Opinion of the Court. with the burden of the notice which that agent had of its reception, and therefore it became liable for money had and received to its use from the Dominion Bank. We think the same principle applicable in this case which was applied in the case of Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268. In that case the treasurer of two corporations was a defaulter in both positions. The defalcations were of long standing, and to avoid discovery at the annual settlement of one company he drew checks of the other and deposited them to the credit of the one company in bank. The question was whether the company whose bank account had been swelled by the checks of the other was a debtor to the other for the deposits thus made by the common treasurer. It was held that the company receiving the money, having received it through the sole agency of the man who knew it to be stolen, could only take and hold it with the burden of his knowledge. So in this case the bank, having received the money through the agency of its president, could not retain it without assuming the burden of the president's knowledge as to how it came to be obtained. We do not see that the circumstance in one case that the treasurer stole the money and in the other that the president obtained it on the false representation that he was authorized to borrow it for his bank makes any reasonable distinction between the two cases. The judgment of the court below is Affirmed. Syllabus. CITY BANK OF HOPKINSVILLE v. BLACKMORE. APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE MIDDLE DISTRICT OF TENNESSEE. No. 393. Argued May 14, 1896. — Decided July 8, 1896. In order to sustain a claim for priority of payment out of a fund in the hands of an assignee or a receiver upon the ground of fraud, it must appear that the fund was increased by having included in its mass either the very thing parted with or its proceeds. On a bill in equity filed by the C. bank of H. against the receiver of the insolvent C. N. bank, to compel the payment of a claim of $5,000 out of the assets in the hands of its receiver as a preferred claim, it appeared that at a time when the C. N. bank was hopelessly insolvent the C. bank of H., which had an account with the C. N. bank, sent to it a draft on a firm in New York to be deposited to the credit of the C. bank of H. The draft reached the C. N. bank on the morning of March 25, 1893, and its receipt was acknowledged by letter stating that the draft had been placed to the credit of the C. bank of H. This letter reached the C. bank of H. on March 27, which was Monday. On the afternoon of March 25, which was Saturday, the directors of the C. N. bank took its affairs out of the hands of the cashier through whose misconduct the bank had become insolvent. Before this, however, the cashier had sent off in the Saturday evening mail the draft of the C. bank of H. to be deposited to the credit of the C. N. bank in the R. bank of New York. On Monday, March 27, the bank examiner took charge of the C. N. bank. On the day before, Sunday, the C. bank of H. telegraphed to the drawees of the draft to stop payment. The draft reached New York on Monday morning, and was credited by the R. bank to the C. N. bank to reduce an indebtedness of the C. N. bank. When the draft was presented to the drawees, payment was refused, and the draft was protested. The R. bank at once began garnishment proceedings, and attached funds of the C. bank of H. in the hands of the drawees. For fear of injuring its credit, and because they were advised that recovery could be had on the draft, the C. bank of H. directed the drawees to pay it. This was done, and the attachment proceedings were dismissed. The C. bank of H. then demanded that it should be given priority by the receiver to the extent of the $5,000 represented by the draft. The receiver refused to allow the claim unless the claim for preference should be withdrawn. Accordingly the claim for the whole amount without preference was made, and a dividend paid thereon. Held, (1) That as the C. bank of H. had conceded the validity of the claim of the R. bank against the C. N. bank, and directed the draft to be paid, the Statement of the Case. C. bank of H. could not, as against the C. N. bank or its receiver, be heard to say that the title of the R. bank was not good against itself, and therefore against the C. N. bank; (2) that the credit allowed to the C. N. bank for the draft was properly allowed on the books of the R. bank; (3) that as the fund in the hands of the receiver of the C. N. bank had not been increased by reason of the draft, beyond the dividend payable on $5,000, and as that amount had already been allowed to the C. bank of H., the latter had no ground for complaint; and (4) that the C. bank of H. had no right to a preference for the amount of the draft. Before TAFT and LURTON, Circuit Judges, and HAMMOND, District Judge. This was a bill in equity filed by the City Bank of Hopkinsville, Kentucky, against J. W. Blackmore, the receiver of the insolvent Commercial National Bank, of Nashville, to compel the payment of a claim of $5,000 out of the assets in the hands of the receiver as a preferred claim. The material facts are not in dispute. Some time before March 25, 1893, the Commercial Bank had become hopelessly insolvent through the fraudulent management of its cashier and managing officer, Frank Porterfield. On March 24, 1893, the City Bank of Hopkinsville, which had kept an account with the Commercial Bank for several years, sent a draft on Latham, Alexander & Co., of New York, to the Commercial Bank to be deposited to its credit. The draft reached the Commercial Bank on the morning of the 25th. Its receipt was acknowledged by a letter to the City Bank stating that the draft had been placed to its credit. The letter reached the City Bank on Monday morning, the 27th. Upon the 25th the directors of the Commercial Bank began an investigation into the affairs of the bank, and sought the aid of the other Nashville banks to tide them over what, for a short time they believed, would be only a temporary embarrassment. In the afternoon of that day, after banking hours, they determined to surrender the bank into the hands of the Comptroller of the Currency, and telegraphed him their purpose. Meantime they took the bank's affairs out of the hands of Porterfield, cashier, of whose dishonesty they were Statement of the Case. becoming aware. Before this, however, Porterfield had sent off in the Saturday evening mail the draft of the City Bank to be deposited to the credit of the Commercial Bank in the National Bank of the Republic, of New York. The bank examiner by order of the Comptroller took charge of the Commercial Bank on Monday, March 27. On the day before, Sunday, the City Bank learned that the Commercial Bank was about to be seized by the Comptroller and telegraphed Latham, Alexander & Co., the drawees of the draft, to stop payment. The draft reached New York on Monday morning, and was credited by the National Bank of the Republic to the Commercial Bank. When the draft was presented for payment to Latham, Alexander & Co. payment was refused and the draft was protested for nonpayment. The National Bank of the Republic had applied the draft, as was intended by Porterfield, to reduce an indebtedness of the Commercial Bank to it. When payment was refused on the draft, the National Bank of the Republic at once began garnishment proceedings and attached funds of the City Bank in the hands of Latham, Alexander & Co. and the Western National Bank. For fear of injuring its credit and because they were advised that recovery could be had on the draft, the City Bank directed Latham, Alexander & Co. to pay it. This was done and the attachment proceedings were dismissed. The City Bank then presented a claim to the receiver for some $11,465 owing to it by the Commercial Bank, and asked that $5,000 of it, growing out of the deposit of the draft, should be given priority as a preferred claim. The receiver refused to allow the claim for $5,000 unless the claim for a preference was withdrawn. Accordingly the claim for the whole amount without preference was made and allowed in June, 1893, and dividends, amounting to fifty-five per cent of the entire claim, have since been paid to the City Bank. Afterward, on December 29, 1894, this bill was filed seeking the relief stated. The court below held that the complainant was not entitled to priority in respect of the $5,000 and dismissed the bill. Opinion of the Court. Mr. John Ruhm (Messrs. John Ruhm & Son and Messr8. Petree & Downer were on the briefs) for appellant. Mr. J. M. Head (Messrs. Champion, Head & Brown were on the briefs) for appellee. TAFT, Circuit Judge, after stating the case as above, delivered the opinion of the court. The decree of the Circuit Court must be affirmed. It may be conceded that the circumstances under which the draft was received by the Commercial Bank and credited to the City Bank would justify the latter in rescinding the contract of deposit on the ground of fraud, and that then the City Bank would be entitled to a return of its draft. If therefore the draft had come into the hands of the receiver it would have been his duty, and the court below would doubtless have compelled him, to deliver up the draft to the complainant. But the difficulty with the complainant's position is that neither the draft nor the proceeds of the draft have come into the receiver's hands. The National Bank of the Republic claimed to be a purchaser of the draft in due course of business by crediting its amount upon an account due it from the Commercial Bank. Whether this was a well-founded claim in point of law or not it is not necessary for us to decide, because the City Bank conceded its validity and accordingly directed the draft to be paid. As against the Commercial Bank or its receiver, the City Bank cannot be heard to say then, that the title of the National Bank of the Republic to the draft was not good against itself and therefore against the Commercial Bank. Hence it follows that the credit allowed to the Commercial Bank for the draft was properly allowed on the books of the National Bank of the Republic. The sole question is, therefore, whether the credit thus secured to the Commercial Bank and its receiver by the draft entitles the City Bank to take $5,000 out of the assets held by the receiver. The question must certainly be an |