United States Fidelity & Guaranty Co. v. Village of Bassfield

• Decision Date: 26 September 1927
• Docket Number: 26109
• Citation: 148 Miss. 109,114 So. 26
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. VILLAGE OF BASSFIELD. [*]
• Court: Mississippi Supreme Court

114 So. 26

148 Miss. 109

UNITED STATES FIDELITY & GUARANTY CO. v. VILLAGE OF BASSFIELD. ^[*]

No. 26109

Supreme Court of Mississippi

September 26, 1927

(Division A.)

1 DEPOSITARIES. County treasurer can lawfully deposit public funds in bank not legal depository; existence of one in county not being shown.

A county treasurer has right to deposit public funds intrusted to him in a bank which is not a legal depository; existence of one in the county not being shown.

2 DEPOSITARIES. County treasurer, making deposit in bank not legal depository, has right to receive security.

County treasurer has right to demand and receive security for deposit of public funds made by him in a bank which is not a legal depository, provided the bank has power to pledge it to him.

3. BANKS AND BANKING. Power to secure deposit of public funds is presumed to be in president and cashier.

In the absence of proof showing limitation or restriction of power of bank cashier, imposed by the laws of the bank or by the board of directors, he is presumed to have power of attending to the ordinary active business functions of the bank.

4. BANKS AND BANKING. Pledge by cashier and president to secure deposit of public funds held authorized.

Pledge by bank cashier and president to secure deposit of public funds, though not expressly authorized by board of directors is within their power rather than that of the executive committee, a creature solely of the board of directors, with such powers only as are vested in it by the board.

5. BANKS AND BANKING. Bank can pledge assets to secure deposit of public money.

A bank can pledge its assets as security for a deposit of public money; this not being ultra vires and being consonant with public policy.

Division A

APPEAL from chancery court of Jefferson Davis county.

HON. T P. DALE, Chancellor.

Suit by the United States Fidelity & Guaranty Company against the Village of Bassfield. Judgment for defendant, and plaintiff appeals. Reversed and judgment rendered.

Judgment reversed.

Stevens & Heidelberg and Wm. M. Hall, for appellant.

I. Was there a valid pledge of the bonds? The authority relied on by counsel for appellee at the trial to support the contention that a Mississippi bank has no right or power validly to pledge its assets to secure a deposit of public funds, is the case of Commercial Bank & Trust Co. et al. v Citizens Trust & Guaranty Co. of West Va., 153 Ky. 566, 156 S.W. 100, 37 Am. & Eng. Ann. Cas. 1915C, 166. This case held under the peculiar statutes of Kentucky that a Kentucky bank had no power to secure the payment of a depositor of public funds by a pledge of its assets, and that such a pledge was ultra vires and illegal.

The court in undertaking to support the statute by reason went far afield and contended that "sound business banking principles demand that no bank should be permitted, under any circumstances, to secure any depositor by a pledge of its assets;" that to permit such a pledge would operate to give preference to one depositor over another and, in effect, constitute a fraud upon other and unsecured depositors.

That decision is declaratory of the public policy of the state of Kentucky no doubt, but it will be observed from an examination of the note to the report of this case in Ann. Cas. 1915C, page 171, that the case is in conflict with the decisions on the question from other states, including those of Illinois, Iowa and Pennsylvania.

It is admitted by the Kentucky court that the holding is in conflict with the statement of Bolles on Modern Law of Banking; Morse on Banking, and Pratt's Digest of National Bank Laws, and so far as we have observed, is in conflict with the statements of all important authors on the law of banking as to the implied powers of banks. These authors are uniform, so far as we have observed, in the statement that amongst the implied powers of a bank is that of borrowing money and securing the same by deposit or pledge of its assets.

The public policy of this state in this regard has been long fixed by legislative enactment and decisions of this court. There certainly can be no serious question, we submit, that a bank organized and doing business in Mississippi has the right and power to secure a deposit of public funds by pledging its assets. Review section 3077, Code of 1892, brought forward as section 3485, Code of 1906. See, also, George W. Fogg, Tax Collector, v. Bank of Friars Point et al., 80 Miss. 750, 32 So. 285, decided under this statute in March, 1902. Section 3485, Code of 1906, was amended by chapter 177, Laws of 1922.

Bank v. Fogg, supra, is cited in the later case of Adams v. Williams, 97 Miss. 713, 52 So. 872, to support the proposition that public funds collected by a public treasurer do not become in any respect the funds of the treasurer, but remain the property of the public body whose treasurer he is; that instead of being the debtor of the public body, he is its treasurer, the custodian of its funds, and acquires control of the funds without acquiring title to them.

Commercial Bank v. Hardy, 97 Miss. 755, 53 So. 395, reaffirms the Fogg case, supra, and cites Metcalf v. Bank, 89 Miss. 649, 47 So. 377, in which it was held that under section 3077, Code of 1892 (section 3485, Code of 1906) "public monies deposited by tax collector were entitled to priority of payment over general creditors in case of an assignment by the bank for the benefit of creditors." See, also, Greene v. Cole, County Treasurer, et al., 98 Miss. 67, 54 So. 65.

In the above cases it does not appear that any of the deposits were made under a law creating and regulating depositories of public funds. In Potter v. Fidelity & Deposit Co., 101 Miss. 823, 58 So. 713, there is introduced for the first time the question what effect, if any, upon the rule announced in the Fogg case and those reaffirming it, the enactment of a public depository law had. In the Potter case, Chief Justice MAYES went into the question of whether or not the state, as sovereign, has a preferential right over general creditors in the absence of a constitutional or statutory provision, and held that the state has no such preferential right.

The Potter case further holds that the Laws of 1908, chapter 1906, without repealing section 3485, provided for the placing of state funds in a selected depository and the taking of security from the depository with the intent that the funds should be used by the depository as any other general fund or deposit; and that a surety company, which has paid to the state the money owed by a bank or trust company selected as a state depository under said act, but which bank afterward became insolvent and went into receivership, and which surety company afterward sued the bank to establish a right of subrogation over the state's general creditors, had no right to priority over the general creditors because the state itself had no such right under these sections. A distinction was drawn between the case where public monies were deposited in the bank by a public official on his initiative and a case such as that of the cash being deposited where the statute itself provided for the selection of the depository and the security to be taken for the public funds and expressly authorized the making of the deposit.

Now examine chapter 96, Laws of 1908. The act clearly intends that the funds deposited shall become assets of the bank and used by it, and commingled with its other funds, just as would any sum of money borrowed from any source. See U. S. F. & G. Co. v. First State Bank of Shaw, 103 Miss. 91, 60 So. 47, construing section 3485, Code of 1906; Powell v. Board of Sup'rs of Tunica County, 107 Miss. 574, 65 So. 499, construing chapter 137, Acts of 1910, as amended by chapter 194, Acts of 1912, authorizing the selection of county depositories upon the question of the preferential right of the county, in case of the failure of a bank so selected as a depository. See, also, Board of Levee Commissioners v. Powell, 68 So. 71, and later reviewed on suggestion of error, which was sustained as reported in 109 Miss. 415, 69 So. 215, having under review the statute authorizing the creation of levee board depositories or depositories for funds for levee boards, and being chapter 97, Laws of 1908; Bank of Commerce v. Clark, 114 Miss. 850, 75 So. 595; Bank of Commerce v. City of Gulfport, 117 Miss. 591, 78 So. 519, reviewing the city depository act, chapter 138, Laws of 1910; Jourdan v. Bennett, 119 Miss. 576, 81 So. 239, again upholding the preference claim of a county for deposit in bank at the time of the bank's failure, and holding that this preference claim is superior to that of a depositor to whom the bank had issued bills of exchange on a bank of another city, the issuance of bills of exchange not having changed the relationship of debtor and creditor between the bank and such depositor. See, also, Sunflower County v. Bank of Drew, 104 So. 355.

The foregoing authorities convincingly demonstrate the solicitude of the legislature and courts of this state to protect public funds which may be deposited in bank and to take every asset of the bank if necessary to repay them. The statutes relating to depositories of state, county and municipality or drainage board expressly authorize the pledging of municipal bonds of the character here involved for the purpose of securing such deposits. Certainly, no harm can flow to any creditor or depositor of the bank if the bank is allowed to secure such public deposits, since the statute gives the deposit absolute preference over all other claims and in effect itself fastens a lien upon every asset of the bank to secure return of the deposit in case the same is made in a bank not qualified under a depository statu...