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25 F.(2d) 21

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 ANACORTES.*

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

No. 5308.

1. Bankruptcy 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 lien or 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 appeais. 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 after the assignment accepted an offer from him of $6,764.67 for the entire property, $2,764.67 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,

25 F.(2d) 23

plaintiff had in its possession fraudulent and fictitious obligations of the Cooke Motor Company, on account of whose fraud it is claimed the losses occurred, which were exchanged for equally worthless obligations of an equal aggregate amount issued subsequently to the date of the policy, and (b) that a substantial part of the money advanced by plaintiff was upon wholesale obligations accepted by it after the first monthly check thereof was required to be made.

In our opinion on the first appeal it was held that whether plaintiff had knowledge of the fraud of the Cooke Motor Company was a question for the jury, that plaintiff was not entitled to recover upon fictitious obligations issued after the effective date of the policy and exchanged for fictitious obligations issued prior to that date, and that plaintiff had failed to make the first monthly check of wholesale obligations required by the policy, and was thereby precluded from recovery upon any obligations, whether wholesale or retail, thereafter accepted by it. 16 F. (2d) 36.

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agent Jones waived the requirement of the
policy as to checking wholesale obligations.
The latter part of the charge on the subjects
of full recovery and waiver was excepted to
and is assigned as error.
[1,2] The assignments of error are well
taken. We repeat that there can be no re-
covery based on the swapping of equally
worthless fictitious obligations. We repeat
also that there was no checking of wholesale
obligations and that there could be no recov-
ery based on a compliance with the require-
ment for a monthly checking provided by
the policy. The evidence was insufficient to
show a waiver. Jones was merely a solicit-
ing agent. Any assurance given by him at
the time the policy was executed that any
part of its written provisions need not be
complied with did not bind the defendant.
At most it was only an effort to vary by con-
temporaneous parol testimony the terms of
a written instrument. Article 5056 of the
Revised Statutes of Texas does not confer
upon a soliciting agent authority to waive a
material condition of a policy of insurance.
Hartford Fire Insurance Co. v. Walker, 94
Tex. 473, 61 S. W. 711; United States Fi-
delity & Casualty Co. v. Taylor (Tex. Civ.
App.) 273 S. W. 320. There was therefore
nothing in the additional testimony submit-
ted at the last trial to change the rulings
made in our former opinion, or to authorize
a judgment for any loss sustained by plain-
tiff after its failure to check wholesale obli-
gations on June 9, 1924.

The evidence adduced at the first trial was stated in our former opinion, and need not be repeated. The only additional evidence adduced at the trial which resulted in the judgment from which this appeal is taken relates to the question whether defendant waived the requirement of the regular monthly check of wholesale obligations. The extent of the evidence on the subject of waiver was that one Jones, defendant's soliciting agent, agreed at the time the policy of insurance was taken out that wholesale obligations need not be checked, and thereafter had knowledge of the fact that plaintiff's only effort to make a check was to write FARMERS' BANK & TRUST CO. OF HAR

a letter on the first of each month containing simply the amount of obligations which it held, and requesting a reply from the dealer which would state whether that amount was correct. The judgment from which this appeal is taken was entered upon a verdict which made no deduction on account of the exchange of fictitious paper, and included at face value obligations issued after as well as before the failure to make a check of obligations at the end of the first month covered by the policy.

The charge of the court correctly dealt with the question whether plaintiff was precluded from any recovery by reason of actual knowledge of the fictitious character of the obligations; but, assuming that plaintiff was acting in good faith, the charge authorized the full amount of the verdict in the event the jury should find that defendant or its

The judgment is reversed, and the cause remanded for a new trial.

DINSBURG, KY., v. ATCHISON, T. & S.

F. RY. CO.

Circuit Court of Appeals, Eighth Circuit.
March 17, 1928.
No. 7928.

1. Removal of causes 107(4)-Court should
determine whether action was fraudulently
pleaded under Federal Employers' Liability
Act to prevent removal to federal court,
though entire cause of action might thereby
be defeated (Employers' Liability Act, § 6, as
amended by Act April 5, 1910, § 1 [45 USCA
g` 56]).

Where action in state court for death of

railroad employee was sought to be removed to federal court on theory that allegations of plaintiff's petition that deceased was engaged in interstate commerce at time of accident were false and fraudulent to defeat jurisdiction of federal court under Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 (45 USCA § 56; Comp. St. § 8662), it was federal

court's duty to determine whether fraud in fact existed, and, if it did, to so declare, though the possible effect thereof might be ultimately to defeat the entire cause of action.

2. Removal of causes

86(1)-Allegation that case arose out of employment in interstate commerce may be shown by removal petition to be fraudulent device to prevent removal (Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 [45 USCA § 56]).

The right of removal from state court to federal court cannot be defeated by a fraudulent allegation that case arose out of employment of decedent in interstate commerce, if there is no basis for such claim, and, if such claim is made in petition filed in state court, it may be shown by petition for removal to be merely a fraudulent device to prevent removal to federal court under Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 (45 USCA § 56; Comp. St. § 8662).

3. Removal of causes 89(1)—Allegations of removal petition, properly verified, must be accepted by state court as true.

The allegations of a petition for removal, f properly verified, must be accepted by state

court as true.

4. Removal of causes 107(7)-If no issue is taken in federal court as to statements in verified removal petition, defendant need not produce proof to sustain allegations.

If no issue is taken in federal court as to statements of a duly verified petition for removal, plaintiff is presumed to assent to the truth thereof, and defendant is not called on to produce proof to sustain such allegations.

5. Removal of causes ~86(1)—Right of re

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10. Removal of causes

107(4)-Federal

court held authorized to hear testimony or accept affidavits on issue whether death of railroad employee was fraudulently alleged to have occurred in interstate commerce to deprive federal court of jurisdiction (Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 [45 USCA § 56]).

Where plaintiff in its motion to remand action for death of railroad employee joined isthat allegation of plaintiff's petition that death sue with allegations of petition for removal, occurred in interstate commerce and was therefore governed by Employers' Liability Act (45 fraudulent device to deprive federal court of USCA §§ 51-59; Comp. St. §§ 8657-8665) was jurisdiction under section 6 of said act, as amended by Act April 5, 1910, § 1 (45 USCA $ 56; Comp. St. § 8662), federal court was at liberty, in its discretion, to hear testimony or accept affidavits thereon.

II. Removal of causes

107(4)-On plaintiff's motion to remand, question was whether allegations that decedent was engaged in Interstate commerce were so baseless as to constitute fraudulent attempt to defeat federal court's jurisdiction (Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 [45 USCA § 56]).

Where defendant alleged, as ground for removal of action for death of railroad employee to federal court, that allegations of plaintiff's

moval is not established by removal petition petition that deceased was engaged in intermerely traversing plaintiff's petition.

The right of removal is not established by petition for removal which merely traverses facts of plaintiff's petition.

6. Removal of causes 107(4)-Motion to remand will be determined on sufficiency of allegations of removal petition.

A mere formal motion to remand case from federal court to state court, from which it was removed, is in the nature of a demurrer to the removal petition, and the court will determine such motion on the sufficiency of the allegations of the petition.

7. Removal of causes

107(4)-Plaintiff, In Its motion to remand, may take issue with truth of statements in removal petition.

In its motion to remand case from federal court to which it was removed to state court, plaintiff may take issue with statements in removal petition and raise question as to truth thereof, and a motion to remand in such situation is in the nature of a plea in abatement.

8. Removal of causes 89 (2)-Issues of fact arising on petition for removal are determinable by federal court.

Issues of fact arising on a petition for removal are to be determined by the federal court.

state commerce at time of accident were fraudulent device to defeat federal court's jurisdiction under Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 (45 USCA § 56; Comp. St. § 8662), question on plaintiff's motion to remand was not whether deceased was engaged in interstate commerce when killed, but whether record so conclusively showed that he was not engaged in interstate commerce regarded as so baseless as to constitute a fraudthat allegations of plaintiff's petition must be ulent attempt to defeat jurisdiction of federal court, and if it is fairly doubtful whether or not he was so engaged, there could be no fraud in so pleading.

12. Removal of causes 25(1)-Allegation that accident occurred in interstate commerce held not so baseless as to constitute fraud on federal court's jurisdiction otherwise existing (Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 [45 USCA § 56]).

engaged in unloading supplies from train movWhere railroad employee was killed while ing in interstate commerce which supplies were intended to be used for both interstate and indeath, alleging that accident occurred in intertrastate purposes, petition in action for his state commerce within Employers' Liability Act, held not so baseless, colorable, and false as to constitute fraud on federal court's jurisdiction under section 6, as amended by Act April

25 F.(2d) 23

plaintiff had in its possession fraudulent and fictitious obligations of the Cooke Motor Company, on account of whose fraud it is claimed the losses occurred, which were exchanged for equally worthless obligations of an equal aggregate amount issued subsequently to the date of the policy, and (b) that a substantial part of the money advanced by plaintiff was upon wholesale obligations accepted by it after the first monthly check thereof was required to be made.

In our opinion on the first appeal it was held that whether plaintiff had knowledge of the fraud of the Cooke Motor Company was a question for the jury, that plaintiff was not entitled to recover upon fictitious obligations issued after the effective date of the policy and exchanged for fictitious obligations issued prior to that date, and that plaintiff had failed to make the first monthly check of wholesale obligations required by the policy, and was thereby precluded from recovery upon any obligations, whether wholesale or retail, thereafter accepted by it. 16 F. (2d) 36.

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agent Jones waived the requirement of the policy as to checking wholesale obligations. The latter part of the charge on the subjects of full recovery and waiver was excepted to and is assigned as error.

[1, 2] The assignments of error are well taken. We repeat that there can be no recovery based on the swapping of equally worthless fictitious obligations. We repeat also that there was no checking of wholesale obligations and that there could be no recovery based on a compliance with the requirement for a monthly checking provided by the policy. The evidence was insufficient to show a waiver. Jones was merely a soliciting agent. Any assurance given by him at the time the policy was executed that any part of its written provisions need not be complied with did not bind the defendant. At most it was only an effort to vary by contemporaneous parol testimony the terms of a written instrument. Article 5056 of the Revised Statutes of Texas does not confer upon a soliciting agent authority to waive a material condition of a policy of insurance. Hartford Fire Insurance Co. v. Walker, 94 Tex. 473, 61 S. W. 711; United States Fidelity & Casualty Co. v. Taylor (Tex. Civ. App.) 273 S. W. 320. There was therefore nothing in the additional testimony submitted at the last trial to change the rulings made in our former opinion, or to authorize a judgment for any loss sustained by plaintiff after its failure to check wholesale obligations on June 9, 1924.

The judgment is reversed, and the cause remanded for a new trial.

The evidence adduced at the first trial was stated in our former opinion, and need not be repeated. The only additional evidence adduced at the trial which resulted in the judgment from which this appeal is taken relates to the question whether defendant waived the requirement of the regular monthly check of wholesale obligations. The extent of the evidence on the subject of waiver was that one Jones, defendant's soliciting agent, agreed at the time the policy of insurance was taken out that wholesale obligations need not be checked, and thereafter had knowledge of the fact that plaintiff's only effort to make a check was to write FARMERS' BANK & TRUST CO. OF HARa letter on the first of each month containing simply the amount of obligations which it held, and requesting a reply from the dealer which would state whether that amount was correct. The judgment from which this appeal is taken was entered upon a verdict which made no deduction on account of the exchange of fictitious paper, and included at face value obligations issued after as well as before the failure to make a check of obligations at the end of the first month covered by the policy.

The charge of the court correctly dealt with the question whether plaintiff was precluded from any recovery by reason of actual knowledge of the fictitious character of the obligations; but, assuming that plaintiff was acting in good faith, the charge authorized the full amount of the verdict in the event the jury should find that defendant or its

DINSBURG, KY., v. ATCHISON, T. & S.
F. RY. CO.

Circuit Court of Appeals, Eighth Circuit.
March 17, 1928.

No. 7928.

1. Removal of causes 107(4)-Court should determine whether action was fraudulently pleaded under Federal Employers' Liability Act to prevent removal to federal court, though entire cause of action might thereby be defeated (Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 [45 USCA § 56]).

Where action in state court for death of

railroad employee was sought to be removed to federal court on theory that allegations of plaintiff's petition that deceased was engaged in interstate commerce at time of accident were false and fraudulent to defeat jurisdiction of

federal court under Employers' Liability Act, § 6, as amended by Act April 5, 1910, § 1 (45 USCA § 56; Comp. St. § 8662), it was federal

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