Where a defendant, under indictment for defrauding the United
States of money, deposited stocks with a representative by whom
another person was induced to execute the defendant's bail bond on
the faith of the deposit as indemnity, and neither surety nor
depositary had notice of any defect in the depositor's title, the
surety's equity in the deposit was superior to that of the United
States, though the stocks were procured with the proceeds of the
fraud.
In such case, where, after the first bond, the surety executed
several renewals in removal and habeas corpus proceedings, the
parties repeatedly treating the proceedings and the indemnity
agreement as continuing matters,
held by inference that
the same understanding attached to a further bond for appearance at
trial, and that the depositary's conduct in retaining only shares
constituting the deposit, while settling with the defendant for
others, confirmed such intention.
During the proceedings, the shares originally deposited were
sold by the depositary, with others belonging to the defendant,
and, of new shares purchased with the proceeds, some were selected
and retained by the depositary in lieu of those first deposited.
Held that the equity of the surety attached to them.
Upon an issue of fact as to whether stock claimed by plaintiff
was held by defendant as indemnity for interveners, defendant's
sworn answer, filed before the intervention and averring that he so
held the
Page 245 U. S. 2
stock, was evidence for the interveners as an act, if not as a
statement of facts.
Whether defendant should have an allowance as trustee is left to
the trial court.
229 F. 660 affirmed.
The case is stated in the opinion.
Page 245 U. S. 3
MR. JUSTICE HOLMES delivered the opinion of the court.
This proceeding began as a suit by the United States to charge
the defendant Kellogg with a trust in respect of funds alleged to
have been received by him from Greene and to have been obtained
from the plaintiff by Greene through his participation in the well
known Carter frauds.
United States v. Carter, 217 U.
S. 286. After the evidence had been taken, leave to
intervene was granted, on terms, to the administratrix of the
estate of James D. Leary, predecessor of the present Leary
appellees.
224 U. S. 567. The
fund now in question is four hundred shares of the stock of the
Norfolk and Western Railway Company, which the Learys and Kellogg
say were held by Kellogg as security to their intestate against his
liability upon a bail bond for Greene. A judgment upon the bond has
been paid by them. The circuit court of appeals has sustained the
Learys' claim, and the United States appeals. 229 F. 660, 144
C.C.A. 70.
Although Kellogg argues the contrary, it may be assumed for the
purposes of decision that the United States traces its money into
the stock, since Kellogg makes no personal claim to it. On the
other hand, it appears that, before the intestate Leary became
bondsman for Greene on December 14, 1899, Kellogg wrote to him on
the same day, stating that Greene had placed in his hands three
hundred shares of stock of the Delaware, Lackawanna and Western
Railroad Company
"as indemnity to you for becoming his bondsman in the matter of
the United States against Greene, Gaynor and others, now pending in
the district court"
to hold until Leary was released from the said bond or to apply
in payment of the obligation.
Page 245 U. S. 4
We agree with the circuit court of appeals that neither Kellogg
nor Leary had notice of any defect in Greene's title. The only
question requiring discussion is whether the present stock is held
upon the same terms against a later bond that Leary signed.
The proceedings in which the bond of December, 1899, was given
were for the removal of Greene from New York to Georgia. On
February 20, 1900, the United States Commissioner found that there
was probable cause. Greene was committed to the marshal, and the
bond was cancelled. On the same day, another bond seems to have
been given by Leary that was satisfied on May 28, 1901, when the
district judge issued a warrant for removal. On May 21, Kellogg
wrote to Leary that it would be necessary "to renew the bail given
by you for Captain Greene, and for which I hold security for your
protection," fixing a time, and adding, "[t]his new bond is to take
the place of the old one without additional liability." The bond
was given on May 28, and Greene was enlarged. On June 8, Greene was
surrendered into the custody of the marshal in New York, and a new
bail bond was executed by Leary after having received a letter from
Kellogg, dated June 6, saying "I am obliged to trouble you again to
renew the bond in the Greene and Gaynor matter," fixing the time
and adding,
"The reason for the matter is not that you have to incur any
additional liability, but simply to enable them to carry their case
to the United States Supreme Court."
The case was taken to this Court, and an order of the circuit
court refusing a writ of habeas corpus was affirmed on January 6,
1902.
Greene v. Henkel, 183 U. S. 249.
Thereafter, on January 20, Leary signed, as surety for Greene, the
bond for $40,000, conditioned for Greene's appearance in Georgia,
which was forfeited and which the Learys have paid.
More words could not make it plainer than it is made
Page 245 U. S. 5
by the letters that the "matter" was regarded by the parties as
a continuing one, and that the bond of June 8, 1901, was executed
on the agreement that the security also should continue. The only
natural inference as to the later one of 1902 that took its place
is that the understanding remained in force without the requirement
of a repetition of the already repeated assurance. This inference
is confirmed by the conduct or Kellogg. He had held stocks and
bonds for Greene and settled with him, retaining only this stock.
Even if his original answer under oath filed before the Learys
intervened is not evidence for them as a statement of facts, it was
an act as well as a statement, and showed that, at that time, he
asserted that the stock was security given by Greene. It is true
that the stock was not the same that was mentioned in the first
letter. Greene was allowed to make changes and substitutions. But
this and other purchases were made with the proceeds of the sale of
the first and other stocks before the letters of May and June,
1901, were written, and without considering whether, in the
interest of good faith, the stock retained should or should not be
attributed to the portion of the funds coming from that previously
pledged, the selection and retention of it in place of the other is
enough when taken with the agreement disclosed.
See National
Bank v. Insurance Co., 104 U. S. 54,
104 U. S. 68;
In re Hallett's Estate, 13 Ch.D. 696. It seems to us
unnecessary to add more to the discussion by the circuit court of
appeals. Whether Kellogg should receive an allowance as trustee may
be left to the district court.
Decree affirmed.