114 So. 26 | Miss. | 1927
(Division B. Oct. 3, 1927. Suggestion of Error Overruled Nov. 14, 1927.) Appellee, the village of Bassfield, issued, among others, two certain school bonds in the principal sum of five hundred dollars each, payable to the bearer, dated December 1, 1909, and due on the 1st day of December, 1919. These bonds were sold to the People's Bank of Bassfield, and subsequently they came into the hands of the appellant, the United States Fidelity Guaranty Company. The bonds here in controversy having become due, and the village of Bassfield having failed to pay to the appellant the amount of the same, suit thereon in the circuit court of Jefferson Davis county was filed. After pleas were filed by the appellee, the cause was thereupon, by agreement of all parties, transferred to the chancery court of said county, and the pleadings were made up in that court.
The original bill alleged that appellant was the owner and holder in due course of the said bonds, that they were past due and unpaid, and that appellee had failed and refused to pay to appellant the amount due on the same. Copies of the said bonds were attached to the original bills and made exhibits thereto. The prayer of the bill was for a monetary decree against the appellee, and for general relief.
The answer of the appellee admitted that the bonds were duly and legally issued, but denied that the appellant was the holder in due course of the same. The answer also alleged that all amounts due on said bonds had long since been paid to the People's Bank of Bassfield, which was the then holder in due course of said bonds, and that by reason of this payment to the said People's Bank of Bassfield it was discharged from all liability thereon. *122
The answer also alleged that the appellant was engaged in the business of writing surety bonds in the state of Mississippi, for which it charged a large premium; that, in the course of its business, it had become surety on the official bond of Van B. Baker, the county treasurer of Jefferson Davis county; that the said People's Bank, in order to secure the deposit of the public funds of Jefferson Davis county, executed in favor of the said Van B. Baker, county treasurer, an indemnity bond, with the appellant as surety thereon, and that the public funds of the said company were thereupon deposited in said bank; that appellant had thereupon wrongfully demanded of the said People's Bank that it indemnify appellant against any loss it might suffer by reason of being surety on the said indemnity bond of the People's Bank; and that, pursuant to this demand, an agreement was entered into between the said People's Bank and the appellant whereby certain bonds, among which are the ones here in question, were hypothecated to the appellant; but that said bonds were not as a matter of fact actually delivered to the appellant, but were retained in the possession of the said People's Bank; that this hypothecation agreement was made secretly, without notice of any kind to the appellee, or to any other persons whomsoever; that it was ultra vires, void, and contrary to public policy, was a fraudulent under taking and a fraud on the rights of the appellee and the creditors and stockholders of said People's Bank; that in this state of affairs the amounts due on said bonds were paid by the appellee to the said People's Bank; that said bonds were not then delivered to the appellee by the bank, but it was represented to appellee by the officers of said bank that these bonds were then held by the First National Bank of Hattiesburg, and that they would immediately be obtained and delivered to the appellee; that immediately thereafter the said People's Bank failed and went into the hands of a receiver and then into the hands of the state banking department; *123 that in due course the said bonds were received by said state banking department from the First National Bank of Hattiesburg, and were by it wrongfully assigned and delivered to the appellant; that this assignment by the state banking department was unlawful, void, contrary to the public policy, and in fraud of the rights of the appellee and of the creditors and stockholders of the said People's Bank.
The answer also alleged that the People's Bank had no right to pledge or assign to the appellant these bonds, except for a valuable consideration and in course of business; that any assignment or pledge to secure a deposit of public moneys in said bank was ultra vires, contrary to public policy, a fraud on the rights of the appellee, the creditors, and stockholders of the bank, and that at the time of the signing of the bond of the treasurer with the indemnity company as surety, the People's Bank was insolvent and known so to be by the appellant.
The answer was made a cross-bill and prayed for a discovery showing in detail the manner in which the appellant acquired the bonds and also prayed for a cancellation of the bonds and for other general relief.
The answer to the cross-bill denied payment by appellee of said bonds to said People's Bank or to any one; denied that appellant had notice of any payment to said bank; denied that the bank promised to deliver said bonds to the appellee; denied that the banking department received the bonds from the Hattiesburg Bank; and denied generally all allegations of fraud and bad faith.
The answer to the cross-bill then alleged that appellant came into possession of said bonds in the following manner:
"That it was surety on the official bond of Van B. Baker, treasurer of Jefferson Davis county; that the People's Bank of Bassfield was desirous of securing deposits of the county funds, and, in order to secure said deposits, it, on the 26th day of April, 1913, executed an indemnity bond in favor of the said Van B. Baker, with *124 appellant as surety thereon, the condition of said bond being to secure the treasurer against loss of any moneys deposited in the said People's Bank; that, in order to indemnify the appellant, the said People's Bank pledged and delivered to it certain bonds, among which were the two bonds sued on; that the county moneys were thereupon deposited by the said county treasurer in the bank and remained on deposit there until the bond expired on the 25th day of March, 1914; that by continuation certificate the indemnity bond was continued in effect for another year, the pledge of the bonds and the agreements pertaining thereto remaining the same. On the 10th day of April, 1914, the said People's Bank, acting through and by its president and its cashier, and in order to secure said treasurer for his deposit with it, assigned to him all its rights and interests in and to those certificates then held by the First National Bank of Commerce of Hattiesburg, among which were the bonds here in question, and instructed the said First National Bank to deliver the said securities to the said treasurer after the debt of the People's Bank to it had been paid. The executive committee of the bank, on the 20th day of April, 1914, ratified and confirmed this action of the president and the cashier.
By agreement between the bank, the county treasurer, and the appellant, the indemnity bond of the treasurer to the bank was thereupon canceled; the treasurer accepting as his security in lieu thereof the certificates assigned to him by the bank as above set forth.
It is further alleged that on the 24th day of April, 1914, said People's Bank closed its doors and passed into the hands of the state banking department; that due and legal demand was made by the county on the treasurer to account for the moneys of the county; that the treasurer made due and legal demand on the bank for the moneys deposited by him with it; that, the bank being unable to pay the same, the appellant, as surety on the official bond of the said treasurer, paid the same to the *125 treasurer, who thereupon made settlement with the county; that the appellant took from said treasurer an assignment of his statutory preference right to payment out of the funds of the bank, and also took an assignment of those securities pledged to him by the said People's Bank as security for his deposit; that, in the course of liquidating the affairs of the bank, a compromise agreement was reached between the appellant and the banking department, by the terms of which the appellant was to have a preference claim of seventy-five per cent. of the amount due it, and a common creditors' claim of twenty-five per cent. of those amounts; that, in payment of the seventy-five per cent. preference claim, certain bonds and securities of the bank were delivered by the state banking department to the appellant, among these bonds and securities being the bonds here in question; and that the affairs of the bank were liquidated many years ago, and the appellant left in possession of the bonds here in question.
The testimony offered for appellant showed that the bonds in question had been in its possession since the 23d day of April, 1913, that appellant had acquired and held them substantially in the manner set forth in its answer to the cross-bill, and that it had no notice of any payment of said bonds to the bank.
The testimony also showed that the president and the cashier of the bank were officers of the village, being alderman and clerk, respectively; that funds of the village were on deposit in the bank; that on April 8, 1914, the amounts due on said bonds were paid to the said bank by warrant drawn on the bank and payable out of the school sinking fund; that the bonds were not then due, were not in the possession of the bank, nor were they delivered by the bank to appellee; but that representation was made to appellee that these bonds would immediately be obtained and delivered to it.
The proof failed to show that appellant either knew of or had notice of the insolvency of the People's Bank at *126 the time of the first pledge of the bonds in 1913, or at the time of the issuance of the continuation certificate in 1914. The People's Bank was not a legally qualified depository under the depository law, nor had it made any effort to so qualify as a depository.
In view of the fact that the conclusion we have reached disposes of the case, we deem it unnecessary to enter into a discussion of all the legal questions raised in the briefs.
The following are the propositions discussed and disposed of by the court:
First. Was it unlawful for the county treasurer to deposit the public funds placed in his hands as a public official in a bank, even though the bank was not a legal depository, its existence in that county not having been shown?
Second. Did the cashier, the president of the bank, and its executive committee have the authority to pledge the assets of the bank as security for a deposit by a public official of funds in his hands as such, in the absence of a showing that such pledge was affirmatively authorized by the board of directors of said bank?
Third. Has a bank the power to pledge its assets as security for the deposit of public moneys?
Van B. Baker, county treasurer, had the right to deposit in the People's Bank of Bassfield those county funds which were intrusted to his care and keeping, although the said bank had not qualified as a county depository; and it was not unlawful for the said Van B. Baker to demand of, and to receive from, the People's Bank security for such deposit of public funds, provided the bank itself had the power to pledge such security to him. Board ofLevee Commissioners v. Powell,
It is next insisted that, in the instant case, the pledge of the bonds to the county treasurer could under no circumstances be valid, because of the fact that it was made by the president, the cashier, and the executive committee of the bank and not by its board of directors. This contention cannot be maintained. Here the original pledge of the bonds was made by the cashier of the bank, acting in his official capacity, while the second pledge of the bonds was made by the president and the cashier of the bank in their official capacity; their action in this regard having been subsequently ratified by the executive committee of the bank.
The office of president is ordinarily one of dignity and of an indefinite general responsibility, rather than of accurately defined and known powers. The powers inherent in a president by virtue of his office are few.
Generally, in our state and elsewhere, the cashier is the chief executive officer of the bank; the powers inherent in him by virtue of this office being larger, more varied, and more extensive than those of any other officer of the bank. Through him the entire financial and business operations of the bank are carried on and conducted. The power of attending to and disposing of the ordinary and active business functions of the bank is inherent in him; and, in the absence of proof showing some limitation or restriction of his powers placed on him by the laws of the bank or by the board of directors in this respect, it must be presumed that there is no such restriction, and that he does have and may exercise such powers.
The executive committee of a bank is a creature solely of the board of directors. It has no inherent powers, but enjoys only those which are vested in it by the action of its creator, the board of directors. The record here does not disclose just what powers were conferred on, and are enjoyed by, the executive committee.
In the instant case, when the president and the cashier of the bank pledged these bonds to the county treasurer *128 to secure a deposit of public funds, they were acting in their ordinary and usual business capacity, and were performing one of the ordinary and usual business functions of the bank. Their action in so doing is therefore valid, even though not expressly authorized by the board of directors; their action in this respect being the action of the bank itself. Bolles, in his treatise on the Modern Law of Banking, makes the following statement:
"He (the managing officer) can receive . . . special deposits of public money and give security therefor." Bolles, Modern Law of Banking, p. 356, section 24.
See, also, Morse on Banking, vol. 1, pp. 331, 363, 364;Richards v. Osceola Bank, 79 Iowa, 707, 45 N.W. 294; JohnsonCo. v. Chamberlain Banking House,
In view of the conclusions just stated, the question sharply presented for decision is, Has the bank power to pledge its assets as security for a deposit of public moneys?
On behalf of appellant, it is urged that such pledge is valid, is conducive to good, sound business, and is protective of the interest of the people in their public moneys. On behalf of appellee, it is insisted that any action taken by a bank in this respect is ultra vires and void, is contrary to public policy, and is a fraud on the rights of the creditors and depositors of the bank.
A review of the statutes and decisions of our courts shows that it has been the policy of this state to protect and secure to the public the money deposited by their officials in the various banks of the state. Section 3485, Code of 1906, provides:
"All money deposited in bank, or with any other depository, by or for a tax collector, or other officer having the custody of public funds, state, county, municipal, or levee board, whether the same be deposited in the name of the officer as an individual or as an officer, or in the name of any other person, isprima-facie public money and a trust fund, and is not liable to be taken by *129 the general creditors of the officer or by the creditors of the depository."
This statute, in effect, has been construed by our court in numerous cases to hold that deposits of public moneys create a trust fund for the benefit of the public, and that a charge is impressed on all the assets of the bank for the payment thereof; this charge extending to and covering property acquired and paid for by the bank prior to the date of the deposit of the public funds in preference to judgment creditors of the bank. Fogg v.Bank of Friars Point,
Chapter 96, Laws of 1908, provides for the creation of state depositories; and chapter 137, Laws of 1910, as amended by chapter 194, Laws of 1912, provides for the creation of county depositories. These statutes were construed by this court in the cases of Potter v. Fidelity Deposit Co.,
In the case of Powell v. Tunica County, supra, it was further held, however, that, when a legally qualified depository received public funds in excess of the amount for which it had qualified as such depository, then such excess funds did not lose the characteristic of being trust *130 funds, but are protected by, and subject to, the provisions of section 3485, Code of 1906.
In the case of Board of Levee Commissioners v. Powell,
"That the creating of this additional security and the acceptance of the collateral hereinbefore mentioned shall not be construed as waiving any rights, benefits or privileges conferred . . . upon the commission in the manner of recovering public moneys or trust funds . . . which they may deposit."
In the original opinion by Justice Reed, a majority of the court held that the levee board funds deposited in a legally qualified depository were not trust funds, notwithstanding the language of the statute quoted supra. See Board of LeveeCommissioners v. Powell,
These statutes indicate the trend of the legislative mind, and the cases construing the statute reflect the solicitude of this court to give full force and effect to the clearly defined legislative policy. Manifestly, this policy is to secure the public interest first; and, in order to so protect it, all deposits of public moneys are declared trust funds and are given preference over all other creditors of the bank. By the statutes creating depositories for the state, counties, municipalities, and levee and *131 drainage districts, the pledging of assets of the bank in the form of bonds is expressly allowed for the securing of such deposits; and the statute making deposits of public moneys in a bank, other than a legal depository, trust funds, and making them a charge on all the assets of the bank in preference to other creditors, has, in effect, itself pledged all the assets of the bank for the payment of the deposits whether expressly pledged by the bank or not.
In the instant case, on the faith of the pledge of the security, which included the bonds here in controversy, the deposits of the public moneys of the county were obtained by the bank, and its assets were increased by so much. No fraud has been practiced on the depositors or the creditors of the bank; and presumably this particular pledge was known to the directors, as they are required by statute, at stated periods to inquire into and examine the books, securities, and affairs of the bank. Their rights and interests have in no wise been affected. The pledge of the bonds, instead of being contrary to the public policy of this state, on the other hand, is in accord and consistent therewith, and in furtherance of the express public policy of the state in this regard.
Counsel, however, rely strongly on the case of Commercial Bank Trust Co. et al. v. Citizens Trust Guaranty Co. of WestVirginia,
"This section of the statute [Ky. St., section 579] limits and defines the business of the bank, and directs *132 that it may be carried on by doing the things specifically enumerated. The enumeration of these powers excludes other methods of banking. The legislature seems to have been especially careful to define the power of banks, and to have been unwilling that these corporations should be allowed to do business, without definite limitations. The officials of one bank might deem it possessed of other and more extraordinary powers than would those of another bank. It was unquestionably the intention of the legislature to define and limit their powers by law, so that all banks should conduct their legitimate business in the same manner, and that the public, dealing with them, might know the power they possessed. So careful were the lawmakers in this respect that they even enumerated the right to take bonds from officials, to appoint and discharge them, which power would seem to be inherent in all corporations. It will be observed that section 579, in enumerating the powers of a bank, specifies `receiving deposits and allowing interest thereon.' From the earliest times banks, under the common law, have been accustomed to receive deposits. This has been understood to be one of their legitimate functions, but the payment of interest on deposits is a modern custom, which has grown up under the sharp competition existing between banks. Section 579 legalized this custom of paying interest. Without this provision it would manifestly be unlawful under any circumstances, where the powers of banks are defined either by special charter or under general law. Consequently, the lawmakers conferred upon banks the power to pay interest on deposits; hence it is lawful in Kentucky to do so. It is a dangerous power, and may be used in more ways than one to wreck a bank, but, when prudently and legitimately used, it may, and no doubt does, benefit the stockholders. This right to pay interest, however, is as far as the lawmakers apparently felt it safe to go.
"In this case, the bank has exceeded its express power, and, under the claim of the exercise of an implied power. *133 has attempted to secure the payment of a depositor by the pledging of its assets. This is clearly an act ultra vires and unlawful. No such power has been conferred upon banks in this state, nor should authority to do so be granted anywhere. Section 579 grants only such powers `as may be necessary to carry on the business of banking' by doing the things enumerated."
And the court summed up in the following language:
"In other words, the legislature evidently did not intend that the security of any depositor should be impaired, in order that that of another might be increased. So the only reasonable construction that can be placed upon these statutes, requiring certain public funds to be secured by the depositary, is that the security that such depositary shall give must be other than a pledge of its own assets.
"There is no statute requiring the deposits of the county treasurer to be secured by the depositary, and there is no express power, under which the bank was authorized to secure him, by a pledge of its assets, no necessity existed for its doing so, in order to enable it properly to conduct its business as a banking institution; hence its attempt to do so was an act ultravires and void. The chancellor erred in holding that it did have such power."
The further statement by the court in that case 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," certainly does not accord with the well-defined public policy of this state in so far as the deposit of public moneys is concerned, although it is doubtless expressive of the policy of that state as outlined by the statute there construed by the court.
The courts of those states that have had before them for decision the proposition here presented have adopted the view contrary to that taken by the Kentucky court in the CommercialBank Case, supra. That a bank has the power to pledge its liquid assets to secure one of its depositors *134
is sustained by the cases of Wylie v. Bank,
"A bank may receive special, specific and general deposits and give security for them." Morse on Banks and Banking, vol. 1, section 63, p. 122.
In the case of Ward v. Johnson,
"The corporation was authorized to contract and agree with persons desiring to make deposits or loan money as to the terms. It might execute its bond, note, or certificate as evidence of the indebtedness, and secure the same by pledge or chattel mortgage, or note, securities, etc., or by real estate mortgage or trust deed, just as should be mutually agreed. And there has been no reason suggested, and we can conceive of none, why providing a system for securing loans and deposits generally in a particular way is objectionable, when it would not *135 be objectionable to conduct a single transaction in that way. The business is simply that of the bank obtaining money, and, so far as the public was concerned, presumably needed in its business, and securing it by a trust deed upon terms mutually satisfactory to the respective parties in interest."
In the case of Richards v. Osceola Bank, 79 Iowa, 707, 49 N.W. 294, it was held that an official of a bank authorized to do business for it, who has executed and given in the name of the bank a bond authorized by statute for the security of public deposits made in the bank, has the right and the authority to deliver to the county treasurer making such deposit further security; this security consisting of the assets of the bank, and being for the purpose of further protecting the county in its deposits.
In the case of Ahl v. Rhoads,
In the case of McFerson, State Bank Commissioner v. NationalSurety Co. et al.,
"There is no question that a bank, in order to secure deposits, may give security for them. The giving of the indemnifying bonds was within the authority of the banks, and was a matter of ordinary business. The banks owned the securities pledged to the surety company, and had full right so to pledge them. It is further undoubted that when collateral has been pledged as security the pledgor has no right to such collateral until the purpose of the pledge has been fulfilled. It is unnecessary to cite authorities on these points."
The case of Cameron v. Christy,
After a careful examination and consideration of the authorities, we are of the opinion that the majority rule is the sounder and better rule to adopt. We therefore align ourselves with the majority, adopting the views *137 taken by them as being reasonable and consistent with the public policy of this state in further guaranteeing to the public the safety of its deposits in the various banks of the state; and, in so doing, we are but adhering to the general legislative policy of this state in protecting public funds as hitherto interpreted by our court. Let it be noted, however, that the case before us is one in which public funds only are involved.
The judgment of the lower court will therefore be reversed, and judgment entered here for appellant.
Reversed, and judgment here for appellant.