Sneeden v. City of Marion, Ill., 4494.

• Decision Date: 21 March 1932
• Docket Number: No. 4494.,4494.
• Citation: 58 F.2d 341
• Parties: SNEEDEN v. CITY OF MARION, Ill., et al.
• Court: U.S. District Court — Eastern District of Illinois

58 F.2d 341 (1932)

SNEEDEN v. CITY OF MARION, Ill., et al.

No. 4494.

District Court, E. D. Illinois.

March 21, 1932.

Ferrell & Hay, of Marion, Ill., for plaintiff.

Pope & Driemeyer, of East St. Louis, Ill., for defendants.

WHAM, District Judge.

By his bill the plaintiff, receiver of the City National Bank of Herrin, seeks to have the delivery and pledge of certain bonds by said bank to secure a deposit prior to the appointment of the receiver, of funds of the city of Marion, Ill., by Ray C. Carroll, as city treasurer, held an illegal and ultra vires act on the part of said bank and its officers; to have the defendants enjoined from disposing of said bonds and to have the same returned to the plaintiff. Plaintiff alleges that the pledge of assets of the bank to secure a deposit was not only beyond the power of the bank, but was against public policy and constituted a fraud upon the bank's other creditors and depositors, and, further, that the making of this pledge by the officers was not authorized by the board of directors. The defendants by their joint answer deny that the plaintiff is entitled to the return of said bonds and deny that the pledge of said bonds was ultra vires, illegal, and void; deny that such act was against public policy and a fraud on the other creditors and depositors of the bank, and say that the funds so deposited were public moneys for the securing of which the said bank had a lawful right to pledge a portion of its assets, and that the officers so doing were authorized by the board of directors so to do, and their acts were subsequently approved and acquiesced in by the board. Upon application of the plaintiff, a temporary restraining order was issued restraining disposition of said bonds, and by agreement of the parties the entire matter was submitted to the court upon stipulation of facts for a determination of the merits of the case without a separate hearing upon plaintiff's application for preliminary injunction.

No evidence was taken in the case, but all the facts were stipulated in writing, from which written stipulation the following findings of fact are made:

1. The plaintiff became the duly qualified and acting receiver of the City National Bank of Herrin, a national bank located in the city of Herrin, Williamson county, Ill., on October 2, 1931; that the city of Marion, Williamson county, Ill., is a municipal corporation; that the Continental Illinois Bank & Trust Company is a banking association organized and existing under the laws of the state of Illinois and is located in the city of Chicago, and the Fidelity & Casualty Company of New York is a corporation duly licensed to do business in the state of Illinois.

2. The plaintiff, Ben Sneeden, as receiver of the City National Bank of Herrin, is engaged in winding up the affairs of said bank; that said bank failed to open for business on October 21, 1931, and has since remained closed and suspended; that prior to the suspension of said bank it owned and held certain bonds described in paragraph 3 of the bill of complaint of a total par value of $21,000.

3. On August 25, 1931, one Ray C. Carroll, the city treasurer of the city of Marion, Ill., deposited in said City National Bank of Herrin funds of said city of Marion in his name as city treasurer, and on October 21, 1931, the date of the closing of said bank, said Ray C. Carroll as city treasurer of the city of Marion, Ill., had funds of said city on deposit in said bank in the sum of $16,430. The city of Marion, Ill., before and during all the times aforesaid, had adopted and its affairs were being administered under the "Commission Form of Government" as provided by the statutory laws of the state of Illinois.

4. Ray C. Carroll, to qualify under the law as treasurer of the city of Marion, was required to give a bond with good and sufficient surety conditioned for the faithful performance of the duties of the office and the payment of all moneys received by him according to the law and ordinances of said city; that he applied to the Fidelity & Casualty Company of New York to execute said bond as surety and that company agreed to do so provided Carroll would procure a bank which would secure the deposit of the public money of the city of Marion by pledge of some of its assets satisfactory to said surety company; that there was then no bank in the city of Marion; that said Carroll, as treasurer, with William Below, finance commissioner of the city of Marion, and an agent of the Fidelity & Casualty Company of New York, made and entered into an agreement with Joe P. Benson, cashier of the City National Bank of Herrin, that if said Carroll would deposit in said bank the public money of the city of Marion coming into his hands as treasurer, said bank would deposit with the Continental Illinois Bank & Trust Company the bonds described in paragraph 3 of the bill of complaint to be held by said Continental Illinois Bank & Trust Company for the purpose of securing the safe-keeping and prompt payment of the public money of the city of Marion deposited with said bank; that thereafter the said agreement was executed on behalf of the City National Bank of Herrin by R. A. Karr, vice president of said bank, the president being out of the city by reason of illness, and Joe B. Benson as cashier, and was transmitted by Mr. Benson to the Continental Illinois Bank & Trust Company with the bonds and securities described in paragraph 3 of the bill, and the agreement and bonds were received and the trust was accepted by said Continental Illinois Bank & Trust Company; that thereafter the Fidelity & Casualty Company of New York, by reason of and on the strength of the deposit of the city's funds being thus secured, executed the official bond of said Carroll as city treasurer; pursuant to said agreement Ray C. Carroll as treasurer deposited the public moneys of the city of Marion in the City National Bank of Herrin.

5. The bonds described in paragraph 3 of the bill of complaint are now in the custody of the Continental Illinois Bank & Trust Company which holds them subject to the terms and provisions of the said depositary agreement.

6. Mr. Benson, as cashier of the City National Bank of Herrin, with said Below, finance commissioner, agreed that the bank would pay the city of Marion interest on its public moneys on deposit at the rate of 2 per cent. per annum, payable monthly on average balances in excess of $5,000. The City National Bank of Herrin did not execute and deliver to the city of Marion any bond to secure the said deposit in any form whatsoever. The said deposit was on checking account, and the city treasurer drew checks against the deposit from time to time in the ordinary course of business which were accepted and paid by the bank.

7. Mr. Benson informed the directors of the City National Bank of Herrin of the arrangement with Mr. Carroll as treasurer of the city of Marion and that the said securities belonging to the bank had been pledged as security for the deposit of the public money of the city of Marion. The matter was discussed at a meeting of the board of directors, and while no formal action was taken by the board of directors, the action taken was acquiesced in by the various directors individually.

8. On June 13, 1930, the board of directors of the City National Bank of Herrin at a regular monthly meeting of the board adopted a resolution empowering the president and the cashier of the bank "to set aside with any third party as trustee any of the unpledged assets of the bank as security for a deposit in said bank of any funds so deposited by any school treasurer, city treasurer, township treasurer, state treasurer, postmaster depositing postal savings funds, or any receiver for any closed bank or other public institution in conformity to law, to secure such deposit which belongs to any of the municipalities or institutions represented by said depositor, said assets so pledged to be held by the designated trustee as security for the repayment of the said deposit to the order of the said depositor but not as a guarantee of the lawful acts of said depositor in his official capacity. And that any previous action of the president and cashier of the bank in conformity of the above be hereby ratified and confirmed."

9. The City National Bank of Herrin published a statement of its condition the latter part of September, 1931, being the only statement of condition published subsequent to July 31, 1931, and therein made no reference to the fact that the bonds and securities described in paragraph 3 of the bill of complaint had been pledged to secure the deposit of the public money of the city of Marion or that other securities of the bank had been pledged to secure other deposits. In the form of statement of its condition required and published by the bank, no provision was made for a statement as to the existence of such pledges.

10. No facts appear indicating bad faith, actual fraud, or contemplation of the bank's insolvency at the time the pledge was made on August 28, 1931, on the part of the officers of the bank or of any other party to the transaction, and I find there was none.

Conclusions of Law.

1. The City National Bank of Herrin had lawful power under the law of Illinois and of the United States at and during the time here in question to pledge its assets consisting of the bonds described in paragraph 3 of the bill of complaint to secure the general deposit of the public funds of the city of Marion, and the transaction by which it did so was lawful and not ultra vires and void and was not fraudulent as to other creditors and depositors in the bank.

2. The agreement entered into between said bank by and through its vice president and cashier and Ray C. Carroll, as treasurer of the city of Marion, whereby the bank agreed to deposit with the Continental Illinois Bank & Trust Company the bonds described in paragraph 3 of the bill of complaint as security...