CASES ADJUDGED

IN THE

SUPREME COURT OF THE UNITED STATES

AT

OCTOBER TERM, 1917.

UNITED STATES v. LEARY ET AL., ADMINISTRATORS OF LEARY, ET AL.

APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE FOURTH CIRCUIT.

No. 194. Argued October 4, 1917.—Decided October 15, 1917.

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

(1)

Argument for the United States.

245 U.S.

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 Fed. Rep. 660, affirmed.

THE case is stated in the opinion.

Mr. Marion Erwin, Special Assistant to the Attorney General, for the United States:

There was no extension to the bond of 1902 of the agreement to indemnify Leary. That required an express agreement, which was lacking. United States v. Ryder, 110 U. S. 729.

The averments of the intervention show, as matter of law, that the temporary bail bond for appearance of Greene before the commissioner had long prior to January 20, 1902, become functus officio.

Even if Leary had proved an express contract relative to the bond of 1902, her claim would be inferior to that of the Government. Boone v. Childs, 10 Pet. 177; Shirras v. Cary, 7 Cranch, 34; Vattier v. Hinde, 7 Pet. 252; Hallett v. Collins, 10 How. 174; Grimstone v. Carter, 3 Paige Ch. 420.

A promise to pay a debt out of a particular fund creates no equitable lien or right in the fund. Seymour v. Railroad Co., 25 Barb. 284; Grinnel v. Suydam, 3 Sandf. 132; Drake v. Taylor, 7 Fed. Cas., No. 4067; Boone v. Childs, 10 Pet. 193; Christmas v. Russell, 14 Wall. 69.

As to the law relative to the tracing of trust funds, see May v. LeClaire, 11 Wall. 217, 236; Smith v. Vodges, 92 U. S. 186; Moore v. Crawford, 130 U. S. 122; Oliver v. Piatt, 3 How. 333; Van Allen v. Bank, 52 N. Y. 1-5; National Bank v. Insurance Co., 104 U. S. 70; Knatchbull v. Hallett, 13 Ch. Div. 696; Cook v. Tullis, 18 Wall. 332; Richardson v. Shaw, 209 U. S. 365; Sexton v. Kessler, 225 U. S. 90.

Mr. Aubrey E. Strode, with whom Mr. J. T. Coleman, Jr., was on the brief, for Leary et al., Administrators.

Mr. Abram J. Rose, with whom Mr. Alfred C. Petté was on the brief, for Kellogg, appellee.

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 Fed. Rep. 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 obliga