HAWKINS v. CLEVELAND, C., C. & ST. L. RY. CO., 89 F. 266

SHOWALTER, Circuit Judge, after milking the foregoing statement, delivered the opinion of the court.

Counsel for appellee insists that, on the face of the written documents, — the check and the certificate as set forth in the foregoing statement being specially emphasized, — the bank ought to have set apart, out of the credit to appellee then shown on its books, $18,000 in money as a technical special deposit or bailment to be held by the bank until the 18 bonds Were paid, and to be then turned over to Haughey if he has paid the bonds, or to appellee railway company if that company has paid them, and so relieved Haughey of his surety obligation.

At the time of the deal in question the bank, being debtor to appellee as its depositor in something over §50,000, in fact charged appellee with §18,000, and credited that amount to “LLaughey, trustee.” Assuming that this procedure by (he bank was justified from its standpoint, tiien it remained a debtor or borrower after as before. Haughey, trustee, had become creditor and depositor to the extent of 818,000, the credit to appellee as depositor was reduced by that sum, and Haughey, trustee, was the person whose check, as against the $18,000 credit, had to be paid.

Jf the bank were now solvent, it may be that, as between Haughey and appellee, a trust would attach to whatever balance there might be in favor of Haughey, trustee, on the books of the bank. The bank being insolvent, the question now concerns the distributive share appropriate to (he balance due as shown by the books of the bank on the account of Haughey. trustee.

If, as is contended by its counsel, the bank remained simply a debtor for the $18,000 as well after as before the transfer of the credit from appellee to Haughey, trustee, then Haughey, trustee, would not be entitled to a preference over other creditors, nor would appellee or any other person, merely because it or he sustained to Haughey, trustee, the relation of beneficiary, be entitled to a preference. A trustee, describing himself as such, may often rightly deposit trust moneys in a bank. But this does not make the bank a trustee constructively or otherwise.

If a bank receiving a deposit from a trustee has notice that such trustee has ho right to make such deposit,' — that is to say, to lend the trust moneys to a bank, — then such deposit would be a wrongful conversion, and the bank, having notice, ' could be treated as constructively a trastea But, as has been said, trust funds may often be properly put into a bank as a deposit, that being in such instances a prudent disposition of such funds by the trustee; but the bank becomes simply a borrower, and the trustee a depositor, like any other depositor, and in case the bank does become insolvent the trustee has no preference over other creditors.

He and those beneficially interested must take simply a distributive share of the assets. The check dated March 7, 1892, was payable "to the order” of the bank, thus indicating that the $18,000 need not be held as a special deposit or bailment in the custody of the bank, but might be paid to a third party. This check was delivered by appellee, not to some officer of the bank who was himself free from any personal interest in the deal, but to Haughey, who personally was to be the surety.

The certificate was thereupon, and in Haughey’s presence, written out by appellee’s agent, and Haughey subscribed thereto the words, "The Indianapolis national Bank, by Theodore P. Haughey, Prest.,” and delivered the same so subscribed at once to appellee; that is, to appellee’s said agent. Instead of writing on the back of the check, “Pay to T. P. Haughey, trustee,” and subscribing the name of the bank by himself as its president to this indorsement, Haughey immediately prepared the deposit slip, wherein “Theodore P.

Haughey, trustee,” deposited $18,000, as shown in the statement preceding this opinion, and gave the check, with the slip, to the bank. The bank thereupon, as in effect directed by Haughey, charged appellee in its deposit account with the $18,000, and credited that sum to Haughey, trustee, in a new account then opened with the latter. The certificate reads: “The C., C., C. & St L. Ry. Co. has this day made a special deposit of eighteen thousand dollars in the Indianapolis National Bank in the name of T. P. Haughey, trustee, to secure him as surety on a hond given under an order of the U.

S. circuit court for the payment of C., W. & M. R. R. Co. bonds of the issue of 1871, numbered 449, 866 to 870, inclusive, 902, 1,460, 1,462 to 1,471, inclusive, according to the terms of said order; in all, 18 bonds.” If Haughey should be called on to pay the 18 bonds, and should then be insolvent, the creditors holding said’ bonds could, on the principle of equitable subrogation, then resort to any security which Haughey might have to reimburse himself for the payment of the same. But such an equity would not arise in favor of the bondholders till the emergency here indicated.

By the terms of the court order referred to, the $18,000 deposit was for Haughey’s benefit. It strengthened his ability to answer as surety, and was the means of securing his name in that capacity. The order recites that Barnard and Wells are “to satisfy said mortgage of record,” “upon the execution of a bond, to be approved by this court, for the payment, to the holders of the eighteen bonds above described, of the sums to which they shall be entitled under said mortgage, out of the proceeds of said mortgaged property.” The order further identifies the bond as being one executed by appellee, “with T. P.

Haughey of Indianapolis as surety”; and the certificate of March 8, 1892, is identified in said order as “the certificate of the Indianapolis National Bank showing that it [appellee] has made a deposit in said hank to the; credit of said Haughey, as trustee, for the sum of $18,000 to secure him as such surety”; and then follows in said order the recital, “which bond and surety is now approved by the court,” etc.

That the $18,04)1) was not intended in the order to be itself a security to the bondholders is recognized in the prayer of the supplemental hill by the proposal therein that the $18,000 be repaid to appellee upon its giving a new bond with good security. The check, as has been said, was delivered by appellee to Haughey, and by Haughey to the bank. In thus delivering or presenting the check Haughey construed the papers to mean, so far as the bank was concerned, merely a transfer of credit: to the extent: of $18,000 from depositor appellee to depositor Haughey, trustee.

On that understanding there was nothing improper or unfair in his representing the hank as well as himself in the deal. But, on the construction now proj)osed by appellee’s counsel. Haughey would have beeu representing, at one and the same time, adverse interests, — himself on the one part, who was to become the surety; and the bank on the other, which was to assume the responsibility of holding $18,000 as a bailment or special deposit, for the purpose, among others, of securing and protecting him.

On the theory of the appellee, the bank was to take the attitude of trustee or bailee, and hold safely the $18,000, in order to secure Haughey until he should be relieved of his obligation to pay the 18 bonds, or until he should be reimbursed, in case he had himself been obliged to pay said debt; and Haughey, on his part, was to hold the bank as his security. To put (he bank in this position, and subject it to this responsibility, the intervention on its behalf of some agent, other than Haughey, was needful.

The writings in the case, when read together, and in view of the fact that the bank had no other representative in the deal than Haughey himself, do not, as if seems to us, mean that the $18,000 was to be a special deposit, for the safety of which, as such special deposit, the bank then and there became chargeable. We think the bank remained, after as before the deal, a debtor for the $18,000. The credit was changed from the account of one depositor 1o that of another.

The receiver is answerable only for the distributive share appropriate to any balance owing from the bank on the account of Haughey, trustee1, without, preference and as to a general creditor.

We resolve the controversy here in favor of the appellant receiver independently of the question — not referred to by 'counsel for either party, but which we deem fairly deba table — whether or not a national bank has the power, under the act of congress in that behalf, to assume the attitude of a bailee or trustee of a special deposit intended as security for third persons, with interests therein which may become conflicting. The decree is reversed, and the cause remanded for further proceedings not inconsistent with this opinion.