Public Indemnity Co. v. Page

²⁴¹ Urner, J., delivered the opinion of the Court. The corporations appealing in these cases are sureties on bonds of the Chesapeake Bank of Baltimore securing deposits by the State of Maryland in that institution to the aggregate amount of $40,000. The bank having been closed and placed in the hands of the Bank Commissioner, who is administering its affairs as receiver, under statutory and judicial authority, the appellants paid, on the State’s demand, the amount of its deposits, and now claim, by way of subrogation, the benefit of a right of priority which they attribute to- the State with respect to the distribution of the receivership funds among the bank’s creditors. Petitions asserting such a preference were dismissed, by the lower court after a hearing on their allegations and the combined answers and demurrers of the receiver.

Accordingly the appellants •were denied priority, and were treated as general creditors in th auditor’s account subsequently filed. The appeals are from orders dismissing the petitions and overriding the exceptions. This court has heretofore recognized and declared the right of the State to enforce a priority for its claims of a public nature over those held by private creditors of the same debtor. It is a common-law prerogative, and is based upon considerations which are thus explained in State v. President etc. of Bank of Maryland, 6 G. & J. 205 , “The government of the State is established for the good of the whole, and can only be supported by means of its revenue; which revenue the good of the whole requires to- be protected.

And as it can only act by its agents, who* no- matter how vigilant, cannot always he present to protect its rights, a priority in the payment of its debts (which must always be of a public nature) is necessary to enable it to accomplish the ends of its institution. It is not therefore opposed to a sense of right, that the interests of all should prevail over that of an individual, when it .can be asserted without disturbing vested rights; which diligent creditors can more readily acquire than the government through its agents.” ²⁴² But the State’s right of priority does not in itself constitue a lien. Unless made such by appropriate process, it must yield to effective transfers of the debtor’s property, or to- liens upon it -which other creditors may have procured. As stated in State v. President etc. of Bank of Maryland, supra, the right of the State is “to' have its debt first paid out of the property of its debtor remaining in his hands, and no lien standing in the way.” In that case the State’s potential priority, as a depositor in the Bank of Maryland, was held to have been lost because suitable action had not been taken to enforce the right before the execution by the bank of a deed of trust for the benefit of its creditors.

It was said in the opinion: “The debt due from the bank to the State, is a debt on simple contract only, and not a lien, as is, and must be conceded. The State therefore having no lien on the property covered by the deed of trust, but a priority only, in the payment of its claim, if that right of priority has not been lost, it is subject, claiming under the common law, to ' the same common law rule, applicable to the royal prerogative right of priority in England, of the same description. That right in England is enforced by the' process in the writ of extent in chief, or in aid, according to circumstances, and may be here, by proceedings known to our courts. But in either case, to make it available, the proceedings must be resorted to before other vested rights to the property sought to be subjected to the claim are acquired.” The principies of the decision in State v. President etc. of Bank of Maryland were reaffirmed in State v. Williams, 101 Md. 529 , 61 A. 297, 299 , where the State claimed priority of payment from the receivers of an insolvent insurance company, for loss on the State’s property covered by the company’s insurance and for unearned premiums.

Preference for the State was refused on the ground that no pro.ceedings to enforce the claim were taken before the appointment of the receivers. The court said: “We do not.perceive any reason why any distinction should be made between the effect of such a conveyance as was made in the case of State v. Bank, supra, and the decree in this case, passed upon a ²⁴³ bill praying the dissolution of an insolvent corporation, in which eases the receivers appointed by a court under section 382 of article 23 of the Code of Public General Laws are vested with all the estate and assets of every kind belonging to such corporation from the time of their qualifying as receivers, and shall be trustees thereof for the benefit of the creditors of such corporation and its stockholders.” The receivership in this case was created under section 9 of article 11 of the Code, providing as follows: “Whenever it shall appear to the Bank Commissioner upon examination, that any institution to which this article is applicable, is conducting its business in an unsafe, or unauthorized manner, or if any such institution shall refuse to submit its books, papers and concerns to the examination of the Bank Commissioner, or if any such institution shall neglect or refuse to observe an order of the Bank Commissioner as specified in section 8 of this article, the Bank Commissioner may, with the written consent of the Governor and Attorney-General obtained prior thereto forthwith take possession of the property and business of such institution and retain possession until such institution shall resume business or its affairs be finally liquidated as herein provided. On taking possession of the property and business of any such institution the Bank Commissioner shall forthwith give notice of such fact to any and all banks, trust companies, association, and individuals holding or in possession of any assets of such institution, and shall also cause such notice to be given by advertisement in such newspapers as he may direct, and also to cause a notice to be posted on the front door of such institution as follows: ‘This institution is in charge of the Bank Commissioner.’ Immediately upon posting said last mentioned notice by the Bank Commissioner, the property, assets and business of such institution shall be considered to be in the possession of the Bank Commissioner, which fact shall operate as a bar to any and all attachments, liens, executions or distraints of any kind, and shall also operate to place the assets of said institution in the hands of said Bank Commissioner, as receiver, the same as if he had been appointed by an order of court. ²⁴⁴ Such Institution may with the consent of the Bank Commissioner, or with the consent of the court, resume business upon such conditions as the Bank Commissioner may approve. Immediately upon taking possession of the property and business of said institution the Bank Commissioner shall forthwith cause proper proceedings to be instituted in the name of the State of Maryland versus said institution, in a court of competent jurisdiction, for the purpose of having the court assume jurisdiction over its property and business for final liquidation.

The said Bank Commissioner shall receive no additional compensation for his service as receiver, but shall be allowed clerical, traveling and legal expenses, subject to the court’s order. He shall furnish such bond as the court may require.” The petition of the State, originating the receivership proceedings in the court below, alleged that, the Bank Commissioner’s examination of the Chesapeake Bank having disclosed that it was “conducting its business in an unsafe or unauthorized manner, in that its reserves, as required by law had become exhausted,” he notified its president and directors of the financial condition of the bank, as discovered by him, and that thereupon the board of directors, by resolution adopted in pursuance of section 61 of article 11 of the Code, placed the affairs of the bank in the hands and under the control of the Bank Commissioner, by posting a notice to that effect on the front door of the bank, and immediately notified the Bank Commissioner of such action; and that he simultaneously obtained the written consent of the Governor and Attorney-General forthwith to take possession of the property and business of the bank,'and to retain possession “until it should resume business or its affairs be finally liquidated,” as provided by the banking laws of the State; and that the Bank Commissioner gave notice to all persons interested that he had taken possession of the property and business of the bank; and that he has caused this proceeding to be brought for the purpose of having the court “assume jurisdiction over the property, business and affairs and wind up and