National Sur. Co. v. State Sav. Bank

• Citation: 156 F. 21
• Decision Date: 18 June 1907
• Docket Number: 2,478.
• Parties: NATIONAL SURETY CO. v. STATE SAVINGS BANK.
• Court: U.S. Court of Appeals — Eighth Circuit

156 F. 21

NATIONAL SURETY CO. v. STATE SAVINGS BANK.

No. 2,478.

United States Court of Appeals, Eighth Circuit.

June 18, 1907

W. B Bourne having been duly appointed deputy auditor of Ramsey county, Minn., by W. R. Johnson, the auditor, and being as such authorized to sign all papers and do all other things that the auditor himself might do, purporting to act by authority of the statute of that state providing for refunding to the holders of invalid certificates of sale for nonpayment of taxes the amounts paid by them therefor, drew seven spurious refunding orders, some purporting to be in favor of William Mannering, a fictitious person, and some purporting to be in favor of E. J. Trowbridge, another fictitious person, upon the treasurer of the county requiring him to refund to those fictitious persons the different sums specified in each order, which aggregated in all $7,352.49. Bourne in some way procured the chairman of the board of county commissioners to authenticate the orders as genuine. They did not purport to be negotiable or transferable. One of them, which may be referred to as a sample of all, is in the following words:

'Treasurer of Ramsey County, Minnesota:

'Refund to William Mannering, the sum of fifteen hundred and 54/100 dollars as follows: (Here appears a description of the lands against which the taxes purported to have been assessed and a statement of several particulars, including the amount assessed against each tract, the penalties costs, etc.)--being tax refunded. Sec. 1697, Laws of 1894.

'(Signed)

W. R. Johnson, Auditor of Ramsey County, Minn.

'Per W. B. Bourne, Deputy.

'By order of Board of Co. Com.

(Signed)

A. R. Kiefer, Chairman.' The deputy sold the fictitious orders, with an assignment on the back of each of them, signed by him in the names of the myths to whom they were payable, to the State Savings Bank, for their full face value, which was, in a way unnecessary now to state, paid to him. They bore interest at the rate of 7 per cent. per annum. The bank held them for about a year, then presented them to the county treasurer for payment, and received from him their full face value, with accrued interest, amounting to $7,866. Thereafter, on discovering the fraud perpetrated upon it, the county instituted its suit against the National Surety Company, surety on the auditor's official bond, and recovered judgment for the amount paid the State Savings Bank. After paying the judgment the surety company filed its bill in the court below to be subrogated to the rights of Ramsey county against the State Savings Bank and to recover the amount it had been required to pay as surety for the auditor. From an order sustaining a demurrer to the bill, and dismissing the same, the surety company prosecutes its appeal to this court.

Edmund S. Durment (Albert R. Moore and W. J. Griffin, on the brief), for appellant.

John D. O'Brien, for appellee.

Before SANBORN, HOOK, and ADAMS, Circuit Judges.

ADAMS Circuit Judge (after stating the facts as above).

The bank purchased nonnegotiable orders or drafts upon the county treasurer, payable to fictitious persons, and by them apparently assigned to it. The orders being nonnegotiable, the bank acquired no greater right to them than its assignors had. The assignors being fictitious persons, and the orders themselves without consideration, fraudulent, and void, the assignee acquired no right against the county. When it presented the orders to the treasurer for payment, and secured payment thereof, it received moneys of the county without consideration, and unquestionably thereby became liable to the county for money had and received to its use. The surety company, as surety for the auditor, whose official misconduct, through the act of his deputy, subjected it to liability (Board of Co. Com'rs v. Sullivan, 89 Minn. 68, 93 N.W. 1056), having restored to the county the amount of its loss, now claims to be subrogated to the county's right of action against the bank to recover from the latter the amount paid by it to the county. Can this be done? The bank places some reliance, in denying the claim of the surety company, upon section 5951, Gen. St. Minn. 1894, which reads as follows:

'The official bond or other security of a public officer to the state or any municipal body or corporation, whether with or without sureties, is to be construed as security to all persons severally for the official delinquencies against which it is intended to provide as well as to the state, body or corporation designated therein.'

This section is in pari materia with section 710 of the same Statutes. The latter reads as follows:

'An action may be brought against the county auditor and his sureties in the name of the state of Minnesota and for its use or for the use of any county or person injured by the misconduct in office of the auditor or by the omission of any duty required of him by law.'

These sections of the statute must be read into and treated as a part of every official bond contemplated by them. Accordingly, if the bank had been injured by reason of its purchase of the orders from Bourne, and that injury had been occasioned by Bourne's official delinquency or misconduct in office, it might have recovered its loss from the surety company. If, by virtue of these statutes, the bank could have recovered from the surety company, as a matter of course the surety company cannot now recover from the bank.

We are therefore to inquire whether, if the bank had failed to secure payment of its refunding orders from the county treasurer, its loss or injury would have been so produced by the misconduct in office of Deputy Auditor Bourne as to subject the surety of the auditor to liability for it. It is true the bank could not have lost any money, or could not have been injured, if Bourne had not in his official capacity signed the spurious refunding orders. That act, being performed in the line of his official duty, was a misconduct in office, within the meaning of the statutes referred to; but the question still remains whether it or some other cause produced the bank's assumed injury.

The misconduct of Bourne in much of what he actually did and in what was necessarily involved, namely, in falsely representing to the bank that the orders were genuine, that the payees had paid money to the county treasurer for taxes, and were entitled under the law to an order refunding the amount so paid, that they were actual persons, instead of myths, and his further misconduct in fraudulently signing the mythical names to the assignments, in negotiating with the bank, and wrongfully securing its money, were altogether personal in their character. They were in no sense representative or official. No duty arising out of his official relation required him to make any of the representations or commit any of the crimes just alluded to. On the contrary, the nonnegotiability of the orders, and possibly the intervention and activity of Bourne, as shown by the bill, should have attracted the attention of the bank, and warned it against purchasing the orders without making diligent inquiry concerning their validity. Bourne's personal representations and acts were well adapted to be the effective cause of the bank's injury, and, giving to the original official misconduct its natural force and effect only, were, in our opinion, the direct moving cause of the injury, without which it could not have occurred. They did not in a mere incidental and subordinate way work out the natural and probable consequences of the original official misconduct, but were, as between the deputy and the bank, the proximate and all-sufficient cause of the latter's injury. An act is the proximate cause of those results only which are its natural and probable consequences, and which ought to have been foreseen in the light of the attending circumstances. Milwaukee, etc., Railway Co. v. Kellogg, 94 U.S. 469, 474, 24 L.Ed. 256; Travelers' Ins. Co. v. Melick, 12 C.C.A. 544, 65 F. 178, 184, 185, 27 L.R.A. 629; Citizens' Gas & Electric Co. v. Nicholson (C.C.A.) 152 F. 389, and cases cited. Within the fair and reasonable meaning of the bond and statutes in question, Bourne's personal, as distinguished from official, acts caused the assumed injury which the bank sustained.

But it is urged that the Supreme Court of Minnesota in Board of Com'rs v. Sullivan, supra, sustained a recovery by the county against the surety company for its loss made in paying the forged orders on the ground that Bourne's wrongful acts constituted 'misconduct in office ' within the meaning of the Statutes of Minnesota, and that the same rule of law would have been applicable if the bank had sued the surety company for its assumed loss. We cannot agree to this. The orders in question were apparently lawfully drawn, lawfully countersigned, and genuine. The natural and probable consequence of their issue was their presentation to the treasurer, to whom they were addressed, and payment of them by him. The statutes of the state made it his duty to pay authorized orders of that kind. The surety company was liable to the county, because the presentation to the treasurer and the payment of the orders by him were the natural and probable consequence of their issue, and might have been reasonably anticipated by any prudent person. Right here is the radical and decisive difference between the position of the county and that of the bank. While the payment by the county was, in the ordinary course of business, reasonable and probable, the purchase of the orders by the bank on the assignments made in the name of myths by Bourne was not the natural or probable consequence of their issue. No one could have reasonably anticipated that a bank or any rational...