National Surety Co. v. Pixton

• Decision Date: 21 June 1922
• Docket Number: 3783
• Citation: 208 P. 878,60 Utah 289
• Parties: NATIONAL SURETY CO. v. PIXTON, State Bank Com'r
• Court: Utah Supreme Court

208 P. 878

60 Utah 289

NATIONAL SURETY CO. v. PIXTON, State Bank Com'r

No. 3783

Supreme Court of Utah

June 21, 1922

Appeal from District Court, Seventh District, Grand County; F. E Woods, Judge.

Action by the National Surety Company against Seth Pixton, State Bank Commissioner. From a judgment of dismissal, plaintiff appeals.

AFFIRMED.

A. E Moreton, of Salt Lake City, for appellant.

Patterson & Constantine, of Moab, for respondent.

FRICK J. CORFMAN, C. J., and WEBER, GIDEON, and THURMAN, JJ., concur.

OPINION

FRICK, J.

The plaintiff, in its complaint, after alleging all of the necessary matters of capacity and inducement, in substance alleges that in March, 1917, the State Treasurer of the state of Utah was about to deposit in the Moab State Bank, of Moab, Utah large sums of the state's funds; that before making the deposit of said state funds the State Treasurer was by law required to take, and that he did take and receive, a bond in the sum of $ 20,000 as security from said bank for the repayment of said funds; that upon application of said bank the plaintiff, on March 6, 1917, duly made and delivered, as surety for said bank, its bond in the sum of $ 20,000, which was duly accepted by the Treasurer of the state of Utah as security for the repayment of the state funds deposited and to be deposited in said bank; that on the 3d day of January, 1921, "there was and now is on deposit in said" bank the sum of $ 19,984.27 of the funds of the state of Utah; that on the 10th day of January, 1921, one N. T. Porter, the Commissioner of Banks of the state of Utah examined into the financial affairs of said bank, and, upon such examination, found that said bank was in an unsafe condition financially, and that said commissioner on said day "took possession of its books, records, and assets of every description"; that on the 1st day of April, 1921, the defendant, Seth Pixton, "succeeded the said N. T. Porter as Commissioner of Banks for the state of Utah," and the latter has since that time continued to be and now is the Commissioner of Banks, "and is now in charge of and in the possession of said bank, its books, records, and assets of every description;" that on the 21st day of February, 1921, "upon demand of the state of Utah through its duly authorized officers," the plaintiff, pursuant to the terms and conditions of the bond aforesaid, "and because of the breach of the same by said bank, was compelled to pay, and did pay, to and for the benefit of the state of Utah," the sum of $ 19,984.27, "the same being and representing repayment to it * * * of the moneys of the state of Utah so on deposit in the said bank"; that after making the payment as aforesaid "an assignment of all claims of the state of Utah to the amount of $ 19,984.27 upon and against said Moab State Bank of Moab, Utah by and because of the deposit of the aforesaid moneys of the state of Utah in said Moab State Bank," was made to the plaintiff; that after receiving said assignment the plaintiff "did duly present to the said Seth Pixton, State Bank Commissioner, a proof of claim, asserting the priority of the debt of the state of Utah and the right to preference in payment of said debt out of the funds of said bank, and claiming the right to have such payment made to it because of its subrogation to the rights of the state of Utah"; that said Commissioner disapproved plaintiff's right to priority, and denied its right to preference; that by reason of the surety bond and the payment of the moneys as hereinbefore stated plaintiff "has been subrogated to all the rights of the state of Utah"; that the state of Utah by virtue "of its sovereignty and of the preferences, privileges, and prerogatives appertaining thereto," is entitled to full payment in preference to all other creditors of said bank; "that during all of the times hereinbefore mentioned there has been and now is in the possession of said Seth Pixton, Bank Commissioner of the state of Utah sufficient funds of said bank with which to pay in full" the said $ 19,984.27 due to the state of Utah which sum, by reason of the facts hereinbefore stated, should be paid to the plaintiff, and which said Seth Pixton has refused and still refuses to pay.

The plaintiff prays judgment that its preferential right be established and declared, and that the court order that the sum of $ 19,984.27 be paid to it out of the funds of said bank now in the possession of said Seth Pixton, defendant herein.

Demurrers, both general and special, were interposed to the complaint by the defendant. The court sustained the general demurrer, and, the plaintiff declining to further amend its complaint, but electing to abide by the allegations therein contained, the court entered judgment dismissing the action, from which this appeal is prosecuted.

We remark that plaintiff's counsel at the time of the oral argument disclaimed any right by virtue of the assignment alleged in the complaint, but based plaintiff's right of recovery upon the sole ground that the state of Utah by reason of its sovereignty, was by virtue of the common law in force in this state a preferred creditor of the insolvent bank, and that the plaintiff, by reason of its relationship as surety and the payment of said sum of $ 19,984.27 to the State Treasurer of Utah became subrogated to all of the preferential rights of the state of Utah and therefore is entitled to have said sum paid to it by the Commissioner of Banks out of the assets of said insolvent bank in preference to the rights of all other creditors. In view that nothing is predicated upon the assignment, further reference will not be made thereto.

Counsel for plaintiff therefore insists that the district court erred in sustaining the general demurrer to the complaint and in denying the relief prayed for. Upon the other hand, the defendant, through his counsel, contends: (a) That the plaintiff, in making and delivering the surety bond, became the surety for the State Treasurer personally, and not for the state of Utah; (b) that the state of Utah did not and does not have any priority over general creditors; (c) that if the state of Utah is entitled to priority by virtue of its sovereignty such right, nevertheless, is not transferrable, and hence plaintiff is not subrogated thereto; and (d) that if the state of Utah had the right of priority, by reason of its conduct, and in view of the facts and circumstances disclosed in the complaint, it has lost such right, and therefore if the state cannot enforce such right plaintiff cannot. Other reasons why plaintiff cannot recover in this action are urged, but it is not necessary to refer to them here.

Plaintiff's counsel, in support of his contention that by virtue of its sovereignty the claim of the state of Utah has priority over all other claimants against the insolvent bank, cites and relies upon the following cases: State v. Foster, 5 Wyo. 199, 38 P. 926, 29 L. R. A. 226, 63 Am. St. Rep. 47; In the Matter of the Carnegie Trust Co., 206 N.Y. 390, 99 N.E. 1096, 46 L. R. A. (N. S.) 260; State v. First State Bank, etc., 22 N.M. 661, 167 P. 3, L. R. A. 1918A, 394; State v. People's S. B. & T. Co., 23 N.M. 282, 168 P. 526; AEtna Acc. & Lia. Co. v. Miller, 54 Mont. 377, 170 P. 760, L. R. A. 1918C, 954; Booth & Flinn v. Miller, 237 Pa. 291, 85 A. 457; Seay v. Bank of Rome, 66 Ga. 609; Booth v. State of Georgia, 131 Ga. 750, 63 S.E. 502.

In all of the foregoing cases it is held that by virtue of the common law of England the king, by reason of his sovereignty, had preference over all other rights, and in view that the common law of England as it existed at and prior to the year 1775 was adopted by the different states of the Union in which the cases were decided that the claims of the creditor states by virtue of their sovereignty had preference over all other claims. In those cases it is also held that where the claims of the state have been guaranteed by a surety, such surety, after paying the state's claim, is subrogated to all of the rights of the state, and that the claim of the surety has preference over all other claims. It is, however, further held in all of the foregoing cases, except one, or perhaps two, that the preferential right of the state may be waived or lost, and in case it is waived or lost the state can recover only its pro rata share of the insolvent estate the same as any other creditor, and that the surety can recover no more than the state could have recovered. In Booth & Flynn v. Miller, supra, the Supreme Court of Pennsylvania, in speaking of the doctrine that the state may waive or forego its right, in the course of the opinion, says that the state "may forego its rights as a sovereign power and place itself on the same footing as one of its citizens. * * *" True, the court points out that ordinarily a sovereign right must be expressly waived, and a waiver or abandonment thereof is not presumed. It cannot be disputed, therefore, that the right of preference may be lost by the sovereign state. It is further held in all of those cases, except one or two, that, in case the title to property or assets in which by virtue of its sovereignty the state claims preferential rights has passed from the debtor, the preferential right is lost. The rule governing in such circumstances is perhaps as clearly and as tersely stated in the headnote to the case of State v. People's S. B. & T. Co., supra, as in any case, and for that reason we here insert the headnote in full. It reads:

"Upon the appointment of a receiver of an insolvent banking corporation, having on deposit state funds, the state loses such priority as comes to it from the common law as a sovereign right, by reason of the divestiture of title which takes place upon the...