As we have already said, these bonds were not to be issued and sold for the payment of a legitimate corporate debt, because there was no debt to be paid. The Sellers farm debt had been paid, and the bonds evidencing the same had been canceled and discharged. Thereafter the debt ceased to exist. Is the raising of money, by the issue and sale of bonds, for the purpose of putting back in the treasury a sum equal to what had been used in the payment of a debt of the city, "a legitimate exercise of the corporate powers of such city?" If the city may issue and sell its bonds to replace in the treasury the money paid out on account of the Sellers farm debt, it may issue and sell its bonds to replace in the treasury all the moneys ever paid out by it on account of its debts and liabilities. In my judgment, the issuance and sale of bonds for such a purpose is not within the scope of its legitimate corporate powers. The city cannot issue and sell its original bonds except for the purpose of raising money to pay some legitimate debt or liability, or to meet some future liability or obligation incurred, or to be incurred, in the legitimate exercise of its corporate powers. The bonds in question, to the extent of $21,000, must be held to be unuathorized and illegal.

It is insisted by the solicitor for the city that, conceding that the bonds in question, to the amount of $21,000, are illegal, the residue of them are legal and valid refunding bonds, and, therefore, that the complainants were bound to take them. In this, we think, the solicitor is in error. The award by the city and the acceptance by the complainants were of the $621,000 of refunding bonds. The bill shows that the city tendered all of the bonds in a lump, and demanded their acceptance, and threatened, upon failure to accept, to forfeit the entire deposit. The complainants refused to accede to the tender and demand, and rightfully. The complainants could not be in default in respect of the $600,000 of bonds, because they were never separately tendered to them. They could not accept what was never offered. But, if they had been separately tendered, complainants were not bound to accept them. Their bid .and the city's award were of $621,000 of refunding bonds. They had a right to stand upon the terms of the contract, and could not be compelled to take either more or less than $621,000 of the bonds. The bonds were all of one series. Each one was as much a refunding bond as any other, and each one was as much a bond for replacing money in the treasury as any other. If, then, to the extent of $21,000, they were tainted, the taint permeated the entire issue, because the legal were incapable of discrimination from the illegal. This is not a case where bonds partly legal and partly illegal have been placed upon the market, and purchased by parties in good faith. In such a case it is the duty of the court, in furtherance of justice, to uphold such bonds to the extent that it may have been lawful to issue them, and to hold invalid only the excess. Here the question is raised before the bonds are issued. The real question for decision is, will a court of equity compel a purchaser to consummate his bid and pay for bonds, where a part of the issue is illegal? A court of equity will not lend its aid to consummate an

illegal or unconscionable transaction. It would be unjust and inequitable to compel the complainants to take bonds, a portion of which are illegal. The illegality is of such a character as to preclude the city from carrying out the terms of its contract. It is the duty of the court in such a case to relieve the party not in default by restoring the status quo. This can only be done by ordering the return of the certificate of deposit, and requiring the bank to pay the money to complainants. From these views it follows that the demurrer must be overruled, and it is so ordered.

CHAVENT v. SCHEFER et al

(Circuit Court, S. D. New York. January 6, 1894)

JUDGMENTS-RES JUDICATA-CORPORATIONS.

A decree distributing the assets of a dissolved corporation, and dischar ging the trustees, prevents a creditor, who was a party to the suit, from maintaining a subsequent bill against the trustees to reach unpaid stock subscriptions.

In Equity. Suit by Philippe Chavent against Carl Schefer and others, trustees, to reach unpaid subscriptions to the stock of a corporation. Heard on a plea in bar. Plea sustained.

Lorenzo Semple, for orator.

Robert Hunter McGrath, Jr., for defendants.

WHEELER, District Judge. According to the bill, the defendants were stockholders, who had put in a plant towards, and had not really paid for, their stock in full, and were the trustees, of the Town of Union Mill Company, a corporation of New Jersey, of which the orator was a creditor; and which became insolvent and was dissolved, and its assets were divided ratably among its creditors, including him, leaving a balance of $3,361.47 due him. The cor poration act of 1875, as amended by the supplementary acts, provides:

"Where the whole capital of the corporation shall not have been paid in, and the capital shall be sufficient to satisfy the claims of its creditors, each stockholder shall be bound to pay on each share held by him the sum necessary to complete the amount of such share, as fixed by the charter of the company, or such proportion of that sum as shall be required to satisfy the debts of the company."

The bill is brought in behalf of the orator and all other creditors to reach the true balance of the unpaid subscriptions. The defendants have pleaded that in a suit between the orator and the Town of Union Mill Company in the court of chancery of New Jersey, upon the petition of the orator to be paid in full his judgment against the defendants, trustees of that company, it "appearing to the court that said trustees had sold and disposed of all the property of said company in winding up its affairs after its dissolution, and that there remained in their hands, as such trustees, after the payment of their necessary disbursements and the preferred debts against said

company, the sum of eleven thousand two hundred and six dollars and twenty-two cents, ($11,206.22,) to be distributed among the unsecured creditors, and that there is due to said unsecured creditors, respectively, the following amounts, that is to say: To the said complainant the sum of forty-eight hundred and fifty-three dollars and thirty cents," and to the defendants various sums,-it was "ordered and decreed by the chancellor that said trustees pay, out of said moneys so in their hands to be distributed, in the first place the sum of two hundred dollars ($200) to the counsel of said complainant, and the sum of two hundred dollars ($200) to the counsel of said trustees; and that they distribute and pay the residue of said moneys so remaining in their hands in manner following, that is to say: To said complainant the sum of fourteen hundred and ninety-one dollars and eighty-three cents, ($1,491.83,) and to said Schefer, Shramm, and Vogel the sum of ninety-one hundred and fourteen dollars and fifty-six cents, ($9,114.56,) and to said Luckmeyer and Schefer the sum of one hundred and ninety-nine dollars and eighty-three cents, ($199.83;)" and "that, upon payment to said complainant of said sum of fourteen hundred and ninety-one dollars and eighty-three cents, said trustees be finally and fully discharged from all further liability to said company, or the stockholders or creditors thereof."

This plea has been argued, and its validity seems to depend upon whether what is sought to be reached now should have been carried into that decree, and is merged in what was decreed there, so as not to have been left to become the subject of another decree. Whatever was a part of and belonged with what was adjudicated upon as a subject of recovery there should have been brought in and made a part of the decree, and, whether actually brought in or not, became merged in the decree as passed upon, or waived. Cromwell v. County of Sac, 94 U. S. 351. The parties here were all before the court of competent jurisdiction there. The subscriptions for stock really unpaid were assets of the corporation for the payment of debts at the suit of creditors, or those standing in their right, although the corporation itself might not have been in a plight to recover them. Sawyer v. Hoag, 17 Wall. 610; Scovill v. Thayer, 105 U. S. 143. These subscriptions were a part of, and belonged with, the assets which the orator had a right to have, and did have, marshaled for the payment of his debt, and would, if his claim had been maintained, have by so much increased the amount to be distributed to him. Case v. Beauregard, 101 U. S. 688. Whether then brought in or not, they appear to have been so merged or waived as not to be proper subjects for another decree elsewhere.

Plea adjudged sufficient.

WASSON v. HAWKINS.

(Circuit Court, D. Indiana. January 5, 1894.)

No. 8,922.

BANKS-INSOLVENCY--DEPOSITS FRAUDULENTLY RECEIVED.

Where money and checks are unsuspectingly deposited in a bank, which is known by its managing officer to be hopelessly insolvent, a few minutes before closing hour on the last day on which it does business, and the checks are subsequently collected by the bank's clerk, the whole of the deposit is charged with a trust, and an equal amount may be recovered from the receiver, who retains the specific money among the general mass of the bank's funds.

In Equity. Suit by Hiram P. Wasson against Edward Hawkins, receiver of the Indianapolis National Bank, to recover the amount of certain deposits. On demurrer to the bill. Overruled.

Duncan & Smith, for complainant.

Frank B. Burke and John W. Kern, for defendant.

BAKER, District Judge. The questions for decision in this case arise upon a demurrer to the bill of complaint. The bill shows that for many years prior to the 24th day of July, 1893, complainant had been engaged in business in the city of Indianapolis; that on that day, and for many years prior thereto, he had been a depositor in the Indianapolis National Bank; that Theodore P. Haughey then was, and from the organization of the bank had been, its president; that for many years, as such president, he had been intrusted by the directors of said bank with its absolute control and management; that its cashier was never consulted, either by the president or the board of directors, in any of the matters of management, and his duties, as prescribed by the directors and the president, were simply clerical; that on said 24th day of July, 1893, said bank was utterly and hopelessly insolvent, and unable to continue its business longer for a single day, which was fully known to its said president, who was on said day present in said bank watching its operations; that complainant was ignorant of the fact that said bank was insolvent or in danger of insolvency, and, had he known that it was insolvent or in danger of insolvency, he would not have deposited therein any sum of money whatever; that said bank and its president, who had sole and exclusive management of its affairs, well knew that complainant did not know of the insolvency of said bank, and well knew that he believed it was solvent, and able to meet on demand the claims of its depositors in the usual course of business, and further well knew that, if complainant had knowledge of the true condition of said bank, he would not deposit any money therein; that said bank and its president well knew that complainant, relying upon its solvency, was regularly, from day to day, making large deposits of money in said bank; that said bank and its president, well knowing the premises aforesaid, fraudulently concealed from the complainant the insolvency of said bank, and did not in any way warn him of his danger in depositing money therein;

1

that on said 24th day of July, 1893, the complainant, within less than five minutes of the hour at which said bank closed its business for the day, viz. 3 o'clock P. M., deposited in said bank, in money, the sum of $1,642.50, and the further sum of $504.14 in the checks of various persons, drawn upon other banks in the city of Indianapolis; that all of said checks were received as cash, and credited to complainant's account on his pass book and upon the books of the bank as so much cash; that said bank closed its doors and business for the 24th day of July, 1893, at the hour of 3 o'clock P. M., and never thereafter opened them for business, and never thereafter transacted any business whatever; that no part of said moneys were paid out by said bank prior to its suspension, but the same remained in said bank until the appointment of the defendant as receiver thereof; that the checks so deposited were on the morning of July 25, 1893, collected by a clerk then in the employ of said bank, and the proceeds held in the bank until the appointment of the defendant as receiver, when such proceeds were delivered into his hands as such receiver; that said receiver received and retained possession of the moneys so deposited, and of the moneys arising from the collection of the checks so deposited; that, before bringing suit, complainant demanded of the defendant, as receiver, the moneys and the proceeds of the checks so deposited, which demand was by the defendant refused.

The bank was insolvent, and was known by its president, who had sole management of it, to be insolvent. The knowledge of the president was the knowledge of the bank. Martin v. Webb, 110 UJ. S. 7, 3 Sup. Ct. 428; Bank v. Walker, 130 U. S. 267, 9 Sup. Ct. 519. It fraudulently concealed its insolvency from the complainant, who was ignorant of it, and, believing it to be solvent, he deposited, in the bank, bank notes and checks to the amount of $2,146.64 within five minutes of its final collapse. The reception of the money and checks, under such circumstances, was a fraud upon the plaintiff, and entitled him to rescind the transaction, and recover back his deposit from the bank. The keeping of the bank open, and the conducting of its business in the usual manner, constituted a representation to its customers of the solvency of the bank, upon which they had the right to rely; and, if the bank was known to be insolvent by the officers who were charged with its management, the concealment of that fact from a person about to make a deposit would constitute a fraud upon him. The title acquired by the bank to the money and checks deposited under such circumstances would be voidable at the election of the depositor, who could bring suit to recover his deposit without any previous demand. The bank would become a trustee ex maleficio, and would hold the deposit for the use of the depositor, and subject to his right of reclamation. Railway Co. v. Johnston, 133 U. S. 566, 10 Sup. Ct. 390; Cragie v. Hadley, 99 N. Y. 131, 1 N. E. 537; City of Somerville v. Beal, 49 Fed. 790; Peck v. Bank, 43 Fed. 357. In the case of Cragie v. Hadley, supra, it was held that the acceptance of a deposit by a bank hopelessly insolvent constituted such a fraud as entitled the depositor to his drafts or their proceeds.