Wiley v. City of Sparta

• Citation: 114 S.E. 45,154 Ga. 1
• Decision Date: 17 August 1922
• Docket Number: 2905,2913.
• Parties: WILEY ET AL., BOND COM'RS, v. CITY OF SPARTA ET AL. CITY OF SPARTA v. WILEY ET AL., BOND COM'RS.
• Court: Supreme Court of Georgia

114 S.E. 45

154 Ga. 1

WILEY ET AL., BOND COM'RS, v. CITY OF SPARTA ET AL.

CITY OF SPARTA v. WILEY ET AL., BOND COM'RS.

Nos. 2905, 2913.

Supreme Court of Georgia

August 17, 1922

Rehearing Denied Sept. 20, 1922.

Syllabus by the Court.

The bond commissioners of the city of Sparta are public officers charged with the safe-keeping and investment of the sinking fund of said city, and with the custody and safe-keeping of the bonds in which said fund was invested.

(a) It was the duty of said commissioners, under the direction of the mayor and council or a duly authorized committee of them to invest said fund, within six months from the collection of the same, in valid outstanding bonds of said city, or in bonds of some other municipality of this state, of equal or larger size, which had been duly validated, or in county bonds of this state so validated, or in valid outstanding bonds of this state or of the United States; and to have said bonds forthwith registered in the name of said city, provided said bonds by their terms were capable of being registered.

(b) When said commissioners deposited in a bank the bonds in which they had invested a portion of said fund, and the remainder of said fund consisting of money, said money being placed in said bank on general deposit in the name of the bond commission, they are liable for the loss of said bonds and money, caused by the misappropriation thereof by said bank or its officers and employees, and the subsequent insolvency of said bank, although said commissioners exercised due diligence in selecting the bank in which the same were deposited.

(c) Such general deposit in said bank of said sinking fund by said commissioners created the relation of debtor and creditor between the bank and the commissioners, and amounted to a loan of said fund by the commissioners to said bank without security, in violation of their duty as such bond commission.

The plaintiffs are not relieved from liability for the loss of such bonds and such portions of the sinking fund not invested by them, because, with the knowledge of the city officials they deposited the same in the bank in which the city deposited its funds, there being no formal action of the mayor and aldermen of the city authorizing the bond commissioners to make such deposits in said bank; the said commissioners, under the law, being charged with the safe-keeping of the sinking fund, and not the city officials.

Where the members of a bond commission are intrusted with the sinking fund of a city for investment in municipal bonds, and they invest a portion thereof in such bonds, which they deposit in a bank for safe-keeping, and which are lost by being misappropriated by the bank or its officials and employees, the liability of the former for such bonds is the same as their liability for the safe-keeping of such sinking fund when in the form of money; the real ground of liability being that, under the law, the safe-keeping of such investments is intrusted to such commissioners, and not to another whom they may select.

A decree is the judgment of the judge in an equitable proceeding, upon the facts ascertained.

(a) The judge can correct an error of law appearing upon the face of an auditor's report, when it can be done independently of the evidence, or when it can be done upon the facts found by the auditor which have been approved by the court.

(b) When an auditor upon facts found by him reaches a wrong legal conclusion as to the decree to be entered in an equitable proceeding, the judge can correct such erroneous conclusion of law, and render the correct decree under the finding of the facts by the auditor.

Error from Superior Court, Hancock County; Jos. B. Park, Judge.

Suit by R. C. Wiley and others, Bond Commissioners, etc., against the City of Sparta and others. Decree in favor of the City, and plaintiffs bring error, and the City brings a cross-bill of exceptions. Affirmed, and cross-bill dismissed.

R. C. Wiley and R. L. Merritt, suing as bond commissioners of the city of Sparta, filed their equitable petition against the First National Bank of Sparta, the Third National Bank of Atlanta, the city of Sparta, and Robert Holmes, and alleged as follows: Plaintiffs and John D. Walker were elected by the mayor and aldermen of the city of Sparta, under section 19 of its charter, a bond commission to serve without compensation, to whom the treasurer of said city was to turn over the sinking fund on hand, and an additional sum of $500 each January 1, as a sinking fund to meet the bonded indebtedness of said city. At first these commissioners were to loan these funds, reporting investments to the mayor and aldermen, to collect the interest, and, after supplying any deficiency in this sinking fund, to return the remaining interest into the city treasury. By a later act they were required to invest in municipal bonds. Said bond commission was made perpetual, vacancies to be filled by the mayor and aldermen. These commissioners were appointed on or about May 1, 1916, and have since continued as such. On or about September 27, 1917, John D. Walker absconded, and his whereabouts are unknown.

On or about September 30, 1911, said commissioners invested the sinking fund then available in their hands in municipal bonds as follows: $4,000 city of Jackson, Ga., 5 per cent. bonds, due December 1, 1935; $2,000 town of Thomson, Ga., 5 per cent. bonds, due December 1, 1938; and $1,000 city of Douglas, Ga., 5 per cent. bonds, due December 1, 1936, for which they paid $7,396.19. On October 5, 1911, said bonds were deposited, as a special deposit, for safe-keeping with the First National Bank of Sparta, receipt being taken therefor from said bank. Thereafter two other bonds were purchased, and, on June 15, 1912, four of the bonds as purchased were exchanged for bonds of like amount of the city of Sparta, which were placed with said First National Bank of Sparta for safe-keeping with the other bonds belonging to said sinking fund. Said bank, at said times and since, was the custodian of the funds not invested by said commission, which kept said funds on general deposit in said bank. Said bank collected the coupons from said bonds, depositing the proceeds to the credit of said commission. Said bank had authority to collect said coupons, "borrowing the proceeds on general deposit as aforesaid, on which it paid no interest." Plaintiffs have kept no account of what was deposited or drawn out for their account as bond commissioners since they became such, and have relied wholly on said bank to keep the account. They do not know how the account stands. They requested of said bank a statement of said account, and a full showing, but have never been furnished with the same. On February 24, 1919, they demanded of said bank the possession of said bonds, but said demand has not been complied with.

Plaintiffs have been informed that said bonds are or have been in the hands of the Third National Bank of Atlanta, which is the correspondent of said First National Bank. They do not know by what right or authority said Third National Bank holds the same. They expressly deny that they have at any time ever authorized their removal from the First National Bank of Sparta. They are informed that said Third National Bank claims to have acquired them as security for some alleged indebtedness of said John D. Walker, or said First National Bank of Sparta, for which said bonds could not have been lawfully or validly pledged. They are informed that recently Robert Holmes, by taking up said debt alleged to be secured by said bonds, acquired possession thereof, or some pretended interest therein; and that said First National Bank and Robert Holmes collected the interest coupons on said bonds while in their possession. Petitioners have demanded of said Third National Bank and Robert Holmes full information and the surrender of said bonds, which has not been complied with. Petitioners are entitled to the custody of said bonds, and to collect the income therefrom for the purpose of administering the same as by law provided. Though without legal title perhaps, they have the right of possession, and have certain powers to be exercised in trust as aforesaid, and are in the case of trustees acting without compensation. Said funds are trust funds, which may be traced into whosesoever hands they pass. Petitioners are entitled to an account of said sinking fund, whether in cash deposit, on general deposit, or in bonds deposited on special deposit, and for collection of interest coupons, from said First National Bank, and to an accounting, from said Third National Bank and Robert Holmes, of their dealings with said funds and bonds. They pray that the First National Bank of Sparta make a full and complete account of the cash belonging to said sinking fund in its hands, including the collection of interest on said bonds, and of the bonds belonging to said sinking fund with the interest coupons; and that the Third National Bank and Robert Holmes likewise account as to their dealings with said bonds and the interest therefrom.

The receipt of the First National Bank of Sparta was dated October 15, 1911, was given in favor of R. C. Wiley, R. L. Merritt, and John D. Walker, composing the Sparta bond commission, and was for $4,000 city of Jackson, Ga., 5 per cent. bonds, due December 1, 1935, $2,000 town of Thomson, Ga., 5 per cent. bonds, due December 1, 1938, and $1,000 city of Douglas, Ga., 5 per cent. bonds, due November 1, 1936, and recited that said bonds had been deposited in the vault of said bank for safe-keeping and subject to the orders of the Sparta bond commission. The receipt was signed, "First National Bank of Sparta, by H. L. Middlebrooks, Cashier."

In its answer, the ...