should follow, we think, that if in carrying port of this contention, it is insisted in efon such business she adopted a fraudulent fect that appellee defended solely on the method, and thereby secured an unfair ad- ground of fraud and no consideration; that vantage or an unearned and unconscionable the paragraphs of answer based on fraud benefit to such estate, she as administratrix, did not plead a return or offer to return the while her estate retains the fruits of such powders for which the notes were given, but fraud, ought not to be heard to defend, as alleged that they were of no value; that against such wrongful act, that she had no the evidence discloses that such powders had right to make the representations whereby value; and hence that under the pleadings she secured to the estate such advantage and the defense must fail. benefit. The consummation of the fraud having been made possible by the court's order, a holding in accord with appellant's contention would, in effect, make the court a party to the fraud. Suppose this were a suit by the administratrix to recover on the note given for said powders, and there was an answer setting up the fraud, would a court, under the circumstances here shown, permit the administratrix to avoid such defense and recover for the estate the fruits of her fraud on the ground that she as such administratrix could not be bound by her fraudulent representations. To so hold would be not only to give to such fraud the sanction and approval of the court, but the court would thereby aid in its consummation by assisting and making it possible for the estate to obtain the fruits thereof.

The instant case is not essentially different from the supposed case. The fact that the estate has obtained the fruits of the fraud from the assignee of said note does not in our judgment affect the question under consideration.

The assignee steps into the shoes of his assignor and is in no better situation than such assignor would be, unless a purchaser in good faith without knowledge of the fraud.

As especially applicable to the facts of this case, we quote the following language of the Supreme Court of Texas in the case of Able v. Chandler, 12 Tex. 88, 92, 62 Am. Dec. 518:

While "the administrator of an estate cannot bind the estate by his warranty, or render it responsible in damages for frauds or torts, committed by him, yet in his dealings with third persons, in respect to the estate, he is not, by his representative character, absolved from the universal obligation to observe the dictates of natural justice and common honesty, which require that he shall act fairly and not fraudulently. Nor can the estate which he represents be permitted to derive an unjust and unconscientious advantage, to the injury of those with whom its legal representative contracts, by means of his unauthorized fraudulent conduct."

See, also, Crayton v. Munger, 9 Tex. 285; Williamson v. Walker, 24 Ga. 257, 71 Am. Dec. 119; Ramsey v. Blalock, 32 Ga. 376, 380; Rice v. Richardson, etc., 3 Ala. 428; Atwood v. Wright, 29 Ala. 346.

We therefore conclude that the trial court did not err in overruling the demurrer to said seventh paragraph of answer.

While the evidence on this branch of the case was by no means conclusive, there was some evidence to the effect that said stock powder was in a solidified state when it reached appellee, and when in such state it had no value. This was sufficient to prevent a reversal of the case on said ground. It is insisted that the court erred in admitting in evidence a pamphlet upon which, and the statements therein made, appellee bases his proof of fraud in part. The objection made thereto was, in substance, that the administratrix could not bind the estate by her representations. This objection is, in effect, disposed of by what we have said in regard to the sufficiency of the seventh paragraph of answer.

[5] Appellant next insists that the court erred in permitting appellee to testify that Larimer told him that he was the agent for the Medical Chemical Company-that he was a general agent. While it is true, as appellant contends, that agency cannot be proved by statements made by the agent himself, there was testimony of other witnesses in this case, which was uncontradicted, to show such agency, and if in fact such agency seems not to have been controverted. error, if any, was therefore harmless.

The

The action of the court in refusing to give certain instructions tendered by appellant and in giving other instructions is relied on and urged as ground for reversal. Among the refused instructions tendered by appellant was the following:

"The court instructs the jury that where the party elects to rescind a contract on the ground of fraud, where he had actually been defrauded, he must restore, or offer to restore, everything of any value which he received under the contract. He will not be permitted to undo the contract while retaining money or other thing of value delivered him under the terms of the contract."

Of the instructions given by the court, complaint is made of No. 5. In this instruction the court, after indicating what should be shown to establish fraud, said:

tablished by a preponderance of the evidence, the "In such case, if the facts above recited are esdefense of fraudulent representation is made out, and will reduce the amount of recovery upon the note to the extent of the difference between the note was given, in the condition it actually was fair market value of the property for which the when delivered, and what such market value would have been if the property had been as rep

[4] Under its motion for new trial appel-resented. In such a case, if the property in the lant contends that the verdict of the jury is not sustained by sufficient evidence. In sup

condition that it was when delivered was worth $500 but would have been worth $1,000 if it had been as represented, then the recovery upon the

.64 Ind. App. 217)

determination of a cause is correct, there is no DRUDGE v. CITIZENS' BANK OF AKRON.* ground for reversal of an action for conversion, where there could be no conversion because the property was taken in pursuance of law.

(No. 9147.)

(Appellate Court of Indiana, Division No. 1. June 8, 1916.)

1. BANKS AND BANKING 77(2)-INSOLVENCY-ASSETS-TRUST PROPERTY-RECORDING OF TRUST INSTRUMENTS.

Acts 1907, c. 113, § 10 (Burns' Ann. St. 1914, § 3411), providing that trust property in the hands of a bank shall be considered as assets of the bank where its funds are insufficient to pay depositors when such bank is wound up, unless the trust agreement has been recorded and filed, applies to notes and mortgages held in trust by bank.

[Ed. Note.-For other cases, see Banks and Banking, Cent. Dig. §§ 169, 170; Dec. Dig. 77(2).]

2. BANKS AND BANKING 77(2)
VENCY-ASSETS TRUST PROPERTY-RECORD-
ING OF TRUST INSTRUMENTS.

Such statute operates only in favor of depositors while the bank is being wound up and where the assets are insufficient to pay all depositors, and has no application where the assets are sufficient to pay depositors.

[Ed. Note.-For other cases, see Appeal and Error, Cent. Dig. §§ 4032, 4066, 4454, 4540; Dec. Dig. 1170(1).]

Appeal from Circuit Court, Marshall County; Harry Bernetha, Judge.

Action by Francis M. Drudge against the Citizens' Bank of Akron. Judgment for defendant, and plaintiff appeals. Affirmed.

Julius Rowley and Isaiah Conner, both of Rochester, and Harley A. Logan, of Plymouth, for appellant. Holman, Bernetha & Bryant, of Rochester, Reuben R. Carr, of Akron, and M. A. Baker, of Rochester, for appellee.

FELT, J. This is a suit to recover damages for the conversion of the proceeds of five promissory notes. The complaint is in five paragraphs, and each is for the recovery of the amount of the proceeds of a separate note. The paragraphs are alike except in

[Ed. Note.-For other cases, see Banks and Banking, Cent. Dig. §§ 169, 170; Dec. Dig. the description of the notes and the amount 77(2).]

3. TRUSTS 1-NATURE,

A "trust" is a confidence reposed in one person by another with respect to property held by the former for the benefit of the latter.

[Ed. Note.-For other cases, see Trusts, Cent. Dig. § 1; Dec. Dig. 1.]

4. BANKS AND BANKING 109(3) - REPRESENTATION BY OFFICERS-PAYMENT TO CASH

IER.

Where notes and mortgages were purchased by plaintiff from cashier of defendant bank during banking hours and payment was made to cashier while he was discharging his duties as such, payment was made to bank.

demanded. The first paragraph alleges, in substance, that appellee is an incorporated bank under the laws of this state, and at the times herein mentioned was engaged in the banking business in the town of Akron, Ind.; that on July 28, 1910, appellant owned and held a promissory note executed by one Milo Harold for $1,500, which he delivered to appellee for safe-keeping; that some time afterwards appellee received from said Harold the full amount of said note, with interest, amounting to $1,606.50, and wrongfully and unlawfully paid out the whole of said amount in discharge of its obligation to its depositors, other than appellant, and in that manner wrongfully and unlawfully converted the money to its own use, to the damage of appellant in the sum of $2,000. Each paragraph was answered by general denial and by two paragraphs of special answer. A reply in general denial was filed to each of the spe cial answers. The second paragraph of answer sets out each of the notes in controversy, together with the respective mortgages securing them, the record thereon, and all indorsements and writings of every kind and charac77(4)-ASSETS-ter, or in any wise pertaining thereto and ap

[Ed. Note.-For other cases, see Banks and Banking, Cent. Dig. § 260; Dec. Dig. 109(3).]

5. TROVER AND CONVERSION 37 - EvIDENCE-WEIGHT OWNERSHIP OF PROPERTY -FALSE RETURNS TO TAX COLLECTOR.

In an action for conversion of notes and mortgages held in trust by defendant bank, the fact that plaintiff evaded taxation by not returning same as his property is not important on the issue of ownership.

[Ed. Note.-For other cases, see Trover and Conversion, Cent. Dig. §§ 225-227; Dec. Dig. mm 37.]

6. BANKS AND BANKING

TRUST PROPERTY HELD BY BANK. Conversion will not lie to recover value of notes and mortgages held in trust by bank which were lawfully appropriated to the payment of depositors, when bank was wound up, on account of trust agreement not having been recorded and filed as required by Burns" Ann. St. 1914, § 3411.

[Ed. Note.-For other cases, see Banks and Banking, Cent. Dig. §§ 173, 174; Dec. Dig. 77(4).]

pearing upon said instruments and the record thereof, and alleges that there is no other record, indorsement or writing of any character whatever relating to the ownership of said notes and mortgages. The third paragraph of answer alleges that on the several dates set forth in the answer, up to the time the bank was closed, appellee was doing a banking business at Akron, Ind., under the privatebanking laws of this state; that the notes mentioned in the complaint were each given Under Burns' Ann. St. 1914, §§ 407, 700, re- and made payable to appellee, together with lating to disregard of errors, where the ultimate the mortgages securing the same, and that For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes *Rehearing denied. Transfer denied.

7. APPEAL AND ERROR 1170(1)-REVERSAL ERRONEOUS REASONS FOR PROPER JUDG

MENT.

such instruments and the proceeds thereof
were and are the property of appellee and a
part of the assets thereof; that the remain-
ing assets of said bank are insufficient to
pay in full the bona fide claims of all the de-
positors; that no instrument of any kind
showing that appellee ever held the notes
mentioned in the complaint, in trust for ap-
pellant, or any other person, was ever exe-
cuted by appellee, nor was any such instru-
ment ever recorded in the recorder's office
of Fulton county, Ind., nor was any copy
thereof filed with the auditor of state; that
appellee is in voluntary liquidation, and has
been since November 3, 1911, and that the
depositors are not yet fully paid and satis-
fied, and that the assets of the appellee bank,
including the proceeds of the notes set out in
the complaint, are insufficient to pay and
isfy all the claims of the depositors.

"Citizens' Bank, Akron, Indiana,

"$2,000.00.

-, Cashier." "September 2, 1910. "This is to certify that F. M. Drudge has on deposit at this bank one note bearing date of April 13, 1910-calling for $1,200.00 due in five years-indorsed by Reuben Kamp-secured by first real estate mortgage-note to be delivered only upon the surrender of this receipt to him or his heirs only. "[Signed] Citizens' Bank, Akron, Ind., "By H. Harter, Cashier." "Dec. 16, 1910. "Received of F. M. Drudge eight hundred dollars Edwin Landis mortgage note dated May 19, 1909, secured by real estate mortgage for safe-keeping. "Citizens' Bank, Akron, Indiana,

"H. Harter." "Received from F. M. Drudge one note of $3,000.00 secured by junior mortgage on Reuben sat-months this note is left for safe-keeping and to Kamp farm dated May 29, 1911, due in six be delivered upon the return of this receipt. "[Signed] Citizens' Bank, Akron, Indiana."

Upon request the court made a special finding of facts, and stated its conclusions of law That none of said mortgages were ever dethereon. The court found the facts as al- livered to appellant, and the bank never releged in the special answers and many other ceived the money so paid by him, although facts and details of the transactions, the sub-credited on the books of the bank; that the stance of which, as far as material here, is negotiations for the purchase of said notes as follows: That appellee was organized as by appellant and the payment of the money a copartnership in June, 1905, and as such therefor by him all took place in the banking engaged in the business of private banking rooms of appellee in Akron, Ind., during at Akron, Ind., continuously from that time banking hours. After said notes were left to November 3, 1911, when the bank was with the bank said Harter collected the inclosed by the auditor of state; that this suit terest on them at about the time it became was begun on July 15, 1912; that Howard B. due up to November, 1911, and paid the inHarter was cashier of the bank from the date terest so collected thereon to appellant; that of its organization until it was closed; that the cashier squandered the money obtained the bank in the usual course of business made from appellant for the notes on the Chicago the following loans of its funds: Milo Harold, Board of Trade, in speculations on his own $1,500; Walter L. Rogers, $500; Reuben account, which resulted in a loss to him of Kamp, $1,200 and $3,000; Edwin Landis, $800, $33,500, which facts were unknown to the and took from each a note for the amount so other officials and stockholders of the bank loaned to him, payable to the bank; that until the bank was closed; that appellant did each of said notes was secured by a mortgage not, after said sale, or at any time, file with upon land owned by the borrower, which the recorder of his county or with the audimortgages were recorded in the recorder's tor of state any certificate, showing that said office of the proper county. Copies of the bank held said note and mortgages for him notes and their indorsements and the mort-in trust, nor did the board of directors or gages are set out in full in the finding of facts. That appellant and said Harter, without the knowledge or consent of the directors or stockholders of the bank, entered into a pretended sale to appellant of said notes and mortgages, which notes were indorsed on the back with a rubber stamp, "Citizens Bank, Akron, Indiana,

stockholders know that said notes and securities were held by the bank in trust, or that appellant so claimed, until the bank was closed, but believed them to be a part of the assets of the bank, and they were so considered by the state bank examiner, who included them in the totals of his report of -, Cashier," ex-loans secured by mortgage; that appellant cept the Harold note, which was not in- is a farmer and was a customer of the bank; dorsed; that said mortgages were not assigned to appellant; that the cashier, Harter, received from appellant the principal and the unpaid interest accrued on said notes to the date of sale and delivered them to appellant, who immediately returned them to the cashier and took receipts therefor from said cashier, which are as follows:

"July 23, 1910. "Received from F. M. Drudge two notes-Milo Harold $1,500.00 and Walter Rogers $500.00 secured by real estate mortgage-same left for

that each year after he purchased the notes in suit he failed to list the notes for taxation upon any of the schedules made by him, except that of 1912, when they were mentioned in his schedule as "in litigation," but not included in his taxable property; that each of these schedules was verified as required by statute; that the purchase of said notes by appellant and the execution of the receipts aforesaid and the failure to take assignments of the mortgages were for the pur

tion upon the amount represented by the notes; that at the date of the commencement of this suit appellee owed its depositors $22,654.30 in excess of all of its assets; that appellee was liquidated through the Akron Exchange Bank, and one John McCullough was put in charge of the business and given the title of cashier; that through his agency all of the notes in controversy were collected or sold to the Akron Exchange Bank, which paid full value therefor, and the proceeds were paid to the depositors of appellee bank; that the bank examiner found the notes among the assets of the bank on October 7, 1911, and did not know, and was not informed, that appellant made any claim to them; that appellant after the failure of the bank tendered the receipts for the notes, and demanded the notes of the officials of the bank, who refused to return them to him. The conclusions of law were in favor of appellee, that appellant take nothing by his complaint. The judgment followed the conclusions of law. The errors assigned and relied on for reversal are that the court erred in its conclusion of law and in overruling appellant's motion for a new trial.

when the bank is being wound up and the assets are insufficient to pay them in full. In fact the statute is drawn on the theory that the property thereby made available to depositors under the conditions named may be owned by some one, other than the bank, who for failure to comply with the statute is estopped to assert his ownership as against depositors. If the other assets were sufficient to pay the depositors in full, the statute would have no application to the case, and would not inure to the benefit of the bank against a bona fide owner of such property.

[3] While we base our conclusion mainly on the apparent intention of the Legislature in enacting the statute, we are aided in arriving at such conclusion by the broad and comprehensive meaning ascribed to the word "trust." In its simplest elements, a trust is a confidence reposed in one person by another with respect to property held by the former for the benefit of the latter. 39 Cyc. page 18.

As tending to support our conclusion that the facts of this case bring it within the purview of the statute, we cite the following: 5 Cyc. 518; 3 Am. & Eng. Ency. of Law, 824; Story on Bailments, § 41; Mutual Acc. Ass'n v. Jacobs, 141 Ill. 261, 31 N. E. 414, 16 L. R. A. 516, 33 Am. St. Rep. 302; Hunt v. Townsend (Tex. Civ. App.) 26 S. W. 310; Peak v. Ellicott, 30 Kan. 156, 1 Pac. 499, 46 Am. Rep. 90; Hale v. Rawallie, 8 Kan. 136.

[1] The questions presented require con'sideration of section 10 of an act approved March 8, 1907 (Acts 1907, page 174), being section 3411, Burns 1914, which is as follows: "Should any bank organized under the provisions of this act, or any owner, or owners thereof, hold any property in trust for another, the fact of such trust, the general nature and [4] Appellee contends that the bank did character thereof, the acceptance of the same not receive payment for the notes, and that and the amount so held shall be set forth in an the purchase of the notes was a transaction instrument to be executed by the trustee and acknowledged by him before a notary public. between appellant and the cashier personalWithin fifteen days after the execution of such ly. The transactions all took place in the an instrument it shall be recorded in the office bank with the cashier while he was engaged of the county recorder of the county in which in discharging the duties of his official posisuch bank is situated. Within thirty days

thereafter the original instrument, together with tion. The receipt of the consideration for the the certificate of the county recorder, showing notes by the cashier at the bank during bankthat it has been duly recorded, shall be filed with the auditor of state with a record fee ing hours was a payment of such consideraone dollar for the state. Should such instru- tion by appellant to the bank. Allison v. ment not be sa recorded and filed and such bank Hubbell, 17 Ind. 559; East River Nat. Bank should be wound up, either voluntarily or in- v. Gove, 57 N. Y. 597; Ellicott v. Barnes, 31 voluntarily, then the property so held in trust shall be considered a part of the assets of such Kan. 170, 1 Pac. 767. bank, provided the remaining assets are not sufficient to pay in full the bona fide claims of all depositors. Until such claims are paid in full all persons shall be estopped from asserting, as against such depositors, any right, title or interest in and to the property so held in

trust.

* "

[5] While there is a finding that the bank did not receive the money, it is also found that appellant paid the cashier for the notes. The finding is to be read and considered in its entirety, and when so considered, it shows that the cashier received the money at the [2] Appellant contends that the statute, bank during regular banking hours, and that supra, is not applicable to the case at bar; it was entered on the books of the bank, that the notes purchased by him were not which is sufficient for the purposes of this held in trust by the bank. The statute does case, since there is no dispute about the fact not define the meaning of the phrase, "prop- that appellant left the notes at the bank afterty in trust for another," but, considering er he purchased them, and that they were the evident purpose of the Legislature in among the apparent assets of the bank when enacting the law, as gathered from all its it was placed in liquidation, and no claim provisions, we think it was intended to ap- that the provisions of the statute, supra, ply to notes and mortgages, property held by were complied with. Neither is it important a bank, as in this instance. The notes so that appellant may have intended to evade held gave to the bank the appearance of pos- taxation on the notes, nor that the cashier sessing assets it did not in fact have. The squandered the funds of the bank in specustatute only operates in favor of depositors | lating or gambling transactions.