Pickens County v. Williams

• Citation: 229 Ala. 250,156 So. 548
• Decision Date: 21 June 1934
• Docket Number: 6 Div. 570.
• Parties: PICKENS COUNTY et al. v. WILLIAMS, Superintendent of Banks, et al.
• Court: Supreme Court of Alabama

156 So. 548

229 Ala. 250

PICKENS COUNTY et al. v. WILLIAMS, Superintendent of Banks, et al.

6 Div. 570.

Supreme Court of Alabama

June 21, 1934

Rehearing Denied Oct. 4, 1934.

Appeal from Circuit Court, Pickens County; Benj. F. Elmore, Judge.

Suit by Pickens County and the State of Alabama, for the use of Pickens County, against H. H. Montgomery, Superintendent of Banks, liquidating the Bank of Carrollton (revived in the name of J. H. Williams, as such superintendent, etc.), and others. From a decree sustaining a demurrer to the bill complainants appeal.

Reversed and remanded.

Curry &amp Curry, of Carrollton, and H. A. & D. K. Jones, of Tuscaloosa for appellants.

Wright, Warren & Searcy, of Tuscaloosa, for appellees.

BOULDIN Justice.

This appeal is from a decree sustaining demurrers of H. H. Montgomery, superintendent of banks, to a bill in equity filed by Pickens county with the ultimate aim of collecting county funds deposited by M. Johnson, as county treasurer, in the Bank of Carrollton, and there remaining until the failure of the bank, January 14, 1932; whereupon it was taken over by the superintendent of banks for liquidation.

The county claims the entire assets of the bank in the hands of the liquidating agent are chargeable with a trust in favor of the county, entitling it to priority of payment over all other depositors and creditors.

The bill avers Johnson was selected or appointed, by the governing board of Pickens county, a county with less than 55,000 population, to act as county treasurer for the calendar year 1931; that he qualified, took the oath of office, and executed bond with United States Fidelity & Guaranty Company as surety; that he was again appointed for the calendar year 1932, and qualified with National Surety Company as surety; that during the year 1931, Johnson deposited the county funds on a general deposit account in the Bank of Carrollton, an incorporated state bank, of which he was the managing officer, and which bank was not a qualified depository of public funds under the laws of the state; that at the end of the year 1931, there was an aggregate balance of the several funds of $16,934.79 so on deposit; that from January 1st to January 14th, when the bank failed, further funds were deposited aggregating $6,591.12, and during that period were duly paid out $2,552.98, leaving a balance of $20,981.93, on deposit when the bank failed, and Johnson resigned as treasurer.

These averments make a case of breach of trust, conversion of public funds in placing same on general deposit in a bank not qualified as a state depository.

In such case, it must be regarded as the settled rule in Alabama that all the assets of the insolvent bank are charged with a trust for the payment of such public funds in priority to the claims of other depositors and creditors. Montgomery, Superintendent of Banks, v. State et al. (Ala. Sup.) 153 So. 394; Montgomery, Superintendent of Banks, v. Sparks, Tax Collector, 225 Ala. 343, 142 So. 769; Green, Superintendent of Banks, v. City of Homewood, 222 Ala. 225, 131 So. 897; Montgomery, Superintendent of Banks, v. City of Athens (Ala. Sup.) 155 So. 551.

Appellee strongly assails the soundness of this doctrine, especially its extension to counties. This contention was fully discussed in Montgomery, Superintendent of Banks, v. State et al., supra.

The doctrine, referred to the prerogative right of the sovereign, has been the subject of discussion and of some conflict of decision throughout the country from its beginning.

Much may be said against the application of such rule in favor of the state or county to deposits in state banks, public institutions, created by the state, supervised by the state, held out, in a sense, to the private citizen as a safe place to deposit his money. It is difficult for him to see why he should not share in the common fund in proportion as his money has contributed to create such fund; or, stated differently, why he should be made to suffer in order to protect the community, represented by the state, for the dereliction of its own officers, and institutions.

We think the only foundation for the rule, as applied to American institutions, is that stated by Mr. Justice Story in United States v. State Bank of North Carolina, 6 Pet. 29, 35, 8 L.Ed. 308: "It is founded not so much upon any personal advantage to the sovereign, as upon motives of public policy, in order to secure an adequate revenue to sustain the public burdens, and discharge the public debts." [Italics supplied.]

This public policy can be justified only on the necessity for the government to function, its public funds being essential to that end. This is the basis of the doctrine of Montgomery, Superintendent of Banks, v. State et al. (Ala. Sup.) 153 So. 394, 396.

If we adhere to the doctrine as applied to state funds, no sound reason can be given for a different rule as to county funds. Attention is called to section 215 of the Constitution, limiting the rate of taxation for county purposes, section 214, limiting the rate for state purposes, and section 218, forbidding any legislative act requiring a county to pay any demand chargeable to the state at the time the Constitution was adopted.

True, of course, county funds thus raised cannot be employed to meet general demands against the state, nor diverted from county purposes. But this does not weaken the argument that county funds are essentially state funds in the sense used in Montgomery, Superintendent of Banks, v. State et al., supra. The county, as a local subdivision, under our system, is a part of the state government, performing the statutory or constitutional functions committed to it, many of which relate to the assessment and collection of the state revenues in that area, as well as the execution and judicial administration of the state's laws for the protection of life, liberty, and property; and functions in educational and other activities. It is not a parceling out of the state's prerogative right among several distinct governments, but a recognition of the state's one prerogative right as touching all public funds essential to the carrying on of the government in all its functions.

The fact that the county board was a party to the arrangement whereby Johnson, as county treasurer, deposited these funds on general deposit in his bank, stipulating that the bank should pay interest on the daily balance, did not constitute this a lawful deposit, nor estop the county.

Reliance is placed on the provision of section 322 of the Code, saying: "* * * such boards may designate some individual who may act as treasurer of such county under such terms and conditions as may be fixed by said courts of county commissioners or boards of revenue."

This by no means empowered the county board to relieve the county treasurer of the...