Opinion
13100
March 27, 1931.
Before DENNIS, J., Florence, August, 1930. Appeal dismissed and ordered affirmed.
Petition by The American Surety Company of New York and another against Sam J. Royall, as Receiver of the Bank of Florence; in the proceeding by the State ex rel. Albert S. Fant, State Bank Examiner, against Bank of Florence, et al. From an adverse order petitioners appeal.
The order of the trial Judge was as follows:
ORDER SUSTAINING DEMURRERThis matter came on for hearing before me at chambers at Darlington, S.C. on August 25, 1930, pursuant to rule requiring Sam J. Royall, as receiver of the Bank of Florence, to show cause why he should not be ordered and directed to pay to petitioners, American Surety Company of New York and New Amsterdam Casualty Company of New York and New Amsterdam Casualty Company, from the assets of Bank of Florence, of which he is receiver, the sum of $6,202.57 each, with interest thereon, as creditors of said bank entitled to priority. Judge S.W.G. Shipp, Judge of the Twelfth Circuit, has previously held himself disqualified on matters pertaining to the receivership of Bank of Florence, because of the fact that he is a depositor of said bank.
By way of return to the petition, Sam J. Royall, as receiver, demurred on the ground that the allegations of the petition do not show the debts described to be debts due to the United States, within the meaning of Section 3466 of the Revised Statutes of the United States (31 U.S.C.A., § 191), for which the sureties would have priority under the terms of Section 3468 of the Revised Statutes) 31 U.S.C.A., § 193).
The allegations of the petition are briefly as follows: That Bank of Florence suspended business on October 28, 1928; that its affairs were placed in the hands of the state bank examiner, and that upon his petition Sam J. Royall was appointed receiver, duly qualified, and is acting as such; that the said bank is and was insolvent, and that its assets are being collected and distributed among its creditors under the provisions of the statutes of the State of South Carolina, in such cases made and provided; that said Bank of Florence was a depository of bankruptcy funds under appointment of the District Court for the Eastern District of South Carolina; that it was required to furnish bonds in the penal sum of $10,000.00 on two occasions, which bonds were made and filed with the American Surety Company of New York and New Amsterdam Casualty Company, respectively, as sureties; that the bonds were in favor of the United States of America, conditioned for the faithful discharge of the duties as depository of bankruptcy funds, and for the honoring of such checks as should lawfully be drawn upon such bankruptcy funds as were deposited in said bank; that at the time the bank failed there were funds on deposit to the accounts of various trustees in bankruptcy, aggregating $12,405.13; that, subsequent to the insolvency of the bank and appointment of receiver, the surety companies paid the amounts represented by said deposits to the United States upon its demand; that, under order of the District Court, the clerk of said Court was directed to indorse the checks representing said payments to the order of the referee in bankruptcy, and the said referee was ordered to pay the proceeds thereof to the respective trustees who had funds on deposit in said bank, and that the trustees in bankruptcy so receiving the said proceeds were directed to assign their interests in the moneys on deposit to their credit unto the surety companies, and that the United States attorney for the Eastern District of South Carolina execute an assignment on behalf of the United States to the American can Surety Company of New York of all the right, title and interest of the United States to its claim against the bank to the extent of amount so paid by said surety company; that payments and assignments were so made; and that the surety companies made demand upon the receiver for the payment to them of the sums so paid under the bonds mentioned, which the receiver failed and refused.
The question raised by the petition and demurrer is whether the indebtedness of the Bank of Florence, arising out of said deposits and bonds, is an indebtedness to the United States, within the meaning of Section 3466 of the Revised Statutes. If it is a debt due the United States the sureties, having paid the same, would be subrogated to the priority accorded the United States. Section 3468 of Revised Statutes.
The attorneys for the receiver cited the case of Andrew v. Crawford County State Bank, 208 Iowa, 1248, 224 N.W., 499, decided by the Supreme Court of Iowa, on April 2, 1929. The facts in that case, as stated in the opinion, were as follows:
"On or about December 15, 1926, the Crawford County State Bank of Denison, Iowa, closed its doors and ceased to do business. At the suit of the state superintendent of banking, he was appointed receiver by the district Court, and has at all times since been in possession of the bank's assets. The board of directors of the bank acquiesced in the action for the appointment of a receiver, and by voluntary resolution, properly adopted, consented thereto. Prior to the time when it ceased to do business, the Crawford County State Bank had been properly designated by the Federal District Court for the Southern District of Iowa as a depositary of funds belonging to bankrupt estates. Proof of claims were duly filed in the office of the clerk of the District Court by Jacob Johnson, C.C. Cadwell, and Harry Anderson, trustees in bankruptcy of various designated bankrupt estates. The claims thus proven aggregated $41,389.89. This sum has been somewhat reduced by dividends paid by the receiver.
"Before the deposits were made by the respective trustees, separate bonds, naming the United States as obligee, and signed by a surety company, were executed by the bank. The several surety companies signing the various bonds appeared in the receivership case, and filed a petition in intervention, praying that the claims filed by the respective trustees in bankruptcy named above be allowed and established as debts due the United States, and for an order directing the receiver to pay the same, with legal interest, in preference to all other debts or claims against said bank, and, as alternative relief, asked to be subrogated to the rights of the United States in the event of payment of the claims by the surety company. A trial was had, with the result that the claims were allowed and established in favor of the trustees as general depositors and without priority. Thereupon the surety companies paid the claims, and by order of the Court were subrogated to the rights of the United States."
It will be observed that the facts are for all practical purposes identical to those set out in the petition before the Court, and this is the only case to which the Court was cited in which the facts are the same. The question for decision in that case, as stated by the Court, was the following: "Are the claims filed and allowed by the Court indebtedness due the United States, within the meaning of Section 3466, Revised Statutes of the United States (31 U.S.C.A., § 191)," which are entitled to priority? This is the precise question raised by the demurrer in this case. The district Court of Iowa denied priority, and established the claims in favor of the holders as general depositors. Upon appeal to the Supreme Court of Iowa, the decision was affirmed, and thereafter a petition for certiorari was filed in the Supreme Court of the United States, which Court, on March 3, 1930, denied the petition. Royal Indemnity Co. of New York et al. v. Andrew, 281 U.S. 725, 50 S.Ct., 239, 74 L.Ed., 1142.
I am led to the conclusion from a careful consideration of the statutes and decisions that the facts set forth in the petition do not show an indebtedness to the United States for which the sureties can claim priority. The funds, which were on deposit, did not represent assets of the United States, but belonged to and were held for distribution to the creditors of the various bankrupts. Andrew v. Crawford County State Bank, supra. See, also, In re Eastern Shore Shipbuilding Corporation (C.C.A.), 274 F., 893, affirmed in Sloan Shipyards Corp. v. U.S. Shipping Board, etc., 258 U.S. 459, 42 S.Ct., 386, 66 L.Ed., 762. I do not think that the case of Bramwell v. U.S.F. G. Co., 269 U.S. 483, 46 S.Ct., 176, 70 L.Ed., 368, is controlling.
It appears from the decision in the case of Andrew v. Crawford County State Bank, that the attorneys for the surety company mainly relied upon the Bramwell case, supra. The petition for certiorari to the Supreme Court of the United States was not presented to me, but I think it a very reasonable inference that the burden of that petition was that the decision was contrary to the principles announced by the Supreme Court of the United States in the Bramwell case. The amount involved in the Iowa case was approximately $41,000.00, and this fact, connected with the fact that the Bramwell case had already been decided and was mainly relied upon, leads me to believe that the Supreme Court of the United States would have granted the petition had it not concluded that the facts in the Iowa case justified that Court in reaching the conclusion that the debt involved was not one due the United States, within the meaning of the statute.
Messrs. Hyde, Mann Figg, for appellants, cite: Law governing deposit of monies by trustees in bankruptcy: Bankrupt Act, Sec. 61, Gen. Order 19, Rule 182, Dist. Ct. Eastern Dist. S.C. Priority on debts due United States: U.S.R.S., Secs., 3466, 3468. Bank admittedly insolvent: 269 U.S. 483; 269 U.S. 492; 24 Fed., 2d 907. Section 3466 extends to every character of indebtedness: 2 Cranch, 358; 12 Pet., 102; 269 U.S. 483; 92 U.S. 618. United States could sue on bonds given to secure deposits of trustees: 26 Fed., 2d 4; 240 U.S. 214; 204 U.S. 349; 184 U.S. 676; 261 Fed., 266; 257 Fed., 373; 174 Fed., 12. Character of trustee and status of funds in his hands: U.S. Const., Art. 1, Sec. 8; 225 U.S. 205; 268 Fed., 305; 130 Fed., 1004; Bankruptcy Act, Secs. 33, 38, Sec. 1; Clause 18, Secs. 70, 47, 44, 29 N.Y. App., 596; 222 U.S. 300; 184 U.S. 1; 211 U.S. 564; 151 Fed., 919; 165 Fed., 428; 228 Fed., 339; 178 U.S. 541; 68 Atl., 863. Deposits to carry interest: 263 Fed., 295.
Messrs. Wilcox Hardee, for respondents, cite: Status of commercial sureties: 147 S.C. 144. Deposits in name of trustee are not debts due United States: 224 N.W., 499. Certiorari denied: 281 U.S. 725; 271 U.S. 236; 277 Fed., 650. Debt due Shipping Board not a debt due the United States: 274 Fed., 893; 258 U.S. 549. Debts included: 8 L.Ed., 310. Act must be liberally construed: 9 L.Ed., 1017; 70 L.Ed., 368.
March 27, 1931. The opinion of the Court was delivered by
The Bank of Florence was a duly chartered banking institution under the laws of the State of South Carolina, with its place of business at the City of Florence, S.C. October 28, 1928, it suspended business and placed its affairs in the hands of the State Bank Examiner. Under a proceeding brought by the State Bank Examiner, Sam J. Royall was appointed receiver of the bank by order of the Court of Common Pleas for Florence County; he qualified, and is now acting in that capacity.
By order of the District Court of the United States for the Eastern District of South Carolina, of date on or before December 8, 1921, the Bank of Florence was designated as a depository for funds of bankrupt estates, and the bank was required to give its bond to the United States of America in the penal sum of $10,000.00; the bond was given with New Amsterdam Casualty Company as surety. Thereafter, and prior to March 28, 1922, the Court required the bank to give an additional bond in the sum of $10,000.00 for the same purpose. This was done, with American Surety Company of New York as surety. At the time the Bank of Florence suspended business and the receiver was appointed, it had on deposit bankruptcy funds and moneys to the amount of $12,405.13, which were secured by these two bonds. On demand, the sureties paid to the United States attorney for the Eastern District of South Carolina the sums of money so, as aforesaid, on deposit; each of the sureties paying one-half thereof. Thereafter, by order of the United States District Court for the Eastern District of South Carolina, the claims for the funds so paid by the sureties were assigned to the said sureties.
Thereupon the said sureties brought this action in the Court of Common Pleas for Florence County, claiming that under the provisions of the laws of Congress they were entitled to be paid in full and by prior right out of the funds of the insolvent bank in the hands of the receiver.
To this petition the receiver demurred on the ground that the petition does not show that the debts described are debts due to the United States within the meaning of Section 3466 of the Revised Statutes U.S. (31 U.S.C.A., § 191), and therefore petitioners, as sureties, have no priority under Section 3468 of the Reversed Statutes U.S. (31 U.S.C.A., § 193).
His Honor, Judge Dennis, in a well-considered decree, sustained the demurrer; hence this appeal.
This Court is satisfied with the disposition of the case made by the order of Judge Dennis. It may not, however, be amiss to add that, in the opinion of this Court, the contention of the counsel for appellants that the denial of the writ of certiorari by the Supreme Court in the case of Andrew v. Crawford County State Bank, 208 Iowa, 1248, 224 N.W., 499, certiorari denied in Royal Indemnity Co. of N.Y. v. Andrew, 281 U.S. 725, 50 S. Ct., 239, 74 L.Ed., 1142 (upon which case Judge Dennis mainly predicated his order sustaining the demurrer) does not mean that the Supreme Court approved the action of the Court below, is not sound. The memorandum decision does not disclose the reasons for the Court's ruling, but, in the absence of proof to the contrary, the legitimate inference is that the writ was denied because the Court was satisfied with the decision of the Court below.
We are of the opinion, too, that the case of Bramwell v. U.S.F. G. Co., 269 U.S. 483, 46 S.Ct., 176, 70 L.Ed., 368, which appellant sets up as in direct opposition to the case of Andrews v. Crawford State Bank, supra, and as, in effect, nullifying the decision in that case, does not sustain appellant's contention.
That case stands squarely upon the proposition that the debts therein sought to be given priority as debts due the United States were moneys of the Klamath Tribe of Indians, which had been deposited in the insolvent bank by the superintendent of the tribe, who was an appointee of the government. These Indians were the wards of the government under the provisions of Acts of Congress. As the guardian of these wards, the government was legally entitled to the money thus on deposit.
This Court concurs in the conclusion reached by his Honor, the Circuit Judge, that the funds deposited in the Bank of Florence by trustees in bankruptcy were not debts due the United States. They were funds distributable to the creditors of the several bankrupts.
The Supreme Court of the United States in Price v. U.S., 269 U.S. 492, 46 S.Ct., 180, 181, 70 L.Ed., 373, citing United States v. State Bank, 6 Pet., 29, 35, 8 L.Ed., 308, declares the purpose of the statutes which give priority to the United States in the distribution of the assets of an insolvent to be "to secure adequate public revenue to sustain the public burdens."
Certainly the funds which are here sought to be subjected to the claim of priority do not come within the provision of the priority statutes as thus defined.
The appeal is dismissed, and the order appealed from is affirmed.
MR. CHIEF JUSTICE BLEASE and MESSRS. JUSTICES COTHRAN, STABLER, and CARTER, concur.