State v. Omaha National Bank

Day, C. This case was before this court upon a former hearing, being reported in 59 Nebr., 488, wherein the judgment of the district court, based upon a verdict for the defendants, returned in obedience to the peremptory direction of the court, was reversed and remanded. A retrial resulted in a verdict and judgment for the defendants, to review which the state has brought the case on error to this court. Upon the former hearing the present chief justice* took no part; — 863 — Justice Harrison joined in the reversal, but expressly stated be did not concur in the reasons for reversal announced in tbe opinion of Justice Sullivan. It is for these reasons we are asked to again examine some of the questions previously considered by the court. This action was brought by the state of Nebraska in the district court of Douglas county against the Omaha National Bank and J. H. Millard, president, to recover $201,-884.05, with interest thereon from January 2, 1897. The basis of the state’s claim is an alleged conversion by the defendants of said money, which, it was claimed, was paid to them on a check given by J. S. Bartley, state treasurer, and which it is charged they illegally, wrongfully, fraudulently and without authority of law converted to their own use. A brief history of the transaction may serve to enlighten the discussion. In January, 1893, the Capital National Bank of Lincoln failed, having at the time on deposit to the credit of the state $180,101.75, belonging to the sinking fund. For the purpose of reimbursing that fund out of the general fund, the legislature of 1895 passed an appropriation act, approved April 10, 1895, entitled “An act making appro-, priation for current expenses of the state government for the years ending March 31, 1896, and March 31, 1897, and to pay the miscellaneous items of indebtedness owing by the state of Nebraska.” Session Laws, 1895, p. ’386. Among the items for which appropriation was made was one as follows: “For state sinking fund,, one hundred eighty thousand and one hundred and one and seventy-five one-hundredths ($180,101.75) dollars, to reimburse said fund for same amount tied up in Capital National BÍank.” On April 10, 1895, J. S. Bartley, state treasurer, filed with the auditor of public accounts a claim for the entire amount, which was examined and adjusted by the auditor and approved by the secretary of state, as provided by law, and a warrant for said amount was made out and delivered to him in words and figures as follows: — 864 — “1186,101.75 State of Nebraska, No. 95241. “Office of Auditor of Public Accounts, “Lincoln, Neb., Apr. 10, 1895. “Treasurer of Nebraska, . “Pay to J. S. Bartley or order one hundred eighty thousand one hundred one and 75-100 dollars. “For to reimburse state sinking fund. “In accordance with legislative appropriation approved Apr. 10, 1895, and charge general fund. “Countersigned: Eugene Moore, “J. S. Bartley, Auditor Public Accounts. “State Treasurer. P. O. Hedlund, Deputy. “., Deputy.” This warrant was indorsed upon the back thereof as follows: “Presented and not paid for want of funds, and registered for payment Apr. 10, 1895. Number 27932. J. S. Bartley, State Treasurer, Lincoln, Nebraska.” And also the further indorsement of the names: “J. S. Bart-ley” and “J. H. Millard, Pt.” Soon after the issuance of this warrant, Bartley sold it to the Chemical National Bank of New York. In October or November, 1896, the Chemical National Bank, claiming to be the owner of the warrant, forwarded it in the usual course of business to the defendant bank for collection. On January 2, 1897, and for a long time prior thereto, the defendant bank was a state depositary, and on that date had on deposit to the credit of the general fund of the state, in the name of J. S. Bartley, state treasurer, a sum of money largely in excess of the amount of the check hereinafter described. On said day, J. S. Bartley, as state treasurer, called at the Omaha National. Bank and drew his check, payable to the order of J. H. Millard, Pt., for the sum of $201,884.05, against the funds standing to his credit in said bank as state treasurer, and delivered the same to William Wallace, the cashier of said bank, in payment of the warrant heretofore described, together with the accumulated interest thereon. As a part of the transaction, Bartley directed the officers of the defendant bank — 865 — to apply tbe check in payment of the warrant. The warrant was thereupon surrendered to Bartley, state treasurer; his account as treasurer was charged with the amount of the check; the Chemical National Bank was credited with the sum of $198,253.65, and the balance, $3,630.40, was credited to the Exchange National Bank. These credits were given pursuant to the direction of Bartley, state treasurer, and the Chemical National Bank. The entire amount to the credit of the Chemical National Bank was drawn out of defendant hank in the usual course of business before the 14th of January, 1897, long before the commencement of this suit, and long before any demand for the money had been made. While the check by its terms was made payable to “J. H. Millard, Pt.,” it was not delivered to him or indorsed by him in his individual or official capacity; nor did he, in fact, receive any money or credit for the check. It was intended by Bartley, and treated by the parties to it, as a check to the defendant bank in payment of the warrant. It was shown that it was the custom of business among .banks where checks Avere made payable to its officers to treat them as being made to the bank. Aside from being named as the nominal payee therein, Millard was a stranger to the transaction. The rule is well settled that a check made payable to an officer of a bank in his official capacity is to be treated as though made payable to the institution which he represents, Avhere it appears that the maker does not intend that the payee shall be a party to it or indorse it to give it effect. The intention of the parties controls. Nave v. First Nat. Bank, 87 Ind., 204; Garton v. Union City Nat. Bank, 34 Mich., 279; Bank of New York v. Muskingum Bank, 29 N. Y., 619; Baldwin v. Bank of Newbury, 1 Wall. [68 U. S.], 234, 17 L. Ed., 534. At the close of the testimony the attorney general, for the state, moved the court for a peremptory instruction to the jury to return a. verdict for the plaintiff against the defendants, which motion was overruled. Thereupon the — 866 — plaintiff moved tlie court for an instruction to return a verdict in favor of tlie plaintiff and against the defendant bank and in favor of tbe defendant Millard. This motion was likewise overruled. The ruling of the court upon these two motions presents the principal grounds of error now complained of by the state. In our opinion, the facts, so far as they relate to the defendant Millard, do not establish a cause of action. There is nothing in the record which even tends to show that the acts of Millard were other than as officer and agent of the defendant bank. The proofs are lacking which go to establish an action in conversion against the defendant Millard, and for that reason the ruling of the court upon plaintiff’s motion for an instruction for a verdict against both defendants, was properly overruled. The purpose of the legislature in passing the enactment above referred to was to transfer the state’s money from the general fund to the sinking fund. The question naturally arises as to the proper method to be pursued in accomplishing that object. Section 22 of article 3 of the constitution provides as folloivs: “No money shall be drawn from the treasury except in pursuance of a specific appropriation made by law, and on the presentation of a warrant issued by the auditor thereon.” Sections 1 and 2 of chapter 93 of the Compiled Statutes of 1899* provide that the treasurer of the state shall keep a warrant register, in which he shall register for payment all warrants presented to him, the warrants to be numbered .consecutively, giving the date of their presentation, the name of the holder; and that they be paid in the order of their presentation. Under the provisions of this appropriation act it was entirely proper for Bartley, as state treasurer, to receive fiom the auditor of state the said warrant, and, when received, to present and register it for payment in the same manner as any other warrant dra wn upon the general fund. The fact that the money arising from this appropriation was to reimburse one of the state’s funds would give the — 867 — state no greater rights in the manner of its withdrawal than it would have in the payment of any other liability. The obligations of the state and the salaries of its officers are paid by the issuance of a warrant drawn upon the general fund. These are presented for payment and registered, and in due course of business are called, in and paid. What right has the state, under existing laws, to appropriate money to its use out of the general fund and have it paid ahead of registered warrants? Our law does not recognize preferred claims as to the order of payment. .The fact, however, that Bartley had the right to receive the warrant, conferred upon him no authority to dispose of it. He was a mere trustee. In our view, he should have held it, when registered, until in the regular course of business it was called in for payment, then paid it and credited the sinking fund with the amount of the warrant and interest and charged the general fund with a like amount. This is not only the logical way of transferring-money of the state from one fund to another, but is in compliance with the forms of law and in harmony with the system of accounts adopted by the state. If the warrant was properly issued, it was perfectly legitimate that it should be paid by a check drawn by the treasurer upon money belonging to the general fund of the state in the hands of its depositary. The defendant bank, as before stated, was a state depositary. The depositary law provides as follows: “All such deposits shall be subject to payment when demanded by the state treasurer on his check.” It also requires that the depositary bank must give bond “for the payment of said deposit * * * when demanded by the state treasurer on his check at any time.”* It is conceded by the state that the defendant bank, in the payment of the check, violated no duty it owed to the state as custodian of the public funds. The unlawful act upon which this suit is grounded is not the payment of the state’s money on the Bartley check, nor for the sale of the warrant, but in receiving the money as agent for the — 868 — Chemical National Bank, and its application in payment of the warrant. It being the legal duty of the state treasurer to pay the obligations of the state, represented by warrants, it would seem that the defendant bank ought to be protected in receiving the money from him and applying it in payment of the warrant, unless it had notice or knowledge that he was using the state’s funds for unlawful purposes.- It is one of the contentions of the state that the recital in the warrant, “For to reimburse state sinking fund,” was a sufficient notice to the defendants that the warrant was not a state obligation, and was sufficient to apprise them of its unlawful character. While the recital in the warrant might be prima-facie notice of the purposes for which it was given, and of its illegal character in the hands of any one but the state or its trustee, the testimony discloses that neither the defendant bank nor its officials read the warrant and had no knowledge of the recitals contained therein. In general form and appearance it was like all other warrants issued by the state, was signed by proper officials and purported on its face to have been issued by authority of law. The only thing to distinguish it was the words, written in black ink upon a blank line, “For to reimburse state sinking fund.” Upon the back of the warrant there.is indorsed the name “J. H. Millard, Pt.”; but the testimony is clear that this indorsement was not upon the warrant at the time of its payment, nor was the indorsement in the handwriting of J. H. Millard, nor was it placed thereon with his knowledge or direction. When the case was before this court upon a former hearing, it was reversed upon the theory that the question of notice or knowledge on the part of the defendants of infirmities in the warrant was proper to be submitted to a jury. This was done upon the last trial and the jury found for the defendants. The finding of the jury on the question of notice or knowledge of the illegal character of the warrant is conclusive upon this court. It is also contended by the state that in an action of con — 869 — version, the motive which prompts a person to receive, dispose of or appropriate property to his own use is entirely immaterial, where the property has been taken without the knowledge or consent of the owner; and the case of Cook v. Monroe, 45 Nebr., 349, and kindred cases are cited in support of this contention. The theory upon which the cases cited proceeds is that the moving party was an inter-meddler, acting without real or apparent authority. While the rule in Cook v. Monroe, supra, is correct in the abstract, it has no application to a case where the act of conversion can be justified, as having been in any manner authorized by the owner of the property or his agent or servant having tifie lawdul custody and control over it. No one would contend that if the owner of property delivered it to a person and requested him to dispose of it in a prescribed manner and the request was complied with, an action of conversion would lie against such person; and the same principle of law applies where the duly empowered and lawful agent, having the control and possession of the property, makes the request and gives the direction. The state treasurer was the lawful custodian of the state’s funds; he was the duly elected and qualified agent of the state; he was authorized to draw checks and to pay the state’s warrants; he directed the proceeds of the check to be applied in payment of the wmrrant; and in pursuance of his request, the payment was so applied. The treasurer, in doing this, acted within the apparent scope of his authority; and the defendant bank, in following his direction, is protected, unless it had notice or knowledge that a breach -of trust wms being committed by the treasurer by an improper application of the state’s funds in payment of a warrant which was not a valid obligation of the state. In Hills v. Snell, 104 Mass., 173, 177, 6 Am. Rep., 216, 219, the distinction we have made is recognized and stated as follows: “A purchase, in good faith, from one who has no title and no right to transfer the property, will not constitute a defense. Even an auctioneer or broker who — 870 — sells property for one who bas no title, and pays over to bis principal tbe proceeds, with no knowledge of tbe defect of tbe title or want of authority, is beld to be liable for its conversion to tbe real owner. * * * But this severe rule of law will not be applied when the act of appropriation can be justified as having been authorized in any manner by tbe owner of tbe property.” In Tousley v. Board of Education, 39 Minn., 419, it is said in the syllabus: “An act for conversion will not lie when tbe taking and conversion of tbe property is with tbe knowledge and consent of tbe plaintiff.” Union Stock Yard and Transit Co. v. Mallory, 157 Ill., 554. Tbe record also shows that tbe payment of tbe warrant to tbe defendant bank was made in tbe usual course of business and tbe proceeds thereof transmitted to tbe Chemical National Bank before any claim was made by tbe state or any knowledge brought to tbe bank or any of its officers that tbe warrant was not a valid obligation of tbe state in tbe bands of tbe bolder, While tbe payment of tbe check and tbe credit to tbe Chemical National Bank was a mere matter of bookkeeping, tbe practical effect of tbe transaction was the same as though tbe money bad been paid over to Bartley upon tbe check, and be in turn bad paid it to tbe bank in payment of tbe warrant and tbe bank bad paid it over to tbe Chemical National Bank. Bartley v. State, 53 Nebr., 310. Tbe rule is well established that where, in due course of business, money is transferred to an honest taker who receives it without any knowledge of wrong doing on tbe part of tbe payor, be would acquire a good title thereto as against tbe true owner. Jones v. Nellis, 41 Ill., 482, was an action in trover to recover tbe value of certain government bonds which had been stolen from tbe plaintiff and bought by tbe defendant for a valuable consideration in tbe due course of business without knowledge that it was stolen property. Tbe court says: “Tbe rule is well settled, at common law, that tbe bona-fide bolder of money or negotiable paper, transferable — 871 — by mere delivery and not overdue, who has taken it in the usual course of business, and for a valuable consideration, acquires a perfect title. * This exception to the common-law rule, that the purchaser of a chattel can acquire no better title than the vendor had, has been adopted because, in the language of Lord Kenyon, in Lawson v. Weston, 4 Esp. [Eng.], 56, the contrary principle ‘would at once paralyze the circulation of all paper in the country, and with it all its commerce.’ ” Merchants’ Loan & Trust Co. v. Lamson, 90 Ill. App., 18; Miller v. Race, 1 Burr. [Eng.], 452; Holly v. Domestic & Foreign Missionary Society, 34 C..C. A., 649, 92 Fed. Rep., 745; Merchants’ Ins. Co. v. Abbott, 131 Mass., 397; Stephens v. Board of Education, 79 N. Y., 183; Hatch v. Fourth Nat. Bank, 41 N. E. Rep. [N. Y.], 403. So far, we have considered the case on the theory that the warrant was valid and the issuance of it constituted the proper method of transferring the money from the general fund to the sinking fund. But the result would be the same if the warrant be regarded as not properly issued. The fact remains that the state by its officers adopted that method of making the transfer. The facts are undisputed that the defendants had no actual notice or knowledge of the purpose for which the warrant was drawn, and as they had no notice of the recitals on the face of the warrant, but paid the check, and applied the money by the direction of the state treasurer in the utmost good faith, they are protected from liability. This was evidently the theory upon which Judge Sullivan proceeded in the former opinion, for in it he recognizes the importance of good faith on the part of the defendants, and held that knowledge on the part of the defendants as to infirmities in the warrant was a proper question to be submitted to the jury. It would, doubtless, be different had the defendants known of the purpose for which the Avarrant was given. The theory upon which the case was fried in the court below, involved the question of notice or knowledge'on the part of the defendants of the unlawful purpose to which the state’s — 872 — funds were being applied. The testimony was clear and undisputed that tlie bank officials did not read the warrant. Its general' form and appearance was like other warrants issued by the state. . It was signed by proper officers and purported to be a state obligation. In our opinion the question of good faith on the part of the defendants was a proper one to be submitted to the jury. It follows from this discussion that it was not error to overrule the state’s motion for a peremptory instruction to the jury for a verdict for the state and against the defendant bank and in favor of defendant Millard. We have examined the other errors complained of by the state, but as it was conceded that the principal ground relied upon was the overruling of the motion for a verdict heretofore considered, we will not prolong this opinion. They, are not meritorious. It is therefore recommended that the judgment of the district court be affirmed. KIRKPATRICK, 0., took no part. By the Court: For the reasons stated in the foregoing opinion, the judgment of the district court is Affirmed. Sedgwick, J. I agree to the conclusion reached by the commissioner and to much of the reasoning employed, but think it proper to suggest some further reasons for the decision entered. It is said by the commissioner that the evidence shows that the officers of the defendant bank did not read the warrant and had no knowledge of its contents. Of course, one who purchases paper will not be allowed to shut his eyes as to its contents, and then say that he is a bona-fide purchaser; and so one who is interested in the purchase of real estate can not accept his deed and avail himself of it provisions, and at the same time say that he was not aware of its contents, but there may be some ground for saying that the rule is different in a case of this kind. — 873 — If a servant is given a check, and sent to a bank to obtain the funds thereon for the drawer of the check, he is not bound to examine the contents of the check, and will not he presumed to have interested himself therein; and in an action against the drawer for fraud or other tort in connection with the check, the servant being joined as assisting him in so doing, it may he doubtful whether the servant would he presumed to know the contents of the check. It is insisted that the defendants’ relation to the warrant in question was that of a disinterested party having no occasion to take notice of its contents. However this may be, it seems to me that if it be found that the defendants are chargeable with notice of the contents of the warrant, we should inquire further as to what are the facts so brought to the knowledge of the defendants. They were without doubt bound to take notice of the act of the legislature referred to in the warrant, and must then be presumed to have known of the deficiency in the sinking fund caused by the failure of the Capital National Bank, and of the purpose and object of the legislature to replenish that fund from the general fund of the state, and that the legislation was somewhat incomplete, so that the procedure intended by the legislature was uncertain, and that the officers of the state, the auditor, secretary of state, and treasurer, had adopted the method of presenting a claim in the name of the treasurer and issuing a state warrant thereon for the amount to he transferred to the sinking fund. If this procedure was unwarranted by the act of the legislature, the warrant would not he a valid obligation of the state, and would not be the property of the state, since it had none of the characteristics of property, and would constitute nothing more than a memorandum of certain steps of the method of procedure that had been adopted by the officers of the state. It would not, of course, be commercial paper. If this paper had been sold by Bartley to the Chemical National Bank and was held by that bank, the presumption would be that Bartley had received the money therefor; and the question would then — 874 — be, what would these facts suggest to innocent parties handling the paper for another, but without any beneficial interest in it themselves? No doubt a state treasurer is in a sense the agent of the state, but his relation to the state is somewhat different from that of an ordinary agent to his principal. It is conceded by the attorneys for the state that the defendants acted in perfect good faith in the matter and had no actual notice of any intentional fraud. .Ordinarily an innocent party handling papers for a trustee, if questions arise in his mind as to the propriety of the actions of the trustee, may account for the funds under his control to the principal, and so relieve himself of any doubt as to the authority of the agent; but the state treasurer is in a sense the principal, also, in his dealings with innocent parties. In many respects he stands for the state. No payment could be made to the state except through him, and any withholding of the funds of the state from the treasurer would be a withholding of the funds from the state itself. There is nothing in the record to show that at that time there was anything to indicate to any one that there was any default on the part of the state treasurer, or that the funds of the state were in any jeopardy. It has since transpired that Bartley was a defaulter. But the defendants acted in view of conditions-as they then appeared. No one then, so far as the record shows, had any information in regard to the condition of the treasury that would suggest to the most prudent that there was any occasion for unusual caution. It is a mistake to suppose that this warrant shows on its face that the fund was claimed by Bartley individually. The fact that the payee in the warrant was J. S. Bartley must be construed in connection with the fact that the warrant was signed by J. S. Bartley as treasurer, and the recital in the warrant itself that the money was to be paid to J. S. Bartley to reimburse the state sinking fund, is conclusive upon all parties that the warrant was drawn for the benefit of the state, and that funds transferred in accordance with the ' rms of the warrant were transferred for the benefit — 875 — of the state, and must he so considered by the payee, as well as by the officers of the state who indorsed the proceeding. No one would insist that money that Bartley might obtain on this warrant would be any less the money of the state than if the word “treasurer” had immediately followed his name as payee in the warrant. Payment, then, to Bartley, on account of this warrant, would be payment to the state; and the defendants, when this warrant came to them from the Chemical National Bank, would be justified in supposing that the amount of the warrant had been, by the Chemical National.Bank, advanced to the state, so that, through the method adopted by the state officers in mistaken construction of an imperfect and uncertain act of the legislature, the money represented by the void warrant had been actually obtained from the Chemical National Bank and transferred to the state sinking fund, and the Chemical National Bank presents this void warrant to the state treasurer and asks that the money that the bank had advanced to the state, and the amount of which was then in the general fund, should be paid to it by the treasurer out of that fund, thus completing the transfer in accordance with 'the method adopted by the state. If the facts, then, were as the defendants were justified in supposing them to be, this warrant, although void when the Chemical National Bank advanced the money thereon to the state, did in fact, after the money had accumulated in the general fund with which to redeem it, represent the amount in the general fund which equitably belonged to the Chemical National Bank. The defendants, at the request of the Chemical National Bank, presented this warrant to the treasurer. They had no interest in the transaction. The law required them to pay the money of the state on the check of the treasurer. It was the province of the treasurer to determine the form and regularity of the proceedings. There is no doubt that “in an action for conversion the motive which prompted the defendant to dispose of, or appropriate to his own use, the property of plaintiff, is an — 876 — immaterial issue.” Hill v. Campbell Commission Co., 54 Nebr., 59. That is, if the defendant is guilty of a conversion of the plaintiffs.property, it can make no difference what Ms motive was in so doing; he is liable to the plaintiff for the value of the property. But one who disposes of the property of another under directions of the owner or under the direction of the owner’s agent or trustee, who is in control of the property, is not guilty in law of a conversion of the property, unless he has notice at the time that the agent or trustee, so in control of the property, is converting it to Ms own use. In Fifth Nat. Bank v. Hyde Park, 101 Ill., 595, a village treasurer borrowed money from the bank on his own note with his own securities as collateral. He represented to the bank that he was making the loan for the village and the money was deposited in the bank to Ms credit as treasurer. The most of the money was paid out on village warrants, and after the taxes had been collected the treasurer drew his check as treasurer to pay Ms individual note and to redeem his collateral. It was afterwards ascertained that the treasurer was a defaulter, and the bank was sued to recover the amount of money for which the treasurer had drawn his check in payment of his own personal note, and it was held that the bank was not liable. The court said (page 60B) : “In Morse, Banks and Banking, 37, it is said, in general terms: ‘If a depositor seeks to pay his own debt to the banker by an appropriation of the funds to his - credit in a fiduciary capacity, then the banker is affected with knowledge of the unlawful character of the appropriation, and will be compelled to refund.’ It seems plain, however, that unless the debt to which the funds are thus applied be such that the officers of the bank are aware that the same is really and in truth ‘his own debt,’ knowledge of the unlawful character of the appropriation can not be imputed to the bank. To charge a stranger to a trust fund as a trustee, by reason of participation in a misapplication of the fund, upon the ground' that the fund was used in payment of a private debt of the original — 877 — trustee, it is necessary to show not only that the party sought to he charged was aware that the fund was a trust fund, hut also that he was aware that the debt to the payment of which it was applied, was, at the time of such application, in fact a private debt, — a debt of such character that the fund in question could not lawfully be applied in payment thereof.” And the court also quoted from Keane v. Robarts, 4 Maddock, Ch. [Eng.], 332, 357: “Generally speaking, he does become a party to the breach of trust, by buying or receiving in pledge any part of the personal assets, not for money advanced at the time, hut in satisfaction of his private debt, because this sale or pledgé is prima facie inconsistent with the duty of an executor.” The court said: “This implies that the debt in satisfaction of which the property is taken, is of such character that it is known to be a private debt, for it is elsewhere- declared that the party so receiving the trust fund must, to become chargeable, have been guilty of ‘fraud, collusion or gross negligence.’ In the same case the vice-chancellor says [at page 358]: ‘If a party dealing with an executor for the personal assets pays his money to the executor, so that it may be applied to the purposes '6f the will, he is not responsible for the executor’s misapplication of it; hut if, in dealing with the executor, he does in truth pay his money for the private purposes of the executor, he is equally a party to the breach of trust, whether he applies his money to the private debt of the executor, or to the private trade of the executor, and this because be knows that the object to which the money is applied is not an object to which it may be lawfully applied.’ ” The court further said (p. 605) : “In Field v. Schieffelin, 7 Johns. Ch. [N. Y.], 150, Chancellor Kent says, in substance, that to charge a third party with participation in the misapplication of trust funds by a trustee, the proof must ‘justify the conclusion of a breach of trust, in which the party to be charged knowingly partook.’ That was the case of a guardian, and Kent, after a review of all the then cases, says they all agree that a party dealing with — 878 — an executor is safe if he is no party to this fraud, and has no knowledge or proof that he intended, to misapply the proceeds, and was not in fact by the very transaction applying them to the extinguishment of his own private debt. This necessarily refers to a debt known to be his own debt, to which the fund could not be properly applied. We have examined with care all the cases referred to by counsel for appellee, and many others, where a party receiving trust funds in payment of a private debt to himself has been held chargeable as a trustee, and we find no casé among them where the party so charged was not aware, at the time of receiving such trust funds, that the debt to which it was applied was a debt to the payment of which the trustee could not lawfully apply the trust fund. The receipt of such money, under such circumstances, is a plain fraud. * * * It follows that, under the circumstances, at the time when the officers of this bank received payment of this loan, they were not aware that, as between the village of Hyde Park and Waldron, he had not lawfully and equitably the right to apply the public funds to the payment of this debt. They must be assumed to have known the law in relation to the transaction, but the law does not impute to them omniscience as to the facts. Taking the facts as these officers believed they were, and as they had good cause to believe, the payment would not have been a misappropriation of the funds. They are not chargeable with fraud, collusion, or gross negligence.” Ordinarily, if a trustee deposits his funds with a third person and afterwards calls upon that third person for the funds, the party who has the funds is not bound to make inquiries as to the purpose for which the trustee intends to use the funds; and if he knows the purpose for which he intends to use them and it can in any view of the case be a legitimate and proper use of the funds, he can not withhold the same from the party who had deposited them with him. hi or is he bound to presume that the purpose is an unlawful one. To defendants it appeared that, when Bartley found that the warrant had been forwarded by the Ohemi — 879 — cal National Bank, he determined to pay to that hank the money which it had advanced to the state as represented by the warrant. It is not claimed by any one that the defendants took any part in determining that question, or in any way influenced its determination. If it was the dnty of the defendants to prevent this action, the duty would have been the same if the treasurer had presented his check and demanded the money; they knowing that he intended to use the money to reimburse the Chemical National Bank. A state depositary has no- supervisory control over the state treasurer. On the other hand, it is but an instrument in his hands, placed by the law absolutely under his. control, so far as the possession of the state funds is concerned, bound by its bond to pay the money upon demand upon the check of the treasurer; he in turn being bound by his bond to properly control the funds. Being justified in supposing that the money in fact belonged to the Chemical National Bank, and knowing that it was intended by the treasurer to pay it to that bank upon a warrant issued by the state officers for that purpose, it can not be said that the circumstances were such as to allow of no other belief on the part of the defendants than that Bartley, in so doing, was converting the money to his own use. Footnotes [*] Nobvax. was chief justice when this opinion was written. [*] Cobbey’s Annotated Statutes, secs. 10850, 10851. [*] Compiled Statutes, ch. 83, art. 13, secs. 3a, 3c; Cobbey’s Annotated Statutes, secs. 10865, 10867.