State Ex Rel. City of Grinnell v. Carney

The question is whether or not, when a city treasurer deposits city money in a bank which has not been designated as a depositary, and where no depositary bond is put up, and the bank fails, the city treasurer is absolutely liable under the statute; or whether it is a question of due diligence on his part in selecting the bank in which he has deposited the money.

The first case of this character before our court was Ross v.Hatch, 5 Iowa (Clarke) 149. It was there held that, where the county treasurer used reasonable care and diligence in the preservation of the public funds, and the same were stolen, he was not liable for the loss. This ruling was bottomed upon the wording of the bond, which, so far as material, was, "`to pay over promptly to the person or officer entitled thereto all money which may come into his hands by virtue of his office,'" but which also contained a provision that he would exercise diligence and care.

In County of Johnson v. Hughes, 12 Iowa 360, the county treasurer neglected to cancel certain warrants received by him, which were afterwards stolen from his office, without his fault or negligence. It was held that he was liable to the county for the amount thereof on his official bond.

In District Township of Taylor v. Morton, 37 Iowa 550, the school treasurer kept money in his residence, which was broken into and the money stolen. It was held that the treasurer was liable, and that negligence on his part was no defense.

In District Township v. Smith, 39 Iowa 1, the money of the district township in the hands of the treasurer was accidentally consumed by fire, without want of care and diligence on his part. The treasurer was held absolutely liable, and the claim that it was accidentally destroyed by fire, without want of care and diligence on his part, was held to be no defense.

In District Township v. Hardinbrook, 40 Iowa 130, the district township treasurer deposited money in a bank, taking a certificate of deposit in his own name. It was held that the treasurer's liability was absolute, and could not be varied or diminished by the cause or manner of the loss.

In Lowry v. Polk County, 51 Iowa 50, it was held that, *Page 141 where the county treasurer deposited money in a bank, such deposit was a loan, and in violation of Section 912, Code of 1873.

In Long v. Emsley, 57 Iowa 11, the township clerk deposited public funds in his individual name, which was held to be a loan to the bank, and amounting to a conversion.

In Independent District of Boyer v. King, 80 Iowa 497, it was held that a deposit by the treasurer of a school district of its funds was contrary to law.

The sum total of the holdings of this court up to this point in its history is that, where a treasurer of any of these bodies deposits money in a bank and it is lost, he does so at his own hazard. Or, to put it in another way, the respective treasurers were, in effect, held to be insurers of the safety of the funds that came into their hands. This doctrine resulted, in many instances, in grave injustice, and this court changed front on the question of the liability of such officers under certain conditions. The first case under the new line of authorities isOfficer v. Officer, 120 Iowa 389, where we held that an executor was warranted in leaving his trust funds with a bank for preservation.

In Hunt v. Hopley, 120 Iowa 695, we said:

"A trustee may take the precaution of leaving the trust funds with a bank for preservation (Officer v. Officer, 120 Iowa 389), and we can see no reason for denying a school treasurer the right to equal protection in placing the moneys of his district within the safe-keeping of a solvent bank, also. * * * Must he, at his peril, carry the large sums of public money coming into his keeping on his person, or stow them away at his home or place of business, thereby taking risks of loss, destruction, or larceny not to be thought of in the care of his own property? A number of courts apply precisely the same rules with respect to public officers as to trustees, and not only hold that they may make general deposits of public moneys coming into their hands, but are liable in event of loss only when failing to exercise due care and diligence. * * * We are not ready to so declare. Better that Lowry v. Polk Co., in so far as holding the general deposit of money a loan, be overruled."

In that case, the treasurer was held not liable.

In State ex rel. Carroll v. Corning State Sav. Bank, 128 Iowa 597, we held that the receiver of a defunct bank may deposit *Page 142 the funds of his insolvent estate, as such, in the hands of a bank of good standing and repute.

In Rhea v. Brewster, 130 Iowa 729, where a fund was deposited with the clerk of the court, to abide the result of litigation, we reiterated the doctrine of Hunt v. Hopley, and held that the clerk had the right to deposit the money for safe-keeping.

In Hanson v. Roush, 139 Iowa 58, a school treasurer deposited money in a private bank. We there held that such deposit was not wrongful.

In School Township v. Stevens, 158 Iowa 119, the school treasurer deposited, in his name as treasurer, money in a bank which afterwards became insolvent. We there discussed these two lines of authority in Iowa, and said, with reference to the latter pronouncements of this court:

"It is held, in effect, in the foregoing cases, that the adoption of this method of caring for public funds, their identity being carefully preserved by separate and distinct accounts, as such, is not only permissible, but commendable. In the light of modern methods of business, it would be difficult to specify a safer method of care and custody than is thus provided. Indeed, it might be a fair question whether, in the absence of excusing circumstances, a treasurer could properly ignore such facilities and subject public funds to the risk of loss naturally incident to a personal custody of currency. Where such course is followed, we can see no reason of public policy to be subserved by declaring for a rule of absolute liability of the treasurer, notwithstanding the exercise of all diligence and the observance of every legal duty. We adhere, therefore, to the rule followed in Hanson v. Independent District [155 Iowa 264], supra, and foreshadowed in the cases of Officer v. Officer, Hunt v. Hopley,Hanson v. Roush, and Brown v. Sheldon Bank, cited above, and Rossv. Hatch, supra. In so far as the other cases cited by appellant should appear to be inconsistent herewith, they must be deemed to be overruled to that extent. The trial court therefore rightly held against the claim of absolute liability on the part of the defendant."

In the case of Incorporated Town of Conway v. Conway, 190 Iowa 563, the city treasurer deposited money in the bank in *Page 143 the name of the "town of Conway." We there said, with reference to the conduct of the treasurer, that he had the right to deposit the funds of the town in a bank believed by him, acting as a person of ordinary prudence, to be reasonably safe and trustworthy. The contention made in that case was that the deposits were all contrary to law, relying on District Townshipv. Farmers' Bank of Fontanelle, 88 Iowa 194, and IndependentDistrict v. King, 80 Iowa 497, and other like decisions. With reference thereto we said, "These have been overruled by the cases previously cited;" and it was held that the deposit was not wrongful.

The substance of our later holdings, beginning with the Officer case, is that, when one of these officers deposits public money in a going bank which he believes to be safe and sound, and he uses reasonable diligence and prudence in selecting the bank, he is not liable for loss caused by a failure of the bank. This is the rule in this state at the present time, unless it be that, by reason of Chapter 55 of the Acts of the Thirty-fifth General Assembly, this rule is changed. The material part of this act reads as follows:

"That treasurers of cities of the first and second class, * * * shall, with the approval of the city council as to place and amount of deposit, by resolution entered of record, deposit all city funds in any bank or banks in the city to which the said funds belong, at interest at the rate of not less than 2 per cent per annum on 90 per cent of the daily balances payable at the end of each month, * * * but before such deposit is made in any bank it shall file a bond for double the amount deposited with sureties to be approved by the treasurer and the city council and conditioned to hold the treasurer harmless from all loss by reason of such deposit or deposits; provided that in cases where an approved surety company's bond is furnished said bond may be accepted in an amount of 10 per cent more than the amount deposited."

Does this enactment wholly supersede the rule that previously existed in this state with reference to the deposit of city funds? We are led to inquire what the reason was for the enactment of this statute.

It would seem, on the face of it, that it was intended to keep *Page 144 the funds with some bank or banks, so that the municipality might benefit by the monthly interest provided for in said statute. There can be no question, under this section of the statute, that the city council shall designate the proposed depositories and the amount of bond, and approve the bond to be given by such depository. There can be no question that, when this has been done by the city, then the treasurer has no option whatever but to deposit the city funds, to at least the amount of the bond, with the depository thus designated; and the city treasurer would be prohibited from depositing such funds, up to the amount of the bond, in any other bank than one of the depositories thus named.

I do not think this question is debatable; and if the treasurer insisted upon depositing in some other bank, in disregard of the resolution of the town council, he does so at his own hazard, and if a loss is suffered, he is personally liable, as would be his bond.

But suppose that the city council refuses or neglects to designate a depository for such public funds, — is the treasurer compelled to carry it around in his pocket, or keep it in his home or place of business, and do this at his own hazard? Or would it be the more safe and sane rule to say, as we have said since the Officer case, that business sense and judgment demand that he should not do this, but should deposit it in some safe bank, using due diligence in his selection of the bank?

On the other hand, suppose that the city treasurer has more money coming into his hands, as such, than the depository bonds cover, is it possible that, if he deposits one dollar more than is covered by the depository bond, he becomes personally liable? Is he compelled to carry this surplus around on his person or keep it at his home or place of business, or would it be wiser to say that he should do as any other reasonably careful business man would do, under like circumstances, and deposit it in some bank which appears to him to be safe and sound, until such time as that the council, by resolution, shall designate another depository, or until the bonds of the designated depository have been increased sufficiently to cover the excess amount; on the happening of which event, of course, he must then deposit in accordance with the resolution of the city council?

The city council had recommended the bank in controversy, by its resolution, as a safe depository, and in pursuance of such *Page 145 resolution, he deposited the money in the bank in question. The amount on deposit concededly was some $11,000 in excess of that covered by the bond; and until a new bond was required by the city council, or until one could be procured, I am of the opinion that he had a right to deposit this money in this bank.

As to what the record shows with reference to his use of due diligence in selecting the bank, I have given no attention, as I am only trying to deal with the general rule that should govern in cases of this kind. I would reverse.

De GRAFF, J., joins in this dissent.