Case Name: SEABOARD SURETY CO. v. STATE SAVINGS BANK OF ANN ARBOR
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1943-10-11
Citations: 307 Mich. 48
Docket Number: Docket No. 36, Calendar No. 42,187
Parties: SEABOARD SURETY CO. v. STATE SAVINGS BANK OF ANN ARBOR.
Judges: Chandler and Bushnell, JJ., concurred with WlEST, J.
Reporter: Michigan Reports
Volume: 307
Pages: 48–60

Head Matter:
SEABOARD SURETY CO. v. STATE SAVINGS BANK OF ANN ARBOR.
Counties—Defalcation of Cleric—Statutes—Private Checking
Account.
In action against bank by surety of county clerk, as subrogee of county, for clerk’s defalcation, judgment for plaintiff is affirmed by Chandler, Wiest, and Bushnell, JJ., because of statutes pertaining to the handling of county funds of which the bank must be held to have had cognizance notwithstanding county had not designated defendant as a depositary, and by Boyles, C. J., and Sharpe, J., because bank was put upon notice from the face of the cheeks deposited in clerk’s private account that they were public funds (1 Comp. Laws 1929, §§ 1193, 1266, 1313).
North, Starr, and Butzel, JJ., dissenting.
Appeal from Washtenaw; Sample (George W.), J.
Submitted June 9, 1943.
(Docket No. 36, Calendar No. 42,187.)
Decided October 11, 1943.
Rehearing denied November 29, 1943.
Action by Seaboard Surety Company against State Savings Bank of Ann Arbor for amount of public funds deposited by the county clerk in his private account and’ used for his personal use. Judgment for plaintiff. Defendant appeals.
Affirmed.
Alexander, McCaslin, Cholette & Buchanan, for plaintiff.
Liability of depositaries for participation in breach of trust, see 2 Restatement, Trusts, § 324.
Subrogation of surety to rights of creditor against persons other than principal whose negligence has made them liable to the creditor for the same default, see Restatement, Security, § 141 (c) and comment on clause (e), illustration 17.
Frank B. DeVine (John W. Gonlin and Burke & Burke, of counsel), for defendant.

Opinion:
Wiest, J.
In 1937, Emmett M. Gibb was the Washtenaw county clerk and plaintiff herein was surety on his official bond. Shortage in his accounts was discovered, occasioned by his indorsement of several checks, payable to him as county clerk on account of welfare contributions by county municipalities and townships, and depositing them in his personal drawing account at the defendant bank and checking parts thereof for his personal use. There was no special designated depository for such funds. Plaintiff, as surety on the official bond of the clerk, paid the amount of the defalcation and the county assigned to plaintiff its claim, if any, against defendant bank. Thereupon the surety, subrogated to the rights of the county, brought this suit to recover the money paid by it to the county; claiming liability oh the part of the bank in not heeding the fact that the checks, presented by the county clerk for deposit credit in his personal drawing account, constituted funds payable to him only in his official capacity, and in giving him credit therefor in his personal commercial account. Upon trial plaintiff had judgment for $1,595.47, and defendant reviews by appeal.
Plaintiff claims that defendant bank had notice by way of statutes, 1 Comp. Laws 1929, § 1313 (Stat. Ann. §5.832), imposing a duty on the clerk to pay over all moneys that may come to his hands as such clerk, and 1 Comp. Laws 1929, § 1266 (Stat. Ann. §5.686), making it the "duty of the county treasurer to receive all moneys belonging to the county, from whatever source they may be derived;" also 1 Comp. Laws 1929, §1193 (Stat. Ann. §5.531), making it the "duty of the county treasurer of any county to deposit daily all moneys, drafts or checks on hand received by him as such treasurer, in such bank or banks as may be designated by the board of supervisors or the board of county auditors."
Under such statutes the deposit of the checks by the county clerk and direction of entry of credit therefor in his personal drawing account was unlawful. The defendant bank was required to observe want of power on the part of the county clerk to use the checks in the manner he did.
The trial judge thought the question was decided in Fidelity & Casualty Co. of New York v. Farmers National Bank of Hudson, 275 N. Y. 194 (9 N. E. [2d] 833), and by the opinion of this court in McIntosh v. Detroit Savings Bank, 247 Mich. 10. Those cases involved breach of contract on the part of the bank with reference to written depository agreements and obligations. The case at bar sounds in tort rather than in contract.
Defendant urges applicability of the rule relative to deposit of trust funds by a trustee, executive or administrator, or other fiduciary, in his personal checking account in the bank, and cites our holding in Columbia Land Co. v. Empson, 305 Mich. 220, holding a bank not liable for subsequent personal use of the funds by such a depositor. Such is not the case at bar, for here we have a public officer with his rights and duties specifically regulated by statute, with no trustee, fiduciary, or' cestui que trust involved.
In Employers' Liability Assurance Corp., Ltd., of London, England v. Hudson River Trust Co., 250 App. Div. 159 (294 N. Y. Supp. 698), a county treasurer deposited county funds in his personal account and it was held:
"In the type of cases relating to public officials the statutory limitation upon the authority of the official to deal with public funds is presumed to be known by all, and a bank knowingly receiving funds from a public official under circumstances contrary to the statute is chargeable with notice of the violation and put upon inquiry to ascertain the truth.
"Here the defendant trust company was chargeable with knowledge that the county treasurer was withdrawing county funds from the designated depository and depositing them in his own name in his personal account with defendant. Defendant knew that the county treasurer could only withdraw these moneys from the. designated depository for claims ordered to be paid by the board of supervisors or other lawful authority or for salaries of county officers. It seems clear that the facts would have indicated to a reasonably prudent person that these checks payable to the order of De Witt (county treasurer) or cash, were not in payment of his salary or the salary of other county officers, and that such checks were not being issued in payment of claims which had been ordered paid by the board of supervisors or other lawful authority. If these checks were in payment of authorized claims they would naturally have been made payable to and delivered to the owner thereof. The form of the checks in connection with the knowledge with which the trust company was chargeable certainly indicated that the statute was not being complied with as to the withdrawal of the funds from the lawful designated depository and indicated that their application and.use by the county treasurer was contrary to law. The facts were thus sufficient to put the defendant on notice and to charge it with the duty to investigate, and thu's it was chargeable with knowledge of the truth."
This case was reviewed in a memorandum opinion, Employers' Liability Assurance Corp., Ltd., of London, England v. Hudson River Trust Co., 276 N. Y. 542 (12 N. E. [2d] 567), and, with some reduction in the amount of the judgment, affirmed. In that case the surety on the official bond of the county treasurer paid the county the amount of the defalcation and was subrogated to the rights of the county against the bank.
There is no claim that the bank acted in bad faith or was benefited in any way. The county had no account in the bank. The statutes mentioned clearly limit the power of the county clerk in the premises and the bank must be held to have had cognizance of such public law.
The judgment is affirmed, with costs to plaintiff.
Chandler and Bushnell, JJ., concurred with WlEST, J.