City of Sturgis v. Meade County Bank

POLEE Y, J. The defendant M'eade County Bank failed, and was taken in charge by the public examiner who proceeded to collect the assets and pay the debts. At the time of the failure of the bank, there was on deposit therein a considerable sum of money belonging to the plaintiff, the city of Sturgis. This money had been deposited therein by the city treasurer, and it had been the practice of the city treasurer, for several years prior to the time of the failure, to keep the funds of 'the city on deposit in said! bank, subject to check, and pay the same out-by check as needed. This was done with knowledge of the city authorities; and the bank, through its -managing officers, knew that the mloiney so deposited by the city treasurer belonged to the city. After the failure of the bank, the city presented its claim for payment, and demanded that it be paid in full in preference to the claims of the other creditors. It is conceded that the assets of the bank were not sufficient to pay its debts in full, but the city claimed that its money constituted a trust fund. The public examiner allowed the amount of the claim, but refused to give it preference over the claims of other creditors. The city brought this action for the purpose of establishing a preference, but the trial court sustained the public examiner, and the city brings the case here on appeal. [1] When a bank becomes Insolvent and is taken over, by the public examiner, -the assets of the bank become a fund for the payment of the -claims of the various creditors, and, unless there is some reason, recognized by law, that entitles one creditor to a preference over the others, they should- all be treated alike. If the assets are sufficient in amount, the -creditors can all be paid in full; but, where there are not sufficient funds to pay the just [320] claims of all the creditors in full, then such fund as there is should -be proportioned among' such creditors .according to the amount of their respective claims. As between the creditors .of an insolvent bank, equality is equity. Cavin v. Gleason, 105 N. Y. 256, 11 N. E. 504. This rule applies to all bank depositors. [2] As a rule, when monejr is deposited in a bank, title to such money passes to the bank. The 'bank becomes the debtor of the depositor to. the extent of the deposit, and, to that extent, the depositor becomes the creditor of the bank. Allibone v. Ames et al., 9 S. D. 74, 68 N. W. 165, 33 L. R. A. 585. Such deposit then constitutes a part of the assets of the bank, and, in case of insolvency, belongs to the creditors of the bank in proportion to the amount of their respective claims. Exceptions to this rule are: First, where money or other thing is deposited with the understanding that that particular money or thing is to be returned to the depositor; second, where the money or thing deposited is to. be used for a specifically designated purpose; and, third, where the deposit itself was wrongful or unlawful. [3] The money involved in this case was deposited by the city treasurer subject to his check, and without any understanding that the identical money 'deposited should be returned to him, or that it should ‘be used for any specific purpose. Therefore 4 falls within neither of the first two of the above classes. But it is contended by the -appellant that the treasurer was without authority to deposit the city funds in the Meade County Bank, or in any other bank; that the law made him custodian of the city funds, and that it was unlawful for him to- deposit such funds in any ■bank, and for that reason the title thereto did not pass to the bank; hut that the bank took and held the same’as trustee only, and is now1 in duty bound to return the same in full regardless of the claims of the other creditors. While the law makes the city treasurer the custodian c-f the city funds, it does not, either in terms or by implication, require him to maintain the actual or physical possession thereof, nor that 'he shall keep the same in a private safe or vault. It is customary and altogether proper, in the absence- of a law to the contrary, that such funds -should be -deposited for safe-keeping in some reputable bank, and that they be paid -out by check when needed, just as was done by the city treasurer in this case. Where [321] the law prohibits the deposit of specific public funds in banks, it is held by the courts that’ it is unlawful for the bank tia accept the same; that the title tO' such deposits does not pass to the bank; and, in-case of the insolvency of the bank, such deposits shall be allowed as preferred claim's and paid in full by the receiver. Green v. Custer County, 8 Idaho, 721, 71 Pac. 115; Yellowstone County v. Bank, 46 Mont. 439, 128 Pac. 596; State v. Bruce, 17 Idaho, 1, 102 Pac. 83, L. R. A. 1916C, 1, 134 Am. St. Rep. 245. But in this state there is no law that prohibits a city treasurer from keeping the city funds in a bank; and, where such funds are deposited by the treasurer to be paid out on check, the transaction constitutes a general deposit. The relation of debtor and creditor arises in the same manner as in case of the deposit of individual funds. Allibone v. Ames, supra. And, in case of insolvenc)'' of -the bank, the claim of the 'city, based on a deposit of public funds, is in no wise superior to, or entitled to; a preference over, a. claim based on a deposit of individual funds. 5 Cyc. 514, 3 R. C. L. 644, 7 C. J. 633; Cavin v. Gleason, supra; Fletcher v. Sharpe, 108 Ind. 276, 9 N. E. 142; McLain v. Wallace, 103 Ind. 562, 5 N. E. 911; Hunt v. Hopely, 120 Iowa, 695. 95 N. W. 205; Brown v. Bank, 139 Iowa, 83, 117 N. W. 289; Officer v. Officer, 120 Iowa, 389 94 N. W. 947, 98 Am. St. Rep. 365, and, for an extended discussion of this subject, see note appended to Page County v. Rose et al., 8 Ann. Cas. 116, where the authorities on the subject are collected and reviewed. We believe this is a proper case for the application of the above rule, and we hold accordingly that the deposits- involved," made by the city treasurer of the plaintiff city, constitute a general deposit only, and that the city should 'be treated as a general creditor and be paid ratably from the -assets of the bank that are applicable to the-payment of the -claims of the general creditors. The judgment and order appealed from are affirmed.