Territory of Hawaii Ex Rel. Hodgson v. Clarke

I concur in the conclusion that the judgment should be affirmed.

The motion of the Territory alleged Mr. Clarke's appointment as underclerk in the office of the treasurer of the Territory on April 1, 1939; his execution on April 13 following, with the United States Fidelity and Guaranty Company as surety, of the bond upon which the motion was predicated; Mr. Clarke's failure during the term of the bond to safely keep, promptly pay over to the Territory, and faithfully account for moneys in the amount of $500 coming into his possession or control by reason of the performance of the duties of his office and employment, and his, and his surety's, failure to pay the amount claimed to the Territory upon demand.

The conditions of the bond are as follows:

"NOW, THEREFORE, if the said HOWARD CLARKE shall faithfully perform all the duties of his office, appointment, position, or employment which are now or may hereafter be required, prescribed or defined by law or by any departmental rule or regulation made under the express or implied authority of any statute, or by any order, direction or command of the head of the department, bureau, office or service in which said obligor is engaged or employed, and all duties and acts undertaken, assumed or performed by said obligor by virtue or color of his office, appointment, employment or position, and shall safely keep, promptly pay over to those legally entitled thereto, and faithfully account for all moneys and/or property of the United States and/or of the Territory of Hawaii which may come into his possession or control by reason of his undertaking, assuming, performing or doing any of the aforesaid duties or acts, then this obligation shall be void; otherwise it shall be and remain in full force and virtue and may be enforced in any manner or by any proceedings authorized by law."

It is undisputed that five foreign corporations, in payment of foreign corporation licenses exacted of them by the provisions of the Revised Laws of Hawaii 1935, section 6772, and due and payable under the provisions of the Revised Laws of Hawaii 1935, section 2405, on July 1, 1940, paid $100 each into the office of the treasurer (one in March, 1940, and the remaining four in May, 1940), and that the cash moneys representing these payments have never been accounted for by those having its possession and control, including the respondent Clarke. These moneys disappeared. It is the aggregate of these license fees for which judgment is prayed under the bond.

Although not entirely in accord with the reason assigned by the circuit judge for his denial of the motion, I feel that the result was correct and the order denying the motion should be affirmed. The moneys paid by the foreign corporations in payment of the annual foreign corporation license fees exacted by section 6772, supra, unquestionably, upon payment, became government realizations and should have been disposed of as public moneys of the Territory. Under the provisions of section 6772, supra, the payment of the annual license fee is a condition precedent to establishing an office in the Territory for the use of the officers, stockholders, agents or employees of the foreign corporation or of its doing any business of any nature whatsoever in the Territory. Under section 2405, supra, the annual license fees of foreign corporations are "due and payable in advance on July 1, in each year," with certain exceptions which are not material here. The foreign corporations which made the several payments in question were licensees under licenses expiring June 30, 1940. The issuance of an annual license being a condition precedent to doing business and the payment of the fee therefor being required to be paid in advance, it necessarily follows that the extent by which the time of payment was voluntarily accelerated by each payer is immaterial so long as the license to which the payment related was sufficiently identified. Payment in each instance was made for the express purpose of paying the foreign corporation annual license fee due upon the succeeding July 1, and in each instance a temporary receipt was issued expressly reciting that the payment was made for that purpose. Under the circumstances, the disposition of the license fees upon receipt was governed by the law relating to "public moneys" (R.L.H. 1935, § 2201); "all moneys paid into the treasury" (§ 2206); "money * * * in the territorial treasury" (§ 597); "revenue or other moneys on account of the Territory" (§ 563). Unfortunately, however, all moneys paid for foreign corporation licenses prior to their due date (July 1) were received by the office of the treasurer as temporary deposits, temporary receipts being given to the payer, and were not entered upon the books of the treasurer as government realizations until the succeeding July 1. In the meantime the corporation clerk, Mr. Clarke, retained their possession and control subject to the general regulations of the treasurer's office that all moneys received on temporary deposit should not be left about but should be placed in the vault of the office. The practice was that the first deputy treasurer assigned all incoming mail, including checks, to the several clerks of the department whose duties related to the same; that all corporation matters, including foreign corporation license fees, were assigned by the first deputy treasurer to Mr. Clarke for attention; that where checks of foreign corporations included both the statutory filing fee for corporation exhibits, which is $10, and the foreign corporation license fee, the check was cashed by Mr. Clarke and after credit was given to the payer for the filing fee, the $100 cash remaining was retained by Mr. Clarke until July 1 succeeding, to be turned over by him at that time to one of the deputy treasurers for entry and receipt; that all moneys paid on account of foreign corporation licenses remained in the possession and control of Clarke, subject to the general regulation of the treasurer's office heretofore referred to that the same be deposited in the office vault. Mr. Clarke, it appears, deposited all annual license fees received, whether in check or cash, in an unsealed envelope, appropriately endorsed, and placed the same in an open box provided for that purpose on the shelf of a portable currency carriage, which during the business hours of the day was kept under the counter in the cashier's cage and at the close of business wheeled into the vault. It also appears that other clerks in the office receiving moneys upon temporary deposit similarly as Clarke, deposited such receipts in the same box utilized by Clarke. All clerks having deposits of temporary receipts in the office vault were permitted access to the box upon request of either of the two cashiers who had exclusive charge of the vault and the adjoining cage.

It is undisputed that the foreign corporation which paid the license fee in March paid the same in cash to Mr. Adams, one of the cashiers and the second deputy treasurer, and a temporary receipt was issued by him therefor. While there is no direct evidence upon the subject, there is sufficient to support a finding that Mr. Adams, in turn, transferred the amount received to Clarke. It is also undisputed that the first deputy treasurer assigned to Clarke for attention the four payments for annual corporation license fees paid in May; that each payment was in the form of a check in the sum of $110 to cover the filing fee of the annual exhibit of the corporation, paying the same as well as the annual license fee for the ensuing year beginning July 1; and that these checks were cashed by Mr. Clarke and in each instance, after the deduction of the $10 fee for filing the corporation exhibit, the remaining $100 in cash was deposited by him in the unsealed envelope in the box in the cashier's cage. There is no evidence that Clarke embezzled the particular annual license fees, damage for the loss of which is sought. In fact no effort was made by the Territory to establish any culpability on Clarke's part. And none has been suggested.

Obviously, the regulations requiring all temporary deposits to be kept in the vault, without more, were woefully deficient. Temporary deposits were numerous and involved other clerks in addition to Clarke. What protection the regulations afforded was neutralized by indiscriminate access. Under the circumstances the Territory failed to show a breach by Clarke of any of the conditions of his bond.

It was argued by the Territory before the trial judge, and it is similarly argued here on appeal, that these annual foreign corporation license fees were government realizations, for the safekeeping and prompt payment of which to those legally entitled thereto and for their faithful accounting Mr. Clarke was absolutely bound, and for his failure so to do, even though himself innocent of any wrongdoing, he and his surety are liable. With this contention I cannot agree. Mr. Clarke was not an officer of the department of the treasury. There is no statutory provision for an office of "underclerk" in that department. His relation to the Territory was purely contractual. He did not represent the treasurer in official acts. He did not possess authority to sign receipts for moneys paid into the office. In the instances to which I have referred, where checks were turned over to Clarke, he made out the appropriate receipts but they were signed by Mr. Adams. His duties were subject to change at the will of his superiors. His duties were not those usually performed by an officer. At best, he was a mere employee and under the express or implied terms of his employment subject to the orders and directions of the treasurer and his deputies. No statutory provision had been made for the disposition or custody of moneys received by the treasurer upon temporary deposits. The practice of the office indicates that the treasurer or his deputies, upon advice or otherwise, had attached to annual foreign corporation license fees paid prior to due date the legal status of temporary receipts. As far as Mr. Clarke was concerned as an underclerk in the office of the treasurer, the status of temporary receipts as determined by the treasurer or his deputies and the regulations of the department in respect thereto, control. It was not the province of Mr. Clarke to question the judgment of the officers of the treasury as to the legal status of annual corporation license fees paid prior to the ensuing July 1, nor their orders and directions as to the safekeeping thereof. It was incumbent upon him, irrespective of their actual legal status as government realizations, to dispose of the annual foreign corporation license fees turned over to him consistently with the orders and directions of the treasurer or his deputies and the regulations promulgated by him or them in respect thereto. To these annual foreign corporation license fees as temporary receipts, his relation was that of a trustee or bailee. While, as to government realizations disposed of as public moneys of the Territory, the officer or employee entrusted with the safekeeping of the funds assumes the relation of insurer, not so when that relationship is that of trustee or bailee. The obligations of the latter are not so exacting. They are not insurers. They must faithfully execute their trust and act in relation to the funds entrusted to them with due diligence, and are only answerable for negligence or want of ordinary care evidencing bad faith. All that sound public policy requires is good faith and ordinary care. The measure of the care to be exercised by Clarke was prescribed by the general regulation requiring him to keep temporary receipts in the office vault. This, undisputedly, he did. Neither negligence nor bad faith can be imputed to Clarke when it appears that he acted in strict conformity with the regulations governing the subject. Where, as here, it appears that an underclerk has performed the duties of his office as directed, and obeyed the regulations of the office pertaining to the safekeeping of temporary receipts turned over to him by the first deputy treasurer, no liability attaches for their loss in the absence of a showing that he actually embezzled the same.