Montgomery v. Sparks

• Citation: 225 Ala. 343,142 So. 769
• Decision Date: 09 June 1932
• Docket Number: 7 Div. 123.
• Parties: MONTGOMERY, SUPERINTENDENT OF BANKS, v. SPARKS, TAX COLLECTOR.
• Court: Supreme Court of Alabama

142 So. 769

225 Ala. 343

MONTGOMERY, SUPERINTENDENT OF BANKS, v. SPARKS, TAX COLLECTOR.

7 Div. 123.

Supreme Court of Alabama

June 9, 1932

Rehearing Denied June 30, 1932.

Appeal from Circuit Court, Clay County; E. P. Gay, Judge.

Petition in equity by the state of Alabama, and the state of Alabama for the use of Clay county, and O. D. Sparks, as tax collector of Clay county, for the use of the state of Alabama, and for the use of Clay county, against H. H Montgomery, as superintendent of banks of the state of Alabama, engaged in liquidating the Farmers' State Bank of Ashland. From a decree for petitioners, respondent appeals.

Affirmed.

BROWN J., dissenting in part.

Young &amp Longshore, of Anniston, for appellant.

Arthur L. Hardegree, Sol., Pruet & Glass, and A. L. Crumpton, all of Ashland, for appellee.

ANDERSON C.J.

The appellant does not question the fact that this proceeding was instituted under the authority of the Attorney General, but does question the authority of the Attorney General, in the absence of specific directions from the Governor under sections 5644 and 5647 of the Code of 1923. True, these sections authorize the Governor to cause suits to be brought for the recovery of public funds, but section 854 of the Code of 1923 authorizes the Attorney General to institute and prosecute all suits in law or equity necessary for the protection of the rights and interest of the state. There is no conflict in these provisions, as the Attorney General can act independently under section 854, but must do so when directed by the Governor under sections 5644 and 5647. Whether the case of Wolffe v. State, 79 Ala. 201, 58 Am. Rep. 590,

would be of any importance if we did not have section 854 of the Code matters not, as it is sufficient to say that this section appeared first in the Code long after said case was decided.

It is uncontroverted that Sparks, as tax collector, deposited state and county funds in the Farmers' State Bank; that said bank was not a designated depository, and had given no bond for the safe return of the funds as provided by section 3973 of the Code. It is also undisputed that the officers of the bank knew that said deposits consisted of tax money due the state and county. This was a violation of law on the part of Sparks and, in effect, a conversion of the fund, and though under ordinary conditions created the relation of debtor and creditor, and regardless of what the statute would be as between individuals under similar conditions, the real and important question is, Did the state and county have a lien or preferred claim to the funds or against the assets in the hands of the receiver? We think this question has been settled in the affirmative by our recent case of Green v. City of Homewood, 222 Ala. 225, 131 So. 897.

It is a principle supported by numerous authorities that the unauthorized or unlawful deposit of public funds in a bank which subsequently becomes insolvent creates a trust relationship in such funds between the bank and the community to which they belong. It is obvious that to hold otherwise in such cases would leave an open door to fraud and would allow the interests of the public to be jeopardized by the wrongful act of a trusted officer. Where a state treasurer deposits state funds in a bank, without authority of law, and the bank had notice of the character of the funds which were comingled with the general assets of the bank and used in payment of debts of the bank, which later suspended payment and went into the hands of a receiver, the lien of the state for the payment of the trust fund will attach to all assets of the bank as a preferred claim. State v. Bruce, 17 Idaho, 1, 102 P. 831, 134 Am. St. Rep. 245, L. R. A. 1916C, 1; Independent Dist. v. King, 80 Iowa, 497, 45 N.W. 908; Myers v. Board of Education, 51 Kan. 87, 32 P. 658, 37 Am. St. Rep. 263. This doctrine has not only received the approval of our own court in the case of Green v. City of Homewood, supra, but by many of the state courts as well as the Supreme Court of the United States. See note in case of Maryland Casualty Co. v. Rainwater, 51 A. L. R. 1342. It is true that in our case of Green v. City of Homewood, 222 Ala. 225, 131 So. 897; the bank there was a designated depository, but it was held that the sum received on deposit in excess of the amount authorized by law was unlawful and that, to this extent, the state had a lien under the doctrine that we apply in the case at bar.

True, the state and Clay county have a remedy against the tax collector and his sureties, but this is by no means exclusive, and does not deprive the state and county from pursuing this fund and enforcing their lien.

The record shows that the state and county are real beneficiaries and actors in this proceeding, and, while the tax collector may not have been a necessary party, he was not an improper party. Moody v. Jacobs, 211 Ala. 291, 100 So. 467.

We think that under the authorities upon which we rely the county, as well as the state, had a lien on the money so deposited as per the respective interest of each, and that the bill or petition was...