Court Opinion

ID: 6603810
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:10:18.222177+00
Date Added: 2024-06-11T15:58:06.894079
License: Public Domain

Lyon, J.
In State v. Bœtz, 44 Wis., 624, the question was, whether the treasurer was liable for the $10,000 sought to be recovered in this action. For reasons which then were and still are entirely satisfactory to us, it was held that he was not liable therefor. It seems to follow from that decision that the defendant Mills is liable for such deficiency; for it •cannot well be controverted that one of them is so liable. *242Such, is the result of the opinion in that case. Mr. Mills was not a party to the suit against Bastz, and the propositions there ruled are not as to him res adgudicata. He may still be heard to dispute his liability for the deficiency claimed. In the arguments on this appeal the question of his individual liability therefor was not discussed by his counsel, but the whole defense to the action is rested upon the proposition that the alleged default occurred before either of the bonds in suit was executed, and hence that there can be no recovery of the deficiency in this action, which is solely upon the bonds. Perceiving no valid reason for changing our opinion as to the liability of Mr. Mills, expressed in the suit against .Baetz, we must hold, as at present advised, that Mr. Mills is-individually liable to the state for the money claimed in this action.
The principal question is, therefore, was the failure of Mr. Mills to pay over the $10,000 to his successor in office a breach of the condition of either of the bonds in suit ? The learned referee determined that Mr. Mills broke the condition of his official bond then in force, and rendered himself and his sureties in such bond liable to the state for the amount of the Bsetz check, when he charged the state with the amount of hospital orders he had paid or purchased with the proceeds of that check, without giving the state credit for such proceeds. This was in June or July, 1875. About the same time he paid the judgment recovered against him by the assignee in bankruptcy of the Bank of Madison, for the proceeds of the collaterals he had received from the bank as security for the payment of the check. These transactions, when simplified, disregarding dates, amount to this: Mr. Mills received $10,000 from the state through the Bsetz check and such collaterals, and paid out the same for the purposes to which the legislature had appropriated the money; that is, to the payment of hospital orders regularly drawn upon him for the current expenses of the institution. lie *243charged the amount so paid to the state. Thus far all was regular. But he failed to give the state credit for the $10,000, and used it (or alike amount out of other hospital appropriations) to pay the judgment recovered against him by the as-signee in bankruptcy. The state never having undertaken to indemnify Mr. Mills against the risk of being required to pay over the proceeds realized from such collaterals for the benefit of the creditors of the Bank of Madison, this was a clear misappropriation of that amount of the money of the state in his hands, and a breach of the condition of his official bond then in force.
We think the determination of the referee on this branch of the case is in harmony with the doctrine of Vivian v. Otis, 24 Wis., 518, and that it must be held that the first* breach .of any official bond of Mr. Mills in respect to the proceeds of the Bastz check occurred in the summer of 1875, and before either of the bonds in suit was executed. For such breach, therefore, there can be no recovery in this action, because that bond is not counted upon.
This brings us to consider the grounds upon which the referee and the circuit court held the defendants liable for the $10,000 on the bond of October 30, 1875, which is counted upon in the complaint. The referee found, and his finding seems to be supported by the proofs, that in the months of November and December, 1875, and January and February, 1876, Mr. Mills had not sufficient funds of the hospital in his hands (excluding the $10,000 in controversy) to pay all of the orders drawn upon him*for the current expenses of the institution; and that funds were obtained by him for that purpose by borrowing money of some bank by means of certain notes described in the fourth finding of fact. These notes amounted to about $20,000. The proceeds, or, at least, more than $10,000 of the proceeds, of such notes were applied by Mr. Mills during those .months to the payment of hospital orders regularly drawn upon him.
*244The referee held that the money realized by Mr. Mills on these notes was, under the circumstances of the case, his individual money, and that by applying it in payment of orders to an amount exceeding $10,000 he had made good the deficiency of June or July, 1815. As matter of fact the bill of exceptions shows that on January 10, 1876, Mr. Mills had taken up hospital orders to an amount exceeding $8,000 over and above all moneys he had then received from the state as hospital treasurer, including the $10,000 represented by the Bsstz check. Mr. Mills paid these notes with money drawn by him in March, 1876, from the state treasury for the use of the hospital. This the referee held was a misappropriation of the fund held by him as treasurer, and a breach of his official bond of October 30, 1875, to the extent of $10,000; that being the sum so received by him which he failed to pay over to his successor in office. If the money realized by him on the notes was his individual money, we see no escape from the conclusion that, by applying it to pay hospital orders drawn upon him, to the amount of $10,000, he thereby repaired the breach of the bond in force in June and July, 1875. Had an action been brought on such bond after he had paid those orders with his own funds, there can, we think, be no doubt that evidence that he had done so would be a complete defense to that action. Hence it becomes important to determine whether the proceeds of the notes which Mr. Mills procured the bank to discount belonged to him individually. '
The referee found the notes above mentioned were in substance and to the effect “ that the trustees of the Wisconsin state hospital for the insane would pay to the order of D. Atwood the sums respectively stated therein, and were signed by the said D. Atwood, as president of the board of trustees, and were indorsed by him in his personal capacity, and afterwards by the defendant Mills in like manner. These notes were prepared and procured to be signed as aforesaid *245by Mr. Mills, wbo took them from time to time, as needed, to tbe bank and got them discounted, and the proceeds thereof were carried to the account of said Mills and used in paying up orders.” The referee also finds that the bank account of Mr. Mills in which the proceeds of the notes were credited “ was kept in his individual name, as private accounts are kept.” "We think the testimony fairly supports the above findings.
It cannot be said too emphatically, or repeated too often, that the various boards of trustees and managers of the benevolent and penal institutions of the state have no power to contract debts beyond the appropriations made by the legislature for the support and operation of their respective institutions. A debt against one of these institutions is a debt against the state; and if such boards could contract debts ad libitum, the constitutional limitation of state indebtedness to $100,000 (article VIII, sec. 6) might become utterly inoperative. See Sloan v. State, 51 Wis., 623.
The notes, purporting to have been given by the hospital trustees for the purpose of raising money beyond the amount theretofore appropriated by the legislature to the hospital, were entirely unauthorized, and bound neither the hospital nor the state. There was no existing legislative appropriation un-drawn with which they could be paid, but their only foundation was the hope or expectation that an appropriation would be thereafter made to cover them. They bound nobody but Mr. Atwood and Mr. Mills, who indorsed them in their individual capacities. The facts that the board of trustees authorized the giving of the notes, and had repeatedly authorized similar notes to be given during the preceding ten years, and that it allowed Mr. Mills to charge the discount on the notes in Ms account with the hospital, are of no significance. Neither the hospital nor the state could have reached the proceeds of the notes by judicial process while such proceeds remained on deposit in the bank, or controlled the disposition thereof. The money had stamped upon it no trust obligation *246in favor of the hospital or the state. It was, to all intents and purposes, the private property of Mr. Mills or Mr. Atwood, or both, and subject absolutely to his or their control and disposal.
This brings us to the questions of the relations of these two gentlemen, as between each other, to the proceeds of the notes, and the legal consequences resulting therefrom. Although the notes were made payable to Mr. Atwood, yet, in view of all the circumstances of their execution and negotiation, we think he was no more or less than an accommodation indorser of them. lie made the indorsement, however, under an agreement with Mr. Mills that the latter should apply the proceeds to the payment of hospital orders, and that he should pay the notes out of some future legislative appropriation. That agreement was fully executed by Mr. Mills, and from thenceforth Mr. Atwood had no further interest in the matter. Mr. Mills admits that on October 4, 1875, he had in his hands of hospital funds something over $24,000. In addition to that sum he also had, as is now determined, the $10,000 represented by the Baetz check. It was his duty, therefore, to pay hospital orders to the full amount of $34,000. He did so before he received any other money from the state. But to enable him to do so Mr. Atwood indorsed the notes and entrusted them and the proceeds thereof to him. Mr. Atwood thus became, as it seems to us, substantially and in legal effect an accommodation in-dorsor for Mr. Mills, and the proceeds of the notes became the money of the latter. Possibly the money was subject to the trust that it should be applied and the notes paid in a particular manner; but, if so, the trust was executed.
If the foregoing views are correct, it results that Mr. Mills paid $10,000 of hospital orders with his own money,. in the winter of 1875-6, and that by doing so he healed the breach of- the condition of his former bond, which occurred in the summer of 1875.
, The question remains, whether the use by Mr. Mills of *247the money appropriated by the act of January, 1876 (oh. 279, Laws of 1876), to pay the notes, was a breach of the conditions of his bond then in force, as found by the referee. That act appropriates to the Wisconsin hospital for the insane '$18,454, “for replacing an overdraft of the current expense fund of last year.” Mr. Mills drew the appropriation March 16,1?T6, and applied the money to the payment of the above-mentioned notes. The legislature of 1876 also adopted joint resolution No. 3, instructing the attorney general to com-. menee suit against the party who, in his opinion, was legally liable for the $10,000 represented by the Baatz check. Laws of 1876, p. 978. The action against Bsetz and this action were brought in obedience to that resolution. Oh. 279, Laws of 1876 was enacted after Mr. Mills had taken up with his own funds a. sufficient amount of hospital orders to make good the $10,000 deficiency of June or July, 1875, and thus had relieved the sureties in his bond then in force from liability therefor. Hence the rights of all parties were fixed before the act was passed, and it was not competent for the legislature to enact a restoration of the liability of sureties thus relieved. Yery clearly the legislature did not intend or attempt to do so.
The appropriation was to replace overdrafts. But we think the orders so paid by Mr. Mills with his own funds, to the .•amount of $10,000, were not overdrafts in any correct sense •of that term. Mr. Mills had received money from the state •with which to pay the orders. He used the money to pay •the judgment recovered against him by the assignee in bankruptcy of the Bank of Madison. He then paid a corresponding amount of hospital orders with his own funds. That would seem to close the transaction. It is difficult to understand how these orders, or the notes upon which the money was raised with which to pay them, can properly be denominated overdrafts. But, conceding all that can be claimed for the act of 1876, suppose that act had recited that if Mr. *248Mills was liable for the $10,000 be made default in respect thereto in June or July, 1875; that be bad raised tbe money on tbe notes above mentioned, and with it bad paid orders amounting to more than $10,000, and that suob notes were still outstanding, and then bad appropriated the money specifically to pay tbe notes, — what would be the effect of the act ? 04
We have seen that it could not operate to restore tbe old breach of his former bond, which occurred in tbe summer of 1875, but which had been healed as before stated. Certainly it could not operate to release Mr. Mills from liability ultimately to account to the state for the deficiency; for the joint resolution directing suit to be brought to recover it negatives that hypothesis. The utmost effect that could be given to such an act, in our opinion, is, that it would prevent the payment of the notes out of the appropriation from operating as a breach of the bond of October 30,1875. But this would only postpone the breach to the time when Mr.. Mills failed and refused to pay over the $10,000 to his successor in office on November 1, 1877. In other words, it would make the defendants liable on the bond of 1876, instead of that of 1875. Of course, it is entirely immaterial on which of the bonds in suit they are held liable, if held on either, the sureties being the same in both.
Upon the whole case, and after most careful deliberation, we are forced to the conclusion that the report of the referee is substantially correct, and was properly confirmed by the circuit court.
It should be said, in conclusion, that nothing in this opinion, or in the opinion in State v. Bœtz, supra, should be understood as reflecting in any degree upon the personal or official integrity of Mr. Mills. Since he was compelled to pay the judgment recovered against him by the assignee in bankruptcy he has steadily maintained that he ought not to-account to the state for the $10,000 represented by the Badtz *249check. ¥e regret that the effect of our judgment will necessarily be to compel him to account for the money the second time. But we can see no avenue of escape open to him j for, when he sought to befriend the Bank of Madison by giving it time on the Bsetz check, which he received as money, he took the risk of the precise contingencies which afterwards happened, one of which was the risk of the penalties of the bankrupt law in case the bank should prove insolvent. It is greatly to his credit that the hospital has not suffered by this controversy, for he has paid all drafts upon him as promptly as though the $10,000 in controversy had. not been adjudged to the assignee in bankruptcy. The only way in which he could bring the question of his liability for that money before the courts for adjudication and settlement was to pursue the course he did that is, to refuse to pay it over to his successor in office, so that an action might be brought for it. He should not be censured for so doing.
By the Gourt.— The judgment of the circuit court is affirmed.