Independent School District Class A, No. 1 v. Porter

• Decision Date: 02 July 1924
• Citation: 228 P. 253,39 Idaho 340
• Parties: INDEPENDENT SCHOOL DISTRICT, CLASS A, NUMBER ONE, in Cassia County, Respondent, v. E. W. PORTER, Commissioner of Finance of the State of Idaho, Substituted for J. G. FRALICK, Commissioner of Finance and Industry of the State of Idaho, Appellant
• Court: Idaho Supreme Court

228 P. 253

39 Idaho 340

INDEPENDENT SCHOOL DISTRICT, CLASS A, NUMBER ONE, in Cassia County, Respondent, v. E. W. PORTER, Commissioner of Finance of the State of Idaho, Substituted for J. G. FRALICK, Commissioner of Finance and Industry of the State of Idaho, Appellant

Supreme Court of Idaho

July 2, 1924

BANKS AND BANKING-INSOLVENCY-RECEIVER-GENERAL AND SPECIAL DEPOSITS-PREFERRED CLAIM-INDEPENDENT SCHOOL DISTRICT-FUNDS-CONTRACTS-NOVATION.

1. Assent of all parties to a contract is necessary to constitute a novation. A new promise from the substituted debtor and a release of the claim against such substituted debtor, the consent of the original debtor and the consent of the original creditor are essential elements of the novation.

2. Held, under the facts of this case that failure of assent or acquiescence of parties to contract and noncompliance with provisions of chapter 256, 1921 Sess. Laws, precluded novation.

3. Where a special deposit was made by an independent school district in one bank, which was thereafter consolidated and taken over and operated by another bank, the latter subsequently becoming insolvent, the character of such deposit was not changed in the absence of an express agreement to that effect, acquiesced in and assented to by such school district and it was entitled to be listed for payment with the receiver as a preferred claim under subd. 2 sec. 13, chap. 42, 1921 Session Laws.

APPEAL from the District Court of the Eleventh Judicial District for Cassia County. Hon. T. Bailey Lee, Judge.

Action to establish a preferred claim. Judgment for plaintiff. Affirmed.

Judgment of the trial court affirmed and costs awarded to respondent.

Hodgin Stephan & North for Appellant.

There was an agreement between the parties whereby the Commercial State Bank took over the assets and assumed the liabilities of the Burley State Bank.

The new agreement constituted a novation. (4 Page on Contracts, sec. 2498, and authorities cited.)

Chapter 42 and chapter 256 of the 1921 Session Laws became a part of the new agreement. (Fidelity State Bank v. North Fork Highway Dist., 35 Idaho 797, 209 P. 449; Long v. Owen, 21 Idaho 243, Ann. Cas. 1913D, 465; 121 P. 99; 6 R. C. L. 885; 13 C. J. 560.)

When the account was taken over by the Commercial State Bank under the new agreement it became a general deposit. (Secs. 24-30, chap. 256, 1921 Sess. Laws.)

Even though it be held that the deposits in the Commercial State Bank were in violation of law, still respondent would not be entitled to the priority claimed. (Subd. 3, sec. 13, chap. 42, 1921 Sess. Laws. )

When a general deposit is made the relation of debtor and creditor is created, no trust relation can arise, and public funds so deposited will not be declared to be trust funds. (22 R. C. L., p. 223; In re State Treasurer Settlement, 51 Neb. 116, 70 N.W. 532, 36 L. R. A. 746; United States Fidelity & Guaranty Co. v. City of Pensacola, 68 Fla. 357, Ann. Cas. 1916B, 1236, 67 So. 87.)

The funds in controversy were trust funds and were not the property of either the Burley State Bank or the Commercial State Bank. (Fidelity State Bank v. North Fork Highway Dist., 35 Idaho 797, 209 P. 449; In re Bank of Nampa, 29 Idaho 166, 157 P. 1117; State v. Thum, 6 Idaho 323, 55 P. 858; First Nat. Bank v. C. Bunting & Co., 7 Idaho 27, 59 P. 929, 1106.)

This fund being impressed with a trust, such trust follows it so long as it can be traced. (3 R. C. L. 555, and authorities cited.)

The Burley State Bank had no authority to make a deposit of these funds in the Commercial State Bank, either express or implied, as they were trust funds. (Patek v. Patek, 166 Mich. 446, 131 N.W. 1101, 35 L. R. A., N. S., 461.)

The alleged new agreement between Burley State Bank and Commercial State Bank did not constitute a novation, for the reason that the respondent did not agree thereto. (4 Page on Contracts, sec. 2498.)

Chapter 42, Session Laws 1921, is unconstitutional and void in so far as it purports to affect this deposit. (Fidelity State Bank v. North Fork Highway Dist., supra.)

Morris & Griswold and B. P. Howells, for Respondent.

ENSIGN, District Judge. McCarthy, C. J., and Budge and Wm. E. Lee, JJ., concur.

OPINION

ENSIGN, District Judge.

--This is an action brought by the respondent, Independent School District, Class A, No. 1, in Cassia county, in accordance with the provisions of sec. 2, page 60, chap. 42, Sess. Laws 1921, to enforce a trust in the sum of $ 21,518.18, upon the general fund and estate of the insolvent Commercial State Bank of Burley, Idaho, and now, under the provisions of said chap. 42, in the hands and under the direction and control of the appellant, commissioner of finance and industry of the state of Idaho, and to require said appellant to forthwith proceed to list said claim for payment out of the funds of said Commercial State Bank under subd. 2, sec. 13, of said chap. 42, and to pay said claim in its order of priority. Upon the hearing of the matter before this court, and upon motion of appellant the name of E. W. Porter was substituted for that of J. G. Fralick, as commissioner of finance and industry.

The facts in this case were stipulated, and are in substance as follows:

1. Plaintiff now is and at all times herein mentioned was a body corporate, organized and existing for school purposes, under and by virtue of the laws of the state; that prior to the passing of chap. 215, Sess. Laws 1921, plaintiff was a body corporate organized and existing for school purposes under and by virtue of the laws of the state, under the name of Burley Independent School District No. 1 of Cassia County, and that the plaintiff is the successor in interest of said Burley School District No. 1.

2. That the defendant, J. G. Fralick, now is and at all times hereafter mentioned was the duly appointed, qualified and acting commissioner of commerce and industry of the state of Idaho.

3. That the Burley State Bank of Burley, Idaho, on January 17, 1921, and for a long time prior thereto, was a corporation organized and existing under and by virtue of the laws of the state of Idaho; that the said Burley State Bank was engaged in and conducting a general banking business in the state of Idaho, with its principal place of business at Burley, Cassia county; that on January 17, 1921, the said Burley State Bank closed its doors and suspended payment, at which time, and ever since, such bank has been and now is insolvent.

4. That the defendant, J. G. Fralick, commissioner of commerce and industry, on January 17, 1921, took possession of the assets and business of said Burley State Bank, as required by law.

5. That on January 17, 1921, the plaintiff herein had on special deposit in the said Burley State Bank, in the name of Burley Independent School District No. 1, subject to withdrawal by said plaintiff upon its check, the sum of $ 22,147,21, which said funds were the property of this plaintiff and were obtained for general school purposes within said school district, and said sum stood to the credit of this plaintiff on the books of said Burley State Bank at the date said bank was closed, to wit, January 17, 1921.

6. That thereafter on or about May 20, 1921, the Commercial State Bank was duly organized and charter granted thereto by the state of Idaho, and said Commercial State Bank now is, and at all times since has been, a domestic corporation; that thereafter on May 28, 1921, the said Commercial State Bank, acting by and through its duly authorized board of directors, "unanimously adopted" a resolution to the effect that it be proposed to the directors of the Burley State Bank that the Commercial State Bank take over all the assets of said Burley State Bank, and in consideration thereof that the former will assume, agree to pay and pay the liabilities of the latter as shown by its books; that the Burley State Bank accepted said offer and empowered its officers to deliver to the Commercial State Bank all of its assets, and that the proper officers of the Commercial State Bank, in accordance with the agreement, took possession of the same.

7. That thereafter, and on June 6, 1921, the said Commercial State Bank opened its doors for business at Burley, Idaho, up to and including the 8th day of December, 1921, on which date said bank was by its officers placed in the hands of said commissioner of commerce and industry under the provisions of chap. 42, Sess. Laws 1921, and during all of the time since and now is in his hands and under his control.

8. That the records of said Commercial State Bank, from June 6, 1921, to December 8, 1921, show that said Independent School District, the plaintiff and respondent in this case, maintained an account with said bank, to wit: A debit in the sum of $ 1,264.50 of date of August 21, 1921, representing the face of a certain warrant issued by said school district to Mr. A. C. Fouts, which warrant, at the time of said debit, had not been called by said school district; certain debits to said account in the sums of $ 425, $ 420, $ 15, $ 15, and $ 118.01, respectively, between December 3, and December 8, 1921, inclusive, representing checks drawn on said account by said school district; certain items for interest accrued between the dates of August 11, 1921, and November 1, 1921, and two items of credit in the sums of $ 708.88 and $ 425, respectively, of dates of December 1, 1921, and December 3, 1921, representing actual deposits by said school district in said bank.

9. That on or about June 1, 1921, said Commercial State Bank executed a bond, with several sureties, for the purpose of securing the deposit of said school district in said bank, and that some time between June 1, 1921, and August 8, 1921, said bond was delivered by...