Anderson v. Walker, County Judge

Plaintiff's in error were sureties upon the official bond of A.J. Jernigan, former treasurer of Travis County, and, after his death, which occurred on the 31st day of December, 1896, they were sued by the county judge, in behalf of the county, to recover a sum of money for which he had failed to account. The sureties, besides defensive pleadings, filed a petition making E.P. Wilmot and the Austin National Bank parties to the action, asserting liability on their part to the county for the money sued for, and a right of such sureties to subrogation to the right of the county against Wilmot and the bank, in case the county recovered on the bond. Enough of the facts averred in this plea will appear in the course of the opinion to make the views expressed intelligible.

The facts entitling the county to recover against the sureties were practically uncontroverted in the District Court, and verdict and judgment in its favor were accordingly rendered. The action of the sureties having been discontinued as against Wilmot, the trial court instructed the jury return a verdict against their claim to recover over against the bank, which was done. Upon appeal by them, the Court of Civil Appeals affirmed the judgment, and the present writ of error was granted by this court because of probable error in the peremptory instruction of the trial court in favor of the bank.

Some objections were urged in the Court of Civil Appeals and are presented here to rulings of the District Court upon questions arising between the county and the sureties. No reversible error has been found in such rulings and the judgment in favor of the county, against the sureties, will therefore be affirmed.

The other grounds of error relate to the rulings of the trial court upon questions arising in the cross-action of the sureties against the bank. The first of these rulings was the sustaining of a general demurrer to a plea of the sureties asserting that the bank was estopped in favor of the county to deny that it held in its possession $10,000 of the county's funds, deposited with the bank by Jernigan, as treasurer, and that the sureties were entitled to be substituted to the right of the county growing out of such estoppel and to require the bank to account for such funds for their protection.

The facts upon which the claim of estoppel was based, as they were alleged, are, in substance, these: Jernigan was treasurer of the county for several years prior to the election of 1896 and kept his funds on deposit with defendant bank, his account being a large and valuable one and the bank paying him interest on deposits. At that election, he was again chosen to the office, but had not qualified on the 9th day of December, 1896, when the District Court of the county appointed a finance committee to examine his accounts. The committee demanded of Jernigan to know the amount of cash on hand belonging to the county, when he replied that he had on deposit with the defendant bank $22,000, and gave to them a letter, signed by him as treasurer, addressed to the bank, requesting it to state to them the amount to his credit. The committee applied to the bank with the letter, and its president, Wilmot, stated to them that Jernigan then had in the bank, belonging to the county, the sum of $22,000, showed them the books verifying such statement, and gave them a written representation to the same effect, which was done with intent that the fact represented should be acted on and accepted by the committee as showing the amount belonging to the county in the bank. The committee, believing the statement to be true, reported to the court that the treasurer's accounts were correct and all money on hand, as it should be. This report was, by the court, ordered to be filed, and was presented to the grand jury and approved by them in their report to the court. Had there been in the bank, belonging to the county, the sum thus reported there would have been no shortage; but, by the pleadings of both the county and the bank, it appeared that there was on hand in the bank only the sum of $12,000, the difference being a little more than the amount of Jernigan's alleged defalcation. The plea of estoppel further averred that, if there was in fact only $12,000 in the bank belonging to the county, then the bank, with knowledge that Jernigan was a defaulter, conspired with him to make it appear that he had on deposit $22,000, for the purpose of deceiving the committee, the court, and the grand jury, and of preventing the committee from making a true report and the grand jury from indicting Jernigan, and of keeping him in office and thus retaining the account which he kept with the bank; and, for this purpose, made the statements alleged; that by reason thereof, Jernigan was not indicted, removed, or suspended; "that this conduct of the bank prevented and hindered the committee from a proper discharge of its official duty, impeded and thwarted the enforcement of the law as to county finances, denied and prevented Travis County the right to ascertain the condition of the account of her said treasurer by and through an investigating committee;" that Jernigan did not qualify as his own successor until December 24, 1896, when he was, by reason of his defalcation, ineligible to office, and that the conduct of the bank enabled him to qualify and hold the office in violation of law and to the injury and scandal of the county.

1. It is doubtless true that conduct of the bank is here alleged such as would be sufficient to estop it from denying the truth of its representation, in favor of anyone entitled to rely upon its truth who has been induced, by reliance upon it, to so act or refrain from acting as to place himself in a situation to suffer loss or damage, if the bank were now allowed to show that the statement was false. But, whatever of moral wrong or fraudulent purpose the conduct may have involved, only one who will suffer legal injury if its falsity be now established can assert an estoppel against proof of the truth. The general principles governing the subject are so well settled and have been so often stated by this court that there is no need to repeat them here. All that is necessary is to ascertain whether or not it is shown by the plea that the county is in a position to demand that the bank be held to the statement as if it had been true, notwithstanding its offer to show that it was false. There is no pretense that any estoppel arose in favor of the sureties, their contention being that it existed in favor of the county and that the resulting right inures to their benefit by subrogation. Whether or not this last position be sound, even if there were an estoppel in favor of the county, is a question we need not consider, since we are of the opinion that no estoppel is shown by the plea. Nor need we stop to inquire whether or not a statement made to a finance committee, appointed under our statute, is one upon which the authorities representing the county and empowered to take action for the recovery of money belonging to it have the right to rely, in such a sense that action or nonaction on their part on the faith of such statement might estop the party making it. For the plea fails to show that such authorities (the commissioners and county judge) ever heard of the statement made by the bank or that they were in any way influenced to take or omit any action by reason of it. Concede that the committee and the grand jury were deceived. Neither of those bodies could have instituted any proceeding to secure or recover the money due from Jernigan. Neither their action nor nonaction could, in the least, hinder or deter the proper authorities from taking any proceeding deemed advisable; and the statement made to them did not, so far as the plea shows, mislead or otherwise influence those authorities.

A further defect in the plea is the failure to show that the county has sustained the loss of its money or has failed to recover any part of it, in consequence of the representation. Not even a probability of loss, as the effect of it, is shown. The money had been appropriated by Jernigan and was lost to the county before the statement was made, and such appropriation was in no measure attributable to the statement. Had it been within the power of the county officials to recover the money or a part of it by proper action, and had they been prevented by the bank's conduct from taking such course as would have led to a recovery, it may be true, as urged, that this would supply the element of estoppel under consideration. But nothing of the kind is alleged. It is asserted that the committee, the District Court, and the grand jury were deceived, and, as a consequence, the last named body omitted to indict Jernigan and he was thereby allowed to continue in office when he would otherwise have been suspended, and to qualify again when he would have been prevented from so doing; but none of these things conduced to the loss of the money, and it is not made to appear how a contrary condition would or might probably have led to its recovery. No additional loss was inflicted on the county by the failure to indict and suspend and by the installment in office anew. The most that can be said is that it may be conjectured that, had the bank, instead of misrepresenting the facts, disclosed the true condition, the officers representing the county would have been advised of the necessity of action and might have so exerted themselves as to secure some redress; but this is only a conjecture which the plea leaves the court to make. This can not be held sufficient by the most liberal rules of estoppel. All this is said upon the assumption that the county authorities did not already know the condition of Jernigan's account, which is probably a fair inference, though the plea does not directly so allege.

Because of its failure to show any reliance by the county officers upon the representation and any change in the attitude of the county towards Jernigan on the faith of it, the plea was fatally defective. And herein the case is distinguishable from those of Custer County v. Walker, 74 Northwestern Reporter, 1040, and Longmire v. Fain, 18 Southwestern Reporter, 70, in each of which the representations of the parties held to be estopped were used by the officer in making his official report to those whose duty it was to represent the public in passing upon his accounts, and were accepted by them as true. While those cases were probably decided correctly on the facts, the reasoning, by which both an estoppel and a liability in the nature of a contractual one on the part of those making the representations are applied, is not very satisfactory. See also East Hartford v. American Nat. Bank, 49 Conn. 539.

In this case the finance committee had no power to act upon any report made by Jernigan so as to alter or affect in any way the rights of Jernigan or of the county in the funds in his hands. They were empowered simply to ascertain facts for the information of the grand jury, and the rights of parties were not subject to any action they might take. Consequently, their acceptance of the statement of the bank could not, by its own force, bind anyone. The demurrer to the plea of estoppel was properly sustained.

2. By other pleadings, the sureties charged that the bank actually had in its hands $10,000 belonging to the county and had unlawfully appropriated that sum to the payment of an individual indebtedness of Jernigan to it. If this was true, the county could have recovered it from the bank and the sureties would be entitled, for their protection, to have such right enforced. It remains to inquire whether or not the evidence presented any issue of this character to be submitted to the jury.

It was shown that prior to the 9th day of December, 1896, Jernigan had misappropriated about $10,000 of the county's money which he had deposited with the bank as treasurer. This was done by means of checks properly drawn by him in his official capacity, and there is no claim that the bank was in any way implicated in his misuse of the public funds. But on that day, Jernigan executed to the bank a demand note for $10,000, signed by him as county treasurer, antedating it so as to cover the days of grace and make it mature at once, and procured the entry of a credit of a like sum upon his account as treasurer, thus showing, upon the books, his balance to be $22,000 when before there was a balance of only $12,000. At the same time he gave to the bank his check for $10,000, as treasurer, payable on the 10th day of December. On the next day the bank charged up the check, thus balancing the credit, and also canceled the note. All of the facts before stated, as alleged in the plea of estoppel, are also shown by uncontradicted evidence, except the alleged purpose of the bank and its knowledge of Jernigan's defalcation, which were the subject of controversy.

Concerning these transactions, the cashier and president of the bank testified. The cashier stated "that a note passed through his bank as this $10,000 note had the same effect as if that much cash had been actually deposited by the maker, and that after this $10,000 note was discounted, A.J. Jernigan had $22,000 on the books of the bank as treasurer, and his check would have been honored for that amount on December 9, 1896." The evidence of the president on this point is to the same effect. When the finance committee applied for information and the reply as to Jernigan's balance before shown was given, neither officer informed them of the circumstances of their transaction with Jernigan. Both of them testify that they had no suspicion of Jernigan's defalcation; and, in explanation, the president testified that Jernigan came to him and stated, "We need $10,000 more to-day than what we have on deposit. We should have the money in, and I have assurances that we will have it to-morrow, and I would like to make a demand note for $10,000;" that, as Jernigan had kept a good account, and having no suspicion of his honesty, the witness had extended the accommodation, the check taken to be charged up next day, assurance being given by Jernigan that the money would be in by that time, and witness having no knowledge of the appointment of the finance committee; that he believed the note signed by Jernigan as treasurer was a legal and valid obligation against the county, since it was placed to the county's credit, and thought the money was for the county's benefit, and otherwise would not have entertained Jernigan's proposition. He testified at great length as to circumstances affecting the good or bad faith of his action, but the statement given will sufficiently show the nature of the issues upon which the case depended.

The question which must be determined is whether or not there was any evidence tending to establish a state of facts under which the jury could have found that the $10,000 became the money of the county and that it had been misapplied by the bank. If this be answered in the affirmative, it follows that the peremptory instruction in favor of the bank was erroneous.

There being no estoppel, the rights of the county and of the bank must depend upon the true nature and effect of what was done, irrespective of the statement to the finance committee, which statement may be, however, considered in determining the true question. Since the county, before this transaction, did not own the money in question, it must have acquired it through the act of the bank and with its consent. If it did once acquire unconditional title, it can not be defeated by the application of the fund to the note. Jernigan could not bind the county by the note and it was therefore simply his individual debt. The fact that the deposit was kept in his name as treasurer was sufficient to notify the bank that money so held was a trust fund which could not be diverted to the payment of Jernigan's debt. The bank was also chargeable by law with knowledge of the legal effect of the note and that it imposed no liability on the county. The note, the check, and the entry of the credit upon the books were all parts of the transaction, however, and must all be considered together in ascertaining the rights which sprang from them; and if any right in the county resulted, it must be such as the consent of the bank conferred upon it. It is an undisputed fact that a credit to the county was entered upon the bank books, and this, prima facie, represented so much money on deposit belonging to the county. It is true that this was only evidence of the fact and that it was open to explanation. Newmark on Bank Deposits, sec. 131. The entry did not control the understanding under which it was made and conferred no greater right than the parties to the transaction intended by it. Evidence was admissible to show the whole of the transaction and the purposes of the parties are to be deduced from the whole of such evidence. Morse on Banks and Banking, 290, et seq.

After a very careful consideration of the case, we have concluded that the jury should have been allowed, under proper instructions, to determine the effect of all the evidence for themselves, and that the case is not one in which the transaction has necessarily a precise legal effect, which the court can declare as matter of law.

Several questions of fact present themselves under the evidence upon the answer to which the rights of the parties depend.

First. Thus, if the only purpose of Jernigan and the officers of the bank was to fabricate evidence by which to conceal from the committee and the grand jury the former's defalcation, with no intent that any real right in the county should result, then, as it required the consent of the bank to confer a right upon the county, and as it is not estopped to prove the truth, there would be no basis upon which it could be held liable.

Second. Or, should the jury accept as true the statement of the president that the bank relied upon Jernigan's representation that the county needed the money and would replace it next day, and agreed only to extend a credit until that time, and for that purpose made the entry on the books and canceled the credit next day in accordance with this understanding, there would be no liability. In this view of the case, it is of no moment that Jernigan could not bind the county. The reason for the proposition stated is that, so long as the bank did not part with the title to its money, it could withhold it, and the entry of the credit on this understanding would not, as we have before said, create any greater right than grew out of such understanding. Nor, for the same reason, would the taking of Jernigan's note and check as county treasurer and the cancellation of them affect the right here defined. The right to withhold the money would not result from such instruments, for they did not bind the county, but from the fact that the title never passed to the county.

Third. But if the money was loaned to Jernigan for the purpose of making a real deposit of it to the credit of the county to make good his defalcation, and the note and check were taken simply to enable the bank to apply the money so deposited to Jernigan's individual debt, which the note in legal effect was, the title of the county would have attached by such deposit and such an application of it would be unauthorized.

Jernigan had the right to borrow money on his own credit, and to deposit it to the credit of the county. If this was the effect of what was done, when tested by the intent and purpose of the parties, the right of the county to the deposit became complete and could not be taken away, as was attempted.

It may be thought that the evidence does not point to the existence of either of the states of fact supposed in the first and third paragraphs, and it is true that the express testimony of the president defines the transaction as being of the character mentioned in the second. But we think the circumstances surrounding the case, upon which we make no further comment, made it proper to submit all of them to the jury.

For the error of the trial court in directing a verdict in favor of the bank, the judgment in its favor will be reversed and the branch of the case involving the controversy between it and plaintiffs in error will be remanded.

Affirmed in part and reversed and remanded in part.