United States Fidelity & G. Co. v. Metropolitan Nat. Bank

• Decision Date: 19 September 1932
• Docket Number: No. 1457.,1457.
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. METROPOLITAN NAT. BANK.
• Court: U.S. District Court — District of Minnesota

1 F. Supp. 514

UNITED STATES FIDELITY & GUARANTY CO. v. METROPOLITAN NAT. BANK.

No. 1457.

District Court, D. Minnesota, Fourth Division.

September 19, 1932.

Cobb, Hoke, Benson, Krause & Faegre, of Minneapolis, Minn., for plaintiff.

Junell, Oakley, Driscoll & Fletcher, Ueland & Ueland, and Timerman & Vennum, all of Minneapolis, Minn., for defendant.

NORDBYE, District Judge.

The trial of this action was begun on April 19, 1932, and the taking of testimony was concluded on May 5, 1932. The matter was originally on the calendar as a jury case, and before trial was referred to an auditor by an order of this court wherein the auditor was "to make a preliminary investigation as to the facts, to hear the witnesses, report on the issues and matters hereinafter specified, and make and file a report in the office of the Clerk of this Court with a view to simplifying the issues for the jury, but not finally to determine any of the issues in the action." Thereafter the auditor duly submitted his report, but before trial a stipulation was entered into by and between the parties wherein a jury was waived and trial was had before the court. Such portions of the auditor's report and findings as may be inconsistent with, or contrary to, the findings and conclusions stated herein, are rejected by this court.

Plaintiff was surety on Hanke's official bond, and as surety made good to Hennepin county a shortage in Hanke's official depository accounts as county treasurer in the sum of $249,245.93. This action is brought by the plaintiff, claiming, as such surety, subrogation to the rights of the county, and also as assignee of Hennepin county. The county assigned to plaintiff all demands, claims, and debts which the county and state had against Hanke and others arising out of fraudulent, illegal, and improper acts on the part of Hanke, specifically including the claim against this defendant. It is contended that, while treasurer of Hennepin county, Hanke maintained a certain bank account with the defendant known as the "Over Remittance Account," and that, with notice and knowledge of the defendant, the said Hanke, between April, 1911, and August, 1922, withdrew from said bank account certain funds belonging to Hennepin county, and misappropriated and embezzled such funds. A rather extended statement of facts is required in order to present the situation that existed.

Henry C. Hanke was elected treasurer of Hennepin county in 1906, and continued as county treasurer by successive elections until August, 1922. Section 840 of the Minnesota Statutes requires the county treasurers in counties of over 150,000 inhabitants to give a bond in the sum of $250,000, conditioned upon the keeping and paying over according to law of all moneys he receives as such county treasurer. A bond in this sum was furnished by the plaintiff. The following Minnesota statutes should be noted:

Section 842 provides that "the county treasurer shall keep a full and accurate account of all moneys by him received, showing the amount thereof, the time when, by whom, and on what account paid."

Section 843 requires the county treasurer to receive "all moneys directed by law to be paid to him as such treasurer, and pay them out only on the order of the proper authority. All moneys belonging to the county shall be paid out upon the order of the county board, signed by the chairman thereof, and attested by the county auditor, or upon the warrant of the county auditor upon the presentation to him of the proper certificate of the person or tribunal allowing the same, and not otherwise."

Section 844 provides that "the chairman of the county board, the county auditor and clerk of the district court in each county shall constitute a board of auditors; * * * and it shall be the duty of such board to carefully examine and audit the accounts, books, and vouchers of the county treasurer, and count and ascertain the kind, description, and amount of funds in the treasury of such county, or belonging thereto, at least three times in each year, without previous notice to the treasurer."

Section 846 provides that "all county funds, as soon as received, shall be deposited by the county treasurer in the name of the county in one or more banks designated by the board of auditors, who, before designating such depository, shall advertise in one or more newspapers published in its county, or if, in its opinion, the public interests require, in other counties, for at least two weeks for proposals. Such proposals shall state what security will be given to said county for the funds so deposited, and what interest allowed on monthly balances. * * *"

Section 851 provides that "no county treasurer shall deposit any public funds in his individual name, or in any other capacity than as treasurer, under the penalty of five hundred dollars for each deposit so made."

Section 852 provides that "public funds shall at all times be kept separate from any private funds of the treasurer or any private person. * * *"

Section 853 requires county depositories to furnish the county auditor with a true and itemized statement of the treasurer's account and interest accrued on the first day of each month.

Section 2075 provides that "the county treasurer shall be the receiver and collector of all the taxes extended upon the tax lists of the county, whether levied for state, county, city, town, school, poor, bridge, road, or other purposes, and also of all fines, forfeitures, or penalties received by any person or officer for the use of the county. He shall proceed to collect the same according to law, and place the same when collected to the credit of the proper funds."

The county maintained official depository accounts with several of the banks in the city of Minneapolis, and, since 1913, the defendant bank was one of the official depositories of county funds. Henry C. Hanke also kept his personal account with the defendant bank. Consequently, there were three bank accounts maintained with the defendant with which Hanke was concerned — an official county account, his personal account, and the over-remittance account. The bulk of the county's money, however, was kept in three large depositories, known as the First National Bank, Northwestern National Bank, and Midland National Bank, all of Minneapolis. These banks will from time to time be referred to as the three large depositories.

Shortly after Hanke became county treasurer, he opened an account with the Germania Bank of Minneapolis, which he designated, according to the ledger of that bank, as "H. C. Hanke, Special." About a year later, the account was changed on the records to "H. C. Hanke, Over Remittance Account." On September 19, 1910, the account was again changed to "H. C. Hanke, Special." The Germania Bank on April 17, 1911, was taken over by the defendant, and a balance of $250.34 was in the H. C. Hanke special account at this time. This amount was checked out of the Germania Bank to the defendant bank on April 19, 1911. Since 1907 Hanke had used for the purpose of drawing out funds of the H. C. Hanke special account and H. C. Hanke Overremittance account, a check styled "Hennepin County Over Remittance Account." This check bore a place for two signatures—county treasurer and deputy— and a large picture of the Hennepin county courthouse was depicted on the left-hand side of the check. It was this form and style of check that was used by Hanke on April 19, 1911, to transfer the balance of the funds in the Germania Bank to the defendant bank, though, apparently, at that time the account in the Germania ledger was noted as "H. C. Hanke, Special." On April 20, 1911, the account on the ledger of defendant bank appeared as "Over Remittance Account of Hennepin County." Later, in 1917, the account was carried as "Over Remittance Account, c/o H. C. Hanke, Co. Treas.," and this style continued until 1922. The signature cards were carried as "Over Remittance Acct., Henry C. Hanke, Co. Treas., — Over Remittance Acct., Henn. Co., H. C. Hanke, Co. Treas.,— and Over Remittance Account, Henn. Co., Henry C. Hanke, Co. Treas." Defendant admits that there was an account carried with the defendant known as "Hennepin County Over Remittance Account." Various deputies in the county treasurer's office were authorized by Hanke to sign checks on this account during its entire existence. In fact, a majority of the checks drawn during the period in question were signed by deputies employed in the county treasurer's office. The form of the check used on this account, after the defendant bank took over the Germania Bank, was maintained substantially the same as the form used when the funds were transferred. It is significant that, except for a period in 1917 and 1918, the overremittance account checks bore no warrant number. The checks for the official depositories referred to the number of the warrant which was issued by the county auditor in authorizing disbursement of county funds. The overremittance account was not an official depository while it was maintained at the Germania Bank, nor was it an official depository during the entire period the account was maintained at the defendant bank. It is quite evident that the statutory limitations surrounding the handling of county funds prompted Hanke to provide for an account where moneys received by him by virtue of being county treasurer, but not belonging to the county, could be deposited without being mingled with county funds. The classes of funds that were deposited in this account clearly explain the reason for its existence.

It appears that many of the large real estate firms in the city of Minneapolis were desirous of protecting their equities in real estate from the penalties following the failure to pay the taxes thereon. Lists of property sold under contract for deed or mortgage deed, and other conveyances where the grantee or mortgagor agreed to pay the taxes, were furnished to the county treasurer by...