Indep. Sch. Dist. of Sioux City v. Hubbard

• Decision Date: 15 December 1899
• Citation: 110 Iowa 58,81 N.W. 241
• Parties: INDEPENDENT SCHOOL DIST. OF SIOUX CITY v. HUBBARD ET AL.
• Court: Iowa Supreme Court

110 Iowa 58

81 N.W. 241

INDEPENDENT SCHOOL DIST. OF SIOUX CITY

v.HUBBARD ET AL.

Supreme Court of Iowa.

Dec. 15, 1899.

Appeal from district court, Woodbury county; George W. Wakefield, Judge.

From judgment entered against the American Surety Company, as surety on the bond of Harry S. Hubbard, as treasurer of the plaintiff, it appeals. Reversed.William Milchrist and T. G. Henderson, for appellant.

Marks & Mould and Bevington & Kennedy, for appellee.

LADD, J.

Harry Hubbard was chosen treasurer of the independent school district of Sioux City by its board of directors in September, 1893, and each year thereafter until March 21, 1898, when, under the provisions of the Code (section 2754), his successor was elected by the voters of the district. At that time he should have had in money belonging to the different funds $50,174.31. When this amount was demanded by his successor in office, he failed to turn it over, and this action was instituted for the recovery thereof from him and the surety on his bond, the American Surety Company of New York. The latter only defended. The bond covered a period of one year from September 20, 1897, though Hubbard's term of office expired in March, 1898. The issues raised by the answer involved the settlement of Hubbard with the board in September, 1897, and the validity of this bond. These will sufficiently appear when considered. The introduction in evidence of his annual report to the board of directors of September, 1897, and his final report made in March, 1898, together with his book of account as treasurer, made out a prima facie case. The statute, as it formerly stood, required him to keep “a correct account of all expenses and receipts in a book provided for that purpose,” and “to make to the board on the third Monday in September a full and complete annual report,” and a statement of the finances of the district whenever requested by the board (sections 1747, 1751, Code 1873); and the provisions of the Code are, in substance, the same (sections 2768, 2769, Code). These reports were prepared, and his book of account kept by him in his official capacity as treasurer; and, as all officers are presumed, in the absence of any showing to the contrary, to have properly discharged their duties, the book of account was rightly received as an accurate record of the receipts and expenditures of the district, and the reports as true statements of its finances, with other proof of being correct. There is some conflict in the authorities as to the conclusiveness of such accounts and reports, but none as to their admissibility as evidence of indebtedness against the official and his sureties. The authorities are collated in a note to Coleman v. Pike Co., 3 Am. St. Rep. 746 (s. c. 83 Ala. 326, 3 South. 755); U. S. v. Boyd, 5 How. 29, 12 L. Ed. 36, and City of Chicago v. Gage, 35 Am. Rep. 197 (s. c. 95 Ill. 593).

2. According to the settlement made, the treasurer should have had in September, 1897, the sum of $48,339.08, and he is presumed to have had on hand at that time all the funds with which he was chargeable. District Tp. of Fox v. McCord, 54 Iowa, 347, 6 N. W. 536. The statute provided that, when a “re-elected officer has had public funds or property in his control, under color of his office, his bond shall not be approved until he has produced and fully accounted for such funds and property to the proper person to whom he should account therefor.” Section 690, Code 1873. See section 93, Code. If the settlement of Hubbard was made, and all the funds and property of the district were actually produced, as required by law, such settlement, in the absence of fraud or mistake, is conclusive, and no inquiry will be tolerated concerning the source from whence any of the necessary money was derived. Boone Co. v. Jones, 54 Iowa, 699, 2 N. W. 987, and 7 N. W. 155;Morley v. Town of Metamora, 78 Ill. 394;Gage v. City of Chicago, 2 Ill. 332. This duty of settling and requiring the production of funds before approving the bond, however, is due to the public and not to the surety. Even in the absence of settlement he is liable for any defalcation during the life of the bond. The board of directors, as such, were under no obligation to look after the interests of the American Surety Company, or to protect it from liability. Palmer v. Woods, 75 Iowa, 402, 39 N. W. 668;Held v. Bagwell, 58 Iowa, 144, 12 N. W. 226; Board v. Otis, 62 N. Y. 88. But the surety cannot be held liable for funds not produced at such settlement, and which were appropriated by the treasurer during some previous term. District Tp. of Milford v. Morris, 91 Iowa, 198, 59 N. W. 274;Webster Co. v. Hutchinson, 60 Iowa, 721, 9 N. W. 901, and 12 N. W. 534. As proof of a settlement establishes a prima facie case, the burden is cast on the surety to show the failure to produce funds, and their misappropriation, prior to the taking effect of his bond.

3. The statutes contemplate the actual production of money belonging to the public in making these settlements. Taxes are paid in money, which is turned over to the school treasurer. He has no authority, under the law, to invest or deposit it, or to pay it out, save under the direction of the board on orders duly signed for the expense of the district. Having no legal right to change its form, how can he be permitted to produce any balance in his hands, except in the kind he has received? In Boone Co. v. Jones, 54 Iowa, 706, 2 N. W. 992, the court said: “It must be presumed that the members of the board did their duty by counting the money which his [the treasurer's] report showed should be on hand.” In Webster Co. v. Hutchinson, 60 Iowa, 721, 9 N. W. 901, the board of supervisors had counted, as funds, many thousands of dollars in certificates of deposit, checks, and other promises to pay, which had been loaned to the treasurer for such purpose, and were without validity, and it was held that “the members of the board were derelict in their duty in not requiring the treasurer to produce the funds,--the money,--or at least in not making inquiry of the proper parties as to what value the paper in question possessed.” In District Tp. of Milford v. Morris, 91 Iowa, 198, 59 N. W. 274, the court declared in unmistakable terms that a settlement at which a draft was produced in lieu of cash was “not such as the law contemplates. * * * We do not say that there might not be cases where the board would be justified in treating a draft on a solvent bank as cash in effecting a settlement with its officer; as, when they knew he had in the bank, subject to his credit, the amount represented by the draft. * * * There is entirely too much carelessness on the part of the boards in settling with such officers, and the only safe rule is in all cases to compel the officer to actually produce the money. * * * Not having settled, as the law contemplates, by a production of the money, we hold that the sureties were not estopped from showing that the defalcation for which they are sought to be charged in fact occurred prior to the making and approval of their bond.”

4. It must not be overlooked, however, that these settlements and the production of funds are intended for the security and protection of the municipalities by insuring punctuality and responsibility of public officials, and form no part of the contract with the surety. Crawn v. Com., 84 Va. 282, 4 S. E. 721;U. S. v. Kirkpatrick, 9 Wheat. 720, 6 L. Ed. 199. See State v. Carlton, 1 Gill, 249. The surety may insist on the strict construction of his contract, and that no misrepresentation be practiced in its procurement. But it is no part of the obligee's duty to furnish him information. This he must ascertain for himself. Even if the board knew the treasurer had been using the money of the district during a prior term, they were not bound voluntarily to warn the surety of his dishonesty. They might remain passive, and, if the board were sufficient, approve it. Pine Co. v. Willard, 39 Minn. 125, 39 N. W. 71, 1 L. R. A. 118; City of Harrisburgh v. Guilles (Pa.) 44 Atl. 44. See Pickering v. Day, 3 Houst. 474. It is well said by Mr. Throop in his work on Public Officers (section 202) that: “As a general rule, the sovereign power is not charged with duties or obligations to individuals, and the exercise of its authority is not controlled by any rights which they may assert, except in the cases where the constitution has expressly fixed limits to such exercise. And where the bond runs to a municipal corporation, or a public officer, the obligee is a mere representative of a sovereign power, whose rights, powers, duties, and liabilities are fixed by statute, which not only charges the sureties with notice of the extent thereof, but binds them as well as the obligee. Thus, the obligee takes no power by intendment, or by his own acts or omissions of any other person. Consequently, questions arising between the sureties and the obligee in an official bond are properly to be regarded as part of those which relate to the liabilities, rather than the rights, of sureties.” The supreme court of the United States, in Hart v. U. S., 95 U. S. 316, 24 L. Ed. 479, used this language: “The government is not responsible for the laches or the wrongful acts of its officers. * * * Every surety upon an official bond to the government is presumed to enter into his contract with full knowledge of this principle of law, and to consent to be dealt with accordingly. The government enters into no contract with him that its officers shall perform their duties. A government may be the loser by the negligence of its officers, but it never becomes bound to others for the consequences of such neglect, unless it be by express agreement to that effect.” The authorities relied on by the appellant relate to the duty of individuals or private corporations to...