
    CITIZENS STATE BANK OF MOBRIDGE, Respondent, v. ROSENBERGER et al (Inter-state Surety Company, Appellant.)
    (167 N. W. 154.)
    (File No. 4164.
    Opinion filed March 26, 1918.)
    1. Vendor and Purchaser — Indian Ward Lands — Conditional Purchase Money Deposit in Bank, Transfer of Credit to Purchaser, Indemnity Bond to Vendor, Liability Under — Defense of Public Policy, Effect — Pleading, Sufficiency.
    A complaint in substance alleged a written contract between one who contracted with another to sell to the latter certain lands owned 'by Indian wards, that pursuant to Departmental Rule one-fourth of purchase price was deposited by vendor with plaintiff bank as such advance payment, that it was agreed that if title to and approval of sale of the lands by the Department of the Interior could not be made good within six months, the agreement should be void and deposit money refunded, that vendee requested plaintiff to transfer the deposit to his checking account at the bank, which was. done upon vendee’s executing, with defendant surety company, an indemnity bond to plaintiff against loss or damage, etc., that vendee defaulted by failing to procure good title to the lands, that thereafter vendor recovered judgment against plaintiff bank for the amount of the deposit, etc. Held, that trial court erred in overruling a demurrer to the complaint for failing to state a cause of action; that defendant surety company’s defense that the contract of indemnity was void as against public policy because it induces breach of trust on part of the bank, and that the funds were delivered in escrow to the bank for benefit of innocent persons contracting with vendee, is untenable; the complaint not disclosing wrongful intention or fraudulent collusion with vendee concerning the indemnity contract; it not appearing that vendee had no right to receive any part of said deposit so credited to him, while the indemnity bond protected vendor’s rights and those who might have been entitled to the'deposit; that while vendee and plaintiff might have conspired to defraud the surety company by means of such indemnity contract, the complaint does not so disclose, or that plaintiff ’bank acted otherwise than in good faith; moreover, all principal circumstances surrounding the deposit are recited in the indemnity contract, thus notifying defendant surety company of what it was doing in executing the contract. Held, further, that the actual money went into the general and business funds of the bank, and vendor, and the Department of Interior as guardian ’of said wards, had a contingent banking credit for said deposit, according to who should eventually be entitled thereto'.
    . 2. Escrow — General Bank Deposit of Purchase Money re Sale of Indian Ward Bands, Whether- an Escrow?
    Where, under a contract of conditional sale of Indian ward lands, vendor deposited in bank to the general credit of vendee, part of thfe purchase money, pursuant to rule of Department of Interior that such part payment should be advanced and ■remitted to agent of the Department, the sale being conditional upon vendor’s making good title to the lands, with approval of the Department, within a stated period, in default of which the contract should be void and money refunded to vendor, held, that, even though so denominated in the contract, such deposit was not an escrow, to be kept intact separate and apart from other bank moneys, but was deposited as any other general deposit, and became intermingled with other bank funds; and the bank waS' not obligated to return, the specific money deposited, its obligation being that of debtor agreeing to pay a like sum of money to whomsoever eventually might be entitled thereto under the sale contract.
    Whiting, P. J., dissenting.
    Appeal from Circuit Court. Walworth County. Han. Joseph PI. Bottom, Judge. n
    Action 'by Citizens State Bank of Mobridge, a corporation, aga-inist P. B. Rosenberger, and the Interstate Surety Company, a corporation, to recover upon ¡a doinlbract of indemnity. From ■an order overruling a idemurreir to the complaint, defendants appeal.
    Affirmed).
    
      Sterling & Clark, for Appelant.
    
      Pat Morrison, for Respondent.
    (i) To point one lo'f the opinion, Appellant cited: 9 Cyc. 483; Note 52 in 9 Cyc. 484, and Annotations; Hayes v. Kyle, 8 Allen (Mass-.) 300; Giv Code, Sec. 1271, i960; Timm v. Grand RapidJs Brewing Co., 125 N. W. 357; 27 L. R. A. Ns. 186; Affiibooe v. Ames, (S'. D.) 68'N. W. 165, 33 L. R. A. 585; Ives v. Jones, 40 Am. Dec. 421.
    Respondent cited: Greenhoold on Public Policy, pp. 1, 14, 15; Byrd v. Hughes, 84 111. 174, 25 Aim. Rep. 442; Fidelity & Deposit Co. v. Butler, 16 L. R. A. (N. S ) 994; Moss v. Gclhem, 36 N. Y. Suippi 265; 9 Cyc. pp. 470-474.
   McCOY, J.

Plaintiff’9 'complaint iis in substance as follows: That one Rosenbergeir amid one Charles entered) into a written cootra'ct whereby said' Rosenberger agreed to sell to said Charles certain lands owned and held by Indian wards of the United States government; that the regulation© of -the Department of the Interior required that one-fourth of the purchase price of said lands be paid ini clash and remitted to the authorized! agent of th‘e Department of the Interior; that by ithe terms of said contract for the ©ale of ©aid land it was agreed that, if title ito said Hands and itlhie approval loif s'uiclr ©alies by Ithe Department of the Interior could not be mlade good within ©ix months from the date of said agreement, said agreement should be void, and' that moneys deposited by ©aid Charles for the purpose -off making the first payment on said Hands should1 be refunded toi him; that under and by virtue otf slaid Contract the Said Charles deposited with plaintiff bank $1,100, as the advance .payment of one-fourth of the purchase price of said lands; that thereafter (the said Rosenberger requested) ith'e plaintiff to transfer the said - deposit of $1,100 so made by Charles to the checking account of Rosenberger; that plaintiff before transferring itihe said deposit to .libe 'checking 'credit oif Rosenberger required) him to furnish indemnity indemnifying plaintiff from any loss or damage on account of the transfer of said funds so deposited to 'tire general checking account of Rosenberger that thereafter, pursuant tioi said requirement of plaintiff, 'the said Rosenberger, as principal, and the defendant Interstate Surety Company, as surety,. executed to plaintiff their indemnity contract whereby they agreed to- save and hold harmless the plaintiff from any loss or damage on, aoaoiunt of the transfer of said deposit to- the general 'Checking aocount of Rosenberger; that the said Rosenberger defaulted in the terms of said real estate 'contract with isaliid! Charles by failing within six months, or :any other time, tci, procure good title to any of said lands, and by reason thereof said Charles became entitled to have said $i,ioo so deposited refunded to him; that after tre expiration of said six months and the failure of salid Rosenberger, the said Charles reciciveied a judgment against plaintiff for the ■amount of s’aidf deposit, together with costs and interest, and (that plaintiff expended the further sum of $ioo for attorney’s fees in dlefense of said action; and that by reason of the said facts plaintiff has lost and been damaged in (the 'amount of said deposit together with s'aid interest, Posts, and attorney's fees. To this complaint .the defendant Interstate Surety Company interposed a demurrer on (the ground that said! complaint failed to state facts sufficient to constitute a cause of action against said surety company. From an order overruling said demurrer said defendant appeals.

It is the domitentiicln Of appellant 'that salid contract of indemnity is void 'as being against public policy for the reason that it induced a breach of trust or confidence on the part of said bank; ¡that the funds referred to: Ft tibe compiaiint were delivered in escrow to the bank to hold for the benefit of innocent person's contracting with Rosenberger, and were to be 'turned over to Rosenberger only upon delivery of proper title to' the iandls. We aire of tíie icipini-ocn .that this contention of appellant is not tenable. There is nothing in this complaint from which it cam be inferred that plaintiff had any wrongful intention or in any manner whatever entered into any fraudulent collusion with Rosenberger in- relation to the entering into of said indemnity contract. While it does appear that Rosenberger had nia right whatever to receive-any part of said deposit credited to- his general checking account, still, the plaintiff protected the rights of Charles, or others who miight have been .entitled to said deposit, by requiring Rosenberg-er to furnish security indemnifying plaintiff from loss by reason (olf the .transfer of Said .deposit to. the account of Rosenberger, and ■while -it is true that Rosenberger and the plaintiff might have conspired to defraud the appellant of the amount of said deposit by means of such indemnity contract, still that is a matter not appearing from the fact of -the complaint in question, buit might be proper matter to be .pleaded by way of 'answer and be tried out on the trial of the Cause.

There is, idlw-ays in every contract .of indemnity or suretyship transaction an 'Opportunity for the principal debtor and the person for whose benefit the indemnity contract is made to enter into a conspiracy to defraud1 the surety; but there is nothing in the itnansalctiom set out in the complaint that discloses any such fraudulent conspiracy, oir that the plaintiff bank acted otherwise Khan in goold faith. All the principal circumstances of the making of said deposit with plaintiff are recited in the indemnity contract signed by the Interstate Surety Company, which gave said defendant full land complete notice of what it was doing' when it. entered into saiid .contract olf indemnity. The defendant surety company, no dloiuibt -received1 its premium, with its eyes wide -open (to (the flalcts, add by ireason thereof is not now in a position to repudiate the yalMdity of the indemnity, ¡in the .absence of any showing tending to shclw fraud or collusion between plaintiff and Rosenberger. When this- $1,100 wlas so deposited, by Charles with plaintiff, ¡the -adtu'al money went into the general- and business funds Of ¡the bank, and Charles and the Department of the interior, as guardian of the Indian wards, had! :a contingent banking credit flor s'aid $i,too, according -as to who -should be eventually enltiitfad 'thereto under the dcinitraict between Quarles and Rosenberger. UipOn tine giving of the security by Rosenberger ■to indemnify the bank from loss by reason of transferring sai'id ■credit; -the said credit was transferred to Ros'enbiergar, and he thereafter drew his checks and caused the s'ame to be paid .'to him.

The faiclt ttoait the 'contract sued upon and the ¡parties thereto had in contemplation ¡that these advance part payments toad been deposited with tine bank should at all times be kept in miinid in considering this case. If ittoe specific money representing these advance payments had in fact been specifically ¡deposited' • in escrow to have been kept intact separate and apart from all other moneys of the bank, 'and the parties to this action had been dealing with' ¡respect to money so held in escrow, then there would ■have been a different proposition confronting tihe panties and this court, as a diffenemit obligation would then have been resting upon the bank; but in ¡this Case tine •money'' wa's deposited1 in the bank ¡the same 'as any other general ¡deposit and became intermingled with all other moneys of the bank, and there was no obligation nesting on the bank to return tibe specific money deposited, bitti the only obligation resting on the bank wlas that of debtor agreeing to pay a like sum of money to whomsoever eventually might be entitled thereto under the eoWtir&et for the s'ale -of 'lauds. This is ¡the construction that the parties to this .action placed upon the deposit of the money with Ittoe bank. The money in. question never, as a matter of "fact, bec’aime 'an escrow, ■although so denominated. Thie contracts set out in ¡the complaint indicate a general, and not a special, deposit. A general deposit of money such as was contemplated by the parties to this suit was not in fact an escrow of money, bult was nothing moire than a general deposit. 5 Cyc. 515; 13 Cyc. 796; Anderson v. Bank, 112 Cal. 598, 32 L. R. A. 479; Mutual Acc. Ass’n v. Jacobs, 141 Ill. 261, 31 N. E. 414, 16 L. R. A. 516, 33 Am. St. Rep. 302. We fail to discover any principle of public policy in relation' to the giving o'f the indemnity' which permitted Rosenberger to procure the amount of the deposit from the bank. It might as well be said, for all this court knows, that Rosenberger and the surety company conspired to fleece the bank.

The order appealedl from is affirmed.

WHITING, P. J.

(dissenting!. By the express provision •of our Civil Code, § i960, an agreement ¡to indemnify a person for an act thereafter to be dloiu.e is void if the ac't be known by such pension at toe time of doing it to be unlaw ful. Respondent savs, "It may be readily conceded that, if toe bond did! in fact induce ,a breach of trust * * * it would be against public policy and therefore void.” Did) not the bond ¡induce a breach of trust? It ¡certainly must be presumed that toe bank wouidi not have fumed the money over to R'osenberger if it had not been for this bond — boto. parties thereto knew that- toe purpose of the giving and receiving of this bonld wias to pave tine, way for toe paying over of this monley. But respondent argues toalb toe transferring of itlhie money to R'oseniberger was not a breach of trust. Respondent says, “The turning over of the money to Ro'senberger did not affect the legal rights or any remedies for enforcing them of toe depositors! in the feast particular, and) it was therefore not a breach of trust.” In the majority opinion it is' said': “When this $i.too was so deposited by Charles with plaintiff, toe actual money went into tole general and business funds olf toe bank.” If this were a ¡correct statement, ¡and such money went into such funds rightfúll-y, then • there is basis for toe conclusion that this undertaking did not induce a breach of trust. Of course it wiais possible for toe parties hereto to have agreed that toe money should be deposited in toe .bank to stand as ¡a deposit payable to such person las should eventually be found entitled thereto, under which deposit toe money would have .properly been commingled with toe other funds of the bank, ¡and toe party who ultimately w'as entitled! thereto would have had the same rights, and none other, as other depositors. But that was not this case, and I am unable toi find ¡anything in the ¡complaint from which it could be Inferred that ©uCh was the agreement.

Respondent in its complaint repeatedly alleges that this money was ¡deposited with it in escrow. The deposit was by Charles. While it is an improper use of the term “escrow” to speak ¡of money being so deposited, yet when we consider v,hat an “escrow” its, it is clear toiaifc to speak of money being deposited in “escrow” means that such money was a special deposit, the title to toe money remaining in Charles, and such money to be delivered! to Rosenbarger ¡only upon toe’ happening of some event —in this case the Itendering of a perfect ¡title to the land. The .bank had-no right to turn, this money over to ¡its own general fund. Not rawly does the respondent repeatedly allege that '.¡«is money was :an “escrow,” buit the bond executed by appellant, and which. is the basis of this suit itself, recites that the money was 'deposited in the -bank “to be held in escrow/’ and speaks otB suldh fund as “deposited) in escrow.” It seems clear that, if this bank had lived up to its tnutet and should have happened to have become insolvent before the end oif the six months, this particular fund would have been diere in the bank to have been taken possession of by Charles, who could' have claimed the same as against the general dlepositoirs. The legal right of recovery upon this undertaking does not in any manner depend upon whether the depositors actually suffered as a result of what was done, but depends upon the results that might have flowed from what such- undertaking contemplated should be done. Therefore, when tíre undertalcing expressly provided that a fund which was held by itilue bank as a •special deposit — rendering the bank a trustee thereof — 'should be paid' over' in breach of the trust, the situation is 'exactly the same as though an agent who had money o!f Ms principal in his hands, or 'an administrator or executor or guardian who had! money of an estate in1 his hands, should be approached by some party having no right to such money with a request that be turn such money over to' him with ¡an assurance that he will see flhlat -such trustee suffers no financial liosis therefrom, and the trustee, being willing to commit a breach of hi's trust 'if he feels himself financially protected, steus to the runpier, “If you will procure me an under taking protecting me against loss for breaking my trust, I will then commit a breach of trust and give you the money.” Such an undertaking is promred with the full understanding and knolwledge on the part of the sureties to sudh undertaking that it is given for the purpose of and to induce a breach of trust 'and for the purpose of protecting the wrongdoer from Hass that m'ay flow from ouch breach of trust.

Was the turning over of this money by the bank “lawful”? If it was not, then section 1960, C. C., is controlling. Section 1271, C. C., slays tlilait is not lawful which is:

“(1) 'Contrary to.* * * express * * * law;
o “(2) Contrary to the policy of express law, though not ■expressly .prohibiiited; ior,
“(3) Otherwise contrary to good mortis.

Section 1618, C. C., provides that:

“A trustee may not use or deal with the trust properly * * * for any other purpose unconnected! -with the trust.”

See Coventry v. Barton, 17 Johns. (N. Y.) 142, 8 Am. Dec. 376.

Even if this case were not ruled by the provisions of elections 1271 and 1960, C. C., yet it certainly is by decisions that -do not nest upon express statutes, but which announce the tow that was intended It0 be made statutory by section 1960, C. C. An interesting dase is that of Ives v. Jones, 25 N. C. 538, 40 Am. Dec. 421. A reading of that cas'e amid the note following Same would seem Ito di-sldose that tine -controlling distinction recognized, where nci -actually orimina'l means or motive was present, is the absence o-f knowledge by tire wrongdoer, plaintiff in this Case, th-at the act which wta-s to be indemnified against was wrongful to a third party. An instructive decision is that of Rice v. Nat. Bk., 98 Mo. App. 696, 73 S. W. 930, where a bond was h-elcl voiid, and where, ■in speaking of certain -cases where the bonds had been held valid, -the court said:

“But in those cases, and running through all others which we halve examined, i-s the proviso, directly expressed, or else plainly implied, that the -party doing the illegal act -must have been an. innocent party. He must not have been a willful participator in the wrong. In Stone v. Hooker, 9 Cow. [N. Y] 154, the court said tltofc: 'The distinction taken -between -promises of indemnity that iar,e ¡alud -those which are not void is this: If -the act directed or agreed to be dome is known at the -time to be a trespass an express promise to indemnify would be 'illegal and void, -but if it was not known at the time to be a -trespass the promise of indemnity -is a good and valid- promise.’ See, also, Torpy v. Johnson, 43 Neb. 882, 62 N. W. 253.”

An -instinctive nolle, though relating to- “Indemnity to- Sheriff,” will- be found in 86 Am. St. Rep. 554, where will be found quoted -the general doctrine as laid down in 2 Freeman on Executions, § 275a, as follows:

“It must 'be remembered, in considlering all- contracts of indemnity, however expressed, tlhlait the law will not tolerate any agreement having for its object the commission of a known wrong. Hence it is essential to the validity of every bond or -other agreement for indemnity that 'there was no. doubt respecting the validity of itihe act in question, ¡for if the parties knew, or were chargeable with knowledge, that it wias criminal or 'Unlawful; or necessarily constituted1 a trespass' or an invasion of the just rights of another, there can be no contract, whether expressed or implied, that the agent shall by his principal be indemnified for doing such adt.”  