North Carolina Corp. Commission v. Citizens Bank & Trust Co.

Adams, J. The appeal presents for review the ruling of the trial court on these two questions: 1. Under the principles of the common law has the State, by reason of its sovereignty, the prerogative right to prefer its claim over the claims of other like depositors, for its deposits made on open account in a bank which has become insolvent ? 2. If so, is the appellant, upon paying the amount due the State by the insolvent bank, entitled to be subrogated to the preferred rights of the State ? The second question need not be considered if the first is answered in the negative. Since the right, if existent, is derived by the State from the common law, we may first inquire into its origin and into the theory upon which it is founded. In reference to the royal prerogative, Ooke says: “As *517 to the third protection cum clausula volumus, the king by his prerogative regularly is to be preferred in payment of his duty or debt by his debtor before any subject, although the king’s debt or duty be the latter; and the reason hereof is, for that thesaurus regis est fundamentum belli, et firmamentum pads. And thereupon the law gave the king remedy by writ of protection to protect his debtor, that he should not be sued or attached until he paid the king’s debt. But hereof grew some inconvenience, for to delay other men of their suits, the king’s debts were the more slowly paid. And for remedié thereof it is enacted by the statute of 25 E. 3, that the other creditors may have their actions against the king’s debtor, and proceed to judgment, but not to execution, unless he will take upon him to pay the king’s debt, and then he shall have execution against the king’s debtor for both the two debts.” Coke upon L., p. 131 b (1). See, also, Bacon’s Abrd., 91; Giles v. Grover, 11 Eng. Rul. Cases, 549. Whether the doctrine of the king’s right to be preferred in the payment of debts due him was abrogated when the common law was adopted as the basis of American jurisprudence, or whether the functions and powers exercised by him in this respect devolve upon the several states, is a question concerning which there is divergence of opinion. The existence of the right has been maintained by the courts of New York, Montana, Minnesota, Georgia, West Virginia, Maryland, and others, and with equal emphasis it has been denied in New Jersey, Michigan, South Carolina, Mississippi, and others. Re Carnegie Trust Co. (N. Y.), 46 L. R. A. (N. S.), 260; Marshall v. People, 244 U. S., 380, 65 Law Ed., 315; Ætna Co. v. Miller (Mont.), L. R. A., 1918 C, 954; Fidelity and Guaranty Co. v. Rainey, 120 Tenn., 357; Freeholders v. State Bank, 29 N. J. Eq. Rep., 268; S. c., 30 N. J. Eq. Rep., 311; S. v. Harris, 16 S. C., 598; S. v. Cleary, 2 Hill (S. C.), 267, 600; Com. of Banking v. Bank, 161 Mich., 691, 705; Potter v. F. and D. Co., 101 Miss., 823; Annotation to S. v. Foster, 29 L. R. A., 243. The theory on which the prerogative is upheld is thus stated in the case of Carnegie Trust Co., supra: “The king, therefore, and the prerogatives that were personal to him, being repugnant to our Constitution, are abrogated. But his sovereignty, powers, functions, and duties, in so far as they pertain to civil government, now devolve upon the people of the State, and consequently are not in conflict with any of the provisions of our Constitution. Inasmuch, therefore, as the claims or moneys due the king for the support and maintenance of the government, whether derived from taxes or other sources of income, were preferred over the claims of others, it follows that, under the first subdivision of the provision of the Constitution of 1777, quoted, such preference became a part of the common law of our State, and is so continued under our present Constitution.” *518 On the other hand, in Central Trust Co. v. Third Ave. R. Co., 186 Fed., 291, the Circuit Court of Appeals of the Second Circuit, affirming an order of the Circuit Court of the United States for the Southern District of New York, said: “We regard it as settled law in this State that the State does not succeed as sovereign to all the prerogatives of the British crown, among others, the right to a preference for debts due it over all other creditors.” This conclusion was approved by the Circuit Court of Appeals, Ninth Circuit, in Brown v. Am. Bonding Co., 210 Fed., 844. Courts denying the right say that it should not be sustained in our jurisprudence as an attribute of sovereignty; that it is in fact an attribute of.a despotic government; that it is contrary to the spirit of our institutions; that it is antagonistic to the fundamental principles of a government established by the people for their protection and security; and that it involves questions which call for the exercise of legislative power as an expression of the sovereign will. As the doctrine under consideration springs from the ancient prerogative of the sovereign of England to prefer debts due the crown, it becomes necessary to ascertain whether the doctrine as embedded in the English law is a part of the common law as adopted in North Carolina ; for all matters relative to its adoption in this country were left to the several states for determination, each state adopting such part of the common law as was consonant with its use and customs. 5 R. C. L., 811; Van Ness v. Pacard, 2 Peters, 137, 7 Law. Ed., 374. In 1715 a statute was enacted for the Province of Carolina, declaring, “That the laws of England are the laws of this Government, so far as they are compatible with our way of living and trade” (23 State Eecords, 38, 39) ; and on 22 December, 1776, a few days after, the adoption of the Constitution at Halifax, it was ordained that such parts of the common law theretofore in use and not destructive of, repugnant to, or inconsistent with the freedom and independence of the State, not abrogated, repealed, expired, or become obsolete should continue in force. 23 State Eecords, 992. Substantially the same provisions were in the Act of 1778 (24 State Records, 162), and are now in section 970 of the Consolidated Statutes. As the earlier statutes went into effect, it became apparent that portions of the common law were inconsistent with the government established under the Constitution, and several decisions to this effect were rendered by the Supreme Court. Baker v. Long, 2 N. C., 1; Sherrod v. Davis, ibid., 283; White v. Frost, 10 N. C., 251; Barfield v. Combs, 15 N. C., 514. In Ætna Co. v. Miller, supra, Hoke v. Henderson, 14 N. C., 12, is cited as holding that sundry prerogatives ascribed to the king at common law had passed to the states; and in Fidelity and Guaranty Co. v. Rainey, supra, it is said that in Hoke v. Henderson the right *519 of tbe sovereign to priority of satisfaction out of tbe goods of tbe debtor is recognized. In Hoke’s case tbe Court referred to “a string of cases cited to show tbat tbe execution of tbe king is entitled to tbe first satisfaction, unless tbe debtor’s goods be actually sold under tbe subject’s process, before tbe sovereign’s is delivered.” Tbe question for decision, it was said, was different; and while tbe language may be construed as approving tbe general doctrine, it was not only obiter, but was followed by tbe declaration tbat “if tbe subject bath sold tbe goods of tbe king’s debtor before tbe sovereign sues execution, tbe sale is not disturbed.” Our research has disclosed no case in which tbe prerogative has been applied by this Court as tbe controlling principle of decision under facts similar to those appearing in tbe record; and as suggested in Freeholders v. State Bank, supra, tbe fact tbat tbe right of preference has not been actually executed under such circumstances since tbe adoption of tbe Constitution of 1776 would seem to negative its existence in this State. Even if tbe right existed, there is strong reason for bolding tbat upon appointment of tbe receivers tbe State lost its priority. Natural Surety Co. v. Pixton, 208 Pac., 878; Ætna Co. v. Moore, 181 Pac., 40; State v. Bank, L. R. A. (1918 A), 394; Freeholders v. State Bank, supra. For tbe reasons given, it is unnecessary to consider tbe latter of tbe two questions presented for review. Tbe judgment is Affirmed. Stacy, C. J., took no part in tbe consideration or decision of this case.