Allen v. United States, 1549.

• Decision Date: 16 January 1923
• Docket Number: 1549.
• Citation: 285 F. 678
• Parties: ALLEN, Bank Commissioner, et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — First Circuit

285 F. 678

ALLEN, Bank Commissioner, et al. v. UNITED STATES.

No. 1549.

United States Court of Appeals, First Circuit.

January 16, 1923

John E Hannigan, of Boston, Mass., for appellants.

Frederic S. Harvey, Asst. U.S. Atty., of Lowell, Mass. (Robert O Harris, U.S. Atty., of Boston, Mass., on the brief), for the United States.

Before BINGHAM and JOHNSON, Circuit Judges, and MORTON, District judge.

JOHNSON Circuit Judge.

J Thomas Ward, as superintendent of the Essex station of the Boston postal district, deposited with the Prudential Trust Company, a banking corporation duly authorized under the laws of the commonwealth of Massachusetts, having a place of business in Boston, in said commonwealth, money received by him in his said capacity to the amount of $8,928.66, which was entered in an account to the credit of J. Thomas Ward Superintendent, Essex Street Post Office. He also deposited to the account of J. Thomas Ward, Superintendent, Essex Street Post Office, M.O. (the letters M.O. meaning money orders), the following sums received from the sale of money orders: $600 on September 8, 1920; $1,292.13 on September 9, 1920; and $1,700 on September 9, 1920-- making the amount of both accounts $12,520.79.

On or about September 10, 1920, said defendant, Joseph C. Allen, as commissioner of banks, took possession of the property and business of the Prudential Trust Company by virtue of chapter 167 of the General Laws of Massachusetts, and is proceeding to liquidate and distribute the assets of said company as provided by said chapter.

On or about October 18, 1920, he appointed the defendant John E. Hannigan as his agent to assist him in the performance of this duty.

From the agreed statement in the record it appears that the assets of the Prudential Trust Company were insufficient to pay its liabilities when possession of its property and business was taken by the commissioner; that the Prudential Trust Company had full knowledge that the said J. Thomas Ward was the superintendent of the Essex Street station of the Boston postal district; that the funds deposited by him had been received by him in his official capacity as such superintendent from the sale of postal supplies and money orders; that the specific money constituting both accounts cannot be traced or identified as such, but that the Prudential Trust Company has had on hand at all times, since said money was deposited, funds in its commercial department exceeding the amount of said accounts; that the said Prudential Trust Company was not, when said deposits were made, an authorized depositary of postal funds or money order funds, and that said Ward had no authority from the postmaster at Boston to deposit said funds with the Prudential Trust Company.

It also appears that immediately upon depositing $600 on September 8, 1920, $1,292.13 on September 9, 1920, and $1,700 on the lastnamed date, to the credit of J. Thomas Ward, Superintendent Essex Street Post Office, M.O., the said Ward drew checks for each of said amounts payable to Roland M. Baker, postmaster, which checks were certified by the Prudential Trust Company, but that on the next day, before said checks were presented for payment, the defendant Joseph C. Allen, as bank commissioner, had taken possession of the effects of the Prudential Trust Company, and said checks were not paid when presented.

The District Court has found that the United States is entitled to priority of payment under R.S. Sec. 3466 (Comp. Stat. Sec. 6372). The view which we have taken of the case, however, renders it unnecessary to consider this ruling.

The bill alleges, and it is admitted in the agreed statement, that the said J. Thomas Ward had no authority to deposit funds of the United States with the Prudential Trust Company and that the Prudential Trust Company had no authority to receive funds of the United States for deposit. The answer also admits that there was in Boston at the time the above deposits were made an Assistant Treasurer of the United States or a designated depositary there of the funds of the United States.

By section 3846 of the Revised Statutes of the United States (section 7208, Comp. Stat.), postmasters are forbidden to deposit public money collected by them in an unauthorized bank.

Section 3847, R.S. (section 7209, Comp. Stat.), authorizes a postmaster at an office within a city or town where there is no Treasurer or Assistant Treasurer of the United States, or designated depositary, to deposit public money temporarily, at his own risk and in his official capacity, in any national or state bank of the state in which the said postmaster resides, or in which his office is located. This section has no application to the facts in this case as there was an Assistant Treasurer of the United States and an authorized depositary of public funds in Boston.

Section 364 of the Regulations of the Post Office Department provides that, when a deposit is made by a postmaster in accordance with this statute, it shall only be for safe-keeping, and that the funds or other property deposited shall be kept in a receptacle under the postmaster's exclusive control, and that under no circumstances are such funds or property to be used by the bank, or become a part of its assets, or be mingled with its regular deposits.

Section 5490, R.S. (Comp. Stat. Sec. 10257), makes every officer or other person charged by any act of Congress with the safe-keeping of public moneys guilty of embezzlement if he has deposited such moneys in any bank unless specially allowed by law to do so.

Section 5497, R.S. (Comp. Stat. Sec. 10264), makes every officer of a bank which is not an authorized depositary of public moneys guilty of embezzlement, if he shall have knowingly received such money for deposit from any agent of the United States.

The Prudential Trust Company not being an authorized depositary of public funds, the superintendent of the Essex Street station not only had no authority, but was positively forbidden, to deposit with it money of the United States received by him in his capacity, and its officers were guilty of embezzlement in knowingly receiving it.

In view of these positive declarations of the statute, the fact that the superintendent of the Essex Street station had for several years, with the knowledge and consent of the postmaster at Boston, made deposits in the Prudential Trust Company, an unauthorized depositary, could not render such deposits legally made.

As the deposits were not only unauthorized, but prohibited by law, the Trust Company never had title to the money covered by them, but held it as a trustee ex maleficio, and if it can be traced into the possession of the commissioner it is charged with the same trust. The United States has not elected to become a party to the liquidation proceedings by asserting a claim as a debtor or depositor, nor are its rights affected by the unauthorized act of J. Thomas Ward in filing a proof of claim with the commissioner.

As to the deposits which were made upon September 8th and 9th, amounting in all to $3,592.13, for which checks were at once drawn and certified by the Prudential Trust Company, there does not seem to be any doubt that the amount of these deposits was among the cash assets of the bank when possession of them was taken by the commissioner.

As to the other deposits, amounting to $8,928.66, it is agreed that the trust company had on hand at all times after said money was deposited, and when possession was taken by the commissioner, cash assets in its commercial department exceeding the amount of both said accounts. Under these admitted facts it is a presumption of law that the trust fund is included in the cash assets in its commercial department and has never been wrongfully appropriated.

While the burden is upon the beneficiary to trace the trust fund, we think, under the circumstances of this case, this has been done and that the cash effects in the commercial department of the trust company which have come into the possession of the commissioner are impressed with a trust in favor of the United States for the full amount of $12,520.79. The conclusion which we have reached is supported by the following authorities: Frelinghuysen v. Nugent et al. (C.C.) 36 F. 229; Central Nat. Bank v. Conn. Mutual Life Ins. Co., 104 U.S. 54, 68, 26 L.Ed. 693; Peters v. Bain, 133 U.S. 670, 10 Sup.Ct. 354, 33 L.Ed. 696; Standard Oil Co. of Ky. v. Hawkins, 74 F. 395, 20 C.C.A. 468, 33 L.R.A. 739; Spokane County v. First Nat. Bank of Spokane et al., 68 F. 979, 982, 16 C.C.A. 81; Merchants' Nat. Bank v. School District No. 8, 94 F. 705, 36 C.C.A. 432; Board of Commissioners v. Strawn, 157 F. 49, 84 C.C.A. 553, 15 L.R.A. (N.S.) 1100; Brennan v. Tillinghast, 201 F. 609, 120 C.C.A. 37; In re Brown, 193 F. 24, 113 C.C.A. 348; In re See, 209 F. 172, 126 C.C.A. 120; Titlow v. McCormick, 236 F. 209, 149 C.C.A. 399; United States Nat. Bank v. City of Centralia, 240 F. 93, 15 C.C.A. 129; Phillips v. Yates Center Nat. Bank, 98 Kan. 383, 158 P. 23, L.R.A. 1917A, 680, note, at page 683; Schuyler v. Littlefield, 232 U.S. 707, 710, 34 Sup.Ct. 466, 58 L.Ed. 806; 18 Corpus Juris, p. 580, Sec. 45; 22 R.C.L.p. 230.

The contention that the District Court was without jurisdiction because this is a suit against the state of Massachusetts is clearly untenable. The state claims no title to any of the property of the trust company held by the commissioner and can be in no way affected by any decree that may be entered. The real defendant in this case is the trust company, and if that had been made the defendant, the commissioner could have intervened. By section 25 of chapter 167 of the General Laws of Massachusetts he is authorized in the name of the trust company to prosecute...