State v. Schamber

165 N.W. 241, 39 S.D. 492, 1917 S.D. LEXIS 182

Opinions

WHITIN'G, J.

Defendant, John S-chamber, was treasurer of this state for a term of t-wo years commencing January 12, 1899. As such treasurer he entered into the official bond required by statute, .upon which bond the other defendánts were sureties. He deposited -in various banks, from time to time, the funds in .his hands .as such treasurer, and it is alleged that he received interest upon such deposits. This action was brought to- recover' such interest. To the complaint -defendants demurred. The demurrer was sustained, and the state appealed.

[t] While the only question before us is whether the facts pleaded constitute a -cause of action, respondents have argued at length thát the facts pleaded do not entitle appellant to equitable, relief. The complaint asked for certain equitable relief. Respondents contend that the facts pleaded entitle appellant to legal relief if to any. ' The question thus raised is not ' presented by the -demurrer. • A prayer for relief may often assist -in -determining the nature of an action, where the nature thereof might otherwise be doubtful; but the sufficiency of the complaint’ depends, not upon the prayer for relief, but upon the facts pleaded, and, if those facts entitle the plaintiff to any relief either legal or equitable, the complaint is not subject to demurrer upon the ground that the allegations thereof are insufficient to state a cause of action. 16 Ency. Pl. & Pr. 779; 31 Cyc. 110.

[2] The sole question for our determination is. whether or not interest received by a state treasurer for the use of state funds belongs to the state or whether it belongs to the treasurer. Numerous authorities will be found wherein the right of custodians of public funds to retain interest received by them upon the deposit of such funds in banks has been considered, and the holdings of the courts are far from uniform. In almost all of the adjudicated cases it will be found that the court recognize the fundamental proposition that interest is but an increment and goes with the principal, but there are courts thát base their .decision upon grounds having no relation to such proposition. This, while some courts have held that such interest money belonged to the custodian because, under the facts of the particular case, the court found that the title to the principal funds was in the custodian thereof and the relation of debtor and creditor, rather than of trustee and cestui que trust, existed between such custodian and the public, other courts have held that such interest money belonged to the custodian: (1) Because, in the particular case, the court held that the depositing of the money and the contracting to receive interest thereon was unlawful and held that it was not in the contemplation of either party to the bond that the custodian would make such deposit and receive interest thereon, and hence there was no liability on the bond for such interest; (2) because, under the facts of the particular case, the court found that the custodian become an insurer of the funds received by him, and liable, as such, to account therefor, that, because of such liability, the ordinary liability of a trustee to account to his cestui que trust for profits made from the trust fund did not exist, and that the relation between the custodian and the public was that of debtor and creditor. See cases cited in notes to Adams v. Williams, 30 L. R. A. (N. S.) 855. An examination of the authorities will reveal that, in some cases where it has been held that a custodian of public funds was entitled to the interest received from such funds and where it has also 'been held that he was an insurer of such funds, the courts have placed such right to the interest, not directly upon the ground that the custodian was an insurer of the funds, but upon the ground that, owing to the fact that he was an insurer of such funds, the title thereto vested in him, thus bringing those cases within the line of decisions holding that the increment follows the principal. Such was the holding in Commonwealth v. Godshaw, 92 Ky. 435, 17 S. W. 737, hereinafter referred to.

Respondents do not contend that the title to the moneys received by the treasurer passed from the state to such treasurer. In fact it would be most presumptuous, in the light of the various sections of our statutes relating fi> the public funds of the state —particularly sections 333-348, Pol. C-ode — for any one to so contend. We would call particular attention to section 333, which reads:

“All moneys belonging to the state, deposited in banks by the state treasurer shall be deposited not to his credit as an individual, but in his name as state treasurer, and not otherwise.”

Neither do respondents contend that the treasurer exceeded his authority either in depositing the state funds in banks or in contracting to receive or in receiving interest upon funds so deposited. It is therefore unnecessary for us to determine the soundness of the proposition that, if the interest money was unlawfully received, recover)>- therefor could not be had on his bond.

Respondents rely upon two propositions: (1) That the treasurer was an insurer of the funds coming into his hands and therefore not liable, as a trustee, to account for profits arising thereform; and (2) that the Legislature of this state had indicated an intention that the state treasurer should not be held civilly liable for the receipt and retention of such interest money, and the court should be controlled by such expression of intent. Respondent rely chiefly upon the opinion in the case of State v. Walsen, 17 Colo. 170, 28 Pac. 1119, 15 L. R. A. 457, but also cite the cases of Commonwealth v. Godshaw, supra, and Maloy v. Bernalillo, 10 N. M. 638, 62 Pac. 1106, 52 L. R. A. 126.

M-uch discussion, will be found in the authorities upon the question as to whether or not a custodian of public funds is an insurer of such funds. That question has been settled in this jurisdiction by the decisions in Clay County v. Simonsen, I Dak. 403 (387), 46 N. W. 593, and School District v. Northern Casualty Co., 36 S. D. 392, 155 N. W. 10. It is the settled law of this state that the custodians of public funds are insurers of such funds. But nevertheless we agree with the words of the court in the case of Adams v. Williams, supra:

“It is a complete non sequitur to say that, because Williams was an absolute insurer, therefore the interest belonged to him. The two principles have no relation whatever to each other. Once settled clearly and definitely whose money the principal sum was, and the interest necessarily belongs to that person as an increment to the principal fund, and to argue to the contrary -is simply to-lose one’s self in a metaphysical fog of sophistry, failing to' give effect to the central principle of right and justice making the interest the property of the party who owned the principal sum.”

[3,4] The contention that, merely because one is an insurer of public funds, -he ceases to be a trustee thereof and liable as such, but assumes the relation of -a debtor, is so completely answered in Adamas v. Williams, supra, and in State v. McFeetridge, 84 Wis. 473, 54 N. W. 1, 20 L. R. A. 223, that we hesitate to do more than to refer to such decisions.

But owing to the importance of the question before us, not only to the parties to this action, but 1» the many custodians of public moneys and their cestui que trusts, we feel justified in calling attention to some matters which we believe may assist in making clear the law of this case. A custodian of public funds is held to be an insurer of such funds, not merely because there may be some statute so providing, nor because of the provisions of some bond he may enter into, but, as declared by most of the authorities sustaining such liability, because to so hold him is in furtherance of a sound public policy. U. S. v. Prescott, 3 How. 378, 11 L. Ed. 734; Tillinghast v. Merrill, 151 N. Y. 135, 45 N. E. 375, 34 L. R. A. 678, 56 Am. St. Rep. 612 ; Cameron v. Hicks, 65 W. Va. 484, 64 S. E. 832, 17 Ann. Cas. 926. It certainly would be the extreme of inconsistency for the courts to hold that the custodian’s liability as ati insurer is based upon public policy and then to hold that, being such insurer of the public funds, such custodian is entitled to all profits received therefrom. It would not be in accord with sound public policy for the public to rest its protection against loss of its funds solely upon the personal responsibility of its custodian and of his bondsmen. Public policy requires, and the law contemplates, that such funds shall remain at all times the funds of the public, so that the funds themselves can be looked to as a security of the public’s interests. Anything which would encourage a custodian of' public funds to take such funds and loan them out for his own profit would1 place before such custodian a temptation to deposit the funds .in those depositaries that would pay to him the highest rate of interest — would tend to induce him to weigh his chance of personal gain against the chance of loss of the public’s money, a thing which public policy could not tolerate.

[5] But, casting aside all questions of public policy, there still remains neither reason nor sound authority to support the contention that, because a custodian of public- funds is an insurer of such funds, he ceases to be a trustee thereof, but assumes toward the public the relation of debtor. In the Walsen and Malloy cases it is announced as the controlling proposition that:

“The measure of the liability of the officer seems to be the distinction upon which all or nearly all adjudicated cases may be harmonized.”

The line of reasoning of the courts -which hold as above would seem to be about as follows: The liability of a •debtor is absolute. The liability of a trustee or bailee is conditional. Therefore whenever -the liablity imposed upon a trustee or bailee is absolute such trustee or bailee becomes a debtor with all the •lights of a debtor and freed of all liabilities imposed upon a trustee or bailee. How much more logical to say that a custodian of public funds is a bailee or trustee like any other custodian and -burdened with the same duties- and liabilities except as such duties arid liabilities may be affected by statute or by public policy. But accepting the above line of reasoning, let us see if the liability -o-f a custodian of public funds is -the same as that of a debtor. If not, the conclusion reached is without support. In U. S. v. Prescott, supra, the liability of a custodian of public funds was spoken of as absolute, and such was the language of this court in School D-ist. v. Northern Casualty Co., supra. It is apparent from a reading of the Walsen case that the Colorado court was of the opinion that such liability was absolute. In such opinion there is an implied concession that, if such liability was less than absolute, the relation of debtor would not arise. In U. S. v. Thomas, 15 Wall. 337, 21 L. Ed. 89, the court refers to the following language used in U. S. v. Prescott, supra:

“The obligation to keep safely the public money is absolute, without any condition, express or implied; and nothing but the payment of it, when required, can discharge the bond,”

—and then says, as we might well say of the language of this court in School District v. Northern Casualty Co., supra:

“This broad language would seem to indicate an opinion that the bond made the receiver and his sureties liable at all events, as now contended, for by the government. But that case was one in which the defense set up was that the money was stolen, and a much more limited responsibility than that indicated by the above language would have sufficed to render that defense nugatory. And as the money in the hands of a receiver is not his, as he is only custodian of it, it would seem to be going very far to say that his engagement to have it forthcoming was so absolute as to be qualified by no condition whatever, not even a condition implied in law. Suppose an earthquake should swallow up the building and safe containing the money, is there no condition implied in the law by which to exonerate the receiver from responsibility ?”

[6] And the court in the Thomas case declared that a custodian of public funds could not be holden .to account for them when they had been forcibly taken from him by a public enemy. This limitation upon a custodian’s liability is quite generally lecognized wherever the court’s attention is called thereto. It is even recognized in the Malloy case though such recognition is inconsistent with the conclusion reached by the court therein. Among the cases wherein this limitation of liability is recognized are: State v. Bobleter, 83 Minn. 479, 86 N. W. 461; Tillinghast v. Merrill, supra; Cameron v. Hicks, supra; and Clay County v. Simonsen, supra, decided by our own territorial court. As we stated above, the Colorado1 court impliedly conceded that if the liability was limited the relation of debtor and creditor would not arise. Referring to the holding in U. S. v. Mosby, 133 U. S. 273, 10 Sup. Ct. 327, 33 L. Ed. 625, to the effect that interest on public moneys of the United States belongs to the United States, the Colorado court says:

“The way was paved for this decision, however, as early as 1872, in the case of United States v. Thomas [82 U. S.] 15 Wall. 337 [21 L. Ed. 89], where the court held that a collector of public money, under bond tc keep it safely, and pay it when required, :s not absolutely bound to pay the money, but is excusSd if prevented from returning if by the act of God or the public enemy, without any neglect or fault on the part of the officer.”

Is this limitation of liability recognized in the above cases a limitation of a debtor’s liability or is it a limitation of a trustee's or bailee's liability? The answer is to be found in the answer to the question of whether the irresistible superhuman cause or the public enemy must needl render the custodian financially unable as a debtor to meet the debt or need only remove from him the power to restore the particular fund itself in order to exonerate him from liability. It is clear that the custodian is released from liability for funds in his charge when he is unable to restore the funds themselves because prevented therefrom by such superhuman cause or by the public enemies as in the Thomas case, and this entirely regardless of whether he would be financiad)'- able to respond as a debtor. If he lose the particular fund owing to the working's of some irresistible superhuman cause or the acts of a public enemy he is exonerated of all liability even though he still be possessed of unlimited means to meet a liability; while if he were a debtor and liable as such the working's of irresistible superhuman causes or the acts of a public enemy would not exonerate him from such liability as a debtor unless it so reduced1 his wealth as to prevent him from or delay him in meeting such liability. Section 1173, C. C. If such a custodian were a mere debtor to the public no -destruction of public funds by any superhuman agency or seizure by any public enemy would release him from his debt unless it left him financially unable to pay the debt and not merely unable to restore the fund.

As above noted, it is urged- in some of the decisions that, because of the fact that the treasurer is an insurer he ceases to be a trustee or bailee and the title to the funds vests in him and that therefore he is entitled to receive the interest therefrom. Certainly if would be illogical to hold a custodian of public funds to be a debtor and still hold that he did not 'have title to the funds — one could' hardly be debtor for funds the title of which was in -his creditor. In order to complete the circle in which those courts reason which hold that, because of the extent of the liability of a custodian of public funds, such custodian -is a mere debtor, we must also hold him' to be the owner of the fund. Then the circle is complete, and starting from any one of the three points, the line of reasoning, no matter which direction you travel, leads you to -both of the other points. But if there is a defective link in this circular chain the whole structure must fall. As noted before, the express wording of our statute prevents us from holding that title to the state’s money vested in the treasurer. Even though we had no statutes clearly providing that the title to the funds should remain in the state, yet we may well say with Judge Newman, the trial judge before whom State v. McEetridge, supra, was tried, after holding that the treasurer was an insurer of the funds in his hands, that:

“This makes the responsibility of the custodian of public funds the same as the common law responsibility of the common carrier. * * * It has not been claimed that the common carrier, by reason of -his strict responsibility, becomes the owner of the goods he carries.”

We might add that no one would claim that, because -the common carrier is an insurer of the goods instrusted to it, with a liability exactly coextensive with that of a custodian of public funds, it ceased to be a bailee of such goods and became a mere debtor for their value and entitled to all the profits it could make out of the goods,

[7] But respondents urge another ground why the state treasurer is not liable for this interest. They say:

“The question involved is not what obligations generally arise from the possession of a public office or the custody of public funds. The vital question is simply this: What rule relating to the subject of interest was in force in this state during Mr. Schamber’s terms of office?”

And because of this claim they rely particularly upon the case of State v.'Walsen, supra. Section xi, art. -ii, of our Constitution provides:

“The making of profit, directly or indirectly, out of state, county, city, town or school district money, or using the same for any purpose not authorized by law, shall be deemed a felony and shall be punished as provided by law.”

Prior to the year 1897 there had been enacted several provisions of our statutes, among them section 333, P. C., supra, clearly providing that the public funds received by the state treasurer remained the funds of the state — that the title thereof did not pass to the treasurer. Until the 3'ear 1897 there was no statute whereby either the state or any municipal division thereof was expressly empowered to recover from its treasurer interest received by such treasurer for the use of public moneys in bis custody. In the year 1897 the Legislature passed a law providing for the deposit of state funds in depositaries to be selected by the state treasurer, but also providing that nothing contained in such law should relieve the treasurer or his bondsmen from any liability under which they otherwise would rest. During the same session of the Legislature there was enacted a statute which, among other things, enacted as a part of our statutory law the provisions of section 11, art. 11, supra, rendering them applicable to county treasurers only, and specifically provided that a county treasurer “shall also be liable under and upon his official bond for the profits realized by such unlawful using of such funds.” It will be seen that the situation, so far as the Constitution and statutes of this state were concerned, existing in 1899, was quite similar to that existing in Colorado and made, by the court of that state, one of the grounds for its holding in the case of State v. Walsen, supra. Respondents would' lead us to believe that in State v. MbFetridge, supra, the court approved of the holding of the Colorado court. Not so — it was stated in the McFetridge case that, inasmuch as Wisconsin had no statutes such as those relied upon by the Colorado court, it was unnecessary for the court to consider the reasoning of the Colorado court in so far as the same was based upon such statutes. Respondents state that:

“The Legislature intentionally changed the rule making county treasurers absolutely liable for loss of funds without accountability for interest and deliberately declined to make the same change as to the state treasurer.”

Evidently, in order that we might conclude that the action of the Legislature in 1897 was prompted by matters of contemporaneous history, respondents have called our attention to the fact that the Walsen and McEetridge cases 'had but recently been decided, and that — a fact of which they ask us to take judicial notice — this action of the Legislature -immediately followed a political campaign wherein “the taking of interest by state treasurers was a matter of earnest state-wide discussion.” If we should.draw all the inferences which respondents could ask us to draw from what the Legislature did do as read in the light of matters of concurrent history, we would conclude: That the 'Legislature of 1897 was of the mistaken -opinion that the law of this state was that announced in the Walsen case. That such Legislature -did not desire tó change such law except as to county treasurers. That by enacting the law it did en-a-ct it supposed it was changing the -then existing law to the extent of holding county treasurers liable when otherwise they- would not be liable. That, if the Legislature had understood that the existing law was as declared in the McEetridge case, .it would have, by express statute, so changed the law that all custodians of public funds, other than county treasurers, would have been released from civil liability for interest received by them from such funds. Basing our ruling upon such inferences, respondents would ask us to hold that the law of this state, after 1897, was- the law which the Legislature of 1897 would have passed if it had known what was then the law. This is asking us to recognize an entirely'novel method of enacting legislation, and one we cannot adopt.

In conclusion we call attention to the following controlling facts: The title to all moneys received by the state treasurer remains in the state Under the clear provisions of our statute. While the statute then in force did not provide that the treasurer should deposit money at interest, there was- absolutely nothing in such statutes that rendered it unlawful for a state treasurer to deposit moneys in a bank and -to contract that the bank should pay interest upon such deposits. It was the state funds that earned this interest and not the treasurer. Such interest became a mere increment of such principal fund, and whenever such increment was paid to the state treasurer it was pa-id into the state treasury of this state whether in fact it ever reached the office of state treasurer or was entered in the boobs of such office. Unless the state treasurer actually misappropriated such interest money, he was guilty of no crime, even though he may have contracted that such interest should be paid to him individually and not to him as state treasurer. The treasurer and also his bondsmen were liable for all funds paid into the treasury and such liability was not affected by the fact that a part 'of such funds happened to be the earnings or increment of other funds. Moreover, even if it would avail him anything, the law would not allow the treasurer to stultify himself by taking the position that he entered into an unlawful contract with the banks. The law finds that this interest money came lawfully into! the possession of the treasurer as public funds. For such public funds lawfully received by the treasurer, he and his bondsmen must account unless released for reasons not appearing in the complaint.

The order of the trial court is reversed.