to conceive how the action of the board of directors on August 9, 1922, together with that of the Merchants' Bank, the City Bank, Mrs. Adams, and Grossman can be viewed in any other light than a plan by which preferences would be given and received by them.

[7] Grossman bought the bonds in the possession of the City Bank at Mr. Hancock's request. He had not, he testified, previously intended buying them, although on the day before the purchase the directors of defendant accepted an offer on his account. He paid for the bonds at the bank with a counter check, and borrowed the price from the bank, giving his note and leaving the bonds as collateral security.

The claim of the objecting creditors that he acted for the City Bank is, I think, fairly inferable from the facts and circumstances, and, as said by the Supreme Court in National Bank v. National Herkimer Bank, 225 U. S. 178, 32 S. Ct. 633, 56 L. Ed. 1042, "Circuity of arrangement will not avail to save it," or does not make legal that which is illegal. His purchase was also illegal, since he was a stockholder of defendant and presumably knew of its financial condition and that insolvency was imminent. He was put upon notice, and, if he had inquired, he no doubt would have learned that a preference inured to the City Bank by the transaction. Walters v. Zimmerman (D. C.) 208 F. 62.

5. The transaction by which Standing bought bonds for the Merchants' Bank is subject to a similar determination. The latter was the real party in interest. The sale to Standing was procured by Mr. McPhail and in my judgment was with the purpose of securing a preference as a holder of valid bonds.

6. It is also claimed that the transfers of bonds were illegal in view of the control exercised by the president of defendant, assisted by two directors, who were also directors of the City Bank, but, in view of the foregoing, this contention need not be passed upon.

[8,9] 7. The judgment recovered against defendant by the National City Bank on its note on November 1, 1922, and recorded on that date in the clerk's office of the county of New York, was not a lien, in my opinion, upon defendant's real estate situated in Seneca county at the time of the appointment of the receivers herein. It cannot be regarded as a preferred lien upon the fund in their custody, or upon the amount realized on the sale of the realty. If the judgment claim were allowed, the National City Bank would

receive a preference over other unsecured creditors, thereby defeating the object of this action. Jurisdiction herein was acquired on November 2, 1922, and the receivers were appointed on the day before the judg ment was docketed in Seneca county, and moreover the injunction restraining prosecution of pending actions was in force. Counsel for the New York banks concede that the judgment recorded on November 1st in New York did not become a lien on defendant's real estate at such time.. The contention that the filing of the transcript and docketing the same in Seneca county on November 3d, the day, following the appointment of receivers, created a prior lien, is not sustained.

In deciding this point, we must have in mind the nature of this action and the purpose in appointing equitable receivers. The general rule is that no judgment lien against the real estate can be acquired subsequent to the time when the assets come into the possession of the court. It is true that the right to acquire a lien existed, but the bank nevertheless could not, in view of the restraining order, proceed and gain a preference over other creditors. Had the transcript been filed on an earlier date, a different question would be presented, since the right of the receivers to possess themselves of the assets real and personal dates from the time of their appointment. See 34 Cyc. 199 and 231, and cases cited. That bond of the receivers had not been approved by the court until a later date is immaterial. Horn v. Pere Marquette (C. C.) 151 F. 626, 639. It has frequently been held that, when a court of equity takes into its custody the property of an insolvent with the view of administering the same for the benefit of the creditors and others interested, an equitable attachment of the property exists, and, though strictly speaking the title is not in the receiver, it nevertheless, as the adjudications hold, is in the creditors for whose benefit the assets are held by the court. Thompson v. Phenix Ins. Co., 136 U. S. 287, 10 S. Ct. 1019, 34 L. Ed. 408; Henning v. Raymond, 35 Minn. 303, 29 N. W. 132.

[10] 8. The injunction order of the court restraining pending actions or procedure does not contravene section 720 of the Revised Statutes (Comp. St. § 1242), and the case of Bortman v. Urban (C. C. A.) 4 F. (2d) 913, cited by counsel for the bank, is distinguishable. In that case the judgment was recovered and docketed in the county where defendant had its real property be fore the appointment of receivers who, as the court held, came into possession subject

551

ing him to turn over to trustees in bankruptcy certain securities deposited by Vincenzo Bajardi and others, individually and as copartners trading as V. Bajardi & Co. Order confirmed.

Albert Ottinger, Atty. Gen., for Superintendent of Banks of New York.

David W. Kahn, of New York City, for trustees.

WINSLOW, District Judge. This is a petition by the New York State Superintendent of Banks to review the order of the referee in bankruptcy, directing the State Superintendent of Banks to turn over to the trustees in bankruptcy certain securities deposited by the bankrupts, private bankers, pursuant

4, 1925.)

1. Bankruptcy 136(1) -Federal court held "court of competent jurisdiction" to direct New York state superintendent of banks to turn over to trustees in bankruptcy securities deposited by private bankers.

Federal court held "court of competent jurisdiction" within New York Banking Law, § 161, to direct state superintendent of banks to turn over to trustees in bankruptcy certain securities deposited by bankrupt private bankers pursuant to such statute, to be liquidated and distributed in accordance with section 156, where bankrupts had been duly adjudicated bankrupts in federal court, and trustees were duly qualified and acting, and claims of depositors and general creditors being required to be proven in such court as provided in Bankruptcy Act (Comp St. §§ 9585-9656).

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Court (Of Justice).]

2. Banks and banking

15-Proceeds of securities deposited by private bankers for security of depositors are impressed with a trust.

Proceeds of securities deposited by private bankers, pursuant to New York Banking Law, § 161, for security of depositors, are impressed with a trust, and must be applied and distributed as provided in section 156.

3. Bankruptcy 9(2)-Jurisdiction of United

States Court to adjudge private bankers bankrupt and to administer their estates in bankruptcy is exclusive.

Jurisdiction of United States to adjudge private bankers bankrupt, and to administer their estates in bankruptcy, is not only paramount but exclusive, and state law assuming to confer upon state officers or others authority to administer such bankrupt estates are superseded, and must give way when Bankruptcy Act (Comp. St. §§ 9585-9656) is properly invoked.

In Bankruptcy. Petition by the New York State Superintendent of Banks to review an order of the referee in bankruptcy, direct

*Order affirmed 9 F. (2d) 797.

State of New York (Consol. Laws, c. 2), which order further directed that said securities should be liquidated and distributed in accordance with the provisions of section 156 of the Banking Law.

The Superintendent of Banks contends that he alone has authority to distribute the proceeds of the securities.

Section 161 of the Banking Law of New York provides that private bankers, as a condition for doing business, shall deposit with the superintendent of banks securities to an amount at least equal in value to 10 per cent. of the total deposits held by such private bankers, and further provides:

"Such stocks or bonds shall be registered in the name of the superintendent of banks officially as trustee for the depositors with such private banker, subject to sale and transfer and disposal of the proceeds thereof by the superintendent only upon the order of a court of competent jurisdiction after due notice to such private banker.

Section 156 of the Banking Law is as follows:

"In case of the failure or suspension of any such private banker, the claims of persons for moneys on deposit or delivered for safe-keeping or transmission shall be preferred against the proceeds of any securities deposited by such banker with the superintendent and against such assets as shall be shown by the books of such banker, or by other legal evidence, to have been derived from the investment of such deposits, or from the investment of any permanent capital segregated and set aside for employment in his business as such banker. The depositors shall also share pro rata with general creditors in the proceeds of any other assets belonging to such banker.”

This section of the New York State Banking Law creates a preference in favor of depositors (or persons delivering moneys for safe-keeping or transmission) as distinguished from general creditors against (a) "the proceeds of any securities deposited by such banker with the superintendent"; and (b) "against such assets as shall be shown by the books of such banker, or by other legal evidence to have been derived from the investment of such deposits," etc.

The statute excludes "all creditors from participation in certain specified assets, until the claims of depositors and transmitters are satisfied." Re Jarmulowsky, 258 F. 231, 169 C. C. A. 297.

[1] The bankrupts have been duly adjudicated bankrupts in this court, and their trustees are duly qualified and acting. Presumably the trustees have reduced to possession the assets of the bankrupts other than the securities in the hands of the superintendent of banks. The claims of depositors and general creditors must be proven in this court, as provided in the Bankruptcy Act (Comp. St. §§ 9585-9656).

[2] The power of the state to require the deposit of the securities as a condition precedent to the transaction of business in this state is unquestioned, and all parties are in agreement that the proceeds of the securities thus deposited are impressed with a trust, and must be applied and distributed, as provided in section 156, supra.

Section 161, supra, provides that the transfer and disposal of the proceeds shall be made by the superintendent "only upon the order of a court of competent jurisdiction."

[3] Jurisdiction of the United States court to adjudge private bankers bankrupt and to administer their estates in bankruptcy is not only paramount, but is exclusive, and state laws assuming to confer upon state officers or courts authority to administer such bankrupt estates are superseded, and must give way when the Bankruptcy Act is properly invoked. This court, in this proceeding, is the "court of competent jurisdiction." Collier on Bankruptcy (13th Ed.) p. 212; Matter of Sage (D. C.) 224 F. 525.

The reasoning of Re Rosett, 204 F. 431, 122 C. C. A. 617, cited by counsel, is applicable to the view that the deposit with the superintendent of banks is indeed burdened with a specific charge. In the Rosett Case, however, the state comptroller (who formerly was the depository for such securities) had already turned over the securities to the trustee in bankruptcy. The right of

the trustee in bankruptcy to distribute the proceeds was unchallenged; the only question in the Rosett Case was the claimed preference under the law then existing, of the banking creditors in the city of New York, as distinguished from other creditors, which claim was upheld by the Circuit Court.

The order of the referee will be confirmed.

HANSEN v. E. I. DU PONT DE NEMOURS & CO., Inc.

(District Court, W. D. New York. August 28, 1925.)

1. Shipping

No. 1265.

54-Libelant could not recover on ground of misrepresentations as to character of cargo, where nature of cargo discoverable by reasonable care from inscription on boxes.

In a libel to recover for destruction of tug and barges demised for carriage of cordite and powder, held, that libelant's recovery could not be predicated on misrepresentations as to nature of cargo, or from failure to give warning, where its inflammable character was discoverable by the exercise of ordinary care and attention; it being presumed libelant was reasonably apprised of dangerous character of cargo, from inscription on boxes.

2. Shipping 39-Agreement held to amount to demise of tug and barges, and not contract of hire and service.

Verbal agreement entered into by agent of respondent with company owning tug and barges, followed by written charter specifying rental of tug and barges from time of departure until return after delivery of cargo, mentioning that extra coal was to be supplied by charterer, charterer to assume all risks, held to amount to a demise of tug and barges pro hac vice, and not a contract for use and hire, and fact that captain of tug, engineer, and bargemen were employed by owner did not alter case, since their services went with demise of vessels.

der.

In libel for destruction of tug and barges from ignition of cargo of cordite and powder, evidence held to show that there was a failure by respondent to exercise proper care for the protection of the cargo, where it was shown that broken and split cases, exposing powder and cordite, were stowed without covering and a gasoline engine was permitted to be spiked to a case of powder.

6. Shipping 58 (2)-Evidence held to show exposed condition of powder cargo and use of backfiring gasoline engine were cause of de

struction of tug and barges.

In a libel for destruction of tug and barges, resulting from ignition of cargo of smokeless powder and cordite, held, that exposed condition of cargo and use of a backfiring gasoline engine, which was spiked to case of powder, were primary causes of disaster.

7. Explosives 7-Transporting cargo of powder and cordite in manner not in conformity with state Labor Law negligence. classified as an explosive, and such matter should be securely inclosed in containers in transporting same, without permitting any grains to protrude or remain on outside of containers, and failure to comply with provisions of state law in this respect was an act of negligence.

Under Labor Law N. Y. § 450, powder is

8. Shipping 54-Defense that barge was unseaworthy, as defense to libel for destruction thereof, without merit, where respondent knew of condition at time of charter.

In a libel for destruction of tug and barges, caused by ignition of cargo of smokeless powder and cordite, defense that barge in question was unseaworthy was without merit, where respondent knew of condition at time of char

ter.

In Admiralty. Libel by Emil Hansen, permanent receiver of the Syracuse Sand Company, Inc., against E. I. Du Pont de Nemours & Co., Inc., to recover for loss of boats by fire. Decree entered for the libelant, providing for the appointment of a commissioner to take proof of loss and damage and report to court.

Hancock, Dorr, Spriggs & Shove, of Syracuse, N. Y. (Bigham, Englar & Jones, of New York City, and E. L. O'Donnell, of Utica, N. Y., of counsel), for libelant.

Bond, Schoeneck & King, of Syracuse, N. Y., for respondent.

HAZEL, District Judge.

On June 10,

1922, a concrete scow, which was engaged by respondent, the E. I. Du Pont de Nemours Powder Co., Inc., to transport smokeless powder and cordite, which is a form of smokeless powder, from May's landing, N. J., to Buffalo, N. Y., via the New York State Barge Canal, was sunk near Rome, and Kavenaugh, an employee of the respondent company, connected with its traffic department, was thereafter sent to supervise unloading of the cargo, contained in boxes, from the sunken scow into other canal boats for forwarding to Buffalo, from whence it was to be taken to its final destination at Bordale, Wis., where respondent operates a manufacturing plant.

Kavenaugh, on arriving at Rome, negotiated, by telephone, with the Syracuse Sand Company, Inc., libelant's predecessor, which was owner of the tug William P. Donnelley and canal barges Alice Clark and Oddfellow, to procure boats for the intended purpose. Afterwards the powder was transferred to the canal boat Clark (so called for short), Oddfellow, and Wright, the latter being owned by another and not involved herein. There are conflicting versions of the conversation over the telephone, between Kavenaugh and Cross, the president of the Sand Company; but an understanding was finally reached, which resulted on June 18th in the delivery of the boats in question to Kavenaugh. They were placed alongside the sunken scow for loading, and on the day following a written charter was signed, which, libelant claims, was a demise of the tug Donnelley and the two barges named, but which respondent claims to have been a simple contract for hire and service.

The Clark leaked some during the loading operation. Her leaky condition was known to Kavenaugh when the charter was signed by him as agent for respondent. The expenses of transferring the cargo were borne by respondent. The loading is claimed to have been carelessly done by the laborers under the supervision of Kavenaugh, in that many cases or boxes containing smokeless powder were open, and the contents exposed and strewn about in the holds and on the boxes, and especially in the Clark, and particles on her deck. Repairs concededly were made on some of the broken boxes and cases, but it is nevertheless proven that there were cracks in many cordite cases, through which grains could be seen.

To properly stow the 5,200 cases of smokeless powder, and keep the contents intact and unexposed, was an important thing to do. The metal boxes in which the smokeless powder was contained were 32 feet in length, 15 inches thick and wide. The wood cordite boxes were 18 inches square and 36 inches long. It required five days to transfer the cargo. The Clark was loaded first, and then taken to a mud bank at New London, not far from Rome, to allow the mud to sink into her crevices to stop her leakage, and upon loading the other barges all three were taken in tow by the tug and proceeded westward.

Two gasoline engines had been obtained for pumping out the Clark whenever necessary. Upon arriving on Sunday, at 2 p. m., at Sylvan and Verona Beaches on Lake Oneida, where the canal continues into the lake, the tow was moored to the dock. The Clark was made fast on the outside of the other two boats, while the tug lay abreast of the Clark. The trip was halted because the wind was pretty strong, and Capt. Van Order of the tug believed the Clark was not in good condition for safely crossing the lake, as she repeatedly required pumping or siphoning water out of her hold, and he thought it advisable to delay crossing the lake until the next morning.

One of the gasoline engines had already been used at this time, and was spiked to a case of powder. The evidence shows that Kavenaugh had been asked by Greene, engineer of the tug, and Perkins, a boatman on the Clark, at New London, whether it was all right to fasten the engine on top of a case of smokeless powder, and he replied in the affirmative. According to his admission, he had repeatedly stated the powder was not dangerous, except from fire. There were many persons at the nearby beaches and vicinity, not far from where the tow was moored. Cross was then on the bridge near the canal entrance to the lake, accompanied by several friends, and later he went aboard the Clark. There were other persons near the dock and on the bridge. Cross and his wife and friends, after visiting the barges for awhile, left, but Cross and Bentley returned to them at about 5 o'clock, shortly before the disaster. The Clark was siphoned out by the tug while Cross was aboard earlier in the afternoon, and upon his second visit the engineer of the tug and boatmen were getting ready one of the gasoline engines in anticipation that it might be necessary to do some pumping while crossing the lake. In such case it

would be necessary, it was believed, to use a gas engine, instead of a hand pump, as siphoning from the engine of the tug would not be feasible, for in crossing the lake the tug would be engaged in towing on a long hawser.

The witnesses Greene, Van Order, and Wentworth were testing the gas engine when Cross and Bentley arrived. Cross was not in charge of the operation, but concededly gave assistance in trying to make the pump work. They all testify that the gasoline engine was on the bow of the Clark, spiked to a case of powder, not far from the hatch where the top layers of the cargo were visible. Kavenaugh, they say, was about 15 feet away on the tug, near the pilot house, smoking a cigar, and Greene testified that he had said, and in this he was corroborated by others, that it was perfectly safe to run the gasoline engine on the case of powder. The engine was primed from a can of gasoline several times during the testing operation; the pump valve being dropped into the lake, instead of into the boat. The evidence convincingly discloses, as respondent claims, that the gasoline engine, which had no muffler, backfired several times prior to the mishap.

Onlookers were standing on the Sylvan Beach side of the lake, about 250 feet away, and on the bridge, about 150 feet away. They looked on idly and perhaps wonderingly; they saw and heard the backfiring, and three witnesses on the beach say they saw liquid dripping from the engine onto the case, and also saw blue flames from the engine at intervals. The wind was blowing some from the lake.

Kavenaugh testified that he had his back turned to the gasoline engine at this time, and was looking toward Sylvan Beach, listening to the music; but libelant's witnesses say that he was smoking a cigar, with his face turned toward the testing operation. Suddenly there was a flame, a spreading flame, followed by succeeding puffs and noises, and an explosion, libelant's witnesses say, while Kavenaugh says it was a mere burning and spreading of the fire. Every one aboard the barge and in the immediate vicinity precipitately ran in dread, and scattered in different directions for safety.

Greene, who had been assisting at the engine, was then standing on the dock with the suction hose of the pump in his arm, trying to fix it. He quickly ran across the barge to the tug to back her away from the fire. While doing so he saw his wife hurriedly passing the engine room door. He stopped