Northern Trust Co. v. First National Bank , 33 N.D. 1 ( 1915 )

Burke, J.

Appeal from a trial to the court without a jury. Although both respondent and appellant insist that there is no dispute as to the material facts, we find that they disagree when it comes to their statements. In the 1906 elections, one McConville, who was serving as deputy county treasurer of Cass county, was elected treasurer. He was, however, short in his accounts as deputy, and to make up such shortage borrowed $2,500 of defendant.

It was agreed by McConville that this $2,500 should be repaid to the bank from his salary as county treasurer at the rate of $100 and interest per month. January 4, 1907, McConville became treasurer, and the Northern Trust Company furnished his official bond. January 7, three days later, McConville extracted $112.11 from the cash drawer; January 26, $190.99 ; January 31, $10, — a total of $313.10. January 10th he issued a check upon the deposits of Cass county in favor of the Union Light, Heat, & Power Company for $7.46; January 7, to T. M. Huberts, cheek for $1.37, — a total of $9.83. Thus, upon February 1st, he had used $322.93 of county money as against his salary of $192.90. This fact is material because it shows a shortage from the very beginning. The first check issued in payment of this indebtedness to the Buffalo bank was on April 10, 1907, for $108.66. At this date he had taken from the cash drawer, moneys, belonging to the county, $804.69, and he issued county checks to pay his private indebtedness in the further sum of $55.81, a total of $860.55. His salary for January, February, and March amounted to $609.56. He was therefore $250 short before the issuance of the first check to the defendant. From that time on, this shortage continued, until, at the end of two terms, he had extracted from the cash drawer, $10,655.11, and had written unauthorized checks in the sum of $9,034.85, a total of $19,689.96. His salary amounted to $9,841.58, leaving a shortage of $9,848.38. He claimed, however, a commission for handling certain funds, which, if allowed, would reduce the shortage to $7,258.28. The county contests the allowance of this commission, but it is not material to this litigation. McConville pleaded guilty to embezzlement and was sentenced to the penitentiary. Cass county recovered judgment against the trust company upon the bond in something over $7,500. During the four years in office, McConville had issued checks drawn upon the funds of Cass county to the First National Bank of Buffalo for $2,564.22 upon his private indebtedness to the bank, and now the trust company brings action against the bank for said sums, claiming to be subrogated to the rights of Cass county. The bank at first demurred, but in Northern Trtist Co. v. First Nat. Bank, 25 N. D.' 74, 140 N. W. 705, this court held that the complaint stated a cause of action. Upon trial below t<r the court without a jury, findings of fact and conclusions of law favorable to plaintiff were entered. This appeal is from the judgment. Some of the questions which would otherwise arise have been settled in the former appeal. Appellant no longer questions the right of subrogation, but divides his present defense into four portions, which will be treated in the four paragraphs following:

(1) Appellant claims that “plaintiff has wholly failed to establish that the issuance of the checks in question created any shortage or caused any damage to the county of Cass, and that the evidence in the case is undisputed that no shortage was caused or created by the issuance of the checks in question.” It is his claim that moneys were secured from other sources, partly from school districts, to make good the shortage, and that said funds were kept in the county depositaries sufficient at all times to meet any demand that Cass county might have had against McConville. He states in his brief: “Cass county on any day from the 4th of January, 1907, to February 9, 1909, could have taken Mr. McConville out of his office, removed him before any entry had been made upon the books, appointed a new treasurer, such treasurer over his official signature as treasurer of Cass county could have withdrawn from the vaults of the various banks of Cass county every dollar which was due and owing to Cass county.” And again: “Amounts appealing upon the books of the county treasurer were paid over to McConville as school district treasurer by making a record of the same and separating the same in the accounts from the county money. Instead, however, of using this money for school district purposes, McConville placed it in the name of Cass county, and gave Cass county the title to it; whether it was taken by permitting it to remain in the vaults of the county treasurer, or was withdrawn and then replaced annually, is immaterial. . . . He was short actual cash as school district treasurer, not as county treasurer.” Appellant further states: “The ultimate and important fact is that when the school districts or other persons from whom McConville had embezzled money to use as county treasurer subsequently received their money, then, and not until then, was McConville unable to produce money to fulfil his liabilities to the county, and that is when the first shortage occurred which caused injury or damage to. the county of Cass.” Appellant’s position is ingenious, but unsound. A study of the testimony will not bear out his contention.

When McConville was elected treasurer the law authorized the county superintendent of schools to appoint the county treasurer as treasurer ■of any school district in the county under certain contingencies. Mc-Conville thus became the treasurer of four school districts. Section 1472, Comp. Laws 1913, provides: “All funds of each and every city ■or school district of this state shall be deposited by the treasurer of the ■city, county, or school district, as soon as received by him, in the name of the city or school district of which he is an officer, in such bank or banks as shall have been designated as city or school district depositaries in accordance with this article, as hereinafter provided.” One of the ways in which McConville concealed his shortage with the county was to pretend to turn over to himself as school district treasurer moneys for the school district, but, in fact, leave all of said money in the county deposits. Another way was to delay the issuance of tax receipts.

The testimony of the deputy, Mayo, follows :

A. Every time an examination was made, whether by the county commissioners or by the public examiner, there was money on hand to balance the report as they found it — Otherwise, why, there would be a stopper right there.

By the Court. How did that all come about, Mr. Mayo ?

A. Well, now, I could explain if I had permission to do it my own way.

. . . Now, say, for instance, the public examiner comes along in February. The penalty goes on taxes the first of March and during the month of February there would be possibly $200,000 that will come into that office that there is not a receipt issued for. There is nothing to prevent the treasurer from taking $100,000 at that time and still have money enough to settle up everything easily.

By the Court. That is, $100,000 money that he has not given a receipt for yet ?

A. Yes. You know those tax receipts — some people do not get theii tax receipts until sixty days after the first of March. They cannot be gotten out in one day — cannot be gotten out in a month.

Q. He wasn’t charged with it in that report which you say he made, was he ?

A. No, he was not.

Q. He was charged with a less amount than he actually had on hand; is that right?

A. He wouldn’t be charged with any money until receipts of some hind had been issued for that money.

Q. So that in the interim and until those receipts were issued, he apparently had more money in the bank than he was charged with; that is correct, isn’t it?

A. Yes, sir.

Q.'Now, do you mean, Mr. Mayo, that-the depletion of the bank account, which you say was caused by the issuance of each of these checks which was offered in evidence, was made up, or did he continue short?

A. It was only—

Q. Did he make it up ?

A. Did he — no.

Q. He didn’t, did he? He was short all the time, wasn’t he, Mr. Mayo ?

A. His account was overdrawn all the time.

Q. Now, if the examiner had looked in this ledger which you say you kept, and which is offered here as exhibit B, he would have immediately seen that he was short ?

A. Yes, sir.

Q. All the time ?

A. Yes, sir.

Q. The true condition of the accounts wasn’t shown by those reports or county books ?

A. No, sir.

This witness testifies that he kept track of the shortage by means of two correct cash books or ledgers, known as exhibits A and B, being the exhibits which we hold admissible in paragraph 4.

One Thompson, expert accountant, also testified that a thorough examination of the books showed a shortage at the time each check was issued to defendant.

We quote from his testimony:

Q. Now, did you make any examination of the books to ascertain whether or not, at the time of the drawing of the checks to the First National Bank of Buffalo, McConville had withdrawn cash from the drawer in excess of the salary earned at that time ?

A. Yes, sir, I did.

Q. Just take your book there and give us the result of your computation as to the first check that was drawn to the First National Bank oi^ Buffalo.

A. Was for $108.66. . . . Up until the time that this check was drawn and paid, he had drawn out in actual cash from the cash drawer, $804.69, and had deposited salary warrants, including the warrant deposited April 2d, of only $609.56, so that he had drawn cash in excess of his salary warrants to the amount of $195.13, when this first check was issued.

Q. Now going down, without stopping to take each check, go down to the last of the account and at the last of the checks and give us the standing of his accounts at the time he drew that check. . . . Well, your final footings now would include all of the twenty-six checks. What was the standing of his account at that time ?

A. That would include the last check that was drawn. ITe had withdrawn cash, $10,655.17, and had'put in the cash drawer salary warrants amounting to $9,841.58, so that the excess of cash withdrawn was $813.59. . . .

Q. You can tell the standing of his account at any time ?

A. At any time.

Q. That he drew any one check ?

A. Yes.

Q. So that the salary warrants which he put in the cash drawer, as you say, did not cover the actual cash which he had withdrawn from the drawer?

A. No.

(Upon Cross-Examination)

Q. In other words, you found a bookkeeping shortage ?

A. No, an actual shortage.

Q. But you do not know of any actual physical shortage, at any time except at the end of the term ?

A. And every day during the term.

Q. But, on the other hand, he could have settled on the official books ■ and produced every dollar due the county, if he had produced according to their records, couldn’t he ?

A. No, sir. He would have to settle according to the auxiliary books (A and B).

Q. How did he settle with the county commissioners from time to time, as they reported that he had sufficient funds on hand ? They did not have the auxiliary books before them ?

A. He was not examined properly.

Q. So far as his examination disclosed, there might have been sufficient money in the banks and in the cash drawer on the 1st day of January to have fulfilled every obligation against Mr. McConville, might there not ?

A. No, there could not because his cash book — this auxiliary cash book (A or B) — shows what cash he had on hand.

Q. Can you from this book, from the cash book, exhibit A, by computation at any time on any of the dates these checks were issued, ascertain the amount of money which was on deposit at the various hanks ? A. Tes, sir. It would be a long computation, but it could be done.

Mr. Thompson then explained the handling of the school district funds as follows: “He had at different times large sums in his hands as treasurer of school district No. 96. . . . Mr. McConville would get a warrant from the auditor’s office for school district No. 96. . . . This warrant would read, payable to H. A. McConville, treasurer of school district No. 96. He would take that warrant, put it in as so much cash, and turn to his auxiliary set and give school district No. 96 credit for that amount of money.

Q. But would he pay the money to school district No. 96 at that time ?

A. Instead of taking that money out and depositing it to the cr.edit of H. A. MeConville, treasurer, and disbursing it in a separate account, as the present treasurer does, he would put it in Cass county money.

Q. You mean he would take it out of Cass county moneys? It was there all the time.

A. He simply canceled the warrant.

Q. Did he not receive this money from the taxpayers as county treasurer in the first place ?

A. In the first place.

Q. And have it in his possession all the time?

A. All the time.

Q. Now, when he received a warrant payable to H. A. MeConville, treasurer of school district No. 96, you say he did not pay that warrant in cash at the time-?

A. No.

Q. Now, that is one of the methods, is it, by which Mr. MeConville could have fooled the county commissioners or whoever examined his office ?

A. Yes, sir.

Q. And an examination of the auxilliary books (A & B) would have disclosed immediately that the school district had not been paid that money ?

A. Yes, sir, every time.

Q. And that the shortage really existed in the account of H. A. Mc-Conville ?

A. In the debit item of H. A. MeConville.

Q. Did you make an investigation to ascertain how much MeConville was short, and of what items it consisted ?

A. I did; yes, sir.

Q. What was it ?

A. The total amount withdrawn from the county funds in the banks by cash and checks charged to the account of H. A. McConville was $9,848.44.

Q. Can you state from your examination of the books whether any part of the money has ever been restored to Cass county ?

A. By McConville ? No.

Moreover, an examination of exhibits A and B shows conclusively that at the time each separate check was drawn to the Buffalo bank the shortage was increased in McConville’s account with the county. This shortage is a real, and not a “bookkeeping,” shortage. From the testimony of the witnesses already quoted and from the examination of exhibits A and B, it appears that the cash book kept by McConville, and exhibited to the examiner and to the county commissioners, was inaccurate and false at the time it was exhibited to those officials. Bor instance, if a resident of one of the outlying precincts should send a •check for $50 to pay his taxes, McConville would place this $50 in the cash drawer, and would not enter the amount upon the books nor charge himself, as county treasurer, with the same until a later date. This $50, with other similar accounts, was used by McConville to conceal a shortage caused when he had taken money from the cash drawer. Let us say that there were $7,000 worth of such checks in the county funds, and he was deposed as treasurer. The taxpayers who had furnished this money would sue the county, showing that their checks had reached the treasurer’s office and had been deposited to the credit of the county; can it be doubted that Cass county would be liable? And again let us suppose that McConville pretended to pay out $7,000 of the county’s money to himself as treasurer of one of the school districts, but that in fact the money remained in the Cass county treasury. Supposing, then, that McConville was removed as county treasurer, and the school district sued Cass county for the money, showing that this particular $7,000 had always remained part of the Cass county funds. Can it be doubted that the school district would recover judgment ? The fact that appellant by leading questions induced the witness Mayo to testify that there was always cash on hand to balance the report furnished by McConville to the county commissioners is immaterial. The question is not whether there was money enough to balance a set of doctored books, but whether there was money enough to pay what McConville owed Cass county.

It is therefore too plain for argument that each and every check issued by McConville upon the Cass county funds to pay his private •debt to the bank constituted a shortage in the county funds which existed from that time until paid by the trust company, and that this shortage was never made good by McConville.

(2) Appellant’s next defense is: “Subsequent to the issuance of •the cheeks in question, full and complete settlement was had between the county of Cass and the county treasurer involved, and said county received all-moneys due it from said county treasurer, and that said settlement is conclusive upon said county and this plaintiff.” Much that we have said in paragraph 1 applies to this defense. McConville •did not make good his shortage, but deceived the county commissioners through false reports. Neither is there merit in the contention that the county was bound by those settlements. It is elementary that settlements obtained by fraud with the officers of corporations are not binding upon the corporation. Such has been the holding of our court in Goose River Bank v. Willow Lake School Twp. 1 N. D. 26, 26 Am. St. Rep. 605, 44 N. W. 1002; Capital Bank v. School Dist. 1 N. D. 479, 48 N. W. 363; Hosmer v. Sheldon School Dist. 4 N. D. 197, 25 L.R.A. 383, 50 Am. St. Rep. 639, 59 N. W. 1035; State ex rel. Diebold Safe & Lock Co. v. Getchell, 3 N. D. 243, 55 N. W. 585; Engstad v. Dinnie, 8 N. D. 1, 76 N. W. 292; Fox v. Walley, 13 N. D. 610, 102 N. W. 161; See also notes in 7 L.R.A.(N.S.) 1187, and 118 Am. St. Rep. 546; 11 Cyc. 442, from which we quote: “County authorities, in making settlements with the officials, act ministerially, rather than judicially, and their determination is no more conclusive than a settlement between private persons.” Cases supporting this text will be found under the Cyc. citation.

(3) Appellant’s third defense is that the records “of the county of Cass established such settlement with said county treasurer and the fact that all the county’s moneys were on hand, and such records are conclusive upon the said county, and the plaintiff.” This defense is completely answered by what we have said in paragraph 2.

(4) Appellant’s fourth defense is that “all the rights of the plaintiff, and his theory of establishing the liability upon the defendant, are based upon the evidence furnished by certain private books. These books are claimed by the defendant to be inadmissible, and if not properly admitted in evidence there is no proof whatever of any shortage.” A complete answer to this defense is that a shortage is proven by other competent testimony, as we have shown in paragraph 1. But there is no doubt about the admissibility of exhibits A and B. Those books are before us, and each one is a large book, sheep-bound, IS" x 12" x 2", containing 425 and 600 pages respectively. Those books are nearly filled with the cash accounts of Cass county. From the testimony it is evident that an accurate examination of the county funds could not be had without those books. Mr. Thompson testified that a complete examination shows that they were correctly kept and accurate. They are almost entirely in Mr. Mayo’s handwriting, a few entries being found in the handwriting of Mr. McConville.

Mr. Mayo says:

Q. Did you keep that (exhibit B) for the purpose of knowing what the condition of your cash was at any time you might want to turn to the books ?

A. Yes, sir.

Q. Did you keep them for the purpose of ascertaining the condition of your bank account with those different depositaries at any time you might want to turn to the books ?

A. That is the only place that that depositary system was kept.

Q. Well, now, is it a fact that the auxiliary books were kept for the purpose and were necessary in order to show the true condition of the office at any time in a county like Cass ?

A. Yes, sir. It is, absolutely.

The books in question were admissible for several reasons. First, Mr. Mayo was a witness and had a right to use these books as memorandum to refresh his memory. He had testified that they were in Ms handwriting and were accurate when made. Again, they were admissible as part of the res gestee. They are also admissible as official records because they were necessary to an understanding of the affairs of the office. The respondent also claims that they were admissible under § 1909, Comp. Laws 1913. The authorities sustain their admission as public records. Jones on Evidence, § 511, states: “In the Hnited States, somewhat greater latitude seems to have been allowed, and it has frequently been held that such entries are admissible, if made in the oourse of official duty, although not required to be made by law.” 1 Greenleaf on Evidence, 14th ed. § 496, note, says: “Whenever a written record of the transactions of a public officer in his office is a convenient and appropriate mode of discharging the duties of the office, it is his duty to keep that record whether required by law so to do or not; and such record is a public record belonging to the public, and not to the officer.” In Cooper v. People, 28 Colo. 87, 63 Pae. 314, it is said: “Where a clerk of a district court entered in a book, in which he was not bound to malte such entries, the receipt of fees collected by him, such book was properly admitted in evidence to prove the receipt of such fees in an action on the clerk’s bond.”

In Bridgewater v. Roxbury, 54 Conn. 213, 6 Atl. 415, it is held: To make entries in account books admissible in evidence, it is not always necessary that the transactions to which they apply should have been directly between the original creditor and debtor. In the same case it is held: Where the person who made entries in an account book, which is admissible in evidence, is beyond the reach of process, or is incompetent to testify, it is the same as though he were dead and his handwriting may be proved. Although McConville was not dead at the time of this trial, he was in the penitentiary. See note to State Bank v. Brown, 53 L.R.A. 513, and also note to Post B. & O. Employees Belief Asso. v. Kenerson, 52 L.R.A. 562, from which we quote:

“It is not true that the allowing of the original entries in books made at the time the transaction occurred, in the usual and regular course of business, by a party having personal knowledge of the transaction recorded, is permitted only from necessity; on the contrary, other and very strong reasons are given for the admission of such entities as evidence; first, they are a part of the res gestee;■ secondly, general convenience is much promoted by their admission as evidence. These reasons would lead to the conclusion that such entries as above described, being proved to possess all these qualities, might properly be admitted as evidence whether the person who made them is produced in court or not, or whether his absence be accounted for or not, — especially if it were proved that his books were generally correctly kept. These entries are a part of the res gestee whether he be present at the trial or not, and the general rule is that all the res gestee may and should be proved to promote the ends of justice. All the requisites of such an entry, which we have specified above, may be proved by others to exist, as well as by the bookkeeper. Others may prove the entry to have been an original entry, made at the time and in the regular course of business, by one acquainted with the transaction recorded in the entry. Surely such an entry, as a part of these res gestae, is in itself valuable evidence in our search for truth, even when unaided by the evidence of the bookkeeper; and it is regarded by the courts, as the decisions show, as legitimate evidence, though the bookkeeper in no manner supports it by his testimony.”

This court in Dickinson v. White, 25 N. D. 523, 49 L.R.A.(N.S.) 362, 143 N. W. 754, disposes of the contention that this shortage was presumed to have occurred during the last term of office. From the foregoing authorities and many others cited in the L.R.A. notes, it is apparent that exhibits A and B were properly received in evidence.

This disposes of defendant’s four separate defenses, and it follows that the judgment must be affirmed.