Fid. & Deposit Co. of Maryland v. Brucker

• Decision Date: 02 January 1933
• Docket Number: No. 26128.,26128.
• Citation: 205 Ind. 273,183 N.E. 668
• Court: Indiana Supreme Court
• Parties: FIDELITY & DEPOSIT CO. OF MARYLAND v. BRUCKER et al.

205 Ind. 273

183 N.E. 668

FIDELITY & DEPOSIT CO. OF MARYLAND

v.BRUCKER et al.

No. 26128.

Supreme Court of Indiana.

Jan. 2, 1933.

Appeal from White Circuit Court; Ralph C. McClurg, Judge.

Action by the State, on the relation of the State Bank Commissioner, against the Farmers' State Bank of Monticello in which W. F. Brucker and another were appointed receivers and wherein the Fidelity & Deposit Company of Maryland filed intervening petition. From an adverse judgment, intervener appealed to the Appellate Court from which court the case was transferred to the Supreme Court under Burns' 1926, § 1351 (four judges failing to agree).

Affirmed.Kane, Blain & Hollowell, of Indianapolis, and Clarence R. Cowger, of Monticello, for appellant.

L. D. Carey and Ralph W. Scowden, both of Monticello, and Homer Elliott, of Indianapolis, James M. Ogden, Atty. Gen., and Jos. W. Hutchinson, Deputy Atty. Gen., for appellees.

MARTIN, J.

The appellant surety company filed an intervening petition in the receivership of the Farmers' State Bank of Monticello, seeking to have allowed a claim in the sum of $10,000, with priority of payment over general creditors. Its claim arose as follows: The bank petitioned the state board of finance to be designated as a depository of public funds (to the maximum amount of $20,000), filing with such application a “surety company bond of Depository of Public Funds” in the penal sum of $10,000, with appellant as surety thereon. The application and bond were approved and the state of Indiana deposited in the bank, in accordance with the law on the subject of depositories for public funds, the sum of $10,000 (of the state's general fund which had been raised by taxation), on which sum the bank paid interest (at rates ranging from 2 to 3 per cent. per annum) as provided in its accepted proposal. Thereafter the bank became insolvent, and in an action by the state, on the relation of the bank commissioner against the bank, appellees Brucker and Loughry were appointed receivers thereof. The bank and the receiver having made default in the payment of the state's deposit, the state made demand upon the surety company for the sum of $10,000 which it paid to the treasurer of state. The surety company alleged in its intervening petition that “said fund of $10,000 *** was a public fund of the State of Indiana on deposit in said *** bank under the laws of the State *** and on account of the subsequent claim against the bank and the assets thereof now in the hands of said receivers, in favor of the State *** which claim said State is lawfully entitled to have paid *** out of the assets of said bank *** before the payment of the claims of general creditors of the bank *** there are no prior liens against the assets of the bank. *** That on account of the failure of the bank to pay said sum *** and the payment of said sum by this petitioner as surety on said depository bond *** (it) is entitled to be subrogated to all of the rights of the State *** in *** said claim *** including said right of preference *** and is entitled to have this claim allowed in its favor as a preferred claim *** and paid *** out of the funds in their (receiver's) hands in advance of the payment of the general claims against the bank.”

The receivers filed an answer in general denial to the intervening petition and trial was had by the court, the evidence being in the form of an agreed statement of facts. In addition to stating the facts substantially as related above, the stipulation set out that $125,000 of assets ($6,000 of which was cash) came into the hands of the receivers; that a 35 per cent. dividend (amounting approximately to $32,000) had been declared and paid to general creditors; that the receivers have on hand in cash and other assets more than enough to pay the surety company's claim in full as a preferred claim should it be allowed by the court as such and that neither the state nor the surety company have received any dividend or payment of any part of the $10,000.

The court found that the surety company was entitled to the allowance of its claim as a general claim only and not as a preferred claim and entered judgment on such finding. Appellant filed a motion for a new trial on the grounds that the decision was not sustained by sufficient evidence and was contrary to law, and that the court erred in overruling its motion to modify the judgment. The overruling of the motion for a new trial is relied upon here as error.

The principal question of law presented by this appeal (and the only one necessary to determine if it is answered in the negative) is, Does the state of Indiana have a right of preference over the other depositors of an insolvent bank in the liquidation of its assets by receivers?

No preference or priority for the deposits of the state in banks is provided for by statute. The law governing depositories for public funds, chapter 222, Acts 1907 (as amended by certain acts of 1909, 1911, 1919, and 1925), sections 12611-12635, Burns' 1926, provides for the protection of public funds deposited (at interest) in banks by bonds (equal to 60 per cent. of the maximum amount on deposit if given by individuals, and equal to 50 per cent. if given by surety companies), but does not provide that the state shall have any preference or priority upon liquidation or distribution.

Section 21, c. 47, Acts 1825, re-enacted as section 21, c. 36, R. S. 1831, and also as section 21, p. 283, R. S. 1838, after providing that, in all cases of collectors and other debtors of the state, the real and personal property of the debtors should be bound from the time suit was lawfully commenced, added the following: “And in all cases where the estate of the debtor is insufficient to pay his debts, the State shall have preference and its demands shall be first settled and satisfied out of such estate.” Whatever the effect of the portion of the act just quoted may have been, it was repealed by section 380, c. 40, R. S. 1843, p. 744, which was in almost the exact language of the earlier statute but which omitted the portion quoted above. Section 4, c. 59, R. S. 1843, provided that, with certain exceptions, “all acts and parts of acts the subject whereof are revised and re-enacted *** together with *** and consolidated in these Revised Statutes, shall be repealed. ***” Said chapter 59 also provided for continuing in force “all special acts and parts of acts relating to any of the debts” due the state, but that reference to “special” or “local” laws had no reference to general acts such as were revised by c. 40, supra.

The appellant contends that, even in the absence of a statute granting such a right of preference, the state has a prerogative right, derived from the common law, to a priority or preference over other depositors of an insolvent bank for the repayment of its general deposits placed in the bank.

By section 1, c. 61, 1 R. S. 1852, p. 351, § 244, Burns' 1926, “the common law of England, and the statutes of the British Parliament made in aid thereof, prior to the fourth year (1606-1607) of the reign of James the First (with three specified exceptions) and which are of a general nature, not local to that Kingdom, and not inconsistent with (the federal and state Constitutions and statutes),” are declared to be law governing this state.

The common law of England as it existed in 1607 may properly state and define many attributes and powers of sovereignty which are applicable alike to the kingdom of Great Britain, to this republic and to our several states. No part of it, however, which is inconsistent with the spirit of our free institutions, can be applied to us. Ketelsen v. Stilz (1916) 184 Ind. 702, 111 N. E. 423, L. R. A. 1918D, 303, Ann. Cas. 1918A, 965. The personal prerogatives of the King have no place or counterpart in our government. The source of all governmental power in this state is the people. Any sovereign prerogatives this state may have come from the sovereign power of the people, and are ordinarily expressed in the Constitution or in the statutes.

It may be conceded that the state, in the exercise of its sovereign power to secure an adequate revenue to sustain the public burdens and discharge the public debts, may and does assert a priority or preference for its governmental claims against its citizens, as in the levying and collecting of taxes, and in the collection of fines and forfeitures. This preference which the state has a right to exercise in governmental matters has always existed as an attribute of sovereignty. It existed in England and has often been said to be a part of the common law.

No specific rule of the common law (nor any statute) existed in 1607 by which the sovereign could claim a priority in the case of a bank deposit; the bank of England, the first institution through which the government did a banking business, was not founded until 1694. It does not follow from the general rule of the common law, giving a preference to the sovereign in governmental matters, that such a preference should exist where the state deposits money in a bank to earn interest, pursuant to a contract.

The state may have certain priorities or preferences in the governmental function of collecting the money with which it carries on the state business, but priority or preference cannot, in the absence of a statute, be validly claimed for a debt which a bank incurs when it accepts a deposit of the state's money at interest under our depository laws.

When the state determines to place the funds it has collected in a bank as a general deposit, subject to check, and bearing interest, it enters upon a business transaction with the banking corporation, the same as any citizen might do; and, in the absence of express legislation to the contrary, the courts cannot and should not extend the preference that inheres in the sovereign exercise of governmental functions to include such a business transaction. Especially is...