Mecklenburg County v. Beales

• Decision Date: 12 January 1911
• Parties: MECKLENBURG COUNTY v. BEALES, Treasurer, et al.
• Court: Virginia Supreme Court

69 S.E. 1032

111 Va. 691

MECKLENBURG COUNTY

v.BEALES, Treasurer, et al.

Supreme Court of Appeals of Virginia.

Jan. 12, 1911.

Counties (§ 90^*) — Treasurers—Liability for Lost Deposits.

In view of the state's policy to hold county treasurers to very strict accountability for the safe-keeping of public funds, as evidenced by Const. 1902. § 85 (Code 1904, p. ccxxix), and Code 1904, §§ 177, 812-814, 855, relating to such treasurers' bonds, Code 1904, §§ 858. 862. and Laws 1899-1900, c. 1140, § 5 (Code 1904. § 786a[5]), relating to their accounts, Code 1004, §§ SG4, 866, relating to misuse of funds, and other statutes, a county treasurer assumes all risks of loss, and must account for funds received by him, except where loss results from an act of God or the public enemy or possibly other overruling necessity; and he cannot excuse a loss caused by insolvency of a bank in which he deposited funds by showing that he followed a long prevailing practice in the county, that the deposits were made with the supervisors' knowledge and approval, and that the county treasurer honestly believed that it was the safest disposition.

[Ed. Note.—For other cases, see Counties. Cent. Dig. §§ 119, 135; Dec. Dig. § 90.^2-*]

Error to Circuit Court, Mecklenburg County.

Action by Mecklenburg County, by the Commonwealth, against Howard N. Beales, treasurer, and others. Judgment for defendants, and plaintiff brings error. Reversed and remanded.

E. P. Buford and C. T. Baskerville, for plaintiff in error.

C. T. Reekes and E. R. Williams, for defendants in error.

BUCHANAN, J. This is an action on the bond of a county treasurer to recover from him and his surety money chargeable to the treasurer on account of the general county levy, the general county road fund, and the county dog tax, aggregating some $20,000, lost by the insolvency of the Bank of Mecklenburg, in which he had deposited the same.

The defense relied on, in substance, is that, in depositing the said public or county funds in that bank, he was doing what his predecessors in office for many years had done, with the knowledge and at least implied approval of the county authorities; that the bank had been, and up to the time that it failed was regarded by careful and prudent business men and the public generally as, a safe and solvent institution; that its officers were men of good reputation, having among its directors the attorney for the commonwealth and three members of the board of supervisors of the county. If the facts relied on constitute a good defense, there is no question that they were satisfactorily established by the defendants.

Upon the trial of the cause, all matters of law and fact were submitted to the court for its decision, and judgment was rendered for the defendants.

The question which we are called on to determine is whether if a county treasurer deposits county funds in a bank which he believes to be, and which is generally regarded as solvent, and the funds are lost by the bank's insolvency, the loss falls on the treasurer and his surety or on the county. The question is one of first impression in this court, so far as the investigation of counsel or our own researches show, and one of much interest and importance. It is somewhat remarkable that in a commonwealth as old as this, and whose people have suffered so greatly from the destruction of their banking system by the Civil War, from bank failures since, and the frequent default of sheriffs and treasurers in accounting for the public revenue, state and municipal, that the question of the liability of a public officer for public funds lost without negligence or fault on his part should not have been decided long since by the court of last resort.

The question of the liability of executors. guardians, trustees, and other fiduciaries for loss of funds by bank failures and otherwise has been frequently considered by this court, and the rule established that as to such a fiduciary in handling private funds he is not responsible for the loss resulting, where he has acted in good faith and in the exercise of a fair discretion, and in the same manner as he probably would have acted if the subject had been his own property and not held in trust. See generally Elliott v. Carter, 9 Grat. 541; Davis v. Harman, 21 Grat. 194; Myers v. Zetelle, 21 Grat. 738, and note, where numerous cases are collated; Barton v. Ridgeway, 92 Va. 162, 23 S. E. 226.

The treasurer and his surety contend in this case that the same rule of accountability ought to govern in cases of public officers, where public funds have been lost.

The decisions of the courts in this country, both state and federal, upon the question, are somewhat conflicting, but the great weight of authority is in favor of holding public officers handling public funds to a much stricter accountability than fiduciaries for the loss of private funds.

In the case of United States v. Prescott, 3 How. 578, 11 L. Ed. 734, decided by the Supreme Court of the United States in 1845, which is a leading case upon the subject, approved and followed in many of the states of the Union, it was held that the officer was absolutely liable for the public funds which went into his hands. Mr. Justice McLean, in delivering the opinion of the court, said: "Public policy requires that every depositary of the public money should be held to a strict accountability, not only that he should exercise the highest degree of vigilance, but that he should keep safely the moneys which come to his hands. Any relaxation of this condition would open a door to frauds which might be practiced with impunity. A depositary would have nothing more to do than to lay his plans and arrange his proofs so as to establish his loss without laches on his part. Let such a principle be applied to our postmasters, collectors of the customs, receivers of public moneys, and others who receive more or less of the public funds, and what losses might not be anticipated by the public? * * * As every depositary receives the office with a full knowledge of its responsibility, he cannot in case of loss complain of hardship. He must stand by hisbond, and meet the hazard which he voluntarily incurs."

In the case of Tillinghast v. Merrill, 151 N. Y. 135, 45 N. E. 375, 34 L. R. A. 678, 56 Am. St. Rep. 612, it was held that an officer handling public funds is liable on grounds of public policy for public money lost by the failure of a firm of private bankers with whom he had deposited it, although he acted in good faith and without negligence. In discussing the question, which was an open one in that state (New York), the judge delivering the opinion said: "As before intimated, we must consider and decide this question upon general principles and in the light of public policy. In the case of an officer disbursing the public moneys, much may be said in favor of limiting his liability where he acts in good faith and without negligence, and a strong argument can be framed against the great injustice of compelling him to respond for money stolen or lost while he is in the exercise of the highest degree of care, and engaged in the conscientious discharge of duty. When considering this side of the case, it shocks the sense of justice that a public officer should be held to any greater liability than the old rule of the common law, which exacted proof of misconduct or neglect. It is at this point, however, that the question of public policy presents itself, and it may well be asked whether it is not wisest to subject the custodian of the public moneys to the strictest liability, rather than open the door for the perpetration of frauds in numerous ways impossible of detection, thereby placing in jeopardy the immense amount of the public funds constantly passing through the hands of disbursing agents. Without regard to decisions outside of our jurisdiction, we think weight of the argument, treating this as an original question, is in favor of the rule of strict liability, which requires a public official to assume all risks of loss, and imposes upon him the duty to account as a debtor for the funds in his custody."

The strict rule laid down in the case of United States v....