In re Central Bank of Willcox

• Decision Date: 12 April 1922
• Docket Number: Civil 2034
• Citation: 23 Ariz. 574,205 P. 915
• Parties: In the Matter of the Receivership of the CENTRAL BANK OF WILCOX, STATE OF ARIZONA, Appellant, v. HERBERT LOWDERMILK, Appellee
• Court: Arizona Supreme Court

205 P. 915

23 Ariz. 574

In the Matter of the Receivership of the CENTRAL BANK OF WILCOX, STATE OF ARIZONA, Appellant, v. HERBERT LOWDERMILK, Appellee

Civil No. 2034

Supreme Court of Arizona

April 12, 1922

APPEAL from a judgment of the Superior Court of the County of Cochise. A. M. Sames, Judge. Affirmed.

Mr. W J. Galbraith, Attorney General, and Mr. George R. Hill Assistant Attorney General, for the State.

Mr John C. Gung'l, for Appellee.

OPINION

ROSS C. J.

From the stipulation of facts it appears the Central Bank of Willcox was, on January 10, 1921, by the state superintendent of banks, ordered closed, and that thereafter, on a hearing before the court, ordered into involuntary liquidation and the appellee appointed receiver of its property. It appears that at the time of the appointment of the receiver there was on deposit in the name of the state treasurer the sum of $22,500, belonging to the state, which sum had been placed therein during the year 1919; that on June 21, 1919, the Central Bank of Willcox executed to the state of Arizona its bond signed by the Central Finance Corporation as surety to secure the repayment of deposits to the state, and that the Central Finance Corporation is unable to pay the said bond or any part thereof; that the assets of the bank are not sufficient to pay more than ten per cent of the total deposits.

On October 29, 1921, the Attorney General, in behalf of the state, filed a petition in the lower court praying that the receiver be restrained from distributing the available assets of the bank as dividends pending a hearing thereon as to whether or not the state was entitled to its deposit in said bank before any distribution of the assets thereof was made by the receiver. The receiver answered petition admitting all the allegations therein, but demurred on the ground that the facts stated did not constitute a cause of action. Upon a hearing the court sustained the demurrer and dismissed the state's petition and prayer for preference in the distribution of the bank's assets.

The sole question on this appeal is:

"Whether or not the state of Arizona is a preferred creditor and as such entitled to have its claim paid in preference to the depositors and other creditors."

Title XLIV, Civil Code of 1913, paragraphs 4642-4653, inclusive, contains the provisions of the law prescribing the duties of fiscal officers with reference to the keeping, lending, and paying out of public moneys of the state and counties. In the case of state moneys, the duty of selecting depositaries is placed upon the Governor, the treasurer, and the auditor. The depositaries may be state or national banks and must have a paid up capital stock of not less than $10,000. The depositary must qualify by giving its bond to the state signed by a surety company or by individuals possessing the qualifications required by law in case of official bonds, or it may deposit with the state treasurer in lieu thereof interest-bearing bonds of the United States, the state, county, city, road or school districts of the state. If the designated depositary tenders to the state its bond with sureties, it is made the duty of the Governor, treasurer and auditor of the state to "certify in writing thereon that they have made diligent personal investigation as to the sufficiency of the sureties thereon, and are satisfied that such bond is amply sufficient to protect the interests of the state" (section 4645), and at the time approve the bond. It is provided that --

"It shall be the duty of the state treasurer, upon the receipt of such bond, . . . to forthwith deposit with the bank or banks, executing the same, the public moneys then in his possession. . . . " Section 4647.

The depositaries are active or inactive according to designation by the Governor, the treasurer, and the auditor. The difference between these depositaries is that the active one's account shall at all times be subject to draft for the purposes of meeting current expenses of the state and shall pay interest on the daily balances at not less than two per cent; whereas, the inactive depositary shall not be subject to daily draft and shall pay interest at a higher rate fixed by the statute. It will be seen that the legislature has devised a plan or scheme quite comprehensive and complete by which the public moneys of the state may be loaned at interest, and has with care and propriety conferred upon three of its highest administrative officers the power and duty to select and qualify state and national banks as such depositaries. The treasurer is forbidden to deposit with any depositary any excess over the amount of the bond or security furnished.

The learned Attorney General plants the right of the state to a preference squarely upon the rule of the common law that gave to the King of England a preference of payment, over other creditors, out of an insolvent debtor's estate. It is the claim that this royal prerogative enjoyed by the rulers of the mother country has descended to the various states in their sovereign capacity. The United States has never claimed a preference right to collect its debts from an insolvent or failing debtor by reason of any succession to the prerogative right exercised by the ruler under the common law, but has always provided for such preference by statute. As was said in United States v. Bank of North Carolina, 6 Pet. 29, 8 L.Ed. 308:

"The claim of the United States, however, does not stand upon any sovereign prerogative, but is exclusively founded upon the actual provisions of their own statutes."

Some of the states of the Union claim to have succeeded to the sovereign prerogative and exercise it under the common law without any legislation in aid of the right. Others deny the state's right to the preference under the common law as being antagonistic to the cardinal objects of a free government. Many of the cases, those denying the right and those sustaining the right to preference, are to be found in the following cases: Aetna Accident & Liability Co. v. Miller, 54 Mont. 377, L.R.A. 1918C, 954, 170 P. 760; State v. First State Bank, 22 N.M. 661, L.R.A. 1918A, 394 (annotated), 167 P. 3; Page County v. Rose, 130 Iowa 296, 8 Ann. Cas. 114 (annotated), 5 L.R.A. (N.S.) 886, 106 N.W. 744; State v. Williams, 101 Md. 529, 109 Am. St. Rep. 579, 4 Ann. Cas. 970 (annotated), 1 L.R.A. (N.S.) 254, 61 A. 297; Phillips v. Yates Center Nat. Bank, 98 Kan. 383, L.R.A. 1917A, 680 (annotated), 158 P. 23; Re Carnegie Trust Co., 206 N.Y. 390, 46 L.R.A. (N.S.) 260 (annotated), 99 N.E. 1096.

In some of the states, as in the case of the United States, the preference is statutory. Bent v. Hubbardston, 138 Mass. 99; Baxter v. Baxter, 23 S.C. 114; State v. Dickson, 38 Ga. 171.

In those jurisdictions where the succession to the prerogative right is recognized it is accepted with all the limitations of the common law. The preference must be exercised while the debtor's property is still in his hands, and it cannot be exercised against prior liens. State v. Williams, supra; State v. First State Bank, supra.

The right to exercise a preference out of the assets of an insolvent debtor, whether founded upon the written or unwritten...