Court Opinion

ID: 3828981
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:00:56.367626+00
Date Added: 2024-06-11T07:40:01.651699
License: Public Domain

During the year 1922 and until November, 1923, *Page 231 
Karl Hammer was city treasurer of Barnsdall and also the managing officer of the Barnsdall National Bank, where the accounts of the city treasurer were kept. On February 1, 1923, and August 1, 1923, interest coupons on waterworks bonds of the city became due. To pay these coupons Hammer drew drafts against the bank's account with one of its correspondents. Each draft was for the sum of $3,007.50, drawn respectively January 29 and July 31, 1923.
Proof of the payment of the drafts by the bank and the subsequent payment of the statutory assessment levied against the stockholders do not, without more, establish a claim of subrogation. As against the city the report of the bank examiner and the action of the directors and stockholders in response thereto is purely hearsay or incompetent, since the city is no more bound by such ex parte report or action than any other depositor would be. The plaintiffs, however, went further than this. They attempted to prove that there was no corresponding charge against the treasurer's sinking fund account in the bank, and that reimbursement had not been had otherwise. The best evidence of the fact that the items were not charged to the city's sinking fund or other account in the bank, of course, would be the individual ledger accounts of the bank showing the deposits and disbursements by the city treasurer. Some of the ledger sheets were unaccounted for. A copy of one of the sinking fund accounts was sufficiently identified.
The city, however, had employed two firms of auditors to make audits of its treasurer's accounts and produced a member of each firm to testify. Mr. Devlin, whose firm audited the city's books for the period ending June 30, 1923, testified that, after city officials had called his attention to a discrepancy in the audit made by his firm and the bank's records, he went to the bank, examined the individual ledger sheets in the bank, and discovered that no charge for the first draft had ever been made against the city; and the second auditor, Mr. Gambill, testified that there was no charge against the city's accounts in the bank for the second payment made. This evidence, with the evidence of the plaintiffs on this point, definitely established that the bank paid the drafts without reimbursement from the city. The question of equities, as pointed out in the prior opinion (164 Okla. 167, 23 P.2d 373), arises from the embezzlement by Hammer of the funds of both the bank and the city.
The city, as a defense, contends that its equities are superior or equal to those of the bank, because of the alleged fact that Hammer embezzled its sinking funds prior to the drawing of the drafts. This theory is in accordance with the former decision of this court. It further contends that the equities are with the city because a judgment against the city would compel the city to pay these claims twice. Either of these defenses, if established, would defeat the plaintiffs' claims.
The claim that a judgment against the city will result in a duplicate payment rests upon the theory that the city's accounts were as a matter of fact charged with these items, and further that, in reconciling accounts, the auditor last examining the city's books made credits and charges which resulted in reducing the claims of the city against the bank and Hammer by the amount of these drafts.
A careful search of the record determines the following facts. The city early brought suit against the bank and its successor to recover from the banks the amounts it claimed should have been on hand. In this suit the city should have discovered what had been the status of its accounts with the bank from time to time and enough facts to lead it to inquire. In this suit also it should have learned that claim was being made by the bank or its stockholders that the city had not paid the bank for the drafts. In a subsequent suit, also, by the successor bank the city was again informed that reimbursement for these items was denied. In this latter suit the court held that these plaintiffs were the proper ones to bring the action. These intervening court proceedings explain the delay referred to in the former opinion.
From what has been said heretofore in reference to the admissions of the auditors, it definitely appears that the items have never been charged to the city's accounts in the bank and that, so far as the bank and its privies are concerned, no reimbursement has been had. It is true that the auditor in stating an account for the city in his audit made certain reconciling adjustments, but there is no evidence that the bank ever saw or accepted that audit or made settlement with the city on that basis. What is called a "phoney" ledger sheet of the sinking fund account of the city with the bank was partially identified. If it had in fact been kept in the individual *Page 232 
ledger of the bank and were genuine, it would be proof enough to show that the drafts were charged to the city and, therefore, would defeat plaintiffs' claims.
Attempts were made to identify this as a record of the bank; but I think that the court's conclusion as to its authenticity and purpose is amply supported by the record. It was not a bank record nor a true statement from a bank record, hence was not binding on the bank as showing these charges against the citys' account in the bank.
Here it should be said that the trial court stated that he admitted this statement of the bank's ledger sheet in evidence, subject to the findings the court made in reference thereto; that it was "an instrument no doubt furnished by Mr. Hammer to Mr. Steele when he tried to deceive him in making this audit." The plaintiffs specifically stated they did not except to the findings of the court, but did except to the admission of the instrument. Therefore I do not consider the statement as an instrument made by or authorized by the bank; it was admissible, however, on the question of embezzlement to show not only the admissions made by Haminer therein as to what his account should have been, but also the "covering up," which is a common badge of an embezzler.
Facts pertinent to prove the embezzlements of Karl Hammer are adducible from the following testimony. Mr. Little, one of plaintiffs and a former officer of the bank, testified that the balance in the sinking fund account in the bank on June 28, 1922, was $12.712.66. This corresponds to the amount shown on the statement identified by the bookkeeper, and there is no dispute as to this amount. The plaintiffs proved that for the fiscal year beginning July 1, 1922 (ending June 30, 1923), approximately $10,000 had been collected from a sinking fund levy made for that year. There is some evidence that embezzlement of a portion of the sinking fund of $12,712.06, or of that portion of the current tax levy, had occurred prior to February 1, 1923, but I cannot say that it is so clear and convincing as to warrant overturning the judgment of the trial court as to that item. I cannot accept the general subsequent conclusion of shortage to establish a date prior to February 1, 1923.
But the evidence as to embezzlement prior to the payment of the second item is clearly established by the following facts. First, there is the undisputed amount as of June 28, 1922, in the sinking fund account in the bank. Added to this are the various amounts of warrants for taxes collected during the year as above set forth. Some of these items were shown by the warrants introduced by plaintiffs. Other items appeared on the true ledger sheet, as shown by the bookkeepers' testimony, so that the total to the credit of the sinking fund account at the close of the fiscal year ending June 30, 1923, should have been in excess of $25,000. less proper charges against these items. Proper charges would be the payment of coupons due August 1, 1922, and February 1, 1923. That the former was properly paid and charged to the city is not denied. What other proper items were deductible is not shown, and need not be inquired about, as appears from the admissions made by Hammer.
Karl Hammer admitted that on June 30, 1923, he should have had on hand in the sinking fund in the bank, after deducting all proper charges, the sum of $13,977.48, as appears from his sworn statement to the city's budget for the year 1923, and from the "phoney" ledger sheet, which is sufficiently traced to him as to be considered as an admission by him as to matters therein contained. In two places, therefore, be gives this as the true amount he should have had on hand. The sum which should have been on hand may have been in excess of that amount. The auditors fixed the total sinking fund shortage at approximately that figure. The city brought a suit against the bank to recover that amount. In that action the bank answered under oath, denying that said sum was on deposit in the bank on June 30, 1923, and declaring that on that date only $516.27 was in the sinking fund account, and that on October 23, 1923, an additional deposit was made bringing the total to $711.94, which was paid to the new city treasurer, thus closing the account. The latter items correspond to the entries shown on the ledger statement furnished the last auditor by the bank's bookkeeper. Undoubtedly this ledger statement, a duplicate or original sheet, was the basis of the bank's defense in the suit brought by the city.
The foregoing suit went to judgment and the bank won. Its defense was not that the amount claimed should not have been on hand, but that it was not on hand. It therefore appears conclusively that instead of having in his sinking fund account the sum of $13,977.48, as he admitted he should have had, Hammer had only $516.27. The answer to the disappearance of this sum *Page 233 
is only that Hammer, before June 30, 1923, embezzled all these sinking fund moneys except the $516.27. Furthermore, a comparison of the bank account as it appeared on the regular ledger sheet with the warrants shown by the testimony as representing collection of sinking funds, discloses that warrants dated March 21, 1923, April 20, 1923 April 28, 1923, May 5, 1923, and June 12, 1923, aggregating $9,194.41, although indorsed by Hammer and paid at the bank, never reached the sinking fund account although the larger part of these warrants represented sinking fund moneys. A comparison of the amounts of these warrants with the items on the "phoney" sheet discloses that this sheet purports to show deposits on March 21, 1923, which aggregate the total of the warrant of that date, and deposits of April 19th, which aggregate the warrant of April 19th. These entries constitute evidence not only that these items should have been deposited in said account, but also, because of their falseness, in connection with the other facts just recited, that said items had been misappropriated. These are familiar features of embezzlement, which usually in cases of this kind must be established by circumstantial evidence.
There are other corroborating circumstances in the evidence to prove the embezzlement, but the main facts above given, about which there can be no dispute, clearly evidence an embezzlement of almost the entire sinking fund before June 30, 1923. Under the former decision, therefore, the bank on its second cause of action has failed to establish a superior equity.
At the trial the bank endeavored to show that the embezzlements could not have occurred before payment of the coupons because for each current year the taxes were not received for that year until after payment was made. This is too narrow a view of what was meant by the former opinion. It is apparent at once that the coupon due August 1, 1923, could not have been paid out of the taxes levied for that year, for the levies could not have been made by the excise board by that time, and of course the collections of taxes could not begin until months thereafter. In the former opinion the court said that the proof of the levy and collections of taxes for the payment of the coupons was lacking. Then the court said:
"* * * If the legal requirements in this connection had been met, and the funds were on hand, clearly, plaintiffs could establish an equitable right. * * *
"If, on the other hand, said funds had been levied, collected, and embezzled by Karl Hammer, a different situation would prevail. * * *"
It is clear that the court had in mind the idea that if the city had on hand, from tax levies, money that could legally be used for the payment, and that Hammer had embezzled these, then there could be no recovery. Hammer, of course, could not embezzle uncollected items. A sinking fund is not separated into yearly items. When collected it is entire and interest coupons are a first charge against such fund. See McMahan v. Board of Education, 142 Okla. 110, 285 P. 953, where this court said:
"The contention of plaintiff that the interest maturing July 15, 1931, may be paid only from the proceeds of the tax levy for the fiscal year 1931-32 is without merit. We do not pay interest from tax levies or from the proceeds thereof, but from the sinking fund. As long as there is money in that fund, it may be used for the payment of valid claims against the fund. We do not create a separate sinking fund for each fiscal year."
The former opinion in this case must be interpreted by the rule laid down in the foregoing case. If Karl Hammer had not embezzled practically the entire sinking fund before June 30, 1923, there would have been funds with which to pay, legally available. But his embezzlement, possible in large part by his position in the bank, prevented the payment.
In addition to this it appears that the correspondent bank sent monthly statements to the Barnsdall bank of the status of its account. A check of the draft register, properly made by the bank or its officials (as eventually it seems to have been done), should have led to the finding of the shortage. Had the bank early done this, no doubt it could have saved itself, and incidentally the city, much money. It was in better position to discover the fraud than was the city. The bank records were handled by Hammer, not as city treasurer but as bank officer, practically with a free hand.
The equities on the second cause of action are not with the bank. The stockholders' rights rise no higher than were the bank's.
For these reasons, I am of the opinion that the judgment on the first cause of action should be affirmed but on the second it should be reversed with directions to enter judgment for the city. *Page 234 
             On Application for Leave to File Second Petition for Rehearing.                        Rehearing Denied.