School Dist. No. 4 v. Stanley

1929 OK 130, 275 P. 1042, 136 Okla. 14, 1929 Okla. LEXIS 117

• Court: Supreme Court of Oklahoma
• Decided: March 19, 1929
• Docket: 18387
• Status: Published

Opinion

RILEY, J.

Herein is presented an appeal from a judgment -below in favor of plaintiff below, plaintiff in error, independent schoo-l district No-. 4, Marshall county, Okla., and against defendant below, A. F. Stanley, county treasurer of Marshall county, Okla., and the board of county commissioners, of Marshall county, Okla.

TJie facts are agreed upon.:

“Agreed Statement of Facts. School District No. 4, v. County Treasurer.

“1. It is agreed that school district No. 4 became an independent district sometime in July, 1021.

‘■2. That after the board was organized, J. T. Crane was elected treasurer.

“3. That on July 30, 1921, Marshall county delivered to Crane, as such treasurer, all ¿moneys belonging to said district, which previous thereto had been a common school district, consisting of $6,685.52 in cash and $6,000 of the city of Jennings bond; that these bonds had been acquired by the county treasurer while said district was a common school district, from the sinking funds of said district.

“4. That on May 7, 1923, J. T. Crane, as treasurer of said district, sold the said $6,000 Jennings bonds to A- IP. Stanley, as county treasurer 'of this county, and received therefor a check payable to the First National Bank of Woodville, of which said Crane was cashier and in which he kept the said school funds, for the sum of $6,000, the county treasurer purchasing said bonds as an investment from the sinking funds of the district.

“5. That said J. T. CSran'e received said check and that it is impossible to determine what was first done therewith, unless the said Orane 'should appear as a witness, but that said check bears the following indorse-ments :

“ ‘Pay to the order of any bank or banker prior indorsements guaranteed. First Natl. Bk. Woodville, Okla.’

“ ‘Pay to the order of any bank, banker or trust company all prior indorsements guaranteed May 9, 1923. Citizens State Bank, Denison, Texas.’

“ ‘Pay to the order of any bank, banker or trustee prior indorsements guaranteed, May 10, 1923, B/epublic National Bank, Dallas, Texas,’

“ ‘Pay to the order of any bank or banker prior indorsements guaranteed May 10, 1923, Federal Reserve Bank of Dallas.’

“ — said check being finally paid by the First National Bank of Madill, on which it was drawn, May 11, 1923. What became of the funds of said check from May 11, until May 29, is unknown, but on the 29th day of May, 1923, $5,700 thereof was deposited to the credit of J. T. Crane, treasurer district No. 4, in the First National Bank of Woodville, Okla., and the deposit slip therefor shows on its face that it was the proceeds of the sale of Jennings bonds, and no credit has been found for the remaining $300 of said cheek.

“6. It is further agreed that on the 31st day of December, 1923, the account of J. T. Crane, as treasurer of said district, was finally audited at tha direction of said board and he was found short with said district in the. sum of approximate $14,585.33, said audit having been made by W. T. Miller, deputy State Examiner and Inspector of Oklahoma, and said Miller, if present, would testify shbj'ect to objections from either party, that he ascertained the condition of said riccount as shown by his audit, which is here referred to and made a part hereof, and which may be offered in evidence in whole or in part by either party, subject to such objections as either party may make.

“7. It is furher agreed by the parties h'ere1to that the board of education of school district No. 4, aside from said Crane, had no notice of any irregularity in the account of its treasurer, Crane, or of any defalcation, embezzlement, etc., of any fund's of said district,' until shortly after said Orane ceased to be treasurer, which was shortly after December 31, 1923., and that said board, aside from said Orane, had no knowledge or notice of th’e sale 'of said Jennings bonds until after Crane ceased to be its treasurer, and did not authorize the sale thereof.

“8- It is further agreed that the bonds in controversy consisted of six bonds, numbered 1 to 6, inclusive, of the city of Jennings, Okla., and are now in possession of the defendant as treasurer, said bonds bearing 6 per cent, interest, interest payable March 1st of each year; that at the -time of the sale of said bonds interest has accrued thereon from March 1st to May 7th, that the interest, $180 at each interest paying period, has since been collected by the county treasurer.

“Hatchett & Ferguson, Attorneys for Plaintiff.

“F. J. Kim, Attorney for Defendant.”

The trial court entered its judgment in fav- or of plaintiff and against defendant for the sum of $367, with interest at 6 per cent, from May 7, 1923, the same being the difference in tha par value of the bonds with the interest accrued and the amount paid said Crane by defendant Stanley, county treasurer.

The auditor’s report shows embezzlements on the part of Crane from the school district represented by him as follows:

March 8, 1928._$4,237.66

” 14, 1923 1,197.10

” 22, 1923 5,875,94

The entry of item No. 4, is as follows:

“On May 29, 1923, appears a credit on ledger account of J. T. Orane, treasurer, district No. 4, books of First National ¡Bank, Woodville, of $5,700, and on deposit ticket is notation ‘bonds sold.’ District No. 4, own’ed $6,000 city of Jennings bonds and I assume these were the bonds sold. I am advised by the school board that Mr. Crane had no authority to sell these bonds, and I therefore charge his account $300.00.”

May 29, 1923 _$ 1,502.54

Aug. 6, 1923 ___,_ 932.50

Aug. 6, 1923 __ 539'.50

Total _$14,585.33

Crane' as such school treasurer was an appointed official — he was not a member of the school board. Section 10386, O. O. S. 1921. He had no power or authority to sell the bonds, for that authority, with limitations, was vested in the school board. Section 8573, C. O. S. 1921; Natl. Surety Co. v. State, 111 Okla. 180, 239 Pac. 257; Natl. Surety Co. v. State, 111 Okla. 185, 239 Pac. 262; State v. McCurdy, 115 Okla. 111, 241 Pac. 817. In the caste first cited it was held:

“The treasurer of the county is not included among those to whom such power is granted, and it becomes certain that the Legislature must intend that the treasurer should be clothed with only such power. * * * The power of the treasurer is limited to the express grant of power contained in section 1 of the act (sec. 8572, C. O. S. 1921).”

This is an action to recovter specific personal property which clearly belongs to the plaintiff school district. Whosoever deals with a municipality does so with knowledge of its and its agents’ authority. The school district is entitled to the return of its 'bonds, for titl'e never .passed to the county. The agreed fact is that the school board “did not authorize the sale thereof.”

The county contends that by reason of equity, set up in its answer and joined under our Code provisions, restitution of the bonds ought not be decreed except on condition of a return of the $5,700 and interest thereon from the date, May 7, 1923, by reason of the fact that on May 29, 1923, the defaulting treasurer, Grane, deposited to his credit, as treasurer, in thte First National Bank of Woodville $5,700, with deposit slip marked, “proceeds of Jennings bonds.” Yet we observe Crane apparently embezzled $4,-237.66 on March 8th, prior; again, on March 14th, he apparently embezzled $1,197.10; again, on March 22nd, he apparently embezzled $5.875.94, and on the very day of the credit of $5.700 proceeds he apparently embezzled $1,502.54, altogether making a total defalcation in his account with his bank (he being cashier) of $12,813.24, up to and including May 29, 1923. Thereafter he apparently embezzled $1,472 from the account, in effect, if not in fact, he embezzled the bonds and for consideration of $6,000 he delivered them to the county treasurer. The consideration was paid him by check on May 7, 1923. Crane promptly embezzled that consideration, for he .cashed the check and it was not until May 29, 1923, that he made deposit of $5,700, and marked the same “proceeds of Jennings bonds.” His obligation was to make immediate deposit, under section 10386, C. O. S. 1921, contemplating the ' faithful performance of his duties. We might add value of the bonds to the total embezzled to tbe date of May 29tb, and bring the total to $18,813.24, on that date.

The county relies upon Antrim Lbr. Co. v. Okla. State Bank, 65 Okla. 26, 162 Pac. 723, wherein one Williams wa’s agent of the lumber company. He embezzled funds, he procured $800 from the bank and used it for the benefit of the lumber company, giving the bank an unauthorized note for the funds. The bank brought suit on the note. The lumber company repudiated the note, but sought to retain the benefits of the proceeds thereof, and this court held the defendant could not retain the benefits of the transaction and at the same time repudiate the act of its agent in executing the note.

We hold such cases are to be distinguished from the action at bar. First, the party sought to be charged is a municipal subdivision ; a higher degrtee of care is charged to those dealing with its agents than applies to individuals, as well as other municipal corporations. Where an unauthorized agent of another, such así Crane, extracted money from thte county and from the possession of the county treasurer1, unlawfully as herein, the county treasurer, his bondsmen, and the unauthorized agent, Crane, would be liable therefor, hut before the principal of Crane can be charged, it being a municipal subdivision, it must be most clear and positive that it received a benefit, free) and clear of any detriment. Was the school district the recipient 'Of clear money had and received out of the transaction? On the very day of the deposit $1,592.54 was unlawfully embezzled out of the account of thte school district. Probably that was a part of tbe very money deposited', for the law will presume that the defaulter used those funds which he had thte best right to use. Again, the Antrim Case i's distinguished from the case at bar by reason of the fact that the embezzlement and sale of tbe bonds by Crane was violative of a positive statute and the act absolutely void. It constituted violation of criminal statutes; the act in no event could be ratified.

“Where a contract is void on the ground that it involves the commission or compounding of a crime, there can be no confirmation or ratification of same without it being affected with the original taint. Any subsequent ratification of same between the same parties is illegal.” Stannard v. Sampson, 23 Okla. 13, 99 Pac. 796.

But where the act is one of conscience, one of fraud between individuals, as in the An-trim Case, and not an -offense against the state or organized 'society, that question is not presented in this record.

Again we are met with the question as to whether the funds deposited can be identified and traced, so as to impress a trust thereon. There is a mere memorandum by Crane, upon a deposit slip, that the $5,700 deposited is “proceeds of Jennings bonds.” These bonds were -embezzled May 7, 1923, when Crane received a check from defendant Stanley in the sum of $6,000 therefor. This cheek was deposited, not to Crane’s credit as treasurer, but either to himself individually or to the credit of some other on the very nest day. The check reached Dallate on May 10th, and was paid by the Madill bank May 11th. Therefore, we. say that Crane not only embezzled the bonds, but likewise embezzled the proceeds thereof, the $6,000, so paid him. Twenty-two days ‘ later, from some unknown source (unknown save his memo), perhaps from the sebi'ool district fund itself, for h'e embezzled $1,502.54 that day, and he had theretofore taken many thousands of dollars, in excess of the amount, he then credited and deposited $5,-700 to himself as treasurer of the school district. Is it not reasonable that Crane was repaying a portion of the very funds of the school district which he had theretofore embezzled? We so,hold — such was that public -officer’s duty. We must indulge the presumption that occasionally he did his duty. The identical funds -cannot with certainly be traced; consequently, no trust for the benefit of the county treasurer is impressed upon the assets of the school district. In State v. Foster (Wyo.) 38 P. 926, it is held:

“In following trust funds they must first be (trac'ed to the estate of the trustee or quasi trustee, and the corpus of the fund must be found. It must be in esse, in some form, or it cannot be identified. Where th'e trust moneys are mingled with those of the trustee, the trust may be impressed upon such fund or property -with which it is mingled; but, if it appiears that the trust moneys are dissipated or lost, there is n-o fund to impress with th'e trust, and the sole remedy of the beneficiary is a proceeding against the trustee, personally.”

Also it is Staid in the opinion;

“The courts generally have gone as far as it seems possible in holding that the presumption always is that the trustee has used his own funds in his business operations; and, if there b'e any money on hand at the time the trust is sought to be enforced, that presumption control's. So the trustee who has blended the trust moneys with his own is not permitted to say that he has used trust moneys when he had a right to use his own. This appears to be one of the principles that governed the decision in the famous case of Knatchbull v. Hallett, 13 Ch. Div. 696, which overruled some prior English decisions. It is to the effect that if a person who holds money as a trustee, or in a fiduciary character, pays it to his account or at his banker’s, and mixes it with his own mon'ey, and afterwards draws out sums by checks in the ordinary manner, the drawer must -be taken to have drawn out his own moneys in preference to the trust money.”

See, also, Rabon v. Cascade Bank (Mont.) 84 Pac. 72, and 39 Cyc. 541, where in the latter citation it is pointed out that requisite to such equitable relief the fund be “distinctly identified,” otherwise relief must be “by some other r'emedy, as by proceeding as a creditor of the trustee”; further, that “the means of ascertaining and identifying a trust fund fails, where the trust 'estate consists 'of money, or is converted into money, and is mixed and confounded by the trustee in a general mass,” for that “money, as such, has no earmark by which, when once mingled in mass, it can be traced,” and that, “at least as against innocent third persons, the money mu'st be distinctly traced” and clearly proved to have been so invested..

We conclude that the conveyance of the bonds was illegal and void and in violation of positive criminal statutes. The act of conveyance was not subject to ratification. Title to the bonds never passed out of the school district. Judgment for the recovery of the 'specific personal property should be awarded the plaintiff in error. There is no obligation in equity or good conscience established to impose upon the plaintiff in error the duty to repay any sum to the defendant in error.

Crane continued his embezzlements from the School district of which he was th'e treasurer, after the deposit of the $5.700. By the payment of his debt (his former embezzlement), presumably he was enabled to

embezzle more money from tbe 'school district; consequently by reason of tbe deposit, wben taken as a whol'e, no benefit inured to tbe school district from all tbe defaulter’s transactions. Crane never credited a dollar to tbe account of tbe school district, even approaching tbe amount which was in his hands for that purpose and for which the school district was entitled to credit. As was said in Newell v. Hadley (Mass.) 29 L. R. A. (N. S.) 908, 92 N. E. 507, “no benefit can be said to inure to a defendant because one of its debts was paid in the course of a 'series of thefts which the defaulter was enabled to continue by the payment in question.” Craft v. S. Boston Ry. Co., 5 L. R. A. 641.

The judgment of the trial court is reversed and remanded, with directions to enter judgment in favor of plaintiff below in the manner and form above indicated.

LESTER, V. C. X, and HEFNER, HUNT, SWXNHALL, CULLISON, and ANDREWS, JX, concur. CLARK, J., not participating.