Yellowstone County v. First Trust & Savings Bank of Billings
| Decision Date | 07 December 1912 |
| Parties | YELLOWSTONE COUNTY v. FIRST TRUST & SAVINGS BANK OF BILLINGS ET AL. |
| Court | Montana Supreme Court |
Appeal from District Court, Yellowstone County; Geo. W. Pierson Judge.
Action by Yellowstone County against the First Trust & Savings Bank of Billings and another. From a judgment for defendants plaintiff appeals. Reversed and remanded.
Nichols & Wilson, of Billings, for appellant.
Hathhorn & Brown and A. H. Brown, all of Billings, for respondents.
Ira L Whitney was county treasurer of Yellowstone county for the term commencing the first Monday of March, 1909. As such treasurer he kept a portion of the county's funds on deposit with the First Trust & Savings Bank, of Billings, and this deposit amounted to $50,000 on the 1st day of March, 1910. On that day the bank furnished to the county its indemnity bond, under the provisions of section 3003, Revised Codes, for the penal sum of $25,000, executed by a foreign surety company authorized to do business in this state. During June, 1910, the treasurer drew from the bank $17,000, leaving a balance of $33,000. On July 2d the bank, being insolvent, suspended, and immediately thereafter S. G. Reynolds was appointed receiver for the bank and took possession of its assets. At the time the bank suspended it had on hand in its vaults $17,578.81, and on deposit with its correspondent banks $31,420.03, all of which sums came into the possession of the receiver. A demand upon the receiver that he pay over to the county the full sum of $33,000 was refused, and this suit was instituted by the county to have that sum declared to be a trust fund and entitled to preference in the distribution of the assets of the bank. The cause was submitted upon an agreed statement of facts, with the result that the prayer of plaintiff was denied and judgment entered in favor of defendants, from which judgment this appeal is prosecuted.
The agreed statement discloses that the funds deposited by the county treasurer with the bank were known to the bank to be county funds, but were treated as general deposits by the bank and the treasurer, and were commingled with the other funds of the bank. The theory of counsel for plaintiff is that, since an indemnity bond for double the amount of the county funds on deposit was not exacted as required by section 3003, above, the entire transaction between the bank and the treasurer was unlawful, and the bank was simply a trustee of the funds for the use and benefit of the county. Counsel for defendants insist that all of the funds so deposited by the treasurer constituted general deposits, and the county became a general creditor of the bank and can only participate with other general creditors in the distribution of the bank's assets. We are unable to agree with either of these contentions in its entirety. We are not called upon in this action to determine the full measure of the bonding company's liability. While the agreed statement does not recite that the indemnity bond was approved by the county commissioners of Yellowstone county, all parties to this proceeding appear to treat it as though such approval was given, and we shall do likewise.
1. Section 3003 charges the county treasurer with the duty of safely keeping all county funds, and to that end it authorizes him (1) to make special deposits of funds without requiring indemnity, and (2) to make general deposits of funds upon requiring from the depositary an indemnity bond in double the amount deposited. The statute reads as follows:
Counsel for defendants suggest that the provision above, for double indemnity, applies only to bonds given by individuals, and that foreign surety bonds are excepted from the double indemnity clause; but with this we cannot agree. The act of February 24, 1899 (Laws 1899, p. 82), as amended by the Laws of 1903, p. 294, authorizes foreign surety companies to do business in this state upon complying with the legislative requirements. It further provides that, whenever any bond is required by law to be given, such bond may be executed by a surety company qualified under the act, and such bond so executed shall be deemed to comply with the statutory requirements, as to the number of sureties, the residence of the sureties, etc. In other words, under this act the bank had the option to furnish a bond executed by private persons, or a bond executed by a surety company; but in either case the bond was required to be in double the amount of the county funds deposited. With the wisdom of this legislation we are not concerned. It might be difficult to assign any reason for the legislative action in requiring double indemnity, but that the Legislature could make such requirement is not questioned, and that our Legislature has done so in section 3003, above, does not admit of doubt. With the acceptance of this bond for $25,000, then, the treasurer could lawfully keep on deposit with this bank county funds to the amount of $12,500, and the deposit of such funds to that amount would constitute a general deposit authorized by section 3003, above, and to that extent the county would give its consent to become a general creditor of the bank and that its funds to that amount might become the funds of the bank to be commingled with its other funds and assets. At the time this bond was given, it constituted good and sufficient indemnity for the deposit of the county funds, to the extent of $12,500. In other words, when the bond was given to secure county funds already on deposit, in legal effect there was a redeposit of the $12,500 thus secured (Meeker County v. Butler, 25 Minn. 363), and neither the validity nor the sufficiency of the bond was impaired in the least by the wrongful act of the treasurer in keeping on deposit with that bank a sum in excess of that amount. In re State Treasurer, 51 Neb. 116, 70 N.W. 532, 36 L. R. A. 746; 13 Cyc. 816.
To the extent, then, of $12,500, the county funds deposited in this bank by the treasurer constituted a general deposit ( Bank v. Bartley, 39 Neb. 353, 58 N.W. 172, 23 L. R. A. 67), and to that extent the county itself consented to become a general creditor of the bank, and, in case of the bank's failure, to share alike with other general creditors in the distribution of its assets, or to look to the bonding company for relief. Commercial Bank v. Armstrong, 148 U.S. 50, 13 S.Ct. 533, 37 L.Ed. 363.
2. The fact, however, that the deposit of the county's funds to the extent of $12,500 was secured, does not reflect in the least upon the status of the $20,500 kept on deposit in this bank without security and in violation of the law. The act of the treasurer in keeping this excess on deposit without the security required by section 3003 is denounced by section 8592, Revised Codes, as a felony; and the treasurer and the bank officials are chargeable with knowledge that the use to which these county funds were thus put was altogether illegal and wrongful, and that...
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