Perkins v. North End Bank , 1897 Wash. LEXIS 211 ( 1897 )

The opirnon of the court was delivered by

Reavis, J.

Adolph Krug was, in 1892, elected city treasurer of Seattle, and qualified by giving a bond to the city in the penal sum of $100,000, with Gilman, Kilbourne, Fnhrman, Sander, Ostrander, McTeigh and Edmiston as sureties. In October, 1893, it was ascertained that Krug was short in his accounts and had embezzled large sums of the funds of the city coming into his possession as treasurer. An investigation by the city authorities followed, and shortly thereafter suit was commenced against Krug and his sureties, upon his official bond, to recover the amount embezzled, and thereupon negotiations were commenced between the city and the sureties for a settlement of the deficit. The city authorities discovered some portion of the funds of the city had been deposited by Krug in solvent banks doing business in the city; that the sum of $25,978.58 had been deposited by him in the Forth End Bank of Seattle, defendant, which at the time of the discovery of the defalcation had become insolvent and had closed its doors. Other portions of the city funds had been invested in city, county and school warrants and upon loans to different private individuals, whose notes and other obligations Krug held as security for the loans made. Other portions of the funds were found in the office of the city treasurer in the form of checks and drafts given by different individuals in payment of taxes, which checks and drafts, upon presentation, had not been honored. Shortly after the defalcation was discovered, the city, by ordinance, selected from these securities such as were considered good and declared them to be the property of the city. The negotiations with the sureties continued for about three weeks. The city presented to the sureties the statement of what it claimed to be the amount of Krug’s defalcation, prepared by its officers, which the sureties accepted as the correct amount. After further negotiation, the sureties finally submitted a proposition to the city to pay in full the amount of Krug’s defalcation as claimed by the city. In this proposal of the sureties the city was to receive and accept in lieu of cash, in addition to the securities already received and accepted by its ordinance, $39,611.32, composed of various specified claims and items; and the sureties further proposed to themselves pay $8,211.64, which latter sum was made up of various notes and checks in the treasurer’s office which had been given to the treasurer for liquor licenses, water rates and taxes and assessments, but not paid. For the remainder of the deficiency stated by the city, $78,119.30, the sureties agreed to deposit to the credit of the city in certain banks named that amount. Among the banks named was the Security Savings Bank, and the amount to be deposited therein was $7,721.82. It was stated further in the proposition that it was made for the purpose of compromise and settlement, and should not be considered binding unless accepted by the city, and should not be construed as an admission of ony liability upon the part of any of the sureties on the official bond of Krug; and, in case of non-acceptance by the city, that the sureties reserved the right to make airy legal defense to any action brought on the bond. The fifth paragraph of the proposition submitted by the sureties was as follows:

“ In the event of the acceptance of this proposition, the city is to dismiss all civil suits begun against said Krug and us, or against any of us, at its own costs, and to turn over to us all securities now in its hands, or in the hands of the finance committee, except such securities as may be or may have been accepted by said city, belonging to said Krug, or in which he is directly or indirectly interested; and except further, that the securities named in paragraph two hereof, shall be retained by the city for the purpose of collection, and to be turned over to us only in the event of the failure to collect said items or any of them.”

The securities named in paragraph two referred to above were those items which made up the amount of $8,211.64, which were to be collected by the city, if practicable, and turned over to the sureties. The proposition of the sureties was accepted by the city by ordinance. Thus, by the agreement between the city and the sureties of its defaulting treasurer, the city was to accept certain securities in lieu of cash as a payment of the deficit. The balance of the defalcation then remaining was to be made up by the sureties in the form of deposits to the credit of the city in different banks; and, in return for such payment, all remaining securities in the possession of Krug and of the city were to be turned over to the sureties for their reimbursement. In the settlement between the sureties and the city, the credit of $25,978.58 deposited by Krug as city treasurer with the defendant, the North End Bank of Seattle, was rejected by the city and was included in the amount which the sureties were to pay by their various deposits in the city banks. The defendant bank was at that time insolvent and had closed its doors. Subsequently to this settlement, the city claimed there were other deficits of its treasurer which had not been included in the settlement of $125,942.26, as found by the ordinance. It is also claimed by the defendant bank that the sureties did not comply with the terms of their contract, in that they did not deposit the sum of $7,721.82 to the credit of the city in the Security Savings Bank, but the testimony in the record supports the finding of the court below that this was done, and the fact that the Security Savings Bank became insolvent thereafter could not fairly place the loss upon the sureties.

The ninth finding of fact, in substance that the sureties fully performed the condition of their undertaking as sureties and carried out tire terms and conditions of their contract of settlement with the city for the defalcation of Krug as treasurer, and that the city accepted the performance by the sureties as a full and final settlement of the defalcation, is fully sustained by the record.

Counsel for the city and the defendant bank maintain that there could be no subrogation of the sureties in place of the city to demand the amount due from the defendant bank, until the whole amount of the defalcation of the city treasurer was paid by the sureties, and testimony tending to show that a larger deficiency existed, than that stated in the ordinance settling with the sureties, had afterwards been discovered, was offered by defendants. Such testimony was excluded by the superior court. Much authority is cited to sustain the contention, that sureties are not entitled to subrogation until they have made complete payment of the amount due from the principal in default. The legal proposition thus stated by counsel for the defendant is unquestionably correct; but, in the view we take of this case, it is not essential to determine whether the settlement made was in fact a payment. It was unquestionably a compromise and settlement between the city and the sureties of its defaulting treasurer, and neither fraud nor mutual mistake is alleged as ground for reopening the settlement made. In the absence of such allegations in the pleadings, such settlement and agreement made between the city and the sureties must stand, and, if the sureties have performed their undertaking in the agreement, they are entitled to have the city make performance on its part of the stipulations contained in the agreement.

The defendant bank set up, as a partial defense, an unlawful agreement alleged to have been made between the city treasurer, Krug, and the cashier of the bank, by the terms of which the city treasurer was to be paid interest on deposits in the bank and the cashier was to derive certain benefits to himself personally by the use of the money so deposited, and that the bank did not receive the benefit of the money so deposited. To prove such unlawful agreement the defaulting city treasurer, Krug, when testifying as a witness, was asked on cross-examination by counsel for the defendant bank, the following question:

“ Is it not a fact that you made the arrangement with Mr. Bixby [the cashier], that you put some money with Mr. Bixby at the Korth End Bank, for which Mr. Bixby was to pay you eight .per cent, interest on such money as you left with him? ”

To this question objection was made by counsel for plaintiff, who then stated to the court: “I will ask you to instruct the witness that he may refuse to answer the question.” The court instructed the witness that he had a right to refuse to answer; that he had a right to protect himself against any testimony which might be used against him in a criminal prosecution'. The witness Krug had testified in his examination in chief that he made deposits in the defendant bank and that such deposits consisted of the funds of the city and were deposited by him as city treasurer. Counsel for the defendant bank assign the ruling upon the question as error, and it is discussed at considerable length in the brief. The contention of counsel is severely technical. The question propounded to the witness, upon its face, could not be answered affirmatively without the crimination of the witness. The court could plainly see this. It was the duty of the court to here caution the witness that he might avail himself of his privilege and not answer. It was the duty of counsel present to suggest to the court such caution, and the state of the case at the trial made it unnecessary to go further and take the opinion of the witness on his oath that the answer to the question would tend to criminate him. "We perceive no error in the ruling of the trial court upon this testimony.

Before the commencement of the action, the sureties mentioned assigned all their rights to the respondent, as trustee, for the purposes of the suit. Demand was made upon the city for transfer of the claim it held against the defendant hank, and upon the hank for payment.

We conclude that the findings of fact of the superior court are correct and, perceiving no error in the record, its judgment is affirmed.

Scott, C. J., and Anders and Dunbar, JJ., concur.

Gordon, J., not sitting.