McKinney v. United States Nat. Bank of Centralia

GILBERT, Circuit Judge (after stating the facts as above). The account between the Olympia bank and the Centralia bank shows the following: That the Centralia bank, between August 20th and September 9th, and including those dates, received in cash from the-Olympia bank $38,498.91, all of which was sent to Seattle and Tacoma banks at the instance of the Centralia bank, except $2,203.91, which was sent to the Centralia bank, and that between August 20th and September 17tb the Olympia bank received from the Centralia bank $12,500. This result is reached after eliminating from one side of the account the fictitious charge of $48,000 against the Olympia bank, representing the color of credit obtained in the Centraba bank by that bank, and from the other side of the account $12,500 and $24,-050, which took the form of drafts for the payment of Hays’ indebtedness on his notes, and $9,500, representing the three Blumauer notes, which never came into the possession of the Olympia bank. With the elimination of these false items, the balance stands in favor of the Olympia bank in the sum of $25,998.91, as found by the court below. [1-3] We agree with the court below that the authority of the Olympia bank to open its doors and engage in a banking business was fraudulently obtained, that its capital was not paid in cash as required by law, and that the cashier and manager of the Centralia bank participated in the fraud. The receiver of the Olympia bank represents, among other interests, the interests of the depositors therein. Those depositors placed their money in the Olympia bank in good faith, on the assumption that its capital was paid in cash. Hays knew that the capital stock was not paid, and so did the officers of the Centralia bank. Hays had no right to receive the deposits, and no right to transfer them to another bank; nor had the Centralia bank the right to receive them. It follows that the money which the Centralia bank did receive of those deposits, so far as it went into that bank and into the hands of the receiver is a trust fund entitled to preference over general creditors. But the difficulty in the way of the restitution of the money to the depositors of the Olympia bank is that out of their deposits but $2,203.91 were sent directly to the Centralia bank. All the remainder of the money was sent to Seattle and Tacoma banks under instructions from the Centralia bank. For that money, $23,-795, the receiver of the Olympia bank is entitled only to a general [52] claim against the Centraba bank, since none of it is traceable into the possession of the receiver of that bank. United States National Bank of Centralia v. City of Centralia, 240 Fed. 93, - C. C. A. -; Titlow v. McCormick, 236 Fed. 209, 149 C. C. A. 399. [4] The ground on which the court below disallowed the $10,000 claim of the Olympia bank is not disclosed in the record. The facts are these: On or about September 12, 1914, the Tenino- bank called on the Centraba bank for money. The latter bank directed the Olympia bank to furnish the money, which it did. At that time, according to the decided weight of the testimony, the Centraba bank was indebted to the Tenino bank. It is true that Gilchrist testified that the Tenino bank’s account with the Centraba bank was frequently overdrawn, and that, when the first call for $6,000 was made by the Tenino bank, he knew that that bank “had no $6,000 with us,” and that Dysart gave similar testimony from hearsay. But on the other hand, the testimony of Blumauer, manager of the Tenino bank, is explicit and definite. He testified that the daily statements of the Tenino bank showed that on September 10th the Centraba bank owed the Tenino bank $8,000; on the 12th, $9,000; on the 14th, $7,299; on the 15th, $7,000; on the 16th, $11,000; on the 17th, $13,000; and on the 18th, $9,000; and that, according to the books of the Tenino bank, there never was a balance between September 10 and September 20, 1914, with less than $7,000 or $8,000 owing from the Centraba bank. The sums so sent from the Olympia bank were charged to the Centraba bank in the Olympia bank’s ledger, September 12th, $6,000, and September 15th, $2,000 money sent to Seattle for the Tenino bank, and September 18th, $2,000 coin sent to Tenino, and the Tenino bank gave the Centraba bank credit for them, but they did not appear in any way on the books of the Centraba bank. No account with the Tenino bank was opened on the books of the Olympia bank. The request for the remittance of these funds came by telephone from Gilchrist, who asked that money be sent to Tenino. Gilchrist testified that, when Blumauer* called for funds to protect drafts that were going to protest, he called Hays on the telephone and told him that it was “up to him” to see that the drafts were protected at once, and Gilchrist testified that Hays had no authority to charge the remittances to the Centraba bank, his testimony conveying tire intimation that he considered that, inasmuch as Hays was the principal stockholder of the Tenino bank, it was “up to him” to look after the drafts of that bank. George Dysart, a director and the vice president of the Centraba bank, testified that he was present when Blumauer called for one of these remittances of $2,000, and that he told Blumauer that the Centraba bank would send him no money; “that they should call up Mr. Hays; that it was his bank, and for him to look after it.” Dysart evidently was not informed that Gilchrist had agreed to purchase Hays’ stock in the Tenino bank. Hays testified that: Gilchrist said “he would buy it at the price X mentioned, providing that, after an examination, conditions were found all right — note all right. He and Mr. Daubney came up there and made an examination of the records, and he said he would take it, and he sent Mr. Daubney up there, and I went to ■Olympia to organize this bank, and did organize it.” [53] Again lie testified: “He and Air. Daubney came up there, and looked over the paper, and didn't object to it. CCliey thought that some of it might be slow, but they didn’t refuse it, and it was after that examination that he agreed to take the stock.” Daubney took the place of Hays in the Tenino bank. For that purpose he left his employment in the Union Roan & Trust Company of Centraba, a company closely allied with the Centraba bank. Gilchrist testified: “We had sent Air. Daubney up to assist in managing the Tenino bank.” Gilchrist did not deny that he had agreed to purchase Hays' stock, but he said that the negotiations were pending, and- not consummated. It thus appears that Gilchrist was interested in the welfare oí the Tenino bank. However that may be, the controlling facts are that the Centalla bank was indebted to the Tenino bank. The Olympia bank was not. The Tenino bank called upon the Centraba hank for funds, and Gilchrist instructed the Olympia bank to remit funds to Seattle and to Tenino for the benefit of the Tenino bank. It is true that on the hooks of the Tenino bank, according to the testimony of Blumauer, only the first $6,GOO of the funds so furnished by the Olympia bank were credited to the Centralia bank. Blumauer testified that: As 1lie Tenino bank had money due it from tile Centralia bank, it asked the Centralia bank to see that it got the money there, “and we got it through the United States National Bank of Centralia; they telling us that they would have it there to our credit, and have it sent by the Olympia bank, although the Olympia bank did not owe us the money.” - lie further testified that: The $2,000 remittances were similar transactions, and when the money was sent he did not know how to credit it; “it was due from one bank, and we got it from tiie other, and I had to make some entry to offset that, so we wouldn’t pay over that $2,000 and not know who to credit it to, I had to credit it to one or the other, without any instruct ions. I knew it would be straightened out between Mr. Gilchrist and Air. Hayes. As long as we got the money it didn’t make any difference to us who we got it from, but as I said before it wasn’t due to us from the Olympia bank — it was due us from the Centralia bank.” The funds so remitted were properly chargeable against the Centalla bank, as evidencing an indebtedness from that bank to the Olympia hank, and it follows that the claim of the Olympia bank against the Centralia bank should be allowed as against its assets. As to the suit of the receiver of the Tenino bank against the receiver of the Centralia bank, we find no error in the decree of the court denying the claim of the complainant based upon certain drafts, aggregating the sum of $2,500, which were issued by the Tenino bank to the Centralia bank, directing it to pay a Portland bank, and to charge the amounts thereof against the Tenino bank’s account, nor in denying the claim in the sum of $5,000 charged to the Tenino bank by the Centralia bank on account of Hays’ note to the Centralia bank. We think that the decree of the court below should be so modified as to allow the claim of the receiver of the Olympia bank for $10,000 as against the assets of the Centralia bank, and the further sum of [54] $23,795 as against those assets, and the sum of $2,203.91 as a preferred claim to be paid in full, and to award said receiver costs in the court below. The cause is remanded to the court below, with instructions so to modify the decree. In other respects the decree is affirmed.