County of McCook v. First National Bank

171 N.W. 818, 41 S.D. 570, 1919 S.D. LEXIS 50

• Court: South Dakota Supreme Court
• Decided: April 18, 1919
• Docket: File No. 4456
• Status: Published

Opinion

FOLLEY, J.

During the period of time between the first Monday in March, 1911, and the first Monday in March, 1915, the defendant, -First National Bank of Salem, was one of the regularly qualified depositaries of the county funds of McCook county. ‘Such funds were deposited in the name of the county treasurer, and, under the provisions -of section 349, Pol. Code, since amended by chapter 159, Laws of 1915, and carried into the Code of 1919 as section 6888, could be paid out only upon checks signed by the county treasurer and countersigned by the county auditor. During said period: of time an arrangement existed between the auditor and-the treasurer, whereby the auditor was authorized to sign the treasurer’s name to checks as treasurer and then to countersign them- as auditor. It was also the custom -in said offices to permit the various employees,-in both offices, to -sign the treasurer’s ’name -to checks as treasurer and to countersign them with the auditor’s name as auditor. The legitimate claims against, the county, were paid by checks issued in this manner. •This practice prevailed, not only during the period of time above ■'mentioned, but both before and after said'time. This condition of affairs was known to'the defendant, and with such knowledge, it made a practice of' honoring checks and paying out the county funds on checks thus indiscriminately signed. During- the said period of time, the auditor issued a large number'of fraudulent checks upon the various depositaries of the county, aggregating in all nearly $4,000, those against defendant bank aggregating $1,583, payable to himself, and appropriated the proceeds to-his own use.

■ ' The plaintiff Américan Surety 'Company was surety on the' auditor’s bond. The auditor’s total shortage exceeded the amount of the -bond, but, when such shortage was discovered,- said company reimbursed the county to the extent of its liability on the bond. Then, claiming to have become subrogated tó the rights of the county to the extent of the amount it had paid to the county 'on the auditor’s bond, said company joined the county in this ■action to recover the said $1,583 from the defendant; the county, of course, seeking to recover the amount that had not been paid by the surety company, and the surety company seeking to recover :the amount it had paid the county. ■

Plaintiffs base their right of recovery solely 'upon the ground that defendant paid- out the county’s money on checks that it knew had not been signed and countersigned by the treasurer and the ■auditor in the manner required by law. The trial court held that .the defendant was not liable, and entered judgment dismissing the -.action. Prom such judgment plaintiffs appeal.

.; Numerous questions of-practice are presented on the briefs, •but we prefer to pass these questions and decide, the case on its •merits.

[1] The money deposited in the bank 'by the county treasurer was known by the bank to constitute a trust fund, and to pay it out on checks known to be fraudulent or under circumstances sufficient to put a prudent person upon inqjuiry as to the purpose for which such money was being used would have rendered the bank liable to the county for any loss it might have suffered thereby. But it is not claimed that thé bank had knowledge that any of the checks were for fraudulent purposes, nor is it claimed that the fraudulent checks were issued in a different manner, or were different in appearance, from the checks that were being issued in payment of legitimate claims against the county.

[2] The respective duties of the county treasurer and county auditor relative to the issuance of checks for the disbursement of the county funds are so incompatible that it is against public policy, if not positively contrary to law, for either of them to attempt to perform the duties of the other. The purpose of the law is to require them to act as a check upon each other in the matter of paying out county money, and to permit either of them to perform the duties of the other would be to thwart the purpose of the law. But it was not the negligence of the treasurer in permitting the auditor to sign the treasurer’s name to checks that caused the loss. The -bank might have been justified in refusing to honor checks signed in the manner the checks in question were signed; but, had it refused to honor such checks and insisted upon having them properly signed, there is no reason to believe that the treasurer would not «have signed them. The treasurer had no knowledge that any of the checks that were being issued were fraudulent, and his signature would not have prevented the fraud. The loss was occasioned through a system of filing bogus and fictitious claims against the county. Whether such claims were originally filed by the auditor personally, or filed by some third party and afterward assigned to the auditor, does not appear from the record; but they were presented to the board of county commissioners as genuine claims against the county and, by the 'board', allowed and warrants issued against the county in payment there- ' of. Such warrants were then presented to the treasurer for payment, and paid in the manner above set out. At the end of each .month the defendant bank returned to the treasurer the checks, including those fraudulently issued, that had been drawn against the county funds and cashed by defendant during said month. Such checks were then inspected, audited, and approved by the board of county commissioners, and, by said' board, certified to be correct. It does not appear from the record just when the defaircations were discovered, but it was not until more than a year after the auditor’s term of office had expired.

[3] Under the foregoing circumstances, we do not believe that the defendant should be held responsible for the^ loss of the county funds, or that either of the plaintiffs is entitled to recover. It may be conceded that defendant was negligent in cashing the checks that it knew had been irregularly issued, and it may be conceded that it would have been liable to the county had such negligence caused the loss; but such negligence did not, even re^ motely, cause the loss. Whether the county commissioners were careless or negligent in auditing and allowing the bogus claims against the county it is not necessary to determine. But when such claims were allowed, and warrants issued and presented to the treasurer for payment, it was the duty of the treasurer, in the absence of any knowledge to the contrary, to issue checks against the county funds in payment thereof. The case of Chapman v. Inhabitants of Limerick, 56 Me. 390, cited by the appellants in their brief, is in no sense analogous to this case, and what is said by the court in that case has no application to the facts in this case.

As the loss suffered by the county was not occasioned by the negligence or •dereliction' of duty on the part of the defendant, it should not be held liable.'

The judgment appealed from is affirmed.