City of Indianapolis v. National City Bank

Dausman, J.

(after stating the foregoing facts) : An extended discussion of the merits of the second, sixth and eighth paragraphs of the answer would serve no useful purpose. It is sufficient to say that, excepting the averments relating to the balancing of the pass book, the facts averred in these paragraphs were substantially the facts averred in. the complaint. The only purpose of these paragraphs (with the exception above stated) was to present the defendant’s theory of the legal effect of the facts. See Trinkle v. Ladoga Building, etc., Assn. (1917), 65 Ind. App. 415, 423, 117 N. E. 542. No evidence was adduced under these paragraphs which would not have been admissible under the general denial; and therefore, because of the provision of the Code applicable to this feature, the ruling on the demurrer could not be reversible error even if technically erroneous. §350 Burns 1914, §345 R. S. 1881.

We must now discover, if possible, the true theory of the complaint; for a definite understanding of that theory is essential to an intelligent consideration of the motion for a new trial.

By indulging inferences with a liberality which can hardly be justified, it may be said that the cause of action rests on the ground that the street commissioner, for the purpose of defrauding the city, falsely represented to the board of public works that certain persons were entitled to wages for work done by them on the streets; that in truth there were no such persons and that they had no existence except in the imagination of the street commissioner; that in making the allowances, in preparing and delivering the orders to the street commissioner, the city officers believed that the payees were real persons; that since, in truth, the payees were the exclusive creatures of the street commissioner’s imagination, any signature which purports to be the indorsement of any payee must necessarily be a forgery; and that, therefore, the depository is liable for paying the orders on the forged indorsements. No other valid theory of liability can be constructed from the facts averred. No cross-error has been assigned and the sufficiency of the complaint is not questioned in this court.

To meet the contentions of the parties, an inquiry into the regularity of the method pursued by the city officers in allowing the claims and issuing the orders, is essential.

The general Act of 1905, prescribing the details of municipal government, as amended, provides that the board of public works shall have power to repair, clean, light, and sprinkle the streets, alleys and other public places within the city; and that this work may be done either by contract or by the board itself. §8696 Burns 1914, Acts 1913 p. 253. The only inference to be drawn from the complaint is that the board elected to do the street work itself by and through its own. employes. See Brunaugh v. State (1910), 173 Ind. 483, 90 N. E. 1019. No statute has been pointed out to us, and we know of none, which provides for any such officer as street commissioner. Therefore we indulge the further inference that the street-working force was organized, and for convenience was designated “Street Department that one Dennis J. Bush had general supervision of the laborers engaged in street work and for convenience was designated “Street Commissioner;” that the department in all respects was under the immediate direction and control of the board of public works; and that Bush furnished the board, from time to time, information concerning wages due the men employed in the street department.

Under the statutory plan for the payment of claims originating in the department of public works, if the workmen were to receive their wages, it was essential that the board should take some action on the claims reported to it by Bush; for no order could be drawn on the treasurer by the controller for the payment of the claims without a “warrant” from the board. §8690 Burns 1914, Acts 1909 p. 385. By implication, the statute confers ample power upon the board to allow or disallow claims of that kind. §§8690, 8696 Burns 1914, supra; Brunaugh v. State, supra. The averment is that, relying on some sort of certificate made by Bush, and “not knowing or ascertaining that the claims were filed for fictitious or nonexisting persons,” the board allowed them.

It is averred that the claims, as allowed by the board, were presented to the controller. That averment may be taken to mean that the board presented to the controller what the statute denominates a “warrant” and that the “warrant” was based upon the claims thus allowed. With respect to this averment, it should be observed, that the controller, as head of the finance department, had ample power to investigate the claims and to approve or disapprove any item in the warrant, notwithstanding the allowance by the board. He had power to require evidence to enable him to determine whether the amount claimed in any item was justly due; and, for that purpose, he was authorized to summon before him any officer, agent or employe, of any department, or any other person, and to examine him upon oath relative to the claims or the warrant. §8690 Burns 1914, supra; Brunaugh v. State, supra. The controller approved the claims, and his action in that regard was quasi judicial.

It is of the utmost importance to note—and the fact should be clearly understood and fully appreciated—■ that the city officials and the depository were operating under the direction of certain statutes. There can be no accurate reasoning on the subject which does not rest on that foundation. The governmental act of 1905 made the treasurer the custodian of city funds, and made it his duty to pay all city orders when presented and “properly indorsed.” Under that law, it would be his duty, when an order is presented, to ascertain if the payee owes the city on account of “any debt, tax or assessment,” and if anything is found to be due the city from the payee, then to apply the order, or so much thereof as necessary for that purpose, to the payment of the tax or assessment; and, upon the payment of any order, to stamp on its face the word “redeemed.” That law also requires the treasurer to furnish the controller, on the first day of each month, a statement of all receipts and disbursements made by him during the previous month; to deliver to the controller all orders redeemed and canceled by him during the same period; and to take the controller’s receipt therefor. It requires the controller to lay the statement, together with the redeemed orders, before the common council at its next meeting, to be disposed of as the council may direct. §§8835, 8836, 8837 Burns 1914, Acts 1905 p. 236; §8656 Burns 1914, Acts 1909 p. 459. From the language of that statute it clearly appears that the legislature intended that every order should be delivered to the payee when drawn, and that the payee should present it to the treasurer for payment. Under that law, the legal title to the funds vested in the treasurer, and when the funds were deposited, the relation of bank and depositor existed between the bank and the treasurer, and payments were made by the bank on the treasurer’s checks. But the Act of 1907, commonly known as the Depository Law, has changed that plan. The later act provides that—

“All warrants and orders for the payment of public money, excepting state and township funds, shall be drawn by the proper officer upon the proper treasurer; * * * shall be presented to the proper treasurer * * * who * * * shall stamp upon the warrant or order the name of the depository by which such warrant or order is payable, and countersign the same, and no warrant or order shall be effective until so stamped and countersigned.” §7545 Burns 1914, Acts 1907 p. 391, as amended Acts 1911 p. 616.

Under the Act of 1907 the legal title to the funds vests in the municipality; and when the funds are deposited in a public depository,- the relation of depository and depositor is thereby created between the depository and the municipality. The legislature has undertaken to control the entire subject. It has pointed out specifically the method by which claims against the municipality shall be paid; and, in the case at bar, it is evident that the city officers followed the method designated in the act of 1907. It is unfortunate that the two statutes are not entirely harmonious.

The city officials were endowed with ample power to make allowances and to issue orders. They acted within the scope of their authority and their action is binding upon the municipality. The action of the ' treasurer in stamping and countersigning the orders was a positive direction to the depository to pay them. It was not the duty of the depository to inquire concerning the regularity of the allowances. Indeed, on the facts disclosed in this action, it would have been an impertinence on the part of the depository, had it assumed to question the decision of the city officials or to exercise supervisory power over their discretionary action. The depository was not the guardian of the city’s officers. After payment by the depository, without notice, then as between the city and the depository, the city will not be permitted to say that the allowances were obtained by the fraud of a city employe. It would be unconscionable to allow the city to set up the fraud in order that the loss, if any, may be shifted upon the depository. In determining the rights of the parties, the element of fraud must be wholly eliminated. The only legitimate purpose of the averments of the complaint relating to the alleged fraud is to explain how the orders happened to be made payable-to alleged fictitious persons. To give those averments any other effect is not allowable; for it was not the duty of the depository to make an investigation for the purpose of discovering the fraud which the city officers failed to discover. If the opposite view should be adopted, as a rule of law, no reputable bank would consent to accept deposits of public funds. See Newburyport v. Spear (1909), 204 Mass. 146, 90 N. E. 522, 134 Am. St. 652; Meyer v. Indiana Nat. Bank (1901), 27 Ind. App. 354, 61 N. E. 596. It follows that the depository is not liable in this action unless it is amenable to the city for negligence in the manner of payment.

The appellant concedes that the written instruments paid by the depository were not checks when drawn by the controller. It insists, however, that they became checks when stamped and countersigned by the treasurer, and that therefore the duty of the depository with respect to the payment of them was the same as the duty of a bank with respect to the payment of checks. From the face of the instruments themselves, it is obvious that they are not checks. 7 C. J. 673. Because the amount stated in each order is “Subject to All Delinquent Taxes,” they are not even negotiable instruments. §§9089a, 9089b Burns 1914, Acts 1913 p. 120. They are exactly what they are denominated in the statute, viz.: “orders,” and are spedally designed to meet the requirements of the depository law. Nevertheless, it was the duty of the depository to exerdse due care in paying them.

If in truth the names written in the orders represented creatures having no existence save in Bush’s fancy, and if in truth the controller believed that he was making the orders payable to real persons, then the orders were not payable to bearer. They were payable to real persons or not payable at all. That is the rule applicable to checks, and we perceive no reason why it should not be applied to these orders. Snyder v. Corn Ex. Nat. Bank (1908), 221 Pa. 599, 70 Atl. 876, 128 Am. St. 780; Guaranty State Bank & Trust Co. v. Lively (1912), (Tex. Civ. App.) 149 S. W. 211; First Nat. Bonk of Hastings v. Farmers, etc., Bank (1898), 56 Nebr. 149, 76 N. W. 430; First Nat. Bank of Hastings v. Omaha Nat. Bank (1899), 59 Nebr. 192, 80 N, W. 810.

Now, is there any proof to support the theory of the complaint? The uncontroverted evidence discloses that during the years 1914 and 1915, labor conditions were such as that the board of public works evidently was obliged to employ whomsoever it could get to do the work of cleaning and repairing the streets and sewers. The laborers who did that work constituted a motley crew. Many of them were transients who would work a week or two and then disappear. Some of them assumed false names, some for the purpose of avoiding the deduction of delinquent taxes from their wages, others for reasons known only to themselves. The number sq employed ranged from fifty to sixty in the winter and from 300 to 400 in the summer. During the week ending June 2, 1915, the number employed in the asphalt repair plant alone was eighty-two. Among them were persons known by such names as Stibby Staub, Goosie Costello, and Greasy Bob Walters. Walters was also known by two other aliases, viz.: Ross Mills and Joe Merz. Stibby Staub also used the name Joe Stark.

The foreman of each gang recorded, in time-sheets provided for that purpose, the days and hours each man worked. From those sheets the time-clerk of the street department made lead pencil payrolls which he turned into the office, where they were typewritten. The street commissioner certified the correctness of the typewritten payrolls, which were then presented to the board of public works. After allowing the items therein, the board certified the allowance of the payrolls to the controller, as “warrants” for the issuance of orders thereon. When the orders came to the street department, which was usually on Friday of each week, they were given to the timekeeper, who “wbifid sort them out in little bunches for the different gangs and deliver them to the foreman of each respective gang.” Usually each payroll contained several hundred names, and the orders involved in this action are based on items dispersed throughout the various payrolls. It was the custom of the men in each gang to borrow money from their foreman. Some of them began to borrow on Monday and continued borrowing small sums from day to day; and when pay orders “were received, they would repay their loans by indorsing the orders and delivering them to the foreman. It was a common practice for some of the workmen to have their pay orders cashed at saloons, grocery stores, and other places. That the workmen would resort to such methods of obtaining cash might have been anticipated; for they could pot well go to the depository during banking hours. Even if they had taken their orders to the depository, who would have vouched for their identity? Consequently all of the orders, except nine, were paid through the clearing house. When the orders were thus paid by the depository, each one bore several indorsements, all of which were indorsements in blank. Eight of the orders were paid by the depository over its own counter. In some manner, one order reached the treasurer’s office where it was confiscated and applied to the payment of delinquent taxes.

The depository balanced the city’s pass book and delivered it, -together with the redeemed orders, to the treasurer every three or four months. The presumption is that the treasurer took credit on his account with the city for the amount of the orders and returned them to the controller; that the controller laid them before the common council; and that the common council approved the whole matter. The record does not disclose that any city official has ever claimed that the names written in the orders represented fictitious persons or that the depository is in any manner liable to the city. But, in the year 1917, the bureau of public accounting made an examination of the office of the city controller. Field examiners checked the names in the orders with the names in the city directory, in their effort to determihe whether the orders were fraudulently issued. Many persons were interviewed, subpoenas were issued, and a grand jury investigation was conducted. A field examiner laid the matter before the corporation counsel and requested him to institute an action against the depository, but the city’s legal department ignored the request. A field examiner made the demand on the depository, and this action followed. Although the name of the corporation counsel now in office appears upon the brief, no one representing the legal department of the city government has participated in the proceedings.

In an effort to prove that the indorsements were forgeries, seventeen men were called as witnesses. Some of the names of these witnesses were the same as, while others were similar to, the names in some of the orders. One of these witnesses, a post office employe at the time of the trial, confirmed the genuineness of the order payable to him and of his indorsement thereon. The rest of these witnesses testified that they did not indorse the orders, did not receive the proceeds thereof, and knew nothing about them—mere negative testimony.

Without reciting further details, we are compelled to say that, when viewed in the light most favorable to the plaintiff, the evidence wholly fails to support the averments of the complaint. If the jurors had returned a verdict for the plaintiff, it would have been the duty of the trial court promptly to have set it aside as being contrary to law.

In view of the conclusion we have reached, it is wholly unnecessary to discuss the instructions. Where the jury returns the only verdict that can lawfully be rendered on the evidence, nothing in the charge can constitute reversible error.

The report offered in evidence and excluded by the court is a voluminous document comprising 148 pages of the transcript. It covers all the financial affairs of the city, including every department of the city government; contains elaborate explanations, recommendations, opinions and conclusions of the examiners; recites a multitude of sins chargeable to the city officials but not to the depository; and is certified by G. H. Hendren, State Examiner. Only a very small part of it has any reference to the matter involved in this litigation. While the bulk of it is utterly foreign to the controversy in the case at bar and might be available in an action against city officials, it contains statements that would be prejudicial to the depository, The statute relating to public accounting contains the following :

“Any such report as is described in this section, or a copy thereof duly certified by the state examiner shall be taken and received in any and all the courts of this state, as evidence of the facts in such reports stated and contained.” §7546i Burns 1914, Acts 1909 p. 136.

It is fundamental that the- legislature may not strike down the rights of citizens by invading the province of the judicial department of the state government. While this court is not authorized to declare a statute unconstitutional, nevertheless, where a statute is susceptible of two constructions, one of which would render it constitutional and the other one unconstitutional, it is our duty to adopt the former. Therefore we hold that the legislature intended to declare that such reports only as are found to be competent under the established rules of evidence and in the particular kind of action authorized by the statutes relating to the subject of public accounting, shall be received by the courts.

A witness, who had been a member of two grand juries in 1916 and clerk of a grand jury in 1917 and had otherwise participated in an investigation to determine whether or not the orders were fraudulently issued, was asked the following “question:”

“You may state, Mr. Thomas, if your investigation disclosed that any of the persons whom you' investigated in this matter—persons who were of the same name- as the payees therein—indorsed their names on these checks.”

On what principle could the result of an ex parte investigation .of that character be admissible? Was the defendant not entitled to cross-examine the persons investigated on the question as to whether they indorsed the orders? For other reasons, the question is so obviously improper that further discussion is useless.

The plaintiff offered a page of the city directory for the year 1915, for the purpose of proving thereby that no such person as Frank Akers resided in Indianapolis. The manager of the company that prepared and published the directory testified that the names appearing therein were procured by a house to house canvass between Oct. 1 and Dec. 31,1914. The order payable to Frank Akers was issued June 2, 1915. Therefore, the fact that his name does not appear in the 1915 directory cannot serve as a basis for the inference that the order was not properly endorsed in the name of Frank Akers, whether the name was real or assumed.

The right of the attorney-general to institute and maintain this action has not been questioned, and under certain provisions of the Code it seems to be our duty to regard it as having been waived. §§344, cl. 6, 348 Burns 1914, Acts 1911 p. 415.

Judgment affirmed.