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

(after stating the facts as above). [1, 2] The Centralia Bank, in permitting the proceeds of the bonds to be placed to its credit in the Seattle Bank, violated the plain provisions of the law. It had no right to use the money, or to commingle it with its own funds, or to place it to its credit in another bank. Nat. Bank v. School District No. 8, 94 Fed. 705, 36 C. C. A. 432; Board of Com’rs v. Strawn, 157 Fed. 49, 84 C. C. A. 553, 15 L. R. A. (N. S.) 1100. The law impresses a trust upon funds so misapplied, and to the extent that the said money, or any portion thereof, either in its original or a substituted form, can be traced into the funds which came into the possession of the receiver, the appellee is entitled to a preference .over the general creditors. Titlow v. McCormick, 236 Fed. 209, - C. C. A.-; Schuyler v. Littlefield, 232 U. S. 707, 34 Sup. Ct. 466, 58 L. Fd. 806; Brennan v. Tillinghast, 201 Fed. 609, 120 C. C. A. 37; Board of Com’rs v. Strawn, 157 Fed. 49, 84 C. C. A. 553, 15 L. R. A. (N. S.) 1100; In re Brown, 193 Fed. 24, 113 C. C. A. 348; Spokane County v. First Nat. Bank, 68 Fed. 979, 16 C. C. A. 81; In re See, 209 Fed. 172, 126 C. C. A. 120.

[3] But it does not appear from the evidence that any of the ap-pellee’s money, or any property into which it was transmuted, ever, came into the possession of the Centralia Bank, or was in the possession of any of its reserve banks, or other banks, at the time when the Centralia Bank closed its doors. It is shown that $35,000 of the amount so placed to the credit of the Centralia Bank in the Seattle Bank was transferred from the Seattle Bank to the Centralia Bank’s credit in the Bank of California of Tacoma, a reserve agent of the *96Centraba Bank; but it also appears that thereafter, on July 22d, the account of the Centraba Bank with the Tacoma Bank was overdrawn by $11,423.69, and it is not shown that any of said money came back to the Centraba Bank. Between July 13th and July 28th the total of the deposits of the Centraba Bank with the Seattle Bank, including the appellee’s money, was $184,102.01. The credit so established was exhausted by the transfer of money to the Bank of California of Tacoma, as above noted, by the transfer of about $20,000 to the Continental Bank of Chicago, a reserve agent of the Centraba Bank, by drafts drawn by the Centraba Bank in favor of its creditors on its account with the Seattle Bank, by the cashing of checks at the Seattle Bank drawn on the Centraba Bank by depositors of that bank, by the Seattle Bank charging back to the Centraba Bank certain discount notes, which were either charged to accounts of depositors of the Centraba Bank or were exchanged for renewal notes taken by the Centraba Bank and rediscounted by it with other banks. But none of the appellee’s money so deposited in the Seattle Bank is shown to have gone from that bank back to the Centraba Bank, or to be traceable into any fund that came into the receiver’s hands.

[4] The appellee contends, on the authority of Commercial National Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363, that the Seattle Bank could not lawfully apply on the Centraba Bank’s overdraft as it stood on July 14, 1914, the sum of $11,071.64 out of the moneys received for the appellee’s bonds, for the reason that tire money so received on the sale of the bonds was a trust fund, and that in contemplation of law the Seattle Bank has at all times held that sum as the agent of the Centraba Bank. A similar contention is made as to the proceeds of three notes, aggregating $12,225, which had been guaranteed by tire Centraba Bank to. the Seattle Bank, and by the latter charged back to the former. But it does not follow from these facts that the appellee can, in the present suit, recover either of those sums; for, as we have already found, there is nothing to show that either thereof ever came into' the possession of the Centraba Bank, or its receiver, from tire Seattle Bank, or that the latter admits liability to pay the same. It should be assumed, in absence of evidence to the contrary, that the Seattle Bank dealt with the proceeds of the bonds on understanding that the Centraba Bank had complied with the law, and had given the statutory bond, which would legalize its possession and right of disposition of the-moneys collected on the sale of the bonds.

The case is clearly distinguishable from Merchants’ Nat. Bank v. School District No. 8, 94 Fed. 705, 36 C. C. A. 432, cited by the appellee, and relied -upon by the court below. In that case the Helena Bank sent school bonds to its correspondent bank in Boston, with instructions to sell the same. They were sold, and the proceeds ■ were placed to the credit of tire Helena Bank, but were not at that time transferred to the Helena Bank. That bank, on learning that the bonds had been sold, opened an accouirt with the school district, crediting it with the amount so received by its agent. Subsequently, and before the Helena Bank closed its doors, all the money so realized on the sale of the bonds in Boston was received by the Helena Bank “in due course of *97business,” so that the money had actually gone into the Helena Bank prior to the receivership.

The decree is reversed, and the cause is remanded to the court below, with instructions to dismiss the bill.