[5] These defendants, upon this record, are not liable for this assessment under either of these four well defined propositions of law. It was never intended by any of the parties to the transaction that they should be the real owners of these shares of stock; they never, either of them, held himself out as the owner of these shares of stock, nor did they allow themselves to appear as the registered owners thereof upon the books of the banking association. They were never the real owners of the shares of stock, nor did they transfer them or cause them to be transferred to any other person, nor did they cause them to be placed on the books of the First National Bank of Oldham in the name of any other person with the intent to evade the responsibilities imposed by section 5151. These defendants, nor either of them, ever received the shares of stock in question, except that it was agreed that they would be held as security for the $9,000 advanced by defendants Duffy and Haskins. No power of attorney was ever given to the defendants or either of them authorizing them to transfer the same on the books of the association, nor did they ever cause the shares of stock in question to be transferred on the books to any other person. They simply made the agreement, evidenced by the resolution that the shares were to be security for the debt due Duffy and Haskins, there being absolutely nothing in the record that questions the good faith of all concerned and the united purpose that the same should secure the payment of this debt of $9,000 without incurring the responsibility of a shareholder.

It does appear from the record that these defendants paid one or more assessments upon this stock upon the demand of the bank examiner, ordered by the Comptroller of the Currency, to make good the impairment of the capital stock of the bank, but these payments of the pro rata share of such assessments were for the protection and benefit of all interested in the pledged stock and were entirely consistent with the preservation of the security for the debt owing the defendants Duffy and Haskins, and were entirely consistent with an intent and purpose upon the part of the defendants to save the bank and protect the pledged security. Higgins v. Fid. Ins. Tr. & Safe Dep. Co., supra.

[6] There is, therefore, no liability on the part of these defendants, unless it be held that the purchase of the stock of Jans by the bank was illegal, and the transaction being ultra vires automatically the title to that stock became vested in the directors. That is the simple question here to determine. With that

I have little difficulty. In considering this question it is important to bear in mind that the 75 shares of stock purchased by the bank was not void stock, but was stock which had been issued lawfully to Jans, and had been reacquired by the bank by purchasing it from him. The purchase of this stock by the bank was, doubtless, ultra vires, but the purchase did not render the stock void. In purchasing it the bank made an unlawful use of its funds for which the officers concerned in the transaction could have been held responsible as for any other unlawful act if the First National Bank of Oldham had sustained damage. Lantry v. Wallace (C. C. A.) 97 F. 865.

The

In re First Nat. Bank v. Stewart, 107 U. S. 676, 2 S. Ct. 778, 27 L. Ed. 592, it is held that, if a national bank wrongfully acquires its own stock, as by making a loan thereon, no one but the government can be heard to complain if the contract has been fully executed. In the case at bar the purchase of this stock was fully consummated in 1922, nearly 22 years before the bank was taken over by the Comptroller of the Currency for liquidation. The bank, by this transaction, paid for these certificates of stock out of its assets and received the delivery of the stock, and thereby became the owner thereof. bank's title to this stock arose from the full performance of this ultra vires contract, and it is therefore urged by the plaintiff that it received no title. This, I think, is error, because it makes no difference to the passage of title whether or not the parties are engaged in an illegal enterprise, provided they intend title to pass and perform the requisite formalities. While the law will not compel by its construction the performance of acts promised by contract but forbidden by law, it does not change the effect of civil acts of persons merely because they are engaged in violating the law. These acts continue to have the usual consequences. Metropolitan Tr. Co. v. McKinnon (C. C. A.) 172 F. 846.

The plaintiff's contention here is that the officers of the bank in the purchase of this stock did that which they were not authorized to do, and therefore, in taking the assets of the bank and paying for these shares of stock, instead of passing the title to the bank, they were invested with the title, and became thereby vested also with the liabilities of ownership of the same. As a matter of fact, if the bank received no title to these shares of stock, and there was entire failure of consideration for the notes, assets of the bank, that were turned over to Jans, then the title, necessarily, of this stock is still in Jans, and an action

quently transferred to bank during liquidation, proceeding in equity to impress a trust on such

fund must fail, in that it would be necessary to follow such funds, which at time of action constituted property already in bank's possession.

In Equity. Action by the Sioux Falls Trust & Savings Bank and another against the Homer W. Johnson Company and others. Judgment of dismissal.

F. M. Scoblic, of Tyndall, S. D., and E. E. Wagner, of Mitchell, S. D., for plaintiffs. Shull, Stilwill, Shull & Wadden, of Sioux City, Iowa, for defendants.

ELLIOTT, District Judge. I have reviewed the record in re Sioux Falls Trust & Savings Bank and Fred R. Smith, as Superintendent, etc., Plaintiffs, v. Homer W. Johnson Co. et al., Defendants.

[1] The first question that is presented is the objection by counsel for defendants to this proceeding in equity, urging that the case should be and is one at law. The authorities seem to recognize two methods of procedure in this class of cases. Ordinarily an action brought by the officer in charge of a bank for purposes of liquidation is to recover back notes or other property of the bank that has been given to secure an existing indebtedness of the bank, and because of the preference the specific property is sought to be recovered. The second recognized method of procedure seems to be an action for conversion of the funds belonging to the bank where the same is money. The latter is an action at law.

Plaintiff urges, however, that this proceeding is an action, the purpose and object of which is to impress a trust upon these funds in the sum of $7,000 in the hands of the defendants, and for judgment for the $7,000, and interest thereon. Both plaintiff and defendant have come into court and tried the case upon that theory, without objection until the matter is finally briefed. I am of the opinion that plaintiff, under the facts alleged in the complaint, had the right to bring this action for the purpose of impressing the $7,000 with a trust, and if the proof showed the money in possession of the defendants, impressed with a trust, I know of no reason why the court could not make an order requiring it to be turned over to the plaintiffs in the same manner and to the same effect as if other specific assets of the bank were involved.

The record is very short. There is practically no dispute in it. The only difficulty is that counsel do not entirely agree upon the reasonable inferences to be drawn from the facts as they appear, or to the application of the provisions of the statutes of the state of

South Dakota to the situation that is, without dispute, presented, upon which to determine the rights of the respective parties.

It is conceded that the said bank prior to the 14th day of January, 1924, was a bank duly organized under the laws of the state of South Dakota, and doing a large banking business at Sioux Falls, S. D.; that for long prior to that date its total daily balance sheets were in a sum largely in excess of $5,000,000; that a few days prior to the 14th day of January, 1924, the Sioux Falls National Bank, located just across the street, closed its doors, and was taken over by the Comptroller of the Currency for liquidation. Banks for months in this particular part of the country had been having trouble to keep their cash reserves intact. It is a matter of common information, such as is suggested by the testimony, and there is no controversy upon the fact that the conditions existing in financial and banking interests were exceptional; that a period of deflation had begun that eventually carried with it the practical wiping out of all land values and the destruction of the savings and fortunes of banks and farmers and the reduction in values of every financial interest.

The closing of the bank across the street from the plaintiff bank naturally produced a nervous, uneasy, excited state of mind on the part of depositors, and withdrawals were made from the plaintiff bank, and from every other bank, and there is nothing in this record to justify a conclusion that the officers of this bank believed that the end had come, and that the bank would have to close, or that they contemplated either the necessity or possibility of it, until the 14th of January, the date on which it was turned over to the banking department. They had succeeded in cashing large amounts of their bills receivable, and there is not any question but that they be lieved they were going to be able to weather the storm and save the institution, and with it the deposits in the bank for the benefit of its customers.

In the meantime, and before the closing of the bank, and while it was an institution doing that legitimate business for which it was authorized under the laws of the state of South Dakota, these defendants, who had the same name but who had no interest in the bank and knew no more about the condition of the bank than any other depositor, having confidence in it, however, continued to do business in the usual way, and it appears that on the 12th day of January, 1924, the defendant, Homer W. Johnson, Jr., went into the bank and deposited the sum of $2,305.61,

bank. I am just as satisfied that Frank H. Johnson at that time believed in his ability to meet the conditions that existed and tide his bank over the demands caused by the failure of the bank across the street, and other banks in the country. It is conceded that Frank H. Johnson did not overdraw any account, that there were balances left in each of them, and it is further conceded that the defendants took this money and actually applied it in the payment of the expenses that had theretofore been incurred in the care and management of the said ranch thus jointly owned by Frank H. Johnson and the defendants. It is conceded that this was all done while the bank was open and doing business over the counter, restricted in a way, and yet, no evidence of thought upon the part of Frank H. Johnson or of Homer Johnson, that any preference was being given the defendants or either of them. Simply the closing of a transaction in a legitimate way in the transaction by the bank of its ordinary business before it had been taken over by the bank examiner for liquidation.

Plaintiff seeks to impress this $7,000 with a trust in behalf of the depositors of the bank upon the theory that it is a preference, asserting that the officers of the plaintiff corporation, upon its insolvency, became trustees for creditors. Plaintiff urges that the act of the officers of the bank in paying this $7,000 to these defendants was void under the South Dakota statutes and decisions, relying upon the principle announced in re Adams v. Deyette, 5 S. D. 418, 59 N. W. 214, 49 Am. St. Rep. 887, and subsequent decisions recognizing the principles announced in that case. I have examined the various cases cited by the plaintiff, and I fail to find a single case where it does not appear either that the corporation had ceased to function, or the preference was the deposit of notes or other security for an existing debt of the bank, with an intent and purpose upon the part of the officers of the bank to prefer the person to whom such property was given. In neither of the cases cited by plaintiff did the transaction involve the performance of duty by the officer in the ordinary transactions of the corporation.

This plaintiff was a banking corporation. It was organized under the laws of the state; it was supervised, regulated, and controlled by the state banking department; it was held out as an institution with which citizens could deal in banking transactions, and the record discloses that these defendants did, with faith in the plaintiff bank, deposit in said bank more than $13,000 after the 1st of January, 1924, and that the $7,000 in question here was

checked out in the usual course of business, for the sole and only purpose of getting the money of the defendants together in their New York account, and for the purpose of paying the expense that had been incurred upon this land jointly owned by them and Frank H. Johnson, pursuant to the agreement that had theretofore been entered into. There is no pretense here that this bank had ceased to do business as a bank at the time of these transactions, or that the officers of the bank had determined or contemplated the necessity of turning the bank over to the bank examiner for liquidation; no claim that any proceeding had been instituted against the plaintiff bank, or any steps taken or any thought given to the winding up of its affairs at the time of the transactions in question.

In this connection it may be observed in re Adams v. Deyette, supra, the defendant, in failing circumstances, borrowed money with which to purchase shares in itself and gave to the person from whom the loan was made a preference over all other creditors by confessing judgments when insolvent in favor of the persons loaning the money, with actual knowledge of the purpose for which the same was borrowed. This, of course, constituted fraud upon the bona fide creditors. Furber v. Williams-Flower Co. et al., 21 S. D. 228, 111 N. W. 548, 8 L. R. A. (N. S.) 1259, 15 Ann. Cas. 1216, involved the transfer by an insolvent corporation of its property to one person with an understanding that certain creditors should be preferred, and that was held to be fraudulent without reference to the want of knowledge of the preferred creditors as to the character of the transfer. State of South Dakota v. Stewart, 30 S. D. 585, 139 N. W. 371, involving a construction of chapter 222, Laws of 1909, reviews the banking laws making it an offense for officers and directors of banks to permit shareholders to become indebted to it at one time in excess of 50% of its paid-up capital, and involves the sufficiency of the allegations of the indictment to bring it within the terms of this statute.

Roberts v. Hill (C. C.) 24 F. 571, cited by plaintiff, was an action to set aside the transfer of property by a bank to a creditor to avoid paying him the amount due him and thus postpone the failure of the bank, and it is there held that it is none the less fraudulent and void because of that fact. In re Ball v. German Bank of Carroll County, Iowa (C. C. A.) 187 F. 750, it is disclosed that there existed a custom between defendant bank and the national bank in the same town for each to cash checks drawn on the other during the day's business, and after banking hours to