Seneca Independent School Dist. of Seneca v. Traver

• Citation: 256 N.W. 365,63 S.D. 68
• Decision Date: 17 September 1934
• Docket Number: 7597.
• Parties: SENECA INDEPENDENT SCHOOL DIST. OF SENECA v. TRAVER et al. [a1]
• Court: South Dakota Supreme Court

256 N.W. 365

63 S.D. 68

SENECA INDEPENDENT SCHOOL DIST. OF SENECA v. TRAVER et al. ^[a1]

No. 7597.

Supreme Court of South Dakota

September 17, 1934

Appeal from Circuit Court, Faulk County; J. H. Bottum, Judge.

Action by the Seneca Independent School District of Seneca, which is also known as the Independent District of Seneca, Faulk County, against Leo A. Traver and another. From a judgment in favor of the plaintiff, the defendants appeal.

Reversed.

Stover & Jaynes, of Watertown, for appellants.

Tait & Morgan, of Gettysburg, for respondent.

RUDOLPH Judge.

On July 1, 1929, the defendant Traver was appointed treasurer of the plaintiff school district. He qualified by filing a bond in the amount of $8,000 furnished by the defendant National Surety Company. The condition of the bond is as follows "Now, therefore, If the said Leo A. Traver shall faithfully and impartially in all things, during his continuance in office, perform and discharge the duties thereof without fear, favor, fraud, deceit or oppression and render a true account of and properly apply all money and property of every kind that shall come into his hands by virtue of his holding said office * * * then this obligation to be void, otherwise to remain in full force and effect." The defendant Traver was the cashier and active manager of the Farmers' Security Bank of Seneca. This bank was designated by the board of education of the Seneca Independent School District as the depositary for the funds of the school district. The bank suspended business on October 2, 1931, at which time the defendant Traver as treasurer of the school district had on deposit in the bank $7,830.94. This action is brought against Traver and the National Surety Company to recover for the school district the amount of the deposit. Judgment was rendered against both defendants, and they have appealed.

Chapter 154, Laws of 1925, provides in section 1 for the designation of a bank as a depositary by the board of education of an independent school district. Section 2 is as follows "Immediately upon receipt by the treasurer of a certified copy of a resolution designating a depositary or depositaries as provided for in Section 1 hereof, the treasurer shall make the deposit or deposits required by said resolution, and neither he nor the surety or sureties upon his bond shall be liable for any loss or damage to such district resulting from the failure, or from any act or omission, of said depositary or depositaries, unless the treasurer shall be an officer, agent, or employee of any bank so selected as a depositary, and such loss or damage shall be caused, in whole or in part, by any violation of the law by said treasurer, acting in his capacity of officer, agent or employee of said bank." This statute was re-enacted in 1931 as a part of section 197, chapter 138, Laws 1931, and again in 1933 as a part of chapter 96, Laws 1933.

The bond involved in this case was executed in 1929, several years after the enactment of chapter 154, Laws of 1925, and should therefore be construed in the light of this statute. Section 7565, R. C. 1919, provides that the treasurer shall execute a bond conditioned for the faithful discharge of his duties. The law intends that the liability upon the official bond should be coextensive in this respect with the liability of the officer himself. Thunder Hawk School District v Western Surety Company, 58 S.D. 312, 235 N.W. 921, 923. This court said in the lastcited case: "* * * when a bond is executed and offered pursuant to a requirement of statute, it will be presumed that it is the intention of all parties that the obligation of the bond is to be commensurate with the requirement of the statute, neither more nor less." We are of the opinion, therefore, that construing this bond in the light of the 1925 statute there was no intention to extend the liability beyond that of the treasurer of the school district, and that the liability of the surety is commensurate with that of the treasurer, neither more nor less.

In the case of Lane Independent Consol. School District v. Endahl, 55 S.D. 73, 224 N.W. 951, 956, this court said: "To establish, in the first instance, the liability of a school treasurer and his surety codefendants, under a bond executed and conditioned as in this case, it is incumbent upon the school district to merely prove the regular receipt of school funds by the officer and his failure to pay over or account for the same on lawful demand properly made. To successfully defend against a liability so established, prima facie, the treasurer has but to show a regular designation of a depositary of the particular funds, by the school board, his deposit therein of the funds, and the loss of the same through insolvency of the bank." It was not intended, however, to require that the treasurer should prove actual insolvency to make out his prima facie defense, but simply that he prove that the bank designated as a depositary closed and he was therefore unable to pay over the funds to the district. The last-cited case was followed by the case of Board of Education v. Whisman, 56 S.D. 472, 229 N.W. 522, wherein the rule above announced was further extended by the holding of this court that the prima facie defense having been established by proving the designation of the depositary and its closing, the plaintiff is entitled to meet this defense by showing other facts in avoidance. Under the rule announced in the cases of Independent School District v. Scott, 51 S.D. 187, 212 N.W. 863; Onida Independent School District v. Groth, 53 S.D. 458, 221 N.W. 49; Independent School District of City of Brookings v. Flittie, 54 S.D. 526, 223 N.W. 728, it is only necessary to show in avoidance of such defense that the defendant was an officer of the depositary bank, was charged with knowing of the unsoundness of the depositary, and did not communicate such information promptly to the authority designating the depositary. The above cases were all decided under facts which occurred prior to the adoption of chapter 154, Laws of 1925. It is our opinion that the 1925 law, as re-enacted in 1931 and 1933, has modified the rule announced in these three cases last above cited, to the extent that now, in addition to showing in avoidance that the school district treasurer was an officer of the depositary bank, it must be further shown that the loss suffered by the school district due to the failure of the bank "shall be caused, in whole or in part, by any violation of the law by said Treasurer, acting in his capacity of officer, agent, or employee of said bank." This view was indicated by this court in the case of Summit Independent School District v. Lien, 57 S.D. 465, 233 N.W. 643, 644, wherein it was said with reference to the 1925 law: "In this case the treasurer was the cashier of the bank and the loss of the money was brought about by the unlawful conduct of the treasurer while acting in his capacity of cashier of the bank. Acting as cashier, he went before the school board and by false representations as to the solvency of the bank secured the designation of his bank as a depositary of the funds of the district. After securing such designation, he unlawfully received the money of the district into his insolvent bank and paid the same out to other depositors so that when, in the ordinary course of business, such money was demanded in payment of the legitimate obligations of the district, he was unable to produce or pay the same. Under the above-quoted statute, this conduct on the part of the cashier of the bank renders the surety on the school treasurer's bond liable for the loss."

It follows, therefore, that our inquiry, as now limited by the statute, is: What, if any, unlawful act of Traver, as an officer of the bank, caused the loss which the school district suffered due to the failure of the designated bank?

We must first determine what the statute means wherein it refers to "loss or damage to such district resulting from the failure of said depositary." The statute provides that the board shall designate a bank as a depositary for the district funds, and thereafter the treasurer must deposit the funds of the district in the designated bank. If the treasurer fails to deposit in the bank the board has designated, he may be compelled to do so under the express terms of the statute. We believe it apparent, therefore, that any money, which the school district treasurer has in his hands in excess of that which he should have disbursed on behalf of the district, is required to be kept in the designated bank, and as to such money the statute contemplates that the loss, resulting to the school district when the bank closes, is proximately caused by the closing of the bank. The only exception made by the statute is where the school treasurer is a bank officer, agent, or employee, and the loss is sustained because of some unlawful act of his acting in his capacity as such bank officer, agent, or employee. By making this one exception, the statute implies that any other act or omission of the treasurer cannot be the basis for any liability at least as to any money which the treasurer should have, and did have, on hand in the designated bank. Certainly, the money which the treasurer should have, and did have, on hand would not be lost before the bank closed. The closing of the bank would be the immediate cause of the loss, and the cause which we believe to be within the contemplation of the statute. We conclude, therefore, that the statute must in any event mean that any money on deposit in the designated bank at the time it closed other than money that the treasurer, in the ordinary course of school business, should have disbursed for and on behalf of the designated district, was lost to...