City of Centralia v. United States Nat. Bank of Centralia, Wash.

• Decision Date: 03 February 1915
• Docket Number: 25-E.
• Citation: 221 F. 755
• Parties: CITY OF CENTRALIA v. UNITED STATES NAT. BANK OF CENTRALIA, WASH., et al.
• Court: U.S. Court of Appeals — Ninth Circuit

221 F. 755

CITY OF CENTRALIA v. UNITED STATES NAT. BANK OF CENTRALIA, WASH., et al.

No. 25-E.

United States District Court, W.D. Washington, Southern Division.

February 3, 1915

W. N Beal, of Centralia, Wash., and Piles, Howe & Carey, of Seattle, Wash., for complainant.

A. R Titlow, of Tacoma, Wash., for defendants.

CUSHMAN District Judge.

This is a suit to impress a trust upon funds in the receiver's hands and to obtain a preference over the general depositors and creditors of the insolvent bank. A temporary injunction is asked, restraining the receiver from paying a contemplated dividend. If this dividend is paid, it is clear that, should the complainant's preference be ultimately established there would not remain sufficient assets to pay complainant's claim and the expenses of the receivership. By consent the matter was heard upon oral testimony. The city of Centralia is a city of less than 75,000 inhabitants. The following sections of the Washington statutes provide for the deposit of public money in such cities:

'77-- 681. Depositories Cities Other Than First Class. That any city or town of the state of Washington having a population of less than seventy-five thousand (75,000) inhabitants, shall upon a majority vote of its city council instruct its city or town treasurer, upon this bill becoming a law and annually thereafter at the end of each fiscal year or at such other times as may be deemed necessary by the treasurer, to designate one or more banks in the county wherein such city or town is located as depositary or depositaries of the moneys required to be kept by said treasurer.'

'77-- 683. Security. Before any such designation shall entitle the treasurer to make deposits in such bank or banks, the bank or banks so designated shall within ten (10) days after the same is filed with the comptroller or town clerk, file with the comptroller or town clerk of such city or town a surety bond to such city or town in the maximum amount of deposits designated by said treasurer to be carried in such bank, or in lieu thereof shall deposit with the treasurer good and sufficient municipal, school district, county or state bonds, or warrants, or United States bonds, or local improvement bonds, or warrants, or public utility bonds or warrants issued by or under authority of any municipality of this state upon which interest or principal is not in default at the time of such deposit, or first mortgage railroad bonds listed on New York stock exchange, conditioned for the prompt payment thereof on checks duly drawn by the treasurer, which surety bonds or security shall be approved by the mayor and comptroller or town clerk of said city or town and such banks shall also at the same time file with said comptroller or town clerk a contract with said city or town wherein said bank shall agree to pay not less than two per centum on the average daily balances where such balances exceed one thousand ($1,000.) dollars of all municipal funds kept by such treasurer in said bank, while acting as such depositary; such payments to be made monthly to said city or town while said deposits continue in said depositary; said contracts shall run to said city or town and be in such form as shall be approved by the treasurer, mayor and corporation counsel.'

'135-- 631. Every public officer, and every other person receiving money on behalf or for or on account of the people of the state or of any department of the state government or of any bureau or fund created by law in which the people are directly or indirectly interested, or for or on account of any county, city, town or any school, diking, drainage or irrigation district, who--

'1. Shall appropriate to his own use or the use of any person not entitled thereto, without authority of law, any money so received by him as such officer, or otherwise, * * * shall be punished by imprisonment in the state penitentiary for not more than fifteen years.'

'135-- 633. Every officer or other person mentioned in section 317 (135--631, supra) of this act, who shall willfully disobey any provision of law regulating his official conduct in cases other than those specified in said section, shall be guilty of a gross misdemeanor.'

'135-- 635. Every state, county, city or town treasurer who shall willfully misappropriate any moneys, funds or securities received by or deposited with him as such treasurer, or who shall be guilty of any other malfeasance or wilful neglect of duty in his office, shall be punished by imprisonment in the state penitentiary for not more than five years or by a fine of not more than five thousand dollars.'

Pierce's Code, 1912.

The United States National Bank, prior to the time in question, was designated as a depositary of the city's public moneys and had given a $10,000 bond to the city, as required by section 77-- 683. Prior to July, 1914, the city had authorized the issuance of bonds, in order to change its pumping water system to a gravity system, the proceeds of these bonds to be applied to no other purpose. A sale of the bonds to Carstens & Earles, bond buyers of Seattle, Wash., had been negotiated, and on July 10 or 11, 1914, the city treasurer of Centralia delivered the last of these bonds to the United States National Bank, with a draft upon Carstens & Earles-- the exact amount of which does not appear-- with instructions to forward and collect. The cashier of the bank received them, knowing the nature and purpose of the bonds-- the bank making an entry to the effect: 'C.A.C., Mason, Treas.'-- meaning, 'Credit account, Mason, Treasurer,' and immediately forwarded the bonds to its regular correspondent in Seattle, the National Bank of Commerce. This bank was not only its correspondent, but a reserve bank. The draft was paid to the National Bank of Commerce about July 13, 1914. The National Bank of Commerce gave the United States National Bank credit for the amount collected, $50,911.88, and advised the United States National Bank of that fact. On July 13th the United States National Bank entered in its books a credit to the city treasurer for this amount, charging a like amount against the National Bank of Commerce.

There had been for a considerable time-- exactly how long is not disclosed-- $1,000 to the treasurer's credit in the account in which this collection was entered. The city treasurer was absent from Centralia at the time of the collection and entry of this credit. The bank gave him the general credit without further advice from him. By July 21st the treasurer had returned to Centralia, and, learning that the bank had credited him with this amount, notified the vice president and manager of the bank that an additional bond would have to be given by the bank to the city on account of this deposit. The bond was not given. No action was taken by the city commissioners regarding the deposit. The bank paid the treasurer 2 per cent. interest on the deposit, one payment for the month of July, and one for the month of August. The bank had, before this time, been paying interest to the treasurer on the $1,000 already in this account. This account was never checked against by the treasurer. The National Bank of Commerce never remitted to the Centralia Bank either currency or coin upon this collection. The United States National Bank's account with the National Bank of Commerce was drawn upon, after the collection, so that, on July 28th, it was overdrawn $1,038.64.

There was also another account of the city treasurer in the United States National Bank at the time it was closed. This was carried by the bank as a special deposit and arose as follows: The city had theretofore authorized the issuance of certain bonds for the refunding of its outstanding general expense warrants. These bonds were in denominations of $1,000, and were sold to a bank in Portland, Or. An arrangement had been made whereby the United States National Bank paid the warrants as they were presented. When an amount of these warrants had been accumulated equal to one of the bonds, that fact would be properly certified, with a list of the warrants, which would be transmitted, with the bond and accompanying draft, to the Portland bank, which would then pay a proportionate amount of the sale price of the bonds which would be deposited in the United States National Bank and the city treasurer credited with the amount in this special account. All of the funded warrants have now been paid, except two, one for $2.20, and the other for $1.50. A small part of the funded warrants were paid from another fund, after the failure of the bank. Owing to the fact that the bonds were issued to an amount equal to the warrants to be funded and interest, and that the bonds sold for a premium, there was realized an excess over what was required to take up the warrants. This excess, with the amount of the warrants redeemed since the bank's failure, and the two unpaid...