State v. Madison State Bank of Virginia City
| Decision Date | 26 September 1923 |
| Docket Number | 5350. |
| Citation | 218 P. 652,68 Mont. 342 |
| Parties | STATE EX REL. RANKIN, ATTY. GEN., v. MADISON STATE BANK OF VIRGINIA CITY. FIDELITY & DEPOSIT CO. OF MARYLAND v. MCCLINTOCK. |
| Court | Montana Supreme Court |
Appeal from District Court, Madison County; Joseph C. Smith, Judge.
Action by the State, on the relation of Wellington D. Rankin Attorney General, against the Madison State Bank of Virginia City, and others, in which defendant Fidelity & Deposit Company of Maryland appealed. From an order denying its application for an order directing defendant P. B McClintock, as receiver of defendant bank, to admit a preference right asserted. Order reversed, and cause remanded, with direction.
Day & Mapes, of Helena, for appellant.
Rodgers & Gilbert, of Dillon, and John G. Brown, of Helena, for respondent.
On May 2, 1922, the Madison State Bank, a banking corporation organized under the laws of this state, became insolvent, and the state superintendent of banks took charge of its affairs. Later an action was commenced by the state, on the relation of the Attorney General, against the bank, and such proceedings were had therein that on June 19 a receiver was duly appointed, who qualified and entered upon the discharge of his duties. Prior to the time the bank suspended, it had been designated a depositary for state funds in the hands of the state treasurer, and had given a bond, with the Fidelity & Deposit Company of Maryland as security, which bond had been duly approved. At the time of suspension the state treasurer had on deposit in the bank public funds of the state to the amount of $2,450, upon which interest to the amount of $12.75 was due. Upon demand of the state, the security company paid the amount of the deposit, with the accumulated interest, and thereafter presented its claim to the receiver for payment in preference to the unsecured claims of the general creditors of the bank. The receiver refused to recognize the preference right asserted, and application was then made to the court in the receivership proceedings for an order directing the receiver to admit the preference right and pay the claim in full out of the funds in his hands available for such purpose. After a hearing the court denied the application, and the security company appealed from the order.
In Ætna Accident & Liability Co. v. Miller, Receiver, 54 Mont. 377, 170 P. 760, L. R. A. 1918C, 954, a state of facts identical in all essentials with the facts of this case was presented, and it was there held: (1) That by virtue of the common law, and in the absence of constitutional or statutory provisions upon the subject, this state in its sovereign capacity is entitled to preference over unsecured general creditors of an insolvent bank in which its funds are deposited, so long as the debtor bank retains title to the property out of which payment is to be made; (2) that a receiver appointed to take charge of the affairs of an insolvent bank does not acquire title to the property of the bank; (3) that while a state may waive its preference right of payment, this state has not done so; and (4) that, if the deposit of state funds is secured, the security, upon making payment, is subrogated to the same preference right which the state might have asserted.
To break the force of that decision it is now contended that it conflicts with the decision in Yellowstone County v First Trust & Savings Bank, 46 Mont. 439, 128 P. 596, and that it is opposed to the current of modern authority in this country. In the opinion in the Miller Case reference was not made to the decision in the earlier case, and the reason for the omission was apparent to the members of this court, though it may not be to others. The Yellowstone County Case was submitted and determined upon an agreed statement of facts, from which it appeared that the county treasurer, in violation of the law had on deposit in the First Trust & Savings Bank, at the time the bank failed, county funds to the amount of $33,000, and that the deposit was secured to the extent of $12,500 only. The one question submitted for decision was:
"Is the deposit of $33,000, or any part thereof, a trust fund, with the payment of which the assets of the defendant bank in the hands of said receiver are chargeable as a preferred claim?"
We answered the inquiry by holding that the unsecured portion of the deposit was a trust fund, to be paid to the county in preference to unsecured claims of the general creditors of the bank. Unfortunately we did not stop when we had reached our conclusion, but went further and expressed views upon a subject not before us, viz. the character of the secured portion of the county's deposit and the right of the county with respect thereto. The views thus expressed are clearly dicta, and to that extent the decision is not authority.
As indicated above, in the Yellowstone County Case the question of the county's right to preference in the payment of the entire amount of its deposit, based upon the common-law rule, was not even suggested, and was not considered or determined. In the Miller Case the right of the state in virtue of its sovereignty to assert a preference in the payment of its claims was the primary question submitted and decided. From the standpoint of authority there is not any conflict between the two decisions.
The opinion in the Miller Case makes an exhaustive review of the authorities, and discloses that, of the many jurisdictions in which the question of the state's preference right had been before the courts, in only three states--New Jersey, South Carolina, and Mississippi--was the existence of the rule announced by this court denied. Since that decision was rendered, the question has been before the court of last resort of each of the following states: Arizona, Minnesota, Oregon, Utah, Washington, and West Virginia. In re Central Bank of Wilcox, 23 Ariz. 574, 205 P. 915; American Surety Co. v. Pearson, 146 Minn. 342, 178 N.W. 817; United States Fidelity & Guaranty Co. v. Bramwell (Or.) 217 P. 332; National Surety Co. v. Pixton, 60 Utah, 289, 208 P. 878, 24 A. L. R. 1487; Ætna C. & S. Co. v. Moore, 107 Wash. 99, 181 P. 40; Woodyard v. Sayre, 90 W.Va. 295, 110 S.E. 689, 24 A. L. R. 1497.
In Oregon and West Virginia, the right of the state to preference founded upon the common-law rule is asserted, and substantially the same rule was applied in Minnesota under a statute. The Arizona court assumed, without deciding the question, that the common-law rule would prevail, in the absence of statute waiving the preference right, but held that the state's depository law operated as a waiver.
In Washington, the existence of the common-law rule was not denied, but the court held that, if the rule was in effect its provisions could not be invoked in the particular case, because the state bank examiner had taken possession of the insolvent depositary before the preference right was asserted, and the statute authorizing such possession operated to pass to the examiner the title to the depositary's property out of which payment would have to be made. The ...
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