Breckenridge County v. Gannaway

• Citation: 243 Ky. 49,47 S.W.2d 934
• Parties: BRECKINRIDGE COUNTY v. GANNAWAY et al.
• Decision Date: 04 March 1932
• Court: Court of Appeals of Kentucky

47 S.W.2d 934

243 Ky. 49

BRECKINRIDGE COUNTY v. GANNAWAY et al.

Court of Appeals of Kentucky

March 4, 1932

Rehearing Denied April 22, 1932.

Appeal from Circuit Court, Breckinridge County.

Suit by Breckinridge County against W. G. Gannaway and another. From a judgment in favor of defendants, plaintiff appeals.

Reversed with instructions.

James &amp James, of Elizabethtown, and Robert Trent, of Hardinsburg for appellant.

P. M Basham, of Hardinsburg, for appellees.

C. C. Turner, of Frankfort, amicus curiae.

DIETZMAN C.J.

This is a suit brought by Breckinridge county to recover from its sheriff, W. G. Gannaway, and his surety, $10,500, representing taxes collected by him and due the county for the year 1930, and the further sum of $2,068.05 as a penalty on the amount of $34,267.58 of county taxes collected by him for the year 1930 and which he had not turned over to the county by January 20, 1931. The undisputed facts are these: Gannaway, the sheriff, collected the 1930 taxes due the county and deposited the same to his credit as sheriff in two banks at Hardinsburg. At the April, 1930, term, the fiscal court of Breckinridge county elected a county treasurer who, in due time, qualified and was throughout this litigation holding such office. On January 20, 1931, the sheriff had in his hands taxes that had been collected by him before that date and not turned over to the county amounting to more than $34,267.58. He still had this sum on hand on the 29th day of January, 1931, on which day he made a settlement with the fiscal court. In accordance with that settlement, he delivered to the clerk of the fiscal court checks payable to Breckinridge county aggregating the $34,267.58.

One of these checks was for $10,500, and was drawn on the Bank of Hardinsburg & Trust Company, which, up to and including January 29, 1931, was considered solvent by the sheriff and the public generally. However, to the surprise of the public, after the close of business that day, it was placed in the hands of the state banking commissioner for liquidation as insolvent; did not open for business on the next day, and has since that time been in liquidation as an insolvent bank. The check which the sheriff had drawn upon it and given to the clerk of the fiscal court reached the hands of the county treasurer after January 29, 1931. Of course, due to the closing of the bank, it could not be collected. The questions involved in this litigation are whether or not the county is entitled to a judgment against the sheriff and his surety for the $10,500, with interest from January 29, 1931, and whether or not it is entitled to the 6 per cent. penalty provided for by section 4147 of the Kentucky Statutes on the $34,267.58 which the sheriff had in his possession on January 20, 1931. The trial court submitted both of these questions to the jury, the first on the theory that the sheriff was not absolutely liable for the funds in question, but that, if he acted in good faith and without negligence, and in the exercise of ordinary care in depositing and keeping the money in the Bank of Hardinsburg & Trust Company, he was not liable for the $10,500; otherwise he was. As to the second question, the court by instruction No. 2 told the jury that, if the sheriff had on hand any funds on January 20, 1931, which he did not pay to the county treasurer until after that date, they should find for the county 6 per cent. of such amount on hand. Although under the admitted facts of this case this was practically a peremptory instruction on this phase of the case to find for the county, the jury found both items for the sheriff and his surety, and, from the judgment entered on that verdict, this appeal is prosecuted.

Certain preliminary matters must be disposed of before we reach the real issue in this case. The appellees insist that they were entitled to a peremptory instruction as to the $10,500 item because the giving of the check by the sheriff to the fiscal court operated as an assignment of the funds then in the bank to meet it, and the fiscal court accepting such check became the owner of such funds, and hence the sheriff was discharged from further liability for them. Whatever may have been the law in this connection prior to the passage of the Negotiable Instrument Act (Ky. St. § 3720b-1 et seq.), it is now settled in this state that, unless the giving and receipt of a check are specifically understood to be for and as payment and discharge in and of itself of the account, the mere giving of a check does not operate as payment and discharge of the debt until the check is paid or accepted by the bank at which it is payable. Cogar Grain & Coal Co. v. McGee, 241 Ky. 485, 44 S.W.2d 551. In the instant case, it is not shown that the receipt of the sheriff's check for $10,500 by the fiscal court was intended to operate in and of itself as a discharge of the sheriff's obligation or in any other way than the receipt of a check ordinarily operates in the usual and customary course of business. It follows that the sheriff's obligation was not discharged by the mere giving of this check to the fiscal court and its receipt by that body.

Appellees contend next in support of their position that they were entitled to a peremptory instruction that the holder of a check is bound to use due diligence in presenting it for payment, and that, in this case, the check should have been presented the same day that it was issued, failing which the risk of its nonpayment shifted to the payee. It is true that a check must be presented for payment with due diligence, but it is settled that, where the maker, payee, and bank are residents of the same town, the payee of the check has until the next secular day to present it and demand payment. Cawein v. Browinski, 6 Bush, 457, 99 Am. Dec. 684. See also 5 R. C. L. 509.

Appellees next argue that the petition was defective in that it did not allege facts showing the legality of the tax and the right of the sheriff to collect it. However, their answer in substance admits the legality of the tax and the right of the sheriff to collect it, and, if there was any defect in the petition, it was cured by the answer.

We now come to the heart of this controversy. It will be remembered that the court, in submitting this case to the jury, in effect told them that the sheriff was not liable for the bank's failure to pay this check because of its insolvency if the sheriff exercised ordinary care in the selection and retention of this bank as a place of deposit for the tax funds. Appellant insists that in this the court was in error, because, first, the sheriff is liable absolutely and at all hazards for the actual payment of the taxes collected by him, and it is not a question as to whether or not he acted in good faith and without negligence, but, if in error as to this, then, secondly, inasmuch as the sheriff continued to hold these taxes after January 20, 1930, he became, by virtue of the provisions of section 4147, thereafter an insurer of the safety of the funds. The first contention of the appellant and the theory under which the court submitted this case to the jury present the divergent ideas of the cases as to the liability of a public officer and his surety for the loss of funds collected by him due to the insolvency of a bank in which they are deposited, where the public officer has acted in good faith and without negligence in the selection and retention of such bank as a place of deposit of such funds.

In 26 R. C. L. 373 may be found a statement of the conflict of authority on this question. Perhaps the numerical weight of authority from other jurisdictions supports the position of the appellant rather than that of the appellees which is represented in the instruction the trial court gave to the jury. In this state, we find the cases of Commonwealth v Godshaw, 92 Ky. 435, 17 S.W. 737, 13 Ky. Law Rep. 572; Stephens v. City of Ludlow, 159 Ky. 729, 169 S.W. 473; and Johnson v. Fleming, 116 Ky. 680, 50 S.W. 855, 21 Ky. Law Rep. 4. The first two cases support the theory of the appellant as to absolute liability. The last case, intermediate as to time of decision between the first two, supports the appellees' theory as to the liability only for negligence. To these cases there should perhaps be added the cases of Sweeney v. Commonwealth, 118 Ky. 912, 82 S.W. 639, 26 Ky. Law Rep. 877, and Denny, Banking Commissioner, v. Thompson, 236 Ky. 714, 33 S.W.2d 670, for the discussion of the principle as to the relationship between a public officer and the public funds in his possession. We shall not attempt to reconcile these cases, nor is it necessary in the instant case to choose between the two conflicting principles. If that of absolute liability be chosen, the sheriff was and is liable in this case to the county for the unpaid check. If the principle of liability for negligence only be chosen, he will in this case be equally liable for the unpaid check because of the retention in the bank by him after January 20, 1931, of the tax funds of the county which he had collected and not...