State v. Carson Valley Bank

• Decision Date: 10 July 1935
• Docket Number: 3105,3106.
• Citation: 47 P.2d 384,56 Nev. 133
• Parties: STATE ET AL. v. CARSON VALLEY BANK ET AL. STATE ET AL. v. UNITED NEVADA BANK ET AL.
• Court: Nevada Supreme Court

47 P.2d 384

56 Nev. 133

STATE ET AL. v. CARSON VALLEY BANK ET AL.

STATE ET AL. v. UNITED NEVADA BANK ET AL.

Nos. 3105, 3106.

Supreme Court of Nevada

July 10, 1935

Appeal from District Court, Ormsby County; Clark J. Guild, Judge.

Actions by the State and another against the Carson Valley Bank and others, and against the United Nevada Bank and others, as consolidated, wherein Leo F. Schmitt, as receiver of each of such banks, was substituted as successor to defendants. From a decree for defendant, plaintiffs appeal.

Affirmed.

See also, 23 P.2d 1105.

Gray Mashburn, Atty. Gen., of the State of Nevada, and George L Sanford, of Carson City, for appellants.

Platt & Sinai, of Reno, for respondent.

LOCKHART District Judge.

This is an appeal from a decree in two cases brought in the First judicial district court of the state of Nevada, in and for the county of Ormsby, one case being State of Nevada and George B. Russell, as State Treasurer of the State of Nevada plaintiffs, against Carson Valley Bank, a Nevada banking corporation, and E. J. Seaborn, as Superintendent of Banks of the state of Nevada, and J. H. Stern, S. C. Durkee, and S. C. Bigelow, for themselves and other depositors in said bank similarly situated, defendants, the other case being the same plaintiffs against United Nevada Bank, a Nevada banking corporation, and E. J. Seaborn, as Superintendent of Banks of the State of Nevada, and John Granata and Robert M. Price, for themselves and all other depositors in said bank similarly situated, defendants; thereafter in both actions Leo F. Schmitt, as receiver of each of said banks, was substituted as successor to the defendants.

These actions were joined upon the trial and by and through stipulation were also joined upon the appeal.

Upon the oral argument in this court, the appellants expressly disclaimed any right of preference for these amounts or either of them by reason of the sovereign right of the state of Nevada to claim such preference right, but contends that the $65,000 is entitled to preference as special and/or specific deposits, and the $119,747.64 as a trust fund and entitled to preference.

All these funds were moneys collected by the Nevada Industrial Commission in the course of its activities as such under the laws of this state known as the Nevada Industrial Insurance Act and belonged to what under the law is known as state insurance fund.

We first consider the deposits amounting to $65,000 and later will consider the other deposits of $119,747.64.

Four deposits of various amounts aggregating $55,000 had been made by the state treasurer of Nevada in the Carson Valley Bank upon what were called, one "a special deposit," and three "special deposits" all bearing interest at 3 per cent. per annum. As each of these deposits were made, county and municipal bonds of certain taxing units of Nevada were deposited by the Carson Valley Bank with the state treasurer as security for the return and repayment of such deposits to the state treasurer, the first one at the end of a period of six months, the other three upon written demand.

All these deposits were made pursuant to an order of the Nevada Industrial Commission and pursuant to section 40 of the Nevada Industrial Insurance Act (St. 1913, c. 111, § 40, as amended by St. 1915, c. 190, § 12), except that whereas said section 40 required "a good and sufficient surety deposit bond," the county and municipal bonds were deposited with the state treasurer instead; at a later date and subsequent to all these deposits, "surety deposit bonds" were furnished by the bank to the state treasurer and the said county and municipal bonds were returned to the bank.

The bank closed its doors, finally landed in the hands of receiver Schmitt, the present defendant herein, and the surety bond or bonds given are worthless on account of the insolvency of the surety company.

As to the United Nevada Bank transaction, the state treasurer deposited $10,000 as a "special time deposit" for the period of one year or until demand is made therefor, under an order of the Nevada Industrial Commission based upon the bank giving a surety bond of the Nevada Surety & Bonding Company and pursuant to said section 40 of the insurance act, as amended by St. 1919, c. 176, § 7. The bank was to pay 4 per cent. per annum upon this deposit. At the time of this deposit, a written agreement was entered into between the bank and the Nevada Industrial Commission in which this deposit was designated a "time loan for the period of one year from date, or at any date thereafter on demand of the Nevada Industrial Commission."

The Nevada Surety & Bonding Company giving the above bond is now insolvent, and the bank is now in the hands of the defendant receiver.

All these deposits stand on the same footing and will be all treated together.

Interest was paid upon these deposits as stipulated at each interest payment date until the banks were closed.

Demand has been made upon the banks since they have been in the hands of the superintendent of banks and the receiver for the return of all said funds so deposited and that each of said deposits be treated and held to be special deposits to be paid in full, but they have been denied as special deposits and accorded only the status of general deposits.

Suits were brought in the proper district court to have these deposits declared special deposits and entitled to preference and paid in full. Decree was for the defendant, and from this decree, this appeal was taken.

If the contention of plaintiffs is right, the entire sums deposited become preferred claims with preference over all general claims and entitled to first payment from the assets of the banks.

There are but two kinds of bank deposits, special and general. A special deposit is one in which funds are deposited for a special purpose and the identical funds returned to the depositor or paid to other particular persons designated by the depositor and the relation of bailee and bailor arises between the bank and the depositor and not the relation of debtor and creditor; all other deposits are general and between the bank and its depositor the relation of debtor and creditor exists with no preference of payment to the creditor.

These deposits were made many years ago, those in the Carson Valley Bank being made in July, 1915; August, 1916; July 1917; and August, 1917, and that in the United Nevada Bank in June, 1930.

The Carson Valley Bank deposits draw interest at 3 per cent. per annum and the United Nevada Bank deposits draw interest at 4 per cent. per annum.

There is no contention and no question raised that any of these deposits were illegal or unauthorized, and they appear to have been made in accordance with the law in force and effect at that time, the question being, Were they special deposits as designated in the certificates of deposit issued by the banks at the time the deposits were made?

Section 8 of the Nevada Industrial Insurance Act, as amended by St. 1915, c. 190, § 3, provides that on and after April 1, 1915, the administration of the act was imposed upon the Nevada Industrial Commission, consisting of three members appointed by the Industrial Commission Board, which is and was composed as follows: The Governor, Attorney General, and inspector of mines.

Section 40 1/2 of that act, as added by St. 1917, c. 233, § 10, makes it the duty of the Industrial Commission Board to make an audit of all books of account and records and of the funds of the Nevada Industrial Commission annually or as often as they may deem necessary.

This court will take judicial notice that since at least the deposits were made in the Carson Valley Bank, the state treasurer, the Governor, and the personnel of the Nevada Industrial Commission and the Industrial Commission Board have from time to time been changed and others have taken the place of those retiring.

These deposits, however, have remained unchanged and the interest thereon as designated in the certificates of deposit has been paid to and received by the state insurance fund officers having the care and custody of that fund.

The state can only act through its duly elected and appointed officers and their actions when authorized by law constitute the actions of the state. Those officers know and must be charged with the knowledge of these deposits as in the performance of their duties they must have investigated where the state funds were kept and secured.

The Carson Valley Bank deposits of the funds in question were first secured by bonds and later they were withdrawn and surety bonds given in lieu thereof.

Banks may give security for deposits only when by law they are expressly permitted to do so and at the present time national banks can only give security for deposits in those states whose laws permit state banks to do so.

The laws of Nevada require all banks, both state and national, to give security for all state and all such public deposits.

This security is not that the identical money shall be returned when it shall be demanded, but that repayment shall be made upon demand and without loss to the state or other public depositors.

The law requires that interest shall be paid on such deposits and it is not to be conceived that the law would require the payment of interest upon dead funds lying idle year after year in the bank with no chance for the bank to make an investment sufficient to earn such interest. The security is to guard against bad investments which may endanger the safety of the deposit.

It always has been the policy of governments to keep money in circulation rather than to have it hoarded and kept out of circulation.

The contention is made that these deposits were made for a...