namely City and County of Denver v. Stenger, 295 F. 809, decided by the Circuit Court of Appeals (Eighth Circuit), which disposed of the question in this summary manner: “Under the common law, the sovereign had a right to a certain preference in payment. [Ci...