Leach v. Stockport Savings Bank

• Decision Date: 23 January 1929
• Docket Number: 38862
• Citation: Leach v. Stockport Savings Bank, 223 N. W. 171, 207 Iowa 478 (Iowa 1929)
• Parties: ROBERT L. LEACH et al., Appellees, v. STOCKPORT SAVINGS BANK, Appellee; NEW INDEPENDENT SCHOOL DISTRICT OF STOCKPORT, Intervener, Appellant
• Court: Iowa Supreme Court

223 N.W. 171

207 Iowa 478

ROBERT L. LEACH et al., Appellees, v. STOCKPORT SAVINGS BANK, Appellee;

NEW INDEPENDENT SCHOOL DISTRICT OF STOCKPORT, Intervener, Appellant

No. 38862

Supreme Court of Iowa, Des Moines

January 23, 1929

Appeal from Van Buren District Court.--D. M. ANDERSON, Judge.

This was a proceeding to establish a trust in favor of the intervener school district for money deposited in the defendant bank, on the theory that such funds had been placed therein without the depository's having first furnished the statutory bond.From the judgment denying the preference the appeal was taken.

Reversed.

Hollingsworth & Hollingsworth, for appellant.

John Fletcher, Attorney-general, and H. B. Sloan, for appellees.

KINDIGJ. ALBERT, C. J., and STEVENS, DE GRAFF, and WAGNER, JJ concur.EVANS, FAVILLE, and MORLING, JJ., dissent.

OPINION

KINDIG, J.

The Stockport Savings Bank, defendant, was, during the time here involved, a corporation duly organized and existing under and by virtue of the banking laws of this state.On October 14, 1924, the state superintendent of banking, Robert L. Leach, was appointed receiver of that financial institution.Then afterwards, as his successor in office, L. A. Andrew, appellee, continued the execution of the trust.While the banking concern was operating, the appellant, New Independent School District, became a depositor, and continued such until the former ceased doing business.So, when the doors closed, appellant had on deposit $ 7,678.36.

In the course of the receivership administration, appellant, in due time, filed its claim for a preference, asserting that there was created a trust in its favor because the alleged "deposits" were in fact illegally received by the bank, in that no depository bond was furnished, according to the requirements of Section 4319 of the 1924 Code.That legislative enactment reads as follows:

"It is hereby made the duty of the treasurer of each school corporation to deposit all funds in his hands as such treasurer in some bank or banks in the state at interest at the rate of at least two per cent per annum on ninety per cent of the daily balances payable at the end of each month, all of which shall accrue to the benefit of the general fund of such school corporation; but before such deposit is made, such bank shall file a bond with sureties to be approved by the treasurer and the board of directors of such corporation[the italics are ours] in double the amount deposited, conditioned to hold the school corporation harmless from all loss by reason of such deposit or deposits; * * * Said bond shall be filed with the president of the school board and action may be brought thereon either by the treasurer or the school corporation as the board may elect."

Only one question is presented at this juncture for our determination, and that is whether or not, within the purview of the foregoing statute, the deposits made by the school district in the Stockport Savings Bank were unauthorized and illegal.Sometime after the bank failed, a depository bond, dated August 3, 1921, purporting to be for the benefit of the school district, was found among papers of the school president.Said instrument, however, was never expressly approved by the school corporation's treasurer or its board of directors, as contemplated by the lawmakers in the preceding quoted paragraph.Nevertheless, the appellee argues that, even though such be true, yet there was an inferential or implied approval which meets the occasion.A review of the testimony, as given by the witnesses, will lend aid and assistance at this place.C. L. Beswick declared:

"The funds of the school district I remember being deposited with the Stockport Savings Bank prior to 1921.During the year 1921, the matter of requiring the bank to give a bond was brought up in the meeting.The book I have here is entitled, 'Proceedings of the Board of Education.'It is the secretary's minute book * * *.Turning to page 145, I recollect the passage of a motion which is as follows: 'Moved by Bunker and seconded by Workman that the treasurer be authorized to deposit school funds in the Stockport Savings Bank, and requiring bank to give bonds to the amount of $ 10,000 with approved personal security.Motion carried.'Up to that date, July 21, 1921, no bond had ever been given by this bank to the treasurer of the school district or the school district.After that time, no bond was ever presented to the board for their approval.I do not think that the matter of approval of the bond was ever discussed by the board.No action was ever taken on the approval of any bond for the Stockport Savings Bank.* * * I did not know, as a matter of fact, that it [bond] was in my possession.[It was there found after the bank failed.]The envelope that it was in was a 'frank' envelope, addressed to Mr. A. M. Davis.It was one of these agricultural envelopes, and had the address on the outside.Up to the time I found it, I did not know it was in my possession."

A. M. Davis stated:

"I was secretary of the school district.I don't recollect of that bond, being returned to me, and me handing it to the president.I couldn't recollect the circumstances at all.* * * There had never been one [bond] presented to the board at any meeting, and I didn't know that there was ever one filled out, or had been given.* * * No such bond was ever presented to the board or approved by the board.* * * I remember that the bank gave a bond; that I insisted that they give one, because the board required the treasurer and myself to give a bond, and I thought the bank should give one, too.* * * I have no recollection as to the bond found in the possession of the president of the board in an envelope with my name on it.I couldn't say that I ever had the bond in my possession after the bank gave it.I have no recollection of turning it over to the treasurer."

C. E. Bunker swore:

"I have occupied the position of member of the school board.* * * On July 21, 1921, I remember the passage of a motion directing the bank to give a $ 10,000 bond.No such bond was ever presented to the board or approved by the board.I have continuously been a member of the board, and attend the board meetings and hear the minutes read there at each meeting; hear the minutes of the previous meeting.I did not know the fact that a form of bond had been made out by the bank.I did not know anything about any bond until after the bank had failed.No bond was ever presented to me for approval, or presented to the board for approval."

Delbert Morris continued, as follows, to the same effect:

"While I was treasurer, there was not any bond of the Stockport Savings Bank as depository put up to me for my approval, to my knowledge.I never saw that paper marked 'Exhibit 1'[the alleged bond] before.I never at any time approved any bond of the Stockport Savings Bank.* * * When I was depositing school funds in the Stockport Savings Bank, I don't know as I understood that they had been created depository by the district,--rather from custom.* * * I didn't know they had to give a bond.I called their attention to the fact at one time, and it is probably true I asked them to give a bond, but I didn't know whether they had or not.I never understood from anybody that the bond had been given.I didn't know a bond had to be given,--wasn't given to me prior to my treasurership.* * * I knew nothing about any resolution, being passed by the board, appointing the Stockport Savings Bank as depository.* * * I didn't attend any board meetings.* * * As I was going along, I thought the bank had authority to receive funds, and I would deposit them, * * *.I am not satisfied in my own mind that there was a bond.* * * I don't know whether, at the time that bond was given, in 1921, J. M. Johnston and E. E. Keck[the private sureties]were good for the bond.[The italics are ours."]

Can we say, upon this record, that the statutory requirement was met?We think not.

I.Authorities are cited by the appellee to the effect that an irregular bond or an unapproved instrument of that nature, under certain circumstances, may be valid against the sureties thereon.Among such reference are 4 Ruling Case Law 48, Section 5;Garretson v. Reeder, 23 Iowa 21;Sheppard & Morgan v. Collins, 12 Iowa 570;Boone County v. Jones, 54 Iowa 699;Moore v. McKinley, 60 Iowa 367, 14 N.W. 768;State v. Fredericks, 8 Iowa 553(Clarke);Board of County Com. v. American L. & Tr. Co., 75 Minn. 489(78 N.W. 113).

Manifestly, those pronouncements are not controlling here.Actions of that nature embrace different principles from those decisive of the present litigation.Frequently, in certain contests, the important point is one of acceptance or delivery, which is distinguishable from the question relating to the meeting of and compliance with statutory conditions precedent to the creation of the legal relationship of depositor and depository."Approval" here is for the benefit of the public."Acceptance" and "delivery" are insufficient to permit the placing of the school district's funds in the bank unless a bond with sufficient sureties is first approved.This is essential to prevent the "delivery and acceptance" of an inadequate and sometimes worthless security.

A line marking the boundary between what is or is not a legal deposit must be drawn somewhere.Consequently, the statute provides that, unless the bond has been furnished, as a necessary safeguard against public loss, a deposit cannot be made; and the statutory approval provided is the only method of determining the sufficiency or insufficiency of the "security."Power to accept for the public must exist, before the status of debtor and creditor between the...