#### STATE OF NORTH CAROLINA Ex Rel. SWAIN COUNTY and SWAIN COUNTY v. ELBERT WELCH, Ex-Treasurer of SWAIN COUNTY, and His Bondsmen, D. A. DeHART et al.

(Filed 18 September, 1935.)

Set-offs and Counterclaims A b: Counties E e — Defendants held entitled to offset debt due county with past-due bonds of county in this case.

Defendants were indebted to plaintiff county as principal and sureties on the bond of the county treasurer for funds of the county which the treasurer had not accounted for because of the failure of the bank in which the funds were deposited. Defendants tendered as an offset past-due bonds of the county owned by them, according to the agreed facts and stipulations, prior to the institution of the action by the county. *Held:*Defendants were entitled to offset their debt to the county with the past-due county bonds, since the respective obligations of the county and defendants arose out of contract, and either party might have recovered judgment against the other on their respective obligations, and the county’s obligation to defendants existed prior to the institution of the action, O. S., 521. In this ease it did not appear of record that the funds deposited in the bank represented collection of taxes levied for specific purposes, or that the bonds held by defendants were other than general obligations of the county.

Appeal by plaintiff Swain. County from *Alley, J.,*at Chambers in Murphy, on 21 June, 1935. From SwaiN.

Affirmed.

This is a controversy without action submitted under 0. S., 626, *et seq.*It was agreed and stipulated (1) that the defendant Elbert Welch was treasurer of Swain County from December, 1928, to December, 1932; (2) that D. A. DeHart and the other defendants other than Elbert Welch, executed as sureties and delivered to Swain County a bond in the sum of $111,000, conditioned upon the faithful performance of the duties of such treasurer by Elbert Welch; (3) that said Welch, as treasurer, “deposited the money and funds coming into his hands belonging to said county, in the Citizens Bank of Bryson City,” and that no depository was designated by the commissioners of said county; (4) and (5) that on 21 November, 1930, said Welch, as treasurer, “held funds belonging to said county amounting to the sum of $57,452.56,” which were deposited in said Citizens Bank when it closed its doors on *440account of insolvency on said date; (6) and (7) that, subsequently, by virtue of an order of court, dated 23 January, 1931, said bank was reopened and continued to operate its business until 8 February, 1932, when it was finally closed and taken over by tbe Commissioner of Banks for liquidation, and tbat at said time said bank “bad on deposit to tbe credit of Elbert Welch, treasurer of Swain County, money and funds belonging to Swain County in tbe sum of $43,224.19, for wbicb sum Swain County bas never bad settlement, and to recover wbicb this suit was instituted,” and tbat tbe failure to settle bas not been due to default, neglect, or misappropriation by Elbert Welch, but to tbe failure of said bank; (8), (9), and (10) tbat in tbe liquidation of tbe bank, there was delivered to tbe defendant Welch certain real estate, personal property, notes, and other evidence of indebtednesses from tbe assets of tbe bank, to be applied on bis deposit as treasurer, and tbat tbe defendant is now in possession of said properties and bas tendered them to Swain County in settlement of tbe indebtedness of $43,224.19 of tbe defendants to tbe plaintiff, which tender bas been refused; (11) tbat this action was instituted on 24 October, 1933, to recover of tbe defendants said sum of $43,224.19; (12) tbat prior to tbe institution of this action, certain of tbe defendants bad purchased and are now tbe owners and holders of “certain past-due Swain County bonds and attached coupons, wbicb were issued by Swain County and for wbicb said county is liable,” aggregating $10,000; (13) tbat subsequent to tbe institution of this action, said defendants purchased and are now tbe holders and owners of “certain other past-due bonds and attached coupons issued by Swain County, and for wbicb said county is liable,” aggregating $33,500.00; (14) “tbat if tbe court is of tbe opinion, and shall bold as a matter of law, tbat tbe defendants are entitled to offset tbe bonds and coupons issued by Swain County, purchased, owned, and held by them prior to tbe institution of this action, against tbe claim of tbe plaintiff in this action, then it is agreed tbat judgment may be rendered allowing said defendants to offset, in like manner, all bonds and coupons issued by Swain County, purchased, and now owned and held by them, subsequent to tbe institution of this action, against tbe claim of tbe plaintiffs herein”; (15) tbat tbe defendants have proposed to offset their indebtedness due Swain County with tbe bonds and coupons held by them, wbicb are past due, but tbe plaintiff Swain County bas refused said offer; (16) tbat all tbe property in Swain County is valued for taxation for tbe year 1934 at $5,888,045, tbat said county bas an outstanding indebtedness of $1,532,-000, and is in default in tbe payment of said indebtedness in tbe sum of $278,500, wbicb latter amount is included in tbe former, and said county is in default of interest payments as of 1 January, 1935, not included in said outstanding indebtedness, $224,690; (17) tbat tbe County of Swain *441at the date of the aforementioned tender of bonds and coupons, did not have, nor has it had at any time since said date, sufficient funds or assets to pay its outstanding indebtedness; (18) and (19) that it is further agreed that if the court is of the opinion that the defendants are entitled to offset their indebtedness to Swain County with the aforesaid bonds and coupons, the real estate and personal property received by the defendant Elbert Welch from the Citizens Bank of Bryson City shall become the property of said Welch, and that judgment shall be rendered in favor of the plaintiff for the sum of $43,500 and costs, to be satisfied upon delivery to the plaintiff by the defendants of the aforementioned past-due bonds and coupons for cancellation, it being stipulated that the interest on said bonds shall offset the interest due on account of the claims set up in the complaint; and that in the event the Court should hold that the defendants are not entitled to offset said past-due bonds and coupons against the claims set up in the complaint, then judgment shall be entered against the defendants and each of them for the sum of $111,000, the penalty of the treasurer’s bond, to be discharged upon the payment to the plaintiff of the sum of- $43,224.19 with interest from 8 February, 1932.

Upon the foregoing agreed facts and stipulations, the court adjudged that the plaintiff have and recover of the defendants and each of them the sum of $43,500; and that the “defendants are entitled, as a matter of law, to offset and settle said indebtedness due and owing by them to the plaintiff with the past-due bonds and all attached coupons issued by Swain County and owned and held by said defendants, said bonds being-in the principal sum of Forty-three Thousand and Five Hundred ($43,500) Dollars.”

From the judgment of the Superior Court, the plaintiff appealed to the Supreme Court, assigning error.

*B. G. J ones and, Blach & Whitaker for plaintiff, appellant.*

*Edwards & Leatherwood for defendants, appellees.*

ScheNck, J.

The single exceptive assignment of error is to the signing of the judgment as appears in the record, and this presents the single legal proposition as to whether the defendants, the treasurer of Swain County and his official bondsmen, can successfully set up as a counterclaim past-due bonds and coupons of the county against the amount admittedly due Swain County by them on the official bond signed by them by reason of the failure of said treasurer to pay said county the full amount due by him to it.

This action arises upon the officiál bond of the treasurer, a contract. The counterclaim of the defendants arises upon the past-due bonds of the plaintiff county, also contracts. The counterclaim, according to the *442agreed facts and stipulations, existed in favor of tbe defendants and against tbe plaintiff at tbe commencement of tbis action, and several judgments might bave been bad between tbe plaintiff and defendants. Tbe plaintiff might bave recovered judgment on tbe treasurer’s bond, and tbe defendants might bave recovered judgment on tbe county’s past-due bonds. Therefore, tbe counterclaim set up by tbe defendants falls clearly within tbe provision of C. S., 521, which reads: “Tbe counterclaim mentioned in tbis article must be one existing in favor of a defendant and against a plaintiff between whom a several judgment might be bad in tbe action, and arising out of one of tbe following causes of action: (1) . . . (2) In an action arising on contract, any other cause of action arising also on contract, and existing at tbe commencement of tbe action.” Tbe reasoning in *Bourne, v. Board of Financial Control,*207 N. C., 170, is apposite to tbis case.

There is nothing in tbe agreed state of facts to indicate that tbe amounts for which tbe treasurer bad failed to account “represented collected taxes which were levied for certain specific purposes,” as contended in appellant’s brief. All that appears in tbe record is that such amounts were “money and funds coming into bis bands belonging to- said county.” Nor does it appear that tbe bonds held by tbe defendant are other than general obligations of tbe county, payable out of its general funds.

Tbe judgment of tbe Superior Court is

Affirmed.