view is affirmed, and the estate of the bankrupt should be distributed without further delay. [3] I am likewise of the opinion that petitioner's claim is not a preferred claim under the law and that the referee properly disallowed it as such. In re NACHMAN. Ex parte F. B. Q. CLOTHING CO. (District Court, E. D. South Carolina. March 12, 1914.) BAILMENT (§ 21*)-RIGHTS OF THIRD PERSONS-NECESSITY OF RECORDING CON TRACT. Under Civ. Code S. C. 1912, § 3740, making agreements between bailors and bailees of personal property, whereby an interest is reserved by the bailor, void as to subsequent creditors or purchasers unless recorded, but providing that this shall not apply to persons letting or hiring property for temporary use, where ends of cloth were delivered to a merchant to be used only for display or advertisement to procure orders and to be returned immediately on order, there was a letting or hiring of property for temporary use, and the agreement, though not recorded, was not invalid so as to render the cloth subject to the claim of the trustee in bankruptcy of the bailee, although the merchant was to pay for such samples, if he failed to return them; there being no claim of fraud or intended fraudulent evasion of the statute. [Ed. Note. For other cases, see Bailment, Cent. Dig. §§ 91-102; Dec. Dig. § 21.*] In the matter of L. Nachman, bankrupt. On petition to review an order of the Referee denying the petition of the F. B. Q. Clothing Company. Reversed, and trustee ordered to deliver certain property to the petitioner. McNeill & Oliver, of Florence, S. C., for F. B. Q. Clothing Co. SMITH, District Judge. This matter has come on to be heard upon a petition to review an order of the referee in bankruptcy made February 10, 1914, refusing the petition of the above-named petitioners. The facts are not disputed. The petitioners shipped and delivered to the bankrupt whilst he was in business the articles claimed in the petition. The testimony is not very clear, but it appears that the petitioner shipped the bankrupt certain "ends of cloth" for the purposes of "display," i. e., of exhibition to solicited customers to induce orders for suits corresponding to the "ends" or samples displayed. These "ends" were by the agreement not to be sold, but were shipped on consignment only, to remain the property of the petitioner, subject to immediate return upon order, and to be used only for display or advertisement to procure orders. Whenever orders were procured on these samples, the bankrupt would send the orders in and they would be filled by the petitioner; the bankrupt receiving for his services 33 per cent. of the charge. In addition to this, the bankrupt seems to have ordered other goods and suits for which he was billed, but that was For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes independent of these "ends," which he was to use for display only, and for orders based on which he was to receive the 33% per cent. The written agreement affecting these "ends" was never recorded, and the question now made is that by reason of the failure to record this agreement under the terms of section 3740, Code of Laws of S. C. 1912, the "ends" so consigned became in the hands of the trustee in bankruptcy the property of the bankrupt estate applicable to the claims. of the general creditors of the bankrupt. The language of that section is as follows: "Every agreement between the vendor and vendee, bailor or bailee of personal property, whereby the vendor or bailor shall reserve to himself any interest in the same, shall be null and void as to subsequent creditors (whether lien creditors or simple contract creditors) or purchasers for valuable consideration without notice, unless the same be reduced to writing and recorded in the manner now provided by law for the recording of mortgages; but nothing herein contained shall apply to livery stable keepers, inn keepers, or any other person letting or hiring property for temporary use or for agricultural purposes, or depositing such property for the purpose of repairs or work or labour done thereon, or as a pledge or collateral to a loan." Under the general wording of the statute, the contention would appear to be resolved against the petitioner unless the present case comes within the exception in the section. To hold that every bailment of the character in question must be reduced to writing and recorded, and that the petitioners' claim is not covered by the exception, would have very far-reaching results. It would practically put an end to the shipment of personal property for sale under consignment. No farmer could ship his crops to a factor or commission merchant for sale, no breeder of horses, mules, or live stock generally could ship to a commission merchant or stableman for sale, no manufacturer could ship his wares, no miner his products to a third person for sale, with any safety without an agreement being made in writing and recorded, unless such shipments be held to be the letting or hiring property for temporary use as excepted by the statute. Such a result would break up the rules and methods of such commercial transactions as established since time immemorial, and the court does not feel justified in holding that the language of the statute intends any such result. Under the testimony in the case the court holds the petitioners' claim within the statutory exception. Were there any charge here of fraud or intended fraudulent evasion of the statute, the result might be otherwise. The court is not bound to permit the fraudulent or pretensive use of the exception to escape the prohibition of the statute. But there is no such charge nor any evidence to support it. The evidence does show that if the bailee, the temporary holder and exhibitor of the samples or "ends," failed to account for and return them, he was bound to pay the value. But a common carrier who does not produce the consignment of which it is the bailee is bound to pay its value, and can also, if it sees fit, insure the bailment while in possession, and if destroyed collect the insurance therefor. The difference, of course, between the case of a carrier and the present case may be that, the possession of the carrier being only for transportation, no one can be thereby misled into giving credit, while the possession of a merchant can operate that result; but if the character of the bailee were to affect the interpretation of the statute it would still exclude all consignments to merchants for the purposes only of sale. So far as can be gathered from the testimony, the case is one of the deposit in the hands of a third person of samples or "ends" to be used only for the purposes of display to procure orders for the purchase of goods similar to the samples, which "orders" were then to be filled by the principal. It is, accordingly, ordered that the order of the referee made February 10, 1914, be reversed, and that the trustee in bankruptcy do deliver to the petitioner the ends of cloth referred to in the said order of the referee. In re RADLEY STEEL CONST. CO. (District Court, E. D. New York. March 20, 1914.) 1. BANKRUPTCY (§ 288*)-POSSESSION OF ASSETS-ADVERSE CLAIMS. On a hearing to determine whether a party in possession of property claimed to belong to the bankrupt is an adverse holder, a claim of title or right to possession based on such fraud as to vitiate the rights asserted may be tested by the court. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 447; Dec. Dig. § 288.*] 2. BANKRUPTCY (§ 288*)-DEPOSITS IN BANK-RIGHTS OF TRUSTEE. The right to draw checks against an account in a bank distinguishes the possession of the bank from that of an ordinary debtor, and gives the bankruptcy court the right to order payment to the trustee of such deposits as are not claimed by the bank on some other ground than its holding as a depository. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 447; Dec. Dig. § 288.*] 3. BANKRUPTCY (§ 288*)-DEPOSITS IN BANK-ADVERSE CLAIMS. An alleged lien against a sum on deposit in a bank is an adverse claim, and cannot be determined on motion. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 447; Dec. Dig. § 288.*] 4. BANKRUPTCY (§§ 165, 288*)-DEPOSITS-APPLICATION TO CLAIMS OF BANK. The application of deposits to payment of claims held by the bank is not a preference, but the use of the deposits for such application can only be tested by action. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. §§ 259, 260, 266, 447; Dec. Dig. §§ 165, 288.*] 5. BANKRUPTCY (§ 326*)-DEPOSIT WITH BANK-TRANSFER. A deposit with a bank before the beginning of bankruptcy proceedings would not be such a transfer as would be unavailable as a set-off, unless it were fraudulent as against creditors and not valid as the basis of any legal claims. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 514; Dec. Dig. § 326.*] *For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes 6. BANKRUPTCY (§ 288*)-MONEYS OF BANKRUPT-APPLICATION ON CONTINGENT LIABILITY. The claim of a right to apply moneys of a bankrupt for the purpose of indemnity on some contingent liability carries the right to possession, and is such a claim of title that it cannot be disposed of summarily upon motion. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 447; Dec. Dig. § 288.*] 7. BANKRUPTCY (§ 326*)—DEPOSIT WITH BANK-RIGHT OF SET-OFF. Where, on motion of the receiver to compel a bank to turn over a deposit by the bankrupt, the bank claims a right to hold the deposit by way of set-off on claims not yet matured, its right to refuse a check of the depositor or the order of the court as to disposition of the deposit depends on whether a claim of the nature of the one set up is provable against the estate. [Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. § 514; Dec. Dig. § 326.*] 8. BANKRUPTCY (§ 288*)-JURISDICTION-DEPOSITS IN BANK. A bank has a right to refuse to consent to the determination of its rights to apply deposits in its hands to notes apparently provable in bankruptcy, though not due, on a motion in the bankruptcy proceedings, and the court in the face of objection has no jurisdiction to determine such right, though it has jurisdiction to see if such an issue can legally exist. [Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 447; Dec. Dig. § 288.*] In Bankruptcy. Bankruptcy proceedings of the Radley Steel Construction Company. On motion to direct the Mutual Bank to pay over a deposit to the credit of the bankrupt. Denied. Rushmore, Bisbee & Stern, of New York City (Abraham Freedman, of New York City, of counsel), for Mutual Bank. Edwin L. Garvin, of New York City, receiver, in pro. per. CHATFIELD, District Judge. The receiver has made a motion to direct the Mutual Bank to pay over a certain sum which was on deposit to the credit of the bankrupt on the day when the petition in bankruptcy was filed. The bank has resisted this motion, appearing specially, and contests the jurisdiction of the court. It claims that it is retaining, and has a right to retain, the money in its possession, for a purpose alleged to be within its rights, and that its refusal to pay the same over to the receiver can be tested only in an action brought in a court having plenary jurisdiction to hear the issues. which might arise therein if suit were brought against the bank because of its retention or application of the money. The bank urged this proposition upon the facts shown in the petition, viz., that it has refused to surrender the funds in question, claiming a right to retain these funds and to set them off against certain notes of the bankrupt, not yet due and not yet taken up or paid by the indorser. This court has the power to determine whether a party in possession of property or funds, claimed to belong to the bankrupt, is an adverse holder. Mueller v. Nugent, 184 U, S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405; First National Bank v. Hopkins, 199 Fed. 873, 118 C. C. A. 321. For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes [1] Upon such a hearing, a claim of title or of right to possession, based upon such fraud as to vitiate and render absolutely void the rights asserted, may be tested by this court. Mueller v. Nugent, supra. If the issues of fact or law are properly alleged, and furnish the basis for a valid claim of title, a hearing thereof, "no matter how ill supported it may appear to be," constitutes the determination of an adverse claim. A colorable title arises only when no legal basis for a claim of title is shown, or when the court must hold the title fraudulent. In re Bacon, 210 Fed. 129, 126 C. C. A. 643. A deposit with a bank is a mere debt owed by that bank, with the right to draw checks against it. Davis v. Elmira Savings Bank, 161 U. S. 275, 16 Sup. Ct. 502, 40 L. Ed. 700. [2] The right to draw checks against the account (or to use the funds on deposit by order) distinguishes the possession of the bank from that of the ordinary debtor of a bankrupt estate, and gives the bankruptcy court the right to order payment to the receiver or trustee of such deposits as are not claimed by the bank upon some other ground than merely its holding as a depository. [3] This is a further reason why the bankruptcy court has jurisdiction to determine whether the bank should be ordered to pay over the fund. But such jurisdiction must not be confused with the right of the bank to have any valid defense or claim to the fund litigated in an action. An alleged lien against a sum on deposit has been held to be an adverse claim, and cannot be determined on motion. First National Bank of Chicago v. Chicago Title & Trust Co., 198 U. S. 280, 25 Sup. Ct. 693, 49 L. Ed. 1051; In re Farrell, 201 Fed. 338, 119 C. C. A. 576. [4] The application of deposits to payment of claims held by the bank is not a perference, but nevertheless the use of the deposits for such application can only be tested by action. New York County National Bank v. Massey, 192 U. S. 138, 24 Sup. Ct. 199, 48 L. Ed. 380; Studley v. Boylston Bank, 229 U. S. 523, 33 Sup. Ct. 806, 57 L. Ed. 1313; In re Wright-Dana Hardware Co. (C. C. A., Second Circuit, February 17, 1914) 212 Fed. 397, 128 C. C. A.. In this latter case, the deposit of funds after insolvency of the depositor became known, and after action to prevent loss thereunder had been taken, was held to be a "transfer" within the provisions of section 60b of the act (Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445], as amended by Act June 25, 1910, c. 412, § 11 [U. S. Comp. St. Supp. 1911, p. 1506]) following certain language in the case of Studley v. Boylston Bank, supra. The decision of the Boylston Bank Case is, however, that (229 U. S., page 527, 33 Sup. Ct., page 808, 57 L. Ed. 1313): "We find nothing in the record to indicate that the deposits were made for the purpose of enabling the bank to secure a preference by the exercise of the right of set-off" -while the use of a deposit as a set-off is upheld under the Massey Case, supra. [5] In the case at bar there is nothing to justify a finding of preferential transfer, nor of any act which could be held a "transfer" such as |