In re South Philadelphia State Bank's Insolvency
| Decision Date | 04 February 1929 |
| Docket Number | 343 |
| Parties | South Philadelphia State Bank's Insolvency |
| Court | Pennsylvania Supreme Court |
Argued January 9, 1929
Appeal, No. 343, Jan. T., 1928, by National Surety Company claimant, from decree of C.P. No. 1, Phila. Co., June T. 1924, No. 14750, dismissing exceptions to account, in the matter of South Philadelphia State Bank of Philadelphia, in possession of Peter G. Cameron, secretary of banking. Reversed.
Exceptions to account of Peter G. Cameron, Secretary of Banking. Before McDEVITT, J.
The opinion of the Supreme Court states the facts.
Exceptions dismissed, in opinion by McDEVITT, J. National Surety Co., claimant, appealed.
Error assigned, inter alia, was decree referring to it in the record.
The decree appealed from is reversed to the extent above indicated; costs to be paid out of the fund.
Earl G. Harrison, with him Saul, Ewing, Remick & Saul, for appellant. -- The National Surety Company, on payment by it of the amount of the Commonwealth's deposit, became subrogated to the rights of the Commonwealth against the bank: South Phila. State Bank v. Surety Co., 288 Pa. 300; Phila. v. Fidelity & Deposit Co., 231 Pa. 208; McSorley v. Coyle, 40 Pa.Super. 560; Illinois Auto Ins. Ex., v. Braun, 280 Pa. 550
No proof of appellant's claim against the bank was required by the banking act inasmuch as its claim was that of a depositor (by reason of succeeding to the rights of the Commonwealth) and the books of the insolvent bank showed the correct amount of the deposits.
In the distribution of the assets of an insolvent State bank in which the Commonwealth of Pennsylvania was a depositor, the Commonwealth is entitled to priority of payment over other depositors and creditors: Lyle v. Richards, 9 S. & R. 322; Pennock's Est., 20 Pa. 268; Flanagan v. Phila., 42 Pa. 219; Booth & Flinn v. Miller, 237 Pa. 297; Com. v. Lewis, 6 Binn. 266.
If the Commonwealth is entitled to such priority, a surety company, which has paid to the Commonwealth the amount of its deposit, is entitled to the same priority (a) by virtue of subrogation to the Commonwealth's rights and remedies, or (b) by virtue of the assignment executed to it by the Commonwealth: Sheaffer's Est., 281 Pa. 138; Riddlesburg C. & I. Co., 22 F.2d 644.
Albert S. C. Millar, for appellee. -- In the case of an insolvent corporation, the rights of the parties are fixed as of the date of the appointment of the receivers: Blum Bros. v. Bank, 248 Pa. 148; Miller's App., 35 Pa. 481; Dean's App., 98 Pa. 101; Chipman & Holt v. Bank, 120 Pa. 86.
Since appellant was in the class with "all creditors other than depositors" and, being in that class, did not "make proof of" its "claim in the manner hereinafter set forth" there would seem to be little doubt but that it is "debarred from coming in upon the fund" as provided by section 41 of the act mentioned.
An assignee of claims of the Commonwealth under an assignment executed by the state treasurer, does not acquire any rights under such assignment where there is no statutory authority for the state treasurer to make such an assignment.
An insurer of the Commonwealth's deposits after payment to the Commonwealth is not subrogated to the Commonwealth's rights where the application for the bond was made by the bank and all the agreements and covenants therein were the bank's only: South Phila. State Bank v. Surety Co., 299 Pa. 300; Sheaffer's Est., 281 Pa. 138; Kates's Est., 282 Pa. 417.
If the Commonwealth, as a depositor in an insolvent state bank, is entitled to payment in full before other depositors, a surety company, which insured such state deposits and on default of the bank paid the Commonwealth, does not acquire the Commonwealth's right to priority by an assignment from the state treasurer or by subrogation.
Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.
The South Philadelphia State Bank became insolvent and was taken in charge by Peter G. Cameron, State Secretary of Banking; when he filed an account in the court below, the National Surety Company, which had entered a bond to secure the Commonwealth of Pennsylvania against loss as a depositor in the bank and had paid the Commonwealth the amount of its deposit, $10,000, claimed the right to stand, by subrogation, in the place of its payee, in all respects. This demand was listed as an "objected claim," and the court below refused to allow it, on the ground that "the surety company was a claimant, other than a depositor," which had not entered its claim within the time required by section 41 of the Banking Act of June 15, 1923, P.L. 809, 829, and therefore was entirely "debarred from coming in upon the fund." The claimant has appealed.
When the case was before us on a former appeal (288 Pa. 300), we said (at p. 305) that appellant's claim "must be presented at the time and in the way prescribed by the statute, exactly as the Commonwealth would have had to present it if the amount of the deposit was still due to it." In other words, the surety company, in presenting any claim growing out of its payment to the Commonwealth, was to act as though it were a depositor of the bank. It is enough to say, without detailing the relevant facts, that, correctly treating the claim in question as that of a depositor, the surety company presented it in the manner and within the time required by the Act of Assembly; hence the claim should have been allowed to some extent.
The broad question is, Can appellant properly claim to be entitled, by preference, to the full amount it paid the Commonwealth?
Appellant urges that, had the Commonwealth itself presented the claim, it would have been entitled to a preference which would have brought about full payment of the amount due, and that, as surety, it is entitled by subrogation, not only to the rights which the Commonwealth possessed as an ordinary depositor in the bank, but to the preference which it enjoyed over all other depositors in case of the insolvency of the depository. Whether or not the State's sovereign right of preference passed to appellant is the controlling question in the case.
When the surety company paid the Commonwealth the amount of its deposit, the state treasurer executed a written assignment to appellant of the Commonwealth's claim. Since this special assignment was made without warrant of law, it gave no greater rights to the assignee than the latter already had acquired under the equitable doctrine of subrogation: see South Phila. State Bank v. National Surety Co., 288 Pa. 300, 303. The point is, On the facts of this case, considering the rights of all the depositors in the bank, the peculiar nature of the right of preference enjoyed by the Commonwealth, and such minor considerations as present themselves, do the decided cases in this State and the general principles of our law dictate that the National Surety Company should, upon meeting its obligations under the bond which indemnified the Commonwealth, enjoy the latter's sovereign preference as a creditor, as against the rights of all other depositors?
By the common law of England, at the time of the American Revolution, the king was entitled to have a debt due the crown paid before that of any of his subjects: Attorney-General v. Andrew, 1 Hardres 22, 145 Eng. Reprint 360. This privilege belonged to the king in the capacity of parens patriae, or universal trustee (Blackstone's Commentaries, Sharswood's ed., vol. 1, pp. 238, 240), and passed to the State of Pennsylvania in its sovereign capacity: Com. v. Lewis, 6 Binn. 266, 271; Com. v. Baldwin, 1 Watts 54, 55; Booth & Flinn v. Miller, 237 Pa. 297, 307. For an excellent general discussion and citation of cases on this subject, see U.S. Fidelity & Guar. Co. v. Bramwell, 108 Ore. 261, 217 P. 332.
Though the State of Pennsylvania has a sovereign right of priority over all other creditors, it by no means follows that, on the facts in this case, such right would pass to one in the position of appellant. It must be remembered that appellant, a surety obtained and paid by the insolvent bank, not by the Commonwealth, claims the right to enjoy the sovereign privileges of the latter, and this under the equitable doctrine of subrogation; the right claimed is to a preference over all other depositors of the bank. Since the right of priority of the sovereign state exists pro bono populo, it follows that where a situation arises in which the State, having been paid in full, is not immediately concerned, and where the transfer of its right of priority would result in prejudice to one class of its citizens for the benefit of another, it cannot be held that the good of all the people would thus be served. It may well be assumed that the ordinary depositor in a bank which enjoys state deposits, knowing that, in event of the insolvency of the institution, the State has the right to priority of payment, would likewise know that the laws of Pennsylvania require all state deposits to be secured by bonds with ample security thereon. Furthermore, since the doctrine of subrogation is an equitable one, the ordinary depositor might properly believe that, in event of the insolvency of their depository, if no necessity existed for the State to protect itself by exercising its sovereign right to priority of payment, that right would not be used to his prejudice, and, on such basis, he would make, or continue, his deposits; therefore, the doctrine in question should not be allowed to operate in a manner to produce prejudicial results to such depositors.
The proper rule is that the State's right to a preference over other creditors, being a sovereign right enjoyed for the benefit of all the people, cannot be...
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