Richfield Nat. Bank v. American Surety Co.

• Citation: 39 F.2d 387
• Decision Date: 18 February 1930
• Docket Number: No. 8496.,8496.
• Parties: RICHFIELD NAT. BANK OF RICHFIELD, MINN., v. AMERICAN SURETY CO. OF NEW YORK et al.
• Court: U.S. Court of Appeals — Eighth Circuit

39 F.2d 387 (1930)

RICHFIELD NAT. BANK OF RICHFIELD, MINN., v. AMERICAN SURETY CO. OF NEW YORK et al.

No. 8496.

Circuit Court of Appeals, Eighth Circuit.

February 18, 1930.

Sigurd Ueland, of Minneapolis, Minn. (A. Ueland, of Minneapolis, Minn., on the brief), for appellant.

Charles S. Kidder, of St. Paul, Minn. (Charles N. Orr and Herman F. Stark, both of St. Paul, Minn., on the brief), for appellees.

Before STONE, Circuit Judge, and MUNGER and REEVES, District Judges.

REEVES, District Judge.

Under the doctrine of subrogation, the appellee American Surety Company of New York was granted a decree against the appellant for the recovery of a specified sum of money.

The school district, appearing as one of the appellees, had designated the appellant as a depository for a part of its funds. The said surety had become bound under a contract of suretyship for the treasurer of said school district. The treasurer defaulted and absconded. The surety duly paid the full amount of his defalcations and sought reimbursement from the appellant upon the grounds that it had wrongfully aided such defalcations or had cashed checks of the defaulter with knowledge that the sums thus paid would be misapplied.

A statute of Minnesota (Gen. St. 1923, § 2836) provided for the selection of depositories for school districts at the discretion of the proper officials. In accordance with this law, said school district had selected the appellant as one of its depositories. Upon selecting such depository, the officers of the district were empowered to "require the treasurer to deposit all or any part of the school district's money in such bank or banks." The statute required that such designation should be in writing and "shall set forth all the terms and conditions upon which the deposits are made." Though the appellant was designated as a depository and received deposits in accordance with said designation, it does not appear that it was formally designated in writing.

The officials of the district had followed a custom of combining in one instrument the warrants of the district with the check of the treasurer. By this arrangement all funds of the district were disbursed only upon such instrument when signed by three officials of the district, namely the chairman, the clerk and the treasurer. When the appellant became a depository of said district, it was advised in writing that no funds should be disbursed except upon warrant or check bearing the signature of the three officials.

Contrary to these instructions, the bank from time to time paid out funds of the district upon checks signed by the treasurer alone. Ordinarily upon presenting such checks the treasurer received in return a cashier's check of equal amount. The latter checks were made payable to the treasurer as such.

There is no controversy but that the treasurer misappropriated said funds and on the moment of detection absconded. It is the contention of the appellant that there was no evidence of participation or negligence of the appellant with respect to the wrongful acts of the treasurer. Even if so, it is asserted that the laches of the district would bar recovery. Moreover, the right of the surety to become subrogated to the rights of the school district is challenged.

Other facts, if they may become pertinent, will be noted and discussed in the course of this opinion.

1. Even though the appellant was not designated in writing, as required by law, yet it was orally designated as a depository and gave bond as such. It received the moneys of the district and was instructed as to the manner in which disbursement should be made and undertook to act as a depository. It cannot now be heard to complain that it was not designated in the manner prescribed by law. Chicago & A. Ry. Co. v. New York, L. E. & W. R. Co. (C. C.) 24 F. 516; 10 R. C. L. § 22, P. 694.

2. Appellant became a depository of a public fund and understood the conditions of such deposit. In the absence of a statute to the contrary, the officers of the district had a right to prescribe the manner in which the fund should be handled. In fact, the statute, providing for school district depositories, specified that in the designation of such depository it shall be set forth "all the terms and conditions upon which the deposits are made." Statutes of Minnesota (Gen. St. 1923) § 2836.

All the parties, including the treasurer, acquiesced in the terms and conditions of the deposit. This amounted to an agreement that no disbursement should be made or no checks paid except upon the signature of the three officials of the district. Such terms and conditions were lawful and logical, and the bank became bound thereby.

"As a deposit is a matter of contract between depositor and bank, the depositor may stipulate at the time of deposit as to how or by whom * * * the money may be drawn out." 3 R. C. L. § 170, p. 541.

3. Appellant is not in a position to contend that the instructions given by the school board were unauthorized. Immediately upon its becoming a depository, the clerk of the district, in writing, advised appellant of the terms of the deposit. Appellant then had a right to and should have presumed that such instructions were regularly authorized. Webb v. School District, 83 Minn. 111, 85 N. W. 932. Thereafter the records disclose that the board regularly approved the action of the clerk. The instructions were accepted at the time as regularly given, and the appellant has at no time until now challenged the authority of such instructions. The fact is that the deposit was received and accepted upon the terms set forth in the instructions given by the clerk.

4. The evidence not only shows conclusively that the money was paid out contrary to the express instructions given by the...