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(45 S.Ct.)

8. Bankruptcy 288(1)-Creditor, securing | An order of the District Court, directing J. payment after filing of petition, may be directed by summary order to repay money to trustee.

A creditor, who secures payment of his debt from the bankrupt's estate after filing of petition, may be directed by summary order to repay the money to the trustee.

9. Bankruptcy 288 (3)-Rule that claim of assignees for benefit of creditors by reason of expenditures prior to filing of petition is adverse, and cannot be summarily adjudicated, has no application to collusive expenditures, or application of funds for benefit of favored creditor.

While claim of assignee for the benefit of creditors of the right to charge in his account expenses incurred or expenditures made prior to the filing of the petition in bankruptcy is an adverse claim, which cannot be adjudicated in a summary proceeding, such rule does not apply to expenditures or collusive application of moneys in an attempt to divert funds of bankrupt

to favored creditor.

10. Bankruptcy 288 (3)-Assignees for benefit of creditors cannot defeat summary order to pay over funds of bankrupt, because they placed funds out of their control by collusive

payment to favored creditor.

M. Henderson, Jr., and T. J. Scannell to pay over certain moneys to the trustee, was reversed by the Circuit Court of Appeals (289 F. 192), and the trustee brings certiorari. Judgment of the Circuit Court of Appeals re

versed.

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*Messrs. H. A. Jacobs and Henry G. W. Dinkelspiel, both of San Francisco, Cal., for petitioner.

Messrs. A. A. De Ligne, of San Francisco, Cal., for respondents.

Mr. Justice STONE delivered the opinion of the Court.

This is a writ of certiorari to the Circuit Court of Appeals for the Ninth Circuit to review its action (reported as Henderson v. May, 289 F. 192) on a petition to revise an order of the District Court confirming the directing the respondents to pay over a sum order of a referee in bankruptcy, summarily of money to the trustee in bankruptcy. On September 15, 1920, prior to, but within four months of, the filing of the petition, the bankrupt made to respondents, Henderson and Scannell, a general assignment for the

benefit of creditors. At the time of the assign

Assignees for benefit of creditors cannot defeat a summary order requiring them to payment the assignor was indebted on a promisover moneys of the bankrupt by showing that such funds are no longer under their control, because in breach of their duty they paid the funds collusively to a favored creditor.

11. Bankruptcy 288(1)—Fiduciary by summary order may be compelled to restore value of property wrongfully diverted from bankrupt's estate.

sory note in the sum of $15,000 to the Ft. Sutter National Bank, of which respondent Henderson was president, and in which the assignor carried a deposit account. The referee found, on sufficient evidence, that the respondents accepted the trust under the assignment to them and continued the business of the assignor until the appointment of the receiver

The duty of a fiduciary to account for prop-in bankruptcy on November 4, 1920; the peerty intrusted to his care is fulfilled by delivery of the property; but, if he has put it out of his power to deliver, he may nevertheless be compelled to account for its worth, and if he has sold it, or mingled it with his own, he may by summary order of the bankruptcy court be compelled to restore to the estate the value of the property thus wrongfully diverted.

12. Bankruptcy 288 (3)—Assignees for benefit of creditors must pay over or account for moneys of the bankrupt, there being no presumption as to their insolvency or inability to comply with the order.

tition in bankruptcy having been filed on October 9, 1920. In the meantime the deposit account of the assignor with the bank, with the knowledge and assent of the assignees, was changed from the name of the assignor to the names of the assignees, as "trustees," and further deposits were from time to time

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made by them to the *credit of the account, in the course of their management of the business of the assignor. The assignor was duly adjudicated a bankrupt, and thereafter the trustee in bankruptcy petitioned the bankThe rule that the court will not by sum- ruptcy court for an order directing the remary order require a bankrupt to pay over spondents, as assignees, to account for and money to his trustee, unless his ability to com- pay over all moneys received by them from ply therewith is plainly and affirmatively the date of the assignment to the date of the shown, has no application to relieve assignees appointment of the receiver. Proceedings on for the benefit of creditors of the duty to pay the petition resulted in the order of the Disover or account for moneys of the bankrupt;trict Court, directing respondents to pay over there being no presumption that such assignees are insolvent or otherwise unable to comply with the order.

On Writ of Certiorari to the United States Circuit Court of Appeals for the Ninth Circuit.

In the matter of the George W. Cowen Company, Inc., bankrupt; A. L. May, trustee.

to the trustee an amount which would have stood to the credit of the assignees in their deposit account with the bank, had the account not been closed in the following man

ner:

[1] On September 30, 1920, 10 days before the filing of the petition, the deposit account of the assignees with the bank was debited with the sum of $4,516.43, which amount was

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

yond the

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credited on the note of the bankrupt held by | the note of the bankrupt, "the money passed the bank, and on October 13, 1920, subsequent into the possession and under the control of to the filing of the petition and on various the bank, and out of the possession and bedates thereafter to and including October 25, *115 1920, further debits were made in the accontrol of the respondents; count which were credited on the note. that the funds in the bank are not These credits, including the first mentioned, the funds of the president, nor are they subamounted to the sum of $12,883,81, which ject to his order and control, and an order was the amount directed to be paid over by directing him to pay over the money is not respondents by order of the District Court. an order against the bank, and is not bindThese debits and credits were made by direc- ing upon the bank." The court accordingly tion of the respondent Henderson, who held that the bank, which was not a party throughout the period in question acted as to this proceeding, held the funds received by one of the assignees and was also president it in its own right adversely to any claim of of the bank. Although there was no explicit the assignees or the trustee in bankruptcy, finding on the subject the debits appear to and could not be reached by a summary prohave been made with the tacit assent of ceeding, and it reversed the judgment and Scannell, the other assignee, who in any event order of the District Court. appears to have left the management of the financial operations of the assignees to Henderson, and made no objection or protest with respect to this use of the account standing to his credit as an assignee. We think that the finding of the Circuit Court of Ap

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*peals that this application of the bank deposit on the note of the bankrupt constituted a "partial payment of the note as fully as if the assignees had given their check or withdrawn the money from the bank and paid it over the counter" is correct, and that both the assignees must be held legally responsible for this result. Where one of two cotrustees assents to a breach of trust by the other without objection, he is legally chargeable with liability for the breach. Bermingham

v. Wilcox, 120 Cal. 467, 472, 52 P. 822; Adair v. Brimmer, 74 N. Y. 539; Matter of Niles, 113 N. Y. 548, 21 N. E. 687; Hill v. Hill, 79 N. J. Eq. 521, 82 A. 338.

The referee found that respondent Henderson was at all times from September 24, 1920, until the appointment of the receiver in bankruptcy, in control of the assignee's deposit account, and that he was the only officer of the bank who at any time exercised any control over the account, and that as president of the bank he at all times, and until the filing of the referee's report, had personal control of the funds deposited in the account; that the original ledger sheet of the bank, showing the account standing in the names of the respondents as assignees, was destroyed by officials of the bank some time after the filing of the petition in bankruptcy, and then an attempt was made to restore this account

to the name of the bankrupt by rewriting the ledger sheets. He also found that on and after September 24, 1920, both the respondents and the Ft. Sutter National Bank, which with respondents had on that date executed the creditors' agreement under which the assignment to respondents for the benefit of creditors was made, had actual knowledge of the insolvent condition of the bankrupt.

[2-4] On the petition to revise, the Circuit Court of Appeals held that, when the money on deposit with the bank was applied on

White v.

It is well settled that property or money held adversely to the bankrupt can only be recovered in a plenary suit and not by a summary proceeding in a bankruptcy court. Louisville Trust Co. v. Comingor, 184 U. S. 18, 22 S. Ct. 293, 46 L. Ed. 413; First National Bank of Chicago v. Chicago Title & Trust Co., 198 U. S. 280, 25 S. Ct. 693, 49 L. Ed. 1051; Galbraith v. Vallely, 256 U. S. 46, 41 S. Ct. 415, 65 L. Ed. 823. But property held or acquired by others for account of the bankrupt is subject to a summary order of the court which may direct an accounting and a payment over to the trustee or receiver appointed by the bankruptcy court. Schloerb, 178 U. S. 542, 20 S. Ct. 1007, 44 L. Ed. 1183; Mueller v. Nugent, 184 U. S. 1, 22 S. U. S. 102, 30 S. Ct. 372, 54 L. Ed. 402, 17 Ann. St. 269, 46 L. Ed. 405; Babbitt v. Dutcher, 216 Cas. 969; Chicago Board of Trade v. Johnson, 264 U. S. 1, 44 S. Ct. 232, 68 L. Ed. 533. Such is the rule with respect to assignees for the benefit of creditors within four months of filing of the petition. In re Stewart, 179 F. 222, 102 C. C. A. 348; In re Rathman, 183 F. 913, 106 C. C. A. 253; In re Neuburger, Inc., 240 F. 947, 53 C. C. A. 633; In re Diamond's Estate, 259 F. 70, 74, 170 C. C. A. 138. And see Bryan v. Bernheimer, 181 U. S. 188, 21 See Louisville S. Ct. 557, 45 L. Ed. 814. Trust Co. v. Comingor and Galbraith v. Vallely, supra, where, however, the jurisdiction was defeated by the adverse claim of the assignee arising before the filing of the petition. And see Randolph v. Scruggs, 190 Ū. S. 533, 23 S. Ct. 710, 47 L. Ed. 1165, as to the nature of the title of the assignee for the benefit of creditors when bankruptcy ensues. See, also, Taubel, etc., Co. v. Fox, 264 U. S. 426, 433 and note, 44 S. Ct. 396, 68 L. Ed. 770. Courts of bankruptcy do not permit themselves to be *ousted of jurisdiction by the mere assertion of an adverse claim. The court has jurisdiction to inquire into the claim for the purpose of ascertaining whether the summary remedy is an appropriate one within the principles of decision here stated. Mueller v. Nugent, supra; Schweer v. Brown, 130 F. 328, 64 C. C. A. 574; Id., 195 U. S. 171, 25 S. Ct. 15, 49 L. Ed. 144;

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(45 S.Ct.)

Hebert v. Crawford, 228 U. S. 204, 33 S. Ct. | sequence, any person acquiring an interest 484, 57 L. Ed. 800; In re Ellis Bros. Printing Co. (D. C.) 156 F. 430. It may disregard the assertion that the claim is adverse, if on the undisputed facts it appears to be merely colorable. In re Weinger, Bergman & Co. (D. C.) 126 F. 875; In re Rudnick & Co. (D. C.) 158 F. 223; In re Ransford, 194 F. 658, 115 C. C. A. 560; In re Michaelis & Lindeman (D. C.) 196 F. 718.

in property of the bankrupt or his assignees for the benefit of creditors adverse to the creditors, after the filing of a petition with notice of it, may be directed to surrender the property thus acquired by summary order of the bankruptcy court. In re Denson, supra; In re Rudnick, supra; and see White v. Schloerb, supra.

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[8] The rule is the same when a creditor [5, 6] The petition upon which this pro- secures payment of his debt from the bankceeding was initiated was in the usual form rupt's estate after the filing of the petition. and prayed that the respondents be required A summary order may be made directing reto account for all moneys and properties com- payment of the money to the trustee in banking into their hands as assignees or trustees ruptcy. Knapp & Spencer Co. v. Drew; In under the assignment for the benefit of cred-re Leigh; Matter of R. & W. Skirt Co., supra; itors. Such was their duty. Having as- In re Columbia Shoe Co. (C. C. A.) 289 F. sumed to take possession of the property of 465. A like rule has been applied where a the bankrupt for its account, it was their bank secures payment of its debt by setting legal duty to turn the property or its pro- up its lien or right of counterclaim against a ceeds over to the trustee in bankruptcy or to deposit account of the bankrupt or the bankaccount for their inability to do so by show-rupt's assignee, created subsequent to the filing either a disposition of it in performance of a legal duty assumed toward the bankrupt or the bankrupt's trustee or by clothing themselves with the protection of a claim adverse to the bankrupt which was not merely colorable. As found by the court, respondents came into the possession of moneys of the bankrupt which were by them placed on deposit to their credit as trustees or assignees for the benefit of creditors. The result of this transaction was that neither the bank nor the assignees held any specific money for account of the bankrupt and his creditors. They were creditors of the bank and the bank was their debtor. Marine Bank v. Fulton Bank, 2 Wall. 262, 17 L. Ed. 785; Phoenix Bank v. Risley, 111 U. S. 125, 4 S. Ct. 322, 28 L. Ed. 374. We are not therefore dealing

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with money in the possession of the assignees or the bank in any literal sense, but the credit as a mere chose in action was held by the assignees for account of the bankrupt and they were bound to account for its prop er disposition as for any other property coming into their hands.

ing *of the petition. In re Michaelis Linde-
man (D. C.) 196 F. 718; Reed v. Barnett Nat.
See Farmers' & Mechanics'
Bank, supra.
Bank v. Wilkinson, Trustee, 266 U. S. 503, 45
S. Ct. 144, 69 L. Ed. Any other rule
would leave the bankruptcy court powerless
to deal in an effective way with those hold-
ing property for the bankrupt who, pending
the bankruptcy proceedings, willfully dispose
of it by placing it beyond the reach of the
court. Bryan v. Bernheimer, 181 U. S. 188,
196, 21 S. Ct. 557, 45 L. Ed. 814.

We do not think, however, that respondents stand in any better position with respect to the first debit of $4,516.43 which was made a few days before the filing of the petition. The creditors' agreement, under which respondents were appointed assignees, and which was signed by them and by the Sutter National Bank, provided for only a pro rata distribution among creditors and expressly extended the time of payment of all indebtedness of the bankrupt for one year

from the date of the creditors' agreement, which was dated September 15, 1920. The findings of the referee and the supporting evidence leave no doubt that Henderson, who with the assent of the coassignee, Scannell, was in active control of the account both as an assignee for the benefit of creditors and for the bank as its president, directed this and all later debits to be made in the account, in fraud of the rights of creditors whom he assumed to represent.

[7] The several amounts debited to the account, with the assent or connivance of the assignee subsequent to the filing of the petition, fall clearly within the rule that as to property in the hands of the bankrupt, or held by others for his account, "the filing of the petition is a caveat to all the world and in effect an attachment and injunction." Mueller v. Nugent, supra; Lazarus v. Prentice, 234 U. S. 263, 34 S. Ct. 851, 58 L. Ed. 1305; Knapp & Spencer Co. v. Drew, 160 F. [9] There cannot, we think, be any pre413, 87 C. C. A. 365; In re Denson (D. C.) 195 tense that the bank could assert a lien or F. 854; In re Leigh (D. C.) 208 F. 486; Gun- counterclaim before the filing of the petition, ther v. Home Ins. Co. et al. (D. C.) 276 F. in the face of its extension of its note by the 575; Matter of R. & W. Skirt Co. et al., 222 creditors' agreement (Fifth National Bank v. F. 256, 138 C. C. A. 67; Reed v. Barnett Nat. Lyttle, 250 F. 361, 162 C. C. A. 431; HeyBank, 250 F. 983, 163 C. C. A. 233; and see man v. Third National Bank [D. C.] 216 F. Acme Harvester Co. v. Beekman Lum. Co., 685), or at any time, in view of its transfer 222 U. S. 301, 32 S. Ct. 96, 56 L. Ed. 208. See of the account to trustees for the benefit of Babbitt v. Dutcher, 216 U. S. 102, 30 S. Ct. creditors under the agreement signed by it 372, 54 L. Ed. 402, 17 Ann. Cas. 969. In con- | (Fitzgerald v. Bank, 64 Minn. 469, 67 N. W.

361; Lyman v. Bank, 98 Me. 448, 57 A. 799). The findings of the referee and the evidence leave no doubt that the surrender or abandonment of their bank account to the bank

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debtor and president of the creditor bank, or to ascertain whether such a situation falls within the rule that one acting in one capacity, subject to a summary order of the by the assignees *and its attempted applica- to pay over money on a summary order by court, may not relieve himself from the duty tion by the bank to the payment of its note setting up, that although the money is still was collusive and without any substantial under his control, he holds it in a different basis of legal right. At most it was a clumsy, capacity. See Smith v. Longbottom & Sons ineffectual, and fraudulent effort to divert (D. C.) 142 F. 291. We rest our decision raththe funds of the bankrupt to the payment of er on the duty of assignees for the benefit of a favored creditor. While it is now settled creditors to account in a summary proceedthat the claim of an assignee for the benefiting for the property which they have receivof creditors, of the right to charge in his ed within four months of the bankruptcy and account expenses incurred or expenditures to make restitution of the value of the propmade prior to the filing of the petition in erty of the bankrupt which they have dissipated without a colorable claim of right.

bankruptcy, is an adverse claim which can

not be adjudicated in a summary proceed-
ing (Louisville Trust Co. v. Comingor, 184 U.
S. 18, 22 S. Ct. 293, 46 L. Ed. 413; Galbraith
v. Vallely, 256 U. S. 46, 41 S. Ct. 415, 65 L.
Ed. 823), we think the rule cannot be ex-
tended to a case such as this where the claim
is merely colorable and on its face made in
bad faith and without any legal justification.
[10, 11] Nor is it any answer to such a pro-
ceeding that the diverted assets are no lon-
ger under the control of the assignees. They
do not discharge the duty to account by
showing that they assented to a cancella-
tion of their bank account as assignees, and
its application on an indebtedness of the
bankrupt to the bank. The duty of a fiduci-
ary to account for property intrusted to his
care is fulfilled by delivery of the property,
but, if he has put it out of his power to
deliver it, he may nevertheless be compelled
to account for its worth. United States v.
Dunn et al. (No. 120, October Term, 1924) |
268 U. S. 121, 45 S. Ct. 451, 69 L. Ed. de-
cided April 13, 1925. He is subject to the
summary order of the bankruptcy court to
restore the property to the bankrupt's estate.
If he has sold it or mingled it with his own,
he may be compelled by summary order to
restore the value of the property thus wrong-
fully diverted. In re Denson, supra. And
see Bryan v. Bernheimer, supra, at page 197
(21 S. Ct. 557).

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For that reason it is not necessary for us to inquire into the legal consequences which flow from the findings of the referee tending to show that the bank account was at all times under the control of Henderson, act

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ing in the dual capacity of assignee of the

[12] On the argument, respondents relied upon numerous cases in the District Courts and Circuit Courts of Appeals to the effect that the court will not in a summary proceeding make an order requiring a bankrupt to pay over money to his trustee unless the bankrupt's ability to comply therewith is plainly and affirmatively shown. American Trust Co. v. Wallis, 126 F. 464, 61 C. C. A. 342; In re Berman (D. C.) 165 F. 383; In re Sax (D. C.) 141 F. 223; In re Goldfarb Brothers (D. C.) 131 F. 643; Epstein v. Steinfeld, 210 F. 236, 127 C. C. A. 54; In re Nisenson (D. C.) 182 F. 912; In re Stern (D. C.) 215 F. 979. But we think that a bankrupt who is shown to have turned over generally his assets and property to the receiver or the trustee in bankruptcy, is in a different situation from one not a bankrupt who is under a duty to account in a summary proceeding. A court of bankruptcy should not make useless orders. If the bankrupt has turned over his property generally to the bankruptcy court, and is not shown to possess or control the specific property which is the subject of summary order, there may be a presumption that any order will be groundless. No such presumption obtains with respect to respondents. They have not shown that they are insolvent or in other *respects are unable to comply with the order of the District Court.

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The judgment of the District Court was proper. The judgment of the Circuit Court of Appeals is Reversed.

(45 S.Ct.)

MEMORANDUM DECISIONS

DISPOSED OF AT OCTOBER TERM, 1924

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No. 48. FEDERAL TRADE COMMISSION, plaintiff in error, v. HAMMOND, SNYDER & COMPANY;

No. 49. FEDERAL TRADE COMMISSION, plaintiff in error, v. BALTIMORE GRAIN COMPANY; and

No. 50. FEDERAL TRADE COMMISSION, plaintiff in error, v. H. C. JONES COMPANY, Inc. March 16, 1925. In error to the District Court of the United States for the District of Maryland. For opinion below, see 284 F. 886. The Attorney General, for plaintiff in error. PER CURIAM. Judgments affirmed upon the authority of Federal Trade Commission v. American Tobacco Co., 264 U. S. 298, 44 S. Ct. 336, 68 L. Ed. 696, 32 A. L. R. 786.

In error to the Circuit Court of Minnehaha
County, South Dakota. For opinion below, see
193 N. W. 132. Mr. C. O. Bailey, of Sioux
Falls, S. D., for plaintiff in error.

PER CURIAM. Dismissed for want of jurisdiction upon the authority of (1) section 237 of the Judicial Code, as amended by the act of September 6, 1916, c. 448, § 2, 39 Stat. 726 (Comp. St. § 1214); Jett Bros. Distilling Co. v. Carrollton, 252 U. S. 1, 5-6, 40 S. Ct. 255, 64 L. Ed. 421; (2) Champion Lumber Co. v. Fisher, 227 U. S. 445, 450, 451, 33 S. Ct. 329, 57 L. Ed. 591; Muse v. Arlington Hotel Co., 168 U. S. 430, 435, 18 S. Ct. 109, 42 L. Ed. 531; United States v. Lynch, 137 U. S. 280, 285, 11 S. Ct. 114, 34 L. Ed. 700.

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No. 196. BACON & MATHESON FORGE COMPANY et al., appellants, v. The UNITED STATES of America. March 16, 1925. Appeal from the United States Circuit Court of Appeals for the Ninth Circuit. For opinion below, see 4 F. (2d) — Messrs. James Kiefer,

PER CURIAM. Judgment affirmed upon the authority of Hill v. The United States, 149 U. S. 593, 598, 13 S. Ct. 1011, 37 L. Ed. 862; Tempel v. United States, 248 U. S. 121, 130, 39 S. Ct. 56, 63 L. Ed. 162; Horstmann Co. v.

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and William H. Gorham, both of Seattle, PER CURIAM. Dismissed for want of Wash., for appellants. The Attorney General, jurisdiction upon the authority of (1) section for the United States. 237 of the Judicial Code, as amended by the act of September 6, 1916, c. 448, sec. 2, 39 Stat. 726 (Comp. St. § 1214); Jett Bros. Distilling Co. v. Carrollton, 252 U. S. 1, 5-6, 40 S. Ct. 255, 64 L. Ed. 421; (2) Schuyler National Bank v. Bollong, 150 U. S. 85, 88, 14 S. Ct. 24, 37 L. Ed. 1008; Erie R. R. Co. v. Purdy, 185 U. S. 148, 154, 22 S. Ct. 605, 46 L. Ed. 847; Louisville & Nashville R. R. Co. v. Woodford, 234 U. S. 46, 51, 34 S. Ct. 739,

United States, 257 U. S. 138, 146, 42 S. Ct. 58,
66 L. Ed. 171; Klebe v. United States, 263 U.
S. 188, 191, 44 S. Ct. 58. 68 L. Ed. 244; Pear-
son v. United States, 267 U. S. 423, 45 S. Ct.
240, 69 L. Ed. -
decided March 2, 1925.

L. Ed. 1202.

58

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No. 238. A. BRAMBINI et al., plaintiffs in error, v. The UNITED STATES of America et al.; and

No. 259. A. BRAMBINI et al., plaintiffs in error, v. The SUPERIOR COURT OF THE STATE OF CALIFORNIA, etc., et al. March 16, 1925. In error to the Supreme Court of the State of California. For opinion below, see 192 Cal. 19, 218 P. 569. Mr. R. P. Henshall, of San Francisco, Cal., for plaintiffs in error.

PER CURIAM. Dismissed for want of jurisdiction upon the authority of section 237 of the Judicial Code, as amended by the act of September 6, 1916, c. 448, § 2, 39 Stat. 726 (Comp. St. § 1214); Jett Bros. Distilling Co. v. Carrollton, 252 U. S. 1, 5-6, 40 S. Ct. 255, 64 L. Ed. 421.

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No. 248. Oluf O. GILSETH, plaintiff in er- diction upon the authority of section 237 of the ror, v. A. G. RISTY et al. March 16, 1925. | Judicial Code, as amended by the act of Sep

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