University of Tennessee v. People's Bank

• Decision Date: 28 May 1928
• Citation: 6 S.W.2d 328,157 Tenn. 87
• Parties: UNIVERSITY OF TENNESSEE v. PEOPLE'S BANK et al.
• Court: Tennessee Supreme Court

6 S.W.2d 328

157 Tenn. 87

UNIVERSITY OF TENNESSEE v. PEOPLE'S BANK et al.

Supreme Court of Tennessee.

May 28, 1928

Appeal from Chancery Court, Weakley County; V. H. Holmes Chancellor.

Action by the University of Tennessee against the People's Bank of Martin and others. Decree for complainant, and defendants appeal. Modified and affirmed.

Green Webb & Bass, of Knoxville, for complainant.

Maiden Rowlett & Maiden, of Dresden, for defendants.

SWIGGART J.

The People's Bank of Martin was placed in the hands of a receiver by the chancery court of Weakley county in September, 1927, for liquidation as an insolvent bank. It had on deposit to the credit of the University of Tennessee the sum of $30,891.13. Of this deposit $26,500 represented a portion of the proceeds of a bond issue of Weakley county, authorized by chapter 172 of the Private Acts of 1927. The remainder, amounting to $4,391.13, had been collected by the University from students at the Junior College, a branch of the University of Tennessee located at Martin, as "fees, room rent, board, and incidentals."

The present action was instituted by the University of Tennessee against the bank and sureties on a bond executed by the bank to the University, to secure the University against loss of any "revenues and other public moneys of and for the state of Tennessee" placed on deposit in said bank. The primary issue or controversy between the parties is whether the claim of the University for the deposit above described is a preferred claim.

The claim for preference is predicated upon the idea that the University of Tennessee is an agency of the state, and that property held and possessed by it is the property of the state, for the protection of which the state is entitled to preference and priority as an incident to its sovereignty. United States Fidelity & Guaranty Co. v. Rainey, 120 Tenn. 357, 113 S.W. 397; Maryland Casualty Co. v. McConnell, 148 Tenn. 656, 257 S.W. 410.

For the receiver of the People's Bank it is primarily contended that the preference claimed should not be allowed because (1) the funds and property of the University of Tennessee are not held by the state in its sovereign capacity, but by a corporation, in the creation of which the state divested itself of its sovereignty, in so far as the property held by such corporation is concerned; and (2) the proceeds of the bonds issued by Weakley county, constituting the greater part of the deposit, were not the property of the state nor of the University, but were the property of the county, in the possession of the University as an agent of the county for expenditure.

The University of Tennessee was incorporated by the state of Tennessee in 1807, under the name of "Trustees of East Tennessee College." Scott's Revision, p. 1047. The name of the corporation was changed to "the University of Tennessee" by an act of March 10, 11, 1879. The corporation is managed and controlled by a board of trustees, the method and manner of whose appointment have been changed from time to time. By the Acts of 1909, c. 48, it is provided that the board of trustees shall be composed of the Governor, the superintendent of public instruction, the commissioner of agriculture, the president of the University, and twelve members, appointed by the Governor, subject to confirmation by the Senate.

Various statutes have been enacted, providing for the control and management of the University. Students who are citizens of the state are admitted without tuition. An appropriation from the current revenues of the state is made for the support and maintenance of the institution, supplemented from time to time by appropriations of large sums for permanent improvement and expansion. The University has received funds from the Government of the United States from time to time, appropriated to the state of Tennessee for the use of the University. Several gifts from individuals have also been received by the University.

In Maryland Casualty Co. v. McConnell, supra, it was held by this court that money acquired by the state for school purposes is acquired for a governmental purpose, and is held by the state in its sovereign capacity. It was further held therein that the identity of the fund is not lost, nor the nature of the state's title changed, by the deposit thereof in a bank at interest.

In view of the rulings made in Maryland Casualty Co. v. McConnell, supra, and in United States Fidelity & Guaranty Co. v. Rainey, supra, there would be no doubt but that the property devoted by the state to the establishment and maintenance of the University of Tennessee would be entitled to the protection of the preference and priority arising from the state's sovereignty, but for the interposition of the corporation in which legal title is vested.

In Fields v. Wheatley, 1 Sneed (33 Tenn.) 351, the preference arising from sovereignty was claimed for debts owing to the bank of Tennessee, a state institution, exclusively owned and controlled by the state. The court held that the preference could not be sustained because the property of the bank was not held by the state in its sovereign character. In so holding the court said:

"In creating such a corporation, the state has invested it with none of its rights or prerogatives, none of its powers or incidents of sovereignty; but has, in this respect, placed it upon the same footing as other corporate bodies, and the same principles are applicable to it. In assuming to carry on the business and to exercise the functions of banking, the government, thus far, in the language of C.J. Marshall, divests itself of its sovereign character, and takes that of a private citizen, or corporation. Hence, the corporation, though belonging exclusively to the state, is subject to be sued; is within the operation of the statute of limitations; and in the collection of its debts, can assert no priority or right over other creditors. [Bank of United States v. Planters' Bank] 9 Wheaton's R. 904 [6 L.Ed. 244; Bank of State v. Gibbs] 3 McCord's R. [S. C.] 377; [ Bank of State v. Gibson's Adm'rs, 6 Ala. 814] 6 Alabama R. (New Series) 814; [Dox. v. Postmaster-General] 2 Peters' R. 323 [7 L.Ed. 160; Huntington, C. & I. Turnpike Road Co. v. Wallace] 8 Watts' R. [Pa.] 316."

In White v. Nashville & Northwestern Railroad Co. et al., 7 Heisk. (54 Tenn.) 518, 546, 547, the same conclusion was reached with regard to the property of a railroad corporation, taken over by the state to secure an indebtedness, and operated by the state. In that case the court said:

"In becoming a common carrier, or a corporator, or partner in a railway company, the state has sunk the right and dignity of the sovereign to a level with those of the citizen, and in coming to litigate those rights in her courts, her controversy can only be treated as one between man and man."

The holding of this court in the two cases just cited was founded, not upon the fact that the state had created a corporation as an agency for the possession and management of a portion of its property, but upon the nature and character of the corporation organized, as evidenced by its purpose and the kind and character of business transacted by it.

It is obvious that the University of Tennessee, as a corporation is not of the character of the corporations involved in Fields...