HUTCHESON, District Judge.
[1] No character of case better illustrates the principle of the equitable maxim, “Ubi jus ibi remedium,” than that of tracing trust moneys misappropriated by banks with the connivance, or through the active agency, of a depositor who has used his principal’s money to pay his private debts, for though in years past the courts found difficulty in stating the law of the case growing out of the fact that money has no earmarks, the principle is now almost universally recognized that it is sufficient if the trust funds can be sufficiently traced so as to be reflected in the amount of the deposit, and it is not essential that the identical money be located. Many cases have stated the matter, but none better than the case of Santa Marina Co. v. Canadian Bank of Commerce (D. C.) 242 Fed. 143, where the authorities are collated; nor have I found a better discussion of the general principle or better collection of authorities than is contained in the very interesting note in L. R. A. 1916C, 21.
These authorities and others like them make it plain that there is no real legal difficulty at all in the application of the trust doctrine to moneys deposited and misapplied, but that the real trouble arises in the application of the principle to the facts of a particular case, for it is *262of course fundamental that funds must be traced before the trust can be asserted in them. This is clearly settled by numerous authorities, and perhaps nowhere better stated than in Board of Commissioners v. Strawn, 157 F. 49" court="6th Cir." date_filed="1907-11-20" href="https://app.midpage.ai/document/board-of-comrs-v-strawn-8765468?utm_source=webapp" opinion_id="8765468">157 Fed. 49, 84 C. C. A. 553, 15 L. R. A. (N. S.) 1100. The same case establishes a doctrine, which has been reaffirmed and specifically applied in Schuyler v. Littlefield, 232 U.S. 707" court="SCOTUS" date_filed="1914-03-23" href="https://app.midpage.ai/document/schuyler-v-littlefield-98131?utm_source=webapp" opinion_id="98131">232 U. S. 707, 34 Sup. Ct. 466, 58 L. Ed. 806" court="SCOTUS" date_filed="1914-03-23" href="https://app.midpage.ai/document/schuyler-v-littlefield-98131?utm_source=webapp" opinion_id="98131">58 L. Ed. 806, that if the mingled fund is reduced below tire amount of the trust fund the latter must be regarded as dissipated, except as to such balance, and sums subsequently added cannot be treated as part of the trust fund.
It is hardly necessary to state that the courts recognize that in the interest of commercial security a bank may safely deal with a depositor without undertaking 'to scrutinize the source of his deposits, or, even if. the trust character is known, seeing to the proper application of the funds. It is well settled that a bank has the right to assume that the depositor is acting within his authority, and will deal justly by his principal; but this rule breaks down, or rather, has no application, where a bank, with knowledge of the trust character of a deposit,* assists the depositor to misapply it by appropriating it, either by a charge ticket, or through the check of the depositor, to the private obligation owed by the depositor to the bank.
[2] It is conceded in this case that the funds of the complainant in dispute were deposited by Martin in the defendant bank in his own name, and that these funds were all checked out by Martin to others than complainants; nor is there any dispute that the bank, during the period when the funds, or some of them, were being deposited by Martin in the bank, caused Martin to sign checks for and received payment of $14,862.75 of debts in the form of unpaid drafts long overdue from Martin to the bank. Nor, since I accept and approve the proposition of defendant’s brief that, in giving Martin a deposit receipt for the drafts, the legal effect wag the same as if the consignee had paid Martin the same amount of money in the bank, is there any doubt that the money realized from the drafts drawn against plaintiffs’ potatoes by their acceptance as cash items by the bank was the money of complainants. Commercial Bank v. Armstrong, 148 U.S. 50" court="SCOTUS" date_filed="1893-03-06" href="https://app.midpage.ai/document/commercial-bank-of-pa-v-armstrong-93534?utm_source=webapp" opinion_id="93534">148 U. S. 50, 13 Sup. Ct. 533, 37 L. Ed. 363" court="SCOTUS" date_filed="1893-03-06" href="https://app.midpage.ai/document/commercial-bank-of-pa-v-armstrong-93534?utm_source=webapp" opinion_id="93534">37 L. Ed. 363. The money stood in exactly the same case as if Martin had gotten it from the drawees of the drafts and deposited it.
The question, therefore, of bona fide purchase of the drafts by the bank, or whether the matter should be treated as a purchase by the bank of tire plaintiffs’ potatoes, in which event, of course, the bank could get no higher title than Martin had, and would be liable for the value of the personal property, is not in the case. The case upon the law and the evidence is one where the moneys of complainants was with the knowledge of the bank to the extent of $7,800 appropriated by the bank, with the consent of the defendant Martin, to pay Martin’s debt, and upon the plain principles of law above set out the complainants are entitled to recover from the bank that sum, unless the proposition of estoppel of the defendant bank avails to defeat recovery.
*263[3] A very interesting discussion of a similar situation is found in the case of Bank v. Jones, 18 Tex. 811" court="Tex." date_filed="1857-07-01" href="https://app.midpage.ai/document/commercial--agricultural-bank-v-jones-4888815?utm_source=webapp" opinion_id="4888815">18 Tex. 811, to which I deem it unnecessary to add that, this being a suit in equity, and the defendant having been found in default ex maleficio, through a deliberate and knowing misappropriation of complainants’ funds, this court will be slow to erect out of a transaction which admittedly failed to result in an accord and satisfaction an estoppel by which the bank could keep the fruits of its wrong. While the case of Parkerson v. Borst (C. C. A.) 264 Fed. 766, is not exactly in point on the facts, it at least illustrates the disinclination of a court to lend too ready an ear to the wrongdoer’s plea of election or estoppel.
The facts here which present an absolute failure to reach an accord and satisfaction present the strongest kind of case for the application of the doctrines of that case and of Bank v. Jones, 18 Tex. 811, supra. In what is here said it is not meant to declare that, had a complete accord and satisfaction between plaintiffs and Martin been reached, the effect would not have been a ratification of the acts of the agent, and an agreement on the part of the principal to treat the funds deposited by the agent in the Security Bank, and by him applied to his debts as a loan. No facts, however, warranting such a conclusion appear in this case. Neither the pleadings of the plaintiffs nor the defendant Martin declare upon these papers, nor in my opinion do they present any defense to this suit, or have any proper place in it.
[4] As to the remaining contention that these securities should be delivered to the defendant bank, it is sufficient to say that I can conceive of no theory upon which a trustee ex maleficio can in a court of equity require that a complainant deliver to him securities or documents which he holds for his own protection, even if the documents be treated as evidencing existing obligations of the codefendant, which I do not now mean to hold.
The result of these views will be that complainants shottld have judgment against Martin for the full amount of the balance due by him, the debt having arisen through misappropriation of trust funds, and beisig therefore unaffected by the bankruptcy, with interest on same from the time oT its misappropriation, and that complainants should also have judgment against the defendant bank for $7,800, with interest from June 1, 1918, and against both defendants for costs.