Granzow v. Village of Lyons, Ill., 6027.

• Decision Date: 23 March 1937
• Docket Number: No. 6027.,6027.
• Parties: GRANZOW v. VILLAGE OF LYONS, ILL.
• Court: U.S. Court of Appeals — Seventh Circuit

89 F.2d 83 (1937)

GRANZOW v. VILLAGE OF LYONS, ILL.

No. 6027.

Circuit Court of Appeals, Seventh Circuit.

March 23, 1937.

Louis B. Stocks and Louis P. Fogarette, both of Berwyn, Ill., and Albert E. Hallett, Jr., of Chicago, Ill., for appellant.

Julius Jesmer, of Chicago, Ill., and Arthur M. Rawers, of Lyons, Ill., for appellee.

Before SPARKS, Circuit Judge, and LINDLEY and BALTZELL, District Judges.

LINDLEY, District Judge.

Appellant, receiver of a national bank, sued to recover from appellee, an Illinois municipal corporation, $17,000, representing the difference between the proceeds realized by appellee from a sale it made of certain assets of the bank which had been pledged to it to secure a deposit of municipal funds and the dividend to which appellee would have been entitled on its claim for such deposit as a general creditor. The court allowed appellee's motion to dismiss the suit, and this appeal followed.

The bank, prior to 1932, received a deposit of municipal funds, pledging with appellee, at the latter's insistence, certain assets to secure the deposit. The bank became insolvent and suspended payment June 27, 1932. Appellant was thereupon appointed receiver. The deposit of appellee was then $39,323.

In due course of administration, both the receiver and the municipality, under a misapprehension of the law, agreed that the municipality might sell the collateral and apply the proceeds of the sale upon the debt. The Comptroller of the Currency approved this agreement, subject to approval by the District Court. Appellant thereupon filed his petition and secured an order authorizing sale of said assets as agreed. The sale was had and application of the proceeds made on the debt.

Some time thereafter the parties awoke to the fact that these transactions had taken place under a mutually mistaken view of the law. This court in Sneeden v. City of Marion (C.C.A.7) 64 F.(2d) 721, held that in Illinois a national bank does not have the power to pledge its assets to secure a deposit of public money; that such pledges are ultra vires, void, and recoverable at the suit of the receiver. On certiorari granted, the Supreme Court affirmed. 291 U.S. 262, 54 S.Ct. 421, 78 L. Ed. 787. This suit was instituted subsequent to this adjudication of the law.

Under the authorities cited, the pledge was ultra vires. This proposition the receiver has a right to assert. Nor is the receiver required to make restitution by paying the claim in full. The pledge fails because illegal and void and the creditor becomes entitled only to a dividend as a general creditor. Texas & Pacific R. Co. v. Pottorff, 291 U.S. 245, 54 S. Ct. 416, 78 L.Ed. 777. Being void the transaction could not be confirmed, ratified, enforced or rendered enforceable by the application of any doctrine of estoppel or otherwise. California Bank v. Kennedy, 167 U.S. 362, 17 S.Ct. 831, 42 L.Ed. 198; McCormick v. Market Bank, 165 U.S. 538, 17 S.Ct. 433, 41 L.Ed. 817; Central Transportation Co. v. Pullman's Palace Car Co., 139 U.S. 24, 11 S.Ct. 478, 35 L.Ed. 55. This is because, not merely that the bank ought not to make the contract, but that it could not legally make it. Ratification is impossible if there is no power to contract. Central Transportation Co. v. Pullman's Palace Car Co., 139 U.S. 24, 11 S. Ct. 478, 35 L.Ed. 55. And knowledge of the lack of existence of authority is conclusively presumed. McCormick v. Market Bank, 165 U.S. 538, 17 S.Ct. 433, 41 L. Ed. 817.

The receiver was the agent and administrative officer of the United States. In re Chetwood, 165 U.S. 443, 17 S.Ct. 385, 41 L.Ed. 782; United States v. Weitzel, 246 U.S. 533, 38 S.Ct. 381, 62 L.Ed. 872. Payments voluntarily made by officers of the United States, under a mistake of law, may be recovered. Thus where the Postmaster General, through a mistake as to the statutory law relative to payment for carrying the mails, overpaid the railroad company, which later sued for moneys due for services subsequently rendered and the Postmaster General sought to set off the previous overpayment, made under mistake of law, the Supreme Court affirmed recovery, holding that the government cannot be bound by the actions of its officers under misconception of the law under which they have assumed to act, and that the question, in such instances, is whether the recipient may be allowed to retain the fruits not authorized by law, resulting from an erroneous conclusion by the agent of the government as to the legal effect of the particular statute, under or in reference to which he is proceeding, saying: "there is nothing in this record to take the case out of the scope of the principle that parties receiving moneys illegally paid by a public officer are liable ex æquo et bono to refund them." Wisconsin Central R. R. Co. v. United States, 164 U.S. 190, 17 S.Ct. 45, 52, 41 L.Ed. 399. See, also, Talcott v. United States (C.C. A.) 23 F.(2d) 897; Champ Spring Co. v. United States (D.C.) 38 F.(2d) 988, affirmed (C.C.A.) 47 F.(2d) 1.

Such payments are exceptions to the rule that money paid under mistake of law cannot be recovered. A private party may do as he desires with his own money, but an officer of the United States cannot bind his government in making payments contrary to law. Heidt v. United States (C.C.A.) 56 F.(2d) 559. It follows, therefore, that appellant as...