
    Rubel v. Hunt, Recr.
    (Decided May 18, 1931.)
    
      Mr. Henry Bentley and Mr. Floyd Williams, for plaintiff in error.
    
      Mr. F. P. Moulinier, for defendant in error.
   Ross, P. J.

This case comes into this court on error from the court of common pleas, wherein an intervening petition was filed in a receivership proceeding by Samuel W. Rubel, the plaintiff in error. Plaintiff in error, at the time of the appointment of the receiver, had two margin accounts with Roberts and Hall, one covering grain, and the other covering stock. The plaintiff in error also held the note of Roberts and Hall for $10,000, secured by collateral.

The closing and balancing of the margin accounts by the receiver showed a joint balance in favor of the plaintiff in error of $21,971.25.

Plaintiff in error, after demand for payment of the note due him, sold the collateral, satisfied the note and interest, and had in his hands a surplus of $6,079.33.

The receiver was ready to pay plaintiff in error a 33-J- per cent, dividend upon the balance due plaintiff in error, $21,971.25, providing that upon payment of such dividend, amounting to $7,323.75, plaintiff in error would credit the $6,079.33 due him as receiver of Roberts and Hall. In the intervening petition, plaintiff in error claimed the right to credit the $6,079.33 against the $21,971.25 due him on his margin accounts with Roberts and Hall, and demanded a full dividend upon the difference.

The court of common pleas rendered judgment upon a basis requiring the receiver to pay a dividend upon the full amount of the balance due plaintiff in error upon the margin accounts, allowing a credit, equivalent to the surplus remaining after the sale of the collateral in the hands of the plaintiff in error, against the dividend. It is claimed that this constituted error, prejudicial to the rights of the plaintiff in error.

We think it manifest that plaintiff' in error, after the sale of the collateral, held the surplus as trustee for the receiver of Roberts and Hall. 49 Corpus Juris, 920, Section 52.

It has been held that insolvency presents an occasion for the assertion of an equitable set-off. 24 Ruling Case Law, 843. This does not apply, however, when the one asserting the set-off is a trustee and the set-off is a trust fund. Id., page 872.

We quote from the opinion of Cook County National Bank v. United States, 107 U. S., 445, at page 452, 2 S. Ct., 561, 567, 27 L. Ed., 537:

“It remains only to consider whether the United States have the right to claim the payment of this demand out of the surplus moneys remaining in the treasury of the proceeds of the bonds deposited as security for the circulating notes of the bank. The surplus is sufficient to pay the demand of the United States in full. Can the United States set off their demand against these proceeds? We have no hesitation in answering this question in the negative. The bonds were received in trust as a pledge for the payment of the circulating notes. The statute so declares in express terms. Rev. Stat. sects. 5162 and 5167. They were to be returned to the bank when the notes were paid, if not sold to reimburse the United States for moneys advanced to redeem the notes. The bank could have claimed their return at any time upon a surrender of the notes. The surplus constituted the assets of the bank, and part of the fund appropriated by the statute for its creditors. It was charged with this liability, and was held subject to it after the purposes of the original trust were accomplished, although remaining in the treasury. It was then subject to a new trust. A trustee cannot set off against the funds held by him in that character his individual demand against the grantor of the trust. Courts of equity and courts of law will not allow such an application of the funds so long as they are affected by any trust. It would open the door to all sorts of chicanery and fraud. The fund must be relieved from its trust character before it can be treated in any other character.”

To the same effect is Topas v. John MacGregor Grant, Inc., (C. C. A.), 18 F. (2d), 724, 52 A. L. R., 807, where the first paragraph of the syllabus is:

“A factor holds in equity the net proceeds of the sale of a commodity in trust for his principal, and is not entitled to set off against the funds, claims arising from other unconnected transactions with the principal, even though the latter is insolvent and a nonresident.”
“Though the limits of the doctrine are not fixed, limits there are, even if defined no more closely than as general notions of justice may prescribe. No one would think it just that a bailee should keep the chattel bailed as a set-off for a debt, even after the debtor became insolvent. Indeed, were it not so, the chattel would be a pledge for the debt, and the bailee get security though he had assumed the risk of the bailor’s credit in the counter transaction. A trust is no different; when a trustee accepts his beneficiary’s promise he takes the risk of his insolvency. Neither party supposes that the res had been pledged. The transactions are regarded as independent of each other, and we say that there is no implied understanding that they shall cancel each other. By this we mean no more than that we impute to each party an assent so to have regarded them, had they been faced with the contingency at the outset. Succinctly we say that it would be unjust now to treat them so, just as by a contrary imputation we say the opposite when the items are contractual.” Id., 18 F. (2d), 724, 726, 52 A. L. R., 810.

While recognizing the apparent harshness of the rule, we are bound by a principle so well founded.

The judgment of the court of common pleas of Hamilton county is affirmed.

Judgment affirmed.

Hamilton and Cushing, JJ., concur.

On Application for rehearing.

(Decided June 15, 1931.)

Eoss, P. J.

This matter was presented to this court upon the intervening petition and judgment of the court of common pleas.

No record of the evidence, if any, presented to the trial court, has been filed in this proceeding in error.

The court in its judgment found that the plaintiff in error had sold his collateral and applied it to the satisfaction of the note in his hands. There is nothing before us to indicate that such finding is not a fact.

The intervening petition alleges: “The principal and interest due on said note on January 4, 1930, was Ten Thousand One Hundred Fifty-six and 67/100 ($10,156.67) Dollars. After applying the proceeds of the sale of collateral to the payment of said principal and interest a balance remained in the hands of Intervener of Six Thousand Seventy-nine and 33/100 ($6079.33) Dollars.”

The plaintiff in error has foreclosed himself from now claiming any credit upon the note which he pleads he has satisfied by selling the collateral and applying the proceeds to the full principal sum of the note and interest.

The application for a rehearing is denied.

Rehearing denied.

Hamilton and Cushing, JJ., concur.  