Case Name: In re EILERS MUSIC HOUSE (two cases). OREGON EILERS MUSIC HOUSE v. SITTON (two cases)
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1921-02-14
Citations: 270 F. 915
Docket Number: Nos. 3529, 3548
Parties: In re EILERS MUSIC HOUSE (two cases). OREGON EILERS MUSIC HOUSE v. SITTON (two cases).
Judges: Before GILBERT, ROSS, and HUNT, Circuit Judges.
Reporter: Federal Reporter
Volume: 270
Pages: 915–929

Head Matter:
In re EILERS MUSIC HOUSE (two cases). OREGON EILERS MUSIC HOUSE v. SITTON (two cases).
(Circuit Court of Appeals, Ninth Circuit.
February 14, 1921.)
Nos. 3529, 3548.
1. Bankruptcy <&wkey;440 — Decision review&Me only by appeal.
Where a decision of a District Court involves questions of both fact and law, it is reviewable by appeal, under Bankruptcy Act, § 24a (Comp. St. § 9008), and not by petition for revision.
8. Bankruptcy <£=888 (I) — Adverse claim musí have substantial basis to exclude SXISKIHIMT jlüTÉSdíCtíOH.
A court of bankruptcy held to have jurisdiction in a summary proceeding to order assets which are a part of the general estate of the bankrupt turned over to its trustee, notwithstanding an adverse claim thereto by another corporation, which lias been acting as a subsidiary of bankrupt, and all of whose stock is owned by bankrupt.
3. Bawkiruptey &wkey;140(%) — Assets held by subsidiary ooipmailcia part of estate.
Where bankrupt, which was a wholesale and retail dealer in musical instruments and merchandise, with a number of branches, purchased the stock of another corporation doing a retail business, and after operating it separately for a number of years moved its business into its own establishment, where it took over the retail branch of bankrupt’s business and a large amount of its merchandise, for which bankrupt received no Consideration of value, and was thereafter held out to creditors as a subsidiary or agency of bankrupt, the property and assets held by such corporation held a part of bankrupt’s estate.
Boss, Circuit Judge, dissenting.
Petition to Superintend and Revise Decree in Bankruptcy of and Appeal from life District Court of the United States for the District of Oregon; Robert S. Bean, Judge.
In the matter of the Eilers Music House, bankrupt; H. W. Sitton, trustee. On appeal and petition to revise by the Oregon Eilers Music Plouse. Petition to revise dismissed.
Affirmed on appeal.
This matter arises out of the bankruptcy of Eilers Music House, an involuntary bankruptcy proceeding instituted in February, 1918, with respect to the Eilers system of houses in certain fields of mercantile business. In the matter of Eilers Music House, a corporation, bankrupt, petition was filed in the District Court to require surrender and delivery of bankrupt’s property, and thereupon order to show cause was issued and served upon the Oregon Eilers Music House. The Oregon Eilers Music House replied, and after preliminary motions the court made ail order of reference of the proceedings to a special master, who thereafter filed findings and conclusions, and recommended a decree requiring the surrender of the assets of Oregon Eilers Music House to the trustee in bankruptcy of Eiiers Music House. To the report of the master Oregon Eilers Music House filed exceptions, and thereafter the District Court in bankruptcy affirmed the report of the special master and by decree awarded possession of the assets of Oregon Eilers Music House to the trustee of Eilers Music House, bankrupt. By petition to superintend and revise the decrees, and by appeal, Oregon Eilers Music House asks reversal of the order of the District Court. Inasmuch as the issues and the evidence pertaining thereto are so fully stated in the report of the special master, we append such report, which is as follows:
“It is claimed by the petitioner that Oregon Eilers Music House is an agent or subsidiary of the bankrupt. It is alleged that Eilers Piano House, the predecessor of the bankrupt, and, indeed, the bankrupt, under another name, in the year 1908, purchased Graves & Co., a corporation, acquiring its capital stock through officers and directors of Eilers Piano House in trust for the corporation, and that the Music House has ever since owned and possessed Graves & Co., now Oregon Eilers; that, while Oregon Eilers is doing business as a separate corporation, it is nevertheless, and in fact, an agent or representative of the bankrupt, and should be required to turn over the assets in its possession to the trustee.
“Oregon Eilers Music House totally denies the allegations in the petition as appertains to the ownership of Oregon Eilers, claiming that the bankrupt corporation, long prior to bankruptcy, disposed of all the stock of Graves & Co., or Oregon Eilers, and disclaims that' Eilers Music House ever owned Oregon Eilers, or any part of it. Extensive hearings have been had upon the issues described and a large amount of testimony has been taken. Prolonged analysis of this testimony, much of which is immaterial, would result in making this report burdensome, so the facts found will be stated in narrative form, together with such inferences and conclusions as I deem them to warrant. For convenience the bankrupt, Eilers Music House, will herein be called ‘Music House,’ Oregon Eilers Music House, ‘Oregon Eilers,’ and the Graves Music Company, or Graves & Co., ‘Graves Company.’
“Prior to the year 1902, H. J. Eilers, familiarly known as Hy. Eilers, A. H. Eilers, and S. 3. McCormick were engaged in the business of selling musical instruments in Portland, Or., the firm being known as Eilers, McCormick & Co. In that year these individuals incorporated their business under the name of Eilers Piano House, and continued to operate as such until the year 1910. They were the sole owners of the business, except as a few shares of stock became scattered now and then among a few of their employees, associates, or’ relatives. In the main, H. J. Eilers was the owner, manager, and directing head of this corporation. It transacted a large-business in the piano field, both wholesale and retail, and for the greater portion of the time, up to and including 1910, and as far as 1912, did an exceedingly prosperous business according to the books, and as the testimony developed.
“As appears by the minutes of the Piano House, in February, 1908, it purchased Graves & Co. in accordance with the desires of its owners, A. H. and S. ,T. Filers and S. J. McCormick, and agreed 'to pay for' the stock of that company $48,000, paying $1,000 in cash and executing 47 $1,000 notes. The capital stock of Graves & Co. was thereupon taken over in the name of the two Eilers and McCormick, as the minutes state, in trust for the Piano House. H. J. Eilers took 50 shares, A. H. Eilers and S. U. McCormick 24 shares each, and 1 share each was apportioned to G. A. Hoffman and F. W. Graves; thereafter the Piano House, or its stockholders, operated the Graves Company business. It was conducted, as it had been theretofore, in the same location, and it did the same general character of business down to the year 191(5. There is no doubt that the Piano House in the first instance paid the consideration due to Graves Company for the transfer. It pledged the sum of $94,000 of its liquidated assets to the stockholders of Graves Company as collateral to secure the payment of its $47,000 notes. It went its security at the banks, guaranteed the payment of its real estate rental leases and other obligations, and the transaction was entered upon the Piano House books as a purchase by it.
“In April, .1910, the Music House, the bankrupt, came into existence through the initiative of (lie same individuals, H. 3. and A. IT. Eilers and S. J. McCormick, and it thereupon took over all of the assets and assumed all the obligations of the Piano House. Its capital stock was apportioned to, or taken by, the same individuals, substantially in its entirety. During tills time, as heretofore stated, the Piano House was in a prosperous condition, entirely solvent, and was at all times able to meet and discharge its obligations to all its creditors, among whom were tlie stockholders of Graves Company, since payment of the purchase price due on that transaction had not been completed when the Music House came into existence. The same solvent condition existed in February, 1908, when (hat purchase was made. It is asserted by Eilers and Ms associates, and I find it is proven by (.lie testimony, books of the bankrupt, and documents in evidence, that while, apparently, tlie purchase of Graves & Co. was made to appear, by the minutes of the bankrupt and method of bookkeeping, as a purchase by the Music House of the Graves & Co. corporation, it nevertheless was purchased by and in the interests of the individual stockholders, and that the alleged purchase by tlie Piano House or the Music House was a paper transaction altogether. The testimony had developed the fact that the corporation was used by these stockholders as their banking house. Whatever individual income they possessed or acquired was deposited with the corporation, for which they were given credit; dividends were frequently declared from the profits made by the corporation and these stood on its books to their credit in largo sums. They checked through the corporation in payment of their private individual obligations and all such payments were debited against them upon its books. In fact, the corporation was their bank; the testimony showing that none of the three carried any individual deposit in any bank.
“It further appears that the payment of the obligations due the stockholders of Graves & Co., as they came due, were immediately charged on the books ot. t'ne bankrupt to the account of the several stockholders. For example, whenever one of these notes of $1,000 and accumulated interest was paid by the bankrupt with its check, the amount of such payment was uniformly charged upon its books against the accounts of the several stockholders in proportion to the amount due from each upon such payment. Memoranda of these charges are found running through what is termed B. O.’s, C. O.’s, or D. O.’s. These payments were entered through what was known on the books of the company as Graves Music Company Investment Account, so that, if the bankrupt was called upon to pay, let us say, $1,175 to the stockholders of Graves & Co. upon a note falling due for that amount, including interest,, there would be made a memorandum of the transaction, to he posted in the journal, charging A. H. Eilers, S. J. McCormick, and H. J. Eilers with their proportion of that payment and the investment account would be credited therewith. Such practices continued until the said purchase price was fully paid, and hence there can be no reasonable doubt that Eilers and his associates at all times considered that they, and not the corporation, purchased the stock of Graves & Co., and that they merely used the Music House as a medium to accomplish the transaction. Furthermore, neither the stock or assets of Graves & Co. were at any time carried upon the books of the Music House as an asset, as was done in the case of subsidiary concerns and corporations, as to the ownersliip of which by the Music House there has never been any contention. Hence I find as a fact that, if it was permissible for the stockholders of the Music House, while tlie corporation was entirely solvent, and while they had upon its books credits to an extent more than sufficient to cover the payments made by it on their behalf and charged back to their private accounts, to make this purchase for themselves in contradiction to the recorded acquisition of the same in trust for the corporation, as declared in its minutes, it was accomplished by what took place at the time.
“When the Music House came into existence, in 1010, it was called and considered by those interested as a consolidation, that is to say, Eilers and his associates had gradually spread out, since the original incorporation of the Piano House in 1902, until they had branches in various cities throughout the Pacific Coast, variously known as Seattle Eilers Music House, San Francisco Eilers Music House, Boisé Eilers Music House, Bellingham Eilers Music House, and so on. These branches were feeders to the parent house in Portland. They were -owned by the Music House, and entirely under its domination and control, or the control, in short, of H. J. Eilers, the managing director of tne Music House. They may be appropriately termed a part of the Eilers system, and, by the ownership and control of the corporate stock, these various businesses were airected and manipulated, acquired, and disposed of, in the interest of and as a part of the Eilers fortune. In the main, the Music House purchased from wholesalers and manufacturers all the goods sold by the variohs subsidiaries, who in turn purchased from the Music House, made reports and remittances thereto, and cleared their paper through it. But I find no evidence in the record that indicates the Graves Company business, during these years, was thus allied to the Music House.
“As thus developed, the Music House continued to prosper and grow, up to about the beginning of the year 1913, when its first financial difficulties appeared, due to its inability, by reason of changed banking policies throughout the country, to expeditiously clear or dispose of its paper, or secure loans through or from the banks in the liberal allotments it had theretofore been privileged to do, and its business as a consequence began to show a loss, so much so that in the year 1913 it became necessary for it to pass into the hands of a creditors’ committee, who advised and directed a scheme of partial liquidation. The control of the creditors’ committee continued for something more than a year, during which time a large amount of indebtedness due to banks throughout the Pacific Coast was paid 'off, and it was hoped that reviving business conditions upon the coast would relieve its failing symptoms. Such, however, was not the case, and the evidence discloses, very clearly I think, that by the fall of 1916 the Music House became and was insolvent, and so continued down to the time it was declared bankrupt in February, 1918. It may be true that on the face of its books, bookkeeping values alone considered, a solvent condition appeared, but liquidation by disposition of the assets at a fair market value could by no means have been accomplished at any time within 18 months preceding actual bankruptcy, as administration has since demonstrated to a certainty.
“In the interval between 1913 and the fall of 1916 the Music House operated under a lease the entire premises at Broadway and Alder streets, in Portland, known as the Megley-Tichner Building. It occupied for its own purposes and conveniences commodious quarters therein. Graves & Co., during the same period, conducted its business in its location, Fourth and Morrison streets, also under a lease. For the greater portion of the time mentioned the latter corporation had been nominally operating under the direction of F. W. Graves, but Iiy. Eilers was the real boss, as he was in every Eilers establishment. At this time, to be exact, October, 1916, a material change in the relationship of these two concerns, the one to the other, was accomplished, as I shall now detail at some length. The Music House was then insolvent, and engaged in a persistent effort to postpone absolute collapse. The then financial condition of the Graves Company does not distinctly appear, but I believe it to have been in little better condition, very likely in a failing condition. This is to be noted by the fact that its leasehold was a fixed liability, which it found burdensome, and of which it was at all times seeking strenuously to be rid, nor has it been claimed by any one that its business was then enjoying any marked degree of prosperity.
“Mr. F. W. Graves, the founder of this institution, a man of wide and useful experience in musical trade, and in whom undoubtedly reposed intimate knowledge oí its affairs, thus reflects ills opinion of it: ‘My private reason [for approving the change] is that X was afraid Graves Music Company would go busted, and I did not want to see it go bust; so I was willing to have tlie name changed to Eilers, and that would save our name [Graves] from the maelstrom, if it should come, and I was fearful that it might come, and so that was my reason, and as a director 1 voted for it.’ The changed aspect, relation, and operation of these two concerns from tills point on, as will now be noticed, were the result of the design and policy of Ily. Eilers as the principal stockholder and the solo managing director of both. His associates concurred merely as of course, and as a matter of form.
•‘In August, 1010, supplementary articles of incorporation of Graves Company were filed in the office of the Secretary of State, by which tlie name was changed to Oregon Eilers Music House. Between that date and October 27, 1916, Graves Company, henceforth Oregon Eilers, was moved, together with its operating force, business, and assets, whatever they were, almost in the entirety into the Music House Building at Broadway and Alder. Fourth and Morrison was not entirely abandoned at that time but what remained, and tlie attendant business, were insignificant. The small portion retained was so only because they had not succeeded in disposing of the leasehold. Subsequently it was practically abandoned. Tlie reasons for and the benefit? sought to be obtained by this move, as effecting generally the Eilers’ business, are well explained by TXy. Eilers: ‘We found In our liquidating operations that Portland had the greatest amount of assets in use so far as the «-•filers Music House was concerned; then, when the chance came, as we thought, to rent the Fourth street to the Southern Pacific, as I have already explained, naturally we hit on the scheme of saddling the conduct of the retail business upon the Graves Music Company. We thought we had a first-class valuable leasehold on Broadway, and T think still we had, and we wanted to keep that; we had induced the Spaldings to take the corner for S500 a month; then we figured that if we could get Graves Music Company in there to help pay another §500 a month that we could splendidly keep that thing afloat, and at the same time concentrate the entire business into one place; Eilers Music House would get relief from the pay roll and operating; expenses of carrying on the business, which would all be taken over by Graves Music Company, and In that way all the collo.ctions coming into Eilers Music House would servo to help pay off indebtedness, or to carry out the liquidating process. Now, then, in this work Filers Music House had a lot of dormant or fixed assets. If Filers Music House went out of business altogether, like it had done in many places, that sort of stuff would become of variable value, but by having the Graves Company certify in its corporation name, make it Oregon Filers Music House, they could utilize all of these assets in its own current operations, and besides, of course, would fall heir to the Filers patronage and following in the city; that was the way and that was why the §45.000 worth of various assets * * * were trans-i'orred in the manner that has already been set forth.’
“Accordingly, Mr. Eilers caused to be turned over by the Music House to Oregon Eilers, property In nature and value as follows; [Here follows itemized list of musical instruments, store equipment, etc., of the value of §45,-000.] It thus appears clearly, from the nature and description of this property, that it was the intention Oregon Eilers should step into the shoes of the Music House, obtain the advantage of and value in the advertising campaigns which the Music House had conducted for many years, should adopt its advertising signs, its objects of art, ornaments, and other furnishings, and assume the character appropriate for the’ conduct of the entire retail trade. Needless to say, the advantages and values thus obtained by Oregon Filers in assumption of the Eilers trade-name, its good will and advertising were as valuable, perhaps more valuable, than the very substantial quality and proportion of assets it thereby accumulated.
“This transaction never was approved by the hoard of directors of the Music House, so far as the minutes disclose, though it seems to have been run through its books as a sale to Oregon Eilers in consideration of the issuance to it of §45,000 of the capital stock of the latter. No other, different, or addi tional consideration passed. The value of this capital stock was problematical; it could not, in any event, have been very great. It does not appear ever to have been, of any value to the Music House and is of no value to its trustee. Oregon Éilers at that time had an authorized capital of $200,000, of which $195,000 was issued, and no visible assets existed that anywhere near justified such a capitalization, or set the value of the stock to anything like par. This eliminated the Music House from the retail field in and about Portland as a competitor of Oregon Eilers; it reduced its appreciable assets to the extent of $45,000, to say nothing of its loss as a selling medium, gained through long years of extensive and expensive advertising, and thus entirely swept away its earning ability in that field, whatever it was. At the same time it served to increase the assets of Oregon Eilers to the extent of $45,000, in real, live property, and put it in position to be urged forward by its owners.
It is claimed by Hy. Eilers that, before he executed this change or consolidation, he advised the creditors of what was in contemplation and that much correspondence passed concerning it. Whether such creditors objected, or were in a position to object, or whether, if they had, it would have availed them, does not appear. However this may be., it does appear that on December 18, 1916, Mr. Eilers indicted a letter to his creditors (and by creditors I mean wholesalers), the retention of whose confidence meant the breath of life to his institutions, in which he assumed to inform them fully and at length of the conditions in the trade along the Pacific Coast, the progress made by the Music House toward liquidation, the attendant difficulties, the urgent necessity for further extensions, of his hopes of ultimate success, and finally of the functions of Oregon Eilers as an assistant in the enterprise. The effect of this letter, it seems to me, could not be otherwise than to cause the creditors to catalogue Oregon Eilers as a unit or constituent part of the entire Eilers organization. I quote:
“ ‘ * * * Of late we have incidentally been asked to look into the situation with some of the other houses on the Coast, and we can say without fear of contradiction that ours are in better condition, and we manage our affairs in a better manner, and have been getting along, better, than any of them; but we ought not to be expected to attempt the impossible. Where manufacturers that we paid off have extended credit to others on the Coast, they cannot find that they have gained anything. After all, our institution, what there is left of it, is the best qualified merchandising institution along the coast, and while no manufacturer is looking for output now, it cannot be that situation will continue with them very long. Eilers Music House will be needed by many a manufacturer as definitely as Eilers Music House needs assistance of these manufacturers now. So far as the Northwest is concerned, it is practically in shape as reported heretofore, although the establishment of the Oregon Eilers Music House has proved a very difficult problem, because the selling could not be gotten under way. It has been a matter of several months of very close and hard work to get the institution into shape so that it would carry the load, but this result we are confident has now been achieved. It is proposed, during the ensuing year, to have the Music House proceed without much attention from the undersigned, with Mr. F. W. Graves in charge of the Oregon Eilers Music House, assisted by'Mr. McCormick and Mr. Mainer, and with A. E. Barniekel and Mr. Cornell and a corps of assistants looking after the residuary interests of the Eilers Music House. Eilers Music House proper must keep on doing business in a wholesale way hero in order to show earnings, to take care of shrinkages, and also to produce enough paper to take care of collections and cancellations of the paper held as collateral by some of the banks. The work is well organized and well under way. Thus, promptly on the 1st of January, the writer will be left free to take hold of the work in California, which can and will undoubtedly be made to pay and pay handsomely, provided it is determined to go ahead; that is, provided some way is found now to retain the unsecured credit now remaining in the business for some definite time.’
“In January, 1917, Hy. Eilers went East, and while there entered into agreements with his creditors, or some of them, covering the retirement of old obligations, and in somo detail a plan whereby the Eilers House should obtain new goods for future operations. Mr. Eilers produced at the trial of this matter the contract negotiated by him with the American Piano Company, which he states is typical of the others, as follows:
“ ‘R&smné of Agreement between Mr. Hy. Eilers, Mr. H. S, Irvine, and the American Piano Company.
“ ‘It is understood and agreed that old indebtedness notes of the Eilers Music House shall be retired as follows: Ono-lialf (%) of the amount of noles falling due shall be in customers’ lease paper bearing six per crab. (tiV/:) interest and not running longer than thirty (30) months, and one-half (•4) to be paid by renewal notes, the first of which notes shall mature on August 18, 1918, and subsequent renewal notes to mature each thirty (80) days thereafter. Such settlements shall he in the hands of the American. Piano Company prior to date of maturity of old indebtedness notes: It is distinctly understood that renewal notes are not subject to re-renewal. Customers’ paper shall be guaranteed and absolutely assigned under form of assignment agreeable to the American Piano Company.
‘Music Account. — All music rolls for the various Eilers Companies shall be purchased by the Eilers Music Company of San Francisco, and the American Piano Company will act opt their live (5) months note in settlement of monthly purchases, such notes to hear interest at six per cent. (&/<■) and are to be met at maturity without renewal. The Oregon Eilers Music House, it is understood, will control operations in the norlh for Portland and Spokane, and purchases for these points shall be made by the Oregon Eilers Music Company of Portland, to be settled for under trustee terms or cash promptly within sixty (60) days of date of shipment. It is also understood that purchases for Boise, Idaho, shall be made by and through the Oregon Hilera Music Company. Trustee settlement shall conform to terms and conditions of the Trustee Account. In the south it is agreed that the Eilers Music Company shall operate from San Francisco, and their purchases from the American Piano Company shall be on a consignment basis, with inrerest after thirty (30) days, providing for goods to he paid for when sold and settlements to be made in trustee paper; Eilers Music Company of San Francisco agreeing to sign a contract with J. It. Shale, Trustee.
“ ‘In consideration of the above agreements, the Eilers Music Company agrees toward the end of the year, in November and December, to make their settlements with the American Piano Company in as much less than sixty (60) days as possible. In general, it is further agreed that, on the return of Mr. Eilers and Mr. Irvine to San Francisco, they will promptly check up all consigned goods on hand unsold and report the same in detail, which the American Piano Company will reconsign as of January 1st with interest accumulated, starting new accounts to cover. AH goods sold shall be promptly settled for by the Eilers Music Company of San Francisco or by other Filers Houses, to which such pianos were shipped. All settlements in the future are to he made promptly as agreed; no discounts to be allowed beyond regular discount period provided, to wit, sixty (60) days.
“ ‘Customers’ paper purchased by trustee and customers’ paper purchased in retiring old indebtedness notes shall not extend beyond thirty (30) months, and is to bear interest at six per cent. (6%) per annum. It is further agreed that collections to be made by Eilers Music House on customers’ paper purchased in retiring old indebtedness notes shall be remitted promptly each month as duo, with detailed statements, covering, same. Repossessions wil he exchanged promptly for paper of like amount and like lime. In purchasing paper in settlement of old indebtedness notes, accumulated interest shall not be considered in the value or face of paper. I Signed! For E. M. H. [Eilers Music House], per Hy. Eilers, Pres. [Signed] For E. M. Co. [Eilers Music Co.], Hy. E. ['Hy. Eilers], Dir. American Piano Company, [Signed] by J. N. Shale, Supt.’
“After a careful reading of this contract there can be discerned- therefrom no thought existing in the mind of either contracting party of any division oi separation between or among tbe many Eilers enterprises. If I can understand the import of plain language, the implication passed out to these creditors in the documents above quoted is direct and positive that, although ‘the estáblishment of Oregon Eilers Music House has proved a difficult problem,’ it had been accomplished and by the contract it stepped into the breach to do its share in the rescue work; indeed, was to ‘control operations in the North for Portland and Spokane.’ What were the operations there referred to? As a distinct and independent organization, Oregon Eilers had no interest in the general scheme thus outlined for the revivification of this business, and had no right whatever to control for its own self and profit operations which then belonged in equity and good conscience to the creditors of Eilers Music House. As an agent, instrument, adjunct, or branch of Eilers Music House, however, it had a vital interest and a right to ‘control operations,’ if that was deemed by the parties expedient for the interest of all. ■
“Everything being thus set for a fresh start, as it were, the manner of doing business now becomes interesting and important as shedding light upon the aims and intentions of those in control, as outlined by the testimony of Mr. Eilers and the contracts and engagements into which he entered with the creditors. As stated, Oregon Eilers had now been planted, root and branch, in the Eilers home garden at Broadway and Alder. Much testimony was taken touching the interdependency of all corporate operations there as reflecting the existence of several units so organized, operated, and controlled as to constitute a cohesive whole; a business dynasty,- as it were, with the parts severally functioning, but all to the same purpose, and all answerable to the same supreme authority. This character of evidence places in undisputed command of each and every interest Hy. Eilers, the creator thereof and the chief votary and proprietor. His position as such was so understood by every one connected with the organization. As one witness, when asked on cross-examination by whom Oregon Eilers was organized, replied: ‘A. Well, I suppose by Hy. Eilers. He organized everything up there. Q. How did Hy. Eilers organize it? A. He probably told them to organize it. ■ That is the way he organized all his companies. It was a one man concern.’
“A clear understanding of the manner in which the Eilers business was conducted, as applied to the relation of any part to the whole, may be had from the testimony of Mr. A. E. Bamickel, who was connected with the Music House in one capacity or another from the date of its organization in 1902 to the date of the failure in 1918. From his testimony, as well as that of others, these facts are established:
“In October, 1916, there were in existence and doing business the following Eilers corporations: Eilers Music House (the parent corporation), Oregon Eilers, Eilers Talking Machine Company, all situate in the Eilers building at Broadway & Alder; Spokane Eilers, Boise Eilers, Tacoma Eilers, and Eilers Music House of California. There may have been others, but of this many we are sure. Of the above, Eilers Music House owned the capital stock of Eilers Music House of California, Boise Eilers, Tacoma Eilers, and Eilers Talking Machine Company. It owned one-quarter of the capital stock of Oregon Eilers. Oregon Eilers, in turn, owned the stock of Spokane Eilers. In turn, the Eilers family and a few associates owned the stock of Eilers Music House and also three-fourths of the stock of Oregon Eilers. Hy. Eilers owned the greater majority of all such stock, and controlled and operated the whole outfit, practically as he determined. As pertains to the houses outside the city of Portland, while technically distinct corporations, with different officers and boards of directors, ‘their instructions were received from and were given to them by Mr. Eilers, both in the way of financing and also their selling policy.’ Broadly speaking, the operations were carried on by a direction that ‘the branch houses would purchase the amount of merchandise that they needed from the parent house, and in turn would pay for the merchandise by discounting these customers’ contracts or notes or leases, and the parent house would then give them credit for 72 per cent, of the face of the contract or 72 per cent, of the balance of the contract; then we, in turn, would send that paper East, and would get our proceeds from (hat paper on the same basis. * * * Eilers Music House had a large warehouse on Fifteenth and Pottigrove streets; the pianos were received from the factory and placed there, and shipped to the branch houses, and (hen, if a piano was sold, it was naturally delivered to the customer, and then, if repossessed, advice on that repossession was sent tq, Portland, and the Portland house, having rediscounted the paper, would recall it. In the meantime the piano that was repossessed at one of the branch houses would probably have been resold, and another contract was executed on it, and it was probably assigned again.’
“The parent house did all the purchasing, and resold to the branches, in order to give it the greatest possible purchasing power; the branches wore frequently called upon to issne their notes for the accommodation of the parent house, who negotiated them for greater credit. In the period of distress bel,ween 1916 and 1918, and even before, it became necessary for the whole organization to indulge in the practice of ldting checks; that is, the branches would issue their checks to the parent house, which would deposit them and take credit therefor, and in turn it would issue its checks to the branches, who likewise deposited those checks to their credit, and thus banking balances would in a way be maintained. With respect to the companies and business at Broadway and Alder, the three companies there situate participated in, all such transactions, and the business was handled identically in the same way; hut these additional features are to he observed with respect to them:
“The Music House owned the lease upon the premises occupied by (hem, and Oregon Eilers and the Talking Machine Company each paid rent direct 10 it; each corporation kept its own books, but ihe same clerks and help largely, if not entirely, took care of this work. Oregon Eilers took credit for all retail sales made on the Music House door; it had access to the Music House and Talking Machine Company’s stock in trade, the same as they had, and, if it desired those goods, it took them, as they, in turn, did with its stock, and a credit was passed from the one to the other, as the case might bo. It turned its paper to the Music House, which in turn discounted it; their paper was handled by the same collateral clerk. The Music House and Oregon Eilers had a common cashier, also record, file, and stock clerks; there was a common shipping department and a common shipping receipt; for .the greater portion of time a common letter head was used. All three issued accommodation jiaper to the other branches when needed. One large electric sign emblazoned the name of ‘Eilers’ before the world, and the warp and woof of all advertising was founded upon •-hat one name. In short, for anything that appeared upon the surface, there was discernible there but one business, and, mere corporate entities aside, that is all there was in fact. There wore many individual corporations, it is true; but they were simply mediums for the convenient and orderly dispatch of the multifarious Eilers businesses, parts and parcels of the same general enterprise, and nothing else whatever can be made out of it.
“Nor is the mind the less invited to the conclusion that the shadow rather than the substances of corporate entity obtained, and that the purpose, intent, and design was that all these corporations should be, and were, owned, operated, and controlled by and for one common interest, when the builder of the structure himself betrays his cognizance of its significance, on the eve of bankruptcy, by such language as this: ‘January 23, 1918. Mr. A. E.i Barnickel, Portland, Oregon — Dear Mr. Barniokel: There is one thing certain now. — if we can’t have Oregon Eilers and Spokane Eilers thoroughly separated from E. M. H. (Eilers Music House), some folks may make an attempt to have them all tarred with the same stick, and this should not happen. Very truly yours, Ily. E. [Hy. Eilers.]’
“The conclusion to be reached upon the situation thus created seems to me to he obvious. As Judge Safer says (In re Rieger [D. C.] 157 Fed. 614) : ‘The rule is clearly stated in Bank v. Trehein Co., 59 Ohio St. 316, 52 N. E. 834, as follows: “In contemplation oí la w a corporation is a legal entity, an ideal per son, separate from the real persons who compose it. This fiction, however, is limited to the uses and purposes for which it was adopted — convenience in the transaction of business, and in suing and being sued in its corporate name, and the continuance of its rights and liabilities, unaffected by changes in its corporate members. But the fiction cannot be abused. A corporation cannot be formed for the purpose of accomplishing a fraud or other illegal act under the disguise of the fiction; and, when this is made to appear, the fiction will be disregarded by the courts, and the acts of the real parties dealt with as though no such corporation had been formed, on the ground that fraud vitiates everything into which it enters, including the most solemn acts of men * * * The good faith of the parties to such a transaction must be determined by its legal effect on the rights of others. If its legal effect works a fraud on their rights, the finding of a court that the parties acted in' good faith is simply an erroneous conclusion of law from the facts.” ’
“Within the operation of this rule, however fair and above board the conduct of Eilers and his associates may have been in the manipulation of those corporations is of no importance. However well the state of their minds may have been disposed of at the time is of no advantage to them, if the effect of their conduct was injurious to the rights and destinies of the creditors, and if by their manner rnd form of doing business and the treatment of their corporations they indubitably lead their creditors to under-stand- and believe the direct opposite of what they now maintain. The assets of an insolvent corporation do not, at least in this state, first of all, belong to the stockholders as represented by the capital stock. Those assets are a trust fund to be held for the payment of the debts of the corporation, and any disposition of them to deplete the estate is a legal fraud upon the creditors, whether so intended by the participants therein or not.
“And so it seems to me anachronistic to say that the officers and chief stockholders of the Music House, a failing and insolvent corporation, may lawfully determine to transfer to Oregon Eilers, of which they are likewise the officers and chief stockholders, a large amount of Music House property for something of no substantial value; may take from the former one of its principal branches of business and sources of income; may lead its creditors, by their contracts, representations, and engagements, to believe that whatever was done was done and performed in furtherance of .the determination successfully to liquidate the debts and put upon a sound foundation the Eilers businesses; may in fact for almost two years combine, handle, and operate the several corporations for that purpose and with that design; yet are at liberty, when the immersion in failure actually comes, to segregate from the mass that portion which seems to have value, upon the ground solely that it is a distinct corporate entity in which they hold the stock. The persons involved a -e estopped to do this by every consideration which a court of equity may draw upon. In such cases equity looks through and beyond legal fictions, and deals with the parties and the properties irrespective of corporate forms, upon the theory that now to contemplate Oregon Eilers as an independent organization, which its promoters may take to themselves from the general assets, is a legal fraud upon the creditors. This principle has been many times applied and is abundantly established by the following casi-s: In re Holbrook Shoe & Leather Oo. (D. 0.) 105 Fed. 978; In re Olere Clothing Co. v. TTnion Trust Co., 224 Fed. 306, 140 C. C. A. 49; In re Rieger (H. C.) 157 Fed. 613; In re Looschen iriano Co. (D. C.) 261 Fed. 93, -I t Am. Bankr. Rep. 190; Hunter v. Baker Motor Vehicle Co. (D. 0.) 225 Fed. 1006.
' “The challenge to the jurisdiction of this court to dispose of the controversy in a summary proceedinif is overcome by the conclusion that these-assets are a part of the general estate of the Music House, and merely held by Oregon Filers as an agent or branch thereof. The jurisdiction of this court is not ousted by the circumstance that an adverse claim has been set up. ■ Before there is an ouster the claim must have such foundation in law and in fact as to make it appear to the court highly probable that it exists, can be maintained, and is asserted in good faith. Remington on Bankruptcy, § 1654% et seq.; Scliwoor v. Brown, 130 Fed. 328, 64 C. O. A. 574; In ro Holbrook Shoe & Leather Co., supra. As to how the assets o£ Oregon Ellers should, be disposed of I make no recommendation, further than to say it appears to bo the rulo in such eases that those assets are first applied in satisfaction of the claims of its individual creditors. This question, of course, is not embraced in the order of reference.
“For the reasons assigned, I recommend that an order be entered herein, directing the officers and directors of Oregon Filers Music House to surrender the assets now in their possession to the trustee of Filers Music House for administration according to law.”
, The District Court reviewed the exceptions and the testimony which had been heard before the referee, and affirmed the report of the special master, except as to a finding that as a matter of fact, when the stock of Graves & Co. was purchased, it was understood it should be done for the use and benefit of the individual stockholders of the Piano House. The court regarded this as a conclusion not warranted by the testimony. Thereafter decree was ordered confirming the report of the master, and ordering the trustee to take immediate possession of Oregon Filers Music House and all of its assets and property as part of the bankrupt estate.
Ralph R. Duniway, of Portland, Or., for petitioner and appellant.
W. C. Bristol, of Portland, Or., for respondent and appellee.
Before GILBERT, ROSS, and HUNT, Circuit Judges.

Opinion:
PER CURIAM.
[1] As the controversy involves facts as well as legal questions, petitioner is confined to a remedy by appeal under section 24a of the Bankruptcy Act (Comp. St. § 9608), and as a consequence the motion of the respondent to dismiss the petition for revision is well taken and must be sustained. In re Loving, 224 U. S. 183, 32 Sup. Ct. 446, 56 L. Ed. 725; In re Craig Lumber Co. (C. C. A.) 266 Fed. 692.
We have carefully considered the whole case upon the issues of fact and law, and have regarded it as properly before us by appeal, and as the opinions of the District Court and the referee, and the findings made by the referee, fully cover the substantial issues of the controversy, we do not think it necessary to restate the evidence or to enter upon further discussions of the legal principles applicable thereto. We are satisfied that the case was rightly decided and that the court properly entertained jurisdiction. Babbitt v. Dutcher, 216 U. S. 113, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969; Clere v. Union Trust Co., 224 Fed. 366, 140 C. C. A. 49; Hunter v. Baker Moor Vehicle Co. (D. C.) 225 Fed. 1015; Linn & Lane Timber Co. v. United States, 196 Fed. 593, 116 C. C. A. 267.
Respondents' motion to dismiss the appeal is denied. The decree is affirmed.