City of Dickinson v. Dakota National Bank of Dickinson

BiRdzell, J. This is an appeal from a judgment entered pursuant to an order sustaining the demurrer of certain defendants to the complaint and also from the order sustaining the demurrer. Ignoring formal allegations, the complaint alleges the ¡giving of two depositary bonds by the defendant, Dakota National Bank of Dickinson, at dif ferent times, each bond being signed by different individuals as sureties (with one exception not necessary to note). It then alleges the failure of the principal (the bank) on January 2, 1924 and pleads, as a breach of both bonds, the failure of the bank to pay to the plaintiff $6108.04 belonging to the plaintiff and on deposit in the bank when it closed, partly in the form of a checking account and partly evidenced by certificates of deposit. The first bond is dated February 28, 1916 and the sureties therein named justified in September, 1917. These sureties, except the one who was also surety on the second bond, are *207 tbe demurrants. Tbe second bond is dated January 20, 1922, but the complaint does not purport to state any cause of action against any demurring defendant on account of tbe giving of tbe second bond. Hence, we will ignore this bond in tbe further discussion with reference to tbe correctness of tbe order and judgment appealed from. Tbe first bond recites that, whereas tbe Dakota National Bank of Dickinson bad been designated by the city of Dickinson as a depositary for'the funds of tbe city, tbe condition of tbe bond was such that if the bank would safely keep and repay all funds deposited, then tbe obligation would be void. It is alleged that this bond was duly approved and that it has been in full force and effect since its approval and filing. Tbe contention of tbe appellant is that, since tbe bond is in form a continuing bond and since it does not appear in tbe complaint that it bad been cancelled prior to tbe failure of tbe bank in January, 1924, tbe complaint states a cause of action against tbe principal and tbe sureties thereon. On the other band, tbe respondent contends that the complaint must be read in tbe light of tbe statutes regulating public depositaries, and that when so read tbe bond was in legal effect terminated as a continuing depositary bond long prior to tbe failure of tbe bank, and that, hence, any breach of said bond must be predicated upon the failure of tbe bank to repay funds which were on deposit prior to tbe legal termination of tbe bond. In 1919 tbe legislature passed an act which is commonly referred to as tbe Bank of North Dakota Act. Section I of that act (chapter 147) reads in part as follows: “All state, county, township, municipal and school district funds, and funds of all penal, educational and industrial institutions and all other public funds shall be, by tbe person having control of such funds, deposited in tbe Bank of North Dakota within three months from tbe passage and approval of this Act, subject to tbe 'disbursement for public purposes on checks drawn by tbe proper officials in tbe manner now or hereafter to be provided by law.” Then, after stating certain immaterial exceptions, it reads: “Any person who shall violate any of tbe provisions of this section shall be guilty of a misdemeanor and upon conviction thereof shall be punished by imprisonment in a county jail for not less than ninety, days, and by a fine of not less than one hundred dollars.” *208 After this statute bad been in operation for some time, an initiated law was enacted, specifically amending the section partially quoted •above to read as follows: “All state funds, and funds of all state penal, educational and industrial institutions shall be, by the persons having control of such funds, deposited in the Bank of North Dakota.” (N. D. Laws 1921, p. 255). This eliminated the requirements of the deposit of municipal funds in the Bank of North Dakota. At the session of the legislature immediately following the enactment of the initiated amendment, supra, there was passed another law regulating legal depositaries, chapter 56, Session Laws of 1921, which law, among other things, requires that before any state or national bank shall act as a depositary of public funds it shall furnish a bond. Apparently, the second bond in the instant suit was furnished pursuant to this statute. The precise question before us is, Did Section 7 of Chapter 147 of the Laws of North Dakota for 1919 have the effect of cancelling the depositary bond upon which the defendants were sureties, so as to terminate the liability of the sureties fox subsequent deposits ? We are of the opinion that this question must be answered in the affirmative. Concededly, the matter of regulating the deposit of public funds and providing for their safekeeping is properly a legislative function. By the act in question the legislature has clearly said that there should be but one depositary for public funds of the character of those involved in this suit, having even made the deposit in any other place by the officer in charge a misdemeanor. The bond upon which the demurring defendants were liable was on its face and by its terms a depositary bond. When the statute in question came into operation the performance of the function of a public depositary by the principal was rendered impossible by operation of law. Hence, the conditions upon which any further liability could be contracted were changed. The defendants might well have been content to guarantee the performance of the obligations of a legal depositary relationship, but quite unwilling to stand sponsor for an illegal relationship. At any rate the relationship would be entirely different after the taking effect of the Bank of North Dakota Act than before, and we are of the opinion that the sureties had a right to assume that their obligations touching future deposits were at an end when that law prescribed the continuance of the relationship. McHenry County v. Northern Trust Co. 51 N. D. 646, *209 200 N. W. 892. Hence, we are of the opinion that to predicate a liability upon the first bond the plaintiff should allege facts showing the failure of the bank (the principal) to repay funds placed on deposit prior to the time when the legal relation of the depositary terminated in 1919. We cannot assume in aid of the pleading that the officers of the city, whose duty it was to deposit the funds of the city in the Bank of North Dakota, incurred the penalties of the Act .of 1919 by allowing the city’s funds to remain continuously in the defendant bank. It follows that the complaint does not state sufficient facts to constitute a cause of action against the demurring defendants and that the judgment and order appealed from should be affirmed. It is so ordered. CheistiaNsoN, Ck. J., and Nuessle, Johnson, and Bueke, JJ., concur.