City of Lincoln, Neb. v. Ricketts

• Decision Date: 09 July 1936
• Docket Number: 10219.,No. 10213,10213
• Citation: 84 F.2d 795
• Parties: CITY OF LINCOLN, NEB., et al. v. RICKETTS. RICKETTS v. CITY OF LINCOLN, NEB., et al.
• Court: U.S. Court of Appeals — Eighth Circuit

84 F.2d 795 (1936)

CITY OF LINCOLN, NEB., et al. v. RICKETTS.

RICKETTS v. CITY OF LINCOLN, NEB., et al.

Nos. 10213, 10219.

Circuit Court of Appeals, Eighth Circuit.

July 9, 1936.

Don W. Stewart, of Lincoln, Neb. (A. A. Whitworth, Charles B. Paine, and Stewart, Stewart & Whitworth, all of Lincoln, Neb., on the brief), for appellants.

R. A. Boehmer, of Lincoln, Neb. (Perry W. Morton and A. W. Field, both of Lincoln, Neb., on the brief), for appellee.

Before GARDNER, SANBORN, and WOODROUGH, Circuit Judges.

GARDNER, Circuit Judge.

This case is before us for the second time. There was involved on the first appeal the right of the city of Lincoln, Neb., to a priority in the payment of its claim of $45,000 against the Lincoln Trust Company, bankrupt. This right of priority was urged on the grounds (1) that the certificates of deposit issued by the Lincoln Trust Company created a trust relation between the city and the trust company; (2) that the trust company was a trustee ex maleficio; and (3) that the city was entitled to priority in payment by reason of its right of sovereignty. We held that no trust relation existed between the city and the trust company; that the city could not sustain the right to prioriy of payment based upon its alleged prerogative right of sovereignty because the trust company was in bankruptcy and that a municipality was not within the purview of section 64b of the Bankruptcy Act, as amended May 27, 1926, 11 U.S.C.A. § 104(b) (C.C.A.) 77 F. (2d) 425. The Supreme Court granted certiorari, limited to the application of section 64b, and, expressing the view that section 64b included a municipal corporation, reversed the judgment of this court, and remanded the cause, with directions to determine the single issue as to "whether the City of Lincoln is entitled to priority under the law of Nebraska." City of Lincoln v. Ricketts, 297 U.S. 373, 56 S.Ct. 507, 509, 80 L.Ed. 724.

The facts material to the appeal are not in dispute. The city of Lincoln, Neb., a municipal corporation, loaned to or deposited with the Lincoln Trust Company, then engaged in a general trust company business under the laws of Nebraska, the sum of $45,000. The trust company, upon receiving such money, delivered to the city certain certificates, which, among other things, provided for the payment of interest. The trust company paid this interest up to March 26, 1932. On June 14, 1932, the city demanded the principal and accrued interest, which demand was not complied with, and on July 9, 1932, the trust company was adjudged a bankrupt. The city first filed a general claim against the bankrupt, which was duly allowed. Subsequently, on leave granted, it filed an amended claim, asserting the right of priority of payment over general creditors on the ground that the funds, deposits, securities, and assets of the trust company "are impressed with a trust in favor of the claimant."

The appellant Standard Accident Insurance Company was surety on a bond executed by the trust company to the city, and, pursuant to the terms of its obligation, it paid the city the amount of its claim against the trust company, whereupon the claim was assigned to the insurance company.

No preference or priority for the claims of the state against insolvent banks or trust companies is provided for by statute, except as to claims for taxes. Whether, under the laws of Nebraska, the city of Lincoln is entitled to priority of payment from the assets of the bankrupt by right of sovereignty is a matter of local law. So far as we have been able to discover, the Supreme Court of Nebraska has not directly passed upon this question. If and when it does so, its pronouncement will be controlling upon this court.

Section 49-101, C.S.Nebraska, 1929, provides: "So much of the common law of England as is applicable and not inconsistent with the constitution of the United States, with the organic law of this state, or with any law passed or to be passed by the legislature of this state, is adopted and declared to be law within the State of Nebraska."

To what extent and in what sense the common law of England is in force or applicable in Nebraska was considered in Williams v. Miles, 68 Neb. 463, 94 N.W. 705, 708, 96 N.W. 151, 62 L.R.A. 383, 110 Am.St.Rep. 431, 4 Ann.Cas. 306, where it is said: "The term `common law of England,' as used in the statute, refers to that general system of law which prevails in England, and in most of the United States by derivation from England, as distinguished from the Roman or civil law system, which was in force in this territory prior to the Louisiana purchase. Hence the statute does not require adherence to the decisions of the English common-law courts prior to the Revolution, in case this court considers subsequent decisions, either in England or America, better expositions of the general principles of that system."

In Brooks et al. v. Kimball County, 127 Neb. 645, 256 N.W. 501, 504, the court declared that: "This state adopted the common law of England and not the statutory law of England."

In Moran v. Moran, 107 Neb. 386, 163 N.W. 315, 1071, the court held that notwithstanding the above-quoted statute, adopting in a qualified sense the common law of England, the rule in Shelley's Case was not in force in Nebraska.

In Farmers' & Merchants' Ins. Co. v. Jensen, 58 Neb. 522, 78 N.W. 1054, 44 L. R.A. 861, the court held that the statute of uses was not in force in Nebraska.

In Wattles v. South Omaha Ice & Coal Co., 50 Neb. 251, 69 N.W. 785, 36 L.R.A. 424, 61 Am.St.Rep. 554, the court held that the English common-law construction of a lease covenant to return the property in the same condition as when received, natural decay, wear, and tear excepted, which makes the tenant liable to rebuild buildings destroyed by fire, was not in force in Nebraska.

In Bloomfield State Bank v. Miller, 55 Neb. 243, 75 N.W. 569, 570, 44 L.R.A. 387, 70 Am.St.Rep. 381, it was held that a mortgage by the deposit of title deeds without writing was not effective in Nebraska; the court, among other things, saying: "The common law is not with us an estate by inheritance, but one by purchase. It is here in force by virtue of statute, which provides: `So much of the common law of England as is applicable and not inconsistent with the constitution of the United States, with the organic law of this territory, or with any law passed or to be passed by the legislature of this territory, is adopted and declared to be law within said territory.' Comp.St. c. 15, § 1. No one would assert that the phrase `common law' was there used in contradistinction to the rules of equity. It undoubtedly includes the law derived from the English court of chancery. On the other hand, it was not the whole body of the English law which was adopted, but only so much thereof as is applicable (to the nature of our institutions), and is not inconsistent with the constitutions or statutes, past or future."

It will be noted that the Supreme Court of Nebraska, in construing the statute of that state adopting the common law of England, has declared, first, that it was only the unwritten and not the statutory law that was adopted, and, second, that this common law is in force only so far as applicable to conditions and surroundings and not inconsistent with the Constitution of the United States, the Constitution of Nebraska, or legislative enactments, passed or to be passed. The rules and principles of the common law which were of local application or which, although of general application, are not suited to the conditions and surroundings in Nebraska, or which are inconsistent with the Constitution or statutes of that state, are not in force. Farmers' & Merchants' Ins. Co. v. Jensen, 58 Neb. 522, 78 N.W. 1054, 44 L.R.A. 861; Bloomfield State Bank v. Miller, 55 Neb. 243, 75 N.W. 569, 44 L.R.A. 387, 70 Am.St.Rep. 381; Kerner v. McDonald, 60 Neb. 663, 84 N.W. 92, 83 Am.St.Rep. 550.

Whether or not the states have succeeded to the prerogative right of the British Crown to priority in payment out of the assets of an insolvent debtor as against all persons not having antecedent liens, is a question upon which there is an irreconcilable conflict of authority. It is urged that this court should sustain this prerogative right, following its decision in City and County of Denver v. Stenger, 295 F. 809. But, as above noted, this is a question of local law, and since the decision of this court in City and County of Denver v. Stenger, supra, sustaining the prerogative right in the state of Colorado, the Supreme Court of that state has directly held that this prerogative right does not exist in that state. United States F. & G. Co. v. McFerson, 78 Colo. 338, 241 P. 728; Board of County Commissioners v. McFerson, 90 Colo. 408, 9 P.(2d) 614, 615.

In Board of County Commissioners v. McFerson, supra, in referring to our decision in the Stenger Case, it is said: "Counsel for the board rely upon the case of City and County of Denver v. Stenger (C.C.A.) 295 F. 809, wherein it is held that a municipality is entitled to a priority on the theory that the debt is due the sovereign. But as later said in Ætna Casualty & Surety Co. v. Bramwell (D.C.) 12 F.(2d) 307, 310, of City and County of Denver v. Stenger, `This case is now shorn of application, by reason of the fact that Colorado has, since the decision of that case, denied the common-law prerogative right to the state. United States Fidelity & Guaranty Co. v. McFerson (78 Colo. 338) 241 P. 728.'"

The author of the article on Banks, 3 R.C.L. at § 273, says, concerning this controverted question: "But, as applied to insolvent banks in which deposits of public money have been properly made, the better rule seems to be that in the absence of statute or a showing of facts sufficient to create a trust, a claim for public money has no preference over the claims of the general creditors of the bank, but stands on the same footing with them."

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