Salt Lake County v. American Surety Co. of New York

• Decision Date: 14 January 1924
• Docket Number: 4045
• Citation: 222 P. 600,63 Utah 98
• Court: Utah Supreme Court
• Parties: SALT LAKE COUNTY v. AMERICAN SURETY CO. OF NEW YORK

222 P. 600

63 Utah 98

SALT LAKE COUNTY v. AMERICAN SURETY CO. OF NEW YORK

No. 4045

Supreme Court of Utah

January 14, 1924

Appeal from District Court, Third District, Salt Lake County; Wm. M McCrea, Judge.

Action by Salt Lake County against the American Surety Company of New York. Judgment for plaintiff, and defendant appeals.

AFFIRMED.

Cheney Jensen, Holman & Stephens and Bagley, Fabian, Clendenin &amp Judd, all of Salt Lake City, for appellant.

A. E. Moreton, Co. Atty., and Geo. G. Armstrong, Asst. Co. Atty., both of Salt Lake City, for respondent.

THURMAN J., WEBER, C. J., and GIDEON and CHERRY, JJ., FRICK, J., concurring.

OPINION

THURMAN, J.

Plaintiff sued the defendant American Surety Company of New York as surety upon the official bond of E. J. Groesbeck, as county treasurer of Salt Lake county, to recover the sum of $ 200,000; that being the total amount of the surety company's obligation.

It is alleged in the complaint that the bond was executed in January, 1921, and that the said Groesbeck had continued to act as said county treasurer until the commencement of the action in 1922; that during his term of office he had received into his possession large sums of money, and had deposited the same in the National City Bank of Salt Lake City, which bank on the 17th day of January, 1922, closed its doors, and went into the hands of a receiver appointed by the Comptroller of Currency of the United States government; that at said time the said county treasurer had on deposit with said bank the sum of $ 648,094.29; that since the bank went into the hands of the receiver the plaintiff has received from sureties of said bank $ 225,000, and from the said receiver $ 113,618.86, making a total received by plaintiff of $ 338,618.86, leaving a balance due the plaintiff of $ 304,475.43.

It is then alleged in the complaint that, notwithstanding demands have been made upon said county treasurer and upon said surety company, defendant, for payment of said balance they have failed, neglected and refused to pay the same or any part thereof.

The surety bond is attached as an exhibit to the complaint, is in the usual form of a corporate surety bond, and concludes as follows:

"The condition of this obligation is such that, whereas the above bounden principal has been duly elected to the office of county treasurer in and for Salt Lake county for a term beginning January 3, 1921; now therefore, if the said Edward J. Groesbeck shall well, truly and faithfully perform all official duties now required of him by law and also such additional duties as may be imposed on him by any law of the state subsequently enacted, and if he shall account for and pay over and deliver to the person or officer entitled to receive the same, all moneys or other property that may come into his hands as such county treasurer, then this obligation to be null and void and of no effect; otherwise to be and remain in full force and virtue."

The defendant, surety company, demurred to the complaint, both generally and specially, alleging as special grounds that the county treasurer, E. J. Groesbeck, was a proper and necessary party to the action. The defendant, surety company, at the same time filed its answer to plaintiff's complaint and a cross-complaint against E. J. Groesbeck, county treasurer. Groesbeck appeared and filed a demurrer to the cross-complaint which was sustained by the court because plaintiff had not made Groesbeck a codefendant. Comp. Laws Utah 1917, § 6581. Defendant surety company, then moved that Groesbeck be made a party defendant, alleging that he was a necessary party to a complete determination of the action. The motion was denied. Defendant's demurrer to the complaint was also denied. In the meantime plaintiff moved to strike from defendant's answer, certain matter as irrelevant and immaterial and not constituting a defense to the action.

The matter sought to be stricken from the answer was to the effect that the county treasurer, E. J. Groesbeck, had deposited said moneys in the National City bank of Salt Lake City with the knowledge, acquiescence, and approval of plaintiff, in pursuance of Comp. Laws 1917, § 4500, requiring interest to be paid thereon; that interest was paid thereon and accepted by plaintiff; that said Groesbeck required the bank to furnish a depository bond, which was approved by him in accordance with the provisions of said section; that Groesbeck deposited said money in good faith and in the exercise of reasonable care, and neither he nor the defendant, surety company, had any knowledge or information that led them to suspect that said bank was not in a sound financial condition; that at the time of making said deposit, and at all times thereafter, until it went into the hands of the receiver, said bank was in good standing in the community, enjoyed a good reputation, and was reputed to be solvent. Other matters covered by the motion tended to show good faith and reasonable care on the part of Groesbeck in selecting said bank as a depository and in requiring it to give security for the money due the plaintiff, among which securities it is alleged that said Groesbeck and plaintiff held certain bonds of the Chrystal Lake Farm Lands Company of the face value of $ 360,000, and defendant alleges upon its information and belief that the market value of said bonds is sufficient to fully protect, pay, and discharge plaintiff's demand against the defendant.

The answer contains other matter covered by the motion to strike, all of which tend to show good faith, care, and diligence on the part of Groesbeck, and that plaintiff has not and will not suffer any damages in the premises.

Plaintiff's motion to strike was granted, and the matter above alleged stricken from the answer.

The case was tried to the court without a jury. Evidence was taken as to the amount due plaintiff and the date of plaintiff's demand upon defendant for payment.

The court found for plaintiff in the sum of $ 247,666.01, and interest thereon at 8 per cent. per annum from September 10, 1922. From the judgment entered thereon, defendant, surety company, appeals. The issues involved are succinctly stated by appellant as follows:

"(1) Defendant's right, if any, to have E. J. Groesbeck, the county treasurer and the principal in the bonds sued upon, made a party to the action.

"(2) The character and extent of the liability of E. J. Groesbeck as county treasurer for loss of county funds occurring without negligence, bad faith, or dereliction in duty upon his part, and the consequent liability of the surety company for county founds lost under such circumstances."

While the natural order of procedure in the trial court was to dispose of the questions in the order above stated, in my opinion it is more logical here to dispose of them in their reverse order, for if appellant's contention as to its second proposition is sound there is no cause of action against either principal or surety.

Under its second proposition the contention of both appellant and respondent is stated in appellant's brief as follows:

"The theory of defendant and appellant in this connection is that a county treasurer and his surety are not liable for public funds lost through the failure of a depository bank, where the funds were deposited in accordance with section 4500, Compiled Laws of Utah 1917, and where the county treasurer acted in good faith and without fault or negligence, not only in making the deposit, but also from the time of making the deposit to the closing of the bank. On the other hand it is contended by plaintiff and respondent that a county treasurer and his surety are insurers of public funds; that their obligation is absolute, and admits of no defense of diligence, faithfulness, skill, honesty, or lawfulness in the making of the deposit."

The statute referred to in the above excerpt will be considered hereinafter and quoted at length. Independent of that statute appellant, while conceding that respondent's position is upheld by a majority of the courts, including the Supreme Court of the United States, contends, nevertheless, that the doctrine is--

"So harsh, so unnecessary, and so far in conflict with the general principles of the common law affecting the liability of public officers that in a state not already committed to the doctrine (as in Utah) the court should be reluctant to follow it."

There can be no question but that the overwhelming preponderance of judicial authority, numerically speaking at least is against appellant's contention and in favor of the strict liability rule upon which respondent relies. The cases sustaining the rule are altogether too numerous to mention much less to review in detail. It is safe to say, however, that the courts of more than half the states in the Union, as well as the Supreme Court of the United States, have subscribed to the doctrine of strict liability, while the courts of six or seven states only have held to the contrary. Some of the states last referred to justify their holding under special statute peremptorily requiring the officer receiving public money to deposit it in banks designated by the county commissioners.

As conveying some idea of the numerical disparity between courts upholding the strict liability rule and those holding to the contrary respondent calls our attention to the note to Cameron v. Hicks, 17 Ann. Cas. 929, in which the annotator says:

"The great weight of authority sustains the following propositions with respect to the liability of a public officer and his sureties for the loss of public moneys: Where the statute in direct terms or from its general tenor imposes the duty to pay over public money received and held as such and no condition limiting that...