HOLLOWAY v. DYKES.

bank. The evidence introduced establishes

1928.

No. 428-E.

1. Banks and banking75-Depositor may reclaim deposit received by hopelessly insolvent

bank with knowledge of insolvency.

Where bank is hopelessly insolvent and receives deposit with knowledge of insolvency and fails, there is such fraud on depositor that he may rescind contract of deposit and reclaim amount deposited, or its proceeds, if traced into assets of bank going into hands of receiver.

2. Banks and banking 127-Whether title to check deposited in bank passes to bank depends on intention of parties, which may be ascertained from course of conduct.

Whether title to check passes to bank in which it is deposited must be determined by ascertaining intention of parties, but such intention may be ascertained from consideration of course of conduct or ordinary course of busi

That for several months prior to January 4, 1927, the First National Bank of Collinsville was hopelessly insolvent, and that such insolvency was known to the president and other managing officers of said bank.

On the morning of January 3, 1927, the president of the First National Bank was in Kansas City in the office of the chief national bank examiner and was advised that the bank would have to be closed.

The deposits involved in this action were made in the bank on the afternoon of January 3, 1927; the bank was taken over by the national bank examiner and did not open for business on the morning of January 4, 1927. The majority of the deposits involved consisted of checks drawn on the First State Bank of Collinsville and were collected by the national bank examiner after the bank was taken over by the bank examiners. (1) Where a bank is hopelessly insolvent and receives a deposit with the knowledge of such insolvency and fails, this is such a fraud upon the depositor that he may rescind the contract of deposit and reclaim the amount so deposited, or its proceeds, if traced into the assets of the bank going into the hands

of the receiver. St. Louis & S. F. R. Co. v. Johnston, 133 U. S. 566, 10 S. Ct. 390, 33 L. Ed. 683; Richardson v. New Orleans Coffee Co., Limited, 102 F. 785 (5th C. C. А.). [2,3] Whether title to a check passes to the bank in which it is deposited must be determined by ascertaining the intention of the parties. The intention of the parties may be ascertained from a consideration of a course of conduct or the ordinary course of business as disclosed by the evidence.

Where the depositor has ordinarily received credit in the amount of checks, drafts, or other negotiable paper with the privilege of checking against it, it may be implied from the circumstance it was the intention that title to such negotiable paper passed to the bank. However, the question of intention must be determined from the evidence introduced on the trial. Fayette Nat. Bank v. Summers, 105 Va. 689, 54 S. E. 862, 7 L. R. A. (N. S.) 694.

In this action the evidence is clear that the checks deposited on a form of deposit receipt were received only for collection by the bank.

(4) The rule is well established that, where a customer of the bank deposits checks and drafts for collection at a time when the bank was insolvent and known to be so by its officers and they had not been collected when the bank closed its doors, they remained the property of the depositors, although they were indorsed to the bank without qualifications and on their subsequent collection by the receiver the proceeds may be recovered from him by the depositors. Richardson v. New Orleans Coffee Co., supra.

Plaintiff in this action is entitled to recover on his first, third, fourth, fifth, and seventh causes of action as prayed for in the bill, that proper decree be entered.

In re SOLANTIKAS.

SCHOONMAKER, District Judge. This case now comes before the court on petition filed by a creditor, the Raubitschek Company, to review the findings of the referee in bankruptcy, which awarded to Peter Passas and Tom Drivas, doing business as the Sugar Bowl, the value of certain merchandise claimed by them, which was seized at their store as the property of the bankrupt.

The petition for review alleges that the referee erred: (1) In not holding that the claimants lost all rights in the premises, by reason of failure on their part to have the property claimed by them sold by the receiver distinct and separate from other goods of the bankrupt; (2) in holding that the claimants were the owners of the goods in

In Bankruptcy. In the matter of Peter Solantikas, bankrupt. Petition by the Raubitschek Company, a creditor, to review the findings of the referee, which awarded to Peter Passas and another, doing business as the Sugar Bowl, the value of certain merchandise seized at their store as the property of the bankrupt. Referee's report affirmed.

J. J. Kennedy, of Pittsburgh, Pa., and H. E. Cope, of Greensburg, Pa., for Drivass & Pappas.

Sidney J. Watts, of Pittsburgh, Pa., for creditor Raubitschek Co.

F. R. Kaplan, of Pittsburgh, Pa., for creditors and trustees in bankruptcy.

Solantikas.

[1] As to the first point, it appears that the claimants acted promptly. They at once made out a claim for the return of the goods alleged to belong to them, notifying the receiver in bankruptcy of the filing of their petition, and, notwithstanding the receiver's notice of the claim, the goods in question were sold in bulk with other goods of the bankrupt. Under those circumstances, the claimants did not lose their rights to reclaim the value of the goods because of the failure on the part of the receiver to return the goods to them, or to have them sold separately in order that their precise value might thereby be ascertained. To this claim the referee has fairly apportioned its pro rata part of the purchase money received for the bankrupt's property, and the claimants have not lost their rights to relief merely because they did not secure a separate sale of the property in question.

[2] Turning to the next question, the referee has found, as a matter of fact, that the claimants were the owners of the goods in question at the time of the filing of the petition in bankruptcy. There is ample evidence in the case upon which to base such a finding, and the evidence on the other side is very slight. The referee heard the testimony, saw the witnesses, and his conclusions as to the facts should control. We find no error on his part in holding that the claimants were the owners of the goods sought to be recovered by the petition filed herein.

For these reasons, the report of the referee in bankruptcy must be affirmed. An order may be entered accordingly.

tions to the report of J. R. W. Baker, referee in bankruptcy, as special master, to whom the case was referred to take testimony and make report thereof to the court of his findings of fact, together with his recommendations in favor of, or against, the discharge of the bankrupt.

We have considered these exceptions and are of the opinion that they must be sustained, because it does not appear, in connection with the report of the special master recommending against the discharge, that there was any actual testimony taken before the referee as special master upon the issue submitted to him. He has apparently based his findings entirely upon the records of the bankruptcy case had before him as referee. While the courts have held that testimony of the bankrupt may be considered against him in determining right to a discharge (Shaffer v. Koblegard Co. [C. C. A.] 183 F. 71; In re Malschick [D. C.] 217 F. 492), we are not certain, from the report of the referee and the record before us, that there was any formal offering of this testimony by the persons objecting to the discharge in support of their action.

In order to obtain a full and proper hearing of the objections to this discharge, we sustain the exceptions of the special master, who has died, and refer the case to the present referee as special master to take testimony upon the specification of objections to the bankrupt's discharge and to report his findings to the court. An order may be submitted accordingly.

The plaintiff seeks to recover penalty provided by section 307, title 18, USCA. A trial by jury has been waived in writing and filed with the clerk. It is stipulated that on the 3d of March, 1927, United States post office inspector at Tucson, Ariz., seized from the Southern Pacific Company's train a sack, under official label Form 3933, No. 936714, addressed "Aud. S. P. de M., Tucson, Arizona," which had a total weight of 46 pounds, and which contained five different packages of mail, addressed as stated.

Package No. 1 contained interline freight claims from freight claim agent Southern Pacfic Ralroad Company of Mexico, Guaymes, Mexico, together with a memorandum, "Joint business, R. R. Service Mail, from Nogales, to Auditor S. P. de M., Tucson, Ariz.," which also contained a letter relating to railroad tickets. Also one document transmittal covering invoices from traffic associations in the United States, and two document transmittals covering invoice from firms in Mexico.

Package No. 2 contained certain labels together with demurrage reports from Southern Pacific de Mexico at Naranjo, Sinaloa, Mexico, dated February 24, 1927, covering car of tomatoes from Naranjo, Sinaloa, to Tucson. Also seven labels of Mexican government freight from points in Mexico to points in Mexico, accompanied by a telegram from the agent of the Southern Pacific de Mexico at Hermosillo, Sonora, to the agent of the Southern Pacific de Mexico at Guaymas, Sonora, Mexico, dated February 21, 1927, in Spanish, "Secretary of Agriculture and Fomento request that you have a box car placed in Guaymas for loading from

et al.

District Court, D. Arizona. December 3, 1928.

No. C-3609.

Post office 29-Railroad held subject to penalty for carrying, without payment of postage, mail matter of another railroad, of which defendant was financial backer (18 USCA § 307).

Railroad held subject to penalty under 18 USCA § 307, for carrying mail matter without payment of postage, where mail transported pertained to business of another railroad, of which defendant was financial backer and owner of all stock, except qualifying shares for directors, where the two railroads were independent units, and not united in common operative system.

Action by the United States to recover a penalty against the Southern Pacific Company and another. Judgment for the United States.

the inspector of weights and measures here. R. I. 99."

Package No. 3 contained conductors' train collection reports, showing tickets and cash fares collected on freight, local, and through passenger trains, and some other matters.

No. 4 contained claims and reports of group life insurance of employees of Southern Pacific de Mexico, covered by the master policy with the Southern Pacific Company. Also reports by the bridge foreman and two letters relating to the reports.

No. 5 contained one bound volume of tickets and baggage reports of all agents of the Southern Pacific Railroad Company of Mexico for the month of June, 1926.

The evidence shows that defendant Southern Pacific Company is a Kentucky corporation, and at the instant time and for a long time prior was engaged in the operation of a large continental system of railroads in Oregon, California, Missouri, Utah, Arizona, New Mexico, Louisiana, and Texas, in interstate and intrastate commerce, and it has for a long time owned nearly all the capital stock of certain railroads in Texas and Louisiana. The properties of the Texas & New Orleans Railroad Company and its twelve leaseholds, comprising the Texas & Louisiana Lines, are operated by the Texas & New Orleans Railroad Company as a separate unit of the Southern Pacific Lines. It also owns all of the stock, except qualifying shares for the board of directors, of the Southern Pacific Railroad Company of Mexico.

Tucson is located on the main line of the Southern Pacific Company. At Tucson a line is extended to Nogales, Ariz. The line of railroad of the Southern Pacific Railroad Company of Mexico extends from the town of Nogales, Sonora, Mexico, immediately across the boundary line between the United States and the republic of Mexico, and immediately across the line from the town of Nogales, Ariz., to Guaymas on the Gulf of California, thence along the coast to the town of Guadalajara, a total distance of 1,377 miles. At Nogales the two lines are physically joined by connecting tracks.

The board of directors of the Southern Pacific Railroad Company of Mexico consists of 15 persons, all except 4 of whom are officers of the defendant Southern Pacific Company. The defendant Southern Pacific Company furnished all the money to construct the railroad of the Southern Pacific Railroad Company of Mexico, and is the financial backer thereof. The assistant secretary of the Southern Pacific Company is the secretary of the Southern Pacific Railroad Company of Mexico. The Southern Pacific Company exercises no corporate relation or dominion over the Southern Pacific Railroad Company of Mexico, except through its stock ownership, by the election of the board of directors of the Southern Pacific Railroad Company of Mexico. On the 3d day of March, 1927, the general offices of the Southern Pacific Railroad Company of Mexico were maintained at Tucson, Ariz. There is no leasing or operating agreement between the Southern Pacific Company and the Southern Pacific Railroad Company of Mexico.

The mail matter charged in the amended information was transported over the Southern Pacific Company lines from Nogales, Ariz., to Tucson, without the payment of United States postage. All of the documents and papers transported pertain to the busi

ness of the Southern Pacific Railroad Company of Mexico as a common carrier by rail.

The operation by the Southern Pacific Company of the properties of the Texas & New Orleans Railroad and of its 12 leaseholds and other lines in the United States, not directly owned by it, is pursuant to regulations by the Interstate Commerce Commission. The Southern Pacific Railroad Company of Mexico is operated as a separate corporate entity, distinct and independent, under the law and regulations of the Mexican government. All settlements of "carrier transportation" balances between the Southern Pacific Company and the Southern Pacific Railroad Company of Mexico are made in the same manner as with other railroad systems, such as the Santa Fé and the Union Pacific.

The defendant Southern Pacific Company contends that, as an owner of all of the stock, except qualifying shares for directors, for the Southern Pacific Railroad Company of Mexico, and as financial backer, and by reason of the interlocking directorate, it was financially interested in each and all of the transactions and within its right in carrying the matter without the payment of postage.

John B. Wright, U. S. Atty., and Clarence V. Perrin, Asst. U. S. Atty., both of Tucson, Ariz.

Francis M. Hartman, of Tucson, Ariz., for defendant.

NETERER, District Judge (after stating the facts as above). The corporate relation or status of the Southern Pacific Railroad Company of Mexico as a distinct unit was not in any sense lessened or modified by the stock ownership of the Southern Pacific Company. The stock ownership does not of itself make the Southern Pacific Railroad Company of Mexico a subsidiary of the Southern Pacific Company or necessary to its operation.

The relation of debtor and creditor between the Southern Pacific Company and the Southern Pacific Railroad Company of Mexico does not change the entity status, or make it a part of the Southern Pacific Lines. The Southern Pacific Company has not in its forty-fourth annual report listed the Southern Pacific Railroad Company of Mexico as of its "transportation system" companies, aggregating a capital valuation of $379,306,040 (see Exhibit 4, page 46), but lists it with the "solely controlled affiliated companies," approximate capital valuation of $150,000,000.