FEDERAL DEPOSIT INS. CORPORATION v. CASADY

WILLIAMS, Circuit Judge.

The First State Bank of Cheyenne, Oklahoma, having become insolvent on March 25, 1935, it was closed and taken over by the Bank Commissioner of said state for liquidation. Deposits in said bank were insured by the Federal Deposit Insurance Company as limited by Section 12B (a), (y), of Act of June 16, 1933, § 8, 48 Stat. 168, 179, as amended by Act of June 16, 1934, § 1, 48 Stat. 969, 12 U.S.C. A. § 264.

John C. Casady, as treasurer of the town of Cheyenne, carried five separate and distinct deposits in said bank, at all times designated and appearing on its books as separate deposits, and in each at time said bank failed the balances therein were respectively as follows:

  City of Cheyenne Sinking Fund  $11,752.04
  City of Cheyenne Paving Fund     1,801.06
  Firemen's Pension Fund             462.68
  City of Cheyenne Meter Fund        131.00
  Cheyenne General Fund              156.43

Said treasurer and other appropriate and necessary parties instituted this action in the district court of Roger Mills County, Oklahoma, against the bank and the Insurance Corporation and other parties defendant to recover the sum of $5,000 on the sinking fund deposit liability and the full amount of each of the other four deposits.

The case was duly removed by the Insurance Corporation to the United States Court for the Western District of Oklahoma, the court ruling that it had thereby acquired jurisdiction. Judgment having been rendered in favor of the plaintiffs, the Insurance Corporation appealed.1

Section 12B subsection (l) of the Federal Reserve Act of June 16, 1933, 48 Stat. 168, as amended by the Act of June 16, 1934, among other things provides as follows:

"For the purposes of this subsection, the term `insured deposit liability' shall mean with respect to the owner of any claim arising out of a deposit liability of such closed bank the following percentages of the net amount due to such owner by such closed bank on account of deposit liabilities. * * *

"That, in determining the amount due to such owner for the purpose of fixing such percentage, there shall be added together all net amounts due to such owner in the same capacity or the same right, on account of deposits, regardless of whether such deposits be maintained in his name or in the names of others for his benefit."

Sinking Funds. — Sections 26, 27, and 28, Article 10, Const. of Okla., Okl.St. Ann., impose certain limitations on bonded indebtedness, providing that a city, town, school district or county incurring any indebtedness requiring the assent of the voters thereof shall before or at the time of so doing provide for the levy and collection of an annual tax sufficient to pay interest on such indebtedness as it becomes due and also to constitute a sinking fund for the payment of the principal thereof within 25 years from the date of such contracting of the same.2

A city or town holds the legal title to the sinking fund in trust for the bondholders and judgment creditors. St. Louis-San Francisco R. R. Co. v. Blake, 10 Cir., 36 F.2d 652; Hidalgo County Road Dist. No. 1 v. Morey, 5 Cir., 74 F.2d 101; Anthony v. State, 49 Kan. 246, 30 P. 488; 44 C.J. p. 1233, Sections 4215, 4216, 4217.

That each deposit represented a fund created for a separate purpose and was so carried on the books of the bank is not controverted. Provision for separation of funds raised by taxation levies in Oklahoma is fundamentally required.3

Sections 16 and 19, Article 10, Okla.Const., Okl.St.Ann., mandatory and prohibitory in language, are self-executing. Ex parte McNaught, 23 Okl. 285, 100 P. 27, and cases therein cited.

A separate fundamental right and capacity in which the fund must be held cannot be displaced either by legislative or administrative act. Bank of Picher v. Morris, 157 Okl. 122, 11 P.2d 178; Allen v. Board of County Commissioners, 131 Okl. 41, 267 P. 860; State v. Moreland, supra; Protest of Reid, 160 Okl. 3, 15 P.2d 995.

National Surety Co. v. State, ex rel. Richards, 111 Okl. 185, 239 P. 262, and Shull v. Town of Avant, 159 Okl. 271, 15 P.2d 49, cited with reliance on part of appellant, the former involving an action on a county treasurer's bond for a breach of duty as custodian of certain municipal and township bonds, and the latter as to priorities in case of insolvency of a bank, have no application in the instant case.

Further, Dillard v. Sappington, 151 Okl. 47, 1 P.2d 748; Dempsey Oil & Gas Co. v. Citizens' National Bank, 110 Okl. 39, 235 P. 1140; State ex rel. Barnett v. Exchange Nat. Bank, 172 Okl. 361, 45 P.2d 759, also cited by appellant, have neither controlling nor persuasive application to the questions here involved as to the right or capacity in which the town treasurer held these several funds in said separate accounts.

Each of such deposits created for a separate and distinct purpose, and each carried in the bank as separate from the others, was held in a separate right and capacity.

Statutory provision has been made for investment of sinking funds.4

Sinking funds must go into the ultimate payment and liquidation of the bonds and judgments, and not be otherwise used.5

General fund warrants are payable out of the general fund and the Treasurer as such may even maintain a suit thereon against his own town for the purpose of bringing the funds back into the sinking fund by way of replenishment.6

Paving Funds. — The legislature may authorize county and municipal corporations to levy and collect assessments for local improvements upon property benefited thereby, homesteads included, without regard to a cash valuation. Section 7, Art. 10, Const. of Okla., Okl.St.Ann.

Such assessments and interest thereon, whether collected by the city or town clerk or county treasurer, are to be paid to the city or town treasurer who must keep the same in a separate special fund, not derived from general taxes,7 and in no sense a fund of the city or town, for the purpose of paying the paving bonds and interest coupons thereon, and after the payment of all bonds and interest thereon, any surplus remaining in said fund shall be used for the purpose of repairing and maintaining any improvement for which such assessments have been levied, and for no other purpose whatsoever.8

The relation between the town or city through its officers and the bondholder thus created is that of an express trust created by law in which the city is the trustee and the bondholder the cestui que trustent. Straughn v. Berry et al., 179 Okl. 364, 65 P.2d 1203; Beggs v. Kelly, 110 Okl. 274, 238 P. 466; State ex rel. Southern Surety Co. v. Armstrong, 158 Okl. 290, 13 P.2d 198; Moroney v. State, 168 Okl. 69, 31 P.2d 926; Moore v. City of Nampa, 9 Cir., 18 F.2d 860; Brown-Crummer Inv. Co. v. Paulter, 10 Cir., 70 F.2d 184; Meyers v. City of Idaho Falls, 52 Idaho 81, 11 P.2d 626.

Such assessments shall be payable in ten (10) equal installments and "be a lien against the lots and tracts of land so assessed from the date of the ordinance levying the same, * * *."9

Section 6237, O.S.1931, 11 Okl.St.Ann. § 151, covers10 the issuance of improvement bonds, requisites and provisions — registration and payment, and stipulates that said "bonds shall in no event become a liability of the city or town issuing the same."11

Under the Oklahoma controlling decisions, the officers of the town or city, rather than the city or town itself, stand in the relation of agent to the bondholders, the town treasurer being liable to the bondholders for damages for failure to call and pay bonds, showing that the treasurer — not the town or city — is liable for any misappropriation of the fund. State ex rel. v. Armstrong, supra; Moroney v. State, supra.

Other cases supporting the Oklahoma holding are as follows: Broad v. City of Moscow, 15 Idaho 606, 99 P. 101; Steiner v. Town of Capitol Heights, 213 Ala. 539, 105 So. 682; Town of Capitol Heights v. Steiner, 211 Ala. 640, 101 So. 451, 38 A.L.R. 1264; City of Winner v. Kelley, 8 Cir., 65 F.2d 955; Moore v. City of Nampa, 9 Cir., 18 F.2d 860; Life & Casualty Ins. Co. v. City of Florala, 5 Cir., 63 F.2d 195.

In Moore v. City of Nampa, supra, the court said [18 F.2d 862]: "* * * it is uniformly held that in collecting money to pay for special improvements, where there is no liability against the corporation, the corporation authorities do not act as its representatives, but as special agents or instrumentalities to accomplish a public end."

In the instant case the paving fund was held by the treasurer in a separate and distinct right and capacity.

The "Firemen's Relief and Pension Fund." — As specifically provided by statute, it is derived from a state tax on fire insurance premiums, from which firemen's pensions are to be paid, and is under the control of a special board of trustees created for the special purpose.12

Said Section 6112, O.S.1931, 11 Okl.St. Ann. § 374, is in part as follows: "All moneys provided for said fund by this act shall be paid over to and received by the treasurer of the city or town for the use and benefit of the firemen's relief and pension fund * * *."

Firemen's pension and relief funds come through the State Insurance Department, and are payable not upon the order of the Town or City Trustees under Section 6645, O.S.1931, 11 Okl.St.Ann. § 1017, but of the special board,13 and disbursed only upon orders of said special board as set up by the provisions of Section 6098, and the accompanying sections of that act enacted by the legislature, in no sense being municipally owned funds, but held only in a separate and distinct right and capacity.

Under Article 5, Chapter 33, and Section 6110, supra, 11 Okl.St.Ann. §§ 331 et seq., 372, relating to Cities and Towns, the legislature appropriates and sets aside for the use and benefit of said firemen's relief and pension fund such annual tax from premiums collected by all fire insurance companies in said state, after all cancellations and dividends to policy holders are deducted as provided for by Section 22, Article 1, Chapter 21, Session Laws 1909, 36 Okl.St.Ann. § 104.14

Section 6113, O.S.1931, 11 Okl.St.Ann. § 376, provides that such firemen's pension payments should be made monthly upon proper vouchers and in such manner as provided for in other disbursements of such city or town, evidencing the fact that Section 6644, O.S.1931, 11 Okl.St.Ann. § 1016, providing that no account or claim against said town shall be audited or allowed by the board of trustees, referring to the regular board of trustees of said town, unless it be made out fully and itemized, and every such account audited shall be numbered from one upwards in the order they were presented and a memorandum of the same entered upon a book to be kept exclusively for that purpose, has no application to the payment of said pension except by virtue of the provisions of Section 6113, O.S.1931, 11 Okl.St.Ann. § 376, supra.

Meter Funds. — The meter deposit is a fund which is collected from the users of city water to guarantee the return of the meter which is installed for the benefit of each such user, not being subject to appropriation, but held in trust and belonging to the property owner who secures the use of the meter by making a deposit for its return.

Such fund usually rests upon a local regulatory resolution or ordinance or provision in a franchise.

Its trust character is emphasized by legislative interpretation in an enactment of the 1936 legislature of Oklahoma, after the effective date of the matter here involved.15

Being a special fund belonging to the meter depositors, held in trust for them, and subject to withdrawal upon their compliance with the terms of the deposit and for that purpose kept in hand, subject only to the authorized temporary investment in approved securities, it never becomes the property of the city or town.

1. The sinking fund, held for the benefit of the holders of such bonds and such judgment liens, constitutes a separate trust fund for such owners and holders in such capacity in a separate right.

2. The paving fund, held for the benefit of the holders of such paving or improvement bonds, constitutes a separate trust fund for such owners and holders in such capacity in a separate right.

3. The firemen's fund for the firemen's relief and pensions constitutes a trust fund held in such separate capacity and distinct right or agency.

4. The meter fund, made up of deposits in trust for specific purpose, constitutes a separate trust held for such owners in such separate right and capacity.16

However, the paving fund, the pension fund, and the meter fund, if grouped with the general fund in one item as a total sum would neither exceed nor equal $5,000.00.

The findings of fact as made by the trial court, the case being tried without the intervention of a jury, are supported by substantial evidence, and his conclusions of law are in conformity therewith.

Costs. — The question is raised as to costs. Appellant being a governmental agency, costs should neither be awarded in its favor nor against it in this action, and the adjudication against the defendant as to costs is eliminated. Paragraph (d), Rule 54, Federal Rules of Civil Procedure for District Courts, 28 U.S.C.A. following section 723c; and Paragraph 4, Rule 25, Revised Rules of the United States Circuit Court of Appeals for the 10th Circuit; United States v. Doherty, D.C.N.D.Neb., 18 F.Supp. 793; Weir v. United States, 7 Cir., 92 F.2d 634, 114 A.L.R. 481; Doherty v. United States, 8 Cir., 94 F.2d 495; United States v. Golden, 10 Cir., 34 F.2d 367; National Home for Disabled Volunteer Soldiers v. Wood, 7 Cir., 81 F.2d 963; Federal Deposit Ins. Corp. v. Mangiaracina, C.C.Essex County, N.J., 198 A. 777, 16 N.J.Misc. 203.

The judgment of the lower court is accordingly modified as to costs and otherwise affirmed.