165 N.W. 241 | S.D. | 1917
Lead Opinion
Defendant, John S-chamber, was treasurer of this state for a term of t-wo years commencing January 12, 1899. As such treasurer he entered into the official bond required by statute, .upon which bond the other defendánts were sureties. He deposited -in various banks, from time to time, the funds in .his hands .as such treasurer, and it is alleged that he received interest upon such deposits. This action was brought to- recover' such interest. To the complaint -defendants demurred. The demurrer was sustained, and the state appealed.
Respondents do not contend that the title to the moneys received by the treasurer passed from the state to such treasurer. In fact it would be most presumptuous, in the light of the various sections of our statutes relating fi> the public funds of the state —particularly sections 333-348, Pol. C-ode — for any one to so contend. We would call particular attention to section 333, which reads:
“All moneys belonging to the state, deposited in banks by the state treasurer shall be deposited not to his credit as an individual, but in his name as state treasurer, and not otherwise.”
Neither do respondents contend that the treasurer exceeded his authority either in depositing the state funds in banks or in contracting to receive or in receiving interest upon funds so deposited. It is therefore unnecessary for us to determine the soundness of the proposition that, if the interest money was unlawfully received, recover)>- therefor could not be had on his bond.
Respondents rely upon two propositions: (1) That the treasurer was an insurer of the funds coming into his hands and therefore not liable, as a trustee, to account for profits arising thereform; and (2) that the Legislature of this state had indicated an intention that the state treasurer should not be held civilly liable for the receipt and retention of such interest money, and the court should be controlled by such expression of intent. Respondent rely chiefly upon the opinion in the case of State v. Walsen, 17 Colo. 170, 28 Pac. 1119, 15 L. R. A. 457, but also cite the cases of Commonwealth v. Godshaw, supra, and Maloy v. Bernalillo, 10 N. M. 638, 62 Pac. 1106, 52 L. R. A. 126.
M-uch discussion, will be found in the authorities upon the question as to whether or not a custodian of public funds is an insurer of such funds. That question has been settled in this
“It is a complete non sequitur to say that, because Williams was an absolute insurer, therefore the interest belonged to him. The two principles have no relation whatever to each other. Once settled clearly and definitely whose money the principal sum was, and the interest necessarily belongs to that person as an increment to the principal fund, and to argue to the contrary -is simply to-lose one’s self in a metaphysical fog of sophistry, failing to' give effect to the central principle of right and justice making the interest the property of the party who owned the principal sum.”
But owing to the importance of the question before us, not only to the parties to this action, but 1» the many custodians of public moneys and their cestui que trusts, we feel justified in calling attention to some matters which we believe may assist in making clear the law of this case. A custodian of public funds is held to be an insurer of such funds, not merely because there may be some statute so providing, nor because of the provisions of some bond he may enter into, but, as declared by most of the authorities sustaining such liability, because to so hold him is in furtherance of a sound public policy. U. S. v. Prescott, 3 How. 378, 11 L. Ed. 734; Tillinghast v. Merrill, 151 N. Y. 135, 45 N. E. 375, 34 L. R. A. 678, 56 Am. St. Rep. 612 ; Cameron v. Hicks, 65 W. Va. 484, 64 S. E. 832, 17 Ann. Cas. 926. It certainly would be the extreme of inconsistency for the courts to hold that the custodian’s liability as ati insurer is based upon public policy and then to hold that, being such insurer of the public funds, such custodian is entitled to all profits received therefrom. It would not be in accord with sound public policy for
“The measure of the liability of the officer seems to be the distinction upon which all or nearly all adjudicated cases may be harmonized.”
The line of reasoning of the courts -which hold as above would seem to be about as follows: The liability of a •debtor is absolute. The liability of a trustee or bailee is conditional. Therefore whenever -the liablity imposed upon a trustee or bailee is absolute such trustee or bailee becomes a debtor with all the •lights of a debtor and freed of all liabilities imposed upon a trustee or bailee. How much more logical to say that a custodian of public funds is a bailee or trustee like any other custodian and -burdened with the same duties- and liabilities except as such duties arid liabilities may be affected by statute or by public policy. But accepting the above line of reasoning, let us see if the liability -o-f a custodian of public funds is -the same as that of a debtor. If not, the conclusion reached is without support. In U. S. v. Prescott, supra, the liability of a custodian of public funds was spoken of as absolute, and such was the language of this court in School D-ist. v. Northern Casualty Co., supra. It is apparent from a reading of the Walsen case that the Colorado court was of the opinion that such liability was absolute. In such
“The obligation to keep safely the public money is absolute, without any condition, express or implied; and nothing but the payment of it, when required, can discharge the bond,”
—and then says, as we might well say of the language of this court in School District v. Northern Casualty Co., supra:
“This broad language would seem to indicate an opinion that the bond made the receiver and his sureties liable at all events, as now contended, for by the government. But that case was one in which the defense set up was that the money was stolen, and a much more limited responsibility than that indicated by the above language would have sufficed to render that defense nugatory. And as the money in the hands of a receiver is not his, as he is only custodian of it, it would seem to be going very far to say that his engagement to have it forthcoming was so absolute as to be qualified by no condition whatever, not even a condition implied in law. Suppose an earthquake should swallow up the building and safe containing the money, is there no condition implied in the law by which to exonerate the receiver from responsibility ?”
“The way was paved for this decision, however, as early as 1872, in the case of United States v. Thomas [82 U. S.] 15 Wall. 337 [21 L. Ed. 89], where the court held that a collector of public money, under bond tc keep it safely, and pay it when required, :s not absolutely bound to pay the money, but is excusSd if prevented from returning if by the act of God or the public enemy, without any neglect or fault on the part of the officer.”
Is this limitation of liability recognized in the above cases a limitation of a debtor’s liability or is it a limitation of a trustee's or bailee's liability? The answer is to be found in the answer to the question of whether the irresistible superhuman cause or the public enemy must needl render the custodian financially unable as a debtor to meet the debt or need only remove from him the power to restore the particular fund itself in order to exonerate him from liability. It is clear that the custodian is released from liability for funds in his charge when he is unable to restore the funds themselves because prevented therefrom by such superhuman cause or by the public enemies as in the Thomas case, and this entirely regardless of whether he would be financiad)'- able to respond as a debtor. If he lose the particular fund owing to the working's of some irresistible superhuman cause or the acts of a public enemy he is exonerated of all liability even though he still be possessed of unlimited means to meet a liability; while if he were a debtor and liable as such the working's of irresistible superhuman causes or the acts of a public enemy would not exonerate him from such liability as a debtor unless it so reduced1 his wealth as to prevent him from or delay him in meeting such liability. Section 1173, C. C. If such a custodian were a mere debtor to the public no -destruction of public funds by any superhuman agency or seizure by any public enemy would release him from his debt unless it left him financially unable to pay the debt and not merely unable to restore the fund.
As above noted, it is urged- in some of the decisions that, because of the fact that the treasurer is an insurer he ceases to be a trustee or bailee and the title to the funds vests in him and that therefore he is entitled to receive the interest therefrom. Certainly if would be illogical to hold a custodian of public funds to be a
“This makes the responsibility of the custodian of public funds the same as the common law responsibility of the common carrier. * * * It has not been claimed that the common carrier, by reason of -his strict responsibility, becomes the owner of the goods he carries.”
We might add that no one would claim that, because -the common carrier is an insurer of the goods instrusted to it, with a liability exactly coextensive with that of a custodian of public funds, it ceased to be a bailee of such goods and became a mere debtor for their value and entitled to all the profits it could make out of the goods,
“The question involved is not what obligations generally arise from the possession of a public office or the custody of public funds. The vital question is simply this: What rule relating to the subject of interest was in force in this state during Mr. Schamber’s terms of office?”
And because of this claim they rely particularly upon the case of State v.'Walsen, supra. Section xi, art. -ii, of our Constitution provides:
*504 “The making of profit, directly or indirectly, out of state, county, city, town or school district money, or using the same for any purpose not authorized by law, shall be deemed a felony and shall be punished as provided by law.”
Prior to the year 1897 there had been enacted several provisions of our statutes, among them section 333, P. C., supra, clearly providing that the public funds received by the state treasurer remained the funds of the state — that the title thereof did not pass to the treasurer. Until the 3'ear 1897 there was no statute whereby either the state or any municipal division thereof was expressly empowered to recover from its treasurer interest received by such treasurer for the use of public moneys in bis custody. In the year 1897 the Legislature passed a law providing for the deposit of state funds in depositaries to be selected by the state treasurer, but also providing that nothing contained in such law should relieve the treasurer or his bondsmen from any liability under which they otherwise would rest. During the same session of the Legislature there was enacted a statute which, among other things, enacted as a part of our statutory law the provisions of section 11, art. 11, supra, rendering them applicable to county treasurers only, and specifically provided that a county treasurer “shall also be liable under and upon his official bond for the profits realized by such unlawful using of such funds.” It will be seen that the situation, so far as the Constitution and statutes of this state were concerned, existing in 1899, was quite similar to that existing in Colorado and made, by the court of that state, one of the grounds for its holding in the case of State v. Walsen, supra. Respondents would' lead us to believe that in State v. MbFetridge, supra, the court approved of the holding of the Colorado court. Not so — it was stated in the McFetridge case that, inasmuch as Wisconsin had no statutes such as those relied upon by the Colorado court, it was unnecessary for the court to consider the reasoning of the Colorado court in so far as the same was based upon such statutes. Respondents state that:
“The Legislature intentionally changed the rule making county treasurers absolutely liable for loss of funds without accountability for interest and deliberately declined to make the same change as to the state treasurer.”
In conclusion we call attention to the following controlling facts: The title to all moneys received by the state treasurer remains in the state Under the clear provisions of our statute. While the statute then in force did not provide that the treasurer should deposit money at interest, there was- absolutely nothing in such statutes that rendered it unlawful for a state treasurer to deposit moneys in a bank and -to contract that the bank should pay interest upon such deposits. It was the state funds that earned this interest and not the treasurer. Such interest became a mere increment of such principal fund, and whenever such increment was paid to the state treasurer it was pa-id into the state treasury of this state whether in fact it ever reached the office of state
The order of the trial court is reversed.
Dissenting Opinion
(dissenting). I believe the order sustaining the demurrers should be affirmed. It is true, as stated in the majority opinion, that the demurrers of the defendants do not present the question of plaintiff’s right to equitable relief; still I believe the demurrers should be sustained on the ground that the tacts stated in the complaint do not entitle plaintiff to any relief whatever.
That the defendant iSchamber received considerable amounts of money from the various banks for the use of funds belonging to the state is not only admitted by the demurrer, but it was a matter of common, knowledge, at the time Schamber was in office, that the various state treasurers, including said defendant, had been receiving and appropriating to their own use interest on state funds since the adoption of the Constitution. Such practice was continued until the year 1909, when the Legislature enacted a state depositary law creating a board of finance, providing for the designation of certain banks to act as state depositaries, requiring the payment of interest on state funds deposited in such depositaries, releasing the treasurer from liability for loss occasioned by the failure or insolvency of such depositary banks, requiring the treasurer to account to the state for all interest collected on said funds, and making it a felony for him to make any profit, directly
The right of state treasurers and other custodians of public funds to receive and appropriate to their own use interest on such funds while in their custody has been contested in the courts of several of the states in recent years, but the conclusions reached by the various courts are far from uniform. The extent of the treasurer’s liability has been the controlling feature with some of the courts, holding that, where the treasurer is absolutely liable or an insurer of the public funds that come into his hands, he is not liable for any interest that may be paid to him for the use of such funds; but that, when his liability is only that of a trustee or bailee, he should account for any interest or other increment that may be earned by any such funds while in his custody. Commonwealth v. Godshaw, 92 Ky. 435, 17 S. W. 737; Renfroe v. Colquitt, 74 Ga. 618; Maloy v. Bernalillo Co. Cob., 10 N. M. 638, 62 Pac. 1106, 52 L. R. A. 126; Eshelby v. Cincinnati Bd. of Ed., 66 Ohio St. 71, 63 N. E. 586; Rhea v. Brewster, 130 Iowa, 729, 107 N. W. 940, 8 Ann. Cas. 389. Other courts hold that a treasurer is liable for any interest received by him on public funds whether he is absolutely liable or not. United States v. Mosby, 133 U. S. 273, 10 Sup. Ct. 327, 33 L. Ed. 625; State v. McFetridge, 84 Wis. 473, 54 N. W. 1, 20 L. R. A. 223; Adams v. Williams, 97 Miss. 113, 52 South. 865, 30 L. R. A. (N. S.) 855, Ann. Cas. 1912C, 1129. Again, other courts hold that a treasurer becomes vested with the title to a public fund when it comes into his hands, and that it is not a matter of concern to the public what use is made of it while in his hands or how much it may earn by way of interest; that, when the principal is accounted for, the treasurer’s liability ceases. Rock et al. v. Stinger, 36 Ind. 346; Shelton v. State, 53 Ind. 331, 21 Am. Rep. 197. A review of these cases will not be attempted. They have all been collected and reviewed in Adams v. Williams, 97 Miss. 113, 52 South. 865, also in a note appended to that case, where it is reported in 30 L. R. A. (N. S.) 855, Ann. Cas. 1912 C, 1129, and further comment upon them would be superfluous.
A 'determination of the defendant’s liability in this case depends upon, or at least requires an examination of, our Constitü
“The making of profit, directly or indirectly, out of state, county, city, town or school district money, or using the same for any purpose not authorized by law, shall be deemed a felony and shall be punished as provided by law.”
While this section of the Constitution declares the making of profit out of state money to be a felony, it provides no penalty for its violation. Therefore it remained inoperative until the Legislature should prescribe a penalty. By section i, c. 152, Laws of 1895, it is provided that:
“All moneys belonging to the state, deposited in banks by the state treasurer, shall be deposited not to his credit as an individual, but in his name as state treasurer, and not otherwise.”
This law recognizes, the right of the treasurer to keep the state funds deposited in banks, but it studiously avoids the fixing of a penalty for a violation of section n, art. 11, of the Constitution, and it just as studiously avoids prohibiting the treasurer from collecting and retaining interest thereon. Section 1 of chapter 106, Laws of 1897, authorized the state treasurer to designate certain banks to act as depositaries of the state funds. Section 2 required that such depositaries should, before receiving any of the public funds, furnish security for the safe-keeping of the same, and section 7 of said chapter provides that:
“Nothing in this act contained shall’ be held or construed to relieve the treasurer or his bondsmen from any liability on the said treasurer’s official bond or [to] reduce the amount thereof or in any way impair the obligations of the same.”
Section 4, c. 104, of the same session provides that:
“The making of profit, directly or indirectly, by the county treasurer out of any money in the county treasury, the custody of which the treasury is charged with, by loan or depositing or otherwise using or depositing the same in any manner. * * * shall be deemed guilty of a felony, and upon conviction thereof”
—shall be punished, etc. It will be noted that this act applies to county treasurers only, and it will be further noted, upon an examination of both of these acts and of chapters 105 and 107 of the same session, all of which relate to the safe-keeping of public funds, that nothing therein contained prohibits the state treasurer
From the course pursued by the Legislature, as indicated by the enactment of the foregoing statutes, and in view of the fact that every member of the Legislature knew that the state treasurer was receiving and retaining interest on the state money,' and that they had been doing so since the adoption of the Constitution, but one conclusion can be drawn, and that is that the Legislature •intended that, in consideration of the great responsibility assumed by the state treasurer, he might continue to receive and retain interest on such funds. Such a course had been sanctioned by the Legislatures and Supreme Courts of several of the states. What has usually beeen regarded as the leading case in support of the treasurer’s right to receive and retain interest on public funds is State v. Walsen, 17 Colo. 170, 28 Pac. 1119, 15 L. R. A. 457. Defendant in that case had been state treasurer, and he had received interest on the public funds. Such interest was not accounted for, and the action was prosecuted by the state for the recovery thereof. Section 13, art. 10, of the Constitution of Colorado is as follows:
“The making of profit, directly or indirectly, out of state, county, city, or school district money, or using the same for any*510 purpose not authorized by law, by any public officer, shall' be deemed a felony, and shall be punished as provided by law."
This, in effect is identical with section n, art. II, of' our Constitution. In 1889 the Legislature of Colorado enacted a law (Laws 1889, p. 297) similar in effect to section 4, c. 104, Laws of 1897, which, like section 4, c. 104, Laws of 1897, made no reference whatever to state funds. Of this law, the Supreme Court of Colorado, in State v. Walsen, supra, said:
“That this omission was purposely made is, apparent from the circumlocution employed to cover all other offices and all other public funds.
And, in the same case, that court further said:
“From what has been said, it is apparent that both the legislative and judicial departments of the government have construed the Constitution as requiring additional legislation in order that the state could recover interest. This construction has, from the first, been adopted -by the officers of the executive department and successive governors have, in their public messages, urged upon the legislative department the necessity for suitable legislation upon the subject.”
The court held that the state was not entitled to recover the interest.
Renfroe v. Colquitt, 74 Ga. 618, was an action by the state of Georgia for the recovery of money that had Toeen paid to defendant as interest on the public funds while holding the office of state treasurer. The Constitution of Georgia contained a provision similar in effect to, section 11, art. 11, of our Constitution, making it a felony for the treasurer to make a profit out of the state money. The court in that case 'held that the interest involved was not received by the defendant by virtue of his office, but in violation of the law, and that the state was not entitled to recover. In State v. Kimball, Wils., 174, the state of Indiana attempted to collect from the state treasurer money that had been paid to him as interest on the public funds while he was holding the office of state treasurer. There was a law in force in Indiana at that time which made it a felony for the treasurer to recive any interest or bonus for the use, loan, or deposit of the state funds. The court held that the state had no right of recovery against the treasurer
“By accepting the office, and entering upon the duties of the same, the treasurer assumes all the obligations incident to a faithful, and honest discharge of -those duties, and the object to -be attained by the execution of the official bond' is that the state may have the undertaking of others as sureties for the treasurer, and while the sureties in suc-h case are liable upon the bond in all cases where the principal Is clearly liable, they are nevertheless-sureties, and ought not to1' have their obligations extended by doubtful construction beyond the terms of the law, and the bond or contract which they have entered into. It is not necessary to cite authorities in support of this well-recognized rule of law. When all the funds, which by -the terms of the law are properly in the hands of the treasurer, have been fully accounted for, and paid over, to hold the parties liable for other funds that have been acquired in violation of law, and in acquiring which the treasurer may be prosecuted in criminal actions, is extending the terms of the bond beyond anything that the parties could reasonably be held to contemplate at the timé of its execution.”
The above language is peculiarly applicable to the facts that existed at the time defendant 'Schamfoer was in office.
State v. Walsen, supra, was published in 1892. The material facts in that case were identical with the facts in this case, and the statute in force in Colorado was identical in effect with the provisions of section 11, art. 11, of our Constitution. The rule laid down in State v. Walsen was accepted as the law in this state.
All of defendant’s predecessors in office, since the adoption of the Constitution, had received '-and retained interest on the public funds. In fact it was well known that such interest was ■the inducement to accept the office and assume the financial responsibilities incident thereto. The sureties on the treasurer’s bond executed such bond with the understanding that the treasurer was to have whatever interest he might collect for the use of the public money, and also with the understanding' that, when the treasurer had accounted for all the funds that came into his hands from the state, his liability, and theirs as well, was at an end.
State v. McFetridge, 84 Wis. 473, 54 N. W. 1, 998, 20 L. R. A. 223, is a case brought by the state of Wisconsin for the recovery of interest on state funds that had been collected by the defendant while state treasurer. The court held that the state was entitled to' such interest. This is regarded as the leading case in support of such right. But the Wisconsin court distinguishes the Walsen case because of the statutory and constitutional provisions in force in Colorado, and our attention has not been called to any case from a state where they have' a statutory or constitutional provision similar to those in force in this state and in Georgia, Indiana, and Colorado in which the state has been allowed to recover.
It may have been wrong from a moral standpoint, and criminal under the Constitution, for the treasurer to. take and appropriate • to his own use interest on the public funds, and it may be that the treasurer had no legal right to retain such interest after it had been collected, but the state has shown no. 'better right