Waverly Independent Consolidated School District No. 1 v. Young

RUDOLPH, J. This action is brought by the Waverly independent consolidated school district for the purpose of having certain warrants, issued by it and now in the possession of the defendant, county treasurer of Codington county, returned to the school district. During all of the times mentioned herein, the State Bank of W'averly was a banking corporation doing business in ffie town of Waverly. M. T. Antony was the cashier of the bank, and also clerk of the school district. The wife of M. T. Antony was assistant cashier of the State Bank of Waverly, and also treasurer of the plaintiff school district. The school district kept its deposit in the State Bank of Waverly, and at all of the times mentioned herein had on deposit therein more than $15,000. The amount of the warrants involved in this action is approximately $2,000, which warrants 'had been issued by the plaintiff school district. These warrants had been taken to the State Bank of Waverly by the holders, the 'warrants indorsed, and the bank paid to the holder the amount of the warrants. Mrs. Antony in each instance signed a printed form on the back of the warrants to the effect that the warrant had been presented and! paid, and her books, as treasurer of the school district, showed the payment of these warrants. However, the account of the school district in the bank was never debited! on account of the payment, and the school district account with the bank remained the same after the holders of these warrants had received the cash as it was before. The county treasurer had a deposit with the State Bank of Waverly, and required the bank to in some manner secure this deposit. M. T. Antony thereupon had his wife draw a line through the form on the back of the warrants to the effect that they had been redeemed and paid, which form Mrs. Antony had previously signed, and caused her to sign her name to the form on the back of the warrants, which was to tire effect that the warrants had *436 'been presented for payment and not paidl for want of funds. The warrants in question were then turned over to the county treasurer as security for the county deposit. This was all done without the knowledge or consent of the school board, and the school board had no knowledge or notice of the purported transfer of these warrants to the county treasurer until after the closing of the State Bank of Waverly. In July, 1931, the State Bank of Waverly suspended and was taken over by the superintendent of banks. At the time of the suspension the school district still had its deposit in the bank, and the county treasurer was holding the warrants in question as security for the county deposit. The county treasurer then undertook to withhold tax money in the possession of the county belonging to the school district in an amount equal to the school district warrants the county held. This action was brought to recover posséssion of the warrants. The court made findings of fact, conclusions of law, and entered judgment in favor of the plaintiff, and the defendants have appealed. Because of the decisions of this court in the case of Lewis v. Rutland School District, 60 S. D. 163, 244 N. W. 102, 104, it is earnestly urged that the warrants in question were not in fact paid at the time they were presented! at the Waverly bank and the holders thereof received in cash the amount of the warrants. We do not 'believe it necessary, however, to pass upon this question of payment in this case. There is another feature of the case which we believe to be controlling. By the judgment it is decreed: “* * * That the said plaintiff is entitled to an equitable offset and the said plaintiff is hereby decreed to be entitled to an equitable set-off for the amount of said warrants in issue in this action as against the indebtedness shown to be owing to said plaintiff from said State Bank of Waverly being the amount of the deposits as the same appears in favor of the plaintiff herein on the books and records of the said State Bank of Waverly at -the time of the suspension thereof.” If these warrants were not paid when they were presented at the State Bank of Waverly and money received thereon, which for the purposes of this opinion we may concede they were not, then it is evident that -the bank at the time it advanced the money on these warrants *437 and took the warrants into its possession, in effect, purchased the warrants from the holders thereof, and the bank thereafter held and owned a valid and subsisting claim against the plaintiff school district. Had the bank retained these warrants, the school district would have been entitled to offset its deposit in the bank against the warrants in the hands of the bank after the bank’s failure. Holman v. Bank, 50 S. D. 524, 210 N. W. 730; Schaeffer v. Ruden, 61 S. D. 64, 246 N. W. 105; Ruden v. Dalkin, 62 S. D. 66, 251 N. W. 807. We are, therefore, confronted with the question of whether the transfer of these warrants by the bank to the county treasurer denied to the school district this right of set-off, to which the trial court decreed the plaintiff school district entitled. At this point it is important to note one material distinction, in so far as set-off is concerned, between the facts found by the court in this case, and the facts found by the court in the case of Lewis v. Rutland School District, supra. In the Rutland Case, the court found: “That the Board of Education of said defendant school district was at all times kept informed as to- the condition of the .treasury of said district and as to the outstanding warrants as herein described and had knowledge at all times as to the warrants described herein having been presented and endorsed as not paid for want of funds and that the same had been sold to said Farmers’ Savings Bank of Rutland, South D'akota, and that the said treasurer, Carl H. Norberg, made monthly reports to the said Board of Education as required by the statutes of this state, setting forth the amount of said outstanding warrants and that said Board of Education by resolution, duly adopted and approved 'said reports and confirmed and ratified the presentation, endorsement and sale of said warrants as made by said Treasurer, * * * and that the said Board of Education 'had knowledge of the warrants owned and held by the plaintiff at all times until the closing of the Farmers’ Savings Bank.” In response to the above findings, this court in the opinion in the Rutland Case said! as follows: “Under the findings of the court which are amply sustained by the evidence the defendant district had notice of the transfer of the warrants 'by the bank to the plaintiff and this information came to the notice of the defendant district prior to the closing of the bank. There was no matured liability of the Rutland bank to the defendant district existing at the time of or before notice of the -transfer *438 of the warrants 'to the .plaintiff, and the defendant was not entitled to a set-off.” In the instant case the trial court found that the plaintiff school district “ * * * had no knowledge or notice of any of the transactions had or acts or things done with reference to or in connection with the said warrants subsequent to the payment thereof by the treasurer of the plaintiff school district and the cancellation of said warrants by her, and had no knowledge or notice of any other act or thing done than as shown 'by the record of the said' treasurer, showing the payment and cancellation thereof and that any act or thing done or transaction had with reference to said' warrants subsequent to- such payment and cancellation thereof was without the knowledge, consent or ratification of said plaintiff school district and without the payment of any consideration to the said plaintiff school district.” In this case, therefore, it was not until after the closing of the bank, by reason of which the liability of the bank to the school district matured, that the board had any knowledge or notice of the transfer of these warrants to the county. [i, 2] The warrants in question are not negotiable promissory notes or bills of exchange. They are, however, things in action and also nonnegotiable written contracts for the payment of money. Tattersfield v. School District, 60 S. D. 455, 245 N. W. 51. Sections 2307 and 742, R. C. 1919, read respectively as follows: “§ 2307. Action by Assignee — Setoff. In case of an assignment of a thing in action, the action by the assignee shall be without prejudice to any setoff or other defense existing at the time of, or before notice of, the assignment; but this section shall not apply to a negotiable promissory note or bill of exchange, transferred in good' faith, and upon good consideration, before due.” “§ 742. Nonnegotiable Written Contract Assignable by Indorsement. A non-negotiable written contract for the payment of money or personal property may be transferred by indorsement, in like manner with negotiable instruments. Such indorsement shall transfer all the rights of the assignor under the instrument to the assignee, subject to all equities and defenses existing in favor of the maker at the time of the indorsement.” This court in- the early case of Kirby v. Jameson, 9 S. D. 8, 67 N. W. 854, speaking with reference to- the construction to- be *439 placed upon these two sections, referred to the California case of St. Louis Nat. Bank v. Gay, 101 Cal. 286, 35 P. 876. California has sections in its Codie identical to the said sections 2307 and 742. Construing these two sections, the California court, in the case of Bank v. Gay, said': “The two sections are not contradictory, and therefore the rules of construction which aid in 'Cases of contradictory provisions need not be invoked. The one section is merely an enlargement of or addition to the other, and the law as declared by the two sections is that a defendant may avail himself of a set-off acquired before notice of assignment, provided the set-off be in other respects good.” This construction of these statutes has been subsequently approved and affirmed by the California court. See Randol v. Rowe, 5 Cal. Unrep. 379, 44 P. 1068; Helmer v. Parsons, 18 Cal. App. 450, 123 P. 356; McKenney v. Ellsworth, 165 Cal. 326, 132 P. 75; Musto v. Grosjean (Cal. App.) 273 P. 1070. We are of the opinion that this construction of the California court of these two statutes is a reasonable construction, and not contrary to any construction placed thereon by this court. At different times one or the other of these two sections of our Code has been before this court, but apparently never, except in the case of Kirby v. Jameson, supra, has the apparent conflict in the two sections been called to the court’s attention, and in the cases where one or the other of these sections of our Code has been before the court, the apparent conflict in the sections was seemingly not material and in any event not relied upon by any of .the parties to the action. See State Bank v. Hayes, 16 S. D. 365, 92 N. W. 1068; Barry v. Stover, 20 S. D. 459, 107 N. W. 672, 129 Am. St. Rep. 941; Floete Lumber Co. v. Doherty, 46 S. D. 326, 192 N. W. 751. Applying this construction of these two sections of our Code, placed upon them by the California court, we are of the opinion that the decree of the lower court, to the effect that the plaintiff is entitled to offset its deposit in the closed bank against these warrants in the hands, of the county, should be sustained. There was in this case a matured liability of the State Bank of Waverly to .the plaintiff school district existing at the time of or before notice of the transfer of the warrants to the county. The judgment and order appealed from are affirmed. ROBERTS, P. J„ and CAMPBELL and WARREN, JJ., concur. *440 POLLEY, J., concurring specially.