United States Fidelity & Guaranty Co. v. Borough Bank of Brooklyn

161 A.D. 479, 146 N.Y.S. 870, 1914 N.Y. App. Div. LEXIS 5414

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: March 13, 1914
• Status: Published

Opinion

Jenks, P. J.:

This submission presents the question whether the plaintiff as subrogee of the State is entitled to assert the preference of the State in payment of a debt due the State from an insolvent, over other depositors and creditors who have not prior specific liens. The preference of the State was determined in Matter of Carnegie Trust Co. (206 N. Y. 390). The opinion in that case relieves me from discussion of that preference. I may note that this subject was examined also by many English judges in Giles v. Grover (1 Cl. & Fin. 72). The equitable doctrine of subrogation contemplates full substitution. Thus in Lidderdale v. Robinson (2 Brock. 159, 168; affd., 12 Wheat. 594) Marshall, Ch. J., at Circuit Court says that the claim of the surety is clothed in equity with the legal garb with which the original contract is invested (cited and approved in Pease v. Egan, 131 N. Y. 272), and in Hayes v. Ward (4 Johns. Ch. 123) Kent, C., says: “It is equally a settled principle in the English chancery, that a surety will be entitled to every remedy which the creditor has against the principal debtor, to enforce every security, and to stand in the place of the creditor, and have his securities transferred to him, and to avail himself of those securities against the debtor. This right of the surety stands ■not upon contract, but upon the same principle of natural justice, upon which one surety is entitled to contribution from another.” (See, too, Townsend v. Whitney, 75 N. Y. 425, 432; United States v. Ryder, 110 U. S. 729, 732; Lumpkin v. Mills, 4 Ga. 343, 354; Pom. Eq. Rem. §§ 920, 924.) I think that this right of preference should be afforded to this subrogee, in conformity to this general rule, and not, in derogation of that rule, be withheld. This preference was inherent in the debt. The character of the debt is not affected by the circumstance that it must now be paid to the substitute of the State and not to the State itself. If the debt merely from this circumstance loses this attribute, then he who stands in the shoes of the State loses of the essence of the debt, and he who should in no way be affected by the fact to whom the debt is paid gains from the essence of the debt. There is no equity in such loss or in such gain. Practically adopting the question of Johnson, J., in 12 Wheat, (supra), I ask, “ What have the other creditors to complain of ? ” (See, too, Lidderdale v. Robinson, supra; Mathews v. Aikin, 1 N. Y. 595; Lumpkin v. Mills, supra; Jackson v. Davis, 4 Mackey, 194, 202.) There are numerous decisions which recognize the application of this general principle. (King v. Bennett, Wightw. 1; Regina v. Salter, 1 H. & N. 274; Regina v. Robinson, Id. 275; Matter of Lord Churchill, Manisty v. Churchill, 39 Ch. Div. 174; United States v. Ryder, supra; Orem v. Wrightson, 51 Md. 34; Lidderdale v. Robinson, supra; Hayes v. Ward, supra; Sgobel v. Cappadonia, 8 App. Div. 303; Hunter v. United States, 5 Pet. 173; Richeson v. Crawford, 94 I11. 165; Stokes v. Little, 65 I11. App. 255; Jackson v. Davis, supra; Lester v. Richardson, 69 Ark. 198; Robertson v. Twigg's Admr., 32 Gratt. 76, 86; Turner v. Teague, 73 Ala. 554, and American Bonding Co. v. Reynolds, 203 Fed. Rep. 356, when practically the exact question in this case was decided.) I may note here that the defendant’s effort to weaken the authority of United States v. Ryder (supra) by the statement that the court on page 734 limited the rule to certain specified cases, is met by pointing out that the court was not expressing a limitation but drawing the distinction between crown debtors in civil matters and in criminal bail, that the purview of the principle is as stated by the court on page 733, and that it seems to me that the subrogee in this case is within it. The contention that such right of the subrogee must rest upon statute, based upon the fact that there are such statutes in the procedure of the United States court, may be disposed of by reminder that “There is no common law of the United States, in the sense of a national customary law, distinct from the common law of England as adopted by the several States each for itself, applied as its local law.” (Smith v. Alabama, 124 U. S. 478, citing Wheaton v. Peters, 8 Pet. 591.)

The contention of the learned counsel for the defendant is that the .State’s common-law right of preference is so inherent and exclusive in the State as a sovereignty that it can be a matter neither of assignment nor of subrogation. But this contention mistakes, what Blackstone calls the “incidental,” for the “ direct ” prerogative of the king, as is apparent in the illustration given in book 1, chapter 7 of the Commentaries (Cooley’s 4th ed., top *240), where it is said: “Prerogatives are either direct or incidental. The direct are such positive substantial parts of the royal character and authority as are rooted in and spring from the king’s political person, considered merely by itself, without reference to any other extrinsic circumstance; as, the right «of sending embassadors, of creating peers, and of making war or peace. But such prerogatives as are incidental bear always a relation to something else, distinct from the king’s person; and are indeed only exceptions, in favour of the crown, to those general rules that are established for the rest of the community; such as, that no costs shall be recovered against the king; that the king can never be a joint tenant; and that his debt shall be preferred before a debt to any of his subjects. These, and an infinite number of other instances, will better be understood, when we come regularly to consider the rules themselves, to which these incidental prerogatives are exceptions. And therefore we will at present only dwell upon the king’s substantive or direct prerogatives. ” (See, also, 3 Holds. Hist. Eng. Law, 350, 351.)

It is also contended that the plaintiff waived any right of preference by filing a claim as a general creditor and by acceptance of a dividend on said claim without complaint or protest. We have to deal with an implied waiver; that is, the defendants must establish (Gibson El. Co. v. Liverpool & L. & G. Ins. Co., 159 N. Y. 426) that such circumstances justify the inference of an intention to waive, or that from them a waiver followed as a legal result. (Titus v. Glens Falls Ins. Co., 81 N. Y. 410, 419; Kiernan v. Dutchess Co. Mut. Ins. Co., 150 id. 190, 195.) It appears that after the plaintiff had filed with the State Superintendent of Banks an assignment to it of all and every claim, demand and right of action which the People of the State, Comptroller, State Treasurer or the Commissioners of the Canal Fund then had prior to the payment against the Borough Bank by reason of the deposit, the Deputy Superintendent of Banks in charge of the liquidation of said bank requested the plaintiff to file a proof of claim “ on the regular forms which have been drawn up ” by the departmental attorneys and which theretofore had been forwarded to the plaintiff, and that on October 3, 1910, the plaintiff did as it was asked. The learned counsel says that the plaintiff filed its claim as “ a general creditor.” By this expression he can but mean that it filed its claim as a creditor, not that the claim affirmatively shows that the plaintiff thus described itself or was thus denominated or was thus described. Thus the plaintiff, upon invitation of the defendant, took a prescribed step toward the collection of its debt. Inherently that debt was entitled to preference in payment out of the fund. But the plaintiff was neither specifically required nor invited to assert the preference at that time, and its omission to do so in specific terms was not, to my mind, so inconsistent with a subsequent assertion of preference as to say that it was “ clearly to be inferred ” (Kiernan v. Dutchess Co. Mut. Ins. Co., supra) that it waived such right. Moreover, the plaintiff alleged in the claim “ that the plaintiff herein had by virtue of the aforementioned payment become entitled to all the right, title and interest of the People of the State of New York to the money deposited in said Borough Bank of Brooklyn representing the Canal Funds of the State of New York.” So far, at least, as the question of intention is concerned, I think that the plaintiff thus indicated that it stood in the shoes of the State. A right is said to be “ the legal consequence which attaches to certain facts.” (O. W. Holmes, Jr., The Common Law, 214, quoted in White v. Commissioners, 13 Ore. 317, 323; 10 Pac. Rep. 484, 486.) The words “right and interest” relate to the extent of the ownership of property, and an assignee using them undertakes to transfer whatever of value he owned or held in the judgment assigned. (Scofield v. Moore, 31 Ia. 241, 246.) In Black’s Law Dictionary it is said: “That which one person ought to have or receive from another, it being withheld from him, or not in his possession. In this sense, ‘right’ has the force of ‘claim,’ and is properly expressed by the Latin ‘jus.’” The word “rights” is generic, common; embracing whatever may be lawfully claimed. (Lonas v. State, 3 Heisk. [Tenn.] 287, 306.) Not only did the plaintiff thus indicate its status, but that status also appeared both in the agreement of the defendant bank, filed with the claim, and in the assignment from the State to the plaintiff theretofore filed with the Department of Banks.

The partial payment was made through a communication from the Special Deputy Superintendent of Banks, in which was inclosed a check representing a first dividend of 10 per cent, with the statement, “No receipt is necessary.” I fail to find any clear intention of waiver of the right of preference inferable from the plaintiff’s acceptance of the check “ without complaint or protest.” This was apparently a part payment from the fund, to which alone the plaintiff must look even with its right of preference. To accept a part payment of a claim out of a fund is, to my mind, not inconsistent with the subsequent assertion of a preference to payment out of that fund.

Nor do I perceive that from these two circumstances relied upon by the defendants a waiver of this right of preference followed as a legal result. It does not appear that the defendants were upon any reasonable belief misled by either of these circumstances to their detriment or disadvantage. As I have said, the preference was inherent in the debt itself, the very existence of the debt established its priority of payment out of the same fund. Therefore the plaintiff’s omission, at the time it filed its claim, to assert specifically the preference, or the plaintiff’s acceptance of the voluntary part payment without objection or protest, did not operate “as a trap to the other party,” to use the words of Doe, J., in Lyman v. Littleton (50 N. H. 42, 45). Decisions in point are Hunt v. Smart (8 Tex. Civ. App. 425); Matter of Ashland Steel Co. (168 Fed. Rep. 679); Matter of Scott (96 id. 607).

Since the writing of this opinion, my attention has been called to the decisions of this court in its First Department in the cases of U. S. F. & G. Co. v. Carnegie Trust Co., No. 2 (161 App. Div. 429), and U. S. F. & G. Co. v. Carnegie Trust Co., No. 1 (Id. 435). I now cite them in support of my conclusion upon the question of preference.

In fine, the acts of the plaintiff in filing its claim, in accepting the part payment and in asserting- its preference, were all consistent steps towards the collection of the debt out of this particular fund. There is, of course, no question hut that the plaintiff did specifically assert its preference in formal fashion on January 30, 1913.

I think that the plaintiff is not entitled to interest. (People v. American Loan & Trust Co., 172 N. Y. 371; People v. Merchants’ Trust Co., 116 App. Div. 41.)

There must be judgment for the plaintiff upon the submission in accord with this opinion.

Burr, Thomas, Stapleton and Putnam, JJ., concurred.

Judgment for plaintiff upon agreed statement of facts, with costs, in accord with opinion.