
    The People of the State of New York, Plaintiff, v. The German Bank, Defendant. In the Matter of the Petition of Alfred G. Hauenstein, Appellant, for Set-off. Alice M. H. Clark and Chauncey M. Hurd, Appellants; Albert J. Wheeler, as Receiver of The German Bank, Respondent.
    Fourth Department,
    December 28, 1906.
    Set-off— trustee not entitled to set off debt owing to trust estate against individual liability.
    The petitioner borrowed money from a bank upon his personal note and from the proceeds drew a check payable to an administratrix, who in turn indorsed it to the trustees of an incompetent. The' petitioner was one of the trustees. The check was deposited in the same bank from which the petitioner had borrowed the money, which bank subsequently became insolvent. The amount oí the check was credited by the bank to the trustees of the incompetent. On petition to set off the amount due from the bank to the trustees against the individual liability of the petitioner upon his nqte,
    
      Held, that upon no principle, not even with the consent of his associate trustees, can a trustee.apply upon tiis own indebtedness funds belonging to the cestui que trust; . That such set-off would not be equitable in that it would work injustice to the rights of other .creditors of the bank;
    That, though the amount of the check had never been paid to the.trustees, the transaction, was not merely a matter of bookkeeping, for the bank was not a trustee of the amount of the check, but a debtor for that amount.
    McLennan, P. J„ dissented.
    Appeal by the petitioner, Alfred' G. Hanenstein and others, from .an order "of the Supreme Court, made at the Erie Special Term and entered in the office of the clerk of the county of Erie on the 24th 'day of May, 1906, overruling exceptions to the report of a referee herein and confirming said report. ■ •
    Alfred G. Hanenstein commenced the proceeding upon his petition for an order directing Albert J. Wheeler, as- receiver of the German Bank, to credit the sum of $19,000, with interest at the rate of four per cent from April 12, 1904,’upon a promissory note made by Alfred G. Hanenstein to the order,of, and indorsed by, John Hanenstein, and discounted by the German Bank and held by Albert J. Wheeler as receiver thereof, the $19,000 being the amount of a deposit made that day to the credit of the petitioner and Alice M. H. Clark and ChaunceyM. Hurd, as trustees for Mary E. Hurd, said note bearing the date of April 12,1904, for the sum of $45,000, upon which there.is unpaid about the sum of $30,000. The petitioner seeks to have the $19,000 indebtedness owing by the German Bank to the trustees of Mary E. Hurd allowed as an offset upon the promissory note, and his cotrustees desire’to have the same disposition made of the matter.
    . The matter was referred to Frank Bumsey, Esq., as referee, who reported in favor of the receiver, denying the application, and his report was confirmed at Special Term. From that order this appeal is taken.
    
      George S. Potter, for the appellant Alfred G. Hauenstein.
    
      Adelbert Moot, for the appellants Alice M. H. Clark and Chauncey M. Hurd, trustees.
    
      Charles Diebold, Jr., for the respondent.
   Kruse, J.:

We think the learned referee correctly decided that no sufficient grounds existed which entitled the petitioner to an equitable set-off of. the note owing by him to the German Bank against the indebtedness of $19,000 owing by the bank to the trustees of Mary E. Hurd, and that the order confirming the report'should be affirmed.

On the 12th day of April, 1904, when Alfred "G. Hauenstein borrowed of the German Bank the moneys for which he gave the note in question, the German Bank was solvent, and it did a large business for some time thereafter. The proceeds of the note were placed to the credit of his account in the bank, and on the same day he drew checks upon the" bank payable to the order of Alice M. H. Clark, as administratrix, to pay the balance of the purchase price for the interest which her deceased father had in the business theretofore carried on by Alfred G. Hauenstein, Hiram J. Hurd and the father, Charles A. Hurd, of whose estate the said Alice M. H- Clark was appointed the administratrix. Various persons were interested in the estate of Charles A. Hurd, and while all the checks were made payable to Alice M. H. Clark, as administratrix, each check seems to have represented a certain interest, and she indorsed them and delivered them to the several persons entitled thereto.

Among the other checks was one for $19,000. This the administratrix indorsed and deposited in the German Bank on the same day that the note and check were given, namely, on the 12th day of April, 1904. This check represents the interest of Mary E. Hurd, the widow of Charles A. Hurd, in the business so purchased by Hauenstein. Mary E. Hurd is mentally incompetent, and Alfred G. Hauenstein and Chauncey M. Hurd are trustees for her. But it seems that before she was regarded as incompetent an agreement was entered into between herself and her three daughters and the son, Chauncey M. Hurd, to the effect that her share of the estate of her husband should be held in trust for her during hér lifetime, and the principal divided equally among her children after her death.

The amount of this check for $19,000 was credited by the bank to Alice M. H. Clark, Alfred G. Hauenstein and Chauncey M. Hurd, trustees for Mary E. Hurd, and thereupon the bank became indebted to them for this amount.

On the 5th day of December, 1904,, the. German Bank closed its' doors and ceased to'do business, because of its insolvency. At that time there was .owing to the bank on the promissory note discounted by the bank for Hauenstein about $30,000,. and owing by the bank to the trustees of Mrs. Hurd the said sum of $19,000, and it is this indebtedness of $19,000 which it is sought' to have applied upon the individual indebtedness of Hauenstein. It is not contended that-Hauenstein has any interest in this fund of $19,000 in any way save as a cotrustee with Alice M. H- Clark and Chauncey M. ■ Hurd. ' -

.1 confess that I am unable to see upon what principle a trustee, even with the consent of his associate trustees, can -be permitted to apply upon his own indebtedness the fund belonging to liis cestui qtoe trust- Even-if such a course were sanctioned by the court upon the condition that the fund would immediately be made good, 1 fail to see how the assets of the bank can be so depleted in justice ’ tó the other depositors of the institution.

W e think none . of the cases cited by the counsel for the appeb . lants is. an authority for the proposition for which they contend. Perhaps as strong'a case as any which has been called to our attention is that of Miller v. Receiver of Franklin Bank (1 Paige, 444), in which a person acting as public administrator was permitted to offset, a claim Giving by him to the 'bank against an indebtedness-owing by the bank to him. It appeared, however, in that case that, although the account was in liis name as public administrator, he always had a personal interest in the account, and frequently for convenience and safety deposited, money in that account which did not belong to him as. public administrator. The. funds which, came to him as public administrator he administéred not by virtue of. liis office as .public administrator, but by virtue of letters granted ' to him as -administrator of .each estate ; and it was there stated that if "a suit had been brought in his name as public administrator for this deposit, the name would be merely descriptive of the person, and, would not alter the rights, of 'either party to the suit. , As between liiniself and the bank he stood in the same situation in which an attorney would stand who had deposited in the bank for safekeeping the moneys collected for different clients, in one account in. his name as attorney and solicitor, to be drawn-out on  