Court Opinion

ID: 9865720
Source: CourtListenerOpinion
Date Created: 2023-09-25 19:45:16.465031+00
Date Added: 2024-06-11T13:51:19.391835
License: Public Domain

GIVENS, J.,
Dissenting. — On appellants’ application, a rehearing was granted, and they lay special stress upon the point that the $32,000 certificate of deposit was not covered by the bond, and the attorney for the estate of N. G. Franklin, deceased, particularly urged that this $32,000 constituted a trust fund, his conclusion being that no contract covering its safekeeping existed between the city and the bank, and therefore the sureties were not liable.
A careful study of the facts and law bearing thereon has convinced me that there is no justification for the conclusion of the majority on this rehearing. It is established beyond the least peradventure of doubt that the $32,000 represented by a time certificate of deposit was originally placed in the bank on general deposit and under the protection of the bond. With this fact in mind the question for determination is the liability of the sureties on the bond. The sureties promised that the bank “shall well and truly keep all sums of money so deposited .... subject at all times to the check and order of the city treasurer .... and shall pay over the same upon the check of said city treasurer . . . . and shall in all respects save and keep the city .... harmless and indemnified for and by reason of making said deposit.....”
*477The change in the nature and character of the deposit (if in fact there was any) constituted a plain violation of the condition of the bond that the bank would keep all sums of money so deposited subject to the cheek of the city treasurer. If, therefore, the manipulation on the part of the treasurer and the bank effected the placing of the funds then on general deposit in the bank, subject to cheek, on time deposit, not subject to check, the sureties were plainly liable, for they obligated themselves that the money placed on deposit would be kept on deposit subject to cheek. In the face of the express condition of the bond that the bank would keep all the money deposited by the city subject to the check of the treasurer, the opinion of the Chief Justice holds that because money deposited on a general checking account was thereafter, by the bank and the city treasurer, in violation of law, placed on time deposit, the sureties, some of whom were in active charge and control of the bank and of this deposit and who participated in taking the $32,000 from the protection of the bond and placing it on a time deposit, were discharged from their solemn obligation to the city. In my judgment, such holding is not supported by the decisions, and does violence to the contractual obligations of these parties. (State ex rel. Carroll v. Corning State Savings Bank, 136 Iowa, 79, 113 N. W. 500; State v. United States Fidelity & Guaranty Co., 81 Kan. 660, 106 Pac. 1040.)
The bond was given to secure deposits in the bank and not to cover the liability of the treasurer, but by the terms of the bond it was incumbent on the bondsmen to see that the bank kept this money subject to cheek. While the treasurer might be liable on his bond for depositing the money in an account not subject to check, this would not relieve the bondsmen from their liability to see that the bank kept the money subject to check, and consequently the bondsmen are liable if the bank departed from the obligation of the bond. (State ex rel. Carroll v. Corning State Savings Bank, supra.) The city, not the treasurer, was the obligee in the bond.
*478“The contention is that the arrangements and practices in respect to these state funds, as between the Treasurer and the bank, were illegal, and therefore not binding on the surety. If, instead of depositing the money for collection, as the law contemplates, it was in fact allowed by the Treasurer to remain in the bank for long periods, and a consideration was paid for its use, as appellants sought to show; may the bank set that up as a defense, when the state demands payment of the money which the bank has collected and holds, or is it any reason why the appellant should escape liability on the obligations written in the bond which it signed? .... If the bank made an improper use of the funds with or without the consent of the Treasurer, it will not avail the surety. Its liability is not contingent upon the neglect of the Treasurer or the legality of his action.....
“The same question was involved to some extent in Loper v. State, 48 Kan. 540, 29 Pac. 687, where an illegal arrangement was made as to the deposit of county funds, and the county commissioners had contributed to it by failing to designate a depositary. The sureties on the bond of the defaulting treasurer, who under the arrangement had the use of the public funds, set up as a defense the neglect of the commissioners. In response to this, the court said: ‘Parties cannot make an arrangement favoring the violation of a statute regulating the duties of a public officer, and, having obtained an advantage or profit thereby, ask that their liability upon the official bond of such officer be lessened or discharged because the statute was not complied with.’ (Rose v. Douglass Township, 52 Kan. 451, 39 Am. St. 354; 34 Pac. 1046; Hart v. United States, 95 U. S. 316, 24 L. ed. 479; Board of County Commrs. v. Security Bank, 75 Minn. 174, 77 N. W. 815; Estate of Ramsey v. People, 197 Ill. 572, 90 Am. St. 177, 64 N. E. 549; Stoeckle v. Lewis, 8 Del. Ch. 150, 38 Atl. 1059; Anderson v. Blair, 121 Ga. 120, 48 S. E. 951; State v. Pederson, 135 Wis. 31, 114 N. W. 828; Commonwealth v. Tate, etc., 89 Ky. 587, 13 S. W. 113; 27 A. & E. Ency. of L. 544.) ” (State v. United *479States Fidelity & Guaranty Co., supra. See, also, Scott v. Whipple, 119 Ga. 485, 46 S. E. 663.)
It is said in the opinion of Justice Budge that the city-treasurer withdrew $32,000’, then on general deposit, and deposited it on time deposit. The city treasurer never at any time actually withdrew $32,000 on general deposit and placed it on time deposit. That the treasurer actually drew his cheek and the bank gave him a time certificate of deposit therefor is supported by the facts and the findings of the trial court, but it was a mere bookkeeping arrangement. Yet it is held that this so-called transfer of funds from a cheeking account to a time deposit, despite the condition of the bond that no such transfer would be made, discharged the sureties from their obligation.
It is unnecessary to consider whether or not this deposit was a trust fund, a bailment or a deposit as authorized by law, for, if authorized by law, it is clearly covered by the terms of the bond, and the bank not paying it, appellants are liable; if the deposit was not authorized by law, nevertheless if not made subject to cheek or order or demand, it was in violation of the terms of the bond and the bondsmen are liable therefor. Appellants contend it was a departure from the bond relieving them from liability, but, if anything, under the terms of the bond, it -was a violation. I do not think it necessary to hold that giving a certificate of deposit was a proper or improper method of handling these funds, since it is immaterial on the question of appellants’ liability. Such position is clearly correct because of the further provision of the bond that the bondsmen would, in all respects, “save and beep the city of Pocatello, Idaho, and the treasurer thereof, harmless and indemnified for and by reason of making of said deposit or deposits.” If the bank did not keep the funds subject to check, it was as much a violation of the bond as its refusal or inability to pay upon proper demand. (United States Fidelity & Guaranty Co. v. City of Pensacola, 68 Fla. 357, Ann. Cas. 1916B, 1236, 67 So. 87.) In effect, the appellants say the bank and the treasurer did not violate but departed from the bond when *480they did not comply with the terms of the bond requiring the deposit to be kept in a certain way and therefore, when the bank again violated the bond by not paying, the bondsmen are not liable. In other words, if the bond were only violated once, by nonpayment, the appellants admit liability, but if the bond be violated' twice, because the deposit was not kept as the bond guaranteed it would be and by not being paid on demand, they were absolved. The statement carries its own refutation.
The majority opinion on rehearing entirely overlooks the provision of the bond to the effect that the bank, in the first instance, and the sureties, secondarily, were liable to see that the bank kept the funds subject to the check or order of the city treasurer, and that the hondsmen were obligated to save and keep the City of Pocatello, and the treasurer thereof, harmless and indemnified by reason of making said deposit or deposits.
In order to escape payment of the money lost to the city, the sureties invoked the rule “strictissimi juris,” and their liability is so measured, in the opinion of Justice Budge. There is no occasion here for this rule; it is not available to appellants. The trial court found “that said bond was not signed by defendants or any of them without consideration .... nor did defendants execute said bond as accommodation sureties without consideration.” No question is made of the sufficiency of the evidence to sustain this finding. These sureties were stockholders, officers and directors of the bank. They applied for the deposit of the funds of the city and used them for years. They signed the bond for a valuable consideration. It is not such sureties as these who may successfully invoke the doctrine “strictissimi juris.” But measuring liability by this strict rule, the sureties are, as held in the first opinion, plainly liable.
It is said that the facts of this case differ from Blaine County v. Fuld, 31 Ida. 358, 171 Pac. 1138. The turning point in each ease is the same. In that case this court said that “no effect can be given to an unlawful attempt on the part of the county treasurer and county auditor to *481take such funds out of the protection of the depositary law and place them on deposit in the same bank without the security of the depositary bond.” In this case the same thing was attempted. About the only difference in the two cases is that in the Blaine county case the surety was not a party to what the court called an “unlawful conspiracy,” while in this case, in attempting to take the funds of the city from the protection of the depositary bond and place them on deposit in the same bank without the protection of the depositary bond, the sureties in charge of the bank were parties to the “unlawful conspiracy.” The ease against the sureties here is stronger than in the Blaine county case but the result is the opposite.
All the parties to the bond knew that the $32,000 belonged to the city, that it was a public fund. They knew that it had been deposited according to law and that it was protected by the bond. The principal obligation of the bond was to save the city harmless and indemnified. Under the majority holding the sureties are released from their obligation to the city because the bank (operated by some of the sureties) and the city treasurer, without authority of law and in violation of a condition of the bond, attempted to take the city’s funds from under the protection of the bond. I see neither reason nor justice in such a result.
The opinion of the Chief Justice is based on State v. Thum, 6 Ida. 323, 55 Pac. 858, which relates to a deposit made in violation of law. The Thum decision is not even an authority on the question before us; for here the deposit of the funds of the city on general deposit, under the protection of a bond, was not unlawful; and it was a long time after the funds of the city had been lawfully deposited that the bank and treasurer attempted to effect a change in the character of the deposit.
The length of the foregoing opinions precludes further discussion except to say that the opinions prepared by the Chief Justice and Justice Budge agree only in the result that the sureties are not liable for the $32,000. Otherwise they are as far apart as the poles. Despite extensive head-*482notes, not a single rule of law is established by the two opinions.
No new point is made by appellants that the rate of interest on this $32,000' was increased to four per cent, whereas the bond provides for only three per cent, and that, by such change, the sureties were discharged. Though there is some conflict (Bearse v. Lebowich, 234 Mass. 492, 125 N. E. 621; Schroyer v. Thompson, 262 Pa. 282, 105 Atl. 274; Schwartz v. Smith, 143 App. Div. 297, 128 N. Y. Supp. 1; 32 Cyc. 185), this change was not so vital a part of the transaction as to relieve the sureties of liability to the extent to which they agreed to be liable, namely, three per cent.
Except as modified by what is herein stated, I adhere to the original opinion and dissent from the opinions of Justice Budge and the Chief Justice on rehearing.
Wm. E. Lee, J., concurs in the dissenting opinion of Nivens, J.