Summary
interpreting the predecessor statute 86.9582 et seq., RSMo 1919
Summary of this case from Christian County v. Edward D. Jones and Co.Opinion
December 31, 1928.
1. COUNTY DEPOSITORY: Security: Bonds: Pledge: Recovery by Commissioner of Finance. All county funds of every kind and description are required by law to be deposited in a county depository selected by the county court, and the statute (Sec. 9585, R.S. 1919) authorizes a bank selected as a county depository to give, and the county court to accept, bonds of the United States, under a pledge conditioned for the faithful performance by the depository of all its duties and obligations as such; and such selection having been made and such bonds having been deposited with the county in accordance with such pledge, the Commissioner of Finance, in charge of the bank after its failure, cannot recover said bonds, or enjoin their sale by the county, until the amount of county funds previously deposited with the bank during the period covered by the pledge are paid to the county in full.
2. ____: ____: ____: In Addition to Personal Security: Statute: Amendment of 1921. The words of the present statute (Sec. 9585, R.S. 1919) declaring that the county court "may accept in lieu of real estate as security bonds of the United States" for county money deposited with the county depository, being the amendment added as a proviso to the section in 1891, dispensed with the necessity of a bond "executed by five solvent owners of unincumbered real estate of as great value as the amount of the bond," as required by the statute before the amendment was added, and authorized the court to accept, as sole security for a part or the whole of the deposit, bonds of the United States, deposited with the county as a pledge to secure the deposits.
3. ____: Trust Company: Ultra Vires: Pledge of Assets: Trust Fund. Even though a bank or trust company is without statutory authority to pledge bonds of the United States constituting a part of its assets to secure the performance of its obligations as a county depository, still the county moneys so obtained by it become, in its hands, a trust fund. A bank or trust company does not become a county depository merely by being designated as such in an order of the county court, but it must qualify as such by giving the security prescribed by the statute (Sec. 9585, R.S. 1919); and if it does not so qualify, the deposit of county funds with it is unlawful, and it in receiving them under color of being a county depository wrongfully obtains possession of them, and the moneys so obtained by it become, in its hands, a trust fund by operation of law, and to that extent augment its assets, and such assets are impressed with a trust in favor of the county to the extent of the funds so wrongfully obtained.
4. ____: Trust Fund: Enjoining Sale: Circuity of Action. Nothing is to be gained by permitting the Commissioner of Finance, in charge of the trust company which had been designated as county depository and which had pledged bonds of the United States as security for county funds deposited with it, to recover the bonds as assets of the defunct trust company, or to enjoin their sale by the county for the purpose of reimbursing itself for moneys so deposited and unpaid, if the unpaid deposit constitutes a trust fund in favor of the county. The county is entitled to maintain a suit in equity to recover the trust fund, and circuity of action may be avoided by permitting the county to foreclose the pledge lien.
Corpus Juris-Cyc. References: Banks and Banking, 7 C.J., Section 214, p. 586, n. 92; Section 551, p. 752, n. 81. Depositaries, 18 C.J., Section 54, p. 585, n. 33, 38. Statutes, 36 Cyc, p. 1140, n. 67.
Appeal from Randolph Circuit Court. — Hon. Allen W. Walker, Judge.
REVERSED.
J. Austin Walden and Willard P. Cave for appellants.
(1) The board of directors of plaintiff trust company had power and authority to act as a county depository and pledge any of its assets to secure such deposits of public funds. Ward v. Johnston, 95 Ill. 215; Richards v. Osceola Bank, 79 Iowa 707; Andrews v. Bank, 214 N.W. 559; McPherson v. Nat. Security Co., 72 Colo. 482; Williams v. Hall, 249 P. 489; Page Trust Co. v. Rose, 192 N.C. 673; Citizens State Bank v. First Nat. Bank, 98 Kan. 109; Cameron v. Christy, 133 A. 551; Ahl v. Rhoads, 84 Pa. 319; Tiffany, Banks Banking, sec. 74; 1 Morse, Banks and Banking (3 Ed.) sec. 48, p. 125; Bowles, Modern Laws of Banking, p. 479; Cantley v. Little River Drain. Dist., 2 S.W.2d 607; French v. School District, 7 S.W.2d 415; City of Williston v. Ludowese, 53 N.D. 797; Merrill v. Bank, 173 U.S. 131; Morse, Banks Banking (5 Ed.) 143. (2) The contract between Randolph County and the Huntsville Trust Company, was at the date of the failure of the trust company, a completed and executed contract on the part of the county, and the Trust Company and Cantley, Commissioner of Finance, in charge thereof, are estopped and may not plead ultra vires. Cantley v. Little River Drain. Dist., 2 S.W.2d 607; French v. School District, 7 S.W.2d 415; McCormick v. Bank, 304 Mo. 288; Schlitz Brewing Co. v. Poultry-Game Co., 287 Mo. 407; Millinery Co. v. Trust Co., 251 Mo. 579; Nat. Bank of Comm. v. Francis, 296 Mo. 195; Winscott v. Inv. Co., 63 Mo. App. 369; First Nat. Bank v. Guardian Trust Co., 187 Mo. 522; Cass County v. Ins. Co., 188 Mo. 13; St. Louis v. Railway, 248 Mo. 27; Kellogg-McCay Co. v. Havre Hotel Co., 199 F. 733; Fletcher, Ency. Corp., sec. 1543, p. 2609; Gilbert v. Citizens Nat Bank, 61 Okla. 112; 14 C.J. 319, sec. 2169; Erb v. Yoerg, 64 Minn. 465; Re Assignment of Pendelton Hdwr. Co., 24 Or. 332; Whitehead v. Am. L. B. Co., 70 N.J. Eq. 587, Iowa Drug Co. v. Souers, 139 Iowa 79; Albin Co. v. Commonwealth, 123 Ky. 305; Osmer v. Brokerage Co., 155 Mo. App. 211; Vermont Co. v. Desota Co., 145 Iowa 494; Watts Merc. Co. v. Buchanan, 92 Miss. 543; Wrightsville Co. v. McElroy, 254 Pa. 429; Lemmon v. Rubber Co., 260 Pa. 32; Eastern Building Assn. v. Williamson, 189 U.S. 122; Logan Co. Nat. Bank v. Townsend, 139 U.S. 67; Hitch, cock v. Galveston, 96 U.S. 341; Union Goldmining Co. v. Bank, 96 U.S. 640; Daniels v. Tearney, 102 U.S. 415.
Philip J. Fowler and Hunter Chamier for respondents.
(1) Banks are quasi-public corporations and occupy a fiduciary position to the public, and limitations on their powers are applied more strictly to them than to other corporations. 7 R.C.L. 526 527; 2 Fletcher, Corporations, 1814. (2) The powers conferred on a trust company are enumerated in detail in Sec. 11799, R.S. 1919, and no power to pledge assets to secure a general deposit of county funds is therein given; therefore no such power exists, because the express enumeration of the powers therein, under the law, implies the exclusion of such power to pledge. State ex inf. v. Lincoln Trust Co., 144 Mo. 587; 2 Lewis-Sutherland on Stat. Const., 1034; 2 Fletcher, Corporations, 1747. (3) The rights of the receiver, the respondent Finance Commissioner, representing creditors whose rights are being prejudiced, are much more extensive than those of the Huntsville Trust Company, whose rights alone are involved. He is a trustee of the assets, and it is his duty to assert and guard the claims of depositors, and he may repudiate illegal contracts which the corporation is estopped to repudiate. Chicago Trust Co. v. Brady, 165 Mo. 210; Alexander v. Reife, 74 Mo. 516; 1 Magee, Banks Banking, sec. 77; 7 C.J. 735; 34 Cyc. 239; 23 R.C.L. 116; Lyons v. Benney, 79 A. 250; Franklin Nat. Bank v. Whitehead 149, Ind. 560. (4) A banking corporation comes severely within the rule that acts not authorized by its charter are ultra vires, the very nature of its business requires a strict enforcement of the law and parties dealing with it must take notice of its powers and limitations at their peril. Magee, Banks Banking, p. 21; Pearce v. Ind. Ry. Co., 21 How. 441; Andrews v. Ins. Co., 37 Me. 256; Franklin Co. v. Bank, 68 Me. 43. (5) The grant of authority to trust companies contained in Sec. 11799, R.S. 1919, "to receive money on deposit, with or without allowing interest," does not give express or implied authority to pledge their assets to secure a general deposit of the county; and such a pledge is not only ultra vires but contrary to public policy, and therefore illegal and void. Comm. Trust Co. v. Trust Co., 153 Ky. 566; Divide County v. Baird, 212 N.W. 236; Carter v. Brock, 162 La. 12. (6) Our county depository law provides a complete, separate and adequate scheme for securing and protecting county deposits, which is by personal or surety bond, and not by a pledge of assets; and the pledge agreement was not only beyond the power of the county and the trust company, but contrary to public policy and therefore void. R.S. 1919, secs. 9582-9596; Divide County v. Baird, 212 N.W. 236; In re Holland Banking Co., 313 Mo. 307. (7) The doctrine of estoppel does not apply to contracts which are contrary to public policy; therefore appellants cannot invoke that doctrine here, because the pledge agreement was against public policy. 14a C.J. 309; 13 C.J. 411, 506; 10 R.C.L. 729; State v. Bankers Trust Co., 157 Mo. App. 577. (8) The county has no right to foreclose the pledge, nor to retain the bonds pledged, because the contending parties are not in pari delicto. The depositors (the real parties in interest) represented by the receiver and the State of Missouri are innocent of any wrong, and the appellants are wrongdoers; therefore, appellants cannot invoke the doctrine of estoppel against respondents. Divide County v. Baird, 212 N.W. 236.
This seems to be a suit in equity. It was instituted by the Commissioner of Finance of the State of Missouri, having in possession and charge, for the purpose of liquidation, the assets and property of the Huntsville Trust Company of Huntsville, Missouri (hereinafter called the Trust Company), against Randolph County, the Judges of the County Court, the Clerk of the County Court and the County Treasurer of that county. The petition alleges that in May, 1927, the Trust Company, having been designated a county depository by the County Court of Randolph County, entered into an agreement with that court whereby it pledged to the county Liberty Bonds of the United States of the face value of $22,500, to secure the performance of its obligations as county depository; and that pursuant to such agreement the Trust Company did deliver to the county clerk for the county said bonds, which were a part of its general assets. The relief sought is: that said county officers be enjoined and restrained from selling or disposing of said bonds; that the contract entered into between the Trust Company and the county court be vacated and annulled; and that the bonds be declared the property of the Trust Company, discharged from the purported pledge lien, and ordered restored to the Trust Company.
The facts are not complicated. On May 27, during its regular May term, 1927, the County Court of Randolph County proceeded to open the bids of banking corporations who desired to be selected as depositories of the funds of the county, the funds having previously been divided by order of record into two equal parts. There were two bids. The Trust Company offered, for the deposit of $30,000 of the county's funds, to pay interest monthly at the rate of four per cent computed on daily balances, the deposit to be secured by United States bonds of the par value of $22,500 and a surety bond for $7500.
The second bid was that of the Farmers Merchants Bank of Huntsville. It made application for half of the county's funds and offered to pay interest on daily balances at the rate of two per cent per annum payable on the first of each month. This bid was accepted, and subsequently, according to the recitals of the records of the county court, the Farmers Merchants Bank delivered to the county clerk $40,000 in bonds of the United States and executed in connection therewith an agreement pledging said bonds to Randolph County as security for the faithful performance of its duty as a depository; thereupon such security was duly approved and the said Farmers Merchants Bank constituted a county depository for one-half of the county's funds.
The bid of the Trust Company was rejected, on the ground that it did not "conform to the statutes in such cases made and provided;" and the clerk was directed to ascertain what terms could be obtained for half of the county's funds as provided by Section 9587, Revised Statutes 1919. The proceedings had thereafter with respect to the selection of a depository for such half of the funds are disclosed by the record of the county court of date, June 27, 1927, as follows:
"It further appearing before the court that in response to the solicitations of the Clerk of Randolph County, Missouri, for bids for the remaining half of county funds, the highest and best bid so received, which said bid is now opened and laid before the court, is that of the Huntsville Trust Company, of Huntsville, Missouri, which has been heretofore filed with the Clerk of County Court on this the 27th day of June, 1927, which said bid is for one-half of said county funds from this date until sixty-five days after the time fixed by law for another selection as provided by Article 8 of Chapter 86 of the Revised Statutes of Missouri for the year 1919, entitled, `County Depositories,' to-wit: until fourth Monday in May, 1929. It appearing that said bidder offers to pay for said funds at the rate of two per cent per annum upon daily balances, payable monthly.
"Therefore, it is ordered and adjudged by the court that the bid of said Huntsville Trust Company as aforesaid as depository of said funds be accepted for one-half of said county funds at said rate for said period, and the bond of said Huntsville Trust Company be fixed at the sum of forty thousand ($40,000) dollars.
"And now comes the said Huntsville Trust Company on this date and deposits with said court bonds and securities totaling the amount of forty thousand dollars ($40,000) as follows, to-wit:
"A bond in the sum of $10,000 signed by E.C. Tieman, C.P. Fullington, C.A. Fleming, J.T. Epperly, Callie Halliburton, G.H. Jackson as securities and a bond in the sum of $7500 signed by Aetna Casualty Surety Co., authorized to do business in the State of Missouri, as surety in the sum of $7500, and a pledge agreement pledging bonds of the United States to Randolph County, Missouri, in the total amount of twenty-two thousand and five hundred dollars ($22,500), and, it further appearing that said bonds have been delivered to the County Clerk of Randolph County, Missouri, and said bonds and said pledge agreement having been examined by the court and having been found by the court to be sufficient under the law, it is by the court, further ordered and adjudged that said bonds and said pledge agreement of said Huntsville Trust Company be and the same are hereby accepted and approved and it is further ordered and adjudged that said Huntsville Trust Company is hereby accepted and constituted a county depository for one-half of the county funds from this date until sixty-five days after the time fixed by law for another selection as provided by Article 8 of Chapter 86 of the Revised Statutes of Missouri for the year 1919, entitled, `County Depository,' to-wit: until sixty-five days after the fourth Monday in May, 1929."
On June 27, 1927, the date of its selection as a county depository, as just set forth, the Trust Company was already a county depository through a previous selection, and presumably had been for a period of two years; its term through such previous designation was expiring. There was then on deposit with it approximately $48,000 of the county's funds. There are intimations in the record that the Trust Company was at that time in a failing condition, if not actually insolvent. Notwithstanding, it had on deposit with the First National Bank of St. Louis approximately $60,000 and was preparing to pay over to the county the balance owing by it as county depository, if it failed of selection as such for another term. The funds on deposit with the First National Bank of St. Louis were for the most part proceeds of a loan which it had obtained from that bank by pledging a substantial part of the Trust Company's general assets. It drew on that fund to purchase the $22,500 of United States bonds; and it bought those bonds to offer as security as county depository in the event it was again selected.
On November 26, 1927, the Commissioner of Finance took charge of the Trust Company for the purpose of liquidating its assets and winding up its affairs. On that date Randolph County had to its credit with the Trust Company, as county depository, the sum of $24,130.94. Thereafter the county court made demand of the Trust Company and the commissioner in charge for the repayment to it of said sum. The demand not being complied with the county court ordered the United States bonds in question to be sold and the proceeds applied in accordance with the pledge agreement. Thereupon this suit was brought to enjoin the sale of the bonds and require their return to the Trust Company. The trial in the circuit court resulted in a decree granting the relief prayed, and this appeal on the part of defendants followed.
The foregoing outlines the case in a general way. Other facts, if necessary to an understanding of the legal questions involved, will be noted in the course of the opinion.
I. Plaintiff's case proceeds on the theory that the deposit by Randolph County with the Trust Company of county funds constituted a general deposit, as distinguished from a special deposit. With this as the major premise it is argued that a trust company in this State has no power, either express Ultra Vires. or implied, to pledge its assets to secure a general deposit; that any such pledge made by it is not only ultra vires, but against public policy; and that it is not estopped therefore to plead ultra vires when it seeks a recovery of assets so pledged. The soundness of the general doctrine implied may, for all purposes of this case, be conceded. It may also be conceded that the deposit in question had some of the attributes of a general deposit in bank; but primarily it was a deposit of county funds in what was assumed to be a county depository and the questions involved must be ruled from that standpoint.
All county funds of every kind and description are required to be deposited in a county depository. [Art. 8, Chap. 86, R.S. 1919.] Before any bank or trust company can qualify as such depository it must give the security prescribed by Section 9585, Revised Statutes 1919. That section is as follows:
"Within ten days after the selection of depositories, it shall be the duty of each successful bidder to execute a bond payable to the county, to be approved by the county court and filed in the office of the clerk thereof, with not less than five solvent sureties, who shall own unencumbered real estate in this State of as great value as the amount of said bond, or with a surety or trust company authorized by the laws of this State to execute bonds as surety: Provided, that the court may accept in lieu of real estate as security bonds of the United States or of the State of Missouri, which said bonds shall be deposited as the court may direct; the penalty of each depository's bond to be not less than such proportion of the total annual revenue of said county for the years for which such bond is given as the sum of the part or parts of the funds awarded to such bidder selected respectively bears to the whole number of said parts (the amount of the bond to be fixed by the court), and said bond shall be conditioned for the faithful performance of all the duties and obligations devolving by law upon said depository and for the payment upon presentation of all checks drawn upon said depository by the proper officers of said county or any township whenever any funds shall be in said depository, and that all interest will be paid promptly, and that all said funds shall be faithfully kept and accounted for according to law; and for a breach of said bond the county or any school district or township of said county or any person injured may maintain an action in the name of the county, to the use of the complainant."
Now if this section authorizes a bank selected as a county depository to give, and the county court to accept, United States bonds under a pledge agreement, conditioned for the faithful performance by the depository of all its duties and obligations as such, then this case is at an end. Whether or not the section furnishes such authorization raises a question of construction.
The original County Depository Act, including what is now Section 9585, was passed in 1889. The section has undergone amendment from time to time but is in substantially the same form as originally enacted with the exception of two major amendments. In 1891 there was inserted, as it now appears, this proviso: "Provided, that the court may accept in lieu of real estate as security bonds of the United States or of the State of Missouri, which said bonds shall be deposited as the court may direct." [Laws 1891, p. 104.] In 1915, the words "or with a surety or trust company authorized by the laws of this State to execute bonds as surety" were inserted in the place where they now appear. The amendment of 1891 is the one with which we are concerned. What did the Legislature intend when it said that "the court may accept in lieu of real estate as security bonds of the United States?" This language unquestionably refers to the preceding provision that, in addition to the principal, the bond shall be executed by "not less than five solvent sureties who own unencumbered real estate in this State of as great value as the amount of the bond." As respondent construes the proviso, it does not dispense with either bond or sureties, but merely permits the court to accept sureties who do not own real estate, if they, the sureties, will deliver to the court United States bonds "of as great value as the amount of the bond." This construction seems both awkward and strained. It will be noted that the section nowhere provides for the taking of real estate as security. The five sureties who own real estate do not by signing the bond place a lien or charge upon their real estate. The security afforded by the bond, and the only security afforded by it, is the joint and several personal liability of sureties who own real estate. It is in lieu of that security that the statute authorizes the taking of bonds of the United States. It would follow, therefore, that the proviso authorizes the court to take Government bonds in lieu of the security afforded by a bond signed by sureties who own real estate.
The portion of the section following the proviso, prescribing the penalty of the bond, its conditions and who may sue on it, remains substantially as it was before the proviso was inserted. From this it is contended that a bond is always required and consequently that State or Government bonds can never be taken in lieu of it. Before the amendment the section dealt solely with a bond. Its provisions, outside of the proviso, still relate to a bond. If the proviso, permitting Government bonds to be taken as security in lieu of a bond with sureties, had been placed at the end of the section instead of being thrust into the middle of it and thereby breaking the connection between the provisions relating to a bond, the present contention could not have arisen. Notwithstanding the proviso was placed where it is, the meaning of the section as a whole reasonably appears to be as we have construed it.
In construing Section 9585, we have but followed the practical construction put upon it for years — first by the State Banking Department and later by the Commissioner of Finance. If the construction is wrong, county courts have been misled by it; and as a result the funds of many counties of the State are in jeopardy. Under such circumstances the construction should not be declared erroneous unless it plainly and palpably appears to be so; and that cannot be said. If it does not comport with the intention of the Legislature, the remedy lies in its hands.
II. If it were held that a bank or trust company is without authority to pledge United States bonds constituting a part of its assets to secure the performance of its obligations as a county depository, the result, so far as this case is concerned, would not be materially different. When the Trust Trust Fund. Company was selected as a depository for another two-year term, in June, 1927, and the security it tendered in that connection was accepted by the county court, the county funds then on deposit with it were in effect deposited anew. As heretofore stated all county funds are required by law to be deposited in a county depository. The officers of the county charged with duties relating to the deposit of such funds for safe-keeping are agents of limited powers and as such they have no authority to deposit these public moneys with any other than a county depository. Now a bank or trust company does not become a county depository merely by being designated as such in an order of the county court; it must qualify as a depository by giving the security prescribed by Section 9585. If therefore the Trust Company had not so qualified on June 27, 1927, the deposit of the county funds with it was unlawful; and it, in receiving such funds under color of being a county depository, wrongfully obtained possession of them. The county moneys so obtained thereupon became, in the hands of the Trust Company, a trust fund by operation of law. These funds entered into, became commingled with and to that extent augmented the Trust Company's assets as a whole. Such assets may therefore be impressed with the trust to the extent of the funds so wrongfully obtained and commingled with them. [See Harrison v. Smith, 83 Mo. 210, 215; Bank v. Brightwell, 148 Mo. 358, 365; Page County v. Rose, 130 Iowa 296; Fire Water Commrs. v. Wilkinson, 119 Mich. 655; Cherry v. Territory, 17 Okla. 221. See, also, Leach v. Exchange Bank, 203 N.W. (Iowa), 31, 36; and State v. Foster, 29 L.R.A. (Wyo.) 226, 250.]
Under this view of the case nothing would be gained by allowing the Trust Company to recover the pledged assets in this action and remitting Randolph County to its suit in equity to obtain the relief to which it is entitled. Circuity of action can be avoided by permitting the county to proceed with its foreclosure of the pledge lien.
The conclusions reached herein require that the judgment of the circuit court be reversed. It is so ordered. All concur.