Brown v. American Bonding Co. of Baltimore, Md.

• Decision Date: 02 February 1914
• Docket Number: 2289.
• Citation: 210 F. 844
• Parties: BROWN v. AMERICAN BONDING CO. OF BALTIMORE, MD.
• Court: U.S. Court of Appeals — Ninth Circuit

210 F. 844

BROWN v. AMERICAN BONDING CO. OF BALTIMORE, MD.

No. 2289.

United States Court of Appeals, Ninth Circuit.

February 2, 1914

Loud Collins, Brown, Campbell & Wood, of Billings, Mont., and Gunn, Rasch & Hall, of Helena, Mont., for appellant.

Walsh Nolan & Scallon, of Helena, Mont., for appellee.

Before GILBERT, ROSS, and MORROW, Circuit Judges.

ROSS Circuit Judge.

The question in this case is the alleged right of the appellee (complainant in the court below) to be subrogated to an alleged priority which it claims that the state of Montana had in the assets of the insolvent bank of which the appellant is receiver, over the general creditors of the bank. The case was heard upon the bill and answer, the material allegations of the former being expressly admitted by the latter. Those allegations are, in substance, that while the bank was carrying on its business the state of Montana was one of its depositors, having $25,000 of its money deposited therein, as security for the repayment of which (and such other sums as might be so deposited by the state) the appellee bonding company had previously executed to the state, at the request of the bank, a bond in the sum of $10,000; that prior to June 14, 1910, the bank became and thereafter remained insolvent, and that on the day mentioned a receiver was appointed of all of its property and effects in a suit brought against it by the state of Montana in one of its courts; that on the 15th day of December, 1910, the said indebtedness to the state had been reduced to $10,000 by payments thereon; and that on the last-mentioned date the receiver issued this certificate to the state:

'Receiver's Certificate of Proof of Claim.

'#868.

Receiver's Office. 'Billings, Montana, Dec. 15, 1910.

'This is to certify that Elmer E. Esselstyn, as Treasurer of the State of Montana, has this day made legal and satisfactory proof that he is a general creditor of the First Trust and Savings Bank of Billings, Mont., to the amount of ten thousand ($10,000.00) dollars, and . . . cents, upon the following claims, to wit:

	Dollars.	Cents.
First mortgage bonds........................................
Time certificate of deposit No.-----issued by the First Trust and Savings Bank of Billings, Mont..................
Unpaid draft No.............................................
Protest fees on draft No....................................
Savings account No. 1002, the First Trust and Savings Bank of Billings, Mont...........................................	10,000	00
Interest on Time Certificate of Deposit No..................
Unpaid Cashiers Check No....................................
Total ...................................................	10,000	00

'And he, or the lawful assignee of this claim will be alone entitled to the dividends thereon.

'No assignment of this claim, or any portion thereof, will be recognized in the payments of dividends, unless notice of such assignment is given to the receiver and entered upon his books before such dividends are declared, as evidenced by his indorsement hereon. This certificate is to be surrendered to the receiver upon the payment of the final dividend.

'S. G. Reynolds,

'Receiver of the First Trust & Savings Bank of Billings, Billings, Montana.'

The bill further alleged that because of the bond the appellee thereupon paid to the state the sum of $10,000, whereupon 'the said state of Montana, by its State Treasurer and Attorney General, appearing as attorneys for it in the said cause,' in which the receiver was appointed, 'assigned and transferred to your orator its said claim against the said bank, evidenced by the certificate aforesaid, and your orator is now the owner and holder of said claim, and has succeeded and is subrogated to the rights of the state of Montana against the said bank'-- the assignment being in the following words:

'Billings, Montana, Dec. 15, 1910.

'For value received I hereby assign the within claim to the American Bonding Company of Baltimore, Maryland.

'Elmer E. Esselstyn, State Treasurer, 'By Albert J. Galen, Attorney General for Montana.

'Witness: S. G. Reynolds.'

The bill then alleged that under the laws of the state of Montana, the said state has and at all times had a preferred 'right to be paid in full in preference to all other creditors of the said First Trust & Savings Bank, and that by virtue of the facts hereinbefore set forth your orator has a right to be paid the full amount of the said claim so evidenced by the said certificate in full, in preference to the claims of all other creditors,' which alleged right the receiver refuses to recognize.

The court below sustained the contention of the state that it is entitled to priority over the general creditors of the insolvent bank upon the ground 'that the state, having adopted the common law of England, succeeds to or is vested with a like prerogative of the crown,' and that by paying to the state the amount of its bond the surety company became subrogated to such right of the state.

It is conceded that the state of Montana has no statute giving to public debts any priority over those due other creditors, but that state has these statutory provisions in respect to the common law: 'Sec. 3552. Common Law, When Rule of Decision.-- The common law of England, so far as it is not repugnant to or inconsistent with the Constitution of the United States, or the Constitution or laws of this state, or of the Codes, is the rule of decision in all the courts of this state.'

'Sec. 8060. No Common Law in This State.-- In this state there is no common law in any case where the law is declared by the Code or the statute; but where not so declared, if the same is applicable and of a general nature, and not in conflict with the Code or other statutes, the common law shall be the law and rule of decision.'

Revised Codes of Montana 1907.

It is contended on the part of the appellant that if the common-law prerogative of sovereignty ever existed in Montana by reason of the above-cited sections of the statutes, it was subsequently abrogated by these subsequent provisions of its Revised Codes:

'Sec. 6214. The rule of the common law, that statutes in derogation thereof are to be strictly construed, has no application to this Code. The Code establishes the law of this state respecting the subjects to which it relates, and its provisions are to be liberally construed with a view to effect its objects and to promote justice.'

'Sec. 6123. A creditor, within the meaning of this title, is one in whose favor an obligation exists by reason of which he is or may become entitled to the payment of money.

'Sec. 6124. In the absence of fraud every contract of a debtor is valid against all his creditors, existing or subsequent, who have not acquired a lien on the property affected by such contract.

'Sec. 6125. A debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another.'

'Sec. 6140. In all assignments of property made by any person, association, corporation, copartnership, chartered company or corporation, to trustees or assignees on account of inability of the assignor or assignors at the time of the assignment to pay his or their debts, or in proceedings in insolvency, the wages of the miners, mechanics, salesmen, servants, clerks or laborers employed by such assignor or assignors for services rendered within sixty days immediately previous to such assignment, not to exceed two hundred dollars for each person, are preferred claims, and must be paid by such trustees or assignees before any other creditor or creditors of such assignor.'

But did the prerogative right which constitutes the basis of the state's claim ever in fact exist? All of the states with the exception of Louisiana have adopted, in one form or another, the common law of England except where inconsistent with their Constitutions and statutes, and yet nearly all of them have statutes giving preference to taxes, rates, and other debts due the state, over the debts of the citizen, See 26 Am. & Eng. Encyc. of Law (2d Ed.) p. 479. It is there further truly said that:

'Whether a state, in the absence of positive enactment, is entitled to the priority claimed by the crown under the common law appears to be not well settled.'

See, on the one side, State of Maryland v. Bank, 6 Gill & J (Md.) 205, 26 Am.Dec. 561; State v. Mayor, 10 Md. 504; In re Carnegie Trust Co., 151 A.D. 606, 136 N.Y.Supp. 466; same case on appeal, 206 N.Y. 390, 99 N.E. 1096; Hoke v. Henderson, 14 N.C. 12; U.S. Fidelity & Guaranty Co. v. Rainey, 120 Tenn. 357, 113 S.W. 397; Seay v. Bank of Rome, 66 Ga. 609; State v. Foster, 5 Wyo. 199, 38 P. 926, 29 L.R.A. 226, 63 Am.St.Rep. 47; and, on the other side, Zimmerman, ...