Mathis v. Morgan

72 Ga. 517

• Court: Supreme Court of Georgia
• Decided: May 13, 1884
• Status: Published

Opinion

Jackson, Chief Justice.

This is another of the cases arising from the failure of the Bank of Rome as a depository of the money of the state. Morgan, one of the sureties on the bond of that bank as such depository, filed a bill against the sheriff of Floyd county to enjoin that officer from proceeding further in the enforcement of levies on the property of this surety, on various grounds set up in the bill and various affidavits therewith submitted to the chancellor in support of the allegations of the bill. The chancellor thereupon, and upon the defences thereto made by the state, granted the injunction, and the staté, through the sheriff, represented by the attorney general, assigns for error here the grant of that injunction.

1. The fact that the governor selected this bank as a solvent bank, and published the same as one of the depositories, and the allegation that the surety was induced by this fact to become one of the sureties, is no reason, in law or equity, for the discharge of the surety from his obligation, even if, at the time of the selection of this bank, it was not solvent and'the governor was mistaken as to its solvency. The discretion is vested, by the act of 1879, in the governor to select “ a chartered solvent bank of good standing and credit ” in the city of Rome as such depository ; but in the apprehension that the governor might make a mistake in its solvency, the general assembly had the caution and prudence to provide in the same act that the bank should, before entering upon the discharge of its duties, before it got possession and control of the public money, give bond and security that it would respond to the state for failure to do its duty under the law, and especially for its failure to account to the state for such public money or effects of the state as it might become possessed of under the act.

It would be anything else than reasonable or equitable that the man who obligated himself to see to it that the bank was solvent and would be able to respond to the state for the loss of its money, should be allowed to set up the fact of its insolvency, when, appointed or afterwards or before, as a reason for his relief. This bond guaranteed the solvency of the bank and its ability to respond. It pledged him that, if the bank proved insolvent, so as not to be able to respond, then he would himself make good the state’s loss. To state the proposition that a surety that another is able and honest enough to handle public money can discharge himself by proof that the other, whose surety he was at the time he got the money, was not then able to respond, is to show its fallacy, and with all deference to the able and distinguished counsel of the surety who drafted this bill, its absurdity. To indorse for one insolvent at the time, - and then to ask to be relieved of the effect of the indorsement because he was insolvent at that time, are two propositions which make no harmony in the ear of justice; the notes are wholly discordant and make a medley utterly without melody.

2. Nor is the case of the surety bettered because he put his name to the bond of the bank because by its selection by the governor as the agent of the state, and by reason of the law of the state, which required the selection oí a solvent bank, the state represented it to be solvent, and thereby made a false representation, on which the surety relied when he signed the bond. This would be to make the state guarantee to the sureties of the bank the solvency of every bank it selected as its agent. It would be to make the state the surety of the sureties of the bank, if insolvent when selected, because the state, in every instance, is required to select, through its governor, a solvent, chartered bank, and to publish and thus to represent it as solvent. And thus we would have the singular anomaly that the party demanding security before parting with money itself indorsed that, when he did part with the money to the principal, that principal was solvent. Thus, in every case where the principal was insolvent at the time it got the money, the state would be first on the list of sureties, first indorser, and responsible over to all the other sureties and indorsers of that principal.

3. To relieve the surety in this case from conclusions so irresistibly unsound, making so clear a reductio ad absurdum, the bill alleges facts which, it says, make the governor, the agent of the state, knowingly and falsely select this insolvent bank. That is to say, it states facts which, it charges, make the governor of the state act in this matter corruptly, fraudulently and in total disregard of the obligations of his oath of office, and in so acting, caused. him to become the surety for this bank. Even if the facts alleged and proved made such a case, would the surety for this rotten and insolvent bank be relieved ? Surely he should have known as much about the bank which he indorsed as the governor of the state did. He was a resident where the bank was located. He was about to become its indorser on a bond for fifty thousand dollars. His own interest required him to be on the alert. The magnitude of the bond demanded inquiry as to the bank’s financial status. The principles of common sense, the foundation of all thoso principles, self-preservation, the first law of nature, as well as the well settled principles of law and equity in the books, put him on inquiry, and affected him with notice of the bank’s condition. It was the state with.which he was dealing. It was her money which he enabled this bank to get in its clutches. It was not the money of any agent of hers, of her chief magistrate, or any other of her officers; and when he was put on inquiry about the condition of the bank located at his door-sill, he was chargeable with notice of its condition, when he indorsed for it, and could not relieve himself by any false representation of her agent of which he had the notice that the inquiries of a prudent man in such a case required him to have.

But the facts do not show false and fraudulent or corrupt conduct on the part of the executive. Of what did he have notice ? Only that about the first of that year, this bank had determined, in the hands of its then officers and stockholders, to close its business, and had notified its depositors and creditors to present their claims, and they would be paid; that the business had ceased to be profitable, and therefore, active business, as a competitor with others in banking, would cease. On or about the first of the year, this notification was made to the governor, and published in the Rome newspapers, with thanks to customers and depositors for the past, and the expression of a hope, if it should, or the then stockholders and president should, resume business, its old customers would return to it or him with their patronage. In the last part of the year—the November following—the governor dealt with the application of the bank as a depository, and upon inquiry into its condition, from citizens of Eome, its solvency and credit, and among others, upon inquiry of one of the able counsel for those in this litigation with the state now about this bank depository, he adjudged and decided that it was a fit depository, on the strength of their indorsement of its solvency and credit. These were the basis of his false representations, if he made any. If this surety was injured by these representations, it would seem just that he should demand redress, not from the state, nor from her chief magistrate and agent, but from those who indorsed the standing and credit of this bank to tho governor; but inasmuch as he himself indorsed tho bank’s solvency and credit too, not, indeed, perhaps with so much fervor and fluency as they did, by word of mouth and letter, but with the stronger emphasis of backing his judgment as her surety on a fifty thousand dollar bond, that the bank was solvent and of good standing and credit, his hope of redress from them would be slight, especially as he, too, lived in Eome, and had a greater interest than they had in investigating that standing and credit.

4. But it is again insisted that the bank had changed hands, and was no longer a chartered bank, because the then chief, if not only, stockholder and president had transferred all the stock and interest in it to Samuel, its president, when it was made the depository, and others. IIow that forfeited the charter, and made the bank, the entity, breathe its last breath, we do not so well -understand. Banks constantly change hands. The stockholders, presidents, cashiers* all become new men from time to time, yet the entity lives, the. same being in law which the state created. The very object of the incorporation is to breathe into organic being perpetual life, or life for a term of years, though all the original natural persons who were first so organized die or sell out, or otherwise cease to be stockholders therein. So the bank lived when it got this money, and as a living entity it was endorsed by this surety. If, in the contract which passed the stock out of the old into the new holders, there was any trade whereby the old assets were disposed of, and the new holders did not make deposits into the bank of enough cash to comply with their obligations, it is enough to say that the governor had no notice thereof, so far as this record shows, and, at all events, nothing accessible to him which was not to this surety. ITe had knowledge that the old officers were out, and signed as surety for the bank, when Samuel was its president, and the stock was ail in his hands and that of the new stockholders.

5. Bui it is alleged further that the surety is responsible only for the money deposited in the bank by the tax collectors of those counties designated by the governor to pay the funds they collected into that depository, and not for other funds deposited there by the treasurer of the, -tate. By section 943 (f) of the Code it is enacted that the tax collectors so designated need not pay into the bank depository, but may pay directly into the treasury, and-that the treasurer shall not make a deposit with any other bank than those established by the act of 1879, from which the section Avas codified, most clearly allowing that officer to make other deposits in either of those banks.- -Moreover, the obligation of this surety is to see that the bank makes a faithful account of all the public money or effects received by it. Code, §943 (d). Anything received by it from the state, within the meaning of public money or effects, is included in this obligation; and surely public money received from the treasurer «is so included. The bond follows the 'statute, and really enlarges the obligation thus imposed by'the'statute of 1879. So that there is nothing in this point.

6. Nor is more in the point that the returns made to the governor were not strictly according to law-. To account ior this money deposited with this bank, this surety indorsed that this bank would do so. How is he relieved because the annual returns were not regular and strictly in accordance with law ? Suppose the governor ought, in rigid and close discharge of duty, to have removed the state funds or removed the bank as a depository, how does this dereliction of duty on his part relieve the surety? His emphatic obligation is to be accountable as long as it continues a depository, and not to be discharged when the governor ought to remove or discontinue it as a depository, or take the funds from it. All that, by the act which made part of the bond, was left by his contract with the state to the discretion and judgment of the chief magistrate, and his want of discretion or failure to exercise it wisely and with sound judgment, cannot excuse the surety from his bond. And so we think'in regard to all the other points made in the bill of complainant, until we come to that on which the new trial was granted in the other cases, and on which it 'would seem that the chancellor rested the grant of tnis injunction.

In the case in which Simpson & Ledbetter were claimants, we have already considered the points made in respect to the invalidity of this bond as a valid statutory bond, and reference is made to the opinion in that case for the reason why it is held valid. The facts are the same here as there, except that in this record it appears that the bond was not actually ¿recorded on the minutes of the executive department, but was referred to in the executive orders there recorded appointing this bank, etc.; but that opinion virtually concludes the point, even if not recorded.

7. Thus we are brought to the last point, that on which the injunction was granted, the effect of the forgery of Mrs. Deason’s signature to the bond upon the rights of this surety. And really that is the only point upon which serious doubt can rest. Taking the sworn allegations in the bill and the amendment for true, is this surety discharged from his obligation to respond by reason of that alleged forgery ? We have carefully examined the law thereon in the light of numerous authorities, and extracting from those authorities what we believe principle as well as the stronger current of authority fix as the law on the facts here alleged, we will apply that law to the facts, and thus see whether or not there is ground for equitable relief, and therefore for the grant of this writ of injunction.

The facts are most strongly presen! ed in the amendment to the original bill; Substantially they are, that complainant signed the bond on the understanding and condition that Frost, Samuel, Prentice and M. P. Deason would sign it as co-sureties; that, as evidence of this fact, the names of these persons were written and inserted in the bond before complainant’s name, when it was presented to him for execution by him, and that he would not have signed it but for that understanding; that at the same time that the bond was presented for his signature, there was presented and shown to him another paper, attached to the.bond, purporting to be an affidavit signed before a notary public, in which these co-sureties were represented as worth, Frost $50,000, Samuel $35,000, Prentice $25.000 and M. P. Deason $10,000; that, upon the strength of these affidavits and tbe understanding that they would sign the bond, he then signed the affidavit and bond, and would not otherwise have done so ; that Prentice was not worth the amount opposite his name, as thus falsely and fraudulently represented to him; that he learned from the affidavit and bond that both Prentice and Deason would sign the bond, and therefore signed it, and would not otherwise have done so; that, when he signed it, he left it with Samuel for the purpose of procuring the signature of Prentice and Deason; that, it was left with him on condition that it should be signed by the others before delivery to the obligee, and that thus Samuel held the bond as an escrow for the purpose aforesaid, and had no authority to deliver it to the obligee until executed by Prentice and Deason ; that up to May, 1883, he believed they had signed the affidavit and the bond, but on that day he heard a rumor that it had not been so signed, and now has ascertained and charges that neither signed the affidavit, and M. P. Deason did not sign the bond nor authorize any one else to sign for her; that these signatures are not the acts and deeds of either Prentice or Deason, but made without their consent or authority; that J. W. & W. L. Smith have bought property from Deason, naming and describing* it, and that Simpson & Ledbetter have bought from Samuel, describing it, neither having notice of the fact that either were sureties, and thus the former got good title from the forgery, and the latter as innocent purchasers without notice; that therefore he, the complainant, is relieved as surety on the bond.

These facts make this case: Where a surety or a bond given to the state as security for a bank depository signs it before another surety, whose name precedes his in the body of the bond, and is forged thereto in the signature, and where the name of the same person, as well as that of another, whose name appears before complainant’s in the body of the bond, appears as having signed an affidavit that they were worth a certain sum, and never made the affidavit at all, but their names were forged to it, and the complainant surety entrusts the bond to the president of the bank as an escrow, not to be delivered to the state until these sureties execute the bond, but the president of the bank does deliver it .to the governor, the obligee, with all the signatures apparently genuine thereon, is the complainant surety, in such a case, relieved and discharged from responding to the state, on the breach of the bond by the bank ?

In 16 Wallace, 1, the case of Dair vs. The United States, it was held that a bond, perfect on its face, apparently duly executed by all whose names appear thereto, purporting to be signed and delivered, and actually delivered without a stipulation, cannot be avoided by the sureties, upon the ground that they signed it on a condition that it should not be delivered, unless it was executed by other persons, who did not execute it, where it appears that the obligee had no notice of such condition, and there was nothing to put him upon inquiry as to the manner of its execution, and that he had been induced to act upon the faith of such bond to his own prejudice.

That case, in principle, covers this. The only difference in fact is that in that case the persons who agreed to become sureties did not sign the bond as such, and their names were not in the body of the instrument, so as to put the agent of the government on notice or inquiry that something was wrong; whereas, in the case before us, the name of her, who apparently signed, but, according to the allegation and proof by the complainant, did not really sign, was in the face of the bond. It appeared just as genuine in the signature as in the face of the bond, in the case at bar. There was nothing to put the governor on notice or inquiry, but on the paper, the face of the bond, and signatures and witness, everything looked genuine. Mrs. Reason’s name was in the face of the bond, but it was also in the signature, to the bond. The point on which Mr. Justice Davis, in Dair vs. United States, placed the judgment in that case was, that there was nothing to put the government’s agent on inquiry, and he distinguished that case from the case decided by Chief Justice Marshall, in Pauling vs. United States, 4 Cranch, 219 ; that' in the latter case, the persons whose names were in the body of the bond did not sign, and the agent was put on inquiry to ascertain why they had not signed, and thus the government was not innocent. The decision rests on the principle, as old as Lord Holt, who said in 1 Salk., 289, “Seeing somebody must be a loser by this deceit, it is more reason that he that employs and put a trust and confidence in the deceiver should be a loser than a stranger,” and which is now embodied in the familiar principle that, of two innocent persons, he who enabled a wrong-doer to do the wrong should suffer, rather than the other, who put no trust in him, and gave him, by that confidence, no power to do the wrong.

In the case at bar, Morgan is innocent of this forgery, if there was one ; so is the governor equally innocent; but Morgan gave the bond to Samuel to be executed by the other sureties, and thus put it in Samuel’s power to palm off upon the governor a forged signature as genuine. Instead of .carrying out what Morgan expected him to do, he-delivered the bond to the governor, not genuinely executed, but forged by somebody, so far as Mrs. Deason was-concerned. In Dair vs. The United States, the sureties were held to be estopped from setting up the fact that they signed on the express stipulation that others should sign,, because there was nothing to put the agent of the government on inquiry, the names of the others not being in the-face of the bond, and the agent acted, and the. government acted to its injury, without being affected with notice-directly or indirectly, the sureties having put it in the-principal’s power to do the wi-ong on which the govern- • ment acted to its damage. So here the surety, Morgan,. put it in the power of Samuel, the president of the bank and principal’s agent, to palm off, as genuine, a forged signature upon the state’s agent, the governor, when nothing appeared on the face of the bond, or otherwise, to give the governor the slightest notice, or put him on inquiry, that any signature was otherwise than perfectly genuine ;, and this surety, too, must be estopped on the same principle.

As the court says in the case of Dair vs. The United States, there seems to he a “conflict of opinion in the courts • of this county upon this point,” but we conclude, as that court unanimously did, that the decision is “sustained by the weight of authority,” and repeat what it said that, “at any rate, it is clear, on principle, that the doctrine of estoppel in pais should be applied to this defence.” In: that case the court cite 53 Maine, 284 ; 31 Ind., 16, and. 2 Metcalf, 608. To those cases we add 63 Mo, 212, where all the cases seem to be thoroughly considered and reviewed, especially 52 Mo., 75, cited by defendant in error here, which is greatly modified, if not, in effect, overruled. That court, in the 63 Mo., conclude that “the agreement of a surety with his principal that the latter shall not deliver a bond till the signature of another be procured as a co-surety, will not relieve the surety of his liability on the bond, although the co-surety is not obtained, where there is nothing on the face of the bond, or in the attending circumstances, to apprise the taker that such further ¡signature was called for, in order to complete the instrument. In such case the surety, having invested his principal with apparent authority to deliver the bond, is es-topped from denying his obligation to the innocent holder.” See also 41 N. J., 403, and 64 Mo., 167. In the last named case, the principle was applied to a forged signature of ■one who was to be a co-surety, and covers fully the case ¡at bar. See, too, 6 Gray, 90, and Brandt on Suretyships •and Guaranty, 358, and cases there cited.

Indeed, since the adjudication in Lewis et al. vs. The Board of Commissioners of Roads and Revenues, 70 Ga., 486, the question is hardly an open one in this court. There we held that, “ to permit these sureties, after the bond has been executed and returned, and the commission issued to Their principal, who has acted under it, and received and Tailed to account for the public revenue, to set up as a deTence to a proceeding founded on such default, that they stated to the ordinary, who took the bond, that they would •not be liable till certain others signed it, would be to allow them to take advantage of their own wrong. They, are estopped from so doing.” That case is stronger than this, .in tnat the ordinary was the officer or agent to take the ■bond; but as the governor approved it, and issued the ■commission, and it was not claimed that “ the alleged con■ditional execution of the bond was ever made known to him,” we held the sureties estopped. See also the author* ities cited and considered in that case.

So we conclude that, however hard this case may bear upon Mr. Morgan, who was made a sufferer by the conduct of the man whom he trusted, and whose surety he really became, as the bank could procure none except through its officers, of whom Samuel was the chief, yet as the state, through its officer, was also perfectly innocent and Morgan put it in the power of Samuel to deceive the state to its great hurt, having acted and put its money in this bank on the strength of this bond, and lost it, we must hold him estopped from setting up this defence.

We do not see that the' affidavit and forgeries thereon affect the case, as the law requires no justification on the part of any surety, and especially as the governor was equally ignorant of all that conduct; nor do we see how the order in which the sureties’ names appear in the face of the bond affect it. The signature of Morgan precedes, the forged signature. Upon the whole case, we conclude that the facts set up, viewing them as true, as set up and proved by complainant’s own deposition, and those of others sworn on his behalf, make no ground in equity for his relief, and, therefore, that the injunction was improperly and illegally granted.

Judgment reversed.

For citations by plaintiff in error, see The State vs. Simpson & Ledbetter, supra.

Cited for defendants in error, in addition to what is cited there: 1 Kelly, 582 ; 18 Ga., 47 ; 33 Id, 332 ; 6 Id., 552, 302 ; 66 Id., 409 ; 29 Id., 399, 441 ; 36 Id., 669 ; 54 Id., 635 ; 17 Id., 47 ; 57 Id., 346 ; 6 Id., 202 ; 10 Id., 414 ; 11 Id., 286 ; 13 Id., 61 ; 17 Id., 111 ; Code, §§945, 2181 ; 943 (a) ; 2199, 3174-5 ; 3 Wash. C. C. R., 70 ; 1 Story Eq., 215, 283 ; 19 Am. R., 53 ; 25 Id., 708 ; 28 Am. Dec., 679 ; Cooley on Tax, 506 ; 21 Wall., 657 ; 10 Humph., 122 ; 14. Am. R., 389 ; 52 Mo., 75 ; Field on Corp., 286 ; 53 Mo., 516.