thought necessary because of the requirements of the Federal Reserve Bank that collateral be put up to secure rediscounted paper. Our statutes as they stood prior to that time absolutely prohibited this practice, and in order to allow the banks of the state to rediscount their paper with the Federal Reserve Bank and put up collateral, this amendment was made to the statute. I am convinced that under the old law a South Dakota bank had no right to put up collateral to any rediscount, and therefore it could not sell its paper to the Federal Reserve Bank, and this amendment was passed for the sole purpose of allowing banks to sell notes and rediscounts to the Federal Reserve Bank and put up collateral therefor. The construction to be placed upon these statutes of the state of South Dakota is not an open question. The Supreme Court of the state of South Dakota, in Re Hirning, as Superintendent of Banks, v. Toohey, City Treasurer, 207 N. W. 462, was first called upon to construe this statute. This is a case brought by the banking department of the state, in charge of a state bank, to recover assets theretofore turned over to the defendant, Toohey, as treasurer of the city of Sioux Falls, to secure a deposit of city funds. The city had a large deposit at the time of taking the securities, secured by personal bonds of the officers of the bank. They requested additional security, and at a meeting of the directors of the bank it was promised, and the notes pledged and delivered. Evidence was introduced outlining the bank's troubles and Toohey's knowledge of the bank's difficulties at the time he took additional security, and at the close of the testimony the trial court directed a verdict for plaintiff. Upon appeal, the question at issue was whether or not assigning the securities constituted a preference, unless the bank was actually insolvent at the time of the transaction. It was further contended in this case that there was no evidence that the bank was actually insolvent. The court then determines the question in the following language: "We think the word 'preference,' as used in section 8984, is intended in its popular sense, and not in a technical sense. The section, read as a whole, indicates an intention to prohibit the pledging of the assets of a bank, except in certain specified instances, named in the several provisos, and to exclude all others without regard to the solvency of the bank at the time of the transaction. The section is a part of the law governing the organization and management of banks. It is intended to govern or control solvent and go ing banks. It is therefore immaterial in this case whether or not the bank was actually insolvent, constructively insolvent or solvent; the pledging of the bank's assets was illegal and void." My attention was called on the part of the counsel for the plaintiff to the fact that there was a motion for rehearing pending at the time the case at bar was briefed. Under date of November 15, 1926, the motion for rehearing was denied by the Supreme Court, and is reported in 210 N. W. 723. The court there expresses itself with reference to the section in question here as follows: "Section 8984 is a part of the Banking Act applicable to state banks only, and its evident purpose is to control banks and banking operations. One of its restrictions forbids a state bank to secure deposits with its assets." This suggestion of the Supreme Court confirms the interpretation they had theretofore placed upon this section of the statute. The District Court of the United States for the District of Minnesota, John B. Sanborn, District Judge, had occasion to consider this same section of our statute in Re Smith, State Public Examiner of Banks, et al. v. Continental State Bank of Minneapolis, Minn., 11 F. (2d) 907. Briefly stated the facts involved in this action were as follows: The defendant bank had certain certificates against the State Bank of Unityville, S. D., and presented them to the plaintiff bank and demanded payment. He was told that he could not pay the certificates; the reserve was impaired, and he was asked to renew them. An extension was given and the promissory notes named in the complaint were delivered as collateral security. Thereafter the plaintiff bank was taken over by the superintendent of banks, defendant presented the certificates, and they were not paid. Demand was duly made upon the defendant bank for the return of the collateral and its return was refused. Judge Sanborn, in this connection, in determining the question at issue, states: "Under the laws of the state of South Dakota it was unlawful for the plaintiff bank to deliver these notes to Mr. Doyle for the purpose of securing the certificates of deposit of his bank, and the arrangement between it and that bank was therefore void. Mr. Appel was attempting to do a thing which the law prevented, and which both he and Mr. Doyle were presumed to know could not be done. 'Business transactions, in violation of law, cannot be made the foundation of a valid contract." 11 F. (2d) 907, and citations. [4] Independent of all of this there is the further reason why this transaction cannot be sustained. It appears without dispute that these rediscount transactions were had between plaintiff and defendant banks between the dates above set forth, all of them prior to, and have no connection with, the borrowing of $250,000 by defendant bank, and the giving of the collateral notes to secure the same, containing the provision under which plaintiff claims the right to apply the proceeds in payment of the notes theretofore discounted. The relation of creditor and debtor existed between plaintiff and defendant banks under and by virtue of the contract of indorsement and guaranty made upon each separate note at the time it was rediscounted by the defendant bank to the plaintiff bank. The obligation of the defendant bank was exactly the obligation expressed and implied in such indorsement and guaranty upon each note thus rediscounted. With the rediscount of a particular note the defendant bank became a debtor to the plaintiff in the sum of the principal of the particular note and interest, contingent upon the failure of the maker to make the payment when due. This relation of debtor and creditor existed as to each rediscount immediately upon the indorsement of the same by the defendant bank and delivery to the plaintiff bank. 21 F.(2d) 128 This applies to each and every rediscount held by the plaintiff bank at the time the note for $250,000 was given, and the lien of the collateral attempted to be given for the payment of the obligations theretofore assumed by the defendant bank at the different times the several notes were rediscounted. In other words, when this note for $250,000, containing the provision under which plaintiff claims, was given, the relation of debtor and creditor existed between defendant and plaintiff banks as to each separate note that had theretofore been indorsed and rediscounted, which em braces all of the rediscounts involved in this proceeding. Independent, therefore, of what has been said as to a distinction between moneys borrowed and notes rediscounted, the plaintiff was a creditor of the defendant bank, and when the provision was inserted in the $250,000 note, applying or attempting to apply the collateral then deposited as security for that note to the payment of the defaults of the makers of the notes rediscounted, the defendant bank was giving a preference to a creditor by pledging the assets of the bank as collateral security for existing debts. There is no pretense that the rediscounting of any of the notes in question had any connection with the transaction whereby the defendant bank borrowed $250,000 from the plaintiff bank, and while the statute permits the borrowing of money for temporary purposes and authorized the pledging of assets of the bank, not exceeding 50 per cent., to secure the same, it does not authorize the giving of a preference to a creditor who has theretofore advanced money and become a creditor of the bank. Upon the stipulated facts this plaintiff, at the time of making the contract in question, was a creditor of the defendant bank, and the giving of a lien upon this collateral constituted an unlawful preference, and was void, and upon the payment of the $250,000 the defendant is entitled to the return of the collateral. In Stapylton v. Stockton et al. (C. C. A.) 91 F. 326, section 5242 of the Revised Statutes of the United States (Comp. St. § 9834) was being interpreted, and in that case there was an agreement made and collateral deposited for money then advanced, and as a part of the same transaction it was agreed that the collateral then given should also stand as security for an antecedent indebtedness to the party making the loan. This agreement was held invalid under this section, R. S. U. S., in so far as it attempted to give security for the pre-existing debt, although it was further held that it did not deprive the person making the loan of the right to the security to the extent of his present advances. This interpretation of this section of the Revised Statutes of the United States is in harmony with the foregoing interpretation of the South Dakota statute, in that it recognizes the right of the bank to give collateral, and of the lender to hold the same, as security for the payment of moneys immediately advanoed, but an agreement extending the lien as security for the payment of an indebtedness theretofore incurred is invalid. (5) As above suggested, I am of the opinion that each rediscount constituted a distinct and separate contract between the plaintiff bank and the defendant bank, and the liability of the defendant bank was contingent, and dependent upon the default of the maker of the note, and that liability in no way affected by the failure of the maker of any other rediscounted note. It follows that the plaintiff, at the time of the failure of the defendant bank, had as many distinct and separate claims against the defendant bank as it had unpaid rediscounts, neither of which was in any way dependent upon, connected with, or affected by, either of the others, and therefore a separate claim should have been executed by the plaintiff bank upon each of its causes of action against the defendant bank. This is true, not only because each note represents a distinct and separate transaction, in no way connected with any other transaction, but further because of the impracticability or impossibility of applying the rule applicable in the payment of dividends which I shall hereafter refer to. Plaintiff and defendant seem to agree upon the important question as to the application of dividends to its creditors out of the assets of the defendant bank. It is conceded that "a creditor may prove for, and receive dividends upon, the full amount of his claim regardless of any sums received from his collateral after the transfer of the assets from the debtor in insolvency, provided that he shall not receive more than the full amount due him." While decisions of the state courts have not been uniform upon the subject, the rule as stated in Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 S. Ct. 360, 43 L. Ed. 640, is the rule adopted generally by federal courts, to wit: "A secured creditor of an insolvent national bank may prove and receive dividends upon the face of his claim as it stood at the time of the declaration of insolvency, without crediting either his collaterals, or collections made therefrom after such declaration, subject always to the proviso that dividends must cease when, from them and from collaterals realized, the claim has been paid in full." This emphasizes the necessity of a separate claim being filed by the plaintiff upon each of the rediscounts; otherwise it would be impossible to cease the payment of dividends when the claim has been paid in full, and the law would have to be administered with reference to all of the claims, which I do not understand to be the policy of the law. Each is a separate claim and plaintiff is entitled to the payment of the dividends based upon the face of the claim, regardless of payments that have been made since the 14th of January, 1924, until such time as the payments and dividends pay the claim in full, and there must necessarily be an accounting and statement as to each of these rediscounted notes at the time of the declaration of a divi dend. [6] There is the further question of the proper application of credit by the plaintiff of the $41,000 belonging to the defendant bank that was on deposit with the plaintiff at the time the defendant bank closed, on January 14, 1924. It is conclusively shown by the stipulation that plaintiff applied it nowhere, but has simply held it to be applied to the entire amount claimed by plaintiff from defendant. It was not applied to any rediscounted paper, because if it had been the paper so paid should and would have been returned by plaintiff to defendant bank. Nor was it applied by plaintiff bank toward the payment of the $250,000 note, because, had there been a credit given upon that note, the plaintiff would not have been claiming dividends upon the full face of the note, and defendant bank would have been entitled to a set-off as of the time of the closing of the bank and the claim of the plaintiff reduced in that sum. No application having been made of this money, it becomes the duty of the court to apply it, having in view the provisions of section 757, of the Revised Code of 1919, of the state of South Dakota. The rule seems to be well established that under a statute like this it becomes the duty of the court to apply this sum to the payment of the primary obligation of the debtor rather than a contingent liability, and where a debtor owes a creditor a primary obligation and a secondary or contingent obligation, the application must be made upon the primary obligation. The rule applicable is thus stated in 36 Cyc. 1248: "As between certain debts and contingent liabilities the law applies payment to the former rather than the latter." "A general payment is always to be applied to a debt due by the payer absolutely as principal, rather than one due contingently or collaterally, or held as collateral security." 1 Am. Lead. Cases, 277. It follows, therefore, that plaintiff is entitled to dividends upon the amount due upon its note for borrowed money, less the cash deposit of $41,000 on hand at the time of the cut-off, until such time as dividends and collateral collections pay this note in full. Defendant is thereupon entitled to the return of the note and unpaid collateral notes, and in event there is in the hands of the plaintiff more money from these sources than enough to pay the note, the balance should be forwarded by plaintiff to defendant with said notes. The plaintiff is entitled, upon the filing of separate claim for each rediscount note to dividends upon the full amount of said rediscount, without deducting the payments made by the maker after January 14, 1924, until such time as such payments and dividends pay the note in full, when payments of dividends thereon must cease, as in no event must there be paid a dividend in excess of the amount due upon the note at the time of its payment. It follows, also, that upon the payment of a rediscount in full by the application of dividends the note should be returned by plaintiff to defendant. In accordance with the suggestions of ed upon the legal propositions involved and indicated the nature of the decree which is to be entered in the case, I assume that additional stipulations will be entered into by counsel for plaintiff and defendants covering the payments made between the date of the stipulation now on file and the date of the entry of the decree, upon collateral securities held by the plaintiff, and that counsel will agree upon the amounts herein involved, as it is a mere matter of computation. 21 F.(2d) 135 counsel in their briefs, the court having pass- ELLIOTT, District Judge. The issues in It follows that plaintiff is entitled to judgment for the return of the collateral notes, and the proceeds of the collection of collateral notes over and above the amount of the principal and interest upon the two promissory notes for $15,000 each, after crediting thereon the amount upon deposit in the Sioux City bank at the time of the failure of the Parker bank. A proper decree may then be prepared and presented, with an exception to the plain tiff. SMITH, State Superintendent of Banks, v. FIRST NAT. BANK OF SIOUX CITY, IOWA. District Court, N. D. Iowa. May 31, 1927. 1. Banks and banking74-South Dakota bank cannot secure rediscounts to another bank, even as part agreement for secured loan from the other bank (Rev. Code S. D. 1919, §8984, as amended by Laws S. D. 1919, с. 124). Under Rev. Code S. D. 1919, § 8984, as amended by Laws S. D. 1919, c. 124, prohibiting a bank of that state from giving security, except for money borrowed, security given by it to another bank, to secure both a loan then obtained from the other bank and its obligation on account of notes which it had rediscounted to the other, is an invalid preference as regards the notes, though the loan was made conditional on security being given, not only for it, but for such notes, 2. Banks and banking 134(1)-Indorsement by defendant bank on notes of insolvent bank of open account balance held conclusive application, in absence of showing of mistake or lack of authority. Where, at the time a bank failed, it had a balance in its open account with defendant bank, to which it was indebted on secured notes and an unsecured claim, and defendant then, as it had a right to do, indorsed the amount thereof on such notes, such indorsement, in the absence of a showing that it was made without authority, or by mistake or error, was a conclusive application of the balance. At Law. Action by Fred R. Smith, Superintendent of Banks, in charge of the Farmers' State Bank of Parker, S. D., against the First National Bank of Sioux City, Iowa. Decree for plaintiff. E. E. Wagner, of Mitchell, S. D., for plaintiff. Shull, Stilwill, Shull & Wadden, of Sioux City, Iowa, and Bielski & Elliott, of Sioux Falls, S. D., for defendant. re Fred R. Smith, Superintendent of Banks in Charge of the Farmers' State Bank of Parker, for Liquidation, v. First National Bank of Sioux City, Iowa, have been determined in favor of the plaintiff and against the defendant. It appears without dispute that the collateral notes in controversy were pledged by the Parker bank to the Sioux City bank to secure two notes given by the former to the latter, one dated December 31, 1923, and the other dated January 15, 1924, for the sum of $15,000 each, both payable 90 days after date, and that both notes were given for money borrowed by the Parker bank from the Sioux City bank. Plaintiff demands possession of the collateral paper uncollected, over and above the amount due upon these two promissory notes, together with any cash that has been collected more than the sum necessary to pay these two notes and interest. The record discloses that under date of December 31, 1923, when the first note for $15,000 was executed, an agreement was entered into whereby the said collateral paper was held as security for the loan evidenced by the two notes above referred to, and for all other obligations then owing or thereafter to become due from the Parker bank to the Sioux City bank. It appears that at the time of the execution of the note first referred to the Parker bank was indebted to the defendant bank on account of various notes theretofore rediscounted by the Parker bank to the defendant bank, amounting to $21,672, and that at the time of the rediscount of said notes the Parker bank undertook and promised and agreed with defendant bank to pay said notes so rediscounted promptly at maturity thereof, upon failure of the maker to pay the same; that as an inducement to the further extension of credit by defendant to said Parker bank this agreement, in writing, was made, in substance, that the various collateral notes above referred to should be held as collateral to the rediscounts, and as security to the defendant bank the Parker bank then and there agreed that such collaterals at that time or thereafter to be deliverd to the Sioux City bank should be held by it and applied on any or all of the indebtedness of the Parker bank. It further appears that there was a balance in the Sioux City bank in the open account of and belonging to the Parker bank, at the time the Parker bank closed and was taken over by the superintendent of banks of the state of South Dakota for the purpose of liquidation. It is conceded that the amount on deposit was indorsed upon the promissory notes above referred to, and I find nothing in the record upon which to base a finding that it was indorsed by one having no authority, or that it was by mistake or error. I have just filed a decision in re Mechanics & Metals National Bank of New York v. Smith, as Superintendent, etc., and the Sioux Falls Trust & Savings Bank, 21 F. (2d) 128, involving every question that is presented by the pleadings and record in this case. I will annex a copy of that decision hereto and file it in this case. [See case last above cited.] [1] It may be urged that in the case at bar the securing of the rediscounts was considered at the time of advancing the money on the promissory notes above referred to, and that District Court, W. D. Pennsylvania. March 16, the loan was actually made by the Sioux City bank to the Parker bank, conditioned upon the securing of the rediscounts by the Parker bank with the collaterals that were deposited. I am convinced that this would constitute no defense to this action; that if it is conceded that the record discloses that this was all one transaction, and that the collateral was deposited to secure the money then advanced to the Parker bank, because of the deposit by the Parker bank of the collateral to secure the payment of the rediscount notes, it would not constitute a defense to this action. The purpose of the statute (Rev. Code, S. D. 1919, § 8984, as amended by Laws 1919, c. 124), as it has been interpreted by the Supreme Court of the state of South Dakota, is to preserve the assets of a South Dakota bank for the benefit of its depositors, and any transaction whereby the assets of a South Dakota state bank are transferred as security for an existing debt between the South Dakota bank and any creditor of the bank constitutes a preference, and by the statute of South Dakota is invalid. I am satisfied that, even if the Sioux City bank had included the amount due on these rediscount notes, and made that amount a part of the promissory notes delivered to the Sioux City bank upon the date or dates in question, the plaintiff could maintain this action for an accounting and surrender of all of the collateral notes taken to secure the pre-existing indebtedness, while the same would be valid as to the money immediately advanced to the Parker bank. [2] The record discloses that the Sioux City bank indorsed the amount on deposit upon the promissory notes above referred to at the time, or soon after, the failure of the Parker bank, as the Sioux City bank had a perfect right to do, and in the absence of a showing that this indorsement was made without authority, or by mistake or error, that indorsement is conclusive. You may prepare and forward proper decree, with an exception to defendant. In re SHELAR. 1927. No. 13031. 1. Fixtures35(2)-Evidence held to show tenant erecting wooden silo was to have right of removal as against landlord. Evidence held to show that it was under. stood between landlord and tenant that the tenant erecting a wooden silo on the leased premises was to have right of removal. 2. Bankruptcy 140 (1/2)-Tenant's trustee has same rights as tenant to fixtures installed on leased premises. A tenant's trustee in bankruptcy has the same rights to fixtures installed on leased premises as the tenant, whether they may be removed being a question of the intention of Where a tenant has erected fixtures on leased premises, whether they are removable must be determined by the intention of the tenant and his landlord. 4. Fixtures 15-Removability of trade fixtures is determined by consideration of physical annexation, adaption to realty, nature of fixtures, legal policy, situation of parties and purpose of making annexation. In determining whether trade fixtures are removable, the tests are the physical annexation as bearing on the question of intention, the appropriation or adaptation to the use of the reaity with which it is connected, the nature of the article affixed, the relation and situation of the parties, the policy of law in relation to the particular fixture, the structure and mode of annexation, and the purpose for which it has been made. 5. Fixtures 1-Generally, all fixtures of pormanent character pass with the realty. The general rule, subject to certain recog nized exceptions, is that all annexations of a permanent character pass with the realty. 6. Fixtures 14-Rules of law concerning fixtures between landlord and tenant are much relaxed. The rules of law with respect to fixtures as between landlord and tenant are not held with |