more, etc., Telegraph Co. (C. C.) 51 Fed. 49, Id., 54 Fed. 50, 4 C. C. A. 184, in which a railroad company organized a telegraph company with small capital-all of which it held-as a department of its business and was held liable for its debts, is an illustrative case along this line. But the principles of those cases are only indirectly applicable here. Neither the Paper Company nor the Pulp Company own any of the other's shares, and in no sense can it be said that the Paper Company organized the Pulp Company as a department of its business.

Probably the strength of the appellees' contention can best be tested by applying the principles of that which is probably the most favorable case for them which they cite-Re Muncie Pulp Co., 139 Fed. 546, 71 C. C. A. 530, decided by this court. In that case a New York corporation, the stock of which was owned by two officers, engaged in a manufacturing business in Indiana and acquired certain gas and oil well properties there. It being desirable that a local corporation should be formed to acquire rights of way, such a corporation was organized, with the same stockholders as the first corporation, to which the latter transferred, without consideration, its gas and oil well properties. The local company kept no separate books, and its affairs were managed by the first corporation. The latter corporation went into bankruptcy, and it was held that the local company was merely the agent of the bankrupt corporation, and that its shares in the names of the officers, as well as its property, belonged in law to the bankrupt. In his opinion Judge Coxe said:

"The Great Western Company was undoubtedly a mere creature of the pulp company, having no independent business existence, and organized solely for the purpose of facilitating the business of the latter. The Great Western Company has no shadow of claim to the property in controversy, and to permit it, or its president, or shareholders, to dispose of such property, is to sanction a fraud upon the creditors of the pulp company."

But the present case is not at all like the Muncie Case, nor like any of the other cases cited by the appellees. As already shown, no element of fraud is present. The Paper Company did not in any legal sense furnish the money to build the Pulp Company's plant. It is true that it actually advanced the funds; but it did so for the account of the Remingtons. It was merely the conduit through which the Remingtons' money passed to meet their obligations. It does not appear that the Paper Company ever had the slightest claim-legal or equitable to any of the stock of the Pulp Company. It is true that the two corporations mingled their affairs. A creditor of the one company might perhaps have a claim, based upon principles of estoppel, against the other. Lax business methods are clearly shown. Undoubtedly the controlling stockholders regarded the two corporations as being, in a general way, different departments of their business. But the separate corporate organizations were apparently kept up. Each corporation had its own creditors, its own assets, and conducted its business in its own name. Books of account were kept, showing their financial relations. The stockholders were not entirely the same. We cannot, upon these facts, hold that the corporations were identical, nor that the Pulp Company was merely an adjunct or

instrumentality of the Paper Company. Instead of coming under the exceptions, this case seems clearly to come within the general rule) that the distinct corporate existence of two separate although associated corporations will be regarded by the courts.boumnis i noinT For these reasons, we think that the claim of the Pulp Company should have been allowed against the bankrupt estate of the Paper Company.

2. The Claim of John B. Taylor................

The claim of John B. Taylor, as presented against the bankrupt estate, was for $28,498.33 upon certain notes and accounts which the Paper Company owed to various corporations and individuals, and which were assigned by them before the bankruptcy to the claimant. As already indicated, John B. Taylor acquired a majority of the shares of the Pulp Company in November, 1905, and later the remaining shares. He also acquired the shares of the Paper Company, which at that time was practically insolvent. Upon his purchase of these stock interests, Taylor found that notes and accounts of the Paper Company, to the amount of his claim as presented, were held by various banks and individuals, who held as collateral therefor bonds of, the Pulp Company secured by a mortgage of its plant. Taylor purchased these secured debts of the Paper Company, took assignments. thereof to himself in his own name, and acquired the collateral therefor. onl ds

Taylor now claims the right to present these assigned claims against the bankrupt estate as unsecured claims and to have them allowed as such. He admits that the value of the collateral which he acquired in purchasing the claims exceeds the amount thereof, and he concedes that, unless such claims can be allowed as unsecured, they should be, rejected. The position of the claimant is thus stated in his brief:

"Taylor was no more a secured creditor after he took an assignment of these claims than he was before. In each instance he, as the owner of the H. Remington & Son Pulp & Paper Company, was the accommodation pledgor for the benefit of the Watertown Paper Company, and was compelled to take up and pay the obligations secured by the bonds to protect his own property.” [

Even assuming that the Pulp Company was the accommodation pledgor for the benefit of the Paper Company-which with respect to all the notes is not clear-and assuming that the legal position of the Pulp Company, in case it had paid the claims, would have been as stated by the claimant, his contention regarding his own position is wholly untenable. If any one thing is certain from the examination which we have already made, it is that a corporation is an entity distinct and separate from its stockholders. The fact that Taylor legally and equitably owned all the shares of the Pulp Company did not make him the corporation. He, as the owner of such stock, was not the accommodation pledgor for the benefit of the Paper Company. The Pulp Company itself was such pledgor. Taylor was under no legal obligation in the matter whatever. He was merely a person interested in the properties, who chose to buy secured claims against the Paper Company. By virtue of the assignments to him, he stood precisely in the position of his assignors, and became a secured creditor of the Paper Company. His claim was properly rejected.

The order of the District Court disallowing the claim of the Pulp Company is reversed, with costs.

The order of the District Court disallowing the claim of John B. Taylor is affirmed, with costs.

On Rehearing.

PER CURIAM. In the opinion in this case the contention of the claimant Taylor that he stood in the position of an accommodation indorser and took up the obligations and collateral in question to protect his own property was negatived, and it was shown that he acquired the rights, and only the rights, of his assignors. Upon this petition the claimant insists that his assignors themselves were unsecured creditors of the bankrupt estate, and this contention has lead us to a further examination of the record.

If it were true that the Pulp Company had itself pledged its own bonds as security for its accommodation indorsements of the Paper Company's obligations, there would be force in the claimant's contention. It might well be said that the banks and individuals receiving the collateral had no security as against the bankrupt-that their security was the property of the indorser and was upon the contracts of indorsement. But we think this was not the situation. We are satisfied that most of the bonds were delivered by the Pulp Company to the Paper Company to be used by the latter as collateral for its debts. The record shows instances where the Paper Company itself pledged the bonds as security for its own debts, and authorized their sale in case of default. Indeed, the Paper Company pledged the bonds as security for indebtedness toward which the Pulp Company bore no relation, as indorser or otherwise. In our opinion the Paper Company acquired from the Pulp Company such special property in the bonds as warranted their pledge for the Paper Company's debts, and that upon such pledge they became in the hands of the pledgees "security upon the property of the bankrupt," and rendered such pledgees secured creditors.

It is possible that some of the items of the claim in question do not stand in precisely the situation just stated; but the evidence was insufficient to enable us to separate the items or apportion the collateral, and we were not asked to do so.

The petition for a rehearing is denied.

PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. MORTON TRUST Co. v. v. METROPOLITAN ST. RY. CO. (two cases). GUARANTY TRUST CO. OF NEW YORK v. SAME. (Circuit Court, S. D. New York. February 18, 1910.)

Nos. 2-9, 2-33, 2-149, 3-37.

1. STREET RAILROADS (§ 49")-LEASES-BREACH OF COVENANT.

A covenant by the lessee in a lease of a street railroad to pay all taxes "lawfully laid and imposed" upon the property or franchises demised is not broken because taxes imposed have been allowed to become in arrears, where the delay was caused by litigation instituted in good faith by the lessee and afterward by its receivers to effect a reduction of the tax, and its necessity or propriety has been demonstrated by the result.

[Ed. Note.-For other cases, see Street Railroads, Dec. Dig. § 49.*]

2. STREET RAILROADS (§ 58*)-INSOLVENCY AND RECEIVERS REPAIR OF LEASED LINES.

Orders granted authorizing receivers for the lessee of a street railroad system to repair certain leased lines to comply with the requirements of the leases.

[Ed. Note.-For other cases, see Street Railroads, Dec. Dig. § 58.*] 3. STREET RAILROADS (§ 49*)-LEASES-CONSTRUCTION.

Where a covenant by a lessee of street railroad lines to "pay and discharge all taxes, assessments, license fees and percentages of receipts

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

which may be lawfully laid or imposed upon the property or franchises hereby demised," or on the lessor companies in respect thereof, has been construed by the parties during nine years to include a special franchise tax created and imposed since the leases were made, such construction will be followed by the courts.

[Ed. Note. For other cases, see Street Railroads, Dec. Dig. § 49.*]

4. STREET RAILROADS (§ 58*)-RECEIVERS ADOPTION OF LEASE.

The mere payment by receivers for a lessee of a street railroad of whatever the lease requires to be paid to the lessor as compensation for the use and occupation of its property will not amount to a final election to adopt and ratify such lease.

[Ed. Note. For other cases, see Street Railroads, Dec. Dig. § 58.*]

5. STREET RAILROADS ($58*)—INSOLVENCY AND RECEIVERS ADMINISTRATION OF PROPERTY.

Receivers for an insolvent lessee of an extensive street railway system, including a large number of lines, held on long leases, should so far as possible preserve the integrity of the system until its sale.

[Ed. Note. For other cases, see Street Railroads, Dec. Dig. § 58.*]

6. STREET RAILROADS (§ 58*) — RECEIVERS

PROPERTY.

PAYMENT OF TAXES ON LEASED

Receivers for the lessee of a street railway system authorized to pay franchise taxes imposed on the lessors of lines included in such system as required by the terms of the leases, which taxes had been in litigation for a number of years prior to and during the receivership, where their validity and the amounts due have been finally adjudicated by the state courts.

[Ed. Note.-For other cases, see Street Railroads, Dec. Dig. § 58.*]

7. INTERNAL REVENUE (§ 7*)—INCOME TAX-CONSTRUCTION of Statute.

The federal excise tax imposed on the net income of certain corporations by Act Aug. 5, 1909, c. 6, 36 Stat. 112 (U. S. Comp. St. Supp. 1909, p. 844), was not intended to include insolvent corporations with no net income whose properties are being administered by a court. ཅན ༤

[Ed. Note. For other cases, see Internal Revenue, Dee. Dig. § 7.*1

In Equity. Suits by the Pennsylvania Steel Company and another against the New York City Railway Company; the Morton Trust Company against the Metropolitan Street Railway Company; the Guaranty Trust Company of New York against the Metropolitan Street Railway Company; and the Morton Trust Company against the Metropolitan Street Railway Company. In the matter of receiverships.

Various petitions and cross-petitions in the suits above enumerated were argued at the same time, and they are so interrelated that they should be disposed of in a single opinion.

Byrne & Cutcheon, for Pennsylvania Steel Co. and another.
Jas. L. Quackenbush, for New York City Ry. Co.

Dexter Osborn & Fleming, for receiver of New York City Ry. Co.
Brownson Winthrop, for Morton Trust Co.

J. Parker Kirlin, for Metropolitan St. Ry. Co.

Masten & Nichols, for receivers of Metropolitan St. Ry. Co.num
Davies, Stone & Auerbach, for Guaranty Trust Co.

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes