Daley v. City of Melvindale

• Decision Date: 17 May 1935
• Docket Number: Jan. Term.,No. 110,110
• Citation: 260 N.W. 898,271 Mich. 431
• Parties: DALEY v. CITY OF MELVINDALE et al.
• Court: Michigan Supreme Court

271 Mich. 431

260 N.W. 898

DALEY

v.CITY OF MELVINDALE et al.

No. 110, Jan. Term.

Supreme Court of Michigan.

May 17, 1935.

Suit by John N. Daley, receiver of the Melvindale State Bank, against the City of Melvindale and another. From an adverse decree, plaintiff appeals.

Affirmed.

EDWARD M. SHARPE, J., POTTER, C. J., and WIEST, J., dissenting. Appeal from Circuit Court, Wayne County, in Chancery; Lester S. Moll, judge.

Argued before the Entire Bench.

Marion Louis Leacock, of Detroit (M. Hubert O'Brien, of Detroit, of counsel), for appellant.

R. S. Woodliff, Corp. Counsel, of Melvindale (M. M. Larmonth, of Detroit, of counsel), for appellees.

BUTZEL, Justice.

The decree of the trial court should be affirmed. It is true that the mere designation of a bank deposit by a certain name is insufficient, of itself, to characterize it as a trust fund, or to put the bank on notice that the deposit so designated, but without any agreement or conditions attached as to withdrawal, may be withdrawn only for a specific purpose. Nevertheless the Melvindale State Bank must have known that the funds deposited with it by the village (now the city of Melvindale) were public funds, raised in manner provided by law, and dedicated and allocated by the village to particular governmental functions. The sole question presented in the instant case is limited to whether a bank as plaintiff in a court of equity is entitled to set off bonds of the municipality against public funds deposited with it by the municipality. There are cases cited in which set-off has been allowed under different facts than those presented in the case at bar. In many of these decisions the right to set-off is apparently based upon some statutory provision. United States v. Bank of Metropolis, 15 Pet. (40 U. S.) 377,10 L. Ed. 774;Board of Drainage Commissioners v. City National Bank of Paducah, 231 Ky. 670,33 S.W.(2d) 94;Hemphill v. Florida National Bank of Jacksonville (C. C. A.) 30 F.(2d) 892. However, in other cases set-off has been allowed even without statutory authority. Such is the rule in Pennsylvania and a few other jurisdictions. See Georges Township v. Union Trust Co., 293 Pa. 364, 143 A. 10;Gray v. School District of Brownsville (C. C. A.) 67 F.(2d) 141, a case following the decisions of Pennsylania, in which it arose. Also see State ex rel. Village of Warrensville Heights v. Fulton, 128 Ohio St. 192,199 N. E. 383. In two early Michigan cases a set-off was allowed under different conditions than here presented. McBrian v. City of Grand Rapids, 56 Mich. 95, 22 N. W. 206, and City of Eaton Rapids v. Houpt, 63 Mich. 371, 29 N. W. 860, which followed the McBrian Case, and in which a mere $7 claim of a poundamaster was involved. In neither of these cases, nor in others cited by plaintiff, does it appear that the questions hereinafter discussed were raised.

Despite the authorities above noted, we believe that the correct rule is stated in Township Committee of Piscataway Township v. First National Bank, 111 N. J. Law, 412, 168 A. 757, 758, 90 A. L. R. 423, where, in its majority opinion, the court said:

‘The general account of a municipality is unlike an individual's general balance, which the banker may apply on any overdue note. It is, in reality, a trust fund into which the current revenues are placed for disposition in accordance with the appropriations previously made. The safety and health of the citizen are of prime importance, and neither can be endangered because a creditor wants his due. The municipality can no more carry on without its general funds than it could without any other particular piece of property dedicated to public use. The creditors of a municipality must wait till their debt is raised by taxation. Lyon v. City of Elizabeth, 43 N. J. Law, 158. * * *

‘The municipalities' general funds are raised by taxation and are allocated before receipt, for particular purposes, including the transmission of taxes to other governmental units. The citizen pays taxes, for the most part, for police, fire protection, and the education of the young. To take moneys intended to be devoted to a continuance of governmental functions cannot be done unless we overlook the purposes for which the funds were dedicated. As soon as there is an unused balance in the general account of a municipality it is placed in a surplus revenue account and may be then used for the purposes contemplated by law. The general funds of a municipality are, in fact, a trust fund to carry on the obligations of government and are, as every banker knows, allocated for particular purposes. The bank can no more take these funds for a purpose for which they were not dedicated than it could take trust funds to pay the debt of the individual who happened to be trustee.’

The courts have almost uniformly held that one cannot set off against his tax obligation an indebtedness due to him from the state or municipality, for the reason that such set-off, if allowed, might result in the suspension of the proper functioning of government. A long list of authorities to this effect is assembled in 90 A. L. R. 433. An interesting statement, particularly pertinent to contemporary times, appears in City of Camden v. Allen (1857) 26 N. J. Law, 398, where the court said: ‘Can the multitude of creditors of our local municipal corporations set off the debts due from the town or city against their taxes? The question relates not to the technical form of making the set-off; but, as a matter of principle and sound policy, could the claim be tolerated? How is government to be maintained upon such theory? It is not improbable that at this hour many of our municipal corporations are indebted to their own citizens, in amounts far exceeding the annual tax which, by their charters, they are authorized to levy.’

When the treasurer of a municipality collects taxes, he obviously does not hold the money in specie in a vault, but deposits it in a bank, to be expended on proper vouchers for the purpose for which it was collected. The same public policy which requires the denial of the right of set-off against taxes because of the danger of interruption of the functioning of government applies with equal force to moneys collected from taxes for the very purpose of carrying on government.

Furthermore, to permit such a set-off as is sought in the instant case would be in effect to countenance, in an indirect manner, the seizure of the property of the village or city in a similar manner as if by attachment, garinshment, or execution. The cases are almost unanimous in holding that the funds of a municipality are exempt from levy by execution. See annotations in 89 A. L. R. 864. An execution may not be levied on a judgment against a municipality. Section 14690, C. L. 1929. Also see Griswold v. Common Council of Ludington, 117 Mich. 317, 75 N. W. 609;Herter v. City of Detroit, 243 Mich. 66, 219 N. W. 617.

Equity as a rule will follow the law, and will not permit that to be done by indirection which, because of public policy, cannot be done directly. A municipal corporation is much restricted in raising the necessary funds with which to operate. Such funds are generally raised by taxes and/or bond issues, both of which are expressly limited in amount by law. In the preparation of the budget the amounts to be raised are generally pared down, within these limits, to a minimum just sufficient to provide for the bare necessities of governmental privileges and protection-police, fire, and health protection, school maintenance, debt service, etc.-and the funds to be thus raised are allocated, before their receipt, to these necessary governmental functions. The municipality would be seriously embarrassed in the carrying on of its vital functions, if the bank, in which the funds are deposited to await expenditure for the particular purposes for which they were collected, were permitted to divert them to the satisfaction of its own claims. There is no claim that the city of Melvindale is insolvent, and there is a proper orderly method of enforcing payment of the amounts due on the bonds of the municipality, which avoids the seizure of funds raised and required for other purposes.

The decree of the trial court is affirmed, without costs, as a public question is involved.

NELSON SHARPE, NORTH, FEAD, and BUSHNELL, JJ., concurred with BUTZEL, J.

EDWARD M. SHARPE, Justice (dissenting).

The city of Melvindale is the legal successor of the village of Melvindale and became so as of February 6, 1933, and as such opened five different bank accounts in the Melvindale State Bank. The bank for the purpose of qualifying as a depository had on October 28, 1931, entered into a depository agreement with the village of Melvindale, and by such agreement the Dearborn State Bank was made trustee.

The provisions of the agreement pertinent to the issue involved herein are as follows:

‘The above bank agrees to receive and safely keep all such surplus funds of said depositor as may be offered or deposited by it and to reimburse and pay the same to said depositor or whoever may be lawfully entitled to receive the same in accordance with the term of the contract of deposit; and to pay interest on such surplus funds so deposited, at the rate of no interest per cent. per annum, to be computed in the following manner: * * * ‘It is agreed by and between the depositor and bank that the said bank shall, at all times keep a true and just account of all moneys and funds deposited by the said depositor and that the said bank shall, at all times honor and pay all drafts and checks of said depositor to the amount of funds so deposited as aforesaid.

‘The said bank hereby deposits with the above trustee as collateral security for the safety and payment of all money and funds belonging to the depositor in accordance with this agreement, securities enumerated in paragraphs (a), (b), (c), (d), (e), (f), (g), (h), and (i) of section 24 of Act 66, P. A. 1929, and...