First National Bank of Durand v. Joint School District No. 1

The following opinion was filed May 12, 1925: Crownhart, J. It appears that in the year 1919 the appellant school district held its annual July meeting, and the books of the treasurer, which theretofore had been audited, showed a balance on hand of $492.34, with no indebtedness against the district. The district maintained and operated a high school, and the expense prior to the payment of taxes would amount to several thousand dollars. The district had no other means of obtaining money to run the school during that period except by borrowing. This situation was, of course, known to the voters at the annual meeting, and it would seem reasonable to believe that they expected that the district officers would borrow money to run the school pending the collection of taxes. There is evidence that indicates that this had been the practice over a period of several years at least. On' July 14, 1919, the district clerk made out and signed a school order, which was also signed by the director, in [550] regular form, for $1,000, payable to respondent, with interest at seven per cent., on April 1, 1920. On the same day the school clerk and director issued a second order, in regular form, for $1,200, payable to the respondent, with interest at seven per cent., and due May 15, 1920. On October 8, 1919, the clerk and director issued a third order, payable to the respondent, in the sum of $1,200, with interest at six per cent., due May 15, 1920. The three orders were delivered by the clerk to the treasurer, and the treasurer negotiated the same to the respondent and received the money therefor. The plaintiff bank in this action, admitting the illegality of the school ordei's, seeks to recover on the equitable principle that the bank having loaned the district money for a lawful purpose, and the district having received the money and used it for such purpose, the district in good conscience should repay the bank the money so received. It is the undoubted law of this state that where a party in good faith loans money to a municipality, to be used by the municipality for a lawful purpose, and which is in fact used for that purpose, on failure of the municipality to pay the loan an action may be maintained for money had and received, notwithstanding the contract was void for irregularity. First Wis. Nat. Bank v. Catawba, 183 Wis. 220, 232, 197 N. W. 1013, and cases there cited. The burden of proof was upon the bank to establish By a clear preponderance of the evidence that the money was so loaned and so used by the district. We are unable to discover the evidence in the record to establish the fact that the money so loaned was used by the treasurer for a lawful purpose of the district. The money was loaned to the treasurer several months before the district was required to use it for school purposes. The money so loaned is not traced to show that it was actually paid by the treasurer for school [551] purposes when the district was in need of the money to pay its lawful expenses. The record discloses that the expenses incurred by the district prior to January 8, 1920, exceeded the sums borrowed, including the balance on hand at the July meeting. Orders seem to have been drawn to cover such expenses, but how they were paid, when they were paid, or with what funds they were paid is not definitely disclosed. The treasurer, however, reported at the annual meeting in 1920 that the expenses for the preceding school year were $932.62 in excess of the receipts, and thereupon he was voted that sum to balance his account. But the treasurer’s account did not disclose the receipt of the loans made to him by the plaintiff bank. It therefore appears by his account that the treasurer did not use the funds received by him from the bank for school purposes. Ordinary care upon the part of the batik required it to demand the return of the loans within six months from the dates of the loans, as the district board was not authorized to borrow for a longer time. Sub. (2), sec. 40.11, Stats. 1919. Had the bank used ordinary care it would have demanded payment at a time when the treasury would have been in funds from its receipts from taxes collected. The result of its dealings with the treasurer is that the treasurer squandered the money, and if the district is required to pay the loans it will be out that much with no possibility of re-coupment. There are suspicious circumstances which indicate that the treasurer did not use the borrowed funds for school purposes. He had a bank account with the plaintiff bank, and yet he was given the funds in cash. He had no bank account as treasurer of the district. He was a business man doing a considerable business, and it is not to be presumed that he would keep a large sum of school money in cash for several months. In the absence of evidence to the contrary, it is more likely that he used the money in his business and [552] depended on his ability to have sufficient money on hand when needed to make good his embezzlement of such funds. As it finally turned 1 out he never made good, and he absconded, leaving the borrowed funds wholly unaccounted for. The result is unfortunate for the bank, but if the district is required to pay it would be equally unfortunate for the taxpayers, who have not profited by the transactions. This court therefore concludes that the circuit court was in error in finding for the plaintiff and in entering judgment in its favor. By the Court. — The judgment of the circuit court is reversed, with directions to dismiss the plaintiff’s complaint. The respondent moved for a rehearing. In support of the motion there was a brief by C. A. Ingram of Durand and F. M. White of River Falls. In opposition thereto there was a brief by Buehler & Buehler of Alma, N. O. Varnum of Hudson, and M. L. Fugina of Alma. The motion was denied, with $25 costs, on October 20, 1925.