Clyde H. De Witt was county treasurer of Columbia county prior to December 31, 1930. The defendant assurance corporation was surety upon his bond for $125,000 given to the county of Columbia to secure the faithful performance of his duties. The plaintiff bank, of which De Witt was vice-president and director, was used by him as depository for the county funds. During the years 1928, 1929 and 1930 De Witt embezzled county funds to the extent of $87,000. The county was reimbursed by the surety upon the bond paying to the county the sum of $22,805.22 and by the plaintiff bank paying checks for legitimate, duly audited claims against the county to the amount of $64,195.88, which payments caused an overdraft in the general fund in plaintiff bank in the above amount.
The plaintiff begins this action to recover the amount of the overdraft amounting to $64,195.88 and claims it is subrogated *32to the rights of the county under the bond. The defendant surety company interposes the defense that the plaintiff conspired and participated with the county treasurer to divert the $87,000, and sets up a counterclaim that the surety is subrogated to the rights of the county to the amount paid by it, to wit, $22,805.22, for which amount it has recovered judgment against the plaintiffs and from which judgment appeal in this action is taken.
The general rule is that a bank is not responsible for the diversion of trust funds by an agent or trustee unless it participates in the diversion. “ Its participation in a diversion of them would result from either (a) acquiring an advantage or benefit directly through or from the diversion, or (b) joining in a diversion in which it was not interested, with actual notice or knowledge that the diversion was intended or was being executed, and thereby becoming privy to it.” (Bischoff v. Yorkville Bank, 218 N. Y. 112; Clarke v. Public National Bank & Trust Co., 259 id. 285.)
Of the $87,000 diverted from the general fund of the county, $46,398.01 represented amounts withdrawn from the general fund of the county and deposited in De Witt’s personal account in the Germantown National Bank; $4,000 represented checks on the general fund cashed by De Witt at the Germantown National Bank, and $36,601.99 were items diverted from the county’s general fund account and deposited to De Witt’s personal account in the Hudson River Trust Company.
The first item of money deposited in the Hudson River Trust Company to De Witt’s personal account was $3,601.99 and was drawn from the general fund in the Germantown National Bank by a check signed by De Witt as county treasurer and for which he received a cashier’s check of the Germantown National Bank to himself, which he deposited in the Hudson River Trust Company.
There was a large amount of direct and indorsed loans in the plaintiff bank of the Pittsfield Lime and Stone 'Company. De Witt and other persons connected with the plaintiff bank were interested in the Pittsfield Lime and Stone Company. De Witt was a large stockholder in the company and the company was in financial trouble and many of its notes were overdue. The lime company owed the Manufacturers Trust Company of New York about $60,000, secured by its notes; as collateral for such notes were deposited stocks and bonds of the lime company amounting to over $250,000 face value. The claim was in the adjustment department of the trust company, which had been actively endeavoring to liquidate payment. The plaintiff bank also held a large amount of notes of the lime company which were past due and which were being questioned by the bank examiners and on which the German-town bank was being pressed by the bank examiners.
*33On March 1, 1928, De Witt, as vice-president of the Germantown National Bank, transferred from the reserve account of said bank in the Federal Reserve Bank to the credit of the Manufacturers Trust Company $35,000. This was done late in the afternoon by the cashier of the plaintiff bank by telephone arranging with the officers of the Federal Reserve to admit De Witt. This transfer of credit to the Manufacturers Trust Company reduced the legal reserve of the Germantown bank in the Federal Reserve Bank and De Witt received from the Manufacturers Trust Company all the obligations held by it against the lime company, including the bonds pledged as collateral security.
The Germantown bank, upon receiving notice from the Federal Reserve Bank that $35,000 of its reserve fund had been transferred to the Manufacturers Trust Company by De Witt, entered a transfer in its books by crediting the Federal Reserve Bank with $35,000 and by debit entry in its books “ Account of De Witt ” $35,000. De Witt later pledged the bonds of the lime company secured by him from the Manufacturers Trust Company on this transaction with the Germantown bank as security for the lime company’s obligations in that bank. Later on the bank credited upon its cash book “ sundry account, De Witt $35,000 ” and charged the $35,000 to the general fund account of the county.
The record contains positive evidence that De Witt, with the knowledge and consent of some of the Germantown bank officials, procured loans from an Albany bank and the Hudson River Trust Company with which to make good the $35,000 used for the purchase of the bonds of the lime company and returned to the general fund through the loans in the above banks.
The chain of circumstances, as it appears to me, is strongly convincing and suggests that some of the officers of the plaintiff bank knew all about the transactions which were being carried on and knew that county moneys were being diverted by De Witt both by deposit in his personal account in the Germantown National Bank and by drawing checks against the county treasurer’s account to obtain the New York draft to open an account in the Hudson River Trust Company and by taking $35,000 as vice-president of the bank from the Federal Reserve Bank after hours in connection with the purchase of the bonds of the lime company which afterwards found their way into plaintiff bank.
The officers of the bank knew of the efforts of De Witt to reorganize the lime company and assisted him to some extent in the same.
The practice of the county treasurer’s office was to use regular checks numbered in serial order by which it paid moneys from *34different accounts in payment of duly audited claims against the county. The bank continually permitted the withdrawal of moneys on checks different from the usual checks and checks taken from the counter of the bank.
Some of the diversions were used to make good overdrafts in De Witt’s personal account in the Germantown National Bank.
The record is replete with evidence showing that the plaintiff bank through its cashier and perhaps through its other officers knew what was being done with the money in the general account and that it was being diverted illegally; they evidently believed that De Witt was going to be able to reorganize the lime company in order to make good the shortage in the account, but instead he failed and the overdraft shortage existed at the end of his term.
The bank acquired an advantage through the diversion by receiving the bonds which De Witt, as vice-president of the bank, secured from the Manufacturers Trust Company and afterwards deposited as collateral security for notes of the lime company in the plaintiff bank and by having overdrafts in De Witt’s personal account made good. It had actual notice and knowledge that diversions were being made by De Witt from the general account to his personal account and for purposes other than county purposes and thereby became privy to the diversions.
The judgment should be affirmed, with costs.
Hill, P. J., and Rhodes, J., concur; Bliss, J., concurs in the result, with an opinion; McNamee, J., dissents, with an opinion.