Peyton, L,
delivered the opinion of the court.
The complainant, in his original bill, states: That he was then, and had been, treasurer of the county of La Fayette, since the year 1845, duly elected and qualified, according to law. That in the month of May, 1867, he received a notice from the Auditor of Public Accounts, bearing date the 1st day of May, 1867, that there was then due, by the State of Mississippi, to the county of La Fayette, the sum of $13,259^5-, for interest on the Chickasaw School-Fund, for which, as county treasurer, ho was authorized to draw, upon complying with the requirements of the law. That he duly obtained from the Clerk of the Probate Court of the county of La Fayette the certificate required by the act approved March the 7th, 1856, to entitle him to draw Raid School-Fund; and finding it inconvenient to go to Jackson, for the purpose of drawing this money, he authorized and empowered one J. W. Lyles, who was about visiting Jackson, to receive said money from the State, as his agent, and to bring the same to him for the use of the coiznty of La Fayette. That said Lyles was a gentleman of high character for integrity and honesty; was engaged in the business of banking, in the town of Oxford, in the said county of La Fayette, and had high character for solvency and pecuniary ability, and was believed by complainant to be a safe, reliable, and prudent person, to entrust with the receipt and custody of said money, for the purpose of bringing the same to complainant, as county treasurer.
The complainant further states, that said Lyles applied to the Auditor of. Public Accounts for the same, and on the 4th day [109]*109of June, 1867, the said auditor drew thirteen warrants, amounting to the sum of $13,259-3¡yiir, in favor of said Lyles, upon the treasurer of the State, which were received by said Lyles, who gave his receipt for the same. That, upon the return of said Lyles to La Fayette county, he informed the complainant that he had drawn the warrants for the money, from the auditor upon the treasurer, and that there was no money in the treasury, and they were not paid, and that he had deposited said warrants in the First National Bank of Jackson, for collection, and that they would be collected and paid when there was money in the treasury to pay the same. That in July, 1867, said Lyles departed this life, intestate, and administration upon his estate has been granted to "William L. Lyles, who has duly qualified as such administrator. That on the 21th of July, the complainant ascertained that the said J. W. Lyles had said warrants payable to his own order, and that he had not deposited them with said bank for collection, but, ori the contrary, had deposited the same in said bank, as collateral security for a personal and individual liability of said J. W. Lyles. That the complainant immediately proceeded to Jackson, to take the necessary steps to prevent the payment of the said warrants, and was informed that said Lyles deposited the said warrants with the said First National Bank of Jackson, either as collateral security, or in payment of certain liabilities or claims due and owing by said Lyles to the said bank, with an agreement that, on the payment of said claims by said Lyles, the said warrants should be returned to him. That the action of said Lyles in the premises was wholly unauthorized, and without any power or authority, and was a breach of trust reposed in him by complainant; and his acts relative thereto were illegal, and have given to the First National Bank of Jackson no right or authority to hold the said warrants, or to collect the same.
The complainant further states, in his bill of complaint, that the said warrants showed on their face that they were trust funds, and were issued on account of the interest due the county of La Fayette in the Chickasaw School-Fund ; and also states from information, that said bank did not advance any money to said [110]*110Lyles for said warrants, but received the same either in payment or as collateral security for money lent or advanced previously, and that they took said warrants not in the course of trade, as bóná-fide purchasers thereof, but only for the purpose of securing or obtaining payment of a pre-existing liability, in no wiso created on the faith of said warrants. And that said bank are not the bona-fide holders and owners of said warrants, but they hold the same, subject to the rights of complainant and the county of La Fayette therein, and that said bank has no right in equity to collect the said warrants. That complainant fears' that said bank will proceed to collect the same, and apply the money to their demands against said Lyles, unless enjoined from so doing, and prays that the First National Bank of Jackson, and Joshua Green, who is the president thereof, and Thomas Green, who is cashier thereof, and John II. Echols, the treasurer of the State of Mississippi, and William L. Lyles, administrator of the estate of J. W. Lyles, deceased, be made defendants to the bill of complaint, and they be compelled to appear and answer the same; and that an injunction be granted, restraining said Echols, as treasurer, from paying said bank, Joskua or Thomas Green, or any one else, the warrants aforesaid, and also enjoining and restraining the said bank, and Joshua and Thomas Green, from collecting and receiving payment of said warrants from the treasurer,'and from transferring, selling, or disposing of the same, until further order of the court; and that the treasurer of the State be decreed to pay said warrants to complainant; and that Joshua and Thomas' Green, and the First National Bank of Jackson, be perpetually enjoined from setting up any claim to said warrants or the proceeds thereof, and also be ordered and decreed to deliver the possession of the same to complainant.
And the complainant, in an amended and supplemental bill,. further states that a fiat was granted for an injunction, on the 26th day of July, 1867, as prayed for in the original bill, and that on the 25th day of July, 1867, the complainant, by his attorney, informed said Joshua Green that he was the treasurer of the county of La Fayette, and that, as such treasurer, he had [111]*111authorized and empowered said Lyles to receive and collect the interest on the Chickasaw School-Fund belonging to the county of La Fayette, and to bring the same to complainant, as treasurer of said county, which he promised to do. That complainant then informed said Green, that said Lyles had no authority to use said warrants, and that they belong to complainant, as treasurer, and that the money belonged to the county of La Fayette, and that said Lyles acted only as his agent to collect and bring the money to him as treasurer as aforesaid. That said Green stated that he had received said warrants from said Lyles, as payment for moneys he had advanced to said Lyles and others, and claimed the same, under a transfer by said Lyles.
That, after the notice given by complainant on the 25th of July, as aforesaid, to the First National Bank, and to Joshua Green, president thereof, that said Lyles had no right to use said warrants, and after the fiat issued on the 26th of July for an inj nnction as aforesaid, the said Joshua Green, or the said bank, transferred the said warrants to the sheriffs of divers counties in the State, which said warrants the said sheriffs presented to the treasurer of the State, and paid the same to him, for taxes due the State by them.
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Peyton, L,
delivered the opinion of the court.
The complainant, in his original bill, states: That he was then, and had been, treasurer of the county of La Fayette, since the year 1845, duly elected and qualified, according to law. That in the month of May, 1867, he received a notice from the Auditor of Public Accounts, bearing date the 1st day of May, 1867, that there was then due, by the State of Mississippi, to the county of La Fayette, the sum of $13,259^5-, for interest on the Chickasaw School-Fund, for which, as county treasurer, ho was authorized to draw, upon complying with the requirements of the law. That he duly obtained from the Clerk of the Probate Court of the county of La Fayette the certificate required by the act approved March the 7th, 1856, to entitle him to draw Raid School-Fund; and finding it inconvenient to go to Jackson, for the purpose of drawing this money, he authorized and empowered one J. W. Lyles, who was about visiting Jackson, to receive said money from the State, as his agent, and to bring the same to him for the use of the coiznty of La Fayette. That said Lyles was a gentleman of high character for integrity and honesty; was engaged in the business of banking, in the town of Oxford, in the said county of La Fayette, and had high character for solvency and pecuniary ability, and was believed by complainant to be a safe, reliable, and prudent person, to entrust with the receipt and custody of said money, for the purpose of bringing the same to complainant, as county treasurer.
The complainant further states, that said Lyles applied to the Auditor of. Public Accounts for the same, and on the 4th day [109]*109of June, 1867, the said auditor drew thirteen warrants, amounting to the sum of $13,259-3¡yiir, in favor of said Lyles, upon the treasurer of the State, which were received by said Lyles, who gave his receipt for the same. That, upon the return of said Lyles to La Fayette county, he informed the complainant that he had drawn the warrants for the money, from the auditor upon the treasurer, and that there was no money in the treasury, and they were not paid, and that he had deposited said warrants in the First National Bank of Jackson, for collection, and that they would be collected and paid when there was money in the treasury to pay the same. That in July, 1867, said Lyles departed this life, intestate, and administration upon his estate has been granted to "William L. Lyles, who has duly qualified as such administrator. That on the 21th of July, the complainant ascertained that the said J. W. Lyles had said warrants payable to his own order, and that he had not deposited them with said bank for collection, but, ori the contrary, had deposited the same in said bank, as collateral security for a personal and individual liability of said J. W. Lyles. That the complainant immediately proceeded to Jackson, to take the necessary steps to prevent the payment of the said warrants, and was informed that said Lyles deposited the said warrants with the said First National Bank of Jackson, either as collateral security, or in payment of certain liabilities or claims due and owing by said Lyles to the said bank, with an agreement that, on the payment of said claims by said Lyles, the said warrants should be returned to him. That the action of said Lyles in the premises was wholly unauthorized, and without any power or authority, and was a breach of trust reposed in him by complainant; and his acts relative thereto were illegal, and have given to the First National Bank of Jackson no right or authority to hold the said warrants, or to collect the same.
The complainant further states, in his bill of complaint, that the said warrants showed on their face that they were trust funds, and were issued on account of the interest due the county of La Fayette in the Chickasaw School-Fund ; and also states from information, that said bank did not advance any money to said [110]*110Lyles for said warrants, but received the same either in payment or as collateral security for money lent or advanced previously, and that they took said warrants not in the course of trade, as bóná-fide purchasers thereof, but only for the purpose of securing or obtaining payment of a pre-existing liability, in no wiso created on the faith of said warrants. And that said bank are not the bona-fide holders and owners of said warrants, but they hold the same, subject to the rights of complainant and the county of La Fayette therein, and that said bank has no right in equity to collect the said warrants. That complainant fears' that said bank will proceed to collect the same, and apply the money to their demands against said Lyles, unless enjoined from so doing, and prays that the First National Bank of Jackson, and Joshua Green, who is the president thereof, and Thomas Green, who is cashier thereof, and John II. Echols, the treasurer of the State of Mississippi, and William L. Lyles, administrator of the estate of J. W. Lyles, deceased, be made defendants to the bill of complaint, and they be compelled to appear and answer the same; and that an injunction be granted, restraining said Echols, as treasurer, from paying said bank, Joskua or Thomas Green, or any one else, the warrants aforesaid, and also enjoining and restraining the said bank, and Joshua and Thomas Green, from collecting and receiving payment of said warrants from the treasurer,'and from transferring, selling, or disposing of the same, until further order of the court; and that the treasurer of the State be decreed to pay said warrants to complainant; and that Joshua and Thomas' Green, and the First National Bank of Jackson, be perpetually enjoined from setting up any claim to said warrants or the proceeds thereof, and also be ordered and decreed to deliver the possession of the same to complainant.
And the complainant, in an amended and supplemental bill,. further states that a fiat was granted for an injunction, on the 26th day of July, 1867, as prayed for in the original bill, and that on the 25th day of July, 1867, the complainant, by his attorney, informed said Joshua Green that he was the treasurer of the county of La Fayette, and that, as such treasurer, he had [111]*111authorized and empowered said Lyles to receive and collect the interest on the Chickasaw School-Fund belonging to the county of La Fayette, and to bring the same to complainant, as treasurer of said county, which he promised to do. That complainant then informed said Green, that said Lyles had no authority to use said warrants, and that they belong to complainant, as treasurer, and that the money belonged to the county of La Fayette, and that said Lyles acted only as his agent to collect and bring the money to him as treasurer as aforesaid. That said Green stated that he had received said warrants from said Lyles, as payment for moneys he had advanced to said Lyles and others, and claimed the same, under a transfer by said Lyles.
That, after the notice given by complainant on the 25th of July, as aforesaid, to the First National Bank, and to Joshua Green, president thereof, that said Lyles had no right to use said warrants, and after the fiat issued on the 26th of July for an inj nnction as aforesaid, the said Joshua Green, or the said bank, transferred the said warrants to the sheriffs of divers counties in the State, which said warrants the said sheriffs presented to the treasurer of the State, and paid the same to him, for taxes due the State by them.
The complainant insists that whatever money or other thing was received by the said bank, or the said Green, for said warrants, are trust funds, to be held by them subject to the rights of complainant, and that they have no right to use, transfer, or dispose of the same, and prays for an injunction, and the appointment of a receiver, and that the First National Bank of Jackson, and the said Joshua Green and Thomas Green, shall be declared to be trustees, and to hold in trust for complainant, as treasurer aforesaid, whatever money or other thing they may have received for said warrants, after notice, as aforesaid, and to account for the same to complainant.
The defendants. demurred severally to these bills, and the demurrers were sustained by the court, and the bills dismissed. From this decree, the complainant brings the cause to this court by appeal, and assigns for error that the court erred in sustaining the defendants’ demurrers to complainant’s bills of complaint.
[112]*112The equity of these bills can be destroyed only by showing that the First National Bank of Jackson, Joshua and Thomas Green, were bona-fide purchasers of the warrants for valuable consideration, without notice of the complainant’s claim. And this defence can be made only by plea or answer.
The general doctrine is, that to constitute a bona-fide purchaser for valuable consideration without notice, he must have advanced some new consideration, either in money or property ? have relinquished a pre-existing seou/rity for his debt, or have or done some act on the faith of the purchase itself, which can not be retracted. Rollins v. Callender, Freeman’s Ch. Rep. 295: Rowan v. Adams, S. & M. Ch. Rep. 49; Emanuel & Barnett v. White, 34 Miss. 56-63; Pope v. Pope, 40 Miss. 516.
Whether the transfer of commercial paper constitutes an exception to this general rule, it is unnecessary at this time to determine. It must, however, be conceded, that it is certainly for the benefit of the commercial world, to give as wide an extent as practicable to the credit and circulation of negotiable paper. But whether it should pass in payment of, or as security for, pre-existing debts, so as to preclude prior equities, is very questionable, and about which there is considerable diversity of judicial opinion.
With regard to notice, the general doctrine is, that whatever puts a party upon an inquiry, amounts in judgment of law to notice, provided the inquiry becomes a duty, as in the case of purchasers and creditors, and would lead to knowledge of the requisite fact, by the exercise of ordinary diligence and understanding.
In this ease, the bills state the warrants showed upon their face that they were trust funds, and were issued on account of the interest due the county of La Fayette in the Chickasaw School-Fund, and that said warrants had been taken by the First National Bank of Jackson, either as payment of a preexisting debt, or as collateral security for a personal and individual liability of said J. W. Lyles, and that they were not bonafide holders of the said warrants, for valuable consideration without notice. These facts being admitted by the demurrers, it is [113]*113difficult to conceive upon what grounds the demurrers were sustained.
It is the well-established doctrine of equity, that a purchaser for valuable consideration with notice of the trust, and a purchaser without consideration, without notice, are in each case held to be trustees for the persons beneficially interested. It is a clearly established principle of equity jurisprudence, that whenever the trustee has been guilty of a breach of trust, and has transferred the property, by sale or otherwise, to any third person, the cestui-que trust has a full and perfect right to follow such property into the hands of such third person, unless he stands in the predicament of a bona-fide purchaser for valuable consideration without notice. And if the trustee has invested the trust property or its proceeds in any other property into which it can be distinctly traced, the cestui-que trust has his election either to follow the same into the new investment, or to hold the trustee personally liable for the breach of the trust. 1 Story’s Equity, 514, §§ 533, 534, 9th edit.; Oliver v. Piatt, 3 How. U. S. Rep, 401; 4 Kent’s Com. 307, 11th edit.
Lyles was in equity a trustee, and in passing off the warrants was guilty of a breach of trust; yet, if the bank or the Greens took them bond fide, and for valuable consideration without notice of the trust, they held them divested of the trust; but if they received them with notice of the trust, or.without consideration, they took them clothed with the trust.
Upon the whole, we think the court below erred in sustaining the demurrers and dismissing the bills.
The decree will therefore be reversed, the demurrers overruled, and cause remanded, with leave granted to defendants to answer the bills within sixty days from this time.