1. Where a trust fund has been perverted, the
cestui que
trust can follow it at law as far as it can be traced.
2. The United States cannot, against the claim of an innocent
party, hold his money which has gone into its treasury by means of
the fraud of its agent.
3. The rules of law applicable to an individual in a like case
apply also to the United States. Its sovereignty is in no wise
involved.
This action and the following were brought, one by the State
National Bank, of Boston, Mass., and the other by the Merchants'
National Bank, of the same place, to recover from the United States
$480,000 in gold coin, being the amount of certain gold
certificates deposited, Feb. 28, 1867, in the subtreasury at
Boston, and on the same day cancelled and forwarded to the
Treasurer of the United States at Washington. The cause of action
in each case grew out of the same transaction, and the findings of
fact by the court below are the same. As they are substantially set
forth in the opinion of the court, they are omitted here. The
certificates of deposit referred to in the opinion are as
follows:
"UNITED STATES TREASURY, BOSTON"
"Deposited by Mellen, Ward, & Co., of Boston, on acc't of
deposit of gold c't'f's, amount four hundred & Twenty thousand
dollars, the same to be exchanged for gold c't'f's, or its
equivalent, upon their order or demand."
"J. F. HARTWELL, Cr."
"Date, Feb. 28, 1867."
"[Endorsed:] Pay only upon the order of C. H. Smith, cash."
"MELLEN, WARD, & Co"
"BOSTON, Feb. 28, 1867"
Page 96 U. S. 31
"UNITED STATES TREASURY, BOSTON"
"Deposited by Mellen, Ward, & Co., of Boston, on acc't of
gold certificates deposited. Amount one hundred & sixty
thousand dollars, to be exchanged for gold c'f'fs or its equivalent
on demand."
"J. F. HARTWELL, Cr."
"[Endorsed:] Pay only upon the order of C. H. Smith, cash."
"MELLEN, WARD, & Co."
"BOSTON, Feb. 28, 1867"
The Court of Claims rendered judgment in favor of the State Bank
and against the Merchants' Bank. From the judgments rendered
against them respectively the United States and the Merchants' Bank
severally appealed to this court.
Page 96 U. S. 33
MR. JUSTICE SWAYNE delivered the opinion of the Court.
Upon analyzing this case as it is presented in the record, the
facts are found to be few and simple.
Hartwell was cashier of the subtreasury in Boston. He embezzled
a large amount of money belonging to the United States, by lending
it to Mellen, Ward, & Co. As the time for the examination of
the funds in the subtreasury approached, Mellen, Ward, & Co.
endeavored to tide Hartwell over the crisis and to conceal his
guilt and their own by the devices out of which this controversy
has arisen. They had sold to the Merchants' National Bank, of
Boston, a large amount of gold certificates with the understanding
that they might buy back the like amount by paying what the bank
had paid, and interest at the rate of six percent per annum.
Carter, one of the firm, arranged with Smith, the cashier of the
State National Bank, of Boston, to buy from the Merchants' National
Bank, of Boston, gold certificates to the amount of $420,000, and
to pay for them with the checks of Mellen, Ward, & Co.,
certified to be good by Smith as such cashier, and then to deposit
the certificates in the subtreasury, where they were to remain
until the ensuing day. A receipt was to be taken from the proper
subtreasury officer. The certificates were bought, paid for, and
deposited accordingly. Hartwell received them from Smith in the
presence of Carter, and made out the receipt to Mellen, Ward, &
Co., or order. Smith inquired why the receipt was to them. Carter
thereupon endorsed it by the firm name to Smith as cashier, and
Smith took it without further remark.
Subsequently, pursuant to a like arrangement between the same
parties, Smith, as such cashier, made a further purchase of gold
and gold certificates from the Merchants' Bank, and converted the
gold into gold certificates. The aggregate of the
Page 96 U. S. 34
certificates thus procured was $60,000. Thereafter Smith, as
such cashier, at the instance of Carter, made a further purchase of
gold certificates from another bank to the amount of $100,000. All
these certificates, amounting to $160,000, were also deposited by
Smith in the subtreasury in the presence of Carter, and a receipt
taken and endorsed as before to Smith as cashier. The receipts
specified that the certificates deposited were "to be exchanged for
gold certificates or its equivalent, on demand." Only $50,000 of
the last deposit is claimed by the appellee. The residue is not
involved in this controversy. The total claimed is $480,000. All
these things occurred on the 28th of February, 1867. On the
following day, Smith presented the receipts at the subtreasury, and
payment was refused. The certificates were all cancelled, and sent
to the proper officer at Washington. The gold which they
represented has since remained in the treasury of the United
States. Carter gave Smith plausible reasons, not necessary to be
repeated, for desiring to make the deposits. The Court of Claims
found these facts:
"He (Carter) submitted his plan to Hartwell, which was as
follows: he proposed to buy gold certificates in New York, bring
them to Boston, and borrow money upon them of the Merchants' Bank,
and he then proposed to get Smith, the cashier of the State Bank,
to pay for these certificates, and leave them with Hartwell during
the examination. Hartwell made no objection to this plan, but he
thought Smith would not do it. The plan was carried into effect by
Carter, as hereinbefore set forth; but Hartwell had no agency in
carrying it out, except to receive the moneys and gold certificates
paid to him on the 28th of February, as aforesaid, and he had no
actual knowledge of the proceedings taken by Carter on that day to
obtain said gold certificates. When Carter and Smith deposited the
$420,000 of gold certificates in the subtreasury, as aforesaid,
Smith did not know Hartwell, nor did Hartwell know Smith, or know
that Smith was connected with any bank or money institution."
The case, under another aspect, was before us on a former
occasion.
Merchants' Bank v. State
Bank, 10 Wall. 604. We there held, after the most
careful consideration, that the legal title to the certificates
was, by the purchases made by its cashier,
Page 96 U. S. 35
vested in the State Bank. We find no reason to change this view.
The finding of the court shows clearly that Hartwell knew when he
received the certificates that they did not belong to Mellen, Ward,
& Co., and that they did belong to the State Bank, represented
by Smith as its agent. Hartwell was privy to the entire fraud from
the beginning to the end, and was a participant in its
consummation.
It is not denied that Smith acted in entire good faith. What he
did was honestly done, and it was according to the settled and
usual course of business. Hartwell was the agent of the United
States. He was appointed by them, and acted for them. He did, so
far as Smith knew, only what it was his duty to do, and what he did
constantly for others, and it is not denied that it was according
to the law of the land. 12 Stat. 711. Smith no more suspected
fraud, and had no more reason to suspect it, than any other of the
countless parties who dealt with the subtreasury in like
manner.
There could hardly be a stronger equity than that in favor of
the plaintiff. It remains to consider the law of the case.
The interposition of equity is not necessary where a trust fund
is perverted. The
cestui que trust can follow it at law as
far as it can be traced.
May v. Le
Claire, 11 Wall. 217;
Taylor v. Plumer, 3
Mau. & Sel. 562.
Where a draft was remitted by a collecting agent to a subagent
for collection, and the proceeds were applied by the sub agent in
payment of the indebtedness of the agent to himself, in ignorance
of the rights of the principal, this Court held that, there being
no new advance made, and no new credit given by the sub-agent, the
principal was entitled to recover against him.
Wilson
& Co. v. Smith, 3 How. 763.
See also Bank of the Metropolis v. The
New England Bank, 6 How. 212.
A party who, without right and with guilty knowledge, obtains
money of the United States from a disbursing officer, becomes
indebted to the United States, and they may recover the amount. An
action will lie whenever the defendant has received money which is
the property of the plaintiff, and which the defendant is obliged
by natural justice and equity to refund. The form of the
indebtedness or the mode in which it was incurred is immaterial.
Bayne v. United States, 93 U. S. 642.
Page 96 U. S. 36
The United States must use due diligence to charge the endorsers
of a bill of exchange, and they are liable to damages if they allow
one which they have accepted to go to protest.
United
States v. Barker, 12 Wheat. 559;
Bank of
the United States v. The United States, 2 How. 711;
United States v. Bank of the
Metropolis, 15 Pet. 377.
In these cases, and many others that might be cited, the rules
of law applicable to individuals were applied to the United States.
Here the basis of the liability insisted upon is an implied
contract by which they might well become bound in virtue of their
corporate character. Their sovereignty is in no wise involved.
Atlantic Bank v. Merchants' Bank, 10 Gray (Mass.) 532,
and
Skinner v. The Merchants' Bank, 4 Allen (Mass.) 290,
are, in their facts, strikingly like the case before us, and they
involved exactly the same point. It was held in each of those
cases, after an elaborate examination of the subject, that the
defrauded bank was entitled to recover.
But surely it ought to require neither argument nor authority to
support the proposition, that, where the money or property of an
innocent person has gone into the coffers of the nation by means of
a fraud to which its agent was a party, such money or property
cannot be held by the United States against the claim of the
wronged and injured party.
The agent was agent for no such purpose. His doings were
vitiated by the underlying dishonesty, and could confer no rights
upon his principal.
The appellee recovered below the amount claimed. A different
result here would be a reproach to our jurisprudence.
Judgment affirmed.
NOTE -- In
Merchants' Bank v. United States, MR.
JUSTICE SWAYNE, in delivering the opinion of the Court, remarked,
the opinion in
United States v. State Bank, supra, p.
96 U. S. 30, decides
this case.
Judgment affirmed.