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City of Pocatello v. Fargo

Supreme Court of Idaho
Aug 5, 1925
242 P. 297 (Idaho 1925)


August 5, 1925.

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. B.S. Varian, Presiding Judge.

Action to recover on a depositary bond which defendants had signed as sureties. Judgment for plaintiff. Affirmed.

O.O. Haga and H.B. Thompson, for Appellants.

The liability of a surety is strictissimi juris and cannot be extended by implication. He has the right to stand on the exact words of his contract, and his liability is limited to the exact language of his bond, and if the words will not make him liable, nothing can. ( Dobbin Evans v. Bradley, 17 Wend. (N.Y.) 422; State v. McFetridge, 84 Wis. 743, 54 N.W. 1, 20 L.R.A. 223; Miller v. Stewart, 9 Wheat. (U.S.) 680, 6 L. ed. 189.)

Where sureties have consented to be bound to a certain extent only, their liability must be found within the terms of that consent strictly construed. (21 R. C. L. 975, 976.)

Where power or authority is given to a municipality it carries with it by implication the doing of those things necessary to make such things effective and complete, and a discretion as to the manner in which the power is to be carried out is not specifically provided. ( Veatch v. Gibson, 29 Idaho 609, 160 P. 1112.)

An ordinance or resolution which is in effect an offer by a municipal corporation, upon acceptance by the party to whom it was addressed becomes a contract. ( Vincennes v. Citizens Gas Light Co., 132 Ind. 114, 31 N.E. 573, 16 L.R.A. 485; Argus Co. v. Albany, 55 N.Y. 495, 14 Am. Rep. 296.)

When an offer has been made to a municipal corporation, a vote of the municipal council accepting the offer will constitute a contract. (Note to 49 L.R.A., N.S., 380.)

"Her" is a personal pronoun referring exclusively to females. (21 Cyc. 433; 29 C. J. 347.)

Words are construed according to the context and approved usage of the language, and not otherwise. (C. S., sec. 9455; Howard v. Grimes Pass Placer Min. Co., 21 Idaho 12, Ann. Cas. 1913C, 284,120 P. 170.)

Under C. S., sec. 9456, "words used in the masculine gender, include the feminine and neuter," but the converse is not true, either under the statutes of Idaho or any other state, or under the accepted rules of ordinary good English. When words that have a definite meaning have been used, "we have no authority to pronounce any of them meaningless, if in the preceding language anything may be said which serves to fix its character or determine the office it was intended to perform." ( Kephart v. Buddecke, 20 Colo. App. 546, 80 P. 501.)

It is fundamental that any agreement or dealing between the creditor and the principal which essentially varies the terms of the contract without the consent of the surety will release the surety from liability. (21 R. C. L. 1004; Sprigg v. Mt. Pleasant Bank, 14 Pet. 201, 10 L. ed. 419.)

And if the parties to the original contract think proper to change the terms of it without the surety's consent, he is thereby discharged. ( Reese v. United States, 9 Wall. (U.S.) 13, 19 L. ed. 541; Schuster v. Weiss, 114 Mo. 158, 21 S.W. 438, 19 L.R.A. 182.)

"Generally, the surety is a favorite of the law, and should be held only where his liability is fixed by the most strict law. That is to say, what is known as the rule of strictissimi juris applies." ( City of Topeka v. Federal Union Surety Co., 213 Fed. 958, 130 C.C.A. 364; United States Fidelity Guaranty Co. v. Poetker, 180 Ind. 255, 102 N.E. 372, L.R.A. 1917B, 984; Whitestown v. Title Guaranty Surety Co., 72 Misc. 498, 131 N.Y. Supp. 390; 148 App. Div. 900, 132 N.Y. Supp. 1149; Atlantic Trust Deposit Co. v. Town of Laurinburg, 163 Fed. 690, 90 C.C.A. 274; George A. Hormel Co. v. American Bonding Co., 112 Minn. 288, 128 N.W. 12, 33 L.R.A., N. S., 513; Board of Commissioners v. Greenleaf, 80 Minn. 242, 83 N.W. 157.)

Rev. Codes, sec. 2261, did not authorize a general deposit when construed in harmony with C. S., sec. 8379. ( Fidelity State Bank v. North Fork Highway Dist., 35 Idaho 797, 209 Pac. 449; Libby v. Pelham, 30 Idaho 614, 166 P. 575, 31 A.L.R. 781.)

B.W. Davis and Frank T. Wyman, for Respondent.

Where neither statute nor agreement fixes the term of the depositary, the relation continues during the mutual will of the parties. (18 C. J. 591, 592; Snattinger v. City of Topeka, 80 Kan. 341, 102 P. 508.)

No effect can be given an unlawful attempt to take public funds out from under the protection of the depositary law and place them in the same bank without the security of the depositary bond. ( Blaine County v. Fuld, 31 Idaho 358, 171 Pac. 1138; Board of Commissioners v. Security Bank, 75 Minn. 174, 77 N.W. 815; Board of Commrs. of St. Louis Co. v. American L. T. Co., 75 Minn. 489, 78 N.W. 113; Scott v. Whipple, 119 Ga. 485, 46 S.E. 663; McCormick v. Hopkins, 287 Ill. 66, 122 N.E. 151.)

The statutes of this state authorized a general deposit by a city of its public funds in a bank where the safekeeping and return of those funds are under the protection of a depositary bond. (Sec. 65, Sess. Laws 1893, p. 111; Critchfield v. Nance Co., 77 Neb. 807, 110 N.W. 538; Caldwell v. King, 84 Iowa, 228, 50 N.W. 975.)

The transition of Pocatello from a city of one class to another did not relieve from liability sureties upon depositary bonds. ( Snattinger v. City of Topeka, 80 Kan. 341, 102 Pac. 508; National S. D. Co. v. Wilkinson Co., 109 Miss. 879, 69 So. 865; State Nat. Bank v. Commonwealth, 129 Ky. 637, 112 S.W. 678; Zimmerman v. Chelsea Savings Bank, 161 Mich. 691, 125 N.W. 424; Commonwealth v. Caldwell, 224 P. 103, 73 Atl. 219; Board of Commissioners v. American L. T. Co., 75 Minn. 489, 78 N.W. 113.)

A public depositary is a quasi-public official and its bond an official bond. ( Maryland Casualty Co. v. Pacific Co., 245 Fed. 831; State v. United States Fidelity G. Co., 81 Kan. 660, 106 P. 1040; St. Louis Co. v. Security Bank, 75 Minn. 174, 77 N.W. 815; Hennepin Co. v. State Bank, 64 Minn. 180, 66 N.W. 143; Matter of Rothschild, 109 App. Div. 546, 96 N.Y. Supp. 372; State v. Pederson, 135 Wis. 31, 114 N.W. 828.)

The statute becomes a part of an official bond given in pursuance of it. ( In re Fidelity State Bank, 35 Idaho 797, 209 Pac. 449, 31 A.L.R. 781; Southwestern S. Ins. Co. v. Davis, 53 Okl. 332, 156 P. 213; Henry v. Salmon, 201 Mo. 136, 100 S.W. 20; Trustees etc. of Bath v. McBride, 81 Misc. 618, 142 N.Y. Supp. 1014; Higdon v. Fields, 6 Ala. App. 281, 60 So. 594; Manley v. City of Atchison, 9 Kan. 358; Yeargain v. Board, 90 Okl. 38, 215 P. 619; State v. Nutter, 44 W. Va. 385, 30 S.E. 67; Milliron v. Dittman, 180 Cal. 443, 181 P. 779; Wright v. McAdams Lumber Co. (Tex. Civ.), 218 S.W. 571.)

On the question of estoppel, see 12 C. J. 769; Brandt on Suretyship, sec. 52; 18 C. J. 589; State v. McDonald, 4 Idaho 468, 95 Am. St. 137, 40 P. 312; Talley v. State, 121 Ark. 4, 180 S.W. 330; Hennepin County v. State Bank, 64 Minn. 180, 66 N.W. 143; State v. United States Fidelity G. Co., 81 Kan. 660, 106 P. 1040; Jefferson v. McCarty, 44 Minn. 26, 46 N.W. 140; Thompson v. Rusk, 66 Neb. 758, 92 N.W. 1060; Snattinger v. City of Topeka, 80 Kan. 341, 102 P. 508; United States Fidelity G. Co. v. Woodson Co., 145 Fed. 144, 70 C. C. A. 114.

"The state is not ordinarily estopped by acts of misfeasance on the part of its officers nor does it contract with the sureties in an official bond given to it that other public officers shall perform their duties faithfully. Sureties upon such bonds are presumed to know this principle, and to consent to be bound by it." ( State v. Peterson, 135 Wis. 31, 114 N.W. 828.)

Appellants were the bank's heavy stockholders; they were its managing executive officers and constituted at least a majority of its board of directors. A similar situation arose in Mercantile Trust Co. v. Donk (Mo.), 178 S.W. 113. They had a very keen personal interest in securing the designation of the bank as the city's depositary — a financial interest; they were themselves in a large measure the beneficiaries of that transaction. It is not upon sureties so situated that the law looks with such extreme favor nor is it to them that the courts apply the extreme doctrine strictissimi juris.

This action was instituted by the City of Pocatello against the defendants to recover the sum of $74,335.04, with interest thereon from May 12, 1921, based upon the alleged liability of the defendants on a depositary bond which they had signed as sureties, and which bond was executed and delivered to the City of Pocatello, about July 2, 1915, to insure deposits of city funds made with the Bannock National Bank, it having become insolvent and closed to business on May 13, 1921. At the time the bank closed the plaintiff had on deposit therein the amount above specified, of which $32,000 was evidenced by a time certificate of deposit and the balance was on general deposit.

City Ordinance No. 364, which became effective July 26, 1915, was an ordinance "designating the First National Bank of Pocatello, Idaho, the Bannock National Bank and the Citizens Bank, Ltd., as depositaries for all of the funds of the city of Pocatello, Idaho, fixing the rate of interest to be charged on daily balances at three per cent per annum, and the manner of computing the same; directing monthly statements to be made; directing the treasurer of said city to keep on deposit in said banks in equal proportions all funds of every nature belonging to said city, and directing how said funds shall be handled."

Sec. 5 of the ordinance reads as follows:

"Section 5. Each bank named shall be required to give to the city of Pocatello, Idaho, a bond in the penal sum of not less than fifty thousand dollars to be approved by said city before the treasurer shall deposit any moneys with said bank or banks, which bond shall be conditioned upon the payment of interest and the full and faithful performance of the trust imposed by this ordinance."

Section 6 reads:

"Section 6. The treasurer of the city of Pocatello, Idaho, is hereby directed to deposit in equal and like proportions any and all funds in her possession or under her control and belonging to said city, or any funds which may come into her possession or under her control, and belonging to said city, during her incumbency in office with the banks named and in like amounts; that the said treasurer, shall immediately, upon the due and valid passage of this ordinance and upon the said banks executing the said bonds herein specified, make the deposits in the manner as herein provided; said treasurer shall make future deposits in like proportions and shall check on said banks in like proportions and keep as nearly as practical at all time an equal and like division of the funds in each bank."

Quotation of the remainder of the ordinance is not necessary, as these two sections cover the matters in controversy. The bond given pursuant thereto, dated July 31, 1915, following the formal part, which is in the usual form, is conditioned as follows:

"Whereas, the said principal, Bannock National Bank, has applied for a part of the current funds in the city treasury of the city of Pocatello, Idaho, to be deposited in said bank, and

"Whereas the city council of said city has passed an ordinance that one-third of the city funds shall be deposited in each of the following banks: First National Bank, Citizens Bank, Limited, and Bannock National Bank, the amount whereof shall be subject to withdrawal or diminution by the city treasurer of said city as the requirements of said city shall demand, and which amount may be increased or decreased as the treasurer may determine; and

"Whereas, said Bannock National Bank, in consideration of said deposit, and for the privilege of keeping said money, has agreed to pay to the city of Pocatello interest on said sum at the rate of three per cent (3%) per annum on the amount of said deposit, the same to be credited and paid quarterly upon the daily average of such amount as the said bank shall have on deposit for the quarter, or any fraction thereof, next preceding the crediting or payment of said interest, which said interest shall be computed and credited to the account of said city of Pocatello, and shall henceforth become a part of such deposit.

"Now, therefore, if said Bannock National Bank shall at the beginning of each and every month render to the city treasurer and city clerk a statement in duplicate showing the daily balance of the moneys of the city of Pocatello held by it during the month next preceding and the interest thereof, and shall well and truly keep all sums of money so deposited or to be deposited, as aforesaid, and the interest thereon subject at all times to the check and order of the city treasurer of said city of Pocatello, as aforesaid, and shall pay over the same and any part thereof, upon the check or written demand of said city treasurer, and to her successor in office as shall be by her demanded, and shall calculate, credit and pay said interest, as aforesaid, and shall in all respects save and keep the city of Pocatello, Idaho, and the treasurer thereof harmless and indemnified for and by reason of making said deposit or deposits, then this obligation shall be void and of no effect, otherwise to remain in full force and virtue."

At the time of the giving of this bond Kate Toombs, a woman, was city treasurer of Pocatello. Under this bond, a new one not having been taken, the city continued to make deposits with the said Bannock National Bank, during the term of office of Kate Toombs, and also during the terms of her successors in the office for approximately six years, and said bank continued acting as a depositary of said city until it was closed on May 13, 1921. During each succeeding administration from time to time this bond was examined and found to be satisfactory and large deposits of city funds were made in reliance upon it.

After the passage of the ordinance, other ordinances were passed by the city council designating other banks of Pocatello, as depositaries, but without canceling the designation of this bank as such. During the World War an ordinance was passed authorizing the purchase with city funds of $21,000 of United States Liberty bonds, one-third of which were deposited with each of the three banks named in said ordinance of July 26, 1915. During this six-year period the council authorized the treasurer to deposit some of its funds on time certificates of deposit, and he held such a certificate for $32,000 at the time the bank failed, said certificate bearing interest at the rate of four per cent per annum and being subject to payment only on notice or upon the expiration of the period of time stated therein.

The legislature during the session of 1921 passed what is known as the public depositary law, which became effective May 4, 1921. The City of Pocatello having attained a population of 15,000, after proclamation of the Governor pursuant to law, became a city of the first class upon the inauguration of the new administration on May 6, 1921.

Appellants, who were sureties on the above-mentioned bond, were at the time of its execution all stockholders in said bank, and all but one of them were directors and officers. Their status as such changed at times thereafter, by virtue of sales of stock, and at the time the bank closed its doors, only three of them were stockholders.

The appellants, by their answer, set up several affirmative defenses, all of which are hereafter discussed. From a judgment in favor of the plaintiff and against each of said defendants this appeal was taken.

Appellants have assigned forty-nine errors of law, upon which they rely for a reversal of the judgment entered in the court below. These may be summarized, grouped and considered under five main heads, viz.: (1) that the bond was not a continuing one and only covered Kate Toombs' term, as treasurer, from July 29, 1915, to May 10, 1917; (2) that the obligation of the bond did not extend to that portion of the city funds represented by the time certificate of deposit in the amount of $32,000; (3) that the contract guaranteed by the bond was broken by material alterations and departures, thereby relieving the sureties; (4) that the city was unauthorized by law to place money on general deposit, and therefore the bond never became binding upon the defendants; and finally (5) that the transition of Pocatello from a city of the second class to a city of the first class, discharged the bond as to these defendants. Appellants also rely upon alleged error in overruling their demurrers to plaintiff's complaint, and in the admission of evidence.

The length of this opinion, and the large number of adjudicated cases upon questions analogous to those involved here renders impracticable any extended review and analysis of all the authorities, and we shall not go beyond the citation of a few of the leading decisions in explanation of our reasons for the determination of the various questions involved in this case.

The undertaking upon which this action is based is an ordinary depositary bond, signed by individual sureties. Its only purpose was to aid the Bannock National Bank in securing the use of a portion of the funds of the municipality and to indemnify the city therefor. It was the intention of all the parties, including the sureties themselves, that the bond should be and it was given and accepted solely for the purpose of protecting the public funds deposited with the bank. The bank, in effect, contracted with the city that it would safely keep the funds deposited with it, pay the same over upon the demand of the city treasurer, and "in all respects save and keep the city of Pocatello, Idaho, and the treasurer thereof harmless and indemnified." The bond was likewise conditioned to guarantee such contract, and the faithful performance of the duties of the said Bannock National Bank as a public depositary.

A public depositary is a quasi-public official and its bond is an official bond. ( Maryland Casualty Co. v. Pacific County, 245 Fed. 831; State v. United States Fidelity Guaranty Co., 81 Kan. 660, 106 P. 1040; Board of Commrs. of St. Louis Co. v. Security Bank of Duluth, 75 Minn. 174, 77 N.W. 815; Board of Commrs, of Hennepin County v. State Bank, 64 Minn. 180, 66 N.W. 143.)

An official bond is construed and interpreted under somewhat different rules from those applicable to an ordinary surety contract. The doctrine of strictissimi juris does not apply. The statute becomes and is an integral part of an official bond given pursuant to it, and its conditions and limitations must be read into the bond. The object of an official bond is to insure the faithful performance of the duties of the office. The principal duty of the office of a depositary is to safely keep and return all public funds entrusted to it.

It is an established rule of law that the construction which sustains and vitalizes a contract is preferred, and should be adopted, rather than one which "strikes down and paralyzes it." ( United States Fidelity Guaranty Co. v. Board of Commrs. of Woodson County, 145 Fed. 144, 76 C.C.A. 114.)

As well-recognized propositions of law, bearing upon the obligations of sureties generally and the extent and interpretation of their contracts, we call attention to and quote the following:

"A surety is a favorite of the law and never liable beyond the strict terms of his obligation. But his contract is nevertheless but an agreement, and like all other agreements it must receive a just and rational interpretation.

"The actual intent and meaning of the parties, when the agreement was made, deduced from the entire contract, from its subject matter, from the purpose of its execution, and from the situation and circumstances of the parties when they made it, must prevail over the dry words of the instrument, inapt expressions, and careless recitals therein, unless the intention runs counter to the plain sense of the binding words of the agreement." ( United States Fidelity Guaranty Co. v. Board of Commrs. of Woodson County (Kan.), supra.)

"As the undertaking of a surety is ordinarily identical with that of the. principal, and their obligation is usually contemporaneous and joint, the general rule is to attribute to the obligation of a surety the same extent as that of the principal. . . . . If the terms of his engagement are general and unrestricted and embrace the entire subject his liability will be measured by that of the principal and embrace the same accessories and consequences. It will be presumed that he had in view the guaranty of the obligations his principal had assumed." (21 R. C. L. 975.)

"In brief, by strict construction of a contract of suretyship is meant that the obligation of a surety must not be extended to any other subject, or to any other person, or to any other period of time than is expressed or necessarily included in it; but the rule in no way interferes with the use of the ordinary tests by which the actual meaning and intention of the contracting parties are primarily determined. Despite the rule the courts, in endeavoring to ascertain the precise terms of the contract actually made by a surety, may resort to the same aids and invoke the same canons of interpretation which apply in case of other contracts, and they are not required to put a strained construction on the plain words of a bond in order that the sureties may escape liability. What is demanded is merely that the sureties are not to be bound by implication, or beyond the extent to which they have obligated themselves in the execution of the bond. While the liabilities of sureties are to be strictly construed, it is not the duty of courts to aid them to escape liability by technical and hypercritical construction." (21 R. C. L. 977.)

These statements of general propositions of law are founded upon the soundest principles of reason and public policy as well as upon respectable authority. The bond itself, and all the attending circumstances at the time of its execution and subsequently, clearly evidence the intention of all the contracting parties, that the sureties had bound themselves to indemnify the city against any defaults of the bank, until the bond was canceled in accordance with law, and the sureties are bound unless for some obvious reason their liability has been terminated.

An examination of the ordinance and the bond and a consideration of the purpose for which the bond was executed, clearly demonstrate that it was the intention of the parties that this undertaking should be a continuing depositary bond, and that none of these parties intended to restrict its obligations to the current term of the city treasurer then in office. It is true that the word "her" as employed in the bond and in the ordinance designating the depositary is not usually employed as a generic term. The use of that word, however, in these instruments does not necessarily import that it was the intention of the parties to limit the bond to the term of Kate Toombs. This was not an official bond of Kate Toombs as treasurer, but was the official bond of the Bannock National Bank as a public depositary. The use of the word "her" was perhaps an inapt expression, and was undoubtedly employed because the incumbent of the office was at the time a woman. There is no clause or expression in either the ordinance of July 26, 1915, or in the bond itself, expressly or by inference limiting the term of office of the bank as a depositary or the obligation of the bond to a definite period. The use of the pronoun "her" in this ordinance and bond does not, as contended by appellants, limit the bond to the term of Kate Toombs' incumbency as treasurer. While C. S., sec. 9456, does not expressly make the feminine gender include the masculine and neuter, when used in instruments of this character it is plainly intended that it shall. An ordinance or law once legally passed, containing no clause of limitation, continues to be a valid law or ordinance until repealed. The bank was designated as a depositary by said ordinance, and the bond was given to insure the proper performance of its duties as such so long as it continued to be such a depositary, or until the bond was otherwise canceled in accordance with law.

These sureties could have relieved themselves of further liability at any time had they cared to do so. They were so connected with the bank that it must be presumed they knew that the city was continuing to deposit funds therein upon the strength of this bond, and they were content to permit such a situation to continue.

"Where neither statute nor agreement fixes the term of the depositary, the relation continues during the mutual will of the parties to the contract, and a designation will be presumed to continue until a change is shown. In such case the government may terminate the relationship whenever the public safety requires it, but only by notice of the election to withdraw the deposit. The depositary may terminate the relationship only by notice of its election to that effect and the tender of the deposit." (18 C. J. 592.)

"Where an agreement appointing a bank a depositary contained no provision for its termination, it is only terminable by notice, on the part of the treasurer that he elected to withdraw the deposit, or by the bank that it desired to be relieved from its responsibility and tender of the existing deposit." ( State Nat. Bank v. Commonwealth, 129 Ky. 637, 112 S.W. 678.)

In the case of National Surety Co. v. Campbell, 108 Wn. 596, 185 P. 602, the court said:

"Admitting the rule that in every doubtful case the presumption should be against a continuing guaranty, especially in the case of an uncompensated surety, yet where the indemnitor was a stockholder and director in the bank, was interested in seeing that it secured deposits of public funds, and knew that the purpose of the law was to require absolute security before the funds could be so deposited, which security must continue so long as the funds remained on deposit and in the light of that knowledge he contracted to indemnify the person providing that security, we can see no doubt of the indemnitor's intention. . . . . 'In the interpretation of indemnity contracts, the cardinal rule is that which applies to contracts generally, i. e., to ascertain the intention of the parties and to give effect to that intention if it can be done consistently with legal principles. Contracts of indemnity, therefore, must receive a reasonable construction so as to carry out, rather than defeat, the purpose for which they were executed. To this end they should neither, on the one hand, be so narrowly or technically interpreted as to frustrate their obvious design, nor on the other hand, so loosely or inartificially as to relieve the obligor from a liability within the scope or spirit of their terms. Where the general import of a contract is one of indemnity, it is the rule that all of the words used therein should be construed to be in harmony with, and subservient to, the general purpose of the bond. When applied, however, this rule should be in aid of the intention of the parties, and should not be employed to defeat their purpose. (14 R. C. L., p. 46.)'"

In Snattinger v. City of Topeka, 80 Kan. 341, 102 P. 509, the Kansas court held:

"A. designation of a bank as a depositary is effectual so long as the city shall continue to deposit its funds in the bank, and the bond given in pursuance of such designation is deemed to be a continuing obligation, upon which the sureties will continue to be liable for defaults, unless they have taken the necessary steps to terminate their liability on such bond."

See, also, Yeargain v. Board of Commrs. of Delaware County, 90 Okl. 38, 215 P. 619.

The city authorities were without authority in law to make a designation of a depositary for any fixed or limited term. Such a designation would always be subject to rescission or revocation at the will of the city council. There is nothing in the circumstances of this case to indicate that it was understood or agreed by any of these parties that the designation of the Bannock National Bank was for any fixed or limited period of time. The designation or appointment of this bank as a public depositary was never revoked and no attempt was ever made by these appellants to relieve themselves from their obligation under the bond. Deposits were made year after year on the strength of this bond. We are of the opinion and hold that the depositary bond, the subject of this action, was a continuing obligation, and that it was not intended to be limited to the term of Kate Toombs as treasurer of Pocatello.

The sureties on the depositary bond were not released from liability, either in whole or pro tanto because of the $32,000 certificate of deposit held by the city at the time the bank failed. Such disposition of the city funds was unlawful, improper and an unwarranted usurpation of power.

"It is well settled that a municipal corporation has only such powers as are clearly and unmistakably granted to it by its charter or by other acts of the legislature, and consequently can exercise no powers not expressly granted to it, except those which are necessarily implied or incident to the powers expressly granted and those which are indispensable to the declared objects and purposes of the corporation. Any fair and reasonable doubt concerning the existence of the power, or any ambiguity in the statute upon which the assertion of the power rests, is to be resolved against the corporation and the power denied." (19 R. C. L. 768; see, also, 28 Cyc. 258.)

"Such of these (powers) as are essential to the normal life of the corporation may be sustained as implied or incidental powers by liberal construction; but those which are merely convenient or useful cannot under our law be maintained and exercised." (28 Cyc. 261.)

All municipal corporations of the state of Idaho are required, by a proper construction or interpretation of our laws, to keep their funds at all times subject to immediate payment by their treasurers unless the legislature has specifically authorized or directed the deposit or investment thereof in some other manner. There is no implied right or power to place such funds by deposit, investment or otherwise, except on general deposit, subject to immediate payment as the public necessities require.

C. S., sec. 4046, in substance provides that the city treasurer is required to keep all money in his hands in such places of deposit as may be provided by ordinance in some regularly organized bank or banks, protected by a bond sufficient to save the city from any loss. Said section further provides that the treasurer may be directed by ordinance to make certain specific investments of any funds in his hands in securities of the United States, or of the state of Idaho, county bonds, highway bonds and local improvement district bonds of the city for which he is treasurer. No other statutory authority exists for the investment or deposit of city funds.

A certificate of deposit is in effect and may be defined as a receipt of a bank or banker generally framed in such a form as to constitute a promissory note, payable to the depositor or his order. ( State v. Patch, 21 Mont. 534, 55 P. 108.) The certificate of deposit held by the treasurer of Pocatello conforms to this definition.

A deposit is a temporary disposition of money for safekeeping, and its temporary nature makes it distinguishable from an investment which carries with it a greater or less degree of permanency. ( In re Law's Estate, 144 Pa. 499, 22 Atl. 831, 14 L.R.A. 103.)

"Where a state treasurer places state funds in a national bank, subject to check, the bank giving security therefor, and agreeing to pay interest on daily balances, the transaction is a deposit, and not a loan." ( State of Nebraska v. First Nat. Bank, 88 Fed. 947.)

"A deposit is where a sum of money is left with a banker for safekeeping, subject to order, and payable, not in the specific money deposited, but in an equal sum. It may or it may not bear interest, according to the agreement. While the relation between the depositor and the banker is that of debtor and creditor simply, the transaction cannot, in any proper sense, be regarded as a loan, unless the money is left, not for safekeeping, but for a fixed period, at interest, in which case the transaction assumes the characteristics of a loan." ( In re Law's Estate, supra; Hunt v. Hopley, 120 Iowa, 695, 95 N.W. 205; State v. McFetridge, 84 Wis. 743, 54 N.W. 1, 20 L.R.A. 223.)

"An administrator is chargeable with money of his decedent deposited in a bank then solvent, taking therefor certificate of deposit payable after one year, with interest, and which money was lost by the subsequent insolvency of the bank, as the transaction is a loan, and not a deposit subject to be withdrawn at any time." ( Appeal of Baer, 127 Pa. 360, 18 Atl. 1, 4 L.R.A. 609.)

The placing of $32,000 of the Pocatello city funds with the bank under a time certificate of deposit was in effect a loan to the bank on its promissory note payable in the future in accordance with its terms. This was an unauthorized attempt to invest those public funds. All of the money evidenced by said certificate was originally on general deposit with the Bannock National Bank, and the city officers in conjunction with the bank unlawfully attempted to change the character of the deposit in this manner. C. S., sec. 4046, expressly provides that a bond must be taken to protect any deposit. No new or different bond was given because of this certificate of deposit. The attempt to transfer the money from general deposit to a time deposit was void and inoperative and the money continued to be protected by the bond under which it was originally deposited. No effect can be given to an unlawful attempt to take public funds from under the protection of the depositary law and place them in the bank without the security of a depositary bond. ( Blaine County v. Fuld, 31 Idaho 358, 171 Pac. 1138; Board of Commrs. v. Security Bank, 75 Minn. 174, 77 N.W. 815; Commissioners v. American L. T. Co., 75 Minn. 489, 78 N.W. 113; Scott v. Whipple, 119 Ga. 485, 46 S.E. 663; McCormick v. Hopkins, 287 Ill. 66, 122 N.E. 151.)

In Fidelity State Bank v. North Fork Highway District, 35 Idaho 797, 209 P. 449, 31 A.L.R. 781, this court, where the officers of a highway district in violation of law deposited moneys in a bank without any contract of special deposit, held that the statutes of the state and its own decisions become a part of the contract of deposit and, since a general deposit in such a case is positively forbidden, the moneys were on special deposit.

In Scott v. Whipple, supra, the court held that an independent transaction between a receiver and the bank designated as a depositary, by which a demand deposit was changed to a time deposit, did not affect the liability of the bank's sureties, and where the bank failed before the certificate matured and the bond provided that the deposit should be forthcoming whenever demanded, the sureties were liable.

The law implies that the deposits were legally made in accordance with the law then in force affecting municipal deposits. In this case funds comprising this $32,000 item were actually placed with the Bannock National Bank upon the strength and in reliance upon the security of the bond and must be held to have remained on general deposit as required by law. The attempt to thus improperly handle such funds did not relieve the sureties, nor lessen their liability on the depositary bond in question here.

It is contended by appellants that because during the World War the City of Pocatello purchased $21,000 in Liberty bonds, and at times subsequent to July 29, 1915, it designated different and additional banks as depositaries, and placed $32,000 in a time certificate of deposit, and did not at all times keep one-third of its funds on deposit with the Bannock National Bank, there were such departures from the original contract in connection with which this bond was executed that they are now exonerated from liability. We find no such material departures, from the contract between the city and the depositary, as would operate to discharge the sureties from liability. The evidence discloses the fact that one-third of the Liberty bonds purchased by the city were deposited with each of the three depositary banks. This investment of city funds, which is authorized by law, did change the form of the deposit temporarily, but it did not jeopardize nor affect the rights of these sureties in any manner nor increase their liability and they cannot now complain. It is true that other depositaries were later designated, and assuming that there was a definite contract by which the Bannock National Bank was to receive one-third of the city funds, the burden of proof was upon the appellants to show that it did not receive such portion thereof. There was no proof on that issue and the trial court correctly so found. The bank, with the implied consent of these sureties, continued to receive and hold large deposits of public funds under the bond in question during all the times mentioned in the complaint, notwithstanding these alleged departures from its contract.

Where faith and credit have been given to a bond executed by a bank designated as a depositary, and the bond has performed the function of obtaining for the bank public moneys, the sureties cannot invoke immaterial variances and departures to escape liability. ( Henry County v. Salmon, 201 Mo. 136, 100 S.W. 20.) We conclude that there were no variances or departures in this case such as would release these indemnitors on the bond in question here.

The fact that Pocatello became a city of the first class on May 6, 1921, seven days prior to the closing of the depositary, and that no new depositary bond was taken by reason of such transition in class, or in conformity with the Public Depositary Law (chap. 256, Laws of 1921), which became effective on May 4, 1921, does not release appellants from the obligations of the bond. No new deposit of funds was made on or after May 4, 1921, up to the time the bank closed on May 13, 1921. The indebtedness to the city existed on deposits made prior to the date the public depositary law became effective, and prior to the organization of Pocatello as a city of the first class. This new depositary statute does not require that a new bond shall be immediately taken, and does not declare all prior existing bonds to be void, but it does provide that when any bond is taken thereafter it shall be conditioned and given pursuant to said statute. At least a reasonable time after the organization of the new city government and the passage of the public depositary law might intervene before a new bond could be required to cover deposits made prior to those dates. A delay of nine days, under the circumstances, was not an unreasonable lapse of time. The bank was undoubtedly insolvent on May 4, 1921, and could neither have furnished a new depositary bond nor returned the sums deposited under the old one. This is a reasonable inference from the facts in the case. Had a demand for the return of the deposit been made on May 4th, or on May 6th, and the bank refused to comply therewith these sureties would have been liable for its default. Why, then, excuse them because of the lapse of seven or nine days?

In the case of Snattinger v. City of Topeka, supra, the Kansas court had under consideration a somewhat similar situation. Under laws passed in 1883 the mayor and city council had designated a bank as city depositary, and a bond was given. Later, in the year 1903, there was a revision of the law relative to cities and their depositaries. The court held in effect that the sureties were liable although the steps prescribed by law in making the designation had not been complied with, and that in an action on the bond they were bound notwithstanding the changes in the form of the statutes.

It is contended by appellants that the ordinance of July 26, 1915, was never legally passed, and is void, and as a consequence there was no contract to be guaranteed by the bond in question. They are estopped from making this defense.

"The surety is estopped from denying any fact recited in the bond when by such denial he seeks to avoid the bond in an action between the parties to the bond." ( State v. McDonald, 4 Idaho 468, 95 Am. St. 137, 40 P. 312.)

"Where the bank has received the deposit and acted as a depositary the bond is valid even though no preliminary order designating the bank as a depositary was in fact made." ( Henry County v. Salmon, supra.)

The bank was at least a de facto depositary and the sureties are liable. ( Snattinger v. Topeka, supra.)

The appellants also claim that the bond was never approved by the city council. This position is untenable.

"Until the contrary is made to appear, the law presumes that officers have discharged the duties which the law imposes upon them." ( Southwestern Surety Ins. Co. v. Davis, 53 Okl. 332, 156 Pac. 213, citing Southern Surety Co. v. Waits, 45 Okl. 513, 146 Pac. 431.)

We think that in view of the fact that these sureties were each, at the time of the execution and delivery of the bond, heavy stockholders and most of them managing officers of the Bannock National Bank, and all deeply concerned in the promotion of the interests of that institution, and that by the giving of this bond the bank profited financially by securing the use of large sums of city funds, they should now be estopped from questioning their manifest liability. They knew they had signed this undertaking. They all knew, or by simple inquiry could have ascertained, that no new bond had ever been given during all the time this bank was receiving these large deposits of public funds. Surely a bond with a $100,000 penalty was not so common or insignificant a matter as to entirely escape their memory. They could have withdrawn therefrom by proper procedure. They stood by and permitted these deposits to be made on the strength of this bond and should not now, after the insolvency of the bank, be permitted to evade their just obligation to reimburse the city for its loss through their bank.

The complaint states a cause of action, and the trial judge committed no error in overruling the demurrer thereto, nor in the admission of evidence at the trial. The judgment entered is amply sustained by the evidence and the law, and no error appearing in the record the judgment is affirmed. Costs awarded to respondent.

McCarthy, C.J., and Dunn, William A. Lee and Wm. E. Lee, JJ., concur.

Summaries of

City of Pocatello v. Fargo

Supreme Court of Idaho
Aug 5, 1925
242 P. 297 (Idaho 1925)
Case details for

City of Pocatello v. Fargo

Case Details

Full title:CITY OF POCATELLO, a Municipal Corporation, Respondent, v. LYMAN FARGO…

Court:Supreme Court of Idaho

Date published: Aug 5, 1925


242 P. 297 (Idaho 1925)
242 P. 297

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