Opinion of the Court.

scheme was trumped up to defeat plaintiff of her advantage and enable Judah to continue business on the assets at Indian Bay, Arkansas."

The Circuit Court held that the defendant was liable for the amount of the Goldsmith note and interest from the date of its collection, because it had collected the money and never paid it to the plaintiff, but had, without due authority, appropriated it to its own use, on account of the debt due to it from Walker Sons & Co. As to the $5200 of bonds, the court held that knowledge by the defendant of the intended breach of trust by Judah did not make the defendant privy to it and liable for it, as the defendant did not participate in the profits of the fraud; that the receipt given by the defendant did not change the relation of Judah to the property and to the defendant, as it was not a receipt to the plaintiff but one to Judah; and that it did not satisfactorily appear that the defendant received any part of the money advanced on the bonds.

We are of opinion that the plaintiff is entitled to recover, not only in respect to the Goldsmith note, but in respect to the $5200 of bonds.

In regard to the Goldsmith note, shortly before it matured, in November, 1881, Judah indorsed it over to the defendant as collateral security for a note of larger amount, made by Walker Sons & Co., which the defendant then discounted at the instance of Judah. The proceeds of that discount were, to the extent of $6000, applied by the defendant upon a debt antecedently existing from Walker Sons & Co. to it. When the Goldsmith note became due, in November, 1881, the defendant, claiming to be the owner of it, collected it and retained the proceeds. Thus a note which confessedly, and to the knowledge of the defendant, belonged to the plaintiff, was diverted to the use of the defendant by the co-operation of it and of Judah. Judah, if not a partner in the firm of Walker Sons & Co., was, to the knowledge of the officers of the defendant, the active and controlling manager, both in its business with the defendant and otherwise, of the affairs of that firm. Maas, the assistant cashier of the defendant, and

Opinion of the Court.

who was its acting cashier during the period of the transactions in question, was, before his connection with the defendant, the confidential book-keeper of the prior firm of Walker Bros. & Co., of which Judah was a member, and had a close personal intimacy with Judah. When the book accounts of Walker Bros. & Co. were sold, Maas bought them, on behalf of the plaintiff and her sister, and the funds realized from that purchase were in part deposited in the name of Maas, with the defendant; and Maas, on the request of Judah, opened the books of Walker Sons & Co., when that firm was formed. Judah promised Maas that he would certainly protect the defendant in case of disaster to the firm of Walker Sons & Co.

At the time the Goldsmith note was thus converted, the condition of Walker Sons & Co. was precarious, if the firm was not insolvent. Before the conversion of the railroad bonds, Judah pledged to the defendant certain stocks belonging to himself, for the debt due to it by Walker Sons & Co.; and it is apparent that Judah was constantly being pressed by the defendant to make payments on the firm's debt to it, and that Maas, being the acting cashier of the defendant, knew, from the state of the account which the firm kept with the defendant, that it was substantially without available funds. In none of the transactions between the defendant and Judah in regard to the Goldsmith note and the bonds, was the receipt or certificate which had been sent to the plaintiff redelivered to the defendant; and the defendant knew that it had gone into the hands of the plaintiff, because it had been sent to her by mail directly from the defendant.

In National Bank v. Graham, 100 U. S. 699, one Graham had deposited in a national bank certain bonds of the United States for safe-keeping, and had received from the cashier a receipt setting forth that fact, and that the bonds were to be redelivered on the return of the receipt. Before and after that time, the officers of the bank were accustomed to receive such deposits from others, and they were entered in a book kept by the bank. The bonds were stolen from the custody of the bank, through its gross negligence. On this state of

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facts, this court said, (p. 702:) "If a bank be accustomed to take such deposits as the one here in question, and this is known and acquiesced in by the directors, and the property deposited is lost by the gross carelessness of the bailee, a liability ensues in like manner as if the deposit had been authorized by the terms of the charter." In support of this proposition, the court cited the cases of Foster v. Essex Bank, 17 Mass. 479; Lancaster Co. Bank v. Smith, 62 Penn. St. 47; Scott v. Bank of Chester Valley, 72 Penn. St. 471; Bank of Carlisle v. Graham, 79 Penn. St. 106; Turner v. Bank of Keokuk, 26 Iowa, 562; Smith v. Bank of Westfield, 99 Mass. 605; Chattahoochee Bank v. Schley, 58 Georgia, 369.

We are of opinion that the execution of the receipt or certificate in question, and its transmission by mail directly by the defendant to the plaintiff, created the relation of bailor and bailee between her and the defendant, and made it an act of gross negligence for the defendant to deliver, or dispose of, or appropriate the securities in question, on the sole request of Judah, and without her direct authority. Under the circumstances of the case, the receipt having been made out by Maas, the assistant cashier, and sent by him to the plaintiff, on the request of Judah made on her behalf, the statement in the receipt that Judah, agent for the plaintiff, had placed the securities with the defendant on special deposit, must be regarded as virtually a statement that the plaintiff, by Judah as her agent, had placed the securities with it on special deposit.

Maas's statement, in his testimony, is, that Judah came to him, while he was in the discharge of his duties in the bank, "and said he wanted a receipt, or a statement rather, of what securities he had there on special deposit, to send to Mrs. Walker in Philadelphia. He said Mrs. Walker wanted About that time, on our

to know what she held. special deposit book, these bonds and note and stock, mentioned in said receipt, were entered as deposited by G. H. Judah, ag't Mrs. Eliza Walker." Maas further states that Judah never exhibited any authority to him or to the bank, to dispose of the note and the bonds and securities mentioned in the certificate which was sent to Mrs. Walker.

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Judah testifies that the instructions of the plaintiff to him did not, directly or indirectly, authorize him to pledge any bonds or securities obtained with her money, for his own debts. or the debts of others, and that his power was limited to invest her moneys for her exclusive benefit and use.

It is very clear that Judah had no power, either in fact or in law, to pledge the Goldsmith note as security for an existing debt of Walker Sons & Co. to the defendant. Such act was not an investment of the trust fund, and the officers of the defendant knew that it was not. Duncan v. Jaudon, 15 Wall. 165; Smith v. Ayer, 101 U. S. 320; National Bank v. Insurance Co., 104 U. S. 54; Shaw v. Spencer, 100 Mass. 382; Loring v. Brodie, 134 Mass. 453.

It is urged on the part of the defendant, that Judah, as agent of the plaintiff, collected the book accounts of Walker Bros. & Co.; that he deposited the moneys collected with the defendant, to his credit as guardian; that out of those funds he made loans to Walker Sons & Co., to which the plaintiff did not object; and that he bought the securities in question with moneys belonging to the same fund. But, from the fact that the plaintiff had lent to the firm of Walker Sons & Co. other moneys, it does not follow that, after the giving of the receipt in question, authority from her to dispose of the securities so placed with the defendant on special deposit, is to be inferred. Her demand upon the defendant, through Judah, for the receipt showing the special deposit, and the sending of such receipt directly to her by the defendant, changed the relations of herself and Judah and the defendant, to the securities deposited. The defendant knew, as well as did Judah, that an investment of the proceeds of any of the securities in a loan to Walker Sons & Co., was not a safe investment. It also knew that the appropriation of the proceeds of the Goldsmith note towards paying a debt due to it by Walker Sons & Co., was an unlawful appropriation; and that the securities covered by the receipt were held as investments, and were the property of the plaintiff. So far as the collection of the interest on the Goldsmith note and on the bonds was concerned, when the moneys collected in fact reached the plaintiff, the transactions.

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were completed; and no argument can be drawn from them in support of any implied authority to Judah or to the defendant to divert or appropriate the principal of the securities.

The views above stated, as applicable to the Goldsmith note, apply also, very largely, to the $5200 of bonds. Under the terms of the receipt, the plaintiff was the bailor and the defendant was the bailee, in respect of the bonds, equally with the note. The defendant was not the bailee of Judah, so as to be authorized to deliver the bonds to Judah without the authority of the plaintiff. The defendant had no right to deliver the bonds to Judah, when it knew that Judah intended to deliver them to the Bank of Commerce as collateral security for a loan of money to be made by that bank to Walker Sons & Co.; and this, without regard to the question whether or not the defendant was to receive, or did receive, any part of the money borrowed from the Bank of Commerce. Judah applied to the defendant for a loan of money for Walker Sons & Co. on the bonds. Maas, representing the defendant, declined to make the loan. On receiving such refusal, Judah stated to Maas that he could probably get the money at the Bank of Commerce. Afterwards, he called upon Maas for the bonds, and told him he had got the money at the Bank of Commerce; and Maas knew, when he handed the bonds to Judah, that Judah received them with a view to a loan to be made by that bank to Walker Sons & Co., and Maas also knew at that time that Judah was the agent of Walker Sons & Co. By the face of the receipt, the defendant recognized the plaintiff as the true owner of the bonds, her name being mentioned in it; and it was capable of no other construction than that the plaintiff owned the securities mentioned. Knowing, from what passed between Maas and Judah, that the bonds were to be used to raise money for the benefit of Walker Sons & Co., and knowing that such use was an improper disposition of the bonds, unless the transaction were affirmatively and directly sanctioned by the plaintiff, the defendant became a party to the misappropriation of the bonds. It is immaterial, in this view, whether or not the defendant received any portion of the money loaned by the Bank of Commerce on the security of the bonds.