Wood v. Imperial Irrigation District

This appeal comes to us upon an agreed statement of facts. The Imperial Irrigation District, the

This action was brought by plaintiff to recover from defendant district said sum of $51,062.50. Judgment went for plaintiff for said amount, together with interest, and defendant has appealed. If the trial court’s conclusions of law are sound, the judgment must be affirmed.

Said court found, first, that the deposits made by said district with said bank were legally and lawfully made, and that the relationship between said bank and district as to deposits at all times constituted the relationship of debtor and creditor; second, that the pledging of the bonds de

One of the principal questions presented by this appeal, is, What is the status of an irrigation district under our Constitution, statutes and decisions, as interpreted by this court? The subject has been before this court many times, and while no. very elaborate or comprehensive definition has been given, enough has been said in our decisions to give the profession and the layman a general idea as to the powers, functions and office of an irrigation district. In the fairly recent case of Crawford v. Imperial Irr. Dist., 200 Cal. 318 , 325 et seq. [ 253 Pac. 726 , 729], the appellant district in that case and the appellant district in the instant ease being the same entity, this court, in considering the character of an irrigation district, said:

“While there is language to be found in some of the decisions of this state which might be taken as holding that an irrigation district is a municipal corporation (People v. Cardiff Irr. Dist., 51 Cal. App. 307 , 312 [ 197 Pac. 384 ]), we think that the great weight of authority is to the effect that an irrigation district is not strictly a municipal corporation. (H uch v. Rathjen, 66 Cal. App. 84 [ 225 Pac. 33 ] ; Whiteman v. Anderson-Cottonwood Irr. Dist., 60 Cal. App. 234 , 243 [ 212 Pac. 706 ] ; Turlock Irr. Dist. v. White, 186 Cal. 183 [ 17 A. L. R. 72 , 198 Pac. 1060 ].)”

“The nature of an irrigation district has been a matter of judicial investigation and interpretation, and it has been held that such a corporation is not a municipal corporation, but a ‘public corporation for municipal purposes’. (Citing authorities.)

“As to swamp-land, drainage, levee, and reclamation districts, similar to irrigation districts, it has been held that they were not municipal corporations.” (Citing authorities.)

In Bettencourt v. Industrial Acc. Com., 175 Cal. 559 [ 166 Pac. 323 ], it was held, on page 561, that: “But reclamation districts organized as was this petitioner possess no political nor governmental powers, are not organized for political or governmental purposes, and are therefore not public corporations at all. Indeed, they are not in strictness corporations, public or private, but governmental mandatories or agents, vested with limited powers to accomplish limited and specific work.”

While it is true that the main case quoted states that it was not necessary to decide the point presented in that ease to determine the strict legal status of an irrigation district, it nevertheless repeats that under the many authorities of this state bearing directly upon the question an irrigation district is not, strictly speaking, a municipal corporation. We deem it unnecessary to cite the long list of authorities sustaining this conclusion, as numerous references thereto are to be found in the cases herein cited, and others may be added upon a most cursory investigation of the general subject. An irrigation district is not a political subdivision of the state or county, or a political subsidiary at all. (Suck v. Bathjen, supra; Tarpey v. McClure, 190 Cal. 593 [ 213 Pac. 983 ].)

The original section of the Constitution, article XI, section 16%, adopted November 6, 1906, permitted moneys belonging to the state, or to any county or municipality within the state, to be deposited in any national bank or banks within the state in the manner provided by law, provided such banks should furnish security for such deposits of the kind, amount, and upon the terms therein prescribed. In 1912 said section was amended so as to include within

In enumerating the entities that may make said deposits the concluding lines of the amendment added specifically “city and county, city, town”. This addition, it will be noted, includes only well-recognized municipal bodies, which are organized strictly for political and governmental purposes, and does not include development or improvement districts vested with limited powers to accomplish limited and specific work for private profit, even though they be agencies of the state. In 1922 said section 161/% of the Constitution was again amended by adding to the specifically named entities issuing bonds which might deposit moneys in banks outside of the state for the payment of the principal or interest of such bonds at the place or places at which the same are payable, “or other political subdivision”. On November 4, 1924, the section was amended into its present form. This amendment provides that “all moneys belonging to, or in the custody of the state, or any county, city and county, city, town, municipality, or other political subdivision, within this state may be deposited in any national bank or banks within this state, or in any bank or banks organized under the laws of this state, in such manner and under such conditions as may be provided by any law adopted by the people under the initiative or by a two-thirds vote of each house of the legislature and approved by the governor and subject to the referendum; ...”

This amendment provides, as does the 1922 amendment, that laws then existing governing said deposits shall continue in force until amended or changed or repealed, as in

Appellant cites article XI, section 13, of the Constitution, which provides that the legislature shall not delegate to any special commission, private corporation,, company, etc., any power to control or interfere with any county, city, town or municipal improvement, money, property or effects, or to levy taxes or assessments, or perform any municipal function, except that the legislature shall have power to provide for the supervision, regulation and conduct, in such manner as it may determine, of ■ the affairs of irrigation districts, reclamation districts or drainage districts, organized or existing under any law of this state. We find nothing in the language of said section which is helpful to appellant’s case. It would seem, on the contrary, that a distinction was recognized to exist between a municipality, on one hand, and irrigation, reclamation and drainage districts on the other, giving to irrigation, reclamation and drainage districts a different classification.

Appellant’s contention that irrigation districts are municipalities or political subdivisions finds no favor or aid in any provision of the Constitution to which our attention has been directed.

Neither the original amendment of 1906 nor any subsequent amendment thereto is self-executing. All of the amendments require legislation to make the constitutional provisions effective. The original and each amendment thereof provides that all money belonging to the state, or to any county, etc., may be deposited in banks “in such manner and under such conditions as may be provided by law”. As to the 1924, 1922 and 1918 amendments, the procedure shall be under the initiative or by a two-thirds’ vote of each' house of the legislature. As to the original section and the amendment of 1912, the passage and adoption of a bill affecting deposits of moneys in the ordinary manner was sufficient to make it a law.

We are of the view that the language of the constitutional provisions does not permit the inclusion of an irrigation

We now pass to a consideration of the language of the statutes which appellant relies upon as authority for its retention of said bonds. The first act is found in Statutes and Amendments of 1923, chapter 16, page 21, entitled “An act to authorize and control the deposit in banks of money belonging to or in the custody of the state. ...” This act provides that all moneys under the control of the state treasurer belonging to or in the custody of the state shall so far as possible be deposited by the state treasurer to the credit of the state in such state or national banks in the state as the treasurer, with approval of the Governor and state controller, shall select for the safekeeping of such deposits, and any such moneys so deposited shall be deemed to be in the state treasury. Furnishing security for such deposits, and the manner in which they shall be made, is specifically provided for. Surely this act has no application to the control of the funds or business of an irrigation district, or to funds which are not under the control of the state treasurer, but applies solely to state moneys.

In the same volume, in numerical order, is chapter 17, entitled “An act to authorize and control the deposit in banks of money belonging to or in the custody of any county or municipality within this state. ...” This act provides that “all moneys belonging to or in the custody of any county or municipality within the state, shall so far as possible, be deposited in such state or national bank or banks as the treasurer of the county or municipality, as the case may be, or other official having the legal custody thereof, shall select for safekeeping of such deposits, and any sum so deposited shall be deemed to be in the treasury of such county or municipality. ...” The banks in which such money is deposited are required to furnish security as in said act required, and the depositary banks are selected from those agreeing to pay the highest rate of interest, not less than two per cent per annum, as may be determined by bids to be submitted in such manner as the treasurer may direct. It is further provided that such deposits shall not exceed the paid-up capital, exclusive of reserve and sur

From what has already been said it follows that the powers conferred by the Bank Act, section 21a, upon the “United States, State of California, the counties, cities and counties, cities and towns of said state of California, and any other governmental or political subdivision” permitting the securing of deposits does not, under our decisions, include irrigation districts. Appellant, however, rests its claim, in ease all others fail, upon section 27b of the Irrigation District Act (Stats. 1927, p. 188), effective July 29, 1927, approximately two months and a half before the property and assets of the bank passed into the hands of the Superintendent of Banks, trustee in charge of the liquidation of said bank. Said section provides:

“Any money belonging to any irrigation district organized or existing under this act may be deposited by the treasurer or any officer of such district having legal custody of such money in any state or national bank or bank in this state, and said district shall receive such rate of interest therefor, as may be agreed upon by the officer making such

deposit and said bank or banks. Such treasurer or other officer shall require such bank or banks in which such money is deposited to furnish as security for such deposits, bonds of the United States, or of this state or of any county, municipality, school district, or irrigation district within this state that are legal investments for savings banks of this state, the market value of which bonds shall at all times be at least ten per cent in excess of the amount of the deposits secured thereby; or in lieu of such bonds such treasurer or said other officers shall be entitled to take as security for such funds so deposited, depositary bonds duly executed and delivered by a surety company, duly authorized to do business in the State of California, which depositary bonds shall be and remain in an amount not less than the amount of the funds so deposited and held in said bank or banks. The cost of such depositary bond or bonds may be borne by the district. Such treasurer or said other officers shall not be responsible for any loss of public moneys resulting from the deposit thereof in banks when made in accordance with the provisions of this section.”

The foregoing act was not complied with even in the event it was available to appellant, in this, that the treasurer of said district did not at any time require the bank in which the district’s funds were deposited to furnish as security therefor bonds, the market value of which was at all times at least ten per cent in excess of the amount of the' deposits secured thereby, or equal to the amount secured thereby.

We are of the view that the contract or agreement to pledge the bank’s assets as security for the deposit made June 19, 1925, was illegal as an original transaction, being in contravention of - section 21 of the Bank Act, which declares that “The capital and assets of such bank are a security to depositors and stockholders, depositors having the priority of security over stockholders.” (See, also, sec. 27 of the Bank Act.) The only manner in which the priority of one depositor may be secondary to the right of another depositor is by statutory enactment, which does not exist in favor of appellant under the law as it existed when it made its said deposits. The contract was not validated by the adoption of the act of July 29, 1927. At the time said moneys were deposited with the bank they became a

'The act which became effective July 29, 1927, and which specifically authorizes irrigation districts to receive securities for deposit of their funds made with banks, does not purport to be a curative or remedial act, or to operate under any circumstances retroactively. Even where there is no pro

“It has been held that even in the absence of a statute prohibiting it, a bank cannot pledge its assets to secure a depositor, such act being ultra vires and void. (Citing Divide County v. Baird, 55 N. D. 45 [ 51 A. L. R. 296 , 212 N. W. 236 ], and Commercial Bank & Trust Co. v. Citizens Trust & G. Co., 153 Ky. 566 [Ann. Cas. 1915C, 166, 45 L. R. A. (N. S.) 950 , 156 S. W. 160 ].) The reason underlying these two strong cases may be reduced to the proposition that a bank organized under a statute permitting it to do business on terms and conditions and subject to liabilities prescribed in the statute has no power to pledge its assets to secure a deposit where such power is not expressly awarded by law.

“Under the laws of this state the commissioner stands as a trustee to protect the rights of all claimants, particularly those of depositors and general creditors. Under the law the right of the defendant can be only that of a general depositor as such; it can acquire no greater right than that inuring to any other general depositor as such.”

Discussing the question of public policy of securing depositors where there is no express statutory warrant for doing so, the court in Commercial Bank & Trust Co. v. Citizens Trust & Guaranty Co., 153 Ky. 566 [Ann. Cas. 19150, 166, 45 L. R. A. (N. S.) 950 , 156 S. W. 160 ], said:

“Large depositors, if secured, might absorb the greater part of the assets of the bank and inflict loss upon unsecured depositors and financial ruin upon innocent stockholders under the double liability law. The law contemplates, and was evidently framed to insure fair and uniform dealings by the banks with all of their depositors. A secret pledge to secure one, while others are left without security, al

though it may be without specific intent to defraud, would nevertheless, in case of loss, justify such an inference.

“Public policy will not, therefore, tolerate a practice which might, sooner or later, in the event of financial trouble with the bank, enable it to pay and protect the favored few at the expense of the equally deserving many. If the fact was known that a bank had secured some one or more of its depositors and left the others unsecured, no prudent person would deposit with it. No bank would advertise that it engaged in such a practice because depositors who were not provided for would be driven away. The very fact that the transaction is one that will not stand the test of publicity is a strong argument against its legality as well as its necessity. Banks publish statements of their assets and individuals deposit on the faith of these published statements. It is well known that good statements as to assets induce people to deposit their money in banks making such statements. It would be a crowning act of injustice to hold that deposits thus induced are nevertheless cut off from sharing in these assets until some unknown favored few, who have been secretly secured, are satisfied; and it would be a palpable fraud on the part of a bank thus to procure deposits when its assets were secretly pledged. ... We are unwilling to hold that a bank, in the absence of some statutory authority, may exercise a right or power which would enable it to perpetrate a fraud upon any of its depositors.”

Appellant takes the alternative position that the making of the deposits and the giving of the security was either lawful or unlawful. If unlawful it was unlawful on the part of one party as well as on the part of the other. In other words, if the district could not make the deposit without taking security for such deposit, and the bank was not authorized to give the security, then neither could the deposit be lawfully made nor the security lawfully given; that it was a single transaction, and if unlawful both parties are equally at fault, and a trust is immediately created earmarking the particular money which never became the assets of the bank at all, and it must be returned to appellant. We are constrained to hold with the trial court, that the deposit was not forbidden by law, but that

The powers of appellant district, as stated earlier in this decision were considered in the ease of Crawford v. Imperial Irr. Dist., 200 Cal. 318 [ 253 Pac. 726 , 732]. We there held that its powers were broad and comprehensive, even exceeding in some respects the powers of an ordinary municipal corporation. Its board of directors is authorized to “manage and conduct the business affairs of the district”. It would be unreasonable, difficult and most inconvenient to conduct a business of the magnitude of appellant in this rapidly moving age if it should be denied the facilities which banks offer for the transaction of business. The general powers conferred upon said district give its officers the right to deposit its funds in a bank. Appellant’s argument against the lawfulness of deposits thus made rests largely upon the pronouncements found in Yarnell v. City of Los Angeles, 87 Cal. 603 [ 25 Pac. 767 ]. A provision of the city charter of the city of Los Angeles directing the city council to appoint as a depository of public funds the bank offering the highest rate of interest thereon, and further providing that the city council should direct the city treasurer to deposit with said bank all money received or collected by him, was held to be unconstitutional. The basis of that opinion was that said charter provision was contrary to certain sections of the Constitution and sections 424 and 426 of the Penal Code. The sections of the Constitution—13, 16 and 17, article XI—against which the charter provisions offended, related either directly or indirectly to the deposit of public funds or the making of a profit by the officers having possession or control thereof. The Yarnell decision was rendered in 1891. Since that year, in 1906, the Constitution was amended by the adoption of section 16%, article XI. That section expressly legalizes the deposit of public funds by the custodian thereof in such manner and under such conditions as may be provided by law. The -legislature thereafter, in obedience to the mandate of the Constitution, enacted certain statutes prescribing the conditions under which the several public moneys enumerated in said section 16% of the Constitution might be deposited in the banks of this state. The acts in effect at the time appellant’s moneys wrere deposited in said bank are to be found

Appellant complains somewhat bitterly, and probably not without color of moral justification, and invokes the doctrine of estoppel against said bank based upon the stipulated fact that said bank solicited said deposits, and had it known that the bank could not have lawfully pledged its bonds it would not have made the deposits. It is also stipulated that the Superintendent of Banks was charged with knowledge that the pledged bonds were in possession of the district for more than two years, and he made no complaint as to its possession and claim. The difficulty with this proposition is that the rights of the depositors, innocent third parties, are involved in the transaction, and their protection is one of the first concerns of the law. Their rights are surely equal with those of the district, unless the statute has given a preference to said district, which was an actor in the transaction. If it acted under a mistake of law, its position should not be better than that of other depositors who were ignorant of the bank’s approaching insolvency as well as the attempt on the part of the district to secretly secure its deposits.

From our examination of the various decisions, statutes and constitutional provisions, we are brought to the conclusion that the deposit of appellant’s funds with the bank was not an unlawful or invalid act, but that its right to receive security for its deposit did not find support in law, and, this being so, it must stand upon the same level with the general depositors, its relation with the bank being that of debtor and creditor.

The judgment is affirmed.

Waste, C. J., Curtis, J., and Tyler, J., pro tern., concurred.

Shenk, J., being disqualified, did not participate.

Rehearing denied.