was required in compliance with such contract to pay to county amount of bond, which did not cover all of county's losses on bank's insolvency, held not entitled to any payment from bank until county's claim was satisfied in full.

Appeal from the District Court of the United States for the District of Montana; Charles N. Pray, Judge.

Suit by the American Surety Company of New York against John E. De Carle, as Treasurer of Custer County, Montana, and others. From a decree dismissing the complaint, plaintiff appeals. Affirmed.

Sterling M. Wood and Robert E. Cooke, both of Billings, Mont., for appellant.

Rudolph Nelstead, of Miles City, Mont., for appellees De Carle et al.

Charles H. Loud and William B. Leavitt, both of Miles City, Mont., for appellees

Commercial National Bank et al.

On February 8, 1924, the bank became insolvent and suspended business, and one Turner was appointed receiver thereof by the Comptroller of Currency. When the bank suspended the treasurer had on deposit public moneys of Custer county to the amount of $164,895.66. On January 22, 1926, the surety company paid to the treasurer the amount of the penalty of the bond, with accrued interest to that date. Since the bringing of this suit, the receiver has declared and paid two dividends to general creditors, of 10 per cent. each, and $15,000 has been deposited in bank sult of this suit; the $15,000 thus deposited by stipulation of the parties to abide the rebeing a portion of the dividends declared in favor of the treasurer of Custer county. The its claim for the sum of $75,000, together with surety company has filed with the receiver the interest paid by it. On the foregoing facts the relief sought is that the surety

RUDKIN, Circuit Judge. This is an appeal from a decree dismissing an amended and supplemental complaint in equity. The facts, so far as deemed material to a proper understanding of the questions presented for decision, are as follows: On June 10, 1922, the Commercial National Bank of Miles City, Mont., made application to the American Surety Company of New York for a bond of suretyship in the sum of $75,000, in favor of the treasurer of Custer county, Montana, in order to qualify the bank as a depository of public funds. The application provided that the bank should indemnify and keep indemnified the surety company from any liability, loss, costs, charges, suits, damages, counsel fees, and expenses of whatever nature which the surety company should or might for any reason, at any time, sustain or be put to in consequence of having executed the bond. February 14, 1921, the bank, as principal, and the Surety Company, as surety, executed a bond in the penal sum of $75,000 in favor of the treasurer, conditioned that the bank and the surety company would indemnify and save harmless the treasurer, his successors in office, and the state of Montana from all damages and loss of every kind by reason of deposits of public moneys in the bank. It will be observed that the bond antedates the application by more than a year, and the discrepancy in dates is not explained, but perhaps the bond was dated back for some reason or other. At least, we may so assume for the purposes of this case.

$15,000 deposited in bank pursuant to the stipulation of the parties; that the bank and its receiver be required to allow the claim of the surety company as presented; that the surety company be paid the same dividends thereon that have been, or may hereafter be, paid to the general creditors; that the claim of the treasurer against the bank be reduced and diminished by the amount paid by the surety company under the terms of the depository bond; that the receiver be enjoined and restrained from paying dividends on the claim of the treasurer in excess of the balance remaining after deducting the amount paid by the surety company from the amount of the original claim, and for general relief. [1] The rule is well settled that in the distribution of the assets of an insolvent national bank a secured creditor may prove and receive dividends upon the face of his claim at the time of the declaration of insolvency, without crediting either his collateral or collections made therefrom after such declaration, subject always to the proviso that dividends must cease when from them and from collateral realized the claim has been paid in full. Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 S. Ct. 360, 43 L. Ed. 640. The rule is the same, whether the security consists of a pledge of collateral, a mortgage of property, or a contract of suretyship, or whether there is an express agreement to indemnify the surety or only the contract implied by law. Maryland Casualty Co. v. Fouts (C. C. A.) 11 F.(2d) 71, 46 A. L R. 852; U. S. Fidelity & Guaranty Co. v. Centropolis Bank (C. C. A.) 17 F. (2d) 913.

[2] The rule is equally well settled that dividends must be paid to all creditors ratably, that payments must be made according to some uniform rule, and that claims against the bank must necessarily be made the basis of the apportionment. "Dividends are to be paid to all creditors ratably; that is to say proportionally. To be proportionate they must be made by some uniform rule. They are to be paid on all claims against the bank previously proved and adjudicated. All creditors are to be treated alike. The claim against the bank, therefore, must necessarily be made the basis of the apportionment. The business of the bank must

stop when insolvency is declared. No new debt can be made after that. The only claims the Comptroller can recognize in the settlement of the affairs of the bank are those which are shown by proof satisfactory to him or by the adjudication of a competent court to have had their origin in something done before the insolvency. It is clearly his duty, therefore, in paying dividends, to take the value of the claim at that time as the basis of distribution." White v. Knox, 111 U. S. 785, 4 S. Ct. 686, 28 L. Ed. 603.

[3, 4] No doubt, as claimed by the appellant, when a contract of suretyship is entered into there arises, in the absence of an express agreement, an implied contract that the principal will indemnify the surety for any payment the latter may make to a creditor in compliance with the contract of suretyship, and that this implied contract arises immediately upon the execution of the contract of suretyship and not when a payment is made by the surety thereunder. But, conceding this to be the rule, the fact remains that the only claim against the bank at the time of the declared insolvency, arising out of the deposit of public funds in this case, was the claim of the treasurer for the amount of the deposit, and the treasurer was entitled to have that claim allowed in full and to receive dividends on the full amount of the claim until the claim was satisfied from the dividends received and from other sources. Such was his right under all the authorities, and such right seems entirely inconsistent with the claim advanced by the appellant here. Under similar facts in Maryland Casualty Co. v. Fouts, supra, the District Court decreed that the surety was not entitled to receive any dividends from the receiver until the state treasurer had received the entire amount of the deposit, and that after payment had been made to the treasurer of the full amount of the deposit the surety was entitled to be

subrogated to the rights of the treasurer to and to receive from the receiver such additional dividends as might be declared by him upon the amount of the penalty of the bond executed by the surety and paid to the treasurer. It was further decreed that the surety was not entitled to recover from the receiver on its indemnity agreement with the bank and that it was only entitled to subrogation to the rights of the treasurer. In affirming this decree, the Circuit Court of Appeals for the Fourth Circuit said: "The law applicable to this case is well settled, and when applied to the facts, concerning which there is little or no dispute, there can be no serious doubt as to what the outcome should be." To the same effect, see U. S. Fidelity & Guaranty Co. v. Centropolis Bank, supra.

The appellant disclaims any right of subrogation, and if it has no such right we fail to see wherein it has any other right or claim. In the Centropolis Bank Case, supra, the court held, in harmony with the prevailing rule, that the treasurer was entitled to receive dividends on the full amount of his claim until the claim was satisfied by the dividends received and by the amount paid by the surety, and that the surety was likewise entitled to have its claim allowed against the commissioner of finance of the state and to receive dividends thereon. In this latter view we are unable to concur. To allow the claim of the surety in this case would increase the liabilities of the bank in the sum of $75,000 beyond its liabilities as they existed when insolvency was declared, and to allow and pay dividends on such additional claim would be unjust to the treasurer and doubly unjust to other creditors. Under the law, other creditors can claim no benefit from the fact that the treasurer was secured in whole or in part, and they should not be permitted to suffer a loss because thereof. The Centropolis Bank Case involved the distribution of the assets of an insolvent state bank, and may be distinguishable on that ground, but unless it can be so distinguished we are of opinion that that portion of the decision approving the claim of the surety, with the right to participate in dividends, is unsound in principle and unsupported by authority. In other words, we are of opinion that the right of subrogation is the only right the appellant can claim and that that right does not exist until the claim of the treasurer is satisfied.

The appellant lays much stress upon the fact that there was an indemnity agreement between itself and the bank before the suretyship contract was entered into, but, as already

stated, that agreement amounts to little if anything more than the agreement implied by law, and confers no greater rights.

The decree of the court below is affirmed.

WARNER v. CITIZENS' BANK OF ANA-
WARN
CORTES.*

Circuit Court of Appeals, Ninth Circuit. March 26, 1928.

1. Bankruptcy

No. 5308.

302 (1)—Trustee's complaint in action to cancel chattel mortgage delivered within four months before bankruptcy held insufficient to state cause of action.

Complaint in bankruptcy trustee's suit to cancel chattel mortgage on theory that, having been given to secure a pre-existing indebtedness, it ceased to be effective after filing of bankruptcy petition within four months after execution of mortgage, held not to state facts sufficient to constitute a cause of action, in absence of description of property covered by mortgage, any allegation that bankrupt owned any property covered thereby when petition was filed or thereafter, or that trustee ever acquired title to or possession of such property.

185-Bankruptcy

trustee

2. Bankruptcy held not entitled to cancellation of chattel mortgage covering property in which he never had nor claimed title or possession.

Where, after partial administration of estate under assignment for benefit of creditors and assignee's sale of property free and clear

of all liens except, possibly, a lease on premises covered by chattel mortgage in favor of bank, assignor was adjudged bankrupt, held that, since bankruptcy trustee never had title or possession of property covered by mortgage and claimed no right or interest therein, he was not entitled to cancellation thereof on ground that, having been given to secure pre-existing indebtedness, it ceased to be effective after filing of bankruptcy petition within four months after execution of mortgage.

3. Bankruptcy 185-Chattel mortgage lienor could not be compelled to accept lien on other property of bankrupt in lieu of its lien on specific property.

Chattel mortgage lienor could not without its consent be compelled to accept lien on proceeds of other property of bankrupt in lieu of its lien on specific property described in mortgage.

Appeal from the District Court of the United States for the Northern Division of the Western District of Washington; Jeremiah Neterer, Judge.

Suit by H. E. Warner, as trustee in bankruptcy of A. B. Campbell, bankrupt, against the Citizens' Bank of Anacortes. Decree for defendant (19 F.[2d] 947), and plaintiff appeals. Affirmed.

*Rehearing denied 26 F. (2d) 465.

Nelson R. Anderson, of Seattle, Wash., for appellant.

H. C. Barney, of Anacortes, Wash., and R. W. Greene, of Bellingham, Wash., for appellee.

Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.

DIETRICH, Circuit Judge. [1] The appellant as trustee of the estate of A. B. Campbell, bankrupt, brought this suit for the cancellation of a chattel mortgage delivered to the appellee bank September 3, 1925, upon the theory that, having been given to secure a pre-existing indebtedness, it ceased to be effective after the filing of the petition in bankruptcy, which was within four months after the execution of the mortgage. [2] We are of the opinion that the complaint fails to state facts sufficient to constitute a cause of action. There is no description, even of a general nature, of the property covered by the mortgage, nor any allegation that the bankrupt owned any property covered by it when the petition in bankruptcy was filed, or thereafter, or that the appellant, trustee, ever acquired title to or possession of any such property. And, upon a reference to the evidence, it appears that he must have advisedly refrained from alleging either title or possession. It seems that Campbell had been the owner of a bakery, and upon December 3, 1925, he made to the Seattle Merchants' Association for the benefit of all his creditors a common-law assignment thereof, including all supplies, equipment, furniture, bills and accounts receivable, cash, deposits, good will, and, in short, everything except possibly the lease upon the bakery building. This it turns out was the property which in part was covered by the mortgage. Anticipating the possibility of such an assignment, the association had previously interested one Beck in making a purchase of the business, and upon the day him of $6,764.67 for the entire property, $2,after the assignment accepted an offer from 764.67 of which was to be paid in cash and the balance in twenty installments of $200 each. Accordingly the association executed free from all liens, and gave him possession, a bill of sale conveying to him the property which he has ever since maintained. [3] Seemingly a dispute arose thereafter as to whether or not the appellee had agreed with the association to release its mortgage, but that is not thought to be presently material. It in fact declined to release it, and, upon its refusal, the association, representing the creditors, caused to be filed against Camp

bell the involuntary petition in bankruptcy upon which he was adjudged a bankrupt. In due course a meeting of creditors was held, at which the appellant, who had been and still is the managing agent for the association, was elected trustee. The association has continued to retain possession of the money paid by Beck and of the notes and chattel mortgage executed by him covering the deferred installments, and has from time to time collected such installments. Upon certain conditions, including the reimburse ment of certain expenses and protection to it on account of the conveyance to Beck of the property clear of incumbrances, it offered to turn over to the trustee the proceeds of the sale; but the referee declined to authorize acceptance upon the conditions named, and it still retains possession, with the approval of the creditors. The appellant does not challenge the validity of the sale to Beck, or his possession or right of possession. We therefore have a case where both under the pleadings and the evidence, a trustee in bankruptcy is seeking to have declared void a mortgage upon property to which he has neither legal nor beneficial title, and of which he never had possession and in which he claims no right or interest. The only property in which the trustee has any possible interest is the proceeds of the sale to Beck, of which it may be admitted Campbell was the beneficial owner when he was adjudged a bankrupt; but the bank makes no claim of lien upon or interest in it under its mortgage or otherwise; and, of course, without its consent it cannot be compelled to accept a lien thereon in lieu of its lien upon the specific property described in the mortgage. If by virtue of some agreement or estoppel in pais it should be held to have waived its mortgage lien, that is a matter between it and the association, with Beck possibly an interested third party. Clearly, it is not the subject-matter of this suit, nor is such a controversy of federal cognizance.

Accordingly, the judgment dismissing the bill is affirmed.

PENN NATIONAL HARDWARE MUTUAL et al. v. GENERAL FINANCE CORPORATION.

Circuit Court of Appeals, Fifth Circuit. March 26, 1928.

No. 5254.

1. Insurance 430-Finance company, insured against loss by fraud, cannot recover for swapping of equally worthless obligations. Finance company, insured against loss by fraud in financing automobile dealers, cannot

recover for losses incurred by exchange of fictitious obligations issued by automobile dealers for equally worthless obligations.

2. Insurance 375(2)-Soliciting agent held without authority to waive provision of policy requiring monthly checking by finance company of wholesale obligations (Rev. St. Tex. 1925, art. 5056).

Mere soliciting agent of insurer held without authority, under Rev. St. Tex. 1925, art. 5056, to waive provision of policy requiring finance company, insured against losses in financing automobile deales, to monthly check the wholesale obligations.

In Error to the District Court of the United States for the Western District of Texas; Charles A. Boynton, Judge.

Action by the General Finance Corporation against the Penn National Hardware Mutual and another. Judgment for plaintiff, and defendants bring error. Reversed, and remanded for new trial.

Allen R. Grambling, of El Paso, Tex. (Jones, Hardie & Grambling, Lea, McGrady, Thomason & Edwards, and McBroom & Scott, all of El Paso, Tex., on the brief), for plaintiff in error.

Joseph G. Bennis, Wm. H. Burges, and A. H. Culwell, all of El Paso, Tex., for defendant in error.

Before WALKER, BRYAN, and FOSTER, Circuit Judges.

BRYAN, Circuit Judge. This case involves a claim by the plaintiff, General Finance Corporation, for alleged losses arising out of its purchase of fictitious obligations, consisting of mortgages or conditional bills of sale of automobiles. The obligations were designated as wholesale or retail, depending upon whether they purported to be executed by automobile dealers or by individual purchasers of automobiles from dealers. This is a second appeal by defendant, Penn National Hardware Company, which issued a policy of indemnity assuring plaintiff against losses upon the obligations above described upon condition that plaintiff must act in good faith and make a regular monthly check of obligations accepted by it. On the first appeal the issues, so far as they are now material, were stated to be: (1) Whether plaintiff had actual knowledge of the admitted fraudulent and fictitious character of the obligations relied on as the basis of recovery; and (2) whether plaintiff, although it had no such actual knowledge, but acted in good faith, could recover for the face of the obligations, in view of the undisputed facts (a) that, on May 10, 1924, when the policy became effective,