Mchenry Cnty. v. N. Trust Co. of Fargo

• Decision Date: 24 October 1924
• Citation: 200 N.W. 888,51 N.D. 646
• Parties: McHENRY COUNTY v. NORTHERN TRUST CO. OF FARGO.
• Court: North Dakota Supreme Court

51 N.D. 646

200 N.W. 888

McHENRY COUNTY

v.NORTHERN TRUST CO. OF FARGO.

Supreme Court of North Dakota.

Oct. 24, 1924.

Syllabus by the Court.

In a suit on a surety bond, given by defendant in behalf of a depositary of public funds, pursuant to sections 3315-3329, C. L. 1913, the rights of the parties are measured by the terms of the contract. The statutory provisions referred to in the bond are as much a part of the contract as if the same had been fully set out therein.

After chapter 147, S. L. 1919, was enacted, making the Bank of North Dakota the sole depositary of all public funds, and while the same was in effect, public officers having custody of county funds were precluded from making deposits subject to draft on demand in banks other than the Bank of North Dakota, and sections 3315-3329, supra, relating to the designation of depositaries of county funds, were to that extent superseded.

When an instrument is intrusted to a bank for collection, the bank secures no title thereto and no right to hold it in any other capacity than as agent.

A transaction or arrangement by the county treasurer with a national bank which had been duly designated a depositary of county funds, pursuant to sections 3315-3329, C. L. 1913, made after chapter 147, S. L. 1919, went into effect, whereby the treasurer delivered duly indorsed checks and other items to the bank for collection purposes, and simultaneously received a cashier's check in an amount equal to the aggregate of the items delivered, which cashier's check he forwarded to the Bank of North Dakota, the only lawful depositary of county funds under chapter 147, supra, for the purpose of depositing county funds therein, was not intended by the parties to constitute a deposit of county funds “subject to draft on demand,” and the surety on the bond executed when the bank was designated a county depositary under sections 3315-3329, supra, is not liable under such bond for the failure of the bank to honor the cashier's checks.

Bronson, C. J., dissenting.

Appeal from District Court, McHenry County; C. W. Buttz, Judge.

Action by McHenry County against the Northern Trust Company of Fargo. From a judgment for plaintiff, defendant appeals. Reversed, and action dismissed.Bangs, Hamilton & Bangs, of Grand Forks, and Pierce, Tenneson, Cupler & Stambaugh, of Fargo, for appellant.

E. R. Sinkler, of Minot, and Albert Weber, of Towner, for respondent.

JOHNSON, J.

This is an action against a surety upon a depositary bond. The case was tried to the court, and from the judgment in plaintiff's favor and from an order denying a new trial this appeal is taken.

On January 7, 1919, McHenry county accepted a depositary bond in the sum of $30,000, furnished by defendant company in behalf of the First National Bank of Towner, N. D. The principal, hereinafter referred to as the Towner bank, had been designated a depositary of county funds pursuant to the provisions of sections 3315 to 3329, C. D. 1913. The condition of the bond is in the following language:

“Whereas, the said First National Bank of Towner has made application or proposal, or is about to make application or proposal, to the board of county commissioners of said county to become one of its depositaries under the provisions of sections 3315-3329 of the 1913 Compiled Laws of North Dakota:

Now, therefore, if the said bank is designated one of the depositaries of said county under the provisions of said sections 3315-3329 of the 1913 Compiled Laws of North Dakota, and shall safely keep and repay according to the letter and intent of said sections any and all funds deposited with it, subject to draft on demand, together with interest thereon at the rate specified in said application or proposal, then this obligation to be null and void, but otherwise to be and remain in full force and effect.”

The statutes referred to in the bond prescribe the method of designating the depositaries of county funds. In general, they required a designation of depositaries upon competitive bids. An adequate bond was required before any banking institution could be designated. All funds of the county were directed by these statutes to be deposited by the treasurer in banks designated as county depositaries; and, if the treasurer deposited such funds otherwise, he became liable to fine or imprisonment. On the other hand, if he complied with the law and deposited the public funds only in designated depositaries, he was expressly exempt from liability by reason of loss of such funds through the failure or insolvency of the banks designated.

On February 25, 1919, chapter 147, S. L. 1919, became effective. Section 7 of this act provided that-

“All state, county, township, municipal and school district funds * * * and all other public funds shall be, by the person having control of such funds, deposited in the Bank of North Dakota within three months from the passage and approval of this act, subject to disbursement for public purposes. * * * Any person who shall violate any of the provisions of this section shall be guilty of a misdemeanor and upon conviction thereof shall be punished by imprisonment in the county jail for not less than 90 days, and by a fine of not less than one hundred dollars.”

“All deposits in the Bank of North Dakota are hereby guaranteed by the state.” Section 10.

In section 8 it is provided:

“Whenever any of the public funds hereinbefore designated shall be deposited in the Bank of North Dakota, as hereinbefore provided, the official having control thereof, and the sureties on the bond of every such official, shall be exempt from all liability by reason of loss of any such deposited funds while so deposited.”

On December 2, 1920, an initiated law (S. L. 1921, p. 255) went into effect amending section 7 by excluding county funds from the public funds therein enumerated and required to be deposited in the Bank of North Dakota. From the enactment of chapter 147, supra, in 1919, to December 2, 1920, save for certain exceptions not necessary to notice, the only legal depositary of county funds was the Bank of North Dakota. The portions from the act creating the Bank of North Dakota, quoted above, clearly disclose a legislative purpose to deprive all officers, having control of the fiscal affairs of public corporations, of the power to designate any depositary of public funds other than the Bank of North Dakota. It is a matter of public history, which this court will judicially notice (section 7938, subsec. 33, C. L. 1913), that the express purpose of this law was to bring into this institution all public funds. While it is true that the act did not deprive the county commissioners of the control over the fiscal affairs of the county reposed in them by statute, as is said in State ex rel. Kopriva v. Larson, 48 N. D. 1144, 189 N. W. 626, yet it is clear that whatever power the county commissioners had with respect to the designation of depositaries for public funds (sections 3315-3329) was entirely wiped out when chapter 147, S. L. 1919, was enacted. It would seem that any attempt, directly or indirectly, to evade the letter and the express purpose of the statute in this respect would have been wholly without effect. It must therefore be conceded that, when the arrangement, which will be more fully described, was made by the county treasurer with the cashier of the Towner bank, it would have been illegal for the officers of McHenry county to attempt to use any bank other than the Bank of North Dakota as a depositary of county funds. Had they done so they would, under section 7 of the act, supra, have become liable to criminal prosecution as misdemeanants. This is important as throwing light upon the real intent and purpose of the parties when the new arrangement was made. In this connection it should be noted, as further indicative of the legislative intent that all public funds be collected in the Bank of North Dakota, that one of the two penal provisions in the whole act relates to a disregard of the law in this particular.

At or about the time that the public funds of McHenry county were transferred to the Bank of North Dakota, the treasurer of the plaintiff entered into an arrangement with an officer of the Towner bank substantially as follows: The county treasurer would receive checks and items in payment of taxes and other obligations due the county; these he would, from time to time, take over to the bank and receive cashier's checks therefor in the same amount as the aggregate of the items, which cashier's checks would be by the treasurer forwarded to the Bank of North Dakota for the purpose of depositing therein the funds of the county. By this arrangement the treasurer avoided the trouble and annoyance of transmitting a large number of small items and personal checks directly to the new depositary. The transaction is described in the treasurer's testimony as follows:

“Q. How did you deposit the checks and other items that came into the county treasurer's office? A. I merely got a cashier's check and sent the one item.

Q. When you cleared you took the checks, money orders, and other items in your office to one of your local banks in Towner, either the First National Bank or the Pioneer, and indorsed them over to these banks, and exchanged them for a cashier's check, is that the fact, and took the cashier's check and sent that in to the Bank of North Dakota for deposit? A. With a certain understanding, yes.

Q. That is the way these transactions were handled, is it not? A. Yes.”

The treasurer testifies further describing the arrangement:

“Myself or my deputy took these particular items to the First National Bank and placed them there practically the same as a deposit for the collection of these checks.

Court: Tell what you did, not what you think it was. A. That is what I did, I left them there and put them in there for collection; in other words, and they turned around and gave me cashier's checks in place of them.”

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