THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW GIFT OF Pachty, Tannenbaum, & Ross 771. SELECTED CASES AND STATUTES ON THE LAW OF BANKRUPTCY. EDITED AND ANNOTATED BY SAMUEL WILLISTON, m WELD PROFESSOR OF LAW IN HARVARD UNIVERSITY. SECOND EDITION. CAMBEIDGE HARVARD UNIVERSITY PRESS T U) 61971) Copyright, 1902, 1915, By SAMUEL WILLISTON. PRINTED AT THE HARVARD UNIVERSITY PRESS CAMBRIDGE, MASSACHUSETTS, U. S. A. CONTENTS, bi PAGE TABLE OF CASES < ^ v HISTORICAL INTRODXJCTION 1 PART I. STATUTES. Act of July 1, 1898, and amendments 7 PART II. CASES. CHAPTER I. RESPECTIVE JURISDICTIONS OF THE UNITED STATES AND THE SEVERAL STATES. SECTION I. EXTENT OF THE POWERS OF THE UNITED STATES ... 45 SECTION II. EXTENT OF THE POWERS OF THE SEVERAL STATES 49 CHAPTER II. WHO MAY BE A BANKRUPT. SECTION I. ALIENS AND NON-RESIDENTS 86 SECTION II. INFANTS AND MARRIED WOMEN 93 SECTION III. INSANE PERSONS 100 SECTION IV. CORPORATIONS 102 SECTION V. WAGE EARNERS AND FARMERS 108 CHAPTER III. WHO MAY BE PETITIONING CREDITORS Ill CHAPTER IV. ACTS OF BANKRUPTCY. SECTION I. FRAUDULENT CONVEYANCES 121 (a) SALES AND TRANSFERS FOR VALUE 123 (6) VOLUNTARY SETTLEMENTS AND CONVEYANCES . . 166 (c) GENERAL ASSIGNMENTS FOR CREDITORS 220 (d) STATUTES OF LIMITATIONS 241 SECTION II. PREFERENCES 245 (a) INSOLVENCY 247 (b) INTENT TO PREFER 248 (bb) REASONABLE CAUSE TO BELIEVE THAT A PREFER- ENCE WILL BE EFFECTED 256 (c) WHAT is A "TRANSFER" OF THE DEBTOR'S PROP- BRTY .... 259 648363 iv CONTENTS. PAGE (d) WHO MAY BE PREFERRED 272 (e) EFFECT OF FAILURE TO RECORD 277 (/) FROM WHOM A PREFERENCE MAY BE RECOVERED 283 (g) SUFFERED OR PERMITTED 285 (h) TRANSFERS FOR PRESENT CONSIDERATION .... 303 (i) COLLATERAL EFFECTS OF PREFERENCE 318 SECTION III. GENERAL ASSIGNMENTS 327 SECTION IV. RECEIVERSHIPS AS ACTS OF BANKRUPTCY 336 CHAPTER V. WHAT PROPERTY PASSES TO THE TRUSTEE. SECTION I. TIME OF THE TRANSFER 344 SECTION II. SITUS OF THE PROPERTY 355 SECTION III. DISSOLUTION OF LIENS 372 SECTION IV. DIFFERENT KINDS OF PROPERTY 387 CHAPTER VI. PROVABLE CLAIMS. SECTION I. IN GENERAL : . . 473 SECTION II. SECURED CLAIMS 538 SECTION III. CLAIMS HAVING PRIORITY 548 SECTION IV. MUTUAL DEBTS AND CREDITS 551 CHAPTER VII. VARIOUS DUTIES AND POWERS OF THE BANKRUPT AND HIS TRUSTEE , 574 CHAPTER VIII. PROTECTION, EXEMPTIONS AND DISCHARGE OF BANKRUPT. SECTION I. PROTECTION 591 SECTION II. EXEMPTIONS 597 SECTION III. DISCHARGE 602 TABLE OF CASES. WHOLLY OK PARTIALLY REPRINTED. PAGE ALEXANDER, Re Ill Allen v. Ferguson 644 Ames, Ex parte 304 Atkins v. Wilcox 507 Audubon v. Shufeldt 523 Aultman & Taylor Co. v. Pikop . . 210 BABCOCK i>. Eckler 173, n. Baldwin v. Hale 49 v. Short 144 Barnett v. King 476 Earth v. Backus 365 Becker, Re 428 Brothers, Re 567 Beckham v. Drake 446 Benson v. Benson 140 Bingham, Re 486 Birkett v. Columbia Bank .... 639 Bluthenthal v. Jones 605 Boese v. King 78 Boston .'" 1(2) when made 18 ADMISSION OF INSOLVENCY, an act of bankruptcy . . 3 a (5) AFFIRMATION, allowed instead of oath 18 6 APPEALS, in bankruptcy, when and how made 24, 25 APPELLATE COURTS, meaning of 1 (3) jurisdiction of 24, 25 APPRAISAL, of bankrupt's estate 70 b ARBITRATION, matter in controversy may be submitted to . 26 ARREST, when bankrupt not liable to 8 ASSENT, to composition 12 ASSIGNMENT, what passes by 70 an act of bankruptcy 3 a (4) ATTACHMENT, when dissolved 67 ATTORNEY-GENERAL, duties of 53 ATTORNEYS, transfer by bankrupt to, may be re-examined . 60 d BANKRUPT, definition of 1 (4) who may be 3, 4 examination of, how and when made 3 d, 7 exemptions of 6, 7 a (8) protection of 9 extradition of 10 duties of 7 death or insanity of, does not abate proceedings 8 when to apply for discharge 14 o suits by and against 11 may offer composition when 12 offences by, how punished 29 Viii INDEX TO STATUTES. SECTION BANKRUPTCY, date of, or time of, meaiis what 1 (10) acts of, what are 3 a BOND, required when possession taken prior to adjudication . . 3 e referee or register to give 50 trustee need not give, on appeal 25 c despositories to give . 61 trustees or assignee to give 50 BOOKS, failure to keep, when ground for refusing discharge . 14 BUSINESS, authority to continue bankrupt's 2 (5) CERTIFIED COPIES, of what are admissible as evidence . . 21 d-g CERTIFYING QUESTIONS, by Justice of Supreme Court . 25 b, 2 CIRCUIT COURTS, jurisdiction of ' . . 23 CIRCUIT COURTS OF APPEALS, appellate jurisdiction of . 24, 25 CLAIMS. See DEBTS. CLERK, definition of * 1 (5) duties of 51 duties in regard to papers 39 (7) (8) (10) shall refer cases to referee when 18 /, g fee for referee deposited with 40 a fee for trustee deposited with 48 a CO-DEBTORS, not released by bankrupt's discharge .... 16 COMMENCEMENT OF PROCEEDINGS, what is .... 1 (10) COMPOSITIONS, when allowed, and nature of proceedings . 12,^707 notice must be given of hearing on 58 a (2) operate as discharge when confirmed 14 c effect of setting aside 64 c, 70 d when set aside 13 COMPROMISES, may be made by trustee when ....... 27 notice of, proposed must be given to creditors 58 a (7) CONCEAL, meaning of 1 (22) CONCEALMENT, fraudulent by bankrupt, how punished . . 29 b CONTEMPT, before referee, what is 41 a facts to be certified to judge 41 b CONVEYANCES, fraudulent, may be set aside by trustee or assignee 67 e, 70 a, e fraudulent, are acts of bankruptcy COPYRIGHTS, title to, passes to trustee CORPORATIONS, definition of '. discharge of, does not discharge officers or stockholders . . to what bankrupt act applies COSTS, to have priority in payment COURT, definition of COURTS, of bankruptcy, definition of of bankruptcy, what are, and their powers jurisdiction of United States and State CREDITOR, definition of 1 (9) (23) CREDITORS, list of, must be filed 7 a (8) appoint trustee or assignee 44 fix amount of trustee's bond 50 c meetings of 55 who may vote at meetings 56 INDEX TO STATUTES. 1 X SECTION proof of claims by 57 when entitled to notice 58 may examine bankrupt 7 a (9) entitled to priority 64 dividends to 65, 66 preferred 60 who may file involuntary petition 59 b, d-g CRIMES. See OFFENCES. DEATH, of bankrupt does not abate proceedings 8 of trustee does not abate proceedings 46 DEBT, meaning of 1 (11) DEBTS, what are provable : ^ . ' . . . 63 allowed at first meeting 55 b .mutual debts, and set-off 68 interest on, when rebate of 63 proof of, how made 57 after allowance, may be reconsidered \ 57 k when reconsidered dividend may be recovered 57 / limitation of time for proving 57 n what to have priority 64 appeals from allowance or rejection of 25 what not to be discharged 17 DEFINITIONS 1 DEPOSITIONS, when and how to be taken 21 6, c DEPOSITORIES, shall be designated by court for money of bankrupt estates 61 DISCHARGE, application for, by bankrupt, when and how made 14 ground for withholding 14 b when revoked 15 does not release co-debtor or surety 16 effect of revoking 64 c, 70 d specifications against 14 effect of 17 DISMISSAL OF PETITION, not to be made until after notice to creditors 58 a (8), 59 g DISTRIBUTION, of bankrupt's estate - . '. 65, 12 e in cases of partnership 5 DISTRICT COURT, jurisdiction of , . 2, 23 See DISTRICT JUDGE. DISTRICT JUDGE, referee or register to be appointed by ... 34 to decide issues raised before referees or registers .... 38 may remove referees or registers 34 to make adjudication 18 e-g to designate referee or register to take charge of case ... 22 to confirm composition 12 d when to appoint trustee or assignee 44 DIVIDEND, declaration and payment of 65, 66 notice must be given of ' . 58 a (5) on reconsidered claim may be recovered 57 I duty of referee to declare 39 (1) commission on, payable to referee 40 a duty of trustee to pay " 47(9) X INDEX TO STATUTES. SECTION DOCUMENT, meaning of 1 (13) relating to property passes to trustee 70 a (1) EMBEZZLEMENT, of bankrupt estate, how punished ... 29 a EVIDENCE, how taken 21 record of, must be made up by referee 39 (5) must be taken down by referee when 39 (9) EXAMINATION, of bankrupt when allegation of insolvency denied 3d notice of, to be given creditors 58 a (1) when and how made 21 of witness 21 EXEMPTIONS, what are 6, 70 a how claimed 7 a (8) duty of trustee to set aside 47 (11) EXPENSES OF ADMINISTRATION shall be paid out of estate 62 have priority 64 b EXTRADITION, of bankrupt 10 FEES, additional, not allowed 72 of trustee or assignee 48 of referee or register 40 a of clerk 52 of marshal 52 clerk shall collect, account for, and pay over 51 FRAUD, when composition may be set aside for 13 property conveyed in, of creditors may be recovered ... 67 e, 70 a, e discharge does not release from debt contracted by .... 17 discharge obtained by, may be set aside 15 FRAUDULENT CONVEYANCES, are acts of bankruptcy . 3 a (1) when may be avoided 67 e,70 a, e HOLIDAY, meaning of 1 (14) INJUNCTION, restraining suits by and against bankrupt when granted 11 INSANITY, of bankrupt does not abate proceedings 8 INSOLVENCY, meaning of . . 1 (15) INSOLVENT LAWS OF STATES, proceedings begun under before July 1, 1898, not affected conclusion INSURANCE, policy of, may be redeemed by bankrupt ... 70 a INTEREST, when to be rebated 63 INVOLUNTARY BANKRUPTCY, for what causes debtor sub- ject to 3 a against whom petition may be filed 4 by whom petition may be filed 59 proceedings upon petition in 18 JUDGE, meaning of word in act 1 (16) See DISTRICT JUDGE, CIRCUIT JUDGE, JUSTICES OP THE SUPREME COURT. JURISDICTION, of Bankruptcy Courts 2 of State and United States courts 23 of referees or registers 38 INDEX TO STATUTES. xi SECTION JURY, trial by, when allowed 19 JUSTICES OF THE SUPREME COURT, to frame rules . 30 may certify question for determination 25 b, 2 LIENS, when avoided 67 LIMITATION, of suits by or against trustee or assignee ... 11 d of actions on bonds of trustee or referee 50 I, m of time for proving claims 57 n LOST INSTRUMENT, how proved 57 & MARSHAL, fees of 52 & when to take possession of debtor's property 69 MEANING OF TERMS, used in the act 1 MEETING OF CREDITORS, when called 55 a, d-f business of 55 b, c who may vote at 56 notice of, how given 58 MUTUAL DEBTS AND CREDITS, set off against each other 68 NEWSPAPERS, shall be designated by court for publishing notices 28 NOTICE, of the taking of depositions 21 c in what newspapers published 28 must be given to creditors by referee or assignee 39 (4), 58 c in what cases required to be given 58 must be given by mail 58 a when must be published 58 & OATH, meaning of -1 (17) pleadings must be verified by . . ' 18 c who may administer . 20 false, how punished 29 6 of office, of referees 36 proof of claim must be under 57 a OFFENCES, what are under the act 29 OFFICERS, meaning of 1 (18) PARTNERSHIP, may be adjudged bankrupt when 5 distribution of estate 5/ PATENTS, title to, passes to trustee 70 a PENALTIES, proof on, allowed only for actual loss ...... 57 j against bankrupt, officers, and others 29 PERSONS, meaning of 1 (19) PETITION, meaning of 1 (20) voluntary, who may file 4 a, 59 a involuntary, who may file 59 6, d-f must be filed in duplicate 59 c not to be dismissed till after notice to creditors 58 o (8), 590 where to be filed 2 (1) in involuntary cases, when may be filed 36 procedure upon filing of 18 for revision of decision of lower court 24 when may first be filed conclusion PLEADING, in bankruptcy proceedings 18 Xii INDEX TO STATUTES. SECTION POSSESSION, of bankrupt's estate pending adjudication . . 3e POWERS, when bankrupt's pass to trustee 70 a PREFERENCES, are acts of bankruptcy 3 a (2) (3) creditors who have received, cannot prove without surrender 57 g what are 60 a when may be recovered back 60 b-d PRIORITY, what claims have 64 right to vote of creditors having 56 6 PROCESS, how issued, and returnable 18 PROOF OF DEBTS, how to be made 57 must be examined by bankrupt 7 a (3) between partnership estates . 5 g PROPERTY, possession of bankrupt's 69 transfer of title to 47, 70 PROVABLE DEBTS, what are 63 See DEBTS. PUBLICATION, of notices of first meeting ........ 58 6 of other notices 58 6 to be in papers designated by court 28 RECEIVER, appointment of, when an act of bankruptcy . . 3 a may be given authority to continue business 2 (5) RECORDING, effect of not 36 RECORDS, referee or register must keep and transmit to clerk 39 (7) (8), 42 c how referee or register shall keep 42 REFEREES or REGISTERS, meaning of 1 (21) office created 33 cases referred to, by clerk when 18 cases may be referred to, generally or specially 22 offences by, what are and how punished 29 appointment, removal and districts of 34, 43 qualifications of 35 oath of office of 36 number of 37 jurisdiction of 38 duties of 39 compensation of 40 a records of 42 absence or disability of 43 bonds of 50 REVISION, petition for, to Circuit Court of Appeals .... 24 RULES, Supreme Court shall frame 30 SALES, how to be made by trustee or assignee . 70 b of property, notice must be given 58 a (4) SCHEDULES, of property and creditors, when must be filed . 7 a (8) debts not included in, are not discharged 17 defective, how completed 39 (2) (6) SECURED CREDITOR, meaning of 1 (23) right of, to vote 56 6 claims of, allowed for provisional amount for voting ... 57 e proof by 57 h SET-OFF, when allowed 68 SOLVENCY, when a defence to petition 3 c INDEX TO STATUTES. xiii SECTION STATES, meaning of 1 (24) STATISTICS, to be gathered and reported 53, 54 STAY, of suits against bankrupt, when granted 11 a SUPREME COURT OF THE UNITED STATES, appellate jurisdiction of 24, 25 shall frame rules . 30 SUPREME COURTS OF THE TERRITORIES, jurisdic- tion of 24, 25 SURETIES, not discharged by discharge of bankrupt .... 16 on bonds of trustee and referee 50 d-g may prove, if creditor does not 57 i TAXES, not discharged 17 to have priority 64 a TIME, how computed 31 TITLE TO PROPERTY, when, and of what passes to trustee 70 TRADE-MARKS, title to, passes to trustee 70 a TRANSFER, meaning of 1 (25) and consolidation of cases 32 from one referee to another . 22 b TRUSTEE, meaning of 1 (26) offences by 29 office of, created 33 appointment of 44, 5 & qualifications of 45 duties of 47 a, 70 when three, two must concur in every act 47 b compensation of 48 accounts open to inspection 49 bonds of 50 not liable for penalties incurred by bankrupt 50 i notice of filing of final account must be given 58 a (6) takes title to what property 70 shall convey title to purchaser of bankrupt's estate ... 70 c See ASSIGNEE. VOLUNTARY BANKRUPT, who may be 4 a VOTERS, who may be at meetings of creditors 56 WAGE EARNER, meaning of 1 (27) cannot be made involuntary bankrupt 46 WAGES, when to have priority 64 b (4) WARRANT, to marshal to take debtor's property 69 WITNESS, bound to attend 41 fees and mileage paid to, have priority 64 b (3) WRITS OF ERROR, to Supreme Court 25 CASES ON BANKRUPTCY. HISTORICAL INTRODUCTION. ENGLAND. THE first bankrupt act in England was 34 & 35 Henry VIII. c. 4. The object was to assist creditors in collecting their claims if their debtors, by absconding or keeping within their houses, made ordinary process inadequate. To this end the Chancellor and other officers were empowered to take the bodies of " such offenders " as well as their property. The statute further provided for the sale of the property and distribution of the proceeds ratably among the creditors, and for the detection, avoiding, and punishment of fraudulent conveyances and detention of the bankrupt's property. The next statute, 13 Eliz. c. 7, confined the possibility of bankruptcy to traders, but increased the number of acts of bankruptcy to six, all, however, like those in the preceding act, indicating an intent to defraud creditors of their ordinary legal remedies against the person or prop- erty of their debtors. The Chancellor was authorized upon complaint against a bankrupt to appoint commissioners to take charge of the bankrupt's property and its distribution. The bankrupt was required to deliver himself up after proclamation, on penalty of fine or imprison- ment. From the construction of this statute, rather than from its express words, the doctrine was established that the property of the bankrupt passed to the commissioners, by relation, as of the time of the first act of bankruptc} r . It was also expressly provided that property subsequently acquired by the bankrupt should pass to the commissioners. The creditors, if not fully paid by the bankruptcy proceedings, retained their ordinary legal remedies against their debtor. The general system of bankruptcy legislation shown by these statutes a quasi criminal proceeding against a trader seeking to defraud his creditors of their remedies, a proceeding from which the bankrupt de- rived no benefit was elaborated by later statutes, but not fundamen- tally changed for many years. The important changes gradually made by later statutes may be briefly stated : 1 James I. c. 15, added as an act of bankruptcy lying in prison six months or more on being arrested for debt, a state of affairs which i 2 HISTORICAL INTRODUCTION. might occur whenever a trader was insolvent, though not fraudulent. It also introduced the first protection to parties dealing with one who had committed an act of bankruptcy, but without notice of this fact. A debtor of the bankrupt who paid his debt under such circumstances was discharged. 21 James I. c. 19, added as an act of bankruptcy mere non-payment of debts to amount of one hundred pounds within six months after they were due and process served. It introduced the doctrine that if bank- rupts " shall, by the consent and permission of the true owner and proprietary, have in their possession, order, and disposition any goods or chattels whereof they shall be reputed owners, and take upon them the sale, alteration, or disposition as owners," the commissioners shall have power to sell such goods and chattels for the benefit of the cred- itors. A second protected transaction was established : A purchaser for good and valuable consideration was protected from the effect of any act of bankruptcy committed five years or more before suing out of the commission. 13 & 14 Charles II. c. 24, was passed to avoid the effect of the deci- sion in Wostenholme's case, in which Sir John Wostenholme was held to be a trader by virtue of his membership in the East India Company, and enacted that membership in that company and similar ones should not have such effect. 4 & 5 Anne, c. 17, introduced a most important change in bank- ruptcy legislation. It had been found that bankrupts were not suffi- ciently ready to surrender themselves and their property ; and to remedy this, the penalty for failure to do so was made felon}- without benefit of clergy ; and at the same time, as a reward for surrendering himself and conforming in all things to the law, it was provided that a bankrupt should receive a small allowance from his estate and a dis- charge from all debts due before the bankruptcy. These benefits were not to be allowed a bankrupt who had given when insolvent above one hundred pounds in marriage with any of his children, or who had lost at gaming five pounds in one day or one hundred pounds within the year next preceding the bankruptcy. It was further made a condition precedent to the bankrupt's rights that the commissioners should cer- tify to the Chancellor that the bankrupt had conformed in all things to the act. This statute also first provided for the case of mutual credit between the bankrupt and another, though in practice from the first the commissioners only considered the balance to be the debt due to or from the bankrupt. The act was to continue in force for three years. 5 Anne, c. 22, added as a prerequisite to the bankrupt's allowance and discharge that the certificate required by the preceding act should be signed by four parts in five in number and value of the creditors who had proved their debts. Assignees to take charge of the bank- rupt's propert}', appointed temporarily by the commissioners, and after- wards chosen by a majority in number of the creditors present, were first introduced by this statute. HISTORICAL INTRODUCTION. 3 10 Anne, c. 15, repealed some acts of bankruptcy introduced by 21 James I. c. 19, especially mere non-payment of debts to the amount ol one hundred pounds for six months after they were due and process served. 5 George I. c. 24, again gave bankrupts the benefit of discharge and allowance which the}' had enjoyed under 4 & 5 Anne, c. 17, during the three years which that act remained in force, and added a protection from arrest while going to, staying with, or coming from the commis- sioners, in obedience to their summons. An additional prerequisite to the granting of the certificate by the commissioners was established, the oath of the bankrupt that such certificate and the consent of the creditors thereto were fairly obtained. The petitioning creditors were required to give bond conditioned on establishing their claims and the bankruptcy of the alleged bankrupt. The act was limited to seven years. 7 George I. c. 31, permitted proof of debts not due at the time of the bankruptcy, interest being deducted. 5 George II. c. 30, repeated, with some modifications, the provisions of 4 & 5 Anne, c. 17; 5 Anne, c. 22 ; 5 George I. c. 24, which had lapsed by the limitations in time which they contained. The choice of assignees was vested in the creditors having the majority in value, instead of in number as formerly. The act was passed for but three years, but was continued in force for varying periods by later statutes passed for the purpose, and was made perpetual by 37 George III. c. 124. 19 George II. c. 32, introduced another class of protected trans- actions. Payments made in the ordinary course of business by a bankrupt after an act of bankruptcy, but before the suing out of the commission to bona fide creditors without notice of any act of bank- ruptcy, were made valid and not recoverable by the assignees. 4 George III. c. 23, was passed to render members of Parliament (who were exempt from arrest) liable to bankruptcy for failure to pay or secure debts for two months after suit. 46 George III. c. 135, protected all bona fide dealings with a bank- rupt made more than two months before the date of the commission, provided the person dealing with the bankrupt had no notice of any prior act of bankruptc}-, or that he was insolvent or had stopped pay- ment. Creditors whose claims accrued after an act of bankruptc}', but before the date of the commission, if they had no notice of the act of bankruptcy, were given the same rights as creditors whose claims accrued before the act of bankruptcy. f 49 George III. c. 121, provided that consent of three-fifths instead of four-fifths in number and value of the creditors should suffice for the granting of the certificate. Until 1824 the law of bankruptcy was to be collected from all the various statutes referred to above. No attempt had been made to codify or consolidate the various statutes. This was first done by 4 HISTORICAL INTRODUCTION. 5 George IV. c. 98, and to remedy defects in this act, again the following } r ear by 6 George IV. c. 16. The latter statute made the first approach to the allowance of voluntary bankruptcy proceedings. Until 4 & 5 Anne, c. 17, no one could have any object in having bankruptcy pro- ceedings instituted against himself; but after discharges were allowed this was frequently desired, and to attain it an act of bankruptcy was sometimes purposely committed and proceedings instituted with the aid of friendly creditors. This was called a concerted act of bank- ruptcy, and had been treated as a fraud on the law ; but was now authorized. This statute also made provision for the proof of con- tingent claims, and for deeds of arrangement by which an insolvent might with the consent of his creditors settle his affairs without becom- ing a bankrupt. The law of bankruptc)- had now, partly by the statutes enumerated and partly by judicial decision, been developed into nearly its mod- ern form, though a voluntary petition by the bankrupt was not for- mally allowed until the next consolidated bankruptc\" act, 12 & 13 Victoria, c. 106. There have been three later consolidated acts, 24 & 25 Victoria, c. 134 ; 32 & 33 Victoria, c. 71 ; and 46 & 47 Victoria, c. 52. The first of these made non-traders for the first time subject to bankruptcy. The second narrowed the doctrine of reputed ownership, making it applicable only to traders, and applicable to no choses in action except debts due to the bankrupt in the course of his trade. A voluntary settlement b)* a trader within two 3~ears of bankruptcy was made void, and such a settlement made within ten years of bank- ruptcy was made void unless the parties claiming under the settlement could show that the settlor was solvent at the time he made it. This provision has been extended b}- 46 & 47 Victoria, c. 52, commonly called the Bankruptc)' Act of 1883, to settlements by any bankrupt. The Act of 1883 was amended in 1890 by 53 & 54 Victoria, c. 71, which makes elaborate provision in regard to the debtor's discharge (section 8). Various requirements had been made by successive previous statutes, some more favorable to the debtor, others to the creditor. By the Act of 1890 no assent of creditors is necessary, but the court has power not only to refuse a discharge, but to suspend it for a fixed time, or until a dividend of not less than ten shillings in the pound has been paid to the creditors, or to require, as a condition of the discharge, the bankrupt's consent to judgment against himself in favor of the official receiver or trustee for the unpaid balance of his debts, or an)' part of it. THE UNITED STATES. Four bankruptcy acts have been enacted b}- the United States, the Act of April 4, 1800 (2 Stat. 19), repealed December 19, 1803 (2 Stat. 248) ; the Act of August 19, 1841 (5 Stat. 440), repealed March 3, 1843 (5 Stat. 614); the Act of March 2, 1867 (14 Stat. 517), HISTORICAL INTRODUCTION. 5 amended in some details bj' several acts, 1 especially by Act of June 22, 1874 (18 Stat. 178), and consolidated with the amendments in Rev. Stat. 4972-5132, repealed June 7, 1878 (20 Stat. 99) ; the Act of July 1, 1898 (30 Stat. 544) ; amended in 1903, 2 1906, 8 and 1910. 4 The Act of 1800 followed closely the model of the existing English bankruptcy laws. It applied to traders only; the acts of bankruptcy specified included not only acts by which a debtor deprived his creditors of remedies against his person or property, but also failure to give security for debts on which he had been arrested or his property at- tached. The act of bankruptcy relied on must have been committed within six months before the petition. Voluntary bankruptcy was not allowed. Commissioners were appointed by the District Court on the petition of a single creditor or firm having a claim of one thousand dollars, by two creditors having aggregate claims of fifteen hundred dollars, or by more than two creditors having aggregate claims of two thousand dollars. A bond was required from petitioning creditors. A temporary assignee might be appointed by the court, and a permanent assignee was chosen by the majority in value of the creditors. The as- signment by the commissioners to the assignee conveyed by relation the bankrupt's estate as of the time of the commission of the act of bankruptcy, but a bonafide purchase made without notice of any act of bankruptcy before the issuing of the commission was protected. Prop- erty acquired by the bankrupt after the bankruptcy and before discharge passed to the assignee, as did property of which the bankrupt was the reputed owner. Debts due at a future day were made provable, and mutual debts were allowed to be set off against each other. A bank- rupt was given an allowance and a discharge from his provable debts on conforming to the requirements of the act, and receiving a certificate to that effect signed by the commissioners and two-thirds in number and value of the creditors who had proved claims in excess of fifty dol- lars respectively. The Act of 1841 departed widely from the previous law and from the English precedents, being much more favorable to debtors. It united a system of voluntary bankruptcy applicable to all persons owing debts not created by defalcation with a system of involuntary bankruptc}' ap- plicable to traders only. The acts of bankruptcy specified by the act included only certain acts by a debtor which tended to deprive a cred- itor wrongfully of his rights or remedies against his debtor's person or property. A trader might be insolvent and fail to pay his debts 'M any extent without being liable to bankruptcy. Preferences which had not been mentioned in the Act of 1800, nor in the early English acts (though the courts had to some extent supplied the omission), were 1 July 27, 1868 (15 Stat. 227) ; June 30, 1870 (16 Stat. 173); July 14, 1870 (16 Stat. 276) ; June 8, 1872 (17 Stat. 3.34) ; Feb. 13, 1873 (17 Stat. 436) ; March 3, 1873 (17 Stat. 577) ; June 22, 1874 (18 Stat. 178). After the Revised Statutes were issued the law was further amended by Acts of April 14, 1876 (19 Stat. 33) ; July 26, 2876 (19 Stat. 102). 2 32 Stat. 797. 34 Stat. 267. * 36 Stat. 838. 6 HISTORICAL INTRODUCTION. forbidden and made voidable b}- the assignee, and were also made ground for refusing a debtor's discharge, but they were not acts of bankruptcy. The bankrupt's property passed to the assignee from the time of the decree adjudicating the debtor a bankrupt, not from the time of the act of bankruptcy, as in the English law and in the first United States act. Property acquired by the bankrupt after the date of the decree did not pass, a striking change from previous laws, English and American. Sureties, indorsers, and other holders of con- tingent claims, as well as creditors whose claims were not 3 - et due, were given a right to prove. A debtor who had not been guilty of an}* of the wrongful acts forbidden by the act was entitled to a certificate of discharge, unless a majority in number and value of creditors who had proved their debts filed a written dissent. The Act of 1867 did not greatly vary in fundamental theory from the Act of 1841'. The Act of 1898 with its amendments is printed in full hereafter. In the long intervals during which there was no national bankruptcy act in force, most of the States made provision for some sort of bank- ruptcy or insolvency proceedings. The State legislation in force at the time of the passage of the national 'act of 1898 may be brieflj- summar- ized as follows : 1. Some States had what may be called a real bankrupt law ; that is, provision was made for involuntar}* as well as voluntary distribution of a debtor's property, and a discharge from all provable debts was granted. These States are California, Connecticut, Georgia, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hamp- shire, North Dakota, Rhode Island. 2. In the other States the insolvenc} 1 laws were in general merely regulations and changes of more or less importance of the law of as- signments in trust for creditors. In Kentuck}*, New Mexico, Tennes- see, and Wisconsin a preference by an insolvent debtor operated itself as an assignment or afforded ground for the appointment of a receiver. But with this exception no involuntary proceedings were provided for. A few States belonging to this class allowed a debtor making a volun- tary assignment a discharge from all provable debts ; namely, Colorado, Idaho, New York, Oregon, Washington, Wisconsin. Others allowed such a debtor a discharge from debts actually proved ; namely, Arizona, Arkansas, Indian Territory, New Jersey, South Carolina, Texas (if creditors received 33 J per cent), Wyoming. A majority of the States of this class forbade assignments with preferences, but a considerable minority allowed them ; namely, Arkansas, Georgia, Indian Territory, Mississippi, Montana, New York (only to the extent of one-third of the estate), North Carolina, Utah, Virginia. In many other States there was nothing to prevent a debtor from giving preferences when in- solvent, and then making a general assignment of such property as remained. PART I. STATUTES. ACT OF JULY 1, 1898, c. 541. [30 Statutes at Large, 544.] AN ACT TO ESTABLISH A UNIFORM SYSTEM OF BANKRUPTCY THROUGH- OUT THE UNITED STATES. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled: CHAPTER I. DEFINITIONS. SECTION 1 . MEANING OF WORDS AND PHRASES. a. The words and phrases used in this Act, and in proceedings pursuant thereto shall, unless the same be inconsistent with the context, be construed as follows : (1) " A person against whom a petition has been filed " shall include a person who has filed a voluntary petition ; (2) " adjudication " shall mean the date of the entry of a decree that the defendant, in a bankruptcy proceeding, is a bankrupt, or if such decree is appealed from, then the date when such decree is finally confirmed ; (3) ''appel- late courts " shall include the circuit courts of appeals of the United States, the supreme courts of the Territories, and the Supreme Court of the United States; (4) "bankrupt" shall include a person against whom an involuntary petition or an application to set a composition aside or to revoke a discharge has been filed, or who has filed a volun- tary petition, or who has been adjudged a bankrupt ; (5) " clerk " shall mean the clerk of a court of bankruptcy; (6) "corporations" shall mean all bodies having any of the powers and privileges of private corporations not possessed b} T individuals or partnerships, and shall include limited or other partnership associations organized under laws making the capital subscribed alone responsible for the debts of the association; (7) "court" shall mean the court of bankruptcy in which the proceedings are pending, and may include the referee ; (8) " courts of bankruptcy " shall include the district courts of the United States and of the Territories, the supreme court of the District of Columbia, and the United States court of the Indian Territory, and of Alaska; (9) "creditor" shall include any one who owns a demand 8 CASES ON BANKRUPTCY. [PART L or claim provable in bankruptcy, and may include his duly authorized agent, attorney, or proxy; (10) "date of bankruptcy," or "time of bankruptcy," or " commencement of proceedings," or " bankruptcy," with reference to time, shall mean the date when the petition was filed ; (11) " debt" shall include any debt, demand, or claim provable in bankruptc}' ; (12) " discharge " shall mean the release of a bankrupt from all of his debts which are provable in bankruptcy, except such as are excepted by this Act; (13) "document" shall include any book, deed, or instrument in writing; (14) "holiday" shall include Christ- mas, the Fourth of July, the Twenty-second of February, and any da\- appointed by the President of the United States or the Congress of the United States as a holiday or as a day of public fasting or thanks- giving ; (15) a person shall be deemed insolvent within the provisions of this Act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts ; (16) "judge " shall mean a judge of a court of bankruptcy, not including the referee ; (17) " oath " shall include affirmation; (18) "officer" shall include clerk, marshal, re- ceiver, referee, and trustee, and the imposing of a duty upon or the forbidding of an act by any officer shall include his successor and any person authorized by law to perform the duties of such officer; (19) " persons " shall include corporations, except where otherwise specified, and officers, partnerships, and women, and when used with reference to the commission of acts which are herein forbidden shall include per- sons who are participants in the forbidden acts, and the agents, officers, and members of the board of directors or trustees, or other similar con- trolling bodies of corporations ; (20) " petition " shall mean a paper filed in a court of bankruptcy or with a clerk or deputy clerk b}- a debtor praying for the benefits of this Act, or by creditors alleging the commission of an act of bankruptcy by a debtor therein named ; (21) " referee " shall mean the referee who has jurisdiction of the case, or to whom the case has been referred, or any one acting in his stead ; (22) "conceal" shall include secrete, falsify, and mutilate; (23) "se- cured creditor " shall include a creditor who has security for his debt upon the property of the bankrupt of a nature to be assignable under this Act, or who owns such a debt for which some indorser, suretj-, or other persons secondarily liable for the bankrupt has such security upon the bankrupt's assets; (24) "States" shall include the Terri- tories, the Indian Territory, Alaska, and the District of Columbia ; (25) "transfer" shall include the sale and ever}* other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security ; (26) " trustee" shall include all of the trustees of an estate; (27) "wage-earner" shall mean an individual who works for wages, salar}-, or hire, at a rate of compensation not exceeding one PART I.] STATUTES. 9 thousand five hundred dollars per year ; (28) words importing the mas- culine gender may be applied to and include corporations, partnerships, and women ; (29) words importing the plural number may be applied to and mean only a single person or thing ; (30) words importing the singular number may be applied to and mean several persons or things. CHAPTER II. CREATION OF COURTS OF BANKRUPTCY AND THEIR JURISDICTION. SECT. 2. That the courts of bankruptcy as hereinbefore defined, viz., the district courts of the United States in the several States, the supreme court of the District of Columbia, the district courts of the several Territories, and the United States courts in the Indian Ter- ritory and the District of Alaska, are hereb}' made courts of bank- ruptcy, and are hereby invested, within their respective territorial limits as now established, or as they may be hereafter changed, with such ju- risdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings, in vacation in chambers and dur- ing their respective terms, as they are now or may be hereafter held, to (1) adjudge persons bankrupt who have had their principal place of business, resided or had their domicile within their respective terri- torial jurisdictions for the preceding six months, or the greater portion thereof, or who do not have their principal place of business, reside or have their domicile within the United States, but have property within their jurisdictions, or who have been adjudged bankrupts by courts of competent jurisdiction without the United States and have property within their jurisdiction ; (2) allow claims, disallow claims, reconsider allowed or disallowed claims, and allow or disallow them against bank- rupt estates ; (3) appoint receivers or the marshals, upon application of parties in interest, in case the courts shall find it absolutely necessair, for the preservation of estates, to take charge of the property of bank- rupts after the filing of the petition and until it is dismissed or the trus- tee is qualified ; (4) arraign, try, and punish bankrupts, officers, and other persons, and the agents, officers, members of the board of direc- tors or trustees, or other similar controlling bodies, of corporations, for violations of this Act, in accordance with the laws of procedure of the United States now in force, or such as may be hereafter enacted, regulating trials for the alleged violation of laws of the United States ; (5) authorize the business of bankrupts to be conducted for limited periods by receivers, the marshals, or trustees, if necessary in the best interests of the estates, 1 and allow such officers additional compensa- tion for such services, as provided in section forty-eight of this Act ; 1 The remainder of this sentence was added by the Amendment of 1903, except that the final clause which hy that amendment read : " hut not at a greater rate than in this Act allowed for similar services" was amended in 1910. 10 CASES ON BANKRUPTCY. [PART I. (6) bring in and substitute additional persons or parties in pro- ceedings in bankruptcy when necessary for the complete determina- tion of a matter in controversy ; (7) cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided ; (8) close estates, whenever it appears that they have been fully adminis- tered, by approving the final accounts and discharging the trustees, and reopen them whenever it appears they were closed before being fully administered ; (9) confirm or reject compositions between debtors and their creditors, and set aside compositions and reinstate the cases; (10) consider and confirm, modify or overrule, or return, with instruc- tions for further proceedings, records and findings certified to them by referees; (11) determine all claims of bankrupts to their exemptions; (12) discharge or refuse to discharge bankrupts and set aside dis- charges and reinstate the cases ; (13) enforce obedience by bankrupts, officers, and other persons to all lawful orders, by fine or imprison- ment or fine and imprisonment ; (14) extradite bankrupts from their respective districts to other districts ; (15) make such orders, issue such process, and enter such judgments in addition to those specifically pro- vided for as may be necessary for the enforcement of the provisions of this Act ; (16) punish persons for contempts committed before referees ; (17) pursuant to the recommendation of creditors, or when they neglect to recommend the appointment of trustees, appoint trustees, and upon complaints of creditors, remove trustees for cause upon hearings and after notices to them ; (18) tax costs, whenever they are allowed by law, and render judgments therefor against the unsuccessful party, or the successful party for cause, or in part against each of the parties, and against estates, in proceedings in bankruptcy ; (19) transfer cases to other courts of bankruptcy l ; and (20) exercise ancillary juris- diction over persons or property within their respective territorial limits in aid of a receiver or trustee appointed in any bankruptcy pro- ceedings pending in any other court of bankruptcy. Nothing in this section contained shall be construed to deprive a court of bankruptcy of any power it would possess were certain specific powers not herein enumerated. CHAPTER III. BANKRUPTS. SECT. 3. ACTS OF BANKRUPTCY. a. Acts of bankruptcy by a per- son shall consist of his having (1) conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay, or defraud his creditors, or any of them ; or (2) transferred, while insolvent, any portion of his prop- 1 The remainder of this sentence was added by the Amendment of 1910. PART I.] STATUTES. 11 erty to one or more of his creditors with intent to prefer such creditors over his other creditors ; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or final disposition of any prop- erty affected by such preference vacated or discharged such preference ; or (4) made a general assignment for the benefit of his creditors, 1 or, being insolvent, applied for a receiver or trustee for his property or because of insolvency a receiver or trustee has been put in charge of his property under the laws of a State, of a Territory, or of the United States; or (5) admitted in writing his inability to pa\ r his debts and his willingness to be adjudged a bankrupt on that ground. b. A petition may be filed against a person who is insolvent and who has committed an act of bankruptcy within four months after the com- mission of such act. Such time shall not expire until four months after (1) the date of the recording or registering of the transfer or assign- ment when the act consists ia having made a transfer of any of his property with intent to hinder, delay, or defraud his creditors or for the purpose of giving a preference as hereinbefore provided, or a general assignment for the benefit of his creditors, if by law such recording or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive, or continuous possession of the property unless the petitioning creditors have received actual notice of such transfer or assignment. c. It shall be a complete defence to any proceedings in bankruptcy instituted under the first subdivision of this section to allege and prove that the party proceeded against was not insolvent as defined in this Act at the time of the filing the petition against him, and if solvency at such date is proved by the alleged bankrupt the proceedings shall be dismissed, and under said subdivision one the burden of proving sol- vency shall be on the alleged bankrupt. d. Whenever a person against whom a petition has been filed as hereinbefore provided under the second and third subdivisions of this section takes issue with and denies the allegation of his insolvency, it shall be his duty to appear in court on the hearing, with his books, papers, and accounts, and submit to an examination, and give testi- mony as to all matters tending to establish solvency or insolvency, and in case of his failure to so attend and submit to examination the burden of proving his solvency shall rest upon him. e. Whenever a petition is filed by any person for the purpose of hav- ing another adjudged a bankrupt, and an application is made to take charge of and hold the property of the alleged bankrupt or any part of the same, prior to the adjudication and pending a hearing on the peti- tion, the petitioner or applicant shall file in the same court a bond, with at least two good and sufficient sureties, who shall reside within the ju- risdiction of said court, to be approved by the court or a judge thereof, in such sum as the court shall direct, conditioned for the payment, in 1 The remainder of clause (4) was added by the Amendment of 1903. 12 CASES ON BANKRUPTCY. [PART I. case such petition is dismissed, to the respondent, his or her personal representatives, all costs, expenses, and damages occasioned by such seizure, taking, and detention of the property of the alleged bankrupt. If such petition be dismissed by the court or withdrawn by the peti- tioner, the respondent or respondents shall be allowed all costs, counsel fees, expenses, and damages occasioned by such seizure, taking, or de- tention of such property. Counsel fees, costs, expenses, and damages shall be fixed and allowed by the court, and paid by the obligors in such bond. SECT. 4. WHO MAT BECOME BANKRUPTS. a. Any person, except a municipal, railroad, insurance, or banking Corporation, shall be en- titled to the benefits of this Act as a voluntary bankrupt. 1 6. An}* natural person, except a wage-earner or a person engaged chiefly in farming or the tillage of the soil, any unincorporated com- pany, 2 and any moneyed, business, or commercial corporation, except a municipal, railroad, insurance, or banking corporation, owing debts to the amount of one thousand dollars or over, may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act. The bankruptcy of a corporation shall not release its officers, direc- tors, or stockholders, as such, from any liability under the laws of a State or Territory of the United States. 8 SECT. 5. PARTNERS. a. A partnership, during the continuation of the partnership business, or after its dissolution and before the final settlement thereof, may be adjudged a bankrupt b. The creditors of the partnership shall appoint the trustee ; in other respects so far as possible the estate shall be administered as herein provided for other estates. c. The court of bankruptcy which has jurisdiction of one of the partners may have jurisdiction of all the partners and of the adminis- tration of the partnership and individual property. d. The trustees shall keep separate accounts of the partnership property and of the property belonging to the individual partners. e. The expenses shall be paid from the partnership property and the individual property in such proportions as the court shall determine. /. The net proceeds of the partnership property shall be appropri- 1 Prior to the Amendment of 1910, the clause read: a. Any person who owes debts, except a corporation, shall be entitled to the benefits of this Act as a voluntary bankrupt. 2 Prior to the Amendment of 1910, the remainder of the paragraph was as follows : and any corporation engaged principally in manufacturing, trading, printing, pub- lishing, mining or mercantile pursuits, owing debts to the amount of one thousand dol- lars or over, may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act. Private bankers, but not national banks or banks incorporated under State or Territo- rial laws, may be adjudged involuntary bankrupts. The word " mining" was inserted by the Amendment of 1903. 8 This sentence was inserted by the Amendment of 1910. PART I.] STATUTES. 13 ated to the payment of the partnership debts, and the net proceeds of the individual estate of each partner to the payment of his individual debts. Should any surplus remain of the property of any partner after paying his individual debts, such surplus shall be added to the partner- ship assets and be applied to the payment of the partnership debts. Should any surplus of the partnership property remain after paying the partnership debts, such surplus shall be added to the assets of the individual partners in the proportion of their respective interests in the partnership. g. The court may permit the proof of the claim of the partnership estate against the individual estates, and vice versa, and may marshal the assets of the partnership estate and individual estates so as to pre- vent preferences and secure the equitable distribution of the property of the several estates. h. In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged bankrupt ; but such partner or partners not ad- judged bankrupt shall settle the partnership business as expeditiously as its nature will permit, and account for the interest of the partner or partners adjudged bankrupt. SECT. 6. EXEMPTIONS OF BANKRUPTS. a. This Act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition. SECT. 7. DUTIES OF BANKRUPTS. a. The bankrupt shall (1) attend the first meeting of his creditors, if directed by the court or a judge thereof to do so, and the hearing upon his application for a discharge, if filed; (2) comply with all lawful orders of the court; (3) examine the correctness of all proofs of claims filed against his estate ; (4) exe- cute and deliver such papers as shall be ordered by the court ; (5) exes- cute to his trustee transfers of all his property in foreign countries ; (6) immediately inform his trustee of any attempt, by his creditors or other persons, to evade the provisions of this Act coming to his knowl- edge ; (7) in case of any person having to his knowledge proved a false claim against his estate, disclose that fact immediately to his trustee ; (8) prepare, make oath to, and file in court within ten days, unless further time is granted, after the adjudication, if an involuntary bank- rupt, and with the petition if a voluntary bankrupt, a schedule of his property, showing the amount and kind of property, the location thereof, its money value in detail, and a list of his creditors, showing their residences if known, if unknown, that fact to be stated, the amounts due each of them, the consideration thereof, the security held by them, if any, and a claim for such exemptions as he may be entitled to, all in triplicate, one copy of each for the clerk, one for the referee, and one for the trustee ; and (9) when present at the first meeting of his 14 CASES ON BANKRUPTCY. [PART I. creditors, and at such, other times as the court shall order, submit to an examination concerning the conducting of his business, the cause of his bankruptcy, his dealings with his creditors and other persons, the amount, kind, and whereabouts of his property, and, in addition, all matters which may affect the administration and settlement of his estate; but no testimony given by him shall be offered in evidence against him in any criminal proceeding. Provided, however, That he shall not be required to attend a meeting of his creditors, or at or for an examination at a place more than one hundred and fifty miles distant from his home or principal place of business, or to examine claims except when presented to him, unless ordered by the court, or a judge thereof, for cause shown, and the bankrupt shall be paid his actual expenses from the estate when examined or required to attend at any place other than the city, town, or village of his residence. SECT. 8. DEATH OR INSANITY OF BANKRUPTS. a. The death or insanity of a bankrupt shall not abate the proceedings, but the same shall be conducted and concluded in the same manner, so far as pos- sible, as though he had not died or become insane : Provided, That in case of death the widow and children shall be entitled to all rights of dower and allowance fixed by the laws of the State of the bankrupt's residence. SECT. 9. PROTECTION AND DETENTION OP BANKRUPTS. a. A bank- rupt shall be exempt from arrest upon civil process except in the fol- lowing cases : (1) When issued from a court of bankruptcy for contempt or disobedience of its lawful orders; (2) when issued from a State court having jurisdiction, and served within such State, upon a debt or claim from which his discharge in bankruptcy would not be a release, and in such case he shall be exempt from such arrest when in attend- ance upon a court of bankruptcy or engaged in the performance of a duty imposed by this Act. b. The judge may, at any time after the filing of a petition by or against a person, and before the expiration of one month after the qualification of the trustee, upon satisfactory proof by the affidavits of at least two persons that such bankrupt is about to leave the district in which he resides or has his principal place of business to avoid examina- tion, and that his departure will defeat the proceedings in bankruptcy, issue a warrant to the marshal, directing him to bring such bankrupt forthwith before the court for examination. If upon hearing the evi- dence of the parties it shall appear to the court or a judge thereof that the allegations are true and that it is necessary, he shall order such marshal to keep such bankrupt in custody not exceeding ten days, but not imprison him, until he shall be examined and released or give bail conditioned for his appearance for examination, from time to time, not exceeding in all ten days, as required by the court, and for his obe- dience to all lawful orders made in reference thereto. SECT. 10. EXTRADITION OF BANKRUPTS. a. Whenever a warrant PART I.] STATUTES. 15 for the apprehension of a bankrupt shall have been issued, and he shall have been found within the jurisdiction of a court other than the one issuing the warrant, he may be extradited in the same manner in which persons under indictment are now extradited from one district within which a district court has jurisdiction to another. SECT. 11. Suns BY AND AGAINST BANKRUPTS. a. A suit which is founded upon a claim for which a discharge would be a release, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an adjudication or the dismissal of the petition; if such person is adjudged a bankrupt, such action may be further stayed until twelve months after the date of such adju- dication, or, if within that time such person applies for a discharge, then until the question of such discharge is determined. b. The court may order the trustee to enter his appearance and de- fend any pending suit against the bankrupt. c. A trustee may, with the approval of the court, be permitted to prosecute as trustee any suit commenced by the bankrupt prior to the adjudication, with like force and effect as though it had been com- menced by him. d. Suits shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after the estate has been closed. SECT. 12. COMPOSITIONS, WHEN CONFIRMED. a. A bankrupt may offer, either before or after adjudication, terms of composition to his creditors after, but not before, he has been examined in open court or at a meeting of his creditors, and has filed in court the schedule of his property and the list of his creditors required to be filed by bankrupts. In compositions before adjudication the bankrupt shall file the re- quired schedules, and thereupon the court shall call a meeting of creditors for the allowance of claims, examination of the bankrupt, and preservation or conduct of estates, at which meeting the judge or referee shall preside ; and action upon the petition for adjudication shall be delayed until it shall be determined whether such composition shall be confirmed. 1 6. An application for the confirmation of a composition may be filed in the court of bankruptcy after, but not before, it has been accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims, and the consideration to be paid by the bankrupt to his creditors, and the money necessary to pay all debts which have priority and the cost of the proceedings, have been deposited in such place as shall be designated by and subject to the order of the judge. c. A date and place, with reference to the convenience of the parties in interest, shall be fixed for the hearing upon each application for the 1 Prior to the Amendment of 1910 this subdivision read: A bankrupt may offer terms of composition to his creditors after, but not before, he has been examined in open court or at a meeting of his creditors and filed in court the schedule of his prop- erty and list of his creditors, required to be filed by bankrupts. 16 CASES ON BANKRUPTCY. [PART I. confirmation of a composition, and such objections as may be made to its confirmation. d. The judge shall confirm a composition if satisfied that (1) it is for the best interests of the creditors ; (2) the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar to his discharge ; and (3) the offer and its acceptance are in good faith and have not been made of procured except as herein provided, or by any means, promises, or acts herein forbidden. e. Upon the confirmation of a composition, the consideration shall be distributed as the judge shall direct, and the case dismissed. When- ever a composition is not confirmed, the estate shall be administered in bankruptcy as herein provided. SECT. 13. COMPOSITIONS, WHEN SET ASIDE. a. The judge may, upon the application of parties in interest filed at any time within six months after a composition has been confirmed, set the same aside and reinstate the case if it shall be made to appear upon a trial that fraud was practised in the procuring of such composition, and that the knowl- edge thereof has come to the petitioners since the confirmation of such composition. SECT. 14. DISCHARGES, WHEN GRANTED. a. Any person may, after the expiration of one month and within the next twelve months subsequent to being adjudged a bankrupt, file an application for a dis- charge in the court of bankruptcy in which the proceedings are pend- ing ; if it shall be made to appear to the judge that the bankrupt was unavoidably prevented from filing it within such time, it may be filed within but not after the expiration of the next six months. b. The judge shall hear the application for a discharge and such proofs and pleas as may be made in opposition thereto by the trustee or other parties in interest, at such time as will give the trustee or parties in interest a reasonable opportunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has (1) committed an offense punishable by imprisonment as herein provided; or (2) with intent to conceal his financial condition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained ; or (3) obtained money or property on credit upon a materially false statement in writing, made by him to any person or his representative for the purpose of obtaining credit from such person ; or (4) at any time subsequent to the first day of the four months immediately preceding the filing of the petition transferred, removed, destroyed, or con- cealed, or permitted to be removed, destroyed, or concealed, any of his property, with intent to hinder, delay, or defraud his creditors; or (5) in voluntary proceedings been granted a discharge in bank- ruptcy within six years; or (6) in the course of the proceedings in bankruptcy refused to obey any lawful order of, or to answer any material question approved by the court: Provided, That a trustee shall not interpose objections to a bankrupt's discharge until he shall PART I.] STATUTES. 17 be authorized so to do at a meeting of creditors called for that purpose. 1 c. The confirmation of a composition shall discharge the bankrupt from his debts, other than those agreed to be paid by the terms of the composition and those not affected by a discharge. SECT. 15. DISCHARGES, WHEN REVOKED. a. The judge may, upon the application of parties in interest who have not been guilty of undue laches, filed at any time within one year after a discharge shall have been granted, revoke it upon a trial if it shall be made to ap- pear that it was obtained through the fraud of the bankrupt, and that the knowledge of the fraud has come to the petitioners since the granting of the discharge, and that the actual facts did not warrant the discharge. SECT. 16. CO-DEBTORS OF BANKRUPTS. a. The liability of a person who is co-debtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt. SECT. 17. DEBTS NOT AFFECTED BY A DISCHARGE. a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as (1) are due as a tax levied by the United States, the State, county, district, or municipality in which he resides; (2) are liabilities for obtaining property by false pretences or false representa- tions, or for wilful and malicious injuries to the person or property of another, or for alimony due or to become due, or for maintenance or support of wife or child, or for seduction of an unmarried female, or for criminal conversation 2 ; (3) have not been duly scheduled in time for proof and allowance, with the name of the creditor if known to the bankrupt, unless such creditor had notice or actual knowledge of the 1 This subdivision in the original act read : b. The judge shall hear the applica- tion for a discharge, and such proofs and pleas as may be made in opposition thereto by parties in interest, at such time as will give parties in interest a reasonable oppor- tunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has (1) committed an offence punishable by imprisonment as herein provided ; or (2) with fraudulent intent to conceal his true financial condition and in contemplation of bankruptcy, destroyed, concealed, or failed to keep books of account or records from which his true condition might be ascertained. In 1903 the subdivision was amended after the words "as herein provided" so as to read as follows : or (2) with intent to conceal his financial condition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained ; or (3) obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtain- ing such property on credit ; or (4) at any time subsequent to the first day of the four months immediately preceding the filing of the petition transferred, removed, de- stroyed, or concealed, or permitted to be removed, destroyed, or concealed, any of his property with intent to hinder, delay, or defraud his creditors ; or (5) in voluntary proceedings been granted a discharge in bankruptcy within six years; or (6) in the course of the proceedings in bankruptcy refused to obey any lawful order of or to answer any material question approved by the court. 2 Prior to the Amendment of 1910 this clause read : (2) are judgments in actions for frauds, or obtaining property by false pretences or false representations, or for wilful and malicious injuries to the person or property of another. 18 CASES ON BANKRUPTCY. [PART I. proceedings in bankruptcy ; or (4) were created by his fraud, embez- zlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity. CHAPTER IV. COURTS AND PROCEDURE THEREIN. SECT. 18. PROCESS, PLEADINGS, AND ADJUDICATIONS. a. Upon the filing of a petition for involuntary bankruptcy, service thereof, with a writ of subpo3na, shall be made upon the person therein named as de- fendant in the same manner that service of such process is now had upon the commencement of a suit in equity in the courts of the United States, except that it shall be returnable within fifteen days, unless the judge shall for cause fix a longer time; but in case personal service can not be made, then notice shall be given by publication in the same manner and for the same time as provided by law for notice by publi- cation in suits 1 to enforce a legal or equitable lien iu courts of the United States, except that, unless the judge shall otherwise direct, the order shall be published not more than once a week for two consecutive weeks, and the return day shall be ten days after the last publication unless the judge shall for cause fix a longer time. b. The bankrupt, or any creditor, may appear and plead to the petition within five 2 days after the return day, or within such further time as the court may allow. c. All pleadings setting up matters of fact shall be verified under oath. d. If the bankrupt, or any of his creditors, shall appear, within the time limited, and controvert the facts alleged in the petition, the judge shall determine, as soon as may be, the issues presented by the plead- ings, without the intervention of a jury, except in cases where a jury trial is given by this Act, and make the adjudication or dismiss the petition. e. If on the last day within which pleadings may be filed none are filed by the bankrupt or any of his creditors, the judge shall on the next day, if present, or as soon thereafter as practicable, make the adjudication or dismiss the petition. / If the judge is absent from the district, or the division of the dis- trict in which the petition is pending, on the next day after the last day on which pleadings may be filed, and none have been filed by the bankrupt or any of his creditors, the clerk shall forthwith refer the case to the referee. g. Upon the filing of a voluntary petition the judge shall hear the petition and make the adjudication or dismiss the petition. If the 1 Prior to the Amendment of 1903 the remainder of the subdivision after suits, read "in equity in courts of the United States." a Prior to the Amendment of 1903 " ten days " was the period allowed by the statute PAKT I.] STATUTES. 19 judge is absent from the district, or the division of the district in which the petition is filed at the time of the filing, the clerk shall forthwith refer the case to the referee. SECT. 19. JURY TRIALS. a. A person against whom an involuntary petition has been filed shall be entitled to have a trial by jury, in re- spect, to the question of his insolvency, except as herein otherwise provided, and any act of bankruptcy alleged in such petition to have been committed, upon filing a written application therefor at or before the time within which an answer may be filed. If such application is not filed within such time, a trial by jury shall be deemed to have been waived. b. If a jury is not in attendance upon the court, one may be specially summoned for the trial, or the case may be postponed, or, if the case is pending in one of the district courts within the jurisdiction of a cir- cuit court of the United States, it may be certified for trial to the circuit court sitting at the same place, or by consent of parties when sitting at any other place in the same district, if such circuit court has or is to have a jury first in attendance. c. The right to submit matters in controversy, or an alleged offence under this Act, to a jury shall be determined and enjoyed, except as provided by this Act, according to the United States laws now in force or such as may be hereafter enacted in relation to trials by jury. SECT. 20. OATHS, AFFIRMATIONS. a. Oaths required by this Act, except upon hearings in court, may be administered by (1) referees; (2) officers authorized to administer oaths in proceedings before the courts of the United States, or under the laws of the State where the same are to be taken ; and (3) diplomatic or consular officers of the United States in any foreign country. 6. Any person conscientiously opposed to taking an oath may, in lieu thereof, affirm. Any person who shall affirm falsely shall be punished as for the making of a false oath. SECT. 21. EVIDENCE. a. A court of bankruptcy may, upon appli- cation of any officer, bankrupt, or creditor, by order require any desig- nated person, including the bankrupt 1 and his wife, to appear in court or before a referee or the judge of any State court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of administration under this Act : Provided, That the wife may be examined only touching business transacted by her or to which she is a party, and to determine the fact whether she has transacted or been a party to any business of the bankrupt. b. The right to take depositions in proceedings under this Act shall 1 Prior to the Amendment of 1903 after the word "bankrupt" the subdivision read: Who is a competent witness under the laws of the State in which the proceed- ings are pending, to appear in court or before a referee or the judge of any State court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of administration under this Act. 20 CASES ON BANKRUPTCY. [PART I. be determined and enjoyed according to the United States laws now in force, or such as may be hereafter enacted relating to the taking of depositions, except as herein provided. c. Notice of the taking of depositions shall be filed with the referee in every case. When depositions are to be taken in opposition to the allowance of a claim notice shall also be served upon the claimant, and when in opposition to a discharge notice shall also be served upon the bankrupt. d. Certified copies of proceedings before a referee, or of papers, when issued by the clerk or referee, shall be admitted as evidence with like force and effect as certified copies of the records of district courts of the United States are now or may hereafter be admitted as evidence. e. A certified copy of the order approving the bond of a trustee shall constitute conclusive evidence of the vesting in him of the title to the property of the bankrupt, and if recorded shall impart the same notice that a deed from a bankrupt to the trustee if recorded would have imparted had not bankruptcy proceedings intervened. /. A certified copy of an order confirming or setting aside a compo- sition, or granting or setting aside a discharge, not revoked, shall be evidence of the jurisdiction of the court, the regularity of the proceed- ings, and of the fact that the order was made. g. A certified copy of an order confirming a composition shall con- stitute evidence of the revesting of the title of his property in the bankrupt, and if recorded shall impart the same notice that a deed from the trustee to the bankrupt if recorded would impart. SECT. 22. REFERENCE OF CASES AFTER ADJUDICATION. a. After a person has been adjudged a bankrupt, the judge may cause the trustee to proceed with the administration of the estate, or refer it (1) gener- ally to the referee or specially with only limited authority to act in the premises or to consider and report upon specified issues ; or (2) to any referee within the territorial jurisdiction of the court, if the con- venience of parties in interest will be served thereby, or for cause, or if the bankrupt does not do business, reside, or have his domicile in the district. 6. The judge may, at any time, for the convenience of parties or for cause, transfer a case from one referee to another. SECT. 23. JURISDICTION OF UNITED STATES AND STATE COURTS. a. The United States circuit courts shall have jurisdiction of all contro- versies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants. b. Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such PART I.] STATUTES. 21 trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, 1 except suits for the recovery of property under section sixty, subdivision 6 ; section sixty-seven, subdivision e ; and section seventy, subdivision e. c. The United States circuit courts shall have concurrent jurisdiction with the courts of bankruptcy, within their respective territorial limits, of the offences enumerated in this act. SECT. 24. JURISDICTION OF APPELLATE COURTS. a. The Supreme Court of the United States, the circuit courts of appeals of the United States, and the supreme courts of the Territories, in vacation in cham- bers and during their respective terms, as now or as they may be hereafter held, are hereby invested with appellate jurisdiction of con- troversies arising in bankruptcy proceedings from the courts of bank- ruptcy from which they have appellate jurisdiction in other cases. The Supreme Court of the United States shall exercise a like jurisdiction from courts of bankruptcy not within any organized circuit of the United States and from the supreme court of the District of Columbia. b. The several circuit courts of appeal shall have jurisdiction in equity, either interlocutory or final, to superintend and revise in matter of law the proceedings of the several inferior courts of bankruptcy within their jurisdiction. Such power shall be exercised on due notice and petition by any party aggrieved. SECT. 25. APPEALS AND WRITS OF ERROR. a. That appeals, as in equity cases, may be taken in bankruptcy proceedings from the courts of bankruptcy to the circuit court of appeals of the United States, and to the supreme court of the Territories, in the following cases, to wit : (1) from a judgment adjudging or refusing to adjudge the defendant a bankrupt ; (2) from a judgment granting or denying a discharge ; and (3) from a judgment allowing or rejecting a debt or claim of five hun- dred dollars or over. Such appeal shall be taken within ten days after the judgment appealed from has been rendered, and may be heard and determined by the appellate court in term or vacation, as the case may be. b. From any final decision of a court of appeals, allowing or rejecting a claim under this Act, an appeal may be had under such rules and within such time as may be prescribed by the Supreme Court of the United States, in the following cases and no other: 1. Where the amount in controversy exceeds the sum of two thou- sand dollars, and the question involved is one which might have been taken on appeal or writ of error from the highest court of a State to the Supreme Court of the United States ; or 2. Where some Justice of the Supreme Court of the United States 1 This subdivision in the original Act ended with the word "defendant." By the Amendment of 1903 the exception of sections 60 b and 67 e was made; and by the Amendment of 1910 section 70 e was also excepted. 22 CASES ON BANKRUPTCY. [PART I. shall certify that in his opinion the determination of the question or questions involved in the allowance or rejection of such claim is essential to a uniform construction of this Act throughout the United States. c. Trustees shall not be required to give bond when they take appeals or sue out writs of error. d. Controversies may be certified to the Supreme Court of the United States from other courts of the United States, and the former court may exercise jurisdiction thereof and issue writs of certiorari pursuant to the provisions of the United States laws now in force or such as may be hereafter enacted. SECT. 26. ARBITRATION OF CONTROVERSIES. a. The trustee may, pursuant to the direction of the court, submit to arbitration any contro versy arising in the settlement of the estate. 6. Three arbitrators shall be chosen by mutual consent, or one by the trustee, one by the other party to the controversy, and the third by the two so chosen, or if they fail to agree in five days after their appointment the court shall appoint the third arbitrator. c. The written finding of the arbitrators, or a majority of them, as to the issues presented, may be filed in court, and shall have like force and effect as the verdict of a jury. SECT. 27. COMPROMISES. a. The trustee may, with the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interests of toe estate. SECT. 28. DESIGNATION OF NEWSPAPERS. a. Courts of bankruptcy shall by order designate a newspaper published within their respective territorial districts, and in the county in which the bankrupt resides or the major part of his property is situated, in which notices required to be published by this Act, and orders which the court may direct to be published, shall be inserted. Any court may in a particular case, for the convenience of parties in interest, designate some additional news- paper in which notices and orders in such case shall be published. SECT. 29. OFFENCES. a. A person shall be punished, by imprison- ment for a period not to exceed five years, upon conviction of the offence of having knowingly and fraudulently appropriated to his own use, embezzled, spent, or unlawfully transferred any property or secreted or destroyed any document belonging to a bankrupt estate which came into his charge as trustee. b. A person shall be punished, by imprisonment for a period not to exceed two years, upon conviction of the offence of having knowingly and fraudulently (1) concealed while a bankrupt, or after his discharge, from his trustee any of the property belonging to his estate in bank- ruptcy ; or (2) made a false oath or account in, or in relation to, any proceeding in bankruptcy; (3) presented under oath any false claim for proof against the estate of a bankrupt, or used any such claim in composition personally or by agent, proxy, or attorney, or as agent, PAKT I.J STATUTES. 23 proxy, or attorney ; or (4) received any material amount of property from a bankrupt after the filing of the petition, with intent to defeat this Act; or (5) extorted or attempted to extort any mdney or prop- erty from any person as a consideration for acting or forbearing to act in bankruptcy proceedings. c. A person shall be punished by fine, not to exceed five hundred dollars, and forfeit his office, and the same shall thereupon become vacant, upon conviction of the offence of having knowingly (1) acted as a referee in a case in which he is directly or indirectly interested ; or (2) purchased, while a referee, directly or indirectly, any property of the estate in bankruptcy of which he is referee ; or (3) refused, while a referee or trustee, to permit a reasonable opportunity for the inspec- tion of the accounts relating to the affairs of, and the papers and records of, estates in his charge by parties in interest when directed by the court so to do. d. A person shall not be prosecuted for any offence arising under this Act unless the indictment is found or the information is filed in court within one year after the commission of the offence. SECT. 30. RULES, FORMS, AND ORDERS. a. All necessary rules, forms, and orders as to procedure, and for carrying this Act into force and effect, shall be prescribed, and may be amended from time to time, by the Supreme Court of the United States. SECT. 31. COMPUTATION OF TIME. a. Whenever time is enumerated by days in this Act, or in any proceeding in bankruptcy, the number of days shall be computed by excluding the first and including the last, unless the last fall on a Sunday or holiday, in which event the day last included shall be the next day thereafter which is not a Sunday or a legal holiday. SECT. 32. TRANSFER OF CASES. a. In the event petitions are filed against the same person, or against different members of a partnership, in different courts of bankruptcy, each of which has jurisdiction, the cases shall be transferred, by order of the courts relinquishing jurisdic- tion, to and be consolidated by the one of such courts which can pro- ceed with the same for the greatest convenience of parties in interest. CHAPTER V. OFFICERS, THEIR DUTIES AND COMPENSATION. SECT. 33. CREATION OF Two OFFICES. a. The offices of referee and trustee are hereby created. SECT. 34. APPOINTMENT, REMOVAL, AND DISTRICTS OF REFEREES. a. Courts of bankruptcy shall, within the territorial limits of which they respectively have jurisdiction, (1) appoint referees, each for a term of two years, and may, in their discretion, remove them because their services are not needed or for other cause ; and (2) designate, and 24 CASES ON BANKRUPTCY. [PART 1 from time to time change, the limits of the districts of referees, so that each county, where the services of a referee are needed, may constitute at least one district. SECT. 35. QUALIFICATIONS OP REFEREES. a. Individuals shall not be eligible to appointment as referees unless they are respectively (1) competent to perform the duties of that office ; (2) not holding any office of profit or emolument under the laws of the United States or of any State other than commissioners of deeds, justices of the peace, masters in chancery, or notaries public; (3) not related by con- sanguinity or affinity, within the third degree as determined by the common law, to any of the judges of the courts of bankruptcy or circuit courts of the United States, or of the justices or judges of the appellate courts of the districts wherein they may be appointed ; and (4) resi- dents of, or have their offices in, the territorial districts for which they are to be appointed. SECT. 36. OATHS OF OFFICE OF REFEREES. a. Referees shall take the same oath of office as that prescribed for judges of United States courts. SECT. 37. NUMBER OF REFEREES. a. Such number of referees shall be appointed as may be necessary to assist in expeditiously transacting the bankruptcy business pending in the various courts of bankruptcy. SECT. 38. JURISDICTION OF REFEREES a. Referees respectively are hereby invested, subject always to a review by the judge, within the limits of their districts as established from time to time, with juris- diction to (1) consider all petitions referred to them by the clerks and make the adjudications or dismiss the petitions ; (2) exercise the powers vested in courts of bankruptcy for the administering of oaths to and the examination of persons as witnesses and for requiring the pro- duction of documents in proceedings before them, except the power of commitment; (3) exercise the powers of the judge for the taking possession and releasing of the property of the bankrupt in the event of the issuance by the clerk of a certificate showing the absence of a judge from the judicial district, or the division of the district, or his sickness, or inability to act; (4) perform such part of the duties, except as to questions arising out of the applications of bankrupts for compositions or discharges, as are by this Act conferred on courts of bankruptcy and as shall be prescribed by rules or orders of the courts of bankruptcy of their respective districts, except as herein otherwise provided ; and (5) upon the application of the trustee during the exam- ination of the bankrupts, or other proceedings, authorize the employ- ment of stenographers at the expense of the estates at a compensation not to exceed ten cents per folio for reporting and transcribing the proceedings. SECT. 39. DUTIES OF REFEREES. a. Referees shall (1) declare dividends and prepare and deliver to trustees dividend sheets showing the dividends declared and to'whom payable ; (2) examine all schedules PART I.] STATUTES. 25 of property and lists of creditors filed by bankrupts and cause such as are incomplete or defective to be amended; (3) furnish ^uch informa- tion concerning the estates in process of administration before them as may be requested by the parties in interest; (4) give notices to creditors as herein provided ; (5) make up records embodying the evi- dence, or the substance thereof, as agreed upon by the parties in all contested matters arising before them, whenever requested to do, so by either of the parties thereto, together with their findings therein, and transmit them to the judges ; (6) prepare and file the schedules of property and lists of creditors required to be filed by the bankrupts, or cause the same to be done, when the bankrupts fail, refuse, or neglect to do so; (7) safely keep, perfect, and transmit to the clerks the records, herein required to be kept by them, when the cases are con- cluded ; (8) transmit to the clerks such papers as may be on file before them whenever the same are needed in any proceedings in courts, and in like manner secure the return of such papers after they have been used, or, if it be impracticable to transmit the original papers, transmit certified copies thereof by mail; (9) upon application of any party in interest, preserve the evidence taken or the substance thereof as agreed upon by the parties before them when a stenographer is not in attend- ance ; and (10) whenever their respective offices are in the same cities or towns where the courts of bankruptcy convene, call upon and receive from the clerks all papers filed in courts of bankruptcy which have been referred to them. b. Keferees shall not (1) act in cases in which they are directly or indirectly interested; (2) practise as attorneys and counsellors at law in any bankruptcy proceedings ; or (3) purchase, directly or indirectly, any property of an estate in bankruptcy. SECT. 40. COMPENSATION OF REFEREES. a. Referees shall re- ceive as full compensation for their services, payable after they are rendered, a fee of fifteen 1 dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, 2 and twenty-five cents for ^every proof of claim filed for allowance, to be paid from the estate, if any, as a part of the cost of administration, and from estates which have been administered before them one per centum commissions on all moneys disbursed to creditors by the trustee, or one half of one per centum on the amount to be paid to creditors upon the confirmation of a composition. b. Whenever a case is transferred from one referee to another the judge shall determine the proportion in which the fee and commissions therefor shall be divided between the referees. c. In the event of the reference of a case being revoked before it is 1 Prior to the Amendment of 1903 this was "ten." 2 Prior to the Amendment of 1913, the remainder of the subdivision read as fol- lows: and from estates which have been administered before them one per centum commissions on sums to be paid as dividends and commissions, or one half of one per centum on the amount to be paid to creditors upon the confirmation of a composition. 26 CASES ON BANKRUPTCY. [PAET I. concluded, and when the case is specially referred, the judge shall determine what part of the fee and commissions shall be paid to the referee. SECT. 41. CONTEMPTS BEFORE REFEREES. a. A person shall not, in proceedings before a referee, (1) disobey or resist any lawful order, process, or writ ; (2) misbehave during a hearing or so near the place thereof as to obstruct the same; (3) neglect to produce, after hav- ing been ordered to do so, any pertinent document ; or (4) refuse to appear after having been subpoenaed, or, upon appearing, refuse to take the oath as a witness, or, after having taken the oath, refuse to be examined according to law: Provided, That no person shall be required to attend as a witness before a referee at a place outside of the State of his residence, and more than one hundred miles from such place of residence, and only in case his lawful mileage and fee for one day's attendance shall be first paid or tendered to him. 6. The referee shall certify the facts to the judge, if any person shall do any of the things forbidden in this section. The judge shall there- upon, in a summary manner, hear the evidence as to the acts com- plained of, and, if it is such as to warrant him in so doing, punish such person in the same manner and to the same extent as for a contempt committed before the court of bankruptcy, or commit such person upon the same conditions as if the doing of the forbidden act had occurred with reference to the process of, or in the presence of, the court. SECT. 42. RECORDS OF REFEREES. a. The records of all pro- ceedings in each case before a referee shall be kept as nearly as may be in the same manner as records are now kept in equity cases in cir- cuit courts of the United States. 6. A record of the proceedings in each case shall be kept in a separate book or books, and shall, together with the papers on file, constitute the records of the case. c. The book or books containing a record of the proceedings shall, when the case is concluded before the referee, be certified to by him, and, together with such papers as are on file before him, be trans- mitted to the court of bankruptcy and shall there remain as a part of the records of the court. SECT. 43. REFEREE'S ABSENCE OR DISABILITY. a. Whenever the office of a referee is vacant, or its occupant is absent or disqualified to act, the judge may act, or may appoint another referee, or another referee holding an appointment under the same court may, by order of the judge, temporarily fill the vacancy. SECT. 44. APPOINTMENT OF TRUSTEES. a. The creditors of a bankrupt estate shall, at their first meeting after the adjudication or after a vacancy has occurred in the office of trustee, or after an estate has been reopened, or after a composition has been set aside or a dis- charge revoked, or if there is a vacancy in the office of trustee, appoint one trustee or three trustees of such estate. If the creditors do not appoint a trustee or trustees as herein provided, the court shall do so. PART L] STATUTES. 27 SECT. 45. QUALIFICATIONS OF TRUSTEES. a. Trustees may be (1 ) individuals who are respectively competent to perform the duties of that office, and reside or have an office in the judicial district within which they are appointed, or (2) corporations authorized by their charters or by law to act in such capacity and having an office in the judicial district within which they are appointed. SECT. 46. DEATH OR REMOVAL OF TRUSTEES. a. The death or removal of a trustee shall not abate any suit or proceeding which he is prosecuting or defending at the time of his death or removal, but the same may be proceeded with or defended by his joint trustee or suc- cessor in the same manner as though the same had been commenced or was being defended by such joint trustee alone or by such successor. SECT. 47. DUTIES OF TRUSTEES. . Trustees shall respectively (1) account for and pay over to the estates under their control all interest received by them upon property of such estates; (2) collect and reduce to money the property of the estates for which they are trustees, under the direction of the court, and close up the estate as espeditiously as is compatible with the best interests of the parties in interest 1 ; and such trustees, as to all property in the custody or com- ing into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon ; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an ex- ecution duly returned unsatisfied; (3) deposit all money received by them in one of the designated depositories; (4) disburse money only by check or draft on the depositories in which it has been deposited; (5) fur- nish such information concerning the estates of which they are the trus- tees and their administration as may be requested by parties in interest; (6) keep regular accounts showing all amounts received and from what sources and all amounts expended and on what accounts; (7) lay before the final meeting of the creditors detailed statements of the administra- tion of the estates; (8) make final reports and file final accounts with the courts fifteen days before the days fixed for the final meetings of the creditors ; (9) pay dividends within ten days after they are declared by the referees ; (10) report to the courts, in writing, the condition of the estates and the amounts of money on hand, and such other details as may be required by the courts, within the first month after their ap- pointment and every two months thereafter, unless otherwise ordered by the courts; and (11) set apart the bankrupt's exemptions and re- port the items and estimated value thereof to the court as soon as practicable after their appointment. b. Whenever three trustees have been appointed for an estate, the concurrence of at least two of them shall be necessary to the validity of their every act concerning the administration of the estate. 1 The words "after interest" in clause (2) were added by the Amendment of 1910. 28 CASES ON BANKRUPTCY. [PART I. c. The trustee shall, within thirty days after the adjudication, file a certified copy of the decree of adjudication in the office where convey- ances of real estate are recorded in every county where the bankrupt owns real estate not exempt from execution, and pay the fee for such filing, and he shall receive a compensation of fifty cents for each copy so filed, which, together with the filing fee, shall be paid out of the estate of the bankrupt as a part of the cost and disbursements of the proceedings. 1 .SECT. 48. COMPENSATION OF TRUSTEES, RECEIVERS, AND MARSHALS. a. Trustees shall receive for their services, payable after they are rendered, a fee of five dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not re- quired from a voluntary bankrupt, and such commissions on all moneys disbursed or turned over to any person, including lien holders, by them, as may be allowed by the courts, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than fifteen hundred dollars, two per centum on moneys in excess of fifteen hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars. And in case of the confir- mation of a composition after the trustee has qualified the court may allow him, as compensation, not to exceed one half of one per centum of the amount to be paid the creditors on such compensation. 2 6. In the event of an estate being administered by three trustees instead of one trustee or by successive trustees, the court shall appor- tion the fees and commissions between them according to the services actually rendered, so that there shall not be paid to trustees for the administering of any estate a greater amount than one trustee would be entitled to. c. The court may, in its discretion, withhold all compensation from any trustee who has been removed for cause. 1 Subdivision c was added by the Amendment of 1903. 2 Subdivision a Was so amended by the Amendment of 1910. Originally the sub- division read : a. Trustees shall receive, as full compensation for their services, pay- able after they are rendered, a fee of five dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, and from estates which they have administered, such commissions on sums to be paid as dividends and commissions as may be allowed by the courts, not to exceed three per centum on the first five thousand dollars or less, two per centum on the second five thousand dollars or part thereof, and one per centum on such sums in excess of ten thousand dollars. It was amended in 1903, beginning with the words " and such commissions " to read as follows: and such commissions on all moneys disbursed by them as may be allowed by the courts, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than fifteen hundred dollars, two per centum on moneys in excess of fifteen hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thou- sand dollars. And in case of the confirmation of a composition after the trustee has qualified the court may allow him, as compensation, not to exceed one half of one per centum of the amount to be paid the creditors on such composition. PART I. ] STATUTES. 29 d. Receivers or marshals appointed pursuant to section two, sub- division three, of this Act shall receive for their services, payable after they are rendered, compensation by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them, and also upon the moneys turned over by them or afterwards realized by the trustees from property turned over in kind by them to the trustees, as the court may allow, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hun- dred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars : Provided, That in case of the confirmation of a composition such commissions shall not exceed one half of one per centum of the amount to be paid creditors on such compositions : Provided further. That when the receiver or marshal acts as a mere custodian and does not carry on the business of the bankrupt as provided in clause five of section two of this Act, he shall not receive nor be allowed in any form or guise more than two per centum on the first thousand dollars or less, and one half of one per centum on all above one thousand dollars on moneys disbursed by him or turned over by him to the trustee and on moneys subsequently realized from property turned over by him in kind to the trustee : Provided further, That before the allowance of compensation notice of application therefor, specifying the amount asked, shall be given to creditors in the manner indicated in section fifty-eight of this Act. 1 e. Where the business is conducted by trustees, marshals, or re- ceivers, as provided in clause five of section two of this Act, the court may allow such officers additional compensation for such services by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them, and, in cases of receivers or marshals, also upon the moneys turned over by them or afterwards realized by the trustees from property turned over in kind by them to the trustees ; such commissions not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars : Provided, That in case of the confirmation of a composition such commissions shall not exceed one half of one per centum of the amount to be paid creditors on such composi- tion : Provided further, That before the allowance of compensation notice of application therefor, specifying the amount asked, shall be given to creditors in the manner indicated in section fifty-eight of this Act. 1 SECT. 49. ACCOUNTS AND PAPERS OF TRUSTEES. a. The accounts and papers of trustees shall be open to the inspection of officers and all parties in interest. 1 Subdivisions d and were first inserted by the Amendment of 1910. 30 CASES ON BANKRUPTCY. [PART I. SECT. 50. BONDS OF REFEREES AND TRUSTEES. a. Referees, be- fore assuming the duties of their offices, and within such time as the district courts of the United States having jurisdiction shall prescribe, shall respectively qualify by entering into bond to the United States in such sum as shall be fixed by such courts, not to exceed five thousand dollars, with such sureties as shall be approved by such courts, con- ditioned for the faithful performance of their official duties. b. Trustees, before entering upon the performance of their official duties, and within ten days after their appointment, or within such further time, not to exceed five days, as the court may permit, shall respectively qualify by entering into bond to the United States, with such sureties as shall be approved by the courts, conditioned for the faithful performance of their official duties. c. The creditors of a bankrupt estate, at their first meeting after the adjudication, or after a vacancy has occurred in the office of trustee, or after an estate has been reopened, or after a composition has been set aside or a discharge revoked, if there is a vacancy in the office of trustee, shall fix the amount of the bond of the trustee ; they may at any time increase the amount of the bond. If the creditors do not fix the amount of the bond of the trustee as herein provided the court shall do so. d. The court shall require evidence as to the actual value of the property of sureties. e. There shall be at least two sureties upon each bond. / The actual value of the property of the sureties, over and above their liabilities and exemptions, on each bond shall equal at least the amount of such bond. g. Corporations organized for the purpose of becoming sureties upon bonds, or authorized by law to do so, may be accepted as sureties upon the bonds of referees and trustees whenever the courts are satisfied that the rights of all parties in interest will be thereby amply protected. h. Bonds of referees, trustees, and designated depositories shall be filed of record in the office of the clerk of the court and may be sued upon in the name of the United States, for the use of any person in- jured by a breach of their conditions. i. Trustees shall not be liable, personally or on their bonds, to the United States, for any penalties or forfeitures incurred by the bank- rupts under this Act, of whose estates they are respectively trustees. j. Joint trustees may give joint or several bonds. k. If any referee or trustee shall fail to give bond, as herein provided and within the time limited, he shall be deemed to have declined his appointment, and such failure shall create a vacancy in his office. I. Suits upon referees' bonds shall not be brought subsequent to two years after the alleged breach of the bond. tn. Suits upon trustees' bonds shall not be brought subsequent to two years after the estate has been closed. SECT. 51. DUTIES OF CLERKS. a. Clerks shall respectively (1) PART I.] STATUTES. 31 account for, as for other fees received by them, the clerk's fee paid in each case and such other fees as may be received for certified copies of records which may be prepared for persons other than' officers ; (2) collect the fees of the clerk, referee and trustee in each case instituted before filing the petition, except the petition of a proposed voluntary bankrupt which is accompanied by an affidavit stating that the peti- tioner is without, and cannot obtain, the money with which to pay such fees ; (3) deliver to the referees upon application all papers which may be referred to them, or, if the offices of such referees are not in the same cities or towns as the offices of such clerks, transmit such papers by mail, and in like manner return papers which were received from such referees after they have been used ; (4) and within ten days after each case has been closed pay to the referee, if the case was referred, the fee collected for him, and to the trustee the fee collected for him at the time of filing the petition. SECT. 52. COMPENSATION OF CLERKS AND MARSHALS. a. Clerks shall respectively receive as full compensation for their service to each estate, a filing fee of ten dollars, except when a fee is not required from a voluntary bankrupt. b. Marshals shall respectively receive from the estate where an ad- judication in bankruptcy is made, except as herein otherwise provided, for the performance of their services in proceedings in bankruptcy, the same fees, and account for them in the same way, as they are entitled to receive for the performance of the same or similar services in other cases in accordance with laws now in force, or such as may be hereafter enacted, fixing the compensation of marshals. SECT. 53. DUTIES OF ATTORNEY- GENERAL. a. The Attorney-Gen- eral shall annually lay before Congress statistical tables showing for the whole country, and by States, the number of cases during the year of voluntary and involuntary bankruptcy ; the amount of the property of the estates ; the dividends paid, and the expenses of administer- ing such estates; and such other like information as he may deem important. SECT. 54. STATISTICS OF BANKRUPTCY PROCEEDINGS. a. Officers shall furnish in writing and transmit by mail such information as is within their knowledge, and as may be shown by the records and papers in their possession, to the Attorney-General, for statistical pur- poses, within ten days after being requested by him to do so. CHAPTER VI. CREDITORS. SECT. 55. MEETINGS OF CREDITORS. a. The court shall cause the first meeting of the creditors of a bankrupt to be held, not less than ten nor more than thirty days after the adjudication, at the county seat of the county in which the* bankrupt has had his principal place of 32 CASES ON BANKRUPTCY. [PART I. business, resided, or had his domicile; or if that place would be mani- festly inconvenient as a place of meeting for the parties in interest, or if the bankrupt is one who does not do business, reside, or have his domicile within the United States, the court shall fix a place for the meeting which is the most convenient for parties in interest. If such meeting should by any mischance not be held within such time, the court shall fix the date, as soon as may be thereafter, when it shall be held. b. At the first meeting of creditors the judge or referee shall preside, and, before proceeding with the other business, may allow or disallow the claims of creditors there presented, and may publicly examine the bankrupt or cause him to be examined at the instance of any creditor. c. The creditors shall at each meeting take such steps as may be pertinent and necessary for the promotion of the best interests of the estate and the enforcement of this Act. d. A meeting of creditors, subsequent to the first one, may be held at any time and place when all of the creditors who have secured the allowance of their claims sign a written consent to hold a meeting at such time and place. e. The court shall call a meeting of creditors whenever one fourth or more in number of those who have proven their claims shall file a written request to that effect ; if such request is signed by a majority of such creditors, which number represents a majority in amount of such claims, and contains a request for such meeting to be held at a designated place, the court shall call such meeting at such place within thirty days after the date of the filing of the request. /. Whenever the affairs of the estate are ready to be closed a final meeting of creditors shall be ordered. SECT. 56. VOTERS AT MEETING OF CREDITORS. a. Creditors shall pass upon matters submitted to them at their meetings by a majority vote in number and amount of claims of all creditors whose claims have been allowed and are present, except as herein otherwise provided. b. Creditors holding claims which are secured or have priority shall not, in respect to such claims, be entitled to vote at creditors' meetings, nor shall such claims be counted in computing either the number of creditors or the amount of their claims, unless the amounts of such claims exceed the values of such securities or priorities, and then only for such excess. SECT. 57. PROOF AND ALLOWANCE OF CLAIMS. a. Proof of claims shall consist of a statement under oath, in writing, signed by a creditor setting forth the claim, the consideration therefor, and whether any, and, if so what, securities are held therefor, and whether any, and, if so what, payments have been made thereon, and that the sum claimed is justly owing from the bankrupt to the creditor. b. Whenever a claim is founded upon an instrument of writing, such instrument, unless lost or destroyed, shall be filed with the proof of claim. If such instrument is lost or destroyed, a statement of such PART I.] STATUTES. 33 fact and of the circumstances of such loss or destruction shall be filed under oath with the claim. After the claim is allowed or disallowed, such instrument may be withdrawn by permission of the court, upon leaving a copy thereof on file with the claim. c. Claims after being proved may, for the purpose of allowance, be filed by the claimants in the court where the proceedings are pending or before the referee if the case has been referred. d. Claims which have been duly proved shall be allowed, upon receipt by or upon presentation to the court, unless objection to their allowance shall be made by parties in interest, or their consideration be continued for cause by the court upon its own motion. e. Claims of secured creditors and those which have priority may be allowed to enable such creditors to participate in the proceedings at creditors' meetings held prior to the determination of the value of their securities or priorities, but shall be allowed for such sums only as to the courts seem to be owing over and above the value of their securities or priorities. /. Objections to claims shall be heard and determined as soon as the convenience of the court and the best interests of the estates and the claimants will permit. g. The claims of creditors who have received preferences, avoidable under section sixty, subdivision b, or to whom conveyances, transfers, assignments, or incumbrances, void or voidable under section sixty- seven, subdivision e, have been made or given, shall not be allowed unless such creditors shall surrender such preferences, conveyances, transfers, assignments, or incumbrances. 1 h. The value of securities held by secured creditors shall be deter- mined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors or by such creditors and the trustee, by agreement, arbitration, compromise, or litigation, as the court may direct, and the amount of such value shall be credited upon such claims, and a dividend shall be paid only on the unpaid balance. i. Whenever a creditor, whose claim against a bankrupt estate is secured by the individual undertaking of any person, fails to prove such claim, such person may do so in the creditor's name, and if he discharge such undertaking in whole or in part he shall be subrogated to that extent to the rights of the creditor. j. Debts owing to the United States, a State, a county, a district, or a municipality as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sustained by the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reason- able and actual costs occasioned thereby, and such interest as may have accrued thereon according to law. 1 Prior to the Amendment of 1903, this subdivision read as follows: a. The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences. 34 CASES ON BANKRUPTCY. [PART I. k. Claims which have beeii allowed may be reconsidered for cause and reallowed or rejected in whole or in part, according to the equities of the case, before but not after the estate has been closed. I. Whenever a claim shall have been reconsidered and rejected, in whole or in part, upon which a dividend has been paid, the trustee may recover from the creditor the amount of the dividend received upon the claim rejected in whole, or the proportional part thereof if rejected only in part. m. The claim of any estate which is being administered in bank- ruptcy against any like estate may be proved by the trustee and allowed by the court in the same manner and upon like terms as the claims of other creditors. n. Claims shall not be proved against a bankrupt estate subsequent to one year after the adjudication ; or if they are liquidated by litiga- tion and the final judgment therein is rendered within thirty days before or after the expiration of such time, then within sixty days after the rendition of such judgment: Provided, That the right of infants and insane persons without guardians, without notice of the proceedings, may continue six months longer. SECT. 58. NOTICES TO CREDITORS. a. Creditors shall have at least ten days' notice by mail, to their respective addresses as they ap- pear in the list of creditors of the bankrupt, or as afterwards filed with the papers in the case by the creditors, unless they waive notice in writ- ing, of (1) all examinations of the bankrupt; (2) all hearings upon applications for the confirmation of compositions ; (3) all meetings of creditors ; (4) all proposed sales of property ; (5) the declaration and time of payment of dividends ; (6) the filing of the final accounts of the trustee, and the time when and the place where they will be examined and passed upon ; (7) the proposed compromise of any controversy ; (8) the proposed dismissal of the proceedings, and (9) there shall be thirty days' notice of all applications for the discharge of bank- rupts. 1 b. Notice to creditors of the first meeting shall be published at least once, and may be published such number of additional times as the court may direct ; the last publication shall be at least one week prior to the date fixed for the meeting. Other notices may be published as the court shall direct. c. All notices shall be given by the referee, unless otherwise ordered by the judge. SECT. 59. WHO MAY FILE AND DISMISS PETITIONS. a. Any qual- ified person may file a petition to be adjudged a voluntary bankrupt. b. Three or more creditors who have provable claims against any person which amount in the aggregate, in excess of the value of securi- ties held by them, if any, to five hundred dollars or over, or if all of the creditors of such persons are less than twelve in number, then one 1 Clause (9) was inserted by the Amendment of 1910. Prior to that amendment, the additional words " or the discharge of bankrupts " were at the end of clause (2). PART I.] STATUTES. 35 of such creditors whose claim equals such amount may file a petition to have him adjudged a bankrupt. c. Petitions shall be filed in duplicate, one copy for 'the clerk and one for service on the bankrupt. d. If it be averred in the petition that the creditors of the bankrupt are less then twelve in number, and less than three creditors have joined as petitioners therein, and the answer avers the existence of a larger number of creditors, there shall be filed with the answer a list under oath of all the creditors, with their addresses, and thereupon the court shall cause all such creditors to be notified of the pendency of such petition and shall delay the hearing upon such petition for a reasonable time, to the end that parties in interest shall have an opportunity to be heard ; if upon 'such hearing it shall appear that a sufficient number have joined in such petition, or if prior to or during such hearing a sufficient number shall join therein, the case may be proceeded with, but otherwise it shall be dismissed. e. In computing the number of creditors of a bankrupt for the pur- pose of determining how many creditors must join in the petition, such creditors as were employed by him at the time of the filing of the peti- tion, or are related to him by consanguinity or affinity within the third degree, as determined by the common law, and have not joined in the petition, shall not be counted. /. Creditors other than original petitioners may at any time enter their appearance and join in the petition, or file an answer and be heard in opposition to the prayer of the petition. g. A voluntary or involuntary petition shall not be dismissed by the petitioner or petitioners or for want of prosecution or by consent of parties until after notice to the creditors, 1 and to that end the court shall, before entertaining an application for dismissal, require the bankrupt to file a list, under oath, of all his creditors, with their addresses, and shall cause notice to be sent to all such creditors of the pendency of such application, and shall delay the hearing thereon for a reasonable time to allow all creditors and parties in interest op- portunity to be heard. SECT. 60. PREFERRED CREDITORS. a. A person shall be deemed to have given a preference if, being insolvent, he has, within four months be- fore the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditor's of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.* 1 The remainder of this subdivision was added by the Amendment of 1910. 2 Prior to the Amendment of 1903 this subdivision read as follows: a. A person 36 CASES ON BANKRUPTCY. [PART I. b. If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and the judgment or transfer then operate as a preference, and the per- son receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be voidable by the trustee and he ma}* recover the property or its value from such per- son. And for the purpose of such recover} 7 any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdic- tion if bankruptcy had not intervened, shall have concurrent jurisdiction. 1 c. If a creditor has been preferred, and afterwards in good faith gives the debtor further credit without security of any kind for property which becomes a part of the debtor's estates, the amount of such new credit remaining unpaid at the time of the adjudication in bankruptcy may be set off against the amount which would otherwise be recover- able from him. d. If a debtor shall directly or indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer property to an attorney and counsellor at law, solicitor in equity, or proctor in admiralty for services to be rendered, the transaction shall be re- examined by the court on petition of the trustee or any creditor and shall only be held valid to the extent of a reasonable amount to be de- termined by the court, and the excess may be recovered by the trustee for the benefit of the estate. shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made, a transfer of any of his property, and the effect of the enforcement of such judgment >r transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. 1 This subdivision originally read as follows : 6. If a bankrupt shall have given a preference within four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person. By the Amendment of 1903, the words "within four months before the filing of a petition or after the filing of the petition and before the adjudication " were struck out, and at the end of the subdivision were added the words : "And, for the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any State court which would have had jurisdiction if bankruptcy had not intervened, shall have con- current jurisdiction." The subdivision was amended again in 1910, to the form printed in the text. PART I.] STATUTES. CHAPTER VII. ESTATES. SECT. 61. DEPOSITORIES FOR MONEY. a. Courts of bankruptcy shall designate, by order, banking institutions as depositories for the money of bankrupt estates, as convenient as may be to the residences of trustees, and shall require bonds to the United States, subject to their approval, to be given by such banking institutions, and may from time to time as occasion may require, by like order increase the number of depositories or the amount of any bond or change such depositories. SECT. 62. EXPENSES OF ADMINISTERING ESTATES. a. The actual and necessary expenses incurred by officers in the administration of estates shall, except where other provisions are made for their pay- ment, be reported in detail, under oath, and examined and approved or disapproved by the court. If approved, they shall be paid or al- lowed out of the estates in which they were incurred. SECT. 63. DEBTS WHICH MAT BE PROVED. a. Debts of the bank- rupt may be proved and allowed against his estate which are (1) a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date or with a rebate of interest upon such as were not then payable and did not bear interest; (2) due as costs taxable against an involuntary bankrupt who was at the time of the filing of the petition against him plaintiff in a cause of action which would pass to the trustee and which the trustee declines to prosecute after notice ; (3) founded upon a claim for taxable costs incurred in good faith by a creditor before the filing of the petition in an action to recover a provable debt ; (4) founded upon an open account, or upon a contract express or implied ; and (5) founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt's application for a dis- charge, less costs incurred and interests accrued after the filing of the petition and up to the time of the entry of such judgments. b. Unliquidated claims against the bankrupt may, pursuant to appli- cation to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against his estate. SECT. 64. DEBTS WHICH HAVE PRIORITY. a. The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, State, county, district, or municipality in advance of the payment of dividends to creditors, and upon filing the receipts of the proper public officers for such payment he shall be credited with the amount thereof, and in case any question arises as to the amount or legality of any such tax the same shall be heard and determined by the court. 38 CASES ON BANKRUPTCY. [PART I. 6. The debts to have priority, except as herein provided, and to be paid in full out of bankrupt estates, and the order of payment shall be (1) the actual and necessary cost of preserving the estate subsequent to filing the petition ; (2) the filing fees paid by creditors in involun- tary cases, 1 and, where property of the bankrupt, transferred or con- cealed by him either before or after the filing of the petition, shall have been recovered for the benefit of the estate of the bankrupt by the efforts and at the expense of one or more creditors, the reasonable expenses of such recovery; (3) the cost of administration, including the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petitioning creditors in involun- tary cases, to the bankrupt in involuntary cases while performing the duties herein prescribed, and to the bankrupt in voluntary cases, as the court may allow; (4) wages due to workmen, clerks, travelling or city salesmen 2 or servants which have been earned within three months before the date of the commencement of proceedings, not to exceed three hundred dollars to each claimant ; and (5) debts owing to any person who by the laws of the States or the United States is entitled to priority. c. In the event of the confirmation of a composition being set aside, or a discharge revoked, the property acquired by the bankrupt in addi- tion to his estate at the time the composition was confirmed or the adjudication was made, shall be applied to the payment in full of the claims of creditors for property sold to him on credit, in good faith, while such composition or discharge was in force, and the residue, if any, shall be applied to the payment of the debts which were owing at the time of the adjudication. SECT. 65. DECLARATION AND PAYMENT OF DIVIDENDS. a. Divi- dends of an equal per centum shall be declared and paid on all allowed claims, except such as have priority or are secured. 6. The first dividend shall be declared within thirty days after the adjudication, if the money of the estate in excess of the amount neces- sary to pay the debts which have priority and such claims as have not been, but probably will be, allowed equals five per centum or more of such allowed claims. Dividends subsequent to the first shall be de- clared upon like terms as the first and as often as the amount shah 1 equal ten per centum or more and upon closing the estate. Dividends may be declared oftener and in smaller proportions if the judge shall so order 8 : Provided, That the first dividend shall not include more than fifty per centum of the money of the estate in excess of the amount necessary to pay the debts which have priority and such claims as probably will 1 The remainder of clause (2) was added by the Amendment of 1903. 2 The words " travelling or city salesmen " were inserted by the Amendment of 1906. 3 The remainder of subdivision b was added by the Amendment of 1903. PART I.] STATUTES. 39 be allowed : And provided further, That the final dividend shall not be declared within three months after the first dividend shall be declared. c. The rights of creditors who have received dividends, or in whose favor final dividends have "been declared, shall not be affected by the proof and allowance of claims subsequent to the date of such payment or declarations of dividends ; but the creditors proving and securing the allowance of such claims shall be paid dividends equal in amount to those already received by the other creditors if the estate equals so much before such other creditors are paid any further dividends. d. Whenever a person shall have been adjudged a bankrupt by a court without the United States and also by a court of bankruptcy, creditors residing within the United States shall first be paid a dividend equal to that received in the court without the United States by other creditors before creditors who have received a dividend in such courts shall be paid any amounts. e. A claimant shall not be entitled to collect from a bankrupt estate any greater amount than shall accrue pursuant to the provisions of this Act. SECT. 66. UNCLAIMED DIVIDENDS. a. Dividends which remain un- claimed for six months after the final dividend has been declared shall be paid by the trustee into court. 6. Dividends remaining unclaimed for one year shall, under the direction of the court, be distributed to the creditors whose claims have been allowed but not paid in full, and after such claims have been paid in full the balance shall be paid to the bankrupt : Provided, That in case unclaimed dividends belong to minors such minors may have one year after arriving at majority to claim such dividends. SECT. 67. LIENS. a. Claims which for want of record or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate. &. Whenever a creditor is prevented from enforcing his rights as against a lien created, or attempted to be created, by his debtor, who afterwards becomes a bankrupt, the trustee of the estate of such bank- rupt shall be subrogated to and may enforce such rights of such cred- itor for the benefit of the estate. c. A lien created by or obtained in or pursuant to any suit or pro- ceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a per- son within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this Act ; or if the dissolution of such lien would militate against the best interests of 40 CASES ON BANKRUPTCY. [PART I. the estate of such person the same shall not be dissolved, but the trus- tee of the estate of such person, for the benefit of the estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened. d. Liens given or accepted in good faith and not in contemplation of or in fraud upon this Act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall to the extent of such present considera- tion only, 1 not be affected by this Act. e. That all conveyances, transfers, assignments, or encumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this Act subsequent to the passage of this Act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in~good faith and for a present fair consideration ; and all property of the debtor conveyed, transferred, assigned, or encumbered as aforesaid shall, if he be ad- judged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal pro- ceedings or otherwise for the benefit of the creditors. And all convey- ances, transfers, or encumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the State, Territory, or District in which such property is situate, shall be deemed null and void under this Act against the creditors of such debtor if he be adjudged a bank- rupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bank- rupt. 2 For the purpose of such recovery any court of bankruptcy as here- inbefore defined, and any State court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction. /. That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bank- 1 The words " to the extent of such present consideration only " were inserted by the Amendment of 1910. 2 The remainder of subdivision e was added by the Amendment of 1 903. PART I.] STATUTES, 41 rupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate ; and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the estate as afore- said. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect : Provided, That noth- ing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attachment, or other lien, of a bona fide purchaser for value who shall have acquired the same without notice or reasonable cause for inquiry. SECT. 68. SET-OFFS AND COUNTERCLAIMS. a. In all cases of mu- tual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid. 6. A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate; or (2) was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent, or had committed an act of bankruptcy. SECT. 69. POSSESSION OF PROPERTY. a. A judge may, upon satis- factory proof, by affidavit, that a bankrupt against whom an involun- tary petition has been filed and is pending has committed an act of bankruptcy, or has neglected or is neglecting, or is about to so neglect his property that it has thereby deteriorated or is thereby deteriorating or is about thereby to deteriorate in value, issue a warrant to the mar- shal to seize and hold it subject to further orders. Before such warrant is issued the petitioners applying therefor shall enter into a bond in such an amount as the judge shall fix, with such sureties as he shall approve, conditioned to indemnify such bankrupt for such damages as he shall sustain in the event such seizure shall prove to have been wrongfully obtained. Such property shall be released, if such bank- rupt shall give bond in a sum which shall be fixed by the judge, with such sureties as he shall approve, conditioned to turn over such prop- erty, or pay the value thereof in money to the trustee, in the event he is adjudged a bankrupt pursuant to such petition. SECT. 70. TITLE TO PROPERTY. a. The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, ex- cept in so far as it is to property which is exempt, to all (1) documents relating to his property ; (2) interests in patents, patent rights, copy- rights, and trade-marks; (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for sojne other person ; (4) property transferred by him in fraud of his credit- ors ; (5) property which prior to the filing of the petition he could by any 42 CASES ON BANKRUPTCY. [PART I. means have transferred or which might have been levied upon and sold under judicial process against him : Provided, That when any bank- rupt shall have any insurance policy which has a cash surrender value payable to himself, his estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the credit- ors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets ; and (6) rights of action arising upon contracts or from the unlawful taking or detention of, or injury to, his property. b. All real and personal property belonging to bankrupt estates shall be appraised by three disinterested appraisers; they shall be appointed by, and report to, the court. Real and personal property shall, when practicable, be sold subject to the approval of the court ; it shall not be sold otherwise than subject to the approval of the court for less than seventy-five per centum of its appraised value. c. The title to property of a bankrupt estate which has been sold, as herein provided, shall be conveyed to the purchaser by the trustee. d. Whenever a composition shall be set aside, or discharge revoked, the trustee shall, upon his appointment and qualification, be vested as herein provided with the title to all of the property of the bankrupt as of the date of the final decree setting aside the composition or revok- ing the discharge. e. The trustee may avoid any transfer by the bankrupt of his prop- erty which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value. 1 For the purpose of such recovery any court of bankruptcy as hereinbefore defined, and any State court which would have had jurisdiction, if bankruptcy had not intervened, shall have con- current jurisdiction. /. Upon the confirmation of a composition offered by a bankrupt, the title to his property shall thereupon revest in him. SECT. 71. That the clerks of the several district courts of the United States shall prepare and keep in their respective offices complete and convenient indexes of all petitions and discharges in bankruptcy here- tofore or hereafter filed in the said courts, and shall, when requested so to do, issue certificates of search certifying as to whether or not any such petitions or discharges have been filed; and said clerks shall be entitled to receive for such certificates the same fees as now allowed by law for certificates as to judgments in said courts: Provided, That said bankruptcy indexes and dockets shall at all times be open to in- 1 The remainder of this subdivision was added by the Amendment of 1903. PART I.] STATUTES. 43 spection and examination by all persons or corporations without any fee or charge therefor. 1 SECT. 72. That neither the referee, receiver, marshal, nor trustee shall in any form or guise receive, nor shall the court allow him, any other or further compensation for his services than that expressly authorized and prescribed in this Act. 2 EFFECT OF BANKRUPT ACT ON PROCEEDINGS UNDER STATE LAWS. a. This act shall go into full force and effect upon its passage : Pro- vided, however, That no petition for voluntary bankruptcy shall be filed within one month of the passage thereof, and no petition for in- voluntary bankruptcy shall be filed within four months of the passage thereof. 6. Proceedings commenced under State insolvency laws before the passage of this Act shall not be affected by it.* Approved July 1, 1898. 1 This section was added by the Amendment of 1903. 2 This section was added by the Amendment of 1 903, except the words " receiver, marshal," which were inserted by the Amendment of 1910. 3 The Amendatory Acts of 1903 and 1910 provide that they shall not apply to cases pending when the Acts took effect. AMENDMENTS OF 1926 TO THE BANKRUPTCY ACT Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 1 (a), subdivisions 6, 8, and 24 of an Act entitled "An Act to establish a uniform system of bankruptcy throughout the United States," approved July 1, 1898, and Acts amendatory thereof and supplementary thereto, be, and the same hereby are, amended as follows : "(6) 'Corporations' shall mean all bodies having any of the powers and privileges of private corporations not possessed by individuals or partnerships and shall include limited or other partnership associations organized under laws making the capital subscribed alone responsible for the debts of the association, joint stock companies, unincorporated companies and associations, and any business conducted by a trustee or trustees, wherein beneficial interest or ownership is evidenced by certificate or other written instrument. "(8) 'Courts of bankruptcy' shall include the district courts of the United States and of the Territories and possessions to which this Act is or may hereafter be applicable, the Supreme Court of the District of Columbia, and the United States Court of Alaska. " (24) States shall include the Territories and possessions to which this Act is, or may hereafter be, applicable, Alaska, and the District of Columbia." SEC. 2. That the introductory provision preceding subdivision 1 of section 2 of said Act, as so amended, be, and the same hereby is, amended to read as follows : "That the courts of bankruptcy as hereinbefore defined, namely, the district courts of the United States in the several States, the Supreme Court of the District of Columbia, the district courts of the several Territories and possessions to which this Act is, or may hereafter be, applicable, and the United States Court in the District of Alaska, are hereby made courts of bankruptcy, and are hereby invested, within their respective territorial limits as now established, or as they may be here- after changed, with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings, in vacation in chambers and during their respective terms, as they are now or may be hereafter held." SEC. 3. That section 3 (a) of said Act, as so amended, be, and the same hereby is, amended to read as follows : "(a) Acts of bankruptcy by a person shall consist of his having (1) conveyed, transferred, concealed, or removed, or permitted to be con- cealed or removed, any part of his property with intent to hinder, de- lay, or defraud his creditors, or any of them; or (2) transferred, while insolvent, any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors; or (3) 446 suffered or permitted, while insolvent, any creditor to obtain a prefer- ence through legal proceedings, and not having at least five days before a sale or other disposition of any property, affected by /such preference vacated or discharged such preference; or (4) suffered, or permitted, while insolvent, any creditor to obtain through legal proceedings any levy, attachment, judgment, or other lien, and not having vacated or discharged the same within thirty days from the date such levy, attach- ment, judgment, or other lien was obtained ; or (5) made a general assign- ment for the benefit of his creditors ; or, while insolvent, a receiver or a trustee has been appointed, or put in charge of his property; or (6) ad- mitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground." SEC. 4. That section 7 (a), subdivision (8), of said Act, as so amended, be, and the same hereby is, amended to read as follows: " (8) Prepare, make oath to, and file in court within ten days after adjudication, if an involuntary bankrupt, and within ten days after the filing of a petition, if a voluntary bankrupt (unless in either case further time is granted), a schedule of his property showing the amount and kind of property, the location thereof, its money value in detail, and a list of his creditors showing their residence, if known; if unknown, that fact to be stated, the amounts due each of them, the consideration thereof, the security held by them, if any, and a claim for such exemp- tions, as he may be entitled to, all in triplicate, one copy of each for the clerk, one for the referee, and one for the trustee." SEC. 5. The section 12 (a) of said Act, as so amended, be, and the same hereby is, amended to read as follows : " (a) A bankrupt may offer, either before or after adjudication, terms of composition to his creditors, after, but not before, he has been ex- amined in open court, or at a meeting of his creditors, and has filed in court the schedule of his property and the list of his creditors required to be filed by bankrupts. In compositions before adjudication the bank- rupt shall file the required schedules, and thereupon the court shall call a meeting of creditors for the allowance of claims, examination of the bankrupt, and preservation or conduct of the estate, at which meeting the judge or referee shall preside; but action upon the petition for ad- judication shall not be delayed, except that the court, for good cause shown, may in its discretion delay such action upon such terms and conditions for the protection of and indemnity against loss by the bank- rupt estate as may be proper." SEC. 6. That section 14 (a) and (b) of said Act, as so amended, be, and the same hereby is, amended to read as follows : " (a) Any person may, after the expiration of one month and within twelve months, subsequent to being adjudged a bankrupt, file an applica- tion for a discharge in the court of bankruptcy in which the proceedings are pending, if it shall be made to appear to the judge that the bankrupt was unavoidably prevented from filing it within such time, it may be filed within but not after the expiration of the next six months. " (b) The judge shall hear the application for a discharge and such proofs and pleas as may be made in opposition thereto by the trustee or other parties in interest, at such time as will give the trustee or parties in interest a reasonable opportunity to be fully heard; and investigate 44c the merits of the application and discharge the applicant, unless he has (1) committed an offense punishable by imprisonment as herein provided; or (2) destroyed, mutilated, falsified, concealed, or failed to keep books of account, or records, from which his financial condition and business transactions might be ascertained ; unless the court deem such failure or acts to have been justified, under all the circumstances of the case; or (3) obtained money or property on credit, or obtained an extension or re- newal of credit, by making or publishing, or causing to be made or published, in any manner whatsoever, a materially false statement in writing respecting his financial condition; or (4) at any time subsequent to the first day of the twelve months immediately preceding the filing of the petition, transferred, removed, destroyed, or concealed or per- mitted to be removed, destroyed, or concealed any of his property, with intent to hinder, delay, or defraud his creditors; or (5) has been granted a discharge in bankruptcy within six years ; or (6) in the course of pro- ceedings in bankruptcy, refused to obey any lawful order of or to answer any material question approved by the court; or (7) has failed to explain satisfactorily any losses of assets or deficiency of assets to meet his lia- bilities: Provided, That if, upon the hearing of an objection to a dis- charge, the objector shall show to the satisfaction of the court that there are reasonable grounds for believing that the bankrupt has committed any of the acts which, under this paragraph (b), would prevent his dis- charge in bankruptcy, then the burden of proving that he has not com- mitted any of such acts shall be upon the bankrupt : And provided further, That the trustee shall not interpose objections to a bankrupt's discharge until he shall be authorized so to do by the creditors at a meeting of creditors called for that purpose on the application of any creditor." SEC. 7. That section 21 of said Act, as so amended, be, and the same hereby is, amended by adding after paragraph (g) thereof a new para- graph (h), to read as follows: " (h) A communication by a creditor, receiver, or trustee of one by or against whom a bankruptcy petition is filed, or who has been adju- dicated a bankrupt, to another creditor, uttered in good faith and with reasonable grounds for belief in its truth, concerning the conduct, acts, or property of such bankrupt, shall be privileged, and the creditor re- ceiver, or trustee so uttering the same shall not be held liable therefor." SEC. 8. That section 23 of said Act, as so amended, be, and the same hereby is, amended to read as follows : " (a) The United States district courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concern- ing the property acquired or claimed by the trustees, in the same man- ner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bank- rupts and such adverse claimants. " (b) Suits by the trustee shall be brought or prosecuted only in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bank- ruptcy had not been instituted, unless by consent of the proposed de- fendant, except suits for the recovery of property under section 60, sub- division b; section 67, subdivision e; and section 70, subdivision e." SEC. 9. That section 24 (a) and (b) of said Act, as so amended, be, and the same hereby is, amended to read as follows, and by adding at the end thereof, a new subdivision (c) , to read as follows : " (a) The Supreme Court of the United States, the circuit courts of appeal of the United States, the Court of Appeals of the District of Columbia, and the supreme courts of the Territories, in vacation, in chambers and during their respective terms, as now or as they may be hereafter held, are hereby invested with appellate jurisdiction of con- tro versies arising in bankruptcy proceedings from the courts of bank- ruptcy from which they have appellate jurisdiction in other cases. " (b) The several circuit courts of appeal and the Court of Appeals of the District of Columbia shall have jurisdiction in equity, either inter- locutory or final, to superintend and revise in matter of law (and in mat- ter of law and fact the matters specified in section 25) the proceedings of the several inferior courts of bankruptcy within their jurisdiction. Such power shall be exercised by appeal and in the form and manner of an appeal, except in the cases mentioned in said section 25 to be allowed in the discretion of the appellate court. " (c) All appeals under this section shall be taken within thirty days after the judgment, or order, or other matter complained of, has been rendered or entered." SEC. 10. That section 25 (a) of said Act, as so amended, be, and the same is, amended to read as follows: " (a) That appeals, as in equity cases, may be taken in bankruptcy proceedings from the courts of bankruptcy to the circuit courts of ap- peal of the United States and the Court of Appeals of the District of Columbia and to the supreme courts of the Territories in the following cases, to wit: (1) From a judgment adjudging or refusing to adjudge the defendant a bankrupt; (2) from a judgment granting or denying a dis- charge; and (3) from a judgment allowing or rejecting a debt or claim of $500 or over. Such appeal shall be taken within thirty days after the judgment appealed from has been rendered, and may be Jieard and de- termined by the appellate court in term or vacation, as the case may be." SEC. 11. That section 29 (a), (b), and (d) of said Act, as so amended, be, and the same hereby is, amended to read as follows, and that section 29 be further amended by adding after paragraph (d) thereof a new paragraph (e) to read as follows: " (a) A person shall be punished by imprisonment for a period of not to exceed five years upon conviction of the offense of having knowingly and fraudulently appropriated to his own use, embezzled, spent, or un- lawfully transferred any property or secreted or destroyed any document belonging to a bankrupt estate which came into his charge as trustee, receiver, custodian, or other officer of the court. " (b) A person shall be punished by imprisonment for a period of not to exceed five years upon conviction of the offense of having knowingly and fraudulently (1) concealed from the receiver, trustee, United States marshal, or other officer of the court charged with the control or custody of property, or from creditors in composition cases, any property belong- ing to the estate of a bankrupt; or (2) made a false oath or account in, or in relation to any proceeding in bankruptcy; or (3) presented under oath any false claim for proof against the estate of a bankrupt, or used any such claim in composition, personally, or by agent, proxy, or at- torney, or as agent, proxy, or attorney; or (4) received any material amount of property from a bankrupt after the filing of the petition with intent to defeat this Act; or (5) received or attempted to obtain any money or property, remuneration, compensation, reward, advantage, or promise thereof from any person, for acting or forbearing to act in bank- ruptcy proceedings ; or (6) having been an officer or agent of any person or corporation, and in contemplation of the bankruptcy of such person or corporation, or with intent to defeat the operation of this Act, con- cealed or transferred any of the property of the debtor; or (7) after the filing of the petition, or, in contemplation of bankruptcy, concealed, de- stroyed, mutilated, or falsified any book, document, or record affecting or relating to the property or affairs of a bankrupt : or (8) after the filing of the petition, withheld from the receiver or trustee any book, docu- ment, or paper affecting or relating to the property or affairs of a bank- rupt, to the possession of which he is entitled. " (d) A person shall not be prosecuted for any offense arising under this Act unless the indictment is found or the information is filed in court within three years after the commission of the offense. " (e) (1) Whenever any referee, receiver, or trustee shall have grounds for believing that any offense under this Act has been committed, or from facts or circumstances brought out in the course of administration or otherwise brought to his attention, that there is reasonable ground to believe that such an offense has been committed, or for special reason, an investigation should be had in connection therewith, it shall be the duty of such referee, receiver, or trustee to report such matter to the United States attorney for the district in which it is believed such an offense has been committed, including in such report a statement of all the facts and circumstances of the case within his knowledge, with the names of the witnesses, and a statement as to the offense or offenses believed to have been committed. "(2) It shall be the duty of every United States attorney imme- diately to inquire into the fact so reported to him by any referee, receiver, or trustee, and the law applicable thereto, and if it appears probable that any offense under this Act has been committed, in a proper case and without delay, to present the matter to the grand jury, unless upon inquiry and examination such district attorney decides that the ends of public justice do not require that the alleged offense should be investi- gated or prosecuted, in which case he shall report the facts to the At- torney General for his direction in the premises." SEC. 12. That section 38 (a), subdivision 5, of said Act, as so amended, be, and the same hereby is, amended to read as follows : " (5) During the examination of the bankrupt, or other proceedings, authorize the employment of stenographers for reporting and transcrib- ing the proceedings at such reasonable expense to the estate as the court may fix." SEC. 13. That section 57 (n), of said Act, as so amended, be, and the same hereby is, amended to read as follows : . "(n) Claims shall not be proved against a bankrupt estate subse- quent to six months after the adjudication; or if they are liquidated by litigation and the final judgment therein is rendered within thirty 44/ days before or after the expiration of such time, then within sixty days after the rendition of such judgment : Provided, That the right of infants and insane persons without guardians, without notice of the proceedings, may continue six months longer." SEC. 14. That section 60 (a), of said Act as so amended, be, and the same hereby is, amended to read as follows : " (a) A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any per- son, or made a transfer to any of his property, and the effect of the en- forcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a trans- fer, such period of four months shall not expire until four months after the date of recording or registering of the transfer, if by law such record- ing or registering is required or permitted." SEC. 15. That section 64, subdivisions (a) and (b), of said Act, as so amended, be, and the same hereby are, amended to read as follows: "(a) The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, State, county, district, or municipality, in the order of priority as set forth in paragraph (b) hereof : Provided, That no order shall be made for the payment of a tax assessed against real estate of a bankrupt in excess of the value of the interest of the bankrupt estate therein as determined by the court. Upon filing the receipts of the proper public officers for such payments the trustee shall be credited with the amounts thereof, and in case any ques- tion arises as to the amount or legality of any such tax the same shall be heard and determined by the court. " (b) The debts to have priority, in advance of the payment of divi- dends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be (1) the actual and necessary cost of preserving the estate subsequent to filing the petition; (2) the filing fees paid by creditors in involuntary cases, and, where property of the bankrupt, transferred or concealed by him either before or after the filing of the petition, shall have been recovered for the benefit of the estate of the bankrupt by the efforts and at the expense of one or more creditors, the reasonable expense of such recovery; (3) the cost of administration, including the fees and mileage payable to witnesses as now or hereafter provided by the laws of the United States, and one reasonable attor- ney's fee, for the professional services actually rendered, irrespective of the number of attorneys employed, to the petitioning creditors in in- voluntary cases while peforming the duties herein prescribed, and to the bankrupt in voluntary and involuntary cases, as the court may allow; (4) where the confirmation of composition terms has been refused or set aside upon the objection and through the efforts and at the expense of one or more creditors, in the discretion of the court, the reasonable ex- penses of such creditors in opposing such composition; (5) wages due to workmen, clerks, traveling or city salesmen, or servants, which have been earned within three months before the date of the commencement of the proceeding, not to exceed $600 to each claimant; (6) taxes pay- 440 able under paragraph (a) hereof and (7) debts owing to any person who by the laws of the States or the United States is entitled to priority: Provided, That the term 'person' as used in this section shall include corporations, the United States and several States and Territories of the United States." SEC. 16. That section 70, subdivision (a) 2, of said Act as so amended, be, and the same hereby is, amended to read as follows : " (2) Interest in patents, patent rights, copyrights, and trade-marks, and in applications for patents, copyrights, and trade-marks : Provided, That in case the trustee, within thirty days after appointment, does not notify the applicant for a patent, copyright, or trade-mark of his elec- tion to prosecute the application to allowance or rejection, the bankrupt may apply to the court for an order revesting him with the title thereto, which petition shall be granted, unless, for cause shown by the trustee, the court grants further time to the trustee for making such selection; and such applicant may, in any event, at any time petition the court to be revested with such title in case the trustee shall fail to prosecute such application with reasonable diligence; and the court, upon revesting the bankrupt with such title, shall direct the trustee to execute proper in- struments of transfer to make the same effective in law and upon the records." SEC. 17. Nothing herein contained shall have the effect to release or extinguish any penalty, forfeiture, or liability incurred under any Act or Acts of which this Act is amendatory. SEC. 18. The provisions of this amendatory Act shall govern pro- ceedings, so far as practicable and applicable, in bankruptcy cases pend- ing when it takes effect; but as to proceedings in cases pending when this Act takes effect, to which the provisions of this amendatory Act are not applicable, such proceedings shall be disposed of conformably to the provisions of said Act approved July 1, 1898, and the Acts amendatory thereof and supplementary thereto. SEC. 19. All Acts or parts of Acts inconsistent with any provisions of this Act are hereby repealed. SEC. 20. This Act shall take effect and be in force on and after three months from the date of its approval. Approved, May 27, 1926. PART II. CASES. CHAPTEE I. RESPECTIVE JURISDICTIONS OF THE UNITED STATES AND THE SEVERAL STATES. SECTION I. EXTENT OP THE POWERS OF THE UNITED STATES. CONSTITUTION OF THE UNITED STATES. ARTICLE I., SECTION 8. THE Congress shall have Power ... to establish . . . uniform Laws on the subject of Bankruptcies throughout the United States. LEIDIGH CARRIAGE CO. v. STENGEL. 1 CIRCUIT COURT OF APPEALS FOR THE SIXTH CIRCUIT, MAY 2, 1899. [Reported in 95 Federal Reporter, 637.] BEFORE TAFT and LURTON, Circuit Judges, and CLARK, District Judge. TAFT, Circuit Judge. The last assignment of error is based on the claim that the federal act is unconstitutional. The ground for this contention is that the act is not uniform, in that a distinction is made between natural persons and artificial, and further, that the distinction is made between classes of artificial persons. All natural persons can be adjudged voluntary or involuntary bankrupts ; whereas, artificial persons, of the character of the Leidigh Carriage Company, cannot be adjudged voluntary bankrupts, but can be adjudged involuntary bank- rupts, and other corporations cannot be adjudged either voluntary or 1 Only BO ranch of the opinion is printed as relates to the constitutionality of the Bankrupt Act. 46 LEIDIGH CARRIAGE CO. V. STENGEL. [CHAP. L involuntary bankrupts. In our judgment, the power given to Congress in section 8 of article 1, "to establish uniform laws on the subject of bankruptcies throughout the United States," imposes no limitation upon Congress as to the classification of persons who are to be affected by such laws, provided only the laws shall have uniform operation throughout the United States. The object which the framers of the Constitution had was to enable Congress to prevent the enforce- ment of as many different bankrupt laws as there were States. The meaning of the language of the Constitution is not changed by arranging the words in a slightly different order, so that it shall read, " to establish laws on the subject of bankruptcies uniform throughout the United States." The emphasis in the phrase is on the words "uniform" and " throughout," and their correlation leaves no doubt that the uniformity required is geographical, and not per- sonal, in the sense of being alike applicable to all members of the communit}'. The histor}' of the bankrupt laws in England shows that a bankrupt law, when our Constitution was adopted, which applied to all members of the community alike, would have been a great anomaly. The first bankrupt act passed in England was St. 34 & 35 Hen. VIII. c. 4, " against such as do make bankrupt." The provisions of this act were extended and expanded by Act 13 Eliz. c. 7 ; by Act 21 Jac. I. c. 19 ; by Act 7 Geo. I. c. 31 ; by Act 5 Geo. II. c. 30; by Act 46 Geo. III. c. 135 ; by Act 6 Geo. IV. c. 16 ; and by Act 1 & 2 Wm. IV. c. 56. From the days of Henry VIII. to the daj-s of Victoria the English bankruptcy acts applied onhy to traders, and it was not until the act of 1861 that the bankruptcy extended to nontraders. The United States bankrupt law of 1800, the first bankrupt law passed after the Constitution was adopted, was an involuntary law, and applied only to traders, bankers, brokers, and underwriters. 2 Stat. 19, 1. The question of the classes of persons to be affected by the bankrupt law is one largety, if not wholly, within the discretion of Congress. Chief Justice Marshall said in Sturgis v. Crowninshield, 4 Wheat. 122, 194 : " The bankrupt law is said to grow out of the exigencies of com- merce, and to be applicable solely to traders ; but it is not easy to sa}* who must be excluded from, or may be included in, this description. It is, like every other part of the subject, one on which the legislature ma.y exercise an extensive discretion." Certainly it cannot be said that, in enacting the present law, Congress has passed the limits of such discretion. The proper purposes of a bankruptc} 7 act like the present are: First (and this was its original purpose), to enable creditors to protect themselves b\* summan* process against the frauds of their debtors in evading the payment of debts ; second, to distribute the assets of the debtor equally among his creditors ; and, third, to relieve debtors from the burden of debts, which, through business mis- fortunes and otherwise, they have incurred, and which they are unable to pay. In England, until 1849, there was no provision by which SECT. I.] LEIDIGH CARRIAGE CO. V. STENGEL. 47 petitions in voluntary bankruptcy could be filed, though there had pre- viously been acts for the relief of insolvent debtors from an early period ; and Parliament had, as Mr. Justice Vaughn Williams points out in Re Painter [1895] 1 Q. B. 85, recognized that the State has an interest in the debtor being relieved from his liability, so that he shall not be weighed down by the burden of indebtedness from discharging the duties of a citizen and ma}" employ himself in honest industry. The reason why bankruptcy legislation was limited to traders for so man}- centuries was because it was considered that traders were the class having the greatest opportunity, and therefore most likely, to commit the frauds which bankruptcy acts were passed to prevent. It seems to us that the classification which Congress has imposed is entirely reasonable, having regard to the proper objects for which such a law may be passed. By the present act, an}' person who owes debts, except a corporation, is entitled to the benefits of the act as a voluntary bankrupt. The exception finds a proper basis in the fact that it is of no particular good to the State or the public to relieve an artificial entity from a burden of indebtedness after it has failed in the purpose for which it was organized. The individuals interested in the corpora- tion as stockholders, so far as they may be made liable for its debts, have the opportunity, should the liability render them insolvent, to apply by voluntary petition to be relieved from that indebtedness. The corporation itself, however, is practically defunct the moment that its business stops on account of its debts, and, if the same enter- prise ought to be carried on, it is better for the public and the State that a new corporation be formed for the purpose. Any natural person may be adjudged an involuntary bankrupt except wage-earners and farmers. The involuntary feature of the law is chiefly directed against frauds upon creditors. A wage-earner who depends upon his salary a salary limited to $1,500 a year is not likely to be able to contract debts of any great amount, and is not likely to have an opportunity to commit the frauds denounced in the bankruptcy act. The same thing may be said of one in tilling the earth. The capital of the farmer is largely in the land. His crops are difficult of disposition, except at certain seasons of the year. He lives in a comparatively sparsely-settled community, in which his transactions with respect to his property are likely to be well known to his neighbors, and the opportunities for fraud are quite limited. Any unincorporated company, and any corporation engaged princi- pally in manufacturing, trading, printing, publishing, or mercantile pursuits owing debts of $1,000, may be adjudged an involuntary bank- rupt. So, too, may a private banker. This is merely an effort to limit the application of the involuntary feature to that class of cor- porations which would have come under the head of " traders " at common law. National banks and State banks are not included, because it was properly assumed by Congress that the statutory pro- visions for winding up such corporations were usually so summary, 48 LEIDIGH CARRIAGE CO. V. STENGEL. [CHAP. I. complete, and drastic that no additional safeguards against frauds were needed. The action of the District Court sitting in bankruptcy is affirmed, at the costs of the appellants. 1 1 Hanover Nat. Bank v. Moyses, 186 U. S. 181, ace. Before the passage of the bankruptcy act of 1841, it was strongly contended in Congress that such an act was unconstitutional, as not coming within the meaning of a bankruptcy law. It was argued that the Constitution must be construed in the light of the English laws in regard to bankruptcy passed before 1789. By those laws, volun- tary petitions had never been allowed and the application of the system was confined to traders. In Adams v. Storey, 1 Paine C. C. 79, 82, Judge Livingston of the U. S. Supreme Court said : " So exclusively have bankrupt laws operated on traders, that it may well be doubted whether an act of Congress subjecting to such a law every de- scription of persons within the United States would comport with the spirit of the powers vested in them in relation to this subject." After the passage of the act it was held to be unconstitutional by Judge Wells of the U. S. District Court for the District of Missouri in Re Klein, 2 N. Y. Leg. Obs. 185, and an elaborate dissenting dictum to the same effect was pronounced by Judge Bronson in Sackett v. Andross, 5 Hill, 327 ; but the decision of the District Court in Re Klein was reversed in the Circuit Court by Judge Catron of the U. S. Supreme Court, 1 How. 277, note. The question was not raised in the U. S. Supreme Court because under the act of 1841 no bankruptcy cases could come before that court for review. Nelson v. Carland, 1 How. 265. But many decisions in other courts sustained the validity of the act. State Bank v. Phillips, 6 Ark. 35; Lalor v. Wattles, 8 111.225; Hastings v. Fowler, 2 Ind. 216; Loud v. Pierce, 25 Me. 233; Thompson v. Alger, 12 Met. 428; Reed v. Vaughan, 15 Mo. 137 ; Kittredge v. Warren, 14 N. H. 509 ; Cutter v. Folsom, 17 N. H. 139 ; Kun- zler v. Kohaus, 5 Hill, 317 ; McCormick o. Pickering, 4 N. Y. 276. The act of 1867 was, as a whole, uniformly held constitutional. Re Silverman, 4 B. R. 522 ; Re Reynolds, 9 B. R. 50 ; Re Reiman, 11 B. R. 21 ; Re California Pacific R. Co., 11 B. R. 193. The validity of some provisions was, however, contested. U. S. v. Fox, 95 U. S. 670, overruling U. S. v. Clark, 4 B. R. 59 and U. S. v. Pusey, 6 B. R. 284, held unconstitutional the provision (Rev. Stat. 5,132, 9.), making it a criminal offence to obtain goods on credit with intent to defraud within three months before the beginning of bankruptcy proceedings, since the criminality of the act was made to depend on subsequent events. It was also urged that the provision of the act was unconstitutional which allowed bankrupts whatever exemptions were allowed by the law in force in 1 864 of the State in which the proceedings took place, because it pre- vented the law from being uniform. But the constitutionality of this provision was regarded as settled by the decision of Judges Miller and Krekel in Re Beckerkord, 4 B. R. 203. See also Re Jordan, 8 B. R. 180. Later, however, Congress, by act of June 8, 1872, amended this provision so as to allow whatever exemptions were allowed by State laws in force in 1870; and by act of March 3, 1873, which purported to be merely declaratory, enacted that these exemptions should be allowed as agaiust debts created before as well as after the passage of the State laws in question. This statutory construction of the amendment of 1872 was held unconstitutional by Chief- Justice Waite in Re Deckert, 10 B. R. 1, and similar decisions were rendered in Re Dillard, 9 B. R. 8 ; Re Duerson, 13 B. R. 183 ; Bush . Lester, 55 Ga. 579. But con- trary decisions are Re Jordan, 8 B. R. 180 ; Re Kean, 8 B. R. 367; Re Smith, 8 B. R. 401," 14 B. R. 295 ; Re Everitt, 9 B. R. 90 ; Re Jordan, 10 B. R. 427, The provisions of the present act in regard to exemptions were held constitutional in Hanover Nat. Bank v. Moyses, 186 U. S. 181. SECT- II.] BALDWIN V. HALE. 49 SECTION II. EXTENT OF THE POWERS OF THE SEVERAL STATES. BALDWIN v. HALE. SUPREME COURT OP THE UNITED STATES, DECEMBER TERM, 1863. [Reported in 1 Wallace, 223.] THIS was a writ of error to the Circuit Court for the District of Massachusetts ; the case, as appearing from an agreed statement of facts, being thus : J. W. Baldwin, a citizen of Massachusetts, made, at Boston, in that State, his promissory note, payable there, in these words : $2,000 BOSTON, February 21, 1854. Six months after date I promise to pay to the order of myself, two thousand dollars, payable in Boston, value received. J. W. BALDWIN. And duly indorsed it to Hale, the plaintiff, then and afterwards a citi- zen of Vermont. After the date of the note, but before any suit was brought upon it, Baldwin, upon due proceedings in the Court of Insolvency of the State of Massachusetts, obtained a certificate of discharge from his debts; the certificate embracing b} T its terms all contracts to be performed within the State of Massachusetts. Hale did not prove his debt, nor take any part in the proceedings. Suit having been afterwards brought against Baldwin by Hale, the indorsee and holder of the note, and still, as originally, a citizen of Vermont, the question was whether the certificate was a bar to the action. The court below ruled that it was not, and the correctness of the rul- ing was now before this court on error. Messrs. Hutchins & Wheeler for the plaintiff in error. Mr. F. A. Brooks for the creditor, Hale. Mr. Justice CLIFFORD, after stating the case, delivered the opinion of the court : Contract was made in Boston and was to be performed at the place where it was made, and upon that ground it is contended by the defendant that the certificate of discharge is a complete bar to the action. But the case shows that the plaintiff was a citizen of Vermont, and inasmuch as he did not prove his debt against the defendant's estate in insolvency, nor in any manner become a party to those pro- ceedings, he insists that the certificate of discharge is a matter inter olios, and wholly insufficient to support the defence. 50 BALDWIN V. HALE. CHAF. L Adopting the views of the court in Scribner et al. v. Fisher, 2 Gray, 43, the defendant concedes that the law is so, as between citizens of different States, except in cases where it appears by the terms of the contract that it was made and must be performed in the State enacting such insolvent law. Where the contract was made and is b}' its terms to be performed in the State in which the certificate of discharge was obtained, the argument is, that the discharge is entirely consistent with the contract, and that the certificate operates as a bar to the right of recovery everywhere, irrespective of the citizenship of the promisee. Plaintiff admits that a majority of the Supreme Court of Massachusetts, in the case referred to, attempted to maintain that distinction, but he insists that it is without any foundation in principle, and that the decisions of this court in analogous cases are directly the other way. Controversies involving the constitutional effect and operation of State insolvent laws have frequently been under consideration in this court, and unless it be claimed that constitutional questions must always remain open, it must be conceded, we think, that there are some things connected with the general subject that ought to be regarded as settled and forever closed. State legislatures have authority to pass a bankrupt or insolvent law, provided there be no act of Congress in force establishing a uniform system of bankruptcy, conflicting with such law ; and, pro- vided the law itself be so framed that it does not impair the obligation of contracts. Such was the decision of this court in Sturges v. Crown- inslueld, 4 Wheat. 122, and the authority of that decision has never been successful!}- questioned. Suit was brought in that case against the defendant as the maker of two promissory notes. The}' were both dated at New York, on the 22d day of March, 1811, and the defendant pleaded his discharge under an act for the benefit of insol- vent debtors and their creditors, passed by the legislature of New York subsequent!}' to the date of the notes in conti'oversy. Contracts in that case, it will be observed, were made prior to the passage of the law, and the court held, for that reason, that the law, or that feature of it, was unconstitutional and void, as impairing the obliga- tion of contracts within the meaning of the Constitution of the United States. Suggestion is made that the ruling of the court in the case of McMillan v. McNeill, 4 Wheat. 209, decided at the same term, asserts a different doctrine, but we think not, if the facts of the case are properly understood. Recurring to the statement of the case, it appears that the contract was made in Charleston, in the State of South Carolina, and it is true that both parties resided there at the time the contract was made, but the defendant subsequently removed to New Orleans, in the State of Louisiana, and it was in the latter State where he obtained the certifi- cate of discharge from his debts. He was also one of a firm doing business in Liverpool, and a commission of bankruptcy had been issued there, both against him and his partner, and they respectively SECT. II.] BALDWIN V. HALE. 51 obtained certificates of discharge. Suit was brought in the District Court for the District of Louisiana, and the defendant pleaded those certificates of discharge in bar of the action, and the plaintiff demurred to the plea. Under that state of the case and of the pleadings, the court held that the certificate of discharge obtained in the State of Louisiana was no defence to the suit, and very properly remarked that the circumstance that the State law was passed before the debt was contracted made no difference in the application of the principle. Bearing in mind that the plaintiff was a citizen of South Carolina, and that the contract was made there, it is obvious that the remark of the court is entirely consistent with the decision in the former case. Secondly, the court also held that a discharge under a foreign bank- rupt law was no bar to an action in the courts of the United States, on a contract made in this country. Speaking of that case, Mr. Justice Johnson afterwards remarked that it decided nothing more than that insolvent laws have no extraterritorial operation upon the contracts of other States, and that the anterior or posterior character of the law with reference to the date of the contract makes no difference in the application of that principle. Eight }*ears later the question, in all its phases, was again presented to this court, in the case of Ogden v. Saunders, 12 Wheat. 213, and was very full}- examined. Three principal points were ruled by the court. First, the court held that the power of Congress to establish uniform laws on the subject of bankruptcies throughout the United States did not exclude the right of the States to legislate on the same subject, except when the power had actually been exercised by Congress, and the State laws conflicted with those of Congress. Secondly, that a bankrupt or insolvent law of any State which discharges both the person of the debtor and his future acquisitions of property, was not a law impairing the obligation of contracts so far as respects debts contracted subsequent to the pas- sage of such law. Thirdly, but that a certificate of discharge under such a law cannot be pleaded in bar of an action brought b} T a citizen of another State in the courts of the United States, or of any other State than that where the discharge was obtained. Much diversity of opinion, it must be admitted, existed among the members of the court on that occasion, but it is clear that the conclusions to which the majority came were in precise accordance with what had been sub- stantially determined in the two earlier cases to which reference has been made. Misapprehension existed, it seems, for a time, whether the second opinion delivered by Mr. Justice Johnson in that case was, in point of fact, the opinion of a majority of the court, but it is difficult to see any ground for an}- such doubt. Referring to the opinion, it will be seen that he states explicitly that he is instructed to dispose of the cause, and he goes on to explain that the majority on the occasion is not the same as that which determined the general question pre- viously considered. Ample authority exists for regarding that opinion as the opinion of the court, independently of what appears in the pub- 52 BALDWIN V. HALE. [CHAP. \. lished report of the case. When the subsequent case of Boyle v. Zacharie et a, 6 Pet. 348, was first called for argument, inquiry was made of the court whether the opinion in question was adopted by the other judges who concurred in the judgment of the court. To which Marshall, C. J., replied, that the judges who were in the minority of the court upon the general question concurred in that opinion, and that whatever principles were established in that opinion were to be con- sidered no longer open for controvers}-, but the settled law of the court. Judge Story delivered the unanimous opinion of the court in that case during the same session, and in the course of the opinion he repeated the explanations previously given by the Chief Justice. Boyle v. Zacharie et aL, 6 Pet. 643. Explanations to the same effect were also made by the present chief justice in the case of Cook u. Moffat et al., 5 How. 310, which had been ruled by him at the circuit. He had ruled the case in the court below, in obedience to what he under- stood to be the settled doctrine of the court, and a majority of the court affirmed the judgment. Acquiescing in that judgment as a cor- rect exposition of the law of the court, he nevertheless thought it proper to restate the individual opinion which he entertained upon the subject, but before doing so, he gave a clear and satisfactory exposition of what had previously been decided by the court. Those remarks confirm what had at a much earlier period been fully explained by the former Chief Justice and his learned associate. Taken together, these several explanations ought to be regarded as final and conclusive. Assuming that to be so, then, it was settled by this court, in that case, 1. That the power given to the United States to pass bank- rupt laws is not exclusive. 2. That the fair and ordinary exercise of that power by the States does not necessarily involve a violation of the obligation of contracts, multo fortiori of posterior contracts. 3. But when in the exercise of that power the States pass beyond their own limits and the rights of their own citizens, and act upon the rights of citizens of other States, there arises a conflict of sovereign power and a collision with the judicial powers granted to the United States which renders the exercise of such a power incompatible with the rights of other States, and with the Constitution of the United States. Saunders, a citizen of Kentucky, brought suit in that case against Ogden, who was a citizen of Louisiana at the time the suit was brought. Plaintiff declared upon certain bills of exchange drawn by one Jordan, at Lexington, in the State of Kentucky, upon Ogden, the defendant, in the city of New York, where he then resided. He was then a citizen of the State of New York, and the case shows that he accepted the bills of exchange at the city of New York, and that they were subsequently protested for non-pa} 7 ment. Defendant pleaded his discharge under the insolvent law of New York, passed prior to the date of the contract. Evidently, therefore, the question presented was, whether a discharge of a debtor under a State insolvent law was valid as against a creditor or citizen of another SECT. II.] BALDWIN V. HALE. 53 State, who had not subjected himself to the State laws otherwise than by the origin of the contract, and the decision in express terms was, that such a proceeding was " incompetent to discharge a debt due a citizen of another State." Whenever the question has been presented to this court since that opinion was pronounced, the answer has uni- formly been that the question depended upon citizenship. Such were the views of the court in Suydam et al v. Broadnax et al., 14 Pet. 75, where it was expressly held that a certificate of discharge cannot be pleaded in bar of an action brought by a citizen of another State in the courts of the United States, or of any other State than that where the discharge was obtained. Undoubtedly a State may pass a bank- rupt or insolvent law under the conditions before mentioned, and such a law is operative and binding upon the citizens of the States, but we repeat what the court said in Cook v. Moffat et al, 5 How. 308, that such laws " can have no effect on contracts made before their enact- ment, or bej'ond their territory." Judge Story says, in the case of Springer v. Foster et al., 2 Story, C. C. 387, that the settled doctrine of the Supreme Court is, that no State insolvent laws can discharge the obligation of any contract made in the State, except such contracts as are made between citizens of that State. He refers to the case of Ogden v. Saunders to support the proposition, and remarks, without qualification, that the doctrine of that case was subsequently affirmed in Boyle v. Zacharie, where there was no division of opinion. In the last-mentioned case he gave the opinion of the court, and he there expressed substantially the same views. Confirmation of the fact that such was his opinion may be found both in his Commentaries on the Constitution and in his treatise entitled Conflict of Laws. His view as to the result of the various decisions of this court is, that they establish the following propositions: 1. That State insolvent laws may applj 7 to all contracts within the State between citizens of the State. 2. That they do not apply to contracts made within the State between a citizen of the State and a citizen of another State. 3. That they do not appty to contracts not made within the State. 2 Story on Const. 1390 (3d edition), p. 281 ; Story on Confl. L., 341, p. 573. Chancellor Kent also says that the discharge under a State law is not effectual as against a citizen of another State who did not make himself a party to the proceedings under the law. 2 Kent Com. (9th ed.), p. 503. All of the State courts, or nearly all, except the Supreme Court of Massachusetts, have adopted the same view of the subject, and that court has recently held that a certificate of discharge in insolvency is no bar to an action by a foreign corporation against the payee of a note, who indorsed it to the corporation in blank before its maturity, although the note itself was executed and made payable in that State by a citizen of the State. Repeated decisions have been made in that court, which seem to support the same doctrine. Savoye v. Marsh, 10 Met. 594 ; Braynard v. Marshall, 8 Pick. 196. But a majority of the court held, in Scribner et al. v. Fisher, 2 Gray, 43, that 54 BALDWIN V. HALE. [CHAP. I. if the contract was to be performed in the State where the discharge was obtained, it was a good defence to an action on the contract, although the plaintiff was a citizen of another State and had not in any manner become a party to the proceedings. Irrespective of authority it would be difficult if not impossible to sanction that doc- trine. Insolvent systems of every kind partake of the character of a judicial investigation. Parties whose rights are to be affected are entitled to be heard ; and in order that they may enjo}' that right they must first be notified. Common justice requires that no man shall be condemned in his person or property without notice and an opportun- ity to make his defence. Nations et al. v. Johnson ' et aL, 24 How. 203 ; Bos well's Lessee v. Otis et al. 9 How., 350 ; Oakley v. Aspinwall, 4 Comst. 514. Regarded merely in the light of principle, therefore, the rule is one which could hardly be defended, as it is quite evident that the courts of one State would have no power to require the citizens of other States to become parties to an}' such proceeding. Su3'dam et al v. Broadnax et /., 14 Pet. 75. But it is unnecessary to pursue the inquiry, as the decisions of this court are directl}' the other way ; and so are most of the decisions of the State courts. Donnelly v. Corbett, 3 Seld. 500 ; Poe v. Duck, 5 Md. 1 ; Anderson v. Wheeler, 25 Conn. 607 ; Felch v. Bugbee et a/., 48 Me. 9 ; Demerrit v. Exchange Bank, 10 Law Rep. (x. s.) 606 ; Woodhull v. Wagner, Bald. C. C. 300. Insolvent laws of one State cannot discharge the contracts of citizens of other States, because they have no extraterritorial opera- tion, and consequently the tribunal sitting under them, unless in cases where a citizen of such other State voluntarily becomes a party to the proceeding, has no jurisdiction in the case. Legal notice cannot be given, and consequently there can be no obligation to appear, and of course there can be no legal default. The judgment of the Circuit Court is therefore affirmed with costs. Judgment accordingly^- 1 The U. S. Supreme Court has since frequently reiterated the doctrine that a dis- charge under a State insolvent law cannot affect non-residents. Baldwin v. Bank of Newbury, 1 Wall. 234 ; Oilman v. Lockwood, 4 Wall. 409 ; Denny v. Bennett, 128 U. S. 489; Cole v. Cunningham, 133 U. S. 107, 115. In Denny v. Bennett, the reason of the rule is stated (p. 498). "The objection to the extraterritorial operation of a State insolvent law is that it cannot, like the bankrupt law passed by Congress under its constitutional grant of power, release all debtors from the obligation of the debt. The authority to deal with the property of the debtor within the State, so far as it does not impair the obligation of contracts, is conceded." This passage was quoted with approval in Brown v. Smart, 145 U. S. 454. It has been generally supposed that the doctrine rested upon principles drawn from the Constitution of the United States. In Phenix Nat. Bank v. Batcheller, 151 Mass. 589, involving the same question as Baldwin v. Hale, HOLMES, J., said (p. 591) : "The often repeated view of the Supreme Court of the United States is, that dis- charges like the present are void for want of jurisdiction, and that statutes purporting to authorize them are beyond the power of the States' to pass. Baldwin v. Hale, 1 Wall. 223, 233 ; Baldwin v. Bank of Newbury, 1 Wall. 234 ; Oilman v. Lockwood, 4 Wall. 409 ; Denny v. Bennett, 128 U. S. 489, 497 ; Cole v. Cunningham, 133 U. S. 107, 115. Whether that court would regard a decision to the contrary by a State court as subject SECT. II.] PULLEN V. HILLMAN. 55 PULLEN v. HILLMAN. SUPREME JUDICIAL COURT OP MAINE, DECEMBER 16, 1891. [Reported in 84 Maine, 129.] ASSUMPSIT upon a promissory note given by the defendant at Mon- son, Piscataquis County, March 31, 1888, pa3 - able to the plaintiff, then a resident of the same town, at the Kineo National Bank of Dover, in said county. The writ is dated August 30, 1890. The plaintiff removed April 15, 1889, from the State to New York, where he has ever since been a citizen of that State, residing at Cortland. After the plaintiffs removal from the State and on the ninth day of January, 1890, the defendant obtained a discharge in the court of in- to review by them upon constitutional grounds, does not appear very clearly from any language of theirs which has been called to our attention, unless it be the following, repeated in Baldwin v. Hale, 1 Wall. 223,231, from Ogden v. Saunders, 12 Wheat. 213, 369 : " But when, in the exercise of that power, the States pass beyond their own limits, and the rights of their own citizens, and act upon the rights of citizens of other States, there arises a conflict of sovereign power, and a collision with the judicial powers granted to the United States, which renders the exercise of such a power incompatible with the rights of other States and with the Constitution of the United States." This is somewhat emphasized as the deliberate view of the court, not only by its original mode of statement, but by their adhesion to it after the dissent of Chief Justice Taney in Cook v. Moffat, 5 How. 295, 310. See Scribner v. Fisher, 2 Gray, 43, 47. " This language certainly gives the impression that our decision would be regarded as subject to review, possibly on the ground of an implied restriction on the power to pass insolvent laws reserved to the States (Denny v. Bennett, 128 U. S. 489, 498); possibly on the ground that the discharge would impair the obligation of contracts with persons not within the jurisdiction (Cook v. Moffat, 5 How. 295, 308) ; possibly by reason of the Fourteenth Amendment (Pennoyer v. Neff, 95 U. S. 714) ; possibly on some vaguer ground. We feel the force of the reasoning quoted from Stoddard v. Harrington, 100 Mass. 87, 89, but that case did not profess to weaken the authority of Kelley v. Drury, and, moreover, the question which we are now considering is not what would be oar own opinion, but what seems to be the opinion of the Supreme Court of the United States. " The decision in Kelley v. Drury did not go upon any nice inquiry whether it was subject to review, but upon the ground that this court deferred to the decision of the Supreme Court of the United States, that discharges like the present were not binding outside the jurisdiction, and that, this being so, a discrimination should not be made in favor of our citizens in proceedings in the State court in distinction from proceedings in the courts of the United States." Whatever the basis of the doctrine, it is uniformly followed by the State courts. The numerous cases before 1893 are collected in 6 Harv. L. Rev. 349. Later cases are Silverman v. Lessor, 88 Me. 599; Pattee v. Paige, 163 Mass. 352 ; Chase v. Henry, 166 Mass. 577, 168 Mass. 28; Bergner & Engel Brewing Co. v. Dreyfus, 172 Mass. 154. In Chase v. Henry, it was held (three judges dissenting) that a discharge under the State law did not bar a debt due to a partnership, of which one member was a citizen of another State. In Bergner & Engel Brewing Co. v. Dreyfus it was held (Field, C. J., dissenting) that such a discharge did not bar a debt due to a corporation chartered by another State, though carrying on business in Massachusetts. A State discharge bars a debt due to a citizen of the same State, although he holds the claim as trustee for citizens of another State. Wade v. Sewell, 56 Fed. Rep. 129. 56 PULLEN V. HILLMAN. [CHAP. I. solvency, upon his petition filed in that court June 3, 1889. This discharge was pleaded in bar of the plaintiff's action. It was admitted that the plaintiff did not prove his debt in the insolvent court nor appear in any of its proceedings. Henry Hudson, for plaintiff. J. F. Sprague, for defendant Counsel cited : Scribner v. Fisher, 2 Gray, 43 ; Brigham v. Hender- son, 1 Gush. 430 ; Converse v. Bradley, Ib. 434 ; Stoddard v. Harring- ton, 100 Mass. 88 ; Brown v. Bridge, 106 Mass. 563. EMERY, J. The contract which is the subject of this action was made within this State between citizens of this State, and was to be performed within this State. Subsequently, the promissor, the de- fendant, after regular proceedings in the proper court of insolvency in this State, was granted by that court a discharge from all his debts under R. S., c. 70, 44. This discharge was properly pleaded in bar of this action, and it is conceded that it would be an effectual bar, if the promisee, the plaintiff, who was a citizen of this State at the time of making the contract, had also been a citizen of this State at the time of the proceedings in the court of insolvency. But the plaintiff after the making of the contract, and before the beginning of the in- solvency proceedings, had changed his residence from Maine to New York, and had become a citizen of the latter State and had not since been in Maine. He did not prove his claim under this contract in the insolvency court, nor in any way appear therein. It is urged that, as the contract was made in Maine, to be performed in Maine, and both parties were citizens of Maine at the time, they must be held to have contracted with reference to the then existing insolvency law of Maine, which provided for this discharge from the contract. It is argued that the insolvent law should be read into the contract, and that therefore the contract must be held to stipulate for such a discharge as is here pleaded. We think, however, the question is not one of the interpretation of a contract or statute, but is one of jurisdiction. Did the court of insol- vency have the jurisdiction to discharge the defendant from this contract ? After much discussion by courts and jurists, and after some conflict of opinion, it must now be considered fully and firmly established as a general proposition that a State cannot give its courts an}- jurisdictional power to discharge a citizen of such State from his obligation "to a citi- zen of another State, when the latter has not in any way submitted himself or his claim to such court. This proposition is not modified by the circumstance that the contract was made and was to be per- formed in the State in which the debtor resides. The place of the citizenship of the parties, not the place of the making or performing the contract, defines the jurisdiction of the court. All this is now so well settled by authority, that it is not advisable to occupy space in repeating or even epitomizing the reasoning by which the courts finally SECT. II.] PULLEN V. HILLMAN. 57 reached this conclusion. The citation of a few cases out of many should be sufficient. Felch v. Bugbee, 48 Me. 9; Hills v. Carlton, 74 Me. 156 ; Phoenix Bank v. Bacheller, 151 Mass. 589 ; Baldwin v. Hale, 1 Wall. 223 ; Oilman v. Lockwood, 4 Wall. 409; Denny v. Bennett, 128 U. S. 489. Does the additional circumstance in this case, that the plaintiff was a citizen of this State at the date of the contract, though not at the date of the insolvency proceedings, give the court of insolvency juris- diction over his claim under this contract ? To so hold, is to hold that one who was a citizen of this State when he acquired here contractual rights, choses in action, against another citizen of this State leaves them behind him in this State subject to be discharged by the courts of this State without notice to him after he has become a citizen of another State. It is to hold that he, who was once a citizen of this State, cannot remove himself and his property from its jurisdiction. It is to hold, that a citizen of another State coming into this State and making contracts here, to be performed here, has greater immunities than a citizen of our own State. Neither reason nor authorit}' leads us to such a conclusion. A State may indeed grant its courts jurisdiction over lands and goods within its limits, though the owner ma} 1 reside beyond those limits. Such objects are visible and tangible, and though the title to them may follow the owner, the thing, the substance, is within the State. They have a situs. They can be taxed where they are situated. In such cases the owner may be presumed to have left such property in the possession of a local tenant or agent. But even then, the speciflc prop- erty to be affected by the judgment of the court must be attached upon process, and such notice given as is feasible. Contractual rights, obligations, mere choses in action, however, are not visible nor tangible, nor local. They have no situs. They do not exist as things, as substances, within any territorial limits. They follow the person of the creditor. They are his wherever he lives. Saunders v. Weston, 74 Me. 85. Even the taxing power of the State in which the debtor resides cannot reach them. Only the State of the creditor's residence can deal with them, at least during the life- time of the creditor. Osgood v. Maguire, 61 N. Y. 524; Bond Tax Cases, 15 Wall. 300 ; Tappan v. Bank, 19 Wall. 490. The only court, therefore, that can effectually discharge such a claim is the court that has jurisdiction over the person of the creditor himself. But unless the creditor voluntarily submits to the jurisdiction of the court, by tak- ing some part in the proceedings before it, jurisdiction can only be acquired by service of process upon him within the territorial limits of the State establishing the court. Beyond those limits, no process of any court has any force in acquiring jurisdiction of the person. This proposition is firmly settled by authority as well as by reason. Love- joy v. Allen, 33 Me. 414 ; Baldwin v. Hale, 1 Wall. 223 ; Pennoyer V. Neff, 95 U. S. 714. 58 LOWENBERG V. LEVINE. [CHAP. L Ability to serve process within the State is, therefore, the test of the court's power to acquire jurisdiction in an}- proceeding. If at the beginning of the insolvency proceedings the process of the court of insolvency could have been served on the plaintiff within the State, the court could have acquired jurisdiction over him by such service. The situation at that time, not at the date of the contract, is the criterion. If the plaintiff was then a citizen of this State, he could have been served with process and subjected to the jurisdiction of the court, although he may never before have been within the State, and although the contract may have been made, and was to be performed in another State. So much will be conceded 03- the defendant. But it follows, that if the plaintiff was not then a citizen of this State (at the time of the insolvency proceedings), no process could have reached him, and he could not be subjected to the court's jurisdiction even though for all his life before he ma}' have resided within the State. The defendant's counsel strenuously urges that such a conclusion will work great hardship upon a debtor by enabling his home creditors to avoid his insolvency proceedings by removing from the State. If this be a hardship, the remedy is with Congress in the enactment of a uniform bankrupt law for all the States. The court cannot usurp the power or jurisdiction it does not have. Counsel also relies upon Stoddard v. Harrington, 100 Mass. 88, and upon some dicta in later opinions of the United States Supreme Court. The dicta have little weight, as the precise question was evidently not in the mind of the justices writing the opinions. The length of this opinion shows our respect for the eminent court which pronounced the judgment in Stoddard v. Harrington, but we think that decision cannot be sustained, and that it must be overruled when the same question is again presented to that court. On the other hand, our conclusion is in harmom* with that reached by the courts of New Hampshire and Vermont upon the same question. Norris v. Atkinson, 64 N. H. 87 ; Roberts v. Atherton, 60 Vt. 563. Defendant defaulted. 1 LOWENBERG v. LEVINE. SUPKEME COURT OF CALIFORNIA, FEBRUARY 4, 1892. [Reported in 93 California, 215.] DE HAVEN, J. Action upon a money judgment recovered by plaintiff against defendant in a court of general jurisdiction in the territory of Montana while plaintiff and defendant were residents of that territoiT, and upon a contract made and to be performed there. 1 In Cole v. Cunningham, 133 U. S. 107, 115, Fuller, C. J., in delivering the opinion of the court, said: " State insolvent laws are . . . binding upon such persons as were citizens of the State at the time the debt was contracted." SECT. II.] LOWENBERG V. LEVINE. 59 Subsequent!} 7 to the rendition of this judgment, the defendant filed in the Superior Court of the city and count} 7 of San Francisco his peti- tion in insolvency, and such proceedings were thereafter had in the matter that upon August 14, 1888, the court duly made and entered its decree discharging defendant from all his debts and liabilities. At the date of this decree, and during the entire time of the pendency of these insolvency proceedings, both plaintiff and defendant were resi- dents of this State. In his answer, the defendant pleads this decree in insolvency as a bar to this action. The case was submitted to the court below upon an agreed statement of facts showing the matters hereinbefore stated, and in addition thereto the following facts : "That in the schedule of indebtedness of defendant, Levine, filed with said petition in insolvency, was set forth, as required by law, a statement of the judgment rendered against him and in favor of the plaintiff, Lowenberg, by the District Court of the third judicial district of the territory of Montana, in and for Lewis and Clarke County, as set forth in plaintiff's complaint ; that said plaintiff, Lowenberg, never filed a verified or other statement of his claim and demand in said proceedings in involuntary insolvency, or in any other manner whatever partici- pated in any of the proceedings connected therewith ; but such failure to participate therein was due to no neglect, default, or omission on the part of the defendant, Levine." The court below gave judgment for the plaintiff, and the defendant appeals. The only question presented in the record before us is, whether, in view of the facts as above stated, the decree discharging defendant from his debts and liabilities is a bar to this action. It is claimed by the appellant that as the parties hereto were resi- dent citizens of this State at the time when the insolvency proceedings were begun, and until their completion, the decree therein discharging him from all his debts is conclusive upon the plaintiff and is a bar to this action, and that the binding force of such decree is in no wise affected by the fact that the judgment sued upon was recovered in the territory of Montana, and is based upon a contract made and to be performed there. In support of this proposition, counsel for appellant rely upon Felch v. Bugbee, 48 Me. 9, 77 Am. Dec. 203 ; Hawley v. Hunt, 27 Iowa, 303, 1 Am. Rep. 273 ; Bedell v. Scranton, 54 Vt. 493 ; Marsh v. Putnam, 3 Gray, 551. These cases, however, with the ex- ception of Marsh v. Putnam, 3 Gray, 551, are not in point, as in each of them, with the one exception stated, the only matter before the court for decision was as to the effect of a discharge in insolvency upon debts held by non-residents of the State in which the discharge was granted, the creditor not having proved his claim in the insolvency proceedings, nor otherwise participated therein ; and it was with reference to this question that it was said in those cases that the bind- ing effect of the discharge in insolvency then before the court depended upon the citizenship of the parties, and not upon the place of the 60 LOWENBERG V. LEVINE. [CHAP. L contract. Thus in the case of Bedell v. Scranton, 54 Vt. 493, it is said : "The debt attends the person of the creditor, and unless he is within the jurisdiction of the court, no discharge granted by it can affect his rights. It is a question of citizenship, and State courts and State laws are powerless to affect the rights of non-resident creditors by any juris- diction they may have or exercise over the person of the debtor, or by any proceedings in rem affecting the debt itself." So, also, in Hawle} 7 v. Hunt, 27 Iowa, 303, 1 Am. Rep. 273, the only matter before the court was, whether a discharge in insolvency made by the courts of one State would affect non-residents not parties to it ; and in holding that it would not, Dillon, C. J., in delivering the opinion of the court, used this language : " I have said that the settled law now is, that a non-resident and non-assenting creditor is not bound b}* the debtor's discharge under State insolvent laws, no matter where the debt origi- nated or was made payable. In other words, the citizenship of the parties governs, and not the place where the contract was made or where it is to be performed." There can be no doubt of the correctness of this proposition, when considered in connection with the question which the court had before it. Indeed, it is only the statement of a very familiar principle, which is not at all peculiar to decrees in insolvency proceedings, that no court can render a valid personal judgment against a defendant, or one affecting property which attends or follows his person, without first obtaining jurisdiction of his person. But the rule itself has no applica- tion whatever to the facts of this case, as the question here is, not whether the Superior Court, when it made the decree upon which appellant relies, had jurisdiction over the person of respondent, but whether the court was authorized to discharge, by its decree in in- solvenc\ r , the obligation of the contract made in another State or territory. Section 53 of the Insolvent Act of this State declares: "A dis- charge, duty granted under this Act, shall . . . release the debtor from all claims, debts, liabilities, and demands set forth in his schedule, or which were or might have been proved against his estate in insolvency." This language is broad enough to include the debt sued upon in this action ; but if the State is without authority to pass an insolvent law affecting the obligations of contracts made without the State, then the general terms of the statute must be restricted, and the act construed as not intended to affect or apply to them. Danforth v. Robinson, 80 Me. 466, 6 Am. St. Rep. 224. So that, after all, the real question for decision in this case is as to the power of the State to enact a law having the effect to discharge the obligation of contracts made else- where, when the creditor in no wise participates in the proceedings in which the discharge is entered, although he may have been a resident of this State at the time of the insolvency proceedings. This precise question came before the Supreme Court of New York in the case of Witt v. Follett, 2 Wend. 457, and was there determined in the nega- SECT. II.] LOWENBERG V. LEVINE. 61 tive ; and such seems to be the settled doctrine of the Supreme Court of the United States. In the case of Cook v. Moffat, 5 How. 308, that court, while conceding the authority of a State to pass an insolvent law, in the absence of a law of Congress establishing a uniform S3'stem of bankruptcy, nevertheless, held that, in view of section 10 of article I. of the Constitution of the United States, which denies to a State the power to pass any law impairing the obligation of contracts, the insol- vent law of a State " could have no effect on contracts made before their enactment, or beyond their territory." And in the later case of Baldwin v. Hale, 1 Wall. 223, that court, after reviewing the previous cases decided by it as to the effect of State insolvent laws, takes occa- sion to again state upon what contracts such laws cannot operate, and, in so doing, uses this language: "Undoubtedly a State may pass a bankrupt or insolvent law under the conditions before mentioned, and such a law is operative and binding upon the citizens of the State; but we repeat what the court said in Cook v. Moffat, 5 How. 308, that such laws ' can have no effect on contracts made before their enact- ment, or beyond their territory.'" The rule upon this subject, and the reason upon which it is founded, is thus stated in section 1390 of Story on the Constitution, as the result of all the cases : " The question is now understood to be finally at rest ; the State insolvent laws, discharging the obligation of future contracts, are to be deemed constitutional. Still, a very important point remains to be examined, and that is, to what contracts such laws can rightfully apply. The result of the various decisions on this sub- ject is: 1. That they apply to all contracts rnade within the State between citizens of the State ; 2. That they do not apply to contracts made within the State between a citizen of a State and a citizen of an- other State; 3. That they do not appty to contracts not made within the State. In all these cases it is considered that the State does not possess a jurisdiction co-extensive with the contract over the parties, and therefore that the Constitution of the United States protects them from prospective as well as retrospective legislation. Still, however, if a creditor voluntarily makes himself a part}' to the proceedings under an insolvent law of a State which discharges the contract, and accepts a dividend declared under such law, he will be bound by his own act, and be deemed to have abandoned this extraterritorial immunity." In the case of Marsh v. Putnam, 3 Gra} T , 551, cited and relied upon by appellant, a contrary rule was declared. But this case stands alone, and, in our opinion, should not be followed. The plaintiff not having in an}- manner participated in- the insolvency proceedings had in this State, and relied upon as a bar, and the judg- ment sued upon having been recovered in Montana upon a contract made there, it results from the foregoing views that the plaintiff is entitled to recover in this action. Judgment affirmed. 62 LOTHROP V. HIGHLAND FOUNDRY CO. [CHAP. L LOTHROP v. HIGHLAND FOUNDRY COMPANY. SUPREME JUDICIAL COURT OF MASSACHUSETTS, OCTOBER 2, 1879- JANUARY 12, 1880. [Reported in 128 Massachusetts, 120.] PETITION in equity to this court, under the Gen. Sts. c. 118, 16, to stay proceedings in which the court of insolvency had issued a war- rant against an insolvent debtor upon the petition of a creditor, which was filed September 16, 1878, under the Gen. Sts. c. 118, 103, and alleged that the debtor on August 31, 1878, made two mortgages of his personal property to secure the pa3 - ment of preexisting debts to the mortgagees, with intent to secure to them a preference, and to defraud his creditors, the debtor being at the time insolvent and having reason- able cause to believe himself insolvent. The petition to this court alleged that the court of insolvency had no jurisdiction of the case : 1st. Because, at the time of the alleged making of the mortgages, the insolvent laws of Massachusetts were not in force, and the acts complained of were not in violation of any law then of binding force in this Commonwealth. 2d. Because the original petition was defective in not setting forth that either of the mortgagees knew or had reasonable cause to believe that the debtor was insolvent at the time of making the mortgages to them. The petition to this court was dismissed, with costs, by COLT, J. ; and the petitioner appealed to the full court. T. G. Kent, for the petitioner. H. J. Boardman & C. Blodgett, for the respondent. GRAY, C. J. The principal question in this case is whether a con- veyance by wa}* of preference, made by an insolvent debtor, in contra- vention of the provisions of the insolvent laws of the Commonwealth, while the recent bankrupt act of the United States was in force, is a sufficient cause for instituting proceedings in insolvency against the debtor since the repeal of the bankrupt act. This question appears to us to be substantially determined by the judgments heretofore deliv- ered by this court as to the effect of the bankrupt act of 1841 upon the insolvent law of 1838. The first insolvent law of Massachusetts was passed on April 23, 1838, and took effect on August 1 of the same year. St. 1838, c. 163, 26. The United States bankrupt act of 1841 was passed on August 19, 1841, and took effect from and after February 1, 1842. U. S. St. August 19, 1841, 17. By the St. of Massachusetts of 1842, c. 71, it was enacted that the insolvent law of 1838 (except the provision for discharging attachments by giving bond) "shall be suspended so long as the bankrupt law of the United States shall continue in force ; pro- vided, that nothing in this act contained shall affect any proceedings which ma}' be pending under the provisions of the act hereby sus- SECT. II.] LOTHROP V. HIGHLAND FOUNDRY CO. 63 pended, when this act shall take effect." This statute, though passed on March 3, yet, as it did not expressly prescribe the time when it should go into operation, did not take effect until thirty days afterwards. Rev. Sts. c. 2, 5. But it was held by this court that the bankrupt act of 1841, by its own force, suspended the operation of all State insolvent laws applicable to like cases ; and therefore that proceedings in insolvency instituted on March 3, 1842 (while that bankrupt act was in foroe, though before the St. of 1842, c. 71, took effect, were unau- thorized and void, if the debtor and his property were subject to the operation of the bankrupt act, although no proceedings under that act had been had against him. Griswold v. Pratt, 9 Met. 16. The bankrupt act of 1841 was repealed bj T act of Congress of March 3, 1843. This court held that an attachment made while the bankrupt act of 1841 was in force, and the insolvent law of 1838 was suspended, was dissolved by an assignment of the debtor's estate under the insol- vent law on proceedings instituted after the repeal of the bankrupt act ; and Chief Justice Shaw said : k ' The insolvent law, during its suspen- sion, existed to many purposes. It was suspended only during the existence of another system of paramount authorit}*, designed for the accomplishment of the same purpose, namely, a general and equal distribution of the property. When, therefore, the operation of this suspending law ceased, the original act was reinstated in active opera- tion, and took effect from its original enactment." Ward v. Proctor, 7 Met. 318. In Atkins v. Spear, 8 Met. 490, it was contended that certain trans- fers, assignments, and payments, made by a debtor while the bankrupt act of 1841 was in force and the insolvent law suspended, invalidated a certificate of discharge under proceedings in insolvency commenced after the repeal of the bankrupt act. Mr. Justice Dewey, in deliver- ing the judgment of the court, said that, upon the repeal of the bank- rupt act, "the insolvent law of Massachusetts was revived, and with its revival all the limitations and restrictions upon the right to a dis- charge revived, although the acts had occurred during its suspension ; " and that therefore, if the alleged acts of the defendant were within the cases specified in the insolvent law of 1838, or the statutes supple- mentary thereof, as avoiding a discharge, then they would have that effect, but not otherwise. He then proceeded to examine the various acts relied on, and to show that none of them contravened the pro- visions of the insolvent laws, which would have been wholly unneces- sary if no acts whatever, done while the bankrupt act was in force and the insolvent laws suspended, could have been deemed to have been prohibited by the insolvent laws. In Austin v. Caverly, 10 Met. 332, Chief Justice Shaw referred to Ward v. Proctor and Atkins v. Spear, above cited, as establishing that, upon the repeal of the bankrupt act of 1841, "the insolvent law of 1838 went into renewed and active operation, to be construed accord- ing to the terms of its original enactment." 64 LOTHROP V. HIGHLAND FOUNDRY CO. [CHAP. L It may also be observed that fraudulent conveyances made after the bankrupt act of 1841 was passed, but before it took full effect so as to suspend the operation of State insolvent laws, have been held to afford grounds for impeaching a certificate of discharge obtained, or for allowing the property conveyed to be recovered back by an assignee appointed, under proceedings in bankruptcy instituted after the bank- rupt act took full effect. Swan v. Littlefield, 4 Gush. 574 ; Day v. Bardwell, 97 Mass. 246, 255, and cases cited. The recent bankrupt act of the United States was enacted on March 2, 1867, and did not take full effect, so as to suspend the operation of the insolvent laws of the Commonwealth, until June 2, 1867. l Day v. Bardwell, 97 Mass. 246. It was repealed by the U. S. St. of June 7, 1878, which took effect on September 1, 1878. The omission of the legislature of the Commonwealth to make any i-egulation whatever as to the suspension or the revival of the operation of the insolvent laws, b}* reason of the contemplated or the actual enactment or repeal of the last bankrupt act, can hardly be explained on any other hypothesis than that it was considered to be settled by the judgments of this court, that no such legislation was necessary, either to suspend the operation of the insolvent laws so long as the bankrupt act continued in force, or to revive the operation of all the provisions of the insolvent laws, as if they had never been suspended, so soon as the bankrupt act was repealed ; and that the effect, and the only effect, of the bankrupt act upon the insolvent laws was to suspend, so long as it was in force, the right to institute proceedings under those laws in cases within its pro- visions. 2 In view of the course of legislative action and of judicial 1 Martin v. Berry, 37 Cal. 208 ; Chamberlain v. Perkins, 51 N. H. 336 ; Augsbury v. Grossman, 10 Hun, 389, ace. Conf. In re Langley, 1 B. R. 559. Similarly under the act of 1841, Larrabee v. Talbott, 5 Gill, 426. But under the law of 1898, although, as iu the previous act, no proceedings could be begun for some time after the passage of the act, yet because of the express pro- vision of the final paragraph, " This act shall go into full force and effect upon its passage," it has been held that State insolvency laws were at once suspended on July 1, 1898. Re Bruss-Ritter Co., 90 Fed. Rep. 651 ; In re Curtis, 91 Fed. Rep. 737; Harbaugh v. Costello, 184 111. 110; Parmenter Mfg. Co. v. Hamilton, 172 Mass. 178. Proceedings begun under State insolvency laws before a national bankruptcy act takes effect are not affected by it. Martin v. Berry, 37 Cal. 208 ; Meekins v. Creditors, 19 La. 497; Longis v. Creditors, 20 La. An. 15; Larrabee v. Talbot, 5 Gill. 426 ; Lavender v. Gosnell, 43 Md. 153 ; Judd v. Ives, 4 Met. 401. This is expressly so pro- vided in the closing words of the act of 1898. 2 Tua v. Carriere, 117 U. S. 201 ; Butler v. Gorely, 146 U. S. 303. Torrens v. Hammond, 10 Fed. Rep. 900 ; Lavender v. Gosnell, 43 Md. 153, ace. In Maine an insolvent law was passed in 1878, while the national act was still in force. It was held that the State law took effect on the repeal of the national act, and applied to acts done while the national act was in force. Palmer v. Hixon, 74 Me. 447. In Ex parte Ziegenfuss, 2 Ired. 463 ; Maltbie v. Hotchkiss, 38 Conn. 80, 83 ; and Reed v. Taylor, 32 la. 209, it was held that State laws were not wholly suspended by a national act, and that proceedings might be had under a State law until the jurisdic- tion of the Federal court had -been called into exercise. This ground of decision is clearly wrong. Carling v. Seymour Lumber Co., 113 Fed. 483, 51 C. C. A. 1 ; Re SECT. II.] LOTHROP V. HIGHLAND FOUNDRY CO. 65 decision on the subject, it would be most unreasonable to conclude that fraudulent preferences made since the passage of the insolvent laws and of the bankrupt act should not be reached by the provisions of either. The objection that the petition to the court of insolvency is defective for want of an allegation that the mortgagees knew or had reasonable cause to believe that the debtor was insolvent, cannot be sustained. The dicta of Chief Justice Shaw in Ex parte Jordan, 9 Met. 292, on which this objection is founded, were unnecessary to the decision of that case, and are controlled by the opinion subsequently delivered by .him in Thompson v. Stone, 8 Gush. 103, as well as by the express pro- vision of the St. of 1856, c. 284, 29, which the Commissioners on the General Statutes indicate no purpose to abrogate. The difference in the language of the different sections of c. 118 of the Gen. Sts. manifests the intention of the legislature that, in order to enable the assignee to maintain an action under 89 to recover back the property conveyed, it should be necessary to prove knowledge or reasonable cause to believe, on the part of those receiving or benefited bj r the conveyance, that the debtor was insolvent or in contemplation of in- solvency at the time of making it ; but that the liability of the debtor to proceedings in insolvency under 103, like his right to a certificate of discharge under 87, should depend solely on his own intent and purpose and cause of belief, or, in other words, upon the question whether he, and not upon the question whether smy other person, has done an act in fraud of the insolvent laws. And the petition to the court of insolvency in this case is in the form which has been generally used under those statutes. See Cutler's Insolvent Laws (3d ed.), 125 ; (4th ed.) 193. Decree affirmed. Storck Lumber Co., 114 Fed. 360 ; Re F. A. Hall, 121 Fed. 992 ; Re Weedman Stave Co., 199 Fed. 948 ; Ex parte Eames, 2 Story (U. S.) 322 ; Com. v. O'Hara, 1 N. B. R. 87 ; Thornhill v. Bank, 3 N. B. R. 435, 5 N. B. R. 367; Ketcham v. McNamara, 72 Conn. 709; Harbaugh r. Costello, 184 111. 110; Beach v. Miller's Exrs., 15 La. Ann. 601; Duffy v. His Creditors, 122 La. 600; Moody v. Port Clyde Development Co., 102 Me. 365; Van Nostrand v. Carr, 30 Md. 128; Griswold v. Pratt, 9 Met. (Mass.) 16; Lyman v. Bond, 130 Mass. 291; Parmeuter Mfg. Co. v. Hamilton, 172 Mass. 178 J Rowe v. Page, 54 N. H. 190; E. C. Wescott Co. v. Berry, 69 N. H. 505; Mauran v. Crown Carpet Lining Co., 23 R. I. 324. But though an insolvent law is entirely suspended as such, some provisions of the statute may still have some effect. In Re Worcester County, 102 Fed. Rep. 808, (it was held that a provision of the Massachusetts insolvent law giving counties priority entitled them to priority under 64 of the bankrupt act providing for priority for debts owing to persons " entitled " by the laws of the State to priority. 66 STEELMAN V. MATTIX. [CHAP. I. STEELMAN v. MATTIX. SUPREME COURT OF NEW JERSEY, NOVEMBER TERM, 1878. [Reported in 36 New Jersey Law, 344.] VAN SYCKEL, J, This suit was instituted upon a bond executed by Nathan P. Mattix and his sureties, under the second section of the act entitled, " An act abolishing imprisonment on civil process in certain cases." Nix. Dig. 386, p. 9. One of the breaches assigned in the declaration is, that the said Mattix, after he was refused his discharge under the insolvent laws of this State, did not surrender himself to the sheriff, out of whose custody he had been liberated. To this declaration there is a general demurrer, upon the ground that the bond is void, because the act under which it was given was superseded or suspended by the national bankrupt law. It is admitted that the authority given to Congress to establish uniform laws on the subject of bankruptcy does not restrict the power of the States over the same subject, until the power of Congress is actually exercised. Whether the enactment of the national law ipso facto nullifies the operation of State laws, or whether proceedings may be instituted and continued under State laws, until proceedings are actually taken under the Federal law, are questions which have been much discussed, but the}- are not necessarily involved in this case, and, therefore, no opinion will be expressed in regard to them. The subject is divisible into bankrupt and insolvent laws, but the difficult}' of defining with accuracy what belongs to the one and not to the other class is recognized in the principal case. Sturges v. Crowninshield, 4 Wheat. 122. The line of separation may be an arbitrary one, and without attempt- ing to establish an}' rule by which laws of this character may be classi- fied, it will be sufficient if we can say with confidence that the act now in question is so far removed from the line of demarcation that its character is not doubtful. It is an act to abolish imprisonment on civil process in certain cases. It applies to the single instance of involuntary confinement, and its aim and purpose is simply to liberate the person. It has neither the scope, nor does it subserve the end of a bankrupt law. The person who in- vokes its aid must not necessarily be bankrupt or insolvent he need only be incarcerated on civil process against his will. It is true that his property is sequestered and distributed among his creditors, but so it is under the attachment act, the assignment act, and the act applying to the estates of decedents ; the distribution of the property is merely incidental, and does not discharge the debt. This was not a proceeding in bankruptcy, and would no more come in SECT. II.] STEELMAN V. MATTIX. 67 conflict with the law of Congress than a suit prosecuted to judgment and execution ; in either case the assignee in bankruptcj' would take the debtor's property out of the control of the State court. The power given to Congress over this subject is plenaiy, and when it has been exercised, all State legislation, and all proceedings in State courts, which actually come in conflict with it, must yield to the paramount authority of the general government. It would seem necessarily to result, that when Congress has constitutional!} 1 passed a law upon this subject, State law, designed to accomplish substantially the same purpose, must fall. Uniformity cannot exist with jurisdiction in the State and federal courts in operation at the same time over the same subject-matter, to secure substantially the same result. The fact that under certain conditions the State courts are vested with authority to control and administer the debtor's property for the benefit of creditors, is not, of itself, conclusive as to the vitality of the State law. It is held that a State insolvent law, which supplies the mode of administering' insolvent estates under such assignments made by debtors for the benefit of creditors as would be valid at common law, without the aid of any statute, and which could be enforced by a court of equit}' like any other trust, is not suspended. Hawkins' Appeal, 8 Am. L. R. 205 ; Beck v. Parker, 65 Penn. 262. So when a bankrupt act expressl}' excepts a class of cases, it must have been the intention of Congress not to interfere in such specified class with the laws of the several States. In re Wintermitz, 18 Pitts- burgh L. J. 61. This recognizes the corollary that in a case not provided for by the national authority, the force of State legislation is undisturbed, for no conflict can possibly arise between the two jurisdictions. Our State law in question is of this class, where a debtor, prior to the institution of proceedings in bankruptc}', is imprisoned on civil process issued out of the State court, the federal law furnishes no means of discharging him from confinement, and therefore, if this State law is held to be suspended, the prisoner is without relief, and subject to lifelong incarceration. When the federal law is put into actual operation, the superior title of the assignee in bankruptcy to the property of the debtor would assert itself in the same way, that it would prevail over the title of the sheriff acquired by virtue of his executions, in certain specified cases. 1 1 The Poor Debtor laws of Massachusetts continued to he enforced during the exist- ence of the bankruptcy act of 1867, and the provisions for imprisonment of the debtor in case of fraud were held unaffected by the provision of the national act that " no bankrupt should he liable to arrest during the pendency of the proceedings in bank- ruptcy in any civil action unless the same is founded on some debt or claim from which his discharge would not release him." Stockwell v. Silloway, 100 Mass. 287, 105 Mass. 517. Similarly in Pennsylvania, Scully v. Kirkpatrick, 79 Pa. 324. A law giying a creditor a right to prevent his debtor from leaving the Stat 68 HAWKINS V. LEARNED. [CHAP. I But if our insolvent laws shall be regarded as bankrupt laws, and it is held that they are superseded or suspended, the act under which this bond is given is still in full force, and the bond is obligatory. Under that construction, it may be questioned whether, while the act of April 15th, 1856, remains upon our statute book, the sheriff could refuse to accept the bond. The condition is, that the debtor shall apply for the benefit of the insolvent laws of this State, and if he fails to be dis- charged, shall surrender himself to the officer. The undertaking is in the alternative, either to obtain a discharge under a law which is no longer effective, or to return to the condition from which he was released. Failing in the former, he must perform the latter ; this obligation is neither to do that which is unlawful or impossible. When application is made to the State court for a discharge, the debtor would be remanded to custody, either because he did not compty with the provisions of the State law, or for the reason that the State court had no power in the premises. As the pleadings stand, the defendant has failed to comply with the condition of his bond, and the demurrer, therefore, should be overruled, with costs. 1 HAWKINS v. LEARNED. SUPREME JUDICIAL COURT OF NEW HAMPSHIRE, JUNE TEEM, 1874. [Reported in 54 New Hampshire, 333.] SARGENT, C. J. The motion to dismiss in this case is founded upon Gen. Stats., c. 167, 10, as follows: "When, upon repre- sentation of the guardian of any insane person or spendthrift, the judge is satisfied that estate of the ward is not sufficient to discharge the just debts due therefrom, he may decree that said estate be set- remained in force concurrently with a national act. Gollschalk v. Meyer, 28 La. An. 885. An assignment made under insolvent laws of Pennsylvania, the object of these laws being to discharge the debtor from liability to imprisonment only, was held valid though the debtor was subsequently adjudicated a bankrupt under the national act of 1841. Sullivan v. Hieskill, Crabbe, 525. See also Ex parts Eank, Crabbe, 493, and conf. Barber v. Kodgers 71 Pa. 362. So, under a similar statute in New York, Berthelon v. Betts, 4 Hill, 577. See also Shears v. Solhinger, 10 Abbott's Prac. N. s. 287. In Rhode Island the law for the relief of poor debtors was held to continue in force after the passage of a national act : Jordan v. Hale, 9 R. I. 218 ; but the insolvent law was held to be suspended, though the debtor was not by its terms discharged from his debts, and the only material difference between it and the law for the relief of poor debtors was that the former relieved the debtor from liability to arrest for any of his debts while the latter only relieved him from liability to arrest for a particular debt. In the matter of Reynolds, 8 R. I. 485. This decision seems, however, some- what discredited by Jordan v. Hale, 9 R. I. 218, 222. i Conf. Barber v. Rodgers, 71 Pa. 362. SECT. II.] HAWKINS V. LEARNED. 69 tied as insolvent, and thereupon such proceedings shall be had, decrees made, appeals allowed, suits disposed of, and the accounts of the guar- dian adjusted, as' in the case of insolvent estates of deceased persons." In this case, it is agreed that the defendant was duly decreed to be an insane person by the Probate Court, and a guardian was appointed. The guardian made the proper representation to the Probate Court, and the defendant's estate was thereupon decreed to be administered as insolvent ; and after this, at this term, the guardian appears and moves that this action, which was commenced October 24, 1873, be dismissed in consequence of such proceedings in the Probate Court. This is the same way a suit would be disposed of in case of a deceased person whose estate was decreed to be administered as insolvent. No action shall be commenced or prosecuted against an administrator after the estate is decreed to be administered as insolvent, but the cause of action may be presented to the commissioner and allowed, with the costs of any action pending at the time of such decree Gen. Stats., c. 179, 8; and in such cases no plea is necessary setting forth the decease or the insolvency. When the facts are suggested, and the court is satisfied that such decrees have been made in the court of pro- bate, the actions are discontinued in this court at once. It is urged in argument that the plaintiffs should be heard upon the question whether the party is insane, etc., but that could not be in this court. The Probate Court is the tribunal selected by law to settle that question ; and, when once settled there, it is settled for all other places and all other courts. This must be so from the nature of the case. If it were not so, the same man might be held both sane and insane at the same time. The case of Jones v. Jones, 45 N. H. 123, is directly in point, under provisions of the statute precisely like the present, and must control this case. The authorities cited, that the general bankrupt law of the United States supersedes all State insolvent laws, do not apply. The laws for the settlement of the estates of deceased persons, though the}' may provide for settling estates in the insolvent course, yet are not re- garded as general insolvent laws. It would not be claimed, probably, that the statute for the settlement of the estates of deceased persons in the insolvent course was superseded by the general bankrupt law ; and if not, then this would not be, because this statute provides for settling the estates of insane persons in all respects like the settling of the estates of persons deceased. The motion to dismiss must be granted. 70 EBERSOLE AND MCCARTY V. ADAMS, ETC. [CHAP. I. EBERSOLE & McCARTY v. ADAMS, &c. COURT OF APPEALS OF KENTUCKY, WINTER TERM, 1873. [Reported in 10 Bush, 83.] JUDGE LINDSAY delivered the opinion of the court. The petition in this action was framed under the provisions of the act approved March 10, 1856, entitled "An act to prevent fraudulent assignments in trust for creditors and other fraudulent conve3'ances." It is alleged that the conveyance from Adams and wife to Kirk was made and executed in contemplation of insolvency, and with the design to prefer one or more creditors to the exclusion in whole or in part of others ; and under the general prayer for relief the court is authorized to declare that said conve}"ance operated as an assignment and transfer by Adams of all his property and effects for the benefit of all his cred- itors, to take possession of such property and effects, and make dis- tribution among the creditors as directed by said act. To the petition appellees demurred, upon the ground that the act of 1856 is " a State system of bankruptcj*," . . . and that it was " super- seded and in effect repealed 03- the act of Congress of the United States, passed in pursuance of express constitutional power, entitled "An act to establish a uniform system of bankruptcy throughout the United States," approved March 2, 1867. The demurrer was sustained, a personal judgment rendered against the debtor Adams, and the petition to the extent that relief was asked against Kirk, under the provisions of the act of 1856 dismissed. This act is not a bankrupt law nor an insolvent act. It has none of the characteristics of either, except that it provides for the appropria- tion of the property of the debtor to the payment pro tanto of all his creditors. An assignment or transfer made in contemplatiom of insolvency, and to prefer creditors, is an act of bankruptcy under the act of Con- gress ; but this fact does not deprive creditors of the right to apply to the State courts for relief, in case they choose to do so. Notwithstand- ing the Federal Bankrupt Act, the State courts have full and complete power to relieve against all frauds, actual or constructive, except in cases in which a court of bankruptcy has first taken jurisdiction, or where the relief asked in the State courts is subversive of the rights of parties to a pending proceeding in bankruptc}' subsequently instituted. If the act of 1856 be regarded as a State bankrupt law, there is still no reason why the Circuit Court should not enforce it. State legislatures have the power to pass bankrupt or insolvent laws, provided there be no act of Congress in force establishing a uniform system of bankruptcy conflicting with such law. It was so held by Mr. Justice Johnson of the Supreme Court in the case of Ogden v. Saunders, 12 Wheat. 273. And in the subsequent case of Bo3"le v. SECT. II.] EBERSOLE AND MCCARTY V. ADAMS, ETC. 71 Zacharie, 6 Pet. 348, Chief Justice Marshall stated that " the judges who were in the minority of the court upon the general ques- tion as to the constitutionality of State insolvent laws,' concurred in the opinion of Mr. Justice Johnson in the case of Ogden v Saunders," and hence that that opinion was therefore to be considered as no longer leaving the question open for controvers}'. The binding force of this decision was again recognized by the Supreme Court in the case of Baldwin v. Hale, 1 Wall. 223. Judge Cooley, after reviewing all the cases bearing upon this subject, states the settled law to be that " the several states have power to legislate on the subject of bankrupt and insolvent laws, subject, however, to the authority conferred upon Congress by the Constitution to adopt a uniform system of bankruptcy, which authority, when exercised, is permanent, and State enactments in conflict with those of Congress upon the subject must give way." The State law under consideration does not conflict with the law of Congress. Except to the extent that the distribution by the State court of the assets of the debtor's estate relieves him from liability to his creditors, his obligation and the right of the creditors still to look to him and to his future acquisitions for such amounts as may remain unpaid continue unimpaired. All the creditors may make themselves parties to the proceeding in the State court, and the assets of the debtor are marshalled and dis- tributed substantially in the same manner as the act of Congress pro- vides shall be done in a proceeding in bankruptcy. The State law being in every essential consistent with the act of Congress, there is no reason why the latter act shall be regarded as superseding or repealing the former. The court below erred in sus- taining the demurrer, and in dismissing appellants' petition. The judgment is reversed, and the cause remanded with instructions to overrule the demurrer, and for further proceedings consistent with this opinion. The appeal is dismissed as to Mrs. Adams, it not appearing that appellants have any claim against her, and no reason being shown for making her a party either to the proceedings in the Circuit Court or to this appeal. 1 1 Lintliicum v. Fenley, 11 Bash, 131 ; Downer v. Porter, 25 Ky. L. Rep. 571, 76 S. W. 135, ace.; Tobin v. Trump, 3 Brewst. 288; Potts v. Smith Mfg. Co., 25 Pa. Super. Ct. 206 ; Peckham's Assigned Est., 35 Pa. Super. Ct. 330, contra. In Alabama, Con- necticut, New Mexico, Pennsylvania, Tennessee, West Virginia, Wisconsin, as well as in Kentucky, there are state statutes providing that an assignment with preferences by an insolvent debtor shall operate as an assignment of all his property for distri- bution ratably among his creditors. 72 SHEPARDSON'S APPEAL. [CHAP. i. EDWARD M. SHEPARDSON'S APPEAL FROM PROBATE. ' CONNECTICUT SUPREME COURT, FEBRUARY TERM, 1869. [Reported in 36 Connecticut, 23.] CARPENTER, J. Proceedings were instituted against the appellant under the insolvent laws of this State, and thereupon a trustee was appointed by the court of probate. From that decree an appeal was taken, and the Superior Court affirmed the decree. The appellant now seeks to reverse that judgment by motion in error. The objection to the validit}* of that decree is based upon the claim that the statute authorizing it had been superseded by the operation of the bankrupt act of the United States, then and now in force. That act applies only to cases where the debtor is owing debts provable under the act "exceeding the amount of three hundred dollars." Sections 11 and 39 of the act. It does not appear in this case that the debts of the appellant exceed that amount. The case therefore does not appear to be within the purview of the act of Congress. We have no occasion to presume either that the debts are more or less than that amount. If less, it is clear that the law, so far as it respects this case, is unaffected by the bankrupt act. Before we can hold that the proceedings are erroneous, it ought to appear affirmatively that the}* are more. Until then there is no conflict of laws. The State law is operative to some extent and for some pur- poses. It is clearl}' operative in all cases which are not within the provisions of the United States law. So far as appears this is, or may be, a case of that description. "We therefore see no error in the judg- ment complained of. In this opinion HINMAN, C. J., and BUTLER. J., concurred. PARK, J. The record does not disclose whether or not the insolvent owes debts in the aggregate to an amount less than the sum of three hundred dollars. If he owes more than that amount, the majority of the court concede that the Probate Court had no jurisdiction of the case, for the bankrupt act suspends the insolvent act in cases of involuntary insolvency, where the insolvent owes debts more in the aggregate than that amount. The question then is one of jurisdiction ; and the record leaves it in doubt whether or not the Probate Court had jurisdiction. Now it has repeatedly been held by this court that the jurisdiction of a probate court must affirmatively appear and that no presumption exists in its favor. In the case of Potwine's Appeal from Probate, 31 Conn. R., 381, Judge Butler says: "Courts of probate have a special and limited jurisdiction. Their proceedings cannot be sustained by presumption, and their records must show an explicit finding of all necessary juris- SECT. II.] MAYER V. HELLMAN. 73 dictional facts." The following cases are to the same effect Coit v. Havens, 30 Conn. R., 190 ; Sears v. Terry, 26 Conn. R., 273. I cannot agree with the majority of the court on this question. 1 MAYER ET AL v. HELLMAN. SUPREME COURT OF THE UNITED STATES, OCTOBER TERM, 1875. [Reported in 91 United States, 496.] ERROR to the Circuit Court of the United States for the Southern District of Ohio. The plaintiff in the court below is assignee in bankruptcy of Bogen and others, appointed in proceedings instituted against them iu the District Court of the United States for the Southern District of Ohio ; the defendants are assignees of the same parties, under the assignment law of the State of Ohio ; and the present suit is brought to obtain possession of property which passed to the latter under the assignment to them. The facts as disclosed by the record, so far as they are ma- terial for the disposition of the case, are briefly these : On the 3d of December, 1873, at Cincinnati, Ohio, George Bogen and Jacob Bogen, composing the firm of G. &. J. Bogen, and the same parties with Henry Milller, composing the firm of Bogen & Son, by deed exe- cuted of that date, individually and as partners, assigned certain prop- erty held by them, including that in controversy, to three trustees, in trust for the equal and common benefit of all their creditors. The deed was delivered upon its execution, and the property taken posses- sion of by the assignees. By the law of Ohio, in force at the time, when an assignment of propert}' is made to trustees for the benefit of creditors, it is the duty of the trustees, within ten days after the delivery of the assignment to them, and before disposing of any of the property, to appear before 1 It has been held that a State bankrupt law is still operative as to farmers, and wage-earners, Old Town Bank v. McCormick, 96 Md. 341, Re Rittenhouse's Insolvent Estate, 20 Pa. Super. Ct. 468; Citizens' Nat. Bank v. Gass, 29 Pa. Super. Ct. 125; Miller v. Jackson, 34 Pa. Super. Ct. 31. Also to mining corporations prior to the amendment of the National Act in 1903. R. H. Herron Co. v. Superior Court, 136 Cal 279. And that corporations might bring voluntary proceedings under a State law though not permitted at the time to do so under the National Act. Keystone Driller Co. v. Superior Court, 138 Cal. 738. In Geery's Appeal, 48 Conn. 289; Clarke v. Ray, 1 H. & J 318, 320; Simpson v. City Sav. Bank, 56 N. H. 466; Singer v. Nat. Bedstead Co., 65 N. J. Eq. 290, the court also intimated that as to cases of bankruptcy or insolvency not covered by the National Act, the State legislature might deal as it saw fit. On the other hand, tending to show that the national excludes the power of the State legislature to deal with any case of bankruptcy, see Rockville Nat. Bank v. Latham (Conn.) 89 Atl. 1117; Ketcham v. McNamara, 72 Conn. 709; Harbaugh v. Costello, 184 111. 110; Moody v. Port Clyde Development Co., 102 Me. 365, 383; Pannenter Mfg. Co. >. Hamilton, 172 Mass. 178. 74 MAYER V. HELLMAN. [CHAP. I the probate judge of the county in which the assignors reside, produce the original assignment, or a copy thereof, and file the same in the Probate Court, and enter into an undertaking payable to the State, in such sum and with such sureties as may be approved by the judge, conditioned for the faithful performance of their duties. In conformity with this law, the trustees, on the 13th of December, 1873, within the prescribed ten days, appeared before the probate judge of the proper county in Ohio, produced the original assignment, and filed the same in the Probate Court. One of the trustees havino 1 O declined to act, another one was named in his place by the creditors, and appointed by the court. Subsequently the three gave an under- taking with sureties approved by the judge, in the sum of $500,000, for the performance of their duties, and then proceeded with the administration of the trust under the direction of the court. On the 22d of June of the following year, more than six months after the execution of the assignment, the petition in bankruptcy against .the insolvents was filed in the District Court of the United States, initiating the proceedings in which the plaintiff was appointed their assignee in bankruptcy. As such officer, he claims a right to the possession of the property in the hands of the defendants under the assignment to them. Judgment having been rendered against them, they sued out this writ of error. Mr. W. T. Forrest, for the plaintiffs in error. Deeds of trust or assignments made in good faith, and for the com- mon benefit of all the creditors of a debtor, are in aid of the provisions of the Bankrupt Law, and not contrary te its spirit. They have been said, " to carry out the equitable provisions of a bankrupt law through the medium of a private contract," and are a cheap, expeditious, and convenient mode of arriving at the objects intended by that law. Sedg- wick v. Place, 1 Nat. Bank. Reg. 204 ; Tiffany v. Lucas, 15 Wall. 410 ; Clark v. Iselin, 21 Wall. 360 ; Michael v. Post, id. 398; Langley v. Perry, 2 Nat. Bank. Reg. 180. The statute of Ohio, entitled " An Act regulating the mode of administering assignments in trust for the benefit of creditors," has none of the distinctive features of an insolvent or a bankrupt law. It does not purport or attempt to discharge the debtor either from arrest or imprisonment, or to free him from future liability. His after-acquired property is liable to his creditors to the same extent in every particular as if he had not made an assignment in trust for his creditors. Deeds of trust are not the creatures of that law. They existed in Ohio, and were constantly recognized and used for fifty years before it was passed. They derive their force and effect from the common law, and not from the statute. The statute does not give such deeds any power or validity. All it does is to prescribe a mode of enforcing the trust. It found them already established, and simply provided for the better security of the creditor b} T requiring that the trustees should give bond for the faithful discharge of their trusts, and should file statements showing what had been done, and provided a SECT. II. J MAYER V. HELLMAN. 75 simple and speedy means of enforcing and regulating the trust, which, before that act was passed, had to be sought through a court of chan- cery. Cook et al v. Rogers, Am. Law Reg. Juty, 1875, 453 ; In re Hawkins, 2 Nat. Bank. Reg. 122. Mr. Adam A.. Kramer, contra. The main question involved in this case is, whether the adjudication in Bankrupt had the effect of suspending the further operation of the State assignment laws. The jurisdiction of the United States courts under the Bankruptcy Act cannot be concurrent with that of the State courts under the assignment laws of the State. It must be exclusive in that court, which only can and should administer the estate and ad- just the affairs of a bankrupt. Sturges v. Crowninshield, 4 Wheat. 122; Ogden v. Saunders, 12 Wheat. 213, 214; Griswold v. Pratt, 9 Met; Larrabee v. Talbot, 5 Gill, 426; Ex parte Lucius Eames, 2 Story, C. C. 322 ; In re Reynolds, 9 Nat. Bank. Reg. 50 ; Allen & Co. v. Montgomery, 10 Nat. Bank Reg. 503. The Bankrupt Act was intended, and must be presumed, to afford the best mode of adminis- tering the estates of insolvents. It will not tolerate an attempt to carry into effect any other plan inconsistent therewith. Cookingham v. Morgan, 5 B. R. 16, 7 Blatchf. 480. It is not claimed, that, although the assignment was a valid, legal, and fair one for the benefit of all the creditors, the subsequent adjudi- cation in bankruptcy rendered it invalid, illegal, and unfair, but that it had the effect of suspending its further operation. The Bankrupt Act of March 2, 1867, as soon as it went into operation, ipso facto suspended all action arising under State laws. Commonwealth v. O'Hara, 1 Nat. Bank. Reg. 19 ; In re Krogman, 5 Nat. Bank Reg. 116. It is immaterial whether the statute of Ohio, under which the assign- ment was made, is properly an insolvent law. It, however, certainly purports and contemplates the control and disposition of the estate of persons who are unable to pay their debts, and are therefore insolvent. It is an insolvent act, because it presumes the debtor to be unable to pay his debts ; but it is not a bankrupt act in the strict sense, for it does not purport to discharge the debtor from paying them. The most important authority on this question, the one containing the clearest reasoning, is the opinion of the court, per Blodgett, J., In re Merchants' Insurance Company, 6 Nat. Bank. Reg. 43 : " It seems clear to us, that in so far as a State law attempts to administer on the effects of an insolvent debtor, and distribute them among his creditors, it is to all intents and purposes an insolvent law, although it may not authorize a discharge of a debtor from further liability ; . . . and, when insolvency exists so as to make the debtor a proper subject for the operation of the Bankrupt Act, the exclusive jurisdiction of the Bankrupt Court attaches, and the State court and those acting under its mandate must surrender the control of its assets." 76 MAYER V. HELLMAN. [CHAP. I. By insolvency, as used in the provisions of the Bankrupt Act when applied to traders and merchants, is meant their inability to pay their debts as they become due in the ordinary course of their business. This is the legal definition of the term, and such has been the uni- versal construction of it by the Federal courts. In re Goldschmidt, 3 B. R. 165 ; In re Freeman, 4 B. R. 64 ; In re Lutgens, 7 Pac. L. R. 89 ; In re Alonzo Pearce, 21 Vt. 611 ; In re Brodhead, 2 B. R. 278 ; Smith v. Ely, 1 N. Y. Leg. Obs. 343 ; Sawyer v. Turpin, 5 B. R. 339 ; In re Walton et al., Dead}-, 442. MR. JUSTICE FIELD delivered the opinion of the court. The validity of the claim of the assignee in bankruptc}' depends, as a matter of course, upon the legality of the assignment made under the laws of Ohio. Independently of the Bankrupt Act, there could be no serious question raised as to its legality. The power which every one possesses over his own property would justify any such disposition as did not interfere with the existing rights of others ; and an equal distribution by a debtor of his property among his creditors, when unable to meet the demands of all in full, would be deemed not only a legal proceeding, but one entitled to commendation. Creditors have a right to call for the application of the property of their debtor to the satisfaction of their just demands ; but, unless there are special cir- cumstances giving priority of right to the demands of one creditor over another, the rule of equity would require the equal and ratable distri- bution of the debtor's property for the benefit of all of them. And so, whenever such a disposition has been voluntarily made by the debtor, the courts in this country have uniformly expressed their approbation of the proceeding. The hinderance and delay to particular creditors, in their efforts to reach before others the property of the debtor, that ma}- follow such a conveyance, are regarded as unavoidable incidents to a just and lawful act, which in no respect impair the validity of the transaction. The great object of the Bankrupt Act, so far as creditors are con- cerned, is to secure equality of distribution among them of the prop- erty of the bankrupt. For that purpose, it sets aside all transactions had within a prescribed period previous to the petition in bank- ruptcy, defeating, or tending to defeat, such distribution. It reaches to proceedings of every form and kind undertaken or executed within that period by which a preference can be secured to one creditor over another, or the purposes of the act evaded. That period is four months for some transactions, and six months for others. Those periods con- stitute the limitation within which the transactions will be examined and annulled, if conflicting with the provisions of the Bankrupt Act. Transactions anterior to these periods are presumed to have been acquiesced in by the creditors. There is sound policy in prescribing a limitation of this kind. It would be in the highest degree injurious to the community to have the validity of business transactions with debtors, in which it is interested, subject to the contingency of being SECT. II.] MAYER V. HELLMAN. 77 assailed by subsequent proceedings in bankruptcy. Unless, therefore, a transaction is void against creditors independently of ^he provisions of the Bankrupt Act, its validity is not open to contestation by the as- signee, where it took place at the period prescribed by the statute anterior to the proceedings in bankruptcy. The assignment in this case was not a proceeding, as already said, in hostility to the creditors, but for their benefit. It was not, therefore, void as against them, or even voidable. Executed six months before the petition in bankruptcy was filed, it is, to the assignee in bankruptcy, a closed proceeding. The counsel of the plaintiffs in error have filed an elaborate argu- ment to show that assignments for the benefit of creditors generally are not opposed to the Bankrupt Act, though made within six months previous to the filing of the petition. Their argument is, that such an assignment is only a voluntary execution of what the Bankrupt Court would compel ; and as it is not a proceeding in itself fraudulent as against creditors, and does not give a preference to one creditor over another, it conflicts with no positive inhibition of the statute. There is much force in the position of counsel, and it has the support of a de- cision of the late Mr. Justice Nelson, in the Circuit Court of New York, in Sedgwick v. Place, First Nat. Bank. Reg. 204, and of Mr. Jus- tice Swayne in the Circuit Court of Ohio, in Langley v. Perry, 2 Nat. Bank. Reg. 180. Certain it is that such an assignment is not abso- lutely void ; and, if voidable, it must be because it may be deemed, perhaps, necessary for the efficiency of the Bankrupt Act that the administration of an insolvent's estate shall be intrusted to the direc- tion of the District Court, and not left under the control of the ap- pointee of the insolvent. It is unnecessary, however, to express an}' decided opinion upon this head ; for the decision of the question is not required for the disposition of the case. In the argument of the counsel of the defendant in error, the posi- tion is taken that the Bankrupt Act suspends the operation of the act of Ohio regulating the mode of administering assignments for the benefit of creditors, treating the latter as an insolvent law of the State. The answer is, that that statute of Ohio is not an insolvent law in any proper sense of the term. It does not compel, or in terms even authorize, assignments : it assumes that such instruments were con- veyances previously known, and only prescribes a mode by which the trust created shall be enforced. It provides for the security of the creditors by exacting a bond from the trustees for the discharge of their duties ; it requires them to file statements showing what they have done with the propert} r ; and affords in various ways the means of com- pelling them to carry out the purposes of the conveyance. There is nothing in the act resembling an insolvent law. It does not discharge the insolvent from arrest or imprisonment: it leaves his after-acquired property liable to his creditors precisely as though no assignment had been made. The provisions for enforcing the trust are substantially such as a court of chancery would apply in the absence of any statutory 78 BOESE V. KING. [CHAP. I. provision. The assignment in this case must, therefore, be regarded as though t'ae statute of Ohio, to which reference is made, had no exist- ence. There is an insolvent law in that State ; but the assignment in question was not made in pursuance of any of its provisions. The position, therefore, of counsel, that the Bankrupt Law of Congress sus- pends all proceedings under the Insolvent Law of the State, has no application. The assignment in this case being in our judgment valid and binding, there was no propert} 7 in the hands of the plaintiffs in error which the assignee in bankruptcy could claim. The assignment to them divested the insolvents of all proprietar}* rights they held in the property de- scribed in the conveyance. They could not have maintained an} 7 action either for the personalty or realty. There did, indeed, remain to them an equitable right to have paid over to them any remainder after the claims of all the creditors were satisfied. If a contingency should ever arise for the assertion of this right, the assignee in bankruptcy may perhaps have a claim for such remainder, to be applied to the payment of creditors not protected by the assignment, and whose demands have been created subsequent to that instrument. Of this possibilit}' we have no occasion to speak now. Our conclusion is, that the court below erred in sustaining the demurrer to the defendant's answer; and the judgment of the court must, therefore, be reversed, and the cause remanded for further proceedings. BOESE v. KING. SUPREME COURT OF THE UNITED STATES, APRIL 30, 1883. [Reported in 108 United States, 379.] SUIT by a receiver appointed by a State court in New York on return of execution unsatisfied ; brought in New York against assignees of the property of the judgment debtor under an assignment for the benefit of creditors, made in accordance with the laws of New Jersey (of which State the assignees and the debtor are citizens), and to recover proceeds of the debtor's propert} 7 voluntarily brought within the State of New York by the assignees for distribution under the assignment. By deed of assignment executed and delivered September 25, 1873, Wm. H. Locke, a citizen of New Jersey, transferred and con- veyed to Wm. King, John M. Goetchins, and Edward E. Poor, and the survivor of them, and their and his heirs and assigns, all his prop- ert\- of every kind and description except such as was exempt by law from execution "in trust to take possession of and collect and to sell and dispose of the same at public or private sale in their discre- SECT. II.] BOESE V. KING. 79 tion, and to distribute the proceeds to and among the creditors of the said Wm. H. Locke, in proportion to their several just demands, pursuant to the statutes in such case made and provided, and on the further trust to pay the surplus, if any there be, after fully satisfying and paving the said creditors and all proper costs and charges, to the said Wm. H. Locke." The intention of Locke and the assignors was to have a distribution made among the creditors of the former in conformity with the requirements of an act of the legislature of New Jersey, passed April JlG^JJRB, entitled ".An Act to secure to creditors an equal and just division of the estates of debtors who convey to assignees for the benefit of creditors." That act provided, among other things, that every conveyance or assignment by a debtor of his estate, real or personal or both, in trust, to an assignee for the benefit of creditors, shall be made for their equal benefit in proportion to their several demands to the net amount that shall come to the hands of the assignee for distribution ; and all preferences of one creditor over another, or whereby one shall be first paid or have a greater proportion in respect to his claim than another, shall be deemed fraudulent and void, excepting mortgage and judg- ment creditors, when the judgment has not been by confession for the purpose of preferring creditors ( 1) ; further, that the debtor shall annex to his assignment an inventory, under oath or affirmation, of all of his property, together with a list of his creditors, and the amount of their respective claims, such inventory not, however, to be conclusive as to the quantity of the debtor's estate, and the assignee to be entitled to an}' other property belonging to the debtor at the time of the assign- ment, and comprehended within its general terms ( 2). Other sections provided for public notice by the assignee of the assignment ; for the presentation of claims of creditors ; for filing by the assignee under oath of a true inventory and valuation of the estate ; for the execution by him of a bond in double the amount of such inventory or valuation ; for the recording of such bond ; for the filing with the clerk of the court of common pleas of the county of the debtor's residence, within three months after the date of the assignment, of a list of all such creditors as claim to be such, and the amount of their demands, first making it known by advertisement that all claims against the estate must be made as prescribed in the statute, or Jie forever barred from coming in for a dmdend of said estate, otherwise than as provided ; for the right of the""assigriee~oif any creditor or person interested to except to the allowance of any claim presented ; for the adjudication of such exceptions ; for fair and equal dividends from time to time among the creditors of the assets in proportion to their respective claims ; and for a final accounting by the assignee in the orphans' court of the county such settlement and adjudication to be conclusive on all parties, except fbr assets which may afterward come__to band, or for frauds or apparent error ( 3, 4, 5, 6, and 7). 80 BOESE V. KING. [CHAP. L The act further provided " 11. If any creditor shall not exhibit his, her, or their claims within the terra of three months as aforesaid, such claim shall be barred of a dividend unless the estate shall prove sufficient after the debts ex- hibited and allowed are fully satisfied, or such creditor shall find some other estate not accounted for by the assignee or assignees before distribution, in which case such barred creditor shall be entitled to a ratable proportion therefrom. " 12. Whenever an}' assignee or assignees, as aforesaid, shall sell any real estate of such debtor or debtors a.s is conveyed in trust as aforesaid, he or they shall proceed to advertise and sell the same in manner as is now or may hereafter be prescribed in the case of an executor or administrator directed to sell lands by an order of the orphans' court for the payment of the debts of the testator or intestate. " 13. Every assignee, as aforesaid, shall have as full power and authority to dispose of all estate, real and personal, assigned, as the said debtor or debtors had at the time of the assignment, and to sue for and recover in the proper name of such assignee or assignees, everything belonging or appertaining to said estate, real or personal, of said debtor or debtors, and shall have full power and authority to refer to arbitration, settle and compound, and to agree with any person concerning the same, and to redeem all mortgages and conditional contracts, and generally to act and do whatever the said debtor or debtors might have lawfully done in the premises. " 14. Nothing in this act shall be taken or understood as dis- charging said debtor or debtors from liabilities to their creditors who ma}* not choose to exhibit their claims either in regard to the persons of such debtors or to any estate, real or personal, not assigned as aforesaid, but with respect to the creditors who shall come in under said assignment and exhibit their demands as aforesaid for a dividend, the}* shall be wholly barred from having afterward any action or suit at law or equity against such debtors or their representatives, unless on the trial of such action or hearing in equit}* the said creditor shall prove fraud in the said debtor or debtors with respect to the said assignment, or concealing his estate, real or personal, whether in possession, held in trust, or otherwise." The estate which came into the hands of the assignees was converted into money in New Jerse}*, the amount being nearly* $200,000, and the proceeds, for the convenience of the assignees, were deposited in a bank in the city of New York. No proceedings in bankruptcy were ever taken against Locke. On the 3d day of February, 1876, William Pickhardt and Adolph Kutroff recovered a judgment against Locke in the Supreme Court of the city and county of New York for $3,086.85. Upon that judgment execution was issued and returned unsatisfied. Subsequently, May 27, 1876, in certain proceedings, before one of the judges of that court, SECT. II.] BOESE V. KINO. 81 supplementary to the return of execution, Thomas Boese, plaintiff in error, was appointed receiver of the property of Locke, and having executed a bond for the faithful discharge of the duties of his trust, he obtained an order from the same court giving him authority, as receiver, to bring an action against the assignees of Locke. There- upon, June 9, 1876, he commenced this action. It proceeds upon these grounds: 1. That the indebtedness from Locke to Pickhai'dt and Kutroff arose in New York, where they reside, before the making of said assignment ; 2. That the statute of New Jersey with reference to or under which said a'ssignment was made was, by force of the Bankruptcy Act of 1867, suspended and of no effect ; 3. That the assignment was fraudulent and void by the laws of New Jersey, in that it was made with the intent upon the part of Locke to hinder, delay, and defraud his creditors, and in that he had a large amount of money and other property which he fraudulently retained to his own use and did not surrender to the assignees. The prayer of the complaint the allegations of which were fully met by answer was for judgment against the defendants; that the assignments be adjudged fraudulent and void ; and that the defendants be required to account to plaintiff for all the property and money received or to which they are entitled under and by virtue of the assignment. It was conceded at the hearing that defendants had in their hands, of the proceeds of the sale of the assigned property, an amount sufficient to pay the judgment of Pickhardt and Kutroff. The Supreme Court of New York, both in general and special terms, sustained the action and gave judgment against the assignees in favor of Boese, as receiver, for the amount of the demand of Pickhardt and Kutroff. 1 But in the Court of Appeals that judgment was reversed, with directions to enter judgment for the defendants. 2 The receiver brought the suit here in error asking to have this decision reversed. Mr.-C. Bainbridye Smith, for plaintiff in error. Mr. A. P. Whitehead, for defendant in error. MR. JUSTICE HARLAN delivered the opinion of the court. After reciting the facts in the foregoing language he continued: We are to consider in this case whether the final judgment of the Court of Appeals of New York has deprived the plaintiff in error of any right, title, or privilege under the Constitution or laws of the United States. We dismiss from consideration all suggestions in the pleadings of actual fraud upon the part either of Locke or of his assignees. The court of original jurisdiction found us a fact and upon that basis the case was considered by the Court of Appeals that the assignment was executed and delivered by the former and accepted by the latter in good faith and without an}* purpose to hinder, delay, or defraud an}* creditor of Locke. It is further found as a fact that the assignment * Boese :. Locke. 17 Htm, 270. a Boese v. Kin, 78 N. Y. 471. 82 BOESE V. KING. [CHAP. I. was made with the intent, bonafide, to make an equal distribution of the proceeds of the trust estate among creditors, in conformity with the local statute. The Supreme Court of New York ruled that the statute of New Jersey was, in its nature and effect, a bankrupt law, and the power conferred upon Congress to establish a uniform system of bank- ruptcy, having been exercised by the passage of the act of 1867, the latter act wholly suspended tire operation of the local statute as to all cases within its purview ; consequentl}-, it was held, the assignment was not valid for any purpose. The Court of Appeals, recognizing the paramount nature of the Bankrupt Act of Congress, and assuming that the 14th section of the New Jersey statute, relating to the effect upon the claims of creditors who exhibit their demands for a dividend, was inconsistent with that act, and therefore inoperative, adjudged that other portions of the local statute providing for the equal distribution of the debtor's property among his creditors, and regulating the general conduct of the assignee, were not inconsistent with nor were they necessarily suspended by the act of 1867 ; further, that the New Jersey statute did not create the right to make voluntary assignments for the equal benefit of creditors, but was only restrictive of a previously existing right, and imposed, for the benefit of creditors, salutary safe- guards around its exercise ; consequently, had the whole of the New Jersey statute been superseded, the right of a debtor to make a voluntarj' assignment would still have existed. The assignment, as a transfer of the debtor's property, was, therefore, upheld as in harmony with the general object and purposes of the Bankrupt Act, unassailable by reason merely of the fact that some of the provisions of the local statute may have been suspended by the act of 1867. In the view which we take of the case it is unnecessary to consider all of the questions covered by the opinion of the State court and discussed here by counsel. Especially it is not necessary to determine whether the Bankrupt Act of 1867 suspended or superseded all of the provisions of the New Jersey statute. Undoubtedly the local statute was, from the date of the passage of the Bankrupt Act, inoperative in so far as it provided for the discharge of the debtor from future liability to creditors who came in under the assignment and claimed to partici- pate in the distribution of the proceeds of the assigned property. It is equally clear, we think, that the assignment by Locke of his entire property to be disposed of as prescribed by the statute of New Jersey, and therefore independently of the bankruptcy court, constituted, itself, an act of bankruptcy, for which, upon the petition of a creditor filed in proper time, Locke could have been adjudged a bankrupt, and the property wrested from his assignees for administration in the bank- ruptcy court. In re Burt, 1 Dillon, 439, 440 ; In re Goldschmidt, 3 Bank. Reg. 164 ; In matter of Seymour T. Smith, 4 Bank. Reg. 377. The claim of Pickhardt and Kutroff existed at the time of the assign- ment. The wa}- was, therefore, open for them, by timely action, to secure the control and management of the assigned property by that SECT. II.] BOESE V. KING. 83 court for the equal benefit of all the creditors of Locke. But they elected to He by until after the expiration of the time within which the assignment could be attacked under the provisions of the Bankrupt Act; and now seek, by this suit in the name of the plaintiff in error, to secure an advantage or preference over all others ; this, notwith- standing the assignment was made without any intent to hinder, delay, or defraud creditors. In order to obtain that advantage or preference, the plaintiff in error relies on the paramount force of the Bankrupt Act, the primary object of which, as this court has frequently announced, was to secure equality among the creditors of a bankrupt. Mayer 'v. Hellman, 91 U. S. 496-501 ; Reed v. Mclntyre, 98 U. S. 507-509 ; Buchanan v. Smith, 16 Wall. 277. It can hardly be that the court is obliged to lend its aid to those who, neglecting or refusing to avail themselves of the provisions of the act of Congress, seek to accomplish ends inconsistent with that equality among creditors which those provi- sions were designed to secure. If it be assumed, for the purposes of this case, that the statute of New Jersey was, as to each and all of its provisions, suspended when the Bankrupt Act of 1867 was passed, it does not follow that the assignment b\- Locke was ineffectual for every purpose. Certainly, that instrument was sufficient to pass the title from Locke to his assignees. It was good as between them, at least until Locke, in some appropriate mode, or by some proper proceedings, manifested a right to have it set aside or cancelled upon the ground of a mutual mistake in supposing that the local statute of 1846 was operative. And in the absence of proceedings in the bankruptcy court impeaching the assignment, and so long as Locke did not object, the assignees had authority to sell the property and distribute the proceeds among all the creditors, disregarding so much of the deed of assign- ment as required the assignees, in the distribution of the proceeds, to conform to the local statute. The assignment was not void as be- tween the debtor and the assignees simply because it provided for the distribution of the proceeds of the property in pursuance of a statute, none of the provisions of which, it is claimed, were then in force. Had this suit been framed for the purpose of compelling the assignees to account to all the creditors for the proceeds of the sale of the property committed to their hands, without discrimination against those who did not recognize the assignment and exhibit their demands within the time and mode prescribed by the New Jersey statute, a wholly differ- ent question would have been presented for determination. It has been framed mainly upon the idea that by reason of the mistake of Locke and his assignees in supposing that the property could be administered under the provisions of the local statute of 184G, even while the Bank- rupt Act was in force, the title did not pass for the benefit of creditors according to their respective legal rights. In this view, as has been indicated, we do not concur. We are of opinion that, except as against proceedings instituted under the Bankrupt Act for the purpose of securing the administration 84 BOESE V. KING. [~CHAP. L of the property in the bankruptcy court, the assignment, having been made without intent to hinder, dela}*, or defraud creditors, was valid, for at least the purpose of securing an equal distribution of the estate among all the creditors of Locke, in proportion to their several demands, Reed v. Mclntire, 98 U. S. 507-509 ; and, consequently, we adjudge only that the plaintiff in error is not entitled, by reason of any conflict between the local statute and the Bankrupt Act of 1877, or by force of the before-mentioned judgment and the proceedings thereunder, to the possession of the assigned property or of its proceeds, as against the assignees, or to a priority of claim for the benefit of Pickhardt and Kutroff upon such proceeds. The judgment is affirmed. MR. JUSTICE MATTHEWS (with whom concurred MILLER, GRAY, and BLATCHFORD, JJ.), dissenting. MR. JUSTICE MILLER, MR. JUSTICE GRAY, MR. JUSTICE BLATCHFORD, and myself, are unable to agree with the opinion and judgment of the court in this case. The grounds of our dissent may be very generally and concisely stated as follows : The New Jersey statute of April 16, 1846, the validity and effect of which are in question, is an insolvent or bankrupt law, which pro- vides for the administration of the assets of debtors who make assign- ments of all their assets to trustees for creditors, and for their discharge from liabilities to creditors sharing in the distribution. It was accordingly in conflict with the National Bankrupt Act of 1867 when the latter took effect, and from that time became suspended and without force until the repeal of the act of Congress. It is conceded that the 14th section, which provides for the discharge of the debtor, is void by reason of this conflict, and, in our opinion, this carries with it the entire statute. For the statute is an entiret}', and, to take away the distinctive feature contained in the 14th section, destro3~s the system. It is not an independent provision, but an inseparable part of the scheme contained in the law. This being so, the assignment in the present case must be regarded as unlawful and void as to creditors. For it was made in view of this statute and to be administered under it. Such is the express recital of the instrument and the finding of the fact by the court. It is as if the provisions of the act had been embodied in it and it had declared expressly that it was executed with the proviso that no distribution should be made of any part of the debtor's estate to any creditor except upon condition of the release of the unpaid portion of his claim. It is not possible, we think, to treat the assignment as though the law of the State in view of which it was made, and subject to the pro- visions of which it was intended to operate, had never existed, or had been repealed before its execution. Because there is no reason to believe that, in that state of the case, the debtor would have made an assignment on such terms. To do so is to construct for him a contract which he did not make and which there is no evidence that he intended SECT. II.] BOESE V. KING. 85 to make. It must be regarded, then, as a proceeding under the statute of New Jersey, and as such, with that statute, made void, as to creditors, by the National Bankrupt Act of 1867. 6therwise that uniform rule as to bankruptcies, which it was the policy of the Consti- tution and of the act of Congress pursuant to it, to provide, would be defeated. No title under it, therefore, could pass to the defendants in error, and the judgment creditors who acquired a lien upon the fund in their hands were by law entitled to appropriate it, as the propertj* of their debtor, to the payment of their claims. For these reasons we are of opinion that the judgment of the Court of Appeals of New York should be reversed. 1 1 Assignments made in accordance both with State laws and the prineiples of com- mon law were upheld in Hawkins's Appeal, 34 Conn. 548; Maltbie v. Hotchkiss, 38 Conn. 80; Geery's Appeal, 43 Conn. 29, 298; Cook v. Rogers, 31 Mich. 391; Thrasher v. Bentley, 59 N. Y. 649 ; Beck v. Parker, 65 Pa. 262 ; Patty-Joiner Co. v. Cummins, 93 Tex. 598 ; Binder v. McDonald, 106 Wis. 332. In the case last cited a provision of the State law dissolving attachments prior to an assignment was held to be still in force. But see Pelton v. Sheridan (Or.) 144 Pac. 410. Assignments which derived their validity and efficacy from a State insolvent law were held void in Shryock v. Bashore, 13 B. R. 481 ; Ketcham v. McNamara, 72 Conn. 709; Rowe v. Page, 51 N. H. 190. Before the decision in Boese v. King it was held by some courts that a general assign- ment for the benefit of creditors was not an act of bankruptcy or opposed to the policy of the National Act. Such courts, therefore, held such an assignment effectual even though a petition in bankruptcy was filed within six mouths. Sedgwick v. Place, 1 B. R. 204 ; Haas v. O'Brien, 66 N. Y. 597 ; Von Hein v. Elkus, 8 Hun, 516. But the great weight of authority was otherwise. Under the present act a general assign- ment is uniformly held to be made voidable if not void by a seasonable petition. See post, ch. iv. sec. iii. 86 IN RE PLOTKE. [CHAP. IL CHAPTER II. WHO MAY BE A BANKRUPT. SECTION I. ALIENS AND NON-RESIDENTS. IN BE PLOTKE. CIRCUIT COURT OF APPEALS, SEVENTH CIRCUIT, NOVEMBER 22, 1900. [Reported in 104 Federal Reporter, 964.] BEFORE WOODS and GROSSCUP, Circuit Judges, and SEAMAN, District Judge. SEAMAN, District Judge. The alleged bankrupt, Emily Plotke, appeals from an order of the District Court whereby she is adjudicated a bankrupt upon a creditors' petition filed Ma} T 3, 1899. The petition states that " Emily Plotke has for the greater portion of six months next preceding the date of filing this petition had her principal place of business and her domicile at Chicago," in said district, and " owes debts to the amount of $1,000 and over"; that she is insolvent, and within four months next preceding " committed an act of bank- ruptcy," and on January 3, 1899, made "a general assignment for the benefit of her creditors to one John Poppowitz," which was duly filed and recorded. The subpoena issued thereupon was returned by the marshal as served within the district on Emily Plotke, "by leav- ing a true copy thereof at her usual place of abode, with Charles Plotke, an adult person, who is a member of the family." On May 29, 1899, the appellant filed a verified plea, which reads as follows : " And the said Emily Plotke, especially limiting her appearance for the purposes of this plea, in her own proper person comes and defends against the foregoing proceeding, and says that she has not had her domicile within the territorial limits and jurisdiction of this court for the six months next preceding the filing of the petition herein, to wit, six months next preceding May 3, A. D. 1899, nor has she had her domicile within the territorial limits of the jurisdiction of this court as aforesaid during any part of said period of six months, nor has she now her domicile therein, nor has she had her principal place of business within the territorial limits and jurisdiction of this court for the greater part of the six months next preceding the filing of the SECT. I.] IN RE PLOTKE. 87 petition herein, to wit, six months next preceding May 3, A. D. 1899, but that before and at the time of the filing of the petition herein as aforesaid, on, to wit, May 3, A. D. 1899, and for more than five }'ears prior thereto, she, the said Emily Plotke, was, and from thence hitherto has been, and still is, residing in the city of St. Louis, and the State of Missouri, and not in the said Northern District of Illinois, and State of Illinois, and that she, the said Emily Plotke, was not found or served with process in this said proceeding in said Northern District of Illinois, or in said State of Illinois. Wherefore she says this court is wholly without jurisdiction in the premises, and this she is ready to verify. Wherefore she prays judgment, if this court here shall take jurisdiction and cognizance of the proceedings aforesaid." The petitioning creditors filed a replication, and the issues there- upon were referred for hearing to a referee, who reported the testi- mony taken, with findings sustaining the plea and recommending that the petition be dismissed for want of jurisdiction. The finding was overruled by the District Court, and au adjudication of bankruptcy entered, from which this appeal is brought. The record presents two questions, only, under the several assign- ment of error: (1) Whether, upon the undisputed facts shown, the case is within the bankruptcy jurisdiction of the District Court ; and (2) whether jurisdiction appears over the person of the alleged bankrupt. The first issue challenges the jurisdiction of the District Court over the estate of the bankrupt, the subject-matter of the proceeding, irrespective of the question of jurisdiction in personam. The facts are undisputed that the bankrupt has neither resided nor had her domicile within the district for any period during the six months preceding the fil- ing of the petition, and has resided continuously in the State of Missouri for the past twelve years ; that she carried on business in Chicago, within the district (conducted by one Charles Plotke), from April 30, 1897, up to January 3, 1899 (the petition being filed May 3, 1899) ; and that she executed a voluntary assignment for the benefit of cred- itors, under the statute of Illinois, on January 3, 1899 (the assignee taking possession forthwith, and subsequently disposing of the assets and closing out the business under orders of the county court). The question is thus narrowed to an interpretation of the provisions of the statute. Section 2, subd. 1, of the Bankruptcy Act (30 Stat. 545) invests district courts with jurisdiction to " adjudge persons bankrupt who have had their principal place of business, resided or had their domicile within their respective territorial jurisdictions for the preced- ing six months, or the greater portion thereof, or who do not have their principal place of business, reside or have their domicile within the United States, but have property within their jurisdiction, or who have been adjudged bankrupts by courts of competent jurisdiction without the United States and have property within their jurisdiction." As both residence and domicile of the bankrupt were beyond the territorial 88 IN RE PLOTKE. [CHAP. II. jurisdiction, the adjudication of bankruptcy rests alone upon the pro- vision respecting the k ' principal place of business." The appellees contend, iu effect, (1) that the proof of a principal place of business in the district for two months, and of no place of business for the remain- ing period of limitation, establishes a case within the meaning of the words " greater portion thereof," in the section above quoted ; and, if not so construed, (2) that the voluntary assignment was void under the law of the forurn, and business was carried on thereunder for the requisite period, and was constructively the business of the bankrupt. We are of opinion that neither of these contentions is tenable. The first calls for a departure from the plain meaning of the language used in the statute to make it applicable to conditions which may have been overlooked in framing the provision, but are not within the terms which were adopted ; and however desirable it may seem to have such conditions brought within its scope, to cany out the general intent of the act, the correction can be made by legislative amendment only, and not by way of judicial construction. So far as applicable here, the provision confers jurisdiction over bankrupts "who have had their principal place of business" within the terri- torial jurisdiction " for the preceding six months, or the greater portion thereof." Whether thus considered apart from the provision as to residence and domicile, or as an entirety, the language is unam- biguous, if not aptly chosen. The expression " greater portion " of a month or other stated period is frequenth* used as an approximate measure of time, and its meaning is well understood as the major part or more than half of the period named. No justification appears for construing like terms in this provision otherwise than in the ordi- nary sense. With jurisdiction dependent upon the single fact of having the principal place of business within che district, the statute then imposes the further prerequisite that such business shall have been there carried on for more than- half of the preceding six months. In other words, the limitation is made with reference alone to the duration of the business in the district, and regardless of the fact that its location ma}' be changed short of that period, and thus be carried on in different districts without exceeding the three months in either, or that it may be discontinued entirely without reaching the time limited in any one ; and the provisions in reference to domicile and residence are equally restricted, except for the distinction as to residence, that it ma\' be retained in one district after domicile is changed to another. With this meaning clearly conveyed by the language of the statute, the policy of so restricting jurisdiction is not open to judicial inquiry. In support of the construction for which the appellees contend, two decisions are cited whereby section 11 of the Bankrupt Act of 1867 (section 5014, Rev. St.) is so construed, one by Judge Blatchford (In re Foster, 3 Ben. 386, Fed. Gas. No. 4,962), and the other by Judge Lowell (In re Goodfellow, 1 Low. 510, Fed. Cas. No. 5,536). However instructive these cases may be in interpret- SECT. I.] IN RE PLOTKE. 89 ing the present statute, they are not applicable by way of precedent, because of the clear diversity in the respective provisions. Section 11 of the former act gave jurisdiction over petitions filed by voluntary bank- rupts to " the judge of the judicial district in which such debtor has resided or carried on business for the six months preceding the time of filing such petition, or for the longest period during such six months " ; and the limitation thus Stated was held to mean " the longest space of time that the bankrupt has resided or carried on business in any district during the six months." In re Foster, .supra. It may well be con- ceded that the language of that provision was susceptible of no other fair interpretation; that "the longest period" of business "during such six months" was clearly implied, and, as remarked by Judge Blatchford, " not the period which, mathematically considered, is the greatest part of the six months." But section 2, subd. 1, of the act of 1898 states the jurisdictional requirements in terms clearly distinguish- able from those which were thus construed, namely, that a principal place of business shall have existed within the district" for the preced- ing six months or the greater portion thereof," thereby establishing as the test continuance of the business in the district for the "greater portion" of the six months, and not " the longest period " of business " in any district during the six months." This departure from the provisions of the-prior act is marked both in the change of words and in their collocation, and is not a mere substitution of s\'non3'inous words, as argued by counsel. 1 The further contention that the requisite period of carrying on busi ness appears in the conceded facts of the voluntarj* assignment made January 3, 1899, and the transactions thereunder, is not well founded. The question discussed on the argument, whether the bankrupt act made the assignment void ab initio, or voidable only in the event of an adjudication of bankruptcy, as affecting the subsequent possession, however important in one phase, is not material in the absence of a distinct showing that the business was continued under the assign- ment for more than one month. Where jurisdiction of the federal courts is made dependent upon citizenship or other specific fact, "the pre- sumption in every stage of the cause is that it is without their jurisdic- tion, unless the contrary appears from the record." Bors v. Preston, 111 U. S. 252, 255, 4 Sup. Ct. 407, 28 L. Ed. 419; Railway Co. v. Swan, 111 U. S. 379, 383, 4 Supt. Ct. 510, 28 L. Ed. 462. The essential fact must appear affirmatively and distinctly, and " it is not sufficient that jurisdiction may be inferred argumentatively." Wolfe v. Insurance Co., 148 U. S. 389, 13 Sup. Ct. 602, 37 L. Ed. 493 ; Parker v. Ormsby, 141 U. S. 81, 83, 11 Sup. Ct. 912,35 L. Ed. 654. In the case at bar the record fails to show that the business was carried on by the assignee for any definite period, and the proof is insufficient to confer * Re Williams, 128 Fed. 38; Re Tally, 156 Fed. 634, ace. A miMiiiii-r of the Chickasaw tribe of Indian.- in the Indian Territory was held properly adjudicated a bankrupt iu lie Renuie, 2 Am. B. K. 182 (Referee). 90 IN RE PLOTKE. [CHA*. IL jurisdiction, within the rule stated, even on the assumption that the transactions of the assignee were, in legal effect, the carrying on of business by the assignor. It is true that a sale of the assigned property (a stock of goods) appears to have been made by the assignee as an entirety, thus closing out the business ; but the time is not stated, and it may well be inferred from the testimony that such sale occurred soon after the assignment was made. The mere fact that proceeds of such sale are retained in the hands of the assignee for distribution is not carrying on business, in the sense of the statute. The active business then ceased, and the liability to account for the proceeds is no more operative to save the limitation than would be the case if the business were closed out directly by the bankrupt, either with or without subsequent payment of debts out of the proceeds. No evidence being produced to overcome the presumption of fact against jurisdiction, the question of the legal status of the assignment does not require considera- tion. It may be remarked, however, that the validity of the assign- ment is not questioned under the State statute, and its status depends upon a construction of the provisions of the national Bankruptcy Act in that regard, and the inquiry is not one which is governed by any rule of decision in the State. In so far, therefore, as Harbaugh v. Costello, 184 111. 110, 56 N. E. 363, passes upon the effect of such action on voluntary assignments made after its passage, the decision is not necessarily controlling, as contended by counsel ; but that question, when presented, will call for independent judgment, in the light of all the authorities. In Mayer v. Hellman, 91 U. S. 496, 500, 23 L. Ed. 377, a different construction appears to have been placed upon the bankrupt act of 1867 ; and in Simonson v. Sinsheimer, 95 Fed. 948, 952, 37 C. C. A. 337, 342, that ruling is cited as equally applicable under the present act. See also, Davis v. Bohle, 92 Fed. 325, 34 C. C. A. 372 ; In re Gutwillig, 92 Fed. 337, 34 C. C. A. 377 ; In re Gutwillig (D. C.) 90 Fed. 475, 478, cited with approval in West Co. v. Lea, 174 U. S. 590, 596, 19 Sup. Ct. 836, 43 L. Ed. 1098. We are of opinion, therefore, that the District Court was without juris- diction of the cause alleged in the petition, and the question whether the want of personal service was waived by appearance does not call for solution. The order of the District Court is reversed, accordingly, with direction to dismiss the petition for want of jurisdiction. 1 1 The Bankruptcy Court has jurisdiction to decide an issue of fact in regard to a matter essential to its jurisdiction; and its decision is conclusive. Denver First Nat. Bank v. Klug, 186 U. S. 202, 204. SECT. I.] MCCONNELL v. KELLEY. 91 McCONNELL v. KELLEY. SUPREME JUDICIAL COURT OF MASSACHUSETTS, NOVEMBER 6, 7, 1884- JANUARY 13, 1885. [Reported in 138 Massachusetts, 372.] BILL in equity to vacate and set aside a warrant issued by the judge of insolvency for Essex County, upon the petition of the defendant Kelle}'. Hearing before DEVENS, J., who reserved the case for the consideration of the full court. The facts appear in the opinion. B. N. Johnson (G. B. Ives with him), for the plaintiffs. W. Gaston urte Farr, 10 L. T. N. 8. 44; Re Pratt, 2 Low. 96; Re Weitzel, 7 Bissell, 289, contra. See also lie Burka, 107 Fed. Rep. 674. In Ex parte Cahen, 10 Ch. P. 183 (C. A.), it was held that one who had been placed in a lunatic asylum by direction of his physician, but had not been found a lunatic by inquisition, could not become a voluntary bankrupt by means of a petition signed by his next friend. See also Re Eisenberg, 117 Fed. 786. In Re Lee, 23 Ch. D. 216 (C. A.), the court allowed the committee of a lunatic, so found by inquisition, to consent to an adjudication of bankruptcy against him. This was followed in Re James. 12 Q. B. D. 332 (C. A.). 2 Ex parte Priddey, Cooke (7th ed.), 43; Ex parte Stamp, 1 De Gex, 345; Rt Pratt, 2 Low. 96 ; Re Weitzel, 7 Biss. 289, also ace. 102 IN RE NEW YORK AND WESTCHESTER WATER CO. [CHAP. IL SECTION IV. CORPORATIONS. IN RE NEW YORK & WESTCHESTER WATER COMPANY. DISTRICT COURT FOR THE SOUTHERN DISTUICT OF NEW YORK, JANUARY 8, 1900. [Reported in 98 Federal Reporter, 711.] BROWX, District Judge. This matter arises upon a petition of vari- ous creditors of the New York & Westchester Water Company to have that corporation adjudged a bankrupt, alleging its insolvency and sev- eral acts of bankruptcy. The answer to the petition as was ruled upon the hearing of the issue, a jury trial being waived, admitted in effect the insolvency of the corporation, but denied the acts of bank- ruptcy alleged, and also denied the jurisdiction of the court, on the ground that this corporation is not subject to the provisions of the bankrupt act (section 4b), because not tl engaged principally in manu- facturing, trading, printing, publishing or mercantile pursuits," as alleged in the petition. The evidence as respects the acts of bank- ruptcy is somewhat complicated ; but from the conclusions I have arrived at on the other branches of the case, it will not be necessaiy to consider that subject. The company was incorporated under the Laws of 1873 of the State of New York, for the supply of pure and wholesome water to the village of Westchester and others, under contract with the local au- thorities. By an amendment of its charter in 1895, its business and powers were extended so as to include the right "to accumulate, con- duct, store, furnish, buy, sell, use and deal in water for power, manu- facturing and hydraulic purposes." Its water supply was derived mainly from the Hutchinson River, in Westchester County, and from wells and other sources of supply owned or leased by the company. It had some eighty miles of mains laid in the streets of the several villages supplied with water, and received, both from the public authorities, as well as from private citizens, large rentals for the supply of water distributed for private and public uses. On December 31, 1897, a contract was executed, dated December 2, with the city of New York, wherebj' the latter authorized this company to tap the city's Bronx River supply pipe in Yonkers, and to draw therefrom not to exceed 500,000 gallons per day, to be paid for by the corporation at the rate of 10 cents per 1,000 gallons, by assigning to the city authorities " hydrant rentals" to be- come due from the city for water supplied to it by the company for fire protection in the Twenty-fourth ward ; with the privilege to the com- pany of severing such connection with the supply pipe at pleasure and SECT. IV.] IN BE NEW YORK AND WESTCHESTER WATER CO. 103 of discontinuing the taking of water from the city supply, and the privi- lege of subsequently again making connection and resuming the use of the water, as the company might desire. For some period preceding the trial, how long does not appear, the company had been drawing from the city's supply at about the average rate allowed of 500,000 gallons per day. This was resorted to, as I infer from the evidence, to insure a uniform distribution to the com- pany's customers, partly in consequence of inefficiency in one of the company's pumps and machinery, and the liability to occasional break- downs, and parti}' to insure a full supply. Although the company, by the amendment to its charter, above referred to, was empowered " to buy and sell water for power, manu- facturing and hydraulic purposes," this power does not appear ever to have been used, since it has never supplied, according to the testimony, an} 7 water for those purposes, nor done any commercial or mercantile business ; " but has confined itself entirely to obtaining and furnishing water for the customers, cities and municipal boroughs mentioned," that is, to the residents of the villages, and to the municipal corpora- tions referred to, for fire purposes and the supply of fire hydrants. At Pelhamville the company had sixteen driven wells ; and besides the amount drawn from the city's supply pipe, the ordinary consumption from the company's own sources of supply was about 750,000 gallons daily. I am of opinion that this water company is not within the provisions of the bankrupt act, because not '' engaged principal!}' in either trading or mercantile pursuits," in the sense in which I think those words are used. The question depends entirely upon the proper con- struction to be given to those words, since there are plainly no other words in the present act that could include an incorporated water company like this. The act of 1898 is much more limited in its application to corpora- tions than the act of 1867. By the latter act it was declared ( 5122, Rev. St.) to " apply to all moneyed, business or commercial corpora- tions and joint stock companies." The present act is restricted to cor- porations " engaged principally in manufacturing, trading, printing, publishing, or mercantile pursuits." The intention of Congress greatly to restrict the application of the present act appears manifest, not only from comparison of the phrase- ology of the two acts, but also from the report of the congressional conference committee upon this point, showing that at least railroad and transportation corporations and banks were intended to be omitted and left to be dealt with under the State laws. 31 Cong. Rec. p. 6247, June 28, 1898. In the recent case of In re Cameron Town Mut. Fire, Lightning & Windstorm Ins. Co. (D. C.), 96 Fed. 756, it was accord- ingly held that the present act does not apply to a mutual insurance company, and the petition in that case was dismissed. On the point here considered, Phillips, J., observes: 104 ' IN RE NEW YORK AND WESTCHESTER WATER CO. [CHAP. IL " Can it be said that a company < organized for the sole purpose of mutually insuring the property of the members, and for the purpose of paying any loss incurred by any member thereof by assessment,' is principally engaged in a mercantile pursuit? When the legislature changed the statute from ' moneyed, business, or commercial corpora- tions ' to the language ' principally engaged in mercantile pursuits,' it is to be presumed it was done for a purpose. The word ' mercantile,' in its ordinary acceptation, pertains to the business of merchants, and has ' to do with trade, or the buying and selling of commodities.' A merchant is one who traffics, or who bu}'s and sells goods or com- modities. . . . The term ' mercantile pursuit' necessarily carries with it the idea of traffic, the buying of something from another or the sell- ing of something to another, and is allied to trade. This concern has nothing in its business of the character of mercantile pursuit." 96 Fed. 757, 758. The case of a water company like this, obtaining by purchase about two-fifths of the suppl}' which it furnishes to its customers, is not so clearly excluded as a mutual insurance compan}'. But in each case as it arises the limitations imposed by the act must be carefully observed. No such corporation can be subjected to the operation of the bankrupt law, nor can the court acquire jurisdiction over it, unless it is found to be " engaged principally in trading or mercantile pursuits." These words must be interpreted in the sense in which the} r are commonly used and received, and not in any strained or unnatural sense for the purpose of including or of excluding particular corporations. In Bouv. Law Diet, a trader is defined as "one who makes it his business to buj- merchandise or goods and chattels and to sell the same for the purpose of making a profit." Black, Law Diet., says: "One whose business is to bti}' and sell merchandise or any class of goods deriving a profit from his dealings ; " and the weight of authority seems to be, that the proper description of the business of a trader includes both buying and selling, either goods or merchandise, or other goods ordinarily the subject of traffic. Per Lord Ellenborough, in Sutton v. Weeley, 7 East, 442 ; Thompson, C. J., in Wakeman v. Hoyt, 28 Fed. Gas. 1351 ; Lowell, J., in Re Chandler, 4 N. B. E. 213, 5 Fed. Cas. 447 ; In re Smith, 2 Low. 69, 22 Fed. Cas. 395 ; Love v. Love, 15 Fed. Cas. 999. The words " mercantile pursuits" may have a little broader signifi- cation than " trading." " Mercantile" is defined b}' the Century Dic- tionary as " having to do with trade or commerce ; of or pertaining to merchants, or the traffic carried on by merchants ; trading ; commercial." It signifies for the most part the same thing as the word " trading ; " and by " mercantile pursuits " is meant the buying and selling of goods or merchandise or dealing in the purchase and sale of commodities, and that, too, not occasionally or incidentally, but habitually as a business. Norris v. Com., 27 Pa. St. 494 ; Com. v. Natural Gas Co., 32 Pittsb. Leg. J. 310. SECT. IV.] IN EE NEW YORK AND WESTCHESTER WATER CO. 105 Selling merely the natural products of one's own land, it has been held, does not constitute trading, or a mercantile pursuit, even though some yearly purchases may be made by the seller in order to keep up his regula/supply. In re Woods, 7 N. B. R. 128, Fed. Cas. No. 17,990 ; Port v. Turton, 2 Wils. 169 ; In re Cleland, 2 Ch. App.466 ; Ex parte Gallimore, 2 Rose, 424. These terms are restricted also to dealings in merchandise, goods or chattels, the ordinary subjects of commerce ; so that a railroad contractor, or a speculator in stocks, whether on his own account, or as broker, is not deemed a trader or merchant. In re Smith, 2 Low. 69, 22 Fed. Cas. 395 ; In re Marston, 5 Ben. 313, 16 Fed. Cas. 857 ; In re Woodward, 8 Ben. 563, 30 Fed. Cas. 542 ; In re Moss, 19 N. B. R. 132, 17 Fed. Cas. 901, per Choate, J. It has also been held that incidental purchases or sales by a person not otherwise a trader, will not make him such. Lord Eldon, Ex, parte Gallimore, 2 Rose, 424 ; Patten v. Browne, 7 Taunt. 409 ; In re Duff (D. C.), 4 Fed. 519, per Choate, J. ; In re Kimball (C. C.), 7 Fed. 461, per Lowell, J. No doubt the powers of a corporation are to be determined by its charter and by the statutes applicable to it. The amendment of the charter of this corporation authorized it "to buy, sell, use and deal in water for power, manufacturing and hydraulic purposes." As above stated, however, the evidence is that it did not furnish water for these purposes, and under the bankrupt act the question is, not how exten- sive the company's powers ma}- be, but in what pursuits the corporation is in fact principally engaged, and whether these pursuits are principally trading or mercantile. In view of the above definitions and precedents, it seems to me a strained and unnatural use of terms to describe the ordinary business of a water-supply company as a " trading or mercantile pursuit." In common parlance, I think such a business would never be so described ; and if only those corporations are subject to the bankrupt act that are engaged in " trading or mercantile pursuits " in the commonly received meaning of those words, I do not see how water-supply companies can fairly be held to be within the act. In the case of First Nat. Bank v. Council Bluffs City Waterworks Co., 56 Hun, 412, 9 N. Y. Supp. 859, the court observes : " This water company was not a trading or bank- ing corporation." This view is confirmed by observing more particularly the precise nature of such a company's business, its undertaking, its methods, and its mode of compensation. Its business is to obtain pure water, and by means of mains and pipes, to transport it from its sources, often through long distances, under considerable pressure, so as to serve its customers b} r a running stream at the elevations desired. Water is a natural product. In its natural condition, it is not usu- ally considered merchandise. At the sources of supply, when the company's plant is once established, the water itself costs little or 106 IN RE NEW YORK AND WESTCHESTER WATER CO. [CHAP. H, nothing. In its natural state, it has no commercial value. When bottled or enclosed in casks and put upon the market, it becomes a commodity, and is a subject of trade and commerce in the proper sense. But that is not the business, nor would that meet the requirements of a water-supply company. Such a company does not sell water as a commodity deliverable from band to hand ^n specific quantities, or at any specific price. The characteristic feature of the business, as I have said, is to transport the water as a running stream and in its natural condition, from the sources of supply to the elevations at which it is to be served. Its cost to the compat:^ is chiefly the cost of trans- portation under pressure ; and what its customers pay to the company is not the price of any specific amount of water, as upon a direct sale, but for the use of the company's transportation service, in the form of rentals for the privilege of tapping its mains or pipes and drawing therefrom. The rentals no doubt vary with reference to the number and size of pipes used and the amount of water liable to be drawn ; but when fixed, the rentals are payable irrespective of the particular amount drawn, or whether any water is drawn or not. These circumstances seem wholh 1 to distinguish the business of a water companj 7 from a trading or mercantile pursuit, as those words are commonly understood. The leading idea of the company is, not to trade or traffic in water as merchandise, but to transport it under pressure from distant sources to the consumer in the form above stated, renting out privileges to draw from its pipes. This charac- teristic feature naturally brings such companies within the classifi- cation of transportation companies, among which it is recognized and classified by the Laws of New York, in the revision of the laws entitled, " An act in relation to transportation corporations, except- ing railroads. Laws 1890, c. 566. This chapter treats of ferry, navigation, stage-coach, tramway, pipe-line, water-works, gas and electric light, telegraph and telephone, turnpike, plank-road and bridge corporations. This statutory classification is, I think, founded upon the true conception of the main functions of the company, which ex- cludes it from the class of trading or mercantile pursuits intended by the bankrupt act. The contract with the city by which the company recently secured about two-fifths of the water supplied by it to the different villages and municipal corporations for private and public uses, certainly does not change the essential character of its business, nor make it princi- pally engaged in trading or commercial pursuits. That was but a single contract incidental to the general purpose of the corporation, and to enable it to furnish a regular and unfailing supply through its mains, but terminable at pleasure when its machinery and other sources of supply should be more complete. Considerable has been said in argument on the question whether water companies like this, incorporated under the act of 1873, are quasi public corporations, exercising in some degree a governmental SECT. IV.] IN RE NEW YORK AND WESTCHESTER WATER CO. 107 agency. So far as any such claim might exempt these corporations from taxation, it was rejected by the court of appeals in ^he Case of the Mills Waterworks Co., 97 N. Y. 97. The language of Danforth, J., in delivering the opinion of the court in that case, seems to dem the exercise by such companies of any public functions whatever, or that the company's means are devoted to any public use, or other than simply to the earning of money for the corporation's own use. The general language employed seems to go beyond the requirements of the case. It is, however, well settled in other cases that such com- panies do subserve a public use so far as to justif}- the exercise of the right of eminent domain ; and that the uses the}' subserve are none the less public, because procured through private enterprise. Water Co. v. Stanley, 39 Hun, 424, 426, affirmed in 103 N. Y. 650 ; Water- works Co. v. Bird, 130 N. Y. 249, 259, 29 N. E. 246. And the same view has been frequently expressed in the federal courts. San Diego Land & Town Co. v. City of National City, 174 U. S. 739, 755, 19 Sup. Ct. 804, 43 L. Ed. 1154 ; New Orleans Gaslight Co. v. Louisiana Light & Heat Producing & Mfg. Co., 115 U. S. 650, 669, 6 Sup. Ct. 252, 29 L. Ed. 516 ; Walla Walla Water Co. v. City of Walla Walla, (C. C.) 60 Fed. 957, 960. I do not attach much importance, however, to any quasi public char- acter, more or less, that water companies may have in consequence of the public uses they subserve. For the franchises of this company, by its contract with the local authorities, are assignable ; so that there is nothing to prevent the exercise of its functions by any transferree to whom its powers might pass through bankruptcy proceedings, if law- fully subject to the operation of the bankrupt act. For the reasons previously stated, however, I do not think this company is within the act, and the petition is, therefore, dismissed. 1 1 The Amendment of 1910 to Section 4a, which includes any corporation, "except a municipal, railroad, or banking corporation," permitted for the first time under the Act of 1898 a voluntary petition by a corporation, but as prior to that time a corpora- tion could admit its insolvency and express its willingness to be adjudged a bankrupt and get a friendly creditor to file a petition the change in substance is not great. The Amendment of 1910 to Section 4b, however, renders obsolete many prior de- cisions. Now, any " moneyed, business, or commercial corporation, except a municipal, railroad insurance or banking corporation," is within the scope of the statute. These words are copied from the Act of 1867, and may be understood to include all corpora- tions organized for corporate profit, with the exceptions named. See Re It. L. liadke Co., 198 Fed. 735. 108 IN EE LUCKHARDT. [CHAP. II, SECTION V. WAGE EARNERS AND FARMERS. IN RE LUCKHARDT. DISTRICT COURT FOR THE DISTRICT OF KANSAS, MAT 19, 1900. [Reported in 101 Federal Reporter, 807.] HOOK, District Judge. This is a proceeding in involuntary bank- ruptcy, brought on January 9, 1900, by a number of mercantile firms and corporations, creditors of the alleged bankrupt. It is set forth in the petition, among other things, that Luckhardt is insolvent, and that on or about November 1, 1899, he conveyed, transferred, concealed, and removed a part of his property with intent to hinder, delay, and defraud his creditors, and that, while insolvent, he transferred a por- tion of his property to one or more of his creditors, with intent to prefer them over his other creditors. The alleged bankrupt has filed an answer, in which he does not deny the essential allegations in the petition, but sets up in bar to. the relief praj-ed for by petitioners that from August 4, 1899, up to the filing of the petition he was, and is still, engaged chiefly in farming. Testimony has been taken on the part of the alleged bankrupt in support of his answer, and it is sub- mitted to the court as upon a demurrer of the petitioning creditors to the evidence. It appears from the testimony that Luckhardt had been engaged in the retail boot and shoe business at Boonville, Mo., for about five 3 - ears prior to March, 1899, and in that month he removed his stock of goods to North Topeka, Kan., and continued the same business there. In August, 1899, he determined to sell his stock, and quit the business, but he nevertheless continued the conduct thereof until the latter part of October, 1899. He continued to sell at retail in the usual and customary wa} 7 , and to replenish his stock by pur- chases of new goods from time to time until the 26th of October, 1899. There was no apparent difference in the conduct of his business during the months of September and October from that of the previous period. The father-in-law of the alleged bankrupt died in April, 1899, seised of a farm in Missouri, consisting of 137 acres of land, which, upon his death, became the propertj" of his widow, daughter, and two grand- children, the offspring of a deceased son. The daughter is the wife of Luckhardt, the alleged bankrupt. About the 4th of August, 1899, Luckhardt and his family and his mother-in-law, who had come to Kansas, and lived with him, returned to Missouri, and went on the farm. He stayed there about a month, then returned to Topeka, where he remained a month. He then went back to the farm, and stayed a couple of weeks, and then returned to Topeka, where he remained until SECT. V.] IN RE LUCKHARDT. 109 earl}' in November. He then again returned to the farm, and has re- mained there ever since. During his absence from Kansas his boot and shoe business was left in charge of a clerk. On the 26th of JjctoberJie sold his entire stock of merchandise, which invoiced $6,^370 in bulk, for $2,870 in cash and 160 acres of land in Kansas, which was taken by him at $3,500. This land he sold to his wife, but it does not appear what he received for it. Luckhardt testified that the proceeds of the sale received by him were in part disposed of as follows : $628 was paid on a note held at Boonville, Mo., upon which his father, mother, and wife were sureties ; $200 was paid to his brother upon a note held by the latter ; $500 was paid to his mother, who lives in Oregon, Mo. ; and from $60 to $75 was paid to a man in Topeka, Kan. None of his merchandise creditors were paid. During the cross- examination of Luckhardt, in which counsel for the petitioning cred- itors evidentby desired to show an absence of good faith in the defence set up in the answer, he declined to testify as to what he did with the remainder of the money received by him, saying that he could not answer without his books. Upon being requested to produce his books so that he could answer, his counsel objected to a postponement of the taking of the depositions to enable him to do so, and the notary sus- tained the objection. He also said that he could not even approximate the amount of his indebtedness, and that he could not tell how long it would take to figure it up. The farm of which his father-in-law died seised, and upon which he claims to be engaged in his farming opera- tions, had been rented to a tenant for one-half of the crop raised thereon. Luckhardt did not know whether the term of the tenant had expired when he went on the farm on the 4th of August, 1899. He says he leased the farm from his mother and wife verbally, and that the terms of the arrangement were that he should give them one-half of the crop raised on the place. He immediately sublet to the former tenant all of the tillable land except a portion for oats, for half of the crop raised thereon. When he received the crop rent from the tenant, he was to turn it over to his wife and mother-in-law on account of the rent due from him to them. He retained for the use of his familj' and himself the house and about 35 acres of pasture and meadow land, and some of the cultivated land for oats. It is upon this situation and under these circumstances that the alleged bankrupt claims immunity from the proceeding against him. The bankrupt act provides that " any natural person except a wage earner or a person chiefly engaged in fanning or the tillage of the soil . . . may be adjudged an involuntary bankrupt," etc. Section 4 &. The act is remedial in its nature and purposes, and is, therefore, not to receive a strict interpretation, but is rather to be construed reasonably, and with a view to effect its objects and to promote justice. The exemption from involuntary proceedings in favor of wage earners and persons engaged chiefly in farming or the tillage of the soil is not intended as a means of escape for insolvents whose property waa 110 IN KE LUCKHARDT. [CHAP. II. acquired and whose debts were incurred in other occupations recently engaged in. If the right of the creditors to institute involuntary pro- ceedings may be thus defeated by the debtors within the period allowed for the commencement of such proceedings, it could be defeated by a change of occupation made coincidently with the commission of an act of bankruptcy, and an insolvent debtor would thus be permitted to dispose of his stock of merchandise or other property, distribute the proceeds thereof in such manner as pleased him, immediately become for the time being a tiller of the soil, or a wage earner " at a rate of compensation not exceeding $1,500 per year," and so. avoid the opera- tion of the bankrupt act. Such a result is not in accord with the pur- pose nor within the spirit of the law. A petition in an involuntary proceeding must be filed within four months after the commission of the act of bankruptcy relied on, and if an insolvent, who is engaged in an occupation which is within the purview of the law, has committed an act rendering him amenable to its provisions, and desires within -Hich period to adopt one of the callings favored b}- the law, and ex- ".npted from its operation in respect of involuntary proceedings, he should not be permitted to earn- with him the property previously accumulated, to the defrauding of pre-existing creditors. The ex- cepted occupations are not designed as a refuge for insolvent debtors laden with property and fleeing from other callings. The right of the creditors to proceed within the period limited after the commission of an act> of bankruptc}' cannot be thus defeated by the debtor. This in- terpretation is in entire harmony with the spirit and object of the law, and is in accord with the plain principles of right and justice, and it prevents the perversion of provisions designed for the favor and pro- tection of those who are in good faith wage earners or tillers of the soil. Let an order be entered adjudging the said William Luckhardt to be a bankrupt. 1 1 One who was engaged in an occupation subjecting him to bankruptcy at the time when the act of bankruptcy complained of was committed cannot avoid adjudication by changing his occupation after the act of bankruptcy. Re Mackey, 110 Fed. 355; Re Pilger, 118 Fed. 206 ; and cases infra. It was held that the occupation at the time the debts were created was controlling in Tiffany v. La Plume Condensed Milk Co., 141 Fed. 444; Re Crenshaw, 156 Fed. 638; Re Burgin, 173 Fed. 726; Re Naroma Chocolate Co., 178 Fed. 383. But the occupation when the act of bankruptcy was committed was held to govern in Flickinger v. Nat. Bank, 145 Fed. 1 63; Re Leland, 185 Fed. 830; Counts v. Columbus Buggy Co., 210 Fed. 748 (C. C. A.). An involuntary petition should state the defendant's business, or that he is not a farmer or wage-earner. Re Taylor, 102 Fed. Rep. 728 (C. C. A.) ; Beach v. Macon Grocery Co., 120 Fed. 736 (C. C. A.) ; Re Mero, 128 Fed. 630; Re Brett, 130 Fed. 98J. CHAP. III.] KE ALEXANDER. Ill CHAPTER III. WHO MAY BE PETITIONING CREDITORS. RE W. B. ALEXANDER. RE J. F. ALEXANDER. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, SEPTEMBER, 1870. [Reported in I Lowell, 470.] BANKRUPTCY. 1 These petitions for involuntary bankruptcy against the several defendants were tried together by consent of the parties. The defendant, James F. Alexander, bought out the stock in trade of the petitioner, O'Connell, in February, 1869, for about twenty-four hundred dollars ; of which five hundred dollars was paid down, and for the remainder the two defendants gave their joint and several promis- sory notes on one, two, three, and four years, with interest at eight per cent a }~ear, payable semi-annually, secured by a mortgage on the stock in trade. William B. Alexander, the father of the other defend- ant, had no interest in the purchase, but joined in the notes for the greater security of the petitioner, and, as between the two defendants, was a surety only. In February, 1870, the first note became due and was paid, together with the interest on the whole debt. The next note will be payable in February, 1871. On the thirteenth of February, 1870, the father con- veyed his dwelling-house and land at East Boston to his wife. He was not and never had been a trader, and he had no other estate or effects liable to seizure on execution, and owed no debts excepting to this peti- tioner. In March the son conveyed to his wife a dwelling-house and land which had stood in his name for about two years. Evidence was admitted, de bene, to show that he held the house by gift from his father-in-law, upon an oral trust or understanding that it should be used, enjoyed, and conveyed for the benefit of the grantor's family, in- cluding the defendant's wife. The conveyance to the wife was made without the consent or knowledge of the father-in-law, who heard of it but lately, not long before this petition was filed, and testified that he acquiesced in the arrangement. This defendant owed no debts of any consequence, excepting the mortgage debt, and one to his aunt, of whom he borrowed the five hundred dollars paid out in the first instance 1 A portion of the opinion, in which it was decided that the gift made by W. B. Alexander to his wife was an act of bankruptcy, and in which the court suggested that the parties compromise, is omittod. 112 RE ALEXANDER. [CHAP. III. towards the purchase of this stock. The evidence tended to show that this debt would not be pressed against him. LOWELL, J. Several points of law have been ably discussed before me, and I will consider them in their order. 1. The fact that the petitioner's debt is not yet payable is not a valid answer to this proceeding. By section 39 all creditors whose debts are provable under the act may petition ; and by section 19 debts existing but not payable until a future day, are provable. It was so under the act of 1841 : Barton v. Tower, 5 Law Reporter, 214 ; and the practice has always been so under the insolvent law of this commonwealth. It would be a sad defect in a bankrupt law if the rights of creditors de- pended on the time at which their debts matured. 1 2. The next objection is that a creditor who holds security cannot petition. Here an important distinction is to be noted. This creditor has no security upon the property of W. B. Alexander, and the language of section 20 is that a creditor who holds security upon the property of the bankrupt shall be admitted to prove only for the balance, &c. This would seem to show that the petitioner has a provable debt for the full amount against the estate of the father, because his only secur- it3* is on the estate of the son. Such has always been the practice in England, and I am much inclined to think it the true practice. If the surety pays the debt, he ma} 7 be entitled to the benefit of the col- lateral security. But in bankruptcy it seems more just and equitable that the creditor should have the benefit of all his remedies, so that he may obtain his whole debt if possible. If he is obliged to realize his security, and prove only for a balance, he will be losing the advantage for which he has stipulated, of the full credit of the surety. A con- trar}- doctrine appears to have prevailed in Massachusetts : Lancton v. Wolcott, 6 Met. 305 ; but I am not prepared to say that I could follow that precedent, nor that the statutes are preciselj* alike on this point. Judge Fox has ably vindicated what I believe to be the true doctrine under the bankrupt law. It is not necessaiy to decide the question in this case, for reasons which will presently appear. 2 3. The next question is whether a creditor who holds a mortgage upon the property of his debtor can proceed against that debtor him- self by petition in bankruptcy. By section 20 such a petitioner can be a 1 In England, under the earlier statutes and also under the Bankruptcy Act of 1869, it was held that a petitioning creditor's debt must be due and payable at the time of the petition. But under the Act of 1883, now in force, a debt payable in future is sufficient. Robson on Bankruptcy (7th ed.), 205, 206. In the United States the doctrine of Re Alexander as to this point is settled. Re Onimette, 3 B. R. 566; Phenix Nat. Bank v. Waterbnry, 197 N. Y. 161, 165. By the English law, it is also necessary that the debt of the petitioning creditor should have been contracted before the Act of Bankruptcy alleged in the petition. Robson, 210. This rule was approved in Re Mullen, Deady, 513; Re Brinckmann, 103 Fed. 65; Brake v Callison, 129 Fed. 201 (C. C. A.). But see contra, Re Perry & Whit- ney Co., 172 Fed. 745 ; Re Banyan, 180 Fed. 498. CHAP. III.] , RE ALEXANDER. 113 creditor onty for the balance, after deducting the value of the property, which value is to be ascertained by agreement with the assignee, or by a sale under direction of the court. The argument is that until an assignee is appointed it cannot be legally ascertained whether such a mortgagee is really a creditor or not. This appears to me too strict and literal a construction. Take the case of an admitted act of bank- ruptcy, and of creditors whose security is plainly inadequate. Are they to be without remedy? No better illustration than this case affords could be desired. If this creditor cannot petition there is no other person who is interested to do so, and after the six months have passed he is without remedy. I have known a case in which all the creditors were secured, and none of them adequately. The true intent and equity of the statute will be met by holding that when the security falls short of a full indemnity, by two hundred and fifty dollars, or more, thus leaving the amount of a petitioning creditors debt practically un- secured, the debt is sufficient. This will be a question of fact like any other, and no more difficult to decide than such as often arise on a dis- puted account or other debt sufficient in kind. This is the law of Eng- land by the express words of 24 & 25 Viet., c. 134, 97. I do not wish to be understood that a creditor holding collateral security may not petition, if he offers to surrender and cancel his security, nor that an}' security by attachment or other lien created by law would usually be a bar ; but my opinion is that full and adequate security created by contract must be abandoned, and that if inadequate it must be so to the extent above mentioned. 1 4. It is no defence in bankruptcy that the petitioner is the only cred- itor, nor that he has an adequate remedy at law or in equity in the State or federal courts. The bankrupt law protects all creditors, and is additional to other remedies in all the cases to which it applies. This creditor alleges in his petition, and has proved to my satisfaction, that his security falls short by more than two hundred and fifty dollars, and I must hold him entitled to proceed. 2 1 A creditor having security from the bankrupt may be a petitioning creditor as to the excess of his claim above the security : Eng. B. A. 1883, 6 ; B. A. 1898, 59 ; or he may waive the security and petition as if unsecured : Re Rankin, 1 B. 11. 647 ; Re Bloss, 4 B. R. 147 ; Re Stansell, 6 B. R. 183 ; Re Sheehan, 8 B. R. 345 ; Re Frost, 6 Biss. 213, 217. 2 Conf. Ex parte English Bank, L. R. 6 Ch. 79; Re Sheehan, 8 B. R. 353 ; Rt Johann, 2 Biss. 139 ; O'Neil v. Glover, 5 Gray, 144. A ' 114 IN RE ROMANOW. . [CHAP. III. IN RE ROMANOW. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, MARCH 10, 1899. [Reported in 92 Federal Reporter, 510.] IN bankruptcy. Sumner H. Foster, for petitioning creditors. A. S. Cohen, for respondents. LOWKLL, District Judge. This case raises several interesting questions concerning the right of certain alleged creditors of the re- spondents to file a petition in involuntary bankruptcy against them. The act of bankruptcy alleged is a general assignment made October 4, 1898. One or more of the petitioners assented to this assignment, and the respondents object that persons so assenting cannot be parties to the petition. The objection is valid. By accepting the assignment, the creditors released their claims against the respondents, and, in place thereof, accepted claims under the assignment. Though the as- signment is an act of bankruptc}', and is avoided by the adjudication, yet it is not a void instrument, but only a voidable one. Until the adjudication it is valid, and the assenting creditors are bound by their assent thereto. Hence, it fol[ows_that,_imti^adiudication, the persons who had assented to tEeT assignment had ceased to be creditors of the respondents. Tf~Ihis~afgument be tfiought too technical, then it may be IsaicTthat those who have become voluntary parties to the assign- ment, and have thus agreed to a settlement of the respondents' affairs thereunder, cannot equitably repudiate their agreement. This view was taken in the onh r case bearing upon the subject which I have been able to find, Perry v. Langley, 19 Fed. Cas. 282, 283 (No. 11,006) : x " If the proof was that Perry had advised the making of the assign- ment, or after its execution had expressly given his assent to it, as a creditor of Langlej', he would have been precluded from insisting on it as an act of bankruptcy, and could not have maintained a standing in this court as a petitioning creditor." The petition was filed January 28, 1899. On February 14, Breit- stein, a creditor of the respondents, appeared and sought to join in the i This has been uniformly held in many cases in England and America. Rem- ington, Bankruptcy, 221 &c. ; Simonson v. Sinsheimer, 95 Fed. Rep. 948 (C. C. A.) ; Despres v. Galbraith, 213 Fed. 190. Assent given in ignorance of facts making the assignment fraudulent will not estop the creditor. Exparte Marshall, 1 Mont. D. & De G. 575 ; Ex parte Hallowell, 3 Mont. & Ayr. 538; Re Curtis, 94 Fed. Rep. 630 (C. C. A.). See also Leidigh Carriage Co. v. Stengel, 95 Fed. Rep. 637 (C. C. A.) ; Canner v. Tapper Co., 168 Fed. 519 (C. C. A.). An agreement to compromise which has not been carried out does not work an estoppel. Ex parte Foster, 22 Ch. D. 797 ; Artman v. Truby, 130 Pa. 619 ; Simonson v. Sinsheimer, 95 Fed. Rep. 948 (C. C. A.). CHAP. III.] IN RE MINER. 115 petition. The respondents object that he cannot be counted in making up the necessar}* number of creditors required by section 59 of the bankrupt act. Paragraph /'of that section reads as follows: "Creditors other than original petitioners may, at any time, enter their appearance, and join in the petition, or file au answer, and be heard in opposition to the prayer of the petitioners." Those who are permitted to "join in" a petition, b}' so doing com- monly become parties to it; and the words ''join in the petition," as used in paragraph e and paragraph b of the same section, plainly carry that implication. It is urged by the respondents that, if this construc- tion be given to paragraph f, an insufficient number of creditors, or creditors having an insufficient amount of claims, may file a petition against a debtor, and obtain an adjudication by subsequently procuring other creditors to join with them, such joinder being possible at any time before the petition is dismissed. This practice, it is said, would permit a petition, at the time of its filing insufficient in substance as well as in form, to be made good by subsequent acts. It must be admitted that there is weight in this argument, but the language of the act is clear ; and the inconvenience, if inconvenience there be, was not deemed by Congress a controlling consideration in the act of 1867 (see Rev. St. 5021, 5025), nor in some cases, at least, under the act of 1898. ^ See section 59 b. I think, therefore, that creditors, otherwise competent to appear and join in a petition subsequent to its filing, ma}' be reckoned in making up the number of creditors and amount of claims required b}' section 59. , The respondents further object that Breitstein's appearance was en- tered more than four months after the act of bankruptc}' complained of; but this seems immaterial. Section 3 b provides that the petition may be filed within four months of the act of bankruptcy. The petition was filed on January 29, and that remains the date of its filing, though some petitioners have joined in it subsequent!}' thereto. For instance, the date of bankruptcy is defined by section 1 subd. 10. to be the date when the petition was filed. If an adjudication is made in this case, the date of bankruptcy will be January 29, though the adjudication be made upon the petition of one or more creditors who joined therein in the month of February. Respondents adjudged bankrupt. IN RE MINER. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. [Reported in 104 Federal Reporter, 520.] LOWELL, District Judge. In this case the respondents made a gen- eral assignment, which has been assented to by all the creditors, with 116 IN RE MINER. f_CHAP. III. two or three exceptions. One of the non-assenting creditors has filed this petition alone, alleging that all the creditors of the respondents are less than twelve in number, thus seeking to bring himself within section 59 b. It was admitted at the argument that the creditors who had assented to the assignment could not join in the petition, but it was urged that they should be counted in reckoning the number of the respond- ents' creditors. Under the act of June 22, 1874 (18 Stat. 178, 12), it was held that preferred creditors should not be reckoned, in comput- ing the proportion of creditors required to join in a petition. In re Israel, Fed. Gas. No. 7,111 ; Clinton v. Mayo, Fed. Cas. No. 2,899 ; In re Currier, 2 Low. 436, Fed. Cas. No. 3,492. 1 In the last case Judge Lowell said, " I add, therefore, to the reasons already given why the debt of Dana & Co. should not be counted, that they ought not to join in this petition." The learned judge thus considered that onlj- those creditors who can join in a petition should be reckoned in computing the proportion who must join in order to make the petition valid. This is in accordance with the language of the statute ; for otherwise the word " creditors," in the first line of section 59 b, would have a dif- ferent meaning from the same word in the third line of the same clause. Again in the same clause it is said that " one of such creditors " (that is to say, one of the creditors who are less than 12 in number) may file a petition, thus plainh" implying that the creditors who ma}* file a petition are identical with the creditors whose number is to be reckoned. It is not necessary to decide if the general assignment here made be a preference. In West Co.. v. Lea, 174 U. S. 590, 19 Sup. Ct. 836, 43 L. Ed. 1098, 1 Nat. Bankr. N. 409, a general assignment is said to be repugnant to the policy of the bankruptcy law, and to show an intent to delay, defeat, and hinder the execution of the act. See also In re Gutwilfig, 1 Nat. Bankr. N. 554, 34 C. C. A. 377, 92 Fed. 337. If this assignment had provided for a preference, the petitioners' case would be clearly on that ground. If the debtor is not thrown into bankruptcy, their preference stands, and the law is evaded. In re Israel, supra. Here, if the debtor is not thrown into bankruptcj-, the assignment stands, and the law is evaded. Even if a preference be morally less objectionable than a general assignment, } T et I am of opinion that the latter is so objectionable to the spirit of the act that those creditors who have assented to it are within the scope of the re- marks made concerning preferred creditors in the cases above cited. For these reasons, because such is the letter of the act, because such was the construction of an analogous provision in the act of 1867, and because such seems to me the fair intent of the act as a whole, I hold that the creditors who have assented to the assignment are not to be reckoned in the computation required by section 59 b. Adjudication to be made. 2 1 Stevens v. Nave-McCord Co., 150 Fed. 71 (C. C. A.), ace. 2 See also Leighton v. Kennedy, 129 Fed. 737 (C. C. A.) ; Re Blount, 142 Fed. 263; Be Jacobsoii, 181 Fed. 870. CHAP. III.] IN RE BRINCKMANN. 117 IN RE BRINCKMANN. DISTRICT COURT FOR THE DISTRICT OF INDIANA, JULY 9, 1900. [Reported in 103 Federal Reporter, 65.] BAKER, District Judge. On May 3, 1900, George P. Chadwick, of Laporte County, Ind., filed a petition in involuntary bankruptcy against Robert Brinckmann, of the same county and State. The petition alleges that Chadwick is a creditor of said Brinckmann, having prov- able claims amounting in the aggregate, in excess of securities held by him, to the sum of $500, and that the creditors of said Brinckmann are less than twelve in number. The petitioner alleges that the debt owing by the alleged bankrupt to himself is a judgment rendered January 29, 1900, by the circuit court of Marshall County, Ind., for $1,250, for a wilful and malicious injury to the person of the petitioner committed by said Brinckmann on July 15, 1899. He alleges that there is interest due on said judgment from the date of its rendition, and costs of suit taxed in said cause, amounting to $140.20. The petitioner alleges that said Brinckmann is insolvent, and that within four months next preceding the date of the filing of his petition said Brinckmann committed acts of bankruptcy, in that he did on January 3 and 15, 1900, convey, mortgage, and transfer all of his real and per- sonal property to Louisa Brinckmann, William Brinckmann, Herman Brinckmann, and James F. Gallaher, with intent to prefer them as creditors over his other creditors, and especially the petitioner, and that said Brinckmann also conveyed, transferred, and concealed his property with intent to hinder, delay, and defraud his creditors. Said Brinckraann filed an answer putting in issue all the material aver- ments of the petition. The court has heard the evidence adduced by the respective parties, and is of opinion that the petitioner was not a creditor of the alleged bankrupt at the time that the acts of bank- ruptcy were committed. It is shown by the evidence, without dispute, that the case of the petitioner against the alleged bankrupt for the recovery of damages for the malicious and wrongful assault and battery was not tried until January 13, 1900, on which day the jury returned a verdict in his favor for $1,250, on which verdict on January 29, 1900, a judgment was rendered for the amount of the verdict and costs by the Circuit Court of Marshall County, Ind. No one except a creditor can maintain a petition in involuntary bankruptcy. The petitioner in this case at the time of the commission of the alleged acts of bankruptcy was not a creditor having a provable claim against the alleged bankrupt. Section 1, cl. 9, of the bankruptcy act defines a "creditor" as follows: "(9) Creditor shall include any one who owns a demand or claim provable in bankruptcy and ma}' include his duly authorized agent, attorney or proxy." 118 IN RE BRINCKMANN. [CHAP. III. Section 63, cl. " b," provides as follows : " (b) Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct and may thereafter be proved and allowed against his estate." The petitioner's claim at the time the alleged acts of bankruptcy were committed was unliquidated. He had not at that time reduced his claim for damages for a tort into judgment. It remained an un- liquidated claim until judgment was rendered on the verdict. In the case of Beers v. Hanlin, 3 Am. Bankr. R. 745, 99 Fed. 695, it is held that an unliquidated claim is not a provable debt in bankruptcy, and one arising out of tort must first be reduced to judgment, or, pursuant to application to the court, be liquidated, as the court shall direct, in order to be proved ; and it is further held that where the only alleged creditor is one who had an unliquidated claim for tort, not reduced to judgment at the time of an alleged preferential transfer, he is not a creditor who can insist that such transfer is an act of bankruptcy. The case of Ex parte Charles, 14 East, 197, 16 Ves. 256, is a much stronger case against the petitioning creditor than the case last cited. The case was sent by Lord Chancellor Eldon to the Court of King's Bench. The facts stated \>y the chancellor for the opinion of the court were that an action upon the case was brought by Mary Howell against one John Charles for breach of promise of marriage, in which she obtained a verdict on December 5, 1808, for 150, in damages. On December 25, 1808, the act of bankruptcy was committed by an assignment by the alleged bankrupt of all of his effects. Judgment on the verdict was entered January 31, 1809. On February 4, 1809, Mary Howell petitioned for a commission of bankruptcy, which issued on February 21, 1809, upon the debt evidenced by her judgment. The case was elaborately argued before the entire court on the certi- ficate sent to it by the chancellor ; the question being whether or not Mary Howell, at the time of the commission of the alleged act of bankruptcy, owned a provable debt, and was a creditor, within the true construction of the bankruptcy act. The court unanimously certified to the chancellor that the debt was not a sufficient debt to support a commission. Afterwards, in the sittings after Trinity Term, 1812, upon the petition of the bankrupt, the commission was superseded, with costs. In Scott v. Ambrose, 3 Maule & S. 327, Lord Chief Justice Ellenborough said that all the courts in Westmin- ister Hall had concurred in the doctrine of the case of Ex parte Charles. The petitioner not having been a creditor owning a prov- able claim at the time of the commission of the alleged acts of bank- ruptcy, cannot maintain his present petition. It will therefore be dismissed at the costs of the petitioner. 1 1 An unliquidated contract claim will support a petition. Grant Shoe Co. v. Laird, 212 U. S. 445. As to the sufficiency of contingent claims, see Ex parte Paget, 1 Gl. & J. 100 ; Sigsby v. Willis, 3 B. R. 207 ; Phillips v. Dreher Shoe Co., 1 12 Fed. 404 ; Swarts v. Siegel, 117 Fed. 13; Re Rothenberg, 140 Fed. 798. CHAP. III.] IN RE HALSEY ELECTRIC GENERATOR CO. 119 STROHEIM v. PERRY & WHITNEY CO. CIRCUIT COURT OF APPEALS FOR THE FIRST CIRCUIT, JANUARY, 1910. [Reported in 1 75 Federal Reporter, 52.] PUTNAM, Circuit Judge : This is a case of an involuntary petition in bankruptcy against the Lewis F. Perry & Whitney Company. The petition was dismissed by the District Court on the ground that not sufficient creditors joined therein to satisfy the requirement of the statute. Thereupon the peti- tioners, or some of them, appealed to us. As the case stood, the statute required that three creditors should unite in the petition. Apparently three did so unite at the outset, Stroheim & Romann, one Skelly, and one Beaumont. Putting on the claims of Skelly and Beaumont the best face possible for the petitioning creditors, the facts are as follows : The petition was filed on September 23, 1908. On September 10, 1908, a sister of Stro- heim held several notes of the debtor. At that time she transferred to Skelly one note without any substantial consideration, for the sole pur- pose of enabling her brother's copartnership to secure a sufficient num- ber of creditors to proceed with the bankruptcy petition. Beaumont came into possession of another note under the same circumstances and for the same reason. Evidently they were not creditors when they joined the petition, because evidently the whole transaction was purely colorable, and the notes still belonged to Stroll eim's sister. Therefore they could not lawfully make the required oath to the involuntary peti- tion. We concur fully with the conclusion of the learned judge of the District Court so far as these two signatures are concerned. 1 IN RE HALSEY ELECTRIC GENERATOR CO. DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY, JULY, 1908. [Reported in 163 Federal Reporter, 118.] LANNING, District Judge : The petitioners are James P. Murray, Charles H. Williams, Howard H. Williams, George F. Van Slyck, and William M. Clark. The claim of Howard H. Williams was assigned to him by his father, Charles H. Williams, and constitutes but a part of the original claim of the father. Charles H. Williams is a petitioner for the unassigned part of his 1 Only a portion of the opinion is printed. 120 IN HE HALSEY ELECTRIC GENERATOR CO. [CHAP. III. original claim. It is contrary to the policy of the Bankruptcy Act to permit a creditor to split up his claim against the debtor and assign some of the parts to other persons for the purpose of qualifying them as joint petitioners in a bankruptcy proceeding. In re Tribelhorn, 14 Am. B. R. 492, 137 Fed. 3, 69 C. C. A. 601 ; Leighton v. Kennedy, 12 Am. B. R. 229, 129 Fed. 737, 64 C. C. A. 265 ; In re Independent Thread Co. (D. C.), 7 Am. B. R. 704, 113 Fed. 998. It follows that Howard H. Williams cannot be counted as a petitioning creditor. It also appears that Murray and Van Slyck each hold an assigned claim, that neither of them has any financial interest in the claim held by him, and that each of them holds his claim solely for the benefit of his assignor. This fact, however, does not disqualify either of them as a petitioning creditor. The assignments were made by persons who originally claimed to be separate creditors of the alleged bankrupt for the respective amounts of the claims assigned. Murray and Van Slyck are trustees for their respective assignors, and, as they hold the legal title to the claims assigned, they are the owners of those claims, and, if they be valid claims, are creditors. 1 1 Only a portion of the opinion is printed. SECT. I.] STATUTE 13 ELIZABETH, C. 5. 121 CHAPTER IV. ACTS OF BANKRUPTCY. SECTION I. FRAUDULENT CONVEYANCES. 1 STATUTE 13 ELIZABETH, c. 5. 1570. FOR the avoiding and abolishing of feigned, covinous and fraudulent feoffments, gifts, grants, alienations, conveyances, bonds, suits, judg- ments and executions, as well of lands and tenements as of goods and chattels, more commonly used and practised in these da}-s than hath been seen or heard of heretofore : ( 2 ) which feoffments, gifts, grants, alienations, conveyances, bonds, suits, judgments and executions, have been and are devised and contrived of malice, fraud, covin, collusion or guile, to the end, purpose and intent, to delay, hinder or defraud creditors and others of their just and lawful actions, suits, debts, accounts, damages, penalties, forfeitures, heriots, mortuaries and reliefs, not only to the let or hinderance of the due course and execution of law and justice, but also to the overthrow of all true and plain dealing, bar- gaining and chevisance between man and man, without the which no commonwealth or civil society can be maintained or continued : II. Be it therefore declared, ordained and enacted by the authority of this present parliament, That all and every feoffment, gift, grant, alienation, bargain and conveyance of lands, tenements, hereditaments, goods and chattels, or of any of them, or of any lease, rent, common or other profit or charge out of the same lands, tenements, heredita- ments, goods and chattels, or any of them, by writing or otherwise, (2) and all and every bond, suit, judgment and execution, at any time had or made sithence the beginning of the Queen's majesty's reign that now is, or at any time hereafter to be had or made, (3) to or for any intent or purpose before declared and expressed, shall be from henceforth deemed and taken ( only as against that person or persons, his or their heirs, successors, executors, administrators and assigns, and every of them, whose actions, suits, debts, accounts, damages, penalties, forfeit- ures, heriots, mortuaries and reliefs, by such guileful, covinous or fraudulent devices and practices, as is aforesaid, are, shall or might be in any wise disturbed, hindred, delayed or defrauded) to be clearly and utterly void, frustrate and of none effect ; any pretence, colour, feigned l For convenience of treatment the subject of conveyances fraudulent as to creditors is dealt with in this section as a whole. 122 STATUTE 13 ELIZABETH, C. 6. [CHAP. IV. consideration, expressing of use, or any other matter or thing to the contrary notwithstanding. III. And be it further enacted by the authority aforesaid, That all and every the parties to such feigned, covinous or fraudulent feoffment, gift, grant, alienation, bargain, conveyance, bonds, suits, judgments, executions and other things before expressed, and being privy and knowing of the same, or any of them ; ( 2 ) which at any time after the tenth day of June next coming shall wittingly and willingly put in ure, avow, maintain, justify or defend the same, or any of them, as true, simple, and done, had or made bona fide and upon good consideration ; (3 ) or shall alien or assign any the lands, tenements, goods, leases or other tilings before- mentioned, to him or them conveyed as is aforesaid, or any part thereof ; ( 4 ) shall incur the penalty and forfeiture of one year's value of the said lands, tenements and hereditaments, leases, rents, commons or other profits, of or out of the same; (5) and the whole value of the said goods and chattels ; ( 6 ) and also so much money as are or shall be contained in any such covinous and feigned bond ; (7) the one moiet}' whereof to be to the Queen's majesty, her heirs and successors, and the other moiet} 1 to the party or parties grieved by such feigned and fraudulent feoffment, gift, grant, alienation, bar- gain, conveyance, bonds, suits, judgments, executions, leases, rents, commons, profits, charges and other things aforesaid, to be recovered in an}- of the Queen's courts of record b}- action of debt, bill, plaint or information, wherein no essoin, protection or wager of law shall be admitted for the defendant or defendants; (8)and also being thereof lawfully convicted, shall suffer imprisonment for one half 3'ear without bail or mainprise. VI. Provided also, and be it enacted bj* the authority aforesaid, That this act, or anything therein contained, shall not extend to an} r estate or interest in lands, tenements, hereditaments, leases, rents, commons, profits, goods or chattels, had, made, convej'ed or assured, or hereafter to be had, made, conveyed or assured, which estate or interest is or shall be upon good consideration and bona fide lawfully conveyed or assured to any person or persons, or bodies politick or corporate, not having at the time of such convej'ance or assurance to them made, any manner of notice or knowledge of such covin, fraud or collusion as is aforesaid ; anything before mentioned to the contrary hereof notwithstanding. l * It is generally held that such conveyances as are within this statute would be invalid without the aid of a statute. Co. Litt. 2906; Cadogan v. Kennett, 2 Cowp. 432; Baker v. Humphrey, 101 U. S. 494, 499; Anderson v. Hooks, 9 Ala. 704 ; Allen v. Bundle, 50 Conn. 9, 32 ; Peck v. Land, 2 Ga. 1, 10; Ewing v. Bunkle, 20 111. 448, 461 ; Gardner v. Cole, 21 la. 205, 210; Doyle v. Sleeper, 1 Dana, 531, 533; Hall r. Sands, 52 Me. 358; Blackman v. Wheaton, 13 Minn. 326, 330; Edmonson v. Meacham, 50 Miss. 34 ; Sands v. Cod wise, 4 Johns. 536 ; Seymour v. Wilson, 19 N. Y. 417, 420 ; O'Daniel v. Crawford, 4 Dev. 197, 202 ; Clark v. Douglass, 62 Pa. 408, 416 ; Hudnal v. Wilder, 4 McCord, 294; Bussell v. Stinson, 3 Hayw. 1, 5; Davis v. Turner, 4 Gratt. 422. SECT, i.] TWYNE'S CASE. 123 * SECTION I. (continued), (a) SALES AND TRANSFERS FOR VALUE. TWYNE'S CASE. STAB CHAMBER, 1602. [Reported in 3 Coke, 80 b.] IN an information by Coke, the Queen's Attorney General, against Twyne of Hampshire, in the Star-Chamber, for making and publishing of a fraudulent gift of goods, the case on the stat. of 13 Eliz. cap. 5, was such: Pierce was indebted to Twyne in four hundred pounds, and was indebted also to C. in two hundred pounds. C. brought an action of debt against Pierce, and pending the writ, Pierce -being possessed of goods and chattels of the value of three hundred pounds, in secret made a general deed of gift of all his goods and chattels real and personal whatsoever to Twyne, in satisfaction of his debt ; notwith- standing that Pierce continued in possession of the said goods, and some of them he sold ; and he shore the sheep, and marked them with his own mark : and afterwards C. had judgment against Pierce, and had a. fieri facias directed to the Sheriff of Southampton, who by force of the said writ came to make execution of the said goods ; but divers persons, by the command of the said Tw} T ne, did with force resist the said Sheriff, claiming them to be the goods of the said Twyne by force of the said gift ; and openl} 7 declared by the commandment of Tw3 T ne, that it was a good gift, and made on a good and lawful consideration. And whether this gift on the whole matter was fraudulent and of no effect by the said act of 13 Eliz. or not, was the question. And it was resolved by Sir THOMAS EGERTON, Lord Keeper of the Great Seal, and by the Chief Justice POPHAM and ANDERSON, and the whole court of Star Chamber, that this gift was fraudulent, within the statute of 13 Eliz. And in this case divers points were resolved : 1st. That this gift had the signs and marks of fraud, because the gift is general, without exception of his apparel, or any thing of necessity ; for it is commonly said, quod dolus versatur in generalibus. 2d. The donor continued in possession and used them as his own ; and by reason thereof he traded and trafficked with others, and defrauded and deceived them. 3d. It was made in secret, et dona clandestina sunt semper suspiciosa. 4th. It was made pending the writ. 5th. Here was a trust between the parties, for the donor possessed all, and used them as his proper goods, and fraud is always apparelled and clad with a trust, and a trust is the cover of fraud. 124 TWYNE'S CASE. [CHAP. iv. 6th. The deed contains, that the gift was made honestly, truly, and bonafide / et clausulce inconsuetf semper inducunt suspicionem. Secondly, it was resolved, that notwithstanding here was a true debt due to Twyne, and a good consideration of the gift, yet it was not within the proviso of the said act of 13 Eliz. b}' which it is provided, that the said act shall not extend to an}- estate or interest in lands, &c. goods or chattels made on a good consideration and bonafide / for although it is on a true and good consideration, yet it is not bonafide, for no gift shall be deemed to be bona fide within the said proviso which is accompanied with any trust; as if a man be indebted to five several persons, in the several sums of twenty pounds, and hath goods of the value of twenty pounds, and makes a gift of all his goods to one of them in satisfaction of his debt, but there is a trust between them, that the donee shall deal favorably with him in regard of his poor estate, either to permit the donor, or some other for him, or for his benefit, to use or have possession of them, and is contented that he shall pay him the debt when he is able ; this shall not be called bona fide within the said proviso ; for the proviso saith on a good considera- tion, and bonafide / so a good consideration doth not suffice, if it be not also bonafide / and therefore, reader, when an\* gift shall be to you in satisfaction of a debt, by one who is indebted to others also ; 1st, Let it be made in a public manner, and before the neighbors, and not in private, for secrecy is a mark of fraud. 2d, Let the goods and chattels be appraised by good people to the very value, and take a gift in particular in satisfaction of 3'our debt. 3d, Immediately after the gift, take the possession of them ; for continuance of the possession in the donor is a sign of trust. And know, reader, that the said words of the proviso, on a good consideration, and bona fide, do not extend to every gift made bona fide ; and therefore there are two manners of gifts on a good consideration, sci'l. consideration of nature or blood, and a valuable consideration. As to the first, in the case before put, if he who is indebted to five several persons, to each party in twenty pounds, in consideration of natural affection, gives all his goods to his son, or cousin, in that case, forasmuch as others should lose their debts, &c. which are things of value, the intent of the act was, that the consideration in such case should be valuable ; for equity requires that such gift, which defeats others, should be made on as high and good consideration as the things which are therebj* defeated are; and it is to be presumed, that the father, if he had not been indebted to others, would not have dispossessed himself of all his goods, and subjected himself to his cradle ; and therefore it shall be intended that it was made to defeat his creditors ; and if consideration of nature or blood should be a good consideration within this proviso, the statute would serve for little or nothing, and no creditor would be sure of his debt. And as to gifts made bona fide, it is to be known, that every gift made bonafide, either is on a trust between the parties, or without any trust, every gift made on a trust is out of this proviso ; SECT. I.] TWYNE'S CASE. 125 for that which is betwixt the donor and the donee, called a trust per nomen speciosum, is in truth, as to all the creditors, a fraud, for they are thereby defeated and defrauded of their true and due debts. And every trust is either expressed, or implied ; an express trust is, when in the gift, or upon the girt, the trust by word or writing is expressed : a trust implied is, when a man makes a gift without any consideration, or on a consideration of nature, or blood only : and therefore, if a man before the stat. of 27 H. 8 had bargained his land for a valuable consideration to one and his heirs, by which he was seised to the use of the bargainee ; and afterwards the bargainer, without a consideration, infeoffed others, who had no notice of the said bargain ; in this case the law implies a trust and confidence, and they shall be seised to the use of the bargainee : so in the same case, if the feoffees, in considera- tion of nature, or blood, had without a valuable consideration enfeoffed their sons, or any of their blood who had no notice of the first bargain, yet that shall not toll the use raised on a valuable consideration ; for a feoffment made only on consideration of nature or blood shall not toll an use raised on a valuable consideration but shall toll an use raised on consideration of nature, for both considerations are in cequali jure, and of one and the same nature. And when a man, being greatly indebted to sundr}' persons, makes a gift to his son, or any of his blood, without consideration, but only of nature, the law intends a trust betwixt them, scil. that the donee would, in consideration of such gift being voluntarily and freely made to him, and also in consideration of nature, relieve his father, or cousin, and not see him want who had made such gift to him, vide 33 H. 6. 33, by Prisot, if the father enfeoffs his son and heir apparent within age bona fide, yet the lord shall have the wardship of him : so note, valuable consideration is a good consideration within this proviso ; and a gift made bona fide is a gift made without any trust either expressed or implied : by which it appears, that as a gift made on a good considera- tion, if it be not also bona fide, is not within the proviso ; so a gift made bona fide, if it be not on a good consideration, is not within the proviso ; but it ought to be on a good consideration, and also bona fide. To one who marvelled what should be the reason that acts and statutes are continually made at every parliament without intermission, and without end ; a wise man made a good and short answer, both which are well composed in verse. "Quseritur, ut crescunt tot magna volumina legis ? In promptu causa est, creseit in orbe dolus." And because fraud and deceit abound in these daj's more than in former times, it was resolved in this case by the whole court, that all statutes made against fraud should be liberally and beneficially expounded to suppress the fraud. . . . 126 EDWARDS V. HARBEN. [CHAP. IV. EDWARDS v. HARBEN. KING'S BENCH, 1788. [Reported 2 Term Reports, 587.] ASSUMPSIT for goods sold to the defendant's testator. The defendant pleaded that he was not executor, nor had ever administered as such; and, secondly, that he had fully administered, &c. Replication, that he had administered divers goods, dec. of the testator; and issue thereon. And to the second plea, that the defendant, at the time of exhibiting the plaintiffs bill, had, and still has, goods and chattels of the deceased in his hands sufficient to satisfy the plaintiff's demands ; and issue thereon. At the trial of the last assizes at East-Grinstead, Sussex, a verdict was found for the plaintiff, with 22 18s. Qd. damages, and 40s. costs, subject to the opinion of this court on the following case. William Tempest Mercer in his lifetime, and before the time of the execution of the bill of sale hereinafter mentioned, was indebted to the plaintiff in the sum of 22 18s. Qd. for goods sold and delivered, which sum still remains due to the plaintiff. William Tempest Mercer, at the time of the execution of the said bill of sale, was likewise indebted to the defendant in the sum of 191 for money lent. On the 27th of March, 1786, Tempest Mercer offered to the defendant a bill of sale of his goods, household furniture, and stock in trade, in his house at Lewes, by way of security for the said debt. The defendant refused to accept of the same, unless he should be at Iibert3* to enter upon the effects and sell them immediate^' after the expiration of fourteen days from the execution thereof,, in case the mone}' should not be sooner paid ; to which Tempest Mercer agreed, and accordingly on the same da}* executed a bill of sale in the common form, by which Mercer bargained and sold to the defendant for ever his household furniture, medicines, stock in trade [particularly specif} 7 - ing them], and all and every other the goods, chattels, and effects what- soever, in and about his dwelling-house and premises at Lewes. Imme- diately upon the execution of the bill of sale, possession was delivered to the defendant in the manner described therein, viz., by the delivery of one corkscrew in the name of the whole, but in no other manner whatsoever. All the effects described in the bill of sale remained in the possession of William Tempest Mercer until the time of his death t which happened on the 7th of April, 1786. On the 8th of April, 1786, being before the expiration of fourteen da} y s from the execution of the bill of sale, the defendant entered and took possession of the effects contained in the bill of sale, being then in the house of the deceased, and afterwards sold the same for 236 7s. 5(7. William Tempest Mercer died intestate ; and no letters of administration were taken out to the deceased by the defendant, or by any other person, before the commencement of this action. The question for the opinion of the court is, Whether the defendant be entitled to retain the produce of SECT. 1.] EDWARDS V. HAKBEN. 12T the said effects, or at least the value of 191, the consideration of the said bill of sale ; or whether the bill of sale be void as against the creditors of William Tempest Mercer ; and the plaintiff in this action be entitled to recover his debt of 22 18s. 6d. against the defendant, as executor de son tort? Partington, for the plaintiff. Steele,- for the defendant. BULLER, J. This is an action brought by the plaintiff, who is a creditor of Mercer, against the defendant as executor. It does not appear by the case that any other goods than those mentioned in the bill of sale came to the defendant's hands. The bill of sale is dated on the 27th March, 1786, and is a general bill of sale of all the defendant's household furniture and stock in trade. This bill of sale is to take effect immediately on the face of it : but there was an agree- ment between Mercer and the defendant, that the goods should not be sold till the expiration of fourteen days from the date of its execution ; and no possession was actually taken till after the death of Mercer, which happened within the fourteen days : but there was a formal .delivery of a corkscrew in the name of the whole. On this case two questions arise : First, whether this bill of sale be void or not ; and secondl}", if void, whether the defendant by having taken these goods under the bill of sale, made himself liable as an executor de son tort. The first question came before the court in the late term in the case of Bamford v. Baron, on a motion for a new trial from the Northern circuit ; and after hearing that case argued, we thought it right to take the opinion of all the judges upon it. Accordingly we consulted with all the judges, who are unanimously of opinion that unless possession accompanies and follows the deed, it is fraudulent and void ; I lay stress upon the words "accompanies and follows," because I shall mention some cases where, though possession was not delivered at the time, the conveyance was not held to be fraudulent. There are many cases on this subject ; from which it appears to me that the principle which I have stated never admitted of any serious doubt. So long ago as in the case in Bulstrode, the court held that an absolute convej-ance or gift of a lease for years, unattended with possession, was fraudulent ; but if the deed or conveyance be conditional, there the vendor's con- tinuing in possession does not avoid it, because by the terms of the conveyance the vendee is not to have the possession till he has per- formed the condition. Now here the bill of sale was on the face of it absolute, and to take place Immediately, and the possession was not delivered ; and that case makes the distinction between deeds or bills of sale which are to take place immediately, and those which are to take place at some future time. For in the latter case the possession continuing in the vendor till that future time, or till that condition is performed, is consistent with the deed ; and such possession comes within the rule, as accompanying and following the deed. That case has been universally followed by all the cases since. One of the 128 EDWARDS V. HARBEN. [CHAP. IV. strongest is quoted in Bucknal and Others v. Roiston, Pr. in Chan. 287 ; there one Brewer, having shipped a cargo of goods, borrowed of the plaintiff 600 on bottom ly, and at the same time made a bill of sale of the goods, and of the produce and advantage thereof, to the plaintiff. There Sir E. Northey cited a case, " where a man took out execution against another ; by agreement between them the owner was to keep the possession of them upon certain terms, and afterwards obtained another judgment against the same man, and took the goods in execution ; and it was held that he might, and that the first execu- tion was fraudulent and void against any subsequent creditor, because there was no change of the possession, and so no alteration made of the property." And he said it had been ruled forty times in his experience at Guildhall, that, if a man sells goods, and still continue in possession as visible owner of them, such sale is fraudulent and void as to creditors, and that the law has been alwaj's so held. The Lord Chancellor held in the principal case that the trust of those goods appeared upon the very face of the bill of sale. That though they were sold to the plaintiffs, yet they trusted Brewer to negotiate and sell them for their advantage, and Brewer's keeping possession of them was not to give a false credit to him as in other cases which had been cited, but for a particular purpose agreed upon at the time of the sale. So that the Chancellor in that case proceeded on the distinction which I have taken ; he supported the deed, because the want of possession was consistent with it. This has been argued by the defend- ant's counsel as being a case in which the want of possession is only evidence of fraud, and that it was not such a circumstance per se as makes the transaction fraudulent in point of law : that is the point which we have considered, and we are all of opinion that if there be nothing but the absolute conveyance without the possession, that in point of law is fraudulent. On the other hand there are cases where the vendor has continued in possession, and the bill of sale has not been adjudged fraudulent, if the want of immediate possession be con- sistent with the deed. Such was the case of Lord Cadogau v. Kennet, Cowp. 432, because there the possession followed the deed. So also the case of Haselinton and Another v. Gill, Tr. 24 Geo. 3, B. R. post. 3, vol. 620 n, and another, sheriff of Middlesex ; there personal property, consisting (inter alia) of some cows, was settled on the marriage of the plaintiff's wife on certain trusts ; and the court held that only those which were purchased after the marriage could be taken to satisfy the debts of the husband. The second question then is, Whether the defendant's having taken possession of these goods after Mercer's death, though under the bill of sale, will make him an executor de son tort? The two cases, which were cited by the plain- tiffs counsel, are decisive of this point. In 2 Bac. Abr. 605, it is said, " If a man make a deed of gift of his goods in his lifetime by covin to oust his creditors of their debts, yet after his death the vendee shall be charged for them." There too the possession was delivered to the SECT. I.] EDWARDS V. HAKBEN. 129 vendee. To support this doctrine, 13 H. 4. 4. b, Rol. Abr. 549, are both quoted. Then in what manner shall he be charged? He can only be charged as executor; because any intermeddling with the intestate's effects makes him so. The cases in Cro. Jac. and Yelv. cited at the bar prove it, and state the manner in which he shall be charged. There is also another strong case on this point in Dyer (Dy. 166 b). In short, every intermeddling after the death of the party makes the person so intermeddling an executor de son tort, Vid. ante 97. S. P. GROSE, J., observed that it was unnecessary to repeat what had been said from the bench, but said that he was perfectly satisfied that the law was as had been stated. Postea to the plaintiff. The court then made the rule absolute for granting a new trial in the case of Bamford v. Baron. 1 1 In many jurisdictions in this country it is enacted or judicially decided that retention by the seller of the possession of personal property after a sale is conclusive proof of fraud. CAM FORNIA, Civ. Code, 3440 ; George v. Pierce, 123 Cal. 172 ; COLO- RADO, 1 Mills Annot. Stats., 2027; Stanley v. Citizens' Coal Co., 24 Col. 103; CON- NECTICUT, Hatstal v. Blakeslee, 41 Conn. 302; Huebler v. Smith, 62 Conn. 186; DELAWARE, Code, c. LXIII. 4; Bowman v. Herring, 4 Harr. 458; IDAHO, Rev. Stat. 3021 ; Harkness v. Smith, 2 Idaho, 952 ; Hallett v. Parrish, 51 Pac. Rep. 109; ILLINOIS, Bass v. Pease, 79 111. App. 308; IOWA, Code, 1923; Harris v. Pence, 91 la. 481 ; KENTUCKY, Morton v. Ragan, 5 Bush, 334 (conf. Vanmeter v. Estill, 78 Ky. 456); MARYLAND, Code, Art. 21, 40; Franklin v. Claflin, 49 Md. 24; MISSOURI, Rev. Stats. 1889, 5178 ; State v. Goetz, 131 Mo. 675; Revercomb v. Duker, 74 Mo. App. 570 ; MONTANA, Civ. Code, 4491 ; Yank v. Bordeaux, 23 Mont. 205 ; NEVADA, Comp. Laws, 292 ; Estey v. Cooke, 12 Nev. 276; Tognini v. Kyle, 17 Nev. 209 ; NEW HAMPSHIRE, Coolidge v. Melvin, 42 N. H. 510; Parker v. Marvell, 60 N. H. 30 ; OKLAHOMA, Stats. 2663 ; PENNSYLVANIA, Stephens v. Gifford, 137 Pa. 219 ; Garretson v. Hackenburg, 144 Pa. 107 ; Lehr v. Brodbeck, 192 Pa. 535 (conf. Ditman v. Raule, 124 Pa. 225) ; SOUTH DAKOTA, Comp. Laws, 4657; Howard v. Dwight, 8 S. Dak. 398; UTAH, Comp. Laws, 1888, 2837; White v. Pease, 15 Utah, 170; VERMONT. Weeks v. Prescott, 53 Vt. 57 ; Wheeler v. Selden, 63 Vt. 429 ; WASHINGTON, Gen. Stats. 1454; Whiting Mfg. Co. v. Gephart, 6 Wash. 615. So in ONTARIO, Rev. Stat. Ont. c. 119, 5; McMaster v. Garland, 31 Up. Can. C. P. 320. The Federal courts apply the law of the State where the transaction took place. Dooley v. Pease, 60 U. S. App. 248. See further, Williston Sales, 353 et seq. In Illinois this rule does not apply where retention of possession is consistent with the provisions of the deed of transfer or bill of sale. Bass v. Pease, 79 111. App. 308. But generally in these States there is no such limitation to the rule. See statutes cited above and Swift v. Thompson, 9 Conn. 63 ; Coolidge v. Melvin, 42 N. H. 510 ; Stephens p. Gifford, 137 Pa. 219; Post Publishing Co. v. Insurance Co., 189 Pa. 301. It is immaterial that the objecting creditor had knowledge of the sale. Bassinger i' Spangler, 9 Col. 175, 186 ; Harkness v. Smith, 2 Idaho, 952 ; Lawrence v. Burnham, 4 Nev. 361 ; Warwick Iron Co. v. First Nat. Bank, 13 At. Rep. 79 (Pa.) ; Hart v. Farmer's Bank, 33 Vt. 252, 263 ; Perrin v. Reed, 35 Vt. 28 ; contra, Lowe v. Matson, 140 111. 108 ; Sachler Carriage Co. v. Dryden, 71 111. App. 583 ; Vanmeter v. Estill, 78 Ky. 456. In the case last cited the creditor gave credit after notice, and this was relied on as the ground of decision. In the other cases this was not the case, but apparently the time when the claim arose was not regarded as material. By the statutes of Iowa, Maryland, Washington, and Ontario, if a bill of aale is recorded, the transaction is valid though the vendee retains possession, in analogy to the common provisions in regard to chattel mortgages. 130 MAKTINDALE V. BOOTH. [CHAP. IV. MARTINDALE v. BOOTH. KING'S BENCH, 1832. [Reported in 3 Barnewall Sf Adolphus, 498.] TRESPASS for taking away and converting furniture, goods, and chat- tels of the plaintiffs. Plea, not guilty. At the trial before Lord TEN- TERDEN, C. J. , at the Middlesex Sittings after Trinity Term 1829, the jury found a verdict for the plaintiffs for 93, 16s., subject to the opin- ion of this court on the following case : * Before the 8th of May, 1828, one W. G. Priest, who kept the Peacock Tavern in Maiden Lane, Middlesex, was indebted to the plaintiffs, wine and spirit merchants, in 10 for wine and spirits. Priest having applied to them for a further supply of wine upon credit, and for a loan of money, the plaintiffs refused to give him any further credit, or to lend him an}* money unless he would give them satisfactory security. Priest then proposed to execute a bill of sale to them of the furniture and fixtures in the Peacock Tavern as such security, and the plaintiffs agreed to give him credit thereupon to the extent of 200. After Priest and the plain- tiffs had agreed to give and accept such security, but before the bill of sale was actually executed, the plaintiffs, upon the faith of such agree- ment, advanced to Priest 30 in money, and to the amount of 60 in wine and spirits, and in two days afterwards, viz. the 8th of May, 1828, in pursuance of the agreement, Priest executed and delivered to the plaintiffs a bill of sale, reciting that he, Priest, was indebted to the plaintiffs in the sum of 100 for money advanced and goods sold and delivered, and stating that, in consideration thereof, he granted, bar- gained, sold, and assigned unto the plaintiffs all the household goods, furniture, &c. in and about the premises called the Peacock Tavern, to hold to the proper use and behoof of the plaintiffs forever, subject to the condition thereinafter contained : proviso, that if Priest should pay the said sum of 100 with lawful interest thereon by instalments, that is to say, 25 on the 7th of June then next, 25 on the 7th of May next, and 50, the residue thereof, on the 7th of November, 1829, the deed should be void ; but in default of payment of all or any of the said sums at the times appointed, then it should be lawful, although no advantage should have been taken of an}' previous default, for the plaintiffs forth- with to enter upon the premises, and take possession of the goods, fur- niture, &c., and absolutely sell and dispose of the same. There was a power reserved to the plaintiffs, during the continuance of the deed, to enter upon the premises and take an inventory ; and also at any time after default as aforesaid to take and retain possession of the goods until they should deem it expedient to sell. Then followed a proviso, " that until default should be made in payment of all or any of the said sums, it should be lawful for Priest to retain and keep quiet possession of all and singular the said household goods," &c. SECT. I.] MARTINDALE V. BOOTH. 131 Before Priest commenced dealing with the plaintiffs, he had married the widow of one Higman, who formerly kept the Peacock Tavern, and who, at the time of his death, was indebted to Combe, Delafield, and Co. in the sum of 1,100. His widow being executrix of his will, on her marriage with Priest the}- both became possessed of Higraan's effects; and Priest, by way of security for the said 1,100, executed a warrant of attorney to Combe, Delafield, and Co. for that amount in November, 1823. On the 1st of November, 1828, Messrs. Combe, Delafield, and Co. caused judgment to be entered upon the warrant of attorne} 1 , and sued out a writ offi.fa. directed to the defendants Booth and Copeland, then sheriff of Middlesex, who thereupon issued their warrant to Wilson, the other defendant, their officer, and he seized and took in execution the goods in question, being the furniture and effects in the Peacock Tavern. While the sheriff remained in possession, the plaintiffs came upon the premises, gave the defendants notice of the bill of sale, and required them to relinquish possession, which was re- fused, and the sheriff sold the goods. This case was now argued by Archbold, for the plaintiffs. Comyn, contra. Lord TENTERDEN, C. J. I am of opinion that the deed of sale was not absolutely void. Much has been said as to the secrecy attending that transfer, but the observation applies with equal force to the war- rant of attornej*, which was unknown to the plaintiffs, and which Coin be and Co. forbore to act upon for so long a time. The consideration for the bill of sale was not only an antecedent debt, but a sum of money to be advanced by the plaintiffs to enable Priest to carry on his trade. The omission of the plaintiffs to take possession of the goods was per- fectly consistent with the deed ; for it was stipulated that Priest should continue in possession until default made in pa}'ment of all or any of the instalments, and that on such default it should be lawful, although no advantage should have been taken of any previous default, for the plain- tiffs to enter and take possession of the household goods and furniture. The possession by Priest, therefore, being consistent with the deed, and it having been given in consideration of money advanced to enable Priest to carry on his trade, I cannot say that it was absolutely void. PARKE, J. I am of the same opinion. I think that the want of de- livery of possession does not make a deed of sale of chattels absolutely void. The dictum of BULLER, J., in Edwards v. Harben, 2 T. R. 587, has not been generally considered, in subsequent cases, to have that import. The want of delivery is only evidence that the transfer was colorable. In Benton v. Thornhill, 2 Marshall, 427, it was said in argument, that want of possession was not only evidence of fraud, but constituted it ; but GIBBS, C. J., dissented ; and although the vendor there, after exe- cuting a bill of sale, was allowed to remain in possession, GIBBS, C. J., at the trial, left it to the jury to say, whether, under all the circumstances, the bill of sale were fraudulent or not. It is laid down in Shcppard's Touchstone, 224 (7th ed.), " that a bargain and sale may be made of 132 MARTINDALE V. BOOTH. [CHAP. IV. goods and chattels without an}- deliver}' of any part of the things sold ; " and, afterwards, in page 227, it is said " that the word gift is often applied to inoveable thing*, as trees, cattle, household stuff, &c., the property whereof may be altered as well by gift and deliver} 7 as by sale and grant, and this is, or may be, either by word or writing ; " and in a note to this passage by the editor it is said. " that, by the civil law, a gift of goods is not good without delivery, yet in our law it is otherwise, when there is a deed : also in a donatio mortis causa, there must be a delivery." Then it is evident that the bill of sale, in this case, without delivery, conveyed the property in the household goods and chattels to the plain- tiffs. It may be a question for a jury, whether, under the circumstances, a bill of sale of goods and chattels be fraudulent or not; and if there were any grounds for thinking that a jury would find fraud here, we might, this being a special case, infer it ; but there is no ground what- ever for saying that this bill of sale was fraudulent. It was given for a good consideration, for money advanced to Priest to enable him to carry on his trade, and his continuance in possession was in terms provided for. Judgment for the plaintiffs. 1 1 LJTTLEDALE and PATTESON, JJ., delivered concurring opinions. It is well settled in England that retention of possession by the seller is at most evidence tending to show fraud. V. C. Kindersley, in Hale v. Metropolitan, &c. Co., 28 L. J. Ch. N. S. 777, 779, laid down the rule as follows : " With respect to the question whether the sale was bona fide, it was at one time attempted to lay down rules that particular things were indelihle badges of fraud, but, in truth, ever}- case must stand on its own footing ; and the court or the jury must consider whether, having regard to all the circumstances, the transaction was a fair one and intended to pass the property for a good and valuable consideration." See also Lindon v. Sharp, 6 M. & G. 898 ; Pennell . Dawson, 18 C. B. 355; Alton v. Harrison, L. R. 4 Ch. App. 622; Macdona v. Swiney, 8 Ir. C. L. R. 73. The question has been made of much less importance in England than formerly, however, by the Bills of Sales Acts. Those now in force are 41 & 42 Viet. c. 31 ; 45 & 46 Viet. c. 43 ; 53 & 54 Viet. c. 53 ; 54 & 55 Viet. c. 35. These require that bills of sale, whether given in an absolute sale or as security, shall be registered as a condition of their validity against third persons, if possession is not transferred. But transac- tions effected by parol are not within the scope of the acts. In this country the prevailing doctrine, in the absence of statutes is that retention of possession is prima facie evidence of fraud, but that the bona fides of the transaction may be shown. FEDERAL COURTS, Crawford v. Neal, 144 U. S. 585 ; ALABAMA, Troy Fertilizer Co. v. Norman, 107 Ala. 667 ; ARIZONA, Liebes v. Sleffy, 32 Pac. Rep. 261 ; ARKANSAS, Smith i>. Jones, 63 Ark. 232 ; DISTRICT OF COLUMBIA, Justh v. Wilson, 19 D. C. 529; FLORIDA, Briggs v. Weston, 36 Fla. 629 ; GEORGIA, Collins v. Taggart, 57 Ga. 355 ; INDIANA, Rev. Stat. 1881, 4911 ; Seavey v. Walker, 108 Ind. 78; Hig- gins v. Spahr, 145 Ind.'l67 ; KANSAS, Gen. Stat. (1889) 3163; Locke v. Hedrick, 24 Kan. 763 ; LOUISIANA, Cochrane v. Gibert, 41 La. Ann. 735 ; MAINE, Goodwin v. Goodwin, 90 Me. 23; MASSACHUSETTS, Brooks v. Powers. 15 Mass. 244; Allen r. Wheeler, 4 Gray, 123; MICHIGAN, Comp. Laws (1897) 9520; Jansen v. McQueen, 105 Mich. 199 ; MINNESOTA, Gen. Stat. (1894) 4219 ; Cortland Wagon Co. v. Sharvy ; MISSISSIPPI, Hilliard v. Cagle, 46 Miss. 309 ; NEBRASKA, Comp. Stat. 1881, c. 32, 11 ; Powell v. Yeazel, 46 Neb. 225; NEW JERSEY, Miller v. Pancoast, 5 Dutch. 250; NE\V YORK, Southard v. Benner, 72 N. Y. 424 ; Brown . Harmon, 29 App. Div. 31 ; NORTH CAROLINA, Rea v. Alexander, 5 Ired. 644 ; Cheatham v. Hawkins, 80 N. C. 161 ; NORTH DAKOTA, Rev. Code, 5053 ; Conrad v. Smith, 6 N. Dak. 337 ; OHIO, Hombeck v. Van- metre. 9 Ohio. 153 Freeman v. Rawson, 5 Ohio St. 1 ; OREGON, Code Civ. Proc. 766, SECT. 1.1 DARVILL V. TEEEY. 133 DARVILL y. TERRY. EXCHEQUER, MAY 7, 1861. [ Reported in 6 Hurlstone $ Norman, 807.] THIS was an interpleader issue, to try whether certain goods, taken in execution by the sheriff of Surrey, under a writ of,/?, fa. issued on a judgment recovered by George Terry (the now defendant) against one Beat}", were at the time of the seizure the property of the now defend- ant, as against James Darvill (the now plaintiff.) At the trial, before CHANNELL, B., at the Middlesex Sittings in the present term, the following facts appeared: On the 9th of January, 1861, Beaty executed a bill of sale, by way of mortgage, of certain goods in his possession, as a security for 130, previously lent him by the plaintiff, and a further loan of 160. By the terms of the deed the above sums were to be repaid, with interest at the rate of 5 per cent, on the 29th of July, 1861, and until default in payment Beaty was to keep possession of the goods. There was an indorsement on the deed of the receipt of the 160 by Beaty, on the 9th of January, 1861, but the money was not, in fact, paid, nor the execution attested, until the llth of January, the bill of sale having remained until that time in the hands of the attorney who prepared and attested it. The bill of sale was registered, under the 17 & 18 Viet. c. 36, as if executed on the 9th of January. On the 16th of January Beaty presented a petition to the Court of Bankruptc}' for an arrangement with his creditors, and obtained an order for protection of his person and goods from process until the 12th of February. On the 29th of January this petition was dismissed, and on the same day the sheriff seized the goods of Beaty under a writ ofji.fa. issued on a judgment obtained against him by the now defend- ant. It was submitted on behalf of the defendant, first, that the bill of sale was not executed bona fide, and with the intention of vesting the property in the goods in the plaintiff, but was a mere contrivance for the purpose of defeating the defendant's execution, and consequently void under the 13 Eliz. c. 5. Secondly, that the consideration money not having been paid until two days after the bill of sale was executed, there was no valid registration under the 17 & 18 Viet. c. 36, s. I. 1 subd. 40; McCully v. Swackhammer, 6 Ore. 438; RHODE ISLAND, Mead v. Gardiner, 13 U. I. 257 ; SOUTH CAROLINA, Pregnall ;. Miller, 21 S. C. 385; TENNESSEE, (JrnMw v. Greer, 5 Coldw. 160; TEXAS, Edwards v. Dixon, 66 Tex. 613; Traders Nat. Bunk v. Day, 87 Tex. 101 ; VIRGINIA, Davis v. Turner, 4 Gratt. 422 ; Benjamin v. Madden, 94 Va. 66 ; WEST VIRGINIA, Bindley v. Martin, 28 W. Va. 773 ; Poling v. Flana- gan, 41 W. Va. 191 ; WISCONSIN, Rev. Stat. (1878) 2310; Densinore Cora. Co. v. Shong, 98 Wis. 380. See farther, Williston, Sales, 353 et seq. 1 Portions of the opinions of the court holding this registration valid have been omitted. 134 DARVILL V. TERRY. L CHAP - IV - The learned judge left it to the jury to say whether, taking all the circumstances into consideration, the bill of sale was bona fide the transaction it purported to be, or merely colorable. If they were of opinion that it was the intention of the parties that the goods should continue to be the goods of Beaty, and that the bill of sale was resorted to for the purpose of defeating the defendant's execution, and without an)- intention that the property should pass to the plaintiff, then the bill of sale, though good in form, would be void ; and (as described by counsel) a mere " sham " or contrivance of no avail in law. But if the jury were of opinion that the parties really intended that which the transaction purported to be, viz., in consideration of inonej" advanced, to pass the property in the goods to the plaintiff, though with the right in Beaty to retain possession of the goods until default in payment of the money advanced, it was no objection to the bill of sale that the parties had come to that arrangement with a view of defeating the defendant's execution. The jury found that the transaction was bona fide, and a verdict was entered for the plaintiff. Montagu Chambers now moved for a rule to show cause why a new trial should not be had on the ground of misdirection. POLLOCK, C. B. I am of opinion that there ought to be no rule. The objection to the direction of the learned judge is based on two grounds. First, it is said that he did not sufficiently point out to the jury that the bill of sale, if given to defeat a judgment creditor, was void as against him. But there are many circumstances under which a conve}*ance by a debtor of his property is valid, although its object is to defeat cred- itors. The most remarkable case is where a debtor voluntarily assigns over his property for the benefit of his creditors ; and such assignment is valid, though made for the express purpose of defeating a particular creditor. Here, if the mortgage was bona fide for the consideration of 160, and the money was actually paid, the transaction may well be sustained under the present view of the law (which has varied from that as laid down in the earlier cases), although the intention was to defeat an execution creditor. In the case of Wood v, Dixie, 7 Q. B. 892, Coltman, J., laid down the law precisely as Mr. Chambers says that it ought to have been laid down in the present case, but the ruling of the learned judge was corrected by the Court of Queen's Bench. 1 MARTIN, B. I am also of opinion that there ought to be no rule. The first point raised by Mr. Chambers was expressly decided in the case of Wood v. Dixie, 7 Q. B. 892, which was determined in the 1 In this case COLTMAN, J., told the jury that " if there really was a payment, still if the intention of the transaction was to defeat the execution creditor, the con- veyance was void as against him," but the court held that a sale of property for good consideration is not, either at common law or under the statute 13 Eliz. c. 5, fraudu- lent and void, merely because it is made to defeat the expected execution of a judg- ment creditor. In accord with this doctrine are Holbird v. Anderson, 5 T. R. 235 ; Thomas v. Johnson, 137 Ind. 244; Randall v. Shaw, 28 Kan. 419; McAllister v. Honea, 71 Miss. SECT. I.] FRENCH V. MOTLEY. 135 year 1845 ; so that for upwards of fifteen years the law on this point, with respect to bills of sale, has been settled. The precise points which has been raised to-day was raised in that case, viz., whether, where a debtor executes a bill of sale, by way of mortgage of his goods, as a security for money lent, if the object be to defeat an execution creditor, the bill of sale is void. Wood v. Dixie is an express authority that it is not ; in that case Coltman, J., told the jury that, if the intention of the transaction was to defeat the execution creditor, the conveyance was void as against him, and the Court of Queen's Bench held that direction wrong. I am not aware of an}' case in which the law so laid down has since been disputed. Mule refused. 1 FRENCH v. MOTLEY. SUPREME JUDICIAL COURT OF MAINE, 1874. [Reported in 63 Maine, 326.] BILL in equit}", brought under R. S., c. 61, by an execution creditor of George H. Motley to compel the payment of the debt out of land con- veyed by Seth H. Faunce to Mrs. Motley, upon the ground that the property was purchased by the husband and paid for with his earnings and labor, and that the wife paid no part of the consideration for it. Mr. Motlej' cleared a piece of land for Mr. Faunce, and to compensate him therefor, these premises were, by his direction, conveyed to his wife, it having been originally agreed that he should take his pay for his services in this land. It was set up in defence that Mrs. Motley had, some years before, lent to Mr. Motley money which she said came to her from the estate of a former husband (Sidney P. Poole), and that it was then agreed that he should invest it in a small homestead for her, and that this one was purchased by him for her, and as her agent, in pursuance of that arrangement ; and that the building placed upon the land was bought by Mr. Motley of John J. Perry, and paid for by Motley's labor, under the same arrangement. To substantiate her claim, Mrs. Motley produced a note for 8375, dated at Minot, August 256; Kuykendall v. McDonald, 15 Mo. 416 ; Waterbury v. Sturtevant, 18 Wend. 353; Ziegler v. Haudrick, 106 Pa. 87. For many other cases illustrating the right of a debtor apart from statute to prefer when insolvent favored creditors, either by absolute payment or by mortgage, see 14 Am. & Kng. Enc. of Law (2d ed.), 226 et seq. 1 WILDE, B., and CHANNELL, B., delivered brief concurring opinions. In the course of the argument of counsel CHANNELL, B., said : " You contended at the trial that the not taking possession of the goods was a test of fraud. But this bill of sale is by way of mortgage, and, although its object may have been to defeat an execution, that would not, of itself, render the bill of sale void : it is a fact to he taken into consideration, but is not conclusive. The 13 Eliz. c. 5 was intended to apply to voluntary conveyances for the purpose of defeatiug creditors, not to cases where there is a valid consideration for the conveyance." 136 FRENCH V. MOTLEY. [CHAP. IV. 26, 1857, payable on demand with interest. Upon its face it purported to be witnessed by Martha Farris, mother of Mrs. Motley, but Mrs. Motley in her deposition, taken in her own behalf, testified that her husband wrote Mrs. Farris' name upon the note. The probate records and a deposition of the administrator of Poole's estate were introduced to show that the widow did not^ receive from that source six hundred dollars (as alleged in her answer) nor quite $375, and that part of this was not paid till after 1857. The land conveyed by Faunce to Mrs. Motley was valued by the parties at $110, which sum was indorsed on the note. The building bought of Perry was worth only about twenty dollars. Sanderson & Bearce, for the complainant. John J. Perry, for the respondents. RESCRIPT. A husband may lawfully pay a bona fide debt due from him to his wife, for money of her own lent to him after marriage, by procuring, with her assent, a conve\-ance to her by a third person of land paid for by him. When such conve3 - ance is accepted b}~ her in payment of such debt, she holds the land as if bought and paid for by herself with her own money or means, and it is not liable to be taken as the property of the husband, to pay his debts, contracted before such purchase. In the absence of proof sufficient to establish a common fraudulent intent and design on the part of the husband and wife, his other cred- itors cannot complain of his preference to discharge his debt to her, rather than to them. The fact that the debt to the wife has subsisted more than six years prior to such payment, and that the note originally given for it is barred by the statute of limitations, is not conclusive evidence of a want of good faith. The creditor in this case fails to show to the satisfaction of the court that the wife should not be regarded as the bona fide purchaser, for value, of the property conveyed to her. Mere suspicion, arising out of the relation of husband and wife, will not suffice for that purpose. Bill dismissed ivith costs. 1 1 Brookville Nat. Bank v. Kimble, 76 Ind. 195 ; City Bank v. Wright, 68 la. 132 ; Frost v. Steele, 46 Minn. 1 ; Dayton Co. v. Sloan, 49 Neb. 622 ; Manchester v. Tib- betts, 121 N. Y. 219 ; McConnell v. Barber, 86 Hun, 360 ; McAfee v. McAfee, 28 S. C. 1 88, ace. In Martin v. Remington, 100 Wis. 540, the hnsband had used his wife's money in purchasing real estate the title to which he took in his own name. By statute in Wis- consin resulting trusts are abolished and the wife had no enforceable claim. Never- theless a conveyance to her of the land was held to be on good consideration. To the same effect is Vansickle v. Wells, Fargo & Co., 105 Fed. 116. SECT. I.] FIRST NATIONAL BANK V. GLASS. 137 FIRST NATIONAL BANK v. GLASS. UNITED STATES CIRCUIT COURT OF APPEALS FOR THE EIGHTH 'CIRCUIT, JANUARY 27 MARCH 22, 1897. [Reported in 49 United States Appeals, 228.] APPEAL from the Circuit Court of the United States for the First Division of the District of Kansas. Before SANBORN and THAYEK, Circuit Judges, and LOCHREN, District Judge. THIS appeal challenges a decree which sustained a demurrer to a bill brought by a judgment creditor to subject a homestead which the debtor had bought and caused to be conveyed to his wife to the pa3'ment of the judgment. The bill disclosed these facts : The statutes of Nebraska exempt from judicial sale a homestead not exceeding in value $2,000, consisting of a dwelling-house in which the claimant resides and the land on which the house is situated, not exceeding one hundred and sixty acres in extent. Cobbey's Consolidated Statutes, 1891, p. 430, c. 19. The constitution of the State of Kansas exempts from forced sale under process of law a homestead not exceeding one hundred and sixty acres of farming-land, or one acre within the limits of an incorporated town or city, and all the improvements thereon, when it is occupied as a residence by the family of the owner, whatever its value may be. Art. 15, sec. 9, General Statutes of 1889, f 235. From May 4, 1892, until March 22, 1894, the appellee, John F. Glass, owned, and with his wife, Harriet H. Glass, resided upon and occupied one hundred and sixty acres of land in the State of Nebraska as their homestead. In May, 1892, Glass purchased of one Gravatte some fruit trees which were planted on his farm, and which enhanced its value $3,000. He gave Gravatte a span of horses and six of his promissory notes for these trees. The appellant, the First National Bank of Humboldt, Nebraska, purchased four of these notes before their maturit}*, and on November 19, 1894, obtained a judgment thereon for $2,278.44 against John F. Glass in an action which it had commenced in the District Court of Pawnee County in the State of Nebraska on June 24, 1893. Glass was insolvent, and he had no property except the farm which he occupied as his homestead. On March 22, 1894, he sold and conveyed this farm to one Huff for $6,100, and with that money he bought one hundred and sixty acres of farming-land in Franklin County in the State of Kansas, and caused the vendor to convey it to his wife. He and his wife imme- diately took possession of it, and have ever since resided upon, occu- pied, and claimed it as their homestead. The bank caused an execution to be issued on its judgment in 1895, and it was returned nulla bona. It then brought an action upon this judgment, and obtained a judgment in that action and a return of execution unsatisfied in the District Court of Franklin County in the State of Kansas. Thereupon it exhibited its bill in the court below, and alleged, in addition to the foregoing facts 138 FIRST NATIONAL BANK V. GLASS. [CHAP. IV. that the appellees sold their farm in Nebraska, secretly fled to the State of Kansas, and purchased and took possession of their farm in that State with the intent and for the purpose of cheating and defrauding the hank out of its claim against Glass and for the purpose of preventing it from collecting its judgment from the farm in Nebraska, which was worth $4,100 more than the value of an exempt homestead, under the statutes of that State. The bank prayed for the sale of the farm in Kansas and for the application of the proceeds of the sale to the payment of its judgment. Mr. J. W. Deford submitted a brief for appellant. Mr. C. A. Smart and Mr. C. H. Mechem submitted a brief for appellees. SANBORN, Circuit Judge, after stating the case as above, delivered the opinion of the court. An insolvent debtor may use with impunit\- an}- of his property that is free from the liens and the vested equitable interests of his creditors to purchase a homestead for himself and his family in his own name. If he takes property that is not exempt from judicial sale and applies it to this purpose, he merel}' avails himself of a plain provision of the constitution or the statute enacted for the benefit of himself and his family. He takes from his creditors by this action nothing in which they have anj- vested right. The constitution or statute exempting the homestead from the judgments of creditors is in force when the}- extend the credit to him, and they do so in the face of the fact that he has this right. Nor can the use of propert}- that is not exempt from execution to procure a homestead be held to be a fraud upon the creditors of an insolvent debtor, because that which the law expressly sanctions and permits cannot be a legal fraud. Jacoby v. Parkland Distilling Com- pany, 41 Minn. 227 ; Kelly v. Sparks, 54 Fed. Rep. 70 ; Sproul v. The Atchison National Bank, 22 Kan. 336; Tucker v. Drake, 11 Allen (Mass.) 145 ; O'Donnell v. Segar, 25 Mich. 367 ; North v. Shearn, 15 Tex. 174; Cipperly v. Rhodes, 53 111. 346; Randall v. Buffing- ton, 10 Cal. 49 1. 1 When the appellees sold their farm in Nebraska, 1 Other decisions holding that an insolvent debtor may transfer property which is not exempt and invest the proceeds in exempt property are, Reeves v. Peterman, 109 Ala. 366; Kelley v. Connell, 110 Ala. 543; Flask v. Tindall, 39 Ark. 571 ; Goudy v. Werbe, 117 Ind. 154, 163; Meigs v. Dibble, 73 Mich. 101 ; Finn v. Krut, 13 Tex. Civ. App. 13 ; Bell v. Beazley, 18 Tex. Civ. App. 639 ; Bradley v. Gotzian, 12 Wash. 71. See also Bates v. Callender, 3 Dak. 256 ; Kapernick v. Louk, 90 Wis. 232. In Corn- stock v. Bechtel, 63 Wis. 656, the court, though regarding such a transaction as fraud- ulent, held that the exempt property could not be touched, the creditor's only remedy being to attack the transfer of property which was not exempt. And in Riddell v. Shirley, 5 Cal. 488, the court held a creditor entitled to levy on non-exempt property conveyed to free a mortgage on a homestead, the transferree having knowledge of the circumstances. See also Bishop v. Hubbard, 23 Cal. 514. The creditor or trustee in bankruptcy was said to have a right against the homestead or exempt property in Pratt v. Burr, 5 Biss. 36 ; Re Boothroyd, 14 B. R. 223 ; He Parker, 18 B. R. 43 ; Brackett v. Watkins, 21 Wend. 68. See also Re Wright, 8 B. R. 430; Re Sauthoff, 16 B. R. 181 ; Re Melvin, 17 B. R. 543; fie Boston, 98 Fed. Rep. 587. But see contra, Re Hammond, 198 Fed. 385. SECT. I.] FIRST NATIONAL BANK V. GLASS. 139 and bought and took possession of their homestead in Kansas, the bank had acquired no lien and no specific equitable interest in any of the property of its debtor. It was his simple contract creditor, and it had no vested right in either his propert}- or his residence. He had the right to change his residence from one State to another, and to secure for himself a homestead in any State where he chose to live. If, therefore, he had taken the couve3"ance of his homestead in Kansas in his own name it would have been exempt from the judgment of the appellant. The only question remaining is whether the farm lost this exemption because he caused it to be conveyed to his wife. Upon this question the authorities are not in accord. The Supreme Court of Minnesota declares that such a transaction is a fraud upon creditors and subjects the property so acquired to the payment of their debts.. Summer v. Sawtelle, 8 Minn. 309 ; Rogers v. McCauley, 22 Minn. 384. The Supreme Court of Kansas, on the other hand, holds that a home- stead purchased and paid for from the unexerapt property of the hus- band is equallj" exempt from judicial sale, under the constitution of that State, whether the title is taken in the name of the husband or in that of the wife. Monroe v. May, 9 Kan. 466, 475, 476; Hixon v. George, 18 Kan. 253, 258. The decisions of the highest judicial tribunal of the State of Kansas, which we have cited, settle this ques- tion in the case at bar. The question involves the construction and effect of the constitution and statutes of that State, and the decisions of it by that court establish a rule of property there, which has prevailed without modification for a quarter of a century. As was said by Mr. Justice FIELD in Christy v. Pridgeon, 4 Wall. 196, at page 203, in speaking of a law of the Republic of Mexico, which had subsequently become, in effect, a local law of the State of Texas : " The interpreta- tion, therefore, placed upon it by the highest court of that State, must, according to the established principles of this court, be accepted as the true interpretation, so far as it applies to titles to lands in that State, whatever may be our opinion of its original soundness. Nor does it matter that in the courts of other States, carved out of territory since acquired from Mexico, a different interpretation may have been adopted. If such be the case, the courts of the United States will, in conformity with the same principles, follow the different ruling so far as it affects titles in those States." The construction, by the highest judicial tri- bunal of a State, of its constitution or statutes, which establishes a rule of property, is controlling authority in the courts of the United States when no question of right under the Constitution and laws of the Nation, and no question of general or commercial law, is involved. Brasliear v. West, 7 Pet. 608, 615 ; Allen v. Massey, 17 Wall. 351 ; Lloyd v. Fulton, 91 U. S. 479, 485 ; Sumner v. Hicks, 2 Black, 532, 534 ; Jaf- fray v. McGehee, 107 U. S. 361, 365 ; Peters v. Bain, 133 U. S. 670, 686 ; Randolph's Executor v. Quidnick Company, 135 U. S. 457 ; White v. Cotzhausen, 129 U. S. 329 ; Union Bank of Chicago v. Kan- 140 BENSON V. BENSON. [CHAP. IV. sas City Bank, 136 U. S. 223, 235 ; Detroit v. Osborne, 135 U. S. 492 ; Madden v. County of Lancaster, 27 U. S. App. 528, 535 to 537 ; Otten- berg v. Corner, 40 U. S. App. 320, 329. The decree below is in accordance with the constitution and statutes of the State of Kansas, as they have been construed by its Supreme Court, the property in controversy is situated in that State, and its title is fixed by that construction. Let the decree be Affirmed, with costs. BENSON v. BENSON. MARYLAND COUKT OF APPEALS, JANUARY TERM, 1889. [Reported in 70 Mart/land, 253.] STONE, J. 1 Joseph M. Brian became security on the guardian bond of Thales A. Linthicum, who was the guardian of the complainant Elizabeth H. Benson about the year 1868. The said Joseph M. Brian died in 1878, and the guardian Linthicum in 1880. The same year in which he died Bi^an conve\~ed all his property to his two children, a son and a daughter. Linthicum, the guardian, died insolvent and before an}- final settlement of his guardian accounts ; and after his death it was discovered that he was largely indebted to his ward. It also turned out that the other two securities on the guardian bond were totally insolvent, and Mrs. Benson then filed the bill in this case to set aside the deeds made by Bryan to his children as fraudulent and void against her ; and whether these deeds are fraudulent and void as against her is the first and most important point in the case. These deeds were executed by Brian a short time a few months before his death. The consideration set forth in the deed to his daugh- ter professed to be love and affection ; the consideration set forth in the deed to his son was the sum of seventeen thousand dollars. But the son proves that he did not pay his father a dollar in money, but claims to have paid subsequently debts due by his father to about that amount. The deed executed by Brian to his daughter was for real estate onty, and was executed on 3d September, 1878. The deed to his son was executed on the following day, and embraced all the property, both real and personal, of the said Joseph M. Brian, except what he had before given to his daughter. There is no evidence in the record of the value of the propert}' given to his daughter, but there is evidence of the value of the real estate given to his son, and it seems to have been worth about forty thousand dollars, or perhaps a little more. There was a considerable amount of 1 A portion of the opinion in regard to the amount for which the guardian's bond could be enforced is omitted. SECT. L] BENSON V. BENSON. 141 personal property which passed to the son under the deed to him, which, if we understood his evidence correctly, was intended as com- pensation to the son for services rendered the father. Simultaneous with the execution of these deeds the father, Joseph M. Brian, Sen., entered into a written agreement with his children, by which each agreed to pay him, if he demanded it, five hundred dollars a year. If he demanded any mone} 7 from one he promised to demand an equal amount from the other, so that he might not be a greater burden on one than the other, and all arrears of his annuity were to be considered as paid and settled at the time of his death, so that his per- sonal representative (if any) could make no claim for such arrears. The recital of these facts shows conclusively the character of this whole transaction. A man advanced in life and of considerable wealth, about two months before his death, conveys all his property to his children. His son is to pay his debts, and his share was probably for that reason greater by the amount of such debts, than his daughter's. The deed to his daughter was confessedly a purely voluntary conveyance, and the deed to the son, upon the proof, is also a voluntary conveyance. The son did not pa}' a dollar for the property. All he professes to have done was to pay some debts of the father, not amounting at most to half the value of the real estate alone that he got. It needs no authority for so plain a proposition, that the son was not under these circum- stances a purchaser for a valuable consideration and to be treated as such. The deeds, the agreement, and the proof show that Mr. Brian's object was to divide his property between his children in his lifetime, retaining only an annuity sufficient for his wants for his life. There is nothing in this record to show that Mr. Brian contemplated any fraud whatever. He may not, and probably did not, apprehend any loss on account of his being on this guardian bond. But whether he did or did not, these deeds cannot avail against the claim of these complainants, and must be declared, as against them, fraudulent and void. To hold otherwise would be to declare that an obligor on a bond might always relieve himself, when loss was apprehended by giving his property to his wife or child. 1 1 The relationship of parties to a transaction claimed to be a fraudulent conveyance, is often important evidence with other circumstances, hut, though in some cases rules of legal presumption are stated, the better view seems to be that the fact of relation- ship in any case is in itself of no legal importance, but has such weight as a fact in any case us the court or jury think it entitled to. Numerous cases bearing oil the poiut are collected in 24 Century Digest, 444 et aeq. 142 JAEGEE V. KELLEY. [CHAP. IV. JAEGER v. KELLEY. NEW YORK COURT OF APPEALS, FEBRUARY 17-25, 1873. [Reported in 52 New York, 274.] APPEAL from judgment of the General Term of the Supreme Court in the first judicial department, modifying and affirming as modified a judgment in favor of plaintiff entered upon a verdict. This action was brought to recover the value of 1,364 gallons of wine alleged to have been unlawfully taken and converted by defendant. Plaintiff purchased the wine of one Theodore Lingen fender at ninety- two and a half cents per gallon. He paid a debt of Lingenfelder of $250, paid the duties at the custom-house and bonded warehouse, and the balance he paid in money. The wine was levied upon by defendant, as sheriff of the city and county of New York, under and by virtue of an execution against said Lingenfelder and another. Further facts appear in the opinion. The court on trial directed the jury to find for plaintiff, submitting to them simply the value of the property ; to which defendant duly expected. Defendant's council requested the court to submit to the jury the question of fraud. The court refused so to do and defendant excepted. The jury found for plaintiff as directed. A motion was made by de- fendant for a new trial upon the judge's minutes, which was denied. J. S. Smith, for the appellant. Ira D. Warren, for the respondent. CHURCH, C. J. The only question in the case is whether the trial judge erred in refusing to submit to the jury the question whether the sale of the wine to the plaintiff was fraudulent as against creditors. With the exception of the fact that the plaintiff purchased the wine at a little less than one-half its actual value, as found by the jury, there is no substantial evidence tending to impeach his title, and it is well settled that mere inadequacy of pricejs not sufficient. 1 The plaintiff 1 Clark v. Krause, 2 Mack. (D. C.) 559 ; Klemm v. Bishop, 56 111. App. 613 ; Ma- thews v. Reinhardt, 149 111. 635 ; Cagney v. Cuson, 77 Ind. 494 (con/I Hubbs v. Ban- croft, 4 Ind. 388) ; Talbot v. Hooser, 12 Bush. 408 ; Montgomery v. Wilson, 31 La. Ann. 53; Foster v. Pugh, 20 Miss. 416; Briant v. Jackson, 99 Mo. 585; Knoop v. Kelsey, 121 Mo. 642; Goddard v. Weil, 165 Pa. 419; McPherson v. McPherson, 21 S. C. 261 ; Moore v. Lowery, 27 Tex. 541 ; Agricultural Assoc. v. Brewster, 51 Tex. 257 ; Bierne v. Ray, 37 W. Va. 570; Wood v. Harmison, 41 W. Va. 376, ace. In most of these cases, however, there is stated some such qualifications as " unless the inadequacy is gross," or " unless the price is so manifestly inadequate as to shock the moral sense." On the other hand it is laid down by some courts that if a conveyance is made by one who is in debt, inadequacy of consideration is evidence, though not conclusive, of fraud. Borland v. Mayo, 8 Ala. 104; Beebe v. DeBaun, 8 Ark. 510; Galbreath v. Cook, 30 Ark. 41 7 ; Washband v. Washband, 27 Conn. 424 ; Gainer v. Russ, 20 Fla. 157 ; Dodson v. Cooper, 50 Kan. 680. See also Hudgins v. Kemp, 20 How. 45 ; Tyson v. Southern Cotton Oil Co., 181 Ala. 256; Flood v. Bollmeier, (la.) 138 N. W. Rep. 1102; Hull v. Deering, 80 Md. 424; Carson v. Hawley, 82 Minn. 204; Scoggin v. Schloath, 15 Ore. 380; Monessen Bank v. Lichtenstein, 207 Pa. 187; Fisher v. Shel- ver, 53 Wis. 49 SECT. I.] JAEGER V. KELLEY. 143 was engaged in the business ; he paid in cash the agreed price and took immediate possession of the property. There is no evidence that he had any knowledge of the pecuniary circumstances of Lingenfelder, or that the latter owed any other than the debt which the plaintiff paid as a part consideration for the wine. Nor is the vendor's fraudulent in- tent sufficient. The vendee must be also implicated, and I can find no fact proved in the case, aside from inadequacy of price, which tends to impeach his good faith. It is urged that he prevaricated in his testi- mony. This cannot be affirmed as to the substantial facts, the pur- chase, payment of the consideration and taking possession ; and the discrepancies as to minor details are not important. It is said that Eistel, the broker, who negotiated the sale, was a suspicious character, because the evidence tends to j?how_jjiat his real name was Isaacs.; but what influence this should have upon the purchase I am unable to see. It is also said that Eistel acted in the transaction both for vendor and vendee, and that each is chargeable with his knowledge. If this were so, there is not the slightest evidence that Eistel knew an} r facts which would impeach the sale ; but the evidence is that the plaintiff made the bargain for himself. Eistel solicited the plaintiff to buy, and if he was an agent at all, it was for the vendor ; and the assistance he rendered the plaintiff in procuring a cellar in which to store the wine does not change it. To invalidate a sale, tangible facts must be proved, from which a legitimate inference of a fraudulent intent can be drawn. It is not enough to create a suspicion of wrong, nor should a jury be per- mitted to guess at the truth. If the transaction was different from what the plaintiff proved, it was incumbent on defendant to show it. Giving every circumstance urged by defendant's counsel its utmost significance, the most that can be said is, that there was a slight evi- . dence justifying a suspicion that the plaintiff was not a bona Jidejmr~J^*^ c chaser, but this would not justify this court in reversing the judgments The value of the wine may have been exaggerated at the trial, but the defendant offered no evidence upon the subject, and he must, therefore, take the consequences of the plaintiff's estimate. He may have sup- posed that if the value was reduced, the force of the circumstance of the inadequacy of price would be lessened, and, with that out of the case, he would have no foothold. The wine was sold by the sheriff at public auction at a less price than the plaintiff paid, and there is more reason to doubt whether the price paid was in fact inadequate than that it was purchased in bad faith ; but the jury have settled the question, and the defendant cannot now complain. The deduction made at the General Term was for the benefit of the defendant, and was based upon the idea that the jury had made a mis- take in estimating the whole value at two dollars a gallon, the price proved. The cases cited are not analogous. The judgment must be affirmed. ALLEN, GROVER and FOLGER, JJ., concur. PECKHAM, ANDREWS and RAPALLO, J.J., dissent. Judgment affirmed. 144 BALDWIN V. SHORT. [CHAP, iv BALDWIN v. SHORT. NEW YORK COURT OF APPEALS, JANUARY 27-FEBRUARy 24, 1891. [Reported in 125 New York, 553.] APPEAL from judgment of the General Term of the Supreme Court in the fourth judicial department, entered upon an order made December 7, 1889, which affirmed a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term. This action was brought by plaintiff, as assignee for the benefit of creditors of the firm of Dow, Short & Co., to set aside a deed executed by the defendant Orinda B. Sperry, a member of said firm, to the de- fendant Fannie M. Short, as fraudulent and void as against creditors. Zsouis Marshall, for appellants. Martin A. Knapp and Charles G. Baldwin, for respondent. FINCH, J. The findings of fact in this case establish that the con- Pveyance of the house and lot to Mrs. Short by Mrs. Sperry was made and accepted with an intent on the part of both grantee and grantor to hinder, delay, and defraud the creditors of the latter. The conveyance was not voluntary, for it was made in part in consideration of a debt of about $8,000, which the findings show was an honest debt, and justly due to the grantee from the grantor. The conclusion of a fraudulent intent on the part of Mrs. Short was, tlierefore^ssentjal-tQ-a_rggoytiry> and was established by proof that the balance of the consideration for the transfer was made up of a false and pretended debt for board and washing, which was wholly fictitious and never in rfocjfci^xisted, and which both parties to the transaction falsely cop^o^-ftn jo make up a, full andjair consideration for the conveyance. The existence or the falsityof that indebtedness was, therefore, an essential and vital ele- ment in the controversy, and the appellants claim that, in the effort to show it to have been a fabrication, evidence was admitted against Mrs. Short of declarations made by Mrs. Speny at a period preceding the conveyance, which bore directl}' upon the validity of the disputed debt, and were inadmissible as against Mrs. Short. Mrs. Parker, a witness for the plaintiff, was permitted to testify that just prior to the assignment she had a conversation with Mrs. Sperry in the absence of Mrs. Short, in the course of which Mrs. Sperry said : " I think I shall sell this house ; it costs so much to keep it up just for Mary's and my board." The defendants had asserted that such board was an honest debt due to Mrs. Short from her mother, and the plaintiff, that it was paid and extinguished as it accrued by the rent of the house, and that by agreement the board was to be furnished in exchange for the rent which would otherwise have been due from Mrs. Short on account of her occupation. The declaration sworn to by Mrs. Parker tended to show the truth of plaintiff's contention, but was made in the absence of Mrs. Short, constituted no part of the res gestce, and SECT. I.] BALDWIN V. SHORT. 145 was inadmissible as against the grantee, in whose behalf the objection was made. But it is a conclusive answer to this allegation of error that .Mrs. Short herself, when examined as a witness, admitted all and more than what the objectionable evidence tended to prove. She acknowl- edged that during her occupation of the house her mother paid all the taxes and insurance, and almost all the charges for repairs, and further testified : " I don't remember saying to Mrs. Sherwood that I boarded my mother and Mary for the rent of the house, did their washing: that while I thought a great deal of my sister, I thought it was hard I should pay the rent and that my sister should receive it : I would not Bay I didn't : I don't remember : I don't know when I said it : that was the arrangement under which I was in the house." She said again, at a later period of her examination : " I had loaned my mother this money: I boarded her and my sister, and did their washing for this house ; for the rent of the house ; . . . I was not to pay an}' rent only in that way ; only to board them in that way and do their washing, that was to pay my rent, and that arrangement continued down to the time I received my deed." Of course, these admissions made the declarations to Mrs. Parker wholly superfluous and immaterial. Mrs. Parker was also permitted to narrate other declarations of Mrs. Sperry made prior to the conveyance under objection. These were, in substance, that it was preposterous to suggest that she should make presents to her daughters because they took care of her when she was sick ; that the}' only did their duty. In answer to the objection inter- posed in behalf of Mrs. Short the court held the declarations not com- petent, but, to accommodate the witness, allowed them to be detailed, conditioned upon their being stricken out if not made competent. In the further progress of the trial both Mrs. Short and Mrs. Sperry test- fled to the transfer to the former by the latter of some " ranch stock* a few months before the assignment, and added that it was done as remu- neration for the services rendered during Mrs. Sperry's sickness. The declarations sworn to by the witness tended to show that the mother did not regard the services of her daughters during her illness as con- stituting a debt which she was in any manner bound to repay, and that is the sole element of value in the proof. But exactly that Mrs. Short herself finsflly admitted. She said expressly that for her services in the illness referred to she neither nsked nor expected any pay ; that the transfer of the ranch stock was a present ; that it was given to her, and so constituted a gift rather than a purchase. If it be still suggested that the declaration proved showed an existing unwillingness to make her a present, the fact was both immaterial and harmless, for the admitted delay of at least eight years shows the same thing much more forcibly and leaves no doubt about the suggested lack of inclination. But another class of evidence was received under objection. The plaintiff proved several instances of transfers of property by Mrs. . L/ ^+~ Sperry to persons other than Mrs. Short prior to the conveyance to the latter, and it was objected, in her behalf, that she could not be affected 146 BALDWIN V. SHORT. [CHAP. IV. by transactions to which she was not a party and of which she had no knowledge. But the plaintiff was bound to prove the fraudulent intent of Mrs. Sperry, both as against herself and as against Mrs. Short, arid as against the latter by evidence competent as against her. The acts and transfers of Mrs. Sperry pertinent to the question of her~intenT were admissible against Dotn to establish that intent, and are not to be" excludedTbecause they do not also bear upon the intent of Mrs. Short. It is not necessary tuat tue same tact offered in ^evidence should tencT to establish both intents. If it proved Mrs. Sperry's alone, but was a kind of evidence competent against Mrs. Short, no error would follow its admission. It would tend to prove one branch 6f the issue, leaving the other to be met in some different way. There are some other objections to evidence, but of so little importance as not to justify discussion. They related principally to the declarations of Mrs. Sperry on the day of the assignment and conveyance and pend- ing the preparation of those instruments, and were either within the res gestce, or wholly immaterial in view of the ultimate course of the trial. The contention that the conveyance to Mrs. Short may be sustained to the extent of the adequate and honest part of the consideration, is fully answered by authorities which hold that where the deed is fraudu- jent against creditors jl _itjs_whollv void and cannot stand_tp an}- extent as security or indemnity. "Boyd v. Dunlap, 1 Johns. Ch. 478 ; Dewe}^ v. Mover, 72 N. Y. 70 ; Billings v. Russell, 101 N. Y. 228. A different rule would put a premium upon fraud. 1 Almost invariably some honest 1 Bean v. Smith, 2 Mason, 252 ; Borland v. Walker, 7 Ala. 269 ; Millington v. Hill, 47 Ark. 301 ; Beidler v. Crane, 135 111. 92 ; Head v. Harding, 166 111. 353; Seivers u. Dickover, 101 Ind. 495 ; Burch v. Hart, 138 Ind. 1 ; Chapman v. Ransom, 44 la. 377 ; Liddle v. Allen, 90 la. 738; Holland v. Cruft, 20 Pick. 321; Thompson v. Bickford, 19 Minn. 17, 23 ; Byrnes v. Volz, 53 Minn. 110 ; McLean v. Letchford, 60 Miss. 169 ; Allen v. Berry, 50 Mo. 90 ; Sands r. Codwise, 4 Johns. 536; Conde v. Hall, 92 Hun, 335; Alley v. Connell, 3 Head, 582; Shepherd v. Woodfolk, 10 Lea, 593,598; Henderson v. Hunton, 26 Gratt. 926, 933; Webb v. Ingham, 29 W. Va. 389; Ferguson v. Hill- man, 55 Wis. 181 ; Bank of Commerce v. Fowler, 93 Wis. 241, ace. See also Clem- ents v. Moore, 6 Wall. 299 ; Re Lansaw, 118 Fed. 365. In Louisiana, a fraudulent grantee is entitled to restitution of the consideration paid by him if he proves that it inured to the benefit of the creditors. Chaffe v. Gill, 43 La. Ann. 1054. See also Barrow v. Bailey, 5 Fla. 9; How v. Camp, Walk. Ch. ( Mich.) 427. If the conveyance is only constructively fraudulent, or if the grantee has not been a participant in any actual fraud, he is entitled in equity, at least, to reimbursement. Bean v. Smith, 2 Mason, 252; Gordon v. Tweedy, 71 Ala. 202; Lobstein v. Lehn, 120 111. 555; Wood v. Goff's Curator, 7 Bush, 63; Gardner Bank v. Wheaton. 8 Greenl. 373; Hinkle v. Wilson, 53 Md. 287 ; Cone v. Cross, 72 Md. 102; Lynde v. McGregor, 13 Allen, 182; Thomas v. Seals, 154 Mass. 51 ; Thompson v. Bickford, 19 Minn. 17; Borden v. Doughty, 42 N. J. Eq. 314; Colgan v. Jones, 44 N. J. Eq. 274; Boyd v. Dunlap, 1 Johns. Ch. 478; Brown v. Chubb, 135 N. Y. 174; Oliver v. Moore, 26 Ohio St. 298; McMeekin v. Edmonds, 1 Hill's Ch. (S. C.) 288; Foster v. Foster, 56 Vt. 540 ; Henderson v. Hunton, 26 Gratt. 926 ; First Nat. Bank v. Bertschy, 52 Wis. 439. See also Taylor v. Atwood, 47 Conn. 498, 507 ; Skiles's Appeal, 110 Pa. 248 Barber v. Coit, 144 Fed. 381. In Loos v. Wilkinson, 113 N. Y. 485, and How v. Camp, Walk. Ch. (Mich.) 427, it SECT. I.] CROCKETT V. PHINNEY. 147 consideration is made the agency for floating a scheme of fraud against creditors, and if that may always be saved, nothing is lost by the effort and the temptation to venture it is increased. We are thus unable to find in the record any error which will justify a reversal. Indeed, since the ground of recovery against the defendants rests almost wholly upon the single fact of a false and fraudulent consideration, fabricated by the joint act of both grantor and grantee, and distinctly admitted by each to have been without an honest foundation, the questions of evi- dence raised can hardlj 7 be said to have affected the ultimate result. The judgment should be affirmed with costs. All concur, except RUGER, Ch. J., and ANDREWS, J., not voting. Judgment affirmed. CROCKE . PHINNEY. MINNESOTA SUPREME COURT, FEBRUARY 4, 1885. [Reported in 33 Minnesota, 157.] BERRY, J. This is an action in the nature of trespass or trover, for taking and converting certain lumber, of which plaintiffs claim to be owners by virtue of a sale and delivery thereof to them by its former owner, the firm of J. D. Campbell & Co. The defendants except Phinney, who, as sheriff, acted for his co-defendants, are creditors of J. D. Campbell & Co., and, as such, attached the lumber, upon the basis that, as to them, the sale to plaintiffs was fraudulent. There was competent evidence in the case sufficient to warrant the jury in finding that there was no fraud on the part of the plaintiffs in making the purchase, and that they paid $1,000 of the purchase price of the lumber in good faith, and before notice of any fraudulent intent in making the sale on the part of the firm of Campbell & Co. towards its creditors. For the remainder of the purchase price plaintiffs executed $% !/ their negotiable promissory note to Campbell & Co., paj'able in six * ot> $ months, and the evidence tends to show that this note was, by agree- tt^/^u ment between plaintiffs and Campbell & Co., left in the hands of a third person (Ball), by whom the money amount of an}' shortage in the estimated quantity of the lumber, when ascertained, was to be in- dorsed on the note, which was then to be handed over to Campbell & was held that a grantee, though actually fraudulent, was entitled to be credited with money paid for taxes and necessary repairs. See also Jackson c. Ludeling, 99 U. S. 513. Contra is Strike's Case, 1 Bland Ch. (Md.) 57, s. c. on appeal sub nom. Strike v. McDonald, 2 Har. & G. 191. When property subject to an encumbrance is transferred to a fraudulent prantee, who pays it the creditors can recover only the value of the encumbered property. Ladd v. Wiggin, 35 N. H. 421 ; Hamilton Nat. Bank v. Halsted, 134 N. Y. 520. See also Re Chase, 133 Fed. 79; Leqve v. Stoppel, 64 Minn. 74. 148 CROCKETT V. PHINNEY. [CHAP. IV. Co. The evidence > further tended to show that at the time of the attachments, and of notice to plaintiffs of the alleged fraudulent intent of Campbell & Co. in making the sale, the note was still in Ball's hands, under the agreement mentioned, and that subsequently the in- dorsement of shortage was made thereon, and the note delivered to Campbell & Co., by whom it was put into Ball's hands as security for some indebtedness of Campbell & Co. to him, and to a firm of which he was a member, and in this way Ball held the note at the time of the trial of this action. In this state of facts the defendants contend that the' plaintiffs recovery should at least be limited to the amount which they had paid upon their purchase of the lumber, at the time when they had notice of the fraudulent intent of Campbell & Co. in making the sale. In certain circumstances, equity affords relief analogous to that which defendants thus seek in this instance ; as, for example, in con- tests as to title to real estate between a subsequent purchaser and per- sons having prior equitable rights, such as a prior purchaser whose deed or contract is unrecorded, of whose right the subsequent pur- chaser had no notice at the time of his purchase ; also, in like contests between an honest purchaser and creditors of his vendor, who claim that the sale was fraudulent as to them, and who seek to avail them- selves of their equitable lien, as creditors, upon their debtor's property. In instances like these, where the whole purchase-money has not been paid, in fact, or by the giving by the purchaser of an irrevocable obli- gation for its payment, equity will sometimes, as respects the prior purchaser or creditor, as the case may be, treat the sale as fraudulent and void by setting it aside, or otherwise, but at the same time will place the honest purchaser in statit quo, by restoring to him whatever he has paid upon his purchase, and otherwise reinstating him in his position before his purchase. Clements v. Moore, 6 Wall. 299 ; Lewis v. Phillips, 17 Ind. 108 ; Hardin y. Harrington, 11 Bush, 367 ; Tomp- kins v. Sprout, 55 Cal. 31 ; 2 Pom. Eq. Jur. 745-751'; Wait, Fraud. Conv. 192, 193. But, so far as we discover, this relief is afforded in equitable pro- ceedings only, and only in regard to real estate. 1 But we think the 1 The doctrine is applicable to personal property. In some form of procedure a party entitled under a constructive trust to personal property may enforce the trust against a purchaser who has paid part of the price only before notice, either treating the purchaser as if a mortgagee for the price paid before notice, or, less commonly, holding him liable for the balance of the price. Simmons v. Shelton, 112 Ala. 284, 291 ; Bush v. Collins, 35 Kan. 535 ; De Ford v. Orvis, 42 Kan. 302 ; Work v. Cover- dale, 47 Kan. 307 ; Riddell v. Munro, 49 Minn. 532 ; Dougherty v. Cooper, 77 Mo. 528; Sargent v. Eureka Co., 46 Hun, 19. The question is left open in Florence Co. . Ziegler, 58 Ala. 221, 225. See also Schloss v. Feltus, 96 Mich. 619. In Riddell v. Munro, 49 Minn. 532, the plaintiff had purchased a piano, the price being payable in instalments, from Louis Northcott, who had obtained title by a fraud- ulent sale from an embarrassed debtor, whose creditors had now levied on the prop- erty. The plaintiff brought action against the sheriff. The court say : " Plaintiff had paid but two instalments of five dollars each on the piano, and the question was SECT. I.] CROCKETT V. PHINNEY. 149 trial court properly held that in this action, whatever might be done in an equitable proceeding, the defendants could not avai} themselves of the equitable doctrine spoken of; for this is an action purely in the nature of the common-law action of trespass or trover. The issues are such, and such onty, as pertain to actions of those kinds. The vital issue the precise matter in dispute upon the allegations of the plead- ings is whether or not the sale by Campbell & Co. to the plaintiffs was wholly fraudulent and void as respected the defendants, as cred- itors of Campbell & Co., from the fact that it was made with the intent and purpose of defrauding such creditors, to the plaintiffs' knowledge. What, if any, equitable relief the defendants might be entitled to in case the sale was not thus fraudulent and void was altogether outside of the issues. If the plaintiffs had purchased the property in good faith, and with- out any knowledge or participation in any fraudulent intent of the vendor, and had paid for it in whole or in part, they had become legal owners of it even as against the vendor's creditors ; and in this action their ownership would entitle them to recover the value of the lumber seized by defendants. It may be possible that by setting up their equities in this action, or some other, and bringing in Bail and Campbell & Co., so as to protect plaintiffs against their outstanding negotiable note (Nicols v. Crittenden, 55 Ga. 497), and restore them to their status in quo, the defendants might obtain some such relief as they seek, although the lumber was personal propert\". But if any such equities could be asserted in such an action as this, they must be set up in the answer. Gen. St. 1878, c. 66, 96. But, as this action stood at the trial, it was a simple action at law, and its issues purely legal, as before stated. Wait, Fraud. Conv. 194. These are the only matters which we deem it necessary to discuss in this opinion, and the result is that the order denying a new trial i.s affirmed. also raised whether his recovery should not be limited, in any event, to the amount advanced by him before notice of the fraud. As against judgment creditors, his recovery would be so limited, provided he was not answerable over to Louis Northcott for the balance on the contract with him ; but this could not be determined, as against the latter, unless he was a party or was bound to take the burden of the litigation for breach of warranty of title. As this does not appear, we cannot hold the ruling of the court [allowing the value of the piano] wrong on the question of the damages." On the general question how far one who has innocently acquired title and paid part of the price is protected, see Ames Cas. Trusts, 288 note, Ames Cas. Bills and Notes, L 670, 676 and notes. 150 IN RE JOHNSON. GOLDEN V. GILLAM. [CHAP. IV, IN BE JOHNSON. GOLDEN v. GILLAM. IN THE CHANCERY DIVISION, DEOEMBEK 13-15, 1881. [Reported in 20 Chancery Division, 389.] THIS was an action to set aside a deed of gift as fraudulent and void under the statute 13 P^liz. c. 5. The deed of gift was dated the 12th of June, 1878, and witnessed that in consideration of the natural love and affection of Judith Johnson, widow, towards her daughters Alice and Amy, and of the covenants thereinafter contained, the said Judith Johnson granted a farmhouse and premises in Trunch, in the county of Norfolk, to Stephen Gillam and his heirs, as to one moiety to the use of her daughter Alice, and as to the other moiety to the use of her daughter Amy, and assigned the crops of the farm as to one moiety in trust for Alice, and as to the other moiety in trust for Amy. And Alice and Amy covenanted that they, or one of them, would " pay all the just debts incurred by the said Judith Johnson up to the date of the said indenture in connection with the working and management of the said farm," and would main- tain the said Judith Johnson during her life, providing her with a home, food, clothes, and medical or other attendance in such style or manner as she had been theretofore accustomed to. This deed of gift, which was executed by Judith Johnson and Alice Johnson, was a conveyance of all the property of Judith Johnson. The plaintiff was a creditor of Mrs. Johnson at the date of the deed for 120. This debt was not incurred by Mrs. Johnson, but by Wil- liam Johnson, her predecessor in the farm, and she had adopted it by giving a promissory note for the amount. - Evidence was offered that there were other creditors of Mrs. Johnson besides the plaintiff, who were not provided for by the deed, but the court held that none of these debts were proved to have been incurred for purposes unconnected with the farm. The state of the family of Judith Johnson when the deed was exe- cuted was as follows : Judith Johnson was the widow of William John- son, who had previously been the husband of her sister, and had had by her a famity of whom one son, James, was living. After his first wife's death William Johnson had gone through the ceremony of marriage with Judith Johnson, his deceased wife's sister, and had a family by her, of whom George, Arthur, Alice, and Anry were living. William Johnson had provided for his children, other than Alice and Amy, out of other property, and shortly before he died he granted the Trunch farm the subject of this litigation by deed of gift to Judith John- son, in consideration of her covenant "to pay all debts incurred by William Johnson in connection with the working and management of the farm, and all liabilities that he might incur for means of living, medical attendance, and expenses of a like nature." SECT. I.] IN EE JOHNSON. GOLDEN V. GILLAM. 151 George and James Johnson were living away from the farm, Arthur lived with his mother, Mrs. Johnson, till 1877, when he /left, and, Mrs. Johnson being then bedridden, the farm was carried on by Alice, the elder daughter, and Amy (who was an infant at the date of the deed), with the assistance of the defendant Gillam. Gillam made them ad- vances of money from time to time for the purchase of cattle and stock, and repaid himself out of the produce. The plaintiff claimed to set aside the deed to the defendant as fraudulent against himself and the other creditors of Mrs. Johnson. J". Pearson, Q. C., and Maidlow, for the plaintiff. W. W. Karslake, Q. C., and Hadley, for the defendant FRY, J., after stating the effect of the deed, said : It is clear that the consideration for the deed of the 12th of June, 1878, was in part meritorious and in part valuable. The question be- fore me is whether the deed is void against creditors under the statute of the 13 Eliz. c. 5. For the purpose of deciding this, it will be convenient and proper to refer to the material words of the statute, and I find these sufficiently stated in a passage of the judgment of Sir Thomas Plumer, when Vice- Chancellor, in Copis v. Middleton, 2 Madd. 410. He says (2 Madd. 427) : " The preamble of the act is, for the avoiding and abolishing of feigned, covinous, and fraudulent feoffments, as well of lands and tene- ments as of goods and chattels, devised and contrived of malice, fraud, covin, collusion, or guile, to the end, purpose, and intent to delay, hinder, or defraud creditors and others of their just and lawful actions, suits, debts, etc., not only to the let or hindrance of the due course and execution of law and justice, but also to the overthrow of all true and plain dealing . . . between man and man, without which no common- wealth or civil society can be maintained or continued. A conveyance, therefore (the Vice-Chancellor continues), to be affected by this act, must be shown to be feigned, covinous, and fraudulent, and made with an intent to delay, hinder, cr defraud creditors : but if this case were held to be within the statute, it would be the overthrow of all true and plain dealing and bargaining between man and man ; for, as a purchaser cannot know the circumstances of the vendor, it would prevent all deal- ing and bargaining between man and man, and counteract the object of the statute. The statute, in order to prevent this inconvenience, has by the 6th section provided that the act shall not extend to an}- con- veyance upon good consideration and bonafide to any person not hav- ing at the time of such conveyance any manner of notice or knowledge of such covin, fraud, or collusion. A conveyance, therefore, cannot be invalidated by this act if there has been a bona fide purchaser." In Thompson v. Webster, 4 Drew. 628, Vice-Chancellor Kindersley said (p. 632) with regard to the general principle of the act : u The principle now established is this : The language of the act being that any conveyance of property is void against creditors if it is made with intent to defeat, hinder, or delay creditors, the court is to decide in V 152 IN RE JOHNSON. GOLDEN V. GILLAM. [CHAP. IV. each particular case whether on all the circumstances it can come to the conclusion that the intention of the settlor in making the settlement was to defeat, hinder, or delay his creditors." It is obvious that the intent of the statute is not to provide equal dis- tribution of the estates of debtors among their creditors, there are other statutes which have that object ; nor is it the intent of this statute to prevent any honest dealing between one man and another, although the result of such dealing ma)' be to delay creditors. And cases have been cited accordingly where deeds of this nature have been held good, though the result of them has been that creditors have been not only de- layed but excluded. The effect on a deed of this sort of its being for good consideration is very great. It does not necessarily show that the deed may not be void under the statute, because in many cases good consideration has been proved, and yet the object of the deed has been to defeat and de- lay creditors ; such has been, therefore, for an unconscientious purpose, and the fact that there has been good consideration will not uphold the deed. But nevertheless it is a material ingredient in considering the case, and for very obvious reasons : the fact that there is valuable con- sideration shows at once that there may be purposes in the transaction r . -p other than the defeating or delaying of creditors, and renders the case, I/"'. ^/X therefore, of those who contest the deed more difficult. In the case of jfP Harman v. Richards, the Lord Justice Turner, then Vice-Chancellor, makes this observation, 10 Hare, 89: "It remains to be considered whether the settlement which was thus made for valuable consideration was also made bona fide, for a deed, though made for valuable con- sideration, may be affected by mala fides. But those who undertake to impeach for mala fides a deed which has been executed for valuable consideration, have, I think, a task of great difficulty to discharge." Lord Hatherley, when Vice-Chancellor, adopted the same view in the case of Holmes v. Penney, 3 K. & J. 90, which has been discussed be- fore me, and the same point was stated with even more force by Lord Justice Giffard in Freeman v. Pope, Law Rep. 5 Ch. 538. He said in that case (p. 544) : " I do not think that the Vice-Chancellor need have felt any difficulty about the case of Spirett v. Willows, 3 D. J. & S. 293, but he seems to have considered that in order to defeat a voluntary settlement there must be proof of an actual and express intent to defeat creditors. That, however, is not so. There is one class of cases, no doubt, in which an actual and express intent is necessary to be proved, that is in such cases as Holmes v. Penney, 3 K. & J. 90, and Lloyd v. Attwood, 3 De G. & J. 614, where the instruments sought to be set aside were founded on valuable consideration ; but where a settlement is voluntary, then the intent may be inferred in a variety of ways." I therefore proceed to inquire, looking to all the circumstances of the case and at the nature of the instrument itself, whether I can or ought to infer an intent to defraud creditors in the parties to the deed. I say in the parties to the deed, because it appears to me to be plain that SECT. I.] IN RE JOHNSON. GOLDEN V. GILLAM. 153 whatever fraudulent intent there may have been in the mind of Judith Johnson, it would not avoid the deed unless it was shown to have been concurred in by Alice, who became the purchaser under the deed. It has not been contended, and it could not be contended, that the mere fraudu- lentintent of the vendor could avoid the deed, if the purchaser were free from that fraud. [His Lordship then adverted to the provision which had been made before the date of the deed for the other children of Judith Johnson, and continued : ] Having regard to the condition of the family, the deed was a highly proper one ; the sons had left the home, and were provided for by the dispositions which their father had made of the residue of his property ; Mrs. Johnson was possessed of this farm and of nothing else ; the two single daughters living with her must have been objects of her anxiety and care ; she was bedridden and not likely to recover ; the farm was practically carried on by Alice. Thereupon this deed was executed with the obvious intention of making over to the daughters tljat farm which their mother hoped they would reside on after her decease, to avoid the heavy succession duty which would ensue if she allowed the farm to pass to them under her will, they not being legally her children, but strangers to her. The deed is, I observe, framed on the model of the previous deed, which had been executed by her husband on his death-bed. Now, it is important to inquire what was the indebtedness of Mrs. Johnson when she executed the deed. She appears to have had some current debts, mostly, if not entirely, in respect of the farming business. She owed a Mr. Simpson, a witness in the case, an account for saddlery, the whole of which (with possibly one unimportant exception) was due in respect of the carrying on of the farm. She owed her sister Sarah Oolden 80, and I cannot infer that that money was borrowed for any other purpose than carrying on the farm, because it is for the plaintiff to show that that was so, and he has had Sarah Golden in the box and has not asked her anything about it. The sum of 120 was owing from Judith Johnson to her brother William Golden, the plaintiff. That sum was borrowed by William Johnson, and when she became the owner of the farm she adopted the debt by executing a promissory note, and there was a mortgage debt upon the farm, which had also been a debt of William Johnson. It appears by the evidence that Mrs. Johnson was a person of good repute among her friends, as a respectable and honest woman, who paid her way, and was in no difficulty. Beyond what I have mentioned she does not appear to have owed anything except ordinary current debts, and was not pressed by a single creditor. That was the state of things when this instrument was executed. One other fact I must mention with regard to the state of the family, which is this : that litigation had been going on which led to some alienation of feel- ing between Mrs. Johnson and other members of the family, and which made it more natural that she should desire the whole of this farm to go 154 IN RE JOHNSON. GOLDEN V. GILLAM. [CHAP. IV. for the benefit of her two daughters. Mr. Gillam appears to have been the most natural person to select as trustee of the deed, if the purpose of the parties was honest and fair. From what I have seen of him. I do not believe he is a person who would have been a party to a deed which was intended to be kept secret, or to be entered into for the purpose of fraud. I think his selection as trustee is an indication of the good faith with which the transaction was conceived. With regard to what took place under the deed, it appears to me that there was neither concealment nor publication. Mrs. Johnson's name continued to be used as before with regard to the farm. The daughter continued to make the payments, and there was no material change in the way that things were carried on. The circumstances, looked at independently of the result of the deed, therefore led me to the conclusion that the intention of the parties was to make a perfectly honest family arrangement, under which the daugh- ters were to undertake the burden of paying their mother's debts, and in consideration of that, to take immediately that farm which in all proba- bility they would otherwise have received by will upon their mother's death. Then it is said, and said truly, that a person must generall}- be taken to intend the result of his acts. That is often, but by no means always, true, because, although no doubt the immediate and main result of our acts must be the object of our intention, there are many collateral re- sults of acts which are not only not objects of our intention, but against our wish. There are man}' unintentional results of intentional acts. The operation of the deed, it is said in this case, was to defeat and de- lay creditors, therefore it is said that that must have been intended. That argument has been presented in two wa}-s. In the first place it has been observed that the deed contained a provision onl}- for the pay- ment of creditors whose debts had been contracted in connection with canning on the farm : It is said that there must have been debts of other descriptions, and that there was in fact one debt at any rate of another description. But it does not appear to me to be shown that that debt was present to the mind of the settlor, Mrs. Johnson, or to the mind of her daughter ; and nothing is more probable, if I were to speculate upon the intention, than that Mrs. Johnson, having adopted the debt of Wil- liam Johnson, after a deed conceived in similar terms, would have an- ticipated that her daughters must in like manner adopt the debt of their uncle under this deed. It appears plain from the case of Holmes v. Penney, 3 K. & J. 90, that the mere fact of a h on a fide creditor being defeated is not of itself sufficient to set aside a deed founded on valua- ble consideration. In this case, if I uphold the deed, it seems probable that the plaintiff will have no remedy in respect of his debt. In that case, by upholding the deed, the plaintiff was excluded from all remedy in respect of his debt, and that debt must have been plainly present to the mind of the settlor, but the Vice-Chancellor thought that the only object of the brother, who was the purchaser of the estate, was to BBCT. I.] EGERY V. JOHNSON. 155 make an honest family arrangement with regard to it. So it appears to me, in the present case, that the object of the mother and daughters was to make an honest famih' settlement of the property. Then again it is said that with respect to man}' creditors who are in- cluded in the covenant, they are defeated and delayed, because before the execution of the deed they had a right against the property, and after the execution of the deed they would only have a right to the en- forcement of the covenant. But that is the result of almost any deal- ing. If I am indebted and sell my estate, my creditors lose their right of proceeding against the estate, and can only proceed against the pur- chase-money. 80 in a variety of cases visible chattels or real estate are converted into choses in action, and if creditors could complain of that it would, as Sir Thomas Plumer pointed out, " restrain honest dealings and transactions between man and man." There is only one other point on which I wish to observe, although it has not been put to me. It appears plain, that though valuable and good consideration was given by the daughters, that consideration can- not have been the full value of the estate. But it also appears to me to be plain that when a bonafide and honest instrument is executed for which valuable consideration is given, and the instrument is one be- tween relatives, the court cannot say that the difference between the real value of the estate and the consideration given is a badge of fraud, and if it is not a badge of fraud, or evidence of an intention to defeat creditors, it has no relation to the case. I have come, therefore, to the conclusion upon the whole of the case, that the instrument impeached was executed in good faith and for a valuable consideration, that it was an honest famih' arrangement, and was executed without any intention to defraud or delay creditors. That being so, I dismiss the action with costs. EGERY v. JOHNSON. SUPREME JUDICIAL COURT OP MAINE, 1879. [Reported in 70 Maine, 258.] BILL in equity heard on bill, answers and proof. The material allegations are in the opinion. The defendant Johnson's answer admitted the ownership of the prem- ises at the time alleged in the bill, and alleged : That during 1873 or 4, Nason Brothers were engaged in lumbering operations under a contract with the plaintiffs and on the latter's land, ami prior thereto borrowed $6,100 of the defendant to carry on their business and gave their notes therefor ; that on October 23, 1874, to enable Nason Brothers to complete their operations the defendant gave them his negotiable promissory note for $1,800 on one month; thai 156 EGERY V. JOHNSON. [CHAP. IV. Nason Brothers cut and ran down to their mill 1,800,000 lumber, nearly all of which was sawed and shipped to the plaintiffs in Bangor ; that during the operation this defendant was assured by Nason Brothers, that when plaintiffs disposed of the lumber his notes should be paid ; that he had frequent conversations with plaintiffs in which they informed him that they were receiving and disposing of the lumber and would account for the proceeds ; that" the}- held the $1.800 note and had no doubt that the proceeds of the lumber would be sufficient to pay said note and that the defendant would receive all his pay from Nason Brothers; that confiding in the above assurance, during season 1875 he was induced to build a house on the premises mentioned in the bill, at a cost of more than $1,000; that receiving nothing from Nason Brothers, he became indebted for materials and labor upon the house ; that being seventy-two years old and unable to labor, he was obliged to sell the house and land to the other defendant who paid sufficient money to discharge his indebtedness for labor and materials, amounting to $250 ; and in addition thereto agreed to support this defendant dur- ing life, which agreement he had faithfully fulfilled to the present date ; and that he had no intention to defraud any of his creditors. That all his creditors were soon after paid by himself or the other defendant, and he believed that the complainants had been fully paid or had in their hands sufficient property or money to pay the note of $1,800. The other defendant's answer was substantially the same alleging inter alia that one of the plaintiffs on October 29, 1875, informed him that the lumber was in this plaintiffs hands, and whatever was left after paying their bills would be held in trust for the benefit of the defendant, Johnson, and that he had no doubt that something would be left after all his bills and claims had been paid. The plaintiffs put in evidence a judgment for $549.50 debt, recovered on the $1,800 note, and a levy of the execution on the premises in question. Johnson testified that he supposed the $1,800 note was paid when he conveyed, and that was all the debt he owed except bills on the house, which were all paid b} T Keen. Albert A. Keen (defendant) testified in substance : That he had no knowledge of Johnson's indebttnent to the plaintiffs when he purchased the premises ; that he paid all the bills on the house, amounting to $260; that he heard of the $1,800 note three or four weeks afterward ; that the plaintiff Dennett told him that he had no doubt there would be lumber enough to pa}' them, and what was over he would hold for Johnson's account. That Johnson conveyed to him mortgages on three other houses and some box boards, that he would like to sell the propert}' mortgaged for the amount due on the mortgages ; that he had of Johnson a note against Brown & Smith for $500 which had not been paid, but war in suit. SECT. I.] EGERY V. JOHNSON. 157 Wilson & Wbodard, for the plaintiff. D. N. Mortland, for the defendants. VIRGIN, J. The complainants allege that on, and for some time prior to October 29, 1875, they were creditors of the defendant Johnson, who then owned certain real estate described, and which he then conveyed, without adequate consideration, to his grandson, the other defendant, to defraud and hinder the complainants ; that they recovered a judg- ment against the grantor and levied their execution upon the real estate so conveyed ; and the}* pray that the defendants shall release all their apparent title to the land levied upon to the complainants. Some objection is made to the form of the bill. What might have been the result had the defendants demurred, we need not now inquire. Both defendants deny in their respective answers any intention to defraud or delay creditors, and expressly testify to the same. And we feel so uncertain of an}' fraudulent intent in fact, that were such intent absolutely essential to the maintenance of the bill we should dismiss it But the answers inter alia respectively allege in substance That Johnson sold and conveyed to Keen the land in controversy together with the new house built thereon at a cost of one thousand dollars, for the sum of two hundred and sixty dollars and an agreement " to take Johnson to Keen's house and support and maintain him during the remainder of his life ; which he had faithfully done to the present time." And if this conveyance left the debtor insolvent, it was fraud in law. Creditors have an equitable interest in the property of their respec- tive debtors it being the foundation of trusting them which the law will, under certain circumstances, enforce. But the interests of a bona fide purchaser of a debtor's property are superior, " for the obvious reason," says SELDEN, J., " that the latter has not, like a mere general creditor, trusted to the personal responsibility of the debtor, but has paid the consideration upon the faith of the debtor's actual title to the specific property transferred." Seymour v. Wilson, 19 N. Y. 417. Hence the rights of a bona fide grantee, who has paid a full valuable consideration, are protected, though the grantor may have been actuated by a fraudulent intention. Still a grantee is not protected when he has not paid such a consider- ation, though he ma}' have acted in good faith. The two must concur. The amount of consideration is not material when the grantor is solvent, (Usher v. Hardtime, 5 Me. 471 ; Hapgood v. Fisher, 34 Me. 407) ; but when insolvent, the kind and amount of consideration do become material even in the absence of actual intent to defraud. Thus an agree- ment to support an insolvent grantor may be a valuable consideration, but it is not sufficient to uphold a conveyance as against prior creditors (Rollins v. Mooers, 25 Me. 192, 199), even if there were no actual intent to defraud. Webster v. Withcy, 25 Me. 326. Persons taking a conveyance from such a grantor for such a consideration must take care that the existing debts of the grantor are paid (Hapgood v. Fisher, 34 Me. 407) ; and it is immaterial that the consideration comprises 158 EGERY V. JOHNSON. [CHA.P. IT. a present sum of money paid in addition to the agreement for support, provided the mone}' alone were palpably inadequate. Sidensparker v. Sidensparker, 52 Me. 481. That Keen received a conveyance and transfer of all Johnson's re- maining property is evident. He not only received a deed of the land in question, but a transfer of two mortgages and a note. His counsel in his brief speaks of the land as the last bit of property that he (Johnson) had held in his hands,'' etc. ; and " that he (Keen) took a conveyance of his (Johnson's) property which was left," etc. Thus we see that the defendants are guilty of a constructive or legal fraud, which though not originating in an}' actual evil design to perpe- trate a positive fraud upon Johnson's creditors, yet is deemed reprehen- sible and is prohibited by the law since it is equally prejudicial to the creditor's interests. 1 Story's Eq. 258. We do not think the defendants' proposition in relation to estoppel is tenable. There is no evidence that the plaintiffs stood by and saw Johnson convey to Keen without objection. APPLETON, C. J., BARROWS, DANFOKTH, PETERS, and SYMONDS, JJ., concurred. Bill sustained ; decree as prayed for?- 1 For many cases in accord, see 14 Am. & Eng. Cyc. of Law (2d ed.), 246. But see Tibbals v. Jacobs, 31 Conn. 428. In Kelsey v. Kelley, 63 Vt. 41, 50, the court say : " This is a case in equity, in which the orator must do, as well as receive, equity. The master has not found that these transactions between the intestate and these defendants were tainted with fraud in fact, nor does the bill charge fraud in fact. If now, after the defendants have fully supported the-intestate and his wife, at an expense greater than the money received, the orator can compel a return of the money received sufficient to pay the creditors represented by the orator, these defendants are left with a debt of an equal amount, also provable against the estate represented by the orator. Why should the creditors represented by the orator receive payment more than the defendants ? The defendants have been guilty of no wrong in supporting their father and mother, nor was it any more a wrong for them to receive payment for such support than for the creditors represented by the orator to receive payment for their debts These creditors did nut know of the exist- ence of the property received by the defendants for the support, and did nothing on the strength of its existence. On the other hand the defendants knew of it, and fur- nished the support for it. If they had furnished the support before receiving payment therefor, and then received the same property which they did receive, no one would claim that the orator could recover the property back, to pay the creditors represented by him. If the creditors represented by the orator had intervened before the defend- ants had furnished the support, they would have had the better right to the property, and the defendants have sustained no damage Their intervention would have released the defendants from the contract to furnish further support. The consideration for this contract further to support would have been taken away. The defendants, until they had furnished the full support, were like a purchaser bonaji'le in every respect, except he had not fully paid the contract price of the property purchased, where he must be a bonafide purchaser for value, to be protected in his purchase ; if otherwise a bonafide purchaser, he is protected only to the extent he has paid value. But although he does not pay full value at the time of the purchase, if such payment is made in full, before he is made aware of the infirmity of his purchase, he is fully protected We think this principle applicable between the orator and these defendants, especially the wife, on the facts of this case. Conveyances of property to secure future sup- port, until the support is furnished, have the infirmity of voluntary conveyances, or SECT. I.J IN RE TETLEY. EX PARTE JEFFREY. 159 IN RE TETLEY. Ex PARTE JEFFREY. IN THE QUEEN'S BENCH DIVISION, JULY 20-23, 1896. [Reported in 66 Law Journal, Queen's Bench, 111.] MOTION by the trustee in bankruptcy of Maxwell Tetley for an ordei declaring that a post-nuptial settlement, dated October 30, 1894, made by the bankrupt was fraudulent and void as against the trustee, and that it might be set aside. In 1894 the bankrupt, who was then under age, and had recently married, was entitled absolutely under his father's will to a sum of 12,000 on attaining twenty-one, and also to one-twelfth share of his father's estate upon the death of his mother, Isabella Maxwell Tetley, who was then between sixt}' and seventy years of age. He was a young man of careless and extravagant habits, and had already during his minority incurred debts to a considerable amount. Under these circumstances he was advised, by his solicitor, to execute as soon as he attained his majority a settlement of his property for the benefit of himself, his wife, and any children that might be born of the marriage. With a view to ascertaining the best course to be adopted for carrying out the matter, a case on his behalf was submitted to counsel for his opinion. Counsel advised that a settlement in very stringent terms should be executed by the bankrupt directly he came of age, excluding only from the property settled a sum of 3,000 to be applied in pay- ment of his debts ; that although his life interest could not be made determinable on bankruptcy, it could be made to cease upon alienation whether voluntary or involuntary (not being bankruptcy), so that he would be able, if bankruptcy were impending, to create a charge on his life estate which would at once forfeit it, and the trusts inserted for the benefit of his wife and children would then take effect; that such a settlement would, of course, be liable to be attacked under the act of Elizabeth and the bankruptcy act. And he suggested that a member of the family should make some allowance " so as to render the settle- conveyances for which a full, valuable consideration is not paid at the time the con- veyance is made. It is well settled that supineness of a creditor to attack and have such conveyances set aside may defeat his right. Kigleberger v. Kihler, 1 Hill (S. 0.), Ch. 113 (26 Am. Dec. 192). Such conveyances may be validated by ex post facto acts. Verplanck v. Sterry, 12 Johns. 536 (7 Am. Dec. 348). " While these cases are not analogous in their facts to the facts in the case at bar, we think this case is controlled by the same equitable principles. When this suit was brought, in principle, the defendants stood related to the money received for the support of the intestate and wife, in equity, just as they would if they had first furnished the support, and then received the money in payment therefor. The in- testate then might well prefer them, in making payment of his debts, to the cred- itors represented by the orator." Smith v. Pierce" 65 Vt. 200; Darling v. Ricker, 68 Vt. 471; Hisle v. Rndasill, 89 Va. 519, ace. See also Nichols ;;. Burch, 128 Ind. 324 ; Walker v. Cady, 106 Micb 91, 26; Reynolds, Admrs. v. Gawthrop's Heirs, 37 W. Va. 3. 11. 160 IN RE TETLEY. EX PAKTE JEFFREY. [CHAP. IV. ment one for valuable consideration within the principle of Hance u. Harding, 20 Q. B. D. 732." This opinion was shown to the bankrupt's family and their solicitors, and it was eventually arranged that the bankrupt's mother should agree to pa}' him 50 a }'ear until her death, and that the bankrupt's brother, C. F. Tetley, should advance him 25 a year, to be repaid with compound interest at the rate of four per cent on the death of the mother. The settlement was accordingly so framed, and was duly executed by the bankrupt immediately on his attaining twenty-one, on October 30, 1894. At the date of the execution of the settlement the bankrupt was solvent. In pursuance of. the provisions in the deed, Mrs. Tetle}- and C. F. Tetle}* had duty paid the annuities of 50 and 25 covenanted to be paid by them to the trustees of the settlement. In May, 1895, the bankrupt charged his life interest under the settle- ment in favor of a creditor, and thereafter the trustee had applied the income thereof for the benefit of the bankrupt's wife. On September 21, 1895, a receiving order was made against the bank- rupt, and on November 8, 1895, he was adjudicated a bankrupt. The only assets of the bankrupt were the property comprised in the settlement. VAUGHAN WILLIAMS, J., referred to the notice of motion and con- tinued : The settlement was impeached on two grounds, first, as being void under section 47 of the bankruptcy act, 1883, 1 as not being a settlement for valuable consideration, made in good faith ; and, sec- ondly, as being fraudulent under the statute of Elizabeth, and made to defeat and delay creditors. The real question I have to decide is, in both aspects, whether the settlement was made in good faith, or made to defeat and delay cred- itors. There is no doubt the settlement was made for valuable consid- 1 47. (1) Any settlement of property not being a settlement made before and in consideration of marriage, or made in favor of a purchaser or incumbrances in good faith, and for valuable consideration, or a settlement made on or for the wife or chil- dren of the settlor of property which has accrued to the settlor after marriage by right of his wife, shall, if the settlor becomes bankrupt within two years after the date of the settlement, be void against the trustee in the bankruptcy, and shall, if the set- tlor becomes bankrupt at any subsequent time within ten years of the date of the settlement, be void against the trustee in the bankruptcy, unless the parties claiming under the settlement can prove that the settlor was at the time of making the settle- ment able to pay all his debts without the aid of the property comprised in the settle- ment, and that the interest of the settlor in such property had passed to the trustee of snch settlement on the execution thereof. (2) Any covenant or contract made in consideration of marriage, for the future settlement on or for the settlor's wife or children of any money or property wherein he had not at the date of his marriage any estate or interest, whether vested or con- tingent in possession or remainder, and not being money or property of or in right of his wife, shall, on his becoming bankrupt before the property or money has been actually transferred or paid pursuant to the contract or covenant, be void against the trustee in the bankruptcy. (3) " Settlement " shall, for the purpose of this section, include any conveyance ox transfer of property. SECT. I.] IN RE TETLEY. EX PARTE JEFFREY. 161 eration. In my opinion, the 50 a year which was to be provided by the mother is not a mere colorable or fictitious consideration, but a real valuable consideration. With regard to the 25 a year which was to be provided by the brother, I need not decide whether that would be a good consideration to constitute a valuable consideration within the meaning of section 47 ; but I can only say that in looking through the cases on the statute of Elizabeth, I find more than one case in which the making of a loan by some member of the family has been held to be a sufficient consideration to prevent the settlement being a voluntary settlement ; and I am disposed, therefore, to think that in considering whether or not there was a substantial consideration here, a suffi- cient consideration to make a valuable consideration within the mean- ing of section 47 of the bankruptcy act, 1883, one ought to take into consideration not only the 50 a }'ear, but also the 25 a year. But be that how it may, I should myself have found the 50 a year alone was a sufficient consideration, and therefore it is not necessary to de- cide the other matter. But then it is argued that the settlement was not made in good faith, and several suggestions are made in support of this contention. First, it is said that the young man was of extrava- gant habits, and likely to get into debt, and therefore the settlement must have been made with the intention of defeating or delaying the future creditors whom it might be anticipated the extravagant habits of the young man would necessarily create. I do not think this argu- ment good. One object of even 1 marriage settlement, whether ante- nuptial or post-nuptial, is to preserve the property settled on the wife, or the wife and children as the case ma} T be, and to deprive the settlor, the husband, of the power of dealing with the property inconsistently with the settlement, even if he should be so minded, and to leave the property subject to be appropriated to the payment of the husband's debts would be to defeat this necessary and essential object. To say that a post-nuptial settlement made by a husband for valuable consid- eration is void against creditors if made with this object, is to say that all post-nuptial settlements are bad. This could not be argued ; so counsel for the trustee in bankruptcy contended that a settlement was void in cases where the husband was known by the purchaser from whom the valuable consideration passed to be of extravagant habits. I cannot accede to that argument. I never knew a settlement for valu- able consideration being held void or fraudulent under the bankruptcy statutes, or under the statute of Elizabeth, on this ground. On the contrary, in Thompson v. Webster, 4 De G. & J. 600, a settlement for valuable consideration the consideration being a loan to the settlor by his mother was held not void within the statute of Elizabeth, although the settlor was given to debt and prone to suretyship, and that to the knowledge of his mother. And again in Holmes v. Penney, 3 K. & J. 90, it is stated that the husband was a man of extravagant habits to the knowledge of his father, the purchaser. I think that this suggestion that the knowledge that the husband is of extravagant 162 IN RE TETLEY. EX PARTE JEFFREY. [CHAP. IV. habits, and the desire of the family to protect the property against, amongst other things, those extravagant habits, makes the settlement void, fails. Secondly, it is said that the fact, if fact it be, that the suggestion of a valuable consideration came from the solicitor to the settlor, and not from the purchaser giving the consideration, shows that the settlement was not made in good faith. Here, again, I cannot agree. This was the fact in Ex parte Eyre, 44 L. T. 922, I mean the suggestion of the settlement came from the solicitor for the husband. More than that, the reason of the suggestion being by the solicitor for the husband above everything was in that case the extravagant habits of the hus- band. It is true that in that case his intemperate habits were added to his extravagant habits, but I do not think that makes any difference. Thirdly, it is said that if the settlement is a settlement for valuable consideration, and not otherwise impeachable, it is nevertheless im- peachable because it was not made in good faith, but with the intention to defeat and delay creditors ; and in support of this contention coun- sel for the trustee relied on a passage in an opinion of counsel, which opinion was shown to the purchasers and their solicitors. Now I wish to point out that counsel, when he makes the suggestion about the debtor being able if bankruptcy were impending to create a charge, is not dealing with the actual settlement that was executed, but a purely voluntary settlement, and it is with reference to that that he makes the suggestion that the husband might take this step, no doubt for the purpose of defeating and dela}'ing creditors. Now this objection seems to me to be much more formidable than any of the other objections. No doubt this is a case in which, there being value given for the settle- ment, there must be evidence of an actual or express intent to defeat and delay creditors before one can find the settlement void. I sa}- that in distinction to the case of a voluntary settlement where it is not necessary that there should be any such evidence. It is only necessary that the facts should be such that the settlement has a necessary tend- ency to defeat and delay creditors. In the case of a voluntary settle- ment, however honestly the settlor may execute it, however little he may be thinking of his creditors at the time he executes it, however free he may be from any desire to defeat or delay his creditors, the settlement, if voluntary, Is void as against creditors if its necessary tendency is to defeat and delay them. As I have said in the case of a settlement for valuable consideration, that is not so. You must prove the actual intention to defeat and delay creditors. But if this intent is proved, I take it that the whole settlement is void, and not merely the trust with regard to the life interest. Now, in form, the trust in the present case giving the husband the life estate with a gift over, in case of alienation, is, in a settlement for valuable consideration, unobjection- able. See Detmold v. Detmold, 40 Ch. D. 585. Counsel for the trustee in bankruptcy spoke of it as the "so-called authority of Detmold v. Detmold." I do not know why he said that. It is a decision of Mr. SECT. I.] IN RE TETLEY. EX PARTE JEFFREY. 163 Justice North, and he seems to have dealt with the very point ; and I observe that in Mackintosh v. Pogose [1895], 1 Ch. 5Q5, which is the latest authority upon the subject, Mr. Justice Stirling refers to Detmold v. Detmold as a binding authority, stating the law. Detmold v. Det- mold decides that a settlement for valuable consideration in that form is unobjectionable. At all events, effect was given to the settlement, notwithstanding that subsequently to the alienation which divested the husband's estate the husband was made bankrupt. But it would seem that a clause giving the settlor a life interest until bankruptcy is void against creditors. The decision of Mr. Justice Stirling in Mackintosh v. Pogose is an authority for this proposition. I gather from his judg- ment that it was an open question down to that decision, although Lord Cairns, in the House of Lords, had, prior to that, expressed an opinion that even in a settlement for valuable consideration such a proviso for determination of the settlor's estate would be void. I have not to de- cide that ; I have only to decide whether the settlement in the form that it took in this case can be sustained. It seems to me that it can. But to come back to the only question that I now really have to decide, which is, whether there is such evidence that I ought to find that this settlement for valuable consideration was in fact executed to defeat and delay creditors. It seems to me that apart from the passages I have just read from the opinion of counsel, there is no evidence of any intention to defeat and delay creditors. So far as the existing creditors were concerned, I am of opinion that the fact that the purchasers *Hat is to say, the family, who were advised by a highly respectable firm of solicitors were careful to inquire as to what debts contracted in infancy by the settlor there were which he could be sued for, or which properly ought to be paid, and the fact that 3,000 was left out of the settlement for the express purpose of paying those debts, are matters going to negative the suggestion that the family, the purchasers here, had any intention to defeat and delay creditors. It is quite true that I gather from the evidence of Burt, the trustee, that in fact there are considerable amounts something over 1,000 of debts for necessaries which are unpaid ; but I do not think that that fact can affect the purchasers here, unless they intended the money should not be applied in payment of those just debts, or were utterly careless whether it was paid or not. I do not think that that is so here. I think that they did wish that all this young man's debts should be paid, and that he, having married, they hoped that he might take a more serious view of life, and would try, for the sake of his wife, to live within his income. Counsel for the trustee in bankruptcy urged that all that was necessary here was to show that there was a want of good faith on the part of the bankrupt. I do not see that that is established here, but I utterly dissent from the proposition. It seems to me that it is perfectly plain, not only from the case of Mackintosh v. Pogose, but many other cases, that the good faith to be looked at is the good faith of the purchaser, and not the good faith of the settlor. I put it 164 IN RE TETLEY. EX PARTE JEFFREY. [CHAP. IV. to myself: Am I, with this evidence before me of the wish and inten- tion of these people that the just debts of this } r oung man should be satisfied, and that a sufficient sum should be left outside the settlement and appropriated to that purpose, to find that there was a dishonest in- tention merely because the opinion of counsel with regard to a voluntary settlement was such as I have read ? I think not. Then with regard to the settlement itself, it was strenuously argued that the settlement by its form was such as to show that the real intention was to leave the property in the control of the husband unless and until he should become bankrupt. Something was said about the trust being revocable with the consent of the trustees, but I did not understand that part of the case to be seriously pressed. I have read through the settlement, and although it does seem to me a settlement which has given as much control as possible to a husband in a marriage settlement which is in- tended to be effective, yet I am not prepared to say that there is any- thing in the form of the settlement which ought to make me hold it void as against creditors. In conclusion, I can only say that, holding as I do that this is a settlement for valuable consideration, I am not prepared to hold it void as not being executed in good faith. On the contrary, I think the case really comes within the statement in the two passages from the judgments of Lord Esher and Sir James Hannen in Hance v. Harding, 20 Q. B. D. 732, to which I will refer. Lord Esher says : "It appears to me, on consideration of all the circumstances, that the motive of both of the parties to this settlement had no regard to the son's being pressed b}* his creditors, or to an}- tangible probability that the son would become insolvent or bankrupt, but had regard to another matter altogether, namely, to the fact that the son had be- come involved in an unfortunate connection and had contracted intem- perate habits," matters that might be likely to lead to extravagance. Then Sir James Hannen sa3'S : " I think the evidence entirety supports the conclusion of the learned judge in the court below, namety, that the transaction was entered into by all parties with perfect bona fides, and had nothing to do with an}" intention to defeat the son's creditors, but was dictated by prudential motives having reference to the necessity for protecting his family, which had arisen out of his conduct with some woman with whom he had become connected." I think, therefore, in this case the settlement had really nothing to do with defeating and delaying creditors, and that the object was realty to comply with the necessity that had arisen, now that this young man had married, of protecting some property for his wife. That could not be done by a voluntary settlement, and the family came forward and provided this money which enabled it to be done. The only other observation I would make is to say that I have not forgotten or failed to look at the cases of Freeman v. Pope, L. R. 5 Ch. 538, and Mackay v. Douglas, L. R. 14 Eq. 106, in which it was held that, where a man who nowadays settled his prop- erty in contemplation of entering upon a hazardous trade, that was a settlement made for the purpose of defeating and dela}'ing creditors, SECT. I.] STKATTON V. PUTNEY. 165 although there might be no creditor in existence at the time when the settlement was sought to be voided who was a creditor at the date when the settlement was made. But I do not think that the mere facf that a man is of extravagant habits at all brings the case within Free- man v. Pope, or creates any tangible probability that the man may become insolvent. Under these circumstances I must uphold this set- tlement, and the application of the trustee must be dismissed. With regard to the costs, I think, as pointed out by Lord Justice Turner in Thompson v. Webster, 4 De G. & J. 600, that where a settlement is made under circumstances which make it right for the trustee in bank- ruptcy to investigate the transaction, costs ought not to be given against him. There will, therefore, be no order as to costs. 1 STRATTON v. PUTNEY, fc NEW HAMPSHIRE SUPREME COURT, DECEMBER, 1885. t>*j> o [Reported in 63 New Hampshire, 577.] 'iVf^V^A Ikr THE two cases are bills in equity to remove a cloud from the title to " land in Antrim. Facts found by the court: July 7, 1882, the defend- ant Putney, being the owner of the land in question, convej'ed it to the defendant Elliott by a deed absolute on its face, but in reality to secure a loan of $2,000 about that time made by Elliott to him. The convey- ance was not made to hinder or delay creditors, nor with any intent to defraud them. Putney paid $700 of the money thus obtained to the plaintiffs, Stratton, Merrill & Co., upon their account against him, and the remainder of the money he used in paying other accounts for mer- chandise and in his business, and in completing the store on the premises. Putney's liabilities were considerable at the time of the conveyance, and he was in embarrassed circumstances. February 20, 1884, the plaintiffs in both actions attached the prem- ises on writs against Putney, and having obtained judgments at the March term, 1884, caused the executions issued thereon to be duly levied upon the premises ; and it is by virtue of that levy that they claim title as against the defendant Elliott. Albin & Murtin^ for the plaintiffs. Briggs & Ifuse, for the defendants. SMITH, J. The conveyance by Putney to Elliott, and the agreement executed by them in pursuance of the understanding entered into at the time of the negotiation for the conveyance of the land, that Elliott would reconvey to Putney upon repayment of the purchase-money, were in effect a loan by Elliott to Putney of $2,000, and a taking of 1 Conf. Gray, Restraints on Alienation (2d ed.), 90-100; Re Brewer's settle> ment, 75 L. T. Rep. N. s. 177 ; Mackintosh v. Pogose, [1895] 1 Ch. 605. 166 READE V. LIVINGSTON. [CHAP. IV. security for the loan by deed absolute upon its face. The value of the land exceeded the amount of the loan, and Putney was in embarrassed circumstances. The law does not permit debts to be secured in this manner as against creditors. A secret understanding, that on payment of the debt the land shall be reconveyed, constitutes a secret trust that renders the conveyance void against subsequent as well as existing creditors. The conveyance is deemed fraudulent, whether the actual purpose to defraud is found as a fact, or is conclusively presumed from admitted facts. The trust being established, the intent to defraud creditors is conclusively presumed. Such a trust is inconsistent with an absolute sale. Smith v. Lowell, 6 N. H. 67 ; Paul v. Crooker, 8 N. H. 288 ; Winkley v. Hill, 9 N. H. 31 ; Tift v. Walker, 10 N. H. 150 ; McConihe v. Sawyer, 12 N. H. 403 ; Page v. Carpenter, 10 N. H. 77 ; Towle v. Hoit, 14 N. H. 61 ; Ladd v. Wiggin, 35 N. H. 421, 426 ; Coolidge v. Melvin, 42 N. H. 510; Putnam v. Osgood, 51 N. H. 192 s. c., 52 N. H. 148 ; Ranlett v. Blodgett, 17 N. H. 298 ; Coburn v. Pickering, 3 N. H. 415 ; Lang v. Stockwell, 55 N. H. 561 ; Cutting v. Jackson, 56 N. H. 253 ; Plaisted v. Holmes, 58 N. H. 293 s.c., 58 N. H. 619 ; Sumner v. Dalton, 58 N. H. 295. ALLEN, J., did not sit; the others concurred. Decree for the plaintiffs* SECTION I. (continued) (b) VOLUNTARY SETTLEMENTS AND CONVEYANCES. READE v. LIVINGSTON. NEW YORK COURT OF CHANCERY, 1818. [Reported in 3 Johnson's Chancery, 48) .] THE CHANCELLOR [KENT]. This case turns upon the validity of the conveyance by Henry G. Livingston to Gilbert Aspinwall. The bill charges, that Livingston was indebted to John Reade, the plaintiffs intestate, as early as the year 1800, in $6,000, and that in August term, 1807, Reade obtained a judgment against H. G. L., for upwards of that sum, and that $3,072 of it remains unpaid. That by deed, dated the 7th of December, 1805, H. G. L. conveyed his lands, to the amount in value of $45,000, to Aspinwall, in trust for his wife, and that he had no other property to satisfy the balance of the judgment. The answer of H. G. L., and of his wife, admitted that in 1800 there were sundry unsettled accounts between the parties, and that 1 Many cases in accord are collected in Wait on Fraudulent Conveyances, 272; 14 Am. & Eng. Encyc. of Law (2d ed.), 247. SECT. I.] KEADE V. LIVINGSTON. 167 the}- were finally, by rule of court, referred to referees, and that the judgment upon such reference was rendered, as charged in the bill ; they admit further, that the lands included in the deed to Aspiuwall composed the greater part of the real estate of H. G. L., though they den}- the lands to be of the value charged. H. G. L. states that, prior to his marriage, and with a view to it, he agreed with his wife's father to settle on her, and her children, $30,000, and that the deed was executed in pursuance of that agreement. He admits the sum of $1,392, and 92 cents, to be still due upon the judgment, and that Reade might have obtained satisfaction out of his personal estate ; and he declares that he was then worth little or no property, though at the time of his marriage he was worth $80,000. It appears by the proof taken in the cause, that the judgment was founded upon two bonds dated in the year 1794 ; that the considera- tion of them was a farm sold by Reade to H. G. L., and that with the proceeds, or by the exchange of that farm, H. G. L. procured the greater part of the lands included in the deed of settlement. That he was married as early as the year 1791, and that at the date of the judgment he owned personal property to $1,000, but it does not appear that he possessed an}- real property free from incumbrance. Valentine Nutter, the wife's father, says, that his wife, Mrs. Nutter, informed him, just previous to the marriage, that H. G. L. had promised to settle $30,000 on his daughter, and that H. G. L., frequently, after the mar- riage, had admitted the promise, and, at last, at the repeated request of the witness, executed the deed. The deed to Aspinwall contains no reference to or recital of any previous agreement, but it is simply a deed in fee, for the consideration of $5,000, and in trust to convey the lands, and the rents and profits thereof, as the wife of H. G. L., by deed or will, should direct; and, in default of such direction, in trust for her heirs. 1 If the settlement be considered, as I think it ought to be, uncon- nected with any antenuptial agreement, the simple question then is, whether such a voluntary settlement after marriage by a party, indebted at the time, be not, as against such creditors, absolutely fraudulent and void. I think this question can be most satisfactorily answered in the affirmative ; but the manner in which it has been argued imposes on me the necessity of reviewing the cases. As early as the case of Shaw v. Standysh, 2 Vern. 326, the distinc- tion on the subject of voluntary conveyances, seems to have been taken and understood, between creditors existing at the time of the convey- ance, and subsequent creditors, and that it was clearly void as to the former, though not, as of course, against the latter. This was so ad- vanced upon argument in that case, and perhaps it was a distinction 1 A portion of the opinion is here omitted in which the Chancellor held that because of the Statute of Frauds a parol antenuptial agreement for a settlement gave no added validity to the settlement in question 168 EEADE V. LIVINGSTON. [CHAP. IV. of common law growth ; for it was agreed in Tw3'ne's Case, 3 Co. 83, a., that an estate made by fraud shall be avoided only by him who has prior right, but he who hath subsequent right shall not avoid u. init in the Exchequer case, of St. Ainand v. Barbara, Comyn's Uep. 255, a settlement was made upon a child by a party indebted by bond, and who afterwards became also indebted b}' bond. It was admitted as a doubtful point, whether, if the party had not been indebted at the time, the settlement would have been fraudulent as against the subsequent creditors ; but as the party was indebted at the time, the settlement was void against debts contracted afterwards, and all the bond creditors were allowed to come in as against the settle- ment. If the rule was otherwise, it was said, in this case, that the same result would follow in another wa}- ; for the subsequent bond creditors would be permitted to stand in the place of the prior bond creditors, and the assets be so marshalled as to satisfy all. Lord Talbot considered it a doubtful point, and forbore an opinion, in Jones v. Marsh, Cases Temp. Talbot, 63, whether a voluntary set- tlement, without consideration, would be held fraudulent as against a subsequent creditor of many years afterwards. But though there might be doubts on the point at that day, it seems to have been long since settled, that if the party be not indebted at the time, and has no fraudulent views, a subsequent creditor cannot impeach a prior settle- ment, on the mere ground of its being voluntary. This point was fully explained b}- Lord Hardwicke, in Russel v. Hammond, 1 Atk. 15, where, speaking of voluntary conveyances, he says, he has hardly known a case where the person conveying was indebted at the time, and the settlement not deemed fraudulent ; but the couve3 r ance is not fraud- ulent where the part}* making it is not indebted at the time. Subse- quent debts will not shake such a settlement, unless there be some badge of actual fraud, as a continuance in possession. The observation of the Chancellor, that " he had hardly known a case," would imply that then 1 had been cases in which a voluntary settlement was held good, even though the party was indebted at the time. But it is sufficient to observe that no such case appears ; and we cannot place great reliance on the report, as to the precise words used by the court; especially, as Lord Hardwicke speaks, in other cases, without an}' such qualification. In Stileman v. Ashdown, 2 Atk. 477 ; Brown v. Jones, 1 Atk. 190 ; Wheeler v. Caryl, Arab. 121 ; and Hylton v. Biscoe, Ves. 304, Lord Hardwicke defined what were good settlements after marriage, as against creditors ; and he held those good which were made in consid- eration of a portion paid at the time b} r , or on behalf of, the wife, or in consideration of an agreement by articles before marriage. Such settlements are of equal validity with those made before marriage, in consideration of marriage, and which, it is agreed, are good, even though the party may be then indebted. Nairn v. Prowse, 6 Ves. 759; Campion v. Cotton, 17 Ves. 271, 2; George v. Milbanke, SECT. I.] KEADE V. LIVINGSTON. 169 9 Ves. 193. But he said, if the settlement after marriage was in consideration of marriage only, it was voluntary and fraudulent against creditors ; and though he was not even indebted at the time, yet if he made the settlement with a view to a future indebtedness, it was equally- fraudulent. So, in Ward v. Shallett, 2 Ves. 18, he admits a settle- ment after marriage, in consideration of a portion advanced, or in con- sideration of the wife parting with a contingent interest secured by her husband's bond before marriage, to be good ; but still he qualifies the admission by saying, there must be no " fraud or great inadequacy." All the cases assume the position to be undeniable, that the husband must not be indebted at the time of the settlement. They leave no possible doubt on the point. In Middlecome v. Marlow, 2 Atk. 519, Lord Hardwicke held a post-nuptial settlement good, " there being no proof of the husband being indebted at the time ; there was not so much as a single creditor." The settlement in this case was also very reasonable, it being only of the personal estate received from the wife. So, again, in Taylor v. Jones, 2 Atk. 600, a settlement after marriage on the wife and children was held fraudulent, as to creditors, under the 13th Eliz. ; and this case is worthy of notice for the doctrines which it contains. The settlement was held to be fraudulent as well in respect to creditors after as before the settlement, for the debtor continued in possession of the property settled ; and the statute of Eliz. was held to extend equally to the subsequent creditors who were delayed or de- frauded. It was further observed by the Master of the Rolls, " that it was not material in that case what the circumstances of the father were at the time of the settlement, any farther than as evidence to show, if he was in indigent circumstances, that it was made with an intent to commit a fraud." This case contains also a just observation on the sympathy which is usually excited, or attempted to be excited, in these cases, in favor of the objects of the settlement. "I have always," observes the Master of the Rolls, " a great compassion for wife and children ; yet, on the other side, it is possible, if creditors should not have their debts, their wives and children may be reduced to want." In Walker v. Burrows, 1 Atk. 93, Lord Hardwicke admitted most explicitly, that if the party was indebted at the time, the voluntary set- tlement was void ; and he admitted, with equal certainty, that if the party was not indebted at the time, or immediately after the execution of the deed (which would be evidence of intentional fraud), the pro- vision for the wife and children would not be affected by subsequent debts. But if the fact of indebtedness at the time be established, then it was held, that " it would have run on so as to take in all subsequent creditors." Mr. Maddock (1 Madd. Ch. Rep. 420, note) says he has seen a MS. note of this case, and that it agrees with the printed report ; and this case may be considered as establishing the doctrine, as far as the decision of Lord Hardwicke could establish it, that indebtedness at the time will defeat a post-nuptial voluntary settlement, and that if 170 READE V. LIVINGSTON. [CHAP. IV. it be set aside in favor of a creditor at the time, all the subsequent creditors are let in on the principle of equal apportionment, or mar- shalling of assets. Lord Hardwicke's decisions are all consistent on this interesting subject. Thus, in White v. Sansom, 3 Atk. 410, it was a doubtful point whether the plaintiff's debt accrued until after the settlement ; and on that doubt the bill was dismissed. In Beaumont v. Thorp, alread} 7 cited, the settlement was by a man indebted at the time, and it was set aside, and all the specialty creditors, before and after the settlement, were let in. So, in Lord Townshend v. Windhara, 2 Ves. 1, Lord Hardwicke expressed himself in the most explicit and decided manner. He said, that he took it that a man "actually indebted, and conveying voluntarily, always meant to defraud creditors." I understand htm to mean here that this was the conclusion of law, which was not to be gainsaid ; and he said he knew of no case where a voluntary convey- ance to a child by a man indebted at the time, was not set aside for the benefit of creditors ; but he said that a voluntary conveyance without any badge of fraud, and by a person not indebted at the time, would be good, though he afterwards became indebted. He spoke strongly in favor of the superioritj' of the claims of creditors over famil}' pro- visions, and observed, that " though an unfortunate case may arise in respect to children, for whom parents are bound by nature to provide, it is impossible to say, the consideration in respect of them is of so high a nature as that of paying just debts, and therefore the court never preferred them to just creditors." In Fitzer v. Fitzer, 2 Atk. 511, Lord Hardwicke asked the Attorney-General if there was an instance in that court where a conveyance from husband to wife, with- out an} 7 pecuniar}* consideration moving from the wife, had been held to be good against creditors. The same rules and distinctions are declared and enforced through- out the subsequent decisions. In Stephen v. Olive, 2 Bro. 90, a settlement was made after mar- riage, by a person not indebted except in 500, secured by mortgage on the settled estate, and the Master of the Rolls held, that a settle- ment after marriage in favor of a wife and child, by a person not indebted at the time, was good against subsequent creditors, and he refused to grant relief in this case to a subsequent creditor, notwith- standing the settler was indebted at the time, seeing that the debt existing at the time was secured by a mortgage on all the estate settled. And Lord Eldon afterwards, in George v. Milbanke, 9 Ves. 193, allows of the same exception when he says, that if the voluntary set- tlement contains a provision for the payment of debts then existing, that makes it good against all future creditors. It cannot escape observation that the only question in these cases was respecting the subsequent creditors. There is no doubt in any case as to the safety and security of the then existing creditor. No SECT. L] READE V. LIVINGSTON. 171 voluntary post-nuptial settlement was ever permitted to affect him; and the cases seem to agree that the subsequent creditors are let in only in particular cases, as where the settlement was made in contem- plation of future debts, or where it is requisite to interfere and set aside the settlement in favor of the prior creditor, or where the subsequent creditor can impeach the settlement as fraudulent by reason of the prior indebtedness. But the case of Lush v. Wilkinson, 5 Ves. 384, has been much relied upon, as if it gave more strength to the settlement against sub- sequent debts, than the prior cases seem willing to allow. The settlement in that case was on the wife, after marriage, of an annuity charged upon lots subject to two mortgages. The bill was by a subsequent creditor against the executor and widow of the husband, to set aside the deed granting the annuitj*, and charged that the hus- band was indebted to several persons, and in insolvent circumstances, at the date of the deed. The answer averred that the husband was not insolvent, and that, except the two mortgages, he did not owe above 100 at the time, and that none of the debts were due at his death. It was contended, on the part of the defendants, that there was no evidence of an}' debt at the time, except the two mortgages, for the plaintiff produced no testimony ; and the opinion of Lord Mansfield, in Doe v. Routledge, Cowp. 705, was referred to, in which he considers that the validity of a voluntary settlement depended on the fact whether the settler was indebted at the time. The counsel on the other side admitted the law to be, that there must be a debt at the time. Lord Alvanlej", the Master of the Rolls, then observes, that the plaintiff appeared as a subsequent creditor, and without proving any one ante- cedent debt, and he comes with a fishing bill, and desires an account and an inquiry, in order to prove antecedent debts ; and the bill was dismissed, with liberty to file another. This was the case of a subsequent creditor, and therefore it does not apply to the case before me, except so far as it assumes, like all the other cases, the rule to be settled, that a voluntary settlement never can impair a subsisting debt. But there is a dictum of the Master of the Rolls in this case which has been thought to be of some moment, where he observes, that "'a single antecedent debt will not do. Every man must be indebted for the common bills for his house. It must depend upon this whether he was in insolvent circumstances at the time." Such a loose dictum, one would suppose, was not of much weight ; especially as there is no preceding case which gives the least coun- tenance to it. Another Master of the Rolls had before said, in Taylor v. Jones, already cited, that the circumstances of the settler at the time of the settlement were not material, except as to the question of actual, intentional fraud ; and that intention, we know, is never the inquiry in respect to the demands of the prior creditors. If insolvency 172 KEADE V, LIVINGSTON. [CHAP. IV. can ever be made a question, as to these voluntary settlements, it can only be in respect to the subsequent creditors, and Lord Alvanley was speaking of such a case, and of none other. But even here the cases are numerous to show, that if the settlement be once set aside by the prior creditors, subsequent creditors are entitled to come in, and be paid out of the proceeds of the settled estate. In Kidney u. Coussmaker, 12 Ves. 136, the question was on a post-nuptial settlement as against creditors, and it was insisted that they were entitled to defeat it, if the settler was indebted at the time ; but there was said to be no proof of a single debt existing at the date of the settlement. Sir Wrn. Grant, in giving his opinion, observed, that in Lush v. Wilkinson the bill was filed for the purpose of affecting the settlement, upon the ground that the settler was insolvent at the time it was made, and that there was no evidence in support of such a charge, and the bill was dismissed. He said he was disposed to follow the decision of Lord Rosslyn, in Montague v. Lord Sandwich (July, 1797, cited ib. p. 148, and 5 Ves. 386, note), that the settlement was fraudulent only a? against such creditors as were creditors at the time. Lord Rosslyn, in the case referred to, declared a settlement void as to the creditors, prior to its date. There was no question of insolvency made, but it was clearly held, b}' Lord Rosslyn, in that case (see 12 Ves. 156, noi^), that if the settlement be affected as fraudulent against such creditors, the subject is thrown into assets, and all subsequent creditors are let in. The last case on the subject which I shall notice is that of Holloway v. Millard, 1 Madd. Ch. Rep. 414. That was a bill by creditors against the parties to a voluntary settlement upon a natural child, praying that the deficiency of assets, if any, might be made good out of the settled estate. The plaintiffs were subsequent creditors, and the bill did not state that the party was indebted when the settlement was made. The counsel for the plaintiffs contended, that if it was necessary to show that the party was indebted at the time, a reference ought to be ordered for that purpose, but it was observed, on the other side, that there was no charge in the bill to warrant the inquiry, and that a man must be indebted, and largely so, to render the settlement invalid; mere trifling debts in the course of house-keeping would not be sufficient. The Vice-Chancellor, in giving his opinion, said, that the settler here was not indebted at the time, and that a voluntary conveyance could not be avoided by subsequent creditors, except on the ground of a fraud- ulent intent ; for that it was clear that a voluntary settlement, even in favor of a stranger, by a person not indebted at the time, nor meaning a fraud, was good against subsequent creditors. But he said, further, that a voluntary disposition, even in favor of a child, was not good if the party was indebted ; and he refused an inquiry whether the party SECT. I.] READE V. LIVINGSTON. 173 was indebted at the time, because there was no foundation for such an inquiry laid by the bill. The conclusion to be drawn from the cases is, that if the party be indebted at the time of the voluntary settlement, it is presumed to be fraudulent in respect to such debts, and no circumstance will permit those debts to be affected by the settlement, or repell the legal pre- sumption of fraud. The presumption of law in this case does not depend upon the amount of the debts, or the extent of the property in settlement, or the circumstances of the party. There is no such line of distinction set up, or traced in any of the cases. The attempt would be embarrassing, if not dangerous to the rights of the creditor, arid prove an inlet to fraud. The law has, therefore, wisely disabled the debtor from making any voluntar}' settlement of his estate, to stand in the way of his existing debts. This is the clear and uniform doc- trine of the cases, and it is sufficient for the decision of the present cause. 1 1 Early v. Owens, 68 Ala. 171 ; McTeers v. Perkins, 106 Ala. 411 ; Beall v. Lehman, Durr Co. 110 Ala. 446, 450; Harbour & Carroll's Ky. Stats., 1907 ; Hanson v. Buck- ner's Ex., 4 Dana, 251 ; Miller v. Desha, 3 Bush, 212 ; Fellows v. Smith, 40 Mich. 689 ; Swayze v. Doe, 21 Miss. 317 (overruled by Wilson v. Kohlheim, 46 Miss. 346) ; Hurley v. Taylor, 78 Mo. 238 ; Loehr v. Murphy, 45 Mo. App. 519 (overruled by Hoffman v. Nolle, 127 Mo. 120; Glacier v. Walker, 69 Mo. App. 288); City National Bank . Hamilton, 34 N. J. Eq. 158; Gardner v. Kleinke, 46 N. J. Eq. 90; O'Daniel v. Craw- ford, 4 Dev. 197 (modified by Code, 1547. See Clement v. Cozart, 112 N. C. 412); Jackson v. Lewis, 34 S. C 1 ; Fink v. Denny, 75 Va. 663 ; Flynn v. Jackson, 93 Va. 341 ; Rogers p. Verlander, 30 W. Va. 619, ace. In Babcock v. Eckler, 24 N. Y. 623, 632, the court said: "This decision [Reade r. Livingston] assumed as a principle of law, that a voluntary conveyance was voiu as to any and all then existing creditors, without regard to the question of intPiiUon, because it might ultimately operate to defeat the collection or payment >t c.ieir debts. A similar doctrine was held by the Chancellor in Bayard v. Hoff- in .n, 4 Johns. Ch. 450. It is not important now to inquire how far this doctrine was supported by the cases cited by the Chancellor. Certainly, Lord Mansfield h"l.l a different doctrine in Cadogan v. Kennet, Cowp. 434, a different doctrine was lil in Jackson v. Town, 4 Cow. 599, and by Judge Spencer in Verplanck v. Sterry, - .Johns., 556, 557, though perhaps not decided in the case. In this case Judge eucer said : " If the grantor be not indebted to such a degree as that the settlement -ill deprive the creditors of an ample fund for the payment of their debts, the con- . .i-ration of natural love and affection will support the deed, although a voluntary > .e, against his creditors ; for, in the language of the decisions, it is free from the 1 nputation of fraud. In Jackson ". Seward, 8 Cow., 406, it was held by the Court of , .rrors that a conveyance or settlement, in consideration of blood and natural affection, though by one indebted at the time, was jtrimn facie only, and not conclusively fraudu- lent. Subsequently, by section 4, of title 3, chapter 7, part 2, of the Revised Statutes, 2 K. S., 137, it was declared that the question of fraudulent intent, in all cases arising under the provisions of that chapter, should be deemed a question of fact ; and that no conveyance or charge should be adjudged fraudulent as against purchasers or cred- itors, solely on the ground that it was not founded on a valuable consideration. Thd question in this case arises under the provisions of this chapter of the Revised Stat- utes, which treats "of fraudulent conveyances and contracts, relative to goods and chattels and tilings in action." No decision or series of decisions, then, can make the question of fraud in this case a question of law, or establish that there is a legal pre- ramption of fraud from the facts and circumstances found by the referee; for the 174 READE V. LIVINGSTON. [CHAP. IV. With respect to the claims of subsequent creditors, there is more difficulty in arriving at the conclusion, and I am not called upon in this,, case to give any definite opinion, for there are no such creditors before the court. But since the subject has been examined, I would suggest what appears to me, at present, but with my mind still open for further discussion and consideration, to be the better opinion from the cases ; it is, that the presumption of fraud as to these creditors, arising from the circumstance that the party was indebted at the time, is repelled by the fact of these debts being secured by mortgage, or by a provision in the settlement ; that if no such circumstance exists, they are entitled to impeach the settlement by a bill properly adapted to their purpose, and charging, and proving indebtedness at the time, so that their rights will not depend on the mere pleasure of the prior creditors, whether they will or will not impeach the settlement ; that the question then arises, to what extent must the subsequent creditors show a prior in- debtedness? Must they follow the dictum of Lord Alvanley, and show insolvency, or will it be sufficient to show any prior debt, however small, as is contended for by Mr. Atherle}', with his usual ability, in his Treatise on Marriage Settlements? Ath. Mar. Set, p. 212 to 219. I should apprehend that the subsequent creditors would be required to go so far, and only so far, in showing debts as would be sufficient to raise reasonable evidence of a fraudulent intent. To show any existing debt, however trifling and inevitable (to which every person is, more or less, subject), would not surely support a presumption of fraud in fact ; no voluntary settlement in any possible case could stand upon that construction. I should rather conclude, that the fraud in the voluntary settlement was an inference of law, and ought to be so, as far as it concerned existing debts ; but that as to subsequent debts, there is no such necessary legal presumption, and there must be proof of fraud in fact ; and the indebtedness at the time, though not amount- ing to insolvency, must be such as to warrant that conclusion. It appears, in all the cases (and particularly in the decision of Sir Thomas Plumer since the publication of M. Atherley's treatise), that a marked distinction does exist, under the statute of 13 Eliz., between prior and subsequent creditors, in respect to these voluntary settlements ; and it is now settled that the settlement is not void, as of course, against the latter, when there were no prior debts at the time. The law in Massachusetts seems to be laid down according to this view of the subject. In Bennett v. Bedford Bank, 11 T}*ng, 421, there was a voluntary conveyance to a son by a father, indebted at the time, but not in em- barrassed circumstances, or equal in debt to the value of his property. The debt to the plaintiff did .not accrue until several years afterwards. It was held by the court, that as there was no fraud in fact, the deed statute declares that the question of fraud shall be deemed a question of fact, and by declaring it to be a question of fact, in effect declares that there is no such legal presumption." SECT. I.] READE V. LIVINGSTON. 175 in this case was good against the subsequent creditor, " and against all persons but such as were creditors at the time." But there is a case, recently decidedly by the Supreme Court of Errors of Connecticut, Salmon v. Bennett, 1 Day's Conn. Rep. N. S. p. 525, which lays down a rule somewhat different from that which I have deduced from the English cases. The question arose in an action of ejectment. The plaintiff had pur- chased Virginia lands of Sherwood, in 1794, and paid him the purchase money. In 1809, by a decree in Chancery, the sale was annulled, on the ground of fraud, and the purchase-money decreed to be refunded, on condition that the plaintiff executed a release. This was done, and he afterwards, in 1814, levied an execution founded on that decree, on lands which Sherwood owned in 1794, but which he had conve3'ed to his son in 1798, in consideration of natural affection only, and which lands the son had, in 1802, convej'ed to the defendant, with knowledge of the deed to the son. It was proved, that when Sherwood executed the deed of gift, he was not indebted to an}- person, except to the plaintiff, in the manner stated, and that the lands conveyed did not contain more than one-eighth part of his real estate. But it was ad- mitted, that long before the levy of the execution he had conveyed all his real estate, and was, at that time, destitute of property. One question was, whether the deed to the son, being voluntary, was not fraudulent as against the plaintiff ; and as the opinion of the court was on this point, I need not notice any other. It was also made a question, at the bar, whether the plaintiff was to be deemed an existing creditor at the time of the deed to the son ; but as the court assumed the fact of an existing indebtedness at the time of the conveyance, I need not notice that point. The judgment of the court was in favor of the defendant, and the opinion of eight of the judges, as delivered by the Chief Justice, was, that a distinction existed in the case of a voluntary conveyance, be- tween the children of the grantor and strangers, and that mere indebt- edness at the time, will not, in all cases, render a voluntary conveyance void as to creditors, where it is a provision for a child ; that an actual or express intent to defraud need not be proved, for this would be impracticable in many instances where the conve3'ance ought not to be established, and it may be collected from the circumstances of the case ; that if there be no fraudulent intent, and the grantor be in prosperous circumstances, unembarrassed, and not considerably indebted, and the gift a reasonable provision for the child, leaving ample funds unincum- bered, for the payment of the grantor's debts, the voluntary convej'- ance to the child will be valid against existing creditors. But if the grantor be considerably indebted and embarrassed, and on the eve of bankruptcy, or if the gift be unreasonable, disproportioned to his property, and leaving a scanty provision for his debts, the conveyance will be void, though there be no fraudulent intent. And it was con- cluded, that under the circumstances of that case, the indebtedness o/ 176 READE V. LIVINGSTON. [CHAP. IV. the grantor at the time, to the plaintiff, was not sufficient to atfect the conveyance to his son. The court do not refer to authorities in support of their opinion, and perhaps they may have intended not to follow, strictly, the decisions at Westminster Hall, under the statute of 13 Eliz. I can only say that, according to my imperfect view of those decisions (and by which I consider myself governed), this case was not decided in conformity to them ; but I make this observation with great deference to that court. There ma}- be loose sayings, and mere notes of cases, from which nothing very certain or intelligible can be deduced ; but I have not been able to find the case in which a mere voluntary conveyance to a wife or child has been plainty and directly held good against a creditor existing at the time. The cases appear to me to be upon that point uniformly in favor of the creditor. The Vice-Chancellor, in Hol- loway v. Millard, says, in so many words, that " a voluntary dispo- sition, even in favor of a child, is not good, if the party is indebted at the time." The cases of St. Amand v. Barbara, Fitzer v. Fitzer, Taylor v. Jones, and, indeed, the general language throughout the cases, seem to me to establish this point. So, Lord Hardwicke observed, in Lord Townshend v. Windham, that " he knew of no case on the 13th Eliz. where a man, indebted at the time, makes a mere voluntary conve3 - ance to a child, without consideration, and dies indebted, but that it shall be considered as part of his estate for the benefit of his creditors." In a preceding part of the same page he said expressly, there was " no such case," unless the conveyance was " in consideration of marriage, or other valuable consideration ; " and he draws the distinction between prior and subsequent creditors, in saying, that if the voluntary con- veyance of real estate, or a chattel interest, was by one not indebted at the time, and was for a child, and no particular evidence or badge of fraud as Against subsequent creditors, it would be good. The decision in that case was, that a general power of appointment given over an estate, in lieu of a present interest in it, having been executed voluii- tarih", though for a daughter, was to be deemed assets in favor of creditors. If the question rests not upon an actual fraudulent intent (as is ad- mitted in all the cases), it must be a case of fraud in law, arising from the fact of a voluntarj 7 disposition of property, while indebted ; and the inference founded on that fact cannot depend on the particular cir- cumstances, or greater or less degree of pecuniary embarrassment of the party. These are matters for consideration, when we are seeking, as in the case of subsequent creditors, for actual fraud. I apprehend it is, upon the whole, better and safer not to allow a party to yield to temptation, or natural impulse, by giving him the power of placing property in his famil}* be}'ond the reach of existing creditors. He must be taught, by the doctrines of the court, that the claims of justice are prior to those of affection. The inclination of my mind is strongly in favor of the polic}' and wisdom of the rule, which absolutely disables a SECT. I.] READE V. LIVINGSTON. 177 man from preferring, by an}- arrangement whatever, and with whatever intention, by gifts of his propert}-, his children to his creditors. Though hard cases may arise in which we should wish the rule to be otherwise, }'et, as a permanent regulation, more good will ensue to families, and to the public at large, by a strict adherence to the rule, than by rendering it subservient to circumstances, or by making it to depend upon a fraudulent intent, which is so difficult to ascertain, and frequently so painful to infer. The effect of these donations, by a debtor, inter vivos, is much dis- cussed by Voet, in his Commentaries on the Digest, lib. 39, tit. 5. De Donationibus, s. 20 ; and he concludes, that the property in the hands of the donee is chargeable with the existing debts of the donor. " Ex eo autem, quod donatur competentiae gaudens beneficio deducit primo ses alienum, facilis est decisio quaestionis', utrum donatis omnibus bonis, aut majore eorum parte, donatarius ad aes alienum donantis solvendum obligatus sit ? ^Equum baud foret, ex liberalitate, defuncti creditores ejus, donatione antiquiores (nam qui postea demum crecliderunt, ex donatione praecedente jam perfecta videri nequeunt fraudati esse) cred- ito suo defraudari, satiusque visum, donata revocari per actionom Paulianam, etiam a donatario in bona fide posito ac fraudis baud par- ticipe. Dum melior esse debuit conditiocrcditorum de damno evitando agentium, quam donatarii agentis de lucro captando. Secundum hodierni juris simplicitatem donatarium a creditoribus donatoris recta via absque circuitu ad solvendum aes alienum donantis compelli posse, post multos alios citatos tradit. Graenewegen, ad 1. 28, ff. h. t." This learned civilian makes the same distinction that our laws does, between debts existing at the time and debts created subsequent to the gift. The same doctrine, on this subject, in all essential respects, is adopted in France. The gift of specific articles does not charge the donee with the debts of the donor, unless the latter knew, or ought to have known, that he was not solvent at the time ; in which case the gift is held to be fraudulent. But in other more general dispositions of the whole, or part, of his estate, the property in the hands of the donee is subject to the existing, though not to the future, debts, to the value of the gift. (TraittS des Donat. entre vifs, sect. 3, art. 1, 2. CEuvres posth. de Pothier, torn. 6.) The question does not arise in this case as to what extent these voluntary dispositions of property can be reached. Here the land itself exists in the hands of the trustee for the wife ; and we have no concern, at present, with the question how far gifts of chattels, of money, of choses in action, of corporate, of public stock, or of prop- erty alienated to a bona fide purchaser, can be affected. The debt in the present case was large, and the disposition extravagant, being of the greater part of the real estate, and we have no evidence of suf- ficient property left unincumbered. Even if we were to enter into the particular circumstances of the case, I should have no doubt of the justice of the creditor's claim. 178 FREEMAN V. POPE. [CHAP. IV. I shall, accordingly, decree, that a reference be had to ascertain the balance of principal and interest due to the plaintiff, and that so much of the lands, included in the conveyance to Gilbert Aspinwall, as the Master shall judge sufficient to satisfy that amount, with costs, be sold ; and that the said G. A. be directed to join in the conveyance, &c. Decree accordingly. FREEMAN v. POPE. CHANCERY, JUNE 7, 1870. [Reported in Law Reports, 5 Chancery Appeals, 538.] THIS was an appeal by the defendant Pope from a decree of Vice- Chancellor JAMES, setting aside a voluntar}- settlement, dated the 3d of March, 1863, by which the Rev. J. distance assigned to trustees for the benefit of Julia Pope (then Julia Thrift) a polity of insurance for 1000 (effected by him in 1845 on his own life), and covenanted to pay the premiums. It appeared that he had previously settled this policy upon her in 1853, reserving a power of revocation, which he exercised in 1861, in order that he might receive a bonus. At the time when the settlement now impeached was made, the settlor held two livings producing a net income of 815, and he was entitled to a Government life-annuity of a little more than 180, and to a cop3'hold cottage which he on the same da} r covenanted to sur- render to Mrs. Walpole, the mother of Julia Pope, for 50. He had no other propertj* except his furniture, and he was being pressed by his creditors. Among other debts, he owed 489 to Messrs. Gtirney, his bankers at Norwich, and 7 8s. 6d. to a postmaster. On the same 3d of March, 1863, he borrowed from Mrs. Walpole 350, for which he gave her a bill of sale of his furniture. Mrs. Walpole was privy to, and one of the trustees of, the settlement. At the same time he made an arrangement with his bankers that his solicitor, Mr. Copeman, should receive certain income from the benefices, and pay out of it 50 each half-year towards discharge of the balance. The banking account at Norwich was to remain a dead account, and to be discharged, with interest, by the above instalments. A new account was to be opened with the Aylsham branch of the same bank, and Copeman was to pay the residue of the income (after deducting the 50) to this new account, which was to be an ordinary current banking account. At the testator's death, in April, 1868, the balance of 489 due to the bankers had been reduced to 117 by means of the annual instalments of 50. The Aylsham account showed no balance on either side. The postmaster's debt of 7 85. 6rf., and Mrs. Walpole's 350, with an arrear of interest, remained unpaid. The other debts due at the date of the settlement had been paid. The settlor, however, owed many SECT. I.] FREEMAN V. POPE. 179 debts subsequently contracted, and there were no assets whatever to pay them ; the furniture having been sold under a subsequent bill of sale, to which Mrs. Walpole had agreed to postpone her securit}-. The plaintiff, a tradesman who had supplied goods to the settlor after the date of the settlement, filed his bill for administration of the settlor's estate, and to set aside the settlement, to the benefit of which the de- fendant Pope had become entitled under an appointment by Julia Pope. Vice-Chancellor JAMES made a decree for setting aside the settle- ment, from which Pope appealed. Mr. Morgan, Q. C., and Mr. H. A. Giffard, for the appellant. Mr. Kay, Q. C., and Mr. Cozen-Hardy, for the plaintiff, were not called upon. LORD HATHERLEY, L. C. The principle on which the statute of 13 Eliz. c. 5 proceeds is this, That persons must be just before they are generous, and that debts must be paid before gifts can be made. The difficulty the Vice-Chancellor seems to have felt in this case was, that if he, as a special juryman, had been asked whether there was actually any intention on the part of the settlor in this case to defeat, hinder, or delay his creditors, he should have come to the conclusion that be had no such intention. With great deference to the view of the Vice-Chancellor, and with all the respect which I most unfeignedly enter- tain for his judgment, it appears to me that this does not put the ques- tion exactly on the right ground ; for it would never be left to a special jury to find, simpliciter, whether the settlor intended to defeat, hinder, or delay his creditors, without a direction from the judge that if the necessary effect of the instrument was to defeat, hinder, or. delay the creditors, that necessary effect was to be considered as evidencing an intention to do so. A jury would undoubtedly be so directed, lest they should fall into the error of speculating as to what was actually passing in the mind of the settlor, which can hardty ever be satisfactorily ascer- tained, instead of judging of his intention b} r the necessary consequences of his act, which consequences can always be estimated from the facts of the case. Of course there may be cases of which Spirett v. Wil- lows, 3D. J. & S. 293, is an instance in which there is direct and positive evidence of an intention to defraud, independently of the con- sequences which may have followed, or which might have been expected to follow, from the act. In Spirett v. Willows the settlor, being solvent at the time, but having contracted a considerable debt, which would fall due in the course of a few weeks, made a voluntary settlement by which he withdrew a large portion of his property from the payment of debts, after which he collected the rest of his assets and (apparently in the most reckless and profligate manner) spent them, thus depriving the expectant creditor of the means of being paid. In that case there was clear and plain evidence of an actual intention to defeat creditors. But it is established 03* the authorities that, in the absence of an} r such direct proof of intention, if a person owing debts makes a settlement which subtracts from the property which is the proper fund for the pa}-- 180 FREEMAN V. POPE. [CHAP. IV. ment of those debts, an amount without which the debts cannot be paid, then, since it is the necessary consequence of the settlement (supposing it effectual) that some creditors must remain unpaid, it would be the duty of the judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors, and that the case is within the statute. The circumstances of the present case are these : The settlor was pressed by his creditors on the 3d of March, 1863. He was a clergy- man with a very good income, but a life income only. He had a life- annuity of between 180 and 190 a year, and besides that he had an income from his benefice his income from the two sources amounting o to about 1000 a year. But at the same time his creditors were press- ing him, and he had to borrow from Mrs. Walpole, who lived with him as his housekeeper, a sum of 350 wherewith to pay the pressing credi- tors. That accordingly was done, and he handed over to her as security the only property he had in the world beyond his life income and the policy which is now in question, namely, his furniture, and a copyhold of trifling value. It is said, however, that the value of the furniture exceeded (and I will take it to be so) by about 200 the value of the debt which was secured to Mrs. Walpole. That debt may be put out of consideration, not only on that account, but because Mrs. Walpole, being herself a trustee of the settlement which is impeached, cannot be heard to complain of that settlement. But he also owed at the time of this pressure a debt of 339 to his bankers at Norwich, and he required, for the purpose of clearing the pressing demands upon him, not qnly the sum which he borrowed from Mrs. Walpole, but an additional sum of 150, which sum the bankers agreed to furnish, making their debt altogether, at the date of the execution of this settle- ment, a debt of 489. The}" made with him an arrangement (which probably was intended, in a great measure, as a friendly act towards a gentleman who was seventy-three years of age, and the duration of whose life, therefore, could not be expected to be very long), that they would for the present (for it cannot be held to be more than a present arrangement) suspend the proceedings, which, it appears, the}' were contemplating, upon his allowing his solicitor to receive part of his income, pay 100 a year towards liquidating the 489 (which was to be carried to what is called a " dead account"), and pa}' the residue into their branch bank at Aylsham, to an account upon which the settlor might draw. That arrangement was made, but there was no bargain on the part of the bankers that they would not sue at anytime they thought fit ; and, on the other hand, they had nothing in the shape of security for the payment of their debt, for they had not taken out sequestration, and there could be nothing in the shape of a charge upon the living except through the medium of a sequestration. When the settlor had made the voluntary assignment of the policy, he stood in this position, that he had literally nothing wherewithal to pay or to give security for the debt of 489, except the surplus value of the SECT. I.] FREEMAN V. POPE. 181 furniture, which must be taken to be worth about .200, and he was clearly and completely insolvent the moment he had executed the settle- ment, even if we assume that some portion of his tithes and of the annuity was due to him. It appears that a payment of the tithes was made in January, and we cannot suppose that there was more owing to him than the 200 which was paid in May, two months after the date of the deed ; and if we add to that 200 as the surplus value of the furniture, and add something for an apportioned part of the annuity, the whole put togeiher would not meet the 489. He, in truth, was at that time insolvent ; and there I put it more favorably than I ought to put it, because he could not at once put his hands upon that sum, so as to applj' it towards satisfying the debt, at an}' time between March and May. The case, therefore, is one of those where an intention to delay creditors is to be assumed from the act. The Vice-Chancellor seems to have felt himself very much pressed by the case of Spirett v. Willows, 3 D. J. & S. 293, 302, and the dicta of Lord Westbury in that case. The first of those dicta is : " If the debt of the creditor by whom the voluntary settlement is impeached existed at the date of the settlement, and it is shown that the remedy of the creditor is defeated or delayed by the existence of the settlement, it is immaterial whether the debtor was or was not solvent after making the settlement." x The Vice-Chancellor seems to have thought himself bound by this expression of opinion, and to have set aside the settle- ment upon that ground alone. It is clear, however, that this expres- sion of opinion on the part of the Lord Chancellor was b}' no means necessary for the decision of the case before him, where the settlor was 1 This dictum of Lord Westbury, though supported by early English cases, is incon- sistent with the language or decision in many recent cases. Richardson v. Smallwood, Jac. 552; Shears v. Rogers, 3 B. & Ad. 362; Townsend v. Westacott, 2 Beav. 340; Jackson v. Bowley, Car. & M. 97 ; Skarf v. Soulby, 1 Mac. & G. 364 ; Holmes v. Penney, 3 K. & J. 90 ; Turnley v. Hooper, 3 Sm. & G. 349 ; French v. French, 6 De G. M. & G. 95, 101 ; Martyn v. McNamara, 4 D. & War. (Ir.) 411, 427 ; Maudere v. Manders, 4 Ir. Rq. 434. And in most States in this country the existence of indebtedness, unless beyond what is reasonable with reference to the settlor's remaining property, is no evidence of fraud. Warren v. Moody, 122 U. S. 132 ; Adams v. Collier, 122 U. S. 382 ; Chambers v. Sallie, 29 Ark. 407 ; Windhams v. Bootz, 92 Cal. 617; Woolridge v. Boardman, 115 Cal. 74; Salmon v. Bennett, 1 Conn. 525 ; Trumbull v. Hewitt, 62 Conn. 448, 451 ; Ga. Code, 2695 ; Cohens Parish, 105 Ga. 339; Harting v. Jockers, 136111. 627; Dillman ;. Nadelhoffer, 162 III. 625; Kmerson i;. Opp, 139 I nil. 27; Gwyer t>. Figgins, 37 la. 517; Tyler v. Budd, 96 la. 33; Weeks v. Hill, 88 Me. Ill ; Gardiner Savings Inst. v. Emerson. 91 Me. 535; Warner v. Dove, 33 Md. 579; Winchester v. Charter, 102 Mass. 272; Clark v. McMahon, 170 Mass. 91 ; Blake v. Boisjoli, 51 Minn. 296; Wilson v. Kohlheim, 46 Miss. 346; Hoffman v. Nolte, 127 Mo. 120; Glacier v. Walker, 69 Mo. App. 288; Pomeroy v. Bailey, 43 N. H. 118; Kain v. Larkin, 131 N. Y. 300, 141 N. Y. 144 ; N C. Code 1547; Clement v. Cozart, 112 N. C. 412; Hamburger . Grant, 8 Oreg. 181 ; Crumbaugh v. Kugler, 2 Ohio St. 373; Dukes v. Spangler, 35 Ohio St. 119; Wilson v. Howser, 12 Pa. 109; Clark v. Depew, 25 Pa. 509; Burkey v. Self, 4 Sneed, 121 ; Nelson v. Kinney, 93 Tenn. 428 ; Panhandle Nat. Bank v. Foster 74 Tex. 514; Carkeek v. Boston Nat. Bank, 16 Wash. 399; Second Nat. Bank w Merrill. 81 Wis. 142. 182 EX PARTE MERCER. IN RE WISE. [CHAP. IV. guilt}' of a plain and manifest fraud. It is expressed in very large terms, probably too large ; but, at all events, it is unnecessary to resort to it in the present case. It seems to me that the difficulty felt b}* the Vice-Chancellor arose from his thinking that it was necessary to prove an Actual intention to delay creditors, where the facts are such as to show that the necessary consequence of what was done was to delay them. If we had to decide the question of actual intention, probably we might conclude that the settlor, when be made the settlement, was not thinking about his creditors at all, but was only thinking of the lad} r whom he wished to benefit ; and that his whole mind being given up to considerations of generosity and kindness towards her, he forgot that his creditors had higher claims upon him, and he provided for her without providing for them. It makes no difference that Messrs. Gurney, the bankers, seem to have been willing to forego the immedi- ate payment of their debt ; the question is, whether they could not within a month or less after the execution of the settlement, if the}" had been so minded, have called in the debt and overturned the settlement ? Beyond all doubt they could, on the ground that it did not leave suffi- cient property to pay their debt ; and this being so, we are not to specu- late about what was actually passing in his mind. I am quite willing to believe that he had no deliberate intention of depriving his creditors of a fund to which they were entitled, but he did an act which, in point of fact, withdrew that fund from them, and dealt with it by way of bounty. That being so, I come to the conclusion that the decree of the learned Vice-Chancellor is right. 1 Ex PARTE MERCER. IN RE WISE. COURT OP APPEAL, MARCH 1-ApRiL 16, 1886. [Reported in 17 Queen's Bench Division, 290.] APPEAL from an order of the Judge of the Croydon County Court, by which it was declared that a post-nuptial settlement executed by H. J. J. Wise, a bankrupt, was fraudulent and void as against the trustee in the bankruptcy, and the trustee of the settlement was ordered to deliver it up to be cancelled. The bankrupt was a master mariner. In the year 1881 he was engaged to be married to Miss Emily Agnes Vyse, but being at Hong Kong in the course of a voyage, he, on the 31st of May, 1881, married another lady. On the 25th of August, 1881, Miss Vyse commenced an action for breach of promise against him in the Queen's Bench Division, and on the 8th of October, 1881, he was served with the 1 A portion of Lord HATHERLEY'S opinion relating to costs, and a concurring opinion of Sir G. M. GIFFORD, L. J., are omitted. SECT. I.J EX PARTE MERCER. IN RE WISE. 183 writ at Hong Kong. He was under the will of his stepfather entitled to a legacy of 500, subject lo a life interest given to his mother. His mother died on the llth of May, 1881, and thereupon the legacy vested in the bankrupt in possession. The money was in the hands of W. P. Brown, the executor of the will. On the 17th of October, 1881, the bankrupt executed at Hong Kong, where he then was, a voluntary settlement of this legacy, whereby he assigned the legacy to Brown, on trust to invest the same, and to pay the income thereof, during the joint lives of Wise and his wife, to the wife for her separate use with- out power of anticipation, and, after the death of such one of Wise and his wife as should first die, to pay the income to the survivor during his or her life, and after the death of the survivor, Brown was to stand possessed of the trust fund in trust for the children of the marriage as therein mentioned, and, in default of children, in trust for Wise absolutely. On the 20th of July, 1882, Miss Vyse obtained judg- ment in the breach of promise action for 500 damages and costs. On the 14th of November, 1884, Wise was adjudicated a bankrupt. The bankrupt made an affidavit in the county court, in which he stated that at the time of the execution of the settlement he was perfectly solvent and able to pay his debts without the aid of the property comprised in the settlement. After the order had been made by the county court judge, the bank- rupt made a further affidavit, and an affidavit was made by Brown, and these affidavits were used on the hearing of the appeal by the Divisional Court. The bankrupt in his further affidavit said that he was not aware that he was entitled to the legacy until he received at Hong Kong between the 12th and 16th of October, 1881, a letter from Brown informing him of it. When he married he was not aware that he had any property to settle. Immediately he received notice of the legacy being due to him, he instructed some solicitors at Hong Kong to prepare the settlement. He said that the writ which had been served on him in the breach of promise action had no influence in inducing him to make the settlement, as he considered the writ was merely a threat, and that he should hear nothing more about the action. When he received the intimation of the legacy he told his wife that he should settle it on her, as it was the only money she would have in case of his death. She did not suggest to, or request, or influence him in any way in making the settlement, but it was made solely as a pro- vision for his wife or any children they might have in case of his death, and, had he known before his marriage that he was entitled to the legacy, he should certainly have settled it before his marriage. He was not cross-examined on this affidavit. Mrs. Wise and Brown appealed from the order of the county court. The Divisional Court sustained the appeal; and the trustee in bankruptcy appealed. W. If. Lynden Sell (Morgan Howard, Q. C., with him)i for the appellant. 184 EX PARTE MERCER. IN RE WISE. [CHAP. IV. H. D. Greene, Q. C., and F. Cooper Willis, for Mrs. Wise and the trustees of the settlement, were not heard. LORD ESHER, M. R. I think the lecision of the Divisional Court was right. The argument was first put in this way : It is necessary to prove that the bankrupt, at the date of^the voluntary settlement, intended to defeat and delay a creditor or his creditors generally ; the necessary consequence of what he did was to defeat and delay his creditors ; and therefore, as a proposition of law, the tribunal which had to consider whether he did intend to defeat and delay his creditors was bound to find that he did. In support of that proposition dicta of great and eminent judges were cited. I will venture to say as strongly as I can that to mind that proposition is monstrous. It is said that it is a necessary inference that a man intends the natural and necessary result of his acts. If you want to find out the intention in a man's mind, of course you cannot look into his mind, but, if circumstances are proved from which you believe that he had a particular intention, you infer as a matter of fact that he had that intention. No doubt, in coming to a particular conclusion as to the intention in a man's mind, you should take into account the necessary result of the acts which he has done. I do not use the words u necessary result " metaphysically, but in their ordinary business sense, and of course, if there was nothing to the contrary, you would come to .the conclusion that the man did intend the necessary result of his acts. But, if other circum- stances make 3 - ou believe that the man did not intend to do that which you are asked to find that he did intend, to sa\- that, because that was the necessary result of what he did, you must find, contrary to the other evidence, that he did actually intend to do it, is to ask one to find that to be a fact which one really believes to be untrue in fact. Whether the fact that the necessa^- effect of a voluntary deed is to defeat or delay the creditors of the grantor will make the deed void under the statute of Elizabeth, although there was no such intent in his mind at the time when he executed it, is a question which we are not now called upon to decide. But that is a question wholly independent of the question of intention. That may be the law ; the courts may have put that construction on the statute. But that is a different prop- osition from that which was put forward in argument, and I will not undertake to decide it now. It must be recollected that the statute of Elizabeth applies, and may make a deed void, even though the grantor never becomes a bankrupt. But this case was at first argued, not upon that footing, but upon the assumption that, if the natural or necessary effect of what the settlor did was to defeat or delay his creditors, the court must find that he actuall}' had that intent. That proposition or doctrine I entirely abjure. We must look at all the facts of this case. The bankrupt was a captain of a merchant ship, and there is no evidence whether his employment ceased at the end of every voyage, or whether it was a SECT. I.] EX PARTE MERCER. IN RE WISE. 185 constant employment. He had promised to marry Miss Vyse. Then he went to Hong Kong, and there he married another lady, and so laid himself open to an action for breach of promise of marriage by Miss Vyse. That action having been brought, might, so far as any one could foretell, have resulted in a verdict either for Is. or for 500 damages ; no one could tell what the result would be. Well, he married the lady in Hong Kong in Ma}-, and in October there came out to him, by the same post from England, the information that he had become entitled to a legacy of 500, and also the information that Miss Vyse had brought an action against him for breach of promise ol marriage. This was the first time that he had had any intimation of the fact that he had any realized fortune, and he immediately settled the 500 upon his wife and children. Now, what was his position at that time? According to his evidence, which is not disputed (for he has not been cross-examined* on his affidavit), he did not owe a shilling in the world. There is no evidence that he had not money owing to him for wages, and in all probability he had, because, if his voyage did not terminate at Hong Kong (and there is no evidence that it did), if he had got to take his ship home to England, in all probability his wages were not payable until the end of the voyage. If so, he would have means to that extent and he did not owe a shilling. Now with regard to the action, how could any one how could his legal adviser have told him what the amount of the verdict was likely to be? If the verdict had been for 50, and he had. had 50 coming to him at the end of his voyage, he would have been able to pay it, and on another occasion he would have been able to pa}' the costs. It was entirely a matter of speculation what the amount of the verdict would be. Therefore he was not insolvent ; it was not the necessary consequence of what he did to defeat or delay the plaintiff in the action, for, if the verdict had been for a small amount, she would not necessarily have been delayed for a week. In order to make this deed void under the statute of Elizabeth (however far. that statute may be stretched), we are bound in the present case to find that there was an actual intent in the bankrupt's mind to defeat or delay his creditors, and there is no evidence of such an intent. He has sworn that he was not thinking of his creditors. The only creditor that it is suggested he had to think about was Miss Vyse, and no one could tell what the verdict in her action would be. But what happened afterwards? It is obvious that, when the action came on for trial, evidence must have been given about this 500 legacy to which the defendatit was entitled, and the jury took the vindictive view of the plaintiff, and gave her as damages the whole of the defendant's realized property. It was a startling verdict, which I certainly should not have anticipated, and I do not see why he was bound to anticipate it. When you have got those facts, and you are asked to conclude that the bankrupt actually intended to defeat Miss 186 EX PARTE MERCER. IN RE WISE. [CHAP. IV. Vyse's claim, it seems to me that the Divisional Court were perfectly justified in declining to find that he had any such intent. Upon the facts, I cannot find that there was such an intent. The appeal must be dismissed. LINDLEY, L. J. The evidence before the county court judge differed materially from that which was before the Divisional Court, and I am not surprised at the view which lie took of the case. Unexplained, the circumstances had a very suspicious appearance. But the affidavits which have been filed since the hearing in the county court give a totally different complexion to the transaction, and it was upon those affidavits that the Divisional Court took the view contrary to that which had been taken by the county court judge. Now we have all the facts before us, and we must apply the law to those facts, There is a voluntary settlement made by a man who had not a farthing of debts, But against whom an action had been commenced for breach of promise of marriage. At the time when he made the settlement a sum of 500 had just accrued to him, and he settled it upon his wife and children. He tells us, and the Divisional Court believed him, and I also believe that he was speaking the truth, that he thought the action for breach of promise would come to nothing. At all events, the result of it was in the highest degree speculative ; he was not tuen indebted to the plaintiff, but she had made a claim against him which might or might not result in damages. We have, therefore, to deal with the case of an honest man, not in fact indebted at all, and the question is, whether we are driven (not by the statute of Elizabeth, but b} - a series of decisions upon it) to say that the settlement cannot stand. I do not think we are. Jt is true that voluntary settlements have been set aside under the statute, as it has been construed for a great number of 3~ears, in cases in which there was no actual intention to defraud. It has been held to be sufficient if, when the settlement is executed, the cir- cumstances are such that it must have that effect. But the language which has been used in a great many cases, that a man must in point of law be held to have intended the necessary consequences of his own acts, is apt to mislead, by confusing the boundary between law and fact, and by consequences which can be foreseen with those which cannot. But although I am not prepared to say that a voluntary settlement can never be set aside under the statute of Elizabeth, as it has been construed, unless there has been in fact an intention to defraud, I am not aware of any decision which goes the length of upsetting the present deed under the circumstances with which we have to deal. In this case there was no intention to defeat the plain- tiff, and, when the settlement was executed, the probability of the plaintiff obtaining substantial damages was very slight. The case is certainly not within the language of the statute. I have no doubt that the view taken by the Divisional Court was right. I should add that I have looked at 47 of the Bankruptcy Act, 1883, and it is quite clear that it does not apply. SECT. L] EX PARTE MERCER. IN RE WISE. 187 LOPES, L. J. We need only consider the law so far as it applies to the facts of the present case. It has been argued that, if the neces- sary effect of 'a voluntary settlement is to defeat or hinder creditors, the court is bound to infer such an intent, whether it did or did not in fact exist. I will express no opinion upon that matter, because it i? not necessary for the purpose of deciding the present case. It cannot, according to my view, be said that it was the necessaiy consequence of this voluntary settlement to defeat or hinder the settlor's creditors. The only suggested creditor is Miss Vyse. There are many reasons why it was not a necessary consequence of the settlement that her claim should be defeated. The action might have failed for various reasons ; the plaintiff might not have been willing to pursue it ; it might have resulted in a verdict for the defendant, or in a verdict for the plaintiff with very small damages. There are many other ways in which the action might have terminated, without its resulting in a verdict for 500. It seems to me, therefore, that it cannot be said that the necessary effect of the settlement was to defeat or hinder Miss Vyse. What, then, is the question in this case? The question which I should have left to the jury is this : Whether, having regard to all the circumstances, the settlor intended to defeat or hinder his creditors? That is a question of fact which can only be determined by the evidence. Before the county court judge there was only one affidavit, and he came to a conclusion at which I am not at all surprised. Before the Divisional Court there were several other affidavits, and they arrived at a different conclusion, with which I entirely agree. 1 adopt the words of CAVE, J., when he sa\ - s, " Looking at the facts which are established by the affidavits, it appears to me reasonably clear that the settlor had no intention whatever of defrauding his creditors, and that he had not got Miss Vyse and her claim in his mind when he made the settlement." I entirely agree with that conclusion, and I think the decision of the Divisional Court was right. 1 1 A person having an unliquidated claim is a creditor within the statute of Elizabeth. Breach of promise to marry. Beam v. Bennett, 51 Mich. 148; McVeigh v. Ritenour, 40 Ohio St. 107; Shoutz v. Brown, 27 Pa. 123; Hoffman v. Junk, 51 Wis. 613. Alimony and separate support. Blenkinsopp v. Blenkinsopp, 1 De G. M. & G. 495 ; Hinds v. Hinds, 80 Ala. 225; Tyler v. Tyler, 126 111. 525; Picket v. Garrison, 76 la. 347 ; Livermore v. Boutelle, 11 Gray, 267; Chase v. Chase, 105 Mass. 385; Fiske v. Fiske, 173 Mass. 413, 417; Morrison v. Morrison, 49 N. II. 69; Green v. Adams, 59 Vt. 602. See also Plunkettr. Plunkett, 114 Ind. 484; Browne!! v. Briggs, 173 Mass. 529; Verner v. Verner, 64 Miss. 184. Right of action for tort. Barling v. Bishopp, 29 Beav. 417 ; Crossley v. Elworthy, L. It. 12 Eq. 158; Westmoreland v. Powell, 59 Ga. 256; Bongard v. Block, 81 111. 186; Anglo-American Co. v. Baier, 31 111. App. 653; Ilunsinger v. Hofer, 110 Ind. 390 ; Petree v. Brothcrton, 133 Ind. 692 ; Carbiener v. Montgomery, 97 la. 659 ; Schuster v. Stout, 30 Kan. 529 ; Tobie Mfg. Co. v. Waldron, 75 Me. 472 ; Welde v. Scotten, 59 Md. 72 ; Clapp v. L<3atherbee. 18 Pich. 131 ; Schaiblo v. Ardner, 98 Mich. 70 ; Post v. Stiger, 39 N. J. Eq. 554 ; Thorp v. Leibrecht, 56 N. J. Eq. 499 ; Munson 188 EX PARTE MERCER. IN RE WISE. [CHAP. IV. ;. Geuesee Works, 37 N. Y. App. Div. 205; McKenna v. Crowley, 16 R. I. 364 Farnsworth v. Bell, 5 Sneed, 531 ; Cole v. Terrell, 71 Tex. 549; Harris v. Harris's Ex. 23 Gratt, 737, 764. See also Leonard v. Bolton, 153 Mass. 428; Pierstoff v. Jorges, 86 Wis. 128. Contrary decisions are Fox v. Hills, 1 Conu. 294, 299 ; Fowler v. Frisbie, 3 Conn. 320; Hill v. Bowman, 35 Mich. 191 (overruled by Schaible v. Ardner, 98 Mich. 70) ; Evans v. Lewis, 30 Ohio St. 11 ; White v. Gates, 42 Ohio St. 109, 112; Green v. Adams, 59 Vt. 602, 611. In Sanders v. Logue, 88 Tenii. 355, 360, the court say : " It appears from this statement of facts, that Sanders neither had any recovery for the fraud alleged to have been committed in taking his money upon false repre- sentation as to title, nor did he have any action pending therefor when these convey- ances were made ; but that, instead, he was the judgment debtor of Logue in a decree in nowise complained of. But he insists that, inasmuch as he had a right of action for the money received of him in consequence of the fraudulent representations of Logue, his was an existing demand at the time, and such a one as must be con- sidered in determining the validity of the conveyances. It is, of course, true that a conveyance of property to defeat an expected recovery in an action of tort already commenced is fraudulent in fact and void. Belli;. Farnsworth, 5 Sneed, 531, 532; Patrick v. Ford, 5 Sneed, 531, 532. " And we may add that we think it equally clear that a voluntary conveyance pending an action of tort, whether actually intended to defeat it or not, would be void, if, upon estimating the amount of property retained, there was a deficiency to pay the amount claimed. It may be true, also, that a conveyance for the fraudulent purpose of defeating a recovery in an action of tort anticipated would be void. But, as we have said, we are not now dealing with any question of actual fraud. We are discussing the question whether a deed made in good faith, in the absence of any debt known or asserted, makes a deed fraudulent in law, aud we have no hesitation in holding that it does not. " In the case we are now considering, whether we treat the complainant as repudi- ating his contract because he was fraudulently induced to make it, and suing for the money as for money had and received to his use, or whether we treat the action as one for damages incurred in consequence of the fraud and deceit practised upon him, measured by the money paid and interest, the result is the same. In the first aspect, he would have had no action until he disaffirmed the trade and demanded his money (Arendale v. Morgan, 6 Sneed, 703) ; and in the second his action would have been ex de/icto, and not upon a specific, fixed, or asserted liability within the meaning of the rule stated in respect to voluntary conveyances. Such a claim, it is obvious, might or might not ever be asserted, and it is too uncertain and remote to be taken into consideration in estimating the debts or liabilities of a debtor for which he must provide by retention of property. This is made obvious if we look at the state of affairs then existing, not as now developed." In Crossley v. Elworthy, L. R. 12 Eq. 158, 168, MALINS, V. C., said : " This brings me to a part of the case on which much has been said on both sides ; namely, whether the debt of Mr. Crossley, of 15,000, as proved in the action, can be taken into consideration. I am clearly of opinion that Mr. Glasse was right in saying that it was not necessary for him to rely upon that in order to invalidate the settle- ment. But I cannot bring myself to the conclusion that the liability to Mr. Crossley can be wholly disregarded. I must, as I am bound by the verdict of the jury to do, attribute to Mr. Elworthy the knowledge that he had made erroneous statements to Mr. Crossley in 1865, and those erroneous statements made him liable for a debt which he did not calculate upon when he executed the settlement, for he did not know till 1867 that the action would be brought. But the result of the action was to prove him to have become indebted in 1865, when he made the false representations by which the liability was created. I do not say that the debt would have been sufficient of itself to invalidate the settlement, but it was a circumstance which, con- sidering the way he was involved in transactions with this company, ought to have led him to pause." SECT. I.] SEVERS V. DODSON. 189 SEVERS v. DODSON. NEW JERSEY COURT OF ERRORS AND APPEALS, NOVEMBER TERM, 1895. [Reported in 53 New Jersey Equity, 633.] BEASLEY, C. J. This bill was filed by the respondents, as creditors at large, to set aside a conveyance made by their debtor to his grand- daughter. The grounds taken before the Vice-Chancellor, on the part of such complainants, was that the transfer of the property was in pursuance of a scheme to defraud and delay creditors, or, failing in that conten- tion, it was insisted that the conveyance was, at all events, without consideration, and was, therefore, constructively fraudulent as against existing debts, to which class it was alleged the claim sought to be enforced belonged. 63- way of answering these grounds, the defendants contended that there was no fraud ; that the conveyance was not voluntary, and that if the transaction was a mere gift, nevertheless it was equitable and legal, inasmuch as it was not an arrangement hostile to creditors. The Vice-Chancellor's consideration of the facts led him to the conclu- sions that the deed was voluntary and that there was no actual fraud in the affair, but that, as the debt in question was in existence at the time of the gift, such conveyance should be annulled in accordance with the rule established in the case of Haston v. Castner, 4 Stew. Eq. 703. The result was a decree setting aside the conveyance and ordering the land to be sold, the proceeds to be applied to the payment of the debt due the complainants, the amount of which was ascertained by the court. With respect to the facts that the conveyance was purely voluntary, and that it was not tainted with fraud, the opinion of this court is in all respects in accord with that of the Vice-Chancellor. This part of the case is deemed so plain as to render all discussion of the subject utterly superfluous, but we think that the other essential fact, viz., that the complainants were creditors at the time of the transfer of the property, so far from being proved, was negatived by the evidence. On this subject, the uncontested facts were these : The deed of gift was dated the 3d day of April, 1886, and at that time the donor, one James Taylor, was the accommodation indorser for one Davis, who was in debt to the complainants. From time to time these notes were renewed as they fell due, the old ones being regularly taken up and new ones substituted. None of this paper was dishonored before the making of the conveyance in question, the first of them being protested about a year after that event. The inquiry therefore arises, whether this situation placed this case within the operation of the rule defined in Haston v. Castner, already cited. The doctrine propounded in that authority is this : that if a 190 SEVERS V. DODSON. [CHAP. IV. person be indebted to another at the time of a voluntary settlement made by him, such disposition is presumed to be fraudulent with respect to such debt, and no circumstances will suffice to repel the legal pre- sumption of fraud. This doctrine, after full consideration, was established by this court, and it is not intended, on this occasion, to modify it in any degree. It is true that the propriety of this principle has been much discussed and much doubted, both in England and in this country, and such investi- gation has exhibited great contrariety in judicial opinion, but, as the question is not deemed to be an open one in this State, it would be but to supererogate to review that line of authorities. Accepting, then, as a datum, that the gift now in question is void as respects cotemporaneous creditors, the only interrogatory here apposite is, did the complainants belong to such class ? -This question, we think, must be answered in the negative. At the time in question they were not creditors of the donor. It is readily admitted that they were such in a sense that entitled them to the reme- dies provided in the act for the prevention of frauds and perjuries. They can, undoubtedly, set aside conveyances and transfers of property made to defeat their just claims. But at present we are not called upon to construe the statute itself, our present function being to construe the rule of evidence that this court has superinduced upon the statute. This discrimination has not always been made, and the omission has confused the subject. The act invalidates certain transfers of property infected with fraud. The rule now being considered relates to the proof of such fraud, declaring that the cotemporaneousness of the gift and the debt establishes it for certain purposes and to a definite extent. We have said the complainants' case does not fall within this eviden- tial rule, the reason being that they were not creditors of the donor. The latter was an accommodation indorser of current notes, and the situation did not constitute him a debtor. His assumptions might not have ripened into debts ; whether they would have that effect was alto- gether contingent. It is obvious that to bring this case within the principle in question it is necessarj^ to amplify, ver}" greatly, its scope, for its terms " existing debts " would have to be metamorphosed into " existing liabilities." Such a change would be so fundamental as to deprive the principle itself of all semblance of reason or expediency. When a man is in debt, especially if such debts be due, it is certainly not irrational to infer, if he give awaj* his property, that the intention was to defeat such claims, but such deduction would seem to be most extravagant if, instead of a present indebtedness, he has incurred a mere liability as a warrantor of title, as a tort-feasor, or as suret}' on an administrator's bond. 1 If such responsibilities as these latter, which 1 In Thorp v. Leibrecht, 56 N. J. Eq. 499, 504, PITNEY, V. C., said : " This classification counsel contend puts a tort-feasor, i. e,, one who has al- ready committed a tort upon which no judgment has been recovered, in the same category as mere sureties whose principals have not yet made default, and may never SECT. L] SEVERS V. DODSON. 191 may, in the long run, be transformed into debts, should have the effect of invalidating voluntary settlements of property, then such settlements would be the most uncertain of legal transactions. It is plain that by force of so absurd a principle all donations would, in a measure, be made contingent, and would many times remain so beyond the lives of the donor and donee. The result, therefore, is that in order to bring a case within the operation of the rule in question, there must be a present indebtedness, and not a mere probability of future indebtedness. The question thus considered and disposed of has never heretofore been presented to the courts of this State for decision. There are, indeed, cases that approach it but do not embrace it. What are " ex- isting debts " within the meaning of the statute of frauds has been several times subjudice, but what are existing debts within the rule of evidence above defined, has never before been adjudged. It will be observed that it has been already stated that, with respect to the statute most present liabilities are under its protection against conve3'ances that are actually fraudulent, but that it is only debts, in the strictest terms, to which the judicial rule that, with respect to them, a voluntary transfer of property shall be void whether such transfers be fraudulent or not, is applicable. It is the former of these principles that has alone been illustrated in our decisions. Thus, in Cook v. Johnson, 1 Beas. 52, the plain case was presented of an indorser of a dishonored note being deemed a debtor after protest. Phelps v. Morrison, 9 C. E. Gr. 196 ; Schmidt v. Opie, 6 Stew. Eq. 138 ; Post v. Siger, 2 Stew. Eq. 554, are all cases in which fraud in fact existed, and were each decided on that basis. The judicial expressions used on these occasions are to be received as authority only to the extent that they regulate the class of facts to which they are applied. All that is decided is that a contin- gent liability, as that of an accommodation indorser, will lay a ground for a proceeding under the statute to set aside any transfer of property do so (and hence the principals are under no present liability), or guarantors against contingencies which may never happen. " With great deference to the high authority of the distinguished jurist who used this language, I think it plainly erroneous and feel constrained not to follow it or .apply it here, for several reasons. In the first place, the case of a tort-feasor who has made himself liable for damages actually suffered and capable of measurement in money, is clearly distinguishable from that of a surety whose principal has not made and may never make default. In the one the right of action is vested and in the other it is not. In the second place, the language is a merely illustrative dictum upon a topic not under consideration by the court and not necessary for the decision of the cause in hand, and there is no evidence or reason founded in our knowledge of the mode of disposing of business by the court of errors and appeals to believe that it attracted the attention and received the approbation of a majority of that court. In the third place, it was used in the discussion of a rule of evidence and not of law or equity. The question was as to whether a voluntary settlement was to be conclusively presumed to be fraudulent and void as against a subsequent judgment founded upon a contract of suretyship existing prior to the settlement, but whert there had been at its date no default by the principal debtor." 192 SEVERS V. DODSON. [CHAP. IV. made in fraud of the bolder of the claim. None of them decide that a contingent liabilit}- will, per se, raise an irrefutable inference of fraud so as to invalidate a conveyance made during the continuance of such a condition of affairs. The case of Dodson v. Taylor, 24 Vr. 200, is not in any wise relevant to our present inquiry. The question then under advisement was, whether an accommodation indorser, before dishonor, was a debtor within the meaning of the statute fo^the relief of creditors against "heirs and devisees." The case presented was plainly within the statute. In the case of New Jersey Insurance Co. v.- Meeper, 8 Vr. 282, it was declared that the act embraced within its policy even so uncertain a liability as inhered in a warranty of title to lands. It is true that in the opinion read in Dodson v. Taylor the view is expressed that by the mere act of indorsement a person becomes a present debtor. It is said : " But, from the time of the indorsement, he is bound for the payment of the debt, and a person so'circumstanced is, in both common and legal parlance, a debtor." It is not perceived how this doctrine is to be sustained. So far as is known, no person ever thought or styled himself, or was styled by others, a debtor by reason of his having become an accommodation indorser. If a merchant were called upon to make out a list of his debts, it is not believed that it would ever occur to him to put in such account the moneys called for in the paper that had been gratuitously indorsed by him. Under the law of this State, the debts of the citizen taxed can, to a certain extent, be deducted from his assessment, and certainly no one can doubt that if any person, for such a purpose, should include in his sworn statements the amounts secured by his accommo- dation indorsements, such taxpayer could be convicted of perjury. The hypothesis suggested would, in practice, be fraught with embar- rassments. If, by the mere indorsement, the indorser becomes, ipso facto, a debtor of the holder of the note, then, by parity of reasoning, it follows that, from the same cause, the maker of the paper becomes the debtor of the indorser. And indeed it has, on several occasions in legal practice, been attempted to utilize this notion in the entry of judg- ment on bonds with warrants of attornej^. Such was the cause essaj'ed in the case of Blackwell et al. v. Rankin, 3 Halst. Ch. 152, the facts being that the plaintiff had taken judgment on an affidavit showing that he was the indorser on certain notes of the defendant, and which situ- ation, it was insisted, showed a present debt. This contention is thus met by the Chancellor. He says : " It is an abuse of language to say that, because I indorse j'our note to-day, payable three months hence, to be used by 3 - ou, you are indebted to me to-day for the amount of it, and that it is a debt due and owing to me to-day." This doctrine is pointedly approved by this court in Clapp v. Ely, 3 Dutch. 592. But it is to be remembered that, while the phraseology in question is deemed to be open to this criticism, nevertheless, in the connection in which it was used, it probably embodies the legal rule that the relation SECT. I.] SEVERS V. DODSON. 193 which the holder and indorser of a promissory note bear to each other is that of potential debtor and creditor, which is all that is required by the statute giving relief to creditors against devisees or legatees. This construction was the result of a consideration of the lax language of the act as enlightened by its evident policy. It was a remedial measure, and was, therefore, to be liberally construed. But the present case demands the application of a rule the most opposite of this. We are not now called upon to ascertain the mean- ing of statutory language in legislative policy, our entire province being to demarcate the rule of evidence promulgated by ourselves, that makes the existence of fraud in voluntary conveyances, under a certain con- dition, a mere inference of law, irrespective of the truth. The rule is one of the most rigorous character, having the operation of an estoppel, and is to be kept within the narrowest limits. It is, therefore, enough for this court to say that the contingent liability of an accommodation endorser, before dishonor, does not make him a debtor so that the holder of the paper can invalidate a voluntary conveyance made by him when there was no actual fraud in the transaction. 1 1 In Thomson v. Crane, 73 Fed. Hep. 327, the defendant made voluntary convey- ances, not being at the time indebted other than on a guaranty that the Reno Manu- facturing Company would duly perform a contract. There was " some evidence tending to show " that the defendant " manifested some anxiety or uneasiness about the financial affairs " of the Reno Manufacturing Company, or lack of confidence in its manager prior to the time of the execution of the conveyances ; but the conveyances were made prior to any action on the guaranty. The court set aside the conveyances, HAWLEY, J., saying : " It is claimed that complainants were not creditors of E. Crane until the entry of the judgment against him ; that the guaranty, if signed by E. Crane, only created a contingent liability upon his part which might result in his becoming indebted to the complainants in the event that the Reno Manufacturing Company failed to faith- fully perform its agreement ; that such obligations are to be distinguished from those by note or bond to pay a specific sum of money at a given time where an indebt- edness can be said to exist upon the signing of the note or bond, whereas the only obligation assumed by the guaranty in this case only became a fixed indebtedness when it was ascertained and determined, by the judgment, that the Reno Manufac- turing Company had not kept its agreement, and the extent of its failure so to do. If this proposition can be maintained, by authority and reason, it is an end of this case ; for the judgment was not obtained until after the execution and delivery of the deeds in question, and the defendants would be entitled to a judgment in their favor. . . . " The complainants in this case do not rely solely on the judgment to establish the date when they became creditors of E. Crane. They introduced the original agreement between complainants and the Reno Manufacturing Company, and the guaranty, as signed by E. Crane, on the 10th of May, 1892, which was prior to the time of the exe- cution of the deeds herein sought to be set aside. A creditor is not simply a person to whom a debt is due, but a person to whom any obligation is due. It is a person who has the right to require the fulfilment of any obligation, contract, or guaranty, and he is to be considered as a creditor of such obligor or guarantor from the time of his enter ing into the obligation. " The general principle, applicable to the facts of this case is well expressed in 8 Am. & Eng. Enc. Law, 750, as follows: " 'A creditor, in this connection, is not, necessarily, the holder of a debt merely, as that term is generally understood ; for one having a legal right to damages capable of 194 SEVERS V, DODSON. [CHAP. IV. judicial enforcement is a creditor, within the meaning of the statutes and law upon the subject of fraudulent conveyances. So, where one incurs liability for another, as surety or the like, he may be considered as a creditor of the latter from the time of entering into the obligation, and various other claims, absolute or contingent, have been held sufficient to constitute the holders thereof creditors.' " In addition to the authorities there cited, see Yeend v. Weeks, 104 Ala. 331 ; Hun- singer v. Hofer, 110 lud. 390; Bowen ?;. State, 121 Ind. 235. " In Bowen v. State, the court said : " ' It is manifest, as it seems to us, that the liability of a surety on a guardian's bond must be governed by the same general principles which govern the liabilities of sure- ties on other obligations ; that he cannot give away all of his property to the detriment of those for whose benefit the bond is given. The contract of suretyship is in force from the date of the execution of the bond, though the liability of the surety to pay depends upon the conditions of the bond.' " In Yeend v. Weeks, the court said : " ' It must be stated, iu this connection, that an administration bond is a continuing obligation of security from the day of its execution to the termination of the adminis- trator's authority to act ; and, though it antedates a voluntary conveyance, yet the ascertainment of its breach, by proper judicial proceeding, begun and concluded after the execution of such conveyance, will, as between the judgment creditor and the grantor in the conveyance, relate back to the date of the bond, and be held to be a debt existing at the time. ... A contingent claim is as fully protected as a claim that is certain and absolute.' " In accord with Thomson v. Crane, besides cases therein cited, see Rider v. Kidder, 10 Ves. 360; Bragg v. Patterson, 85 Ala. 233 ; Yeend v. Weeks, 104 Ala. 331 ; Mc- Laughlin v. Bank, 7 How. 220 ; Keel v. Livingston, 34 Fla. 377 ; Sanderson v. Snow, 68 111. App. 384; Hatfield v. Merod, 82 111. 113 ; Howe v. Ward, 4 Greenl. 195 ; Pulsi- fer v. Waterman, 73 Me. 233, 238; Williams v. Banks, 11 Md. 198, 242 ; Pashby v. Mandigo, 42 Mich. 172 ; Ames v. Dorroh, 76 Miss. 187 ; Post v. Stiger, 29 N. J. Eq. 554, 559; Shurts v. Howell, 30 N. J. Eq. 418 ; Jackson v. Seward, 5 Cow. 67 ; Van Wyck v. Seward, 18 Wend. 375; Young v. Heermans, 66 N. Y. 374, 384; Kerber v. Ruff, 4 Ohio Dec. 406; Hamet v. Dundass, 4 Barr, 178; Beach v. Boynton, 26 Vt. 725; Mason v. Pierron, 69 Wis. 585. Contra is Henderson v. Dodd, 1 Bailey, Eq. 138. It is to be noticed that in many of these cases there was evidence of an actual in- tent to defraud the contingent creditor. In Bridgford v. Riddell, 55 111. 269, one holding a warranty of title in a deed of real estate was held not to be an existing creditor of the warrantor at any time prior to eviction. Bat see contra, Wright v. Nipple, 92 Ind. 310. SECT. I.] HAIiLAN V. MAGLAUGHLIN. 195 HARLAN v. MAGLAUGHLIN. PENNSYLVANIA SUPREME COURT, 1879. [Reported in 90 Pennsylvania, 293.] ERROR to the Court of Common Pleas of Cumberland County, of May Term, 1879, No. 89. Ejectment by Maud Maglaughlin and Wilmer K. Maglaughlin, by their guardian, William A. Coffey, against Anne Harlan and David Sipe, for two lots in Carlisle, Pennsylvania. On March 31, 1859, John Mell conveyed by a deed a lot of ground to Isabella Noble, wife of John B. Noble, for $50. This deed was duly recorded August 27, 1859. To the same grantee William Blair con- veyed by deed a lot of ground on March 20, 1865, for $200^ which deed was recorded March 28, 1868. On March 5, 1869, John B. Noble made a note payable to Christ. Kindler, upon which suit was brought and judgment recovered for $129.47, with interest from 22d Septem- ber, 1869. Kfi.fa. and vend. ex. issued upon this judgment, and the above-mentioned lots were sold, as the property of John B. Noble, in 1870, to Charles E. Maglaughlin, whose heirs bring this ejectment. Isabella Noble, dj-ing about 28th June, 1875, letters of administration on her estate were issued to J. J. Good, who, under an order of the Orphans' Court of Cumberland Count)-, sold the above lots, October 31, 1877, to David Sipe, one of the defendants. At the trial, before HERMAN, P. J., the plaintiff gave evidence tend- ing to show that John B. Noble paid for these lots, and directed the name of his wife to be used as that of the grantee therein. There was also evidence that, when the first deed was made, Noble was indebted to different parties in the sums of $3.37 and $60, payment of which was not shown ; that, in the year 1859, after the Mell deed was made, debts were contracted to the following amounts : May 10, $18 ; May 20, $45 ; November 29, $39 (reduced October 14, 1861, to $35.49). In the year 1860, as follows: January 13, $60, which was paid; February 22, $21.92, likewise paid. Judgment, April 14, 1860, for $5 penalty for use of scales at suit of Borough of Carlisle ; and in 1862, May 14, $4.02, which was paid ; another, originally $65, but, 26th November, 1862, reduced to $6.50. As evidence of fraudulent intent on the part of Noble in having these conveyances made to his wife, one Foote testified that Noble " told me before the war, in 1859, that he was in a good bit of trouble, and that he was going to put what he had, his property, over into Belle's hands. He called his wife Belle." [The defendants submitted several points of law, the statement of which and the answers of the court thereto are here omitted, as a single 196 HARLAN V. MAGLAUGHLIN. [CHAP. IV. question of law only was involved, and that is sufficiently stated in the opinion.] The verdict was for the plaintiffs. Defendants took this writ, and, inter alia, assigned for error the answers to the above points. W. Trickett, J. W. Wetzel, and W. F. Sadler, for plaintiffs in error. The broad form of the instruction with respect to future creditors, in the answers which are assigned as errors, left the jury open to a mis- apprehension of the meaning of the word "defraud," when applied to remotely future creditors. The only conceivable sense in which the facts enumerated would make it inferable that Noble, in 1859, intended to hinder and defraud a debt which began in 1869, is that of the bare purpose to put the property in his wife, so that it should not be in dan- ger of being taken from her by debts at any time in the future to be contracted. But this is the purpose of all settlements on wives. The jury were in substance told that if the effect of the conveyance to the wife was to hinder and delay creditors to whom the grantor sub- sequently became indebted, and that the grantor, in making it, con- templated tttat it might have that effect, it would be fraudulent and void. This was clearly erroneous. Snj-der v. Christ, 3 Wright, 507 ; Williams v. Davis, 19 P. F. Smith, 28. When future creditors are deemed defrauded, it is invariably where the debts arise soon after the transfer, when the circumstances warrant the presumption of the injury to the creditor by a dependence on the continued ownership of the debtor. Williams v. Davis, supra / Nippe's Appeal, 25 P. F. Smith, 478 ; Snyder v. Christ, supra. Or when some new or hazardous business is contemplated. Black v. Nease, 1 Wright, 433 ; Monroe v. Smith, 29 P. F. Smith, 462. The deeds here were also of record. The juiy were in substance told that from the bare fact of debts, when the Mell deed was made, which in fact were hindered, &c., they can find an expressly fraudulent intent with respect to a debt not contracted until ten years after the recording of the Mell deed. Under this instruction fraud, in law, is made sufficient evidence of fraud in fact. Cotemporaneons debts, .in fact delayed, show fraud in law ; and from this fraud in law alone, the jury are permitted to infer fraud in fact, in respect to debt originating ten years later. S. Hepburn, Jr., and 8. Hepburn, for defendants in error. The Stat- ute of 13 Elizabeth protects creditors whose debts accrue subsequent to the fraudulent conveyance, equally as well as those whose debts were due when it was made. Twyne's Case, 1 Sm. L. Cas. 5 ; Towns- bend v. Windham, 2 Ves. 11 ; Taylor v. Jones, 2 Atk. 600 ; Anderson v. Roberts, 18 Johns. 526. Where there is a voluntary settlement and indebtedness at the same time, and the recover}' of these debts is delaj'ed, hindered, or defeated, such settlement is fraudulent and void, and the avoidance of it, on account of such indebtedness, lets in the subsequent creditors on the property to satisfy their debts. Thompson v. Dougherty, 12 S. & R. 455. The intent with which a conveyance was made is for the jury to determine. SECT. I.] HAELAN V. MAGLAUGHLIN. 197 Mr. Justice GORDON delivered the opinion of the court, October 6, 1879. The court below fell into an error which pervades every part of this case. A single point and answer will serve to develop this error, and determine the material questions involved in this controversy. The counsel for the defendants below, plaintiffs in error, asked the court to say to the jury that " to render a voluntary conveyance void, as to subsequent creditors, it must appear that it was made in contemplation of future indebtedness, and, until this was shown, the plaintiffs could not call upon the defendants to prove the consideration for the convej*- ance to Isabella Noble through whom they claim title." The court answered: "This would be so, if, at the time of the voluntary con- veyance, no debts of the grantor existed, the recovery of which would be thereby delayed, hindered, or defeated. Where there are existing debts at the time, and the conveyance has delayed, hindered, or de- feated their recovery, this circumstance raises a suspicion of fraud from which an intent to defraud subsequent as well as existing creditors may be inferred." This language is borrowed from the case of Thompson v. Dougherty, 12 S. & R. 448, where it is applied, as in the case in hand, to debts contracted after the execution of the voluntary grant. It is, however, mere obiter dicta, not called for by the facts in the case, and not true in law. Notwithstanding the many loose declarations ij| the books to the contrary, the Statute 13 Elizabeth does not make voluntary con- ve\ - ances void as to future creditors, unless there is some evidence to indicate that the grantor intended to withdraw his property from the reach of such creditors. Snyder v, Christ, 3 Wright, 499. And it is properly said in Williams v. Davis, 19 P. F. Smith, 21, that even an expectation of future indebtedness will not render a voluntary conve}'- ance void where there is no fraud intended by such conveyance. And so, also, in Thompson v. Dougherty, Mr. Justice Duncan, citing Sax- ton v. Wheaton, 8 Wheat. 229, says: " Chief Justice Marshall decided that a post-nuptial settlement on a wife and children b} - a man who is not indebted at the time was valid against subsequent creditors, and that the statute does not apply to such creditors if the conveyance be not made with a fraudulent intent." A similar ruling will be found in Townsend v. Maynard, 9 Wright, 198, and in Greenfield's Estate, 2 Harris, 489. In the latter case, which involved a deed of trust of all the grantor's property, it was alleged by Mr. Justice Bell to be a sound rule of law that subsequent indebtedness cannot be invoked to invalidate a voluntary settlement made by one not indebted at the time, or who reserves sufficient to pay all existing debts, unless there be something to show that the settlement was made in anticipation of future indebtedness. It is further said that though some doubt was thrown on this principle by Thompson ?'. Dougherty it was afterwards dissipated by Mateer u. Hisslm, 3 P. & W. 161. Furthermore, the ease of Snyder v. Christ, above mentioned, which is very like the case 198 HARLAN V. MAGLAUGHLIN. [CHAP. IV. in hand, settled any doubts that may previously have existed as to the effect of subsequent indebtedness. For though it seems to have been generally admitted that the statute is not operative as to such indebt- edness, yet the admission has been so beclouded by apparently incon- sistent dicta and qualifications as to render its meaning obscure and unintelligible. The settlement is good against after contracted debts if the settlor is unindebted at the time, or if he bs made provision for existing debts, and so on. But how if there be existing debts not pro- vided for, and how if the settlement is fraudulent as to such debts? Will the settlement, in such case, be void as to all future indebtedness? Is there no place for repentance and atonement by the after payment of existing debts, or may after creditors, notwithstanding such pay- ment, avoid the deed? Justice Duncan answers these questions by saying: " If the jury find a prior indebtedness, and any of that class of creditors is defeated by the settlement, then my opinion is that the property conveyed is to be considered as part of the estate of the debtor for the benefit of all his creditors. I know no midway. When a statute declares a matter void it thrusts all to destruction like a tyrant, while the common law, like a nursing father, makes that void where the fault is and preserves the rest." In this, singular!}' enough, the fact is overlooked that the statute makes the gift or deed void only as to those who may be hindered, delayed, or defrauded thereb}-, and that in this itffollows the common law. This oversight, however, would seem to be accounted for by the fact that the opinion of Chief Justice Spencer, in Anderson v. Roberts, 18 Johns. 526, is adopted, wherein it is said that the Statute of 13 Elizabeth protects creditors whose debts accrue subsequently to the fraudulent conveyance equally as those whose debts were due when it was made. It would seem to be on this that Justice Duncan founds the asser- tion, alreadj- referred to, that the existence of prior debts creates a suspicion of fraud, which can only be repelled by showing that the subsequent creditors were provided for in the settlement. This, as it stands, is unintelligble ; for one cannot provide for what he does not anticipate ; if he has no future debts in contemplation, how is it pos- sible to make provision for them ? It, in fact, simply amounts to say- ing that the statute is operative upon subsequent, as well as present, indebtedness. In like manner, it has been said, the settlor must not only retain property enough to satisfy present debts, but also to answer the reasonable probabilities of the future. But this rule is unreasonable in this, that it prevents men of limited means from making any settle- ment whatever upon their wives and children, a result certainly not contemplated by the statute. Besides this, the attempt to keep men and women in judicial leading strings all their lives, to direct what they shall or shall not do with their own property, is a matter which com- mends itself neither to sound legal reason nor to common sense. If a man is in debt, he may not give away his property until he has paid or provided for such debt ; the reason for this is found in the principles SECT. I.] HARLAN V. MAGLAUGHLIN. 199 of common honesty. If he contemplates future indebtedness, he must, for a like reason, provide for it, but he must not provide for what he does not anticipate, and for what may never occur. And if, without concealment, a man chooses to give away all his estate, or settle it upon his wife and children, what right has a subsequent creditor to complain? It did him no harm ; he ;ave the grantor no credit because of such property ; he is, therefore, neither cheated nor impoverished by such gift. Furthermore, if A., by a voluntary conveyence, defrauds B. this year, how is C., whose debt has no existence until ten years after, defrauded by that same conveyance ? It certainly will not do to say that because B. was cheated therefore C. is cheated, for between B. and C. there is no possible connection or privity. But if C. has not been defrauded by the grant, then, if the statute means what it most expressly says, he cannot impeach it. We turn, therefore, with satisfaction to the case of Snyder v. Christ, where we have the plain and unambiguous declaration that the subse- quent creditor can avail himself only of that fraud which is practised against himself. The doctrine thus announced is made the more posi- tive in that it is said if the creditor knew of the voluntar}' conve3 - ance when he gave the credit he could not be defrauded thereby, and hence could not impeach it. This case, not only from the direct manner in which the principal subject of discussion is treated, but also by reason of the facts upon which it depends, must be regarded as a final determination of the question in hand. These facts are, briefl}*, as follows : John Snyder, being the owner of a tract of one hundred acres of land, conveyed it to one John Reger, in trust for the use of himself and wife for their joint lives and the life of the survivor of them, with remainder to two children of the wife, and to such children as the grantors might have. This was all the real estate Snyder owned, and it was in proof that, at the date of the deed, his debts amounted to some $200, and that his personal property did not exceed in value $150. Furthermore, he had expressed apprehen- sions of a claim for damages for a breach of promise suit of marriage, and, within a few days after the making of the deed, he had borrowed $200, and had also contracted the debt on a judgment for which the property in suit was sold. Here, then, we have every element necessary for a test case. A vol- untary deed in trust of all the grantor's real estate, providing, inter alia, for himself for life ; existing debts unprovided for, and as to which this deed was undoubtedly fraudulent ; no property reserved for the reasonable probabilities of the future, an immediate contraction of subsequent debts, and an expressed apprehension of a pending claim for damages. It was, nevertheless, held, that of these facts the subse- quent creditor could not avail himself, unless he could further show that a fraud was intended against himself. In other words, these facts standing alone did not make for him even a prima facie case. 200 HARLAN V. MAGLAUGHLIN. [CHAP. IV. Snyder v. Christ was followed in Monroe v. Smith, 29 P. F. Smith, 459, in which it was said that a deed, void as to existing creditors, by reason of the grantor's fraud, is not necessarily void as to subsequent creditors ; that it is bad only as to those it is intended to defraud. It is scarcely necessary to say that these cases rule the one now under consideration. The deed of John Mell to Isabella Noble was executed on the 31st of March, 1859, and was recorded in August of the same year. The deed of William Blair to Mrs. Noble was made March 20, 1865, and was recorded 28th of March, 1868. The judg- ment of Kindler v. John B. Noble, upon which the property in dispute was sold, was founded on a note dated March 5, 1869, ten years after the date of the first deed, and nearly three years after the date of the second. "When, in addition to this, we reflect that Noble's debts at no time were large ; that the testimony of Foote relates to declarations made by Noble ten years before Kindler's debt had an existence ; that there is not one particle of evidence, direct or indirect, that a fraud was intended on future creditors, we must certainly conclude that the plaintiffs had no case, and that the court should so have instructed the jury. The judgment is reversed, and a, venire facias de novo is awarded. 1 1 Horbach v. Hill, 112 U. S. 144; Schreyer v. Scott, 134 U. S. 405, 411 ; Horn v. Volcano Water Co., 13 Cal. 62; Walter v. Lane, 1 MacArthnr (D. C.), 275 ; Mixell v. Lutz, 34 111. 382; Springer v. Bigford, 160 HI. 495; Lynch v. Raleigh, 3 Ind. 273; Hutchinson v. First Nat. Bank, 133 Ind. 271 ; Sheppard v. Thomas, 24 Kan. 780 ; Voorhis v. Michaelis, 45 Kan. 255; Todd v. Hartley, 2 Met. (Ky.) 206 ; Fullington v. Northwestern, &c. Assoc., 48 Minn. 490; First Nat. Bank v. Brass, 71 Minn. 211, 215; Simmons v. Ingram, 60 Miss. 886; Bauer Grocery Co. v. Smith, 74 Mo. App. 419; Gardner v. Kleinke, 46 N. J. Eq. 90; Minzesheimer v. Doolittle, 56 N. J. Eq. 206, 230; Neuberger v. Keim, 134 N. Y. 35; Crawford v. Beard, 12 Ore. 447 ; Ditman v. Raule, 124 Pa. 225, ace. In Brundage v. Cheneworth, 101 la. 256, 263, the court, modifying expressions in earlier cases, said : " We think the correct rule is : (1) A conveyance which is merely voluntary, and when the grantor had no fraudulent view or intent, cannot be im- peached by a subsequent creditor. (2) A conveyance actually and intentionally fraudulent as to existing creditors, as a general rule, cannot be impeached by subse- quent creditors. (3) If a conveyance is actually fraudulent as to existing creditors, and merely colorable, and the property is held in secret trust for the grantor, who is permitted to use it as his own, it will be set aside at the instance of subsequent cred- itors. The second rule above laid down is subject to some exceptions, among which may be mentioned cases in which the conveyance is made by the grantor with the ex- press intent and view of defrauding those who may thereafter become his creditors ; cases wherein the grantor makes the conveyance with the express intent of becoming thereafter indebted ; cases of voluntary conveyances, when the grantor pays existing creditors by contracting other indebtedness in a like amount, and wherein the subse- quent creditors are subrogated to the rights of the creditor whose debts their means have been used to pay ; cases in which one makes a conveyance to avoid the risks, or losses, likely to result from new business ventures, or speculations. The following au- thorities will be found to support the above rules and exceptions : Wait, Fraud. Conv., 96, 97, 98, 100; Bump, Fraud. Conv. (4th ed.), 290, 293, 296, 300; 2 Pomeroy, Eq. Jur., 971-973 ; 1 Am. Lead. Cas. (5th ed.), p. 42, notes. We have not over- looked the fact that there are respectable authorities holding that a conveyance actu- SECT. I.] MABSTON V. MARSTON. 201 X- "V MARSTON v. MARSTON. MAINE SUPREME JUDICIAL COURT, 1867. [Reported in 54 Maine, 476.] APPLETON, C. J. On the 17th February, 1857, the defendant, Oliver B. Marston, being the owner of the demanded premises, conveyed the same to his brother Joseph Marston j]pjLJJifi_jigjisidjemtion_of_ fifteen hundred dollars, as expressed in the deed, for which sum he received the note of Joseph Marston. The same day Joseph Marston deeded the land of which he had thus acquired the title, to Fanny Marston, the wife of Oliver B. Marston, and took back the note he had just given. *\ The plaintiff was a creditor of Oliver B. Mar>t6n prior to these con- veyances. (They were without consideratioi^and their obvious pur- pose and effect was to hinder, delay, and defraud creditors, and such purpose and effect could not but have been known to all the parties to these transactions. Though the plaintiff renewed his original note by taking a new one since these conveyances, it does not affect his legal rights, for a con- veyance made without consideration, and for the purpose of defrauding creditors, is void as well against subsequent as prior creditors of the grantor. Clark v. French, 23 Maine, 221 ; Wyman v. Brown, 50 Maine, 139. 1 If the conveyances referred to were fraudulent and void as to cred- itors, the plaintiff might impeach them. Being void, the title is re- garded as remaining in the fraudulent grantor, and the judgment creditor by a levy acquires such seisin as enables him to maintain a real action against the fraudulent grantor or grantee. In cases like Houston v. Jordan, 38 Maine, 521, Low v. Marco, 53 Maine, 45, and Howe v. Bishop, 3 Met. 28, where the legal title was never in the.judgment debtor, the creditor does not acquire the legal title by a levy. But in the present case the legal title was in Oliver B. Marston, and his conveyance being fraudulent, the plaintiff by his levy acquired the title. Defendant defaulted. {illy fraudulent as to the existing creditors may for that reason alone he avoided hy subsequent creditors. We are not, however, prepared to assent to the correctness of such a doctrine. Under our holding, the petition stated a pood cause of action under the third rule above stated, and hence the demurrer was improperly sustained." 1 Hurdick v. Gill, 7 Fed. Rep. 668 ; Echols v. Orr. 106 Ala. 237 ; Jordan o. Collins, 107 Ala. 572; Prestwood v. Troy Fertilizer Co., 115. Ala. 668; May v. State Nat. Hank, 59 Ark. 614; Wilcoxen v. Morgan, 2 Colo. 473; Mnlock i>. Wilson, 19 Colo. 296; Ruffing v. Tilton, 12 Ind. 259 ; Dart i. Stewart, 17 Ind. 221 ; Jonen r. Light, 86 Me. 437 ; Day v. Cooley, 118 Mass. 524, 527 ; McConihe v. Sawyer. 12 N. H. 396; Smyth v. Carlisle, 16 N. H. 464, 17 N. H. 417 ; Doe dem. Flynn i>. Williams, 7 Ired. L. 32; Trezevant v. Terrell, 96 Tenn. 528 ; McLane v. Johnson, 43 Vt. 48 ; Pratt v. Cox, 22 202 HAGERMAN V. BUCHANAN. [CHAP. IV. HAGERMAN v. BUCHANAN. NEW JERSEY COURT OF ERRORS AND APPEALS, MARCH TERM, 1889. [Reported in 45 New Jersey Equity, 292.] REED, J. The complainants .below furnished lumber to J. H. Hager- man & Son between the dates of July 24, 1886, and November 29, 1886. On March 4, 1889, a judgment was recovered in the Supreme Court for the sum of $958.53, the price of said lumber. Under a _/?./. issued thereon, a certain house and lot in Asbury Park was levied upon. The title of this property stood in the name of Sarah Hagerman, the wife of the defendant, John H. Hagerman. It was conve3 T ed to her by her husband, through an intermediate person, on July 17th, 1883. The bill in this case was filed by Buchanan & Co., the judgment creditors, for the purpose of having the conveyance made by Hagerman to his wife declared void, upon the ground that it was made to hinder and delay creditors, and to have the property sold and the proceeds applied to the payment of their judgment. The court below advised that the case stood in the same posture as that of Demorest v. Terhune, 3 C. E. Gr. 532, and that the rule adopted in that case was properly applicable to this. A decree was accordingly made that the deed made by Hager- man to his wife should be regarded only as a security for the consider- ation actually paid b}' her. It is perceived that the debt of the complainant was contracted over three years after the conveyance was made which is attacked. If the conveyance is to be regarded as in a degree voluntary, the creditor has a burden imposed upon him which would not exist had his debt ante- dated the deed. The character of a voluntary conveyance, when at- tacked by a creditor having a pre-existing claim, is definitely settled in this court. In the case of Hasten v. Castner, 4 Stew. Eq. 697, after Gratt. 330 ; Johnson w. Wagner, 76 Va. 587, 591 ; Silvernail v. Greaser, 27 W. Va. 550, ace. In a few cases the statement of the law is qualified as in England by the require- ment that some antecedent debt must be still unpaid. Toney v. McGehee, 38 Ark. 419 (conf. May v. State Nat. Bank. 59 Ark. 614) ; Barbour v. Conn. Mut. L. I. Co., 61 Conn. 240, 251 ; Claflin v. Mess, 30 N. J. Eq. 211 (conf. Allaire v. Day, 30 N. J. Eq. 231). In the case last cited the court say: "According to the complainant's proofs the husband procured the lands to be conveyed to his wife after he became in- solvent, with design to save his property from his creditors. This rendered the deeds fraudulent in fact, and voidable by either antecedent or subsequent creditors. Cook v. Johnson, 1 Beas. 54 ; Belford v. Crane, 1 C. E. Gr. 271 ; Ridgeway v. Underwood, 4 Wash. C. C. 137. There are authorities which hold that a subsequent creditor may impeach a voluntary conveyance simply on the ground that it was executed in fraud of antecedent creditors, but in that case he is bound to show that some of the antece- dent debts still remain unpaid. Hunt on Fraud. Conv., 52 ; 1 Am. Lead. Cas., 41 ; Spirett v. Willows, 3 DeG. J. & S. 292 ; Freeman v. Pope, L. K. (9 Eq. 205) ; s. c. L. R, (5 Ch. Ap.) 536." See also Perrine v. Perrine (N. J. Eq.) 50 Atl. Rep. 694. But in Gardner v. Kleinke, 46 N. J. Eq. 90, it was held that even though antecedent creditors set a conveyance aside, subsequent creditors could only share in the proceeds if the conveyance was fraudulent as to them. SECT. I.] HAGERMAN V. BUCHANAN. 203 an elaborate review of the course of judicial sentiment in this State, it was decided that, in respect to debts existing at the date^f a voluntary conveyance, the deed was void by force of the statute relating to frauds and perjuries. Against the attack of a creditor belonging to this class, neither the motive which induced the deed, nor the solvency of the grantor at the time of its execution, nor any other circumstance which might bear upon the bona fides of the parties to the conveyance, is im- portant. Fraud is the legal conclusion arising from the contemporane- ous concurrence of the two facts, namely, a voluntary deed and an existing debt due by the grantor. In respect to the attitude which subsequent creditors bear towards a voluntary conveyance, there has not been, so far as I recall, a deliv- erance by this court. But the sentiment, both judicial and professional, is hardly less doubtful upon this than upon the former question. The rule which has been recognized is, that a voluntary settlement can be attacked by a subsequent creditor only upon the ground of the existence of an actual intent in the mind of the parties at the time of the execu- tion of the conveyance to hinder, delaj", or defraud creditors by means of the deed. . . . By reason of [the] recognitions of cases in which the distinction above mentioned has been formulated, and by reason of the rational grounds upon which such a distinction rests, I regard the complainant in this case as having the burden of showing that, at the time the con- veyance was made, there existed an actual intent to hinder and delay creditors. This conclusion appears the more reasonable after an ex- amination of the cases in the English courts dealing with this subject. From such an examination it appears that, while there has been con- siderable fluctuation in judicial sentiment in respect to the attitude of prior creditors who attack a voluntary conve}'ance, there is little or none in respect to the posture of subsequent creditors. As to the latter of the two classes of creditors, the^rule has been quite uniform, that an actual fraudulent intent to defraud some creditor must be proved. In an attack upon such a conveyance by a subsequent creditor it is true that the fact that there were pre-existing debts has always been considered more or less important in determining the existence of a fraudulent intent. Different equity judges have accorded to the exist- ence of such debts different degrees of probative force, and have raised from the fact of their existence certain indisputable presumptions, but the line of adjudications is opposed to the notion that the existence of a prior debt of any amount raises a conclusive presumption that a voluntary conveyance is fraudulent as against the attack of a subse- quent creditor. Maj r Fraud. Con., 64. The rule laid down by Chancellor Kent and Judge Washington is not only simple, but equitable. A conclusive presumption against a voluntary conveyance should be raised in respect to those debts which it may be presumed were incurred upon the faith of the ownership of the property conveyed. 204 HAGERMAN V. BUCHANAN. [CHAP. IV. It is therefore inequitable that the debtor should be permitted to give away such property at the expense of a pre-existing creditor, whether the intention be good or otherwise. But as to creditors who become such without any possible inducement arising from such ownership, no such conclusive presumption should arise. No equitable consideration requires it ; and, besides, if such a rule be adopted, no settlement could be made which would not be a~t the mercy of the grantor during his lifetime. The power to incur debts would be a power to subject the property to a liability for their payment at anytime. So, as already remarked, equitable considerations, as well as the weight of authority, are in favor of the rule that an actual intent to defraud, arising from all the circumstances surrounding the transaction, must be proved before a voluntary conveyance will be decreed void at the suit of a subsequent creditor. An observation seems appropriate in respect to the legal terms which are employed in dealing with these two classes of cases. Void volun- tary conveyances, when spoken of in respect to either class of creditors, are styled fraudulent, but as to the former class there is said to be legal fraud, and as to the latter class actual fraud. There is force in the remark of Mr. Bigelow, that the term "legal fraud" is a misnomer. The word "fraud" implies moral turpitude. When a transaction is voided by the statute without respect to the mo- tive which induced it, but upon considerations of policy only, it is un- lawful and not fraudulent. To style it fraudulent, whether the fraud be legal or otherwise, may fix an unmerited stigma upon the party to the transaction. A more just and appropriate appellation to appty to con- veyances of the former class would be simply unlawful, while the term " fraudulent " would still properly be applicable to the latter class of conveyances. The question of fact remains to be considered, whether there was an intention existing in the mind of the parties to the present conveyance to hinder and delay creditors, which induced the execution of the deed. In the first place, the facts proved show that that conveyance was volun- tary only in respect to a slight proportion of the value of the property sold. The wife, at the time of the conveyance, was a creditor of her husband. According to the testimony, the lot sold was worth about $2,000. Mr. Hagerman says the house, outhouses, barns, and fences cost $2,500. The whole property was worth from $4,500 to $5,000. The claims of the wife against her husband were the following: She had owned property in Brooklyn before she and her husband removed thence to Asbury Park. In 1876, she sold this property, upon which there was a mortgage for $5,000 for the sum of $7,400. The balance, amounting to $2,400, she loaned to her husband. He gave her a mort- gage to secure this loan, with the interest thereon, amounting together to the sum of $2,814. There was upon this property, upon which the mortgage was given, another mortgage of $600, which mortgage she paid from the proceeds of some building and loan association stock SECT. L] HAGERMAN V. BUCHANAN. 205 which she owned. If interest be allowed her on her mortgage from December 6, 1879, to July 17, 1883, it would amount tp $610 more. There is nothing in the case to show that she should not be entitled to interest, as would any other mortgagee. It is true that she lived in the house, but, nevertheless, it was the home of her husband, and it was her home because it was his home. She cannot be regarded as a mortgagee in possession. The husband owned the legal title and was himself in possession of the property. Nor does the fact that she took in boarders and received compen- sation therefor change this condition of affairs. She says that she expended the money so received in the care and reparation of the property. But if this be not so, it would not affect the position of the husband as the head of the famih- in possession, for if she took the proceeds of the boarders it was the proceeds of her own labor, which the husband had the right to permit her to appropriate. Peterson v. Mulford, 7 Vr. 481 ; Luse v. Jones, 10 Vr. 707. Indeed, the reception of boarders seems to have been a mere incident of the housekeeping, and in no way diminished the value of the use of the property to Mr. Hagerman, but probably diminished the housekeeping expenses which would otherwise have fallen legally upon him. So I re- gard the amount of the indebtedness of the husband to the wife as reaching to the sum of $4,000. I place the value of the house from $4,500 to $5,000, and I doubt if it would have brought more than the latter sum in the market. So, the difference between the wife's claim and the value of the property which she received is not great. But there is another fact which still further reduces the amount of this difference: the wife had her inchoate right of dower in the prop- erty, the value of which, of course, could not be applied to the payment of her husband's creditors. The fact of this encumbrance upon the propert}', in some degree, diminishes its salable value. 1 So, 1 think it appears true, as I have already remarked, that the voluntary element in this transaction is small relative to the entire value of the property, and this is a material feature in solving the question whether the con- veyance was fraudulent. The point strongly insisted upon b}- the counsel for the complainants was, that it appeared that on the day the deed was given, Mr. Hager- man entered into a partnership. He became a member of the firm of J. C. Farr & Co. He gave for his interest in the firm two promissory notes of $7,500 each, both amounting to $15.000. It appears that this firm became insolvent in three or four months thereafter. It is argued that this shows that Mr. Hagerrnan was entering upon a hazardous en- terprise, and that this deed was made to place his property beyond the reach of future creditors. 1 If creditors set aside a deed as fraudulent the right of dower attaches again, even though the wife bad released it. Creditors have only the right to restore the statui quo before the fraudulent transfer. Bigelow, Fraudulent Conv. 61 ; Bump, Fraudulent Conv., 478. 206 HAGEKMAN V. BUCHANAN. [CHAP. IT. Now, it is true that the fact that a person has entered into a hazard- ous business, or engaged in a speculative enterprise, at or soon after the execution of a voluntary conveyance, is strong evidence of a fraudu- lent intent. It evinces a desire to reap the benefit for himself if suc- cessful, and escape responsibility if unlucky. Nevertheless, each case must stand upon its own footing, and no legal rule can be adopted as to the quantity of proof or the particular complexity of facts which will annul a conveyance upon this ground. The character of the business, the degree of pecuniary hazard incurred, the amount of property remain- ing in the grantor, the value of the property conveyed, the acts and words occurring coincidently with the transaction, are to be viewed to- gether in solving the question of fraudulent intent. 1 Now, viewing these transactions together, I do not think such an in- tent has been proved. I think that Mr. Hagerman inquired, as he says he did, particularl}* about the business of Farr & Co., and that he tried to be careful not to involve himself in a precarious business. I think it was only when he was convinced by the persuasions of Mr. Farr that it was entirely safe, and that the amount of his notes would be paid out of the proceeds, that he entered into the business. He says it was understood that the old firm had assets to the amount of $40,- 000, and that the liabilities which the new firm assumed were only $15,000 or $20,000. Although in fact the business was risk}', as the result disclosed, as Hagerman understood it at the time he became con- nected with it, it did not so present itself. He undoubtedly wished to place his wife in a position of security, as she had frequently requested. But this is the object of every settlement. She had no security for the $600. Taking into consideration the fact that he says that he had $1,800 in bank and a lot worth $600, that the voluntary elements in the convej'ance are so small, and that he seems to have been led to believe that the business he afterwards engaged in was entirely safe, I do not think it proved that the conveyance to his wife was induced by a fraudulent Intent to hinder and delay creditors. The decree below should be reversed. Decree unanimously reversed. 1 Bigelow in his work on Fraud, II. 112, regards a conveyance made immediately before embarking upon a hazardous business as necessarily or constructively fraudu- lent. Though in such a case there is always strong evidence of fraud, the question seems one of fact in every case. Minzesheimer i?. Doolittle, 56 N. J. Eq. 206, 230 ; Todd v. Nelson, 109 N. Y. 316 ; Williams v. Davis, 69 Pa. 21 ; Harlan v. Maglaugh- lin, 90 Pa. 293, 297 ; Sommermeyer v. Schwartz, 89 Wis. 66. See also Schreyer v. Scott, 134 U. S. 405; Gable v. Columbus Cigar Co.. 140 Ind. 563 ; Neuberger v. Keim, 134 N. Y. 35 ; Re Foss, 147 Fed. 790. SECT. I.] STRATTON V. EDWAEDS. 207 STRATTON v. EDWARDS. MASSACHUSETTS SUPREME JUDICIAL COURT, MARCH 21-OcTOBER 19, 1899. [Reported in 174 Massachusetts, 374.] MORTON, J. The conveyance in question was made about a month before Caroline G. Mussey was adjudged insolvent on her own petition, and at a time when she was owing more than she could pa}". Subse- quent to the filing of the bill Edward W. Mussey, husband of said Caroline, was admitted as a party defendant, and filed an answer. The case was heard by a justice of the Superior Court, and comes here on his report of the facts and of his findings. There was no decree. The questions are, first, whether the property which the said Caroline conve}*ed was held by her upon a valid trust for her husband, and, second, whether if there was an element of trust in her holding of the property this court will uphold and enforce the trust as against her creditors. It appears that the property in question originally belonged to the husband, and consists of two parcels of real estate. The first is a dwelling-house and lot on Warren Avenue, Boston, occupied by Mr. and Mrs. Mussey as a home, and was conveyed by him to her through a third part}', without consideration, in 1883. The second is a store on Cornhill, and was conveyed to her in the same manner, without consideration, in 1890. The legal title to both parcels remained in her till the conveyance which is the subject of this suit. The presiding justice found that " at the time of this conveyance [of the Cornhill property] and in accordance with certain oral statements made by him ["Mr. Mussey] to Mrs. Mussey, she wrote in pencil a statement in the nature of a declaration of trust, which on December 6, 1890, she copied in ink and signed with her own hand." This state- ment, as the presiding justice also found, was taken by Mr. Mussey, and u had since remained with other papers in the deposit vault box, to which he and Mrs. Mussey had access." The material part of this declaration is as follows: "145 Warren Ave., Boston, Mass., Decem- ber 6th, 1890. December 3d, -1890, Ned [Mr. Mussey] transferred a mortgage to me, also the store in Cornhill he deeded to me, both to be held in trust for him by me just the same as I hold this house we arc now living in, to be held for him in trust by me. He can sell it or do just the same with it as before, as it is his just the same." Then follow statements that it [the memorandum] was made at his request, as he was not satisfied with the pencil memorandum, and that she was going to ask him to put it in the box at the safety vault, and that in deference to his request " to write it on something I could always find it," she had written it on something that she should always keep. The presid- ing justice also found that Mrs. Mussey sent to her mother a letter, of 208 STRATTON V. EDWARDS. [CHAP. IV. which the material portion is as follows : " Boston, Dec. 4th, 1890. . . . Yesterday he [Mr. Musse} 7 ] deeded the store in Cornhill to me to hold in trust for him, only it does not make it any the more mine than it did before, you understand, for he can take it back or sell it at his pleasure same as before. ... In fact, it is just the same as he holds the house, only deeded to me to hold for him." We think that these statements in the writing under date of December 6, 1890, and in the letter of December 4, 1890, constitute a valid and sufficient declaration of trust on the part of Mrs. Musse} 7 . Arms v. Ashley, 4 Pick. 71 ; Montague v. Hayes, 10 Gray, 609; Barrell v. Jo}', 16 Mass. 221; Urann v. Coates, 109 Mass. 581 ; Faxon v. Folvey, 110 Mass. 392; Kendrick v. Ray, 173 Mass. 305; Gardner v. Rowe, 5 Kuss. 258. The plaintiffs contend, however, that the conveyances were made by Mussey with intent to defraud his creditors, that the trust was unlawful in its creation, and that a court of equity will not lend its aid to uphold or enforce it. There are several answers to this contention. In the first place, the presiding justice has not found, and we do not think that it follows from the facts that he has found, that the conveyances made by Mussey constituted a fraud upon the insolvent laws or upon his creditors, or that Mussey had reasonable cause to believe himself insolvent when the conve}-ances were made. On the contrary, in regard to the last proposition the presiding justice found that at the time of each conveyance if Mussey " could have realized a fair market value on the stocks which were then being carried for him, he could have paid his debts in full, without resorting to or realizing upon the said real^estate, although in fact he did not so realize upon them." So far, therefore, as existing creditors were concerned he well may have supposed himself at the time of each conveyance to be solvent, and may have been in fact solvent. At any rate, in view of this finding, it cannot be said that the conveyances were invalid as regarded existing creditors, 1 or in fraud of the insolvent laws. Bridges v. Miles, 152 Mass. 249; Mundo v. Shepard, 166 Mass. 323; Jaquith v. Massachu- setts Baptist Convention, 172 Mass. 439. The presiding justice further found that at the time of both of the conveyances " he [Mussey] had 1 In Day v. Cooley, 118 Mass. 524, 527, the court said: " This is not a case of voluntary conveyance which would be good against subse- quent creditors if not tainted with any fraud. The jury have found that the convey- ance to the tenant was made with a fraudulent purpose. The instruction requested is based upon the assumption that the only ground upon which subsequent creditors can impeach a conveyance by their debtor, is that it is made with the specific intent to contract future debts to them and avoid the payment of the same. This is not the law. It is well settled that if a debtor makes a conveyance with the purpose of defrauding either existing or future creditors, it may be impeached by either class of creditors, or by an assignee in insolvency or bankruptcy who represents both. Parkman v. Welch, 19 Pick. 231 ; Thacher v. Phinney, 7 Allen, 146; Winchester v. Charter, 12 Allen, 606; Wadsworth v. Williams, 100 Mass. 126. As it was proved in this case that the grantor had an actual fraudulent design which was participated in by the grantee, it is immaterial whether the demandants are to be regarded as subsequent or existing creditors as to the conveyance." SECT. I.] STRATTON V. EDWARDS. 209 been losing heavily and was troubled over his financial affairs, and that these conveyances were made by him with the actual purpose and intention of putting said real estate beyond the hazards and risks of the said business in which he was engaged, and to protect it from future creditors, and to secure it for the benefit of himself, and that thereafter he continued in said business until all his propert}-, except such in- terest, if any, as he had in said parcels of real estate, had been lost." But this finding does not require or warrant the conclusion that the conveyances were fraudulent and void as to future creditors. In order to have that effect it must appear that the conveyances were made with "an intent on the part of the grantor to contract debts, and a design to avoid payment of such debts by the conveyance of his prop- erty" (Winchester v. Charter, 12 Allen, 606, 611), and to establish such an intent it is not enough to show that the grantor had a general purpose to secure the property from the hazards of future business and the claims of future creditors. But it must appear that at the time of the conveyance he had an actual intent to contract debts, and a pur- pose to avoid the payment of them by the conveyance. As already observed, there is nothing in this case which requires or warrants such a conclusion from the finding of the court. Winchester v. Charter and Jaquith v. Massachusetts Baptist Convention, ulri supra. But, further, this proceeding has been instituted on behalf of credit- ors of Mrs. Mussey, not on behalf of creditors of her husband. It does not appear that he has an}- creditors, or that, if he has, they are dis- satisfied with what has been done. It is well settled that conveyances in fraud of creditors are good as between the parties to them, and, except as to creditors, will be upheld. Stillings v. Turner, 153 Mass. 534 ; Pierce v. Le Monier, 172 Mass. 508. In making the conveyance which she did at her husband's request, Mrs. Mussey was only carrying into effect the trust upon which she held the propert}-, and we do not see how her creditors have any just ground of complaint. It is conceded that her assignees can take no better title than she had, and, as we understand it, that her creditors have no right to the property if it was lawfull}' held b}' her in trust for her husband. Declarations made by her as to her title, in his absence and without his knowledge or authority, cannot bind him, and we discover nothing in his conduct which can operate by w&y of estoppel to prevent him from setting up his right to the property. The result is that we think that the bill should be dismissed. tio ordered. 1 1 See also Burke v. Dorey, 208 Mass. 45 ; Gately v. Kappler, 209 Mass. 426. 210 ATJLTMAN AND TAYLOR CO. V. PIKOP. [CHAP. IV. AULTMAN AND TAYLOR CO. v. OLE A. PIKOP ET AL. MINNESOTA SUPREME COURT, JANUARY K)-FEBRUARY 17, 1894. [Reported in 56 Minnesota, 531.] APPEAL by plaintiff, Aultman and Taylor Co., a corporation, from a judgment of the District Court of Becker County, D. B. SEARLE, J., entered September 20, 1893. Samuel H. Dalen owned the northeast quarter of Section fourteen (14) T. 148, R. 42, in Becker County. The east half was his home- stead, on which he resided with his family. On December 6, 1883, he and his wife Kjerste H. Dalen executed a mortgage on the whole quar- ter section to Johnson Land and Mortgage Co., a corporation, to secure the payment of $660 borrowed of it that day by him. On July 30, 1887, Dalen and wife conveyed the land to Anders O. Pikop, the wife's brother, subject to the mortgage, and he and his wife recouvej-ed it, August 10, 1889, to Dalen's wife, Kjerste H. Dalen. On November 15, 1888, Kjerste H. Dalen and husband conveyed the land to her nephew, the defendant Ole A. Pikop, subject to the mort- gage, on which was then due over $700. He paid off the mortgage December 8, 1888, b}- making a new one on the land for $690 to the same Johnson Land & Mortgage Co. On June 19, 1891, the plaintiff recovered a judgment against Samuel H. Dalen and Kjerste H. Dalen for $441.61 upon a debt incurred prior to the deed to Anders O. Pikop. Execution was issued and returned unsatisfied. On November 28, 1891, the plaintiff commenced this action against Ole A. Pikop, Samuel H. Dalen, and Kjerste H. Dalen to set aside the deeds claiming they were all made and taken with intent to hinder, de- la}-, and defraud the creditors of Dalen and wife. Ole A. Pikop alone answered. Specific questions of fact were submitted to a jur}-, and in answer thereto they found the conveyances were made without con- sideration and to hinder, delay, and defraud the creditors of Samuel H. Dalen ; that the east half of the land was his homestead, and worth $1,800; that the value of the west half was but $700. The court ac- cepted the verdict and ordered judgment for defendants, dismissing the action on the merits with costs. Judgment was so entered and plain- tiff appeals. Spooner and this was affirmed by the Circuit Court. 1 Mr. John T. Morgan, for appellants. Mr. M. L. Woods and Mr. William /S. Thorrington, for appellees. Mr. Justice BLATCHFOKD delivered the opinion of the court. It will be noticed that the bill does not attack the deed on the ground of fraud. It does not allege that it was made with any intent to delay, hinder, or defraud the creditors named in the bill, or an}' other cred- itors of Kenned}'. It does not allege that there are any other creditors than those named in the bill, or any creditors who became such after the making of the deed. The sole ground on which it proceeds is, that the deed was a voluntary deed, and is void as against the persons who were creditors of Kennedy prior to the making of the deed. It claims that the plaintiffs, as assignees in bankruptcy, represent the debts of those creditors, for the purposes of the suit. The alleged right of action of the plaintiffs is asserted under section 14 of the Bankruptcy Act of March 2, 1867, c. 176, 14 Stat. 522, which pro- vides, that " all the property conveyed by the bankrupt in fraud of his creditors " shall, in virtue of the adjudication of bankruptc}' and the appointment of his assignee, be at once vested in such assignee, and he may sue for and recover the said estate, debts, and effects." This provision is also found in sections 5046 and 5047 of the Revised Statutes. The deed in question was a valid instrument between the grantors and the grantees. The stipulation on which the case was heard, con- taining an admission " that the facts set forth in the answers are sub- stantiall}* true, except so far as controverted by the depositions and other evidence in the cause," makes the allegations of fact contained in the answer of Kennedy and his wife evidence in the cause. When the deed was made, Kennedy was, as the answer alleges, in prosperous cir- cumstances, and possessed of ample means to pay all debts, and was able to withdraw the value of the donation to his daughter from his estate without the least hazard to his creditors, and the amount of his individual debts was ver} T small as compared with the amount of his property. The deed to the daughter being honest in fact and in in- tent, and being, on the evidence, a proper provision for her, as an ad- vancement on the occasion of her marriage, and being valid as between 1 An abbreviated statement has been substituted for that in the original report. SECT. I.] WARREN V. MOODY. 219 her parents and herself, and no fraud in fact, or intent to commit a fraud, or to hinder or delay creditors, being alleged in th6 bill, the case is not one in which these plaintiffs can set aside^the deed, as being a deed of " property conveyed by the bankrupt in fraud of his creditors," even though the conveyance may have been invalid, under the statute of Alabama, as against the creditors named in the bill, because it was a voluntary conveyance. These creditors, whatever remedies the}- maj^ have had to collect their debts, are not represented by the plaintiffs, as W^*** 1 assignees in bankruptc}', for the purposes of this suit, on the facts ,, e ? y * , , , H siAj-. developed. The case of Pratt v. Curtis, 2 Low. 87, cited by the plaintiffs, was a case of two bills in equity by the assignee of a bankrupt to set aside conveyances of land made by the bankrupt, one being a voluntary deed of settlement for the benefit of his children, and the other being a like deed for the benefit of his wife. Each bill alleged that, at the time of the settlement, the bankrupt was indebted to persons who were still his creditors, and was embarrassed in his circumstances, and that the deed was made with intent to delay and defraud his creditors. On demurrer the bill was sustained, on the view that the assignee in bankruptcy, and he only, had the right to impeach the deeds, in the interest of creditors. That decision, based on a case of intent to delay and defraud creditors, on the part of a person embarrassed in his circumstances, has no appli- cation to the present case. The decree of the Circuit Court is reversed, and the case is re- manded to it, with a direction to dismiss the bill, with costs to the defendants in the Circuit Court and in the District Court.* 1 In Pratt v. Curtis, 2 Low. 87, 89, Judge LOWELL said : " It is, however, the Statute of 13 Eliz. as adopted and construed in Massachusetts which governs this case." See also Sumner v. Hicks, 2 Black, 532 ; Hill v. Agnew, 12 Fed. Kep. 230. In Schreyer v. Scott, 134 U. S. 405, 409, the court said : '' In determining the rules applicable to such transactions reference should be had not only to the decisions of this court, but also to those of New York, where the parties lived and the transactions took place." And at p. 411 : " From these authorities it is evident that the rule obtaining in New York, as well as recognized by this court, is, that even a voluntary conveyance from husband to wife is good as against subsequent creditors ; unless it was made with the intent to defraud such subsequent creditors ; or there was secrecy in the trans- action by which knowledge of it was withheld from such creditors, who dealt with the grantor upon the faith of his owning the property transferred ; or the transfer was made with a view of entering into some new and hazardous business, the risk of which the grantor intended should be cast upon the parties having dealings with him in the new business. Tested by these rules, it is impossible to sustain an adjudication, upon the testimony in this case, that the transfer of either the real estate or the bonds and mortgages was fraudulent as against the creditor VandcrhiU." In Randolph v. Quidnick Co. 135 U. S. 457, a suit turning on the validity of an as- signment for the benefit of creditors, the court said, at p. 463: " But we need not rest upon these considerations alone. The Circuit Court dis- missed the bill, on the ground that the Supreme Court of the State of Rhode Island had decided that the first and principal conveyance by the Spragues to their trustee was valid under the State statute. Austin v. Sprague Manufacturing Co., 14 Rhode Island, 464. This ruling it had followed in an earlier case, Moulton v. Chafee, 22 220 PICKSTOCK V. LYSTER. [CHAP. IV. SECTION I. (continued). (c) GENERAL ASSIGNMENT FOR CREDITORS. PICKSTOCK v. LYSTER. KING'S BENCH, HILARY TERM, 1815. [Reported in 3 Maule $ Selwyn, 371.] ASSUMPSIT for money had and received. Plea, non-assurapsit. At the trial before RICHARDS, B., at the last Salop assizes, the case was this : the plaintiff being a creditor of one Glover, in Januan-, 1812, sued him for his debt. Glover suffered judgment by default, and a writ of inquiry was executed on the 17th of June following, and orvthe 25th a fi. fa. was delivered to the defendant, the sheriff. But berore that day, viz., on the 15th of the month, Glover being insolvent executed an assignment by deed of all his effects to trustees for the benefit of all his creditors ; under which deed possession was taken immediately after its execution, but the deed was not signed b}- any of the creditors. This assignment Glover had been desirous of making, and had actually given instructions for its preparation in the early part of the year, though not until after he had been served with the writ at the plaintiffs suit, and the deed had been prepared, and in it the plain- tiff was named as one of the trustees, but it did not appear that was done with his knowledge, and his name was afterwards erased, and that of another creditor substituted. The deed, as it originally stood, contained a clause whereby the trustees engaged to indemnif3" Glover from his debts, which clause was erased before its execution on the 15th of June ; and, on account of this and other erasures, it was suggested that it had better be re-ingrossed, but Glover refused, as much on ac- count of the expense as for fear he should be arrested, saying that he should not be safe another day, and that the plaintiff would take pos- session of his goods in the mean time. The defendant levied under the Fed. Rep. 26. Unquestionably, if that conveyance and the transfers immediately fol- lowing were valid, the complainant's testator took nothing by his purchase. "It is unnecessary to place our judgment solely upon the decision of the Supreme Court of Rhode Island, in the case cited ; and yet it is worthy of most respectful con- sideration, both because it is a decision of the highest court of the State in which the transactions took place, and also because it reviews all the objections made to the con- veyance with clearness and ability. As to the construction of a State statute, we gen- erally follow the rulings of the highest court of the State, Bacon v. Northwestern Life Insurance Co., 131 U. S. 258, and cases cited in opinion; and as to other matters, we lean towards an agreement of views with the State courts, Burgess v. Seligman, 107 U. S. 20, 34. So, when the highest court of a State affirms that a conveyance, made by a debtor to a trustee for the benefit of creditors, is valid under the statutes of that State, we should ordinarily, in any case involving the validity of such conveyance, fol- low that ruling, even though that statute was common to many States, and in others a different ruling had obtained." See also Robinson v. Belt, 187 U. S. 41. SECT. I.] PICKSTOCK V. LYSTER. 221 fi. fa., but retained the proceeds in his hands, for which this action was brought, in order to tr}- the question whether the property passed from Glover by this assignment and delivery of possession. The learned judge directed the jury that if they thought the deed was exe- cuted with an intent to defeat the plaintiff of his execution, then it was void in law, and they must find for the plaintiff, but otherwise for the defendant. The jury found a verdict for the plaintiff. Lord ELLENBORODGH, C. J. The only thing to raise a doubt in my mind upon the present case would be the authority of Mr. J. Law- rence, under whose direction it is said that a bill of sale executed to a bonafide creditor was held not only to have been made under circum- stances which carried with them a badge of fraud, but to be evidence of such fraud as warranted him in leaving it to the jury to find against the bill of sale, if it was made in order to defeat another creditor. But I am afraid that if the conveyance in this case be not good, it will break in upon the validity of all judgments confessed by executors, or b}- the party himself, where either the party or the executor wishing to give a preference to some particular creditor has confessed t)ie same ; all judgments also which have been confessed for the actual aggregate amount of the debts due to all the creditors, and with their consent, will be open to this objection. Can any one doubt that the first motive in many of those cases, as well as in this, was to defeat the particular creditor ; but at the same time it is not considered as an injury to him, being for the benefit of all the creditors to procure an equal distribu- tion amongst all of the fund to which all have an equal right, against one who has gained the first step upon them. In Tolputt v. Wells, 1 M. & S. 395, and in a note which is there given (Ibid., 408), and which was cited by m3 - self, it was considered that an executor might give a preference, and make confession in favor of some creditors pending a suit by another creditor. The principle of those decisions would be destro}'ed if we should hold an assignment fraudulent because it may operate to the prejudice of a particular creditor. Such an assignment as the present is to be referred to an act of duty rather than of fraud, when no purpose of fraud is proved. The act arises out of a discharge of the moral duties attached to his character of debtor, to make the fund available for the whole body of creditors. Here, if the assignment had been for the purpose of fraud upon the plaintiff, the plaintiff would have been entirely excluded from it, whereas it appears that his name was once proposed and inserted as a trustee. The deed also when ex- ecuted was not then taken up on the sudden and for the first time, but had been in the contemplation of the debtor for several months before. It is not the debtor who breaks in upon the rights of the parties by this assignment, but the creditor who breaks in upon them by proceeding in his suit. I see no fraud ; the deed was for the fair purpose of equal distribution. In the case before Lawrence, J., I cannot help thinking that the deed must have been made in trust for the party himself; otherwise that learned judge, who could not have been ignorant of 222 RUSSELL V. WOODWARD. [CHAP. IV. Holbird v. Anderson, must have felt the weight of it, unless there was some such distinction. If that were not so, I cannot agree that what he ruled was according to the law. The uniform practice has been otherwise, particularly in the case of executors, which is in pari mate- ria, and also in the case of Holbird v. Anderson. Rule absolute. 1 RUSSELL v. WOODWARD. MASSACHUSETTS SUPREME JUDICIAL COURT, 1830. [Reported in 10 Pickering, 408.] REPLEVIN. At the trial, before MORTON, J., it appeared that the defendant, a deputy sheriff, had taken the property replevied, on a writ of attachment in favor of Dan Wilmarth against Nathaniel Wheeler, the property at the time of the attachment being in the actual posses- sion of Wheeler. The plaintiffs (who were four in number) claimed the property by virtue of a prior assignment made to them by Wheeler, by an indenture between Wheeler of the first part and the plaintiffs of the second part. By the indenture, Wheeler, in consideration of the covenants on the part of the plaintiffs therein contained, assigns to the plaintiffs certain real and personal estate and choses in action, in trust to sell and dis- pose of the same or such part thereof as they may see fit, at such times and on such terms and at such prices as may seem to them most expe- dient, and out of the proceeds, after deducting necessary expenses and a reasonable compensation for their own labor, to pay all and every of the creditors of Wheeler, in ratable proportion to the debt of each, without preference, so far as the funds will go, and the surplus, if any, to hold to Wheeler's use ; and the plaintiffs accept the trust, and covenant, each for himself, that they will faithfull}' execute the trust, and that Wheeler shall be permitted to use and occupy the propertj 7 so conveyed, committing no waste thereon, until such time as the same shall be sold or disposed of in the due execution of the trust. The indenture was recorded in the registr}" of deeds, on the day of its date. It was objected that the assignment was void for want of considera- tion, and on account of the clause which permitted Wheeler to remain in possession of the property until the plaintiffs should take posses- sion thereof to execute the trust ; but the objections were overruled. It was also objected, that the assignment was fraudulent, inasmuch as the plaintiffs had not proved that they were creditors of Wheeler ; 1 LE BLANC, BAYLEY, and DAMPIER, ,TJ., delivered brief concurrent opinions. For many decisions in accord with Pickstock v. Lyster, see 14 Am. & Eng. Encyc. of Law (2d ed.), 393, n. 3 and 4. But see Dalton v. Currier, 40 N. H. 237. SECT. L] RUSSELL V. WOODWARD. 223 whereupon evidence was given that Russell and Vickery, two of the plaintiffs, were creditors at the date of the assignment, though the amount of their debts was small in comparison with the property as- signed ; but the judge suggested that the burden of proof on this point was upon the defendant. The jury found a verdict for the plaintiffs. If either of the fore- going directions and decisions was incorrect, a new trial was to be granted. W. Baylies, and W. A. F. Sproat, for the defendant. C. Gr. Lorinff, for the plaintiff. The opinion of the court was afterwards drawn up by SHAW, C. J. Were the validity, effect, and operation of a trust as- signment, made by a failing debtor, for the avowed purpose of provid- ing for the disposition of his property, and making a ratable distribu- tion of the proceeds among his creditors, upon general principles of law, equity, and expediency, so far as a court of law can properly take into view considerations of expediency, now for the first time drawn in question, the able argument of the plaintiff's counsel maintaining the ground, that the assignment in question vested the whole of the assign- ed property in the assignees, so as to bind all creditors and bar the right of attachment, whether the creditors generally, or creditors to any particular amount, had become parties to it or not, would certainly be entitled to great consideration. But this court is not now at liberty to regard these as open questions. In the absence of a general bankrupt law, a series of judicial decisions has taken place upon this subject, ex- tending over a period of nearly thirt}' .years, founded upon the princi- ples of law and equit}', and the nature and extent of remedies as they existed at the time of these respective decisions, by which a s\'stem of rules of conduct and action, especially among the trading community, has been established, at least so far as such sj'stem can be established by judicial decision and precedent. Under this S3 - stem, and in reliance upon it, contracts and transfers have been made, rights and remedies acquired, to a large extent ; and it would be inconsistent with the plain principles of justice now to disturb them, or to change the law, in any other mode than by a legislative act, which should look only to the future, and guard by adequate provisions, all acquired and existing rights. This system recognizes the right of a creditor to attach the personal property of his debtor on mesne process, and to hold it as security for such judgment as he may recover, being a right founded upon early colonial laws, and uniformly practised upon in this Commonwealth. It also recognizes the right of a debtor to give a preference to one or more of his creditors ; and by agreement with him or them, to transfer a por- tion or the whole of his propert}'to them in satisfaction of a subsisting debt, or as an indemnity against a subsisting suretyship or other lia- bility. Such property may consist either in real or personal estate, of securities, or choses in action. 224 RUSSELL V. WOODWARD. [_CHAP. IV. It is but a slight extension of this rule, that as the debtor may con- vey propert}* to one or more of his creditors, in satisfaction of their debts, so he may convey to a third person, appointed b} - such creditors and for their use, or appointed in the first instance by the debtor, if the creditor afterwards assent to and ratify such appointment. Or the assignee may stand in both characters, acting for himself to the extent of his own debt, and as a depositary and trustee for others, by their appointment or assent. But if under a pretence of a conve}"ance for the benefit of creditors, the debtor transfers his property upon any secret tru,st for himself, if it is attended with any of the known badges of fraud, not satisfactorily explained or removed, the conveyance is void at law. As the transac- tion imports upon the face of it, that the grantor is insolvent, any vol- untary or gratuitous conveyance or conveyance without an adequate consideration, is void as against creditors. From these views of the law, as settled by a series of decisions, it is manifest, that jn order to maintain a conve.yance to trustees, bj" a fail- ing debtor, for the benefit of creditors, against an attachment of a creditor not a party to suck, assignment, it must appear that the assign- ment was rnadje-xupon a valuable and adequate consideration^rind in good faith, to- satisfy or secure real existing debts, or to indemnify against actual and subsisting liabilities ; and as it appears, by the re- citals and terms of such assignment, that the grantor is insolvent, and that no actual consideration in money or other equivalent is paid by the grantees, such consideration must consist in the faithful applica- tion of the assigned property to the payment and discharge, in part or in whole, of the assignor's debts and liabilities, or in an acceptance of the same in satisfaction, by the creditors and sureties to whom or to whose use it has been conveyed ; it must appear that such conveyance has been accepted in payment or satisfaction, by such creditors and sureties, in order to make such transfer complete and available against attaching creditors. It has been argued in the present case, that as the assignment does not in terms require the creditors, by becoming parties to it, to release their debts, or take upon themselves any other onerous condition, and as the assignment must of necessity therefore operate as a benefit to them, their assent is to be presumed. But the court are strongly in- clined to the opinion, that this circumstance of not executing a release, makes no substantial difference, and therefore that in conformity to a series of decisions, it must be held, that the assignment of the whole or the bulk of an insolvent debtor's property, to assignees selected wholly by himself, and without the knowledge of the creditors, in trust to dispose of the same upon such terms as the debtor alone thinks fit to impose, and to distribute the proceeds among the creditors, does not appear to be so plainly beneficial to them as to come within the princi- ple relied upon in the argument, upon which their assent is to be pre- sumed. It must be considered that by assenting to and affirming such SECT. I.] RUSSELL V. WOODWARD. 225 assignment, the creditors do in effect consent that the whole of such insolvent's available property, instead of being applied to the satisfac- tion of their debts, according to the rules of law, and under the direc- tion of the creditors themselves, shall go into the hands of a stranger, appointed by the debtor, and under his direction. We think it would be difficult to presume without proof, that the creditors have assented to an arrangement which thus defeats their legal remedies, especially against a creditor, who by bringing his suit and attaching the property, has expressed his dissent from and disaffirmance of the assignment. But this point does not necessarity arise in the present case. It does not appear that there were creditors whose debts would be sufficient to absorb the assigned property, even if their assent, without their be- coming parties, could be presumed. It appeared in evidence, that a large amount of propert}' was assigned, and that the amount due the assignees, and those whom they represented, was small. In this state of the evidence, it was ruled, that the burden of proof was upon the defendant to impeach the consideration, as being fraudulent against creditors. Such is undoubtedly the rule, in ordinaiy cases of the con- veyance of property, impeached on the ground of being intended to delay or defeat creditors and fraudulent upon that ground. But for the reasons before stated, a different rule prevails where the assignment, on the face of it, purports to be made by an insolvent debtor to trustees, for the use of creditors, and where the conveyance does not purport to be made upon consideration of money paid. There we think the burden of proof is upon the assignees to show an adequate consid- eration for the assignment. What is an adequate consideration, de- pends upon such circumstances which may be extremely various, and in regard to which it is not now necessary to express an}' opinion. The court are all of opinion, that in the state of the proof upon the trial of this cause, the suggestion from the court, that the burden of proof was upon the defendant, and that the plaintiffs as assignees were under no necessity of proving the existence of their own debts or of the debts of other creditors, as a consideration for the assignment, was in- correct, and therefore that there must be a new trial. 1 1 In England it is requisite that one or more of the creditors assent expressly or by implication. Until then the deed is regarded as revocable for the assignor, it is held, " is merely directing the mode in which his own property shall be applied for his own benefit." Garrard v. Lauderdale, 3 Sim. 1,12. But in this country, except in Massa- chusetts, assent of creditors is not necessary to the validity of an assignment. Bnrrill on Assignments (6th ed.), 256-268. Assignments frequently contain provisions requiring creditors to assent within a specified time. If the time in reasonable, such a provision is valid. lUirrill, 186. 226 GARDNER V. COMMERCIAL NATIONAL BANK. [CHAP. GARDNER v. COMMERCIAL NATIONAL BANK OF PROVIDENCE. ILLINOIS SUPREME COURT, MAY 18, 1880. [Reported in 95 Illinois, 298.] MR. JUSTICE SCHOFIELD delivered the opinion of the court. Although the deed of assignment was executed in Rhode Island, yet its validity and effect, as an instrument for the conveyance of real es- tate located here, must be determined by our law. Story's Conflict of Laws, 364 ; Rorer on Inter-State Law, pp. 139, 204 ; Cutter v. Davenport, 1 Pick. 81 ; Osborne v. Adams, 18 Pick. 245 ; Hartford v. Nichols, 1 Paige, 220 ; Chapman v. Roberts, 6 Paige, 627 ; Wills v. Cowper, 2 Ham. 124 ; Loving v. Paire, 10 Iowa, 282. The deed of assignment recites that, " whereas, the said Sackett, Davis & Co. are indebted to divers persons in divers sums of money, and their assets, although amounting in value to about three times their said indebtedness, cannot immediately be made available for the payment of the same," etc. And it empowers the trustees, in their discretion, " to carry on the said jewelry business, of the parties of the first part, for such time as the said trustees ma}' deem for the best in- terests of the creditors, and necessary for the purpose of preventing shrinkage and loss, and of closing out and liquidating the same to the best advantage." In this feature the case is analogous to Van Nest v. Yoe et Z., 1 Sandford Ch. 4, where, in a very well-reasoned opinion, the Vice-Chancellor held the deed of assignment void, as tending to hinder, delay, and defraud creditors. The placing of the property in the hands of assignees for an}- other purpose than to enable them to distribute it or its proceeds among creditors, must necessarily have the effect to, in some degree, hinder and delay creditors in the collection of their debts. And when the assignor has, or thinks he has, more property than is necessary to pay his debts, the assignment can only be presumed to be intended for his own benefit, for, in that contingency, he alone is to be profited. In the case referred to it is cogently said by the Vice-Chancellor: " No assignment was ever made by a debtor who supposed himself to be solvent, with a view or for the purpose of selling and converting his property into money more speedily than it could be done by process of law. If such were his design, he would effect it himself without the intervention of an assignee. The real object is to gain time to pre- vent the speed}' sale and conversion which an execution would inevit- ably accomplish." And, again, he says: "The debtor who, believing himself more than solvent, places his property beyond the reach of the process of the law, whatever may be the pretence under which he cloaks the act, in the language of the Statute of Frauds, ' hinders ' and ' delays,' SECT. I.] GARDNER V. COMMERCIAL NATIONAL BANK. 227 and ultimate!}- defrauds his creditors. It is no answer to this argument to sa}- that the debtor provides an ample fund for the payment of the debt, and that the creditor is ultimately to be paid in full. The law gives to the creditor the right to determine whether his debtor shall have further indulgence, or whether he will pursue his remedy for the collection of the debt. The deferring of payment is, generally, an in- jury to the creditor, and he ma}' be overwhelmed with bankruptcy for the want of the fund which is locked up b} - the voluntary assignment of his debtor. It is mockery to such a creditor to say that the assign- ment is made for the benefit of creditors." See also, to the same effect, Kellogg v. Slawson, 15 Barb. 56. 1 Manifestlj', the carrying on the jewelry business, in view of the as- signors' supposed solvency, " for such time as the trustees may deem . . . necessary for the purpose of preventing shrinkage and loss, and of closing out and liquidating the same to the best advantage," could only be designed to prevent a sacrifice of the assignors,' property and business that would result from the enforcement of the payment of their debts by the ordinary process of law ; and this, as well as the further clause in the deed of assignment authorizing them to " make, sign, indorse, and guarantee any and all bills of exchange, promissory notes, or other commercial paper, . . . for any new indebtedness or liability which may be contracted in so canning on said business," and to lease or mortgage the real estate, etc., clearly vests power in the trustees to hinder, dela}', etc., the creditors in the collection of their debts. They are not compelled, unless upon a request of a majority of the creditors, to close out and make final settlement of the business, at any particular time. Their judgment of what is " for the best interests of the creditors, and necessary for the purpose of preventing shrinkage and loss, and of closing out and of liquidating the same to the best advantage," is to control. And, although it might appear as clearly as anything could, that the " best interests of the creditors " required the business to be closed up, still, this alone is not sufficient, for they 1 Affirmed in 1 1 N. Y. 302. In accord are Higby v. Ayres, 14 Kan. 331 ; Holmberg v. Dean, 21 Kau. 73 ; German Ins. Bank v. Nunes, 80 Ky. 334; Baldwin v. Bnckland, 11 Midi. 389; Angell v. Rosenbury, 12 Mich. 241; Gere v. Murray, 6 Minn. 305; First Nat. Bank v. Hughes, 10 Mo. App. 7; Knight v. Packer, 1 Beas. 214; London v. Packer, 7 Jones L. 313; Gardner v. Commercial Nat. Bank, 13 R. I. 155. See also Malvin v. Wert, 19 Fed. Rep. 721 ; Guerin v. Hunt, 8 Minn. 477 ; North Ward Nat. Bank <. Conklin, 51 N. J. Eq. 7 ; Livermore v. Northrup, 44 N. Y. 107. The Missouri and Rhode Island decisions were upon the same assignment as that in Gardner v. Commercial Nat. Bank. But see contra, Hunter r. Ferguson, 3 Colo. App. 287 (statutory) ; Munson v. Ellis, 58 Mich. 331 ; Ogden v. Peters, 21 N. Y. 23. In Munson v. Ellis, the court said: "A person, whether insolvent or not, may legally execute a conveyance of his property to a trustee or assignee to pay his indebtedness, if he have any. Such conveyance would not be void upon its face, nor intrinsically so. Creditors could attack its validity upon the ground that it was made with intent to hinder, delay, and defraud them, and unlesa they could establish such intent the assignment would be valid." See also Savery Spaulding, 8 la. 239; McCandless r. Hazen, 98 la. 321. 228 GARDNER V. COMMERCIAL NATIONAL BANK. [CHAP. IV. are also to have in view, before acting, what is " necessary for the pur- pose of preventing shrinkage and loss," etc , etc. Nor does there appear any limitation upon the trustees, other than what their own judgments may impose, to prevent their incurring new debts in the business, and incumbering the property to its full value for their payment, indefinitely in the future, or to prevent their exhaust- ing the property assigned in the payment of such debts. They have power to carry on the business, 1 to create debts, and give notes, etc., therefor, and to sell and convey and mortgage the real estate. But we have frequent!}- held that a debtor is only allowed to place his property beyond the reach of his creditors b}- making a general assignment of all his propert}', when he does so for the benefit of the creditors, by devoting it fairly to the payment of his debts, and not with a view to his own advantage. Nesbitt et al. v. Digby et al., 13 111. 387 ; Phelps et al. v. Curts et al., 80 111. 113 ; Hardin v. Osborne, 60 111. 93. To make such a deed valid the debtor's property must be uncondi- tionally and without restriction transferred to the assignee, with a gen- eral authority to him to receive, hold, and dispose of it for the equal benefit of all the creditors in the order of preference, if any, provided for. Mclntire v. Benson, 20 111. 500. In Vernon v. Morton et al., 8 Dana (Ky.), 263, the court says : " If the intention in executing the deed be to hinder and delay creditors, it will vitiate the whole deed, though it be made upon a good considera- tion, or for the just and equitable purpose of securing an equal distri- bution of the effects among all the creditors." And again : " When it appears on the face of a deed of trust that the motive for making it was to prevent a sacrifice of the propert}-, a bad motive is shown, a motive to obstruct the ordinary process of law, or the subjection of the 1 Such provisions render an assignment fraudulent. Owen v. Body, 5 A. & E. 23 ; Spencer v. Slater, 4 Q. B. D. 13 ; Hill v. Agnew, 12 Fed. Rep. 230; Stafford Nat. Bank i'. Sprague, 17 Fed. Rep. 784; Webb v. Armistead, 26 Fed. Rep. 70; De Wolf v. A & W. Sprague Mfg. Co., 49 Conn. 282; Jones v. Syer, 52 Md. 211 ; Gere v. Murray, 6 Minn. 305; First Nat. Bank v. Hughes, 10 Mo. App. 7; Dunham v. Waterman, 17 N. Y. 9; Peters v. Light, 76 Pa. 289; Gardner v. Commercial Nat. Bank, 13 R. I. 155; Lowenstein v. Love, 16 Lea, 658; McCormack v. Bignall, 1 Tex. Civ. App. 760; Landeman v. Wilson, 29 W. Va. 702. See also Bernard v. Barney Myroleum Co., 147 Mass. 356. But a provision authorizing the continuance of business so far as is necessary to dispose of the property on hand, or to work up raw material on hand, is generally held valid. Janes v. Whitbread, 11 C. B. 406; Coates v. Williams, 7 Ex. 205; Talley v. Curtain, 54 Fed. Rep. 43 ; Rankin v. Lodor, 21 Ala. 380 ; De Forest v. Bacon, 2 Conn. 633 ; Kendall v. New England Carpet Co., 13 Conn. 383 ; Christopher v. Covington, 2 B. Mon. 357 ; Woodward v. Marshall, 22 Pick. 468 ; Mattison v. Judd, 59 Miss. 99 ; Anderson v. Lachs, 59 Miss. Ill ; Bobbins v. Butcher, 104 N. Y. 575 (distinguishing Dunham v. Waterman, 17 N. Y. 9, which seems contra) ; Stoneburner r. Jeffreys, 116 N. C. 78; Rindskoff r. Guggenheim, 3 Coldw. 284; Marks v. Hill, 15 Gratt. 400; Williams v. Lord, 75 Va. 390. See also Nat. Union Bank v. Copeland, 141 Mass. 257. Some of these cases seem, on their facts, inconsistent with some of those in the first paragraph. SECT. I.] GARDNER V. COMMERCIAL NATIONAL BANK. 229 property to the payment of the debts, which vitiates the whole deed." To the same purport is, also, Ward a. Trotter, 3 Monroe, 1. * So, we have held a deed of assignment void because of a clause therein authorizing the sale of the goods and property assigned on a credit. Bowen v. Parkhurst, 24 111. 257 ; Pierce v. Brewster, 32 111. 268 ; Whipplc v. Pope, 33 111. 334. l The principle applicable here is precisely the same as in the last- mentioned cases. There the sale on credit was prohibited because it would involve the tying up of the assets, and hence compel a hindrance, delay, and postponement of the claims of creditors. But if the property may be held until new debts are incurred and then mortgaged to secure their payment, or sold and the proceeds devoted to their payment, it is equally clear that the creditor is hindered, delayed, and postponed in the collection of his debt. The suggestion that, as to such new debts, the trustees would only bind themselves, is entirely outside of the language of the deed of as- signment. It indirectl}' but clearl}* recognizes the right of the trustee to make new debts, which shall become charges upon the property, and by necessary implication to secure the same by mortgage, or pay the same out of sales of the property, and it is by its own terms that, so far as affects the question under consideration, it must stand or fall. It is not necessary that we should, at present, question the right of a failing debtor, in his deed of assignment, to authorize his assignee to continue to carry on the business to which the assigned property has been devoted, when this is limited to disposing of the stock on hand, and such incidental business as ma}' be reasonably requisite thereto. But this business is not thus limited. The deed here authorizes the trustees to carry on the business generally, for which purpose they are invested with " full and uncontrolled power, in their discretion," and the only attempt at limitation is that in respect of the time which the business may be carried on, which we have before commented upon. And this distinguishes the cases referred to and relied upon by coun- sel for appellants from the present case. None of them sanction the l Mullet o. Norton, 19 Fed. Rep. 719; Shadier v. Carroll, 19 Fed. Rep. 721 ; Rich- ardson 17. Rogers, 45 Mich. 591 ; Bennett v. Ellison, 23 Minn. 242, 252; Brahmstadt v. McWhirter, 9 Neb. 6, 9; Rapalee r. Stewart, 27 N. Y. 310, Beusa v. Shaughnessy, 2 Utah, 492 (conf. Sprecht v. Parsons, 7 Utah, 107) ; Page v. Olcott, 28 Vt. 465, 468; Haines i. Campbell, 8 Wis. 187 (conf. Cribbcn v. Ellis, 69 Wis. 337), arc. Janes . Whitbread, 1 1 C. B. 406 ; Wright v. Thomas. 1 Fed. Rep. 716 ; Re Walker, 18 N. B. R. 56 ; England r. Reynolds, 38 Ala. 370 , Wilhoit v. Lyons, 98 Cal. 409; Petrikin v. Davis, Morris (la.), 296, 300; Farquharson v. Eichelberger, 15 Md. 63; Richardson v. Marqueze, 59 Miss. 80; Baum v. Pearce, 67 Miss. 700; Moore v. Carr, 65 Mo. App. 64; Meyer v. Black, 4 N. Mex. 190, Stoncburncr r. Jeffreys, 116 N. C. 78; Conklin v. Coonrod, 6 Ohio St. 611 ; Gimell v. Adams, 11 Humph. 283; Moody v. Carroll, 71 Tex. 143; Dance v. Seaman, 11 Gratt. 778, 781, contra. A provision requiring or permitting postponement of the sale of the trust property does not vitiate the assignment if such delay is not more than is reasonably necessary for a favorable liquidation of the property. A provision allowing greater delay is void. 14 Am. & Eng. Encyc. of Law (2d ed.), 406. 230 GROVER V. WAKEMAN. [CHAP. IV. doctrine that trustees ma}' be invested with " full and uncontrolled power " to carry on business. Nor could a doctrine, so at variance with reason, receive our sanction, even if announced by respectable courts. The court below property held the deed void as against creditors, and its judgment must therefore be affirmed. Judgment affirmed. GROVER v. WAKEMAN. NEW YORK COURT FOR THE CORRECTION OF ERRORS, DECEMBER, 1833. [Reported in 11 Wendell, 187.] SUTHERLAND, J. The question to be decided in this case is whether the assignment made by Grover and Gunn, on the 1st daj- of July, 1826, is fraudulent and void upon its face, as being calculated and in- tended, in judgment of law, to dela}', hinder, and defraud their creditors, in the prosecution and collection of their debts. The most important objection made to the assignment grows out of the condition attached to the paj'ment of the creditors named in class No. 2. The assignees are directed, after discharging the debts due to class No. 1, to appor- tion whatever surplus may remain, among such of those named in class No. 2 as will agree in writing under seal to receive what ma}' fall to them upon such apportionment, in full discharge of all their claims and demands upon the assignors. The residue of the avails, if any, are then to be applied to the payment of the debts due to the debtors in class No. 3, and of all other debts justly due and owing b} - the assignors, to be proven to the satisfaction of the assignees ; and if any surplus shall then remain, it is to be paid over to the assignors. It was contended by the complainant in the court below, the respon- dent here, that such of the creditors in class No. 2 as shall refuse to come in and discharge the assignors, upon the terms there offered them, are entirely excluded from all benefit from the assignment ; that if there should be a surplus after paying all the other creditors, according to the terms and spirit of the instrument, the assignees could not pay it to them, but must pa} r it to the assignors themselves. Upon a care- ful consideration of this instrument, and applying to it the ordinary rules of interpretation, I do not think that such is its necessary or just construction. The debts of the first class are first to be paid ; then an apportionment is to be made among the debts of such of the second class as will accept what may then fall to them, and give absolute re- leases. The residue, if an}', is then to be applied to the debts of class No. 3, and to all other debts justl}' due and owing by the assignors. Other than what? Why, obviously, other than those for the payment of which provision had alread} 7 been made. But no provision had been SECT. I.] GROVER V. WAKEMAN. 231 made for those of class No. 2, who should refuse to accept their distrib- utive shares and give releases. They fall, therefore, an my opinion, within the terms of the residuary clause, and would be entitled to be paid under the assignment, if the fund should be sufficient for that pur- pose. A fraudulent intent is never to be presumed ; and where an in- strument is ambiguous in its terms, and admits of two constructions, that interpretation should be given to it which will render it legal and operative, rather than that which will render it illegal and void. It was supposed that the provision that these residuary debts should be proven to the satisfaction of the assignees tended to show that none of those enumerated in class No. 2 could have been intended to be covered by the residuary clause, because the assignors had, on the face of the assignment, admitted those to be valid and existing debts ; and of course, if those were the debts intended to be covered, they would not have imposed on their assignees the useless dut}" of exacting and re- ceiving proof in relation to them. This suggestion is susceptible of two answers. In the first place, there may have been man} 7 other debts not enumerated, and in relation to which it would have been necessary and proper to require proof; and in a provision of this description, a party would naturally employ general and comprehensive terms, al- though they might embrace some cases in relation to which the pro- vision was superfluous. But, secondl}', upon adverting to the schedule, which contains class No. 2, it will be perceived that many of the debts there enumerated are stated by estimation only. Of the $34,000 em- braced in that class, more than one fourth, or about $9,000, are debts of that description. In relation to them, it was proper and necessary to exact proof, as there was no liquidation or admission of their amount ; and in relation to those that were specifically stated in the schedule, the schedule itself would probably be sufficient evidence to justify the assignees in receiving them. I entertain no doubt, there- fore, that under this assignment, such of the creditors of the second class as should refuse to accept their shares of the property assigned in full satisfaction and discharge of their debts were not absolutely ex- cluded from the benefit of the assignment, but only postponed to a subsequent class. 1 Having thus settled the character and construction of the assign- ment, the question recurs, whether it is void on account of the con- dition on which it makes the preference given to the creditors of the second class to depend, to wit, an absolute discharge of their debts. It is perfectly settled, both in England and in this country, that a debtor in failing circumstances has a right to prefer one creditor or set of creditors to another, in all cases not affected by the operation of a bankrupt system. He may assign the whole of his property for the 1 If such creditors were absolutely excluded, tho assignment would almost univer- sally be held fraudulent, as the result would be to reserve a possible surplus for the debtor to the exclusion of non-assenting creditors. Burrill on Assignments (6th !.), 164. 232 GROVER V. WAKEMAN. [CHAP. 17. benefit of a single creditor, in exclusion of all others ; or he may dis- tribute it in unequal proportions, either among a part or the whole of his creditors. 1 No matter how or upon what principles the distribu- tion is made, if the debtor devotes the whole of his property to the pay- ment of just debts, neither law nor equity inquires whether the objects of his preference are more or less. meritorious than those for whom he has made no provision. 3 Maule & Selw. 371 ; 4 Mason, 210 ; 5 T. R. 235 ; 6 T. R. 152 ; 8 T. R. 521 ; 4 East, 1 ; 2 P. Wms. 427 ; 1 Atk. R. 95, 154 ; 2 Johns. Ch. R. 283 ; 3 Johns. R. 71 ; 5 Johns. R. 382 ; 1 Binn. 502 ; 18 Mod. 489 ; 5 T. R. 424 ; 15 Johns. R. 583 ; 5 Cowen, 547. The right to prefer may originally have been sustained in part upon the supposition that just and proper grounds of preference did in most cases exist, and would be duly regarded by the debtor ; but whatever may have been the reason or foundation of the rule, it is one of that numerous class of cases in which the rule has become absolute, without anj' regard to the fact whether the reason on which it was founded exists or not in the particular cases. It is now too late to agitate the question, whether these assignments, either partial or general, are sus- tained by considerations of true wisdom and policy. Reflecting men. have differed upon that subject ; but the better opinion seems to be, that in the absence of a general bankrupt system, the interests of a commercial community require that they should be sustained. They have accordingly grown into use, and have been sanctioned by judicial decisions in most of the States of the Union. They have become thor- oughly incorporated into our system ; and all that it is now competent for our courts to do, is to see that the}' fairly appropriate all the insol- vent's propert}', or such portion of it as he undertakes to assign, to the payment of his just debts, and are not made the instruments of placing it be}'ond the reach of his creditors, and for the benefit, either immedi- ate or remote, of the insolvent himself. Whenever they depart from the simplicity of a direct and unequivocal devotion of the property of the assignor to the pa}*ment of his debts, and contain reservations and conditions, intended for his ease and advantage, they are viewed with considerable, and I think I may add, in view of the course of judicial decisions in this State, with increasing distrust. 1 Assignments with preferences, though generally held valid at common law, Hunt- ley v. Kingman, 152 U. S. 527, 532, have been forbidden by statutes in most States, but are still allowed, apart from the National Bankruptcy Law, in Arkansas, Georgia, In- dian Territory, Mississippi, Montana, New York (only to the extent of one third of the estate), North Carolina, Utah, Virginia. In some of the States where assignments with preferences are not allowed the debtor may, however, subject to the possibility of a petition in bankruptcy, give a preference by actual payment or transfer of part of his property, and immediately thereafter make a general assignment of the remainder. See e. g. Cross v. Carstens, 49 Ohio St. 548, and conf. Huey v. Prince, 187 Pa. 151. Where assignments with preferences are not permitted, the effect of such assignments is not everywhere the same. In some jurisdictions the assignment is treated as a fraudulent conveyance ; in others it takes effect as if made without preferences ; in others it merely afforded ground for proceedings under State insolvency laws, now suspended. SECT. I.] GROVER V. WAKEMAN. 233 The precise question now presented to us has never been decided in this State. In Hyslop v. Clarke, 14 Johns. 458, Austin v. Bell, 20 Johns. 442, and Seaving v. Brinckerhoff, 5 Johns. Ch. R. 329, it arose in connection with other circumstances which had more or less influence in the decision of those causes. Hyslop v. Clarke was an action of tres- pass, brought by the assignees of Barnet and Henry against a judgment creditor of the assignors, who had caused tin execution to be levied upon their property notwithstanding the assignment. The plaintiff claimed the property under the assignment, and the defendants con- tended that the assignment was void, and did not pass the property out of the assignors. The trusts declared in that case were, (1) To pa} T a certain debt due to the assignees ; (2) To pay all the other creditors of the assignors in full, if the property should be sufficient; if not, then ratably, provided they should several!}' and respectively discharge the assignors from all further liability for their debts ; but if the creditors or an) r of them should refuse to give such discharge, then the second trust was to become void, and the trustees were directed not to execute it. They were, then, 3dly, after paying the debt of Hyslop & Co., the assignees, to hold the residue in trust to pay the whole of the avails to such of the creditors of the assignors as they should appoint, as soon as such refusal should be known to them ; and (4) To pay the residue to the assignors. Here, as was remarked by Judge Van Ness, the as- signment did not actual!}' give a preference to any of the creditors, ex- cept Hyslop & Co. ; but it was an attempt on the part of the debtors to place their property out of the reach of their creditors, and to retain the power to give such preference at a future time, upon their own terms and conditions. The trust for the benefit of all the creditors ceased whenever any one of the creditors refused to come in on the terms prescribed, and the property was then held in trust for the as- signors themselves ; and as the creditors could not reach it at law, it the assignment was valid, so Judge Van Ness held that they could not effectually reach it in equity. For if an}' one should file a bill to com- pel the assignors to make a new declaration of trust, as the power re- served was to select whom they pleased, if a decree should be made ordering a new declaration, the assignor might exclude tlie very cred- itor who had filed the bill. Under such circumstances, no creditor would ever file a bill. That assignment, then, differed from the one now un- der consideration in two essential particulars: (1) It reserved to the grantor a right subsequently to control the property by appointing new uses ; and (2) the power of any one creditor effectually and beneficially to compel such declaration was exceedingly doubtful, if not impos- sible. The weight which these circumstances had in the decision of the cause may be subsequently considered. The case of Murray ?' Riggs, 15 Johns. R. 571, shows that the control over the property which the assignor there reserved was of itself sufficient to avoid the deed. In Austin v. Bell the assignment contained a reservation of $2,000 per annum for a limited time to the assignor. It also exacted 234 GROVER V. WAKEMAN. [CHAP. IV. from the creditors who were to be benefited by it a general release ; and it then provided that if any of the creditors named should not within a limited time become parties to the assignment, and thereby discharge the assignor, that the assignees should then pa} T to the assignors the proportion which would otherwise have gone to such creditors ; and it was on this ground principally that the assignment in that case was held void. The provision for the grantors themselves was then sup- posed to have been sanctioned by the court in Murray v. Riggs ; and Ch. J. Spencer put his opinion mainly on the ground that by the pro- vision of the assignment the shares of such of the creditors as should refuse to execute it were to revert to the grantors for their own private benefit and use. In Seaving v. Brinckerhoff the assignment also con- tained the condition that the creditors who should come in under it should give a full discharge of their demands ; and if any of them re- fused, their shares were to be held in trust for the grantor. Chan- cellor Kent laid great stress in that case upon the fact that the assignment did not embrace all the property of the assignor, and yet ex- acted a release from his creditors upon a partial paj'tnent ; he says the condition was oppressive and without any color of justice in this case, inasmuch as the assignment was not general of all the property, but 'onty of a specified part ; a partial assignment upon such a condition is pernicious in its tendency if it be not fraudulent in its design ; and in relation to the resulting trust, he remarked that a power of coercion over the creditor, with the reservation of such a resulting trust to the grantor in case the coercion should not be successful, was deemed by the Supreme Court, in Hyslop v. Clarke, to be a badge of fraud and not a fair and lawful assignment. But although it is not adjudged in any of these cases that an assign- ment is fraudulent and void, which merely makes the preference given to creditors to depend upon their releasing the grantor, but which at all events devotes the whole property to the payment of his debts with- out any reservation for his own private benefit ; still, it cannot be con- tended that they sanction, with anything like the authorit^y of a judgment, the contrary doctrine. I am inclined to think that the weight of professional opinion in this State has been in favor of the validit}' of such assignments ; but that, so far as it depends upon our own adjudi- cations, the question is still open, and may now be settled by this court upon principle. Ver}' few cases are to be found upon this subject in the English books ; and whenever the question has arisen there, it has generally been upon composition deeds, to which the creditors were parties ; or has been more or less affected by considerations growing out of their bankrupt system. 4 T. R. 166 ; 8 T. R. 521. In the case, however, of the King v. Watson, 3 Price, 6, in the exchequer chamber, it must be conceded that the objection to the assignment which we are now con- sidering, existed and was urged against its validity, and that the objec- tion was overruled ; there, however, as in the other cases, the principal SECT. I.] GEOVER V. WAKEMAN. 235 question was whether the assignment was not void under the bankrupt laws. The case, however, is a very bald one, and is entitled to very little weight as authority. The opinion is exceedingly brief, and refers to no cases. This question has several times been under the consideration of the Supreme Court of Massachusetts ; but it has generally, if not always, been so connected with other objections to the assignment that it is ex- ceedingly difficult to say, upon a review of all those cases, what the judgment of that court would be upon the naked and insulated point which we are now considering. Hatch v. Smith, 5 Mass. 42 ; Widgefy v. Haskell, 5 Mass. 144 ; Ingraharn v. Geyer, 13 Mass. 146 ; Hastings v. Baldwin, 17 Mass. 552 ; Harris v. Sumner, 2 Pick. 129. Judge Story had occasion to consider these cases in Halsey v. Whitney, 4 Mason, 229, which was decided in October, 1826, and the conclusion which he deduced from them was, that this precise point was not directly de- cided in any of them. He observed that there were intimations in several of these cases which would justify a doubt whether the court were prepared to admit the validity of such a stipulation, while in others which contained a similar provision no objection was taken to it by the counsel who argued them, or b}- the court in their judgment. His conclusion on the whole was, that the point was not judicially set- tled in Massachusetts. In that opinion he is sustained by Chief Justice Parker, who, in Borden v. Sumner, 4 Pick. 265, which was decided in the same month with Halsey v. Whitnej', obviously considered the question as still open, and declined expressing any definitive opinion upon the subject, as it was not necessary to the decision of the cause then under judgment. The subsequent cases of Andrews v. Ludlow, 5 Pick. 28, and Lupton v. Cutter, 8 Pick. 298, leave the question in Massachusetts still in the same state of uncertainty. The most that can be said is, that in several of the cases, although the assignment contained this provision, the objection was not taken either by the counsel or the court. Judge Ware, of the U. S. District Court for the State of Maine, in the case of G. & I. Lord, libellants, v. The Brig Watchman, reported in the 16th No. of the Amer. Jurist, 284, in a very elaborate and learned opinion, in which all the Massachusetts cases are referred to, also came to the conclusion that it was there still an open question. In Pennsylvania, an assignment containing a stipulation for a release was sustained in Lippincott v. Barker, 2 Binney, 174. Judge Brecken- ridge, however, dissented, and Ch. J. Tilghman and Mr. Justice Yeates, whose opinions prevailed, took pains to put themselves upon the par- ticular circumstances of the case. The Chief Justice observed, p. 182 : " It being, however, to be distinctly understood that my opinion is con- fined to the circumstances of the present case ; for there are man}- and strong objections to deeds of assignment made without the privity of creditors, and excluding all who do not execute releases." Vide also Bnrd v. Smith, 4 Dall. 76. 236 GEOVER V. WAKEMAN. [CHAP. IT. On the other hand, the Supreme Court of Errors of Connecticut, in Ingraham v. Wheeler, 6 Conn. 277, pronounced an assignment fraudulent and void solely on the ground that it confined the distribu- tion of the property assigned to those creditors who should give the assignor a discharge. It was the decisive point in the case, and was fairly met and decided by the^ court. The same principle was also decided in Ohio, in Atkinson v. Jor- dan, 5 Hammond Rep. 293. In Pierpoint v. Graham, 4 Wash. C. C. Rep. 232, Judge Washington sustained an assignment containing this condition. In the district court in Maine, in the case already referred to, such a condition was held fraudulent. And Judge Story, in Halsey v. Whitney, 4 Mason, 230, although he came to the conclusion with obvious doubt and hesi- tation, that the weight of authority was in favor of the validity of an assignment with such a condition, did not hesitate to declare that if the question were entirely new and many estates had not passed upon the strength of such assignments, the strong inclination of his mind would be against their validity. It is very clear that Judge Story, in .coming to the conclusion that the weight of authority lay upon that side of the question, inferred it, as Judge Ware has expressed it, not so much from the authoritative decisions of the court, as from the silent acquies- cnce of the public ; not that it had been clear!}' settled, or distinctly recognized by the judicial tribunals, but that it had slowly ripened into a rule of the common law of Massachusetts by usage and custom. There being, then, such a conflict among the authorities, and so much doubt on which side the preponderance lies, it seems to be not only proper but necessary to consider the question with reference to the general principles involved in it. Every conveyance of property to trustees is, to a certain extent, a hindering and delaying of creditors. It interrupts and presents obstacles to their legal remedies ; and every such assignment is absolutely void, if it does not appoint and declare the uses for which the property is to be held and to which it is to be applied. A provision that the uses shall be subsequently declared by the assignor will not do ; they must accompany the instrument and ap- pear on its face, in order to rebut the conclusive presumption of a fraudulent intent, which would otherwise arise. But where the assignor parts with all control over the property, and devotes it absolutely to the benefit of his creditors, without any reservation or stipulations for his own advantage, the honesty of his intention is so apparent, and the advantage to the creditors so direct and decisive, that the}- cannot be said to be obstructed or delayed in their remedies. But where, instead of directly distributing his property among his creditors as far as it will go, he places it beyond their reach by an assignment, not merely for the purpose of saving it from one particular creditor, to be given to another, or to be equally divided among all, but for the purpose of enabling him to extort from some or all of them, an absolute dis- charge of their debts as the condition of receiving a partial payment, SECT. I.] GROVER V. WAKEMAN. 237 he perverts the power to a purpose which it was never intended to cover, and which the principle on which the right to give preferences is founded, will not justif\ r . Why should a debtor be permitted in this way to operate upon the fears of his creditors and coerce them into his own terms? It has sometimes been said, in answer to this view of the case, that there is nothing immoral or unjust in a debtor in embar- rassed circumstances, and who is unable to pay all his debts, making the best arrangement in his power with his creditors, and giving the largest dividend or the whole, to those who will settle with him on the best terms ; and if he caii do this while he retains his property in his own hands, there is no reason, it is said, why he should not be per- mitted to do it under the cover of an assignment. Parties not under legal disabilities ma}* make such contracts as they please ; and if they are supported by a consideration, and there is no fraud in the case, they will not be disturbed. If a debtor, therefore, with his property in his own hands and open to the legal pursuit of his creditors, can satisfy them that it is for their interest or the interest of any of them to ac- cept 2s. 6d. in the pound, and give him an absolute discharge, there is no legal objection to it ; the}* treat upon equal terms ; the ordinary legal remedies of the creditor are not obstructed. But the case is ma- terially changed when the debtor first places his property be3'ond the reach of his creditors, and then proposes to them terms of accommo- dation. He obstructs their legal remedies, hinders and delays them in the prosecution of their suits, by putting his property into the hands of trustees, with the view of getting an absolute discharge from his debts, and exempting his future acquisitions from all liability. It has been decided in this court that the reservation of the least pecuniary provision for the assignor or his family renders an assignment of this description fraudulent and void. How much more valuable is a dis- charge from his debts or a portion of them to an insolvent debtor than a temporary pecuniary pittance. Judge Van Ness, in Hyslop v. Clarke, states what I consider to be the sound principle upon this subject. He says an insolvent debtor has no right to place his propert}' in such a situation as to prevent his creditors from taking it, under the process of a court of law, and to drive them into a court of equity, where they must encounter expenses and delay, unless it be under very special cir- cumstances and for the purpose of honesth' giving a preference to some of his creditors, or to cause a just distribution of his estate to be made among them all. Judge Spencer, in Austin v. Bell, and Chan- cellor Kent, in Seaving v. Brinckerhoff, obviously concurred in the soundness of that position. Judge Story expressed his approbation of it in Halsey v. Whitne}'. The Supreme Court of Errors in Connecticut adopted it in Ingraham v. Wheeler, and it was most happily and im- pressively amplified and illustrated by the learned judge of the United States District Court for the State of Maine, in the case to which I have referred. It is time that some plain, simple, but comprehensive principle 238 GROVER V. WAKEMAN. [CHAP. IV. should be adopted and settled upon this subject. In the absence of a bankrupt law, the right of giving preferences must probablj* be sus- tained. Let the embarrassed debtor therefore assign his property for the benefit of whom he pleases ; but let the assignment be absolute and unconditional ; let it contain no reservations or conditions for the benefit of the assignor ; let it not extort from the fears and apprehen- sions of the creditors, or any of them, an absolute discharge of their debts as the consideration for a partial dividend ; let it not convert the debtor into a dispenser of alms to his own creditor ; and above all, let it not put up his favor and bounty at auction under the cover of a trust to be bestowed upon the highest bidder. After the maturest re- flection upon this subject, I have come to the conclusion that the in- terests, both of debtor and creditor, as well as the general pui'poses of justice, would be promoted, if the question is still an open one, b}- con- fining these assignments to the simple and direct appropriation of the property of the debtor to the payment of his debts. The remnants of many of these insolvent estates are now wasted in litigation growing out of the complex or suspicious character of the provisions of these assignments. One device after another to cover up the property for the benefit of the assignor, or to secure to him, either directly or in- directly, some unconscientious advantage, has from time to time been brought before our courts and received condemnation. But new shifts and devices are still resorted to, and will continue to be so, until some principle is adopted upon the subject, so plain and simple that honest debtors cannot mistake it, and fraudulent ones will be deterred from its violation by the certainty of detection and defeat. The principle to which I have adverted, it appears to me, if adopted, will, to a very con- siderable extent, accomplish that object. But there is another provision in this assignment which, it appears to me, it is impossible to sustain. It is that which gives to the assignee full power and liberty to compound with all or any of the creditors in such manner and upon such terms as they shall deem proper, so, however, as not to interfere with or depart from the order of preference established in the assignment. The effect of this provision is, as is stated by the Chancellor, to perpetuate the right of giving preferences by vesting in the assignees an arbitrary, power in relation to these several classes of creditors, and of compounding with any one upon such terms as they may think proper. I do not see how any other con- struction can be given to it ; it has repeatedly been decided that an as- signment which does not declare the uses, but reserves to the assignor the power of subsequently doing it, is fraudulent and void ; and if the assignor cannot reserve the power of giving preference to him- self, he certainly cannot legally confer it upon his assignee ; the same objection in principle exists in both cases. 1 1 Hudson v. Maze, 4 111. 578; State v. Benoist, 37 Mo. 500, 512; McConnell v. Sherwood, 84 N. Y. 522, ace. See also Smith v. Hurst, 10 Hare, 30; Gazzam v. Poyntz, 4 Ala. 374; Skeevil v. Donaldson, 20 Kan. 165; Mussey v. Noyes. 26 Vt. 462. SECT. I.] GROVEB V. WAKEMAN. 239 The next and only remaining objection to the assignment which I shall consider is, that it does not fix the time within which the assignees are to give notice to the creditors in class No. 2 to come in and exe- cute the discharge and receive their dividend. After paying class No. 1, the assignees are to pay the surplus to such of the creditors in class No. 2 as shall, within three months from the time when thereunto in writing requested by them, agree to receive their dividend and execute a discharge. The Chancellor seems to suppose that the assignees, under this provision, may give notice to one of the creditors at one time, and to others at another time, and that each must come in within three months after receiving his notice. When the first comes in, he must execute a discharge, although there is no certaint}* whether the others will be called upon, or that they will have an opportunity of coming in within a reasonable time. I should incline to the opinion that it was the duty of the assignees to give notice to all the creditors at the same time. But still, the objection remains that that time is not fixed or limited by the assignment, but is left to their discretion ; and that the creditors would have no remedj' for an unreasonable delay on the part of the assignees, except by a resort to a court of equity. This objection does not strike me with as much force as it appears to have done the chancellor. Where there is nothing fraudulent or suspicious in the trust itself, and from the nature of the case, it is seen to be necessary that some latitude of discretion in relation to it should be given to the assignees, I am not prepared to say that the circumstance, that there is no remedy for an abuse of that discretion, except by a re- sort to a court of equity, is sufficient to avoid the trust. To a certain extent, that may have been the fact in the case. But where a matter, affecting the rights and interests of creditors, which might and ought to have been made definite and certain, is left to the discretion of as- signees, different considerations arise ; and I should incline to the opin- ion that it would be fraudulent. It is unnecessary, however, to dwell upon this point, as I hold the assignment fraudulent upon the other grounds which have been stated. I also abstain from an}- discussion of the question, whether the debt of the Messrs. Beach, the creditors first named in class number one, was a debt due from the firm of Grover and Gunn, or was the individ- ual debt of one of them ; and admitting it to have been an individual debt, what influence it would have upon this assignment. It is an im- White v. Monsarrat, 18 B. Mon. 809; Lininger v. Raymond, 9 Neb. 40; Watkins >. Wallace, 19 Mich. 57 (debts which assignee "may deem bad or doubtful."), contra. In some States statutes have been passed giving an assignee power to compromise debts. See 23 Lawyers' Rep. Ann. 579, n. A provision authorizing the assignee to compromise debts due the assignor is valid. White v. Monsarrat, 18 B. Mon. 809; Robins v. Embry, Sm. & Mar. 207; McConnell v. Sherwood, 84 N. Y. 522; Bagley v. Bowe, 105 N. Y. 171 ; Conkling v. Coonrod, 6 Ohio St. 611. An assignment made with the design to force a compromise with a creditor, though good on its face, is fraudulent. Bennett v. Ellison, 23 Minn. 242. 240 GROVER V. WAKEMAN. [CHAP. IV. portant question which. I agree with the Chancellor, ought to be set- tled in a case where there is no dispute about the facts. I am for affirming the decree below. After the several opinions delivered in the cause had been read, 1 Mr. Justice SUTHERLAND proposed the following resolution for adop- tion : " Resolved, that the assignment is void, because it makes the preference given to the creditors of the assignors, designated as class No. 2, to depend upon the condition that the preferred creditors shall give the assignors an absolute discharge of their debts;" and, on the question being put, " Shall this resolution be adopted?" the members of the court voted as follows : In the affirmative. The PRESIDENT, Chief Justice SAVAGE, Jus- tices SUTHERLAND and NELSON, and Senators ARMSTRONG, BRARDS- LEY, CONKLIN, CROPSET, DEITZ, LYXDE, MACDONALD, SHERMAN, STOWER, TRACY, VAN SCHAICK 15. In the negative. Senators EDMONDS, GANSEVOORT, GRIFFIN, Su- DAM, WESTCOTT 5. And the court accordingly affirmed the decree of the chancellor, the final vote being the same as on the passage of the resolution. 2 1 The opinions of Senators EDMONDS and TRACY are omitted. 2 Perry Ins. Co. v. Foster, 58 Ala. 502 ; Danner n. Brewer, 69 Ala. 191 (statutory) ; Collier v, Davis, 47 Ark. 397 ; Dnggau v. Bliss, 4 Colo. 223 ; Ingraham v. Wheeler, 6 Conn. 277, 282; Hayes v. Johnson, 6 D. C. 174; Howell v. Dixon, 21 Fla. 413; McBride r. Bohanan, 50 Ga. 527 ; Johnson v. Farnum, 56 Ga. 144 ; Conkling v. Car- son, 11 111. 503; Townsend v. Coxe, 151 111. 62, 68; Butler v. Jaffray, 12 Ind. 504; Franzen v. Hutchinson, 94 la. 95 ; Graves v. Roy, 13 La. 454 ; Hubbard v. McNaugh- ton, 43 Mich. 220 ; May v. Walker, 35 Minn. 194 (otherwise by statute see Farwell ;-. Brooks, 65 Minn. 184) ; Robins v. Embry, Smedes & M. 207 (see Mayer v. Shields, 59 Miss. 107) ; Jeffries v. Blackmann, 86 Mo. 350 ; Moore v. Carr, 65 Mo. A pp. 64 ; First Nat. Bank v. Newman, 62 N. H. 410; Owen v. Arvis, 2 Dutch. 22, 44 (see also North Ward Nat. Bank v. Conklin, 51 N. J. Eq. 7) ; Goodrich v. Downs, 6 Hill, 438, 439 ; Haydock v. Coope, 53 N. Y. 68, 73 ; Palmer v. Giles, 5 Jones, Eq. 75 ; Repplier v. Orrich, 7 Ohio, 246 ; Miners' Nat. Bank Appeal, 57 Pa. 193, 199 (statutory) ; Wilde v. Rawliugs, 1 Head, 34 ; Ware v. Wanless, 2 Wyo. 144, ace. King v. Watson, 3 Price Ex. 6 (see also Janes v. Whitbread, 11 C. B. 406) ; Brashear v. West, 7. Pet. 608 ; Halsey v. Whitney, 4 Mason, 206, 229 ; Talley v. Curtain, 54 Fed. Rep. 43, 50; Rankin v. Lodor, 21 Ala. 380; Clayton v. Johnston, 36 Ark. 406 (over- ruled) ; Doe v. Scribner, 41 Me. 277 ; Coakley v. Weil, 47 Md. 277 ; Nostrand v. Atwood, 19 Pick. 281 ; Hewlett v. Cutler, 137 Mass. 285 ; Livingston v. Bell, 3 Watts, 198 ; Lea's Appeal, 9 Pa. St. 504 ; Smith v. Millett, 11 R. I. 528; Claflin v. Iseman, 23 S. C. 416, 417 ; Boyd v. Haynie, 83 Tex. 7 ; Kellog ?;. Cayce, 84 Tex. 213 (statutory) ; Hall v. Denison, 17 Vt. 310; Gordon v. Cannon, 18 Gratt. 387 ; Long v. Meriden Britannia Co., 94 Va. 594 ; Clarke v. Figgins, 27 W. Va. 663, contra. SECT. I.] WEAVER V. HAVJLAND. 241 SECTION I. (continued), (d) STATUTES OF LIMITATIONS. WEAVER v. HAVILAND. NEW YORK COURT OP APPEALS, MAY 3-JuNE 5, 1894. [Reported in 142 New York, 534.] ANDREWS, Ch. J. This is a judgment creditor's action, and the only defence relied upon at the trial was the Statute of Limitations. The action was commenced February 13, 1892. It appears from the plead- ings that Phebe Haviland, mother of the defendant, took under the will of her husband, who died September 17, 1878, the use of his real estate and the income of his personal propert} 1 for life. His real estate con- sisted of a house and lot in Geneva, in this State, and he held a mort- gage on lands in Michigan, executed by Henry S. Weaver and wife. On the 13th day of April, 1880, Phebe Haviland, as executor of her husband's will, she then being in the State of Michigan, sold and ^^A/VMI assigned the mortgage to one Fish for the sum of $2,600, falsely repre- ^- -^ senting to Fish that that sum was due and unpaid thereon, whereas in fact there was due and unpaid only the sum of $2,100. Fish, upon /af ascertaining the fact, commenced an action in the courts of Michigan _ against Phebe Haviland to recover back the sum paid in excess of the amount due on the mortgage, and on June 9, 1881, recovered judgment against her in the action. An action on this judgment was subsequent!}' brought in the Supreme Court of this State January 28, 1886, and judgment was recovered thereon against Phebe Haviland March 9, 1886, for $667.47, and execution thereon was issued and returned unsatisfied. Phebe Haviland, at the time of the death of her husband and ever thereafter, was a resident of the State of New York. It is found that shortly before the recovery of the Michigan judgment, and on or about June 2, 1881, Phebe Haviland conveyed to the defendant William W. Haviland her life estate in the house and lot, and gave to him the moneys received by her from Fish on the transfer of the mortgage, without consideration, and for the purpose of placing her property out of her hands, so that the same could not be reached jj ,, * -TV*-, upon a judgment in the action. Phebe Haviland died intestate August 2, 1888. This action is brought to reach the interest of Phebe Havi- * land in the property so fraudulently transferred to the defendant. x^tU*. There is another fact disclosed by the evidence as to which there is no finding, but which is deemed important by the counsel for the defendant, viz., that the money paid on the mortgage by Fish was at the time received by the defendant, and was retained by him as his own, with the consent of Phebe Haviland. But if this finding had been made, the 242 WEAVER V. HAVILAND. [CHAP. IV. evidence would have justified the further finding that the defendant assumed to act in the transaction as the agent of his mother, and that Fish supposed he was so acting, and had no information, until the examination of the defendant in supplementary proceedings shortly be- fore the bringing of this action, that the money had been retained by him. The limitation of time for bringing actions in the nature of a creditor's bill to set aside a conveyance or transfer made by the judgment debtor in fraud of creditors is prescribed by section 382 of the Code of Civil Procedure. By the fifth subdivision of that section a creditor's action must be commenced within six years " after the cause of action has accrued." Such an action is to procure a judgment " other than for a sum of money on the ground of fraud in a case which on the 31st da} r of December, 1846, was cognizable by the Court of Chanceiy." The words "other than for a sum of money " in subdivision 5 included those cases in which equitable relief is required, although as part of the ultimate relief a money judgment is also demanded. Carr v. Thomp- son, 87 N. Y. 169. Unless, therefore, the right of action to set aside the fraudulent transfer from Phebe Haviland to the defendant accrued to the plaintiff more than six years prior to February 13, 1892, the day of the commencement of the action, the action was not barred. The righ t of Fish to bring an action to set aside the transfer did not accrue until he had recovered a judgment in this State againstPhebe Haviland and the return of an execution unsatisfied. Until his claim against Phebe Haviland had ripened into a judgment he stood jis a general creditor merely, and was not in a situation to assail the transfer to Jhe^ defendant. The authorities upon tlilsTpoint are numerous and decisive. Reubens v. Joel, 13 N. Y. 488 ; Dunlevy v. Tallmadge, 32 N. Y. 457 ; Geery v. Geery, 63 N. Y. 252 ; Adsit v. Butler, 87 N. Y. 585. The time when the fraud was committed is not the period from which the limitation is to be computed, but the time when the plaintiff had acquired a stand- ing to assail it. The present action was commenced within six years after Fish had recovered his judgment here. The defendant, in the absence of fraud or collusion, cannot question the validity of the claim upon which it was rendered, and he acquired no immunity from pursuit because of the time which intervened between the fraudulent transaction and the rendition of the judgment. Decker v. Decker, 108 N. Y. 128. The clause in sub. 5, sec. 382, following the clause above quoted, " the cause of action in such a case is not deemed to have accrued until the discover}' by the plaintiff or the person under which he claims of the facts constituting the fraud," does not help the defendant. This clause was added to enlarge the time for bringing the action beyond the six years in the case specified. It was not intended to make the date of the discovery of the fraud the time of the accruing of the right of action in cases where the fraud was known, but the plaintiff had not established his claim by judgment. The clause was inserted to provide for a class of cases where the right of action was perfect, but the fraud had not been discovered until a subsequent period. Gates v. Andrews, 37 N. Y. 657. SECT. I.] WEAVER V. HA.VILAND. 243 It is, however, a sufficient answer to the claim based on this clause of sub. 5 that there is no evidence or finding that the plaintiff or' his assignor, Fish, had any notice of the fraudulent transfer until shortly before the commencement of the action. The further claim is made that a cause of action for money had and received could have been maintained by Fish against the defendant to recover the overpayment on the mortgage, immediately after the money came to his hands, he having received and retained it without considera- tion, and that this cause of action was barred by the lapse of six years and before this action was brought. The defendant may be right in his contention. Roberts v. Ely, 113 N. Y. 128. But assuming this to be true, the present action is not based on an original liability of the defendant arising from his connection with the sale of the mortgage. The plaintiff's assignor did not elect to proceed against the defendant upon this liabilit}'. He brought his action against Phebe Haviland, the principal in the transaction, "and on recovering judgment against her, brought this action based upon that judgment, to charge the defendant on account of his fraudulent dealings with her to the prejudice of her creditors. The cause of action is entirely distinct from the cause of action against him for money had and received, and is in no way de- pendent upon his original relation to the transfer of the mortgage or the recover}' had thereon. He is called upon to answer for the propert}' of Phebe Haviland, received b}- him in fraud of her creditors. Whether he was connected with the original fraud in the sale of the mortgage is wholly immaterial in the present action, except as it may reflect upon his fraudulent intent in his subsequent dealings with Phebe Haviland. We think the defence of the Statute of Limitations failed, and the judgment should, therefore, be affirmed, with costs. All concur. Judgment affirmed. l 1 There is great diversity of decision in regard to the Statute of Limitations as ap- plied to fraudulent conveyances. Not only do the statutes themselves fix various terms, but in the same jurisdictions different rules are often applied in law and in equity, and different rules are applied where real estate is fraudulently conveyed, from those applied to transfers of personal property. Besides, no uniform rule can be stated as to the effect of fraudulent concealment of a cause of action, or as to the time when the plaintiff's cause of action is held to accrue. The creditor's right is subject to least limitation in England. There, so long as the creditor's claim is itself not barred by the statute! his right to set aside a fraudulent conveyance, and to have equitable as well as legal relief for the purpose, is not barred, though the fraudulent conveyance may have been made many years before and the creditor may have had full knowledge of the facts. In re Maddever, 27 Ch. D. 523. In Michigan it has also been said that mere delay is not enough to debar a creditor. Corbitt v. Cutcheon, 79 Mich. 41. Conf. Cntcheon v. Buchanan, 88 Mich. 594 ; Cut- cheon v. Corbitt, 99 Mich. 578. So in North Carolina, Pickett v. Pickett, 3 Dev. 6 ; (But see N. C. Code, 155, sub sec. 9 ; Osborne v. Wilkes, 108 N. C. 651) ; and in New Jersey, Burne v. Partridge, 61 N. .1. Kq. 434. In this country it in generally held, however, that not only the creditor's claim, but his subsidiary right to attack tlie fraudulent conveyance, may be barred by lapse of time. In a few States possession by the fraudulent grantee of property conveyed at least if it is real estate bars recovery by the creditor without reference either to the 244 WEAVER V. HAVILAND. [CHAP. IV. time when his right accrued or his knowledge of the fraud. Snedicor v. Watkins, 71 Ala. 48 (see also Smith v. Hall, 103 Ala. 235) ; Rohbins v. Sackett, 23 Kan. 301 ; Welcker v. Staples, 88 Tenn. 49. See also Bobb v. Woodward, 50 Mo. 95 ; Potter v. Adams, 125 Mo. 118. In Indiana the rule is the same, unless there has been some trick to prevent inquiry or some act of positive concealment. Law v. Smith, 4 Ind. 56; Musselmau v. Kent, 33 Ind. 452; Lemster v. Warner, 137 Ind. 79. See also Sankey v. McElevey, 104 Pa. 265 ; Scranton, etc. Co. v. Laekawanna, etc. Co. 107 Pa. 136. But in most jurisdictions time does not run against the creditor until he has had notice of the fraud. This is so provided by statute in many States, and is the prevailing rule in equity without the aid of a statute. An overruled decision by Lord Mansfield that fraud is a good replication to a plea of the Statute of Limitations in an action at law has also had some following in this country. See Wood on Limitations, 274-276. A creditor who might by due diligence have discovered the facts has been held not within this protection. Little v. Reynolds, 101 Ga. 594; Wright v. Davis, 28 Neb. 479. But see contra, Way v. Cutting, 20 N. H. 187 ; Preston v. Cutter, 64 N. H. 461 (con/. Hathaway v. Noble, 55 N. H. 508). Likewise the recording of the deed alleged to be fraudulent has been held to affect creditors constructively with notice. Sims v. Gray, 93 la. 38; Cockrell's Exec. v. Cockrell, (Ky.) 15 S. W. Rep. 1119; Rogers v. Brown, 61 Mo. 187 ; Hughes v. Littrell, 75 Mo. 573 ; Potter v. Adams, 125 Mo. 118 ; Gillespie v. Cooper, 36 Neb. 775. Furthermore, though the fraud be discovered, time does not begin to run unless the creditor has at that time a right to begin proceedings to avoid the transfer. A judgment against the debtor is a prerequisite to such proceedings at common law. 14 Am. and Eng. Encyc. of Law (2d ed.), 315. There is, therefore, no right until the judgment is obtained. Accordingly, as held in the principal case, time does not begin to run until that moment. Brown v. Campbell, 100 CaL 635 ; Jones v. Heed, I Humph. 335 (changed by statute, Ramsey v. Quillen, 5 Lea, 184); Comptou v. Perry, 23 Tex. 414 ; Martel v. Somers, 26 Tex. 551. In Alabama, Arkansas, In- diana, Maryland, Massachusetts, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, Virginia, West Virginia, at least, by statute, a creditor may set aside a fraudulent conveyance without first getting judgment. See 14 Am. and Eng. Encyc. of Law (2d ed.), 319. In such Slates the statute begins to run immediately from the time of the discovery of the fraud. Combs v. Watson, 32 Ohio St. 228; Ramsey v. Quillen, 5 Lea, 184 ; McBee v. Burden, 7 Lea, 731 ; Welcker v. Staples, 88 Teun. 49. In some cases relief has been denied by courts of equity because of laches, though no Statute of Limitations had run. Frenche v. Kitchen, 53 N. J. Eq. 37 ; Hathaway v. Noble, 55 N. H. 508 ; Eigelberger v. Kibler, 1 Hill Ch. 113. See also Bank of Charles ton v. Dowling, 52 S. C. 345. SECT. II.] INTRODUCTORY NOTE. 245 / SECTION II. PREFERENCES. 1 INTRODUCTORY NOTE. THE English law in regard to preferences affords little assistance in the consideration of the American law. The early bankruptcy statutes did not forbid preferences, and they were first declared invalid on the ground that they were fraudulent. Lord Mansfield is regarded as the originator of this doctrine. See Worsley v. De Mattos, 1 Burr. 467 ; Alderson v. Temple, 4 Burr. 2235 ; Martin v. Pewtress, 4 Burr. 2477 ; Harman v. Fishar, Cowp. 117; Rush v. Cooper, Cowp. 629. As the doctrine was of judicial creation, and as the basis of it was that the debtor was committing a fraud, it was natural that somewhat narrow limits should be set. Especially it seemed that if the debtor did not wish to give a creditor an unfair advantage, there could be no fraud on his part and hence no fraudulent preference. It was necessary, there- fore, that the preferential payment or transfer should be (1) made in contemplation of bankruptcy and (2) made voluntarily. As to the first requisite, in several cases it was held necessary that the debtor should in fact intend to become a bankrupt. Morgan v. Brundrett, 5 B. & Ad. 289 ; Atkinson v. Brindall, 2 Bing. N. C. 225 ; Abbott v. Burbage, 2 Scott, 656; Strachan v. Barton, 11 Ex. 647. Other cases held it sufficient if the debtor was in sucli a condition of utter insolvency that no reasonable man could fail to anticipate bank- ruptcy. Gibson v. Muskett, 4 M. & G. 160 ; Gibson v. Boutts, id. 169 ; Ex parte Simpson, De G. 9 ; Aldred v. Constable, 4 Q. B. 674. But mere insolvency certainly was always insufficient. The second requisite has given rise to a great number of decisions involving somewhat artificial distinctions. If the payment was made because of pressure on the part of the creditor the transaction cannot be avoided. Van Casteel v. Booker, 2 Ex. 691. If the debtor was induced by several considerations, among others a desire to prefer, the question is whether that was the dominant motive. Ex pnrte Griffith, 23 Ch. D. 69; Re Eaton, [1897] 2 Q. B. 16. If, however, the object of the debtor was to escape a criminal prosecution (Ex parte Taylor, 18 Q. B. D. 295 ; Sharp . Jackson, [1899] A. C. 419), or to protect a surety from liability (Re Mills, 58 L. T. N. s. 871). or to avoid the bnr of the Statute of Limitations (Re Lane, 23 Q. B. D. 74), or to fulfil a supposed legal duty (Re Fletcher, 9 Mor. 8 ; Re Vingoe, 1 Man. 416), there is no preference. A valid bill of sale given to correct a mistake invalidating a former one is not a preference. Re Twcedale, 1 For convenience of treatment this portion covers the subject of preferences regarded not only as acts of bankruptcy, but from other points of view. INTRODUCTORY NOTE. [CHAP. IV. [1892] 2 Q. B. 216. Nor does payment by a trader of hills of exchange in due course raise an)- inference of an intention or view to prefer " because in the ordinary course of business a man must either meet his bills or put up his shutters." He Clay, 3 Mans. 31. But if the payment of a bill is out of the usual course of business it is otherwise. Re Eaton, [1897] 2 Q. B. 16. There was no statutory provision in the English bankruptcy acts in regard to preferences until the act of 1869 was passed. Section 92 of that act, which is substantially reproduced, except in one particular, in section 48 of the present act, passed in 1883, provides for the avoidance of preferences. The latter section reads as follows : "(1) Every conveyance or transfer of property, or charge thereon made, every payment made, even- obligation incurred, and every judi- cial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of an}- creditor, or any person in trust for any creditor, with a view of giving such creditor a preference over the other creditors, shall, if the person making, taking, paying, or suffering the same, is adjudged bankrupt on a bankruptcy petition presented within three months after the date of making, taking, paying, or suffering the same, be deemed fraudulent and void as against the trustee in bankruptcy. (2) This section shall not affect the rights of any person making title in good faith and for valuable consideration through or under a creditor of the bankrupt." In section 92 of the act of 1869 the proviso at the end of the section was that the section should " not affect the rights of an}' purchasu-r. payee, or incumbrancer in good faith for valuable consideration," These words were held to include and protect a creditor who had re- ceived payment in ignorance that his debtor was insolvent or intended to prefer him. Butcher v. Stead, L. R. 7 H. L. 839. Under the present act such a construction seems impossible. The provisions of section 92 of the act of 1869 and section 48 of the act of 1883, abrogated the necessity for a payment to be made in contemplation of bankruptcy in order to be a fraudulent preference;, substituting as requirements that the payment must be made when the debtor is unable to pay his debts when they become due and actually becomes bankrupt within three months. But the requirement of volun- tary action on the part of the debtor is still in full force. " With a view of giving such creditor a preference " has been held to mean " with the dominant motive of giving such a preference." See cases above cited. Almost these identical words in the American statutes have re- ceived a very different construction, as the cases printed below indicate. What has been said hitherto relates to the right on the part of a trustee in bankruptc}- to avoid and recover a preferential payment or transfer. But preferences are, since the act of 1883, also important as acts of bankruptcy. Although the framer of the act of 1869 believed that that act not only invalidated preferences, but also made them acts of bankruptcy, Eden on Bankruptcy, 25, the court held otherwise. SECT. II.] CHICAGO TITLE, ETC. CO. V. ROEBLING'S SONS CO. 247 Exparte Hodgkin, L. R. 20 Eq. 746; Ex parte Stubbias, 17 Ch. D. 58. The act of 1883 in section 4, however, expressly names prefer- ences as acts of bankruptcy. Doubtless a chief reason for the simpler and more satisfactory law of preference in this country is that the question was dealt with fully by statute before it had been partially treated by the courts. Section 2 of the act of 1841 deflned and forbade preferences, and the act of 1867, copying the insolvent law of Massachusetts and adopting a con- struction of the meaning of the words copied similar to that laid down by the Massachusetts courts, fixed the American law in the shape which in most respects it now has under the law of 1898. SECTION II. (continued), (a) INSOLVENCY. CHICAGO TITLE & TRUST CO. v. JOHN A. ROEBLING'S SONS CO. DISTRICT COURT FOR THE NORTHERN DISTRICT OP ILLINOIS, FEBRUARY 8, 1901. [Reported in 107 Federal Reporter, 71.] KOHLSAAT, District Judge. The questions of fact herein, as found by the master, will be taken as the ultimate facts in the case, no good grounds to the contrary being shown. Upon these facts there is but one proposition of law to be passed upon by the court, which will be stated in general terms as follows : Where the property of the bank- rupt before insolvency consists chiefly of a manufacturing plant and raw materials for use in said plant, the fair valuation of which depends in large part upon the fact that said plant is a going concern, and such fair valuation as a going concern brings the entire fair value of the assets of said bankrupt to a total in excess of the bankrupt's liabilities, would the fact that a judgment creditor caused a levy under his judg- ment to be made upon such plant, and its sale under such levy, thus destroying the value of said plant as a going concern, and bringing the total value of the assets of said bankrupt, including the sura realized from the sale of the plant under said levy, to a figure below the bank- rupt's liabilities, create a preference in favor of said judgment creditor, which could be recovered b}- the bankrupt's trustee, when such judg- ment creditor has reasonable cause to believe that such levy and sale would cause the insolvency of the bankrupt as aforesaid? While I regret to be forced to the conclusion, yet I am of the opinion that, under the wording of the present bankruptcy act, and especially the proper interpretation of the words " being insolvent," such action on 248 MUNDO V. SHEPARD. [CHAP. IV. the part of a judgment creditor would not create a preference recover- able 03- the trustee under the terms of the act. The exceptions to the master's report will therefore be overruled, the report confirmed, and the petition of the trustee be dismissed for want of equity. 1 SECTION II. (continued), (b) INTENT TO PREFER. MUNDO v. SHEPARD. SUPREME JUDICIAL COURT OF MASSACHUSETTS, DECEMBER 10, 1895- JUNE 10, 1896. [Reported in 166 Massachusetts, 323.] BILL in equity, filed July 2, 1894, by the assignee in insolvency of Adelaide C. Clark, to set aside an assignment of certain accounts made by the insolvent as security for a debt due to the defendants. The case was heard in the Superior Court, before DEWEY, J., who dismissed the bill, and, at the request of the plaintiff, reported the case for the determination of this court, in substance as follows : The insolvent, Adelaide C. Clark, was, in 1893, a dressmaker and milliner doing business in Boston, and being at that time indebted for goods sold to her by the defendants, Shepard, Norwell, and Company, in the sum of about $1,700, she, on May 6, 1893, assigned to them as security for her indebtedness certain accounts due and owing to her, amounting in all to about $2,100, it being understood that the surplus of such accounts when collected was to be returned to Mrs. Clark if additional credit to that amount had not been furnished to her. There- after, on October 12, 1893, Mrs. Clark filed a voluntary petition in insolvency, and the plaintiff was appointed assignee. Mrs. Clark testified that she carried on a large business as dress- maker and milliner in Boston ; that at the time of the assignment to the defendants her assets were from $9,000 to $11,000, and her liabili- ties were about $16,500 ; that of the latter amount $6,500 were debts due mostl}* for merchandise ; that her creditors included man} 7 of the large dry goods houses in Boston ; that she kept no regular books of account, and she estimated her assets and liabilities from investigations made at the time of the hearing ; that most of these liabilities were i J. W. Butler Co. v. Goembel, 143 Fed. 295 (C. C. A.), ace. Under the English acts, the United States act of 1867, and the Massachusetts Insol- vent Law, it was uniformly held that insolvency, on the part of a trader at least, meant an inability to pay his debts as they matured, irrespective of the value of the debtor's property. The cases are collected in Lowell, Bankruptcy, 41. SECT. II.] MUNDO V. SHEPARD. 249 overdue, and she was unable to pay them ; that for several years prior to her assignment she had had an open account with the defendants, which, until the winter of 1893, had not exceeded $500, but at that time, her business increasing, she increased her account to such an extent that the defendants notified her that unless it was reduced they should refuse her further credit ; that prior to said assignment one Collirton, representing the defendants, called frequently at her store to sell goods and collect money, and she told him that she could not make any large payment upon her account ; that she did not have the money to pa} r it in full because collections were slow, but she occasionally made small payments ; that one Webster, who had charge of the credits and finan- cial matters of the defendants' business, told her that her account must be reduced or further credit would be refused, and inquired as to the prospects of her making collections, to which she replied that the bills were all good, and she expected to collect them, when she would apply them on her account, but that she did not wish her credit stopped as her business was good ; that thereupon Webster suggested, as a con- dition for the continuation of her credit, the assignment of certain ac- counts which were good ; and that after the assignment credit was from time to time given her, but was finally refused, and at the time of filing the petition in insolvency her indebtedness to the defendants had increased. Mrs. Clark further testified that she did not know whether or not she told Webster or Collirton that she had other cred- itors besides the defendants, or that other creditors were pushing her, though in fact one creditor had brought suit against her ; that she did not inform them of a mortgage upon her stock in trade ; that she did not at the time of the assignment to the defendants intend or expect to go into insolvency ; that her business was good ; that she did not wish the defendants to refuse her credit, as she hoped that with it she could go on ; that she did not believe herself to be insolvent or fully realize her condition ; and that she did not figure her liabilities closely, but had a general idea of what she owed, and that she should be able to pay all her creditors in full. On cross-examination, in answer to the question whether she meant to prefer the defendants, she testified that she did not look at it in that way, but was anxious to get more credit, and that she had never previ- ously assigned her accounts. There was evidence for the defendants that in 1891 Mrs. Clark's credit was good, but in the spring of 1893 she became slow in her pay- ments, and in conversations with the defendants or their representa- tives both she and her husband said that she was doing a good business, had some of the best trade in the city, and was amply able to pay all her bills, but that collections were slow, and she did not have much ready money ; and that accounts due her were good, and that it would be all right. They did not tell the defendants that Mrs. Clark h:ul other accounts, or mention the mortgage on her stock in trade. The defendants at one time refused her further credit, and subsequently 250 MUNDO V. SHEPARD. [CHAP. IV. / ordered it to be continued, and sales were from time to time made to her until her insolvency. This was all the material evidence. The judge found that Mrs. Clark made the assignment within six months prior to filing her petition in insolvenc}' ; that at the time of the assignment to the defendants she was not able to pay her debts as the}' accrued in the ordinar}' course of business, and was insolvent, and that her total liabilities greatlj* exceeded her total assets ; that the defendants had reasonable cause to believe Mrs. Clark to be insolvent only in the sense of not being able to pay her debts as they accrued in the ordinary course of business ; that the assignment was not made in the usual and ordinary course of business, but that Mrs. Clark did not then contemplate going into insolvency, but thought that she would be able to keep on in business and pay all her debts ; that the assignment was not made by her in fraud of the laws relating to insolvency, or with a view to prevent the property from coming to her assignee in insolvency, or to prevent the same from being distributed under the laws relating to insolvency, or to defeat the object of, or in any way impair, hinder, impede, or delay the operation or effect of, or to evade any of the provisions of the insolvency law ; and that the defendants, when the assignment was made, did not have reasonable cause to be- lieve Mrs. Clark was insolvent in the sense of not having sufficient property and assets to pay her debts, or that she was in contemplation of insolvency, and that the assignment was made in fraud of the laws relating to insolvency, or with a view to prevent the property from coming to her assignee in insolvency, or to prevent the same from being distributed under the laws relating to insolvency, or to defeat the ob- ject of, or in anj- waj- impair, hinder, impede, or delay the operation or effect of the provisions of the insolvency law. The case was argued at the bar in December, 1895, and afterwards was submitted on the briefis to all the judges. C. -R. Darling, for the plaintiff. J. J. Higgins, for the defendants. HOLMES, J. This is a bill in equity, brought by the assignee in insolvency of Mrs. Clark to set aside an assignment of certain credits made by the insolvent as security for a debt due to the defendants, and in order to obtain further credit from them. The case comes here on report. In form, the only question reserved is the correctness of a ruling that the bill cannot be maintained on the facts found by the judge who tried the case. But as one of the findings is that the as- signment was not made in fraud of the insolvent laws, and as the evi- dence is reported, we assume with some hesitation, as the counsel have assumed in their arguments, that it was intended to open the correct- ness of this finding, as matter of law, in view of the facts subject to which it was made. It is found that Mrs. Clark was insolvent at the time of the assign- ment, and that the assignment was not made in the ordinary course of business of Mrs. Clark. There was evidence tending to show that SECT. II.] MUNDO V. SHEPARD. 251 Mrs. Clark had reasonable cause to believe that she was insolvent, and there is no question that the evidence warranted a finding' for the plain- tiff. On the other hand, it is not found that Mrs. Clark knew or had reasonable cause to believe that she was insolvent, and in view of the general finding under discussion, we can assume no more than the facts found or admitted require. It is found that she was not able to pay her debts as they fell due in the ordinary course of business, and this almost necessitates the assumption that she knew that she could not, and therefore knew that technically she was insolvent. But Mrs. Clark was a fashionable milliner, and there was evidence that at the time she believed, and the defendants believed, that her assets were more than sufficient to pay her debts, and that the want of read}' money arose solely from the unwillingness to imperil her custom by pressing for prompt payment of her bills. We suppose that it is with reference to such a case as that that all the later decisions have emphasized the necessity of finding an intent to create a preference, or to effect some other fraud on the insolvent law as a fact, before a conveyance can be set aside. Bridges v. Miles, 152 Mass. 249 ; Sartwell v. North, 144 Mass. 188, 192 ; Rice v. Grafton Mills, 117 Mass. 228, 232. It would be very hard to declare a convej'ance void if at the time the grantor had property unquestion- ably sufficient to pa}- his debts, but owing to a cause like that men- tioned, or to its being invested in land, he had not ready money enough to pay on demand, and therefore appropriated assets to pay or to se- cure one which was pressing, knowing that thereby the continuance of his business would be facilitated, and not doubting that his course was at least harmless to his other creditors. The evidence warranted a finding that Mrs. Clark supposed that to be her situation, and that her only motive was to get more credit. If she did suppose so, and in fact had no other motive, the tendency of her conduct to create a preference was not manifest to her because the tendency would not have existed if the facts believed by her were true, and therefore it would be a mere fiction to say that she acted " with a view to give a preference." It cannot be said that, as matter of law, every conveyance to secure a past debt is voidable when the grantor is insolvent and knows that he cannot pay his debts in the regular course of business as they fall due, even if his creditor has reason to believe that a fraud on the insolvent law is intended, and therefore it cannot be said, as matter of law, that the decree was wrong. Decree affirmed. 1 KNOWLTON, J. It seems to me so manifest that the decision of the judge of the Superior Court was founded on an error of law, that, not* withstanding a doubt in regard to the meaning of the reservation, I think that the decree should be set aside and the law applicable to cases of this kind more fully stated. i Quinebaug Bank v. Brewster, 30 Conn. 589 ; Bloodgood v. Beecher, 39 Cona 469. ace. 252 MUNDO V. SHEPARD. [CHAP. IV. To avoid a conveyance under Pub. Sts. c. 157, 96, it must bo proved that at the time of making it the debtor was insolvent, or in contemplation of insolvency, that it was made within six months be- fore the filing of the petition by or against him, that it was made with a view to give a preference, that the person receiving it had reasonable cause to believe that the debtor was insolvent or in contemplation of insolvency, and that the conveyance was made in fraud of the laws relating to insolvency. If the transaction was not in the usual and ordinary course of business of the debtor, a prima facie case of rea- sonable cause to believe on the part of the person receiving the con- veyance is made out. Pub. Sts. c. 157, 98 ; Stevens v. Pierce, 147 Mass. 510. The judge found that the debtor was insolvent at the time of making the conveyance in question, that the conveyance was made within six months prior to the commencement of the proceedings in insolvency, that it was not made in the usual and ordinary course of business of the debtor, that the defendants then had reasonable cause to believe that she was insolvent, but only in the sense of not being able to pay her debts as they accrued in the ordinary course of business, that she did not then contemplate going into insolvenc}', and that the defend- ants did not have reasonable cause to believe that the conveyance was made in fraud of the laws relating to insolvency. The defendants were creditors, and the case is governed by the provisions of section 96 above referred to. If the debtor was insolvent, it is not necessarj- to show that she was in contemplation of insolvency, and no fraud need be proved other than making a conveyance when insolvent with a view to give a preference to a creditor. The judge in his findings seems to make a distinction in legal effect between insolvency in the sense of not being able to pay one's debts as they fall due in the ordinary course of business, and insolvency in the sense of not having sufficient prop- erty ultimately to pay one's debts if the}- are not enforced at maturit}', and if time is given to enable the owner to dispose of the property advantageously. I know of no distinction recognized by our laws be- tween the insolvency of a trader by reason of his being unable to pay his debts in the ordinary course of business as they mature and his inability ultimately to pay them. If a trader is in the condition of not being able to pa}' his debts in the ordinary course as the}' mature, he is insolvent, and is subject to all the consequences which the statute attaches to insolvenc}*. The law deals with present conditions in ref- erence to existing debts, and does not attempt the impossibility of cor- rectly foretelling the future beyond the events immediately practicable in the ordinary course of business. The law intends that a trader in that condition shall do nothing to interfere with a, pro rata distribution of his property among his creditors, if insolvency proceedings ensue within a stated time. Until the amendment by St. 1886, c. 322, if one in that condition, and having reasonable cause to believe himself so, paid or secured any debt in whole or in part within one year next be- SECT. II.] MUNDO V. SHEPARD. 253 fore the filing of the petition by or against him, it was, by the express terms of Pub. Sts. c. 157, 93, a fraud upon the law which prevented his obtaining a discharge. See Cozzens v. Holt, 136 Mass. 287. It did not take the case out of this provision of the statute if the debtor at the time believed his property exceeded in value the amount of his debts, and expected ultimately to pay all his creditors without proceed- ings in insolvency. If he made such a payment, he did it at the risk of its defeating his application for a discharge if insolvenc}- proceedings were commenced within a year. So in regard to the right to recover back property conveyed, which has not been affected by this amend- ment, if insolvency proceedings ensue within six mouths the rights of the general creditors are preserved if the debtor was, at the time of the conveyance, insolvent, and if he acted with a view to give a preference to one who had reasonable cause to believe him to be insolvent and to intend a preference. If these conditions existed at the time of the conveyance it is immaterial that neither party contemplated insolvenc}' proceedings, and that each hoped and expected that the debtor would get an extension and finallj- pay in full. These strict provisions are deemed necessary for the protection of creditors when one is unable to pay in the ordinary course of business. In Forbes v. Howe, 102 Mass. 427, 435, is this language: "The case of Jones v. Rowland, 8 Met. 377, relied on by the defendants, turned upon the question whether the sales which it was sought to avoid were made ' in contemplation of bankruptcy,' in the sense of the United States bankrupt act of 1841. The terms of that statute were held to require that the intent which would make void a sale must be an intent to give a preference in contemplation of bankruptc}-. But the present bankrupt act avoids a sale made with a view to give a preference, if the debtor at the time be in fact insolvent, although he ma} r not contemplate bankruptcy. Under this statute, we think the phrase ' with a view to give a preference ' must be construed somewhat less strictly, so as to include an intent to give one creditor any advan- tage over others in respect of payment or security of his debt." This language is equally applicable to our statute, whose words in this part are the same as those of the United States bankruptcy act of 1867. U. S. St. March 2, 1867, 35. In In re George, 1 Low. 409, 411, Lowell, J., says: "A debtor gives a preference when, knowing, be- lieving, or suspecting that he cannot pay all his creditors in full, he chooses to pay or secure one, and thus give him an intended advantage over the rest. ... If you find the knowledge of insolvency, and an expectation or fear of stopping payment, you must infer the intent, because every sane person is presumed to intend the well-known con- sequences of his acts." See also Toof v. Martin, 13 Wall. 40; Wager v. Hull, 16 Wall. 584. In Fernald v. Gay, 12 Cush. 596, 597, Chief Justice Shaw uses these words : " The plain object and policy of the insolvent law is, to require a debtor, as soon as he has reason to be- lieve himself insolvent, and before he has frittered away his property, 254 MUNDO V. SHEPARD. [CHAP. IV. by schemes which appear plausible, to put himself and his assets at once into the hands of the law, with a view to two objects : one is to make an equal distribution amongst all his creditors ; the other, to pay every creditor as large a part of his whole debt as the means of the debtor will allow," etc. In Holbrook v. Jackson, 7 Gush. 136, 150, the same judge says : " We think the position insisted on by the plaintiff, that although actually insolvent, and although they had no reasonable ground to believe themselves solvent, against the fact, yet a sincere belief that they could go on, however groundless, and an intention to do so, would save the conveyance from being held invalid, cannot be maintained as law, under the existing statute." In this particular there has been no change in the law of this Commonwealth since these de- cisions were made. See also Denny v. Dana, 2 Gush. 160, 171 ; Barn- ard v. Crosby, 6 Allen, 327, 332; Abbott v. Shepard, 142 Mass. 17; Whipple v. Bond, 164 Mass. 182, the latest case in which the subject of fraudulent preferences has been considered by this court, reaffirms the doctrines laid down b}' Chief Justice Shaw. A trader unable to pa}' his debts in the ordinary course of business may speculate upon the chances of being able to induce his creditors to wait, and of finally getting the means to pay them all in full ; but in my opinion he and an)' creditor dealing with him with knowledge of his condition speculates at the risk of having a payment or convej'anee set aside, and an equal distribution made if insolvency proceedings are commenced within six months. It seems to me that the enforcement of this rule is the only practicable way of securing justice to creditors who are outstripped in the race for pa3'ment or securit}*. When a trader is unable to pay his debts in the ordinary course of business, there is risk, not only that creditors will not receive the money due them when the}' are entitled to have it, but that they will finally lose some part of it. To pay or secure a creditor under such circumstances is to give him a preference over others who have no security. In my opinion, all the preference that a trader, knowing himself to be insol- vent, need intend in order to bring the case within the statute is secur- ity against the risk of delay and loss which necessarily results from his condition, and it is none the less a preference if, when such security is given, the debtor hopes and expects that the other creditors will ulti- mateh' be paid in full. It is not necessaril}' security against an ex- pected loss, but against the risk of loss when the debtor is in fact insolvent, that constitutes the preference. In the present case, the judge finds that the debtor, who bought and sold goods in the prosecution of her business as a dressmaker, was insolvent at the time of making the assignment. He finds that the defendants had reasonable cause to believe that she was insolvent. He finds facts which, under the statute, make a prima facie case against the defendants in support of the proposition that the}" had reasonable cause to believe that the conveyance was fraudulent. It seems to me that there is no evidence to overcome this prima facie case, and that SECT. IT.] TOOF V. MARTIN. 255 the finding that they had no reasonable cause to believe the conveyance to be fraudulent is erroneous in law. I think the evidence shows over- whelmingly that the debtor knew that she could not pay her debts in the ordinary course of business, and that one of her purposes in mak- ing the conveyance was to secure the defendants against the risk of loss growing out of her condition. I can see no evidence which tends to show the contrary. If these facts are conceded, I think the right of the other creditors to have this property distributed is not affected by anj' possible answer to the question whether she hoped or expected to be able to go on with her business and finally to pay her creditors. Bridges v. Miles, 152 Mass. 249, and other similar cases, merely hold that whether there was an intent to prefer is a question of fact. Treat- ing this as a question of fact, I think the findings and the undisputed evidence in the present case are inconsistent in law with the decision of the judge of the Superior Court. I am authorized to say that the Chief Justice and Mr. Justice LATHROP concur in this opinion. 1 1 In Toof v. Martin, 13 Wall. 40, the court said : " It is a general principle that every one must be presumed to intend the necessary consequences of his acts. The transfer, in any case, by a debtor, of a large portion of his property, while he is insol- vent, to one creditor, without making provision for au equal distribution of its proceeds to all his creditors, necessarily operates as a preference to him, and must be taken as conclusive evidence that a preference was intended, unless the debtor can show that he was at the time ignorant of his insolvency, and that his affairs were such that he could reasonably expect to pay all his debts. The burden of proof is upon him in sach case, and not upon the assignee or contestant in bankruptcy." In Re Condon, 209 Fed. 800, 802 (C. C. A.), the court said : " Of course, if Condon supposed at the time that he was insolvent, he will be presumed to intend the conse- quences which will result from selecting a particular creditor and paying him under such conditions. Quite probably he still hoped that, in some way or other, lie would be relieved from his difficulties. But if every person, who may be hopelessly insolvent and yet is of an optimistic temperament, may pay selected creditors, persuading him- self that some time or other he will be able to pay his other creditors, the provisions of the Bankruptcy Act as to ' preferential payments ' cannot he of much practical value." See also Re Rome Planing Mill, 96 Fed. Rep. 812; Re McGee, 105 Fed. Rep. 895; lie Wright Lumber Co., 114 Fed. 1011 ; Rex Buggy Co. v. Hearick, 132 Fed. 310; Re Smith, 176 Fed. 426; Pepperdine v. Nat. Exchange Bank, 84 Mo. App. 234, ace. Conf. Debus v. Yates. 193 Fed. 427; Studley v. Boylston Bank, 229 U. 8. 523, 526- It is immaterial whether the debtor was induced to make the payment by threats or pressure of the creditor. Clarion Bank i>. Jones, 21 Wall. 325 ; Arnold v. Maynard, 2 Story, 349; He Batchelder, 1 Low. 373; Giddings v. Dodd, 1 Dill. 115; Hill r. McGregor, 23 Blatch. 312; Strain v. Gourdiu, 11 B. R. 156. But in He Frantzcn, 20 Fed. Rep. 785, and McMechen's Lessee v. Grundy, 3 H. & J. 185, the motives of the bankrupt were treated as material. 256 KOGERS V. AMERICAN HALIBUT COMPANY. [CHAP. IV. SECTION II. (continued). (66) REASONABLE CAUSE TO BELIEVE THAT A PREFERENCE WILL BE EFFECTED. ROGEKS v. AMERICAN HALIBUT COMPANY. SUPREME JUDICIAL COURT OF MASSACHUSETTS, NOVEMBER 5- DECEMBER 13, 1913. [Reported in 216 Massachusetts, 227.] BRALET, J. : The intention of the bankrupt to confer a preference no longer need be shown, but the plaintiff under the statute as amended still had the burden of proving that the defendant when the payment was received had reasonable cause to believe its debtor was insolvent and that en- forcement of the transfer would result in diminishing the bankrupt's assets applicable for the payment of creditors of the same class. Bankruptcy Act, 60b, as amended by Act June 25, 1910 ; Hewitt v. Boston Straw Board Co., 214 Mass. 260; Wilson v. Mitchell- Woodbury Co., 214 Mass. 514; National Bank v. Herkimer County Bank, 225 U. S. 1 78. It is unnecessary to show actual knowledge or belief by the creditor. If the circumstances are such as would lead the ordinarily prudent man of affairs to the conclusion that his debtor is insolvent, he obtains a preferential payment within the meaning of the statute, by accept- ing payment in whole or in part of the debt, where the transaction takes place within four months prior to adjudication ; and other credi- tors of the same class, because of the greater percentage received, must accept decreased dividends. Hewitt v. Boston Straw Board Co., 214 Mass. 260, and cases cited; Wilson v. Mitchel- Woodbury Co., 214 Mass. 514. By section 60b, knowledge possessed by his agent binds the credi- tor, but this provision is to be taken with the qualification that, where the agent is acting in furtherance of his own adverse interest or fraudu- lently, his principal is not bound. Hewitt v. Boston Straw Board Co., 214 Mass. 260; Quinn v. Burton, 195 Mass. 277. The bankrupt was the general business manager of the defendant corporation, and within the prescribed period he paid to the bookkeeper in partial settlement of over-drafts of his account with the company, the amount in controversy. His insolvency when he made the payment is conclusively shown by his own evidence. Bankruptcy Act, 1 (15). The jury could infer that the money went into the company's treasury, and in the ordinary course of bookkeeping the transaction finally ap- peared in some form upon its books. It is also of significance that the defendant has retained the money, and from all these circumstances there was evidence of ratification. Buttrick Lumber Co. v. Collins, 202 SECT. II.] GREEY V. DOCKENDORFF. 257 Mass. 413, 418. A further finding that the bankrupt intended the pay- ment should inure to the defendant's benefit would have been warranted, and not having acted for his own individual interest at the expense of his principal he did not exceed the scope of his employment. Besides, his knowledge that he was insolvent is to be imputed to the defendant, and if believed the evidence would have justified the jury in finding that as manager, charged with the supervision of its business, he had reasonable cause to believe the company's debt would be largely satis- fied to the detriment of his other creditors. Jaquith u. Davenport, 191 Mass. 415, 417, 418. It would follow under the declaration, which is sufficient in form, that upon these findings the payment was a voida- ble preference at the election of the plaintiff, and can be recovered back, subject, however, to the right of the defendant under its declara- tion in set-off to have subsequent credits which have become part of the debtor's estate deducted, if made in good faith and without secu- rity. Bankruptcy Act, 60c; Peterson v. Nash Bros. (C. C. A., 8th Cir.); Kaufman v. Tredway, 195 U. S. 271. 1 GREEY v. DOCKENDORFF. SUPREME COURT OF THE UNITED STATES, DECEMBER 2-15, 1913. [Reported in 231 United States, 513.] MR. JUSTICE HOLMES delivered the opinion of the court. This was a petition by the appellee, Dockendorff, filed in the bank- ruptcy proceedings against the bankrupt, the Schwab-Kepner Com- pany, to have paid over to him the proceeds of accounts receivable alleged to have been assigned to him by the bankrupt. The defenses set up were that the assignment was a preference and that it was made without present consideration with intent to defraud creditors of the bankrupt concern. The case was referred to a special master, who found that it did not appear that either the petitioner or the bankrupt knew that the latter was insolvent at the time of the supposed prefer- ence or that there were any transfers with intent to defraud creditors, and found for the petitioner. His finding of facts and conclusion were concurred in by the District Court and Circuit Court of Appeals. 208 Fed. Rep. 475; 121 C. C. A. 597. The bankrupt, a New Jersey corporation, did business in New York as a cotton converter. It bought raw material from the mills, ordered it sent to bleacheries designated by it, sold the goods when finished, and had them shipped from the bleacheries to the buyers. Docken- dorff, on favorable statements of the Company's condition, made suc- 1 A portion of the opinion is omitted. 258 GREEY V. DOCKENDORFF. [CHAP. IV. cessive agreements to procure loans not exceeding $175,000 at any one time, the bankrupt giving demand notes, assigning as security all its accounts receivable thereafter to be created, and paying certain com- missions. In May, 1910, the agreement now in question was made. By this the bankrupt was to assign within seven days after shipment the accounts receivable of credit sales made by it ; upon that security Dockendorff was himself to lerid eighty per cent of the net face value of such as he should approve, less commissions and discounts, up to $175,000 ; the bankrupt was to give its notes, deliver the shipping docu- ments, furnish evidence of actual receipt of the merchandise when re- quired, notify Dockendorff of any return of goods or counterclaims, deliver the proceeds of such accounts as were proper and permit him to examine its books and correspondence, etc. ; Dockendorff' s lien was to be for all sums due, and to cover all accounts, but he was not bound to lend on accounts not approved by him. Further details do not need to be stated in view of the establishment of the parties' good faith. On November 29, 1910, an involuntary petition was filed, the bankrupt then owing Dockendorff $252,838.54 for advances under the agree- ment, and he having received assignments of accounts from the bank- rupt as it received orders, that is, after the contract of sale was made, but before the delivery of the goods. The trustee relies upon the general application of the lien under the agreement as constituting a fraud in law. Whatever effect it might have as evidence must be laid on one side in view of the findings below. The question here is whether successive assignments of ac- counts by way of security, in pursuance of a contract under which advances were made to enable the assignor to get the goods on the faith of the undertaking that the accounts should be assigned, were bad because the contract embraced all accounts, although neither party contemplated any fraud. The rule of the English statutes as to reputed ownership may extend to debts growing due to the bank- rupt in the course of his business, but we have no such statute. The advances were the means by which the bankrupt got the ownership of the goods. The contract of itself would operate as a conveyance as soon as the rights to which it applied were acquired. Field v. New York, 6 N. Y. 179. We do not see why in the interval between the acquisi- tion of the goods and the specific assignment of accounts, the right of general creditors without lien should intervene to defeat a security given in good faith, when, but for the promise of it, the property never would have come into the bankrupt's hands. There may have been a moment when the goods could have been attached, or when, if insol- vency had been made known, as in National City Bank v. Hotchkiss, ante, p. 50, it would have been too late to make the promised lien good. But in this case, the lien was acquired before any knowledge of insol- vency, and before any attachment intervened. See Jaquith v. Alden, 189 U. S. 78 ; Coder v. Arts, 213 U. S. 223 ; Van Iderstine v. National Discount Co., 227 U. S. 575, 583. It is objected that this lien was secret. SECT. II.] NEW YORK COUNTY NATIONAL BANK V. MASSEY. 259 But notice to" the debtors was not necessary to the validity of the as- signment as against creditors, Williams v. Ingersoll, 89 N. Y. 508, 522, and merely keeping silence to the latter whether known 'or unknown, created no estoppel. Wiser v. Lawler, 189 U. S. 260, 270; Ackerman v. True, 175 N. Y. 353, 363. There was no active concealment and no attempt to mislead anyone interested to know the truth. We content ourselves with this very general answer to an argument that dealt with many details that we have not mentioned, because those details were material only to a reconsideration of the findings of fact. Probably a hope of securing such a reconsideration was one of the in- ducements toward bringing the case here. A subordinate question was raised on the exclusion of some of the bankrupt's books, as to which it seems to us enough to say that it does not appear that any wrong has been done. Decree affirmed. 1 SECTION II. (continued), (c) WHAT is A "TRANSFER" OF THE DEBTOR'S PROPERTT. NEW YORK COUNTY NATIONAL BANK v. MASSEY. SUPREME COURT OF THE UNITED STATES, DECEMBER 11, 1903- JANUARY 4, 1904. [Reported in 192 United States, 138.] MR. JUSTICE DAY delivered the opinion of the court. For a number of years past the bankrupts were engaged in the city of New York, under the firm name and style of Stege and Brothers. On January 27, 1900, they filed a voluntary petition of bankruptcy, and upon the same day were adjudicated bankrupts. Among their liabili- ties there was an indebtedness to the New York County National Bank for money loaned upon four promissory notes for $10,000 each, two due January 26, 1900, and two due February 9, 1900. On January 23, 1900, in the morning, the bankrupts went to the New York County National Bank and asked the officers to have the two notes of $10,000 each, which fell due on January 26th, extended. The bankrupts at that time informed the bank officers that they were unable to pay the notes then about to fall due. In the afternoon of the same day, January 23, 1900, the bankrupts again called upon the bank officers, and at that time they delivered to them a statement of their assets and liabilities, which statement was not delivered until after the deposit of $3,884.47 had been made on that day. This statement, as of January 22, 1900, showed their assets to be $19,095.67 and their liabilities $65,864.61. 1 A portion of the opinion is omitted. 260 NEW YORK COUNTY NATIONAL BANK V. MASSEY. [CHAP. IV. The bankrupts kept their bank account in the New York County National Bank since May 6, 1899. On January 22, 1900, their balance in the bank was $218.50. On the same day they deposited in that ac- count $536.83 ; on January 23, 1900, $3,384.47 ; on January 25, 1900, $1,803.95, making a total of $6,225.25 deposited in three days men- tioned. Of this amount there was left in the bank account on the day of adjudication in bankruptcy, January 27, 1900, the sum of $6,209.25, the bank having honored a check of Stege Brothers after the date of all these deposits. At the first meeting of creditors, February 9, 1900, the New York County National Bank filed its claim for $33,790.25. In its proof of claim the bank credited upon one of the notes which became due on January 26, 1900, the deposit of $6,209.25. The claim was allowed by the referee in the sum of $33,750.25, being $40,000, less the amount on deposit in bank ($6,209.25), and a small rebate of in- terest on the unmatured notes. Some of the creditors at this meeting reserved the right to move to reconsider the claim of the New York County National Bank. The referee granted this request. Afterwards the trustee, as the representative of the creditors, moved before the referee to disallow and to expunge from his list of claims the claim of the New York County National Bank unless it surrendered the amount of the deposit, namely, $6,209.25, which had been credited by the bank upon one of the notes. The referee denied that motion, and an ap- propriate order was made and entered. The trustee thereupon duly filed his petition to have the question certified to the district judge. The district judge, on the 25th day of November, 1901. made an order affirming the order of the referee. From that order an appeal was duly taken by the trustee to the Circuit Court of Appeals, which found the facts as above stated and reversed the order of the District Court. From the judgment of reversal this appeal is brought. The deposits were made in the usual course of business. At the time they were made Stege Brothers were insolvent. This case requires an examination of sections 60, 68 and 57g of the Bankrupt Law. Considering for the moment section 68, apart from the other sec- tions, subdivision (a) contemplates a set-off of mutual debts or credits between the estate of the bankrupt and the creditor, with an account to be stated and the balance only to be allowed and paid. Subdivision (b) makes certain specific exceptions to this allowance of set-off, and provides that it shall not be allowed in favor of the debtor of the bankrupt upon an unproved claim or one transferred to the debtor after the filing of the petition in bankruptcy, or within four months before the filing thereof, with a view to its use for the purpose of set- off, with knowledge or notice that the bankrupt was insolvent or had permitted an act of bankruptcy. Obviously, the present case does not come within the exceptions to the general rule made by subdivision (b). It cannot be doubted that, except under special circumstances, or SECT. II.] NEW YORK COUNTY NATIONAL BANK V. MASSEY. 261 where there is a statute to the contrary, a deposit of money upon gen- eral account with a bank creates the relation of debtor and creditor. The money deposited becomes a part of the general fund' of the bank, to be dealt with by it as other moneys, to be lent to customers, and parted with at the will of the bank, and the right of the depositor is to have this debt repaid in whole or in part by honoring checks drawn against the deposits. It creates an ordinary debt, not a privilege or right of a fiduciary character. Bank of the Republic v. Millard, 10 Wall. 152. Or, as defined by Mr. Justice WHITE in the case of Davis v. Elmira Savings Bank, 161 U. S. 288 : " The deposit of money by a customer with his banker is one of loan, with the superadded obligation that the money is to be paid, when demanded, by a check." Stanley v. Kimball, 92 U. S. 369. It is true that the findings of fact in this case establish that at the time these deposits were made the assets of the depositors were con- siderably less than their liability, and that they were insolvent, but there is nothing in the findings to show that the deposit created other than the ordinary relation between the bank and its depositor. The check of the depositor was honored after this deposit was made, and for aught that appears Stege Brothers might have required the amount of the entire account without objection from the bank, notwithstanding their financial condition. We are to interpret statutes, not to make them. Unless other sec- tions of the law are controlling, or in order to give a harmonious construction to the whole act a different interpretation is required, it would seem clear that the parties stood in the relation defined in sec- tion 68a with the right to set off mutual debts, the creditor being allowed to prove but the balance of the debt. Section 68a of the Bankruptcy Act of 1898 is almost a literal repro- duction of section 20 of the Act of 1867. So far as we have been able to discover, the holdings were uniform under that act that set-off should be allowed as between a bank and a depositor becoming bank- rupt. In re Petrie, Fed. Cas. No. 11,040; Blair v. Allen, 3 Dill. 101; Scammon v. Kimball, 92 U. S. 362. In Traders' Bank v. Campbell, 14 Wall. 87, the right of set-off was not relied upon, but a deposit was seized on a judgment which was a preference. But it is urged that, under section 60a, this transaction amounts to giving a preference to the bank, by enabling it to receive a greater percentage of its debts than other creditors of the same class. A transfer is defined in section 1 (25) of the act to include the sale and every other and different method of disposing of, or parting with, property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift or security. While these sec- tions are not to be narrowly construed so as to defeat their purpose, no more can they be enlarged by judicial construction to include transac- tions not within the scope and purpose of the act. This section 1 (25), read with sections 60a and 57g, requires the surrender of preferences 262 NEW YORK COUNTY NATIONAL BANK V. MASSEY. [CHAP. IV. having the effect of transfers of property " as payment, pledge, mort- gage, gift or security, which operate to diminish the estate of the bankrupt and prefer one creditor over another." The law requires the surrender of such preferences given to the creditor within the time limited in the act before he can prove his claim. These transfers of property, amounting to preferences, con- template the parting with the bankrupt's property for the benefit of the creditor, and the consequent diminution of the bankrupt's estate. It is such transactions, operating to defeat the purposes of the act, which, under its terms, are preferences. As we have seen, a deposit of money to one's credit in a bank does not operate to diminish the estate of the depositor, for when he parts with the money he creates at the same time, on the part of the bank, an obligation to pay the amount of the deposit as soon as the depositor may see fit to draw a check against it. It is not a transfer of property as a payment, pledge, mortgage, gift or security. It is true that it creates a debt, which, if the creditor may set it off under section 68, amounts to permitting a creditor of that class to obtain more from the bankrupt's estate than creditors who are not in the same situation, and do not hold any debts of the bankrupt subject to set-off. But this does not, in our opinion, operate to enlarge the scope of the statute defining preferences so as to prevent set-off in cases coming within the terms of section 68a. If this argument were to prevail it would, in cases of insolvency, defeat the right of set-of recognized and enforced in the law, as every creditor of the bankrupt holding a claim against the estate subject to reduction to the full amount of a debt due the bankrupt receives a preference in the fact that to the extent of the set- off he is paid in full. It is insisted that this court, in the case of Pirie v. Chicago Title & Trust Co., 182 U. S. 438, held a payment of money to be a transfer of property within the terms of the Bankrupt Act, and when made by an insolvent within four months of the filing of the petition in bankruptcy, to amount to a preference, and that case is claimed to be decisive of this. In the Pirie case the turning question was whether the payment of money was a transfer within the meaning of the law, and it was held that it was. There the payment of the money within the time named in the Bankrupt Law was a parting with so much of the bankrupt's estate, for which he received no obligation of the debtor, but a credit for the amount of his debt. This was held to be a transfer of property within the meaning of the law. It is not necessary to depart from the ruling made in that case, that such payment was within the operation of the law, while a deposit of money upon an open account subject to check, not amounting to a payment, but creating an obligation upon the part of the bank to repay upon the order of the depositor, would not be. Of the case of Pirie v. Chicago Title & Trust Co., it was said, in Jaquith v. Alden, 189 U. S. 78, 82: "The judgment below was affirmed by this court, and it was held SECT. II.] TRUST & SAVINGS BANK V. TITLE A TRUST COMPANY. 263 that a payment of money was a transfer of property, and when made on an antecedent debt by an insolvent was a preference within section 60a, although the creditor was ignorant of the insolvehcy and had no reasonable cause to believe that a preference was intended. The es- tate of the insolvent, as it existed at the date of the insolvency, was diminished by the payment, and the creditor who received it was en- abled to obtain a greater percentage of his debt than any other of the creditors of the same class." In other words, the Pirie case, under the facts stated, shows a trans- fer of property to be applied upon the debt, made at the time of the insolvency of the debtor, creating a preference under the terms of the Bankrupt Law. That case turned upon entirely different facts, and is not decisive of the one now before us. It is true, as we have seen, that in a sense the bank is permitted to obtain a greater percentage of its claim against the bankrupt than other creditors of the same class, but this in- direct result is not brought about by the transfer of property within the meaning of the law. There is nothing in the findings to show fraud or collusion between the bankrupt and the bank with a view to create a pre- ferential transfer of the bankrupt's property to the bank, and in the ab- sence of such showing we cannot regard the deposit as having other effect than to create a debt to the bankrupt and not a diminution of his estate. In our opinion, the referee and the District Court were right in hold- ing that the amount of the deposit could be set off against the claim rf the bank, allowing it to prove for the balance, and the Circuit Cou^t of Appeals, in holding that this deposit amounted to a preference to te surrendered before proving the debt, committed error. Judgment of the Circuit Court of Appeals reversed, and that of tV District Court affirmed ; cause remanded to latter court. Mr. Justice MCKENNA dissents. 1 CONTINENTAL & COMMERCIAL TRUST & SAVINGS BANK v. CHICAGO TITLE & TRUST COMPANY. SUPREME COURT OP THE UNITED STATES, JANUARY 6-JuNE 10, 1913. [Reported in 229 United States, 435.] MR. JUSTICE DAY delivered the opinion of the court. This is a controversy arising in a bankruptcy proceeding, and in- volves questions of the right to certain property, as between the appel- lant, the Continental & Commercial Trust & Savings Bank, and the i In Studley v. Boylston Bank, 229 U. S. 523, the bankrupt on the maturity of notes held by the defendant bank, paid them by checks drawn on the same bank with which the bankrupt kept a deposit account. The court held that since on the maturity of the notes the bank could have set them off against the deposit account, it was not illegal for the parties to do before the petition what the trustees would have been obliged to allow after the petition. 264 TRUST A SAVINGS BANK V. TITLE cited above, "are intimately related, the one in this particular being the basis of and dominating the other, and it is the failure to realize this and to draw them together as they should be that is responsible for any misapprehension. What is thus ' required ' in the way of record- ing in the one is also * required ' as a conveyance in the other and for the same purpose." (2) The evil to be corrected was that of secret preferences, given by withholding from record instruments which by the whole policy of re- cording statutes should be recorded. This evil was pointed out by the author of the amendatory Act of 1903 and the object of the amendment of 60a was stated to be the remedying of this evil. The law as it stood encouraged such secret liens and preferences, for if they could be concealed for four months, though acts of bankruptcy, they were not voidable by the trustee. If we say, that unless the law of the State where the transfer is made makes void all such transfers as to all the world, that it is not a law which " requires" recording, the evil will continue and judges will con- tinue to bewail the iniquity of a law which makes such a secret trans- fer an act of bankruptcy and yet holds the preference valid against the bankrupt's estate because made more than four months before starting bankrupt proceedings against the maker. See the lament of Judge RAY, In re Hunt, 139 Fed. 286-287. (3) Some effect should be given to the amendment of section 60a if the language of the provision will permit. If "required" be construed as applying only to a law which makes every such transfer absolutely void as to all persons, the amendment will be of no effect, for no record- ing statute, of which we have any knowledge, makes void transfers or conveyances as between the parties and all of them give effect to such instruments as against some classes of persons having actual notice. The amendment would be idle and the evil sought to be remedied would flourish as before and the legislative purpose be frustrated. (4) In view of all of the foregoing considerations we reach the conclu- 282 LOESER V. SAVINGS DEPOSIT BANK & TRUST CO. [CHAP. IV. sion that the word " required," as used in the amendment, refers to the character of the instrument giving the preference or making the trans- fer, without reference to the fact that as to certain persons or classes 'of persons it may be good or bad according to circumstances. If to be valid against certain classes of persons, the law of the State " requires" the constructive notice of registration, it is a transfer which under the amendment is "required " to be recorded. This takes account of the purpose and policy of recording acts ; remedies the evil which flourished under the law before the amendment ; gives effect to the plain purpose of Congress; and gives some effect and force to a provision which would otherwise be meaningless, and brings section 3 and 60a and 60b into harmony of purpose and meaning. (5) We do not ignore the argument, that in section 3 the word "re- quired " is followed by the words ' ' or permitted," and that the latter words are omitted from the amendment, and that the words " or per- mitted " were in the Act as introduced by the author of the bill and re- tained in the amendment as it passed the House but was dropped in the Senate. It is a fact of which we may take notice, that it is common to recording statutes to set out a list of contracts, conveyances, and transfers which may be registered, or an " entitled" or "permitted" registration. But if an instrument is not "entitled" or "permitted" by law to be recorded, its record is of no effect as constructive notice. The effect of recording statutes is limited to such instruments as the statute permits record of. Burck v. Taylor, 152 U. S. 634; Lynch t. Murphy, 161 U. S. 247; Blake v. Graham, 6 Ohio St. 580; 24 Ency. of Law, p. 142, and cases cited. The Ohio statute concerning the re- cording of chattel mortgages does not require that such mortgages shall be recorded in order to be valid as against the parties or purchasers with notice. Only creditors and purchasers without notice can ignore an unrecorded chattel mortgage, and they can not do so if there imme- diately followed a delivery and notorious change of possession. Yet the mortgagor or mortgagee is entitled or ' ' permitted " to record the instrument, though not essential to its validity as against certain classes of persons. We conclude from the general purpose and policy of recording stat- utes, that the words "or permitted" are of no vital signification in section 3. If the instrument giving the preference is one which is "permitted" to be recorded in order to give it validity as against certain classes of persons, though perfectly valid without record as to other classes, it is an instrument "required" to be recorded within the meaning of the word as there used. The words "required" and " permitted" in the connection used are of synonymous legal meaning. The dropping of the words " or permitted " by the Senate is, therefore, of vital signification if we are right in regarding section 3 and section 60a as closely connected provisions. It is only in extremely doubtful matters of interpretation, that the legislative history of an act of SECT. II.] IN RE GEORGE M. HILL COMPANY. 283 Congress becomes important. If the word " required," as used in sec- tions 3 and 60a, is used as referring to the character of the instrument giving the preference and not as to the persons as between whom it may be valid without recording or the persons as to whom it is void for failure to record, the words " or permitted " in section 3 were sur- plusage and the Senate might well omit them from the amendment, the plain purpose being to tie the two provisions together. Why they were omitted from the bill as it finally passed we can only conjecture. If they had been retained, no one would question that the amendment made the preference, constituting an act of bankruptcy by section 3, voidable by the trustee under section 60a and b. To say that this plain purpose has failed because "or permitted" was inserted by one House and stricken out by the other, would be to make nothing of the amend- ment. We should so construe the Act as to give it vitality if the words of the Act will permit. Under section 4150 Ohio Statutes, a mortgage of chattels, not fol- lowed by immediate delivery and no actual and notorious change of possession, is "required" to be recorded. Otherwise it is invalid as to some persons and valid as to others. That such a mortgage is ' ' required " by the law of Ohio to be recorded within the meaning of section 60a as amended, we have no doubt. The decree of the court below must be reversed. 1 SECTION II. (continued), (f) FROM WHOM A PKEFERENCE MAY BE KECOVERBD. IN RE GEORGE M. HILL COMPANY. CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT, APRIL 12, 1904. [Reported in 130 Federal Reporter, 315.] The bankrupt had for a long time been a customer of the First Na- tional Bank of Chicago. Shortly before the bankruptcy and when the bank was aware of its financial condition the bankrupt paid to the bank certain notes previously made by the bankrupt payable to third persons who had discounted the notes with the bank. JENKINS, Circuit Judge : Second. It is insisted by the appellant that payment by the bank- rupt of notes given by it to third parties and discounted by the bank 1 The opinion is slightly abbreviated. In accord with the decision are Re Beckhaus, 177 Fed. 141 (C. C. A. 111.); Mattley v. Giesler, 187 Fed. 970 (C. C. A. Neb.); Kagan v. Donovan, 189 Fed. 138 (D. C. Ohio); Re Donnelly, 193 Fed. 754 (D. C. Ohio) ; Carey v. Donohue, 209 Fed. 328 (C. C. A. Ohio; Keal Estate). 284 IN RE GEORGE M. HILL COMPANY. [CHAP. IV. were, under the law, preferential payments to those for whom the bank discounted the notes, and were not preferential payments to the bank. We are not able to concur in this contention. The fact that the bank did not enter these notes in its loan account with the bankrupt, but in the account with the parties for whom they were discounted, is of no moment. The real question is, what was the true nature of the transaction? Was payment under the law preferential to the bank re- ceiving payment? The title of the bank to these notes was absolute. The debt thereby evidenced was a debt owing by the bankrupt to the bank. True, the original payees of the notes were liable to the bank upon their indorsements of the notes, contingent upon their dishonor by the maker and upon due notice of such dishonor. True that, in the absence of a Bankruptcy Law, payment of the notes by the maker would inure to the benefit of the indorsers, relieving them from such contin- gent liability. True, also, that the debt of the bankrupt expressed by the notes would become a debt to the indorsers if and when, in dis- charge of their liability as indorsers, they should repossess themselves of the notes. But it was the bank, not the indorsers, who received the preferential payment. The release of the indorsers from contingent liability, if such release was effected by such payment, was an in- cident not affecting the penalty imposed by the Bankruptcy Act for the receipt, however innocent, of a preferential payment. Within the definitions of the Bankruptcy Act the indorser has been held to be a creditor of the bankrupt, while his liability as indorser is con- tingent, so as to charge him with preferential payment made to the holder of the note. Swarts v. Siegel, 117 Fed. 13. But none the less is the owner of the note likewise subjected to the penalties of the act for receipt of such preferential payment. Swarts v. Fourth National Bank of St. Louis, 117 Fed. 1. In these cases both the bank and the indorsers were held chargeable for receipt of prefer- ential payment by reason of the amount paid to the bank, which payment must be refunded before either party could prove an inde- pendent claim against the bankrupt with which the other party was in no wise connected. This would not result, as counsel supposed, that in such case the insolvent estate would recover twice what it lost. Only the amount by which the assets of the estate had been depleted must be returned. It is further said that the bank, refusing to receive payment of the notes, would thereby discharge the indorser. The contention is not free from difficulty, and if that result would follow the enforcement of the act would be productive of injustice. But we think the matter has been ruled by the Supreme Court in Bartholow v. Bean, 18 Wall. 635, a case arising under the former Bankruptcy Act (Act March 2, 1867, c. 176, 14 Stat. 534, 536). The question was pre- sented in that case, and Mr. Justice MILLER, delivering the opinion of the court, said : " It is very obvious that the statute intended, in pursuit of its policy SECT. II.] DUNCAN V. LANDIS. 285 of equal distribution, to exclude both the holder of the note and the surety or indorser from the right to receive payment from the insol- vent bankrupt. It is forbidden. It is called a fraud vipon the statute in one place and an evasion of it in another. It was made by the statute equally the duty of the holder of the note and of the indorser to refuse to receive such a payment. Under these circumstances, whatever might have been the right of the indorser, in the absence of the Bankrupt Law, to set up a tender by the debtor and a refusal of the note holder to receive payment, as a defense to a suit against him as indorser, no court of law or equity could sustain such a defense, while that law furnishes the paramount rule of conduct for all parties to the transaction ; and when in obeying the mandates of that law the indorser is placed in no worse position than he was before, while by receiving the money the holder of the note makes himself liable to a judgment for the amount in favor of the bankrupt's assignee, and loses his right to recover, either of the indorser or of the bankrupt's estate." Within the rule in Pirie v. Chicago Title & Trust Co., 182 U. S. 438, and In re Fort Wayne Electric Corp., 99 Fed. 400, we have no doubt that the amount of these notes thus paid should be refunded as a con- dition that the bank prove its other claim. 1 SECTION II. (continued), (g) SUFFERED OR PERMITTED. DUNCAN v. LANDIS. CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT, FEBRUARY 7, 1901. [Reported in 106 Federal Reporter, 839.] Before DALLAS and GRAY, Circuit Judges, and BRADFORD, District Judge. GRAY, Circuit Judge. In the court below an issue was tried by a jury to determine whether Sallie E. Duncan, the appellant, who is one of the plaintiffs in error, had committed a certain act of bankruptcy charged against her. Sallie E. Duncan, the appellant, did business in the city of Williams- port, Pa., under the name of the Duncan Department Store ; her hus- band, James M. Duncan, being her general agent and business manager. 1 A portion only of the opinion is printed. 286 DUNCAN V. LANDIS. [CHAP. IV. In April, 1896, certain promissory notes in favor of Theodore H. Gehty, Gandor & Munson, and the first National Bank of Williamsport, with warrants of attorney to confess judgment, were executed and given by Sallie E. Duncan to the parties named. On December 31, 1898, by virtue of the said warrants, judgments were entered in the Court of Common Pleas of Lycoming County against the said Sallie E. Duncan for sums aggregating $8,228.67. Executions were issued thereon, and levy made by the sheriff upon the property of the defendant. Sallie E. Duncan was also indebted to other creditors in the sum of $7,300. These other creditors, or some of them, filed a petition in the court below on January 7, 1899, praying that the said Sallie E. Duncan should be adjudged a bankrupt, upon the ground that within four months next preceding the date of their petition she had committed an act of bankruptcy, in that she did on the 31st day of December, 1898, suffer and permit, while insolvent, certain of her creditors to obtain a preference through legal proceedings, and had not, within five days before the time fixed by the sheriff for the sale of her property levied upon by him, vacated and discharged such preference. The position taken by the District Court in its instruction to the jury was that the mere action of the plaintiffs in said judgment in entering the same and issuing executions thereon upon the authority of warrants of attorney given by Sallie E. Duncan more than two and a half 3*ears before, and before the passage of the bankrupt act, constituted a suffer- ing or permitting by her of the obtaining of a preference by such cred- itors at the time of such entry and levying of execution, within the meaning of the bankrupt act, because she did not within "five days," etc., vacate or discharge such preference ; and this though, as is assumed, the said Sallie E. Duncan, not only did no act to initiate or facilitate the proceedings of the creditors subsequent to the giving of the judgment notes, but could not have controlled, hindered, or delaj-ed such proceedings. We do not agree with the learned judge in this construction of the bankrupt act. If sanctioned, it perverts or ignores the common and ordinary meaning of English words, and deprives the debtor of the protection which those words, in their common, eveiyday signification, would give, and, we must assume, were intended to give. Section 3 of the act of 1898 deals with and describes acts of bankruptc}'. It is to be observed that the section expressly states that it deals with and concerns acts of the debtor. Unquestionably, clauses 1, 2, 4, and 5 require a voluntary act. The question, then, is whether clause 3 does not require the same. It certainly does, unless it is an exception to the general scheme of the section. The grammatical structure of the section is that of a single sentence, in which the numbered clauses all depend upon and relate to the opening clause, viz., " acts of bankruptcy by a person shall consist of his having " done certain things. An act signifies something done voluntarily by a person. An act is the result of an exercise of the will. Black's Law Dictionary says : " In a more technical sense, it means something done voluntarily by SECT. II.] DUNCAN V. LANDIS. 287 a person, and of such a nature that certain legal consequences attach to it. Thus, a grantor acknowledges a conveyance to be his ' act and deed,' the terras being synonj'mous." The act with which we are here concerned is the debtor's having suffered or permitted, while insolvent, a creditor to obtain a preference, etc. Both the words, "suffer" and "permit," while they do not necessarily connote strong affirmative action, do involve such an exer- cise of the will as effects results. The "suffering or permitting" a creditor to obtain a preference, within the meaning of clause 3, may consist of connivance between the debtor and creditor. But in any event there must be some act of the will on the part of the debtor, whether by way of active procurance or voluntary acquiescence. Slight evidence of an affirmative character might suffice to establish such connivance or acquiescence, but there must be some. Noscitur a sociis is an established rule in the interpretation of statutes. " As- sociated words are understood to be used in their cognate sense." There can be no doubt that the word " suffer " is here a synonym of " permit." It is the active and transitive verb, and not the intransi- tive. Its meaning as here used is that given by all lexicographers, Webster defining it thus : " (4) To allow ; to' permit ; not to forbid or hinder ; to tolerate. ' I suffer them to enter and possess.' Milton." Worcester gives as one of the meanings: "(3) To allow; to admit; to permit. ' God is faithful, who will not suffer you to be tempted above that }*e are able.' I Cor. x. 13." The Century gives as one meaning of the word : "To refrain from hindering; allow; permit; tolerate. ' Suffer the little children to come unto me, and forbid them not.' Mark, x. 14." There can be no doubt, then, that " suffer" or " permit," as used in this section, denotes a voluntaiy act of the debtor. They do not denote or describe acts of the creditor. The debtor must by this act consciously and voluntarily in some degree co-operate with the creditor in "obtaining" the preference. He cannot suffer or per- mit what he cannot hinder. A preference obtained under such circum- stances is not his act, and the consequence of bankruptcy, as denounced in this section, attaches only to his act. In the case before us, Sail if E. Duncan, the debtor, undoubtedly, to use the language of the district court for the Western district of Wisconsin in lie Nelson, 98 Fed. 76, "had a right to give a note, with warrant of attorney, so long before the bankrupt law was passed ; and, having given it upon good consid- eration, it was not in [her] power to prevent the entry of a judgment against [her]. What was not in [her] power to prevent, [she] could hardly be said to have suffered or procured." It seems to us that the learned judge in the court below, in the instruction to the jury above quoted, has entirely failed to give force and effect to the plain English words of section 3 of the bankrupt act just commented on. He in fact makes the act of bankruptcy consist entirely of the debtor not vacating or discharging a preference, however obtained, whereas in this third clause of the third section the act of 288 DUNCAN V. LANDIS. [CHAP. IV. bankruptcy is made to consist of the voluntary act connoted by " suffer " or " permit," as already explained, coupled with the failure of the debtor to vacate or discharge within five days, etc., the preference thus suffered or permitted ; the plain and obvious meaning of this clause being that, even though the debtor has suffered or permitted a preference to be obtained, it still will not be considered an act of bank- ruptcy, if within the five days, etc., he " vacates or discharges " the same. In making this contention that the failure of the debtor to vacate or dis- charge a preference, however obtained, constitutes an act of bankruptcy, the appellees seem to admit that the failure spoken of in the act means omitting to do something which the debtor was able to do ; for when it is pointed out that a judgment from which a preference results has been obtained upon a valid cause of action, that there was no legal defence, that it was regularl} 7 entered and no exception was possible to its record, and that the debtor was not able to discharge it by payment, the reply is made, not that it is a matter of no consequence whether he was able to do any of these things or not, but another thing, which he unquestionably is able to accomplish, is mentioned, viz. voluntary bankruptcy. This repty is made upon the authority of several cases in the district courts, one of them stating the matter thus : " If neither of these weapons is available, he has still at command one sufficient weapon, of which he cannot be deprived: he can apply promptly to the Court of Bankruptcy, and ask that his propert} 1 shall be ratably divided among his creditors. If he fails to move, his inaction is properly regarded as a confession that he is hopelessly insolvent, and as conclusive proof that he consents to the preference that he has declined to strike down." It may be remarked in passing that in the case of a corporation the " weapon " of voluntary bankruptcy is not available. There is in the language above quoted the implication of a further, somewhat inconsistent, admission that, in view of the natural and ordinary meaning of the words " suffer or permit," there was a necessity to seek for some evidence of the exercise of the debtor's will ; and this, it is asserted, is found in the debtor's failure to voluntarily ask to be declared a bankrupt, in order to vacate or discharge the preference obtained, in cases where no other way of discharging such preference is open to him. If the element of the debtor's will be necessar}' to the " vacating or discharging " of the preference, it is hard to see why it should be taken away from the words " suffer or permit," as used in the former part of the clause under consideration. It would be more con- sistent to eliminate it in both cases. The construction of clause 3, according to the contention of the appellees, would then be that the bankruptcy of the debtor has no relation to his act, but depends alone upon the result and effect of the creditor's act in obtaining a preference, and likewise upon the result or effect of the preference not having been discharged by the debtor, irrespective of his ability to so discharge the Bame. But, as already explained, the appellees admit the necessity oi SECT. II.] DUNCAN V. LANDIS. 289 importing the will of the debtor into the failure to discharge or vacate, by the suggestion that, if there are no other means to legally vacate or discharge the preference, still it is open to him to exercise his volition to become a voluntary bankrupt. As we cannot hold the debtor as for a duty to " vacate or discharge," where he has no ability to do either, so as to avoid the consequence of bankruptcy, no more can we hold that he " suffered or permitted " the obtaining of a preference which he could not legally have hindered or prevented. In its last analysis, the contention of the appellees, and of those decisions which support their contention, is that the failure of the debtor to promptly apply to the court to be declared a voluntary bankrupt, and so effect an equal dis- tribution of his property among his creditors, is conclusive evidence of his having "suffered or permitted" the obtaining of a preference referred to in the act, no matter how impossible legal resistance on his part to such preference ma}' have been, and no matter how incapable he may have been to " vacate or discharge " the preference so obtained, otherwise than by his voluntary bankruptcy. This seems to us an unwarranted, as well as a harsh, interpretation of the section under consideration, justified neither by the language employed nor the scope or intent of the act itself, as gathered from its consideration as a whole. It is a begging of the question of bankruptcy, inasmuch as it requires that a preference once obtained by a creditor, even in invitum as to the debtor, should fix the status of such debtor as a bankrupt, either by the involuntary or b}' a so-called voluntary proceeding. We do not think it could have been meant in this act, any more than in the act of 1867, to put a compulsion upon the debtor to apply to be declared a bankrupt. The language of the Supreme Court in Wilson v. Bank, 17 Wall. 473, 21 L. Ed. 723, as to this proposition, is as applicable to the present act as it was to the bankrupt act of 1867. It is true that in the act of 1898 and in the clause under consideration it was expressly provided that even though a preference has been " suffered or per- mitted," it shall not be an act of bankruptcy, if the debtor vacates or discharges the same within a certain time, and that there is no express provision of this kind in the act of 1867. But neither in the existing act nor in the act of 1867 is there any express provision making it the legal duty of the insolvent, when sued by one creditor in a proceeding likely to end in a judgment and seizure of property, to file himself a petition in bankruptcy ; nor is this duty to be inferred from the scope of the act or the spirit of the law, nor is it essential to its suc- cessful operation in the one case more than in the other. Mr. Justice Miller, in the case of Wilson v. Bank, above referred to, in delivering the opinion of the court, says upon this point: 3'ed instead of the simpler phrase "obtained through legal proceed- ings," as used in section 67, cl. " f." The distinction in meaning between the words "suffered and permitted," as used in section 3, and the word "obtained," as used in section 67, cl. " f," is not only evident, but has been clearly recognized judicial!}'. In Re Richards, 96 Fed. 935, 37 C. C. A. 633, decided by the Circuit Court of Appeals for the Seventh Circuit, it appeared that a judgment note was given by a debtor ten months before he became a voluntary bankrupt, and that judgment on the note was entered within four months of the filing of the petition in bankruptcy, and a levy made upon the property of the debtor. Tbe case related to the validity of the preference thus obtained in violation of section 67, cl. " f." In the course of a carefully pre- pared opinion the court recognized the distinction above referred to, saying while treating of the relation of clause "c" to clause " f" of section 67 : "But subdivision 'f is broader in its scope, and avoids all liens obtained through legal proceedings within the time stated against a person who is insolvent within the meaning of the subdivision, irre- spective of knowledge on the part of the creditor of the fact of insolvency, and irrespective of the question whether the obtaining of the lien was in any way suffered and permitted by the debtor. . . . We are of opinion, therefore, under the rule stated, corroborated and justified by the action of Congress, that the provisions of subdivision ' f ' must pre- vail over those of subdivision 'c,' and that all liens obtained through legal proceedings within the time stated against a person who is insol- vent, and irrespective of any sufferance or permission thereof by the debtor and of any knowledge by the creditor of the debtor's insolvency, are avoided if that subdivision can be held to apply to voluntary pro- ceedings in bankruptcy, and if another objection hereinafter considered is unavailing. . . . The validity- of the lien depends upon the terms of the act speaking to that subject, but not upon the question whether the acts which resulted in the lien were acts which subjected the debtor to proceedings in bankruptcy. It is doubtless true that the debtor could not have been forced into bankruptcy because of the acts done by him ; but, under the law, when for any reason bankruptcy has supervened, and adjudication has been determined by the court, all liens which fall under the ban of section 67 are avoided, whether the debtor has been or could have been adjudicated a bankrupt for his acts with reference to any specific lien." SECT. II.] DUNCAN V. LANDIS. 297 We have quoted at length from the foregoing opinion for the reason that the court has clearly emphasized and set forth the contrast between the provision made in section 67, cL " f," of the act, making void certain liens obtained by a creditor, and the provision in regard to what acts of a debtor shad be followed by the consequences of bankruptcy. When it was desired to render liens obtained by a creditor under judi- cial proceedings against the property of his debtor void, under certain circumstances, without reference to any voluntary act of the debtor, Congress had no difficulty in finding appropriate language to express its meaning, just as the English act above quoted used appropriate and unequivocal language to define the things which, being done by the creditor, should work the bankruptcy of the debtor, without requiring any act on his part. 1 DALLAS, Circuit Judge. I concur in the conclusion arrived at in this case, but not in the construction put b}- the majorit}' of the court upon clause 3 of section 3 of the bankruptcy act of 1898. The reasons for this dissent ma}' be briefly stated, and need not be elaborated. I do not think that any special significance should be ascribed to the word "acts," as it occurs in section 3. What was intended, as I be- lieve, was merely to designate what conduct of a person would have the effect of making him a bankrupt. The word "acts" is certainty sometimes used as an equivalent for the word "behaves," even where the behavior referred to is not positive, but negative, in character, as where it is said that a man acts unreasonably in not doing something which in reason he ought to do. In the corresponding section of the bankrupt act of 1867 it was unquestionably so used, and I perceive no ground for supposing that in the act of 1898 it was employed in a narrower sense. By section 39 of the act of 1 867 it was provided, among other things, that any person " who has been arrested and held in custody under or by virtue of mesne process, . . . and such process is remaining in force and not discharged by payment, ... or has been actually imprisoned, . . . shall be deemed to have committed an act of bankruptcy." Here, then, we find that under the act of 1867 an act of bankruptcy might consist of the debtor's arrest or imprisonment, which, of course, could not be his own act, and that, by his not doing, not paying, the act of bankruptcy constituted by his arrest would be consummated and established. Hence it appears that Congress in the previous statute provided that certain acts, not of the debtor himself, should be deemed to be acts of bankruptcy committed by him ; and I therefore cannot agree that, l)j' reason of the association in the present act of the same phrase "acts of bankruptcy " with the words "suffered or permitted," these words must be interpreted to mean connivance, co-operation, or participation, and nothing else besides. Neither can I agree that the words "suffered or permitted" necessarily import positive action. They may do so, it is true ; but they also, and 1 Portions of this opinion immaterial to the main point have boon omitted 298 DUNCAN V. LANDIS. [CHAP. IV. I think ordinarily (especially when disjunctively presented), signify passive sufferance or quiescent allowance, " not to forbid or hinder ; to tolerate" (Webster); "to refrain from hindering; allow, permit; tolerate" (Century). But there are considerations which, in my opin- ion, should have greater weight in the construction of this clause than any nice discrimination of the diverse deflnitions of particular words. The cases of Wilson v. Bank and Clark v. Iselin were decided under the act of 1867. and, with those decisions and that act presumably in mind, the act of 1898 was passed, with provisions which, as respects the matter in question, notably differ from those of the act of 1867. The word " procure," which was in that act, and which might well be said to indicate that positive action on the part of the debtor was con- templated, was pointedly omitted from the act of 1898 ; and to the word " suffered " there was added the words " or permitted," with, as I think, the evident intention of making it clear that procurement would not be necessary, but that mere sufferance or allowance would be enough, to occasion bankruptcy. Moreover, clause 3 of section 3 of the act of 1898 does not include the provisions of the act of 1867 with reference to the debtor's intent, or anything whatever upon that sub- ject ; and this departure, I think, shows that the object in view was not merely to impose bankruptcy upon the debtor because he had given a preference, but was to preclude, where possible, the acquisition of an}' advantage of one creditor over others. Taken together, I cannot but regard these modifications as significant of a design to prevent the present statute from being construed as the former one had been. It cannot be supposed that such suggestive changes in their otherwise similar terms were made without purpose, and to me it is manifest that the intention in making them was to establish as the law of 1898 no matter what that of 1867 might have been that, if an insolvent (regardless of intent or procurement) either suffered or permitted any creditor to obtain a preference, his failure to vacate it within the time limited would be an act of bankruptcj" ; and this understanding is accordant with the general policy of the act, to which allusion has been made, that no creditor shall be, either by procurement or sufferance, enabled " to obtain a greater percentage of his debt than any other of such creditors of the same class." Section 60. The decisions of the district courts in other circuits as well as in this one are in harmony with the views I have expressed. Those decisions l are, of course, not binding upon us, but they are entitled to much weight ; and, in my opinion, the construction which has heretofore uniformly been given to the clause under consideration ought not now to be discarded in this jurisdiction. 1 1 In Wilson r. Nelson, 183 U. S. 191, the Supreme Court adopted the view of Dallas, J. Shiras, J., however, wrote a dissenting opinion, in which Fuller, C. J., and Brewer and Peckham, J.I., concurred. SECT. II.] CITIZENS BANKING CO. V. KAVENNA NATIONAL BANK. 299 CITIZENS BANKING COMPANY t>. KAVENNA NATIONAL BANK. SUPREME COURT OP THE UNITED STATES, MARCH 16-JuNE 8, 1914. [Reported in 234 United States, 360.] MR. JUSTICE VAN DEVANTER delivered the opinion of the court. Cora M. Curtis was adjudged a bankrupt in the District Court for the Northern District of Ohio for (a) suffering and permitting while insolvent the Citizens Banking Company to recover judgment, and to levy on her real estate whereby the company obtained a preference, and (b) failing at the time of the petition which was one day less than four months after the levy of execution to discharge it. On appeal the Circuit Court of Appeals certified these questions. 1 " (1) Whether the failure by an insolvent judgment debtor, and for a period of one day less than four months after the levy of an execu- tion upon his real estate, to vacate or discharge such levy, is a ' final disposition of the property ' affected by such levy, under the provisions of section 3a (3) of the Bankruptcy Act of 1898. "(2) Whether an insolvent debtor commits an act of bankruptcy rendering him subject to involuntary adjudication as a bankrupt, under the Bankruptcy Act of 1898, merely by inaction for the period of four months after the levy of an execution upon his real estate." It will be observed that no reference is made to an accomplished or impending disposal of the property in virtue of the levy, although the mode of disposal prescribed by the local law is by advertisement and sale. 2 Bates' Ann. Ohio Statutes, 5381, 5393. The answers to the questions propounded turn upon the true con- struction of 3a (3) of the Bankruptcy Act. Looking at the terms of this provision, it is manifest that the act of bankruptcy which it defines consists of three elements. The first is the insolvency of the debtor, the second is suffering or permitting a creditor to obtain a preference through legal proceedings, that is, to acquire a lien upon property of the debtor by means of a judgment, attachment, execution or kindred proceeding, the enforcement of which will enable the creditor to collect a greater percentage of his claim than other creditors of the same class, and the third is the failure of the debtor to vacate or discharge the lien and resulting preference five days before a sale or final disposition of any property affected. Only through the combination of the three elements is the act of bankruptcy com- 1 The statement of facts has been abbreviated. 300 CITIZENS BANKING CO. V. KAVENNA NATIONAL BANK. [CHAP. IV. mitted. Insolvency alone does not suffice, nor is it enough that it be coupled with suffering or permitting a creditor to obtain a preference by legal proceedings. The third element must also be present, else there is no act of bankruptcy within the meaning of this provision. All this is freely conceded by counsel for the petitioning creditor. The questions propounded assume the existence of the first two ele- ments and are intended to elicit instruction respecting the proper interpretation of the clause describing the third, namely, " and not having at least five days before a sale or final disposition of any prop- erty affected by such preference vacated or discharged such prefer- ence." It is to this point that counsel have addressed their arguments. Without any doubt this clause shows that the debtor is to have until five days before an approaching or impending event within which to va- cate or discharge the lien out of which the preference arises. What, then, is the event which he is required to anticipate ? The statute answers, "a sale or final disposition of any property affected by such preference." As these words are part of a provision dealing with liens obtained through legal proceedings, and as the enforcement of such a lien usually consists in selling some or all of the property affected and applying the proceeds to the creditor's demand, it seems quite plain that it is to such a sale that the clause refers. And as there are instances in which the property affected does not require to be sold, as when it is money seized upon execution or attachment or reached by garnishment, 1 it seems equally plain that the words ' ' or final disposition " are intended to in- clude the act whereby the debtor's title is passed to another when a sale is not required. No doubt, the terms " sale or final disposition," explained as they are by the context, are comprehensive of every act of disposal, whether by sale or otherwise, which operates as an enforce- ment of the lien or preference. But we do not perceive anything in the clause which suggests that the time when the lien is obtained has any bearing upon when the prop- erty must be freed from it to avoid an act of bankruptcy. On the con- trary, the natural and plain import of the language employed is that it will suffice if the lien is lifted five days before a sale or final disposition of any of the property affected. This is the only point of time that is mentioned, and the implication is that it is intended to be controlling. To enforce a different conclusion counsel for the petitioning creditor virtually contends that the clause has the same meaning as if it read " and having failed to vacate or discharge the preference at least five days before a sale or final disposition of any of the property affected, or at most not later than five days before the expiration of four months after the lien was obtained." But we think such a meaning cannot be ascribed to it without rewriting it, and that we cannot do. The con- tention puts into it an alternative which is not there, either in terms or 1 See Turner v. Fendall, 1 Cranch, 117, 133; Sheldon v. Root, 16 Pick. 567; Crane v. Freese, 16 N. J. L. 305; Green v. Palmer, 15 California, 411, 418; 2 Bates' Ann. Ohio Statutes, 5374, 5383, 5469, 5470, 5483, 5531, 5548, 5555. SECT. II.] CITIZENS BANKING CO. V. RAVENNA NATIONAL BANK. 301 by fair implication, and to which Congress has not given assent. In- deed, it appears that in the early stages of its enactment the bankruptcy bill contained a provision giving the same effect to a failure to dis- charge the lien within a prescribed period after it attached as to a failure to discharge it within a designated number of days before an intended sale, and that during the final consideration of the bill that provision was eliminated and the one now before us was adopted. This, of course, lends strength to the implication otherwise arising that the clause names the sole test of when the lien must be vacated or discharged to avoid an act of bankruptcy. The contention to the contrary is sought to be sustained by a refer- ence to 3b, 67c and 67f. But we perceive nothing in those sections to disturb the plain meaning of 3a (3). It defines a particular act of bankruptcy and purports to be complete in itself, as do other subsec- tions defining other acts of bankruptcy. Section 3b deals with the time for filing petitions in bankruptcy and limits it to four months after the act of bankruptcy is committed. It says nothing about what consti- tutes an act of bankruptcy, but treats that as elsewhere adequately defined. Sections 67c and 67f deal with the retrospective effect of adjudications in bankruptcy, the former declaring that certain liens obtained in suits begun within four months before the filing of the pe- tition shall be dissolved by the adjudication, and the latter that certain levies, judgments, attachments and other liens obtained through legal proceedings within the same period shall become null and void upon the adjudication. Both assume that the adjudication will be grounded upon a sufficient act of bankruptcy as elsewhere defined, and give to every adjudication the same effect upon the liens described whether it be grounded upon one act of bankruptcy or another. And what is more in point, there is no conflict between 3a (3) and the sections indicated. All can be given full effect according to their natural im- port without any semblance of interference between 3a (3) and the others. But it is said that unless 3a (3) be held to require the extinguish- ment of the lien before the expiration of four months from the time it was obtained the result will be that in some instances the lien will not be dissolved or rendered null through the operation of 67c and 67f, because occasionally the full four months will intervene before an act of bankruptcy is committed and therefore before a petition can be filed. Conceding that this is so, it proves nothing more than what is true of all liens obtained through legal proceedings more than four months prior to the filing of the petition. And while it may be true, as is sug- gested, that if the debtor \a not restricted to less than four months within which to extinguish the lien there will be instances in which general creditors will be affected disadvantageous^, it must be re- flected that there also will be instances in which an honest and strug- gling debtor will be able to extinguish the lien the requisite number of days before a sale or final disposition of any of the property affected 302 CITIZENS BANKING CO. V. RAVENNA NATIONAL BANK. [CHAP. IV. and thereby to avoid bankruptcy, without injury to any of his creditors. But with this we are not concerned. The advantages and disadvan- tages have been balanced by Congress, and its will has been expressed in terms which are plain and therefore controlling. Lastly it is said that the term " final disposition " is not used in the sense hereinbefore indicated, but as denoting the status which a lien acquires through the lapse of four months before the filing of a peti- tion in bankruptcy. This is practically a reiteration of the contention already noticed, but probably is intended to present it from a different angle. It overlooks, as we think, the influence which rightly must be given to the context, and also the manifest inaptness of the term to express the thought suggested. When one speaks of a sale or final disposition of property he means by final disposition an act having substantially the effect of a sale a transfer of ownership and control from one to another and especially is this true when he is referring to a sale or final disposition in the enforcement of a lien. "We regard it as entirely clear that the term is so used in this instance, and that it signifies an affirmative act of disposal, not a mere lapse of time which leaves the lieu intact and still requiring enforcement. To illus- trate, let us take the instance of a provisional attachment of real prop- erty, which the creditor is not entitled to enforce unless he sustains the demand which is the subject of the principal suit ; and let us sup- pose that the debtor defends against the demand, and that the suit is pending and undetermined four months after the levy. Of course, an adjudication in bankruptcy upon a petition filed thereafter would not disturb the attachment. But could it be said that the property attached was finally disposed of at the end of the four months? An affirmative answer seems quite inadmissible. We conclude that both of the questions propounded by the Circuit Court of Appeals should be resolved in the negative. As shown by the reported cases, some diversity of opinion has arisen in other Federal courts in disposing of similar questions (In re Rome Planing Mill, 96 Fed. Rep. 812, 815 ; In re Vastbinder, 126 Fed. Rep. 417, 420; In re Tupper, 163 Fed. Rep. 766, 770; In re Windt, 177 Fed. Rep. 584, 586; In re Crafts-Eiordon Shoe Co., 185 Fed. Rep. 931, 934; Folger v. Putnam, 194 Fed. Rep. 793, 797; In re Truitt, 203 Fed. Rep. 550, 554), and so we deem it well to observe that the conclusion here stated has been reached only after full consid- eration of those cases. Questions answered " No." ^ECT. II.] RE LOCKE. 303 SECl.lON II. (continued}. (h) TRANSFERS FOB PRESENT CONSIDERATION. RE LOCKE. DISTRICT COURT I'OK THE DISTRICT OF MASSACHUSETTS, DECEMBER, 1868. '^Reported in 1 Lowell, 293.] OBJECTIONS to the bankrupt's discharge heard by the court. The examination of the bankrupt, which was the only evidence in the case, tended to show that he tad been extensive!}- engaged in trade down to the year 1857, when h failed and settled with many of his creditors. Others, including the two who proved their debts here and opposed his discharge, had obtained judgments which were still valid. Since 18,57 Locke had not been a trader, but had earned money by service in the army and as a clerk. The specifications set up certain payments made by him from time to time, within four months before filiflg his petition, for rent and other necessaries. Locke admitted that he was insolvent when he made those payments and for ten years before, but denied any intent to prefer those creditors and any contemplation of bankruptcy. J. D. Ball, for the creditors. J. S. Abbott, for the bankrupt. LOWELL, J. . . ,. I am further of opinion that the pa3 r ments which this debtor made a?.'e not within any true definition of a fraudulent pref- erence. It is very rarely that the payment of rent, or of a butcher's or grocer's bill, m the ordinary course of dealing, can be a preference, because the consideration is a continuing one. If the tenant does not pay his rent, he is ejected, aTKmieTmain consideration is the forbear- ance ; and so of the other like bills, though in a less degree. We have seen that 9, debtor cannot be said to intend a preference, unless he expects or fears either to stop payment or to become bankrupt. The evidence shows that this defendant did not contemplate bank- ruptcy. He had, indeed, years before stopped pa3'ment, and ceased to be a trader, .and had disposed of his trade capital by what may or may not have ^been preferences by the law of his domicile. But he had accumulated no new estate, and the payments which are now ob- jected to were for his current expenses, and made out of his current earnings, though they were made monthly and not day by day. If these were technical preferences under section 39, which I doubt in the case of one not a trader, and not paying one trade creditor before another, yet I cannot believe they were fraudulent preferences within section 29, which should bar his discharge. Discharge granted. 1 l In Smith v. Teutonia Ins. Co., 22 Fed. Cas. No. 13,1 15, it was held that payment of rent by a company after its insolvency was knowr ^as not an act of bankruptcy as if 304 EX PARTE AMES. RE McKAY AND ALDUS. [CHAP. IV. Ex PARTE AMES. RE McKAY AND ALDUS. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, APRIL, 1871. [Reported in \ Lowell, 561.] LOWELL, J. The petitioner, as trustee for himself and his partner, holds a mortgage upon nearty all the stock, tools, and other movable property of the bankrupts, and it was to be expected that the general creditors should look upon the transaction with suspicion, and inquire carefully into its consideration. The advances were all made after the nineteenth of September ; the mortgage was made on the seventeenth of October, and McKay and Aldus stopped payment on the latter part of November of the same year, 1868. A mortgage of all the property of a trader, or of so much as will make him insolvent, when given for a pre-existing debt, is, by the law of England, conclusive!}' presumed to be a fraud upon the bankrupt act: Worsley v. DeMattos, 1 Burr. 467; Dutton v. Morrison, 17 Ves. 199; Lindon v. Sharp, 6 M. & G. 895; Stewart v. Moody, 1 C. M. & R. 777 ; and although our law does not deal in conclusive presumptions, yet the result is much the same, for it would be almost impossible to explain away such an apparent prefer- ence. It is not so with securit} 1 given for present or future advances, which if made in good faith and without notice of an}" fraudulent intent on the part of the trader, cannot be acts of bankruptcy, for the reason that a fair exchange of equivalents injures no one. Unless, therefore, the mortgagee is party or priv} T to some fraud or preference (as in the case of Ex parte Mendell, Re Butler, supra, 506), he may hold his security against the assignee however insolvent the mortgagor may have been at the time. Hutton v. Cruttwell, 1 Ellis & B. 15 ; Bittle- stone v. Cooke, 6 Ellis & B. 296 ; Harris v. Rickett, 4 H. & N. I. 1 prevented the " forfeiture of the lease and the consequent loss of their office furniture and other property." Reed v. Phinney, 2 N. B. N. 1007 (referee), ace. See also Re Pearson, 95 Fed. Rep. 425. In Re Merchant's Ins. Co. 6 B. R. 43, 48, however, the court held that payment of the rent of a lot on which the lessee had erected a valuable building, though made with a view of " subserving the best interests of creditors," was " a technical act of bankruptcy." In Re Lange, 97 Fed. Rep. 197, Brown, D. J., said : " Payment of rent by an insolvent is not necessarily an act of bankruptcy. But when it is done as a means and for the purpose of carrying on a business in fraud of creditors, it should be so regarded." See also Macon Co. v. Beach, 156 Fed. 1009. In Smith v. Teutonia Ins. Co., supra, it was also held that payment of salaries in the course of business was* not an act of bankruptcy, but in Re Kenyon, 6 B. R. 238, it was held that payment even of wages entitled to priority under the bankrupt act was an act of bankruptcy. The surrender of such payments by creditors as a condition of proof was compelled in Re Kohn, 2 N. B. N. 367 (referee) ; Re Jones, 2 N. B. N. 961. 1 Tiffany v. Boatman's Inst., 18 Wall. 375; Ex parte Packard, 1 Low. 523; Darby v. Institution, 1 Dill. 144; Gaffney v. Signaigo, 1 Dill. 158; Re York, 3 B. R. 661 ; Harrison v. McLaren, 10 B. R. 244 ; Re Montgomery, 12 B. R. 321 ; Douglass v. Voge- ler, 6 Fed. Rep. 53 ; Re Cobb, 96 Fed. Rep. 821 ; Re Wolf, 98 Fed. Rep. 84 ; Farmers', &c. Bank v. Carr, 127 Fed. 690 (C. C. A.) ; Love v. Export Storage Co., 143 Fed. 1 (C. C. A.) ; Leighton v. Morrill, 159 Mass. 271 ; Farmers', &c. Bank v. Mosher, 63 SECT. II.] EX PAKTE AMES. RE McKAY AND ALDUS. 305 In cases of a mixed character, where security for a past debt is coupled with a further advance, the law of England is thus stated b}' the latest text writer: " Jt does not appear to be formally settled whether the assignment by a debtor of the whole of his effects, in consideration partly of an existing debt and partly of an advance, is or is not an act of bankruptcy." After citing the authorities on both sides, he adds : " The weight of authority would seem to be in favor of a transaction of this sort not being an act of bankruptcy where the advance is made bona fide to enable the debtor to meet his engagements and carry on his business. Such an act may be, and in fact often is, the wisest course a trader can take to promote the interest of his creditors." Robson on Bankruptc} 1 , 110, citing Re Colemere, L. R. 1 Ch. Ap. 128; Allen v. Bonnett, 21 L. J. N. s. 309. 1 I am inclined to think that the test proposed by Mr. Robson is the true one under our law. It is not every insolvent who can be made bankrupt by his creditors, though ever}' insolvent can petition in his own behalf. Congress has carefull}' refrained from saj'ing that a state of insolvency is equivalent to an act of bankruptcy, though hopeless in- solvency as proved by certain tests is so. For instance, a trader whose paper lies over for fourteen days has become bankrupt ; but if his credit is sufficient to enable him to obtain a renewal within thirteen days, he cannot be proceeded against as a bankrupt on that ground. The ques- tion being in each case whether there was an intent to prefer, there may be man}* in which the evidence of a real and honest intention not to stop payment may make valid a security which was partly given for money previously advanced, if coupled with sufficient present advan- tages to the debtor to relieve the case of any fraudulent appearance. And there may even be cases where the purpose and expectation to keep on are so manifest that no intent to prefer can be found, though the insolvency was well known to both parties. The present case, however, is not one which calls for any critical examination into the boundary lines of the domain of preference. The history of the dealings between these parties from the 19th of Septem- ber onward fails to show any intended fraud on the act. Indeed I Neb. 130; Atlantic Ref. Co. v. Stokes, 77 N. J. Eq. 119; Stackhouse v. Holden, 66 N. Y. App. I). 423. Similarly a sale for valne may be made by an insolvent. Sedgwick v. Lynch, 5 Ben. 489; Re Pnsey. 7 B. R. 45; Sedgwick v. Wormser, 7 B. R. 186; Tiffany v. Lucas, 8 B. R. 49 ; Re Strenz, 8 Fed. Rep. 311 ; North v. McDonald, 1 Wyo. .348, 351. In Re Strenz, the sale was of the insolvent's entire stock of goods and fixtures. i In the seventh edition of Robson on Bankruptcy, 155 (1894), the passage roads: " It may, however, be now considered as settled that a transaction of this sort is noi an act of bankruptcy, where the advance is of a substantial sum and made Ixnxi .fide to enable the debtor to meet his engagements, and, if a trader, to carry on his business. ... If, however, the circumstances of the case are such as to show that the real object in making the advance was not to enable the debtor to continue his trade or meet his engagements, but to secure to the creditor the repayment of the debt pre- viously owing to him, the transaction will be regarded as a fraud on the other cred itors and an act of bankruptcy." 306 EX PAKTE AMES. RE McKAY AND ALDUS. [CHAP. IV. understand it to be admitted that there was no such intent at first ; but the assignees think the}- can discover a point where good faith ends and preference begins. The}' argue that the lenders advanced more money than they had intended or more than they had security for, and when thej" found this out determined to take the mortgage at any rate, to cover their advances and secure themselves if possible. The evi- dence lends no aid to this theory, but sets out a continuing course of dealing in which loans and security were contemporaneous throughout. I find it to be fully established that the firm of McKay & Aldus hoped and intended to continue their business, and made the mortgage with that view, and that their representations to the petitioner were calcu- lated to make him believe not only that such was their hope, but that it was one that might be reasonably entertained. A mortgage made under such circumstances and for such a purpose cannot be successfully assailed if it is given for present and future advances only. It is argued, however, very strongly that this mortgage was intended mainly for past loans. No doubt it reads so on its face ; but the proof is that many of the acceptances recited on it, although some of them are dated back a few, days, so that it should not fall due at once, were given on n the credit of this mortgage, and were not in fact delivered until the (T security itself was delivered. Our law of preference sets aside all pay- ments and conveyances made with intent to prefer one creditor over the rest, whatever motives may have been brought to bear on the debtor by threat, entreat}", or legal coercion. And with us it is perhaps not the law, as it in England, that a general promise of security given at the time the debt is contracted, may be executed after the debtor has become insolvent. Such a promise will not save the act from being a preference, if it would have been one without the promise. This, I have more than once ruled to the jury, and there are reported cases for it. Arnold v. Maynard, 2 Story, 349 ; Graham v. Stark, 3 B. R. 92 ; Blodgett v. Hildreth, 11 Gush. 311. I have been accustomed to say that such an agreement merely amounts to an agreement to give a preference if one should become necessary. 1 But I have always ruled that security fairly given, as part of the same transaction as the loan, could not be in- validated by a change of the borrower's situation re infecta, as if the money were advanced while the mortgage was in course of preparation, and the debtor fails in the mean time. 2 I have not seen or known of any 1 Bank of Leavenworth, v. Hunt, 11 Wall. 391 ; Rundle v. Murgatroyd, 4 Ball. 304 ; Re Connor, 1 Low. 532 ; Brett v. Carter, 2 Low, 458 ; Barrow . Morris, 14 B. R. 371 ; Burdick v. Jackson, 15 B. R. 318 ; Lloyd r. Strobridge, 16 B. R. 197 ; Holmes v. Winchester, 135 Mass. 299 ; Mechanics, &c. Bank v. Ernst, 231 U. S. 60, occ. M'Mechen's Lessee v. Grundy, 3 H. & J. 185, contra. 2 Re Perrin, 7 B. R. 283; Re Montgomery, 17 Fed. Cas. No. 9,732; Gattman v. Honea, 12 B. R. 493; Sparhawk v. Richards, 12 B. R. 74; Croswell v. Allis, 25 Conn. 301 ; Nicholson v. Schmucker, 81 Md. 459 ; Bush v. Boutelle, 156 Mass. 167, and earlier Massachusetts decisions cited, ace. See also Post v. Corbin, 5 B. R. 11 ; Williams v. Clark, 47 Minn. 53; Cartwright v. Wilmerding, 24 N. Y. 521. Conf. Re Morrow, 134 Fed. 686. SECT. II.] EX PARTE AMES. RE McKAY AND ALDUS. 307 case which brings up the somewhat nicer question, argued here, whether specific and definite security, unconditionally stipulated for in writing, may be given after a lapse of time and a change of circumstances. This may depend on whether the contract is one that a court of law or equity would enforce in inviturn ; for I apprehend and have often decided subject to a correction that has not } - et been made, that the assignee stands no better than the bankrupt in all matters of title, excepting where there is actual or constructive fraud. The -petitioner insists that the letter of McKay & Aldus to him, of 21 September, if acted on and if the money was advanced on the faith of it, would give him an equita- ble lien which would prevail against the assignee. I shall not examine the point of law, because the facts negative any illegal intent, so that I must uphold the mortgage whether it was a mere continuation of the written promise or was a new contract. The petitioner advanced money from time to time and took security for each advance, and when the mortgage was ordered and was being drawn up, he had what ap- peared to be ample security for his then existing advances. It has turned out that one piece of propert3' which he then held is of much less value than was supposed, and one other of somewhat less value, but there was no reason to suspect this at the time, and the difference even now is but trifling compared with the whole amount at issue, and I cannot find as a fact that this mortgage was given with any intent to prefer, or with any fear that the existing advances were not amply secured. The conduct of both parties before and after and at the time show as clearly as does all the rest of the evidence that the mortgage was intended for a legitimate business transaction, having relation to the continuance and not the stopping of the trade, and that the advances made at and after the time were the sole moving consideration for the mortgage. Under these circumstances I do not feel justified in avoid- ing the mortgage even to the extent of the few thousand dollars that are said not to have been already fully secured of the advances made in September. I do not undertake to recapitulate evidence, but I may say here that considering the dates, I doubt whether there is even a small balance of the earlier advances left to be paid out of the property embraced in the mortgage ; because I think it will be found that accept- ances for at least four or five thousand dollars were advanced while the mortgage was in preparation, and these would be protected by it if such was the agreement of the parties when they were given. 1 1 A portion of the opinion dealing with what the mortgage covered is omitted. 308 IN RE WOLF. [CHAP. iv. IN RE WOLF. DISTRICT COURT FOR THE NORTHERN DISTRICT OF IOWA, DECEMBER 11, 1899. [Reported in 98 Federal Reporter, 84.] SHIRAS, District Judge. From the facts certified to the court, it appears that the bankrupt, Wolf, being indebted to Julius Arkin, on the 15th day of May, 1899, executed and delivered to him, as evidence of his indebtedness, a promissory note for $200, payable in 90 days from date. On the 22d day of July, 1899, the bankrupt borrowed of Arkin the sum of $100, giving his note therefor, pa} T able in 30 days from date ; and to secure this indebtedness, as well as that evidenced by the note dated May 15, 1899, the bankrupt executed and delivered to Arkin a chattel mortgage on his stock of goods in Lisbon, Iowa, it appearing that Arkin would not advance the loan of $100 unless the bankrupt would give security to cover, also, the pre-existing indebted- ness. Shortly after the execution and recording of this mortgage, Wolf, the mortgagor, was adjudged to be bankrupt, and his stock in tirade was taken possession of and was sold by the trustee ; and the mortgagee filed his intervening petition before the referee, praying that he be held to have a valid lien on the stock of goods as security for the indebtedness due him. Upon the hearing before the referee, it was A eld that the mortgage security was void as to creditors, in that it was H preference, and taken under circumstances rendering it invalid as against the creditors represented by the trustee. Viewed as a security given to secure the payment of the pre-existing indebtedness evidenced by the note dated May loth, the holding of the referee that the mortgage was invalid, because thereby a preference was intended to be created in favor of the creditor, is sustained. 1 Viewed, however, as a security for the sum of $100, money advanced to the bankrupt at the time of the execution of the mortgage, there is nothing shown in the evidence which required the holding that the security given for this loan is not valid. As the security was given for a debt then created, it was a present security, and not a preference which was created by the mortgage ; and the case comes within the rule announced by Judge Dillon in Darby v. Institution, 1 Dill. 144, Fed. Gas. No. 3,571, wherein it is said that: " An insolvent person ma\* properly make efforts to extricate himself from his embarrassments, and therefore he may borrow money, and give at the time security therefor, provided, always, the transaction be free from fraud in fact, and upon the bankrupt act. And hence it is a settled principle of bankrupt law, both in England and in this country, that advances made in good faith to a debtor to carry on business, upon 1 Johnson v. Wald, 93 Fed. Rep. 640 (C. C. A.), ace. SECT. II.] IN RE WOLF. 309 security taken at the time, do not violate either the terras or policy of the bankrupt act." When the mortgage security was taken in this instance, it was shown on the face of the instrument that it was given in part to secure a pre- existing debt, and in part to secure a note of even date. The mortgage was duly recorded, and no other creditor could be misled by the provi- sions thereof. As between the bankrupt and the creditor, the mortgage was valid, was not tainted with fraud in fact, and the only objection to be urged against the same is that if the trustee should pay the note for $200, dated May 15th, it would be giving a preference to the mort- gagee over the other creditors, as that was a debt created before the giving of the mortgage, whereas the bankrupt had full right to give security for the present loan of $100. In other words, if the bankrupt had given on the 22d of July a chattel mortgage on his stock to secure the pre-existing debt, evidenced by the. note dated May loth, and on the same day had given a second mortgage to secure the loan of $100 then advanced as a present consideration, the first mortgage might be nonenforceable against other creditors, under the provisions of the bank- rupt act, but the second mortgage would be valid, being given for a present consideration advanced in good faith upon the faith of the security created by the second mortgage. In equity the rights of the parties are not affected by the fact that both the past and present debt are secured b}' one mortgage instead of two. As already said, there was no effort to mislead creditors by uniting the past debt with the present loan in one note, thus apparently making the past debt a pres- ent one, but the actual situation was made plain on the face of the mortgage. There being no actual fraud in the transaction, no provision of the bankrupt act is violated by holding that Arkin is entitled to the benefit of his security so far as the note for $100 is involved, and it is so ordered. 1 1 In Denny v. Dana, 2 Cush. 160, it was held, SHAW, C. J., delivering the opinion, that a mortgage which was in part a voidable preference was wholly void, and this case has been followed in Tuttle '. Truax, I B. It. 601; Re Jordon, 9 B. R. 416; Grannis .-. Beardsley, 10 Fed. Cas. No. 5,688; Paine v. Waite, 11 Gray, 190; Forbes v. Howe, 102 Mass. 427. See also Goodrich . Wilson, 119 Mass. 429. But other cases hold that the security is valid as to the present advance. Whiston v. Smith, 2 Low. 101 ; Corhett v. Woodward, 5 Sawy. 40.3 ; Re Stowe, 6 B. It. 429 ; Cramton v. Tarhell, 6 Fed. Cas. No. 3,349; Rf Cobb, 96 Fed. Rep. 821. See also Bucknam v. Goss, 1 Hask. 630. This seems well settled under the Bankruptcy Law of 1898. Re Honk, 111 Fed. 154; Stedman v. Bank of Monroe, 117 Fed. 237 (C. C. A.); Re Hersey, 171. Where the creditor had no reason to believe a preference would be effected by the mortgage, it has been upheld as security for the antecedent debt as well as that pres- ently created. Farmers' Bank v. Carr," 127 Fed. 690 (C. C. A.); Re Bartlett, 172 Fed. 679. But see sec. 67d of the statute aa amended in 1910. 310 SAWYER V. TURPIN. [CHAP. IV. SAWYER v. TURPIN. SUPREME COURT OF THE UNITED STATES, OCTOBER, 1875. [Reported in 91 United States, 114.] APPEAL from the Circuit Court of the United States for the District of Massachusetts. On the fifteenth day of Ma}', 1869, J. C. Bacheller, in order to secure a debt due by him to Novelli & Co., executed a bill of sale conveying his chattel interest in certain property to Turpin, one of the defendants below. This conveyance was not recorded, nor was possession had there- under. On the 31st of July, 1869, Turpin having surrendered the bill of sale, Bacheller, in exchange therefor, executed to him a mortgage upon the same property. This mortgage was recorded on the 17th of the following September. Bacheller filed his petition in bankruptcy the twenty-second day of October then next ensuing ; and the appellants, his assignees, filed their bill in the District Court to set aside the mortgage as a fraudulent pref- erence of a creditor, alleging that Bacheller was insolvent when the mortgage was given, and that Turpin, and Novelli & Co., the other defendants, knew of the fact. The District Court passed a decree dismissing the bill, which was affirmed by the Circuit Court. The assignees appealed to this court. The recording statutes of Massachusetts which apply to the case are set forth in the opinion of the court. Mr. Benjamin, Dean and Mr. J. G. Abbott, for the appellants. Mr. Joshua D. Ball, for the appellees. Mr. Justice STRONG delivered the opinion of the court. The only question presented by this appeal is, whether the mortgage given by the bankrupt on the thirty-first day of July, 1869, to Edward Turpin, the agent of Novelli & Co., was a fraudulent preference of creditors within the prohibition of the bankrupt act, and therefore void as against the assignees in bankruptcy. That it was a security given for the protection of a pre-existing debt, and that it was given within four months immediately preceding the filing of the petition in bankruptcy, are conceded facts. It may also be admitted that the bankrupt was insolvent when the mortgage was made, and that the creditors had then reason to believe he was insolvent. The petition in bankruptcy was filed on the 22d of October, 1869. On the 15th of May next preceding that date, Bacheller, the bankrupt, who was indebted to Novelli & Co. in the large sum of $27,839 in gold, conveyed to Turpin, who was their agent, as a security for the debt, the building described in the subsequent mortgage of July 31. It was SECT. II.] SAWYER V. TURPIN. 311 a frame building, erected upon leased ground ; and Bacheller had, there- fore, only a chattel interest in it. The conveyance was by a bill of sale absolute in its terms, having no condition or defeasance expressed ; but it was understood by the parties to be a security for the debt due. It was in substantial legal effect, though not in form, a mortgage. Having been executed more than four mouths before the petition in bankruptcy was filed, there is nothing in the case to show that it was invalid. True, it was not recorded ; and it may be doubted whether it was admissible to record. True, no possession was taken under it by the vendee ; but for neither of these reasons was it the less operative be- tween the parties. It might not have been a protection against attach- ing creditors, if there had been any ; but there were none. It was in the power of Turpin to put it on record any day, if the recording acts apply to such an instrument ; and equally within his power to take possession of the property at any time before other rights against it had accrued. These powers were conferred by the instrument itself, immediately on its execution. In regard to chattel mortgages, the re- cording statutes of Massachusetts, enacted in 1836, provide as follows : " No mortgage of personal property hereafter made shall be valid against any other person than the parties thereto, unless possession of the mortgaged property be delivered to and retained by the mort- gagee, or unless the mortgage be recorded by the clerk of the town where the mortgagor resides." Rev. Stat. 473, c. 74. The statute contains a clear recognition of the validity of an unrecorded chattel mortgage, as between the parties to it ; though no possession be taken under it. And the General Statutes of the State, enacted in 1860 (Gen. Stat. 769, c. 151), contain the same recognition. Their language is the following : " Mortgages of personal property shall be recorded on the records of the town where the mortgagor resides when the mortgage is made, and on the records of the city or town in which he then prin- cipally transacts his business, or follows his trade or calling. If the mortgagor resides without the State, his mortgage of personal property within the State, when the mortgage is made, shall be recorded on the records of the city or town where the property then is. Unless a mort- gage! is so recorded, or the property mortgaged is delivered to and re- tained by the mortgagee, it shall not be valid against any person, other than the parties thereto, except as provided in the following section." 1 1 "An assignee in insolvency la not one of the parties within the meaning of the statute." Blanchard v. Cooke, 144 Mass. 207, 226. But if an unrecorded mortgage is not actually fraudulent, "if the plaintiff (mortgagee) rightfully took possession of the goods before they were attached, or before proceedings in insolvency were insti- tuted, and retained this possession, we think his title to the extent of his interest is good against the assignee in insolvency. . . . But the plaintiff's possession must be rightful in order to enable him successfully to assert his title against the assignee. If he had no right to take possession when he took it, his possession cannot avail him. Our construction of the contract is, that the plaintiff had not the right to take posses- sion unless there had been some breach of the contract by Cooke; but if there had been a substantial breach, that the plaintiff had this right while the default rontiu- 312 SAWYER V. TURPIN. [CHAP. IV. The exception extends only to mortgage contracts of bottoraiy, or respondent ia, to transfers, assignments, or hypothecations of ships or vessels, and to transfers in mortgage of goods at sea or abroad. Neither of these acts prescribes when the record must be made, or the possession be taken ; but, when made, the instrument takes effect, as against third persons as well as -between the parties, from the time of its execution, unless intervening rights have been obtained. In Mitchell et al. v. Black et al., 6 Gray, 100, it was ruled by the Supreme Court of Massachusetts that one who had taken bills of sale of merchan- dise from his debtor as a security for money advanced, and who had allowed the debtor to sell portions of the merchandise in the usual course of his business as if he were the owner thereof, might take pos- session of it any time in order to secure his debt ; and that such taking of possession, though at a time when the debtor was known by himself and the creditor to be insolvent, was effectual, notwithstanding the State Insolvent Law, which contained provisions very like those of the bankrupt act. The court held unqualifiedly that the bills of sale, ab- solute as they were in terms, though in fact intended only as a security, and though unattended by possession of the property, and though not placed upon record, vested a complete title in the creditor, subject only to be defeated by the discharge of the debt, or by some intervening right acquired before the possession was taken. This was a case of bills of sale, like the present, not a case of a technical mortgage. In speaking of the registration of mortgages, the court said : " The time when the record shall be made is not specifically prescribed by the statute, though it must undoubtedly precede the possession by others subsequently acquiring an interest in the mortgaged property. To prevent it from passing to them, it will be sufficient that the record is made at any time before such possession is taken, though it be long after the execution of the mortgage." l It should not be doubted, then, that the bill of sale of May 15, 1869, conveyed to Turpin all Bacheller's interest in the frame building ; that it was effective for the purposes for which it was made ; and, no other rights having intervened, that it was a valid securit3', to the extent of the value of the property, for the debt due Novell! & Co. on the 31st of July, 1869, when the mortgage impeached by the bill was made. 2 ued." Ibid. 227. See also Bennett v. Bailey, 150 Mass. 257 ; Bliss v. Crosier, 159 Mass. 498 ; Harriraan v. Wobnrn Electric Light Co., 163 Mass. 85; Moors v. Reading, 167 Mass. 322; Drury v. Moors, 171 Mass. 252. 1 The time for recording is now limited in Massachusetts to fifteen days. Rev. Laws, c. 198, 1. 2 The Massachusetts court held otherwise in Copelaud v. Barnes, 147 Mass. 388, which was similar in its facts to Sawyer v. Turpin, but where a contrary result was reached. On page 390, the opinion reads : " The delivery of the bill of sale did not constitute a mortgage, even though sup- posed by both parties to be such. A bill of sale made for security, even though run- ning directly to the person to be secured, and though accompanied by delivery of the goods, is at most only a pledge, and not a mortgage. Shaw v. Silloway, 145 Mass. 503, 505; Thompson v. Dolliver, 132 Mass. 103. If no delivery of the goods is made, SECT. II.] SAWYER V. TURPIN. 313 The mortgage covered the same property. It embraced nothing more. It withdrew nothing from the control of the bankrupt, or from the reach of the bankrupt's creditors, that had not been withdrawn by the bill of sale. Giving the mortgage in lieu of the bill of sale, as was done, was, therefore, a mere exchange in the form of the security. In no sense can it be regarded as a new preference. The preference, if any, was obtained on the 15th of Ma}', when the bill of sale was given, more than four months before the petition in bankruptcy was filed. It is too well settled to require discussion, that an exchange of securities within the four months is not a fraudulent preference within the mean- ing of the bankrupt law, even when the creditor and the debtor know that the latter is insolvent, if the security given up is a valid one when the exchange is made, and if it be undoubtedly of equal value with the security substituted for it. This was early decided with reference to the Massachusetts insolvent laws (Stevens v. Blanchard, 3 Gush. 169) ; and the same thing has been determined with reference to the bank- rupt act. Cook v. Tullis, 18 Wall. 340; Clark v. Iselin, 21 Wall. 360 ; Watson v. Taylor, id. 378 ; and Burnhisel v. Firman, 22 Wall. 170. 1 The reason is, that the exchange takes nothing away from the other creditors. It is, therefore, not in conflict with the thirty-fifth section of the act, the purpose of which is to secure a ratable distribu- tion of the property of a bankrupt owned by him at the time of his becoming bankrupt, and undiininished by any fraudulent preferences given within four months prior thereto. It follows that the mortgage of July 31 was not prohibited by the bankrupt act when it was given, and that it was valid. Hence, as it was recorded on the seventeenth day of September, 1869, pursuant to the requisitions of the State law, before an}* rights of the assignees in bankruptcy accrued, it cannot be impeached by them. It has been argued, however, on behalf of the assignees, that the bill of sale of May 15 was an insufficient consideration for the mortgage, because, as alleged, there was an agreement between Bacheller and Turpin that it should not be recorded, and should be kept secret. If the fact were as alleged, it is not perceived that it would be of any importance ; for it is undeniable that the bill of sale rested on a valu- it can be no more than an agreement for a pledge or mortgage. Such agreement, made at the time when a debt is contracted, will not avail to protect the actual pledge or transfer of the property, when made, from the operation of the statute against preferences by an insolvent debtor. The statute makes no exception in favor of secu- rities given in pursuance of a previous agreement, but declares all transfers and convey- ances void, if made within six months, and under the circumstances therein stated. Pub. Sts. c. 157, 98; Forbes v. Howe, 102 Mass. 427, 435; Simpson v. Carleton, 1 Allen, 109, 120; Blodgett v. Hildreth, 11 Gush. 311." See also Mason v. Pomeroy, 151 Mass. 164, 173. 1 Stewart v. Platt, 101 U. S. 731 ; Hallack r. Tritch, 17 B. R. 293 ; Reber . Gundy, 13 Fed. Rep. 53, ace. See also Re Little River Lumber Co., 92 Fed. Rep. 585. But transferring security to a creditor of greater value than he previously had is a preference. Waring v. Buchanan, 19 B. R. 502 ; lie Jones. 100 Fed. Rep. 781 ; Chip- man v. McClellan. 1 59 Mass. 363. 314 IN RE SHERIDAN. [CHAP. IV. able consideration, to wit, the debt of 827,839 in gold, due to Novell! & Co. ; and it is not denied that it gave to Turpin the right to take possession of the property described in it. It was, therefore, a valu- able security, even if there was an agreement not to record it. If it be said failure to put it on record enabled the debtor to maintain a credit which he ought not to have enjoyed, the answer is that the bankrupt act was not intended to prevent false credits. Its purpose is ratable distribution. But the evidence does not justify the assertion that there was in fact any agreement that the bill of sale should not be recorded, or that possession should not be taken under it. Upon all points, therefore, the case is with the appellees^ and the decree of the Circuit Court must be affirmed. IN RE SHERIDAN. DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, DECEMBER 16, 1899. [Reported in 9& Federal Reporter, 406.] IN bankruptcy. The referee in bankruptcy found that a pledge of personal property by the bankrupt to one of his creditors was an unlaw- ful preference under the bankruptcy act, and made an order requiring the creditor, who had sold the goods pledged, to pay over the proceeds to the trustee in bankruptc}*. The case is now before the court on the creditor's exceptions to such decision of the referee. John K. Kane, for exceptant. Greenwald & Mayer and Charles Biddle, for certain creditors. McPHERSON, District Judge. The exceptant relies on Ex parte Potts, Fed. Cas. No. 11,344, but an examination of that case will show that the decision was upon a different state of facts. One question, there was whether a pledge actually made was fraudulent ; and it ap- pc*ared that the alleged bankrupts, when they were admittedlj* solvent, had assigned to a creditor, as collateral security for advances, several policies of insurance and bills of lading upon a vessel and cargo then at sea. Under such circumstances, it was correctly held that the trans- fer was not in fraud of creditors. The assignment of the policies was a completed transfer of the debtor's interest in those instruments, and the assignment of the bills of lading transferred the title to the property therein described, without an}' further act. As to almost all the prop- erty then under consideration, therefore, the transaction had been fully executed. One policy or one bill of lading was apparentl}' not trans- ferred until May, when the alleged bankrupts had become "involved n (there was no averment of insolvenc.y in the petition) ; but as the last advance by the creditor had been made in March, in pursuance of an SECT. II.] IN RE SHERIDAN. 315 agreement made in February, the court was clearly right in holding that no part of the transaction was fraudulent. No question of pref- erence arose, whereas here the question is one of preference simply. The goods here were never actuall}' pledged until the exceptant, for the first time, took them into his possession a few da}'s before the peti- tion was filed. Before that time there was a mere agreement to pledge. The goods were never delivered to the exceptant, nor (assum- ing, for present purposes, that this would have been good against the other creditors) were they even set apart and continuously treated as his propert}*. Under the facts proved, the pledge was not completed until the date of removal. Lucketts v. Townsend, 49 Am. Dec. 730, note. This being so, the exceptant's title attached upon that date, and the transfer created a preference in violation of the act. The exceptions to the finding of the referee are overruled, and his order directing the exceptant to pay to the trustee the money received from the sale of the goods in question is approved. 1 i Casey v. Cavaroc, 96 U. S. 467 ; Nisbit v. Macon Bank, 12 Fed. 686; Re Kling- man, 101 Fed. 691 ; Security Co. v. Hand, 143 Fed. 32 (C. C. A.) ; Re Milbourne Mills Co., 172 Fed. 177 (C. C. A.) ; Hitchcock v. Hassett, 71 Cal. 331 ; City Ins. Co. v. Olm- sted, 33 Conn. 476 ; Copeland v. Barnes, 147 Mass. 388 ; Goodrich v. Dore, 194 Mass. 493 ; Rowell v. Claggett, 69 N. H. 201, ace. Martin v. Reid, 11 C. B. (N. 8.) 730 ; Sabin v. Pond, 98 Fed. 974, contra. See also Hook v. Ayers, 80 Fed. 978 (C. C. A.) ; Hunt- ington v. Sherman, 60 Conn. 463, 467 ; Keiser v. Topping, 72 111. 226 ; Tuttle v. Robin- son, 78 111. 332. An agreement made for value to mortgage personal property sufficiently specified for identification has been held to give an equitable lien. Holroyd v. Marshall, 10 H. L. C. 191 ; Collyer v. Isaacs, 19 Ch. I). 351 ; Tailby v. Official Receiver, 13 A. C. 523 ; Pennock v. Coe, 23 How. 117; Butt v. Ellett, 19 Wall. 544; Beall v. White, 94 U. S. 382 ; Hurley v. Atchison, &c. R. Co., 213 U. S. 126 ; Mitchell v. Winslow, 2 Story, 630, 644 ; Brett v. Carter, 2 Low. 458. And so, in many states in America. But even though the existence of a lien be- tween mortgagor and mortgagee is admitted, mortgages of future chattel property of which the mortgagee is in possession are in many states held invalid against an attach- ment or levy by creditors, especially if the mortgagor is given power to withdraw property from the mortgage and substitute other property. Christian & Craft Co. v. Michael, 121 Ala. 84; Walker v. Vaughn, 33 Conn. 577; American Surety Co. v. Worcester Cycle Co., 100 Fed. 40 (Conn.); Gregg v. Sanford, 24 111. 17; Pinkstaff v. Cochran, 58 111. App. 72; Fisher v. Syfers, 109 Ind. 514; T. B. Townsend Co. v. Allen, 62 Kan. 311 ; Loth v. Carty, 85 Ky. 591 ; Manly v. Bitzer, 91 Ky. 596, 598; Griffith v. Douglass, 73 Me. 532 (cf. Sawyer v. Long, 86 Me. 541); Cooke v. Blanchard, 144 Mass. 207; Moors v. Reading, 167 Mass. 322; Tatman v. Humphrey, 184 Mass. 361 ; Brown v. Wiggin, 16 N. H 312; Gardner t;. McEwen, 19 N. Y. 123; Rochester Distilling Co. v Rasey, 142 N. Y. 570; Re Marine Con- struction Co., 14 Am. B. Rep. 466 (N. Y.); Zartman v. First Nat. Bank, 96 N. Y. Supp. 633 (Sup. Ct. App. Div.) (cf. lie Sentenne & Green Co., 120 Fed. 436) ; Fran- cisco t'. Ryan, 54 Oh. St. 307. See also Hitchcock v. Hassett, 71 Cal. 331 ; Rowell v. Claggett, 69 N. H. 201 ; Fisher v. Kelly, 30 Ore. 1 ; Girard Trust Co. v. Mellor, 156 Pa. 579, 590 (cf. Collins's App., 107 Pa. 590) ; Moore v. Wood, 61 S. W. Rep. 1063 (Tenn. Ch.); Wilber v. Kray, 73 Tex. 533; McKibbon ". Brigham, 18 Utah, 78; Hughes v. Epling, 93 Va. 424; burr v. Wildish, 108 Wis. 401 ; also Civ. Code, La., 3308. In other states, however, the contrary is held. Hughes v. Wheeler, 66 la. 641 (good against a purchaser from the mortgagor) ; Riddle i>. Dow, 98 la. 7 ; Hogau v. Atlantic Elevator Co., 66 Minn. 344 (good against a purchaser) ; Evcrman v. Robb, 52 Miss. 653; Cumberland Bank v. Bridgeton, 57 N. J. Eq. 231, 240; Stoll v. Sibson, 65 N. J. 316 NATIONAL CITY BANK V. HOTCHKISS. [CHAP. IV. NATIONAL CITY BANK v. HOTCHKISS. SUPREME COURT OF THE UNITED STATES, OCTOBER 17-NovEMBER 3, 1913. [Reported in 231 United States, 50.] y MR. JUSTICE HOLMES delivered the opinion of the court. 1 * This is a suit to j^Qoyera preference. The case arose upon what is known as a clearance loan! StockBrokers need large sums to pay for stocks which they receive each day; and as the stocks must be paid for before they are received and can be pledged, the necessary funds are advanced by the banks on the understanding that they are to be returned later on the same day. Perhaps such a general course of dealing might be arranged so as to give a lien on the loan or its pro- ceeds until payment ; but the issue in this case is whether such a lien has in fact been created. Such a clearance loan was made to the bankrupts, and not being fully repaid, officers of the bank demanded payment or securities to make good the obligation. They were told that the brokers had sus- pended and that a petition in bankruptcy would be filed ; but after some argument the securities in question were delivered. Some of them bore no relation to the loan, but it may be assumed for purposes of argument that most had been released by the money obtained from the bank. In dealing with transactions of this kind we may go far in giving them any form that will carry out the mutually understood intent. Sexton v. Kessler, 225 U. S. 90, 96, 97. But if the intent was doubt- ful or inconsistent with the legal effect of dominant facts, it must fail. In the present case it is agreed that it was expected and understood Eq. 552 ; Parker v. Jacobs, 14 S. C. 112 ; Hirshkind v. Israel, 18 S. C. 157 (good against a purchaser); First Bank r. Turnbull, 32 Gratt. (Va.) 695; Horner-Gaylord Co. v. Fawcett, 50 W. Va. 487. See also Etheridge v. Sperry, 139 U. S. 266; Allen v. Wind- ham Mfg. Co., 87 Fed. 786 ; Re Hull, 115 Fed. 858 ; Egan Bank v. Rice, 119 Fed. 107 ; Re Ball, 123 Fed. 164; Sillers v. Lester, 48 Miss. 513. Mortgages of future property are expressly authorized by statute in California, C. C. 2883 ; Idaho, C. C. 2791 ; New Hampshire, Laws of 1901, c. 66 ; North Dakota, C. C. 4705 ; Wyoming, Rev. Stat. (1899) 2805. In Maine and Michigan the mortgage is good against creditors if the future property is taken in substitution for existing property. Sawyer v. Long, 86 Me. 541 ; Eddy v. McCall, 71 Mich. 101 ; Ferguson j>. Wilson, 122 Mich. 97. So in Georgia by statute, Code, Sec. 1954. See further, 19 Harv. L. Rev. 557. Payment in advance for goods to be manufactured was held to give an equitable lien as the goods were manufactured in Scammon v. Bowers, 1 Hask. 496. See also Ham- ilton v. Nat. Loan Bank, 3 Dill. 230; Post v. Corbin, 5 B. R. 11. An agreement on the making of a mortgage that insurance should be kept up, and the loss made payable to the mortgagee, was held to give the latter an equitable lien on the proceeds of the policies, though in fact neither made payable or delivered to him. Re Wittenberg Co., 108 Fed. 593. See also Re Little River Lumber Co., 92 Fed. 585. 1 The statement of facts has been abbreviated and a portion of the opinion omitted. BECT. II.] NATIONAL CITY BANK V. HOTCHKISS. 317 that no portion of the clearance loan was to be used for any purpose other than to clear securities. But on the other hand, by consent of the bank as it seems, the loan was put into the general deposit account, which was drawn upon for general purposes, at least to the extent of the balance above the loan ; the securities released were not kept sep- arate but were used like any others ; and no separate account was kept of money received from deliveries of stock so released. What hap- pened as between these parties was simply that all monies received in the course of the day from whatever source went into the firm's deposit account with the bank. So that, even if we take it, as a corollary of what was understood, that the use of the clearance loan was expected to enable the firm to repay the loan, it does not appear to have been expected that the proceeds should be appropriated specifically to that end, but simply that the addition of such proceeds to the general funds of the firm would enable the latter to pay within the tune allowed. A trust cannot be established in an aliquot share of a man's whole property, as distinguished from a particular fund, by showing that trust monies have gone into it. On similar principles a lien cannot be asserted upon a fund in a borrower's hands, which at an earlier stage might have been subject to it, if by consent of the claimant it has become a part of the borrower's general estate. But that was the result of the dealings between these parties, and it cannot be done away with by a wish or intention, if such there was, that alongside of this permitted freedom of dealing on the part of the bankrupts, the security of the bank should persist. It is not like the case of property wrongfully mingled with general funds and afterwards traced. All that the parties agreed either expressly or by implication was that the debt incurred at ten o'clock should be paid by three. Some banks seem to have required the dealing to be conducted on the footing of a fund identified and subject to a trust at every step, but between these parties there was no attempt to follow a specific fund through a series of changes until it was returned. See Dillon v. Barnard, 21 Wall. 430. As all trace of the bank's money was lost when it entered the stream of the firm's general property there can be no right of subrogation. Neither can a claim be upheld on the ground that there was no diminu- tion of the bankrupt's assets, or that the transaction should be re- garded as instantaneous and one. The consent to become a general creditor for an hour, that was imported, even if not intended to have that effect, by the liberty allowed to the firm, broke the continuity and established the loan as part of the assets. No doubt many general creditors have increased a bankrupt's estate by their advances, but they have lost the right to take them back. Time sometimes can be disregarded when it is insignificant But in this case half the time be- tween the loan and the transfer of securities sufficed to change the position of the borrowers from a fortune of half a million to a deficit of double that amount. 318 SAWYER V. LEVY. [CHAP. IV. In both Gorman v. Littlefield, 229 U. S. 19, and Richardson v. Shaw, 209 U. S. 365, in addition to the personality of the holder there was also a specific stock, which identified the fund relied upon and separated it from the general mass of the estate. Hurley v. Atchison, Topeka & Santa Fe Ry. Co., 213 U. S. 126, stood on the peculiar facts of the case, which were held to point to an identified res and give an immediate claim against it. The case established no general proposition contrary to what we now decide. 1 SECTION II. (continued). (') COLLATERAL EFFECTS OF PREFERENCE. ' i SAWYER y. LEVY. SUPREME JUDICIAL COURT OP MAJ^ACHUSETTSJ SEPTEMBER 26-OcroBER 18, 1894. [Reported in 162 Massachusetts, 190.] itcsiEE process. Writ dated April 22, 1893. T. L. Haynes, summoned as trustee, answered that at the time of the service of the writ upon him he had certain funds in his hands due the defendants ; and that prior to the service of the writ he had received notice that the funds had been assigned to one Aaron Slater, who demanded payment thereof. Slater appeared as claimant of the funds in the hands of the trustee, under the assignment. At the trial in the Superior Court, before MASON, C. J. , without a jury, Slater testified that, at the time of making the assignment, the defendants were indebted to him in a large sum ; and that the accounts transferred to him by the assignment, including that due from the trustee, being insufficient to secure him for said indebtedness, the defendants, who were doing business in the city of New York, con- fessed judgment to him for the difference between the amount of their indebtedness and the amount due on the accounts so transferred. The judgment having been confessed on the same day that the assignment was made, no general assignment for the benefit of creditors was made by the defendants. The plaintiffs requested the judge to rule that the assignment was invalid against the attachment made by the plaintiffs upon their writ. The judge declined to rule as requested ; found for the adverse claim- ant; ordered that the trustee be discharged with costs to both the trustee and the claimant ; and found specialty that the assignment by the defendants to the claimant was in consideration of a bona fide 1 Mechanics & Metals Nat. Bank v. Ernst, 231 U. S. 60, ace. SECT. II.] FOX V. GARDNER. 319 existing debt to the full amount thereof, and, at the time of the assignment, the defendants were in an insolvent condition, and the claimant had knowledge of such condition. The plaintiffs alleged exceptions. F. H. Oillett & W. W. Me Clench, for the plaintiffs. T. M. Brown, for Aaron Slater. ^ ALLEN, J. The assignment by the defendants to Safer was no doubt a preference, which might be avoided by assignees in insolvenc} 7 if the defendants were subject to our insolvent laws. Pub. Sts. c. 157, 96. But no proceedings in insolvency could be taken against them by reason of their non-residence. A preference given by an insolvent debtor to a bona fide creditor cannot be avoided by an attaching creditor, whether the form of preference which is adopted is a general assignment for the benefit of such creditors as should assent thereto, or an assignment for the benefit of certain specified creditor or an assign- ment directly to a single creditor. Otherwise, it would simply amount to giving a preference to the attaching creditor, instead of to the creditor or creditors selected by the debtor. This has often been adjudged. National Mechanics & Traders' Bank v. Eagle Sugar Refinery, 109 Mass. 38 ; Banfield v. Whipple, 14 Allen, 13 ; Train v. Kendall, 137 Mass. 366 ; First National Bank of Easton v. Smith, 133 Mass. 26. Exceptions overruled. 1 FOX v . GARDNER. ^ y SUPREME COURT OF THE UNITED STATES, OCTOBER TERM, 1874. ' ' [Reported in 21 Wallace, 475.] ERROR to the Circuit Court for the Western District of Wisconsin, the case being thus : Fox & Howard had contracted with a railroad company to make its railroad, and on the 4th of October, 1870, employed one N. Young as a contractor (excavator) under them. By the terms of the contract with Young, Fox & Howard were to pay him, on the 15th of Decem- ber, 1870, a certain sum per cubic yard of earth excavated ; payments to be made as follows : "To the laborers employed in doing said work the amount ascer- tained to be due to them for their services and the balance to the said Young." Young finished his work November 24, 1870, and being in debt to i Priest v. Brown, 100 Cal. 626; Trustees v. Jarvis, 32 Conn. 412; Grecnthal v. Lincoln, 67 Conn. 372 ; Keane v. Goldsmith, 14 La. Ann. 349; Triebert v. Burgess, 11 Md. 452; Traders' Nat. Bank v. Steere, 165 Mass. 389, ace. See also Bartlett u Walker, 65 Vt. 594. 320 FOX V. GARDNER. [CHAP. IV. one Burrows, as also to three other persons severally, to the extent of 83,692, gave to him and them drafts on Fox & Howard for differ- ent amounts, in all making that sum, payable December 15, 1870. Fox & Howard accepted the drafts in this form: " Accepted and promised to be paid out of any money due N. Young, in our hands, after payment of laborer's lien and orders previ- ously accepted. Done this 1st day of December, at eight o'clock P.M. " Fox & HOWARD." About the same time various laborers under Young, and thus cred- itors of Young, also gave drafts (in all for 8502), .on him in favor of Burrows, who cashed or discounted them, and by Young's directions Fox & Howard charged him, Young, with the amount of the drafts as cash paid to him ; they agreeing, at the same time, with Burrows, to pay to him the amount of the drafts, but not actually paying them. When Young gave these different drafts Le was insolvent ; and on the 7th of January, 1871, a petition in bankruptcy was filed against him, on which he was, upon the same day, decreed a bankrupt. One Gardner being appointed his assignee brought this suit in the court below, September 12th, 1872, against Fox & Howard, to compel the payment to him of what they had owed Young, and had agreed to pay to Burrows and the others, in the manner already stated. The ground of the suit was of course that the transactions were void under the thirty-fifth section of the bankrupt act, quoted supra, 365. The court charged the jury that before the plaintiff could recover he was bound, under the thirtj'-fifth section of the act, to show: 1st. That Young was insolvent when the drafts were given. 2d. That Fox & Howard had reasonable cause to believe him insolvent. 3d. That the person or persons, in snch case respectivel}', to whom the drafts were given, had reasonable cause to believe Young insolvent. And further, that Fox & Howard had reasonable cause to believe that the person or persons to whom they were so given had, when they took the same, reasonable cause to believe Young- insolvent. But that if he satisfied the jury, by the evidence, of all these things, the acceptances of Fox & Howard were void, and did not amount to pay- ments in the action. Under these instructions the jury found for the assignee the amounts claimed, and Fox & Howard brought the case here on exceptions to the charge. Mr. R. T. Merrick (with whom was Mr. B. G. Caulfield}, for the plaintiff in error. The coui-t below was mistaken in its construction of the thirty-fifth section of the bankrupt act. That section does not authorize suits by an assignee against debtors of the bankrupt who have discharged their debts to him, or paid money to other persons for his use, within the period of four or six months specified in the act. It only author- izes suits against such creditors of the bankrupt as have fraudulently SECT. II.] FOX V. GARDNER. 321 received such payments. Only the parties benefited by a fraudulent preference under the bankrupt act are liable to the assignee. The doctrine of the District Court leads to the most 'disastrous con* sequences. For if a debtor cannot respect the orders of a man in embarrassed circumstances except at his peril, then he will necessarily precipitate the condition of insolvency and bankruptcy which a differ- ent course might have prevented. It is believed that this doctrine is contrary to common justice and the established principles of law. As respects Fox & Howard, the verdict and judgment below were very hard. If affirmed here, those persons have to pay the same debt twice ; once to Burrows and the other holders of their acceptances, and again to the assignee in bankruptcy. Mr. W. F. Vilas, contra. Mr. Justice HUNT delivered the opinion of the court. The thirty-fifth section of the bankrupt act provides that a trans- action like the one under consideration here " shall be void, and the assignee may recover the property or the value of it from the person so receiving it or so to be benefited." The language of the statute authorizing the assignee " to recover the property, or the value of it, from the person so receiving it or so to be benefited," does not create a qualification or limitation of power. There is no implication that the party paying is not also liable. The words are those of caution merely, and give the assignee no power that he would not possess if they had been omitted from the statute. In the present case the property or value attempted to be transferred belonged originally to the bankrupt. On the adjudication of bank- ruptcy the possession and ownership of the same were transferred to the assignee. 1 The attempted transfer by the bankrupt was fraudulent and void. It follows logically that the debtor yet holds it for the as- signee, and that the assignee may sue him for its recovery. 2 Upon principle there would seem to be scarcely room for doubt upon the point before us. The pretended payment or transfer or substitution by the debtor of the bankrupt was in fraud of the act and illegal. It was a transaction expressly forbidden by the statute. The jury found that the insolvency of Young was known to Fox & Howard, and to the creditors by whom the drafts were taken at the time they were taken ; that they were given by the bankrupt with intent to create for- bidden preferences, and that they were accepted by Fox & Howard in fraud of the act. This is a transaction expressly condemned by the statute. It amounts simply to this: the debtor of the bankrupt seeks to protect himself against an admitted debt by pleading a payment or substitution which was in fraud of the bankrupt act, and, therefore, void. The proposition carries its refutation on its face. Fox & Howard were indebted to the bankrupt and can only discharge them- 1 Section 14 of the bankrupt act. * See Bolander v. Gentry, 36 Cal. 105 ; Hanson v. Herrick, 100 Mass. 32a 322 FOX V. GARDNER [CHAP. IV. selves b}' a payment or satisfaction which the law will sanction. A payment or transfer condemned by the express terms of the bankrupt act cannot protect them. It is to be observed, also, that when the bankruptcy proceedings were begun Fox & Howard had never, in fact, paid to Burrows and his associates the amount of the drafts accepted by them. They had simply promised to pay them, if there should prove upon settlement of their accounts with the bankrupt to be so much money due to him. This presents them in a still less favorable condition. They owe money to the bankrupt. They are sued for it by his assignee in bankruptcy. As a defence they allege that they have made an agree- ment with Burrows and others, with the assent of the bankrupt, to pay the amount of the debt to them. They allege an agreement merely. This agreement has already been shown to be illegal. The assignee, representing the creditors as well as the bankrupt, is author- ized to set up such illegality. The bankrupt perhaps could take no action to avoid this agreement, but his assignee has undoubted au- thority to do so. When the assignee sets up this illegalit}' and sustains it by proof of the facts referred to, the whole foundation of the defence falls. It is well settled that a debtor may pa\ r a just debt to his creditor at any time before proceedings in bankruptcy are taken. It is also true that a valid agreement to substitute another person as creditor may be made, and may be pleaded as a discharge of the debt in the nature of payment. It is not, however, payment in fact, and is bind- ing only when the contract is fair and honest and binding upon the first creditor. The right of an insolvent person before proceedings are commenced against him to pay a just debt, honestly to sell property for which a just equivalent is received, to borrow money and give a valid security therefor, are all recognized by the bankrupt act, and all depend upon the same principle. In each case the transaction must be honest, free from all intent to defraud or delay creditors, or to give a preference, or to impair the estate. 1 If there is fraud, trickery, or intent to delay or to prefer one creditor over others, the transaction cannot stand. It is urged that Fox & Howard are liable upon the drafts to the creditors of Young, in whose favor the acceptances were given. Should this be so it would but add another to that large class of cases in which persons endeavoring to defraud others are caught in their own devices. The law looks with no particular favor on this class of sufferers. In the present case, however, there seems to be no such difficulty. The acceptances were a part of an illegal contract, and no action will lie upon them in favor of those making claim to them. They are guilty parties to the transaction and can maintain no action to enforce 1 See Cook . Tullis, 18 Wall. 332 : Tiffany v. Boatman's Institution, Ib. 376. SECT. II. J KEPPEL V. TIFFIN SAVINGS BANK. 323 it. 1 The law leaves these parties where it finds them, giving aid to neither. The drafts cannot pass into the hands of bonafide holders, as by the terms of the acceptances the}' are to remain in the possession of Fox & Howard until the}* can be paid by authority of law. When Fox & Howard pay to the assignee the debt due from them to Young they will pa}- it to the party entitled to receive it and will have dis- charged their liability. Judgment affirmed* KEPPEL v. TIFFIN SAVINGS BANK. SUPREME COURT OF THE UNITED STATES, JANUARY 6-ApRiL 3, 1905. [Reported in 197 United States, 356.] CHARLES A. GOETZ became a voluntary bankrupt on October 12, 1900. George B. Keppel, his trustee in bankruptcy, sued the Tif- fin Savings Bank in an Ohio court to cancel a mortgage on real estate given by the bankrupt a few aays before bankruptcy, when he was insolvent, with intent to prefer the mortgagee and without present consideration. A judgment was entered avoiding the mortgage. Subsequently the bank sought to prove its claim. The Circuit Court of Appeals, to which the issue was taken, certified questions to this court. MR. JUSTICE WHITE. Can a creditor of a bankrupt, who has received a merely voidable preference, and who has in good faith retained such preference until deprived thereof by the judgment of a court upon a suit of the trustee, thereafter prove the debt so voidably preferred ? Before we develop the legal principles essential to the solution of the question it is to be observed that the facts stated in the certificate and implied by the question show that the bank acted in good faith when it accepted the mortgage and when it subsequently insisted that the trustee should prove the existence of the facts which, it was charged, vitiated the security. It results that the voidable nature of the transaction alone arose from section 67 e of the act of 1898, in- *fa v f fS validating " conveyances, transfers, or encumbrances of his property made by a debtor at any time within four months prior to the filing of ' the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the State, ' Territory or District in which such property is situate," and giving the * Nellis v. Clark, 20 Wend. 24 ; 8. c. 4 Hill, 424 ; Randall v. Howard, 2 Black, 585 ; Kennett >. Chambers, 14 How. 38, ace. 2 A mortgage to one who lends money which he knows will be used in giving a preference may be avoided. Ex parte Mendell, 1 Low. 506; Roberts v. Johnson, 151 Fed. 567 (C. C. A.) ; Walters v. Zimmerman, 208 Fed. 62. A sale for the same pur- pose was held voidable in Crafts v. Beldan, 99 Mass. 535. But see contra, Van Kleeck v. Miller, 19 B. R. 484; and cf. Van Iderstine v. Nat. Discount Co., 227 U. S. 575. 324 KEPPEL V. TIFFIN SAVINGS BANK. assignee a right to reclaim and recover the property for the creditors of the bankrupt estate. On the one hand it is insisted that a creditor who has not surren- dered a preference until compelled to do so by the decree of a court cannot be allowed to prove any claim against the estate. On the other hand, it is urged that no such penalty is imposed by the bankrupt act, and hence the creditor, on an extinguishment of a preference, by what- ever means, may prove his claims. These contentions must be deter- mined by the text, originally considered, of section 57 g of the bankrupt act, providing that " the claims of creditors who have received pref- erences shall not be allowed unless such creditors shall surrender their preferences." We say by the text in question, because there is nowhere an}- prohibition against the proof of a claim by a creditor who has had a preference, where the preference has disappeared as the result of a decree adjudging the preferences to be void, unless that result arises from the provision in question. We say also from the text as originally considered, because, although there are some de- cisions under the act of 1898 of lower Federal courts (In re Greth, 112 Fed. Rep. 978; In re Keller, 109 Fed. Rep. 118, 127; In re Owings, 109 Fed. Rep. 623), denying the right of a creditor to prove his claim, after the surrender of a preference by the compulsion of a decree or judgment, such decision rests not upon an analysis of the text of the act 6f 1898 alone considered, but upon what were deemed to have been analogous provisions of the act of 1867 and decisions thereunder. We omit, therefore, further reference to these decisions as we shall hereafter come to consider the text of the'present act by the light thrown upon it by the act of 1867 and the judicial interpretation which was given to that act. The text is, that preferred creditors shall not prove their claims unless they surrender their preferences. Let us first consider the meaning of this provision, guided by the cardinal rule which requires that it should, if possible, be given a meaning in accord with the gen- eral purpose which the statute was intended to accomplish. We think it clear that the fundamental purpose of the provision in question was to secure an equality of distribution of the assets of a bankrupt estate. This must be the case, since, if a creditor, having a preference, retained the preference, and at the same time proved his debt and participated in the distribution of the estate, an advantage would be secured not contemplated by the law. Equality of distri- bution being the purpose intended to be effected by the provision, to interpret it as forbidding a creditor from proving his claim after a sur- render of his preference, because such surrender was not voluntary, would frustrate the object of the provision, since it would give the bankrupt estate the benefit of the surrender or cancellation of the pref- erence, and yet deprive the creditor of any right to participate, thus creating an inequality. But it is said, although this be true, as the statute is plain, its terms cannot be disregarded by allowing that to be KEPPEL V. TIFFIN SAVINGS BANK. 325 done which it expressly forbids. This rests upon the assumption that the word "surrender" necessarily implies only voluntary actions, and hence excludes the right to prove where the surrender is the result of a recovery compelled by judgment or decree. The word " surrender," however, does not exclude compelled action, *~ but to the contraiy generally implies such action. That this is the primarily and commonly accepted meaning of the word is shown by the J dictionaries. Thus, the Standard Dictionary defines its meaning as &*sw^ follows: 1. To yield possession of to another upon compulsion or - demand, or under pressure of a superior force ; give up, especialty to an enemy in warfare ; as to surrender an army or a fort. And in Webster's International Dictionary the word is primarily defined in the same way. The word, of course, also sometimes denotes voluntary action. In the statute, however, it is unqualified, and generic, and hence embraces both meanings. The construction, which would ex- clude the primary meaning so as to cause the word only to embrace voluntary action would read into the statute a qualification, and this in order to cause the provision to be in conflict with the purpose which it was intended to accomplish, equalit}' among creditors. But the con- struction would do more. It would exclude the natural meaning of the word used in the statute in order to create a penalty, although nowhere expressly or even by clear implication found in the statute. This would disregard the elementary rule that a penalty is not to be readily implied, and on the contrary that a person or corporation is not to be subjected to a penalt}* unless the words of the statute plainly impose it. Tiffany v. National Bank of Missouri, 18 Wall. 409, 410. If it had been con- templated that the word "surrender" should entail upon every creditor the loss of power to prove his claims if he submitted his right to retain an asserted preference to the courts for decision, such purpose could have found ready expression by qualifying the word " surrender" so as to plainly convey such meaning. Indeed, the construction which would read in the qualification would not only create a penalty alone by judicial action, but would necessitate judicial legislation in order to define what character and degree of compulsion was essential to pre- vent the surrender in fact from being a surrender within the meaning of the section. It is argued, however, that courts of bankruptcy are guided by equi- table considerations, and should not permit a creditor who has retained a fraudulent preference until compelled by a court to surrender it, to prove his debt and thus suffer no other loss than the costs of litigation. The fallacy lies in assuming that courts have power to inflict penalties, although the law has not imposed them. Moreover, if the statute be interpreted, as it is insisted it should be, there would be no distinction between honest and fraudulent creditors, and therefore every creditor who in good faith had acquired an advantage which the law did not permit him to retain would be subjected to the forfeiture simply because he had presumed to submit his legal rights to a court for determination. 326 KEPPEL V. TIFFIN SAVINGS BANK. And this accentuates the error in the construction, since the elemen- tary principle is that courts are created to pass upon the rights of parties, and that it is the privilege of the citizen to submit his claims to the judicial tribunals, especially in the absence of malice and when acting with probable cause, without subjecting himself to penalties of an extraordinary character. The violation of this rule, which would arise from the construction, is well illustrated by this case. Here, as we have seen, it is found that the bank acted in good faith without knowledge of the insolvency of its debtor and of wrongful intent on his part, and 3*et it is asserted that the right to prove its lawful claims against the bankrupt estate was forfeited simply because of the election to put the trustee to proof in a court of the existence of the facts made essential by the law to an invalidation of the preference. We are of opinion that, originally considered, the surrender clause of the statute was intended simplj- to prevent a creditor from creating inequality in the distribution of the assets of the estate by retaining a preference and at the same time collecting dividends from the estate by the proof of his claim against it, and consequently that whenever the preference has been abandoned or }"ielded up, and thereby the danger of inequality has been prevented, such creditor is entitled to stand on an equal footing with other creditors and prove his claims. [Mr. Justice WHITE proceeded to show that under the English prac- tice a preferred creditor was allowed to prove, dividends on the proof being retained until the property was given up. Under the act of 1867, section 23 contained similar language to section 57 g of the present act. Section 39, however, provided that if a recipient of prop- erty from the bankrupt had reasonable cause to believe that a fraud on the act was intended, and that the debtor was insolvent, "such creditor shall not be allowed to prove his debt in bankruptc}-." Section 39 was modified by amendment in 1874 by limiting the creditor's dep- rivation of his right of proof to cases of actual fraud, and even in such cases allowing proof of half the claim. The decisions under the act were discordant, Bump on Bankruptcy, pp. 550 et seq. ; but in Mr. Justice WHITE'S opinion the ground for holding under the act of 1867 that the creditor's right was forfeited must rest, at least in part, on section 39 of the act, and as there is no analogous provision in the present act, the early decisions are inapplicable. Mr. Justice DAY, with whom Justices HARLAN, BREWER and BROWN concurred, delivered a dissenting opinion. 1 ] 1 The statement of the case is abbreviated and portions of the opinions omitted. The decision was followed in Page v. Rogers, 211 U. 8. 575, though it there appeared that the creditor had reasonable cause to believe the debtor intended to give a pref- erence. SECT. III.] WEST COMPANY V. LEA. 327 SECTION III. GENERAL ASSIGNMENTS. WEST COMPANY v. LEA. SUPREME COURT OF THE UNITED STATES, MAY 1-22, 1899. [Reported in 174 United States, 590.] WHITE, J. The facts stated in the certificate of the Circuit Court of Appeals are substantially as follows : Lea Brothers & Company and two other firms filed, on December 18, 1898, a petition in the District Court of the United States for the Eastern District of Virginia, praying that an alleged debtor, the George M. West Company, a corporation located in Richmond, Vir- ginia, be adjudicated a bankrupt, because of the fact that it had, on the date of the filing of the petition, executed a deed of general assign- '?.. ment, conveying all its property and assets to Joseph V. Bidgood, * trustee. The George M. West Company pleaded denying that at the ' time of the filing of said petition against it the corporation was insol- vent, within the meaning of the bankrupt act, and averring that its >, l^* propert} 7 at a fair valuation was more than sufficient in amount to pay its debts. The prayer was that the petition be dismissed. The court ^ ? ' rejected this plea, and adjudicated the West Company to be a bank- 9e appeal the court, desiring instructions, certified the case to this court, j,. ^ The certificate recites the facts as above stated, and submits the fol- i lowing question : " Whether or not a plea that the party against whom the petition was filed ' was not insolvent as defined in the bankrupt act at the time of the filing of the petition against him ' is a valid plea in bar to a peti- tion in bankruptcy filed against a debtor who has made a general deed of assignment for the benefit of his creditors." The contentions of the parties are as follows : On behalf of the debtor it is argued that under the bankrupt act of 1898 two things must concur to authorize an adjudication of involuntary bankruptc} 1 , first, insolvency in fact, and, second, the commission of an act of bankruptcy. From this proposition the conclusion is deduced that a debtor against whom a 328 WEST COMPANY V. LEA. [CHAP. IV. proceeding in involuntary bankruptcy is commenced is entitled entirely irrespective of the particular act of bankruptcy alleged to have been committed, to tender, as a complete bar to the action, an issue of fact as to the existence of actual insolvency at the time when the petition for adjudication in involuntary bankruptcy was filed. On the other hand, for the creditors it is argued that whilst solvency is a bar to proceedings in bankruptcy predicated upon certain acts done by a debtor, that as to other acts of bankruptc}-, among which is included a general assignment for the benefit of creditors, solvency at the time of the filing of a petition for adjudication is not a bar, because the bankrupt act pro- vides that such deed of general assignment shall, of itself alone, be adequate cause for an adjudication in involuntary bankruptc} 1 , with- out reference to whether the debtor by whom the deed of general assignment was made was in fact solvent or insolvent. A decision of these conflicting contentions involves a construction of section 3 of the act of July 1, 1898, c. 541, 30 Stat. 546. It will be observed that the section is divided into several paragraphs, denominated as a, b, c, d and e. Paragraph a is as follows : " SEC. 3. Acts of bankruptc\\ a. Acts of bankrupt^ by a person shall consist of his having (1) conveyed, transferred, concealed or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, dela}-, or defraud his creditors, or any of them ; or (2) transferred, while insolyjSLnt, any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors ; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five da}'s before a sale or final disposition of any property affected by such preference vacated or discharged such prefer- ence ; or (4) made a general assignment for the benefit of his creditors ; or (5) admitted in writing his inability to pay his debts and his willing- ness to be adjudged a bankrupt on that ground." It is patent on the face of this paragraph that it is divided into five different headings, which are designed numerically from 1 to 5. Now, the acts of bankruptcy embraced in divisions numbered 2 and 3 clearl}' contemplate not only the commission of the acts provided against, but also cause the insolvency of the debtor to be an essential concomitant. On the contrary, as to the acts embraced in enumerations 1, 4, and 5, there is no express requirement that the acts should have been com- mitted while insolvent. Considering alone the text of paragraph a, it results that the non-existence of insolvency, at the time of the filing of a petition for adjudication in involuntary bankruptcy, because of the acts enumerated in 1, 4, or 5 (which embrace the making of a deed of general assignment) does not constitute a defence to the petition, un- less provision to that effect be elsewhere found in the statute. This last consideration we shall hereafter notice. The result arising from considering the paragraph in question would not be different if it be granted arguendo that the text is ambiguous. SECT. III.] WEST COMPANY V. LEA. 329 For then the cardinal rule requiring that we look beneath the text for the purpose of ascertaining and enforcing the intent of the lawmaker would govern. Applying this rule to the enumeration's contained in paragraph a, it follows that the making of a deed of general assign- ment, referred to in enumeration 4, constitutes in itself an act of bankruptcy, which per se authorizes an adjudication of involuntary bankruptcy entirely irrespective of insolvency. This is clearly demon- strated from considering the present law in the light afforded by previous legislation on the subject. Under the English bankruptcy statutes (as well that of 1869 as those upon which our earlier acts were modelled), and our own bankruptcy statutes down to and including the act of 1867, the making of a deed of general assignment was deemed to be repugnant to the policy of the bankruptc}" laws, and, as a necessary consequence, constituted an act of bankruptcy per se. This is shown by an examination of the decisions bearing upon the point, both English and American. In Globe Insurance Go. v. Cleveland Insurance Co., 14 N. B. R. 311, 10 Fed. Cas. 488, the subject was ably reviewed and the authorities are there copiously collected. The decision in that case was expressly relied upon in In re Beisenthal, 14 Blatchf. 146, where it was held, that a voluntary assignment, without preferences, valid under the laws of the State of New York, was void as against an assignee in bankruptcy, and this latter case was approvingly referred to in Reed v. Mclntyre, 98 U. S. 513. So, also, in Boese v. King, 108 U. S. 379, 385, it was held, citing (p. 387) Reed v. Mclntyre, that whatever might be the effect of a deed of general assignment for the benefit of creditors, when considered apart from the bankrupt act, such a deed was repug- nant to the object of a bankruptcy statute, and therefore was in and of itself alone an act of bankruptc}-. The foregoing decisions related to deeds of general assignment made during the operation of the bankrupt act of 1867, March 2, 1867, c. 176, 14 Stat. 536, or the amendments thereto of June 22, 1874, c. 390, and July 26, 1876, c. 234, 18 Stat. 180 ; 19 Stat. 102. Neither, however, the act of 1867, nor the amend- ments to it, contained an express provision that a deed of general assignment should be a conclusive act of bankruptcy. Such conse- quence was held to arise, from a deed of that description, as a legal result, of the clause, in the act of 1867, forbidding assignments with " intent to delay, defraud, or hinder" creditors and from the provision avoiding certain acts done to delay, defeat, or hinder the execution of the act. (Rev. Stat. 5021, par. 4, 7.) Now, when it is considered that the present law, although it only retained some of the provisions of the act of 1867, contains an express declaration that a deed of general assignment shall authorize the involuntary bankruptcy of the debtor making such a deed, all doubt as to the scope and intent of the law is removed. The conclusive result of a deed of general assignment under all our previous bankruptcy acts, as well as under the English bankrupt laws, and the significant import of the incorporation of the previous 330 WEST COMPANY V. LEA. [CHAP. IV. rule, by an express statement, in the present statute have been lucidly expounded by Addison Brown, J. In re Gutwillig, 90 Fed. Rep. 475, 478. But it is ai'gued that whatever m&y have been the rule in previous bankruptcy statutes, the present act, in other than the particular pro- vision just considered, manifests a clear intention to depart from the previous rule, and hence makes insolvenc}' an essential prerequisite in every case. To maintain this proposition reliance is placed upon para- graph c of section 3, which reads as follows : "c. It shall be a complete defence to any proceedings in bankruptcy instituted under the first subdivision of this section to allege and prove that the party proceeded against was not insolvent as defined in this act at the time of the filing the petition against him, and if solvency at such date is proved by the alleged bankrupt the proceedings shall be dismissed, and, under said subdivision one, the burden of proving sol- vency shall be on the alleged bankrupt." The argument is that the words " under the first subdivision of this section " refer to all the provisions of paragraph a, because that para- graph, as a whole, is the first part of the section, separately divided, and although designated by the letter a, it is nevertheless to be con- sidered, as a whole, as subdivision 1. But whether the words " first subdivision of this section," if considered intrinsically and apart from the context of the act, would be held to refer to paragraph a as an entirety or onty to the first subdivision of that paragraph, need not be considei'ed. We are concerned only with the meaning of the words as used in the law we are interpreting. Now, the context makes it plain that the words relied on were only intended to relate to the first numeri- cal subdivision of paragraph a. Thus, in the last sentence of paragraph c the matter intended to be referred to by the words " first sub-division of this section," used in the prior sentences, is additional!}' designated as follows : "and under said subdivision one," etc., language which cannot possibly be in reason construed as referring to the whole of paragraph a, but only to subdivision 1 thereof. This is besides more abundantly shown by paragraph d, which pro- vides as follows : " d. Whenever a person against whom a petition has been filed as j/ hereinbefore provided under the second and third subdivisions of this A section takes issue with and denies the allegations of his insolvency, it shall be his dut.y to appear in court on the hearing with his books, papers, and accounts and submit to an examination, and give testi- mony as to all matters tending to establish solvency or insolvency, and in case of his failure to so attend and submit to examination the burden of proving his solvency shall rest upon him." This manifestly only refers to enumerations 2 and 3 found in para- graph o, which, it will be remembered, make it essential that the acts of bankruptcj' recited should have been committed by the debtor while insolvent. Indeed, if the contention advanced were followed, it would SECT. III.] WEST COMPANY V. LEA. 331 render section 3 in many respects meaningless. Thus, if it were to be held that the words " first subdivision of this section," used in paragraph c referred to the first division of the section that is, to paragraph a as a whole it would follow that the words "second and third sub- divisions of this section," used in paragraph c?, would relate to the second and third divisions of the section that is, to paragraphs b and c. But there is nothing in these latter paragraphs to which the refer- ence in paragraph d could possibly apply, and therefore, under the construction asserted, paragraph d would have no significance what- ever. To adopt the reasoning referred to would compel to a further untenable conclusion. If the reference in paragraph c to the " first subdivision of this section " relates to paragraph a in its entirety, then all the provisions in paragraph a would be governed by the rule laid down in paragraph c. The rule, however, laid down in that paragraph would be then in irreconcilable conflict with the provisions of paragraph d, and it would be impossible to construe the statute harmoniously with- out eliminating some of its provisions. Despite the plain meaning of the statute as shown by the foregoing considerations, it is urged that the following provision contained in paragraph b of section 3 operates to render any and all acts of bank- ruptcy insufficient, as the basis for proceedings in involuntary bank- ruptcy, unless it be proven that at the time the petition was filed the alleged bankrupt was insolvent. The provision is as follows : " A peti- tion may be filed against a person who is insolvent and who has com- mitted an act of bankruptcy within four months after the commission of such act." Necessarily if this claim is sound, the burden in all cases would be upon the petitioning creditors to allege and prove such insol- vency. The contention, however, is clearly rebutted by the terms of paragraph c, which provides as to one of the classes of acts of bank- ruptcy, enumerated in paragraph a, that the burden should be on the debtor to allege and prove his solvency. So, also, paragraph rf, con- forming in this respect to the requirements of paragraph a, contem- plates an issue as to the second and third classes of acts of bankruptcy, merely with respect to the insolvency of the debtor at the time of the commission of the act of bankruptcy. Further, a petition in a pro- ceeding in involuntary bankruptcy is defined in section 1 of the act of 1898, enumeration 20, to mean "a paper filed ... by creditors alleging the commission of an act of bankruptcy by a debtor therein named." It follows that the mere statement in the statute, by way of recital, that a petition ma}' be filed " against a person who is insolvent and who has committed an act of bankruptcy," was not designed to superadd a further requirement to those contained in paragraph a of section 3, as to what should constitute acts of bankruptcy. This reasoning also an- swers the argument based on the fact that the rules in bankruptcy pro- mulgated by this court provide in general terms for an allegation of insolvency in the petition and a denial of such allegation in the answer. 332 IN RE GUTWILLIG. [CHAP. IV. These rules were but intended to execute the act, and not to add to its provisions by making that which the statute treats in some cases as immaterial a material fact in ever}' case. Therefore, though the rules and forms in bankruptcy provide for an issue as to solvency in cases of involuntary bankruptcy, where by the statute such issue becomes irrele- vant, because the particular act relied on, in a given case, conclusively imports a right to the adjudication in bankruptcy if the act be estab- lished, the allegation of insolvency in the petition becomes superfluous, or if made need not be traversed. ^_0ur_conclusi.on, then, is that, as a deed of general assignment for the benefit of creditors is made by the bankruptcy act alone sufficient to justify an adjudication in involuntary bankruptcy against the debtor making such deed, without reference to his sol- vency at the time of the filing of the petition, the denial of insol- vency by way of defence to a petition based upon the making of a deed of general assignment, is not warranted by the bankruptcy law ; and, therefore, that the question certified must be answered in the negative; and it is so ordered. 1 IN RE GUTWILLIG. CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT, JANUARY 25, 1899._ [Reported in 92 Federal Reporter, 337.] IN bankruptcy. Petition to review an order of the District Court of the United States for the Southern District of New York. In this case, a petition in involuntary bankruptcy having been filed /against a debtor who had previously made a general assignment for the benefit of his creditors, the District Court, on motion of the peti- tioning creditors, granted a restraining order forbidding the assignee to dispose of the assigned property or its proceeds until the adjudica- tion upon the petition. 90 Fed. 475. And thereupon the assignee brought this petition for review of such order. Georye Fielder, for petition. Stillman F. Kneeland, for respondent. Before WALLACE LACOMBE, and SHIPM Before WALLACE, LACOMBE, and SHIPMAN, Circuit Judges. 1 A " general assignment " must include substantially all of the debtor's property Missouri P^lec. Co. v. Hamilton Brown Co., 165 Fed. 283. Any instrument which has the effect of turning over all of the debtor's property for the benefit of his creditors is within the statute. Re Hersey, 171 Fed. 998; Courtenay v. Finch, 194 Fed. 368 (C. C. A.). The assignment must be delivered. Re Federal Lumber Co., 185 Fed. 926. But an assignment is an act of bankruptcy though legally invalid, as for want of assent by the creditors. Canner v. Tapper Co., 168 Fed. 519. SECT. III.] IN RE GUTWILLIG. , 333 WALLACE, Circuit Judge. If the general assignment made by the alleged bankrupt would, in the event of an adjudication of bankruptcy, be treated as void as against the trustee of his estate, th6 order enjoin- ing the assignee from disposing of or interfering with the property transferred pending the hearing was a proper and expedient exertion of the authority conferred upon courts of bankruptcy by clause 15, sec- tion 2, of the present act. The assignment, which was made November 9, 1898, recites the insolvency of the assignor, and transfers all his property and effects to an assignee for the benefit of creditors, upon the trusts to convert the same into money, and, after paying the expenses of executing the trust, to pay all creditors of the assignor ratabl}*, and in proportion to their several demands. It is insisted for the appellant that whenever the question arises the assignment must be determined to be valid, because it was without preferences, and does not appear to have been made with any actual intent by the insolvent debtor to defraud his creditors. This conten- tion rests upon the terms of that section of the act which enumerates what transfers of propert}" by a person who afterwards becomes a bankrupt, and what liens upon such property are void, as against the trustees of the estate. Section 67. The section declares, among other things, that " all conveyances, transfers, assignments, or encumbrances of his property " made or given by a person adjudged a bankrupt within four months prior to the filing of the petition " with the intent and pur- pose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against his creditors, except as to pur- chasers in good faith and for a present fair consideration," and all propert} 7 transferred and incumbered "as aforesaid" shall remain a part of his estate, and pass to the trustee. We entertain no doubt that a voluntary general assignment, with or without p re fere noes, made by an insolvent debtor within the prescribed four months, is fraudulent, and intended by him to " hinder, delay, and defraud creclitorg, within the meaning of the section, because its necessary effect is to defeat the operation of the bankrupt act and the riirlils of the creditors to such an administration of the assets as that gcTTiTntended to provide. The reasons for this conclusion, and the authorities in support oFit, are so fully and satisfactorily set forth in the opinion of Judge Brown in the court below that we do not deem it necessary to enlarge upon them. They are summarized in the following extract from his opinion : " Since the time of George II., and even prior, the current of Eng- lish adjudications, followed by our own, has been that a voluntary assignment of all his property by an insolvent debtor to an assignee of nis own choosing, though without preferences, is itself an act of bank- ruptcv, a fraud upon the act, and hence a fraud upon the creditors, as respects their rights in bankruptcy, and voidable at the trustee's option, even without an express provision to that effect in the statute." 334 IN RE GUTWILLIG. [CHAP. IV. The citations referred to by him amply sustain the general proposi- tion. Among the most instructive are Barnes v. Rettew, 2 Fed. Cas. 868, and Globe Ins. Co. v. Cleveland Ins. Co., 10 Fed. Cas. 488. The general purpose of bankrupt laws, and of the present act, is not only to administer the assets of insolvent debtors on the basis of equality, but to secure that result by giving to the creditors, and not to the debtor, the selection of the person to be intrusted with the ad- ministration. To permit the administration to be committed by an insolvent debtor, who is on the heels of an adjudication of bankruptcy, to a trustee selected by himself, and thus be wholly withdrawn from the supervision of the bankrupt court, is irreconcilable with any rea- sonable view of the purpose of such legislation. Hence it' has been almost uniformly adjudged that any disposition of his property by a debtor intended to accomplish that purpose is a fraud upon the cred- itors, who have a right to invoke its protection. That such disposition is not one which is fraudulent at common law is immaterial. It suf- fices if its necessary effect is to defraud, hinder, or delay creditors in their rights and remedies under the bankrupt law. By the laws of New York and of many of the other States, general assignments by insolvent debtors for the benefit of creditors, if free from actual fraud, are valid, notwithstanding they create preferences between creditors ; and, if the contention urged upon this appeal is sound, such assignments, as well as those which are made to distribute the debtor's property ratably, are, by the terms of the section, good against the trustee in bankruptcy. The language applies unequivo- cally to all transfers or assignments, and declares those only null and void which are made with the intent and purpose to hinder, delaj*, or defraud creditors, and places an assignment with preferences on the same footing as one without, because it makes no distinction between them. The language also includes, not only assignments of every kind, but every kind of transfer or convej^ance by which a debtor may elect to secure a creditor in preference to or exclusion of his other creditors. If it is the meaning of the section to permit preferences by assignments or other conve} T ances if they are not fraudulent at common law, an anomaly has been introduced into the present act not found in any bankrupt law hitherto enacted in this country or England ; and it ex- ists in an act, and in the very section of the act, which nullifies prefer- ences obtained by legal proceedings. It is impossible to believe that Congress, while precluding a creditor from obtaining preferences over other creditors by legal proceedings, however regular!}' and fairly em- ployed, should have intended to permit the debtor to select one or more favored creditors, and give him or them preference by his voluntary act The section annuls " all levies, judgments, attachments, or other liens obtained through legal proceedings against a person who is insol- vent, at any time within four months prior to the filing of a petition in bankruptcy against him," and an} 7 " lien created b}*, or obtained in, or pursuant to any suit at law or in equity . . . begun against a person SECT. III.] IN RE GUTWILLIG. 335 within four months before the filing of a petition in bankruptcy by or against such person ... (1) if it appears that said lien was obtained or permitted while the defendant was insolvent, and that' its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act, . . . pro- vided that nothing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attachment, or other lien of a bona fide purchaser for value who shall have acquired the same without notice or reasonable cause of inquiry." These provisions manifest unmistakably the intention of Congress not only not to permit preferences to be acquired upon the bankruptcy of a debtor when he is about to become a bankrupt, but also to annul all dispositions of his propert}', except to innocent purchasers, which will defeat the rights of creditors to a distribution by the instrumental- ities and according to the scheme of the bankrupt act. The purchaser of a title under a lien acquired by legal process is not protected, unless he took it without notice of its preferential origin. The purchaser un- der a voluntary conveyance must not only be a purchaser in good faith, but he must be one who has subtracted nothing essentially from the value of the debtor's assets. The}' are wholly inconsistent with an in- terpretation of the clause annulling voluntary conveyances which will permit such conveyances to stand when intended to defeat the opera- tion of the bankrupt act. This clause must be interpreted in a sense which harmonizes with the general intent of the section as gathered from the other clauses ; and, thus read, it annuls any conveyance made to impair or defeat the remedy of creditors under the bankrupt act, unless made to a purchaser not in complicity with the insolvent, and for a "present fair consideration." The order of the District Court is affirmed, with costs. 1 1 Re Curtis, 91 Fed. Rep. 737 (see 8. c. on app., 94 Fed. Rep. 630) ; Re Sievers, 91 Fed. Rep. 366 ; Davis v. Bohle, 92 Fed. Rep. 325 (C. C. A.) ; Leidigh Carriage Co. v. Stengel, 95 Fed. Rep. 637 (C C. A.) ; Re Slomka, 122 Fed. 6.SO; Re Knight, 125 Fed. 35 ; Rogers v. Abbot, 206 Mass. 270 ; Matter of Gray, 47 N. Y. App. l)iv. 554, ace. 336 IN RE WM. S. BUTLER A CO. [CHAP. IV. SECTION IV. RECEIVERSHIPS AS ACTS OP BANKRUPTCY. IN RE WM. S. BUTLER & CO., INC. CIRCUIT COURT OF APPEALS FOR THE FIRST CIRCUIT, SEPTEMBER 10, 1913. [Reported in 207 Federal Reporter, 705.] Before PUTNAM and BINGHAM, Circuit Judges, and ALDRICH, District Judge. BINGHAM, Circuit Judge. This is a petition of three creditors filed November 9, 1912, praying for the adjudication in bankruptcy of Wm. S. Butler & Co., Inc., on the grounds : A. That because of insolvency its property was put in the hands of two receivers on November 7, 1912, by the United States District Court, sitting in equity ; B. That being insolvent it applied to said court for the appointment of a receiver, and two receivers were appointed on said day. The bill under which the receivers were appointed was a creditor's bill and alleged among other things : 1. That the defendant is unable to meet its liabilities as they mature in the ordinary course of business. 2. That the defendant is engaged in the retail dry goods business in Boston ; has invested more than two hundred and fifty thousand dollars in stocks of new merchandise which are immediately available for sale at a profit if the business can be carried on without interrup- tion ; and that the store occupied by it has recently been refitted with expensive fixtures, which are of great value to a going concern. 3. That it holds a lease of the premises it occupies, which is of great value, and would be of great value to any purchaser of its business as a going concern, but that if attachments should be placed upon its prop- erty, and the defendant should be adjudicated a bankrupt, the value of its lease would be wholly lost. 4. That the defendant and its predecessors during many years of con- tinuous business have built up a good will of great value which would be almost wholly lost if the business should be closed up. The bill prayed the appointment of a receiver, the continuance of the business and the equitable disposition of the assets The defend- ant admitted the truth of the allegations of the bill, by answers filed on the same day as the bill, and a decree was entered appointing receivers with authority to carry on the business. In the District Court it was found that the proceeding in equity was brought about by Butler & Company, and that, although the SECT. IV.] IN RE WM. S. BUTLER 4 CO. 337 bill was in form a creditor's bill, it was in fact an application by the debtor for the appointment of receivers. It was also foqnd that the debtor was insolvent in the bankruptcy sense of the term, at the time of the filing of the bill and at the time of the filing of the petition in bankruptcy. The company was adjudged a bankrupt on both the grounds set out in the petition, and the receivers and intervening credi- tors appealed. Section 1, clause 15, of the -act undoubtedly sets forth the meaning Congress intended should be given to the words "insolvent" and "in- solvency " as used in section 3a, clause (4), and seems to be the one either directly or impliedly attributed to them by the courts in consider- ing these provisions of the law. In re Golden Malt Cream Co. (C. C. A., 7th Cir.), 164 Fed. 326 ; Duncan v. Landis (C. C. A., 3rd Cir.), 106 Fed. 839 ; In re Boston and Oaxaca Mining Co. (D. C., Mass.), 181 Fed. 422 ; In re Perry- Aldrich Co. (D. C., Mass.), 165 Fed. 249 ; Beatty v. Anderson Coal Mining Co. (C. C. A., 1st Cir.), 150 Fed. 293 ; Hooks v. Aldridge (C. C. A., 5th Cir.), 145 Fed. 865 ; Blue Mt. Iron and Steel Co. v. Portner (C. C. A., 4th Cir.), 131 Fed. 57 ; In re Edward Ellsworth Co. (D. C., N. Y.), 173 Fed. 699. No case has been called to our attention in which a different conclusion has been reached. If any inference as to the question is to be drawn from the decision in In re Kennedy Tailoring Co. (D. C., Tenn.), 175 Fed. 871, relied on by the appellees, it would seem to be that the insolvency there contem- plated was insolvency in the bankruptcy sense, and in the Beatty case it was specifically alleged in the bill of complaint that the debtor was insolvent in fact, as its assets were less than its liabilities. The deci- sion in In re Golden Malt Cream Company is directly in point, and to the effect that insolvency, as used in clause 4, means insolvency as de- fined in the Bankruptcy Act. With regard to the first act of bankruptcy alleged in the petition that on the seventh .of November, 1912, receivers were put in charge of the debtor's property because of insolvency the only evidence in its support presented at the trial was the bill, answer, and decree in the equity proceeding; and the question is presented whether the decree and record in that proceeding disclose that the receivers were put in charge of the debtor's property because of insolvency; that is, because its assets, at a fair valuation, were not sufficient in amount to pay its debts ; for unless it can be clearly determined from the decree, or rec- ord as a whole, that this was the sole or one of the substantial grounds on which the decree appointing the receivers was based, the adjudica- tion in bankruptcy to the extent that its validity depends upon this alleged act of bankruptcy cannot be sustained. In Russell v. Place, 94 U. S. 606, 608, the court, in considering the effect of a judgment when pleaded as a bar or offered as evidence in a subsequent suit between the same parties or their privies, and for a different cause of action, said : "It is undoubtedly settled law that a judgment of a court of com- petent jurisdiction, upon a question directly involved in one suit, is 338 IN RE WM. S. BUTLER A CO. [CHAP. IV. conclusive as to that question in another suit (for a different cause of action) between the same parties. But to this operation of the judg- ment it must appear, either upon the face of the record or be shown by extrinsic evidence, that the precise question was raised and deter- mined in the former suit. If there be any uncertainty on this head in the record as, for example, if, it appear that several distinct matters may have been litigated, upon one or more of which the judgment may have passed, without indicating which of them was thus litigated, and upon which the judgment was rendered the whole subject-matter of the action will be at large, and open to a new contention, unless this uncertainty be removed by extrinsic evidence showing the precise point involved and determined. To apply the judgment, and give effect to the adjudication actually made, when the record leaves the matter in doubt, such evidence is admissible." And, again, on page 610, the same court says : " If upon the face of a record anything is left to conjecture as to what was necessarily involved and decided, there is no estoppel in it when pleaded, and nothing conclusive in it when offered as evidence." See, also, on this question : Beatty v. Anderson Coal Mining Co. (C. C. A., 1st Cir.), 150 Fed. 293 ; In re Kennedy Tailoring Co. (D. C., Tenn.), 175 Fed. 871, 873; Crowell v. County of Soc., 94 U. S. 351; In re Watts, 190 U. S. 1, 35 ; Metcalf v. Gilmore, 63 N. H. 174, 189. Does it appear from the bill, answer, and decree that it was alleged and determined that the assets of the debtor, at a fair valuation, were insufficient to pay its debts, and that that was the sole ground, or one of the substantial grounds, upon which the decree appointing the re- ceivers was made? It is to be borne in mind in considering this ques- tion that the burden of proof is upon the petitioner to show these facts. It is also to be borne in mind that the record in the equity proceeding was the only evidence that was introduced in this case upon which these facts were to be determined, and that if extraneous evidence could have been resorted to in case the record left it doubtful what was litigated or admitted and upon what the decree was based, no such evi- dence was introduced. The decree does not state the ground or grounds upon which the receivers were appointed, and its terms are not coextensive with the allegations and prayers of the bill. It states that it was entered "upon consideration of the bill of complaint and the answer thereto, and no motion of counsel for the plaintiff, the respondent, by its attorney, consenting thereto." "We must therefore look to the bill and answer. The bill alleges as a specific ground for the appointment of receivers the inability of the defendant to meet its obligations as they mature in the ordinary course of business. This is an allegation of insolvency according to one of the common law definitions of the term, but not as defined in section 1, clause 15, and, being specially alleged in the bill and admitted in the answer, it may be assumed, inasmuch as it was a sufficient ground on which to appoint receivers, that it was at least one of the grounds, if not the sole ground, upon which the ap- SECT. IV.] IN RE WM. S. BUTLER 4 CO. 339 pointment was made. On the other hand, nowhere in the bill is it alleged that the defendant's property, at a fair valuation, is insufficient to pay its debts, and, although its liabilities are stated, 'the valuation of its assets other than they are of great value, is nowhere given. In the absence of such allegations it cannot be said that the defendant by its answer admitted them to be true, or that in the absence of such an admission the court based its decree upon that ground. Then, again, the prayers of the bill were granted only to the extent that they contemplated and sought the appointment of receivers to assume control of the business and conduct the company's affairs until otherwise ordered by the court. The prayer wherein it was asked that the plaintiffs indebtedness and that of other creditors be determined, and that the assets of the company, if they were insufficient to pay its indebtedness in full, should be equitably distributed, was not covered by the decree. This being so, the decree is alone consistent with the idea that it was made with a view to the preservation of the value of the defendant's assets as a going concern, and of enabling the debtor through an extension of credit and a continuation of its business to realize a sum sufficient to pay its debts in full, and to avoid insolvency if possible. In fact, all the allegations of the bill, so far as they were recognized by the decree, are consistent with the main allegation that the defendant was unable to meet its obligations in the ordinary course of business, and it seems to us that it would be putting upon them a strained construction to hold that the debtor, by admitting in its answer that its property was of great value, thereby admitted that it was in- solvent in fact, that is, in the bankruptcy sense, and that the court made use of it as one of the grounds on which to base its decree ap- pointing receivers. It has also been urged that the receivers appointed in this case were temporary, and that such an appointment was not an act of bankruptcy within the meaning of the clause under consideration. It does not seem to us that it is of any moment whether the receivers be termed temporary or permanent ; that the real question is whether the decree appointing them was based on the insolvency of the debtor as defined in the Bankruptcy Act. If it was, the act of bankruptcy contemplated by the statute took place, and if it was not there was no act of bank- ruptcy within its meaning. In re Kennedy Tailoring Co. (D. C., Tenn.), 175 Fed. 871 ; Blue Mt. Iron and Steel Co. v. Portner (C. C. A., 4th Cir.), 131 Fed. 57. The decisions in Zugalla v. Mercantile Agency (C. C. A., 3rd Cir.), 142 Fed. 929, and Hudson River Electric Power Co. (D. C., N. Y.), 173 Fed. 934, upon which the appellants rely, would seem to be based rather upon the fact that no adjudication of insolvency had been made in the equity proceeding in which receivers had been appointed than upon the nature of the receivership. As to the second alleged act of bankruptcy, the question is whether the defendant, being insolvent, applied for a receiver for its property. In the bill in equity the plaintiff alleges (1) that it is a citizen and 340 IN RE WM. S. BUTLER & CO. [CHAP. IV. resident of the State of Maine, and brings the bill in behalf of itself and other creditors of the defendant, a citizen and resident of Massa- chusetts, and (2) that the defendant is indebted to the plaintiff in a sum not less than twenty-five thousand dollars, a large part of which is overdue, and though often demanded remains wholly unpaid. Both of the above allegations were essential to establish a case cognizable under the judiciary act of the United States by the Federal Court. The second allegation was also material to the establishment of the plaintiff's right to equitable relief. The defendant in its answer admitted both allegations, and by so doing waived its right to object to any insufficiency in the second allegation, and material to the equitable relief desired, in that it was not there alleged that the claim had been reduced to a judgment, and that execution had issued and been returned unsatisfied. Matter of Reisenberg, 208 TJ. S. 90; Hollins v. Brinfield Coal & Iron Co., 150 U. S. 376. Now, what was determined by the decree in the equity suit with reference to the application for receivers? It is evident that under the first allegation of the bill the court must have decided that the pi'oceeding was one brought by the plaintiff, a citizen and resident of Maine, against the defendant, a citizen and resident of Massa- chusetts ; and, under the second allegation, that the amount in con- troversy between the parties answered the jurisdictional requirement; and that this allegation, taken in connection with the subsequent allegations of the bill, entitled the plaintiff to equitable relief. It having, therefore, been determined in the equity proceeding that the party set out in the bill as plaintiff was the real plaintiff and a creditor of the defendant entitled to equitable relief, the decree, when intro- duced in the bankruptcy proceeding, in the absence of proof of fraud in its procurement, was and should have been regarded as conclusive evidence that the application for receivers was made by the McLean Sons Company and not by the Butler Company. Moreover, it does not seem reasonable that Congress, in the enact- ment of clause 4, could have contemplated that a decree in an equity proceeding, determining who the applicant for receivers was, should be subject to attack when offered as evidence in a bankruptcy pro- ceeding, unless it be for fraud or collusion. In this case it is ex- pressly found that there was no fraud or collusion, and t it was therefore not open to the bankruptcy court to disregard the decree and undertake to determine the question anew. Matter of Reisen- berg, 208 U. S. 90 ; In re Edward Ellsworth (D. C., N. Y.), 173 Fed. 699 ; Exploration Mercantile Co. v. Pacific H. & S. Co. (C. C. A., 9th Cir.), 177 Fed. 825; In re Duplex Radiator Co. (D. C., N. Y.), 142 Fed. 906 ; In re C. Moench & Sons Co. (C. C. A., 2nd Cir.), 130 Fed. 685. But if it were open to the bankruptcy court to disregard the decree and to determine this question anew, we are of the opinion the find- ing of the court below that the application for receivers was made SECT. IV.] IN RE WM. S. BUTLER A CO. 341 by Butler & Company was not authorized by the evidence. A corporation can act only through its officers and agents, but their action to bind the corporation must be within the Scope of their authority. A general agent charged with the management of a cor- poration is not authorized to dispose of its entire property in a single transaction, in the absence of special authority so to do. If the directors of a corporation may authorize such a disposition of the property of the corporation, they can do so only at a duly warned meeting of the board, or one at which all are present. And the stock- holders can confer such authority only by the vote of a majority in a corporate meeting duly warned, or by unanimous agreement. The application for receivers in the equity proceeding involved action looking to a parting with the entire management and control of the business of Butler & Company, and if made by the company, while insolvent, was an act of bankruptcy. The evidence upon which the finding that Butler & Company made the application was based, was that certain agents and counsel for the corporation undertook to bring about the application by procuring a creditor, the McLean Sons Company, to make it in its name. If procuring a creditor to make an application for receivers can be found to be the application of the corporation, and an act of bank- ruptcy, it can only be so when there is proof that the agents had authority to take such a course of action. In this case the evidence discloses that there was no vote of the board of directors, or of the stockholders, authorizing the action, and no agreement of all the stockholders. It is urged by the appellees that the directors and stockholders acquiesced in the action taken by these agents, and ratified their conduct. But the directors of the corporation, having no authority to act singly, could not, except as a board, ratify action which they could not have authorized, except as a board. And the stockholders could not be found to have acquiesced in and ratified the action of the agents in question without proof that they knew what action was taken, and that it was in behalf of the corporation. There was no evidence that all the stockholders knew what action these agents had taken. The equity proceeding, so far as the records would disclose, was the application of a creditor, and would give no information as to what these agents had done. And the knowledge possessed by the agents of action taken by themselves in excess of their authority would not be imputable to the corporation or the stockholders. As it appears that the action of these agents was unauthorized, and there was no evidence that it was subsequently ratified, the corporation could not be found to have made the application for receivers. The situation in this case resolves itself into this: That Butler & Company, being insolvent in the bankruptcy sense, was put into the hands of receivers. This, however, is not an act of bankruptcy as defined in clause 4, as amended in 1903, and it is apparent that Con- gress did not intend to make it one. The amendment when introduced 342 IN RE WM. S. BUTLER & CO. [CHAP. IV. read: "Being insolvent, applied for or was put in the hands of a re- ceiver." In the Senate its language was changed to read as finally enacted. Had it become a law as originally introduced, the facts in this case would disclose an act of bankruptcy, but, by enacting the clause as amended by the Senate, Congress manifested an intention to leave the situation presented by this case unprovided for, and it is not for the court to enlarge the meaning of the statute by construction and attempt to provide for the omitted situation by holding that the phrase, "be- cause of insolvency," means insolvency other than as defined in sec- tion 1, clause 15. PUTNAM, Circuit Judge (dissenting) : The burden of the litigation in this case is over the definitions given to the words " insolvent" and " insolvency," incorporated in the Bank- ruptcy Statutes by the amendment of 1903, so far as they relate to these appeals. A careful perusal of text books and of the decisions of the courts bearing on the definitions to be given these words as applied here fails to show any authority for giving the peculiar definition to the words in question as applied here, except the Golden Malt Co. (C. C. A., 7th Cir.), 164 Fed. 326. This case was much like many of the early decisions with reference to the Bankruptcy Statutes, where the conclusions were apparently reached without much consideration. The text was so hastily drawn that, on page 328, it declared the provision in question here was a part of the statute of July 1, 1898, when it came in by the act of 1903, 32 Stat. 797, as an entirely new topic ; a fact which must be regarded in interpreting statutes, which must always be interpreted from an historical point of view in order to be correctly understood. It is true that the amendatory act of 1903 was strictly amendatory, in such way as to embody the amendment into the original act of 1898 ; but, whatever the circumstances under which an amendment comes in, or the form which it takes, the courts are always at liberty to make a broad investigation and to apply broad considerations with regard to construing an amendment, even more than with reference to construing any part of the body of the original statute, which latter, of course, is always qualified by the context. Here, especially, while the statute of 1898 applied throughout to courts in bankruptcy, and therefore may justly be held to have made propo- sitions from the uniform standpoint of those courts throughout, yet this amendment related to proceedings in courts of equity and com- mon law ; and in describing those proceedings it may be assumed to use the language of those courts, and to construe that language as those courts would have construed it. It is not credible to hold that, in refer- ring to proceedings of the courts of equity and common law, the words " insolvent" or " insolvency," under these circumstances, were to have any different construction than that usually given them in those courts. By giving the words "insolvent" or "insolvency," as found in the amendment of 1903, the peculiar definition given them by the body of SECT. IV.] IN RE WM. S. BUTLER A CO. 343 the act of 1898, we would practically defeat the purpose of the amend- ment, and the amendment would be inapplicable. No, proceeding in either courts of equity or common law has ever yet, in appointing receivers or otherwise, used the words "insolvent" or "insolvency" in the special sense declared by the Bankruptcy Act of 1898. Giving these words the force which the opinion of the court gives them would be in substance declaring that no adjudication in bankruptcy based on the appointment of a receiver by a court of equity or common law was in fact and in substance justifiable, because there never has been any case where such an adjudication was secured in which the court which appointed the receiver has ever given to those words the peculiar definition given them by the Bankruptcy Act of 1898, or was ever asked to do so. In the Golden Malt Co. case, to which we have re- ferred, the adjudication in bankruptcy was finally refused. Not only has there never been any adjudication in bankruptcy based on the appoint- ment of a receiver under circumstances like those stated in the opinion of the court, but there is no reasonable probability that there ever will be; as not only has no court of common law or equity ever accepted the definition of "insolvency" embodied in the Bankruptcy Statutes, but there is no reasonable probability that such courts ever will do so. None of the cases cited in the opinion of the courts seems to sus- tain its propositions. 106 Fed. 839, was decided before the amend- ment of 1903 ; 181 Fed. 422, was in the District Court, and turned on a question of fraud and collusion ; 165 Fed. 249, has the same features as the case last referred to; 150 Fed. 293, the Beatty case, quite well known, showed expressly that the proceeding in the State court de- clared only that the parties proceeded against were unable to meet their obligations as they came due ; in 145 Fed. 865, the question we have here was referred to at page 868, but was not decided, either there or at page 871 ; in 131 Fed. 57, the case was submitted to the jury in the District Court from the aspect taken in the opinion of the court here, but was disposed of in the Circuit Court of Appeals as a mere question of fact, without any disposition of the question of law now brought to our attention; the other cases cited were in the District Court, and, of course, are not authority on an appeal from the District Court, as there has been no such mass of them as would indicate a general acquies- cence in the proposition now maintained. 139 Fed. 244, did not raise or discuss the question we have before us, although cited to sustain the decision of the District Court in 173 Fed. 699. Therefore, while disposed to give full effect to the rule in this cir- cuit with regard to following decisions of Circuit Courts of Appeals of other circuits, we cannot go so far as to adopt the Golden Malt Co. case, which is inconsistent with the settled practice, and which practi- cally nullifies the statute to which we are asked here to give effect. Therefore, as this is really the only substantial proposition which stands in the way of affirming the judgment of the District Court, we are of the opinion that that judgment should be allirmed. 1 1 The case has been slightly abbreviated. 344 EVERETT V. JUDSON. [CHAP. v. CHAPTER V. WHAT PROPERTY PASSES TO THE TRUSTEE. 1 // SECTION I. TIME OF THE TRANSFER. EVERETT v. JUDSON. ME COURT OF THE UNITED STATES, MARCH 13-ApRiL 28, 1913. [Reported in 228 United States, 474.] Mr. Justice DAT delivered the opinion of the court. 1 A petition in involuntary bankruptcy was filed against the firm of Judson & Judson and its members, Alfred M. Judson being one, on December 17, 1910, and on December 23, 1910, Judson entered a notice of his appearance in the proceedings. On January 9, 1911, the firm and its members were adjudged bankrupts, and on February 9, 1911, Everett qualified as trustee. Judson owned certain life insurance poli- cies at the time of the institution of the bankruptcy proceedings, and thereafter, and until his death, payable to his executors, administrators, or assigns. On January 4, 1911, Judson committed suicide. Notice was served on the trustee that the executor claimed the right, under section 70a of the Bankruptcy Act, to pay to the trustee the cash surrender value of the policies when ascertained, but the trustee denied such right and also the right of the executor to the balance of the proceeds of the policies. The present case was argued at the same time*as the case of Burling- ham v. Grouse (228 U. S. 459), and in so far as it is like that case the principles therein laid down are controlling. The present case has, however, a feature not directly involved in the case of Burlingham v. Grouse, because Judson, the insured, committed suicide before the adjudication in bankruptcy, although after the filing of the petition, and it is the contention of the petitioner that the Bankruptcy Act vested the title to the property in the trustee as of the time of the ad- judication, and that the death of the bankrupt between the filing of the petition and the date of the adjudication made the proceeds of the policies assets in the hands of the trustee. While it is true that section 70a provides that the trustee, upon his appointment and qualification, becomes vested by operation of law with the title ofJJie bankrupt as of the date he was adjudged a bankrupt, there are l Qjhej> provisions of the statute which, we think, evidence the intention to vest in the trustee the title to such property as it was at 1 The statement in the opinion is abbreviated. SECT. I.] EVERETT V. JUDSON. 345 the time of the filing of the petition. This subject was considered in Acme Harvester Co. v. Beekmau Lumber Co., 222 U. S./ 300, wherein ifwas held that, pending the bankrupt proceedings, and after the filing of the petition, no creditor could obtain by attachment a lieu upon the property which would defeat the general purpose of the law to dedicate the property to all creditors alike. 1 Section 70a vests all the property 1 In this case, speaking for the court Mr. Justice DAT said : Whatever may be the limitations of the doctrine declared by this court, speaking by the late Chief Justice FULLER in Mueller v. Nugent, 184 U. S. 1, 14, where it is said : "It is as true of the present law (1898) as it was of that of 1867, that the filing of the petition is a caveat to all the world, and, in effect, an attachment and injunction. Bank v. Sherman, 101 U. S. 403. And on adjudication, title to the bankrupt's property became vested in the trustee (Sections 70-21e), with actual constructive possession, and placed in the custody of the bankruptcy court." It is none the less certain that an attachment of the bankrupt's property after the filing of the petition and before adjudication cannot operate to remove the bankrupt's estate from the jurisdiction of the bankruptcy court for the purpose of the administra- tion under the act of Congress. It is the purpose of the bankruptcy law, passed in pursuance of the power of Congress to establish a uniform system of bankruptcy throughout the United States, to place the property of the bankrupt under the control of the court, wherever it is found, with a view to its equal distribution among the creditors. The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. The ex- clusive jurisdiction of the bankruptcy court is so far in rem that the estate is regarded in custodia leg is from the filing of the petition. It is true that under section 70a of the act of 1898 the trustee of the estate, on his appointment and qualification, is vested by operation of law with the title of the bankrupt as of the date he was adjudicated a bank- rupt, but there are many provisions of the law which show its purpose to hold the property of the bankrupt intact from the time of the filing of the petition, in order that it may be administered under the law if an adjudication in bankruptcy shall follow the beginning of the proceedings. Paragraph 5, section 70a, in reciting the property which vests in the trustee, says there shall vest " property which prior to the filing of the petition, the bankrupt could by any means transfer or which might have been levied upon and sold under judicial process against the bankrupt." Under section 67c attach- ments within four months before the filing of the petition are dissolved by the adjudi- cation in the event of the insolvency of the bankrupt, if its enforcement would work a preference. Provision is made for the prompt taking possession of the bankrupt's property, before adjudication if necessary (section 69a). Every person is forbidden to receive any property after the filing of the petition, with intent to defeat the purposes of the act. These provisions, and others might be recited, show the policy and purpose of the Bankruptcy Act to hold the estate in the custody of the court for the benefit of creditors after the filing of the petition and until the question of adjudication is determined. To permit creditors to attach the bankrupt's property between the filing of the petition and the time of adjudication would be to encourage a race of diligence to defeat the purposes of the act and prevent the equal distribution of the estate among all creditors of the same class which is the policy of the law. The filing of the petition asserts the jurisdiction of the Federal court, the issuing of its process brings the defendant into court, the selection of the trustee is to follow upon the adjudication, and thereupon the estate belonging to the bankrupt, held by him or for him, vests in the trustee. Pending the proceedings the law holds the property to abide the decision of the court upon the question of adjudication as effectively as if an attachment had been issued* and prevents creditors from defeating the purposes of the law by bringing separate attachment suits which would virtually amount to preferences in favor of such creditors. See in this connection the well-considered cases of State Bank v. Cox (C. C. A., 7th Cir.), 143 Fed. 91; Board of County Commissioners v. Hurley (C. C. A., 8th Cir.), 169 Fed. 92, 94. 346 RAND V. IOWA CENTRAL RAILWAY CO. [CHAP. V. in the trustee, which, prior to the filing of the petition, the bankrupt could" by any means have transferred, or which might have been levied upon and sold under judicial process against him. The bankrupt's dis- charge is from all provable debts and claims which existed on the day on which the petition for adjudication was filed. Zavelo v. Reeves, 2U7 U. S. 625, 630, 631. The schedule that the bankrupt is required to file, showing the location amd value of his property, must be filed with his petition. We think that the purpose of the law was to fix the line of cleavage with reference to the condition of the bankrupt estate as of the time at which the petition was filed, and that the property which vests in the trustee at the time of adjudication is that which the bankrupt owned at the time of the filing of the petition. And it is as of that date that the surrender value of the insurance policies mentioned in section 70a should be ascertained. The subsequent suicide of the bankrupt before the adjudication was an unlooked-for circumstance which does not change the result in the light of the construction which we give the statute. It follows that the judgment should be affirmed. 1 RAND v. IOWA CENTRAL RAILWAY COMPANY. COURT OF APPEALS OF NEW YORK, JUXE 20-OcxoBER 2, 1906. [Reported in 186 New York, 58.] A- \ \t WILLARD BARTLETT, J. The plaintiff in this action recovered a ver- V^ diet of $2,840.00 for services alleged to have been rendered to the defendant corporation. Notwithstanding the verdict the court at Trial Term, by consent of counsel, entertained and finally granted a motion to dismiss the complaint. The judgment thereupon rendered has been affirmed by the Appellate Division upon the ground that the plaintiff had been divested of all title to the claim in suit by reason of the fact that he was adjudicated a bankrupt after the cause of action had ac- crued in his favor and before the beginning of this suit. The adjudi- cation in bankruptcy was deemed to have this effect, although no trustee in bankruptcy was ever appointed. It is apparent from the record that the omission to appoint a trustee must have been due to the failure of the plaintiff to disclose the exist- ence either of this claim or any other property in the bankruptcy pro- ' ceedings. While the concealment of any property on the part of a bankrupt must be deemed a reprehensible act as toward his creditors it toy no means follows that such concealment has any bearing upon the question as to whether the bankruptcy proceedings have gone far enough to divest the bankrupt of title. In our judgment the proceed- 1 Andrews v. Partridge, 228 U. S. 479; Sibley v. Nason, 196 Mass. 125, 131, ace. SECT. 1.1 BAND V. IOWA CENTRAL RAILWAY CO. ^ ^ 347 " ings in the case of the plaintiff had not progressed sufficiently to deprive him of the right to maintain an action in his own nanae in the state court upon the claim in suit. The Bankruptcy Act of 1898 (section 70) provides that the trustee of the estate of a bankrupt upon his ap- pointment and qualification shall be vested by operation of law with the title of the bankrupt as of the date he was adjudged bankrupt. It is plain that this provision can never become effective until a trustee in bankruptcy shall have been appointed. Here none was appointed ; hence the conditions did not exist which were requisite to render this provision of section 70 operative. Such was the view necessarily adopted by this court in affirming the judgment in the case of Fuller v. Jameson, 184 N. Y. 605, where the case turned upon the question whether the title to insure property had been changed by reason of an adjudication in bankruptcy against the owner, the insured property having been burned after the referee in bankruptcy had announced the appointment of a receiver but before the order of appointment was actually signed. We agreed with the courts below that the bankruptcy proceedings had not gone far enough at the time of the fire to divest the insured of his title. If that conclusion was correct it follows that the present judgment cannot be sustained. The proposition of law involved in that decision was that under section 70 of the Bankruptcy Act of 1898 the appoint- ment of a trustee is essential to divest the bankrupt of a title to his property. As was said by the Supreme Judicial Court of Massachu- setts in another litigation growing out of the same fire : ' ' No change of title was effected until the appointment and qualification of the trus- tee." (Fuller v. New York Fire Ins. Co., 184 Mass. 12.) So here the plaintiff's title to the chose in action, which is the basis of the present suit, did not pass out of him in the bankruptcy proceedings since no trustee was appointed to whom it could pass. But it is urged that the defendant by payment of a judgment herein to the plaintiff would not be protected if it should thereafter be sued , upon the same cause of action by any trustee of the bankrupt estate / who might hereafter be appointed. It seems to us that the defendant " is not exposed to any serious danger in this respect. "If in such cases there is a recovery, and any question arises as to the right of the trustee or creditors to the money, or as to the defendant's being pro- tected in paying it to the proper party, this may be secured by subse- quent sfe'ps being then taken for th.-it purpose." ((irillin r. Mutual ife Ins. Co., 11 Am. Bank. Rep. 622.) We see no reason why such steps should not be taken if necessary by means of an application to the Bankruptcy Court. It may very well be that any sum recovered by the plaintiff in the present action will be held by him as trustee for his creditors ; but this is a matter which does not concern the defend- ant so long as the plaintiff holds the legal title to the claim and the defendant is secured against any possibility of being compelled to pay it twice. 348 CLARKE V. MINOT. [CHAP. V. We do not overlook the fact that the conclusion which we have reached upon the principal question presented by this appeal is in con- flict with the view expressed by the Supreme Court of Minnesota in Rand v. Sage, 102 N. W. Rep. 864 ; but while entertaining the highest respect for that learned tribunal, we remain satisfied with the correct- ness of our own decision in Fuller v. Jameson, supra, which, as has already been pointed out, is in harmony with the construction put upon section 70 of the Bankruptcy Act by the Supreme Judicial Court of Massachusetts. CULLEN, Ch., J., VANN, WERNER, HISCOCK and CHASE, JJ., concur; O'BRIEN, J., absent. Judgment reversed, etc, 1 J CLARKE v. MINOT. SUPREME JUDICIAL COURT OF MASSACHUSETTS, MARCH TERM, 1842. [Reported in 4 Metcalf, 346.] ASSUMPSIT to recover $1,729.02. The parties submitted the case to the court on the following facts : The defendants are executors of the last will of Mary Ann May, who, by said will, directed them to pa}* $2,000 to Abby Alcott, upon the death of Josep.li May The plaintiff is assignee of the estate of Amos B. Alcott, the husband of said Abby, under St. 1838, c. 163o The estate of said Amos B. was assigned to the plaintiff by the judge of probate for the county of Middlesex, under the following circum- stances : After the decease of the above-named Joseph May, the amount of said legacy was attached in the hands of the defendants, by a trustee ocess in favor of a creditor of said Amos B. Alcott, in an action unded upon a demand which was, in its nature, provable against the estate of an insolvent debtor, under the said statute. Said process was returnable and returned to the Court of Common Pleas for the county of Suffolk, at April term, 1841. The present defendants charged them- selves, by their answers in said process, as trustees of said Alcott, by reason of said legac}*, and final judgment was rendered therein against said Alcott, as principal, and these defendants, as his trustees, for the sum of $1,704.42, and costs, on the afternoon of April 28, 1841, being three da}*s before the last day of said term. The said attachment was never dissolved bv said Alcott. After said final judgment was rendered, and on the same da}', viz., April 28, 1841, other creditors of said Alcott preferred a petition to the said judge of probate, setting forth the foregoing facts, and praying that proceedings might be instituted, under said statute, for dividing 1 Johnson v. Collier, 222 U. S. 486, ace. SECT. I.] CLARKE V. MINOT. 349 and distributing said Alcott's estate among his creditors. A warrant was issued to a messenger, by said judge, on the same day, directing him to take possession of said estate, and " forthwith to give public notice, and also to said Alcott's trustees before named," [the defend- ants] " that a warrant" had issued against his estate, etc., by adver- tisement thereof, to be published in the Boston Daily Advertiser, a newspaper printed in Boston, three weeks successively, etc. The mes- n^j^ senger gave written notice to each of the defendants personally, before nine o'clock in the morning of April 29, 1841, and within twenty-four p' hours after the rendition of the judgment aforesaid, and before any ' jf^ MS*** execution had issued thereon, and caused the notification to be pub-&| lished in said newspaper, as directed in the warrant, on the morning of ' April 30. In the afternoon of April 29, execution in said suit against said Alcott, and the defendants, as his trustees, was issued, and the defendants paid to the officer the said sum of $1,729.02, the amount which is claimed of them in this action. (Several other facts, which related to the regularity of the proceed- ings of the judge of probate, etc., were also stated; but as it became unnecessary for the court to decide the questions arising from those facts, they are not here inserted.) The parties agreed that "if it is competent in law for the defendants to give in evidence the foregoing facts, or any part thereof ; and if, under the facts which may be so given in evidence, the court should be of opinion that the said attachment was not dissolved, and the payment by the defendants, on execution, as above stated, was proper; the plaintiff shall become nonsuit : Otherwise, judgment is to be rendered against the defendants for the sum of $1,729, and costs." M. S. Clarke, pro se. W. Minot, for the defendants. SHAW, C. J. Several questions have been argued in this case, which ^/ it is not necessary to decide. The question is, whether at the time when the assignment to the plaintiff, of the effects of the insolvent, C under St. 1838, c. 163, took effect, so as to transfer his property and lv-lA T" 0* choses in action, the debt and sum of money, in the hands of the de- 3^4*^ fendants, had been so taken on execution, that the assignment did not o" transfer it ; or whether it was merely attached upon mesne process, so Qj&*J*& that the insolvent proceedings dissolved ttie attachment and left the ac debt to pass to the assignee, for the general benefit of the creditors. This question depends upon the provisions of the insolvent law, de- ' termining the time at which the assignment shall take effect, so as to divest the property of the insolvent, in his real and personal estate and choses in action, and vest the same in the assignee. This clearly is y not the time of the act of assignment, for that is always some time after /vt the commencement of the proceedings ; and by the terms of the statute, Q^ ^r^lc^v it relates back to an anterior period. One other consideration must be obvious ; which is, that the judge, by such assignment, merely executes a power devolved by law upon him ; he conveys no interest of his own ; ' u /ttUAH^/f*^ 350 CLARKE V. MINOT. [CHAP. V. the property which passes by it is transferred by force of the statute ; and therefore the legal effect of such transfer depends little upon the terms of the assignment, either as to the property transferred, or the time at which it shall take effect. But the legal effect and operation of the assignment, in these respects, must depend upon the provisions of the statute. It is purely a statute title under which an assignee claims either the goods or choses in action of the insolvent ; and to the statute we must look for the nature and extent of that title. The question then recurs, to what time does this assignment relate back? The statute, section 5, thus states it : " Which assignment shall vest in the assignees all the property of the debtor, both real and per- sonal, which he could by any way or means have lawfully sold, assigned or convej'ed, or which might have been taken on execution on any judgment against him, at the time of the first publication of the notice of issuing the above-mentioned warrant." This leads directly to the inquiry, what is the time of the first publication thus referred to. and for this we go to the second section. The first section having provided for the issuing of a warrant to a messenger to take possession, etc., the second section provides as follows: "The said messenger shall forth- with give public notice, by advertisement, in such newspapers as shall be designated by the judge, and also such personal or other notice to any persons concerned, as the judge shall prescribe." It seems to have been the obvious policy of the statute, to fix some precise point of time, at which the whole property and effects of the debtor shall be deemed to have passed from him, and vested in the as- signees. The legislature appear to have intended that a time should be fixed, before which all transfers and conveyances of property by the debtor, made in good faith, and not intended to give preferences, shall be valid ; so of all payments in the ordinary course of business, and transfers of property, made without the concurrence of the owner, as by seizure, or levy on execution. The same time is fixed on for another purpose, in this statute, by section 3, which determines what debts may be proved ; and it pro- vides, that " all debts due and payable from such debtor, at the time of the first publication of the notice of issuing the said warrant, may be proved." It only remains then to ascertain what specific act was intended by these words, " the first publication." The statute having previously directed that public notice should forthwith be given by ad- vertisement in such newspapers, etc., the natural, and, in our opinion, the legal construction is, that it is such notice by advertisement. Whether such notice may be considered as made public by advertise- ment, when the advertisement, duly signed, is delivered to the printer at the office of publication, with orders to print it in the next paper, or by putting it in type and striking it off on paper, or by the first delivery of one of the newspapers containing it, it is not necessaiy in this case to decide ; nor, if the latter is required, is it necessary now to decide, whether the publication must await the regular day of publication of SECT. I.] CLARKE V. M1NOT. 351 the newspaper, or whether it would be a publication by advertisement, within the statute, to anticipate the day of publication, by striking off, issuing and distributing, an extra number of such newspaper. These points are not necessar}- to the present case, because there is no inti- mation that there was any publication by advertisement, before the defendants, as trustees, paid over the amount in their hands, on execu- tion ; but, on the contrary, the personal notice given to them, before such pa3*ment, is relied upon to show that they paid in their own wrong. Two grounds are relied upon, in the ingenious argument of the plaintiff, to show that such personal notice is sufficient, in a case like the present. The first is, that as the whole subject of the mode of no- tice is to be directed by the judge and stated in the warrant personal notice to certain persons named, and advertisements in certain news- papers designated the duty of giving notice is but one duty, though consisting of several acts, and that the first act done in the performance of this duty the whole being followed up and done with reasonable diligence is the first publication. But this seems inconsistent with the terms of the statute ; " The messenger shall give public notice by advertisement, and also such personal or other notice," etc. Such per- sonal notice may be private and confidential, and confined to the per- sons named. Public notice and personal notice, instead of being the same thing, are plainly put in contradistinction to each other. To hold that personal notice to an individual, pei'haps one having an interest to conceal it, is a publication of notice, would be putting a construction upon the language, not conformable to its usual meaning, especially when the statute has directed two forms of notice, one of which is to be public. But such construction seems equally inconsistent with the policy of the statute. We are now seeking to ascertain and fix the point of time intended by the statute as the time at which all the propert}' of the debtor is changed and his power over it suspended ; that point, in other words, prior to which all payments, made by him or to him, all conveyances (not fraudulent) made by him, all seizures, levies, and extents of execution upon his property, shall be held valid, and all those, made after, void. It was competent for the legislature to have fixed any other time, as, for instance, the application to the judge, or the act of the judge in issuing the warrant, or the delivery of the war- rant to the messenger. Either of these would have afforded security to the creditors, but might have unjustly interfered with the rights of those who had been dealing with the debtor, in good faith and without notice. The time of first publication was fixed, obviously because that act would, in most cases, afford actual notice to those immediately interested ; and it was intended as constructive notice to all. But no such effect can be attributed to personal notice to one individual. The other, and we believe the principal ground relied on by the plaintiff, is, that although the time of notice to the defendants was not 352 CLARKE V. MINOT. [CHAP. V. the time at which all the estate and effects of the debtor vested in the assignee, 3 r et that it bound the property in the defendants' hands, and prevented them from parting with it by paying it on an execution against the debtor. The first serious objection to this view is, that instead of fixing one point of time, at which all the propeily passes, it may fix various times, according as certain individuals had notice or not. On the same execution, for instance, some trustees might have notice, and others not. According to the principle contended for, some would be bound to pay over, and others prohibited. Besides, to whom shall personal notice be given, to have the supposed effect? The de- fendants were mere stakeholders ; they were to pay over to any person lawfully entitled. If the officer had no notice of the warrant, and more especiall}" if the creditor, fo* 1 whom he acted, had none, how was notice to the mere holder of the property to affect their rights ? Suppose the property in the hands of the trustees had been chattels, to be sold on execution instead of money, would they not have been bound to expose them? And if they had so exposed them, might not the officer have lawfully taken them ? But it is further insisted, as a general rule of law, that when con- structive notice is prescribed by statute, in order to give full effect to conveyances, if actual and express notice is shown, as to any indi- vidual, it supersedes the necessity of showing such constructive notice in regard to him. This brings us in fact to the precise point of the case. What property passed by this assignment? The answer is, all that the debtor had at the time of the first publication of notice. But if it had been rightfully paid away, transferred, or taken in execution, before that time, then it was not his, and the assignment did not reach it. The notice that the defendants had was not that an act had been done which transferred the propert}* from the debtor, and which only required publication to give it effect, but that proceedings had been commenced which, if followed by a publication of notice and other acts, would transfer the property. This is not the notice contemplated by the rule. The most familiar case is that of the registration of a deed, which is made necessary to secure the estate from being attached as the property of the grantor. But if an attaching creditor has notice that his debtor has conveyed his estate, though the deed is not regis- tered, still he is bound by his actual notice. The reason is that, as between the grantor and grantee, the propert}" has actually passed by the execution and delivery of the deed, and actual notice to him is equivalent to that registration, the purpose of which was to give him notice. But the fact of which he has notice, in such case, is that the estate has been actually conveyed. Notice that another is about to obtain a deed, though it is actually obtained, but not registered, before his attachment, does not defeat his attachment. Gushing v. Kurd, 4 Pick. 253. If the law were that a deed should have no effect to trans- fer estate till in fact registered, then notice of an unregistered deed would not prevent another from attaching. The only difference between SECT. I.] CLARKE V. MINOT. 353 that and the present case is this : that would have a prospective, and this has a retrospective relation. The distinction between this and most of the cases cited, is that in them registration or publication is required merety for the purpose of giving notice of an act which, of itself, transfers or affects property. In this case, the publication is necessary to fix a point of time at which the deed shall take effect, and without which the deed is inoperative. Suppose a debtor should happen to be so situated that he has only five debtors and five creditors, and personal notice is given to all of them, and no public notice is ever given, could it be maintained that the mere official assignment under this statute would pass the property of the debtor to the assignee, and enable the latter to sue in his own name, and perform all the functions of an assignee under the statute? This decision is not, we think, opposed to the case of Walker v. Gill, 2 Bailey, 105, cited by the plaintiff, in which the learned judge says, he is " not aware of any instance in which the law requires an act to be done for the purpose of giving notice, and regards the doing of it as implied notice, that the parties concerned will not be affected with express notice." That was an action by a creditor against an admin- istrator, on a demand, of which, by the statute of South Carolina, he should have given notice within one year after administration taken ; and the defendant, to avoid the effect of the statute, relied on the fact that the plaintiff had actual notice. But the court proceeded on the ground that publication was not necessary, as a condition, to give effect to the limitation, but, like registration of a conveyance, only to give notice. Had that statute, like ours on the same subject, made the term of limitation commence at the time of giving public notice, actual per- sonal notice to an individual would not have made the statute take effect as to him : Emerson v. Thompson, 16 Mass. 429 ; nor have been a substitute for the publication, which alone can call the statute into effectual opposition. But the distinction is, that the publication under the insolvent act of 1838, although one purpose of publication is to give notice of the pro- ceedings, is not required for the purpose of giving notice of another substantive and efficient act, but is itself the act which gives effect and operation to the subsequent deed of assignment, fixes the time at which it takes effect, and without which, such subsequent assignment has no effect to transfer the debtor's property. Plaintiff nonsuit. 1 1 Similarly, in the English law, notice that a debtor is about to commit an act of bankruptcy (which fixes the time to which the trustee's title relates) will not invalidate transactions with the debtor. Ex parte Hallifax, 2 Mont. D. & DeG. 544 ; Hocking v. Acraman, 12 M. & W. 170; Ex parte Arnold, 3 Ch. D. 70. The Bankruptcy Act of 1883 provides, however, section 4 (A), that it is itself an act of bankruptcy " if the debtor gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts." 3:>4 BUTLER V. MULLEN. [CHAP. V. BUTLER y. MULLEN. SUPREME JUDICIAL COURT OF MASSACHUSETTS, NOVEMBER, 1868. [Reported in 100 Massachusetts, 453.] CONTRACT by the assignees in insolvency of Henry J. Holbrook, an insolvent debtor, to recover a sum of money due from the defendants to Holbrook. It was admitted that the defendants were liable for the amount claimed, unless the following agreed facts furnished a defence. The defendants were summoned as the trustees of Holbrook in an action brought by Simeon Snow against Holbrook, and were charged as trustees on the 13th of October, 1866, on default ; judgment was entered against Holbrook on the 19th ; execution issued thereon on the 20th ; and the defendants, on the 22d of the same October, paid over the said amount to the deputy sheriff, who held the execution, on his demand. On the 10th of October, 1866, a warrant in insolvency was issued ' ^ '' against Holbrook ; the first publication of the issuing thereof was made on the llth of October; and on the first of November following the fc />vC4 CH plaintiffs were appointed assignees, and received an assignment of t^jy^jjL, Holbrook's property. No suggestion of Holbrook's insolvency was ever made on the record / . in the case of Snow against Holbrook, and no notice of said proceed- ings in insolvency was ever received by the defendants, nor was any given to them, unless the issuing of the warrant in insolvency, and the 1 first publication of the issuing of the same, were notice to them. On the above facts, in the Superior Court, judgment was ordered for HA*<$ Ittb^JL the defendants, and the plaintiffs appealed. E. Avery, for the plaintiffs. H. W. Bragg, for the defendants. HOAR, J. The defendants were summoned as trustees, and charged as such upon their default on the 13th of October, 1866 ; and a judg- ment being entered against Holbrook, the principal defendant, on the 19th of the same October, execution issued on the 20th of the same month, and they paid over the amount due upon the execution, upon the demand of the officer who held it, on the twenty-second day of the same month. A warrant of insolvency issued against Holbrook, October 10, 1866, the first publication was made on the next day, and the plaintiffs were appointed assignees of his estate on the 1st of No- vember following. Upon these facts we think the defence to this action cannot be main- tained. The payment by the defendants upon the judgment against them as trustees was a valid payment as against Holbrook, his execu- tors and administrators. Gen. Sts. c. 142, 37. Bnt it had no validity SEOT. II.] HUNTER V. POTTS. 355 against a party whose title intervened before the judgment against them was rendered, and whose title was superior to the attachment by which the fund had been held. Not only does the assignment, when made, relate back to the first publication of the notice in insolvenc}', and vest all the property of the debtor in the assignee, but before the assignment the debtor is so far divested of his propert}-, by virtue of the issuing of the warrant, that from the first publication no transfer or conveyance of it can be made which will have any validity against the assignee. Gen. Sts. c. 118, 44; Clarke v. Minot, 4 Met. 346; Judd v. Ives, Ib. 401 ; Edwards v. Sumner, 4 Gush. 393 ; Gallup v. Robinson, 11 Gray, 20. By the assignment, the debt which the defendants owed to Holbrook on the llth of October became due to the plaintiffs, and vested in them as a chose in action on and after that day ; and a sub- sequent payment to Holbrook or to any other person other than the plaintiffs does not discharge the debt. The defendants cannot be allowed to show that the}* had no notice of the insolvency, as the publication of the notice of the issuing of the warrant is legal notice to all persons, by which they are bound. Clarke v. Ives, iibi supra / Edwards v. Sumner, ubi supra ; Hall v. Winston, 5 Allen, 126 ; 5 Bac. Ab. Trover, E. 12. Judgment for the plaintiffs.* SECTION II. SITUS OF THE PROPERTY. HUNTER v. POTTS. KING'S BENCH, 1791. [Reported in 4 Term Reports, 1 82.] THIS was an action for money had and received, to which the defend- ant pleaded the general issue. On the trial before Lord KENYON at Guildhall a special verdict was found, which, after setting forth the formal parts (namely, the trading, the petitioning creditor's debt, the 1 Willis v. Freeman, 12 East, 656; Coles v. Coles, 6 Hare, 517; Re Calcott [1898], 2 Ch. 460; Couner v. Long, 104 U. S. 228, 232; Re Gregg, 1 Hask. 173; Re Lake, 3 Biss. 204; Howard o. Crompton, 14 Blatch. 328; Sicard v. Buffalo, &c. Ry. Co., 15 Blatch. 525; Stevens v. Mechanics' Bank, 101 Mass. 109; Palmer v. Jordan, 163 Mass. 350; Duffield v. Horton, 73 N. Y. 218, ace. Cf. Toof v. Bank, 206 Fed. 250. It has been held that even an officer acting under the order of a court is liable for dealing in good faith with property of a bankrupt after the day to which the trustee's title has relation. Cooper v. Chitty, 1 Burr. 20; Balme v. Hutton, 1 Cromp. & M. 262; Garland v. Carlisle, 4 Cl. & Fin. 693. But the UnjtecLStatfia.Suprfime. Court refnspil tp follow i;hnHft precedents. Conner v. Long, 104 U. S. 228. See also Johnson . Bishop, 1 Woolw. 324 ; Bradley r. Frost, 3 Dill. 457. 356 HUNTER V. POTTS. [CHAP. V. bankruptcj', the commission, and assignment), stated that the bank- rupts before their bankruptcy were indebted to the defendant on a contract made in England ; at which time, and also at the time of the bankruptcy, and until the assigning of the attachment hereafter men- tioned, all the parties were resident in England ; that after the issuing of the commission of bankrupt, and the making of the assignment, the defendant, knowing thereof, gave orders to his attorney in Rhode Island, North America, to attach the effects of the bankrupts in that island; in consequence of which the attorney, in Ma}-, 1785, attached, in the regular wa}-, certain moneys in the hands of J. and W. Russell, which were due from them to the bankrupts at the time of the bank- ruptcy ; and in November, 1786, obtained, in the Court of Common Pleas in Rhode Island, a regular judgment against the bankrupts for 496 12s. Bd. and costs, which sum he afterwards received and remitted to the defendant in England, who claims to hold the same to his own use. The verdict also stated that the proceedings of the court in Rhode Island were continued by imparlances from May, 1785, to November, 1786, at the request of the Russells, in order that the bankrupts might have notice of such proceedings. Lord KENJON, C. J., now delivered the opinion of the court. In the argument in this case many quotations were made from the writers on the civil law, which it is not necessary to consider in deter- mining this question. Generally speaking, it must be admitted that personal property must be governed by the laws of that country where the owner is domiciled. Neither do we mean to break through the rule that the courts of one county ought to pay a proper deference to the decisions of the courts in another having competent jurisdiction, where the facts on which the decision was made were fairly disclosed to such court. But the general question here is, whether the assignment which was executed by the commissioners of the bankrupt was sufficient to vest the bankrupt's property in the plantations abroad in the assignees under the commission ; because if it did so vest at the time of the assignment, it is immaterial to consider in this case how far the rela- tion under the bankrupt laws should take effect in Rhode Island, since the assignment was executed anterior to the time when the attachment suit was there commenced. Therefore the only question here is, whether or not the propert}- in that island passed by the assignment in the same manner as if the owner (the bankrupt) had assigned it by his voluntary act. And that it does so pass cannot be doubted, unless there were some positive law of that country to prevent it. Eveiy person having property in a foreign country may dispose of it in this ; though indeed if there be a law in that country directing a particular mode of convey- ance, that must be adopted ; but in this case no law of that kind is stated, and we cannot conjecture that it was not competent to the bank- rupt himself, prior to the bankruptcj', to have disposed of his property as he pleased. Now, the bankrupt statutes have expressly enacted that the commissioners may assign all the property of the bankrupt in SECT. II.] HUNTER V. POTTS. 357 the most extensive words ; and, therefore, on the general reason of the thing, if there be no positive decision to the contrary, ho doubt could be entertained but that, by the laws of this country, uncontradicted by the laws of any other country where personal property may happen to be, the commissioners of a bankrupt may dispose of the personal prop- erty of a bankrupt resident here, though such property be in a foreign country. Then let us consider the decisions which have been made on this subject. The case of M'Intosh v. Ogilvie agrees with our opinion. There, it is to be observed, that Lord Hardwicke, on his being told that the defendant in that case had not obtained a sentence before the bankruptcy, said : " Then it is like a foreign attachment, by which this court will not suffer a creditor to gain priority, if no sentence were pronounced before the bankruptcy." In another part he intimated a strong opinion that the property in Scotland should not be taken by one creditor to the prejudice of the rest of the creditors here. And at the close of that case the Solicitor-General observed that this precise question had been determined. But the case of Beckford v. Turner was relied on, when this case was first argued, as a determination in favor of the attachment creditor ; but certainly no question of that kind was stated among the reasons signed by the counsel, nor was it brought in judgment in that case. The single question there was whether or not the proceedings in the island of Jamaica were conformable to the mode pointed out by the act of assembly there. And if it had been stated in the reasons signed in that case, this question could not have arisen in deciding it. There was indeed a dictum, rather than a deci- sion, in Wilson's case that the assignment by the commissioners had no other effect than a voluntary assignment. I believe the doubt in all these cases has arisen from not attending to the meaning of the word " voluntary." It has been contended that it means " without a valu- able consideration ; " but it is impossible to consider it in that light, for in the case of a bankruptcy there must be a consideration. It means the bankrupt's own voluntary act, as contradistinguished from a compulsory act by law. Therefore, on the reason of the thing, even without any authorities, we have no difficulty in saying that the title of the plaintiffs must prevail. For it must be remembered that during the progress of this business all these parties resided in England ; that the defendant, knowing of the commission and of the assignment, in order to gain a priorit}', transmitted an affidavit to Rhode Island to obtain an attachment of the bankrupt's property there, in violation of the rights of the rest of the creditors, which were then vested ; but such an attempt cannot be sanctioned in a court of law. But in addition to these reasons, the decisions which have been made on this subject remove all doubts whatever. It is not necessary to go through them, because they were mentioned in the argument, and are collected in III. Bl. Rep. C. B., 131 and 132 n. ; Salomons v. Ross, before Lord Bathurst ; Jollet and another v. Deponthieu and Barril, before Lord Camden ; and Neale and another v. Cottingham and another, in Ire- 358 LONG V. GIRDWOOD. [CHAP. V. land, before Lord Chancellor Lifford. The second of these, I have reason to believe, was considered by Lord Camden as a very clear case, for he did not think it important enough even to make a note of it in his book. And although the last case was not decided in this country, yet it was determined by a very respectable authority, Lord Lifford, assisted by several of the judges; and that noble lord was conversant with the laws of this country, having sat on the bench here for several years before he went to Ireland ; and we know also that Davis's reports of the decisions in that county are cited as authority here. There are, therefore, these three decisions, in addition to the case before Lord Hardwicke, in support of our opinion ; and there are none to the con- trar}', except indeed what was said in Wilson's case, and that seems to have turned on mistaking the import of the word "voluntary." We are, therefore, clearly of opinion that the plaintiffs are entitled to judgment. Judgment for the plaintiffs. 1 LONG v. GIRDWOOD. SUPREME COURT OF PENNSYLVANIA, 1892. [Reported in 150 Pennsylvania, 413.] McCoLLUM. J. The debt for the collection of which the writ of foreign attachment was issued was contracted in a foreign country. Long and Bisby, who are the plaintiffs in the attachment and the appel- lants here, are, and since 1863 have been, domiciled at Hamilton in Canada and engaged in business there ; the defendants in the attach- ment are citizens of Scotland and members of the firm of Girdwood & Forrest, wool brokers at Glasgow, which is indebted to the plaintiffs in the sum of $1,798.85 ; McCallum, Crease, & Sloan, who are the gar- nishees in the attachment and the appellees in this issue, are citizens of Pennsylvania, doing business in Philadelphia, and indebted to the 1 Affirmed sub nom. Phillips v. {lunter, 2 H. Bl. 402 ; Sill v. Worswick, 1 H. Bl. 665; Neale v. Cottingham, 1 II. Bl. 133, n.; Ex parte Blakes, 1 Cox, Eq. 398; Royal Bank v. Cuthbert, 1 Rose, 462; Selkrig v. Davies, 2 Dow, 230; Holmes v. Remsen, 4 Johns. Ch. 460 (overruled), ace. See also Chipman v. Manufacturers' Bank, 156 Mass. 147. Similarly the English courts hold that personal property in England passes by a foreign decree in bankruptcy. Solomons v. Ross, 1 H. Bl. 131, n. ; Jollet c. Depon- thieu, 1 H. Bl. 132, n. ; Potter v. Brown, 5 East, 124, 131 ; Ex parte Cridland, 3 V. & B. 94. Conf. Re Blitham, 35 Beav. 219, L. R. 2 Eq. 23; Re Davidson's Trusts, L. R. 15 Eq. 383. It is universally held that foreign real estate does not pass. Selkrig v. Davies, 2 Dow, 230; Ex "parte Rogers, 16 Ch. 1). 665; Oakey v. Bennett, 11 How. 33; Chip- man v. Manufacturers' Bank, 156 Mass. 147; Chipman v. Peabody, 159 Mass. 420; Barnett v. Pool, 23 Tex. 517. See also Callender v. Colonial Secretary, [1891] A pp. Cas. 460; Story, Conflict of Laws (8th ed.), 591 seq. SECT. II.] LONG V. GIRDWOOD. 359 firm of Girdwood & Forrest in the sum of $2,332.44. On the llth of October, 1884, proceedings were instituted under the bankrupt laws of Scotland for the sequestration of the estates of the firm of Girdwood & Forrest, and of the several members thereof, for the benefit of their creditors ; and on the 27th of that month Thomas Jackson was con- firmed as trustee of said estates, with full right and power to sue for and recover the same, wherever situated, for the purposes of the trust. Subsequent to these proceedings, and with notice of them, Long and Bisby came to Pennsylvania, issued a writ of foreign attachment against Girdwood & Forrest, and summoned McCallum, Crease, & Sloan as garnishees. The question presented by the facts above stated is whether the Canadian creditors of the firm of Girdwood & Forrest can, by process of attachment in Pennsylvania, acquire a preference over other credit- ors of that firm who reside in Scotland or elsewhere within the British dominions, when the effects of the firm have been duly transferred under the laws of Scotland to a trustee for the benefit of all its credit- ors. Harrison v. Steriy et al, 5 Cranch, 289 ; Green v. Van Buskirk, 7 Wall. 139, and Warner's Appeal, 13 W. N. 505, are cited by the appellants to sustain their contention for a preference, but these cases are not in point. In Harrison v. Sterry et al. the attachments were prior to the assignment. In Green v. Van Buskirk the main question was whether the judgment of an Illinois court in an attachment pro- ceeding should have the same effect in New York on the title to the property attached as in the State in which it was rendered, and it was held that the judgment of a New York court which denied to the Illi- nois judgment this effect was erroneous. The contest was between the holders of a chattel mortgage and an attaching creditor of the mort- gagor. Bates, who resided in Troy,- N. Y., was the owner of certain iron safes in Chicago, 111., and to secure his indebtedness to Van Bus- kirk and others executed and delivered to them a chattel mortgage on the safes. Two days after the execution and delivery of this mortgage, Green, who was also a creditor of Bates and a citizen of New York, instituted attachment proceedings in Illinois, by virtue of which the safes were levied upon and subsequently sold in satisfaction of his debt. At the time this attachment was issued the mortgage had not been recorded in Illinois, possession of the safes had not been delivered under it, and Green did not know of its existence. By the laws of Illinois the mortgage was of no validity against the rights and interests of third persons, and the attaching creditor was on the footing of a purchaser. The proceedings were regular, and under these laws a jus- tification of the creditor in the seizure and sale of the property. In a suit brought, by the mortgagees against the attaching creditor in a New York court, for taking and converting the sales, it was adjudged on appeal to >the Supreme Court of the United States that the attachment proceedings in Illinois constituted a valid defence. The points covered by the judgment were that a State has the right to regulate the transfer 360 LONG V. GIRDWOOD. [CHAP. V. of personal property situate within its limits, and to subject the same to process and execution in its own way by its own laws, and that the decrees of its courts in conformity with these laws are conclusive in other jurisdictions. In Warner's Appeal the attaching creditors at the time of issuing their attachment had no actual knowledge of the assign- ment, and were therefore held to be within the protection of the proviso to the first section of the Act of May 3, 1855, P L. 415. It does not appear in the report of the case that they were citizens of the State in which the assignment was made, and the question of comity between the States was not raised or considered. But in Bacon v. Home, 123- Pa. 452, it was distinctly held by this court that a resident of a foreign State, in which an assignment was made by a debtor for the benefit of his creditors, could not come into Pennsylvania and seize property of the assignor in a suit in foreign attachment. It was stated in the case last cited that the manifest object of the Act of 1855 was to protect our own citizens, and it was plainly intimated that none but Pennsyl- vania creditors can invoke its protection. It matters not whether the attaching creditor is a resident of the State in which the assignment is made or of another State foreign to this jurisdiction. If he is a citizen of a foreign State he can receive no aid here in an effort to obtain a preference in disregard of the assignment. Lowry v. Hall, 2 W. & S. 131; Merrick's Estate, 5 W. & S. 9 ; and Bacon v. Home, supra. This rule rests on comity between the States, and the only exception to it is in favor of our own citizens. 1 1 In many States in this country an assignment by operation of the law of a foreign jurisdiction is held ineffectual, even against citizens of that foreign jurisdiction, to transfer property situated within the jurisdiction of the forum. Harrison v. Sterry, 5 Cranch, 289 ; Taylor v. Geary, Kirby, 313 ; Upton v. Hubbard, 28 Conn. 274, 284 ; Rhawn v. Pearce, 1 10 111. 350 ; Jenks v. Ludden, 34 Minn. 482, 486 ; Sturtevant p. Armsby Co., 66 N. H. 557, 559 (semble) ; but see Crippen v. Rogers, 67 N. H. 207); Hibernia Nat. Bank v. Lacombe, 84 N. Y. 367; Earth v. Backus, 140 N. Y. 230; Ex parte Dickinson, 29 S. C. 453 (semble). But see contra, Reynolds v. Adden, 136 U. S. 348 (law of La.) ; Burk v. McHenry, 1 Harr. & McH. 236 ; Mulliken v. Aughinbaugh, 1 Pa. 117; Bagby v. Atlantic, &c. R. R. Co., 86 Pa. 291; Oilman v. Ketcham, 84 Wis. 60. It is universally held in this country that such an assignment is ineffectual against citizens of the State where the property is situated. See, besides cases above cited, Ogden v. Saunders, 12 Wheat. 213; Crapo v. Kelly, 16 Wall. 610, 622; Felch v. Bug- bee, 48 Me. 9; Wallace v. Patterson, 2 Harr. & McH. 463 ; Blake v. Williams, 6 Pick. 286; Taylor v. Columbian Ins. Co., 14 Allen, 354; Saunders v. Williams, 5 N. H. 213; Stillings v. Haley, 68 N. H. 541 ; Kelly v. Crapo, 45 N. Y. 86 ; M'Neil v. Colquhoun, 2 Hayw. 24 ; Milne v. Moreton, 6 Binn. 353. In Paine v. Lester, 44 Conn. 196, a citizen of a third State was allowed the same rights as a citizen of Connecticut, where the property in question was situated. How far any discrimination between citizens of different States is constitutional has been questioned in South Boston Iron Co. v. Boston Locomotive Works, 51 Me. 585 (conf. Chafee v. Fourth Nat. Bank, 71 Me. 514, 526) ; Kidder v. Tufts, 48 N. H. 121, 125 ; Sturtevant v. Armsby Co., 66 N. H. 557 ; Ward v. Morrison, 25 Vt. 593, 598. The United States Supreme Court has not seemed disposed to take the point. Reynolds v. Adden, 136 U. S. 348 ; Baruett v. Kinney, 147 U. S. 476. But see Blake v. McClung, 172 U. S. 239, 176 U. S. 59; Belfast Bank v. Stowe, 92 Fed. 100 (C. C. A.). SECT. IL] FKANK V. BOBBITT. 361 The proceedings in Scotland for the sequestration of the estates of Girdwood & Forrest were founded on the petition of ,the members of the firm, and are operative against all its creditors residing there. We are now asked by creditors having their domicile in another part of the British dominions to disregard these proceedings and allow them a preference upon the firm effects in Pennsylvania. This we cannot do without an abandonment of our well-settled policy in such cases, a policy founded in comity and promotive of justice. 1 FRANK v. BOBBITT. SUPREME JUDICIAL COURT OP MASSACHUSETTS, SEPTEMBER 22- DECEMBER 14, 1891. [Reported in 155 Massachusetts, 112.] Two trustee processes. Writs dated November 21, 1889. The cases were submitted to the Superior Court,* and, after judgment for certain claimants, to this court, on appeal, on agreed facts, in substance as follows. The plaintiffs in each case were residents of the State of Maryland, and sought to recover in an action of contract for goods sold in that State to the defendants, and brought their actions in this Common- wealth in order to attach funds of the defendants in the possession of the Springfield Fire and Marine Insurance Compan}', a corporation organized under the laws of this Commonwealth, and having its usual place of business in Springfield in this State. The defendants, who were retail merchants doing business and residing at Spring Hope, Nash County, North Carolina, appeared, and judgments were rendered against them for amounts exceeding the sum held by the trustee. The trustee filed answers disclosing funds in its possession to the amount of $900 due the defendants at the time of the service of the plaintiffs' writs upon it, under a policy of insurance, as hereinafter set forth. One Threewitts and one Johnson, both residents of North Carolina, appeared in each action as claimants of the funds in the possession of the trustee, under an assignment made to them by the defendants on November 13, 1889. This assignment, which was valid in the State of North Carolina, set forth that " Whereas, W. V. Bobbitt, of the firm of Bobbitt and Spive} 7 , is justly indebted to his wife, Mary E. Bobbitt, in the sum of $2,500, evidenced by a bond dated first day of January, 1887, bearing interest at rate of eight per centum from date, which amount was used by the said Bobbitt as capital for the commencement of a general merchandise business by the said W. V. Bobbitt and Joseph J. Spivey, under the firm name of Bobbitt and Spivey, in the 1 A HI nail part of the opinion is omitted. 362 FRANK V. BOBBITT. [CHAP. V. town of Spring Hope, Nash County, North Carolina," and whereas that firm was also indebted to certain other residents named of North Caro- lina, in certain specific sums, and whereas the firm was indebted to various other persons for merchandise, whose names and the amount of whose claims were unknown, therefore the plaintiffs, in consideration of the premises and of the sum of one dollar, had conveyed unto Three- witts and Johnson a certain lot of land in the town of Spring Hope, " and all the stock of goods, wares, and merchandise now in the pos- session of said Bobbitt and Spivey in the said town of Spring Hope ; also certain policies of insurance upon the said stock of goods, wares, and merchandise, viz. Policy No. 221 in the Springfield Fire and Marine Insurance Company of Springfield, Mass. . . . Also the entire stock of whiskey, brand}', liquors, etc., now owned by the said Bobbitt and Spivey in the town of Spring Hope, aforesaid. Also all the accounts, notes, mortgages, or other choses in action, and all other personal prop- erty whatsoever, now owned by the said Bobbitt and Spivey." The assignment further provided that Threewitts and Johnson should hold the property conveyed to them in trust, and, after allotting to Spivev an exemption of five hundred dollars, should sell the same, and, after payment of their commissions and the expense of executing the trust, pa}' the debts due to the creditors named in the assignment, in- cluding the wife of Bobbitt, " pro rata, and in full, if there be a suffi- ciency," and with the residue, if any, should pay the remaining debts owed by the firm, and hand over the remainder, if any, to the members thereof. At the time the assignment was made, the personal property therein mentioned and the insurance policy issued by the trustee to the defendants were delivered to the assignees, but prior thereto a portion of the stock of goods covered by the policy had been destroyed by fire, and the loss thereon was adjusted, so far as the trustee is con- cerned, at $900 ; but there was other insurance. The plaintiffs de- nied the validity of said assignment, as against their attachments in this Commonwealth, and claimed to hold said funds by virtue thereof. If the claimants were entitled to the funds, judgment was to be en- tered for them, and the trustee discharged ; otherwise, judgment was to be entered for the plaintiffs, and the trustee charged on the answers. W. B. Stone, for the plaintiffs. E. H. Lathrop, for the claimants. (7. A. .Birnie, for the trustee. MORTON, J. The assignment was made on November 13, 1889, and, as the agreed facts state, is valid in the State of North Carolina, where it was made and recorded, and where the assignors and assignees live. At the time the assignment was made, the personal property mentioned in it, and the insurance policy under which the amount is due that is the subject of this suit, were delivered to the assignees. The loss had occurred before the delivery of the policy to them. The assignment conveys, among other things, this and other policies, and " also all the accounts, notes, mortgages, or other choses in action, and all other SECT. II.] FRANK V. BOBBITT. 363 personal propert} r ," belonging to the assignors. The plaintiffs live in Maryland, and have not become parties to the assignment. It does not appear that any other creditors have done so. The writ upon which the plaintiffs attached the funds in the hands of the insurance company bears date November 21, 1889, and the attachment was made the day following, and was consequently some days after the assign- ment had been made. There do not seem to be any Massachusetts creditors, nor any parties resident here, whose interests are affected by the assignment Therefore, the question that arises is wholly between non-residents living in two different States. The plaintiffs insist that the assignment should be declared void, on account of the preferences which it creates, and because it does not appear to have been assented to by any creditors of the assignees, and is without consideration ; and they claim the same right to avoid it on these grounds that an attaching creditor who was a citizen of this State would have. It is to be observed that the assignment is a voluntary one, and not a statutory one, as in Payne v. Lester, 44 Conn. 196, a case much relied on by the plaintiffs, but which was disposed of on the ground that a statutory assignment could have no strictly legal effect outside the State where it arose. As sustaining that proposition, see Blake v. Williams, 6 Pick. 286 ; May v. Wannemacher, 111 Mass. 202 ; Willitts v. Waite, 25 N. Y. 577, 587, and cases cited ; Kelly v. Crapo, 45 N. Y. 86 ; Harrison v. Sterry, 5 Cranch, 289, 298 ; Ogden v. Saun- ders, 12 Wheat. 213 ; Story, Conflict of Laws (7th ed.), 414. It is to be noticed further, that the case does not come within the class of cases in which an assignment open t6 the objections urged against this can be avoided by all attaching creditors resident here. The attaching creditor in this suit lives in Maryland. It is to be said also, that at common law in this State an assignment for the benefit of creditors which creates preferences is not void for that reason, and that there is no statute here which renders invalid such an assignment when made by parties living in another State and affecting property here. Train v. Kendall, 137 Mass. 366. The general rule is, that a personal contract valid by the law of the place where it is made will be regarded as valid elsewhere, and will be enforced in foreign jurisdictions. It is not necessary to inquire whether this rule rests on the comity which prevails between different States and countries, or is a recognition of the general right which every one has to dispose of his property or to contract concerning it as he chooses. Under it, this court has frequently held that a voluntary assignment made by a debtor living in another State for the benefit of his creditors would be regarded as valid here. In Means v. Hapgood, 19 Pick. 105, it was held that such an assignment made b}' the debtor, who lived iu Maine, operated to transfer a claim which he had against a party living in this State. The only qualification annexed to such assignments has been, that this court would not sustain them if to do so would be preju- dicial to the interests of our own citizens or opposed to public policy. 364 FRANK V. BOBBITT. [CHAP. V. Whipple v. Thayer, 16 Pick. 25 ; Daniels v. Willard, 16 Pick. 36 ; Bur- lock v. Taylor, 16 Pick. 335 ; Newman v. Bagley, 16 Pick. 570 ; Means v. Hapgood, 19 Pick. 105; Wales v. Alden, 22 Pick. 245; Cragin v. Lamkin, 7 Allen, 395; May v. Wannemacher, 111 Mass. 202; Pierce v. O'Brien, 129 Mass. 314 ; Train v. Kendall, 137 Mass. 366. Nothing prejudicial to the interests of our own citizens will result from upholding this assignment. And we discover nothing which should lead us to hold it invalid as between parties living in other States in the fact that the wife of one of the assignors may be entitled to receive under it in North Carolina from the assignees money which she lent to her husband, and which constituted the capital of the firm of which he was a member, and by which the assignment in question was made. See Milliken v. Pratt, 125 Mass. 374. As to the claim of the plaintiffs that they should stand as well as if they were citizens of this State, it may be said, in the first place, that the qualification attached to foreign assignments is in favor of our own citizens as such, and in the next place, that the assignment being valid by the law of the place where it was made, and not adverse to the in- terests of our citizens nor opposed to public policy, no cause appears for pronouncing it invalid. In regard to the case of Ward v. Morrison, 25 Vt. 593, it is only necessary to observe that it appeared that the law of Vermont required notice to the debtor of the assignment of a chose in action in order to complete the transfer. It did not appear whether such notice was or was not required by the law of New York, where the assignment was made, and it was accordingly held that it would be assumed that the law of N'-w York was the same as that of Vermont, and the assignment was consequently declared invalid as against a subsequent claimant. It is clear that in this State no such notice is required. Wakefield v. Martin, 3 .Mass. 558; Norton v. Piscataqua Ins. Co. Ill Mass. 532, 535. See also Murphy v. Collins, 121 Mass. 6. According to the agreed statement of facts, the entry must be, Judgment for claimants, and trustee discharged. 1 1 Similarly general assignments valid where made have been held effectual to pass title to property in another jurisdiction as against creditors resident in a third juris- diction. Schuler t>. Israel, 27 Fed. Rep. 851; Schroder v. Tompkins, 58 Fed. Rep. 672; May --. First Nat. Bank, 122 111. 551 (land) ; Woodward v. Brooks, 128 111. 222 (srmble) ; Juillard v. May, 130 111. 87 ; J. Walter Thompson Co. v. Whitened, 185 111. 454; Cunningham v. Butler, 142 Mass. 47; Sanderson v. Bradford, 10 N. H. 260; Moore v. Bonnell, 31 N. J. L. 90; Bentley v. Whittemore, 19 N. J. Eq. 462; Green v. Wallis Iron Works, 49 N. J. Eq. 54 ; Weider v. Maddox, 66 Tex. 372 ; Cook v. Van Horn, 81 Wis 291. The case is, of course, stronger where the creditor is resident within the jurisdiction where the assignment was made. Woodward v. Brooks, 128 111. 222; Roberts v. Nor- cross, 69 N. H 533 ; Wing v. Bradner, 162 Pa. 72. In a majority of States it is also held that an assignment is operative even against citizens of the State where the property is situated. Caskie v. Webster, 2 Wall Jr. 131 ; First Nat. Bank v. Walker, 61 Conn. 154; Walters v. Walker, 9 Fla. 86; King v. Glass, 73 la. 205 ; Coflin v. Kelling, 83 Ky. 649 ; B. & 0. R. R. v, Glenn, 28 Md. SECT. II. J EARTH V. BACKUS. 365 EARTH v. BACKUS. YORK COURT OF APPEALS, OCTOBER IT-NOVEMBER 28, 1893. [Reported in 140 New York, 230.] APPEAL from judgment of the General Term of the Supreme Court in the third judicial department, entered upon an order made February 15, 1893, which affirmed a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term. This action was brought originally by plaintiff as general assignee for the benefit of creditors of the Wilkin Manufacturing Company, a corporation- of Wisconsin, against the Canton Lumber Company, a domestic corporation, to recover an amount remaining unpaid on a bill for machinery furnished by said Wisconsin company to said lumber company. It appeared that after the execution of the assignment and before the bringing of this action, the sheriff of St. Lawrence County attached said debt under warrants of attachment in four several actions. Afterwards, this action having been brought, the amount of the debt was paid into court by said lumber company, and said sheriff and the attaching creditors, who were New York corporations, were substituted as defendants. Further facts are stated in the opinion. Nelson L. Robinson, for appellant. Thomas Spratt and Ledyard P. Jlale, for respondent. ANDREWS, C. J. The, general rule that the validity of a transfer ot personal property is governed by the law of the domicile of the owner, 287 ; May v. Wannemacher, 111 Mass. 202; Train v. Kendall, 137 Mass. 366; Butler v. Wendell, 57 Mich. 62, 67; Covey v. Cutler, 55 Minn. 18 (semble); Hawkins v. Ire- laud, 64 Minn. 339, 345 (semble) ; Askew v. La Cygne Bank, 83 Mo. 366 ; Sortwell v. Jewett, 9 Ohio 181 (land) ; Fuller v. Steiglitz, 27 Ohio St. 355 ; Johnson v. Sharp, 31 Ohio St. 611 ; Ex parte Dickinson, 29 S. C. 453, 460; Weider v. Maddox, 67 Tex. 372 (semble) ; Hanford v. Paine, 32 Vt. 442, 455, 458 (semble) ; Cook v. Van Horn, 81 Wis. 291 ; see also Phillips, etc. Co. v. Whitney. 102 Fed. Rep. 838. But see contra, Halsted v. Straus, 32 Fed. Rep. 279 (semble); Heyer v. Alexander, 108 111. 385; Henderson v. Schaas, 35 111. App. 156; Townsend v. Coxe, 151 111. 62 ; Smith v. Lamson, 184 111. 71 ; Whithed v. J. Walter Thompson Co., 86 111. App. 76; Fox v. Adams, 5 Me. 245; Hughes v. Lamhertville Electric Co., 53 N. J. Eq. 435; Happy r. Prickett, 64 Pac. Rep. 528 (Wash.). An assignment in violation of the law or policy of the jurisdiction where the prop- erty is situated, it is everywhere agreed, will not be enforced there. Barnett v. Kin- ney, 2 Idaho, 706 ; Townsend v. Coxe, 151 111. 62; Barth v. Iroquois Furnace Co., 63 111. App. 323 ; Whithed v. J. Walter Thompson Co., 86 111. App. 76 ; Moore v. Church, 70 la. 208 ; Franzen v. Hutchinsou, 94 la. 95 ; Ex parte Dickinson, 29 S. C. 453 ; Ayres v. Desportes, 56 S. C. 544. Compare, however, the following cases where a preferential assignment was upheld, though preferences were not allowed by the lex fori. Atherton v. Ives, 20 Fed Rep. 894 ; Train v. Kendall, 137 Mass. 366 ; Frank /. Bobbitt, 155 Mass. 112; Moore --. Bounell, 31 N. J. L. 90; Fuller v. Steiglitz, 27 Ohio St. 355. 366 BARTH V. BACKUS. [CHAP. V. is in most jurisdictions held to apply to a transfer by voluntary as- signment by a debtor of all his property for the benefit of creditors, as well as to a specific transfer by way of ordinary sale or contract ; and the title of such assignee, valid by the law of the domicile, will prevail against the lien of an attachment issued and levied in another State or country subsequent to the assignment, in favor of a creditor there, whether a citizen or non-resident, upon a debt or chattel belonging to the assignor, embraced in the assignment, provided the recognition of the title under the assignment would not contravene the statutory law of the State, or be repugnant to its public policy. The decisions are not uniform, but this is the general rule, supported by the preponderat- ing weight of authority, and is the settled law of this State. Ocker- man v. Cross, 54 N. Y. 29; Bishop on Insolvents, 241, 265, and cases cited. But this general rule is subject to a qualification estab- lished in the jurisprudence of the American States, that a title to personal property acquired in invitum under foreign insolvent or bank- rupt laws, good according to the law of the jurisdiction where the proceedings were taken, will not be recognized in another jurisdiction where it comes in conflict with the rights of creditors pursuing their remedy there against the property of the debtor, although the proceed- ings were instituted subsequent to and with notice of the transfer in insolvency or bankruptcy. Holmes v. Remsen, 20 Johns. 229 ; Kelly v. Crapo, 45 N. Y. 87 ; In re Waite, 99 N. Y. 433 ; 2 Kent Cora. 406, 407. This exception proceeds upon the view that to give effect to such a transfer arising by operation of law, and not based upon the volun- tary exercise by the owner of the./ws disponendi, would be to give the foreign law an extraterritorial operation, which the rule of comity ought not to permit to the prejudice of suitors in another jurisdiction. The cases in this State since the case of Holmes v. Remsen, 4 Jo. Ch. 460, in which the chancellor sought to maintain the English doctrine on the subject, have uniformly sustained the rights of domestic attach- ing creditors against a title under a prior statutory assignment in another State or country, the several States of the Union being treated for this purpose as foreign to each other. Willitts v. Waite, 25 N. Y. 577 ; Johnson v. Hunt, 23 Wend. 87 ; Kelly v. Crapo, supra. The general question in this case involves the point whether the as- signment made by the Wilkin Manufacturing Company, under the statute of Wisconsin, is to be treated as a voluntary assignment, not in conflict with our laws or polic} 7 , or whether, in view of the compul- sory clauses of that statute, it is to be regarded as in the nature of a bankrupt law, and ineffectual to transfer title to the property of the insolvent in our jurisdiction as against attaching creditors. In con- sidering whether the title of the assignee in Wisconsin is paramount to the claims of creditors here, who, subsequent to the assignment, pro- cured attachments against the debt owing to the Wilkin Manufacturing Company by the Canton Lumber Compan3 r , a reference to the Wiscon- sin statute under which the assignment was made, becomes important, SECT. II.] EARTH V. BACKUS. 367 The original statute upon the subject of voluntary assignments by fail- ing debtors, was similar to the statute in this State upon the same subject. It was a statute prescribing the conditions of such assign- ments and regulating the administration of the trust for the protection of creditors. In 1889, radical changes were made in the statutor}' system of Wisconsin, and the prior statute was amended. The amend- ments, among other things, provided that the assignor in a voluntary assignment for the benefit of his creditors, made under, or in pur- suance of the laws of the State, "may be discharged from his debts as a part of the proceedings under such assignment, upon compliance with the provisions of this act." It further declared that every cred- itor of the insolvent debtor residing within or without the State who should accept a dividend out of the assigned estate, or in any way, by proving his claim or otherwise, participate in the proceedings under the assignment, shall be "deemed to have appeared in the matter of such assignment and the application for a discharge, and should be bound by any order or discharge granted by the court," subject to the right of appeal. Under the statute, a creditor, by accepting a divi- dend, thereby consented to a discharge of the debtor from the portion of the debt remaining over and above his share of the assets, and unless a creditor comes in under the assignment, he is debarred from receiving anything out of the assigned property, unless indeed a sur- plus should remain after payment of the participating creditors in full, although it seems the debt would remain as a claim against the insolvent. The power to discharge a contract without paj'ment or satisfaction and without the consent of the parties, is a power which pertains to the sovereign alone. The statute of Wisconsin does not assume to discharge the debts owing by the insolvent assignor absolute!}'. But, as has been said, it deprives creditors who do not come in under the assignment, of all share in the assigned estate, unless in the ' improbable contingency of a surplus. This coercive feature of the scheme, if contained in a voluntary general assignment for the benefit of creditors, would render the assignment void. Grover v. Wakeman, 11 Wend. 189. The statute of Wisconsin, however, incorporates this feature and the law is recognized by the courts of Wisconsin as an insolvent law. Holton v. Burton, 78 Wis. 321 ; Hempsted v. Ins. Co., Id. 375, This court had occasion in the case of Boese v. King, 78 N. Y. 471, to consider a similar provision in a statute of New Jersey, regulating voluntary assignments for the benefit of creditors in that State, and it was assumed that the provision in that act was in the nature of a bankrupt law. Effect cannot be given here to this coercive feature in the Wisconsin law, except \>y giving extraterritorial effect to the law of that State. The assignor had no power to make such a condition, and if it is legal it is by force of the statute alone. This feature is one of the distinguishing tests of an insolvent or bankrupt law. The assignment was voluntary in the sense that the Wilkin 368 EARTH V. BACKUS. [CHAP. V. Manufacturing Company were not coerced into executing it, and the title to the property was vested in the assignee by its own act. But, whether it is to be treated as voluntary in another jurisdiction when the claims of creditors there are in question, is the point. The assignment purports to have been made under and in pursuance of the law of Wis- consin. The assignor, by proceeding under that law, presumably designed to avail itself of the provision for a discharge. This could only be accomplished by force of the law. The right of an insol- vent or bankrupt to initiate voluntary proceedings in bankruptcy is a common feature in bankrupt laws, but that fact does not make the assignment voluntarj', so as to give extraterritorial operation to the proceedings. This point was adverted to in the case of Upton v. Hubbard, 28 Conn. 274, where the court said : " In our view there is essentially no difference whether, in consequence of an act of bank- ruptcy, as in England, the bankrupt's estate is forced from him, or he himself sets the law in motion by a conveyance in bankruptcy in the first instance. Under the Wisconsin statute the transfer is voluntary, but the law steps in and regulates the distribution of the assigned estate in accordance with conditions which the sovereign alone can prescribe. It would, we think, be disregarding the substance to hold that the voluntaiy feature of the law distinguishes it from the class of bankrupt or insolvent statutes which, by general consent in this coun- try, are held to be ineffectual to transfer the title of the insolvent to property in another State, as against attaching creditors there. It is insisted, however, in behalf of the plaintiff, that, assuming that the title of the assignee would be subordinate to the lien of attach- ments, issued here at the suit of resident creditors, this priority cannot be claimed in behalf of Wisconsin creditors who, knowing of the as- signment, seek to gain a preference under our attachment laws, and that the banks to whom the claims were assigned after maturity, and who took with notice of the assignment, stand in no better position than the original creditors. In some of the States, which refuse to rec- ognize the validity of the title of a foreign assignee, even in case of voluntaiy assignment, where it comes in conflict with the claims of domestic creditors, a distinction is made, and it is held that where the domicile of the foreign assignee and the creditor is the same, the latter will be bound by the title of the former, good by the law of the com- mon domicile. May v. Wannemacher, 111 Mass. 202; Sanderson v. Bradford, 10 N. H. 260 ; Moore v. Bonnell, 2 Vroom, 90. The prin- ciple of comit\ r in these States is held to apply so as to subject non- residents to the operation of the foreign law, but not so as to prevent domestic creditors from pursuing their remedy in defiance of the foreign assignment. Faulkner v. Hyman, 142 Mass. 53. The question is not an open one in this State. We have refused to adopt the distinction made in some of the States, and have placed the right of a creditor coming here from the State of the common domicile upon the same footing as that of a citizen or resident creditor, and SECT. II.] EARTH V. BACKUS. 369 have sustained the lien of an attachment issued here at the instance of a foreign creditor after proceedings in insolvency had been instituted in the State of the common domicile of the insolvent and creditor. Hibernia Natl. Bank v. Lacombe, 84 N. Y. 367. There the debtor and attaching creditor were Louisiana corporations. The attachment was issued after the debtor bank had been placed in liquidation under the laws of that State and commissioners had been appointed to take possession of and administer its assets. DANFORTH, J., after stating the general rule that the law of Louisiana could have no operation here, referring to the point now under consideration, said : " The plaintiff, as we have seen, although a foreign creditor, is rightfully in our courts pursuing a reined}' given by our statutes. It may enforce that remedy to the same extent, and in the same manner, and with the same prior- ity, as a citizen. Once properly in court and accepted as a suitor, neither the law nor court administering the law will admit any distinc- tion between the citizen of its own State and that of another." How far our courts will enforce the title of a foreign assignee in bankruptcy as between the assignee and the bankrupt or his creditors, where all the parties have a common domicile abroad, was much discussed in the case of Abraham v. Plestoro, 3 Wend. 548, and that case, with others, were reviewed in the case of In re Waite, supra. The authority of Hibernia Bank v. Lacombe upon the point now in question was ex- pressly recognized and approved in Warner v. Jaffray, 96 N. Y. 248, and it must be regarded as establishing the law of the State on the sub- ject. In Warner v. Jaffray the court refused to interfere with liens acquired by citizens of this State upon personal propert}* in another State under the laws of that State, belonging to an insolvent resident here, under proceedings commenced after a voluntary assignment for the benefit of creditors, valid by the laws of this State, had been made and delivered. It was in substance held that creditors of the assignor, citizens of this State, were not, because of such citizenship, precluded from taking proceedings in another State hostile to the assignment, for the purpose of acquiring priority in respect of personal property situated there embraced in the assignment. See, also, Johnson v. Hunt, supra. The courts of this State accord to our citizens the same liberty to proceed in another jurisdiction in hostility to assignments executed here which they accord to citizens of other States coming here and instituting proceedings in hostility to transfers in insolvenc}-, valid by the laws of their domicile. The rule in New York on the question is also the rule in other States. McClure v. Campbell, 71 Wis. 350; Rhawn v. Pearce, 110 111. 350; Boston Iron Works v. Boston Loco- motive Works, 51 Me. 585 ; Upton v. Hubbard, supra. It follows, therefore, that the attachments in question created valid liens on the debt attached in priority to the title under the assignment, assuming the claim of the plaintiff that the banks stood in no better position than the Wisconsin creditors. The point that the provisions in the Wisconsin statute providing for 370 WITTERS V. GLOBE SAVINGS BANK OF CHICAGO. [CHAP. V. a discharge of insolvent debtors appty to natural persons only, and not to corporations, is opposed to the statutory construction of the word " person," as defined in the Revised Statutes of that State, and there is nothing in the charter of the corporation, so far as appears, or in the statutes of Wisconsin, which takes from this corporation the gen- eral powers which, in the absence of any statutory or charter restric- tion, belong to corporations to make an assignment in insolvency. DeRuyter v. St. Peter's Church, 3 N. Y. 238. This judgment is not, we think, in accord with the law of this State, and must, therefore, be reversed. The case was argued at our bar with great ability, and the researches of the several counsel have materially lightened the labors of the court. The judgment should be reversed and a new trial granted. All concur. Judgment reversed. 1 WITTERS v. GLOBE SAVINGS BANK OF CHICAGO. SUPREME JUDICIAL COURT OF MASSACHUSETTS, JANUARY 28- JUNE 22, 1898. [Reported in 171 Massachusetts, 425.] TRUSTEE process. The Chicago Title and Trust Company, a corpo- ration organized under the laws of the State of Illinois, petitioned to be allowed to intervene as a claimant of the funds. The plaintiff was an inhabitant of Vermont. The case was submitted to the Superior Court, and, after judgment charging the trustee and dismissing the petitioner's claim, to this court, on appeal, upon agreed facts, which appear in the opinion. M. B. Kendall, for the claimant. F. H. Williams, for the plaintiff. FIELD, C. J. In this case the plaintiff is not an inhabitant of Mas- sachusetts, but of Vermont. The Chicago Title and Trust Company claims title to the funds in the hands of the alleged trustee, not only by virtue of the decree of the Circuit Court of Cook County in the State of Illinois, entered on April 5, 1897, appointing it a receiver of the defendant, but by virtue of an assignment under seal to it as such receiver, executed by the defendant on April 6, 1897, in pursuance of the decree. That assignment purports to convey to the receiver all the property and effects of the defendant " wheresoever situate." The defendant is a corporation organized under the laws of the State of Illinois, and it is agreed that said Circuit Court "had jurisdiction to 1 Townsend v. Coxe, 151 Til. 62 ; Weider v. Maddox, 66 Tex. 372, 376 (semblc) ace. See also Franzen v. Hutchinson, 94 la. 95. Sanderson v. Bradford, ION. H. 260, 264, contra. SECT. II.] WITTERS V. GLOBE SAVINGS BANK OF CHICAGO. 371 appoint said receiver." The plaintiffs writ was served on the alleged trustee on April 13, 1897. Such an assignee has a right to intervene in the proceedings and claim the funds. Buswell v. Order of the Iron Hall, 161 Mass. 224; Dennis v. Twitchell, 10 Met. 180; Norton v. Piscataqua Ins. Co., Ill Mass. 532. We think that the assignment must be held valid as against the sub- sequent attachment by the plaintiff. Frank v. Bobbitt, 155 Mass. 112 ; Faulkner v. Hyman, 142 Mass. 53. It is argued by the counsel for the plaintiff that the assignment shown in this case is not voluntary, and so should not be sustained as against the attachment, and Taylor v. Columbian Ins. Co., 14 Allen, 353, is relied on. The assignment in this case is not a judicial assignment or a statutory assignment, but a compulsory assignment, valid by the laws of Illinois, where it was made. How far such an assignment can be regarded as having the effect of a voluntary assignment, or as having only the effect of a judicial or statutory assignment, has not been decided in this Com- monwealth. As a general rule, assignments and conveyances which defendants in equitj- are compelled to make are as valid as if voluntarily made. 1 The case sets out no statutes of the State of Illinois, and we cannot take judicial notice of such statutes. We must assume on the papers before us that the receiver was appointed under the general powers of a court of equity, and that the assignment was made b}*^, defendant over which the court had full jurisdiction. See High, (3d ed.) 244 ; Gluck & Becker, Receivers (2ded.) 225 et seq. It seems to have been assumed by all parties that the assignment was made for the creditors of the de- fendant under proceedings for their benefit. Whatever may be true of such an assignment when credits of the assignor are attached here by inhabitants of Massachusetts, we perceive no good reason why we should protect, against the rights of the assignee, an attachment made by an inhabitant of Vermont after the assignment. See Cunningham v. But- ler, 142 Mass. 47, 52; Cole v. Cunningham, 133 U. S. 107, 128; May v. Wannernacher, 111 Mass. 202 ; Long v. Girdwood, 150 Penn. St. 413 ; Burlock v. Taylor, 16 Pick. 335. Judgment of the Superior Court charging the trustee and dis- missing the petition of the claimant reversed, and judgment to be entered allowing said petition and discharging the trustee. 1 Many cases to this effect are collected in Ames's Cases on Equity Jurisdiction, p. 10. 372 IN RE EMSLIE. [CHAP. V. SECTION III. DISSOLUTION OF LIENS. IN RE EMSLIE. CIRCUIT COURT OP APPEALS FOR THE SECOND CIRCUIT, MAT 24, 1900. [Reported in 102 Federal Reporter, 291.] BEFORE WALLACE, LACOMBE, and SHIPMAN, Circuit Judges. WALLACE, Circuit Judge. This is an appeal from an order, granted upon the application of a trustee in bankruptcy, staying an action brought in a State court by a subcontractor to foreclose a lien, claimed under the New York mechanic's lien law, for the labor and materials furnished in building a house. The notice of lien was filed by the sub- contractor April 28, 1899. August 15, 1899, upon a petition in invol- untar}- bankruptcy filed by creditors, the contractors who erected the house for the owner of the real estate were adjudicated bankrupts. The action to foreclose the lien was commenced August 16, 1899. We agree with the court below that a valid lien was not acquired by the subcontractor, owing to the omission to comply with the terms of the statute, which required the notice of lien to specify " the agreed price or value of the labor performed or to be performed and materials furnished or to be furnished," and ' ' the time when the first and last items of work are performed and materials are furnished." Laws N. Y. 1897, c. 418, 9. The notice of lien does not attempt to comply with either of these requirements, but states merely that " there remains due and unpaid (under contracts with Holland Emslie & Son) the sum of 1,700." Not only is there no statement of the contract price, or the value of the work and materials, or of the time when the first and last items were furnished, but there are no statements which by any possible implication can supply any information about these facts. The statute is to be liberally construed in aid of every beneficial pur- pose which was contemplated in its enactment, and a substantial com- pliance with its provisions is sufficient to uphold the lien. But a construction which would uphold a notice like the present would nullify its provisions, which are intended for the benefit of every claimant as well as for the owner of the property. Foster v. Schneider (Sup.) 2 N. Y. Supp. 875 ; Brandt v. Verdon (Com. PL) 18 N. Y. Supp. 119. As was said in the former of these decisions : " To entitle a claimant to its benefits, the directions of the statute must be substantially observed. If they are not, the Hen cannot be secured, and the court has no power or authority to sustain the pro- SECT. III.] IN RE EMSLIE. 373 ceeding : for a substantial compliance with the requirements of the stat- ute is necessary to confer jurisdiction." We are constrained to differ from the opinion of the court below that the lien was void, as against the trustee in bankruptc}', irrespective of the insufficiency of the notice. The statute gives a lien for the value or the agreed price of the labor and materials from the time of the filing of the notice, authorizes the notice to be filed at any time during the progress of the work or within ninety days thereafter, provides that if an action shall not be brought to enforce the lien within a specified time the lien shall be discharged, and prescribes the procedure in an action to enforce the lien. When the notice is filed, provided the filing is within the period prescribed, the lien binds the property to priority of payment in favor of the lienor for any indebtedness for improving the propert} 7 due from the owner, as against subsequently acquired rights and titles. It will be observed that, although the lien is not created until the filing of the notice, this is an act optional with the mechanic or material man, and, if he chooses, he can perfect a lien day by day concurrently with the progress of the work. A trustee in bankruptcy cannot acquire a better title than the bank- rupts had, except as to property which has been transferred contrary to the provisions of the bankrupt act, and takes the estate subject to all liens and incumbrances other than those enumerated in section 67. That section denies the privileges of a lien to claims which, for want of record or for other reasons, would not have been valid as against creditors if there had been no bankruptcy, and enumerates the liens and incumbrances which are dissolved by the adjudication of bankruptc}', or can be kept on foot and enforced b} - the trustee for the benefit of the estate. The latter consists of two classes, liens ob- tained through legal proceedings against an insolvent debtor within four months prior to the filing of a petition in bankruptcy against him, and incumbrances created by the act of the bankrupt within four months prior to the filing of the petition, which are intended to defraud creditors or'are void by the laws of the State in which the property is situated. The section preserves all liens given or accepted for a pres- ent consideration. In our opinion, liens like the present do not fall within either of the two classes. They are not within the first class, because they are not created or obtained through legal proceedings, either in strict definition or in the ordinary meaning of the term. A legal proceeding is any proceeding in a court of justice by which a party pursues a remedy which the law affords him. The term embraces any of the formal steps or measures employed in the prosecution or defence of a suit. In the section it obviously refers to the use of ju dicial process, the phraseology being " levies, judgments, attachments, or other liens obtained through legal proceedings." The filing of notice of a mechanic's lien has no necessary relation to the initiation or the prosecution of a suit. The filing is essential in order to main- tain the action to foreclose the lien, because otherwise the lien does 374 IN RE EMSLIE. , [CHAP. V. not attach ; but it is no more a preliminary step in the suit than is the protesting of a note in a suit against the indorser. It is a proceeding of the same kind as filing a chattel mortgage or recording a deed. Such liens are not within the second class, because they are not an incurabrance created by the debtor. They are created by the statute, or by the act of the lienor in filing the statutory notice. The incum- brances which are invalidated by the section are those which are " made or given " by the person adjudged a bankrupt. They include, not only those specifically mentioned, " conveyances, transfers, and assignments," but all incumbrances, of whatever form, derived from his contractual act. Unless it can be said that the lien emanates in or is created by the contract authorizing the labor and materials to be furnished, it arises without his act. If it is a creature of the contract, rather than of the statute, it is supported by the same consideration, and, being given for a "present consideration," is preserved by the section. There are no equitable considerations in favor of the general creditors of a debtor which should defeat a mechanic's lien. Every creditor dealing with the debtor does so with the knowledge that those who are furnishing labor and materials for the building can, if they choose, ac- quire a priority of pa3*ment over other creditors. Statutes giving such liens are designed to enable mechanics and material men to rely upon the security of the building itself, without looking to the responsibility of the owner. The justice and expediency of giving such claims priority over the debts of general creditors is manifested in the legislation of the several States. We cannot believe that it was the intention of Con- gress to put them upon the footing of the liens particularly mentioned in section 67. The question of the validity of such liens was considered by the Circuit Court of Appeals for the Seventh Circuit. In re Kerby- Dennis Co., 36 C. C. A. 677, 95 Fed. 116. In considering the provi- sions of section 67 the court used this language : " We cannot indulge the presumption that Congress intended to avoid a lien secured by the act of labor, and preserved and continued in force only when legal proceedings are instituted within a specified time. Such a construction would avoid all mechanic's liens, and all the liens of laborers, which the laws of various States have for years sought to pro- tect and to prefer." We agree with the opinion of that court that the terms of section 67 do not invalidate such a lien. The learned judge in the court below thought the lien given by the New York statute was to be distinguished from the lien given by the statute of Michigan, which was under con- sideration in that case, by the circumstance that the lien under the New York statute originates in the filing of the notice of lien, while in the Michigan statute it originates by the act of furnishing the labor or materials, and is thus a strict!} 7 contemporaneous lien. We do not discover an}^ substantial distinction between the two statutes. In one the lien is not given unless the notice is filed ; in the other, although it SECT. III.] HENDERSON V. MAYER. 375 arises when the labor or materials are furnished, it is lost unless a notice is filed within a specified time. The object of both statutes is the same, and both accomplish practically the same result. In one the filing of the notice is necessary to perfect the lien, and in the other it is necessary to preserve it. in both it is wholly optional with the lienor whether he will avail himself, or not, of his right of priority. 1 We have thought it necessary to discuss the questions which have been considered in regard to the efficacy of the lien, because, in making the order, the court below passed upon these questions apparently with the view of determining the rights of the parties to the fund in con- troversy. The order staying the action in the State court was a proper exercise of power, and should not be disturbed. That action was an interference with assets of the bankrupts in the custody of the bank- ruptcy court over which that court had previously acquired jurisdiction ; and, as it was brought without the leave of the court, the order staying its prosecution was properly granted, within the principle of the deci- sion of this court in the recent case of In re Russell (C. C. A.) 101 Fed. 248. The order is affirmed, without costs. HENDERSON v. MAYER. SUPREME COURT OF THE UNITED STATES, APRIL 19-JuNE 7, 1912. [Reported in 225 United States, 631.] MR. JUSTICE LAMAR delivered the opinion of the court: The provisions of the Bankruptcy Act, preventing an insolvent from giving or the creditor from securing preferences for pre-existing debts, apply not only to mortgages and transfers voluntarily made by the debtor, but also to those preferences which are obtained through legal proceedings, whether the lien dates from the entry of the judgment, from the attachment before judgment, or, as in some States, from the levy of execution after judgment. But the statute was not intended to lessen rights which already existed, nor to defeat those inchoate liens given by statute, of which all creditors were bound to take notice and subject to which they are presumed to have contracted when they dealt with the insolvent. Liens in favor of laborers, mechanics and contractors are of this character; and although they may be- perfected by record or fore- closure within four months of the bankruptcy, they are not created by judgments, nor are they treated as having been " obtained through le#al proceedings," even when it is necessary to enforce them by some form of legal proceeding. The statutes of the various States differ as to the time when such liens attach, and also as to the property they 376 HENDERSON V. MAYER. [CHAP. V. cover. They may bind only what the plaintiff has improved or con- structed ; or they may extend to all the chattels of the debtor, or " all the property involved in the business." In re Bennett (C. C. A., 6th Cir.), 153 Fed. 673. In some cases the lien dates from commencement of the work, or from the completion of the contract. In others, prior to levy they are referred to as being dormant or inchoate liens, or as "a right to a lien." In re Bennett, supra; In re Laird (C. C. A., 6th Cir.), 109 Fed. 550. But the courts, dealing specially with bankruptcy matters, have almost uniformly held that these statutory preferences are not obtained through legal proceedings, and, therefore, are not defeated by sec- tion 67f, even where the registration, foreclosure or levy necessary to their completion or enforcement was within four months of the filing pf the petition in bankruptcy. Similar rulings have been made where the landlord has only a com- mon-law right of distress. In re West Side Paper Co. (C. C. A., 3rd Cir.), 162 Fed. 110. This is often referred to as a lien, but it is " only in the nature of security." 3 Black. Com. 18. The pledge, or quasi- pledge, which the landlord is said to have, is, at most, only a power to seize chattels found on the rented premises. These he could take into possession and hold until the rent was paid. Doe ex dem Glad- ney v. Deavors, 11 Ga. 84. But before the distraint the landlord at common law has "no lien on any particular portion of the goods and is only an ordinary creditor except that he has the right of distress by reason of which he may place himself in a better position." Sutton v. Reese, 9 Jur. (N. S.) 456. A right fully as great is created by the Georgia statute here in ques- tion. For while giving the owners of agricultural lands a special lien on the crops, there was no intention to deprive the proprietor of urban and other real estate of the lien for rent which there, as in other States, is treated as an incident growing out of the relation of landlord and tenant. [The court stated that under the Act of 1867 similar liens had been held not to be dissolved and added] : There is nothing in the Act of 1898 opposed to this conclusion. On the contrary, its general provisions indicate a purpose to continue the same policy and an intent, as against general creditors, to preserve rights like those given by the Georgia statute to landlords, even though the lien was enforced and attached by levy of a distress warrant within four months of the filing of the petition in bankruptcy. Affirmed. SECT. III.] METCALF V. BARKER. 377 METCALF v. BARKER. -, SUPREME COURT OF THE UNITED STATES, OCTOBER SO-DECEMBER 1, 1902. [Reported in 187 United States, 165.] MR. CHIEF JUSTICE FULLER delivered the opinion of the court. Metcalf Brothers & Company, judgment creditors of Lesser Brothers, commenced their creditors' suit in the Supreme Court of New York, December 17, 1896. The case came to trial December 17, 1897, and decree was rendered April 6, 1898. 22 Misc. Rep. 664. On appeal the appellate division affirmed the judgment of the trial court in part, and reversed it in part, and directed the paj'ment by the receivers to Metcalf Brothers & Company of the amount of their judgments out of the money in the receivers' hands. 35 App. Div. 596. This decree or judgment was embodied in an order dated December 30, 1898, but the clerk of the Supreme Court appears not to have entered it until Janu- ary 31, 1899. The decision of the Court of Appeals, 161 N. Y. 587, was made February 6, 1900, and the remittitur was received and filed in the court below March 12, 1900. The bankruptcy law was approved July 1, 1898. May 12, 1899, Lesser Brothers filed their petition in bankruptcy and were adjudicated bankrupts, and Barker was appointed trustee June 7, 1899. March 8, 1900, the bankrupts' trustee procured from the District Court an order entitled in the bankruptcy proceedings requiring Metcalf Brothers & Company to show cause on March 13 why a w.rit of injunction should not issue enjoining them from taking an}* further proceedings under any judgment in their creditors' action, and so enjoining them in the interim, which injunction, after argument on the merits, was continued. No question arises here in respect of real estate, and on the case stated in the certificate the property affected was equitable assets. There had been tangible personal property, subject to levy and sale under execu- tion, but this had been previously sold by an order of the Supreme Court of New York and the proceeds were held by receivers. The general rule is that the filing of a judgment creditors' bill and service of process creates a lien in equity on the judgment debtor's equitable assets. Miller v. Sherry, 2 Wall. 237 ; Freedrnan's Savings & Trust Company v. Earle, 110 U. S. 710. And such is the rule in New York. Storm v. Waddell, 2 Sandf. Cb. 494; Lynch v. Johnson, 48 N. Y. 27; First National Bank v. Shuler, 153 N. Y. 163. This was conceded by the District Court, but the court held that the lien so created was " contingent upon the recover}' of a valid judgment, and liable to be defeated by anything that defeats the judgment, or the right of the complainants to appropriate the fund;" that "such a contin- gent or equitable lien, it is evident, cannot be superior to the judgment on which it depends to make it effectual, but must stand or fall with the judgment itself; " and that " section 67 /, therefore, in declaring 378 METCALF V. BARKER. [CHAP. V. that a judgment recovered within four months ' shall be deemed null and void,' etc., necessarily prevents the complainants from acquiring anv benefit from the lien, or the fund attached, except through the trustee in bankruptcy pro rata with other creditors," it being also held that, although the judgment at special term was rendered more than four months before the filing of the petition, yet that the judgment of the appellate division, as affirmed by the Court of Appeals, was within the four months. 100 Fed. Rep. 433. Assuming that the judgment at special term is to be disregarded, and that the judgment of the appellate division was entered within the four months, it will be perceived that if the views of the District Court were correct, the third question propounded should be answered in the negative, while if incorrect, that question should be answered in the affirmative. Doubtless the lien created by a judgment creditors' bill is contingent in the sense that it might possibly be defeated by the event of the suit, but in itself, and so long as it exists, it is a charge, a specific lien, on the assets, not subject to being divested save by payment of the judg- ment sought to be collected. The subject was fully discussed and the effect of bankruptcy proceed- ings considered by Vice Chancellor Sandford in Storm v. Waddell, 2 Sandf. Ch. 494, which has been so repeatedly recognized with ap- proval as to have become a leading case. As Mr. Justice Swayne remarked in Miller v. Sherry, the commence- ment of the suit amounts to an equitable lev)', 2 Wall. 249 ; or, in the language of Mr. Justice^ Matthews, in Freedman's Savings & Trust Company v. Earle, " It is the execution first begun to be executed, unless otherwise regulated by statute, which is entitled to priority. The filing of the bill, in cases of equitable execution, is the beginning of executing it." 110 U. S. 717. And the right to payment out of the fund so vested cannot be affected by a subsequent transfer by the debtor. McDermutt v. Strong, 4 Johns. Ch. 687, or taken away by a subsequent discharge in bankruptcy. Hill v. Harding, 130 U. S. 699 ; Doe /. Childress, 21 Wall. 642; Eyster v. Gaff, 91 U. S. 521 ; Peck v. Jenness, 7 How. 612. Kittredge v. Warren, 14 N. H. 509, was relied on as to the effect of attachments on mesne process in New Hampshire in Peek v. Jenness. And it may be remarked that Chief Justice Parker's vigorous discus- sion in that case of the point that the attachment lien was not contin- gent on a subsequent judgment is a fortiori, applicable in cases where the prior establishment of the creditor's claim is the foundation of the creditor's suit. Granting that possession of the power " to establish uniform laws on the subject of bankruptcies " enables Congress to displace these well-settled principles and to divest rights so acquired, we do not think that Congress has attempted to do so. Section 67 /provides: "That all levies, judgments, attachments, or SECT. III.] METCAiF V. BARKER. 379 other liens, obtained through legal proceedings against a person who is insolvent, at an}- time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the lev}-, judgment, attachment, or other lien shall be deemed wholly discharged and re- leased from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate ; and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the es- tate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect." In our opinion the conclusion to be drawn from this language is that it is the lien created by a levy, or a judgment, or an attachment, or otherwise, that is invalidated, and that where the lien is obtained more than four months prior to the filing of the petition, it is not only not to be deemed to be null and void on adjudication, but its validity is recognized. When it is obtained within four months the property is discharged therefrom, but not otherwise. A judgment or decree in en- forcement of an otherwise valid pre-existing lien is not the judgment denounced by the statute, which is plainly confined to judgments creat- ing liens. If this were not so the date of the acquisition of a lien by attachment or creditor's bill would be entirely immaterial. Moreover other provisions of the act render it unreasonable to im- pute the intention to annul all judgments recovered within four months. By section 63 a, fixed liabilities evidenced by judgments absolutely owing at the time of the filing of the petition, or founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of application for discharge, may be proved and al- lowed, while under section 17 judgments in actions of fraud are not released by a discharge, and other parts of the act would be wholly unnecessary if section 67/must be taken literally. Many of the District Courts have reached and announced a similar conclusion : In re Blair, 108 Fed. Rep. 529 ; In re Beaver Coal Com- pany, 110 Fed. Rep. 630; In re Kavanangh, 99 Fed. Rep. 928 ; In re Pease, 4 Amer. Bank. Rep. 547 ; as have also the Supreme Court of Rhode Island and the Chancery Court of New Jersey in well-considered decisions. Doyle v. Heath, 22 R. I. 213 ; Taylor "v. Taylor, 59 N. J. Eq. 86. And see Wakeman v. Throckmorton, 51 Atl. Rep. 554. As under section 70 a, e, and section 67 e, the trustee is vested with the bankrupt's title as of the data of the adjudication, and subrogated to the rights of creditors, the foregoing considerations require an affirmative answer to the third question, but in answering the first question some further observations must .be made. This creditors' action was commenced December 17, 1896, more than eighteen months before the passage of the bankruptcy act, and was prosecuted with exemplary diligence to final and complete success in the judgment of 380 METCALF V. BARKER. [CHAP. V. the Court of Appeals. At this point the bankruptcy court intervened and on summary proceedings enjoined Metcalf Brothers & Company from receiving the fruits of their victory. The State courts had juris- diction over the parties and the subject matter, and possession of the propert}'. And it is well settled that where property is in the actual possession of the court, this draws to it the right to decide upon con- flicting claims to its ultimate possession and control. In Peck v. Jenness, 7 How. 612, the District Court had decided that the lien of an attachment issued out of a court of New Hampshire was defeasible and invalid as against an assignee in bankruptcy. But this court held that this was not so, and that the District Court had no su- pervisory power over the State courts, and Mr. Justice Grier said : " It is a doctrine of law too long established to require a citation of author- ities, that, where a court has jurisdiction, it has a right to decide every question which occurs in the cause, and whether its decision be correct or otherwise, its judgment, till reversed, is regarded as binding in everj* other court ; and that, where the jurisdiction of a court, and the right of a plaintiff to prosecute his suit in it, have once attached, that right cannot be arrested or taken away by proceedings in another court. These rules have their foundation, not merely in comity, but on necessity. For if one may enjoin, the other may retort by injunction, and thus the parties be without remed}' ; being liable to a process for contempt in one, if they dare to proceed in the other. . . . The fact, therefore, that an injunction issues only to the parties before the court, and not to the court, is no evasion of the difficulties that are the neces- sary result of an attempt to exercise that power over a part}' who is a litigant in another and independent forum." The rule indicated was applied under the act of 1841 in Clarke v. Rist, 3 McLean, 494 ; under the act of 1867, by Mr. Justice Miller in Johnson v. Bishop, Wool- worth, 324, and by Mr. Justice Nelson, in Sedgwick v. Menck, 21 Fed. Cases, 984, and under the act of 1898, among other cases, by the Cir- cuit Court of Appeals for the Fourth Circuit in Frazier v. Southern Loan and Trust Company, 99 Fed. Rep. 707, and Pickens v. Dent, 106 Fed. Rep. 653. 1 "White v. Schloerb, 178 U. S. 542, proceeded on the familiar doctrine that property in the custody of a court of the United States cannot be taken out of that custody by any process from a State court, and the jurisdiction of the District Court sitting in bankruptcy by summary proceedings to maintain such custody was upheld. Mr. Justice Gray, speaking for the court, said : "By section 720 of the Revised Statutes, ' The writ of injunction shall not be granted by any court of the United States to stay proceedings in any court of a State, except in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy.^ Among the powers specifically conferred upon the court of bankruptcy by section 2 of the bankrupt act of 1898 1 Affirmed by this court sub nomine Pickens v. Roy, 187 U.S. 177. SECT. III.] PICKENS V. ROY. 381 are to ' (15) make such orders, issue such process, and enter such judgments, in addition to those specificalh' provided for, as may be necessary for the enforcement of the provisions of this act.' 30 Stat. 546. And by clause 3 of the Twelfth General Order in Bankruptcy applications to the court of bankruptc}' ' for an injunction to sta} r pro- ceedings of a court or officer of the United States, or of a State, shall be heard and decided by the judge ; but he may refer such an applica- tion, or any specified issue arising thereon, to the referee to ascertain and report the facts.' 172 U. S. 657. Not going beyond what the decision of the case before us requires, we are of opinion that the judge of the court of bankruptcy was authorized to compel persons, who had forcibly and unlawfully seized and taken out of the judicial custod}- of that court property which had lawfully come into its posses- sion as part of the bankrupt's property, to restore that propert} 7 to its custody." This cautious utterance and courts must be cautious when dealing with a conflict of jurisdiction sustains as far as it goes the converse of the proposition when presented b}- a different state of facts. We are of opinion that the jurisdiction of the District Court to make the injunction order in question cannot be maintained. Louisville Trust Company v. Comingor, 184 U. S. 18, 26. The first question will be answered in the negative, and the third question in the affirmative, and it is unnecessary to answer the other questions. Certificate accordingly. PICKENS v. ROY. SUPREME COURT OP THE UNITED STATES, NOVEMBER 10- DECEMBER 1, 1902. [Reported in 187 United States, 177.] MR. CHIEF JUSTICE FULLER delivered the opinion of the court. This is an appeal from a decree of the United States Circuit Court of Appeals for the Fourth Circuit affirming the decree of the District Court for the District of West Virginia dissolving an injunction and dismissing a bill filed in that court by Dever Pickens against Susan C. Dent and others. 106 Fed. Rep. 653. The facts necessary to be considered in disposing of the case were stated by the Circuit Court of Appeals in substance as follows: January 24, 1889, Susan C. Dent (afterwards Susan C. Dent Roy) exhibited her bill in the Circuit Court of Barbour County, West Virginia, against Dever Pickens and others, to set aside as fraudulent a certain deed made by Pickens to trustees, bearing date January 14, 1889, and assailing as 382 PICKENS V. ROY. [CHAP. V. fraudulent certain indebtedness thereby secured. At the succeeding September rules an amended bill was filed alleging that complainant Dent (Roy) on July 23, 1889, recovered a judgment at law against Pickens for the sum of $10,000, with interest and costs. Complainant prayed that the real estate mentioned in the bill as the property of Pickens, and described in the trust deed, might be sold, and the pro- ceeds applied to the payment of her judgment and in satisfaction of the liens existing on the land. The judgment was subsequently reversed, and a retrial resulted on February 27, 1892, in a judgment for $9,000, with interest and costs, and a second amended bill was tiled so alleging. The Circuit Court of Appeals did not deem it essential to give a history of the many years of " hard fought and well contested litiga- tion," which followed, but stated that the case was pending and undis- posed of by the Circuit Court of Barbour County, October 30, 1899, when Pickens was adjudicated a bankrupt by the District Court of the United States for the District of West Virginia on a petition filed October 27. After the adjudication, and on November 2, 1899, Pick- ens filed an answer in the chancery cause, in which he set up the pro- ceedings in bankruptcj', asked that all further action in the State court might be suspended until the District Court had disposed of those pro- ceedings, and contended that all his estate, rights and interests of every kind and description, had passed from the control of the Circuit Court of Barbour County and into the jurisdiction of the District Court. On November 18, 1899, a trustee in bankruptcy was appointed for Pickens' estate, who in February, 1900, presented to the Circuit Court of Bar- bour County his petition in the chancery cause, asking that he be made a party, that his petition stand as an answer, and that the Circuit Court proceed to the enforcement of the liens against the bankrupt's estate; and, thereafter, on February 23, 1900, that court rendered a decree by which, among other things, it was ordered that the deed of trust referred to in the bill be set aside as fraudulent and that a special commissioner and receiver therein named should rent the land described until a certain day and then sell the same, the proceeds thereof to be applied to the payment of the debts due by Pickens. November 20, 1899, complainant Dent (Roy), " without waiving her preference," tendered her proof of debt before the referee in bankruptcy, it being the judg- ment in question, which was allowed as a preferred claim against the bankrupt's estate. The receiver and commissioner appointed in the chancery court was proceeding to execute the decree therein when Pickens filed his bill in the District Court March 31, 1900, against Dent (Roy) and others, rehearsing the facts relating to the suit and to the proceedings in bank- ruptc}', charging that the trustee was not authorized to intervene in the chancery cause, and asserting that the State court on the filing of Pick- ens' answer setting up his adjudication should have taken no further action, and that, therefore, the decree appointing the commissioner and SECT. III.] PICKENS V. ROY. 383 receiver to rent and sell the real estate was without authority of law and void. , The praj*er was that defendants be restrained from all further pro- ceedings in the suit so pending in the Circuit Court of Barbour County until the termination of the bankruptc} T proceedings ; that the receiver and commissioner be enjoined from executing the decree during their pendency ; and that the possession and control of the property be turned over to the trustee to be administered under the direction of the court in bankruptcy. A preliminary injunction was granted by the district judge, which was dissolved July 26, 1900, and Pickens' bill dismissed with costs. From that decree this appeal was taken. Such being the state of facts, the Circuit Court of Appeals held that the District Court had no jurisdiction of the suit, even if it had been brought in the name of the trustee, who could not have sued defend- ants below in that court in respect of the bankrupt's propeity, unless by consent, while the bankrupt himself had no standing in that court after adjudication, Bardes v. Hawarden Bank, 178 U. S. 524 ; and further, that as the Circuit Court of Barbour County had at the time of the ad- judication, and had had for years, complete jurisdiction and control over the bankrupt and his property, that jurisdiction was not divested by the proceedings in bankruptc}', and it was the right and duty of that court to proceed to final decree notwithstanding adjudication, the rule being applicable that the court which first obtains rightful jurisdiction over the subject matter should not be interfered with. Frazier v. Southern Loan and Trust Company, 99 Fed. Rep. 707. And Goff, J., speaking for the court, said: "The bankrupt act of 1898 does not in the least modify this rule, but with unusual carefulness guards it in all of its detail, provided the suit pending in the State court was instituted more than four months before the District Court of the United States had adjudicated the bankruptcy of the party entitled to or interested in the subject matter of such controversy." 1 The court also ruled that the mere fact that complainant Dent (Roy) proved up her judgment as a preferred debt in bankruptcy, when, and as she did, did not operate to deprive the State court of jurisdiction, nor amount to a consent to the exercise of jurisdiction by the District Court as invoked. We are of opinion that the Circuit Court of Appeals was right in its rulings. The case in the one aspect came within Bardes v. Hawarden Bank, and in the other within the rule applied. Metcalf v. Barker, 187 U. S. 165. Decree affirmed. 1 In Bank of Andrews v. Gndger, 212 Fed. 49 (C. C. A.), the Bankruptcy Court was held entitled to take property from a receiver appointed by a state court at the in- stance of stockholders more than four months before the bankruptcy ; " for creditors were not before the State court and had not acquired any lien on the property." The court relied on Re Watts, 190 U. S. 1. Cf. Blick v. Nimmo, 121 Md. 139. 384 CLAKKE V. LARREMOKE. [CHAP. V. CLARKE v. LARREMOKE. SUPREME COURT OF THE UNITED STATES, DECEMBER 15, 1902-FEBRUARY 23, 1903 [Reported in 188 United States, 486.] Ox January 23, 1899, the petitioner, the owner of certain notes of Raymond W. Kenney, commenced an action thereon in the Supreme Court of the State of New York. On March 6, 1899, he recovered judgment for the sum of $20,906.66. An execution, issued thereon, was by the sheriff of the county of New York levied upon a stock of goods and fixtures belonging to Kenney. A sheriff's sale thereof, had on March 15, 1899, realized $12/451.09. Shortly after the levy of the execution Leon Abbett sued out in the same court a writ of attachment against the property of Kenne}', and caused it to be levied upon the same stock and fixtures. Immediately thereafter, claiming that the debt in judgment was a fraudulent one, he commenced in aid of his attachment an injunction suit to prevent the further enforcement of the judgment, and obtained a temporary order restraining the sheriff from paying petitioner the money received upon the execution sale. Upon a hearing the Supreme Court decided that the debt was just and honest, and on April 13, 1899, set aside the restraining order. On the same day, and before the sheriff had returned the execution or paid the money collected on it, a petition in involuntary bankruptcy against Kenney was filed in the United States District Court for the Southern District of New York, and an order made b}' the district judge restrain- ing the sheriff from pa}'ing the money to Clarke, the execution creditor. 95 Fed. Rep. 427. Kenney was thereafter adjudged a bankrupt, and on November 25, 1899, the plaintiff having been appointed trustee in bankruptcy, the district judge entered a further order directing the sheriff to pay the money to the trustee. 97 Fed. Rep. 555. On re- view the United States Circuit Court of Appeals for the Second Circuit affirmed these orders of the district judge, 105 Fed. Rep. 897, and thereupon a certiorari was granted by this court. 180 U. S. 640. Mr. S. Livingston Samuels for appellant. Mr. Nelson S. Spencer for appellee. Mr. Justice BREWER, after making the foregoing statement, de- livered the opinion of the court. The contention of the petitioner is that " The sheriff having sold the goods levied on before the filing of the petition in bankruptc\*, the proceeds of the sale were the property of the plaintiff in execution, and not of the bankrupt, at the time of the adjudication, and the trustee, therefore, has no title to the same." This contention cannot be sustained. The judgment in favor of petitioner against Kenney was not like that in Metcalf v. BarKer, 187 U. S. 165, one giving effect to a lien theretofore existing, but one SECT, m.] CLARKE V. LARREMORE. 385 which with the levy of an execution issued thereon created the lien ; and as judgment, execution and levy were all within four months prior to the filing of the petition in bankruptcy, the lien created thereby be- came null and void on the adjudication of bankruptcy. This nullity and invalidity relate back to the time of the entry of the judgment and affect that and all subsequent proceedings. The language of the statute is not " when " but " in case he is adjudged a bankrupt," and the lien obtained through these legal proceedings was by the adjudica- tion rendered null and void from its inception. Further, the statute provides that " the property affected by " not the property subject to the lien is wholly discharged and released therefrom. It is true that the stock and fixtures, the property originally belonging to the bankrupt, had been sold, but having, so far as the record shows, passed to a "bona fide purchaser for value," it remained by virtue of the last clause of the section the property of the purchaser, unaffected by the bankruptcy proceedings. But the money received by the sheriff took the place of that property. It is said that that money was not the property of the bankrupt but of the creditor in the execution. Doubtless as between the judgment cred- itor and debtor, and while the execution remained in force, the money could not be considered the property of the debtor, and could not be appropriated to the payment of his debts as against the rights of the judgment creditor, but it had not become the property absolutely of the creditor. The writ of execution had not been fully executed. Its command to the sheriff was to seize the property of the judgment debtor, sell it and pa}' the proceeds over to the creditor. The time within which that was to be done had not elapsed, and the execution was still in his hands not fully executed. The rights of the creditor were still subject to interception. Suppose, for instance, there being no bankruptcy proceedings, the judgment had been reversed by an appellate court and the mandate of reversal filed in the trial court, could it for a moment be claimed that, notwithstanding the reversal of the judgment the money in the hands of the sheriff belonged to the judgment creditor, and could be recovered by him, or that it was the duty of the sheriff to pay it to him? The purchaser at the sheriff's sale might keep possession of the property which he had purchased, but the money received as the proceeds of such sale would undoubtedly belong and be paid over to the judgment debtor. The bankruptcy pro- ceedings operated in the same way. The}' took away the foundation upon which the rights of the creditor, obtained by judgment, execution, levy and sale, rested. The duty of the sheriff to pay the money over to the judgment creditor was gone and that money became the prop- erty of the bankrupt, and was subject to the control of his representa- tive in bankruptcy. It was held in Turner u. Fendall, 1 Cranch, 117, that money col- lected by a sheriff on an execution could not be levied upon under execution placed in his hands against the judgment creditor, and that 386 CLARKE V. LARREMORE. [CHAP. V. the latter could maintain an action against the sheriff for a failure to pay the money thus collected. A similar ruling was made in New York, Baker v. Kenworthy, 41 N. Y. 215, in which it appeared that a sheriff had collected money on an execution in favor of one Brooks ; that he returned the execution without paying the money to Brooks, but on the contrary levied upon it under an execution against Brooks, and it was held that such levy did not release him from liabilit} 7 to Brooks. It was said in the opinion (p. 216) : "The money paid into the hands of the sheriff on the execution in favor of Brooks did not become the property of Brooks until it had been paid over to him. Until that was done, the sheriff could not levy upon it by virtue of the execution against Brooks then in his hands." The rule in that State in respect to a levy upon money in the hands of a sheriff may have been changed at least so far as an attachment is concerned. See Wehle v. Conner, 83 N. Y. 231. In Nelson v. Kerr, 59 N. Y. 224, it is said : " The mone} 7 collected b} 7 the sheriff belongs to the plaintiff. " But in that case the execution had been returned, and yet the officer had not paid the money to the execution creditor. See also Kingston Bank v. Eltinge, 40 N. Y. 391. In none of those cases had anything been done to affect the validity or force of the writ of execution. Whatever was done was done under a writ whose validity and potency were unchallenged and undisturbed, while here, before the writ of execution had been fully executed, its power was taken away. Its command had ceased to be obligatory upon the sheriff, and the execution creditor had no right to insist that the sheriff should further execute its commands. A different question might have arisen if the writ had been fully executed by payment to the execution creditor. Whether the bank- ruptcy proceedings would then so far affect the judgment and execution, and that which was done under them, as to justify a recovery by the trustee in bankruptcy .from the execution creditor, is a question not before us, and may depend on many other considerations. It is enough now to hold that the bankruptcy proceedings seized upon the writ of execution while it was still unexecuted and released the property which was held under it from the claim of the execution creditor. The judgment of the Court of Appeals is Affirmed. Mr. Justice WHITE and Mr. Justice PECKHAM dissented. 1 1 If the proceeds of an execution are paid over to the creditor, the transaction is not invalidated by section 67/". The trustee in bankruptcy's right, if he has any, must be asserted by a plenary suit under section 60. Re Bailey, 144 Fed. 214; Re Resnek, 167 Fed. 574; Levor v. Seiter, 69 N. Y. App. Div. 33. The destruction of liens by legal proceedings is not only for the benefit of the trustee, but also for the benefit of the bankrupt himself and therefore an attachment, made within four months, of exempt property is dissolved. Rock Island Plow Co. v. Reardon, 222 U. S. 354. SECT. IV.] CARPENTER V. MARNELL. 387 / SECTION IV. ;, DIFFERENT KINDS OF PROPERTY. CARPENTER AND OTHERS v. MARNELL. COMMON PLEAS, HILARY TERM, 1802. [Reported in 3 Bosanquet and Puller, 40.] ASSUMPSIT on a note in these words : "I promise to JoseplL_Eowler or_ordgr_the sum of 150, being the remainder of the consideration for the assignment of his interest in the Layton business to me, as soon as I shall receive or may receive the money due upon the completion of the said business from T. B. Esquire, his executors, administrators, or assigns, or immediately upon my receiving letters of administration of the estate and effects of Lieutenant-General Joseph Walton, otherwise Brome, deceased, whichever event shall first take place. Signed " Richard Marnell." This note was indorsed by Fowler to_one. jL^Bagatgr for a valuable consideration, after which Fowler be- came bankrupt and the plaintiffs were chosen his assignees ; in capacity_they now sued for the benefit of Bagster. - TV\JP AXV^ The cause was tried before Lord ALVANLEY, C. J., at the Westmin- ster Sittings after Michaelmas Term, and a verdict was found for the plaintiffs subject to the opinion of the court whether the action was maintainable by them as assignees of Fowler. A rule nisi having been obtained on a former day for setting aside the verdict, and entering a nonsuit, Best and Otislow, Serjts., now showed cause. /Shepherd, Serjt., contra. LORD ALVANLEY C. J. We are all of opinion that this action ought to have been brought by Fowler. He was the person to whom the promise to pay was made ; he by his indorsement directed the contents ( of the note to be paid to Bagster, and though this indorsement had no legal effect, yet it passed the beneficial interest in the note to Bagster, and Fowler by the indorsement became a mere trustee for him. The assignees never were in a situation to derive any benefit from this piece of paper. If indeed they had possessed the most remote pos- sibility of interest, or if they could state anything from which a bene- fit to the creditors would result, I should hold that the action might be maintained ; but at the time when they brought this action it was impossible for them not to know that they had no right to the note. They bring the action in the character of trustees ; but they are not trustees for Bagster ; they are only trustees for Fowler's creditors, and therefore cannot sustain this action. HEATH, ROOKE, and CHAMBRE, JJ., concurred. Ride absolute. 1 1 Winch v. Keeley, 1 T. R. 619 ; Gladstone v. Hadwen, 1 M. & S. 517 ; Dangerfield v. Thomas, 9 A. & E. 292; Ex parte Gennys, Mont. & McA. 258; De Mattos v. Saun- 388 YEATMAN V. SAVINGS INSTITUTION. [CHAP. V. lybtte*^ "fo> ALUtfJU ^OV*i*4+^~\ -VJ&"- . p& uX^r 1 ^. &tW#rJM *^Xi/^* cjutt|xx^^ / ^. J/^wW I **4^u* C / 1871, O'Fallon & Hatch, a firm doing business at St. Louis, delivered, in pledge, to the New Orleans Savftigs Institu- tion, ft corporation created by the laws of Louisiana, having its place of business in New Orleans, two certificates of indebtedness issued by that State, each for the sum of $5,000, to secure the payment of a promissory note of the firm for $5,000, dated July 21, 1871, made pay- able to its own order on the 21st of January, 1872, and by it indorsed in blank. It is conceded that the corporation acquired the note and the certificates of indebtedness, in due course of business, and for a valuable consideration. ThB^"nrm and the individuals composing it were, November 27, 1871, adjudged bankrupts by the District Court of the United States for the Eastern District of Missouri ; and, upon the application of creditors, a receiver of the estate and effects of the bankrupts was, by an ex parte order, appointed, with authority to demand and receive all property of every kind and description belong- ing to them. An assignee in bankruptcy was afterwards appointed, to whom was conveyed, in the prescribed mode, all the real and personal estate of the bankrupts. First the receiver, and subsequently the assignee, each claiming to act under the authority of that court, demanded of the cor- poration, in the city of New Orleans, the surrender of the certificates. That demand, repeated more than once, and accompanied by copies of the orders of that court, was uniformly met with a refusal to surrender them, except upon the payment of the note for which they had been pledged. The corporation, by its president, expressed its willingness to surrender them, or have them sold, if an amount sufficient to pay the note was left in New Orleans, with the agent of the receiver and as- signee, until proof of its debt should be made in the bankruptcy court. Neither the receiver nor the assignee assented to such an arrangement, ders, L. R. 7 C. P. 570; Pratt v. Wheeler, 6 Gray, 520 ; Faxon v. Folvey, 110 Mass. 392; Holmes v. Winchester, 133 Mass. 140; Low v. Welch, 139 Mass. 33; Ontario Bank v. Mumford, 2 Barb. Ch. 596 ; Kip v. Bank of New York, 10 Johns. 63 ; Swep- Bon v. Rouse, 55 N. C. 34 ; Lndwig v. Highley, 5 Pa. St. 132 ; Blin v. Pierce, 20 Vt. 25 ace.; and see Ames Cas. Trusts, 392 and note. SECT. IV.] YEATMAN V. SAVINGS INSTITUTION. 389 but insisted upon the right to the actual custody of the certificates pending the proceedings in bankruptcy. The assignee, upon one occa- sion, authorized the president of the corpoi-ation to sell them, at not less than sixtj'-eight cents on the dollar, and retain the proceeds, with- out prejudice to the rights of either party, until the claim of the institu- tion should be proven before a register in bankruptcy, and allowed. But a sale could not be made at that limit, and the authority to sell was withdrawn. The corporation did not become a party to the proceedings in bank- ruptcj 7 by proving its debt, or in an}' other mode. This action by the assignee in bankruptc}-, to recover of the corpora- tiojn the value of the certificates, was based upon the ground that, lay 'its refbsatTcTsurrender possession of them, it had converted them to its own use, and become liable therefor. The corporation insisted that, having obtained the certificates in due course of business, and for a valuable consideration, it was entitled to hold them until the note should be fully paid. There was a finding in favor of the corporation ; and, judgment hav- ing been rendered thereon, Yeatman sued out this writ of error. Mr. Given Campbell, for the plaintiff in error. Mr. Thomas Allen Clarke, for the defendant in error. Mr. Justice HARLAN delivered the opinion of the court. Counsel for the plaintiff in error has raised numerous questions for our consideration, which, under the view we take of the case, it is not necessary to determine. The sole question which, under the pleadings, it seems essential to decide, is, whether the savings institution, by its J refusal to surrender the certificates, can be held to have converted them to its own use. . We are of opinion that this question must receive a negative answer. The savings institution, by virtue' of the pledge, acquired a special property in the certificates, and, until the payment of the note for $5,000, was not bound to return them either to the bankrupt, the receiver, or the assignee in bankruptcy. Such are, beyond doubt, its ,V . -' rights at common law, as well as under the Code of Louisiana, which declares that " the creditor who is in possession of the pledge can only be compelled to return it when he has received the whole payment of the principal as well as the interest and costs." Rev. Code La., 3,164. These rights were not affected by any of the provisions of the bank- rupt law. The established rule is, that, except in cases of attachments ^., W >,_.>,_........ -^ .~.~, v^^ -. P . fe ..v-^ v^,.^.^ v,.~ .,. u .v, OM .yv,v W , , u all equities, liens, or incumbranCG5~, whether created by operation ~oT law or by act of the bankrupt, which existed against the property in the hands of the bankrupt. Brown v. Ileathcote, 1 Atk. 160 ; Mitchell u. 390 YEATMAN V. SAVINGS INSTITUTION. [CHAP. v. Winslow,.2 Story, 630 ; Gibson v. Warder, 14 Wall. 244 ; Cook v. Tul- lis, 18 Wall. 332 ; Donaldson, Assignee, v. Farwell et aL, 93 U. S. 631 ; Jerome v. McCarter, 94 U. S. 734. He takes the property in the same " plight and condition " that the bankrupt held it. Winsor v. McLellan, 2 Story, 492. In Goddard v. Weaver, 1 Wood, 260, it was well said that the assignee " takes only the bankrupt's interest in prop- erty. He has no right or title to the interest which other parties have therein, nor any control over the same, further than is expressly given to him by the Bankrupt Act, as auxiliary to the preservation of the bankrupt estate for the benefit of his creditors. It would be absurd to contend that the assignee in bankruptcj' became ipso facto seised and possessed in entirety, as trustee, of every article of property in which the bankrupt has any interest or share." These views find direct support in more than one provision of the Bankrupt Act. Among the rights which vest at once in the assignee bv virtue of the adjudication in bankruptcy, and of his appointment as such assignee, is the right to redeem the property or estate of the bankrupt. Act of 1867, 14.; Rev. Stat., 5,046. And, in order that it may be exercised for the benefit of creditors, the assignee is given express authority, " under the order and direction of the court, to redeem and discharge any mortgage or conditional contract, or pledge, or deposit, or lien upon any propert}', real or personal, whenever pay- able, and to tender due performance of the condition thereof, or to sell the same subject to such mortgage, lien, or other incumbrance." Act of 1867, 14; Rev. Stat., 5,066. This is a distinct recogni- tion of the rights of the pledgee as against the assignee. Of course, where the pledge is in fraud of the bankrupt law, and consequently void, the assignee ma}' disregard the contract of pledge, and recover the property for the benefit of creditors. Not so where the pledge, as in this case, was made in good faith, for a valuable consideration, and not in violation of the provisions of the bankrupt law. The savings institution, therefore, incurred no liability by its refusal to surrender the certificates upon the demand of the receiver or the assignee. Such refusal affords no evidence of a conversion of them to its use. Nor was its right to hold them impaired by its failure to appear in the bankruptcy court, or its refusal to prove its debt, in the customary form, against the estate of the bankrupts. The only effect of such refusal was to lose the privilege of participating in such distribution of the estate as might be ordered by that court. It had the right to forego that advantage, and look for ultimate security wholly to the certificates which it held under a valid pledge. If the assignee regarded them as of greater value than the debt for which the} 7 had been pledged, or if the interest of the creditors required prompt action, he had authority, under the statute and the orders of the court, to tender performance of the contract of pledge, or to discharge the debt for which the certifi- cates were held. He had the right, perhaps, under the orders of the SECT. IV.] NUTTER V. WHEELER. 391 court, to sell them, subject to the claim of the defendant in error. If he desired a sale of them, and a distribution of the proceeds, or if he doubted the validity of the pledge, he could have instituted an action against the corporation in some court of competent jurisdiction in Lou- isiana, and thereby obtained a judicial determination of the rights of the parties. But none of these obvious modes of proceeding were -adopted. The receiver and assignee seem to have acted throughout upon the theorj'- that the} 1 had the right, immediately upon and by virtue of the adjudication in bankruptcy, to assume control of all property of every kind and description, wherever held, in which the bankrupt had an in- terest, without reference either to the just possession of others, lawfully acquired, prior to the commencement of proceedings in bankruptcy, or to the liens, incumbrances, or equities which existed against the prop- erty at the time of the adjudication in bankruptcy. "We have seen that such a theory is unsupported by law. The conclusions we have announced render it unnecessary to consider any other questions raised in the case. Judgment affirmed.* T. F. NUTTER v. J. S. WHEELER ET AL. DISTRICT COURT FOR THE DISTRICT OP MASSACHUSETTS, NOVEMBER, 1874. [Reported in 2 Lowell, 346.] ACTION of contract by the assignee in bankruptcy of A. S. Gear to '} ^ recover $627, alleged to have been received by the defendants to the use of the plaintiff. The case was, by consent, tried by the court with- out a jury. The facts, as found by the judge, were these : The defendants were manufacturers of machinists' tools at Worcester, and Gear had a shop in Boston, where he sold such tools, among other > things. The defendants were in the habit of sending their manufac- Q tured goods to Gear, and he sold them at such prices and to such per- ~Y i^ sons and on such terras as he pleased, not less than the trade prices ( fixed by the defendants ; whenever he had sold any tools, and not be- *\A ( fore, he was to pay the defendants, in thirty days, the prices shown in (jn the list, less an agreed discount. The defendants had the right to sell 7 any goods which at any time remained in his shop unsold, and he was r permitted to sell any of their goods at the factory, and the defendants would then deliver them according to his order, and charge him with / ^_^ the trade price less the discount. Instead of paying in thirty days, JAX'V f I 1 Jerome v. McCarter, 94 U. S. 734; Stewart v. Platt, 101 U. S. 738; Hauselt v. Harrison, 105 U. S. 401; Re Buntrock Clothing Co., 92 Fed. Rep. 886; Crowe v. Reid, 57 Ala. 281 ; Hall v. Bliss, 118 Mass. 554; Dayton Nat. Bank v. Merchant*' Nat. Bank, 37 Ohio St. 208, ace. But see Re Cobb, 96 Fed. Rep. 821. /-).*. > , t . . ^, oY>_ xJ<-^^<^e<. KU4- 392 NUTTEK V. WHEELER. [CHAP. V. Gear would sometimes give his note for the balance due ; and the de- fendants held one such note at the time of the bankruptcy. In December, 1873, Gear ordered three drills to be sent by the de- fendants, from their factory at Worcester, to the New York Central Railroad Company, at three different machine shops of that company, in the State of New York. They were sent, and a bill was made out to Gear, as the purchaser, for the trade price of $600, less fifteen per cent, and sent him in a letter, in which the defendants say they had taken off fifteen per cent, and hope to get the cash in thirty days. In January, 1874, Gear failed, and the defendants took back the tools of their manufacture then in the shop in Boston, unsold. In Feb- ruary, 1874, Gear went into bankruptcy, and at the first meeting of creditors the defendants proved against his estate for the amount of his note, above mentioned, and for the price of the three drills. J. S. Wheeler, one of the defendants, was chosen assignee. Finding that the railroad company had not paid Gear for the drills, the defendants collected the price, giving to the company the receipt of J. S. Wheeler, the assignee. Wheeler afterwards resigned his trust as assignee. This suit was brought by the successor of Wheeler, as assignee, against the firm of J. S. Wheeler & Co., for money had and received. The defend- ants filed a petition to amend their proof, as having been made by mis- take of fact and law. E. Avery <& T. F. Nutter, for the plaintiff. N~. Morse & A. Jones, for the defendant. LOWELL, J. It has been settled for a very long time that, upon the bankruptcy of a factor, his principal may recover from the assignees any of the goods remaining unsold, or any proceeds of the sale of such goods which the assignees themselves have received, or which remain specifically distinguishable from the mass of the bankrupt's property. The action may be brought at law as well as in equity, subject, of course, to the factor's lien for advances or commissions : Scott v. Sur- man, Willes, 400 ; Ex parte Chion, 3 P. Wms. 187 n. ; Kelly v. Mun- son, 7 Mass. 319 ; Tooke v. Hollingworth, 5 T. R. 215 ; and it makes no difference that the factor acted under a del credere commission, or sold the goods in his own name : Thompson v. Perkins, 3 Mason, 232 ; Barry v. Page, 10 Gray, 398 ; Audenried v. Betteley, 8 Allen, 302. A like doctrine is applied to bankers who, if they have received notes or bills from their customers and have not discounted them, will not usually be held to have acquired the property in them ; and if the banker becomes bankrupt, his assignees are liable to the customer for the bills, or their distinguishable proceeds, subject to the lien for ad- vances : Thompson v. Giles, 2 B. & C. 422 ; Ex parte Barkworth, 2 DeGex & J. 194 ; Stetson u. Exch. Bank, 7 Gray, 425. 1 The important question, therefore, in this case is, whether the de- fendants and Gear stood in the positions, respectively, of principal and agent in this transaction of the sale of three drills. Upon the first 1 See Ames' Gas. Trusts, 9-21, for many cases illustrating this principle. SECT. IV.] NUTTER V. WHEELER. 393 view of the correspondence and the acts of the parties, it appears a simple case of sale to Gear of goods delivered to a third person at his request. And the defendants found some difficulty in stating their case in such a way as to take it out of this category. In their applica- tion to withdraw this part of their proof in bankruptcy, they say it ought to have been put, not as a sale, but as a consignment or deliver}- of the drills to Gear, or his order, for sale by him on their account, on commission. It was not a consignment, certain!}-, and Gear never for an instant had the possession or property, general or special, of the goods. The defendants, however, appeal to the course of business between the parties to prove that it was a sale on commission. The bankrupt and the defendants, being examined as witnesses, disagreed about the conversation which took place at the beginning of the business connec- tion between them ; but the very voluminous correspondence shows clearly enough what the actual mode of dealing was. And it is plain that the goods sent to Boston by the defendants, from time to time, remained their property until they were sold, and that when a sale occurred Gear became immediately the debtor at a fixed price, and was bound to pay at a definite time, and that he never consulted with them about terms or purchasers, or anything else, except the variations of the trade price ; never accounted to them or was expected to ac- count as agent, or was subject to their directions, excepting as to the tools remaining in his hands undisposed of. As to those goods sent to Boston, he may be described as a bailee, having power to sell as principal. Until a sale was made, the property in the goods remained in the defendants, and they were well justified in reclaiming those which remained on hand at the time of the failure of Gear. But after the goods were sold, the agreement appears to have been that Gear's credit only was looked to. Perhaps there were conven- iences in this mode of conducting the business. Whatever profit or loss Gear might make, or whatever credit he might give, the defend- ants had a fixed price and a fixed time of payment. He never con- sulted them about his sales, or rendered any account of sales. The prohibition against selling below the trade price is a very common one between a manufacturer and those who buy of him to sell again, and is intended to prevent a ruinous competition between sellers of the same article. I have often known this arrangement to be made by a patentee and his various licensees. It has but little tendency to prove agency. The question of agency is mooted usually either between the princi- pal and the third person, or between that person and the supposed agent ; but the real inquiry in all the cases is, whether the credit was given to the person sought to be charged by the person seeking to charge him. Thus, when the defendants were suing the railroad com- pany, the liability depended on the fact of credit having been given them by the defendants, either directly or through their agent Gear. 394 NUTTER V. WHEELER. [CHAP. V. The terms of the sale by Gear to the company were not proved, but it was taken for granted by both parties that he sold as a principal ; and that this was so, is shown by the fact that the company insisted upon the receipt of his assignee. I will now examine some adjudged cases. Where a trader, having a contract with government to supply a large amount of candles, asked a friend, who had candles of the required quality, to accommodate him with some, which the friend assented to, provided the bills should be made out in his name ; and the trader delivered the candles (as the court inferred) in his own name, and his assignees in bankruptcy re- ceived the price ; it was held they must pay it in full to the owner of the candles ; Ex parte Carlon, 4 Dea. & Ch. 120. But it was taken for granted by the judges that if the owner had intended to trust the trader's credit, he could not have intervened after the bankruptcy, but must have proved against the assets as for goods sold. So, in the cases about bankers, it has been said that if the agreement were that the bills should be the property of the banker, then, what- ever might be the hardship of the particular case, his assignee in bank- ruptcy could hold them. See remarks of Eldon, L. C., in Ex parte Sergeant, 1 Rose, 153, explained in Ex parte Barkworth, 2 DeGex & J. 194. The late English case, Ex parte White, L. R. 6 Ch. 397, is on all fours with this. With a change of names, the course of dealing de- scribed in that case would do for this, in respect to the goods sent to Gear and sold by him in Boston ; and the precise question came up, whether, after the goods had been sold, the bankrupt was to account as agent. The court decided that the agency continued only up to the time of selling the goods ; and when they were sold, the bankrupt him- self became the purchaser, as between him or his assignees in bank- ruptcy and the consignor of the goods. The learned justices say that this mode of conducting business is a usual one, of great convenience to the parties, and they carefully and ably distinguish the contract from one of a sale by an agent, even with a del credere commission. That case was to be taken to the House of Lords, but I cannot find that it has been decided there. Whatever may be its fate in that court, I con- sider the decision of the lords justices a sound one. The case of Audenried v. Betteley, 8 Allen, 302, has been cited by the defendants. There the plaintiffs agreed to ' ' stock " the wharf of the bankrupt with coal and wood, and the bankrupt was to make sales at prices fixed by the plaintiffs. He agreed to carry on no other busi- ness ; to keep books which should always be open to the inspection of the plaintiffs ; to guarantee the sales ; to account monthly, etc. The contract was evidently drawn with a view to keep the whole business under the plaintiffs' control, without making them liable for the debts of the bankrupt ; and in providing for these objects it ran some risk of making the bankrupt a mere purchaser. But the court held that he was an agent. That case differs from the case at bar as much as the English SECT. IV.] IN RE MOSES. 395 case resembles it. Here none of the circumstances are found from which an agency was there inferred. Gear did not render an account of sales ; did not agree to guarantee sales, nor to keep books, nor to sell at prices to be fixed by the defendants, excepting as to the mini- mum, which has been already explained. If the relation of the parties was such as I have considered it, then, even as to the goods which had once been consigned to Gear, he should be considered as the purchaser, subject only to the understanding that he was neither the owner of them, nor liable to pay for them until he had succeeded in finding a purchaser ; but when he did sell he immedi- ately became the principal, and the defendants ceased to have the rights of a consignor, and could not follow the goods or their proceeds as un- disclosed principals. If this is so, then the transaction now under review, which, standing alone, appears to be a sale to Gear himself, and not a sale through him as agent, is not shown to be anything else by the course of trade between the parties. But even if the goods which had once been con- signed to Gear should be held to be sold by him as agent or factor, I doubt if such sales as this could be so considered. The defendants, then, have collected money which belonged to the estate of Gear. They collected it by action ; but as they had no right to collect it, they cannot deduct the expenses, unless the}^ would have been necessary and proper costs of a recovery by the assignee if he had brought the action. In the settlement with the railroad company they were obliged to give the receipt of one of the firm as assignee, and there is no evidence that he could not have had the money in the first instance upon such a receipt. The expenses, therefore, were incurred in their own wrong. They must pay to the present assignee the price the railroad gave for the drills, which I understand to be $610. Judgment for the plaintiff". IN THE MATTER OF SIMON MOSES. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, MARCH 4, 1880. [Reported in 1 Federal Reporter, 845.] CHOATE, J. This is an application on the part of creditors of the bankrupt, by petition, to compel the bankrupt to deliver to the assignee certain moneys and property alleged to be in his possession at the time of filing his petition in bankruptcy and not delivered to his assignee. The bankrupt has answered, denying that he had any such money or property ; but he now objects to any further proceedings, and moves to dismiss the petition on the ground that, upon the case as stated in the 396 IN RE MOSES. [CHAP. v. petition, the assignee in bankruptcy has no title or claim to the prop- erty, but that, if the bankrupt still holds it, it belongs to his assignee under a voluntary assignment for the benefit of creditors, executed before the filing of the petition in bankruptcy. The case made by the petition is shortly this : The general assign- ment for the benefit of creditors was executed December 19, 1877. The petition in bankruptcy was filed June 27, 1878. At and prior to the making of the general assignment, the bankrupt had a large amount of money and personal property, which, with the knowledge and conni- vance of his voluntary assignee, and to defraud his creditors, he was permitted to use as his own in continuing his business. That part of his property, if any, which he did deliver to the voluntar}- assignee was delivered in form onl}*, and really remained subject to the control and use of the bankrupt in his business, the assignee permitting the money to be deposited in a bank account opened in his name as assignee, and to be drawn out b}* or for the use of the bankrupt, and for the bankrupt's own business purposes. The bank account of the assignee was, on the case made, a mere blind for creditors. This state of things continued till the assignee died, having rendered no account, and having to his credit in the bank only about $500. A new assignee has, since his death, been appointed by the court having jurisdiction of the trust, on the application of the present petitioners. The monej's and property now alleged to be in the hands of the bank- rupt are the proceeds and result of the business so carried on, or, per- haps, partly the very money which the bankrupt failed to deliver to his voluntary assignee. Upon this case I am clearly of opinion, if the facts shall be estab- lished by the evidence, that the bankrupt should be compelled to pay over and deliver the money and property to the assignee in bankruptcy. Whatever money or property is in the possession of the bankrupt at the time of filing his petition, which he is actually using and holding as his own, passes to his assignee in bankruptc}', and he cannot set up in defence to the claim of the assignee a title in a third person, merely for the purpose of holding it himself. If third persons have the pos- session, this court cannot, on summaiy petition, order it to be delivered to the assignee. But if the bankrupt has it, it passes to the assignee, subject to the liens or rights of third persons, whatever they may be. After the assignee gets the property, any third person may, by petition or suit, assert his rights in it. 1 1 The court here quoted from In re Beal, 2 N. B. R. 587. See also Re Kurtz, 125 Fed. 992 ; Lord v. Seymour, 85 N. Y. App. Div. 617, affd. 177 N. Y. 525. SECT. IV.] THOMPSON V. FAIRBANKS. 397 THOMPSON v. FAIRBANKS. SUPKEME COURT OF THE UNITED STATES, JANUARY 6- FEBRUARY 20, 1905. [Reported in 196 United States, 516.] MR. JUSTICE PECKHAM delivered the opinion of the court. This is a contest between a trustee in bankruptcy representing the creditors of the bankrupt, and the defendant, the mortgagee in a chat- tel mortgage dated and executed April 15, 1891, and duly recorded April 18 of that year. The defendant has paid some $500 of the in- debtedness of the bankrupt for which defendant was liable as indorser on a note, and he remains liable to pay the note of $2,510.75, held by the Passumpsic Savings Bank, which was signed by him as surety. The propert}' taken possession of by the defendant under the chattel mortgage was sold by a deputy sheriff on the eleventh of June, 1900, and the net avails of the sale, amounting to $922.08, have been paid over by the officer who made the sale, to the defendant. This suit is brought by the trustee to recover from the defendant those net avails on the theory that the action of the defendant in taking possession and making the sale of the property was unlawful under the provisions of the bankrupt act. The defendant had assisted the bankrupt in the purchase of the prop- erty and had indorsed notes for him in order to enable him to carry on the business of conducting a livery stable. This mortgage, to secure him for these paj'ments and liabilities, was given some seven years be- fore the passage of the bankrupt act, and at the time it was given it was agreed by the parties to it that the bankrupt might sell or exchange any of the livery stock covered by it as he might desire, and should by pur- chase or exchange keep the stock good, so that the defendant's security should not be impaired, and it was also agreed that all after- acquired livery property should be covered by the mortgage as security for the debts specified therein. Under this agreement the bankrupt made sales, purchases, and ex- changes of livery stock to such an extent that on May 16, 1900, there retimined but two horses of the property originally on hand. The stock as it existed on the above date was all acquired b}- exchange of the original stock, or with the avails of the old stock sold, or the money derived from the business. There is no pretence of any actual fraud being committed or contemplated by either party to the mortgage. In- stead of taking possession at the time of the execution of the mortgage, the defendant had it recorded in the proper clerk's office, and the record stood as notice to all the world of the existence of the lien as it stood when the mortgage was executed, and that the defendant would have the right to take possession of property subsequently acquired as pro- vided for in the mortgage. The Bankrupt was, therefore, uot holding 398 THOMPSON V. FAIRBANKS. [CHAP. V. himself out as unconditional owner of the property, and there was no securing of credit by reason of his apparent unconditional ownership. The record gave notice that he was not such unconditional owner. There was no secret lien, and if defendant cannot secure the benefit of this mortgage, which he obtained in 1891, as a lien upon the after- acquired propert}*, } - et prior to the title of the trustee for the benefit of creditors, it must be because of some provision of the bankruptc}' law, which we think the court ought not to construe or endeavor to enforce beyond its fair meaning. In Vermont it is held that a mortgage, such as the one in question, i? good. The Supreme Court of that State has so held in this case, and the authorities to that effect are also cited in the opinion of that court. And it is also there held that when the mortgagee takes posses- sion of after-acquired propert}*, as provided for in this mortgage, the lien is good and valid as against every one but attaching or judgment creditors prior to the taking of such possession. At the time when the defendant took possession of this after-acquired property, covered by the mortgage, there had been a breach of the con- dition specified therein, and the title to the property was thereby vested in the mortgagee, subject to the mortgagor's right in equit} 1 to redeem. This has been held to be the law in Vermont (aside from an}- question as to the effect of the bankrupt law), both in this case and in the cases also cited in the opinion of the Supreme Court of Vermont. The taking of possession of the after-acquired property, under a mortgage such as this, is held good, and to relate back to the date of the mortgage, even as against an assignee in insolvency. Peabody v. Landon, 61 Vermont, 318, and other cases cited in the opinion of the Supreme Court. Whether and to what extent a mortgage of this kind is valid, is a local question, and the decisions of the State court will be followed by this court in such case. Dooley v. Pease, 180 U. S. 126. The question that remains is, whether the taking of possession after condition broken, of these mortgaged chattels before, and within four months of filing the petition in bankruptc}*, was a violation of any of the provisions of the bankrupt act? The trustee insists that such taking possession of the after-acquired property, under the mortgage of 1891, constituted a preference under that act. He contends that the defendant did not have a valid lien against creditors, under that act ; that his lien might under other cir- cumstances have been consummated by the taking of possession, but as that was done within four months of the filing of the petition in bankruptcy, the lien was not valid. Did this taking of possession constitute a preference within the mean- ing of the act ? It was found b}' the referee that when the defendant took possession of the property he knew that the mortgagor was insolvent and was con- sidering going into bankruptcy, but that he did not intend to perpetrate any actual fraud on the other creditors, or any of them, but did intend SECT. IV.] THOMPSON V. FAIKBANKS. 399 thereby to perfect his lien on the property, and make it available for the payment of his debts before other complications, by way of attach- ment or bankruptcy arose. He then understood that RyanVattachment would probably hold good against his mortgage. The question whether any conveyance, etc., was in fact made with intent to defraud creditors, when passed upon in the State court, is not one of a Federal nature. McKenna v. Simpson, 129 U. S. 506 ; Cramer v. Wilson, 195 U. S. 408. It can scarcely be said that the enforcement of a lien by the taking possession, with the consent of the mortgagor, of after-acquired property covered by a valid mortgage is a conveyance or transfer within the bankrupt act. There is no finding that in parting with the posses- sion of the property the mortgagor had any purpose of hindering, delay- ing, or defrauding his creditors, or any of them. Without a finding to the effect that there was an intent to defraud, there was no invalid transfer of the property within the provisions of section 67 e of the bankruptcy law. Sabin v. Camp, 98 Fed. Rep. 974. In the case last cited the court, upon the subject of a preference, held that though the transaction was consummated within the four months, yet it originated in October, 1897, and there was no preference under the facts of that case. " What was done was in pursuance of the pre- existing contract, to which no objection is made. Camp furnished the money out of which the property, which is the subject of the sale to him, was created. He had good right, in equity and in law, to make pro- vision for the security of the money so advanced, and the property purchased b}- his money is a legitimate security, and one frequently employed. There is always a strong equity in favor of a lien b}* one who advances money upon the property which is the product of the money so advanced. This was what the parties intended at the time, and to this, as already stated, there is, and can be, no objection in law or in morals. And when, at a later date, but still prior to the filing of the petition in bankruptcy, Camp exercised his rights under this valid and equitable arrangement to possess himself of the property and make sale of it in pursuance of his contract, he was not guilty of securing a preference under the bankruptcy law. The principle that the taking possession may sometimes be held to relate back to the time when the right so to do was created, is recog- nized in the above case. So in this case, although there was no actual existing lien upon this after-acquired property until the taking of pos- session, yet there was a positive agreement, as contained in the mort- gage and existing of record, under which the inchoate lien might be asserted and enforced, and when enforced by the taking of possession, that possession under the facts of this case, related back to the time of the execution of the mortgage of April, 1891, as it was only by virtue of that mortgage that possession could be taken. The Supreme Court of Vermont has held that such a mortgage gives an existing lien by contract, which may be enforced by the actual taking of possession, and such lien can only be avoided by an execution or attachment cred- 400 THOMPSON V. FAIRBANKS. [CHAP. V. itor, whose lien actually attaches before the taking of possession by the mortgagee. Although this after-acquired property was subject to the lien of an attaching or an execution creditor, if perfected before the mort- gagee took possession under his mortgage, yet if there were no such creditor, the enforcement of the lien by taking possession would be legal, even if within the four months provided in the act. The're is a distinction between the bald creation of a lien within the four months, and the enforcement of one provided for in a mortgage executed years before the passage of the act, by virtue of which mortgage and because of the condition broken, the title to the propert\ r becomes vested in the mortgagee, and the subsequent taking possession becomes valid, except as above stated. A trustee in bankruptcy does not in such circum- stances occupy the same position as a creditor levying under an execu- tion, or by attachment, and his rights, in this exceptional case, and for the reasons just indicated, are somewhat different from what they are generally stated. Mueller v. Nugent, 184 U. S. 1. It is admitted on the part of the counsel for the plaintiff in error that the rule in Vermont, in cases of chattel mortgages of after-acquired propert}* (where possession by the mortgagee is necessaiy to perfect his title as against attaching or execution creditors), is that although such possession be not taken until long after the execution of the mortgage, (&*d yet the possession, when taken (if it be before the lien ofjthe attaching or execution creditor), brings the property under the cover and opera- tion of the mortgage as of its date the time when the right of posses- sion was first acquired. It was also admitted that the Supreme Court of Vermont has held that when a chattel mortgage requiring possession of the mortgaged property, to perfect it as to third persons, was executed more than four months before the commencement of insolvency pro- ceedings, the taking of actual possession of the mortgaged property within the four months' period brought that property under the mortgage as of its date, and so did not constitute a preference voidable by the trustee, although the other elements constituting a preference were present. Many decisions of the Supreme Court of Vermont are cited to this effect. It will be observed, also, that the provisions of the State insolvency law in regard to void and voidable preferences and transfers were identical with similar provisions of the bankruptcy act of 1867. Gilbert v. Vail, 60 Vermont, 261. Under that law it was held that the assignee in bankruptc}' stood in the shoes of the bankrupt, and that " except where, within a prescribed period before the commencement of proceedings in bankruptcy, an at- tachment has been sued out against the property of the bankrupt, or where his disposition of his property was, under the statute, fraudulent and void, his assignees take his real and personal estate, subject to all equities, liens, and encumbrances thereon, whether created b}- his act or by operation of law. Yeatman v. Savings Institution, 95 U. S. 764. See also Stewart v. Platt, 101 U. S. 731; Hauselt v. Harrison, 105 U. S. 401. Under the present bankrupt act, the trustee takes the prop- SECT. IV.] THOMPSON V. FAIKBANKS. 401 erty of the bankrupt, in cases unaffected by fraud, in the same plight . ' and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt, except in cases where there has been a conveyance or encumbrance of the property which is void as against the trustee by some positive provision of .the act. In re Garcewich, 115 Fed. Rep. 87, 89, and cases cited. It is true that in the case in 95 U. S. 764, the savings institution had a special property in the certificates which were the subject of dispute, and had possession of them at the time of the bankruptcy proceedings, and it was held that the institution was not bound to return them, either to the bankrupt, the receiver or the assignee in bankruptcy, prior to the time of the payment of the debt for which the certificate was held. So the State court held in this case, where the defendant took posses- sion under the circumstances detailed, by virtue of his mortgage, and where he had the legal title to the property mortgaged, after condition broken, that the possession thus taken related back to the date of the giving of the mortgage, and in thus enforcing his lien there was not a violation of any of the provisions of the bankruptcy act. In Wilson v. Nelson, 183 U. S. 191, it was held that the bankrupt had committed an act of bankruptc}*, within the meaning of the bank- rupt law, by failing, for at least five days before a sale on the execution issued upon the judgment recovered, to vacate or discharge the judg- ment, or to file a voluntar} 7 petition in bankruptcy. The judgment and execution were held to have been such a preference, "suffered or per- mitted" by the bankrupt, as to amount to a violation of the bankrupt act. Although the judgment was entered upon the power of attorney given years before the passage of the bankrupt act, it was nevertheless regarded as "suffering or permitting" a preference, within that act. This is not such a case. As we have said, there is no finding that the defendant had reasonable cause to believe that by the change of posses- sion it was intended to give a preference. As the State court has said, it was rather a recognition of what was regarded as a right under the previous agreement contained in the mortgage. We think the judgment of the Supreme Court of Vermont was right, and it is Affirmed. 1 1 A portion of the opinion relating to certain special facts which were held irrelevant is omitted. In Humphrey v. Tatman, 198 U. S. 91, the court reached the same result as to a Massachusetts mortgage, reversing the decision of Tatman v. Humphrey, 184 Mass. 361. J 402 HASKELL V. MEKRILL. [CHAP. V. FREDERIC F. HASKELL, TRUSTEE, v. JOSEPH F. MERRILL & OTHERS. SUPREME JUDICIAL COURT OF MASSACHUSETTS, MARCH 20-MAY 23, [Reported 1)1 179 Massachusetts, 120.] HOLMES, C. J. This is a bill by a trustee in bankruptcy to recover property alleged to belong to the bankrupt's estate. The case was sent to a master, and exceptions were taken by the defendant Hodge to his report. These were overruled, and no appeal was taken. Afterwards the report was accepted and a decree was entered for the plaintiff. From this final decree an appeal was taken. The only question before us is whether the decree was warranted on the pleadings and report. The only property concerned under the master's report is machinery found to have been transferred by a bill of sale to the defendant Hodge as security for advances. The instrument seems not to have been re- corded, and the master finds in terms that there never was any delivery of possession. An exception taken to this finding is less frivolous than ^^ the others, since earlier in the report it is stated that after giving the security the bankrupt paid monthly rent for the use of it. We assume for the purposes of decision that the form of such a paj'ment would have been evidence of a sufficient change of possession. Moors v. Wyman, 146 Mass. 60, 63, and there may be some ground for appre- hending that the master adopted a different view. But we cannot say that the fact that the form of paying rent was gone through conclu- sively establishes the change. Harlow v. Hall, 132 Mass. 232. It should be mentioned, too, that a part of the machinery at least seems not to be the same as that covered by the mortgage. Coming, then, to the question whether the report justifies the decree, it follows that Hodge has no title as against the plaintiff. St. 1883, c. 73 ; Chick v. Nute, 176 Mass. 57 ; Bingham v. Jordan, 1 Allen, 373. It is true that under the last bankrupt act it looked a little as if property situated like this might be at a loss for a master. For while this court denied it to the mortgagee the United States courts denied it to the assignee in bankruptcy. Winsor v. McLellan, 2 Story, 492; Ex parte Dalby, 1 Lowell, 431; Coggeshall v. Potter, Holmes, 75; Stewart v. Platt, 101 U. S. 731, 738, 739. The ground of the United States decisions was that the assignee is the bankrupt. Lowell, Bank- ruptcy, 309. And no doubt it is traditional to regard such assignees as universal successors who like executors or other universal successors represent the person of him to whom they succeed. Chipman v. Man- ufacturers' National Bank, 156 Mass. 147, 149; Phosphate Sewage Co. v. Molleson, 5 Ct, of Sess. Cas. (4th Ser.) 1125, 1138. Neverthe- less in Bingham v. Jordan the statute was held to invalidate the mort- gage as against assignees in insolvency; and this amounted to a decision that a fictitious identity of person did not satisfy the words of SECT. IV.] YORK MANUFACTURING COMPANY V. CASSELL. 403 our statute which make the mortgage void " against any person other than the parties thereto." The view taken by Judge Lowell was al- most directly contradictory to this decision, which was that an assignee in insolvency was not a " party thereto." The construction of a State statute is a matter upon which the deci- sion of the State court is final. If the only ground on which the right of the assignee to property subject to an unrecorded mortgage is that given by Judge Lowell, in Lowell, Bankruptcy, 309, the answer is that the United States courts are not at liberty to say that an assignee is a party to a mortgage given by his bankrupt when this court has said that he is not. But it seems to be unnecessary to discuss that question, because in Ex parte Dalb}", 1 Lowell, 431, 433, it is admitted tbat there is a distinction when the assignee takes all that could have been taken on execution against the bankrupt at the time of the bank- ruptcy. Under the present statute the trustee takes " property which prior to the" ^filing of the petition he [the bankrupt] could by any means have transferred or which might have been levied upon and sold under judicial process against him." U. S. St. 1898, c. 541, 70. It is ver3 r plain tbat the machinery is such propert} 7 . Bingham v. Jordan, 1 Allen, 373, Smith v. Howard, 173 Mass. 88, and therefore it passes to the plaintiff*^ Decree affirmed. 1 A YORK MANUFACTURING COMPANY v. CASSELL. SUPREME COURT OF THE UNITED STATES, MARCH 14-ApRiL 2, 1906. [Reported in 201 United States, 344.] MR. JUSTICE PECKHAM delivered the opinion of the court. The question is simply whether the York Manufacturing Company t. .^^i) .tAA^ has a right under its [unfiled] conditional sale of the machinery to the ' ^ , bankrupt corporation to take the machinery out of the premises where it ' was placed as against all except judgment, or other, creditors, by some ^ \j^ specific lien. There are no judgment creditors in the case and no ijCJLA* ** attachment has been levied, and the question is simply whether the adjudication in bankruptcy is equivalent to a judgment or an attach- ment on the property, so as to prevent the York Manufacturing Com- ' pan}' from asserting its right to remove the machinery by virtue of the $*j &*" reservation of title contained in its contract. .Ajt*> In Wilson v. Leslie, 20 Ohio, 161, the court was construing the lan- guage of the statute relating to chattel mortgages, which declared a \$-U^ mortgage absolutely void as against creditors of the mortgagor, and as ,-jj f\JL^ against subsequent purchasers and mortgagees in good faith, unless the &C^ mortgage or a true copy thereof should be deposited forthwith, as '' 1 A portion of the opinion not relating to the law of bankruptcy is omitted. See also Clark v. Williams. 190 Muss. 219; Goodrich v. Dore, 19J Mass. 493. 404 YOKK MANUFACTURING COMPANY V. CASSELL. [CHAP. V. directed in the act. The court held that the mortgage was not void for lack of filing, as between the parties thereto, but that the stat- ute only avoided the instrument as to those creditors who, between the time of the execution of the mortgage and the filing thereof, had taken steps to "fasten upon the property for the payment of their debts." As against such as had in the interim secured liens by attach- ment, execution or otherwise, the mortgage would be void. When filed with the recorder the instrument became valid as against all persons, except those whose rights have attached upon the property before the recording of the instrument. See to the same effect In re Shirley, 112 Fed. Rep. 301. We have not been referred to any decision of the Supreme Court of Ohio as to the meaning of the statute requiring the filing of contracts of conditional sales, but we concur with the Circuit Court of Appeals in this case, that the statute would render the unfiled contract void as to the same class of creditors mentioned in the chattel mortgage stat- ute. Therefore the contract would be void as to creditors who before its filing had " fastened upon the property " by some specific liens. As to creditors who had no such lien, being general creditors only, the statute does not avoid the sale, which is good between the parties to the contract. The mortgage of Waight & Ames cannot be a lien on the machinery sold by the York Manufacturing Compan}^ because the mortgage was prior to the time when any portion of such machinery was placed upon the land. There was no clause in the mortgage covering after-acquired property, and in any event the mortgage would not cover property so acquired, the title to which, as in this case, was reserved to the vendor. This was the ruling of the District Court, and no appeal was taken therefrom by the mortgagees. There are no creditors with any specific liens, nor is there any other mortgage, and there is no attachment. We come then to the question whether the adjudication in bank- ruptcy was equivalent to a judgment, attachment, or other specific lien upon the machinery. The Circuit Court of Appeals has held herein that the seizure by the court of bankruptcy operated as an attachment and an injunction for the benefit of all persons having interests in the bankrupt's estate. . . - A We are of opinion thatTrdid not operate as a lien .upon the macbi- nery as against the York Manufacturing Company, the vendor thereof. Under the provisions of the bankrupt act the trustee in bankruptcy is vested with no better right or title to the bankrupt's property than jy belonged to the bankrupt at the time when the trustee's title accrued. At that time the right, as between the bankrupt and the York Manu- facturing Company, was in the latter company to take the machinery on account of default in the payment therefor. The trustee under such cir- cumstances stands simply in the shoes of the bankrupt and as between them he has no greater right than the bankrupt. This is held in Hewit v. -Berlin Machine Works, 194 U. S. 296. The same view was SECT. IV.] YORK MANUFACTURING COMPANY V. CASSELL. 405 taken in Thompson v. Fairbanks, 196 U. S. 516. It was there stated that ' ' under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt. See Yeat- man v. Savings Institution, 95 U. S. 764 ; Stewart v. Platt, 101 U. S. 731; Hauselt v. Harrison, 105 U. S. 401. The same doctrine was reaffirmed in Humphrey v. Tatman, 198 U. S. 91. The law of Ohio says the conditional sale contract was good between the parties, although not filed. In such a case the trustee in bankruptcy takes only the rights of the bankrupt, where there are no specific liens, as already stated. The remark made in Mueller v. Nugent, 184 U. S. 1, " that the filing of the petition [in bankruptc}'] is a caveat to all the world, and in effect an attachment and injunction," was made in regard to the particular facts in that case. The case itself raised questions entirely foreign to the one herein arising, and did not involve an}' inquiry into the title of a trustee in bankruptcy as between himself and the bankrupt, under such facts as are above stated. The dispute in the Mueller case was whether the court in bankruptcy had power to compel, in a summary wa} r , the surrender of money or other property of the bankrupt in the possession of the bankrupt, or of some one for him, without resorting to a suit for that purpose. This court held, as stated by the Chief Jus- tice in delivering its opinion : " The bankruptcy court would be helpless indeed if the bare refusal to turn over could conclusive^ operate to drive the trustee to an action to recover as for an indebtedness, or a conversion, or to proceedings in chancery, at the risk of the accompani- ments of delay, complication, and expense, intended to be avoided by the simpler methods of the bankrupt law." It was held that the trus- tee was not thus bound, but had the right, under the facts in that case, to proceed under the bankrupt law itself and take the property out of the hands of the bankrupt or any one holding it for him. In this case, under the authorities already cited, the York Manufac- turing Company had the right, as between itself and the trustee in bankruptcy, to take the property under the untiled contract with the bankrupt, and the adjudication in bankruptc} r did not operate as a lien upon this machinery in favor of the trustee as against the York Manu- facturing Company. The decree of the Circuit Court of Appeals is reversed and the case remanded to the District Court, with directions to enter a decree in conformity with this opinion. Reversed. i 406 PACIFIC STATE BANK V. COATS. [CHAP. v. PACIFIC STATE BANK v. COATS. CIRCUIT COURT OF APPEALS FOR THE NINTH CIRCUIT, MAY 21, ( 19 1& [Reported in 205 Federal Reporter, 618.] APPEAL from a judgment of the District Court of the United States for the Western District of Washington, disallowing a claim. Before GILBERT and MORROW, Circuit Judges, and WOLVERTON, District Judge. WOLVERTON, District Judge. A. S. Coats is trustee in bankruptcy of the Raymond Box Company, a corporation. On December 2, 1910, the company executed and de- red to appellant, the Pacific State Bank, a note for the sum of $23,400 and a mortgage to secure its payment upon certain j-eal an4 personal property of the bankrupt. The bank in due time filed its claim with the trustee, asserting preference over the general creditors as to such property by reason of its mortgage. Objections having been *' interposed to the validity of the mortgage on account of alleged irregu- larities attending its execution, acknowledgment, and recording, the cause was submitted to the District Court for its determination, and, the decision being adverse to the bank, it has appealed to this court. Is the trustee in bankruptcy in a position to controvert the validity of the mortgage either as a real or chattel mortgage? It is insisted on the part of the bank that, because the trustee represented only creditors who became such after the date of giving the mortgage, he cannot question the validity of such mortgage. [The court here quotes the amendment of 1910 to section 47, cl. 2.] It is the purpose of this amendment to vest in the trustee for the interest of all creditors the potential rights of creditors possessing or holding liens upon the property coming into his custody by legal or equitable proceedings. The trustee no longer stands in the shoes merely of the bankrupt, with the limited rights of the bankrupt to attack unrecorded liens which may be valid and unimpeachable by such bankrupt ; but the amendment by operation of law vests in him a lien equivalent to such as would be acquired by legal or equitable pro- ceedings upon the property coming into his custody by virtue of the bankruptcy proceedings. "The class of cases, unprovided for by the original act, and intended to be reached by the amendment," says Mr. Collier in his work on Bankruptcy (9th Ed.), p. 659, "was that in which no creditors had acquired liens by legal or equitable proceedings and to vest in the trustee for the interest of all creditors the potential rights of creditors potential with such liens." " This provision of the Bankruptcy Act," says WITNER, Judge, in Re Hartdagen (D. C., Pa.), 189 Fed. 546, 549, "puts the trustee, in so far as the assets of the estate are concerned, in the position of a lien creditor," distinguishing the case of York Mfg. Co. v. Cassell, 201 U. S. 344, and others of its SECT. IV.] PACIFIC STATE BANK V. COATS. 407 character which it is thought inspired the amendment. Mr. Collier is further of the view that : ' ' The purpose of Congress was to embrace within these words every class of creditors with liens by legal or equitable proceedings favored by the varying registration laws of each of the states." Collier on Bankruptcy (9th Ed.), p. 660. See also, In re Calhoun Supply Co. (D. C., Ala.), 189 Fed. 537 ; In re Franklin Lumber Co. (D. C., Va.), 187 Fed. 281 ; In re Williamsburg Knitting Mill (D. C., Va.), 190 Fed. 871 ; In re Bazemore (D. C., Ala.), 189 Fed. 236. The mortgage was duly filed in the county auditor's office, and re- corded in mortgage records, but not in the records kept for recording chattel mortgages. Let us first consider the validity of the mortgage as a chattel mort- gage, in so far as the trustee may be affected thereby. Under the laws of the State of Washington, a mortgage of chattels must be recorded in the office of the county auditor of the county in which the mortgaged property is situated, in a book kept exclusively for that purpose. Sec- tion 4559, Ballinger's Ann. Codes and Stats, of Washington. By the previous section it is provided : " A mortgage of personal property is void aq gya^jpet creditors. of the ~wJL* wo mortgagor or subsequent purchaser and incumbrancers of the property for value and in good faith, unless it is accompanied by the affidavit of the mortgagor that it is made in good faith, and without any design to hinder, delay, or defraud creditors, and it is acknowledged and recordedv^ in the same manner as is required by law in conveyance of real property." ~ And it has been held by the Supreme Court of the State that a chat- tel mortgage, although duly acknowledged as a real estate mortgage, which is filed and recorded in the records ]of real estate mortgages only, and not in a book kept exclusively for the purpose of recording chattel mortgages in the county auditor's office, is not effective to im- part notice to third persons, and the fact of the recording in the real estate record of mortgages is insufficient as a recording of the mort- gage. Dunsmuir v. Port Angeles Gas, Water, Electric L. & P. Co., 24 Wash. 104. That court has also construed section 4558 to mean practically what its language imports, namely, that a personal property mortgage unre- corded is void against all creditors of the mortgagor, whether prior or subsequent, and especially the latter. In Willamette Casket Co. v. Cross Undertaking Co., 12 Wash. 190, 194, the court said : " The language of the statute and these authorities satisfy us that it was the intention of the Legislature to give no preference to a chattel mortgagee over the claims of creditors who should become such after its execution, unless it was recorded within a reasonable time after its execution, and that the mortgage in question was not recorded within such reasonable time." And it was held in that case that the creditors who became such X 408 PACIFIC STATE BANK V. COATS. [CHAP. V. subsequent to the execution and filing of the chattel mortgage were entitled to superior right over the mortgage. This decision was fol- lowed in a subsequent case, namely, Manhattan Trust Co. v. Seattle Coal & Iron Co., 16 Wash. 499, wherein it was held in effect that the mortgage unrecorded was void as to subsequent creditors. The case of Roy & Co. v. Scott, Hartley & Co., 11 Wash. 399, is not in accord with these decisions as it respects the construction of the statute, but these being the later will prevail. So that under the authorities here cited, and by which we are controlled as they construe the laws of Washington, the ".mortgage in the present case as a chattel mortgage must be held ^o~be void as against the trustee, hpjftana p - if was n larly recorded as a chattel mortgage in a book kept exclusively for that purpose in the auditor's office. This upon the specific language of the statute rendering the mortgage void as to creditors of the mortgagor. As it pertains to the regularity of the acknowledgment of the docu- ment as a real estate mortgage, we have concluded it may well be con- ceded to be irregular, and yet it must be held that the mortgage is good as against the trustee in bankruptcy, and constitutes a superior lien to the demand of such trustee, under the holding of the Supreme Court of the State of Washington, read in connection with section 47a, subd. 2, of the Bankruptcy Act. It seems to be settled law in the State that an unacknowledged deed is good as between the parties thereto, and con- veys at least the equitable title to the real property involved. Matson v. Johnson, 48 Wash. 256, 258. See also, Carson v. Thompson, 10 Wash. 295, and Bloomingdale v. Weil, 29 Wash. 611, at page 634. In the latter case, the court says : " The fact that an instrument is defectively acknowledged, or that the certificate of acknowledgment is defectively certified, will not affect its operative force, at least in equity, as against the grantor or one who is not a bonafide purchaser." An unacknowledged mortgage or one defectively acknowledged must needs stand in the same category as an acknowledged deed, and would consequently be good as between the parties. At least it would oper- ate to create an equitable lien upon the specific property as security for the payment of the demand sought to be secured. It is not entirely clear whether this latter section was intended as a curative statute or not, but it has been uniformly held by the Supreme Court of the State that a judgment creditor is not a bonajide purchaser, and that the lien of the judgment binds only the interest that the judg- ment debtor actually has in the real estate. The question was elabo- rately discussed, and so concluded in Dawson v. McCarty, 21 Wash. 314. That was a case where a judgment was duly rendered subse- quently to the due execution of a mortgage but prior to its recordation, and it was held that the lien of the mortgage was superior in right to the judgment. The learned judge rendering the opinion quotes from Pomeroy's Equity Jurisprudence, 721, as follows: SECT. IV.] PACIFIC STATE BANK V. COATS. 409 "The doctrine is certainly established as part of the equity jurispru- dence, and rests upon the solid basis of principle that p'rior equitable interests in rem, including equitable liens upon specific parcels of land, have priority of right over the general statutory lien of subsequent docketed judgments, although the latter is legal in its nature. Judg- ment creditors are not ' purchasers/ within the meaning of the record- ing acts, and, unless expressly put upon the same footing, they do not obtain the benefit which a subsequent purchaser does by a prior record. The equitable doctrine is that a judgment, and the legal lien of its docket, binds only the actual interest of the judgment debtor, and is subject to all existing equities which are valid as against such debtor." This doctrine he applies to the case, and, after examining other authorities, says : " The decided weight of authority seems to be that the term ' bona fide purchasers,' in the recording act, does not include a judgment creditor." And he further says : " It is immaterial whether the mortgagee is strictly a bona fide pur- chaser within the meaning of the statute. The question is whether the judgment creditor is a bona fide purchaser, and thus within the pro- tection of the statute." And it was finally adjudged that the judgment lien should be subor- dinate to the lien of the mortgagee. In a much earlier case it was said that : "An execution creditor is not a bona fide purchaser. He parts with no consideration on account of the goods, and he takes no greater in- terest than his debtor has." Scott v. McGraw, 3 Wash. 675. And in another case it was said : " It has been established as the rule in this State that a judgment is a lien upon the real, and not the apparent, interest of the debtor. An execution creditor purchasing at his own sale is not a bona fide pur- chaser. He parts with no consideration, and takes no greater interest than his debtor has." Woodhurst v. Cramer, 29 Wash. 40, 48. See also, Hacker v. White, 22 Wash. 415 ; American Sav. Bank & Trust Co. v. Helgesen, 67 Wash. 572, 575. Such being the law of the State of Washington as expressed by the Supreme Court, it is clear that an attachment, judgment or execution lien creditor acquires no rights in the property except upon the interest which the debtor may have therein at the time the lien attaches ; and such is all the trustee can acquire under the clause of the Bankruptcy Act which we have been discussing, being vested with and entitled to all the rights, remedies and powers of a creditor holding a lien by legal or equitable proceeding, or of a judgment creditor holding an execution duly returned unsatisfied. The mortgage must be held to be superior in right to the statutory lien of the trustee. 410 THOMAS V. WOODS. [CHAP. Y. THOMAS v. WOODS. CIRCUIT COURT OF APPEALS FOR THE EIGHTH CIRCUIT, SEPTEMBER, 1909. [Reported in 1 73 Federal Reporter, 585.] Before ADAMS, Circuit Judge, and RINER and AMIDON, District Judges. AMIDON, District Judge. At all the times mentioned in the record, Mr. and Mrs. Thomas were citizens and residents of the State of Kansas, by whose laws the wife's right of dower has been abrogated. By the laws of Missouri, where the lands are located, the wife is granted a right of dower in all real property owned by the husband during coverture. Section 8 of the Bankruptcy Act is as follows : "The death or insanity of a bankrupt shall not abate the proceed- ings, but the same shall be conducted and concluded in the same manner, so far as possible, as though he had not died or become in- sane : Provided, that in case of death, the widow and children shall be entitled to all rights of dower and allowance fixed by the laws of the State of the bankrupt's residence." It is contended by appellee, and was held by the trial court, that under the proviso of this section the dower rights of the wife, in case of the bankruptcy of her husband, are restricted to those allowed by the taws of the State of the bankrupt's residence. Upon this interpre- tation of the statute, it was decided that Mrs. Thomas was not entitled to any dower interest in property situated in Missouri, although the laws of that State granted her such rights. We do not think this a sound view of the law of dower, or of section 8 of the Bankruptcy Act. 1. It is first urged in support of the decision that, if the laws of the several States on the subject of dower are made applicable to the estates of bankrupts, it will cause the Bankruptcy Act not to be uniform. That, in our opinion, is a mistaken view of the provision of the Federal Constitution relating to bankruptcy. The uniformity which it requires relates to the law itself, and not to its results upon the varying rights of debtor and creditor under the laws of the several States. 2. It is next urged that the right of dower belongs in the same class as the right of exemptions and homesteads, which are confined by sec- tion 6 of the Bankruptcy Act to the State of the bankrupt's domicile. Their similitude is very slight. Both are in a general way for the protection of the family. There, however, their likeness ceases. The homestead and exemptions are a part of the bankrupt's estate. They are both primarily to be claimed by him and set off to him. Their selection from his estate arises at the time when that estate is to be SECT. IV.] THOMAS V. WOODS. 411 appropriated to the payment of the claims of his creditors^ Dower, on the other hand, is no part of the bankrupt's estate. ' The wife de- rives no right from him either by grant or contract. As the Supreme Court says in Randall v. Krieger, 23 Wall. 137, 148: "It is wholly given by law." Congress has plenary power over the subject of ex- emptions, because they are part of the bankrupt's estate. It may, as in the present law, adopt the exemption laws of the several States, or it may, as in the Act of 1867 (Act March 2, 1867, ch. 176, 14 Stat. 517), adopt local laws in part, and supplement these with a schedule of its own. Its power to deal with the subject, however, arises out of the fact that exemptions are a part of the bankrupt's estate. This consideration shows that the right of dower does not belong in the same class. Again, the right of dower has nothing to do with the in- solvency of the husband. It arises from time to time during the mar- riage relation as the husband acquires real property. If the wife has not released her right of dower, it is as much her own private, abso- lute property as if she had acquired it by purchase. That estate can no more be transferred to her husband's creditors than any other por- tion of her separate estate. At the present time in the United States, the wife, as to her property rights, is a third person, and her estate is no more affected by the insolvency of her husband than is the property of other third parties. In our judgment it would be beyond the con- stitutional power of Congress to provide that in case of bankruptcy the dower rights of the bankrupt's wife, as defined by the laws of the several States, ceased, and the real property owned by him passed to his trustee in bankruptcy discharged from such right of dower. Bank- ruptcy can only deal with what in law belongs to the bankrupt. It may annul his acts and the acts of his creditors which interfere with the just enforcement of its provisions. It cannot, however, annul an Act of the legislature of a State which previous to the statute of bank- ruptcy had vested an estate in the wife of the bankrupt. Its whole field of operation is circumscribed to getting in the estate which under the law belongs to the bankrupt, and distributing the same to his creditors. It cannot reach out and take property which under the law belongs to the wife, and apply it to the payment of the bankrupt's debts, any more than it could seize that portion of her property which she acquired by purchase or devise. Again, it does not follow that because the right of homestead and exemptions is confined in most of the States to the domicile of the claimant, such a restriction would be appropriate in regard to dower. Dower is not measured in value or quantity as homesteads or exemptions are. The amount of it is dependent solely upon the amount of real property of which the hus- band is seized. The debtor could not be allowed homesteads and exemptions under the laws of different States without securing a double allowance. The right must be restricted to the laws of some particular State, and the most natural restriction is the State of the claimant's domicile. Such considerations, however, do not apply to 412 THOMAS V. WOODS. [CHAP. V. dower. Granting the right in real property situated iu different States does not duplicate the right. As already mentioned, it is measured by the extent of the husband's ownership of property, and the location of such property is material only as the right of dower is governed by the laws of the State in which the land is situated. We are unable to see how the decision in Re Stevens, Fed. Cas. No. 13,392, throws any light on the present case. There the bank- rupt had filed a petition in bankruptcy in the Eastern District of Wis- consin. A part of his estate, consisting of a span of horses, harness and wagon, while temporarily across the State line in Illinois, had been seized on a warrant of attachment. The filing of the petition in bank- ruptcy had the effect to dissolve this attachment; but the creditors petitioned the court of bankruptcy to allow the action in Illinois to proceed, assigning as a reason that under the exemption laws of Wis- consin the property in question would be exempt, while under the laws of Illinois it would not be. The court very properly held that the bankrupt's right of exemption must be determined by the State of his domicile ; that the creditors could not invoke the laws of Illinois, be- cause they granted less exemptions, any more than the bankrupt could have invoked them if they had granted larger exemptions than Wis- consin. 3. Some point is made of the fact that under the laws of Kansas the family secured a liberal homestead and exemptions. That has nothing to do, however, with the right of dower. The right of homestead and exemptions has existed in all of the States granting the right of dower, and in many of them these allowances are quite as liberal as they are in the State of Kansas. 4. That Mrs. Thomas has an inchoate right of dower in the property in question under the laws of Missouri is not controverted. Such a right is expressly secured to her by sections 2933 and 2946 of the Revised Statutes of 1899 of that State (Ann. St. 1906, pp. 1690, 1698), and continues until released by her deed in the manner therein specified. These statutes have been looked upon with favor by the highest court of that State, and so construed to carry out their manifest purpose. Grady v. McCorkle, 57 Mo. 172 ; Ellis v. Kyger, 90 Mo. 606 ; Davis v. Green, 102 Mo. 170; Hallv. Smith, 103 Mo'. 289; Blevins v. Smith, 104 Mo. 583; Long v. Kansas City Stockyards Co., 107 Mo. 298. The right of dower in real property is determined by the laws of the State in which the property is situated. Story on Conflict of Laws, 424, 428, 445 ; Kerr v. Moon, 9 Wheat. 565 ; Wilson v. Cox, 49 Miss. 538 ; Appersonv. Bolton, 29 Ark. 418 ; Washburn v. Van Steenwyk, 32 Minn. 336 ; Jones v. G crock, 59 N. C. 190 ; Jennings v. Jennings, 21 Ohio St. 56; Atkinson v. Staigg, 13 R. I. 725. The highest court of Missouri, from an early date, has construed the statutes of that State as securing the right of dower in real property within the State to non-residents, the same as to residents. Stokes v. O'Fallon, 2 Mo. 32. Suppose a bankrupt residing in Missouri should die seized of real property in SECT. IV.] THOMAS V. WOODS. 413 Kansas ; would his widow, under the proviso of section 8 of the Bank- ruptcy Act, be entitled to dower in that property? Plainly not, because the law of Kansas does not grant dower. No more should she, when the situation is reversed, lose her right of dower as to real property situated in Missouri. That right is fixed by the laws of the State in which the property is situated. It is said by appellee that the right of dower is " a mere intangible, inchoate, contingent expectancy, and not an estate in lands, and does not rise to the dignity of a vested right." That is quite true. But this has been the quality of the right at all times, at common law and under statute. It is precisely such a right that is secured by the statute of Missouri, and it would be, in our judgment, a perversion of judicial power to make of the inherent qualities of the right a reason for de- stroying or impairing it. It must be conceded, therefore, that the right exists, unless it has been taken away by the Bankruptcy Act. To determine whether that has happened, we ought to look first at the general scheme of that statute. The most conspicuous feature of the present Bankruptcy Act is a clear purpose to save to the bankrupt and his family every right possessed by them under the laws of the several States, and to grant to creditors no property or right which would not have been theirs if the Bankruptcy Act had not been passed. The courts have repeatedly referred to this as a feature distinguishing the present Act from all previous statutes on the subject. It makes the law of the several States the measure of the rights to be protected and enforced, both as to the bankrupt and his creditors. In defining what shall pass to the trustee for the benefit of creditors, it designates "property which prior to the filing of the petition the bankrupt could by any means have transferred, or which might have been levied upon and sold under ju- dicial process against him." By the express provisions of the statute of Missouri the wife's right of dower does not fall within this language. It being no part of the property which the trustee is to administer, it is difficult to understand how the right of dower can be affected by the Bankruptcy Act ; and yet the whole purpose of the order now under review is to appropriate to the bankrupt's creditors the widow's right of dower, by selling the property freed from that right. But, again, the present Bankruptcy Act also approaches this subject negatively. It points out in section 67 all liens, transfers, and estates which are to be invalidated by the Bankruptcy Act. If it had been the intent of the framers of the statute either to restrict or abolish the right of dower, we should have found the provision designed to accomplish that pur- pose in this section. It is not there. On the contrary, a most scrupu- lous care is evinced throughout the section to save all rights and liens obtained in good faith from the bankrupt. If rights resting wholly upon private negotiation are safe, can any reason be assigned why a right created by statute in furtherance of the public policy of a State should not also be secured ? 414 THOMAS V. WOODS. [CHAP. V. In the light of these general considerations, let us approach section 8 of the Bankruptcy Act, which, according to appellee, destroys Mrs. Thomas' right of dower. In our judgment that right is safe upon either of four grounds : a. The principal clause of section 8 deals with the contingency of the death of the bankrupt during the pendency of the proceedings in bankruptcy. By a cardinal rule of interpretation, a proviso does not extend beyond the scope of the principal clause of the statute. The entire language and purpose of the section clearly indicates to our minds that this rule of interpretation should be applied in ascertaining its meaning. It relates only to estates in which the bankrupt dies dur- ing the pendency of the proceeding. This is not only the general sub- ject-matter of the section, but is also clearly pointed out in the proviso itself as the contingency intended to be covered by it. "In case of death," are the. first words of the proviso, and these words qualify all its other provisions. Such being the scope of the section, the estate here involved can be in no way affected by it, for the bankrupt is still alive. 6. It was manifestly the belief of Congress that, in the absence of section 8, the bankruptcy proceeding would abate in case of the bank- rupt's death. The property of the estate would in that event pass to the personal representatives of the bankrupt, to be administered ac- cording to local laws. In such a contingency, the widow's right of dower in real property, and the allowances to the family out of the personal estate, would be complete, would become immediately vested, and would take priority over the rights of creditors. Section 8 prevents the proceeding in bankruptcy from abating ; but, by the proviso, Con- gress intended to save to the widow and children all that they would have obtained in case of its abatement. It cannot be denied that, if the present bankruptcy proceeding were to abate, Mrs. Thomas' right of dower in real property in Missouri would be complete. c. The proviso may be interpreted as having been used simply out of an abundance of caution. If that be its effect, it leaves all rights precisely as they would have been if the proviso had been omitted. It neither enlarges nor restricts those rights, but simply saves them. That is the interpretation which was put upon the language by the majority of this court in the case of In re McKenzie, 142 Fed. 383. If we adopt that interpretation, it leaves the right of dower just as it stood under the laws of the several States. The fact that the proviso is re- stricted by the clause ' ' fixed by the laws of the State of the bank- rupt's residence" would be immaterial. The entire proviso being used only out of an abundance of caution, the fact that its language is not as comprehensive as the right to which it refers would not re- strict the right, because the intended effect of the proviso is simply to preserve rights as already existing. To say that the proviso was used for the purpose of removing a possible doubt as to whether existing rights were not to be affected by section 8, and yet hold that, because SECT. IV.] THOMAS V. WOODS. 415 its language is narrow, the rights to which it refers are narrowed, is to deny in the conclusion what is assumed in the premise, namely, that the proviso is used out of an abundance of caution, and not for the purpose of affecting existing rights. It was expressly decided in Por- ter v. Lazear, 109 U. S. 84, that the omission from a Bankruptcy Act of any provision saving the right of dower ' ' does not enlarge the ef- fect of the assignment, or of the sale in bankruptcy, so as to include lawful rights which belong, not to the husband, but to his wife." It was further decided that the proviso in the Act of 1841, saving the right of dower, was "a mere declaration, inserted for greater caution." See, also, Hanover National Bank v. Moyses, 186 U. S. 181, 190. If we adopt the interpretation of section 8 here outlined, there is no room for a contention that Mrs. Thomas' right of dower does not exist as defined by the laws of Missouri. d. At the time the Bankruptcy Act was passed, there were nine States of the Union, namely, Connecticut, Georgia, Mississippi, North Carolina, Tennessee, Vermont, New Hampshire, Delaware and Florida, in which the right of dower applied, not to real property of which the husband was seized during the coverture, but only to such real property as he was seized of at the time of his death. There were also in force in many States statutes giving to the wife a right in the nature of dower in all personal property owned by the husband at the time of his death. In all of these States, if a bankrupt husband died while his proceed- ings were pending, it might very well have been contended that the wife's right of dower in his estate did not exist, because the legal title and possession of his property would have passed to his trustee. It was the view of Judge ADAMS in the McKenzie case that the proviso of section 8 was intended to prevent such a result. That interpreta- tion receives strong support from the foregoing facts. We recognize, of course, that Congress could not, in the Bankruptcy Act, enlarge the right of dower as defined by the laws of the several States ; and if the right as thus defined was restricted to property of which the husband was possessed at the time of his death, Congress could not give the right to property not so situated. But, on the other hand, the bank- rupt is dispossessed of his property by virtue of the Bankruptcy Act, and it was competent for Congress to define and restrict the force and effect of that Act. The trustee in bankruptcy holds for the benefit of the bankrupt, as well as his creditors, and it was competent for Con- gress to declare that the title passing to him under its Act should not impair the right of dower as granted by the laws of the several States. This would be iu harmony with the general scheme of the Act to give to the creditors only that which would have belonged to them if the Bankruptcy Act had not been passed, and to save to the bankrupt and his family everything that would have belonged to them as against the creditors in the absence of the Bankruptcy Act. If this be the correct interpretation of the proviso, Mrs. Thomas' right of dower is safe upon two grounds: (1) The entire purpose of the proviso being to preserve 416 THOMAS V. WOODS. [CHAP. V. the right as defined by the laws of the several States, that purpose should control, and the last clause should not be seized upon to defeat it. (2) The proviso was intended to apply only to those States in which the right of dower is restricted to property of which the husband is seized at the time of death. Missouri is not in that class, as the widow's right of dower there- extends to all property owned by the husband during the coverture. Therefore the proviso, under the view of its meaning which we are now considering, could have no effect upon real property in that State. The proviso deals with two classes of rights : First, the widow's right of dower in real property ; second, the allowances to the family out of the personal estate. This second class of rights is necessarily fixed by the laws of the State of the bankrupt's residence, for general rights in personal property follow the person of the owner and are determined by the laws of the State of hiss residence. The framer of the proviso used, in its last clause, language which was entirely appropriate to the allowances, and in part appropriate as to the right of dower. Having in mind several classes of rights, he made the not uncommon mistake of using language which was not quite comprehensive enough to cover all those rights under all conditions. If the proviso was a grant of rights, there would be reason in restricting the rights to its language ; but, being intended to protect existing rights, it ought not to be given an interpretation which would destroy any part of those rights. Real property is now, especially in the West, almost as much an article of trade as personal property. For this reason the right of dower, which used to be favored, has of late become odious. Courts, however, cannot allow the odiousness of the right to lead them to adopt a strained construction of a statute, for the purpose of abating what may possibly be regarded as a commercial nuisance. These are con- siderations for the legislature alone. The case was disposed of in the trial court upon cross-bill and answer, without the introduction of evidence. The only questions raised were questions of law. It must have been held that the wife of a resident of Kansas was not entitled to an estate of dower in real property sit- uated in Missouri. We think that construction was wrong. But, if the interpretation which we have indicated should be accepted, it would not follow that Mrs. Thomas would be entitled to an estate of dower in the property here involved. If the averments of the original petition are true, Mr. Thomas held the property in trust for the corporation, and in that case his wife would not be entitled to dower rights therein. The decree should be reversed, and the trial court directed to proceed in accordance with the views expressed in this opinion. It is so ordered. RINER, District Judge, dissents. SECT. IV.] IN BE MCKENNA, 417 IN KE McKENNA. DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE, SEPTEMBER 30, 1881. [Reported in 9 Federal Reporter, 27.] HAMMOND, D. J. . . . Whether the estate that the bankrupt had in the land of his wife at the date of the filing of his petition in bankruptcy passed to his assignee depends upon a proper construction of the Ten- nessee statute. T. & S. Code, 2481, 2482. At common law he was, on that date, a tenant by the curtesy initiate, and about the char- acter of that precise estate there has been much conflict in the books, and much confusion. I do not, from authorities consulted, find that it has been ever settled or agreed upon whether the husband, before or after issue born, is in possession of his estate by virtue of this tenancy, or that which he has by virtue of the marriage, considered irrespectively of the birth of issue, or the possibility of such birth. Often it is unim- portant whether he is in by the one or the other, but in the conflicts that arise over marriage settlements, grants to the wife by deed or will, the statute of limitations, dissolutions of the coverture by divorce, and the effect of conveyances by the husband and the wife, one or both, the nature of this tenancy by the curtesy initiate has been freely discussed, but in some respects remains unsettled. Too much force is sometimes given to the death of the wife, and even to the birth of issue, when either is thought to originate this estate by the curtesy, and it is some- times said, as it is argued in this case, that prior to the death of the wife it is a possibility only, something like the spes successionis of the heir apparent or presumptive to an estate, that does not pass to a voluntary assignee, or to an involuntary assignee, by operation of law. This is not true of the estate at any period from the moment of marriage and seizin of the wife down to the consummation of the estate, if issue be born, b} r her death. Whether, before seizin by the wife, a husband's possible curtesy in lands belonging to the wife would be assignable, in law or in equity, by treating the conve3 - ance as a covenant to assign, or not, certainly, from the ver}' moment of such seizin, he becomes a tenant by the curtesy, and that is undoubtedly the initial point at which this estate in the particular land vests in him, no matter whether it originates in the seizin or the marriage relation. And from that moment, although he may be in possession by virtue of the marital right, or jure uxoris, as it is sometimes called, he is also in possession by virtue of this estate by the curtesy, if the two be separable at all. Some of the authorities say he is in by both by a kind of remitter, and possibly they may in some sense be said to unite or merge into each other, though neither will destroy or absorb the other. But, whatever the distinctions may be in this regard, and however for all purposes this matter may be 418 IN RE MCKENNA. [CHAP. V. determined, for the purpose of giving effect to his conveyances, and for the purpose of being subjected to his debts, it is vested in him whenever the necessary seizin of the wife occurs. If he conve}*, or it be assigned by operation of law after seizin, even before issue born, the estate by the ciirtesy passes, and his assignee holds, as he held it, subject to be devested by the failure of issue occurring by the death of the wife without having given birth to a child born alive ; or, whether issue be born or not, by the death of the husband terminating the estate in the life-time of the wife ; and in some peculiar circumstances, perhaps, by other events. The mistake is often made of supposing that the sur- vivorship of the wife defeats the tenancy by the curtes}'. Her survival has no such effect. His death terminates his life estate necessarily, whether it occurs before or after that of the wife. But it does not follow that this defeasible and determinable character of the estate reduces it to a bare possibility, or makes it an estate called into being by the happening of a contingency either that of the birth of issue or the death of the wife in the life-time of the husband. The husband has, at best, only a life estate, and of course his death ends it, whether it happens before or after the death of the wife ; and what the books mean by saying that her death consummates this tenancy by the curtesj* is that from that time on there is no marital relation furnishing him any other right to possession or ownership of her lands than that which he has derived through this curtesy of the law. The death of the wife neither originates nor vests the estate, but only consummates or makes perfect that which had been before originated and vested. I shall not here critically examine the authorities consulted on the general char- acter of this estate with a view of determining the exact scope of our statute, because, whatever may be that character, it is too well settled that it may be conveyed by the husband, ma}' be sold under fieri facias, and passes to an assignee in bankruptcy, to require more than a citation of some of the cases on that point. Gardner v. Hooper, 3 Gray, 398; Vreeland v. Vreeland, 1 Green, N. J. Eq. 513; Boykin v. Rain, 28 Ala. 332 ; Day v. Cochran, 24 Miss. 261 ; Schermerhorn v. Miller, 2 Cow. 439 ; Gibbins v. Eyden, L. R. 7 Eq. 371 ; Morgan v. Morgan, 5 Madd. 408 ; Follett v. Tyrer, 14 Sim. 125 ; Cooper v. Mac- donald, L. R. 7 Ch. Div. 288 ; 1 Bish. Mar. Worn. 489 ; Hill. Bank- ruptcy (2d ed.), 112, 14. And in Kesner v. Trigg, 98 U. S. 50, no question was made but that the assignee took the estate by the curtesy. The same principle is found in Re Bright, L. R. 13 Ch. Div. 413, where a fund of personal estate was settled on the mother for life, and after her death on the children of the marriage, and it was held that the assignee in bankruptcy of one of the children took his share, though the life tenant did not die for nearly ten }-ears after the bankruptcy. Has our statute changed this result? I think not. Standing alone, section 2481 of the Code would exempt the whole estate of the husband from liability for his debts, and, as a consequence, b} T operation of the bankruptcy act itself (Rev. St. 5045), it would not pass to the SECT. IV.] IN RE MCKENNA. 419 assignee. But section 2482 of the Code operates to restrict the quan- tity of the husband's estate that is exempt to so much of it as is meas- ured by his wife's life. He holds the estate for his own life, and it is exempt from execution for the life of another, and therefore not neces- sarily for his own life. He asks here too much more than this statute in terms gives him when he claims exemption for the whole estate by the curtesy coextensive with his own life. That the statute has not abridged his common-law estate by limiting it to the life of his wife is plain, because he claims it after her death, and during his own life, and this he can do only on the theory that the statute has not interfered with his common-law estate in this land in regard to its quantit}'. If the statute has preserved to him his tenancy by the curtesy it has pre- served it to his creditors, because the statute only cuts them off during the life of the wife. It has been said in the books that a tenancy by the curtesy stands somewhat as if the wife had made a lease of the land to her husband for his life, the reversion being in her or her heirs. Now, out of this estate of the husband the statute carves a portion which it exempts from execution, and that portion does not pass to an assignee in bank- ruptc}' ; not because of any peculiarity in the estate itself as being unassignable, but because the bankruptcy laws have in terms declared that property so exempt shall not pass to the assignee. It cannot, then, I think, be successfully claimed that the portion which we may call a surplus remaining after the wife's death is also exempt. The next argument to be considered is that the estate now enjoyed b} T the husband is subsequently acquired property coming to him on the death of his wife, happening since the petition in bankruptcy was filed. This, to my mind, involves a total misapprehension of the nature of the estate of tenancy by the curtesy, and can only be sustained on the theory that the statute has created a new kind of estate for the husband in his wife's lands, or, rather, two estates. One of these, which he enjoys during her life, and in the enjoyment of which he was when the petition in bankruptcy was filed, is claimed as exempt prop- erty ; and, as to the other, that it was created for him, or was called into existence by the death of the wife happening since the bankruptcy. During his wife's life this latter estate, it is argued, was a mere possi- bility which did not pass. The case of Jackson v. Middleton, 52 Barb. 9, is very much relied on to sustain this position. It should be read in connection with Moore v. Littel, 40 Barb. 488 ; 3 Am. Law Reg. (N. s.) 144, where the same deed was construed. There was a deed to John Jackson for his life, and after his death to his heirs and their assigns. It was held that during the life of the life tenant the heirs had " an alienable contingent estate in remainder," and that this estate, under a New York statute which subjected " lands, tenements, or here- ditaments "to execution, was not liable to that writ. But a tenancy by the curtesy, in my judgment, has no sort of analogy to such an estate as the one mentioned in that case. If, however, this be incor- 420 IN RE MCKENNA. [CHAP. V. rect, it is a sufficient, answer to say that our bankrupt statute is much broader, and vests in the assignee all the estate, real and personal, of the bankrupt. Rev. St. 5044. Krumbaar v. Burt, 2 Wash. 406, is also relied on, where it was decided that, under the act of 1800, possi- bilities did not pass. But our later acts are more enlarged in their operation ; and even under the old acts this case was not approved, but overruled. Belcher v. Burnett, 126 Mass. 230 ; Comegys v. Vasse, 1 Pet. 193, 218; Vasse v. Comegys, 4 Wash. 570; Nash v. Nash, 12 Allen, 345. Under the old English acts, which were " very darkly penned" (Re Marsh, 1 Atk. 158), when the creditors only took "all such interest in lands as the bankrupt may lawfully depart withall," Comegys v. Vasse, 1 Pet. (original edition) 200, it was at first determined that only such interests as were alienable at law passed to the assignee, but afterwards it was held that such as were assignable in equit}- also passed ; and possibilities coupled with an interest came to be regarded as assignable. Our bankruptcy act was intended to relieve us of all this trouble by using the most comprehensive terms, and there can be no doubt that every character of property belonging to the bankrupt himself passes. Bare possibilities such, for instance, as the hope that one has that his father or other relative will die intes- tate, leaving him an inheritance do not pass ; but I cannot see that the tenancy by the curtesy, either at common law or under this statute, is of that character. It is also argued, in support of the position that this estate of the husband did not pass, that " the assignee in bankruptcj- does not take the whole legal title as heirs and executors do, but only such estate as the bankrupt has a beneficial interest in ; " and this is true. If he has not a beneficial interest in a tenancy by the curtesy initiate, it is diffi- cult to see why he has not. He has not so great benefit under the stat- ute as he had at common law, for there are restrictions on his powers of alienation and restrictions on the right of his creditors to subject his interest to their debts ; but in neither respect has his interest been wholly demolished, and the assignee only claims by this petition that beneficial interest which the statute left to him. This above- quoted formula is often found in the authorities, but I do not find that it has ever been applied to save to the bankrupt any property that be- longed to him, but only such as belonged to third persons and which was held by him under some kind of trust relation. In the earlier stages of bankruptcy legislation, when the statutes were not so elaborate as now, it was a principle resorted to and established by the courts to save to third persons their rights in property which the bankrupt held for them, and to prevent the devolution of such trusts on the assignee, who did not become a general administrator of the bankrupt's legal and equitable powers over all property, doing in his stead for others what the bankrupt was required to do, but was restrained in his title to the property of the bankrupt which creditors could apply to their debts. The assignee, for example, takes subject to a wife's right of SECT. IV.] IN RE MCRENNA. 421 dower, to her right of survivorship ; subject to her right to an equitable settlement ; subject to all defeasances and contingencies in her favor, or in favor of any third person, for that matter ; subject to the liens of a mechanic, or a factor, or the like ; subject to the right of rescission of a contract for fraud, in some instances; subject to the estoppels on the bankrupt, where they do not grow out of some fraud on creditors ; and, generally, subject to all trusts, liens, and burdens existing at the time. In some cases the circumstances were such the assignee took nothing, and in some only the surplus after the burdens were satisfled. Brown v. Heathcote, 1 Atk. 160; Scott v. Snrman, Willes, 400; Mit- ford v. Mitford, 9 Ves. 87 ; Re Dow, 6 N. B. R. 10 ; Rogers v. Winsor, Id. 246; Re McKay, 1 Low. 345; Re Faxon, Id. 404; Re Griffiths, Id. 431 ; Goddard v. Weaver, 1 Woods, 257 ; Re Hester, 5 N. B. R. 285 ; Eberle v. Fisher, 13 Pa. St. 526 ; Eshelman v. Shuman, Id. 561 ; Keller v. Denmead, 68 Pa. St. 449; Ontario Bank v. Mum ford, 2 Barb. Ch. 596. Here, again, our bankruptcy' statutes have recognized and declared this principle, and provide that no trust estates shall pass, and that all liens and rights of third persons shall be preserved, so that the assignee either does not take at all, or else takes subject to the liens and burdens. Rev. St. 5053, 5075, 5044, and notes; Bump, Bankruptcy (10th ed.). Applying the principle here, the assignee took the tenancy bj* the curtesy initiate as it existed at the date of the petition in bankruptcy, subject to the right of the wife, if she survived her husband, to defeat his estate ; or, more accurately, subject to the determination that would come by his death, and subject to her rights under this Tennessee statute to remain in possession during her life, jointly with her husband, and that they should, during that time, enjoy the estate without dis- turbance by his creditors or his assignees of an}- kind, whether in bankruptcy or any other, unless she, by her deed according to law, should consent to give up the land. And it is possible that, by joint deed of the husband and wife, the assignee's title might have been de- feated, even after the bankruptcy, in the same way as is sometimes done where she has a power of appointment; but it is not necessary to decide that here, as no such conveyance was made, and it is well settled that where she has the power to defeat his estate by appoint- ment or conveyance of any kind, her failure to exercise it preserves his rights. The statute operates as a settlement upon her to that extent, but no further. And it is to be observed that it does not, as some statutes do, create a separate estate in the wife, nor destroy his estate in his wife's lands, either that he holds jure uxoris, or the larger estate of tenancy by the curtesy. It is always a question of intention whether the legislature has, by such statutes as these, cut off the husband's marital rights entirely or only partially ; and they are construed, just as wills, deeds, marriage settlements, and other conveyances are, to go no further in that direc- tion than the language used, in terms or by necessary implication, re- 422 IN RE MKENNA. [CHAP. v. quires. This construction I have given the statute is supported by ever}' Tennessee case which has construed or mentioned it. Johnson v. Sharp, 4 Cold. 45 ; Dodd v. Benthal, 4 Heisk. 601 ; Bottoms v. Corley, 5 Heisk. 1 ; Corley v. Corley, 8 Bax. 7 ; McCallum v. Petigrew, 10 Heisk. 394 ; Lucas v. Rickerich, 1 Lea, 726 ; Young v. Lea, 3 Sneed, 249 ; Coleman v. Satterfield, 2 Head, 259 ; Gillespie v. Worford, 2 Cold. 632 ; Aiken v. Suttle, 4 Lea, 103. It is also supported by the cases construing settlements on the wife by will or deed, where the benefits conferred, the language used, and the restrictions on alienation and the husband's marital rights are simi- lar to those in this statute. Brown v. Brown, 6 Humph. 126 ; Hamrico v. Laird, 10 Yerg. 222 ; Frazier v. Hightower, 12 Heisk. 94 ; Baker u. Heiskell, 1 Cold. 641 ; Appleton v. Rowley, L. R. 8 Eq. 139 ; Marshall v. Beall, 6 How. 70 ; Moore v. Webster, L. R. 3 Eq. 267 ; Bennet v. Davis, 2 P. Wms. 316; Eden, Bankruptcy, 245 ; 25 Law Lib. 193. It also finds a complete analogy in the construction of our homestead statutes, which confer a similar benefit on the husband, wife, and chil- dren, and yet it is held that creditors may subject the husband's in- terest, subject to this right of occupancy and possession by the family, which may last during the life of the husband and wife or the survivor, and until the youngest child reaches a certain age. Moore v. Hervey, 1 Leg. Rep. (Tenn.) 22 ; Mash v. Russell, 1 Lea, 543 ; Lunsford v. Jarrett, 2 Lea, 579; Gilbert v. Cowan, 3 Lea, 203; Gray v. Baird, 4 Lea, 212 ; Jarman v. Jarman, Id. 671, 676. In Mash v. Russell, supra, it is said, " the vendee is clothed with the legal title in reversion expectant on the termination of the homestead estate," which quite as accurately describes the kind of estate the assignee took in this case. The same ruling has been made in other States where the statutes give a qualified homestead exemption, while in those where the exemp- tion is absolutely of the whole estate, the assignee takes nothing. Rix v. Capitol Bank, 2 Dill. 367 ; Re Tertelling, Id. 339 ; Re Betts, 15 N. B. R. 537 ; Johnson v. May, 16 N. B. R. 425 ; Re Watson, 2 N. B. R. 570; Re Poleman, 5 Biss. 526; McFarland v. Goodman, 6 Biss. Ill; Re Hinkle, 2 Sawy. 305; Re Hunt, 5 N. B. R. 493; Re Vogler, 8 N. B. R. 132; Re Sinnett, 4 Sawy. 250. It also finds support in the cases construing statutes of this and other States for the benefit of married women or their families. Cooper v. Maddox, 2 Sneed, 135; Lyon v. Knott, 26 Miss. 548; Rabb v, Griffin, Id. 579; Stewart v. Ross, 54 Miss. 776; Hatfield v. Sneden, 54 N. Y. 280 ; Re Winne, 1 Lans. 508 ; s. c. 2 Lans. 21 ; Thompson v. Green, 4 Ohio St. 216, 232 ; Plumb v. Sawyer, 21 Conn. 351 ; Silsby v. Bullock, 10 Allen, 94; Staples v. Brown, 13 Allen, 64; Walsh v. Young, 110 Mass. 396, 399. Upon consideration of these authorities it will be found to be a gen- eral principle that, whether the settlement is made by statute, deed, will, or contract, the husband's marital rights are not interfered with further than the terms of the settlement go, and that what remains to SECT. IV.] IN RE MCKENNA. 423 him can be subjected by his creditors as if the settlement, had not been made ; and it is as well settled as it is possible to be that the circum- stance that the wife is to receive the rents or profits or to enjoy the estate during her life, or that the husband is forbidden to convey it except with her consent, or that she may alone or jointly with him con- vey it or defeat the husband's estate b}- appointment by will or other- wise, will not, nor will any of them combined, alter the construction so as to affect or defeat his marital rights, nor the estate of his assignee or purchaser, except strictly according to the terms of the settlement. If an estate remains to him after her death as the residuum of what he would have had but for the settlement, his creditors may subject it, and it passes by his deed subject to be defeated if she survives or dies with- out exercising her powers of alienation. Finally, there is an unreported case in this court, in He Stack, a bankrupt (June, 1879), in which the circuit judge, sitting for the dis- trict judge, who was incompetent, upon the same principle decided in favor of the assignee. The wife of the bankrupt, under a deed from him, held land to her " sole and separate use and benefit, free from the debts, liabilities, and control of her present or any future husband, with power to sell, b}~ joint deed with her husband, for reinvestment on same trusts, and if she should die in the life-time of her husband then to re- vert to him in fee-simple." The estate of her husband was not men- tioned in the schedules of the bankrupt, as in this case, he deeming it secure from the operation of the bankrupt law, and the wife died pend- ing the proceedings in bankruptcy, as here, whereupon the assignee filed a petition, like that in this case, and the court compelled the bankrupt to surrender the land to the assignee. Under this deed the wife had all the protection she would have had under this statute, and a larger estate than she would have had if she had inherited the land or held it by an ordinary conveyance. Besides, the land itself was, at the date of the petition in bankruptc}*, under the protection of this statute, both as to the interest of the wife and that of the husband. And, as to his interest, the only difference I can see is that there he had a reversionary estate in fee-simple, contingent upon his surviving his wife, but liable to be defeated also by their joint deed (leaying out the reinvestment clause), while here the bankrupt had a life estate, subject to the same contingencies. It was ruled that this estate was vested at the time of the bankruptcy, and did not vest at the death of the wife, and was, therefore, not subsequently acquired propert}'. Furthermore, the ruling must have been the same in that case if Stack had had no contingent reversionary interest under the deed, and it had appeared there was issue of the marriage, for he was, in that event, a tenant by curtesy, notwithstanding this was a separate estate, and would have held the land for his life, unless it may be the words " free from the debts, liabilities, or control of any future husband " should be construed to entirely cut off his (Stack's) curtesy. I do not see any difference in principle between that case and this, because if Stack had 424 HESSELTINE V. PRINCE. [CHAP. V. under that deed such an interest as passed to his assignee during the life of his wife, subject to her rights under the deed and this statute, I do not see why the bankrupt here did not have, by the common law regulating the tenancy by the curtesy, such an interest in his life estate as passed, subject to the rights of his wife and his own under the statute. The objection, in this view of the case, that the children of the wife are not parties to this proceeding, is not tenable. The assignee only claims the life estate of the bankrupt, and in this the children have no interest. Motion overruled. 1 HESSELTINE v. PRINCE ET AL. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, JULY 6, 1899. [Reported in 95 Federal Reporter, 802.] LOWELL, District Judge. This was a bill in equit}- filed in the Dis- trict Court, under the provisions of the bankrupt law, to reach the interest of a husband, after the birth of issue, in the real estate of which his wife is seised ; the wife being still alive. The defendant raised no objection to the jurisdiction of the court or to the form of proceeding, but demurred to the bill for want of equit\". It is neces- sary, therefore, to determine if the right of the husband, whether it be properly described as tenancy by the curtesy initiate, or otherwise, passes to the trustee in bankruptc}*, under the present law. The rights of the husband in the property of his wife are limited by the statutes of Massachusetts, and this court is governed b} - the interpretation put upon those statutes by the Supreme Court of the Commonwealth. In Lynde v. McGregor, 13 Allen, 182, 184, it was said by Mr. Justice Gray that " these statutes are inconsistent with the hypothesis tluit the husband has any estate in his wife's land which he can convey separately during her lifetime, or which will pass to his assignees in insolvency." The insolvent law of Massachusetts (Gen. St. c. 118, 44) vested in the assignee in insolvency all the property of the debtor which the latter could have lawfully sld, assigned, or conveyed. This language is as broad as that of section 70 (5) of the bankrupt act, and hence it must be taken that the husband's right in his wife's real estate above described does not pass to the trustee in bankruptc}-. See, also, Walsh v. Young, 110 Mass. 396, 399. Section (70) 3 was relied upon in argument by counsel for the trustee ; but, however the husband's 1 In Gibbins v. Eyden, L. R. 7 Eq. 371, it was held where the wife of a bankrupt had a vested remainder in real estate which did not fall into possession until after the husband's discharge, that, though there had been issue, the assignees were not entitled to the husband's rights. " There can be no inchoate right to curtesy till the wife be- comes entitled to an estate of inheritance in possession." SECT. IV.] HIGDEN V. WILLIAMSON. 425 right in his wife's real estate should be described, it certainly is not a power. Demurrer sustained, and bill dismissed, with' costs against the estate. HIGDEN ET AL v. WILLIAMSON. IN CHANCERY, MICHAELMAS TERM, 1731. [Reported in 3 Peere Williams, 132.] A. SEISED in fee of a copyhold estate, surrendered the premises to the use of his will, and afterwards devised them to his daughter for life, then to trustees to be sold, and the money arising by the sale to be divided amongst such of his daughter's children as should be living at the time of her death. The testator died, and the daughter had issue (among others) a son, who was a trader, and becoming a bank- rupt, the commissioners assigned over all the bankrupt's estate. The bankrupt got his certificate allowed, and then his mother died. On a bill brought by the assignees for the bankrupt's share of the money arising by the sale, it was objected, that no manner of right to this contingent interest was vested at the time of the assignment made by the commissioners, any more than a right to lands can be said to vest in an heir apparent during the life of his ancestor; and the case of Jacobson v. Williams was cited, where it was held by the Lord Cowper, that the possibility of a right belonging to a bankrupt was not assignable. But his Honor, 1 upon debate, decreed for the plaintiffs, distinguish- ing the principal case from that of Jacobson v. Williams ; for there the husband, the bankrupt, could not have come at his wife's portion by the aid of equity, without making some provision for her ; and it was not reasonable the assignees, who stood but in his place, and derived their claim from him, should be more favored. Also the Master of the Rolls said, he laid his finger, and chiefly grounded his opinion, on the words of the statute of 13 Eliz. cap. 7. 2, which enacts, "that the commissioners shall be empowered to assign over all that the bank- rupt might depart withal." Now here the son might, in his mother's lifetime have released this contingent interest ; so that the commis- sioners, by virtue of that act, are enabled to assign it, and consequently their assignees must be well entitled. Note: in Michaelmas, 1732, this cause came on by way of appeal before the Lord Chancellor KING, who affirmed the decree at the Rolls, partly for the reason before given, viz., because the bankrupt himself might have departed with this contingent interest; also, for that the act of 21 Jac. 1. cap. 19, 1, declares, that the statutes relating to 1 Sir JOSEPH JEKTLL, M. R. 426 IN RE VIZARD'S TRUSTS. [CHAP. v. bankrupts shall in all things be largely and beneficially expounded for the relief of creditors ; and further, because the statutes for discharg- ing bankrupts on certificates, never intended to entitle the bankrupt to any estate by virtue of an}- claim anterior (as his Lordship expressed it) to his bankruptcy, as the title in question clearly was ; besides, the word " possibility" is in all the latter statutes touching bankrupts. 1 IN RE VIZARD'S TRUSTS. IN CHANCERY, MAY 29-JuLY 14, 1866. [Reported in 1 Chancery Appeals, 588.] THIS was an appeal from a decision of Vice-Chancellor Stuart, who had held that the share of F. Vizard in certain property did not pass under a deed of assignment for the benefit of his creditors. Under the will of George Vizard, the property in question stood limited to his widow for life, and after her death to all and ever}', or such one or more of the children of his late brothers, John Vizard and Charles Vizard, and the issue of such children as should be dead, in such shares and proportions, and in such manner and form, as the widow should by deed or will appoint ; and, in default of appointment, he gave one moiety to the children of John Vizard, as tenants in com- mon, and the other moiety to the children of Charles Vizard, as tenants in common. In November, 1861, Frederick Vizard, one of the children of Charles, assigned all his property to a trustee for his creditors, by a deed in the form given in Schedule D to the Bankruptcy Act, 1861. This deed was duly registered under the Act. He never obtained any order of discharge. In 1864 the widow made a will, by which she, in exercise of her power, appointed one moiety of the property to the children of John, equally, and the other moiety to the children of Charles, equally. The children of John and Charles all survived her. The widow having died, the question now was, whether the share of F. Vizard went to him or to the trustee of the deed. Vice-Chan- 1 Re St. John, 3 N. B. N. 114; Nash v. Nash, 12 Allen, 345; Belcher v. Burnett, 126 Mass. 230; Putnam v. Story, 132 Mass. 205; Re Bobbins' Estate, 49 At. Rep. 233 (Pa.). See also, Jones v. Roe, 3 T. R. 88 ; Kinzie o. Winston, 56 111. 56 ; Roe v. Humphreys, I Yeates, 427 ; Whelen i;. Phillips, 151 Pa. 312. But see contra, Krum- baar v. Burt, 2 Wash. C. C. 406 ; Re Hoadley, 101 Fed. Rep. 233 ; Re Gardner, 106 Fed. Rep. 670; Re Wetmore, 102 Fed. Rep. 290, 108 Fed. Rep. 520 (C. C. A.). See also Re Twaddell, 110 Fed. Rep. 145, and the New York decisions cited in Re Hoadley. As to the validity of estates defeasible upon bankruptcy, and the possibility of creat- ing equitable life estates which cannot be made subject to the payment of the bene- ficiary's debts, see Gray, Restraints on Alienation (2d ed.) 149-268. SECT, iv.] IN RE VIZARD'S TRUSTS. 427 cellor STUART decided in F. Vizard's favor (Law Rep. 1 Eq. 667), and the trustee appealed. Mr. Malins, Q. C., and Mr. John Pearson, for the appellant. Mr. Bacon, Q. C., and Mr. Chapman Barber, for the respondent. Sir G. J. TURNER, L. J., after stating the facts, continued : The appellant's claim was not attempted to be rested upon the ground that the mere possibility of interest which Frederick Vizard had at the time of the execution of the deed, in respect of his being one of the objects of the power to whom an appointment might thereafter be made, passed to the appellant by deed. It was not contended that such a mere possibility of interest could be considered to form part of Fred- erick Vizard's estate and effects, or could be held to pass by the deed, and Carlton v. Leighton, 3 Mer. 667, is strong to show that it could not ; but it was insisted on the part of the appellant that whatever F. Vizard took, he took under the will of the testator, and that the ap- pointment did not displace or alter the interest which he took under the will in default of appointment, and which had passed to the appel- lant by the deed, the power being, as it was said, a power of selection only. I think, however, that the power in this case was something more than a power of selection. It was a power to distribute, no less than to select, and it enabled an appointment to be made in favor of persons who would not take in default of appointment, and, certainly, I am not satisfied that the execution of the power of appointment was not of itself sufficient to defeat the limitations in default of appointment contained in the testator's will, but it is not, in my opinion, necessary to decide this point, for I think that the interest of F. Vizard was altered by the exercise of the power. Under the will of the testator, supposing the power not to have been exercised, he took, upon the tes- tator's death, a vested interest in one-fifth of a moiety of the property in question, but under the exercise of the power, his interest, as I ap- prehend, became contingent on his surviving the widow ; for, according to the case of The Duke of Marlborough v. Lord Godolphin, 2 Ves. Sen. 61, the dispositions made by the widow, though imported into the will of the testator, would take effect only at her death, and there would be a lapse, therefore, if he died in the widow's lifetime, although he had survived the testator. The mere fact of his having in the result survived the widow, could not, as I apprehend, alter this. 1 1 A portion of the opinion in which it was held that property acquired after bank- ruptcy did not pass to the trustee for creditors, is omitted. Sir J. L. KNIGHT BRUCE, L. J., who was also sitting, gave no opinion. Sue Re Wetmore, 106 Fed. Rep. 670, 108 Fed. Rep. 520. 428 IN RE BECKER. [CHAP. v. MOTH v. FROME. IN CHANCERY, FEBRUARY 26, 1761. [Reported in I Ambler, 394.] GEORGE BELL, brother of Mary Moth, and Margaret Wade, the plaintiffs, upon his marriage with Anne Frome, conveyed a freehold estate in Middlesex and Berks to himself for life, remainder to Anne for life, remainder to the children as the} 7 should appoint ; and for want of appointment, to the first and other sons in tail male, remainder to daughters, reversion in fee to himself. The husband and wife died without making any appointment, leaving two children, Anne and Thomas. 22d November, 1758, Margaret Wade became a bankrupt, and in February, 18o9, obtained her certificate, and in June, 1760, both the children died, so that the two plaintiffs became co-heirs to Thomas, who survived his sister. And the question was, Whether Margaret's part of the freehold estate should not go to the assignees as a possibility, according to the words of 5 Geo. II. which are very strong? MASTER OF THE ROLLS. 1 This is not that kind of possibility ; there must be a persona designata, Higdenv. Williamson, 3 Wms. 132, which was the occasion of the act. It must be a possibility that can be as- signed or released, such as she can disclose upon her examination. Decree for the bankrupt. IN RE BECKER. DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, DECEMBER 16, 1899. [Reported in 98 Federal Reporter, 407.] McPHERSON, District Judge. Whatever may be the accurate de- scription of a license to sell intoxicating liquor in Pennsylvania, whether it be a personal privilege, merely, or a personal privilege and something more, this much, at least, is certain : it has a money value, varying in different places, and for different reasons. The stat- utes of the State permit a license to be transferred, subject to the ap- proval of the court of quarter sessions; and I regard it, therefore, as so far property, " which prior to the filing of the petition [a bankrupt] could by any means have transferred," that the right to sell it (I do not say the right to exercise it) will pass to the trustee. No doubt, 1 Sir THOMAS CLABKE. SECT. IV.] IN RE BECKER. 429 there is clearly visible distinction between a right to property and a mere personal privilege ; but I see no abstract reason why some per- sonal privileges may not also come to have qualities belonging usually to property rights alone, such, for example, as capacity to be trans- ferred, and sufficient attractiveness to make other persons willing to pay money for the opportunity to acquire them. Where, as in the case of a license to sell liquor, these qualities are found to exist in fact, it seems to me that the privilege has ceased to be a privilege merely, and has become, in some sense and in some degree, property also. It can hardly be correct to hold that a bankrupt's creditors may not avail themselves of the fact that money can be had for the chance of step- ping into the licensee's place, but that the bankrupt himself may make the same bargain, and put the money safely into his pocket. The license court may or may not accept the buyer as the bankrupt's suc- cessor. That is the buyer's affair, and is not decisive upon the point now being considered. He buys a contingency, and buys it with his eyes open ; but in my opinion, the trustee has the contingency to sell, and the bankrupt is bound to execute the instruments necessary to carry out the sale. 1 In the case now before the court the sale was made, not by a trustee, but by a receiver ; and objection is raised to a receiver's power to sell the propert}' of the bankrupt. The objection is based upon the language of clause 3 of section 2, which authorizes courts of bankruptcy to appoint 1 Re Doyle, 209 Fed. 1 (C. C. A.), and cases therein cited, ace. The following rights have been held to pass to an assignee or trustee in bank- ruptcy : A license to occupy a stall in a city market passes. Re Gallagher, 16 Blatch. 410; Re Emrich, 101 Fed. Rep 230 A seat in a stock exchange or produce exchange: Hyde v. Woods, 94 U. S. 523 ; Spar- hawk v Yerkes, 142 U. S. 12 ; Page v. Edmunds, 18?" U. S. 596; Re Warder, 10 Fed. 275 ; Re Werder, 15 Fed. Rep. 789 ; Re Page, 107 Fed. Rep. 89 (C. C. A. ) ; Powell v. Waldron, 89 N. Y. 328 ; Platt o. Jones, 96 N. Y. 24; which wholly discredit contrary decisions or implications in Re Sutherland, 6 Biss. 526 ; Barclay v. Smith, 107 111. 349 ; Thompson v. Adams, 93 Pa. 55 ; Pancoast v. Gowen, 93 Pa. 66. A franchise to build a railroad. New Orleans, &c. R. R. Co. v. Delamere, 1 14 U. S. 501. A right in an office, if of a kind which the law permits to be assigned. Ex parte Butler, 1 Atk. 210. The goodwill of a business. Cruttwell v. Lye, 17 Ves. 336 ; Ex parte Thomas, 2 Mont. D. & De G 294 ; Hudson . Osborne, 21 L. T. N. s. 386 ; Walker v. Mottram, 19 Ch. D. 355. But not so far as to prevent a bankrupt from subsequently doing business in his own name and soliciting trade from his former customers. See cases above cited and Ginesi v. Cooper, 14 Ch. D 596, 600 ; Hembold v. Hembold Co., 53 How. Pr. 453. A Pateut-ritfht : Barton v. White, 144 Mass. 281; copyright: Mawmau v. Tegg, 2 Russ. 385, 392 ; trade-name or trade-mark : Longman v. Tripp, 2 B. & P. N. R. 67 ; Ex parte Foss, 2 l)e. G & J. 230 ; Pepper v. Labrot, 8 Fed. Rep. 29 ; Warren i;. Warren, 134 Mass. 247 (see also Bury v. Bedford, 4 I)e G. J. & S. 352, 371), even though not so expressly stated in the act And even though expressly so stated in the present act (sec. 70 a (2) }, the qualification must be implied that a trade-name or mark which necessarily indicates the personal production of the bankrupt cannot pass to his trustee. See Am. & Eng. Encyc. of Law, Vol. 26, p. 371. Rights under an applies* tion for a patent do not pass. /' McDonnell, 101 Fed. Rep. 239. / 430 WILLIAMS V. HEARD. [CHAP. V. receirers, "for the preservation of estates, to take charge of the prop- erty of bankrupts after the filing of the petition and until it is dismissed or the trustee qualified." It is argued that this limits the power of re- ceivers, and forbids them to do more than hold possession of the bank- rupt's property during a certain interval. I do not think the argument is sound. The clause restricts the power of the court to appoint, con- fining it to cases of absolute necessity, and then goes on to state the purpose for which the appointment may be originally made. But, after a receiver has once gone into possession, it may become necessary to sell the property for the very purpose of preserving it, or its value, which is, of course, the essential matter, either in whole or in part. In such event, I think the court has ample power to order or confirm a sale, either under the power to preserve, implied by clause 3 itself, or under clause 7 of the same section, which empowers the court to "cause the assets of bankrupts to be collected, reduced to money, and distributed." The exceptions are dismissed, and the referee's opinion and order are approved. WILLIAMS v. HEARD. UNITED STATES SUPREME COURT, MAY 1-25, 1891. [Reported in 140 United States, 529.] MR. JUSTICE LAMAR, after stating the case, delivered the opinion of the court. The single question on the merits of the case is, whether, at the date of their adjudication in bankruptcy, the claim of the defendants in error for war premiums passed to their assignees in bankruptcy as a part of their estate. As preliminary to the discussion of the merits of the case, it is urged by the defendants in error that this is not a federal question, and that, therefore, the writ of error should be dismissed. We do not think, however, that this contention can be sustained. Both parties claim the proceeds of the award, the defendants in error asserting that it did not pass to their assignees in bankruptcy under section 5044 of the Revised Statutes, and the plaintiff in error insisting that the claim was a part of their estate at the date of their adjudication in bankruptcy, and did pass to the assignees under that section of the Revised Stat- utes. The assignee's claim to the award is based on that section of the statutes ; and as the State court decided against him, this court has jurisdiction, under section 709 Revised Statutes, to review that judg- ment; for the decision of the State court was against a "right" or " title " claimed under a statute of the United States, within the mean- ing of that section. SECT. IV.] WILLIAMS V. HEARD. 431 The case upon the merits is more difficult. There is high authority in the State courts in support of the judgment of the court, below. The same general question has arisen in New York, in Maryland, and in Maine ; and in each instance the decision has been, like the one we are reviewing, against the assignee. See Taft v. Marsily, 120 N. Y. 474; Brooks v. Ahrens, 68 Md. 212 ; and Kingsbury v. Mattocks, 81 Me. 310. But as the question is one arising under the bankruptcy statute of the United States, we cannot rest our judgment upon those adjudi- cations alone, however persuasive they may be. By the treaty of "Washington, concluded May 8, 1871, between the &ou-~ United States and Great Britain, and proclaimed July 4, 1871, 17 Stat. >i- 863, it was provided that, in order to settle the differences which had &~ x arisen between the United States and Great Britain respecting claims growing out of depredations committed by the Alabama and other designated vessels which had sailed from British ports, upon the com- merce and navy of the United States, which were generically known as the Alabama Claims, those claims should be submitted to a tribunal of arbitration called to meet at Geneva, in Switzerland. The claims pre- sented to that tribunal on the part of the representative of the United States included those arising out of damages committed by those cruis- ers, and also indirect claims of several descriptions, and among them claims for enhanced premiums of insurance, or war risks, as they were sometimes called. As respects the claims for enhanced premiums for war risks, and certain other indirect claims, objection was made by Great Britain to their consideration by the tribunal, as not having been included in the purview of the treaty ; and as no agreement could be reached upon this point between the representatives of the respective governments, the arbitrators, without expressing any opinion upon the point of difference as to the interpretation of the treaty, stated that, " after the most careful perusal of all that has been urged on the part of the government of the United States in respect of these claims, they have arrived, individually and collectively, at the conclusion that these claims do not constitute, upon the principles of international law ap- plicable to such cases, good foundation for an award of compensation or computation of damages between nations, and should, upon such principles, be wholly excluded from the consideration of the tribunal in making its award, even if there were no disagreement between the two governments as to the competency of the tribunal to decide thereon." Messages and Documents, Department of State, pt. 2, vol. iv. 1872-73, p. 20. This declaration of the tribunal was accepted by the President of the United States as determinative of their judgment upon the question of public law involved ; and, according!}', those indirect claims were not insisted upon before the tribunal, and were not, in fact, taken into con- sideration in making their award. Id., p. 21. The tribunal finally awarded to the United States $15,500,000 as indemnity for losses sustained by citizens of this country by reason of 432 WILLIAMS V. HEARD. [CHAP. V. ( jur- the acts of the aforesaid cruisers, and that sum was paid over by Great Britain. It was held in United States v. Weld, 127 U. S. 51, that this award was made to the United States as a nation. The fund was, at ail events, a national fund, to be distributed by Congress as it saw fit. True, as citizens of the United States had suffered in person and prop- ert}' b}' reason of the acts of the Confederate cruisers, and as justice demanded that such losses should be made good by the government ot Great Britain, the most natural disposition of the fund that could be made by Congress was in the paj-rnent of such losses. But no indi- vidual claimant had, as a matter of strict legal or equitable right, any lien upon the fund awarded, nor was Congress under an}- legal 01 equitable obligation to pay any claim out of the proceeds of that fund. We premise this much to show that, as respects the various claims, both of the first and second classes, for which payment was afterwards provided by Congress, they stood on a basis of equality, in the matter of legal right on the part of the claimants to demand their payment, or legal obligation on the part of the government of the United States to pay them. There was undoubtedly a moral obligation on the United States to bestow the fund received upon the individuals who hud suf- fered losses at the hands of the Confederate cruisers ; and in this sense all the claims, of whatsoever nature, were possessed of greater or less pecuniary value. There was at least a possibilitj 7 of their payment by Congress, an expectancy of interest in the fund ; that is, a possibility coupled with an interest. The first provision made for the distribution of this fund was by the ' -^ Act of June 23, 1874, 18 Stat. 245, c. 459. By that act there was established a court known as the Court of Commissioners of Alabama Claims, to be composed of five judges, whose duties, among other things, were to receive and examine all claims admissible under the act that might be presented to them, directly resulting from damage caused by the afore-mentioned Confederate cruisers. By section 8 the court was to exist for one year from the date of its first convening and organizing, and the President might, by proclamation, extend its exist- ence for six months more. By subsequent acts of Congress the exist- ence of the court was continued until January 1, 1877, to enable it to complete the business for which it was created. The claims allowed b} - this court did not amount to the sum of the award ; and as many claims had not been presented to the court, Con- gress, by the Act of June 5, 1882, 22 Stat. 98, c. 195, re-established the court " for the distribution of the unappropriated moneys of the Geneva award." Tt was made the dut}' of the court, as reorganized, to receive and examine the claims which might be presented, putting them into two classes, and to render judgment for the amounts allowed. Claims of the first class were those " directly resulting from damage done on the high seas by Confederate cruisers during the late rebellion, including vessels and cargoes attacked on the high seas, although the loss or SECT. IV.] WILLIAMS V. HEARD. 433 damage occurred within four miles of the shore ; " and claims of the second class were those " for the payment of premiums for war risks, whether paid to corporations, agents, or individuals, after the sailing of any Confederate cruiser." As already stated, the defendants in error were adjudicated bank- ^ rupts August 5, 1875, and were discharged July 20, 1877. No steps Jl^^ were taken in the matter of their claim until after the passage of the act of 1882. The award was made by the Court of Commissioners in , December, 1886, that court finding that the assignees of the defendants in error were entitled to such award. It is urged on behalf of the plaintiff in error that this finding, that the assignees were entitled to the amount of the award on this claim, was final, and not subject to review in any other court or tribunal. In "3&, "Vtwtt/w. other words, it is insisted that the decision of that court, both as re- spects the amount to be paid on the claims, and also as to who was entitled to receive that amount, was final and irrevocable. We are not impressed with this view. In our opinion it is unsound. The object for which the Court of Commissioners of Alabama Claims was established was to pass upon the claims which were presented to it for adjudication, and determine the amount to be paid by the United States on each claim. Questions respecting the ownership of the re- spective claims did not concern the court. Its function was performed when it rendered its judgment on the merit of the claims. Its judg- ments were final upon all parties, as respects the validity of the claim, and the amount to be paid in satisfaction of it ; but there is nothing in the acts of Congress relating to this matter, or in the reason of things, to indicate that the judgment of the court, as to who were the owners of the respective claims submitted, should be considered final and irrevocable. Passing now to the most important question in the case, we are to^fv-' consider whether the claim passed to the assignees of the defendants in ^.^P error by virtue of the deed of assignment in their bankruptcy proceed- ings ; or whether, on the other hand, it never constituted a part of the . Boothby, 10 Sim. 542 ; Knight v. Bulkeley, 5 Jur. N. 8. 817 ; Ex parte Webber, 18 Q. B. D. Ill ; McCarthy v. Goold, 1 Ball & Beatty (Ir. Ch.), 387. The matter of government pensions is now largely regulated by statute. The English Act of 1883, 53 (2), gives the court power to direct that the court may "make such order as it thinks just for the payment of ... half-pay or pension, or of any part thereof, to the trustee." In the United States the pensions of soldiers and sailors cannot bo assigned. Rev. Stat., 4745. SECT. IV.] WILLIAMS V. HEARD. 435 tuity. 1 On this point we can do no better than to quote the language of the learned judge of the court below who delivered the dissenting opinion. He says : " If Congress intended by these statutes to appro- priate the money to certain persons as a gratuity, the only matters for the Court of Commissioners to deal with would have been the persons intended by the statutes, and the amounts given to each ; and it is difficult to see how a judicial court could re-examine the distribution made by the Court of Commissioners unless the persons to whom that court awarded the money claimed and received it in some representa- tive capacity. The judicial courts determine the ownership of the money awarded only on the ground that it follows the ownership of the property as compensation for which the awards were made. Con- gress did not, however, in these statutes specify the persons entitled to receive the money otherwise than by describing the claims to be admitted, except that it provided for the exclusion of claims for the loss of property insured to the extent of the indemnity received from the insurance, and that no claim shall be allowed ' in favor of any person not entitled at the time of the loss to the protection of the United States in the premises,' nor ' in favor of am" person who did not at all times during the late rebellion bear true allegiance to the United States.' " 146 Mass. 554, 555. "We have authority in this court for the position we maintain. In Comegys v. Vasse, 1 Pet. 193, the controversy was between a bankrupt and his assignees over a claim against the government of Spain for insurance on various vessels and cargoes which had been condemned by the Spanish prize courts. The case was this : Vasse had been an underwriter on ships and cargoes owned by citizens of the United States which were captured and carried into the ports of Spain, and abandonments having been made thereof to him, he paid the losses thus arising prior to the year 1802. In that same year he became em- barrassed and made an assignment under the bankrupt law of April 4, 1800. His certificate of discharge was dated May 28, 1802. In his return of his property and effects to the commissioners, which he was required to make by the act, he did not include this claim against Spain, because it was not believed to have any value, depending, as it did, merely on the discretion and pleasure of the Spanish government. By the treaty of 1819 with Spain, that government stipulated to pay five millions of dollars in full discharge of the unlawful seizures which 1 In the following cases the debtor having no previous legal right to the property in question, it was held his assignee or trustee in bankruptcy took nothing. Wills v. Wells, 8 Taunt. 264 (money voluntarily paid by an insurance company on a void policy); Ex parte Piercy, L. R. 9 Ch. 33 (money received in accordance with a con- tract between third persons) ; Ex parte Wicks, 17 Ch. I). 70 (a voluntary allowance) ; Ex parte Webber, 18 Q. B. D. Ill (a "compassionate allowance" paid to a disabled government employee) ; Tallman v. Tallman, 5 Cush. 325 (money awarded to an heir not legally entitled to anything by arbitrators, with power to act according to "sub- .stantial justice and right") ; Gillan >-. Gillan, 55 Pa. 430 (money awarded by a State to victims of a disaster). See also Emerson v. Hall, 13 Pet. 409. 436 WILLIAMS V. HEARD. [CHAP. V. she had made, and the money was afterwards paid over. Under the distribution of that fund the assignees in 1824 received a sum amount- ing to over $8,000, as a part of the bankrupt's estate. Vasse brought suit to recorer it from the assignees, and recovered judgment in the Circuit Court ; but on error this court reversed that judgment, and held that the claim for which satisfaction had been made was a part of the estate of the bankrupt in 1802, and therefore passed to the assignees under the deed of assignment. The bankrupt act of 1800, under which the case arose, was quite similar to the statute involved in this case, providing that " all the estate, real and personal, of every nature and description, to which the bankrupt might be entitled, either in law or in equity," should go to his assignee ; and the court held that those words were broad and comprehensive enough to cover every description of vested right and interest attached to and growing out of property. The opinion of the court was delivered by Mr. Justice Stoiy. In the course of his remarks he said: "It is not universally, though it ma}- ordi- narily be one test of right, that it may be enforced in a court of justice. Claims and debts due from a sovereign are not ordinarily capable of being so enforced. Neither the king of Great Britain nor the govern- ment of the United States is suable in the ordinar}- courts of justice for debts due by either ; yet who will doubt that such debts are rights ? It does not follow because an unjust sentence is irreversible that the party has lost all right to justice, or all claim, upon principles of public law, to remuneration. With reference to mere municipal law, he may be without remedy ; but with reference to principles of international law, he has a right both to the justice of his own and the foreign sovereign." 1 Pet. 216. Again, referring to the language of the bankrupt act of 1800, he said : " 'All the estate, real and personal, of even- nature and descrip- tion, in law or equity,' are broad enough to cover ever} T description of vested right and interest attached to and growing out of property. Under such words the whole property of a testator would pass to his devisee. Whatever the administrator would take, in case of intestacy, would seem capable of passing by such words. It will not admit of question that the rights devolved upon Vasse by the abandonment could, in case of his death, have passed to his personal representative, and when the money was received be distributable as assets. Why, then, should it not be assets in the hands of the assignees? Consider- ing it in the light in which Lord Hardwicke viewed it, as an equitable trust in the money, it is still an interest, or, at all events, a possibility coupled with an interest." 1 Pet. 218, 219. The principles of that case were applied in Milnor v. Metz, 16 Pet. 221, to the case of a claim for extra pay for services rendered by a bankrupt as gauger at the port of Philadelphia, which, although pre- sented to Congress prior to his adjudication in bankruptc}-, was not recognized by that body or satisfied until afterwards, the court holding, that the claim passed to the assignee as part of the bankrupt's estate, and that the doctrine of donation did not apply. SECT. IV.] WILLIAMS V. HEARD. 437 In Phelps v. McDonald, 99 U. S. 298, McDonald, who was a British subject residing in the United States, was declared a bankrupt in 1868, and the conveyance of his estate was made in the usual form by the register to an assignee. At that time he had a claim against the United States, of which the commission organized under the treaty of Washing- ton took cognizance, and made an award for its paj'ment. It was held that such claim passed to the assignee. In the opinion of the court, delivered by Mr. Justice Swayne, after referring to Comeg3's v. Vasse, and other cases of that nature, it was said : " There is no element of a donation in the payment ultimately made in such cases. Nations, no more than individuals, make gifts of money to foreign strangers. Nor is it material that the claim cannot be enforced by a suit under munici- pal law which authorizes such a proceeding. In most instances the pa}'ment of the simplest debt of the sovereign depends wholly upon his will and pleasure. The theor} 1 " of the rule is that the government is always ready and willing to pay promptly whatever is due to the cred- itor. . . . It is enough that the right exists when the transfer is made, no matter how remote or uncertain the time of payment. The latter does not affect the former. ... If the thing be assigned, the right to collect the proceeds adheres to it, and travels with it whithersoever the property may go. The}' are inseparable. Vested rights ad rem and in re possibilities coupled with an interest and claims growing out of property pass to the assignee." 99 U. S. 303, 304. To the same effect are Erwin v. United States, 97 U. S. 392 ; Bachman v. Lawson, 109 U. S. 659. There is nothing in United States v. Weld, 127 U. S. 51, that mili- tates against the view herein presented. In that case it was held that, as respects the jurisdiction of the Court of Claims to entertain the suit against the United States under section 1066, Rev. Stat, the claim must be regarded as growing out of the act of 1882, because that act furnished the remedy by winch the rights of the claimant might be en- forced. But that is an entirely different proposition from the one con- tended for here by the defendants in error, that the claim was created by that act. In our opinion this case falls within the principles of Comeg3 - s . Vasse and Phelps v. McDonald, and the judgment of the court be-yj^ low is Reversed, and the cause remanded for further proceedings not' inconsistent with this opinion. 1 1 Butler v. Gorely, 146 U. S. 303, ace. See also Price v. Forrest, 173 U. S. 410, where money repaid under act of Congress in reimbursement of money advanced by a government officer was held to pass to a receiver (con/. Emerson v. Hall, 13 1'et. 409) ; and Caldcr v. Henderson, 54 Fed.Jlep. 802 (C. C. A.;, where a planter's right to a government bounty for raising sugar was held to pass under the insolvency law of Louisiana. But where, as in its legislation in regard to French spoliation, Congress indicates an intention to pay an indemnity to the next of kin of the original sufferer, an assignee in bankruptcy, either of the original sufferer or of any intermediate descend- y 438 WRIGHT V. FIRST NAT'L BANK OF GREENSBURG. [CHAP. V. WRIGHT EX AL., ASSIGNEES, v. FIRST NATIONAL BANK OF GREENSBURG. CIRCUIT COURT FOR THE DISTRICT OP INDIANA, JULY, jj3J&_ [Reported in 8 Bissett. 243.1 GRESHAM, J. The declaration alleges that the defendant has re- served, taken, and received usurious interest from the bankrupts. The action is brought to recover double the amount of interest thus paid, and is based upon the 30th section of the National Banking_Act, which reads as follows : "Every association organized under this act may take, receive, reserve, and charge on any loan . . . interest, at the rate allowed by the laws of the State or territory where the bank is located, and no more ; except that where by the laws of any State a different rate is limited for banks of issue organized under State laws, the rate so lim- ited shall be allowed for associations organized in an}' such State, under this act. And when no rate is fixed by the laws of the State or terri- tory, the bank may take, receive, reserve, or charge a rate not exceed- ing seven per centum .... And in case a greater rate of interest has been paid, the person or persons paj'ing the same, or their legal representatives, may recover back, in any action of debt, twice the amount of interest thus paid, from the association taking or receiving the same." The defendant demurs to the declaration, on the ground that the plaintiffs, as assignees in bankruptc}", have no legal capacity to prose- cute the action. This is the only question presented by the demurrer. The right of action given by this section is penal. Tiffany v. National Bank, 18 Wall. 409. In the absence of a statute authorizing it, a right to a penalt}' cannot be assigned, nor, a right of action for a tort. Gardiner v. Adams, 12 Wend. 297. The defendant exacted and received usurious interest. Had the bankrupts remained solvent, the^y might have prosecuted an action for double the amount of interest paid. Unless the right of action has been barred, it yet exists, either in the bankrupts or their assignees. It is insisted that because the bankrupts could not have sold or trans- ferred the right of action, if they had remained solvent, that, therefore, their assignees have no legal capacity to prosecute the suit. Tiffany v, The National Bank, supra, was an action by a trustee, to recover the penalty given by the statute. The plaintiff recovered, but his capacity to maintain the action seems not to have been directly raised. In the case of Crocker, Assignee, v. First National Bank, 4 Dill. 358, the precise question raised by this demurrer was considered, and it was ant, gets nothing. Blagge v. Balch, 162 U. S. 439. See also Briggs v. Walker, 171 U. S. 466. SECT. IV.] WRIGHT V. FIRST NAT'L BANK OF GREENSBURG. 439 held by Dillon, Judge, that the assignee was the "legal representa- tive " of the borrower within the meaning of the banking act, and as such could maintain the suit whether the right of action vested in the assignee under the bankrupt law or not. In Tiffany v. Boatman's Institution, 18 Wall. 375, the assignee in bankruptcy was allowed to recover usurious interest, which had been paid by the bankrupt in violation of the statutes of Missouri. In Meech v. Stoner, 19 N. Y. 26, it was held that an assignee could maintain an action to recover money lost at faro, under a statute which gave the right of action to the loser. 1 See also Carter v. Ab- bott, 1 Barne. and Cress. 444, and Gray v. Bennett, 3 Met. 522. In this last case, the assignee of the insolvent debtor was allowed to re- cover three-fold the amount of usurious interest paid to the defendant, that being the amount allowed by the Massachusetts statutes. This is a well-considered case. In Bromley, Assignee, v. Smith, 2 Biss. 511, it was held by Miller, District Judge, that the assignee could not maintain an action to recover the penalty given by the statute. And it seems to be conceded that in the case of Barnett v. Muncie National Bank, in the Circuit Court of the United States for the Southern District of Ohio, a similar ruling was made by Justice Swayne, and the late Circuit Judge, Emmons, in an oral, but unreported opinion. To the same effect is Nichols v. Bel- lows, 22 Vt. 581. 2 The bankrupt act vests in the assignee for the creditors the entire estate of the debtor everything of beneficial interest passes by the deed of assignment, except certain necessary exemptions which are intended to protect the bankrupt and his family from temporary dis- tress. It is true that rights of action for torts to the debtor's person, such as assault and battery, false imprisonment, malicious prosecution, libel, and slander, do not pass to the assignee. While it must be conceded ^ tliat under the decision of the Supreme Court, this is an action, in part iv at least, to recover a penalty, yet there are reasons why claims of this kind should vest in the assignee which do not apply to rights of action for damages growing out of mere torts to the debtor's person. In the right of action given by the banking act the bank exacts and receives from the borrower more than the law allows as a fair compensation for the use of its money. In this illegal way, the bank gets into its pos- session part of the borrower's estate, mone} r which should go to the creditors of the bankrupt borrower. This demand and receipt of illegal interest b}- the bank may have materially contributed to the bankrupt's downfall. The recovery allowed by the 30th section of the act is " in any action of debt." If the assignees are not the " legal representatives" of the bankrupt 1 Brandon v. Pate, 2 H. Bl. 308 ; Brandon v. Sands, 2 Ves. 514, ace. 2 Lafoantain v. Burlington Savings Bank, 56 Vt. 332, ace. See also Osborn v. First Nat. Bank, 175 Pa. 494. J 440 ROSE V. BUCKETT. [CHAP. V. within the meaning of the 30th section of the banking act, and the right of action never passed to them under the bankrupt act, then, unless the suit has been barred, the bankrupts may sue for and recover the money for their own benefit, when, perhaps, they have already received their full exemptions and have been discharged from all their obligations. As between the bankrupts and their creditors, this would be unjust, and such a result is not easily reconciled with the chief object of the bankrupt law, which is the equal distribution of the insolvent debtor's entire estate amongst all his creditors. In Gray v. Bennett, supra, " it is very clear," say the court, " that if a creditor of the insolvent debtor should attempt to prove a note under the commission, it would be the duty of the assignee to reduce the amount, if usurious interest had been taken on it, or was reserved in it, and in this manner the creditors would be benefited by such reduction. Why should they not have the advantage of it where the debtor was paid the usurious demand, prior to the insolvency and within the time limited by the statute for recovering it? " I think the assignees are the " legal representatives " of the bank- rupts within the meaning of the 30th section of the banking act ; and that the right of action given by that section is a " claim " or " debt" which passed to the assignees under the provisions of the bankrupt law. Demurrer overruled. 1 ROSE v. BUCKETT. COURT OF APPEAL, MAY 15, 16, 23, 1901. [Reported in [1901] 2 King's Bench Division, 449.] APPEAL from a decision of GRANTHAM, J. The action was brought by the grantor of a bill of sale for trespass and for seizure and conversion of the plaintiff's goods. By his state- ; ment of claim (paragraphs 2, 3, and 4) the plaintiff alleged that on .1 f three different occasions the defendant Margaret Buckett, by her agents and servants, the other defendants, had wrongfully entered the plaintiff's house, and had remained there for a day or longer, and had wrongfully seized the plaintiff's furniture, goods, and effects which were upon the premises, and had refused either to leave the premises or to 1 In addition to cases cited, see Thomas v. Watson, Taney, 297 ; Louisville Trust Co. v. Kentucky Nat. Bank, 87 Fed. Rep. 143 ; Henderson Nat. Bank v. Alves, 91 Ky. 146 ; Tamplin v. Wentworth, 99 Mass. 63 ; Pearson v. Gooch, 69 N. H. 571 ; Wheelock v. Lee, 64 N. Y. 242 ; Monongahela Nat. Bank v. Overholt, 96 Pa. 327 (conf. Osborn v. First Nat. Bank, 175 Pa. 494) ; Moore v. Jones, 23 Vt. 739, ace. See also Re Hoole, 3 Fed. Rep. 501 ; First Nat. Bank v. Lasater, 196 U. S. 115. In Killen v. Barnes, 106 Wis. 546, it was held that the liabilities of bank officials for official misconduct passed to an assignee for the benefit of creditors. SECT. IV.] ROSE V. BUCKETT. 441 give up the said goods and effects when requested to do so, but bad converted the same in part to their own use. Paragraph 5 of the statement of claim was as follows : " By reason of the foregoing the plaintiff has suffered damage, per- sonal inconvenience, and anno3 T ance to himself and family, by being wrongfully deprived of his property and of the quiet enjoyment of his house and premises from time to time by the defendants as aforesaid." The plaintiff claimed damages from the defendants "for the afore- said wrongful entry to his said premises, and for wrongful seizure and conversion of his said furniture, goods, and effects as aforesaid. The defendants justified their conduct under the provisions of section 7 of the Bills of Sale Act Amendment Act, 1882, and the}" denied the conversion. The plaintiff in reply alleged that the bill of sale did not comply with the requisitions of the Act. After the cause was set down for trial the plaintiff became bankrupt, and before the jury were sworn the defendants applied to GRANTHAM, J., for an order to stay proceedings in the action upon the ground that all the causes of action had become vested in the trustee in bankruptcy, the official receiver. Upon this application the plaintiff admitted that no substantial damage had been done to the premises or to the goods, and put forward the personal annoyance to himself and family as his main ground of complaint. The learned judge thought that this was not a case in which the plaintiff could claim vindictive damages, and consequently that the right of action passed to the trustee in bank- ruptcy. He therefore granted a stay of proceedings. The plaintiff appealed. W. R. Warren, for the plaintiff. The question is whether the right of action in this case passes to the trustee in bankruptcy or remains in the bankrupt. There can be only three kinds of cause of action here, dam- age to the goods, damage to the premises, and damage to the individual. It is admitted that there was no damage done to the goods or the prem- &T* > f' ises, and the only cause of action which remains is damage to the individual. In an action of trespass the plaintiff has a cause of action for annoyance to himself and family occasioned by the invasion of his property. That cause of action remains in the bankrupt even though there are other claims for damage to property : Clark v. Calvert, 8 Taunt. 742, 3 Moo. 96, 21 R. R. 528 ; Beckham v. Drake, 2 H. L. C. 579, 629, 634; Spence v. Rogers, 11 M. & W. 191, affirmed sub nom. Rogers v. Spence, first by the Court of Exchequer Chamber, 18 M. & W. 571, and ultimately by the House of Lords, 12 01. & F. 700. Lord Campbell there suggests that in a mixed case of injury to the per- son and injury to the property the law would give an action to the bankrupt for the personal injur}', and an action to the assignee for the injury to the propert}*, thereby showing that the damage to the person and the damage to the property may be separated. [COLLINS, L. J. Suppose an action brought for trespass and judg- ment given for 40s., could you then bring a separate action for the personal annoyance sustained in respect of the same trespass ?] 442 ROSE V. BUCKETT. [CHAP. V. Yes. In a running-down case resulting in damage to the plaintiff's cab and damage to his person, it was held that there were two separate causes of action, although arising out of the same tort or neglect of the defendant. Brunsden v. Humphrey, 14 Q. B. D. 141. So here the personal anno3'ance occasioned by the trespass is a separate cause of action. [COLLINS, L. J. That is subject to the question whether it was not an aggravation of the cause of action in respect of the property.] Hodgson v. Sidney, L. R. 1 Ex. 313, 35 L. J. (Ex.) 182, may be cited against the plaintiff, but it is distinguishable from the present case. That was an action for a false representation which resulted in a direct pecuniary loss to the plaintiff of 2,000, and the personal annoyance was merely subsidiary. Here the personal annoyance is the principal ground of complaint. In Brewer v. Dew, 11 M. & W. 625, an action of trespass, in which the primary cause of action was the personal annoyance to the plaintiff, was held not to pass to the assignees in bankruptcy. That was an action for seizure of goods, and Lord Abinger there intimated that the test was whether the jury could give vindictive damages beyond the value of the goods ; and he also suggested that the defendants might have limited their plea so as to make it good by stating that, so far as regards the value of the goods, the plaintiff had lost his right of action by his bankruptcy. Again, in Howard v. Crowther, 8 M. & W. 601, which was an action for seduction of a servant, the same learned judge said that assignees in bankruptcy were " not entitled to make a profit of a man's wounded feelings," and he held that the right to sue re- mained in the bankrupt. That principle applies here. .Blake Odgers, K. C., and Spokes, for the defendants. The cause of action, as appears from the statement of claim itself, is damage to the premises and goods, and the allegation of personal annoyance flows from that. Can it be said that any one of the plaintiff's family could bring an action for personal inconvenience arising from the trespass ? Where the cause of action is injury to property, that passes to the trustee in bankruptcj", even though it be alleged that the bankrupt has suffered personal inconvenience, provided that the inconvenience arises out of the cause of action. As the law now stands, the cause of action cannot be split. It is one and indivisible, and it passes to the trustee ; it is a "thing in action " within section 168 of the Bankruptcy Act, 1883. The personal inconvenience to the plaintiff and his family is alleged as a piece of damage arising out of the cause of action pre- viously alleged. The cases cited on behalf of the plaintiff were decided under a totall} 7 different bankruptcy law. Under the bankruptcy law in force at the time when Clark v. Calvert, and Rogers v. Spence were decided, a lease did not pass to the bankrupt's assignees unless they elected to take it, and that is the true ground of those decisions ; but now the lease passes to the trustee unless he disclaims. The expres- sion " things in action" appears first in the Bankruptcy Act of 1869, SECT. IV.] ROSE V. BUCKETT. 443 and it is repeated in the Act of 1883. Formerly it was only a cause of action by which the estate of the bankrupt was diminished that passed to his assignees. Now the presumption is that everything which the bankrupt has passes to his trustee, the only exception being where the action is of an entirely personal character, e. g., an action for assault. It may be that in such a case the right of action would remain in the bankrupt; though, strictly speaking, " things in action" would include that also. Trespass to lands and trespass to goods go to the trustee in bankruptcy, and the mere fact that personal annoyance has resulted therefrom makes no difference. Brewer v. Dew is dis- tinguishable because it was there alleged that the trespass was com- mitted under a false allegation of right, whereas in this case no wilful wrong is imputed to the defendants. Further, it is inconsistent with Hodgson v. Sidney, which shows that where, as here, the cause of action is infringement of a right of property, it passes to the assignee, and with it must go any ancillary claim for personal inconvenience to the bankrupt and his family. Hodgson v. Sidney has since been fol- lowed by the majority of the court in Morgan v. Steble, L. R. 7 Q. B. 611. In Brunsden v. Humphrey, two distinct rights were infringed. Since the Bankruptcy Act of 1869 the courts have put a wider inter- pretation upon what passes to the trustee in bankruptcy. Wadling v. Oliphant, 1 Q. B. D. 145 ; Emden v. Carte, 17 Ch. D. 169, 768 ; Metropolitan Bank v. Pooley, 10 App. Gas. 210. [STIRLING, L. J. Exparte Vine, 8 Ch. D. 364, shows that the Bank- ruptcy Act, 1869, did not affect the rule that a cause of action for injury to personal reputation does not pass to the trustee. [COLLINS, L. J. The law is so stated in Baldwin on Bankruptcy, 8th eel., p. 292, and Williams on Bankruptcy, 7th ed., p. 200.] Warren, in reply. The right of action in respect of the invasion of the plaintiff's quiet enjoyment of the property remains in the bankrupt. It is a merely personal right ; it would not pass to his legal personal representatives, and it is not assignable. Hill v. Bovle, L. R. 4 Eq. 260 ; Prosser v. Edmonds, 1 Y. & C. Ex. 481 ; Wood v. Downes, 18 Ves. 120, 11 R. R. 160. For the purpose of maintaining an action of trespass it is immaterial whether there be any actual damage or not. " Ever}' invasion of private property, be it ever so minute, is a tres- pass." Entick v. Carrington, 19 State Trials, 1030, 1066. In Ashby v. White, 2 Ld. Raym. 938, it was held that a man who lias a right to vote at an election of members of Parliament can maintain an action against the returning officer for refusing to admit his vote, even though the persons for whom he offered to vote were elected. Cur. adv. vult. May 23. COLLINS, L. J. This case appeared to raise a point of some difficult}", upon which the authorities were not easy to reconcile, and we therefore took time to look into them. The action was for tres- pass and conversion of the plaintiff's goods, and damages were claimed in addition for the personal annoyance caused thereby to the plaintiff. 444 ROSE V. BUCKETT. [CHAP. V. After the cause was entered for trial the plaintiff became bankrupt, and on application made to GRANTHAM, J., before the jury were sworn, he stayed all proceedings, on the ground that all causes of action were vested in the trustee in the bankruptcy, i. e., the official receiver. From this order the plaintiff appeals. The general principles which determine whether a cause of action does or does not pass to the trustee in bankruptcy are well settled, and may be stated in the language of Parke, B., in Beckham v. Drake, 2 H. L. C. 579, 637 : " What then is the proper construction of this section of the Act" (. e., 63 of the Act 6 Geo. IV. c. 16) " according to its words and the several cases decided upon it ? The proper and reasonable construction appears to me to be, that thejstatute transfers not all rights of action which would pass to executors (for rights in- capable of being converted into mono}-, such as the next presentation to a void benefice, pass to them), but all such as would be assets in their hands for the payment of debts, and no others all which could be turned to profit, for such rights of action are personal estate. Of such the executor is assignee in law ; and the nature of the office and dut} r of a bankrupt's assignee requires that he should have them also. But rights of action for torts which would die with the testator, accord- ing to the rule ' Actio personalis moritur cum persona,' and all actions of contract affecting the person only, would not pass. Of such the executor is not assignee in law ; and, whatever may be the reason of the law which prohibits him from being so, it seems equally to apply to a bankrupt's assignee. 1 It is admitted in the present case that the 1 In the following cases the right of action was held personal and not to pass : Malicious prosecution : Re Haensell, 91 Fed. Rep. 355 ; Wright v. First Nat. Bank, 18 B. B. 87, 89; Noonan v. Orton, 34 Wis. 259 (see also Francis v. Burnett, 84 Ky. 23) ; personal injuries caused by negligence: Stone v. Boston & Maine R. R., 7 Gray, 539 (see also Rice v. Stone, 1 Allen, 566; Bennett v. Sweet, 171 Mass. 600) ; negli- gence of an attorney leading to the debtor's imprisonment: Wetherell v. Julius, 10 C B. 267; slander or libel: Benson v. Flower, W. Jones, 215; Dillard v. Collins, 25 Gratt. 343 ; North v. Turner, 9 S. & R. 244, 249 ; Bowling v. Browne, 4 Ir. C. L. 265 ; malicious attachment or distress, or other abuse of legal process : Stanley v. Duhurst, 2 Root, 52 ; O'Donnel v. Seybert, 13 S. & R. 54 ; Sommer v. Wilt, 4 S. &. R. 19, 28; seduction: Buss v. Gilbert, 2 M. & S. 70; fraudulent representations: Re Crockett, 2 Ben. 514; Re Brick, 4 Fed. Rep. 804; Tufts v. Mathews, 10 Fed. Rep. 609 (see also Shoemaker v. Kelley, 2 Dall. 213; Byxbie v. Wood, 24 N. Y. 607); the right to disaffirm a contract made by the bankrupt when a minor : Mansfield v. Gordon, 144 Mass. 168. The right of action has been held to pass in the case of conversion : Ouchterlong v. Gibson, 5 M. & G 579 ; Lovell v. Hammond Co., 66 Conn. 500 ; or trespass to goods : North v. Turner, 9 S. & R. 244, 249. And, inconsistently with some of the American cases cited in the preceding paragraph, the English courts have held that if a prop- erty injury is the gist of the injury a right of action passes, whether based on deceit : Hodgson v. Sidney, L. R. 1 Ex. 313; Twycross v. Grant, 4 C. P. D. 40; Warder v. Saunders, 10 Q. B. D. 114; negligence of an attorney: Wetherell v. Julius, 10 C. B. 267 ; Morgan v. Steble, L. R. 7 Q. B. 611 ; Re Daines, 16 L. T. N. s. 127 ; Crauford v. Cinnamond, Ir. R. 1 C. L. 325 ; or malicious institution of bankruptcy proceedings: Metropolitan Bank v. Pooley, 10 A. C. 210. Ajudgment, though based on a claim for infringement of a personal right, passes. SECT. IV.] ROSE V. BUCKETT. 445 damage to the land and goods was merel}- nominal, and, if substantial damages could be recovered at all. it would be for the ahno}'ance and personal inconvenience caused to the bankrupt, and it was contended, therefore, for the plaintiff that the cause of action remained in the bankrupt and did not pass to his trustee. On the other hand, Mr. Odgers contended that the action was one of trespass to the land and conversion of the chattels of the plaintiff, which imported some injury to his estate, the damages for which, even though nominal only, would, therefore, pass to the trustee, and that the annoyance, &c. , was not itself a cause of action, but only damage flowing from the original cause of action, which was single and passed to the trustee. This raised a question as to the possibility of dividing a cause of action, and leaving one part to be sued on by the bankrupt and the other by the trustee, and Brewer v. Dew, Rogers v. Spence, and Hodgson v. Sidney, fol- lowed by Morgan v. Stebie, were cited. It is not, however, necessa^, in my opinion, to review these authorities, or to determine the vexed question left undecided by Parke, B., in Beckham v. Drake, and Lord Campbell in Rogers v. Spence, 12 Cl. & F. 700, 720 ; for I think this case stands clear of the difficulty which would arise where one and the same cause of action results in substantial damage to the property of the bankrupt as well as injury to his person or anno3'ance to his feel- ings. Where the damages to property by trespass and conversion are merel}* nominal, the cause of action in respect thereof is not regarded as one affecting the value of the property passing to the trustee, so as to give him a right of action in respect thereof, but rather as a wrong personal to the bankrupt himself, which could not found an action by his trustee. This view is well put by Cresswell, J., in his opinion delivered to the House of Lords in Beckham v. Drake, 2 H. L. C. 579, 613, summing up the result of Clark v. Calvert, 8 Taunt. 742, 21 R. R. 228 ; Rogers u. Spence, and Brewer v. Dew. He says : " In Clark v. Calvert, Rogers v. Spence, and Brewer v. Dew, 11 M. & W. 625, ji wus decided that rights of action for trespass to land or goods in the actual possession of a trader do not pass to his assignees if he becomes bankrupt, because those rights of action are given in respect of the immediate and present violation of the possession of the bankrupt, independently of his rights of property, and are an extension of the protection given to his person, and the primary personal injury to the bankrupt is the principal and essential cause of action." Passages to similar effect in different language will be found in the opinions of the other judges. See, in particular, Parke, B. , 2 H. L. C. 626; Wilde, C. J., 2 H. L. C. 634. These opinions are specially valuable coming from judges some of whom had taken part in the cases referred to, See Ex parte Charles, 14 East 197 ; Buss v. Gilbert, 2 M. & S. 70; Beckham v. Drake, 2 H. L. C. 579; Rice v. Stone, 1 Allen, 566. The question involved in the cases in this note is somewhat .analogous to the ques- tion of what rights survive to the executor or are assignable at the will of the person entitled daring his life. The cases on the broader question are fully collected in 44 L. R. A. 177. . 446 BECKHAM V. DRAKE. [CHAP. V. and summarizing their effect, and they negative the technical ground on which alone Mr. Odgers contends that Clark v. Calvert, and Rogers u. Spence, were decided namely, that under the then statute the assignees, unless they interfered, took no interest in land let to the bankrupt. GRANTHAM, J., treated the action as one that could not under the circumstances give rise to " vindictive" damages, and therefore as not falling within the test applied by Lord Abinger in Brewer v. Dew as determining that the right to sue remained in the bankrupt. But the damages claimed here, whether the facts will support the claim or not, are technically vindictive in the sense in which Lord Abinger used the word that is to say, they are not merely compensation for damage to land or goods, but something more, and, so far as they are more, they are in character vindictive in the legal sense ; but, as I have already shown, even if the damages were nominal only, the cause of action remains in the bankrupt. I am of opinion, therefore, that the action here is one in which, in the words of Cresswell, J., above cited, " the primary personal injury to the bankrupt is the principal and essential cause of action, and, though the facts, as far as one can sur- mise them from the pleadings and materials before GRANTHAM, J., make vindictive damages in the popular sense improbable, we should not be justified in interfering with the plaintiffs right to have the stay re- moved if the cause of action is in point of law vested in him notwith- standing his bankruptcy. I think the appeal must be allowed. 1 BECKHAM v. DRAKE. HOUSE OF LORDS. MAT, 1847; JULY, 1849. [Reported in 2 House of Lords Cases, 579.] THIS was a writ of error upon a judgment of the Exchequer Cham- ber 2 reversing a judgment for the plaintiff of the Exchequer of Pleas, 8 in an action of assutnpsit. Beckham entered into an agreement with Knight and Surgey to serve them for seven years at three guineas weekly, "the party making default to pay to the other the sum of 500 by way or in nature of specific damages." Beckham was dismissed and became bankrupt. After the bankruptcy he brought this action. The defendants pleaded his bankruptcy, to which the plaintiff demurred. 4 Baron PARKE. The question proposed by your Lordships is, whether the plaintiff or the defendant in error is entitled to judgment. 1 Stirling, L. J., delivered a brief concurring opinion. See Ex parte Graham, 21 L. T. N. s. 802, ace., in addition to cases cited in Rose v. Buckett. 2 8M. &W. 846. 8 11M.&W. 315. 4 The statement of facts has been abbreviated. SECT. IV.] BECKHAM V. DKAKE. 447 It was my duty to deliver the judgment of the Court of Exchequer, consisting of my brothers ALDERSON, ROLFE, my late brother GURNET, and myself, when this case was decided by that court (8 M. & W. 846), and to assign the reasons which induced me to form the opinion then expressed. The discussion of the case on the writ of error at your Lordships' bar, and the subsequent consideration of it, and of the judgment of the Exchequer Chamber, have induced me to think that the reasons so assigned by me are insufficient. One of the causes that has led me to doubt the propriety of that de- cision is, that a penalty is given for the non-performance of this agree- ment ; for it is clear that, according to the cases of Kemble v. Farren, 6 Bing. 141 (see Thompson v. Hudson L. R. 4 H. L. 1, and others), though the sum of 500 is said to be for " specific damages," it is to be construed as a penalty ; and whether that penalty would vest in the assignees under the circumstances of this case, is a question which I propose afterwards to consider. But I assume for the present that the case is in the same position as if there was no penalty ; on which foot- ing it has been argued at your Lordships' bar and in the court below. I would premise that it is not necessary to say anj'thmg upon a question discussed in the court below, whether all the defendants are liable upon a contract, though in writing, made by one in reality on his own behalf, and as agent for the others. There is now no doubt upon this point; both the courts below concur in this respect ; nor was it disputed in the argument here. The principal question in the case on the above- mentioned assumption is, whether the right of action for a breach before bankruptcy of such a contract as this, for the personal services of the bankrupt, passes to the assignees. The general question turns on the 6th Geo. IV. c. 16, 63, which must be construed with the aid of the twelfth section, and with that of former decisions upon the repealed statutes relative to bankrupts. By that section, " all the present and future personal estate of the bank- rupt, wheresoever found or known, and all property which he may pur- chase, or which may revert, descend, be devised or bequeathed to, or come to him before he shall have obtained his certificate, and all debts due or to be due to him, wheresoever the same shall be found or known, are_assigned, and such assignment is to vest the property, right, and interest in such debts, as fully as if the assurance whereby they are secured had been made to the assignees, and they have the same remedy to recover as the bankrupt would have had. " A former section (12) enabled the Lord Chancellor to appoint com- missioners, with full power and authority to make such order and direc- tion as to the lands, moneys, fees, offices, annuities, goods, chattels, wares, merchandises, and debts, wheresoever they may be found and known. The two sections are to be read together. It is not disputed that the rights of the assignee under the statute law are not identical with, nor are they so extensive as those of an exe- cutor, who stands in the place of his testator, and represents him as to 448 BECKHAM V. DRAKE. [CHAP. Y. all his personal contracts, and is by law his assignee (Wentworth Off. Exor. 100), and, therefore, may maintain any action in hie right which he himself might (Bac. Abr. Executors N ). That must be understood to mean an}' action on a contract, for an executor never could sue for wrongs to his testator ; " actio personalis moritur cum, persona" And with respect to contracts, some exceptions have been introduced by modern decisions: Chamberlain v. Williamson, 2 M. & S. 408; King- don v. Nottle, 1 M. & S. 355, and 4 M. & S. 53 ; as explained by Lord Abiuger in the case of Raymond v. Fitch, 2 Cromp. M. & R. 598, 599 ; and the executor cannot sue upon contracts the breach of which is a mere personal wrong. The executor takes all the other personal rights of a testator, as a consequence of his representative character, whether they are available for the payment of debts or not, for his liability to pay debts is the consequence, not the object, of the appoint- ment. The assignee is created by statute, for the purpose of recover- ing and receiving the estate, and paying the debts of the bankrupt, and takes only what the statute gives for that purpose. What then does it give ? It clearly gives in the section above mentioned, not merel}' all personal chattels, securities for money, and debts -properly so culled, but all unexecuted contracts which the assignee could perform, the per- formance of which would be beneficial to the bankrupt's estate. These are " personal estate." The assignee takes, in the language of Lord Tenterden in Wright v. Fail-field, 2 B. & Ad. 732, all "the beneficial matters " belonging to the bankrupt ; or, as Mir. Justice Buller said, "anything belonging to the bankrupt that can be turned to profit." Smith v. Coffin, 2 H. Bl. 462. This contract, if unexecuted, would clearly not have passed to the assignees. But the question is, not whether the contract, but whether the right of action for the breach of it before the bankruptcy, passed. The words "personal estate" clearly comprise all chattels, chattel in- terests, and all the subjects mentioned in the twelfth section ; and they also comprise some rights of action which are not properly debts, and would not pass under the word " debts," but do pass under the descrip- tion of " personal estate." For instance, some actions for torts do pass. Actions for injuries to personal chattels, whereby they are directly affected, and are pre- vented from coming to the hands of the assignee, or come diminished in value, undoubtedly pass. The action of trover for a conversion be- fore the bankruptcy is a familiar instance of this. On the other hand, rights of action for injuries to the person, or reputation, or the possession of real estate, do not pass. Actions of assault, for example, and for defamation, actions on the case for mis- feasance, doing damage to the person, for trespass quare clausum fre- git (Rogers v. Spence, 13 M. & W. 571 ; affirmed in this House, 12 Clark & Finnelly, 700), actions for criminal conversation with the wife, or seduction of the servant or daughter of the bankrupt, are not trans- ferred to the assignee, even though some of these causes of action may SECT. IV.] BECKHAM V. DRAKE. 449 be followed by a consequential diminution of tne personal estate, as where by reason of a personal injury a man has been put to expense, or has been prevented from earning wages or subsistence ; or where by the seduction the plaintiff has been put to expense. Howard v. Crowther, 8 M. & W. 601. But with respect to contracts ; rights of action for the breach of such as directly affect the personal estate, whereby the assignee is prevented from receiving part of it, or its value is diminished, are certainly transferred ; as for example, rights of action on a beneficial contract, whereby one engaged to sell and deliver goods to the bankrupt, and which, if performed, would have put him in the possession of the goods, or a contract with another to carry or take care of the goods of the bankrupt which are lost, or injured, and thereby diminished in value. On the other hand, actions for the breach of contracts personal to the bankrupt, unaccompanied by an injury to the personal estate, as a contract to carry him in safety, to cure his person of a wound or dis* ease, or a contract with a person, who subsequently becomes bankrupt, to marry, are certainly not assigned. This is conceded ; but it is ques- tioned on the part of the defendant in error, I think without sufficient ground, whether the assignee would not be entitled to sue in an}- of these cases, if the personal estate was consequent!}' damaged, as where the bankrupt was put to expense by the breach of contract, or lost the power of earning money. What then is the proper construction of this section of the Act, according to its words and the several cases decided upon it ? The proper and reasonable construction appears to me to be that the statute transfers not all rights of action which would pass to executors (for rights incapable of being converted into money, such as the next pres- entation to a void benefice, pass to them), but all such as would be assets in their hands for the payment of debts and no others, all which could be turned to profit, for such rights of action are personal estate. Of such the executor is assignee in law ; and the nature of the office and duty of a bankrupt's assignee requires that he should have them also. But rights of action for torts which would die with the testator, according to the rule, actio personalis moritur cum persond, and all actions of contract affecting the person only, would not pass. Of such the executor is not assignee in law ; and whatever may be the reason of the law which prohibits him from being so, seems equally to apply to a bankrupt's assignee. According to this rule, the description of contracts upon which the right of action is transferred, would include, but would not be restricted to, such as directly affect some chattel or subject of property which would pass to the assignees, or to such as would, if they had been per- formed, have produced such property, which alone, it was argued at your Lordships' bar, would be transferred by the statute ; and this was in accordance with the view I took in the court below. I think, upon subsequent reflection, that this is too narrow a construction of the 450 BECKHAM V. DRAKE. [CHAP. V. statute, and that it applies to all contracts for the breach of which an executor could sue, which could be turned to profit for the pa3'tnent of creditors. And if this be the true construction of the statute, if all the damages for this breach of contract could have been recovered b}" an executor, the assignee could recover them, and the plea would be a good plea in bar. But if part was recoverable for the personal inconvenience of the bankrupt, a different question presents itself. I think this contract cannot be said not to relate in any part to the person of the bankrupt, but that his personal inconvenience and trouble in looking out for a new employment would be part of the damages recovered. If so, that part could not be transferred to the assignees, and ought not to be lost ; the right to those damages, which would be lost in the case of a tes- tator's death altogether, continues in the bankrupt. It is upon this point that the case appears to me to turn. Who then are to sue for the breach of contract where part belongs to the assignee, part to the bank- rupt ? Who would have to sue if the contract was to cure the bankrupt of a disease, and give him a sum of money, and there had been a breach of both parts, which appears to me to be a similar question ? It is extremely difficult to say in whom the right of action would be. Either the right of action on the contract must be divided, and each sue, or the right of action altogether must remain in the bankrupt, or altogether be transferred to the assignees, or both must join, the con- tract being entire, to sue for the damages. In the first two cases the plea would be good, in the last two bad; for in the first it would be no an- swer to the entire cause of action ; in the second, it would be no answer to an} r part. I should feel considerable difficulty in deciding the ques- tion, but this case does not depend upon it, for I have now to consider what the effect of the penalt}' is. This subject was not discussed at your Lordships' bar, and was little adverted to in the court below. At common law the penalty would have been forfeited, and, being a sum certain, would have passed to the assignees ; for, at the time of the bankruptcy it would have been uncertain whether the defendant would ever have filed a bill for relief, supposing he could have done so ; and a sum certain, defeasible on an uncertain event, would have been, until defeated, personal estate, and would certain!}' vest in the assig- nees. But the question is, whether the Stat. 8 & 9 Wm. III. c. 11, has not made an alteration. That statute in effect makes the bond a security only for the damages really sustained. If all the damages would be recoverable by the assignees, the penalty would pass ; if none, the penalty could not be levied, and therefore could not be avail- able for the payment of creditors, and probably would not pass to the assignees. If part of the damages could be recovered by the assignees, and part not, the question is different. The penalty would then be a security for damages partly belonging to the assignees, partly to the bankrupt. It would be like the case of a bond to the bankrupt con- SECT. IV.] GIBSON V. CARRUTIIERS. 451 ditioned not to assault him, and to pay him a sum of money, forfeited in both respects before the bankruptcy ; and I have had some difficulty in saying whether the right of action on such a bond would or would not pass to the assignees. But it seems to me to be clear that the penaltj', which is an entire thing, could not be divided, so that each could sue for a part ; and it could not be predicated what part would pass to each. It follows, there- fore, that either the right to the entire penalty must remain in the bankrupt, or that either both the bankrupt and the assignee must join, as being both interested, or that the right to sue goes to the assignees, in order to secure such part of the damages as is the personal estate of the bankrupt vested in them. 1^ cannot help thinking that both ought to sue, as they would do if the bankrupt before his bankruptcy had assigned a part of an entire debt as a security to a creditor, and conse- - quently was a trustee for him for that part. But, at all events, I do ' not think the right to the penalty would remain in the bankrupt; and therefore, the plea is a good plea, as it shows that the bankrupt could Q/y JJl*\ h not sue ftJopeT" Therefore, in either view of the case, I now think the judgment of - the Court of Exchequer should be reversed, and the judgment of the - Exchequer Chamber affirmed. If the whole of the damages are part of the personal estate which passed to the assignees, the plaintiff was barred ; if some were, and some were not, still for the reasons before mentioned the plea appears to me to be good, and my opinion which I expressed in the court below was wrong. My opinion now, therefore, is, that the plea of the plaintiffs bank- ruptcy is a good bar, and that the judgment of the Exchequer Chamber ought to be affirmed. 1 GIBSON v. CARRUTHERS. ^ EXCHEQUER, MAY 3, 1841. [Reported in 8 Aleeson $ Welsby, 321.] V PARKE, B. In this case the assignees sue on a contract made between hty \^V the defendant and the bankrupt, by which the bankrupt contracts to chartex and send a vessel from London to Odessa, and the defendant - to sell, and ship on board there, on the arrival of the vessel, a cargo of linseed, the bills of lading for which were to be made deliverable to the defendant's order (so as to preserve his lien for the price), and the bankrupt was to pay the price in ready money, on receiving the invoice 1 WILLIAMS, ERLB, CRESSWELL, WIOHTMAN, MAULE, JJ., WILDE, C. J., and, in accordance with their views, Lords BRODOHAM and CAMPBELL delivered opinions in favor of the defendant. PLATT and ROLFE, BB., delivered opinions in favor of the plaintiff. 452 GIBSON V. CARRUTHERS. [CHAP. v. and bills of lading in London. The declaration assigns as a breach, the non-shipment of the cargo at Odessa, where the vessel arrived after the bankruptcy, of which it is stated the defendant had notice. The plea avers that the assignees did not, within a reasonable time after the bankruptc} 1 , and after the arrival at Odessa, give notice to the de- fendant of their intention to adopt the contract ; and there is a demurrer to this plea, which raises two questions, first, whether the matter con- tained in the plea is an answer to the action ; and secondl}-, whether the declaration discloses a good cause of action. I am of opinion that the assignees are entitled to recover. There can be no doubt that the effect of the assignment under 6 Geo. IV. c. 16, 12, 63, is to vest in the assignees, to use the language of Lord Tenterden in Wright v. Fail-field, 2 B. & Ad. 732, every beneficial matter belonging to the bankrupt's estate, and, amongst the rest, the right of enforcing unexecuted contracts, by which benefit may accrue to that estate, and such as may be performed on the part of the bankrupt bj" the assignees : such, in short, as would pass as part of his personal estate to his executors if he had died, which would not include that description of contract where the personal skill or conduct of the bankrupt would form a material part of the consideration. In order to enforce these contracts, it is only necessaiy that the assignees should perform all that the bankrupt was bound to perform, as prece- dent or contemporary conditions, at the time when he was bound to perform them, and the bankruptcy has no other effect on the contracts than to put the assignees in the place of the bankrupt, neither rescind- ing the obligations on either part}-, nor imposing new ones, nor antici- pating the period of performance on either side. If the assignees do all that the bankrupt ought to have done, they may recover against the contractor the damages which the bankrupt himself could have recovered if he had performed his contract ; if they omit to do so, they lose the benefit of the contract, and the other con- tracting party has his remedy against the bankrupt, to which the cer- tificate is no bar. Boorraan v. Nash, 9 B. & C. 145. To apply this to the present case, the bankrupt having already per- formed the first part of his contract, by sending a ship to Odessa, the next thing was that the ship should be ready to receive the .cargo on board. This was also done, and as the defendant refused to load the ship, there was a breach of contract, for which the assignees could sue, for the performance of it would have been beneficial to the bankrupt's estate, and would have been the only mode by which the outlaj* in chartering and sending the vessel could be repaid. The as- signees were not bound to pa\-, or to be ready to pa}*, the price until the arrival of the cargo in London, and delivery of invoice and bill of lading a period which had not } T et arrived. This part of the case ap- pears to me to be perfectly clear, and consequently the plea, which is framed on the supposition that the law requires the assignees to give express notice, in a reasonable time after the bankruptcy, of their adop- SECT. IV.] GIBSON V. CARRUTHERS. 453 tion of the contract, is bad. The law only requires them to perform the bankrupt's part of it as and when he should have done it himself. But it is said that the declaration itself discloses a sufficient reason for the non-performance of the contract, because it states the bank- ruptcy, and notice of it, before the time for loading the cargo ; and it is said that by analogy to the doctrine of stoppage in transitu, the de- fendant might, on the receipt of that notice, decline to proceed to fulfil the engagement on his part. But the doctrine of stoppage in transitu applies only to the case of goods sold and delivered ; for the delivery to a carrier or middleman is a delivery to the party, and in cases of bankruptcy and insolvenc} 7 the law, founded on an equitable principle, permits the unpaid vendor, at any time before the arrival of the goods at their place of destination, or the vendee's actual possession, to resume possession and put himself in the same position as if he had not parted with it (whether it enables him also to rescind the contract is a point }'et unsettled, and which I need not now discuss). But this privilege in case of bankruptcy or insolvency (for it belongs to both alike), has never yet been extended further than to allow re- sumption of possession after the contract was complete by delivery, and to undo as it were the deliver}' ; there is no trace of any authority for saying that bankruptcy or insolvency excuses the party contracting with the bankrupt from performing any other unexecuted part of his contract. To allow a person to retire from his agreement before it is executed and the goods ready to be delivered, is to deprive the bankrupt, and those who represent him, of all power to have the goods, on payment of the stipulated price, and would work the greatest injustice where the bankrupt had already incurred expense. If there were a contract to build a vessel for the bankrupt, he sup- plying a part of the timber, and paying the price by instalments, the last on delivery, and the bankruptcy occur after the timber has been supplied, and some instalments paid, and before the vessel is complete, it could not be contended for an instant that the builder could refuse to complete his contract on the ground of that bankruptcj 1 , and render all the previous expense of the bankrupt unavailing ; and yet that case is in principle similar to the present. The bankrupt has incurred the expense of chartering a ship ; is the defendant to be at libert}' to refuse to perform what he has engaged to do, on the speculation that the bankrupt or his assignees will not pay? The amount of the bankrupt's expense is immaterial, and it might happen, in the case of articles of great bulk, that the cost of the vessel out and home constituted a very large part of the value of the goods here ; is the bankrupt to incur tho expense, and the defendant to be at liberty to refuse to deliver on board and throw the whole of it on the estate? It appears to me that these questions must be answered in the negative. tJk*^"* 454 GIBSON V. CARRUTHERS. [CHAP. V. The only authority cited in the argument for the position, that, in case of an unexecuted contract, an intervening bankruptcy excuses the performance, is the case of Marsh v. Wood, 9 B. & C. 659. It is enough to say that it was decided on the ground that the property in the subject-matter of the dispute was, by the bankruptcy, taken out of the bankrupt, and the submission was therefore no longer mutual, and not on the principle that bankruptcy dissolves the contract. For the above reasons I am of opinion that the plaintiff is entitled to our judgment on this demurrer. 1 LORD ABINGER, C. B. . . . Upon this contract it is manifest that the defendant was to part with the possession of his goods of great value, upon the faith that the buyer, at a future day, when the bills of lading should arrive in London, would pay him for them. If he had actually shipped the goods before he had notice of the bankruptcy, and the bankruptcy had occurred afterwards, I think he might have stopped the goods in their progress to the buyer, had it been in his powej so ; and if the goods had actually arrived at their destination he might still have refused to hand over the bills of lading and invoice till the price was paid. The question then is, whether, under the actual cir- cumstances, he was compellable by law, knowing that the bankrupt could not pay him, to expose himself to the risk of freight and insur- ance, and sending his goods perhaps to a falling market, upon the chance only of its suiting the interest or the pleasure of the assignees to pay him. For it has not yet been contended that they were bound, or could have been compelled, to pay him. I am of opinion that it follows from the right of the vendor to stop the goods in transitu, if he hears of the bankruptcy of the vendee be- fore their delivery, that he has, d, fortiori, a right to refuse to part with the possession of them at all, if he has notice of the bankruptcy whilst they remain in his actual possession. I think that the mere insolvency of the vendee would have been a bar to any action brought by him under these circumstances ; and if he could not, by reason of his mere insolvency, have maintained an action for the refusal to ship the goods, that no right to maintain such an action vested in his assignees by the event of his subsequent bankruptcy. . . . If indeed it were true that the assignees of a bankrupt might main- tain an action to recover damages for the non-delivery of goods sold to the bankrupt, numerous cases must have occurred in which it would have been their interest to do so. But not only has no such action been brought, but I am not aware of any dictum to that effect previously to that of Lord Tenterden, in the case of Boorman v. Nash, where, in support of an action clearly maintainable against the bankrupt for dam- ages which could not be proved under his commission, by reason of his refusal to accept oils sold to him before his bankruptcy, to be delivered at a period which arrived after his bankruptcy, that learned judge is made to say that the contract was not rescinded by the bankruptcy 1 ROLFE and GURNET, BB., delivered concurring opinions. SECT. IV.] GIBSON V. CARRUTHERS. 455 (which in one sense is true), and that the assignees might have enforced it if they had thought fit ; from which last part of that dictum I must beg leave entirely to dissent, as being altogether inconsistent and irrec- oncilable with any principle on which the right of stoppage in transitu can be founded. Generall} 7 speaking, bankruptcy is no discharge of the bankrupt from an executory contract made before the bankruptcy, and which he is free to perform afterwards. There may possibly be many cases which ingenuity may suggest, where, from the nature of the contract and the circumstances attending it, the solvent party as well as the bankrupt may be liable in equity and at common law to the performance of it, or to the payment of damages. Each of these cases will depend on its own circumstances, which no doubt will develop some rule or principle of law or equity by which the particular case is to be governed. But there is a certain class of contracts in which it is manifest that bankruptcy must put an end to all claim of the bankrupt or his assignees to the performance of them by the solvent party. The contract of partnership is a familiar instance ; and in every case where the motive or consideration of the solvent party was founded, wholly or in part, upon his confidence in the skill or personal ability of the bankrupt, if the bankrupt, from his circumstances, is unable to perform his part, the assignees, as it appears to me, are not entitled to substitute either their own capacity or skill or credit for that of the bankrupt. Sup- pose, for example, that a man of wealth, by way of encouraging bankers whom he wishes to patronize, should agree with them for a certain term of years to keep his cash with them, upon the faith of which agreement they take a shop, purchase strong boxes, and incur other expenses necessary to carry on the trade. Upon their bankruptcy, their assignees would surely have no right to insist upon keeping his cash for the re- mainder of the term, or upon their right to find him a banker. An in- stance of another kind, but depending on the same principle, occurred between the late Sir Walter Scott and his booksellers, who had become bankrupts. He had engaged to write a novel, which they were to have the benefit of publishing, in consideration of which they were to pay him 4,000, for which they had given him their acceptances in anticipation. Before the work was finished they became bankrupt, whereupon Sir Walter Scott took up all the bills he had negotiated. Upon the conclusion of his work, when it was ready for the press, the assignees contended, that by virtue of the contract they had a right to the profit of publishing it, which they were ready to undertake. Sir Walter Scott suggested sev- eral grounds to show that the credit, the skill, the judgment, integrity, and personal character and reputation of a publisher were matters of great importance to an author, on which the success and reputation of his works might greatly depend, and therefore insisted that, the con- sideration for his contract having respect to the personal credit and qualities of the bookseller, he was by their bankruptcy discharged from 456 GIBSON V. CAERUTHERS. [CHAP. V. his contract. I must own that his reasoning appeared satisfactory to ine ; but a more obvious illustration of the principle on which it rested would have been afforded by reversing the case, and supposing that Sir Walter Scott had been the bankrupt and his booksellers solvent, would they have been content to pay their 4,000, and take the risk of publishing a novel written by the assignees of the novelist? Without, therefore, presuming to suggest any rule that would govern all possible contracts upon the event of the insolvency of either party, I shall confine myself to the single case of a contract for the sale of goods, where the bankruptcy or insolvency of the buj'er intervenes be- fore the period for the payment has arrived, and before the goods have come to the actual possession of the buyer or his assignees, or to the ultimate place of their destination. In other words, I confine myself to the single case where the right of stoppage in transits, after the transit has commenced, may be exercised ; and it appears to me very plain that wherever that right may be exercised, it is a proof, afortit that the vendor is discharged by the insolvency of the vendee from the obligation of delivering the goods at all, and consequently from the obligation of making the transitus commence. If it be necessary to look for any principle on which this right de- pends, it may be found in the implied condition in every sale of goods, that the buyer, if he lives, or his estate, if he dies, will be able to pay for them. To him, and to his ability alone, the vendor trusts, and he is not botfnd to take the credit of any other man. He may, if he think fit, despatch the goods to the assignees upon their request, and take them for his paymasters ; but if he does so he makes a new contract with them. In the case where the vendor is not to part with his per- sonal possession of the goods till he is paid, it is clear that neither the bankrupt nor his assignees can have the goods without payment. Their credit is no part of the contract, and the position of the vendor is not changed by the insolvency. But where the goods are to be paid for at a future day, or where the vendor is to part with the actual possession of them by sending them by a carrier, though he is to receive the money upon delivery after their arrival, in either of these cases he trusts to the credit of the bankrupt : the assignees are not bound to pa}' for the goods when they arrive. The vendor has not contracted either to give them credit or to take the risk of their responsibility or their pleasure. The only consideration for his agreement to despatch the goods is the credit he gives to the personal ability of the vendee to pay for them when they arrive, and if that consideration fails, the contract is void- able at his pleasure. By the law of France . . . it is provided that the 83 r ndics of the insolvent are entitled to a delivery of goods stopped in transitu, if they will pay the vendor the full price the bankrupt has agreed for. This is a positive rule, and it must be understood that they are to make actual payment, and not to substitute their credit or that of any other man for that of the bankrupt, for that would be a new contract The rule applies to a case of actual stoppage in transitu t SECT. IV.] GIBSON V. CARRUTHERS. 457 where, to a certain extent, the vendor has acted upon the credit of the vendee, and not to the case of a notice of bankruptcy before the goods are despatched. . . . I consider the absence of all example of the assignees of a bankrupt vendee bringing an action for the non-delivery of goods a very cogent proof of the opinion which has prevailed on this subject. But there is a case of an action brought by an insolvent vendee against the vendor, the decision of which goes the full length of establishing the position I have laid down, that the insolvency of the vendee discharges the vendor from the obligation of parting with the goods upon credit. It is the case of Reader v. Knatchbull, tried at the Sittings at Westminster after Hilary Term, 1786, before Mr. Justice Buller. " The plaintiff declared upon an agreement by the defendant to deliver him a quantity of Manchester cottons. The defence was, that after making the contract, the plaintiff had compounded with his creditors. Mr. Justice Buller directed the jury that if the}' believed the plaintiff was really in such a situation as to be unable to pay for the goods, that was a good defence* in point of law to the action ; and the jury accordingly found a verdict for the defendant." A note of this case will be found in the report of Tooke v. Hollingworth, 5 T. R. 218. This authority ought to be deemed conclusive upon a question in which common sense and common justice point to the same conclusion. Now to apply the principle to the present case. Is it a case in which the vendor, after the commencement of the transitus, might have stopped the goods and prevented their delivery to the bankrupt? That it is so is proved by the case of Bohtlingk v. Ellis, already cited, in which, though the vendee, by the contract, was to charter a ship and send it for the goods, and though the goods were accordingly shipped in that vessel, it was held that the vendor might still exercise the right of stopping in tran- situ ; that case is indeed exactly similar to the present, in all points but one, which makes this a stronger case for the exercise of the right, and that point is, that by the contract, here the vendor was to retain the bills of lading in his own hands till they were exchanged for the money. It is the case, therefore, of a contract to sell goods to be delivered at a future time, before which the vendee becomes bankrupt. If, therefore, the vendor should ship the goods before he has notice of the insolvency, he has a right to stop their deliver}' to the insolvent, who cannot pa}* him for them. Is he bound, then, after previous notice of the bank- ruptcy, to send the goods upon the chance that the assignees may take them and pay him? Surely not; the assignees are under no obli- gation to pay him ; they may refuse to take the goods and leave tlu-rn on his hands. He is, therefore, according to the opinion of the other members of this court, reduced to this dilemma, that he is bound to send the goods to London, there to take the chance of market, which, if favorable, may tempt the assignees to receive them and pay the price ; if unfavorable, must bring a loss upon him, even of the whole, should the price not be equal to the freight. Whereas the very object of his contract was, to sell for a fixed price, and have nothing to hazard. 458 GIBSON V. CARRUTHERS. [CHAP. V. Under these circumstances it appears to me that he was. discharged by the insolvency of the vendee from the obligation to send forward the goods at all ; that according to the case above referred to, he would have had a good defence against the insolvent, had he, being insolvent, brought an action for the refusal to ship the goods before his bank- ruptcy ; and consequently that no cause of action for not shipping the goods vested in the assignees. I observe the declaration is so framed as to embrace the alternative of a right of action in the assignees upon the original contract, and a right of action derived from their notice that they would perform the contract in place of the bankrupt. But if no right of action existed in them to compel the shipment of the goods the declaration is bad ; and I am of that opinion. But if it could be supposed, which I think it cannot, that an}' right of action could arise out of their notice that they were ready and will- ing to receive and pay for the goods, then, as such notice must have been given in reasonable time, the plea which alleges that it was not given in reasonable time must be good, so that in either case the judg- ment on the demurrer ought to be for the defendant. I would add only one remark, to distinguish the case of an executor from that of an assignee. A party contracting to sell goods must con- template the existing and continuing solvency of the vendee till the goods are paid for, but he cannot contemplate the continuance of his life, so as to make that an implied condition of the delivery. He con- tracts, therefore, in point of law, with the vendee and his executors, but not with the vendee and his assignees. Judgment for the plaintiffs? 1 Compare, as to the duty of a solvent contractor to tender performance to a co- contractor who is insolvent, or his assignee, Ex parte Tondeur, L. R, 5 Eq. 160; Ex parte Agra Bank, L. R. 9 Eq. 725 ; N. E. Iron Co. v. Gilbert R. R. Co., 91 N. Y. 153 ; Pardy v. Kanady, 100 N. Y. 121 ; Vandegrift v. Cowles Engineering Co., 161 N. Y. 435 ; Diem v. Koblitz, 49 Ohio St. 41. It is well settled that credit need not be given, though the contract provides for it, if the debtor is insolvent or bankrupt. See, besides cases above cited, Bloxam v. Sanders, 4 B. & C. 948 ; Miles v. Gorton, 2 C. & M. 504 ; Grice v. Richardson, 3 A. C. 319; Ex parte Chalmers, L. R. 8 Ch. 289; Bloomer v. Bernstein, L. R. 9 C. P. 588; Morgan v. Bain, L. R. 10 C. P. 15; Re Phoenix Steel Co., 4 Ch. D. 108; Ex parte Stapleton, 10 Ch. D. 586 ; Re Wheeler, 2 Low. 252; Rappleye v. Racine Seeder Co., 79 la. 220, 228 ; Brassel v. Troxel, 68 111. App. 131 ; Hobbs . Columbia Falls Brick Co., 157 Mass. 109 ; Lennox v. Murphy, 171 Mass. 370, 373. V SECT. IV.] BRIGHAM V. HOME LIFE INS. CO. 459 BRIGHAM, ASSIGNEE v. HOME LIFE INSURANCE COMPANY. SUPREME JUDICIAL COURT OF MASSACHUSETTS, MARCH 15- JUNE 30, 1881. [Reported in 131 Massachusetts, 319.] BILL in equity, filed March 20, 1880, by the assignee in bankruptcy of William Scollan, to recover possession of a policy of life insurance issued by the defendant compaivy to Scollan on July 9, 1878. Hearing ' before COLT, J., who reported the case for the consideration of the full court. The facts appear in the opinion. A. A. Ranney, for the defendant corporation. T. P. Proctor, for the plaintiff, was not called upon. MORTON, J. The polic}' issued by the defendant company insures the life of William Scollan " in the amount of thirty-six hundred dollars, for the term of six years with endowment without 'participation J^jV in profits." By it the insurer " promises and agrees to and with William Scollan to pay the sum assured at its office in this city to him on the thirteenth da}- of October, 1884, or to his children," [naming them,] " share and share alike, or to the survivors or survivor of them within sixt}' days after due notice and proof of loss and interest, satis- factor}- to the company, in accordance with the terms of this contract." The first clause is an absolute promise to pay the sum assured to foj * i - 1 u^ - frrrf exclusive right to collect the amount. The promise in the last clause, to pay to his children, was clearly intended to be an alternative prom- ise, and to apply only in case he should die before the day when payment was to be made to him. The promise is to pay to the children " within sixty days after due notice and proof of loss," that is, after proof of the death of the insured. Construed in its connection with the absolute promise to pay Scollan at the termination of the policy, it admits of no sensible interpretation except that it is an alternative promise to pay to the children in case Scollan shall die before October 13, 1884. This being the true construction of the contract, it is clear that ScoTIan had a valuable interest in this contract of insurance, which Scollan on October 13, 1884, if he complies with the terms of the con- / yfi' tract. If he lives to that time, he, or his assignee, will have the i<> his assignee in bankruptcy. The assignment in bankruptcy conveyed to the assignee "all the estate, real and personal, of the bankrupt, with all his deeds, book and papers relating thereto," with certain exceptions not material to this case. U. S. Rev. Sts. 5044- 5046 ; Leonard v. Nye, 125 Mass. 455 ; Belcher v. Burnett, 126 Mass. 230. All the interest which Scollan had in this policy of insurance, therefore, passed to and vested in his assignee, subject to the same contingencies in his hands as in the hands of the bankrupt. After the 460 IN RE MUERIN. [CHAP. V. assignment, Scollan had no control or power of disposition over it, and his attempted surrender and discharge of it to the defendant was in- operative and void. It still remains the property of his assignee, the plaintiff, and he is entitled to the possession of it. Scollan_jiad_the exclusive right to the possession of the policy us the evidence of his contract, both against the company and against his children, as long as he lived, and this right passed to the plaintiff. We are not called upon to consider whether the plaintiff has the right to assign this policy with- out the assent of the compan}- ; he has at least the right to its posses- sion for the purpose of enabling him to collect the amount insured when it becomes paj-able, if Scollan shall then be living. The remaining question is whether this court has jurisdiction in equity to compel the delivery of the policy to the plaintiff: The bill states, and the evidence shows, that the policy is secreted and withheld by the company, so that it cannot be replevied. The plaintiff has a right to the securities belonging to the estate of the bankrupt. If his only right is to collect the sum insured when it becomes payable, he is entitled to the policy as evidence, and the want of it may cause embar- rassment and possible danger of failure in a suit at law. He has no plain, adequate and complete remedy at law which will fully protect and guard his rights, and is therefore entitled to maintain this bill. Sears v. Carrier, 4 Allen, 339 ; Pierce v. Lamson, 5 Allen, 60. Decree affirmed. 1 IN RE MURRIN. CIRCUIT COURT FOR THE EASTERN DISTRICT OP MISSOURI, 1873. [Reported in 2 Dillon, 120.] DILLOX, Circuit Judge. The wife of the petitioner being possessed of a separate estate, secured to her by an ante-nuptial marriage settle- ment, applied in the spring of 1869 for two policies of insurance of $5,000 each, upon her life, payable upon her death to her husband. The)' were issued accordingly, and she paid the premiums for one }"ear, one-half in cash, and one-half by note. Before the year expired her husband was adjudicated a bankrupt. Out of her own estate she paid the premiums for the two following years, 1870 and 1871, and before 1 Re Steele, 98 Fed. Rep. 78; Re Diack, 100 Fed. Rep. 770; Re Boardman, 103 Fed. Rep. 783; Re Slingluff, 106 Fed. Rep. 154; Re Welling, 113 Fed. 189 (C. C. A.); Re Coleman, 136 Fed. 818 (C. C. A.) ; Re White, 174 Fed. 333 (C. C. A.). Bassett v. Parsons, 140 Mass 169 ; Waldron v. Becker, 68 N. Y. Supp. 402, ace. In Burlingham v. Grouse, 228 U. S. 459, the court said : " We think it was the pur- pose of Congress to pass to the trustee that sum which was available to the bankrupt at the time of bankruptcy as a cash asset ; otherwise to leave to the insured the benefit of his life insurance." The court also held that an assignee of the policy was entitled to exercise the bankrupt's right of redemption. SECT. IV.] IN BE MURRIN. 461 the next premium fell due she died. The question is, whether the as- signee as against the bankrupt, is entitled, for the benefit'of the estate, to the proceeds of the policies. The assignee does not claim that his right is strengthened by reason of having obtained, in the manner stated, the actual possession of the proceeds, and the only contest is as to the respective legal or equitable right of the assignee and bank- rupt thereto. Counsel on both sides, in their well considered briefs, have argued many points which, though pertaining to the general subject of life policies for the benefit of others, are, nevertheless, not necessarily in- volved in the decision of the case. The counsel for the assignee claims that at the date of the bank- ruptcj* of the husband, November 30, 1869, the husband had a right of property in the policy (which it is contended is a chose in action^) of such a nature that it vested in the assignee by virtue of the adjudica- tion in bankruptc}'. (Bankrupt act, sec. 14.) Under this section, property and rights which are acquired by the bankrupt after the com- mencements of the proceedings in bankruptcy do not vest in the as- signee ; and to make good his claim the assignee must show that the right to the benefit of the policy was one which not only existed in the husband at the time he was proceeded against in bankruptcy, but is one of such a nature as to vest in the assignee as of that time, by virtue of the provisions of the bankrupt act. This act should receive such a construction as accords with its well known purpose, which is, that if an insolvent debtor will surrender all his property (not exempt) for distribution among his creditors, he may, on the terms provided in the act, have his discharge. If the wife's death had happened before the bankruptcy, there being no statute protecting the husband's rights un- der the policy, the right to collect and hold the mone} 7 would, it may be admitted, pass to the assignee. But her death did not happen until over two years afterwards, during which time the wife continued to pay the premiums. It is admitted that she could not have been compelled to pay them, either by the husband, or by the assignee. Her payment of them proceeded purely from her bounty. It is certain, to a practical intent, that if she had not paid the subsequent premiums, the first pay- ment, made before the bankruptcy, would have been of no benefit, either to the assignee or to the husband, for she did not die during the year. It is also certain, to a practical intent, that, had the last premium not been paid, there would have been no proceeds here about which to litigate. Her intention, her object, in making these pay- ments, in virtue of which the policy was kept in esse, must have been to make provision for her husband ; and what equity, let me ask, have creditors, or the assignee representing them, to thwart the purpose which she had in view, and for which she paid her money money to which they had no claim? The assignee, if it be conceded that he could have done so for the benefit of the estate, which I do not admit nor decide, took no steps to pay the premiums, but asks the benefit of 462 IN RE MURRIN. [CHAP. V. those paid by the wife. It is inconceivable that she made, or intended to make, the payments for the benefit of the assignee, and she doubt- less died in the confident belief that she had made provision for her husband. Without discussing the questions which have been argued at the bar as to the nature and extent, before the death occurs, of the interest of a person designated by the bounty of another as the one to whom a policy is ultimately to be paid, I am quite confident that the husband, at the time of his bankruptcy, had no such interest in these policies as to give the assignee the right to retain their proceeds against manifest intention and purpose of the wife. Could the assignee, as against the wish of the wife, have said, " I demand the policy, and intend to keep up the premiums for the benefit of the estate " ? If it were necessary to answer this question, it would seem that he had no such right, and that she could properly say, "This is a matter of my own, a provision originating in my bounty, one upon which my husband's creditors have no claim, and with which they have no right to interfere." But the assignee took no such steps ; on the contrary, he allowed, or did not prevent the wife from making the pay- ments which kept the policy alive ; and I rest my judgment against him on the broad ground, that, under the circumstances of the case, the creditors, for whose benefit the money is sought, have not the shadow of a shade of equity to it, nor to defeat the provident and just provision which the wife intended to secure for her husband, not for them. The policy was kept up by her for the benefit of her husband after her death, not for the benefit of his creditors before his bankruptcy. The district judge, in deciding the case, seized the considerations which con- trol it, when he remarked : " Looking at the nature of the contract for the insurance as being a provision by one married part}- for the benefit of another, and kept in force by the wife out of her separate estate without any step being taken by the assignee, her equities should be carefully regarded. The policy was for the benefit of the husband, and was kept alive by the wife after the bankruptcy, and it would be in- equitable that a sum becoming payable after the bankruptcy under such a contract, should by relation back to the time of commencement of proceedings in bankruptcy, be held to belong to the assignee. The design of such charitable acts for the benefit of a third part}' was not intended to be defeated by the bankrupt law, in a case like the present, where such a result would be against all equity." Affirmed. 1 1 Re McDonell, 101 Fed. Rep. 249, ace. But see McElroy v. John Hancock L. I. Co., 88 Md. 137|; Troy v. Sargent, 132 Mass. 408. In Carr v. Myers, 211 Pa. 349, the court said: "The mere naked allegation of the wife's beneficial interest in them, without defining or attempting to define what that interest was, is not an allegation that she had ' property in them, which, prior to the filing of the petition in bankruptcy, she could by any means have transferred, or which might have been levied upon and sold under judicial process against her.' " SECT. IV.] IN RE STEELE. 463 IN RE STEELE. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA, DECEMBER 12, 1899. [Reported in 98 Federal Reporter, 78.] SHIRAS, District Judge. From the record certified to the court in this case it appears that the firm of Steele & -Co., and the partners therein, Anna M. Steele, Daniel Steele, William M. Steele, and Daniel H. Steele, have been duly adjudged bankrupts in this district, and, in the proceedings had before the referee, the question arose as to the rights of the creditors represented by the trustee in certain policies of life insurance held by the bankrupts, and from the ruling made by the referee an appeal has been taken to this court. It appears from the evidence that Anna M. Steele is the wife of Daniel Steele ; that Daniel, William M., and Daniel H. Steele are and were, when the proceedings in bankruptc}' were instituted, head of families, and were then, and are now, citizens and residents of the State of Iowa. Of the policies in question, three are on the life of Daniel Steele, two on the life of William M. Steele, and one on the life of Daniel H. Steele. Under the broad provisions of section 1805 of the Code of Iowa, none of these policies could be now subjected to process in favor of creditors, or be rendered available to the creditors by proceedings other than those instituted under the bankrupt act; and, as the policies are exempt from liabilit}" to creditors by this provision of the State statute, it is earnestly contended that they must be held exempt in the bankruptcy proceedings by reason of the declaration contained in sec- tion 6 of the bankrupt act, to the effect that the act shall not affect the allowance to a bankrupt of the exemptions which are prescribed by the State laws in force at the time of the filing of the petition. In the case of In re Lange (D. C.), 91 Fed. 361, 1 held that the general provisions of section 6 of the act were limited and controlled by the exception contained in section 70, and that, construing the two sections together, it must be held that, where a bankrupt held a policy payable to him- self, his heirs or legal representatives, the surrender value thereof would be part of the assets of his estate in bankruptcy. While I freely admit that the question is not free from doubt, I shall adhere to the view expressed in the Lange Case of the meaning of the statute ; and therefore the remaining question is, what is the result of the application of this rule to the policies involved in this case ? 1 The policy issued by the Mutual Benefit Life Insurance Company upon the life of Daniel Steele, numbered 109,795, for the sum of $2,000, is paj-able to Daniel Steele, his executors, administrators, or assigns. 1 Reversed on this point by the Circuit Court of Appeals. Steele v. Buel, 104 Fed. Rep. 968; and exemption allowed in Holden v. Stratton, 198 U. S. 202. 464 IN RE STEELE. [CHAP. V. The surrender value of this policy is pa}"able to the bankrupt, no other person having an}' interest in the policj" or its proceeds, and the policy will therefore become part of the assets of the bankrupt's estate, unless he avails himself of the right to pay or secure the surrender value to the trustee. There are two policies issued by the Mutual Life Insurance Com- pany of New York, one numbered 31,523, for the sum of $2,000, and one numbered 47,739, for the sum of $3,000. In form, these pol- icies are contracts between Anna M. Steele and the insurance company, the life insured being that of Daniel Steele, the husband of Anna M. By the terms of the contract, it is Anna M. Steele who is bound to pay the annual premiums, and she is the person to whom the proceeds of the policy are made paj'able. Under these circumstances, Mrs. Steele would be entitled to the surrender value of the policies, if the same were now terminated, and she alone could contract with the com- pan}' to terminate the same b} T receiving the surrender value thereof. These policies are therefore the property of Mrs. Steele. They have a surrender value, payable to her, and, as she is one of the bankrupts, these policies are part of the assets of her estate to which the trustee is entitled, unless the surrender value is paid or secured to him by the bankrupt. The policy on the life of William M. Steele issued by the New Eng- land Mutual Life Insurance Compan}", numbered 105,575, for the sum of $5,000, is in the nature of an endowment policy ; it being therein provided that, at the end of forty-eight years, the principal sum shall be paid to William M. Steele, if then living, but in case of his death before that date, the amount should be paid to his wife. The surrender value of a policy of this form is clearl}' payable to William M. Steele, the bankrupt, and therefore the policy will pass to the trustee, unless the surrender value is settled with him as provided for in the act. The remaining policy on the life of William M. Steele is in the Penn Mutual Life Company, numbered 102,082, for $5,000, and is payable to his wife, Gracie. The wife is the beneficiary of this policy, and, as she is not one of the bankrupts, her interest therein cannot be destroj-ed b\- treating the policy as part of the estate of her bankrupt husband. This policy must be deemed to be her property, in which the trustee has no interest. 1 The remaining polic}' is one issued by the Northwestern Mutual Life Insurance Company in the sura of $5,000, numbered 322,790, on the life of Daniel H. Steele ; the company contracting to pay the sum named in the policy to the executors, administrators, or assigns of Daniel H. Steele. Under date of May 21, 1895, Daniel H. Steele, by 1 Ex varte Merrett, 7 Morrell, 65 ; Re Bear, 11 B. R. 46 ; Belt v. Brooklyn L. I. Co., 12 Mo. App. 100, ace. See also Re Dews, 96 Fed. Rep. 181 ; Pace v. Pace, 19 Fla. 4.38 ; Day v. New England L. I. Co., Ill Pa. 507. The laws of many States expressly ex- empt such policies. See Baron v. Brummer, 100 N. Y. 372 ; Stokes v. Amerman, 121 N. Y. 337 ; Bennett's Case, 6 Phila. 472. J SECT. IV.] DUSHANE V. BEALL. 465 a writing duly executed and attached to the policy, assigned the same to Helen B. Stafford, to whom he was then engaged to be rriarried, and who is now his wife. The effect of this assignment was to make the polic}' one payable to the wife of the insured. She became the beneficiary thereof, and is entitled to the proceeds of the policy. This assignment was made in 1895, long before the adoption of the bankrupt act, and there is nothing to impugn the good faith of the transaction. I therefore hold that this policy is not part of the assets of the bankrupt Daniel H. Steele, and the trustee has no interest in or right thereto. Unless, therefore, the bankrupts promptly exercise their right to pay or secure to the trustee the surrender value of the policies in the Mutual Benefit, the Mutual Life, and the New England Companies, the same will become assets of the estate in the hands of the trustee. The referee, upon receiving this opinion, will at once send notice b}" mail to the bankrupts of the ruling of the court, which affirms the rulings of the referee from which the appeal was taken. DUSHANE v. BEALL. o^c, J? r. . WOt. (jtlLAxU* &f TV* CM/ UNITED STATES SUPREME COURT, MARCH 2-16, 1896. Tti>-*-ftjui>>t [Reported in 161 United States, 513.] THIS was a garnishee proceeding in the Court of Common Pleas Fayette County, Pennsylvania. The record of that court shows the issue in favor of Alpheus Beall, on a judgment recovered by him against Abraham O. Tinstman, of an attachment execution, dated June 9, 1888, and service thereof accepted by the Pittsburgh and Connellsville Railroad Company, as garnishee, June, 15, 1888. August 10, 1888, McCullough, assignee in bankruptcy, appeared in the garnishment proceeding and participated in the choice of arbitrators, who made an award September 25, 1888, in favor of Beall, from which award an appeal was taken. December 13, 1889, the case was con- tinued " on account of death of assignee of A. O. Tinstman ; said case not to be again placed on trial list until after appointment and appear- ance of another assignee in bankruptcy." April 23, 1890, " Edward Campbell, Esq., appears for J. M. Dushane, assignee in bankruptc}' of A. O. Tinstman." September 11, 1890, "Joshua M. Dushane, as- signee of A. O. Tinstman, appears in court and asks leave to be added to the record as defendant." Thereafter the case was submitted to the court for determination on a case stated, which embodied the following facts : On the 5th of April, 1876, Abraham O. Tinstman was adjudicated a bankrupt in involuntary proceedings in bankruptcy, and during the 466 DUSHANE V. BEALL. [CHAP. \. same month Welty McCullough was appointed assignee, and took upon himself the duties thereof. The deed of the register in bankruptcy to the assignee conveyed the property which Tinstman possessed, was in- terested in, or entitled to, on the fifth day of April, but the schedule of assets filed by the assignee did not embrace the bankrupt's interest in a certain telegraph line hereinafter mentioned. Tinstman was duly discharged as a bankrupt, Ja.nua.ry 3, 1877. In 1882, James L. Shaw instituted an action against the Pittsburgh and Connellsville Railroad Company in the Court of Common Pleas for Fa}-ette Count}-, Pennsylvania, to recover damages for a breach of con- tract relative to the maintenance and working of a line of telegraph between Uniontown and Connellsville, and on October 2, 1885, Tints- man was made one of the " use plaintiffs" therein. After his discharge, Tinstman engaged in business, and became in- debted to Alpheus Beall in the sum of $730.54, for which a judgment was rendered against him November 24, 1886, in said Court of Com- mon Pleas. Shaw recovered judgment against the railroad company for a con- siderable amount, covering damages from January 1, 1874, to Septem- ber 1, 1887. Of these damages, the sum of $947.73 was Tinstman's share on account of an interest in the line of telegraph, which became his property " by subscription and payment therefor in the year 1865." McCullough died August 31, 1889, Joshua M. Dushane was appointed assignee in his place December 14, 1889, and intervened in this case, as such, September, 11, 1890. The Court of Common Pleas ruled that the assignee had lost any right to the fund by reason of delaying claim thereto for an unreason- able time ; and also that the limitation of two }'ears prescribed by sec- tion 5057 of the Revised Statutes of the United States applied ; and entered judgment in favor of Beall and against the railroad company as garnishee for $947.43, "the debt due by said garnishee to said Tinstman." The case was taken to the Supreme Court of Penn- sylvania, which affirmed the judgment on the ground that the delay of the assignee was fatal to his claim. 149 Penn. St. 439. A writ of error from this court was then sued out. Mr. Edward Campbell, for plaintiff in error. Mr. Leoni Melick, for defendant in error. Mr. Chief Justice FULLER, after stating the case, delivered the opinion of the court. We concur with the Supreme Court of Pennsylvania that the limita- tion of 5057 of the Revised Statutes did not appty. That limitation is applicable onh r to suits growing out of disputes in respect of property and of rights of property of the bankrupt which came to the hands of the assignee, to which adverse claims existed while in the hands of the bankrupt and before assignment. In re Conant, 5 Blatch. 54 ; Clark v. Clark, 17 How. 315, 321 ; Phelps v. McDonald, 99 U. S. 298, 306 ; French v. Merrill, 132 Mass. 525. SECT. IV.] DUSHANE V. BEALL. 467 It is well settled that assignees in bankruptcy are not bound to ac- cept property' which, in their judgment, is of an onerous 'and unprofit- able nature, and would burden instead of benefiting the estate, and can elect whether they will accept or not after due consideration and within time while ? if their judgment is unwisely exercised, the bankruptcy court is open to compel a different course. Sparhawk v. Yerkes, 142 ll. S. 1, 13 ; Glenny v. Langdon, 98 U. S720 ; American File Co. v. Garrett, 110 U. S. 288 ; Smith v. Gordon, 6 Law Rep. 313 ; Amory v. Lawrence, 3 Cliff. 523; Ex parte Houghton, 1 Low. 554; Nash v. Simpson, 78 Me. 142 ; Streeter v. Summer, 31 N. H. 542. 1 The same principle is applicable also to receivers and official liqui- dators. Quinc} 1 , &c. Railroad, v. Humphreys, 145 U. S. 82; St. Joseph, &c. Railroad v. Humphreys, 145 U. S. 105; Sunflower Oil Co. v. Wilson, 142 U. S. 313 ; United States Trust Co. v. Wabash, &c. Railway, 150 U. S. 287; In re Oak Pitts Colliery Co., 21 Ch. Div. 322, 330. And see Bourdillon v. Dalton, 1 Esp. 233; s. c. Peake's N. P. 312 ; Turner v. Richardson, 7 East, 336 ; Domat, vol. II. part 2, Book I, Title 1, sec. v. If with knowledge of the facts, or being so situated as to be charge- able with such knowledge, an assignee, by definite declaration or distinct action, or forbearance to act, indicates, in view of the particular circumstances, his choice not to take certain property, or if, in the lan- guage of Ware, J., in Smith v. Gordon, he, with such knowledge, "stands by without asserting his claim fora length of time, and allows third persons in the prosecution of their legal rights to acquire an in- terest in the property," then he may be held to have waived the asser- tion of his claim thereto. In Sparhawk v. Yerkes we held that as the conduct of the assignees was such as to show that the}- did not intend to take possession of the assets in controvers}' ; as they avoided assuming an\- liability in respect thereof; and as they allowed the bankrupt after his discharge b} T the expenditure of labor and money to save the assets and render them valuable, they could not be permitted to assert title against him. That was a suit directly against the bankrupt, and this is in effect the same, for Beall does not appear to occupy any better position than Tinstman himself. The judgment of the Supreme Court of Pennsylvania pro- ceeded upon the ground that the assignee delayed too long in the assertion of his claim; that the litigation against the railroad company was protracted, uncertain, and expensive; and that as the assignee did not appear to have intervened in the matter until, as is stated, Decem- ber 11, 1890, although the litigation began in the summer of 1882, he must be held to have elected to abandon the claim, and could not come in at so late a day and share in the fruits of litigation carried on by others ; and on that view of the facts this conclusion would seem to be correct if the record showed on the part of Tinstman's assignee knowl- edge of the facts or wilful blindness in relation to them. 1 Re Cogley, 107 Fed. Rep. 73, ace. 468 DUSHANE V. BEALL. [CHAP. V. The Supreme Court manifestly referred to the intervention, in this proceeding, of Dushane, as assignee, which was, according to the case stated, September 11, 1890; but McCullough had intervened as as- signee August 10, 1888, and he having died August 31, 1889, the cause was continued for the appointment and appearance of another assignee. It is said by counsel for the assignee that the original litigation was commenced April 29, 1878, by a bill in equity, filed for the benefit of all the owners of the telegraph line, which it was decided January 9, 1882, would not lie ; that thereupon the action at law, which resulted in judgment, was brought July 10, 1882, in the name of Shaw alone, the contract being under seal, but for the benefit of his assigns as well, who were very numerous; that afterwards some, but not all, of the "use plaintiffs" were added to the record; and that Tinstman's as- signee just as much participated in the litigation, from April, 1878, to its end in 1888, as any of the others, whether named as plaintiffs or not. The difficulty with this is that very little, if any, of ! the matter stated can be deduced from the record, which fails to disclose that the assignee was represented in the litigation against the railroad company, or asserted his claim to his share of the fruits thereof, whether as a party of record under Shaw or otherwise prior to his intervention in this action, August 10, 1888. The case stated does show that Tinstman was made one of the " use plaintiffs " in Shaw's action, October 2, 1885, but there is no explana- tion of how that entry came to be made, and nothing to indicate notice thereof to the assignee, or to charge him with notice assuming that he was ignorant of the claim. On the other hand, the bankruptcy proceeding was involuntary, and it appears that the schedule of assets (the term schedule being used in the case stated as the equivalent of the inventor}") was made b}' the assignee, the law providing that the order of adjudication should re- quire the bankrupt to deliver a schedule of creditors and an inventor} 7 and valuation of his estate, and if the bankrupt were absent or could not be found, such schedule and inventory should " be prepared by the messenger and the assignee from the best information they can obtain." Rev. Stat. 5030, 5031. And this inventory, thus prepared^ by the assignee, the record affirmatively shows, did not embrace the bankrupt's interest in the telegraph line, as we must presume it would, if the assignee had had, or been able to obtain, information in respect thereof. Nor can we find elsewhere in the record any evidence that the assignee knew or was informed of Tinstman's interest prior to August 10, 1888. Counsel for the assignee argues that the fact is that Tinstman's interest was the ownership of certain shares of stock in the telegraph company which were included in the inventory and delivered to the assignee, but the exact contrary appears from the case stated. Nor does the fact appear, which he likewise insists upon, that the assignee not only did not abandon, but actively asserted, his claim. The question whether the assignee in bankruptcy was entitled to SECT. IV. J LANCET V. FOSS. 469 this claim was clearly a Federal question. Williams v. Heard, 140 U. S. 529. And if all the facts stated in the record before us do not, as matter of law, warrant the conclusion at which the highest court of the State arrived upon this question, it is the duty of this court so to de- clare, and to render judgment accordingl}'. We must take the record as we find it, and are constrained to the conclusion that the assignee should not have been held to have exer- cised the right of choice beween prosecuting the claim and abandoning it, in the absence of any evidence whatever to justify the conclusion that he had knowledge, or sufficient means of knowledge, of its exist- ence prior to August 10, 1888; and that therefore there was error in the judgment. Judgment reversed, and the cause remanded, that the judgment of the Court of Common Pleas may be reversed, and farther roceedings had not inconsistent with this opinion. LANCET v. FOSS. SUPREME JUDICIAL COURT OF MAINE, SEPTEMBER 13, 1895. [Reported in 88 Maine, -215.] AGREED statement. The parties agreed upon the following facts : "The writ is dated March 14, 1878, returnable to the September Term of this court in Somerset County, 1878. " Suit is brought upon numerous notes of Going Hathorn, the de- fendants' testator, and upon an account annexed, and also upon a special contract set out in the writ. " Cop}- of writ may be furnished by either party. " Subsequently, in 1878, the plaintiff was declared a bankrupt, upon his own petition in the District Court of the United States for the Dis- trict of Maine ; a schedule of his assets and liabilities was filed in said court, the assets not including the claims in this writ ; and an assignee was duly chosen and appointed on November 7, 1878, and on said November 7, 1878, by decree and assignment of the proper Register in Bankruptcy under the U. S. Bankrupt Act of 1867, all the estate and property of said Lanccy was duly assigned to said assignee. " The assignee never appeared in this case. " On June 2, 1879, said Lancey was duly discharged from all his debts and liabilities and received a certificate of such discharge in usual form, from said District Court of the United States, paying about twenty-five cents on the dollar. "If upon the foregoing facts this action can be maintained by the plaintiff, it is to stand for trial ; otherwise a nonsuit is to be entered." 470 LANCET V. FOSS. [CHAP. V. & S. HacJcett, for plaintiff. D. D. Stewart, for defendant. Sitting: PETERS, C. J., WALTON, EMERY, HASKELL, WHITEHOUSE, WISWELL, J. J. EMERY, J. The statement of the case shows that the plaintiff is en- titled to a hearing in this court upon the merits of his claim against the defendants, unless he is prevented by some provision of the U. S. Bankruptcy Act of 1867, to which he had become subject by the bank- ruptcy proceedings. The defendants contend that he is thus prevented by several provisions of that act. I. Section 5046, U. S. Rev. Stat., Title Bankruptc}', provides that all of the property of the bankrupt, including all choses in action, all debts due him, all rights and causes of action (with certain exceptions not material here), "shall in virtue of the adjudication in bankruptcy and the appointment of his assignee, be at once vested in the assignee." Section 5047 provides that the assignee may be admitted to prosecute in his own name, or that of the bankrupt, any suit pending at the time of the adjudication. This suit and the subject-matter of it are clearly within these sections. Upon these sections and the bankruptcy proceedings the defendants base a vigorous argument, that the plaintiff was completely shorn of all title and interest in this action and its subject-matter ; that the entire title and interest ipso facto passed to the assignee, leaving nothing in the bankrupt plaintiff ; that the latter became civiliter mortuus, and lost the power of maintaining actions upon then existing claims as com- pletely as one physically deceased. There are various expressions and dicta of judges which seem to state the operation of the statute as broadly as do the defendants, but we are not referred to any express decision going so far upon the language of this particular act. Undoubtedly, by the operation of the Jbankruptcy proceedings under this act, the assignee is vested with the full right to take all the estate of the bankrupt, whether scheduled or not, and is vested with sufficient power and title to fully administer it in his own name, or that of the Samtfuptj as iie~may elect. But all such property of a bankrupt is not cast upon the assignee nolens volens, like the personal property of a deceased intestate upon the administrator. In the latter case the title cannot remain with the deceased, but must fall on his successor. The assignee of a living bankrupt, however, may decline to take or interfere with such property as he deems onerous or worthless. The property so rejected by the assignee does not thereb} 7 become derelict, to vest in the first appropriator. The rights and obligations which the assignee de- clines to enforce, or notice, do not thereby vanish into nothingness. Such items of estate, corporeal or incorporeal, as the assignee declines to appropriate or utilize, remain the property of the bankrupt, subject always to the superior right and title of the assignee. Notwithstanding the adjudication and assignment under the bankrupt act, there is left in the bankrupt a right which makes a title good against all the world SECT. IV.] LANCEY V. FOSS. 471 except his assignee and creditors. These may appropriate the entire title and interest, and so divest the bankrupt completely ;/but what they decline to appropriate remains with the bankrupt. The title does not fall to the ground between the two. If the assignee or creditors will not take it, no one else can appropriate it. The bankrupt can defend or enforce it against all others. The above statement of the law is supported directly or incidentally by many judicial decisions. Evans v. Brown, 1 Esp. 170; Chippendale v. Tomlinson, 7 East, 57; Temple v. London, &c. Railway Co., 2 Jur. 296 ; Re Stafford, 18 W. R. 959 ; Herbert v. Sayer, 5 Q. B. 965 ; Fyson v. Chambers, 9 M. & W. 460-466; Smith v. Gordon, 6 Law Rep. 313 ; Amory v. Lawrence, 3 Cliff. 523; Taylor v. Irwin, 20 Fed. Rep. 615 ; American File Co. v. Garrett, 110 U. S. 288; Reynolds v. Bank, 112 U. S. 405 ; Laughlin v. Dock Co., 65 Fed. Rep. 447 ; Eyster v. Gaff, 91 U. S. 521 ; United States v. Peck, 102 U. S. 64 ; Thatcher v. Rockwell, 105 U. S. 467 ; Sparhawk v. Yerkes, 142 U. S. 1 ; Sessions v. Romadka, 145 U. S. 29 ; King v. Remington, 36 Minn. 15 ; Sawtellev. Rollins, 23 Me., 196; Foster v. Wylie, 60 Me., 109; Nash v. Simpson, 78 Me., 142. In this case at bar, the action with its various counts upon promis- sorxjiotes, mercnanaise_sold. etc., was pending in the Supreme Judicial Court for Somerset County at the time of the adjudication and assign- ment_inbankruptcy. The claims^ here in 'suit were not scheduled by the bankrupt, but their existence/ and the existence of this action to enforce them, were matters of public record upon the docket and files of a court of general jurisdiction. The assignee and creditors may be presumed to have known of them. The assignee, however, never ap- peared in the case, and does not now appear after a lapse of fourteen years. He never appropriated or took over these claims. It is an easy and natural inference that he elected not to take them, but to leave them with the bankrupt. United States v. Peck; Sparhawk v. Yerkes; Sessions v. Romadka, supra. The defendants cannot be heard to complain of this conduct of the assignee. As to them it is res inter alias. The judgment in this action will protect the defendants against the assignee as effectually as if he appeared in the case. Whatever he may hereafter do to appropriate the proceeds of the suit, if any, will not affect the defendants. Eyster v. Gaff; Thatcher v. Rockwell; Foster ?., Wylie, supra. If, however, the defendants desire, they can have an order of notice of this action served upon the assignee which will conclude him of record. II. Section 5057, U. S. Rev. Statute, Title Bankruptcy, provides that "no suit either at law or equity shall be maintainable in any court between an assignee in bankruptcy and a person claiming an ad- verse interest, touching any property or rights of property transferable to or vested in such assignee, unless brought within two years from the time when the cause of action accrued for or against such assignee." The defendants contend that this section bars the further prosecution 472 LANCET V. FOSS. [CHAP. \ T . of this action. Their argument is that the assignee could not after the two years begin a suit in his own or the bankrupt's name, nor could he come into or prosecute a suit already begun by the bankrupt. Their further argument is, that every person claiming, or who must claim under the assignee, is equally barred from beginning or prosecuting suits after the two j'ears, and that, as whatever title this plaintiff has necessarily came from the assignee, he is barred as the assignee is barred. Many cases are cited in support of these ai'gurnents. In every case cited, however, the title was held to have once passed to the as- signee. It followed that the plaintiff either had no title or was barred b} - the two years' limitation upon the assignee. Thus in Parks v. Tir- rell, 3 Allen, 15, cited so confidently by the defendants, the court held that the title had passed to the assignee, and that the bankrupt plaintiff could only show title from the assignee, and hence was barred equally with the assignee. In this case at bar, as already stated, the assignee did not take over the title. He elected not to take it and left it in the plaintiff. He neither took nor passed the title. The plaintiff retained the title sub- ject to the assignee's paramount right, but good against others until that paramount right was asserted. Therefore the cases cited do not apply. The two years' limitation in the Bankruptcy Act does not apply. It bars only the assignee and those claiming under him. The plaintiff is not in either category. In Amory v. Lawrence, 3 Cliff. 523, cited supra, the suit was by a bankrupt on a claim existing before the bankruptcy ; but the suit was begun long after the two 3'ears' limitation had expired. The defendants invoked the statute, but it was held not to apply, see also Ludeling v. Chaffe, 143 U. S. 301. III. The defendants further contend that the act of the plaintiff in omitting these claims from his schedule was evidently intentional and in fraud of the Bankruptcy Act, and that this fraud vitiates and extin- guishes his right to recover them. But in the statement of the case there is no allegation of fraud. The statement of the omission to in- clude the claims in the schedules is not a statement of a fraud. There may have been innocent reasons for it. The court cannot assume that it was fraudulent. Again, the fraud, if any, was against the assignee, the creditors and the Bankruptcy Act, and not against these de- fendants. We have not been shown anything in the statement of the case, or in the Bankruptcy Act, which in our opinion inhibits the plaintiff from proceeding with this suit. Action to stand for trial. 1 1 " That doctrine can have no application when the trustee is ignorant of the ex- istence of the property, and has had no opportunity to make an election." First Nat. Bank v. Lasater, 196 U. S. 115. / SECT. I.] EE BURKA. 473 CHAPTER VI. PROVABLE CLAIMS. SECTION I. IN GENEKAL. RE BURKA. DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI, OCTOBER 24, 1900. [Reported in 104 Federal Reporter, 326.] ADAMS, District Judge. This case comes before the court on a peti- tion for review of the action of the referee in allowing a claim con- tracted by a bankrupt after the filing of the petition for adjudication against him, and prior to the actual adjudication. The claim allowed by the referee was For l^g^l api-vu.pa rendered by Alfred Bettman, an attorney at law, to the bankrupt, in matters unrelated to the bank- ruptcy proceedings. Tin; question is whether such a claim, not in ex- istence at the time the petition for adjudication was filed, is a provable demandj^jvithin the meaning of the bankruptcy act. Section 63 enacts that debts of the bankrupt may be proved and allowed against his estate, which are : [The court here quoted section 63.] It is observed that all these classes of provable debts, except the fourth, relate, by express terms of the statute, to such as were in ex- istence at the time of the filing of the petition. The fact that the fourth subdivision contains no words of limitation is considered by claimant's counsel a warrant for his contention that his claim, which is founded on an open account, is provable, notwithstanding the fact that it was not in existence when the petition was filed. It is not apparent why this subdivision is inserted without words of limitation as to the time the claim should have accrued. Especially is this so when there seems to have been a studied effort to insert such words in relation to all the other provable claims. But I cannot construe this omission into a general provision for allowance of demands against the estate of a bankrupt, irrespective of the time when they accrued. If such con- struction be given to the statute, there would be no limitation even to such claims as existed at the date of the adjudication. The general 474 BE BURKA. [CHAP. vi. language would cover any claims that might accrue during the pend- ency of the proceedings, even up to the final discharge. In the absence of express provision to the contrary, I think that debts provable under the act must be such as existed at the date of the filing of the petition. That date is one to which many general provisions are referable. For instance, it is enacted in chapter 1, section 1, subdivision 10, that the words " date of bankruptcy," " time of bankruptcy," " commencement of proceedings," or " bankruptcy," when used in the act with reference to time, tk shall mean the date when the petition is filed." Moreover, the conclusion reached is in clear analogy with the general rule of pro- cedure in courts charged with the administration of trust estates. Ac- cording to my observation and experience, the rights of creditors of insolvent estates administered in equity generall}' relate to the time of the institution of the proceedings which ultimately result in the seques- tration of the property which is to be administered. It is argued by claimant's counsel that because the trustee is vested with the title not only to property which the bankrupt had at the time of the filing of the petition against him, but also to such property as he ma}' have acquired after that, and prior to the date of adjudication, and because all such property goes into the fund for creditors, therefore all creditors having claims which originated at any time prior to the actual adjudication should participate in the fund ; in other words, that, as the property which the bankrupt acquires after the filing of the petition enhances the fund for the benefit of creditors, all creditors whose rights accrue at any time before actual adjudication should participate in it. This is a plausible argument, and I presume it would be true that, if the property acquired by the bankrupt after the filing of the petition and before the adjudication did vest in the trustee, creditors whose rights accrued between those dates should share in the property of the bankrupt, like other creditors ; but the argument, in my opinion, is based on false premises. Section 70 of the bankruptcy act, which is relied on by claimant's counsel in support of the argument, contains the following provisions. " The trustee of the estate of a bankrupt upon his appointment and qualification . . . shall be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, ... to all . . . (5) property which prior to the filing of the petition, he could, by any means, have transferred. . . ." After a careful consideration of the provisions of this section, I am persuaded that there are two separate subjects treated of: First, the time at which the title to something vests in the trustee ; second, the " something" or property the title of which is to vest in the trustee. Inasmuch as the trustee, by the provisions of the act, cannot be chosen or qualified until some time after the date of the filing of the petition, and in fact until some time after the date of adjudication, it is ap- propriate and fit that some time should be fixed, to which his title to whatever he gets should relate ; and such, in my opinion, is the subject- SECT. I.] BE BTJRKA. 475 matter of the first part of the section in question. Properly interpreted, the trustee is by operation of law vested with the title as of the date the bankrupt was adjudged to be a bankrupt. The further provisions of the section, already quoted, undertake to point out the property of which by operation of law he is to become the owner, namely, all prop- erty which prior to the filing of the petition the bankrupt could have transferred. In other words, the property which the trustee acquires must have been property or rights which so existed prior to the filing of the petition that the bankrupt might have transferred them. This clearly means the property or rights of property which existed at that time. Such being the true interpretation of section 70, it affords no ground for the argument made by the claimant's counsel. Inasmuch as no property which the bankrupt may have acquired after the filing of the petition and before the date of adjudication is taken by the trustee, there is no ground for the argument that the claimant, holding a claim accrued since the filing of the petition, and before adjudication, should participate in the assets. His claim is neither provable, nor is the bankrupt discharged by the final judgment of the court from the obligation to pa}' such a claim. The Supreme Court of the United States, by section 30 of the act, is authorized and empowered to prescribe all necessary rules, forms, and orders as to procedure, and for carrying the bankruptcy act into force and effect. In pursuance of the power conferred upon it, the supreme court adopted form No. 59 (32 C. C. A. Ixxxii., 89 Fed. Iviii.), which, after preliminary recitations, reads as follows : " It is therefore ordered by this court that said [namely, the bankrupt] be discharged from all debts and claims which are made provable by said acts against his estate, and which existed on the day of A. D. 189-, on which day the petition for adjudication was filed against him." This form prescribed by the Supreme Court indicates the view which that court takes of the provisions of the act in relation to the discharge of a bankrupt from his debts, and according to it the bankrupt is dis- charged only from such debts as existed on the day the petition for ad- judication was filed against him. It follows that, inatamch Mf the bankrurjtjs not -discharged from the debts which are created after the filing of the petition against him, such debts cannot be provable against his estate In my opinion, the referee reached an erroneous conclu- sion in this case, and the order will be to disallow or expunge the claim in question. 1 1 Zavelo v. Reeves, 227 U. S. 625, ace. 476 BARNETT V. KING. [CHAP. VL BARNETT w. KING. COURT OF APPEAL. NOVEMBER 3, 1890. {Reported in [1891] 1 Ch. 4.] APPEAL from STIRLING, J. This was an action against the executors of the will of Sir Richard Duckworth King, in which the plaintiff claimed 3,000 under a cove- nant contained in a deed dated the 6th of June, 1885, and 97 Is. \\d. interest thereon from the 2d of November, 1887, the day of the testa- tor's death. By the deed in question, which was made between the testator of the one part and the plaintiff of the other part, after a recital that the testator had for some years past paid to the plaintiff (who was his brother-in-law) an annuity of 78, and had agreed with the plaintiff, as a further provision, to secure to him the sum of 3,000, to be payable upon the death of the testator in manner thereinafter appearing, it was witnessed that, in pursuance of the agreement, and in consideration of the natural love and affection, of the testator for the plaintiff, he, the said testator, did thereby covenant with the plaintiff, his executors, administrators, and assigns, that the executors or administrators of him, the said testator, should, within six months from his death, pay to the plaintiff, his executors, administrators, or assigns, the sum of 3,000, with interest for the same at the rate of 5 per cent per annum from the day of the death of the said testator. In the month of February, 1886, the testator filed his petition in bankruptcy ; and on the 26th of February, 1886, a receiving order was made thereupon. The testator did not include his obligation under the deed of cove- nant in his statement of debts and liabilities, and the plaintiff carried in no proof in respect thereof, although he was aware of the bankruptcy of the testator! . . . The testator died on the 2d of November, 1887, and the plaintiff brought this action against his executors on the 26th of June, 1888. One of the defences to the action was that the obligation of the tes- tator, under his covenant in the deed of the 6th of June, 1885, was a debt or liabilit}- provable in hisbankruptc^y, and that an} r right of action upon the covenant which the plaintiff might otherwise have had was barred b}* the bankruptcy proceedings. [On hearing before Mr. Justice STIRLING, the action was dismissed, and the plaintiff appealed.] Sir JAMES HANNEN. We are of opinion that this appeal fails. The question seems to resolve itself into whether or not this liability or obligation to pay a sum of money out of the estate of the deceased, SECT. I.] BARNETT V. KING. 477 six months after his death, is a liabilit}' within the meaning of the 37th section of the Bankruptcy Act of 1883. * It is argued that/ the meaning of the section is, that only such liabilities are capable of proof as relate to the debtor himself; and that liabilities which will onlj- arise after his death are not within the meaning of the section. I am of opinion that that is too narrow a construction to put upon the words of the Act, and that the true meaning of the section is not merely a liability or obligation, or a possibility of liabilit}' or obligation, to pay money on the part of the obligor himself, but that it includes a liability or obligation for the payment of money out of his estate. I think that the observation which was made by Lord Justice FRY in the course of the argument is an exceeding!}' strong one. Suppos- ing the narrow view to be the correct one, the effect would be, that if the plaintiff, the holder of this deed, had taken the steps proper to be taken in the bankruptcy, he could not have proved in respect of this liability under the Act of 1883. That is plainly, to my mind, an unreasonable conclusion to arrive at. I therefore think that the 1 37. (1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, shall not be provable in bank- ruptcy. (2) A person having notice of any act of bankruptcy available against the debtor shall not prove under the order for any debt or liability contracted by the debtor sub- sequently to the date of his so having notice. (3) Save as aforesaid, all debts and liabilities, present or future, certain or con- tingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred be- fore the date of the receiving order, shall be deemed to be debts provable in bank- ruptcy. (4) An estimate shall be made by the trustee of the value of any debt or liability provable as aforesaid, which by reason of its being subject to any contingency or con- tingencies, or for any other reason, does not bear a certain value. (5) Any person aggrieved by any estimate made by the trustee as aforesaid may appeal to the court. (6) If, in the opinion of the court, the value of the debt or liability is incapable of being fairly estimated, the court may make an order to that effect, and thereupon the debt or liability shall, for the purposes of this Act, be deemed to be a debt not prov- able in bankruptcy. (7) If, in the opinion of the court, the value of the debt or liability is capable of being fairly estimated, the court may direct the value to be assessed, before the court itself without the intervention of a jury, and may give all necessary directions for this purpose, and the amount of the value when assessed shall be deemed to be a debt provable in bankruptcy. (8) " Liability " shall for the purposes of this Act include any compensation for work or labor done, any obligation or possibility of an obligation to pay money or money's worth on the breach of any express or implied covenant, contract, agree- ment, or undertaking, whether the breach does or does not occur, or is or i not likely to occur or capable of occurring before the discharge of the debtor, and generally it shall include any e'xpress or implied engagement, agreement, or undertaking, to pay, or capable of resulting in the payment of money, or money's worth, whether the pay- ment is, as respects amount fixed or unliquidated ; as respects time, present or future, certain or dependent on any one contingency, or on two or more contingencies ; as to mode of valuation capable of being ascertained by fixed rules, or as a matter of opinion. 478 TULLY v. SPARKES. [CHAP. VI. decision' of Mr. Justice STIRLING on the point is correct, and that this appeal must be dismissed with costs. BOWEN, L. J. I am of the same opinion. FRY, L. J. I agree. 1 TULLY v. SPARKES. KING'S BENCH, 1729. [Reported in 2 Lord Raymond, 1546, and 2 Strange, 867. 2 ] DEBT upon a bond against the defendant Sparkes and May as execu- tors of William Donelson, setting forth that Donelson entered into a bond in 800 conditioned, that if he, his heirs, executors, or adminis- trators, should pay to the plaintiff 400 within two months after the death of the obligor in case he shall marry Martha Latimer and she shall survive him, then the bond to be void. The plaintiff then avers, that the marriage was had and the wife survived, and the defendants were made executors ; but neither they nor the heir have paid the money according to the condition. The defendant May pleads that he never administered or proved the will, and the plaintiff as to him enters a nolle pro sequi. The other defendant Sparkes prays oyer of the bond, which is set out without the condition ; and then pleads, that the obligor was a trader, and after entering into the bond committed an act of bankruptcy, whereupon the creditors petitioned, had a commission, and .he was declared a bankrupt, and had his certificate, which was con- firmed. To this the plaintiff, having enrolled the condition of the bond in hcec verba, demurred ; and the defendant joined in demurrer. The case was argued by Mr. Strange, for the plaintiff, and by Mr. Joceline, for the defendant. It was insisted upon by the counsel for the plaintiff, that this bond was not discharged by the act of bankruptcy and certificate within the intention of the acts. Nor is the defendant aided 03' the act of 7 G. I. c. 31, for explaining and making more effectual the several acts con- cerning bankrupts ; for the 400 in the condition was paj'able at a day after the bankruptcy committed, viz. within two months after the death 1 The statement of facts has been abbreviated. The first statute expressly allowing proof of debts payable in the future was 7 Geo. I. c. 31 (1721), which purported to be enacted to settle a point which had been dis- puted, though in Cattowell v. Clutterbuck, 2 Str. 867, such a debt was held not provable. This statute was, however, held to apply only to such debts if written security was given. Parslow v. Dearlove, 4 East, 438. And in 1803, Lord Eldon held that a bond payable after death, not being payable at a day certain, was not provable. Ex parte Barker, 9 Ves. 1 10. 49 Geo. III. c. 121, however, covered all such debts. Even though no express provision were made for such debts in a modern statute, they would doubtless be held provable. Lowell, Bankruptcy, 124. 2 The case is here reprinted, with some omissions, partly from each of the reports SECT. I.] TULLY V. SPARKES. 479 of William Donalson the bankrupt, and upon two contingencies, viz. if Martha Latimer married him, and survived him. And a case was cited between Godling and Godling, Pasch. 11 Ann. wherein an action of debt upon a bond dated before the act of bankruptcy committed by the de- fendant, it appeared the money in the condition was not payable till after the act of bankruptcy ; the defendant insisted he ought to be dis- charged upon common bail by virtue of the statutes about bankrupts, but it was ruled that he should be held to special bail. And the plain- tiffs could not come to prove this debt within the 7th G. I. c. 31, be- cause it depends upon two contingencies. On the other side it was insisted on for the defendants, that this was debitum in praesenti, though it was solvendum in futuro. Cro. Jac. Neal v. Sheffield, 254, and therefore would be barred by the act of bankruptcy and certificate, &c. But all the judges were of opinion, that a creditor upon a bond, with condition to pay money at a future day subsequent to the act of bank- ruptcy, before 7 G. I. c. 31, could not be admitted to prove such debt, or to have an}' dividend, before such security became payable. And that act recites it to have been a question, for remedy whereof that act was made. And it would be hard upon the former acts, to put such a construction as to bar a man of his debt, when he could not come into the commission, and have the benefit of it. Then as to the statute 7 G. I. c, 31, that enacts that an}' person who hath given or shall there- after give credit on such security as aforesaid, [referring to the securi- ties mentioned in the recital] to any person who was or should become a bankrupt, upon a good and valuable consideration bona fide for any sura of money or other matter or thing whatsoever, which should not be due or payable at or before the time of such persons becoming bank- rupts, shall be admitted to prove his bond, &c. for the same, in such manner as if it was payable presently, and not at a future day, and shall receive a proportionable dividend, &c., of such bankrupt's estate in proportion to the other creditors of such bankrupt, deducting only thereout a rebate of interest, and discounting such securities payable at future times, after the rate of 5 per cent per annum for what he shall so receive, to be computed from the actual payment thereof, to the time such debt or sum of money should or would have become payable in and by such securities as aforesaid. Then follows a clause that the bankrupt should be discharged of such securities. Now it being un- certain whether this bond should ever become due or not, it depending upon two contingencies which had not both happened at the time of the act or bankruptcy committed, it was impossible to make such abate- ment of 5 per cent as the act directs; and therefore this bond, the court held, was not within that act ; and therefore they were of opinion to give judgment for the plaintiff. 1 1 This case represented the English law (see Christian on Bankruptcy, I. 287, 2d ed.) until the passage of 6 Geo. IV. c. 16, though in a few cases the court was able to avoid the difficulty by holding that where the debt was secured by a bond with a 480 RIGGIN V. MAGWIRE. [CHAP. VL RIGGIN v. MAGWIRE. SUPREME COURT OF THE UNITED STATES, DECEMBER TERM, 1872. [Reported in 15 Wallace, 549.] ERROR to the Supreme Court of the State of Missouri. Magwire sued Riggin in the Circuit Court of St. Louis County, Missouri, to recover damages for a breach of covenant. The defend- ant pleaded a discharge under the Bankrupt Act of 1841, obtained in penalty, and the penalty was forfeited by the terms of the bond before the bankruptcy, the debt might be proved, though the sum really recoverable would not have been the full penalty. Ex parte Winchester 1 Atk. 116; Ex parte Marshall, 1 M. & A. 118. 6 Geo. IV. c. 16, made express provision (sec. 56) for the proof of contingent debts. This section was construed somewhat narrowly, and it was held that " there must not only be a debt or engagement to pay a definite sum, but also that the contingency on which the debt was payable should be one reducible to a matter of calculation, so as to allow a value to be put on the debt for the purpose of proof." Robson on Bankruptcy (7th ed.), 272, and see Atwood v. Partridge, 4 Bing. 209 ; Boorman v. Nash, 9 B. & C. 145 ; Ex parte Tindal, Mont. & Mac. 415 ; Ex parte Grundy, ib. 293; Johnson v. Compton, 4 Sim. 37; Yallop v. Ebers, 1 B. & Ad. 700; Ex parte Davis, Mont. 121, 297; Ex parte Marshall, 1 Mont. Ayrt. 118; Ex parte Thompson, Mont. & Bli. 219; Thompson & Thompson, 2 Bing. N. C. 168; Green v. Bicknell, 8 A. &E. 701 ; Field v. Toppin, 4 Q. B. 386 ; Ex parte Whitmore, 3 De G. & S. 565 ; Hinton v. Acraman, 2 C. B. 367 ; Woolley v. Smith, 3 C. B. 610 ; Wallis v. Swinburne, 1 Ex. 203 ; Ex parte Evans, 3 De G & S. 561 ; South Stafford Ry. Co. v. Burnside, 5 Ex. 129. The Act of 1849, 12 & 13 Viet. c. 106, re-enacted (in sec. 177) the provision of the pre- vious act, and added (sec. 178) a further provision allowing valuation and proof of " a liability to pay money upon a contingency which shall not have happened." This was obviously intended to cover the cases which had been held not included under the words contingent debts, but the courts construed the word "liability " narrowly, holding that " the liability must be to pay a sum of money of certain amount, or at all events a sum the amount of which could be ascertained by some settled data ; and that the contin- gency on which the liability depended must not be too remote, but that there must be a single contingency reducible to a matter of calculation, and capable of valuation." Rob- son on Bankruptcy (7th ed ) 275, and see Amott v. Holden, 18 Q. B. 593 ; Warburg v. Tucker, 5 E. & B. 384 ; Young v. Winter, 16 C. B. 401 ; Maples v. Pepper, 18 C. B. 177 ; Ex parte Todd, 6 D. M. & G. 744 ; Hoare v. White 3 Jur. N. s. 415 ; White r. Corbett, 1 E. & E. 692 ; Boyd v. Robins, 5 C. B. N. s. 597 ; Adkins v. Farringdon, 5 H. & N. 586; Parker v. Ince, 4 H. & N. 53; Mudge v. Rowan, L. R. 3 Ex. 85 ; Betteley v. Stainsby, L. R. 2 C. P. 568 ; Martin's Anchor Co. . Morton, L. R. 3 Q. B. 306 ; Hastie's Case, L. R. 7 Eq. 3, 4 Ch. App. 274 ; Ex parte Wiseman, L. R. 7 Ch. App. 35 ; Kent v. Thomas, L. R. 6 Ex. 312. The Act of 24 & 25 Viet. c. 134, made no further direct provision for proof of contingent liabilities than the preceding acts, but it con- tained a provision (see 153) for the assessment of damages in claims for unliquidated damages growing out of contracts. This was held to include such liabilities only as arose from breach of an express contract before bankruptcy. Ex parte Mendel, 1 De G. J. & S. 330 ; Sharland v. Spence, L. R, 2 C. P. 456 ; Cary v. Dawson, L. R. 4 Q. B. 568 ; Johnson v. Skafte, L. R. 4 Q. B. 700. In 1869, however, an adequate statutory provision was made by 32 & 33 Viet. c. 71, sec. 31, which so far as affects contingent liabilities has been repeated in the act of 1883, now in force. Under this provision the only ground for refusing proof of a contingent liability is, that it is impossible fairly to estimate the value of the claim. Under this SECT. I.] RIGGIN V. MAGWIRE. 481 June, 1843, but his plea was disallowed, both by the lower court and by the Supreme Court of Missouri on appeal. He, therefore, brought the case here by writ of error. The case was this : On the 2d of December, 1839, Riggin conveyed a certain tract of land near St. Louis to one Ellis, in fee. The operative words of the convej'ance were "grant, bargain, sell," etc., which words in Missouri create a covenant that the grantor has an indefeasible estate in fee. Rev. Stat. 1855, c. 32, 14 ; Magwire v. Riggin, 44 Mo. 512. The fact was that, prior to the execution of this deed, the property had belonged to one Martin Thomas, whose wife had never relinquished her right to dower in it. But Thomas was then living, and did not die until 1848, several years after the alleged discharge of Riggin as a bankrupt. The property afterwards, by the regular devolution of title, came into possession of Magwire, who sold it in lots to various persons. In 1868 these persons were sued by Mrs. Thomas, widow of Martin Thomas, for the value of her dower, and were obliged to pay it, and the plain- tiff was obliged to refund them the amount. He, therefore, brought this suit against Riggin for damages under his implied covenant of indefeasible seisin. The question was, whether Riggin was discharged from this demand by his decree of discharge in bankruptcy in 1843? Whether he was or not depended on the question whether the claim could have been proved in that proceeding. The 5th section of the Bankrupt Act of 1841, 5 Stat. at Large, 445, declares as follows : " All creditors whose debts are not due and payable until a future day, all annuitants, holders of bottomiy and respondentia bonds, hold- ers of policies- of insurance, sureties, indorsers, bail, or other persons having uncertain or contingent demands against such bankrupt, shall be permitted to come in and prove such debts and claims under the act, and shall have a right, when these debts or claims become absolute, to have the same allowed them ; and such annuitants and holders of debts payable in future may have the present value thereof section it has been held that there may be proof of damages from failure of a trustee in bankruptcy to take a lease as the bankrupt had agreed to do : Ex parte Llynvi Coal Co., L. R. 7 Ch. App. 28 ; so damages for breach of an agreement to furnish steam power, though determinable in a certain contingency : Ex parte Waters, L. R. 8 Ch- App. 562 ; x>r for failure to pay an annuity : Ex pnrte Jackson, 20 W. R. 1023 ; or of a surety's right to indemnity or contribution, though contingent on future events : Ex parte Delmar, 38 W. R. 752; Wolmerhausen v. Gullick, [1893] 2 Ch. 514; Re Paine, [1897] 1 Q. B. 122; or of the possible liability of a stockholder for future calls: Re Mercantile Marine Ins. Co., 25 Ch. D. 415; Re McMahon, [1900] 1 Ch. 173. Some rights, however, cannot be valued, and hence not proved ; as a covenant not to revoke a will : Robinson v. Onunaiiey, 21 Ch. D. 780 ; 23 Ch. I). 285 ; a possibility of having to pay costs to assert a legal right: Vint r. Hudspith, 30 Ch. I). 24; future liability for alimony : Ex parte Linton, 15 Q. B. 1). 239. Unless an order is made by the bankruptcy court declaring that the value of a claim cannot fairly be estimated, it will be held to be barred. Hardy v. Fothergill, 13 App. Cas. 351. 482 RIGGIN V. MAGWIRE. [CHAP. TL ascertained under the direction of such court, and allowed them accord ingly, as debts in prcesenti." Messrs. Glover and Shepley, for the plaintiff in error. Messrs. Blair and Dick, contra. Mr. Justice BRADLEY delivered the opinion of the court. It is argued that under the~ right given by the fifth section of the Bankrupt Act of 1841 to prove " uncertain and contingent demands," the claim in this case could have been proven under the act. But the better opinion is, that as long as it remained wholl\- uncertain whether a contract or engagement would ever give rise to ah actual duty or liability, and there was no means of removing the uncertainty '03' calcu- lation, such contract or engagement was not provable under the act of 1841. See 1 Smith's Leading Cases (6th Am. ed.), p. 1137, notes to Mills v. Auriol, by Hare. In 1843 Martin Thomas was still living, and there was no certaint}' that his wife would ever survive him. It was uncertain whether there would ever be any claim or demand. On what principle, then, could the covenant have been liquidated or reduced to present or probable value? If an action at law had been brought on the covenant at that time, nominal damages at most, if any damages at all, could have been recovered. It did not come within the category of annuities and debts paj-able in future, which are absolute existing claims. If it had come within that category, the value of the wife's probability of survivorship after the death of her husband might have been calculated on the principles of life annuities. Had a proposition for a compromise of her right been made between her and the owner of the land, such a mode of estimation would have been very proper. But, without authority from the statute, the assignee would not have been justified in receiving such an estimate and making a dividend on it. It is unnecessary to review the authorities pro and con on the subject. The}* are quite numerous, and mostly cited in the note of Mr. Hare, above referred to. The case is so clear that we have hardly entertained a doubt about it. Judgment affirmed.^ 1 Bennett v. Bartlett, 6 Cash. 225 ; French v. Morse, 2 Gray, 111; Burruss t'. Wil- kinson, 33 Miss. 537, ace.; Stilton v. Pease, 10 Mo. 473; Jemison v. Blowers, 5 Barb. 686, contra. The possible liability of a surety on a bond not defaulted was held not provable under the act of 1841 in Turner v. Esselman, 15 Ala. 690; Woodard v. Herbert, 24 Me. 358; Ellis v. Ham, 28 Me. 335; Loring v. Kendall, 1 Gray, 305; Goodwin v. Stark, 15 N. H. 218 ; Dyer v. Cleveland, 18 Vt. 241. SECT. I.] SAYRE V. GLENN. 483 SAYRE v. GLENN. SUPREME COURT OF ALABAMA, DECEMBER TERM, 1888. [Reported in 87 Alabama, 631.] SOMERVILLE, J. The questions arising in this case, except the suffi- ciency of the defence based on the plea of defendant's bankruptcy, are settled against the appellant in Lehman, Durr & Co. v. Glenn, and Seinple u. Glenn, decided at the present term. This plea sets up the fact that the defendant, Sayre, on petition filed in the proper District Court of the United States, on the 1st of June, 1870, was duly adjudicated to be a bankrupt, and thereafter to wit, on April 22, 1871 received his certificate of discharge, as provided for by the bankrupt law of March 2, 1867. To this plea a demurrer was sustained ; and we think there was no error in this ruling. The ground of demurrer, which seems to us to be fatal to the sufficiency of the plea, is, that the demand in question was one not provable against the estate- of the bankrupt, and was not there- fore affected by the discharge. The action is one for the assessment of thirty per cent upon an unpaid subscription to the capital stock of the National Express & Transpor- tation Company. This assessment was ordered to be made b} T the Chancery Court of the city of Richmond, Va., by decree rendered December 14, 1880. The subscription itself was for the sum of one thousand dollars, payable " in such instalments as may be called for by said company, and to pay one per cent at the time of subscription. The bankrupt law allowed proof to be made, not only of debts due from the bankrupt at the commencement of the proceedings in bank- ruptc}', but of " all debts then existing, but not pa}'able until a future day," a rebate of interest being made. U. S. Rev. Stat., 5067. The law was also made to embrace "contingent debts and liabilities," the right of the creditor to share in dividends being made to depend upon the happening of the contingency before the order of the bankrupt court for a final dividend ; or the ability of the court to ascertain and liquidate the " present value" of the debt or liability. U. S. Rev. Stat., 5068. The phrase " contingent debt" has been construed to mean, not a demand whose existence depended on a contingenc}', but an existing demand the cause of action upon which depends on a contin- gency. French v. Morse, 68 Mass. Ill ; Woodard v. Herbert, 24 Me. 358. It is our opinion that a call of this nature made upon an unpaid sub- scription to corporate stock is not a provable debt within the meaning of the bankrupt law. The precise point was decided by the Court of Appeals of Maryland, in Glenn v. Howard, 65 Md. 40 (1885), where the question is fully discussed. It was suggested that there was no right of action on the subscription until a call was made, either by the SAYRE v. GLENN. [CHAP. VI. governing officers of the corporation, or by order of the Chancery Court having jurisdiction to make such an assessment. It might be that such call might never be made in any event ; and if so, there would never exist any liability to pay anything on it. It was said not to be a debt in prcesenti, payable in future. The demand, we ma}- add, would thus be one whose existence would depend upon a contingenc}' rather than one that existed already, with a right of action on it depending on such contingency. It was accordingly held, that where a call was made on a subscription of stock identical with that here in controversy, after the discharge of the subscriber in bankruptc} 7 , it would not be affected by the provisions of the bankrupt law, because the demand was one not provable under the law against the bankrupt's estate. A ruling of the same kind was made in South Staffordshire R. Co. ?>. Burnside, 5 Exch. 129, which has generally been since followed by the English courts. See also Glenn v. Clabaugh, 65 Md. 65 ; and Riggin v. Magwire, 15 Wall. 549 ; Steele v. Graves, 68 Ala. 21. The assignee of the bankrupt was not bound to accept the stock in this corporation as a portion of the bankrupt's assigned property, as it was of an onerous and unprofitable character, and it does not appear that he ever did so. The bankrupt proceedings do not therefore affect the question of the stockholder's liability. File Co. v. Garrett, 110 U.S. 288; Rugeley v. Robinson, 19 Ala. 404; Glenn v. Howard, supra. The demurrer to the plea of bankruptcy was properly sustained.' The other assignments of error are without merit, and the judgment is affirmed. 1 1 Glenn v. Howard, 65 Md. 40, ace.; Irons v. Bank, 17 Fed. Rep. 308; Glena v. Abell, 39 Fed. Rep. 10; Carey v. Mayer, 79 Fed. Rep. 926, contra. Iii all these cases the corporation had suspended payment or made a general assign- ment before the date of the bankruptcy. In the case last cited the court said : "The decision of this case is placed upon the ground that the deed of the corporation of all its assets to trustees for the benefit of creditors, being a declaration by the corporation of its insolvency and also the commencement of the winding up, preceded the fili,ig of the defendant's petition in bankruptcy, and that, by reason of these facts, the de- fendant's obligation as a stockholder became a liability with a contingency, viz., tie ascertainment by a Court of Chancery of the amount to be paid ; that this amount could have been made certain ; and that it was the duty of the trustees to endeavor to make it certain before the order for a final dividend." Under the law of 1867 it was held that the liability of the surety of a bond was provable though the liability of the principal had not been fixed. United States v. Throckmorton, 8 B. R. 309; Jones v. Knox, 46 Ala. 53; Fisher v. Tifft, 127 Mass. 313 (see also McDermott ?>. Hall, 177 Mass. 224) ; Fisher v. Tifft, 12 R. I. 56. But see contra, United States v. Rob Roy, 13 B. R. 235; Steele v. Grav.es, 68 Ala. 21 (overruling Jones v. Knox, 46 Ala. 53). The liability of the principal in a replevin or attachment bond was held provable in Wolf v. Stix, 99 U. S. 1, and Hill v. Harding, 130 U. S. 699, though the question had not been decided at the time of bankruptcy whether there would be any liability on the bond. An annuity was held provable in Haywood v. Shreeve, 44 N. J. L. 94. A breach of warranty where the right of action arose before bankruptcy. Williams v. Harkins, 15 B. R. 34; Merrill v. Schwartz, 68 Me. 514. SECT. I.] MOCH V. MAKKET STREET NATIONAL BANK. 485 MOCH v. MARKET STREET NATIONAL BANK. CIRCUIT COURT OP APPEALS FOR THE THIRD CIRCUIT, APRIL 22, 1900. [Reported in 107 Federal Reporter, 897.] BEFORE ACHESON, DALLAS, and GRAY, Circuit Judges. ACHESON, Circuit Judge. The question presented by this appeal is whether the liabilit}- of a bankrupt indorser of commercial paper, whose liability did not become absolute until after the filing of the petition in bajikruptcyji may be_p roved against his estate after such liabilit}- has become fixed, and within the time limited for proving claims. By the first section of the bankrupt law, the Act of July 1, 1898, it is declared that the word "debt," as used in the Act, shall include " any debt, demand, or claim provable in bankruptcy." Section 63 declares what debts of the bankrupt ma}' be proved and allowed against his estate, and ranges the provable debts in five subdivisions, numbered from 1 to 5, inclusive. For present purposes we need quote only two of those subdivisions, namely : " (1) A fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date, or with a rebate of interest upon such as were not then paj'able and did not bear interest;" " (4) founded upon an open account, or upon a contract express or implied." ( It :irly the liability of an indorser is within the veiy words of this fourth subdivision. As was said by the Supreme Court in Martin v. Cole, 104 U. S. 30, 37, 26 L. Ed. 647, the contract created by the indorsement of commercial paper is an "express contract," and "its terms are certain, fixed, and definite." The indorser's engagement is to pay a sum certain at a fixed date, to wit, the amount of the bill or note at its maturit}*, if it is not paid upon due presentment by the part}- primaril}- liable, upon due notice of its dishonor being given to the indorser. If it can be affirmed that such an unmatured liability is not a "debt," in a technical sense, certainly it is a "demand" or "claim," and comes, it seems to us, within the scope of the fourth subdivision of section 63 of the Act. The primary purpose of the bankrupt act was to relieve insolvent debtors from their pecuniary liabilities, and to secure ratable distribution of their estates among their creditors. It is not, then, to be lightl}- believed that Congress intended to exclude from the operation and benefits of the Act un- matured indorsements of commercial paper, which in every commercial Community so often constitute a large proportion of the indebtedness of failing debtors. Of course, if not provable, such liabilities are not discharged. Now, a construction leading to results so foreign to the 486 IN RE BINGHAM. [CHAP. VI. general purpose of the law is not to be adopted unless plainly required by the language of the Act. We cannot see that such an interpretation is demanded by anything contained in the Act. The first and fourth subdivisions of section 63 are distinct provisions, and are, we think, independent of each other. We are unable to agree to the proposition that subdivision 1 qualifies, and is to be carried down and read into, subdivision 4. On the face of the Act the}- are distinct. Moreover, reasonable effect can be given to both by treating them as separate and independent clauses. There are well-known instruments for example, surety bonds under which the liability is contingent on future defaults, and where the amount of liability is wholly uncertain, depending on the nature of the default. To instruments of this char- acter, where the liabilit}' is remote and is uncertain in amount and otherwise, subdivision 1 is fairly referable ; but we think, with the court below, that the contract created by the indorsement of commer- cial paper is not governed b}* that subdivision, but falls within sub- division 4, which embraces debts, claims, or demands founded upon contracts, express or implied. Accordingly the order of the District Court allowing the claim of the Market Street National Bank against the estate of the bankrupt, Joel J. Gerson, is affirmed. 1 IN RE BTNGHAM. DISTRICT COURT FOR THE DISTRICT OF VERMONT, MAY 30, 1899. [Reported in 94 Federal Reporter, 796.] WHEELER, District Judge. At the time of the filing of the peti- tion the bankrupt owed James E. Hartshorn $110.50, Hartshorn owed the bankrupt $554.70, and both were holden on a note of $1,200 to a savings bank, one-half of which each ought to pay. The baok has proved its claim, and Hartshorn has taken up the note. One- half of what he paid was his own debt, and he can have no claim against the bankrupt estate growing out of that. He insists that the balance of direct claims between him and the bankrupt should be set off against what he has paid that the bankrupt ought to have paid, and that balance should stand as a valid claim in his favor against the estate. The bankrupt was impliedly bound to save him harmless from this part of that debt, and has not done so ; but the detriment has occurred since the filing of the petition, and, till that 1 Re Gerson, 105 Fed. 891 ; Re O'Donnell, 131 Fed. 150; Re Philip Semmer Glass Co., 135 Fed. 77 (C. C. A.); Re Rothenberg, 140 Fed. 798; Re Smith, 146 Fed. 923; Cohen v. Pecharsky, 121 N. Y. Supp. 602, ace. See also Re Lyon Beet Sugar Co., 192 Fed. 445. Re Schaefer, 104 Fed. 973, contra. See also Rice v. Murphy, 109 Me. 101; Morgan v. Wordell, 178 Mass. 350; Coding v. Rosenthal, 180 Mass. 43. SECT. I.] MACE V. WELLS. . 487 occurrence, Hartshorn had no provable claim on that account. By this bankrupt act all claims turn upon their status at the time of the filing of the petition, and decisions upon statutes having different provisions in this respect will not afford safe guides for the construe tion of this. It affords relief for a surety when the creditor does not prove the claim by allowing the surety to prove it for subrogation, but nothing more. The relief is the same that the surety would have if the creditor should prove the claim, and get what could be had upon it voluntarily. The creditor has no right to anj'thing more than payment, and the surety who has borne the burden is entitled to the benefit. These rights arise, not from the original contract of suretyship, but from the equities of the subsequent transactions. Miller v. Sawyer. 30 Vt. 412. Subrogation of the surety to the rights of the creditor does not enlarge, them. They extend only to such dividends as the creditor can have. Here, Hartshorn should pay the balance due between him and the bankrupt to the trustee, now, for administration ; and the trustee should pay the dividends on the bankrupt's half of the note, when declared, to Hartshorn. One-half of bank claim to stand for benefit of Hartshorn. Hartshorn's claim merged in balance of $444.20 due the estate. 1 MACE v. WELLS. SUPREME COURT OP THE UNITED STATES, JANUARY TERM, 1849. [Reported in 1 Howard, 272.] MR. JUSTICE MCLEAN delivered the opinion of the court. This case is brought before the court by a writ of error to the Supreme Court of the State of Vermont, under the twenty-fifth section of the Judiciary Act of 1787. Wells, as the surety of Mace, became bound in two joint and several notes, both of which were due before the passage of the bankrupt law, in August, 1841. In July, 1841, Wells paid one of these notes. Mace was discharged, under the bankrupt law, on the 22d of March, 1843. In March, 1844, Wells paid the other note, and then sued Mace for the recovery of the money on both notes. The facts being submitted 1 In Re Schmechel Cloak & Suit Co., 104 Fed. Rep. 64, the court held that a surety who by paying the creditor had become entitled under Sec. 57 i, of the Bankrupt Act, to be subrogated to the creditor's claim, had no greater rights than the creditor, and must therefore surrender any preference the creditor had received, as a condition of proof. In Re Heyman, 95 Fed. Rep. 800, the court held that where a surety had partly paid the creditor, the right to prove the whole claim against the principal debtor still re- mained in the creditor. 488 MACE V. WELLS. [CHAP. VI. to the county court, judgment was entered for the plaintiff for the amount of the note last paid ; which judgment was affirmed by the Supreme Court of the State. The fourth section of the bankrupt law provides that a " discharge and certificate, when duly granted, shall in all courts of justice be deemed a full and complete -discharge of all debts, contracts, and other engagements of such bankrupt which are provable under this act," &c. By the fifth section of the act, it is provided that "all creditors whose debts are not due and payable until a future day, all annuitants, holders of bottomry and respondentia bonds, holders of policies of insurance, sureties, indorsers, bail, or other persons having uncertain or contingent demands against such bankrupt, shall be permitted to come in and prove such debts or claims under this act, and shall have a right, when their debts and claims become absolute, to have the same allowed them," &c. Wells, as suret}', was within this section, and might have proved his demand against the bankrupt. He had not paid the last note, but he was liable to pay it, as surety, and thaj gave him a right to prove the claim under the fifth section. And the fourth section declares, that from all such demands the bankrupt shall be discharged. This is the whole case. It seems to be clear of doubt. The judgment of the State court is reversed. 1 1 In accord under the Act of 1841 are, Kyle v. Bostick, 10 Ala. 589; Dean v. Speakman, 7 Blackf. 317; Frentress v. Markle, 2 Greene (la.), 553; Morse v. Hovey, 1 Sandf. Ch. 187 ; Stark . Stinson, 23 N. H. 259 ; Tubbs v. Williams, 9 Ired. 1 ; Ful- wood v. Bushfield, 14 Pa. 90; Stone v. Miller, 16 Pa. 450; Clarke v. Porter, 25 Pa. 141 ; Hardy v. Carter, 8 Humph. 153. Contra are Payne v. Joyner, 6 Ark. 241 ; Dunn v. Sparks, 1 Ind. 397 ; Dole v. War- ren, 32 Me. 94 ; McMulliii v. Bank of Penn. Township, 2 Pa. St. 343 ; Cake v. Lewis, 8 Pa. 493 ; Goss v. Gibson, 8 Humph. 197 ; Kerr v. Clark, 11 Humph. 77 ; Wells v. Mace, 17 Vt. 503; Swain v. Barber, 29 Vt. 292. In accord under the Act of 1867 are, Liebke v. Thomas, 116 U. S. 605 ; Re Perkins, 10 B. R. 529 ; Lipscomb v. Grace, 26 Ark. 231 ; Hays v. Ford, 55 Ind. 52 ; Post v. Losey, 111 Ind. 74; Noland v. Wayne, 31 La. Ann. 401; Hunt v. Taylor, 108 Mass. 508; Fisher v. Tifft, 127 Mass. 313; Fairbanks v. Lambert, 137 Mass. 373; Miller v. Gillespie, 59 Mo. 220 ; Crofts v. Mott, 4 N. Y. 603 ; Tobias v. Rogers, 13 N. Y. 59 ; Fisher v. Tifft, 12 R. I. 56; Eberhardt v. Wood, 2 Tenn. Ch. 488, Cocke v. Hoffman, 5 Lea, 105, 109 ; Smith v. Hodson, 50 Wis. 279, 284. See also Fernald v. Clark, 84 Me. 234 ; McDermott v. Hall, 177 Mass. 224, 225. Contra are, Byers v. Alcorn, 6 111. App. 39 ; Dole v. Warren, 32 Me. 94 ; Liddell v. Wiswell, 59 Vt. 365. See further on the subject of this note, Ames Cas. Suretyship, 515-518, 557-559. SECT. I.] THAYER V. DANIELS. 489 THAYER v. DANIELS. SUPREME JUDICIAL COURT OF MASSACHUSETTS, OCTOBER TERM, 1872. [Reported in 110 Massachusetts, 345.] CONTRACT. The declaration alleged that the defendant as principal, and the plaintiff as suret}*, signed a note for $500, dated September 28, 1861, and payable on demand to Nathan George or order, with in- terest ; that the plaintiff signed as surety without consideration, and for the accommodation of the defendant ; that the defendant failed to pa} 1 the note ; and that the plaintiff had to pay to George the principal of the note to take it up. The answer denied the allegations of the declaration, and also set up the statute of limitations, and a discharge of the defendant in insolvenc}'. At the trial in the Superior Court, before BACON, J., it appeared that the plaintiff executed the note without an} r consideration, and for the accommodation of the defendant; that the defendant on February 11, 1862, filed his petition for the benefit of the insolvent law ; that a war- rant was duly issued ; that at the third meeting of the creditors George proved the note against the defendant's estate ; that a small dividend was then declared ; that afterwards, in August, 1862, the defendant was duly discharged from his debts ; and that on May 1, 1865, the plaintiff paid to George on the note $500, which was less than the amount then due upon it, and took it up. The defendant asked the judge to rule that the statute of limitations began to run against the plaintiff's cause of action from the time the note fell due ; and that the discharge in bankruptc} T was a bar to the action ; but the judge refused so to rule, and ruled that on the foregoing facts the plaintiff was entitled to re- cover. The jury returned a verdict for the plaintiff, and the defendant alleged exceptions. P. E. Aldrich (S. A. Burgess with him), for the defendant. T, G. Kent, for the plaintiff. AMES, J. There was an implied promise, on the part of the defend- ant, as principal, to indemnify the surety, and to repay to him all the money that he might be compelled, in consequence of his liability as surety, to pay to the creditor. Until the surety has been compelled to make such payment, there is no breach of this implied promise. The cause of action accrues then for the first time, and the statute of limi- tations then begins to run. Of course the exception that the claim of the plaintiff is barred by that statute cannot be maintained. Appleton v. Bascom, 3 Met. 169 ; Hall v. Thayer, 12 Met. 130. At the time when the defendant petitioned for the benefit of the in- solvent law, the plaintiff's cause of action against him had not accrued. Nothing was due at that time from the insolvent to the plaintiff, and whether anything would become due depended upon the contingency of his being compelled to pay, and actually paying, the note, in whole or 490 THAYER V. DANIELS. [CHAP. VI. in part. If the plaintiff had taken up the note, or made a payment upon it, at any time before the making of the first dividend, his claim for the money so paid would have been provable against the estate of the insolvent, under the Gen. Sts. c. 118, 25, and would therefore have been barred by the discharge. But it appears from the report that no money was paid by the plaintiff as surety, and no cause of action ac- crued to him against the insolvent, until long after the first and only dividend was paid from his estate. The case of Mace v. Wells, 7 How. 272, which is relied upon by the defendant, arose under the bankrupt act of 1841, a statute which dif- fered from our insolvent law, in allowing sureties and other parties un- der a contingent liability to prove such contingent liabilities as claims upon the estate, and " when their debts and claims become absolute," to have them allowed. The defendants also insist that the debt itself was provable and was therefore discharged ; but this is not true as to the contingent claim of the surety. He had no claim that was provable under the statute, at the date of the discharge. Two other cases relied upon by the defendant, Wood v. Dodgson, 2 M. & S. 195, and Vansandau v. Corsbie, 8 Taunt. 550, were decided under English statutes which in express terms make the contingent liability of a surety a provable claim against the bankrupt's estate. In the first of these cases the court say that the statute was intended to benefit the sureties, by allowing them to share in the dividend before the estate is all gone, and before the actual payment of their liabilities. Neither of these decisions is applicable to a case under our insolvent laws. Exceptions overruled}- 1 " Under the English Bankrupt Act of the last century only debts due at time of the act of bankruptcy were provable. A surety who had not paid the creditor at that time had, therefore, no provable claim against the principal, and hence the bankrupt's certificate did not bar the surety's right to recover reimbursement from principal for any money paid by surety to creditor after the act of bankruptcy. Chilton v. Whiffin, 3 Wils. 13 ; Goddard v. Vanderheyden, 3 Wils. 262, 2 Bl. 794, s. c. ; Young v. Hock- ley, 3 Wils. 346 ; Vanderheyden v. De Paiba, 3 Wils. 528 ; Heskuyson v. Woodbridge, 1 Doug. 166, n. (55) ; Taylor v. Mills, Cowp. 525 ; Alsop v. Price, 1 Doug. 160 ; Paul v. Jones, 1 T. R. 599 ; Ex parte Lloyd, 1 Rose, 4 ; Wright v. Hunter, 1 East, 20. Un- der Bankrupt Act, 49 Geo. III. c. 121, a surety had the right to prove directly or indirectly for any debt of the bankrupt to the creditor which was in existence at the time of commission issued. If the creditor's claim was not a debt when the principal became bankrupt, the surety had no provable claim against the principal, and there- fore might, on subsequently paying the creditor, recover from the bankrupt even after his discharge. Page v. Russell, 2 M. & Sel. 551 ; Welsh v. Welsh, 4 M. & Sel. 333; Hewes v. Mott, 6 Taunt. 319; M'Dougal v. Paton, 8 Taunt. 584; Taylor v. Young, 3 B. & Al. 521 ; Newington v. Keeys, 4 B. & Al. 493 ; Watkins v. Flannagan, 1 Gl. & J. 199; Watkins v. Flannagan, 1 Bing. 413 (affirming s. c. 3 B. & Al. 186) ; Freeman v. Burgess, 6 L. J. C. P. 34." Ames, Cas. Suretyship, 518, n. 3. Under the present English statute, Robson (7th ed. p. 306) says : " The whole of the sum for which the surety is liable must be discharged, either by payment in full or of part in satisfaction of the whole, before the surety can claim to stand in the creditor's place, or to prove," and criticises Ex parte Delmar, 38 W. R. 752, where the surety was al- lowed to prove before payment. SECT. I.] WILLIAMS V. FIDELITY AND GUARANTY CO. WILLIAMS v. UNITED STATES FIDELITY AND GUARANTY COMPANY. SUPREME COURT OF THE UNITED STATES, JANUARY 18- FEBRUARY 23, 1915. [Reported in 236 United States, 549.] MR. JUSTICE MCREYNOLDS delivered the opinion of the court. This cause presents the following question : Does j^ discharge in bankruptcy acquit an express obligation of the principal to indemnify his surety against loss by reason of their joint bond conditioned to secure his faithful performance of a building contract broken prior to the bankruptcy when the surety paid the consequent damage thereafter ? R. PfWilliams and J. B. Carr, as partners, entered into a contract to construct a building and gave a bond to secure their performance with the defendant in error as surety. In applying for the bond the partners bound themselves " to indemnify the said United States Fidelity & Guaranty Company against all loss, costs, damages, charges and expenses whatever resulting from any act, default, or neglect of ours, that said United States Fidelity & Guaranty Company may sus- tain or incur by reason of its having executed said bond or any con- tinuation thereof." The partners abandoned the contract in November, 1900 ; the owner completed it April 13, 1901, and on May 14, 1901, made demand on the defendant in error for the amount expended beyond the contract price. On refusal, suit was brought, recovery had, and the judgment satisfied by the defendant in error. On May 28, 1901, the plaintiffs in error filed voluntary petitions in bankruptcy and were adjudged bankrupt. The owners of the building proved their claim but no dividend was paid. October 5, 1901, the bankrupts were discharged. In August, 1911, the defendant in error brought suit against the plaintiffs in error upon the written contract of indemnity. It is contended that the claim was subject to two contingencies, one of which, the sustaining of pecuniary loss had not arisen when the petition was filed. The Georgia Court of Appeals (11 Ga. App. 635), so held and dismissed the suit. It is the purpose of the Bankrupt Act to convert the assets of the bankrupt into cash for distribution among creditors and then to relieve the honest debtor from the weight of oppressive indebtedness and per- mit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes. Wetmore v. Markoe, 196 U. S. 68, 77 ; Zavelo v. Reeves, 227 U. S. 625, 629 ; Burlingham v. 492 WILLIAMS V. FIDELITY AND GUARANTY CO. [CHAP. VI. Grouse, 228 U. S. 459, 473. And nothing is better settled than that statutes should be sensibly construed, with a view to effectuating the legislative intent. Lau Ow Bew v. United States, 144 U. S. 47, 59 ; In re Chapman, 166 U. S. 661, 667. Within the intendment of the law provable debts include all liabil- ities of the bankrupt founded on contract, express or implied, which at the time of the bankruptcy were fixed in amount or susceptible of liquidation. Dunbar v. Dunbar, 190 U. S. 340, 350; Crawford v. r.ui-ke, IDo U. S. 17G. 1X7; Grant Shoe Co. v. Laird. 212 U. S. 445, 448; Zavelo v. Reeves, 227 U. S. 625, 631. It provides complete pro- tection and au ample remedy in behalf of the surety upon any such obligation. He may pay it off and be subrogated to the rights of the creditor ; if the creditor fails to present the claim for allowance against the estate he may prove it ; and in any event he has abundant power by resort to the court or otherwise to require application of its full pro rata part of the bankrupt's estate to the principal debt. To the extent of such distribution the obligation of the bankrupt to the surety will be satisfied. Although, unlike the Act of 1867, the present one contains no express provision permitting proof of contingent claims, It does in substance afford the surety on a liability susceptible of liquidation the same relief possible under the earlier act, i. e., application to the prin- cipal debt of all dividends declared out of the estate (Act of 1867, 19, 27). And as the surety thus either shares or enjoys an oppor- tunity to share in the principal's estate, we think the discharge of the latter acquits the obligation between them incident to the relationship. Mace v. "Wells, 7 How. 272, 276; Fairbanks v. Lambert, 137 Mass. 373, 374; Hayer v. Comstock, 115 Iowa, 187, 191 ; Post, admr. v. Losey, 111 Ind. 74, 80 ; Smith v. Wheeler, 55 App. Div. (N. Y.) 170, 171. It would be contrary to the basal spirit of the Bankrupt Law to per- mit a surety, by simply postponing compliance with his own promise in respect of a liability until after bankruptcy, to preserve a right of recovery over against his principal notwithstanding the discharge would have extinguished this if the surety had promptly performed as he agreed. Such an interpretation would effectually defeat a funda- mental purpose of the enactment. The written indemnity agreement embodied in the bankrupt's ap- plication to the surety company for execution of the bond, so far as its terms are important here, but expressed what otherwise would have been implied from the relationship assumed by the parties. At the time of the bankruptcy the obligation under this agreement was ancil- lary to a liability arising out of a contract estimation of which was easy of establishment by proof. There was no uncertainty which could prevent the surety from obtaining all benefits to which it was justly entitled from the bankrupt estate. 1 1 A portion of the opinion is omitted. SECT. I.] COLUMBIA FALLS BRICK CO. V. GLIDDEN. 49' COLUMBIA FALLS BRICK COMPANY v. GLIDDEN. SUPREME JUDICIAL COURT OF MASSACHUSETTS, JANUARY 25- SEPTEMBER 29, 1892. [Reported in 157 Massachusetts, 175.] CONTRACT, on a promissory note. The writ was dated October 18, 1890. The declaration was as follows : "And the plaintiff says the defendants, then doing business as co- partners under the firm name of Hobbs, Glidden, & Co., made and de- livered to the plaintiff their promissory note, a copy of which with the indorsements thereon is hereto annexed ; that thereafter, and before the maturity of said note, the plaiptitf indorsed the same and nego- tiated it for value ; that at the maturity of said note the same was duly presented for pa}'ment at the Howard National Bank, but was not paid, whereof the plaintiff had due notice, that thereafter, to wit, on the twenty-fifth da}' of April, 1890, the plaintiff was compelled to pay, and did in fact pay, to the Third National Bank of Boston, the holder of said note, on account of the amount due thereon from the defendants, the sum of $3,646,/ (J 6 ( j, and that no part of the same has been paid to the plaintiff. Wherefore the defendants are justly indebted to the plaintiff therefor in the sura of $3,646/ 6 ff , with interest from April 25, 1890." The note was for $6,000, dated Boston, November 23, 1889, and payable four months after date to the order of the plaintiff. At the trial in the Superior Court, without a jury, before MASON, C. J., there was evidence tending to show that the defendants gave the note for a good consideration to the plaintiff corporation, which immediately thereafter indorsed it for value to the Third National Bank of Boston ; that on February 4, 1890, the defendants filed their voluntary petition in insolvency, and on February 8, 1890, a proposal of composition under the St. of 1884, c. 236, which, after due notice to the creditors, was confirmed by the Court of Insolvency for the county of Middlesex on March 13, 1890 ; that the bank proved its claim as holder of the note on March 13, 1890, and received a dividend, according to the terms of proposal on April 17, 1890, of $2,382.40, which was indorsed on the note ; and that at the maturity of the note it was duly protested, notice being given to the plaintiff, and the plaintiff paid the balance due thereon of $3,646.46 on April 25, 1890, and the defendants received their dis- charge in insolvency on April 14, 1890. The plaintiff was a corporation under the laws of the State of Maine, having its principal office therein, and having besides a place of busi- ness in Boston. It had, before the date of the writ, filed with the Commissioner for Corporations of this Commonwealth the power of attorney required by the St. of 1884, c. 330, 1. 494 CODING V. ROSCENTHAL. [CHAP. VI. The judge ruled that the action could not be maintained, and found for the defendants ; and the plaintiff alleged exceptions. F. T. Benner, for the plaintiff. S. L. WJiipple, for the defendants. LATHROP, J. The contract which the defendants made in this case was to pay the note to the person who might be its legal holder at the time of its maturity. From this contract they have been released by their discharge in insolvency, the note having been proved against their estate by its then holder. Pub. Sts. c. 155, 28 ; St. 1884, c. 236, 5, as amended by St. 1885, c. 353, 1, and by St. 1889, c. 406, 1. The fact that after the maturity of the note the paj-ee was obliged to pay to its indorsee the balance due on the note after deducting the dividend received from the estate of the defendants, did not create a new debt against the defendants, but was merely a transfer of the old debt. The promise of the defendants was one indivisible promise. See Hunt v. Taylor, 108 Mass. 508; Cowley v. Dunlop, 7 T. R. 565 ; Buckler v. Buttivant, 3 East, 72 ; Houle v. Baxter, 3 East, 177. The case differs widely from Thayer v. Daniels, 110 Mass. 345, where a suret}' under like circumstances to those in the case at bar was allowed to maintain an action against the maker of a promissory note. The undertaking of the maker to the surety is one of indemnity against an}" loss or damage which he may suffer in consequence of the failure of the maker to pay the note. It is an implied, and not an express contract. The contract of the maker, on the other hand, with the payee or indorser, is an express contract, from which in this case the makers have been released by their discharge in insolvency. The plaintiff further contends, that, being a foreign corporation, its claim is not barred by the defendants' discharge. Kelley v. Drury, 9 Allen, 27 ; Phoenix National Bank v. Batcheller, 151 Mass. 589. But as the plaintiff's right of action grows out of the note, and as this has been proved against the defendants' estate in insolvency, these cases do not apply. Exceptions overruled. CODING v. ROSCENTHAL. SUPREME JUDICIAL COURT OF MASSACHUSETTS, OCTOBER 18, 1901. [Reported in 61 Northeastern Reporter, 222.] BARKER, J. By the execution of the bond of March 29, 1898, to August, in which the present plaintiff was a suret}- for the present de- fendant, the latter incurred an obligation to the present plaintiff to reimburse him any amount which he might be compelled as suret} 7 to pay upon the bond. This obligation was in force when, on February 13, 1900, the present defendant's petition in bankruptcy was filed. It * SECT. I.] IN RE ORIENTAL COMMERCIAL BANK. 495 was an obligation founded upon an implied contract, and it was evi- denced by an instrument in writing, and in one sense it ,was a fixed liability. But no debt was absolutely owing at the time of the petition. The obligation was contingent upon the happening of a breach of the bond and a payment by the surety. The payment by the surety was not until June 12, 1900, and there seems to have been no breach of the bond before that date. Therefore neither the obligee in the bond nor the surety could prove in the bankruptcy proceedings a claim founded upon the bond, unless merely contingent claims are provable under the bankruptcy act of 1898. The ultimate decision of that question is \ci to be made by the Supreme Court of the United States. But in Morgan v. Wordell, 178 Mass. 350, 59 N. E. 1037, this court assumed that such claims were not provable under the act, and we follow that view in the present case. Exceptions sustained. IN KE ORIENTAL COMMERCIAL BANK. Ex PARTE EUROPEAN BANK. IN CHANCERY, NOVEMBER 24, 1871. [Reported in Law Reports, 7 Chancery Appeals, 99.] THIS was an appeal from a decision of Vice-Chancellor BACON, made in the winding-up of the Oriental Commercial Bank, Limited, L. R. 12 Eq. 501. The facts were shortly as follows : On the 12th of March, 1866, Mr. D. Pappa, the manager of the D, ^ ' Oriental Commercial Bank, wrote to the manager of the European Bank y-*^ as follows : " We beg to advise you that our Galatz correspondent, Mr. E. Con- stantinidi, has valued upon your establishment for our account in the .-, f /. sum of 15,250, as per particulars at foot, which drafts please honor on presentation for our account, on the usual understanding that we furnish you with funds to meet the same at maturity." In consequence of this undertaking, Mr. Constantinidi drew bills loc/ &L*m>* ^ the amount of 8,800, which were accepted by the European Bank, and kL^. pt- J { handed to the Oriental Commercial Bank as agents of the drawer, and indorsed by them to the Agra Bank, who discounted them. When the bills became due all the three banks had stopped payment, / / Pi ^ and were in process of liquidation ; and as no funds had been provided to the European, the bills were dishonored. / < obA^L The Agra Bank, the holders of the bills, proved against the Euro- " pean Bank for 8,804 Is. 6c, and received a first dividend of 3s. 4d. in the pound, amounting to 1,467 6. lie?. They then proved against Oriental Commercial Bank, as the indorsers, for the balance of 7,336 14s. 7c?., and received from their estate a dividend of 13s. in the pound. They subsequently received a further dividend of 6.v. Sd. in the pound 496 IN RE ORIENTAL COMMERCIAL BANK. [CHAP. VI. from the European Bank on their original proof. The result was that they recovered the full amount of their debt ; half being paid by the European, and half by the Oriental Commercial Bank. The Oriental Commercial Bank afterwards paid the European Bank 13s. in the pound on the sum of 1,467 6s. lie?., and 2s. in the pound on the whole amount of the btlls ; so that the}' altogether paid 15s. in the pound on the whole amount of the bills, which was the amount of dividend paid to their other creditors. The liquidators of the European Bank afterwards sought to be ad- mitted creditors against the estate of the Oriental Commercial Bank for the sum of 4,402 Os. 9d., which the}' had been compelled to pay through the breach of the undertaking to provide them with funds to meet the bills at maturity. The Vice-Chancellor admitted the proof, and the liquidators of the Oriental Commercial Bank appealed from this de- cision. Mr. De Gex, Q. C., Mr. Kay, Q. C., and Mr. Jackson, for the ap- pellants. Mr. JEddis, Q. C., and Mr. Graham Hastings, for the European Bank. Sir G. MELLISH, L. J., after shortly stating the facts of the case, continued : It is quite obvious that if this proof is allowed the Oriental Commer- cial Bank will pay a double dividend on the same debt. It appears to me clearly that it is substantially the same debt ; because if all parties had been solvent, whatever sums the Oriental Commercial Bank might have paid to the Agra Bank, although they would have paid it, no doubt, for the purpose of performing the contract they had entered into by their indorsement, yet, substantially, whatever sums they might have paid to the Agra Bank would have gone in reduction of the sum which the Oriental Commercial Bank had promised to pay to the European Bank. In that case the Oriental Commercial Bank could never have been called upon to pay these bills twice over. It would have made no difference that they had entered into two contracts with two separate parties that they would pay the bills namely, with the European Bank as acceptors, and with the Agra Bank as holders. It is clear that they would have performed both contracts by paying the bills once, be- cause they had guaranteed the acceptors ; and, in fact, the acceptance having been an acceptance for their use, their payment to the Agra Bank would, in substance and in point of law, have been a payment by the acceptors. Then the question is, whether, the parties being insolvent, the Ori- ental Commercial Bank can be liable to pay two dividends on the same debt? It has been the law for a great number of years with reference to proofs in bankruptcy, that if an acceptor accepts bills for the ac- commodation of the drawer, and the drawer enters into a contract, either express or implied (and I do not think there is any difference between the two), that he will provide for the bills when they become SECT. I.] EX PARTE NEWTON. IN EE BUNYAED. 497 due, and then the drawer becomes bankrupt, there cannot be a double proof against his estate, namely, one proof by the holder pf the bill, and the other proof by the acceptor of the bill on the contract of in- demnit}-. Then the real question before us is this : Does it make any distinction that the Oriental Commercial Bank were not drawers, but entered into the contract with the acceptors, and afterwards became liable for the bills as indorsers? It appears to me that that ought not to make any distinction, although I do not find any precise decision upon the point. The case of Rigb}' v. Macnamara, 2 Cox, 415, tends to show that this rule against double proof applies in the Court of Chancery as well as in the Court of Bankruptc} 7 , and therefore would applj- equally where companies are being wound up. It seems to me that the principle is a perfectly sound one. Authorities have been cited to show that there cannot be double proof against joint and sepa- rate estates. That is really carrying the same principle still further, for in that case the proof is not twice against the same estate, but against different estates though belonging to the same person. As to that ap- plication of the principle, some judges have said that it should not be carried an} 7 further. But the principle itself, that an insolvent estate, whether wound up in Chancery or in Bankruptcy, ought not to pay two dividends in respect of the same debt appears to me to be a perfectly sound principle. If it were not so, a creditor could always manage, by getting his debtor to enter into several distinct contracts with different people for the same debt, to obtain higher dividends than the other creditors, and perhaps get his debt paid in full. I apprehend that is what the law does not allow ; the true principal is, that there is only to be one dividend in respect of what is in substance the same debt, al- though there may be two separate contracts. Therefore, upon the whole, with great respect to the Vice-Chancellor, I am of opinion that this proof should not be allowed. Sir W. M. JAMES, L. J. I entirely concur. 1 Ex PARTE NEWTON. IN RE BUNYARD. COURT OF APPEAL, JUNE 24-DECEMBER 9, 1880. [Reported in 16 Chancery Division, 330.] COTTON, L. J. I have now to deliver the judgment of Lord Justice BAGGALLAY and myself, in which I believe the late Lord Justice THESIGER would have agreed. Each of these appeals raised the same question, namely, whether the 1 Other illustrations of the rule against double proof may be found in Kx parte Macredie, 8 Ch. App. 535 ; Ex parte Mann, 5 Ch. D. 367 ; Ex parte Murrell, 38 L. T N. a. 363. 498 EX PARTE NEWTON. IN RE BUNYARD. [CHAP. VI. holder of a bill of exchange taken from the drawer as securit}* for a sum less than the amount of the bill is entitled, as against the estate of the bankrupt, who had accepted it for the accommodation of the drawer, " "to prove only for the amount due to him (the holder) or for the amount of the bill, with a restriction that he shall not receive dividends on his proof to an amount exceeding the sum due to him on his security. It was conceded that, if the bill had been accepted for value, the holder would have been entitled to prove for the larger amount. But it was urged on behalf of the respondent that the fact of the acceptance being for the accommodation of the drawer makes a difference. It was said, and truly, that a man who has taken a bill from the drawer as security only will hold for the drawer any sum recovered from the acceptor bej'ond the amount due on his securit}*, and that when the bill has been accepted for the accommodation of the drawer, he, the drawer, would be liable to repay to the acceptor any part of the sum recovered from him, which may be handed to the drawer by the holder of the bill. But the acceptor has put it in the power of the drawer to make the bill in the hands of a holder for value available against the acceptor for its full amount, and, although the holder may have taken it as security for a sum less than the amount of the bill, we are of opinion that such a holder is entitled to make the bill available against the ac- . ,^^ ; ceptor in the way which will best produce the sum due to him, and that, in the event of bankruptcy, he is entitled to prove against the acceptor's estate for the full amount of the bill. It was argued that, if the acceptor had not become bankrupt, judgment in an action against him on the bill would be confined to the amount due on the security thereof from the drawer. But, if the acceptor is solvent, a judgment against him will realize the full amount for which it is obtained, and, even if he is not solvent, the amount to be recovered on the judgment will (to an amount not exceeding the sum for which the judgment is recovered) be limited only by the value of his estate which can be realized under the judgment. In case this is insufficient to pay the debt to the holder of the bill, the amount which he will recover will not be increased b}- giving him judgment for a larger sum. It was, however, contended that there is authorit}' in favor of the respondent, andExparte Bloxham, 5Ves.448, was referred to. The decision of Lord Rosslyn there reported is in favor of the more limited proof. But the order was afterwards (6 Ves. 600) dis- charged, and an order made giving the bill-holder a right to prove for the full amount of the bill. This case, even if it is not (as we think it is) an authority in favor of the appellants, cannot be regarded as an authority against them. We are of opinion, therefore, that the appellants are entitled to prove for the full amount of the bills, with a restriction that they are not to receive dividends be}'ond the amounts due to them. 1 1 Ex parte Kelty, 1 Low. 394 ; Bailey v. Nichols, 2 B. K. 478, ace. SECT. I.J IN RE SOUTHER. EX PARTE TALCOTT. 499 IN RE SOUTHER. Ex PARTE TALCOTT. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, MARCH, 1874. [Reported in 2 Lowell, 320.1 L * J fl.CJ-1-^' ' ^^r -' ' < THIS was a question upon evidence certified by the register, con- ^-^ ^"^ cerning the debt offered for proof by Frederic Talcott, and called for i*>-*-4 "* a decision whether the amount paid by an indorser of a note, after the oJfy/v bankruptcy of the maker, and after an affidavit in due form had been $*& J-t made by Talcott for proving the debt, but before the first meeting of / the creditors, and therefore before the debt could be admitted to proof, should be deducted from the debt as a payment pro tanto. The case was not argued. C*cjt*tsrtsi- t LOWELL, J. The general rule undoubted!} 7 is, that the holder of a note may prove against all the parties for the full amount, and receive L dividends from all until he has obtained the whole of his debt with '% y u interest. It is likewise the general rule, that what he has received ""' t -. >_ U f . from one party, or from dividends in bankruptcy of one party, to the note, are payments which he must give credit for if he afterwards proves against others. Sohier v. Loring, 6 Gush.. 537 ; Ex parte Wild- / >*^&/ 07+ man, 1 Atk. 109 \~~Ex parte The Royal Bank of Scotland, 2 Rose, 197 ; Ex parte Taylor, 1 DeGex & J. 302. j_am of opinion that this latter rule must be confined to cases in which the payment has been made the person primarily liable on the note or bill. The two cases last ^ above cited cover the whole ground of this inquiry. In the former, it ' . was held that such credit must be given for dividends received after a claim had been made in bankruptcy, but before the debt was actually/.// and formally proved ; and in the latter, that when such payments had been made by the drawer of a bill of exchange, and the proof was offered against the acceptor, still the credits must be given. One of the learned justices, however, in giving judgment, reserved his opinion whether the rule would apply if the holder offered his proof as a trustee for the drawer, or for the estate of the drawer. The theory of this de- cision is, that no creditor can prove for more than his actual debt, as it exists at the time of proof, without obtaining an undue advantage over other creditors. The answer attempted to be maintained by the cred- itor in that case, was, that a holder may sue for the whole debt at law against the party primarily liable, and hold the money for whom it may concern. For this position he cited Jones v. Broadhurst, 9 C. B. 173, then recently decided. The court of appeal in bankruptcj' expressed doubts whether Jones v. Broadhurst stated the true rule at law, 1 and 1 " There is no foundation for this doubt. The cases uniformly support the doc- trine of Jones v. Broadhurst, Randall v. Moore, 12 C. B. 261 ; Williams v. James, 19 L. J. Q. B. 445 ; Agra Bank v. Leighton, L. R. 2 Eq. 56 ; Woodward v. Pell, L. R. 4 Q. B. 55 ; Thornton v. Maynard, L. R. 10 C. P. 695 ; Andrews v. Toronto Bank, 15 *!/ 500 IN RE SOUTHER. EX PARTE TALCOTT. [CHAP. VI. decided that the rule in bankruptcy, at all events, was well settled against it, unless, perhaps, the holder proved that he was acting as trustee for some one whose liability was subsequent to that of the bankrupt. It seems to me, however, that the argument in favor of the proof in full was sound. The better opinion at common law is, that payment by a drawer or indorser does not exonerate the acceptor or maker, un- less the promise of the latter was for the accommodation of the former, or there is some other equit} 7 which makes the note or bill the debt of the party who lias made the pa3'inent, or unless he has made it at the request or for the benefit of the acceptor or maker. Byles on Bills (10th ed.), 221, and cases there cited. If this be not the rule at law, still I consider it to be so in bankruptcy. The statute, section 19, adopt- ing the equities of the case, declares that if a suretj', or other person liable for a bankrupt (and this undoubtedly includes indorsers), pays or satisfies the debt, or if he remains liable for the whole, or any part of it, he may prove it in bankruptcy, or require the creditor to prove it, in order that he may have the benefit of the dividends. This law does not expressly meet the present case, because the indorsers here have neither satisfied the debt, nor do they remain liable to pay it, but they have taken an intermediate course, by paying a part for a full re- lease of their own liability. Under these circumstances, in the absence of any stipulation one wa}' or another about the maker of the note, who was already a bankrupt, the law will imply that the holder is to prove the whole debt ; and, if the dividends are more than enough to pay him in full, after crediting to the surety what he has received from him, the creditor will hold the surplus for the benefit of the surety. This, though not within the exact language of section 19, is fully within its spirit. It is not, however, as a construction of that section that I find the law, but merely that the section recognizes a familiar equity, and takes for granted that a creditor may prove the debt notwithstanding payment in whole or in part by a surety, because he in fact proves as the trustee of the surety. The payment made by the indorser after the maker of the note was a bankrupt, cannot be proved by the surety as money paid, unless it comes precisely within section 19, because it had not been paid at the time of the bankruptc}'. It must either be provable as part of the note in the hands of the holder, and for the benefit of the in- dorser, or not provable at all, and in the latter case it would not be Ont. App. 648 ; Bird v. Louisiana Bank, 93 U. S. 96 (St. of La. not a bar) ; -Davis v. McConnell, 3 McL. 391 ; Granite Bank v. Fitch, 145 Mass. 567 ; Mechanics' Bank v. Hazen, 13 Johns. 353 ; Madison Bank v. Pierce, 137 N. Y. 444 ; Concord Bank v. French, 65 How. Pr. 317 ; Logan v. Cassell, 88 Pa. 288; Bank of Amiens v. Senior, 11 R. I. 376. " If the indorser has paid a part of the amount due on bill or note the holder may collect in full, and hold as a trustee for the indorser pro tanto. Johnson v. Kennion, 2 Wils. 262 ; Walwyn v. St. Quintin, 1 B. & P. 652 ; Reid v. Furnival, 1 Cr. & M. 338 ; North Bank v. Hamlin, 125 Mass. 506; Madison Bank v. Pierce, 137 N. Y. 444; Ward v. Tyler, 52 Pa. 393." Ames Cas. Suretyship, 427. SECT. I.] IN RE SOUTHER. EX PARTE TALCOTT. 501 barred by the discharge. This was one of the motives for the enact- ment that the surety may compel the creditor to prove, and it takes for granted, as I have said, that the creditor might prove voluntarily. The case of Jones u. Broadhurst, and those which follow it on the one side, or differ from it on the other, deal merely with the fact, or the pre- sumption, whether or not the payment is intended to discharge the debt of the principal debtor; if not, the right of action remains good. The fsu'.t in this case is, that the surety gave a certain sum for what is" equivalent to a covenant not to sue him, and it is not for the bankrupt "to "say" that his debt is thereby paid, when he has not furnished the means to pay it. Proof admitted in fall. 1 1 " Ex parte De Tastet, 1 Rose, 10; In re Ellerhorst, 5 N. B. R. 144; Ex parts Harris, 2 Low. 568 ; Re Pulsifer, 9 Biss. 487, 490, 14 Fed. Rep. 247 ; s. c. (semble) ; Dearth v. Hide Bank, 100 Mass. 540 (semble) ; Ames v. Huse, 55 Mo. App. 422, ace. "Cooper v. Pepys, 1 Atk. 105; Ex parte Leers, 6 Ves. 644; Ex parte Worrall, 1 Cox, 309 ; Ex parte Taylor, 1 DeG. & J. 302 ; In re Oriental Bank, L. R. 6 Eq. 582 ; Re Blackhurne, 9 Morrell, 249, 252 (semble) contra." Ames, Cas. Suretyship, 428. In Re Swift, 106 Fed. Rep. 65, 70, LOWELL, J., said : "The proving creditor seeks to review the decision of the referee in deducting from the amount proved against the separate estate the amount of the dividend declared on the joint estate. That a cred- itor may prove for the full amount of a note against both its maker and indorser, and may collect from both estates dividends on such proof until his whole debt is satisfied, is settled law. Where, however, proof against the estate of the indorser is made after part payment by the maker, the proof must be limited to the balance due on the note after deducting the part payment. And it appears to be settled that a dividend from the estate of the maker, declared in favor of the creditor, and payable before proof is made against the estate of the indorser, is the equivalent of actual part payment. In this case, proof against the estate of the maker was made after the declaration of the first dividend. By section 65 c, the creditor making proof after the declaration of the first dividend is entitled to be paid 'dividends equal in amount to those already re- ceived by the other creditors, if the estate equal so much before such other creditors are paid any further dividends.' This right of the creditor to a preference in future dividends does not seem to me equivalent to a declaration of a dividend in his favor, or to actual part payment of the note. In re Hicks, Fed. Cas. No. 6,456 ; In re Hamilton (D. C.), 1 Fed. 800; In re Meyer, 78 Wis. 615, 626, 48 N. W. 55, 11 L. R. A. 841 ; Ex parte Todd, 2 Rose, 202, note. The estate might not be large enough to pay to this creditor the rate declared in favor of the other creditors. Considering the situa- tion as shown in the finding of the referee and in the subsequent stipulation, I think the creditor was entitled to prove for the whole amount of the note against the estate of the indorser. The judgment of the referee is reversed, in so far as it provides for a diminution of the proof presented against the separate estate of E. C. Hodges; in other respects it is affirmed." See also Swarts v. Fourth Nat. Bank, 117 Fed. 1 (C. C. A.) ; Re Noyes, 127 Fed. 286 (C. C. A.). 502 KOGER WILLIAMS NATIONAL BANK V. HALL. [CHAP. VI. ROGER WILLIAMS NATIONAL BANK v. FREDERICK S. HALL. SUPREME JUDICIAL COURT OF MASSACHUSETTS, OCTOBER 24- NOVEMBER, 28, 1893. [Reported in 160 Massachusetts, 171.] HOLMES, J. The question in this case is whether the holder of a partnership note made payable to one partner and indorsed by him to the holder can prove it in insolvency against the estates both of the firm and of the indorsing partner before any dividend is declared on either. The statute is silent. Intimations in favor of the right of double proof are to be found in Borden v. Cuyler, 10 Cush. 476, 477, and in Mead v. National Bank of Fayetteville, 6 Blatchf. C. C. 180, and in the decisions in I)i re Farnum, 6 Law Rep. 21 (b^y Judge Sprague), and Ex parte Nason, 70 Maine, 363. The United States Bankrupt Act of 1867, 21, U. S. Rev. Sts. 5074, is construed to allow the right in terms. Emery v. Canal National Bank, 3 Cliff. 507, collecting the cases, and repeating some of the general arguments at length. Formerty an arbitrary rule was worked out by degrees in England that the creditor must elect. Ex parte Rowlandson, 3 P. Wms. 405; Ex parte Moult, Mont. 321, Mont. & Bligh, 28, 1 Deac. & Ch. 44, 2 Deac. & Ch. 419 ; Goldsmid v. Cazenove, 7 H. L. Gas. 785, 805. But this 'rule, after being disapproved by the most emi- nent judges (Ex parte Bevan, 9 Ves. 223, 225, 10 Ves. 107, 109; Story, Part. (7th ed.) 384-386 ; Eden, Bankruptcy (2d ed.), 181), has been done away with by statute 1 in cases like the present. Ex parte Honey, L. R. 7 Ch. 178. In view of the modern decisions and the general agreement of opinion, we think it unnecessary to argue elaborately for the right of a creditor who has required two contracts binding two distinct estates to insist upon both. See further Fuller v. Hooper, 3 Gray, 334, 342 ; Vanuxem v. Burr, 151 Mass. 386, 3i8, 389 ; Turner v. Whitmore, 63 Maine, 526, 528 ; and Miller's River National Bank v. Jefferson, 158 Mass. Ill, 113. Decree of court of insolvency affirmed. W. A. Morgan r>4 ; Re May, 7 Ben. 238; Ex parte Lake, 2 Low. 544 ; Bailey v. Loel>, 2 Woods, 578 ace. 506 EX PARTE FAXON. RE LAURIE, BLOOD & HAMMOND. [CHAP. VI. Ellis, whose rulings were in accordance with my views in every par- ticular. I find on this point that he refrains from assessing the dam- ages, and refers the whole matter to the court. It was said at the argument that the register had once assessed these damages at seventy- six dollars, after a full hearing. If so he must have reviewed his decision, for he reports a mere, reference to the court, and by consent of the parties omits the evidence. Upon the proofs before me I consider fifty dollars to be ample damages, and assess the same according!}*. The petitioners are entitled to prove for one year's taxes. Any argument which shall establish their right to prove for those of 1868 will be equally strong to prevent the proof for 1869. The covenant is to pay all taxes assessed during the term, and taxes are assessed as of the first day of May. The tenancy began June 1, 1868, and ended about September 1, 1869. It seems to me that under this covenant the lessee was bound to pay the taxes for 1869, and not those for 1868, and the former having been due in theory of law at the time of the bankruptcy, though not payable until afterwards, ma} 7 be proved. This debt is not entitled to preference, because as between these par- ties it rested in contract merely, and was to all intents and purposes a part of the rent. The taxes were not assessed to the bankrupt nor to the petitioners, and the city had no right to prove them in the bank- ruptcy. There is no right of preference or lien to which the petitioners can be subrogated, but only a right of action over against Fortune, if he should neglect to pay the taxes to the petitioners on demand after the}* had themselves paid them. Parol evidence was offered to show that both parties understood that the taxes of 1868 were to be paid by the tenant, but such evidence was inadmissible, and was rightly taken by the register only de bene. There was no offer to show a new con- tract by parol founded on a new consideration, but merely to explain the lease. Let orders be drawn in accordance with this opinion. Ex PARTE FAXON. RE LAURIE, BLOOD & HAMMOND. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, 1869. [Reported in 1 Lowell, 404.] . THE bankrupts hired a large and valuable shop of the petitioners, and paid the quarter's rent, which fell due January 1, 1869. On the eighth of that month a petition was filed against them in bankruptcy, but was not pressed to an early trial, and the adjudication took place March 26, 1869. The assignees occupied the store for two or three months, and paid rent from March 26, but no arrangement was made between them and the petitioners concerning the rent from January 8 SECT. I.] ATKINS V. WILCOX. 507 to that day, and the petitioners now applied to have it paid in full by the assignees. The case was submitted on facts agreed., E. A very & G. M. ffobbs, for the petitioners. Ji. F. Urooks, for the assignees. LOWELL, J. An assignee in bankruptcy, unless restrained by the terms of the lease itself, may adopt or reject a term, as he finds most beneficial for the creditors, and may take a reasonable time to decide the question. If he takes the lease he makes himself liable, on behalf of the estate, for the rent, including at least that of the current quarter, and this he must consider in determining whether to adopt the lease. The petitioners would have done more wisely, perhaps, to insist on this at the time, but I see no ground for saying the}- have waived any of their rights. In theory of law, the assignees have been in possession ever since the petition was filed, and not only from the date of the adju- dication, which is merely a finding that the petition is well founded. If the quarter-day had come round pending the petition, the bankrupt would have been authorized, if he found it necessary for the best in- terests of his creditors, to pay the rent in order to save an ejectment. I have more than once permitted this to be done. And the assignees, by the course they have taken, affirm this to be a case in which such a course was prudent and proper. The only reported case which I have seen is very short, and gives no reasons or arguments, but the decision agrees with my opinion. There the assignees were required to pay rent from the date of the petition. Re Merrifield, 3 B. R. 25. I do not know that any question was raised in that case, to distinguish the date of the petition from tliiat of the adjudication ; but if an assignee is to pa}^ only for his own occu- panc}', he must be charged from the date of the assignment. There is no argument which will make him liable from the adjudication that does not apply to the date of the petition, which is the true beginning of l.he proceedings, and the controlling date in all these matters. Petition granted. 1 ATKINS v. WILCOX. CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT, DECEMBER 18, 1900. [Reported in 105 Federal Reporter, 595.] BEFORE PARDEE, McCoRMiCK, and SHELBY, Circuit Judges. McCoRMiCK, Circuit Judge. On the 4th day of May, 1899, Leopold Keiffer, by a written lease, rented from the appellant, Mrs. Sarah E. 1 The trustee has a reasonable time within which to determine whether he will accept a lease, and if he decides not to accept, is liable for the reasonable value of any use of the premises he may have had. Re Sherwoods, 210 Fed. 756 (C. C. A.). 508 ATKINS V. WILCOX. [CHAP. VI. Atkins, certain premises described in the lease for the term of one year, commencing on the 1st day of October, 1899, and ending on the 30th day of September, 1900, for a monthly rental of $333. 33, for which Keifler executed and delivered to the appellant twelve rent notes, bear- ing even date with the lease, and payable to the lessor, one on the 1st day of November, 1899, and one on the 1st day of each and every suc- ceeding month (except the last one, pa}-able on the 30th of September), fixing the interest at the rate of 8 per cent per annum from maturity until paid. The lease recited that should the property be destroyed by fire, or should the lessee be deprived of the use of the premises by some other unforeseen event, not due to any fault or neglect on his part, then he should be entitled to a credit for the unexpired term of the lease, and the corresponding proportion of rent notes should be annulled and re- turned to hint. At the time of the making of this lease Keiffcr was in possession of the premises under a lease of similar import bearing date 8th of June, 1898, which provided for a term of one year, com- mencing on the 1st day of October, 1898, and ending on the 30th day of September, 1899. On Octobers, 1899, Keiffer presented his peti- tion to the court of bankruptcy to be adjudged a bankrupt, which peti- tion, in the judge's absence, was referred to a referee, who on the same da} T declared and adjudged the petitioner to be a bankrupt. By a stipu- lation of the parties, only certain portions of the record in the bank- rupt proceeding were brought up on this appeal, from which it appears that the appellant made proof of a secured debt against the estate of the bankrupt on October 31, 1899, claiming the aggregate amount of the twelve rent notes given and held under the lease of date May 4, 1899, and to become pa3 - able as above recited. The claim and proof thereof embraced other items, which do not require further notice here. On November 21, 1899, this proof of debt was filed by the referee. The record we have does not show any further action in the bankrupt estate until March 7, 1900, when an account of C. O. Wilcox, trustee of the estate of Leopold Keiffer, bankrupt, was presented to and filed b} T the referee, who thereon made an order of that date, as follows : " Let a meeting of creditors be held on March 20, 1900, at 3 p. in. Let them be notified according to law, and that they do show cause on the above date why said account should not be approved and homologated." The account showed the receipt of all of the funds that had come into the hands of the trustee, aggregating $3,651.44. It also showed twenty items of disbursement that had been made by the trustee, and bore an item, "Reserved for future costs, $150.00," which, added to the disbursements, aggregated $2,253.77. Among the disbursements is the following: "Mrs. Sarah E. Atkins, landlord. Rent for Sep- tember, October, and November, 1899, three months, at $333. 33 J, $1,000.00." On March 20, 1900, the appellant appeared before the referee, and filed her written opposition to the account submitted by the trustee, on the ground that she had proved her claim for rent for the whole of the twelve months specified in the lease of May 4, 1899 SECT. I.] ATKINS V., WILCOX. 509 (and other grounds not necessary here to notice) , and that by the laws of Louisiana she has a lien of the first rank on all the property in the leased premises, and that the total assets in the hands of the trustee and on deposit to the credit of the estate were realized from the sale of the property contained in the leased premises, and subject to her lien, wherefore she opposes each and every item on said account, and prays that she be declared entitled to a lien first in rank on all the property contained in the leased premises, or on the proceeds, and that the account of the trustee be amended, and he be ordered to pa}- to her the full amount of her claim in preference to all other claims. The ref- eree rejected her claim for the months of December, 1899, to Septem- ber, 1900, inclusive, for reasons elaborately given in his judgment thereon, from which judgment Mrs. Atkins appealed to the judge sitting in the court of bankruptc}', by whom the judgment of the referee was affirmed, and she prosecutes this appeal. It appears that the trustee occupied the premises during the months of October and November, 1899, and that he allowed and paid on Mrs. Atkins' claim for rent the rent which accrued for the months of October and November, under the current lease, at the rate and amount of the notes which had been given therefor. The appellant insists that the trustee was without right or interest to contest the lien of the opponent, as it was claimed in her proof of debt. We are clear that this position is not well taken. By the express terms of the stat- ute the trustee is selected by the creditors. By the clearest implication he represents all the creditors, and as such representative has an in- terest in the just administration of the estate which belongs to the creditors. Moreover, this right is expressl}* recognized in the sixth paragraph of general order in bankruptcy 21 (32 C. C. A. xxii., 89 Fed. ix.), which has itself the force of a statute, even if not clearly founded on the text of the statute, which we think it is. It appears to give the trustee precedence even of the creditors, for the language is that, "when the trustee or any creditor shall desire the re-examina- tion of any claim filed against the bankrupt's estate, he may," etc. The appellant by her proof of debt appears to found her claim, in part at least, on the following provision in the lease : " Should the lessee at an}* time fail to pay the rent punctually at maturity as stipulated, the rent for the whole unexpired time of this lease shall, without putting said lessee in default, at once become due and exigible." In her affidavit in support of her claim she contends : " According to the terms of said lease, the note maturing November 1-4, 1899, not having been paid, then the whole unexpired amount of said lease represented by said notes becomes due and exigible." At the date of the adjudication in bankruptcy, and at the date when the debt was proved, there had been no default in the pay- ment of rent under the then current lease, or any violation of its conditions which would render the notes, or any of them, given for 510 ATKINS V. WILCOX. [CHAP. VL the rent that was to accrue due and exigible, and authorize the lessor to enforce her lien on the property then in the leased premises for the payment of all or any one of the rent notes given and held under that lease. The lease does not provide in express terms that the bankruptcy of the lessee would have the effect to mature the notes and render them exigible. The present bankruptcy act has no direct provision on this subject. The bankruptcy act of 1867 contained this provision : "Where the bankrupt is liable to pay rent or other debt falling due at fixed and stated periods, the creditor may prove for a propor- tionate part thereof up to the time of the bankruptcj*, as if the same grew due from day to day, and not at such fixed and stated periods." Section 19. No such provision, or its equivalent, appears in the present act. Its language applicable to the case we are considering is that debts of the bankrupt may be proved and allowed against his estate which are a fixed liability, as evidenced by a judgment or an instrument in writ- ing, absolutely owing at the time of the filing of the petition against hitn, whether then payable or not, with any interest thereon which would have been recoverable at that date, or with a rebate of interest upon such as were not then payable and do not bear interest. Sec- tion 63. This provision has not }-et been construed b}~ the Supreme Court, nor, as far as we are advised, by any one of the circuit courts of appeals. The National Bankruptcy News reports show that it has been frequently ruled on by referees in bankruptcy, and by four of the judges for districts in other circuits. In the opinions of the re- ferees and of the judges of the courts of bankruptcj", just referred to, there is a marked unanimity to the extent that rent to accrue in the future, if it can be called a debt, is a contingent one, both as to its amount and as to its very existence, and that there is no provision in the act of 1898 which allows proof of such debts. In the very nature of the case, there is great diversity of view as to the ground on which this ruling is placed. The opinions and judgments necessarily have relation to the terms of the contract of lease out of which the claim for future rent grew, and are largely controlled by the particular pro- visions of the respective instruments. Some of the opinions, however, take ground broad enough to cover the subject, without reference to the terms of leases in general use. The judge for the district of Kentucky in his opinion uses this language : "The court sees no way to avoid the conclusion that the relation of landlord and tenant in all such cases ceases, and must of neces- sity cease, when the adjudication is made. If the relation does cease, the landlord afterwards has no tenant, and the tenant has no landlord. At the time of the adjudication the bankrupt is clearly absolved from all contractual relations with, and from all personal obligations to, the landlord growing out of the lease, subject to the remote possibility that his discharge may be refused, a chance not worth considering. After the adjudication there is no obligation on the part of the tenant grow- SECT. I.] ATKINS V. WILCOX. 511 ing out of the lease. He not only owes no subsequent dut}*, but any attempt on his part to exercise any of the rights of a< tenant would make him a trespasser. His relations to the premises and to the con- tract are thenceforth the same as those of any other stranger. He cannot use nor occupy the premises. No obligation on his part to pay rent can arise when he can neither use nor occupy the property. The one follows the other, and it seems clear that no provable debt, and, indeed, no debt of any sort, against the bankrupt, can arise for future rent. No rent can accrue after the adjudication in such a way as to make it the debt of the bankrupt, and future rent has not, in any just sense, accrued before the adjudication." In re Jefferson (D. C.), 93 Fed. 951. The judge of the court for the Eastern District of North Carolina seems to concur in the views just stated. In his opinion we find this language : " As to the rent of the bank : The contractual relations being ter- minated, a landlord is not entitled to prove a claim for rent against a bankrupt after such bankrupt ceases to use the building. The relations of landlord and tenant are severed by operation of the bankruptcy law. The trustee of his estate ma}-, after adjudication, occupy and use the rented or leased premises for the estate ; but under such circum- stances it would be chargeable to the estate, not as rent under bank- rupt's contract, but as cost and expenses of administering the same." Bray v. Cobb, 2 Nat. Bankr. N. 588, 100 Fed. 270. Touching the language above quoted from the opinion of Judge Evans (In re Jefferson, supra), Judge Lowell, of the Massachusetts district, says : " With all respect for the learned judge, I must think the above re- marks made somewhat hastily, unless the}' are to be taken as limited to the particular lease in question, or made to depend upon some peculiar provision of the Statutes of Kentucky. Let us consider an actual example. A lease recently examined was made for a term of several hun- dred years, upon a payment of sixteen thousand dollars at the beginning of the term, and subject to a future rent of one dollar a year if demanded by the lessor. Clearly this would be an asset of a bankrupt's estate which the trustee would almost certainly elect to assume, and I can find nothing in the bankruptcy act which would terminate the lease and en- title the landlord to possession. Many existing ground leases, also, would certainly be assumed by a trustee in bankruptcy of the lessee, and it would be unjust to hold them terminated b}- the adjudication. It fol- lows, then, that the lease here in question was not determined b}- the bankruptcy of the lessee, but only by the re-entr}' of the lessor." The actual example proposed for consideration by Judge Lowell is a leasehold in form, certainly, but it appears to be substantially, in fact, a purchase of the freehold for a present consideration paid in cash at the beginning of the term, and to have value as an asset equal to the current market price of the freehold in the premises let. It is an estate 512 ATKINS V. WILCOX. [CHAP. VI. with such an inconsiderable burden as may well be disregarded, and, as the learned judge says, clearly this would be an asset of a bankrupt's estate which the trustee not only would almost certainly elect to assume, but which the creditors, or the court on their motion or on its own motion, would compel him to assume. The doctrine of election to which he refers sprung out of the state of the law in bankruptcy as it was at an early time in England construed by the common law courts. The rule as then announced has been greatl}' modified in England by statutes passed from time to time, and the decision of the English courts on these various statutes, and the decisions of the State court in this country on the various insolvency acts, are more interesting than helpful in our effort to construe the provision of our bankruptcy law now in force. Moreover, the question as to the effect that the adjudication in bank- ruptcy has on the relations subsisting between the landlord and tenant, while it is kindred to the question with which we are dealing, its con- nection therewith is by no means vital. The language of our statute affecting the claim here involved requires that the debt shall be a fixed liability absolutely owing at the time of filing the petition. Under the insolvent law of the State of Massachusetts prior to the statute of 1879, only such debts (with certain exceptions) were provable as were " absolutely due " at the time of the first publication of the notice of issuing the warrant of insolvencj'. The case of Bowditch v. Raymond, 146 Mass. 109, 15 N. E. 285, shows that the language " absolutely due" was treated as exactly equivalent to the language "absolutely owing," as it must be, for the statute provided for proving debts pay- able at a future date. After referring to numerous cases in which it had been held that under that statute future rent to accrue under a lease in which the insolvent debtor is lessee cannot be proved, it is said : " The principle of these cases is that such rent is not a debt abso- lutely due at the time of the first publication. The lease ma\- be ter- minat^ed by the eviction of the lessee or otherwise, and no rent may ever accrue or become due. The lessor's claim is a contingent one. It is not contingent merely as to amount, but the very existence of the claim de- pends upon a contingenc}'," referring to Boardman v. Osborn, 23 Pick. 295. Further on in the opinion it is said : " The existence of an}" debt in the future depends upon contingencies, and therefore the appellants' claim cannot be proved under our insolvent law prior to the statute of 1879." In the lease before us the lessee binds himself " To make no sublease, nor transfer said lease in whole or in part, nor use the premises for any other purpose than that herein contemplated, without the written consent of the lessor." And again it declares : " And, should the lessee in &ny manner violate any of the conditions of this lease, the lessor hereby expressly reserves to himself the right of cancelling said lease without putting the lessee in default ; the lessee SECT. I.] ATKINS V. WILCOX. 513 hereby assenting thereto, and expressly waiving the legal notice to vacate the premises." It is not so clear that this leasehold is an asset of the bankrupt's estate which the trustee would almost certainly elect to assume, or that the court should on its own motion, or on the motion of creditors, re- quire him to assume. Nor is it quite clear what he could do with it if he did assume it. It is not necessary for us to hold that the adjudica- tion in bankruptcy terminated this lease and absolved the relations between the landlord and the tenant thereby created, nor is it necessary or prudent to announce in advance what the holding should be in any given case which may possibly arise. We therefore content ourselves with announcing that, in our opinion, there was no error in the judg- ment of the district court rejecting the appellant's claim. That judg- ment is therefore affirmed. 1 1 Proof for rent not due before bankruptcy was not allowed under the early Eng- lish acts, and the bankrupt remained liable on his covenant to pay rent even though the assignees had accepted the lease. Mills v. Auriol, 1 H. Bl. 433 ; Auriol v. Mills, 4 T. R. 94; Boot v. Wilson, 8 East, 311. By 49 Geo. III., c. 121, 19, where the assignees accepted the lease, the bankrupt was discharged. Where they declined he still remained liable. Copeland v. Stephens, 1 B. & A. 593. But by 6 Geo. IV. c. 16, 75, the bankrupt was allowed to free himself from liability where the assignees declined the lease by surrendering it to the landlord. No proof for rent not due at the date of the filing of the petition was allowed, however, until an express pro- vision allowing proof for a proportionate part of rent and other payments falling due at fixed periods was inserted in 24 & 25 Viet. c. 134, 150. This was repeated in subsequent acts, 32 & 33 Viet. c. 71, 35 ; 46 & 47 Viet. c. 52, sched. 2, par. 19, and was copied by Congress in the act of 1867 ( 19). In this country rent not due before the bankruptcy has never been held provable unless expressly made so by statute. Re Bell, 85 Cal. 119 ; Kodick v. Bunker, 84 Me. 441 ; Savory v. Stocking, 4 Gush. 607 ; Tread well v. Marden, 123 Mass. 390 ; Deane v. Caldwell, 127 Mass. 242; Bowditch v. Raymond, 146 Mass. 109, 114; Wilder v. Pea- body, 37 Minn. 248; Re Shotwell, 49 Minn. 170 (con/ Kalkhoff v. Nelson, 60 Minn. 284) ; Re Hevenor, 144 N. Y. 271 (con/. People v. St. Nicholas Bank, 151 N. Y. 592) ; Hendricks v. Judah, 2 Caines, 25; Bosler v. Kuhn, 8 W. & S. 183; Weinman's Estate, 164 Pa. 405. As complete a statutory solution as any of the difficulty in regard to leases is con- tained in the Massachusetts Insolvency Law, Pub. Stat. c. 157, 26. " When any of the property of a debtor consists of a lease or agreement in writing, whereby he is liable for the rent therein reserved, or for the use and occupation of premises as therein stipulated, the assignee at any time may, and at the request in writing of either the debtor, or of the lessor, or of those having his estate in the premises, shall, within twenty days after such request, by a written instrument filed with the records of the case, elect either to accept and hold under said lease or agreement in writing, or to disclaim the same ; and, if he elects to disclaim, such lease or agreement in writing shall thereupon be deemed to have been surrendered as of the day on which said dis- claimer was so filed. And the debtor, provided he obtains his discharge in insol- vency, shall be discharged from all liability under or by reason of said lease or agree- ment in writing, whether the assignee does or does not disclaim as aforesaid ; and the lessor, or those having his estate in the premises, may prove such damages, if any, as are caused by such surrender, as a debt, against the estate of the debtor." 514 PARKER V. NORTON. [CHAP. VL PARKER v. NORTON. KING'S BENCH, MAY 31, 1796. [Reported in 6 Term Reports, 695.] THIS was an action of trover for a bill of exchange drawn the 28th of February, 1795, by the plaintiff on and accepted by J. B. Fowler for 24 19s., payable two months after date to the plaintiff or order ; to which the defendant pleaded: First, the general issue; secondl}', his bankruptcy before the cause of action arose ; and thirdly, that before the time of the supposed conversion the plaintiff sent and delivered to the defendant, and the defendant received from the plaintiff, the said bill of exchange, to the intent that the defendant might present the same when due to Fowler for payment, and might receive from Fowler the money therein mentioned, to and for the use and on the account of the plaintiff, and might remit the said money to the plaintiff when he should have so received the same ; that before the bill became due, to wit, on the 1st of March, 1795, the defendant discounted the bill, and gave awa} 7 and exchanged the same for mone} r , and received the value thereof in money, and kept and applied the money so by him received to his own use, which is the same supposed conversion and cause of action, etc. The defendant then set forth in this plea all the circum- stances necessary to show that he had become a bankrupt on the 19th of March, 1795. It also stated that the defendant had since obtained his certificate, though it did not set forth that that certificate had been allowed by the Lord Chancellor. And it concluded with an averment that the supposed conversion, and the cause of action mentioned in the declaration, accrued before the defendant became a bankrupt. Issue was taken on the first plea ; and the plaintiff demurred gen- erally to the two last. Lawes, in support of the demurrer. Abbot, contra. Lord KENYON, C. J. Some of the arguments that have been ad- dressed to us on behalf of the defendant are founded on the supposition that this is a compassionate case : even if that supposition were true, we could not decide the case in his favor against the rules of law. But if ever a case was brought before a court of justice that was entitled to less favor than others ; this, as it is disclosed on the part of the de- fendant, is that case. The plaintiff, being the owner of a bill of exchange, intrusted it to the care of the defendant in order that when it became payable he should obtain pa3"ment ; the latter, without waiting for the da}* of pa} - - ment, and in violation of his trust, discounted the bill, received less than its value, and applied the money to his own use. This is certainly a dishonorable transaction ; but still if the rules of law protected him in this dishonesty, we could not deprive him of this protection. However, gECT. I.] IN RE BOSTON & FAIRHAVEN IRON WORKS. 515 I am glad that the law will not protect him in this case. "When the case of Goodtitle v. North, Douglas, 583, was argued here, Lord Mans- field put an end to it by one observation, "The form of the action is decisive." The action of trover is founded on a tort. The defendant's case is rested on the dictum of a very respectable judge in the case of Johnson v. Spiller, Douglas, 167. But I understand Mr. J. Buller, in using the words attributed to him, to have meant only this, that if a person has his election of two remedies, and may either bring trover or any other action, the possibility of his electing to bring trover shall not prevent his proving his debt under the commission of bankrupt if he will waive the tort ; and I assent to the proposition so qualified. In the present case the defendant did not receive all the money which was due on the note, the discount was deducted. If the plaintiff, after con- sidering what remedy he should take, had brought an action for money had and received, he would have affirmed the act of the defendant, and the bankruptcj' and certificate would have been an answer to that action. But can it be said that the plaintiff was bound to resort to such an action, and to abandon the rest of his demand ? If he were, the same rule must prevail in other cases. Suppose, instead of this being a bill for twenty-four pounds it had been a bill for so many thou- sand pounds and payable at a distant day, and the defendant had dis- counted it, would it be giving satisfaction to the plaintiff either in justice or conscience to compel him to receive a part instead of the whole amount of the bill? When this bill was deposited with the defendant, it was his duty to wait until the day of payment before he received the money, and then to carry the money to the plaintiff; instead of which he has for his own convenience received a part instead of the whole value of the bill, and converted the money to his own use. In this case, therefore, the remedy by an action for money had and received would not have done the plaintiff complete justice ; and though he might have waived asserting his right to the full extent, the law will not compel him to do so. On the whole I am clearly of opinion, on principles of law and justice, that the plaintiff may maintain this action of trover. 1 IN RE BOSTON & FAIRHAVEN IRON WORKS. CIRCUIT COURT FOR THE DISTRICT OF MASSACHUSETTS, APRIL 30, 1885. [Reported in 23 Federal Reporter, 880.] COLT, J. On March 2, 1878, the Boston & Fairhaven Iron Works filed a petition in bankruptcy in the United States District Court of Massachusetts, and were adjudged bankrupts. On the 22d of March, 1880, one Cyril C. Child, of Boston, recovered judgment in the United 1 ASHHURST, GROSE, and LAWRENCE, J.J., delivered concurring opinions. 516 IN RE BOSTON & FAIRHAVEN IRON WORKS. [CHAP. VI. States Circuit Court for this district against the bankrupt corporation, for the sura of $5,640.26", and $1,773 28 costs of suit, upon a claim for profits from the infringement of a patent. On July 19, 1884, the proof of claim was duly presented before the register, who refused to allow the same, upon the ground that it appeared to be a claim for damages for infringement of a patent-right not converted into a judgment, or otherwise liquidated, prior to the date of bankruptc}". Subsequently the District Court held that the claim was provable against the estate under section 5067 of the Revised Statutes. This ruling was based upon the assumption admitted by counsel that the decree in the patent suit was not for damages, but for the profits of the bankrupt corpora- tion, as. an infringer of the patent. The present hearing arises on an appeal b}' the assignees to this ruling of the District Court. A claim for damages for a tort is not a claim provable in bankruptc}', unless liquidated or reduced to judgment prior to the date of pro- ceedings in bankruptcy. In re Schuchardt, 15 N. B. R. 161 ; Black v. McClelland, 12 N. B. R. 481 ; In re Hennocksburgh, 7 N. B. R. 37. 1 A claim for an account of profits against an infringer of a patent- right has been held to be provable in bankruptc}', on the ground that it is not a claim for damages, but is more like an equitable claim for money had and received, for the use of the patentee, the wrcng-doer being a trustee of the profits for the patentee. Watson v . Holliday, 20 Ch. Div. 780 ; Re Blandin, 1 Low. 543. But this view has been disapproved by the Supreme Court in Root v. Railway Co., 105 U. S. 189, 214, where, upon careful consideration, it was held that the infringer of a patent-right was not a trustee of the profits derived from his wrong for the patentee ; that to hold otherwise would, in effect, extend the jurisdiction of equitj" to every case of tort where the wrong-doer had realized a pecuniary profit from his wrong. The court decided that a bill in equity for a naked account of profits and damages against an infringer of a patent could not be sustained upon the ground that the infringer was a trustee for the profits. See also Child v. Boston & Fairhaven Iron Works, 137 Mass. 516, recently decided by the Supreme Court of Massachusetts. It seems to us that the reasoning of the court in Root v. Railway Co. is decisive of the question raised by this appeal. It follows that the claim of Child was not a claim provable against the estate of the bank- rupts, and should not be allowed, and that the ruling of the District Court should be reversed. 1 A judgment rendered before bankruptcy, though for a tort, has been provable under all bankruptcy statutes. Robinson v. Vale, 2 B. & C. 762 ; Greenway r. Fisher, 7 B. & C. 436 ; Re Book, 3 McLean, 317 ; Re Wiggers, 2 Biss.71 ; Re Hennocksburgh, 7 B. R. 37; Rowland v. Carson, 16 B. R. 372; Hays v. Ford, 55 Incl. 52; Ex parte Thayer, 4 Cow. 66; Hayden v. Palmer, 24 Wend. 364; Comstock v. Grout, 17 Vt. 512. See also Bangs v. Watson, 9 Gray, 211 ; Pierce v. Eaton, 11 Gray, 398; Wolcott v. Hodge, 15 Gray, 547; Re Comstock, 22 Vt. 642. But a mere verdict or award is not sufficient. Buss v. Gilbert, 2 M. & S. 70; Ex parte Brooke, 3 Ch. D. 494; Black v. McClelland, 12 B. R. 481 ; Zimmer v. Schleehauf, 115 Mass. 52; Hodges t;. Chace, 2 Wend. 248; Kellogg v. Schuyler, 2 Denio, 73. SECT. I.] CRAWFORD V. BURKE. 517 '<*" v^ CRAWFORD v. BURKE. SUPREME COURT OF THE UNITED STATES, APRIL 25-NovEMBER 7, 1904. [Reported in 195 United States, 176.] THIS was an action in trover instituted September 10, 1897, in the Circuit Court of Cook County, Illinois, by Burke against Crawford & Valentine, plaintiffs in error, to recover damages for the wilful and fraudulent conversion of certain reversionary interests of the plaintiff in .~>.~>0 shares of Metropolitan Traction stock. The declaration alleged that the defendant firm of Crawford & ^ 5 Valentine were stock brokers ; that plaintiff employed the defendants ^ &A as his brokers and agents to buy and carry stocks for him subject to f his order; that defendants had under their control certain shares of the capital stock of the Metropolitan Traction Company, which they y were holding as a pledge and security for the amount due them from the plaintiff on said stock ; that defendants wrongfully and without his knowledge sold said shares of stock, and wilfully and fraudulently, and with intent to cheat and defraud the plaintiff, converted plaintiff's re- versionary interest in said stock to their use, whereby it was wholly lost. The defendants pleaded not guilty, upon which issue was joined January 4, 1900. The case rested without action until January 3, 1901, when defendants filed their separate pleas of puis darrein contin- uance, setting up that on April 5, 1900, the defendants had received . their discharge in bankruptcy, and that plaintiff's claims were provable and not excepted from the operation of such discharge. Notwithstanding the plea of puis darrein continuance, the plaintiff introduced evidence and proved the allegations in his declaration and the amount of damages he had sustained. Defendants were found C fr guilty and judgment entered against them. The judgment of the Circuit Court was affirmed by the Appellate r Court and by the Supreme Court of Illinois, 201 Illinois, 581, to review which judgment this writ of error was sued out. Mr. Justice BROWN delivered the opinion of the court. [The court first held that the discharge was a bar if the claim was ' provable and continued:] I//' t " ) 7 ~2. But it is strenuously insisted by the plaintiff that a claim for the conversion of personal property is not within the scope of section 17; because it is not a "provable debt" within the definition of section 63a. Did the latter section stand alone, there would be some ground for saying that a claim, though " founded upon an open account, or 518 CRAWFORD V. BURKE- [CHAP. VI. upon a contract, express or implied," would not be a provable debt, if plaintiff elected to treat the conversion as fraudulent and sue in trover, though he might have chosen to waive the tort and bring an action for a balance due on account. An early English case, Parker v. Crole, 5 Bingham, 63, is cited to the effect that the operation of the discharge is determined by the election of the creditor to sue in assumpsit or case. A like ruling was made in certain cases under the bankruptcy acts of 1841 and 1867. Williamson v. Dickens, 27 N. Car. 259; Oliver v. Hughes, 8 Pa. St. 426; JBradner v. Strong, 89 N. Y. 299, 307. But we think that section 63 a, defining provable debts, must be read in connection with section 17, limiting the operation of discharges, in which the provable character of claims for fraud in general is recog- nized, by accepting from a discharge claims for frauds which have been reduced to judgment, or which were committed by the bankrupt while acting as an officer, or in a fiduciary capacit}-. If no fraud could be made the basis of a provable debt, why were certain, frauds excepted from the operation of a discharge? We are, therefore, of opinion that if a debt originates or is " founded upon an open account or upon a contract, express or implied," it is provable against the bankrupt's estate, though the creditor may elect to bring his action in trover as for a fraudulent conversion, instead of in assumpsit for a balance due upon an open account. It certainly could not have been the intention of Congress to extend the operation of the discharge under section 17 to debts that were not provable under section 63 a. It results from the construction we have given the latter section that all debts originating upon an open account or upon a contract, express or implied, are provable, though plaintiff elect to bring his action for fraud. In the case under consideration defendants purchased, under the in- structions of the plaintiff, certain stocks and opened an account with him, charging him with commission and interest, and crediting him with amounts received as margins. Subsequently, and without tba knowledge of the plaintiff, they sold these stocks, and thereby con- verted them to their own use. Without going into the details of the facts, it is evident that the plaintiff might have sued them in an action on contract, charging them with the money advanced and with the value of the s f ock ; or in an action of trover based upon their con- version. For reasons above given, we do not think that his election to sue in tort deprived his debt of its provable character, and that as there is no evidence that the frauds perpetrated by the defendants wore committed by them in an official or fiduciary capacity, plaintiff's claim against them was discharged by the proceedings in bankruptcy. The judgment of the Supreme Court of Illinois is therefore reversed, and the case remanded to that court for further proceedings not inconsistent with this opinion. 1 1 Tindle v, Birkett, 205 U. S. 185, ace. SECT. I.] IN EE IMPEKIAL BREWING CO. 519 IN RE IMPERIAL BREWING CO. DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI, JANUARY 11, 1906. [Reported in 143 Federal Reporter, 579.] PHILLIPS, District Judge : On the 21st of October, 1905, the Imperial Brewing Company, a corporation of Missouri, was adjudged an involuntary bankrupt. The E. Clements Horst Company, a corporation of California, has presented its petition, setting out that on the 26th day of June, 1905, it entered into a contract with the said Imperial Brewing Company, whereby the petitioner obligated itself to sell and deliver to said Imperial Brewing Company 80 bales of hops, each, of the crops of the years 1905 to 1910, inclusive, for which the said vendee company obligated itself to pay to the petitioner at the rate of 15 cents per pound, plus the freight from the Pacific Coast. The time of delivery fixed was during the months of September to February, following the harvest of each year's crop. The petition alleges, in effect, that the contract was breached by said adjudication in bankruptcy, whereby the petitioner was damaged in the sum of $5,675, and it prays that the same may be liquidated and proved against the estate of the bankrupt. The petitioner further alleges that the trustees in bankruptcy have elected not to keep said contract alive. The question to be decided is, did the adjudication in bankruptcy against the Imperial Brewing Company of itself constitute such a breach of the contract as to mature the whole executory contract, en- titling the claimant to prove and have allowed against the estate in bankruptcy the damages claimed? While the petition states that the Imperial Brewing Company was permanently disabled from performing said contract and repudiated the same in all its parts, and that it retired permanently from business and was hopelessly insolvent, etc., these results are alleged to follow " by reason of said bankruptcy pro- ceedings." At the time of the adjudication in bankruptcy there was no debt owing by the bankrupt to the claimant. There had been no delivery or tender of delivery prior thereto, and none since. It may be conceded as the law of this jurisdiction that where a party is bound from time to time, as expressed in the contract, to deliver articles to be manufactured or products to be grown, each parcel as delivered to be paid for at a certain time 520 IN RE IMPERIAL BREWING CO. [CHAP. VI. and in a certain way, a refusal by the vendee to be further bound by the terms of the contract or to accept further deliveries consti- tutes a breach of the contract as a whole, and gives the vendor a right of action to recover the damages he may sustain by reason of such refusal. In such case the positive refusal of the vendee to per- form when tender is made, or notice by him to the vendor before maturity of the time for delivery that he will not carry out the con- tract, will release the vendor from making any tender, and entitle him to an action in advance of the fixed period for delivery on his part to recover damages as for breach of the whole contract. Eoehm v. Horst, 178 U. S. 1. The sole reliance of the claimant to bring it within this rule for such breach is predicated on the adjudication in involuntary bank- ruptcy. I am unable to consent to the proposition that such an adjudication in bankruptcy, ex vi termini, is in law tantamount to a refusal of the bankrupt to perform, or that it thereby per- manently disabled itself from performance, to bring the claim asserted by petitioner within the operation of the rule laid down in Roehm v. Horst, supra. As said by Judge SANBORN, in Watson v. Merrill, 136 Fed. 363 (C. C. A.) : "An adjudication in bankruptcy does not dissolve or terminate con- tractual relations of the bankrupt. ... Its effect is to transfer to the trustee all the property of the bankrupt except his executory contracts, and to vest in the trustee the option to assume or to renounce these. It is the assignment of the property of the bankrupt to the trustees by operation of law. It neither releases nor absolves the debtor from any of his contracts or obligations, but, like any other assignment of property by an obligor, leaves him bound by his agreements, and subject to the liabilities he has incurred. It is the discharge of the bankrupt alone, not his adjudication, that releases him from lia- bility for provable debts in consideration of his surrender of his property, and its distribution among the creditors who hold them. Even the discharge fails to relieve him from claims against him that are not provable in bankruptcy, and, since his obligation to pay rents which are to accrue after the filing of the petition in bankruptcy may not be the basis of a provable claim, his liability for them is neither released nor affected by his adjudication in bankruptcy, nor by his discharge from his probable debts. One agrees to pay monthly rents for the place of residence of his family or for his place of business or to render personal service for monthly compensation for a term of years; he agrees to purchase or convey property; and he then becomes insolvent and is adjudicated a bank- rupt. His obligations and liabilities are neither terminated nor re- leased by the adjudication." Why should a rule be applied to a corporation a legal entity different in this respect from a natural person? Section 1, cl. 19, of the Bankruptcy Act declares that "persons" shall include cor- SECT. I.] IN RE IMPERIAL BREWING CO. 521 porations, except where otherwise specified. An adjudication in bankruptcy of a corporation does not work a dissolution of the cor- poration or a forfeiture or loss of its franchise. The very policy of the bankrupt law is that by the adjudication and the surrender to the trustee of all assets of the bankrupt then owned he may thereby be manumitted from the burden of existing debts, and by his unimpeded energies and industry the better be enabled to prosecute his business and earn a livelihood and a competency. Why should any different rule be applied to a corporation coerced into bankruptcy, which but represents the aggregate co-operation and capital of a number of individual stockholders? Its stockholders may decide to infuse new life into it by assessments or other- wise, and its directors resume business, go ahead, and perform any executory contract. And if they had an advantageous con- tract with the vendor for providing it with hops in its business, why should it not be left in position to avail itself of the yet unexecuted contract ? In Lovell v. St. Louis Life Insurance Company, 111 U. S. 264, the court held that where an insurance company had terminated its busi- ness and transferred its assets and policies to another company, whereby it totally abandoned the performance of its contracts by transferring all of its assets and obligations to the new company, it thereby authorized the insured to treat the contract as at an end and to sue to recover back the premiums already paid, although the time for performance of the obligation, to wit, the death of the insured, had not arrived. For, as said by Mr. Justice BRADLEY, referring to a life insurance company which had gone into liquidation, in Car v. Hamilton, 129 U. S. 252, 256: "By that act the company becomes civiliter mortuus, its business is brought to an absolute end, and the policyholders become creditors to an amount equal to the equitable value of their respective policies, and entitled to participate pro rata in its assets." In re Swift, 112 Fed. 315, a broker had made a contract to deliver certain stock to a customer. It was held that he made it impossible to fulfill his agreement to deliver the stock by his adjudication in bankruptcy, for the reason that it took the stock from him and vested it, with all his property, in his trustee. But that is clearly not this case. As to In re Pettingill & Co., 137 Fed. 143, relied upon by the peti- tioner, I may say that I can concur in the syllabus of that case that under the Bankrupt Act the provability of a claim depends upon its status at the time of the filing of the petition in bankruptcy. If not then a provable debt, as defined in the Act, it cannot be proved, although it may thereafter come within such definition. " If a bank- rupt, at the time of bankruptcy, by disenabling himself from perform- ing a particular contract, and by repudiating its obligation, could give the other party the right to maintain at once a suit in which damages 522 IN RE IMPERIAL BREWING CO. [CHAP. VI. could be assessed at law or in equity, then such party may prove as a creditor in bankruptcy, on the ground that bankruptcy is equivalent of disablement and repudiation." If, however, it was intended to hold that, as applied to an executory contract for the sale of annual crops to be raised in successive vears, where no breach had occurred at the time of an involuntary adjudica- tion in bankruptcy, the mere act of such declared statutory insolvency constituted such a breach of the contract as to enable the vendor to prove up against the estate the contingent damages, as on a repudia- tion of the contract by the vendee, I cannot consent thereto. There was no renunciation by the vendee company of the contract after the commencement of performance or renunciation before the time for performance had arrived. Nor has the vendee deliberately incapaci- tated itself or rendered performance of the contract impossible within the rule laid down in Roehm v. Horst, 178 U. S. 18. As a discharge in bankruptcy under section 1, cl. 12, means no more than " the re- lease of a bankrupt from all of his debts which are provable in bank- ruptcy, except such as are excepted by the Act," and the claim for damages for a possible future breach of a contract is not a debt provable against the estate, in the absence of any refusal on the part of the bankrupt to recognize the contract, and he has not voluntarily or positively disabled himself from performing it, where its perform- ance does not become obligatory until after the adjudication in bank- ruptcy, my conclusion is that the claim in question is not one provable in bankruptcy. It is a noteworthy fact that under the Bankrupt Acts of 1841 and 18fi7 the right was given to prove "uncertain and contingent demands" against the estate. This provision was omitted from the present Bankrupt Act of 1898. In my judgment this omission is significant. It results that the application for an order directing the manner of the liquidation of the claim in question is denied. 1 1 In the following cases an unmatured conditional obligation was held not provable. Re Inman, 171 Fed. 185* 175 Fed. 312; Re Morgantown Tin Plate Co., 184 Fed. 109; Re American Vacuum Cleaner Co., 192 Fed. 939. Proof was allowed in Re Adams, 130 Fed. 788; Re Neff, 157 Fed. 57 (C. C. A.) ; Re Dunlap Carpet Co., 163 Fed. 541 ; Re Du Quesne Incandescent Light Co., 176 Fed. 785; Re D. C. Clark Shoe Co., 211 Fed. 341. SECT. L] IN RE FIFE. 523 IN RE FIFE. DISTRICT COURT FOR THE WESTERN DISTRICT OP PENNSYLVANIA, JUNE 14, 1901. [Reported in 109 Federal Reporter, 880.] B. C. Christy, for bankrupt. E. J. Smart, for creditor. BUFFINGTON, District Judge. This case arises upon the return to a writ of habeas corpus, granted on petition of Robert Fife, the bank- rupt, and directing the sheriff of Allegheny County to produce the said Fife before this court, together with the cause of his detention. On January 8, 1901, one Jennie Hawk obtained a verdict for $1,000 against Fife in the Court of Common Pleas No. 2 of Allegheny County, in a suit brought b}* her against him in that court. That action was based on a contract to marr}', and the damages alleged and recovered were for breach by defendant of such contract. On April 8, 1901, the defendant, who is the present petitioner, filed a petition of voluntary bankruptcy, and was adjudged bankrupt. The above-stated claim of Jennie Hawk was scheduled as a debt. On May 2, 1901, a pending motion for a new trial was discharged, and judgment entered against the defendant. On May 31, 1901, the bankrupt was arrested by the sheriff of Allegheny Count}' on a writ of capias ad satisfaciendum issued in said case, and placed in the jail of Allegheny County. There- upon the bankrupt prayed issue of a writ of habeas corpus. To this writ the sheriff returns the capias as a cause of detention. General order in bankruptcy provides : " If the petitioner during the pendency of the proceedings in bank- ruptcy be arrested or imprisoned upon process in any civil action, the District Court, upon his application, may issue a writ of habeas corpus to bring him before the court to ascertain whether such process has been issued for the collection of any claim provable in bankruptcy, and if so provable he shall be discharged ; if not, he shall be remanded to the custody in which he may lawfully be." We therefore inquire, is the Hawk claim, to enforce which the capias issued, provable in bankruptcy? Section 63 of the present bankrupt law, under the heading, "Debts which may be proved," provides: " Debts of the bankrupt ma}- be proved and allowed against his estate which are ... (4) founded . . . upon a contract express or implied ; and (5) founded upon provable debts reduced to judgment after the filing of the petition and before the consideration of the bank- rupt's application for a discharge," etc. The word " debt " in the bankrupt law is not restricted to its strict legal meaning, viz., "a sum of money due by certain and express agreement," but is defined by statute (Bankr. Law, 1, cl. 11) to "include any debt, demand, or claim provable in bankruptcy." After 524 AUDUBON V. SHUFELDT. [CHAP. VI. due consideration, we are of opinion the claim in this case is provable. It is based on contract, and falls within the express terras of the statute recited above. The breach occurred and the right of action accrued before the petition in bankruptcy was filed. The plaintiff's contractual claim was therefore provable under the fourth provision, above quoted, and was subsequently reduced to judgment under the fifth. Being, then, of opinion the detaining process issued for the collection of a claim provable against the estate of Robert Fife in bankruptc}', it is therefore, in accordance with General Order 30 (32 C. C. A. xxx., 89 Fed. xii.), ordered that said Fife be discharged from custody. 1 AUDUBON v. SHUFELDT. SUPREMK COURT OF THE UNITED STATES, APRIL 8-MAY 20, 1901. [Reported in 181 United States, 575.] MR. JUSTICE GRAY delivered the opinion of the court. This was an appeal from an order of the Supreme Court of the Dis- trict of Columbia sitting in bankruptcy, granting a discharge to Robert W. Shufeldt. Shufeldt had been adjudged a bankrupt April 5, 1899, on his petition alleging that he was indebted to the amount of 14,538.33, and had no assets which were not exempt under the Bankrupt Act of 1898. The debts from which he sought release were as follows : Secured debt to Washington National Banking and Loan Association $3,200.00 Unsecured debts as follows : Florence Audubon $800.00 William H. Smith 150.00 Lewis J. Yearger 150.00 Sundry small debts 238.33 1,338.83 "$4,538.33 1 Under the early English bankruptcy laws, a claim which could properly be liqui- dated only by a jury was not provable though arising under a contract. Ex parte Lingood, 1 Atk. 240; Baker's Case, 2 Str. 1152; Ex parte Charles, 14 East, 197; Ex pnrte Harding, 5 De G. M. & G. 367 ; Ex parte Todd, 6 De G. M. & G. 744. But 32 & 33 Viet. c. 71, 31, included all such liabilities, and it is followed by the Act now in force, 46 & 47 Viet. c. 52, 37 ; and so in this country by the Act of 1867, 19. See further, Parker v. Hull, 46 111. App. 471 ; Fowles v. Treadwell, 24 Me. 377; Chandler v. Winship, 6 Mass. 310; Lothrop v. Reed, 13 Allen, 294; Campbell v. Perkins, 8 N. Y. 430; McMullin v. Bank, 2 Pa. St. 343; Sweatman's App., 150 Pa. 369. An unliquidated claim which might have been liquidated and proved, but which was voluntarily withheld until the time for proving had expired, should be treated as a provable debt from which the bankrupt will be discharged; and if an action is brought upon the claim, he is entitled to a stay of proceedings under section 11, pend- ing his application for a discharge. Re Hilton, 104 Fed. Rep. 981. SECT. I.] AUDUBON V. SHUFELDT. 525 Shufeldt was, and had been for several years before filing his petition in bankruptcy, a surgeon with the rank of captain in the United States Arm}*, on the retired list, and was in receipt of a salary of $175 a month, his pay as such retired officer. The debt of $3,200 was the debt of himself and wife, secured on land in Takoma Park, Montgomery County, Maryland, conveyed by him to his wife in March, 1898, without consideration. The debt of $800 represented arrears of alimony, granted to his former wife, Florence Audubon, on February 25, 1898, by a decree of the Circuit Court of Montgomery County in the State of Maryland, in a cause of divorce, directing him to pay alimony to her at the rate of $50 a month, beginning April 1, 1898. No part of that alimony has been paid. About March 1, 1898, Shufeldt left Montgomery Count} 1 , and took up his residence in the city of Washington in the District of Columbia. A suit in equity has been instituted and is still pending in the Supreme Court of the District of Columbia, to enforce the aforesaid decree for alimony, and to make him pay the alimony in arrear. The debt of $150 to William H. Smith was a promissory note given for taking testimony in the divorce suit under a commission from the Maryland court, and was duly assigned to John W. Hulse before the filing of the petition in bankruptcy. The debt of $150 to Lewis J. Yeager was for professional services rendered in the District of Columbia in the equity suit aforesaid. The small debts for $238.33 were contracted for supplies furnished to Shufeldt and his family before the filing of the petition in bank- ruptcy. After the filing of the petition in bankruptcy, Florence Audubon filed in court her claim for $800, being the arrears of alimony, describing it as " a debt " due by him to her ; and voted thereon at the meeting of creditors for the election of a trustee. She afterwards filed a memo- randum directing the withdrawal of her claim ; but no order of the court to that effect was passed. It was objected that the claim for alimony was not a provable debt under the Bankrupt Act, and should be excepted from the list of debts for which a discharge in bankruptcy might be granted. The court over- ruled the objection, and granted the discharge, being of opinion that the arrears of alimony which had accrued against the bankrupt up to the time of the adjudication in bankruptcy constituted a provable debt, in the sense of the Bankrupt Act of 1898 ; but that the discharge could not affect any instalments accruing since that adjudication. Florence Audubon appealed to this court. By section 4 of the Bankrupt Act of July 1, 1898, c. 541, " any per- son who owes debts, except a corporation, shall be entitled to the ben- efits of this act as a voluntary bankrupt." 30 Stat. 547. An officer in the army falls within this description ; and it may be that he is not bound to include his pay in his schedule. Flarty v. Odium (1790), 526 AUDUBON V. SHUFELDT. [CHAP. VI. 3 T. R. 681 ; Apthorpe v. Apthorpe (1887), 12 Prob. Div. 192. Our bankrupt act contains no such provision as the English Bankruptcy Act, 1883, authorizing the court, when the bankrupt is an officer in the array or navy, or employed in the civil service, to order a portion of his pay to be applied for the benefit of his creditors in bankruptcj*. In re Ward (1897), 1 Q. B. 266. But the question now before us is not whether his pay can be reached in bankruptcy, but whether he is entitled to a discharge from the arrears of alimony due to his former wife. The Bankrupt Act of 1898 provides, in section 1, that a " discharge " means " the release of a bankrupt from all his debts which are prov- able in bankru'ptc\", except such as are excepted by this act ; and in- cludes, in section 63, among the debts which may be proved against his estate, " a fixed liability, as evidenced b}* a judgment or an instrument in writing, absolutely owing," at the time of the petition in bankruptcy, whether then payable or not, and debts " founded upon a contract, expressed or implied." 30 Stat. 541, 563. Alimony does not arise from any business transaction, but from the relation of marriage. It is not founded on contract, express or implied, but on the natural and legal duty of the husband to support the wife. The general obligation to support is made specific b} r the decree of the court of appropriate jurisdiction. Generally speaking, alimony ma}* be altered b} T that court at any time, as the circumstances of the parties may require. The decree of a court of one State, indeed, for the pres- ent pa}'ment of a definite sum of money as alimon}', is a record which is entitled to full faith and credit in another State, and may therefore be there enforced by suit. Barber v. Barber (1858), 21 How. 582; Lynde v. Lynde (1901), 181 U. S. 183. But its obligation in that re- spect does not affect its nature. In other respects, alimony cannot ordinarily be enforced by action at law, but only by application to the court which granted it, and subject to the discretion of that court. Permanent alimonj' is regarded rather as a portion of the husband's estate to which the wife is equitably entitled, than as strictly a debt ; alimony from time to time may be regarded as a portion of his current income or earnings ; and the considerations which affect either can be better weighed by the court having jurisdiction over the relation of husband and wife, than b}* a court of a different jurisdiction. In the State of Maryland, and in the District of Columbia, alimony is granted by decree of a court of equity. Wallingford v. Wallingford (1825), 6 Har. & Johns. 485 ; Crane v. Maginnis (1829), 1 Gill & Johns. 463 ; Jamison v. Jamison (1847), 4 Maryland Ch. 289 ; Tolman v. Tolman (1893), 1 App. D. C. 299 ; Tolman v. Leonard (1895), 6 App. D. C. 224; Alexander v. Alexander (1898), 13 App. D. C. 334. And, as the Court of Appeals of the District of Columbia has more than once said : " The allowance of alimony is not in the nature of an ab- solute debt. It is not unconditional and unchangeable. It ma}' be changed in amount, even when in arrears, upon good cause shown to the court having jurisdiction." 6 App. D. C. 233, 13 App. D. C. 352. SECT. I.] AUDUBON V. SHUFELDT. 527 Under the Bankrupt Act of 1867, it was held by the District Court of the United States for the Southern District of New York, in an able opinion by Judge Choate (which is believed to be the only one on the subject under that act), that a claim for alimony, whether accrued be- fore or after the commencement of the proceedings in bankruptcy, was not a provable debt nor barred by a discharge. In re Lachemayer (1878), 18 Nat. Bankr. Reg. 270 ; s. c. 14 Fed. Gas. 914. Like deci- sions have been made by Judge Brown in the same court under the present bankrupt act. In re Shepard, 97 Fed. Rep. 187 ; In re Ander- son, 97 Fed. Rep. 321. And the same result has been reached in a careful opinion by Judge Lowell in the District Court for the District of Massachusetts. In re Nowell, 99 Fed. Rep. 931. In Menzie v. Anderson (1879), 65 Ind. 239, the Supreme Court of In- diana held that a judgment for alimony was not a " debt growing out of or founded upon a contract, express or implied," within the meaning of a statute exempting certain property from execution for such a debt. In Noyes v. Hubbard (1892), 64 Vt. 302, it was held by the Supreme Court of Vermont that a decree for alimony, not being a judgment for the enforcement of any contract, express or implied, existing between the parties thereto, but for the enforcement of a duty in the perform- ance of which the public as well as the parties were interested, was not barred by a discharge in insolvency. In Romaine 'v. Chauncey (1892), 129 N. Y. 566, it was held by the Court of Appeals of New York that alimon}- was an allowance for sup- port and maintenance, having no other purpose, and provided for no other object ; that it was awarded, not in payment of a debt, but in performance of the general duty of the husband to support the wife, made specific and measured by the decree of the court ; and that a court of equity would not lend its aid to compel the appropriation of alimony to the payment of debts contracted by her before it was granted. In Barclay v. Barclay (1900), 184 111. 375, it was adjudged by the Supreme Court of Illinois that alimon}' could not be regarded as a debt owing from husband to wife, which might be discharged by an order in bankruptcy, whether the alimony accrued before or after the proceedings in bankruptcy ; and the court said : " The liability to pay alimony is not founded upon a contract, but is a penalty imposed for a failure to perform a duty. It is not to be enforced b}- an action at law in the State where the decree is entered, but is to be enforced by such proceedings as the chancellor may determine and adopt for its enforce- ment. It may be enforced by imprisonment for contempt, without vio- lating the constitutional provision prohibiting imprisonment for debt. The decree for alimony may be changed from time to time by the chan- cellor, and there may be such circumstances as would authorize the chancellor to even change the amount to be paid by the husband, where he is in arrears in payments required under the decree. Hence such alimony cannot be regarded as a debt owing from the husband to the 528 IN RE MOORE. [CHAP. VI. wife, and, not being so, cannot be discharged by an order in the bank- ruptcy court." In England, it seems to be the law that alimon}' is neither discharged nor provable in bankruptcj*. Linton v. Linton (1885), 15 Q. B. D. 239 ; Hawkins v. Hawkins (1894), 1 Q. B. 25 ; Watkins v. Watkins (1896), Prob. 222 ; Kerr v. Kerr (1897), 2 Q. B. 439. The only cases brought to our notice, which tend to support the deci- sion below, are recent decisions of district courts, in which the authori- ties above cited are not referred to. In re Houston, 94 Fed. Rep. 119 ; In re Van Orden, 96 Fed. Rep. 86 ; In re Challoner, 98 Fed. Rep. 82. The result is that neither the alimony in arrear at the time of the adjudication in bankruptcj', nor alimony accruing since that adjudica- tion, was provable in bankruptcy, or barred by the discharge. 1 The order granting a discharge covering arrears of alimony is reversed, and the case remanded for further proceedings con- sistent with the opinion of this court. IN RE MOORE. DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY, OCTOBER 21, 1901. [Reported in 111 Federal Reporter, 145.] THE following is the opinion of BAGBY, referee : On the 13th day of September, 1900, said John W. Moore was by the grand jury of the Circuit Court of McGracken County, Kentuckj', indicted for keeping and maintaining a nuisance in the nature of a dis- orderly house; and on the sixth day of April, 1901, he was by the ver- dict of a petit jury in the Circuit Court of said count}- found guilty of the charge in the indictment, and his fine fixed at $400, upon which judgment was entered, and a capias pro fine awarded. Thereafter, on the 30th day of April, 1901, said Moore filed his petition in bank- ruptcy, and subsequently was adjudicated bankrupt. Afterwards the commonwealth of Kentucky filed herein its claim for amount of the judgment aforesaid. If the claim of the commonwealth of Kentucky filed herein is a prov- able debt, within the contemplation of the bankrupt law, then the bank- rupt will be discharged from so much of the fine adjudged against him by the State court as the bankrupt's estate is insufficient to satisfy. And it is not contended that the claim is in any sense entitled to prior- ity. For the court to so rule, should the estate of the bankrupt be 1 Even though by the local law a judgment for alimony is an absolute debt which the court has no power to modify, the Supreme Court has held that it is not a " debt " within the meaning of the act and is not provable or dischargeable. Wetmore v. Mar- koe, 196 U. S. 68. SECT. I.] IN EE MOORE. 529 insufficient to pay his creditors in full, would relieve the bankrupt from the fine imposed upon him as a punishment by the State court- and to that extent would operate as a pardon of his offence. I cannot believe that such was the intention of Congress. It is a familiar rule of construction applicable to statutes that the government is not bound by a statute, unless expressly named therein. Laws are prima facie presumed to be made for subjects only, and the government will not be presumed to be binding itself by them unless this intention affirmatively appears. In England the crown is not reached, except by express words or b3" necessary implication, in any case where it would be ousted of an}' existing prerogative or interest. And so in the United States the States and national government are not bound ln r a general stat- utory provision whereby any of their prerogative rights, titles, or interests will be impaired, unless by express words or irresistible im- plication. Thus the statutes of limitation are no bar to claims by the government unless the government is included by express words. 23 Am. & Eng. Enc. Law, pp. 365-367. Section 34 of the bankrupt act of 1867 provides "that a discharge duly granted under this act shall . . . release the bankrupt from all debts, claims, liabilities, and demands which were or might have been proved against his estate in bankruptcy, and may be pleaded, by a simple averment, that on the day of its date such discharge was granted to him, ... as a full and com- plete bar to all suits brought on any such debts, claims, liabilities, or demands." Mr. Bishop, in his work on Statutoiy Crimes (section 103), referring to this section, sa3"S it ik is of no avail against a suit by the government " ; and in this connection the distinguished author quotes with approval U. S. v. Herron, 20 Wall. 251, 22 L. Ed. 275, wherein it is decided by the Supreme Court that debts due to the United States are not within the provisions of the bankrupt act of 1867, and are not barred by a discharge under such act, chiefly for two reasons : " (1) The United States are not named in any of the provisions of the act, except the one which provides as to all debts due the United States, and all taxes and assessments under the laws thereof. (2) That many of the provisions describing the duties, obligations, and rights of creditors, ... if held to include the United States, could not fail to become a constant and irremediable source of public inconvenience and embarrassment." The effect of a discharge under section 17 of the present bankrupt statute has been very ably considered in the case of In re Baker (D. C.), 3 Am. Bankr. li. 101, 96 Fed. 963. wherein the court holds that the claim of a State is not within the provisions for the release of debts owing by the bankrupt by his discharge in bankruptcy, unless expressly made so, and declares that the legislature will not be taken to have postponed the public right to that of an individual, ex- cept in cases where such purpose has been most plainly manifest, and in support of its views cites Johnson v. Auditor, 78 Ky. 282, and the action of the United States Supreme Court in U. S. v. Herron. In reference to the last-named case the court sa3's that the differences be 530 IN RE MOORE. [CHAP. VI. tween the acts of 1867 and 1898 " are insufficient to indicate an express intention on the part of Congress, in the passage of the present act, to establish a different rule as to the devesting of the government, national or State, of its rights or remedies, than that which obtained under the act of 1867 as construed by the Supreme Court in U. S. v. Herron, supra. If Congress had intended that the bankrupt's dis- charge should operate as a release of his debts owing to the govern- ment, it would undoubtedly have so provided in unmistakable terms, especially in view of the rule of construction which has been established and so uniformly followed for so many years." Whether a discharge in bankruptcy will release a debtor from a fine came before Judge Lowell in the United States District Court at Boston. A sentence of one year's imprisonment and a fine of $500 had been imposed on O'Donnell for complicity in the bribery of a certain alderman in Lowell. He had served his imprisonment, and contended that his discharge in bankruptcy exempted him from the payment of the fine, as that was one of the items included in his petition in bankruptcy. The common- wealth contended that the fine as well as the imprisonment was a punishment, and that by relieving him from its pa\ - ment, the court would also relieve him from part of his punishment. Upon a writ of habeas corpus tried before Judge Lowell, the writ was refused. See 1 Nat. Bankr. N. p. 59. The views here contended for by the referee, he believes, are sus- tained by nearly if not all the leading authorities on bankrupt law and procedure. A fine, penalty, or costs imposed on the bankrupt as a penalty is not usually a provable debt. Lowell, Bankr. It seems clear from subdivision 1 of section 63 that all judgments are provable, except, perhaps, such as are imposed in the nature of punishments, and which are therefore not dischargeable. Coll. Bankr. 384. Such judgments entered before commencement of proceedings in bankruptcy do, indeed, evidence a fixed liability owing at the time, but we feel con- fident that they are not provable. Thej- may be within the letter of the law, but are not within the spirit of it. Under all former acts they have been considered as not provable. Id. 386. It may be safely said, therefore, that a judgment for a fine, as distinguished from a judgment on a contract, express or implied, or for damages, is not provable. Branden. Bankr. 590, 591. In the absence of specific pro- vision to the contrary, it has been uniformly held that debts due the sovereign are not released by a discharge in bankruptcy, nor is it in any wise bound by a bankruptcy law. Id. 266. That from which the bankrupt's discharge releases him is " all his provable debts." Section 17 of the bankrupt act. And section 1, subd. 11, of the act declares that " ' debt' shall include any debt, demand, or claim prov- able in bankruptcy." From investigation I am disposed to hold that a judgment to recover a fine imposed in the nature of a punishment is not a debt, claim, or demand contemplated by the bankrupt law. The word " debt," as defined by Mr. Blackstone, is: "A sum of money SECT. I.] IN RE MOORE. 531 due by certain or express agreement, as by a bond for a determined sum ; a bill or note ; a special bargain ; or rent reserved on a lease ; where the quantity is fixed and specific, and does not depend upon any subsequent valuation to settle it." Referring to this definition, Mr. Loveland, in his work on the Law and Proceedings in Bankruptcy, says: " That this is the sense in which ' debt' is used in this section is fairly to be inferred from the context. ... If this be the meaning of ' debt ' in this section, it is clear that a judgment for a fine or pen- ahy, or a claim for alimon}', or any other claim or debt not founded upon an agreement or contract, however just or lawful in itself, is not provable in bankruptcy." Loveland, Bankr. 110. " Debt" has been held not to include a liability in tort, nor costs in a criminal case, nor a fine. 5 Am. & Eng. Enc. Lav, 149-152, and notes. In the case of Spalding v. People, 7 Hill, 301, where a fine of $3,000, with costs, had been imposed as a penalt}" for a criminal offence, the court says : " The very statement of the case is therefore enough to show that there is no color for the ground taken, viz. that the fine is a debt, within the bank- rupt law. It is no more a debt than if it had been imposed after con- viction on an indictment, or for any of the numerous minor offences within the calendar of crimes." In this case the debtor applied to the United States court for a writ of habeas corpus, and on appeal to the Supreme Court of the United States it was held that the fine was not affected by the discharge. 4 How. 21, 11 L. Ed. 858. To the same effect is In re Sutherland, 3 N. B. R. 314, Fed. Cas. No. 13,639,* where, after giving the definitions of "debt" in 3 Bl. Comm. 154, and Gray v. Bennett, 3 Mete. (Mass.) 522, the court said : " Looking at the act or the nature of the subject either separately or conjunctively, it appears to me that a judgment for a fine, imposed as a punishment for crime, is not a debt provable against the estate of the bankrupt." This was a decision rendered in the construction of the bankrupt act of 1841 relative to provable debts in bankruptcy, a statute in this respect quite like the present act. Counsel insist that the fine in this case having been reduced to judg- ment before the petition in bankruptcy was filed, according to the provisions of subdivision 1 of section 63, it then becomes a debt, and " a fixed liability as evidenced by a judgment, absolutely owing at the time of the filing of the petition," and therefore a provable debt; that the criminal nature of the liability is merged in the judgment, and thereby becomes a debt. I do not concur in this statement of the law. It appears to me the better opinion and weight of authority that a claim is not merged in judgment so far as to change the nature of the indebtedness out of which judgment arises. It is true, under the act of 1867 the decisions were not uniform on this point; but after a time the question was presented to the Supreme Court of the United States in the case of Boynton v. Ball, where the court held that the doctrine 1 Rex v. Norris, 4 Burr. 2142 ; Bancroft v. Mitchell, L. R. 2 Q B. 549; Ex partt Graves, 3 Ch. App. 642, ace. See B. A. 1898, 57 j. 532 RE KINGSLEY. [CHAP. VL of merger did not apply, and that the debt remained the same. See also In re McBryde, 3 Am. Bankr. R. 729, 99 Fed. 686 ; Beers v. Han- lin (D. C.), 99 Fed. 695 ; and the able opinion of Referee Hotchkiss in Re Finkel, 1 Am. Bankr. R. 333 ; and Coll. Bankr. 384. My attention has been invited to the decision of Judge Jackson in the case of In re Alderson (D. C.), 98 Fed. 588, in which a contrary opinion is ex- pressed. I regret that after a careful consideration of the questions at issue in this case, and a review of the authorities bearing on the same, I cannot reach the conclusions at which Judge Jackson has arrived. The exceptions to the claim of the commonwealth of Kentucky filed by the trustee herein are sustained, and allowance of the claim is refused. y" RE KINGSLEY. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, FEBRUARY, 1868. [Reported in 1 Lowell, 216.] I * - LOWELL, J. The questions certified and argued in this case are, ' whether a debt which is barred by the statute of limitations of Massa- chusetts, where the bankrupt lias resided for the last ten j'ears, and where these proceedings are had, but not barred b}- the statute of limi- tations of Vermont, where the creditors reside, and where both parties resided when the contracts were made, can be proved against his estate in bankruptcy. If not, whether the act of the bankrupt in entering the debt upon his schedule is such an acknowledgment, or new promise, as will revive it. To the first question, it would seem to be a sufficient reply that the statute of limitations would bar a suit in any court of law in this dis- trict, and especially in the Circuit Court of the United States. For courts of bankruptcy in disputed cases must refer such questions to the other courts, or, at least, must decide them upon the same principles as other courts would. Thus, by our statute, all such disputes may be tried, either by prosecuting to final judgment a suit already pending, or where the dispute first arises after the proceedings have been begun, by trying it according to the course of the Circuit Court in actions at law. I cannot resist the conclusion that any plea which would be good at law (this being a legal debt) must be good in bankruptcy. But as the question has been decided otherwise by a judge from whom I differ with great hesitation (Blatch., J., Ra}"'s Case, 2 Bened. 53), and has been argued here at length, I will proceed to show why, in my judgment, the same result ought to follow upon principle and authority, even if the mere fact that the defence is good at law were not, as I think it is, absolutely binding and decisive. SECT. I.] RE KINGSLEY. 533 Statutes of limitation are remedial and beneficial. They are founded upon the sound principle that lapse of time, by obscuring the truth, renders the administration of justice uncertain, and that, for the sake of justice as well as peace, paj'inent ought to be presumed after a cer- tain period has passed. If the evidence of debt be of a high and formal nature, the evidence of payment may be expected to be more formally made, and preserved with moi'e care, than in mere simple contracts ; but even in such cases, some period works a bar. It is not a presump- tion of fact which may be rebutted by proof of non-payment, but a conclusive presumption of law. 1 Greenl. Ev. 16. So useful and important have these statutes been found, that courts of equity, when not bound by them, have adopted them as rules of practice, and they are so regarded by the Circuit Court of the United States sitting in equity. If there were a discretion vested in the courts of bankruptcy to adopt a new rule, it seems to me they would follow this analogy. The point was decided in this way by Lord Eldon in Ex parte Dewd- ney, 15 Ves. 479, and afterwards reheard and reviewed b}' the same learned judge, when he said that his first opinion was strongly con- firmed, and that he had additional reasons for it. But these he does not appear to have recorded, though he intended to do so. See note A. to Ex parte Burn, 2 Rose, 59 ; Ex parte Roffey, 19 Ves. 468. The reasons which he has given are ample, and have been accepted in England, and his decision, though opposed to a ruling of Lord Mans- field at nisi prius, and to the practice of some of the ablest commis- sioners of bankrupts, has been acquiesced in, and has been repeatedly recognized as law, though never again directly questioned. Ex parte Ross, 2 Gl. & J. 46, 330 ; Gregory v. Hurrill, 5 B. & C. 341. Besides the mischiefs which the statutes of limitations were intended to remed} T , and which would be aggravated by the negligence in the preservation of evidence which they are calculated to induce, and do induce, after their bar is supposed to shield a debtor from suit, all which apply as strongly in bankruptcy as in any other form of suit, there would be special hardships to bankrupts, or supposed bankrupts, as well as to their creditors, in adopting a different rule in bankruptcy from that which prevails at law. Thus an honest debtor, who makes a satisfac- tory and honorable composition with all his known creditors, would be liable to be prosecuted in this court as a fraudulent bankrupt for mak- ing that very composition ; and this by a person who could not sue him in an}' court in this district, which is the onh* district in which proceed- ings in bankruptcy could be taken against him. So upon the question whether a debtor is insolvent or not, and many other points. The mis- chiefs would be far-reaching and intolerable. It is said that the bankrupt law, being uniform throughout the United States, ought to be so worked as to give every creditor who could sue in any State or territory of the Union the right to proceed in bank- ruptcy, and therefore, although it be granted that some limitation should be applied, it must be one which would be good throughout the 534 RE KINGSLEY. [CHAP. VL Union. There is great plausibility in this argument, but it is not strong enough to overthrow the arguments on the other side. The right to sue must depend on the forum. Statutes of limitations relate only to the remedy, and cannot have an extraterritorial effect. If it were possible to have a statute of this kind, of general operation throughout the jurisdiction of the United Stales, it might be very use- ful, but there is none such. The general rule, therefore, sought to be applied, does not exist. It there were such a one, no doubt this debt would be barred by it, because it is a simple contract debt of more than ten years' standing ; and such a debt is barred, I suppose, by the stat- utes of every State and territory, when applied to defendants who have been within their jurisdiction for that period. They do not bar suits against persons not within their jurisdiction, simply because they have nothing to do with them. Most of them, perhaps, following the common-law rule of prescrip- tion, and for purposes of convenience, bar all suits after twenty years, and the result of holding that the law of the States and territories where this remedy is not sought shall be regarded, is simply to abolish the statutes of limitations, and revert to a common-law prescription. But the very fact that this debt is not barred by the laws of Oregon, or of any other State which has no jurisdiction of it, and because it has no jurisdiction of it, shows to my mind that the law of such a State ought not now to be applied to it. In such a matter as this, the courts of the United States must, in the absence of a law of Congress, be guided by the law of the forum. There can be no other rule. The argument most strongly pressed in this case on behalf of the creditor is, that the statute of bankruptcy intends that all debts should be discharged, wherever held ; therefore, this debt must be discharged, and if so, it is a provable debt, for only provable debts are discharged. There can be no doubt that this is a provable debt, and that it will be discharged by the certificate, if the bankrupt obtains one. All debts which by their nature are provable are discharged, whether they in fact could be proved or not. Thus debts due to an alien enemy, or to one dead or insane, or who accidentally failed to prove or was not notified, all these, and man}' others that could be mentioned, would be barred, though it might be impossible that they could be proved. Be- cause this debt is provable, it does not follow that it can be proved. The question is, whether it is a debt at all. A debt that has been paid cannot be proved, but it will be discharged ; that is to sa}', the pay- ment need not be relied on after the certificate has been obtained. It would be a singular reply to a plea of discharge in bankruptcy, that the debt was not discharged because it could not have been proved, and that it could not be proved because it had been paid, or because the court of bankruptcy found, rightly or otherwise, that it had been paid. Yet, that is all that the rejection of this proof amounts to. Ap- plying the law of the forum, I find, as a presumption of law, that this provable debt has been paid. All provable debts are discharged ; but SECT. I.] RE KINGSLEY. 535 all supposed debts, to which a certificate of discharge would be a bar, are not necessarily provable. The difference arises in a case like this, from the fact that the bankrupt law deals with the contract itself, and discharges it, and so, necessarily, has a much wider reach than the law of limitations, or than rules of evidence which touch only the remedy. The same thing is true in England, and would be so in our States, ex- cepting that (by construction) the constitution of the United States forbids them to deal in this mode with contracts between citizens of different States. In England, the statutes of limitations and of bank- rupts are passed by the same legislature ; but one has a much wider operation than the other, so that a debt held in Scotland, or England, or the colonies, or abroad, may be discharged, though the statute of limitations may prevent its being proved. Mr. Christian, whose opinion and practice had been opposed to the rule as laid down in JExparte Dewdney, gives us to understand, that the argument that the debts would necessarily be discharged, was not overlooked in the discussion of that case. The argument that Congress, by discharging debts due throughout the Union, must intend to adopt all the statutes of limitations in the Union, proves too much. The same argument will show that it must have adopted those of all the world, for debts due throughout the world are discharged in bankruptcy, if the contract were to be performed here. Hunter v. Potts, 4 T. R. 182 ; Potter v. Brown, 5 East, 124; May v. Breed, 7 Cush. 15; Storj-, Conflict of Law, 335, &c. The hardship of this rule is much less than might at first appear. It is only on the supposition that the creditor might possibly sue his debtor away from home that there is any hardship at all. All that the foreign creditor has to do is to sue his debtor at home, and in due sea- son and keep his debt alive. Our statutes of limitations makes no discrimination against foreign creditors, but in some respects quite the contrary; for if he has been beyond seas, he has a longer time allowed him. If within the United States, there is no reason for an}* discrimi- nation in his favor. The complaint of any creditor that he might prob- ably find a foreign forum, which, because it is foreign, would give him a remedy which he has lost b}- negligence in the true and proper forum, is not entitled to much consideration. One case of practical hardship may be put, and that is when a creditor has actually sued his debtor away from borne, and obtained security by attachment or otherwise, which would be taken away by the bankruptcy, and yet he would have no right to prove his debt. I consider that the bankrupt law makes a sufficient provision for such a case, bj" enacting that an action may be prosecuted to final judgment, and the amount of the judgment be proved in bankruptcy. 1 Re Cornwall, 9 Blatch. 114; Re Hardin, 1 B. B. 395; Re Reed, 11 B. R. 94; Capelle v. Trinity Church, 11 B. R. 536 ; Re Noesen, 12 B. R. 422 ; Re Doty, 16 B. R. 202 ; Re Lipman, 94 Fed. 353, ace. Re Ray, 1 B. R. 203 ; Re Shepard, 1 B. R. 439, contra. See also Re Murray, 3 B. R. 765. In Nicholas v. Murray, 18 B. R. 469, it was held that the time of limitation was to 536 EX PARTE O'NEIL. RE FOWLER. [CHAP. vi. I agree with Judge Blatchford, that the bankrupt, by putting the debt upon his schedule, does not make a new promise to pay it. This depends somewhat upon the particular statute of limitations, and it has been so decided in Massachusetts in a case under the State insolvent law, so called, which is a bankrupt law, though one limited and re- strained in its operation by the- constitution of the United States; and it is so upon principle, because the debtor does not make out his schedule with any view to the payment, but to the discharge of his debts. And, besides, the creditors have a right to plead the statute as well as he, and they are not bound by his schedule. Richardson r. Thomas, 13 Gray, 381; Roscoe v. Hale, 7 Gray, 274; Stoddar v. Doane, 7 Gray, 387 ; and see the cases in Roscoe v. Hale. In those cases, it is true, the debt was not barred when the schedules were made ; but if the schedules were evidence of a new promise, two of those decisions must have been for the plaintiff, because the schedules had been made within six }-ears before suit brought. The fact weak- ens the argument to this extent, that it cannot be said in this case that the debtor was merely carrying out his legal duty in putting an exist- ing debt in his list. He would not be so bound in respect to this debt, but it remains true that he did it diverso intuitu. Proof rejected. l Ex PARTE O'NEIL. RE JAMES L. FOWLER. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, JULY, 1867. [Reported in 1 Lowell, 163.] THE register took evidence touching the right of O'Neit to prove the amount of a judgment which he had obtained against Fowler before his bankruptcy, and ruled pro forma that the question whether all just credits had been given b}' the creditor before obtaining his judgment could not be inquired into. He certified that question to the court, and also whether interest and costs could be proved. A. Wellington, in opposition to the proof. H. M. Morse, Jr., for O'Neil. LOWELL, J. Creditors, whose interests are affected by a judgment against their debtor, may avoid it collaterally, because they have no be calculated up to the time of proof. But the prevailing doctrine is that if the statute has not run at the time as of which the bankrupt's estate is assigned, proof will not be barred. Ex parte Ross, 2 Glyn & J. 46, 330 ; Re Eldridge, 12 B. R. 540 ; Re Graves, 9 Fed. Rep. 816; Re McKinney, 15 Fed. Rep. 912; Minot v. Thacher, 7 Met. 435; Willard v. Clarke, 7 Met. 435 ; Collester v. Hailey, 6 Gray, 517 ; Parker v. Sanborn, 7 Gray, 191. The statute continues to run, however, against any proceedings to collect a debt other than through the bankruptcy court. Richardson v. Thomas, 13 Gray, 381. 1 Re Lipman, 94 Fed Rep. 353, ace. SECT. I.] EX PARTE 6'NEIL. RE FOWLER. 537 right to have it reviewed directly. Pierce v. Jackson, 6 Mass. 244 ; Downs v. Fuller, 2 Met. 135. In bankruptcy the creditors are in- terested in contesting a judgment which is offered for proof in compe- tition with their own debts ; and I have no doubt they may show, by any appropriate evidence, that the judgment is void or voidable for fraud or irregularity. A debtor might suffer judgment against him for the very purpose of affecting the proceedings in bankruptcy ; or a judgment may be obtained for a just debt, but under circumstances which would make it a fraudulent preference. In all such cases it must be open to other creditors to object to the judgment when offered for proof against the assets. On the other hand, where the court rendering the judgment has jurisdiction, and there has been no fraud and no preference, no one can examine into the consideration of a judgment, and show by evidence, outside of the record, that the judgment ought not to have been rendered, or not for so large a sum. While the debtor is not bankrupt nor acting in contemplation of bankruptcy he binds all the world by his acts and omissions in relation to his own affairs ; and if he does not choose to defend an action to which he has a legal de- fence, and of which he has had full notice, his estate will be committed by his act or neglect, just as it would be by any improvident bargain he might make, or by any new promise to pay a debt barred by the lapse of time or a former discharge in bankruptcy. When, therefore, the judgment is either void or voidable as of right by the debtor or by creditors, it may be examined into here if offered for proof; where it is valid as against the debtor, and no fraud on creditors is shown, it is valid here. If there be an intermediate case, in which it would be discretion ary with the court which rendered the judgment to vacate it upon the ground of mistake, I should probably leave the assignee to pursue that remedj* , postponing the proof in the meantime. It was said in argument that the English practice goes farther than this, and permits the creditors to inquire into the consideration of all judgments. Some statements as broad as that may perhaps be found in the text-books ; but I suppose the English practice, whatever it may be, is founded on the consideration that courts of equity may in man}* cases re-examine judgments at law, and grant new trials or restrain executions. See Ex parte Bryant, IV. & B. 211 ; Ex, parte Marson, 2 Dea. 245 ; Ex parte Prescott, 1 M. D. & DeG. 199. 1 If this is the reason of the practice, it should not extend beyond the limits that I have laid down ; for a court of equity would certainly not stay an exe- cution where the party had had ample opportunity of defence, and there was no fraud. There being in this case no offer to prove fraud or irregularit} 1 , but 1 See further Ex parte Chatteris, 26 L. T. N. 8. 174; Ex parte Kibble. L. R. 10 Ch. 373; Ex parte Banner, 17 Ch. I). 480; Ex parte Revell, 13 Q. B. D. 720; Ex parte Anderson, 14 Q. B. D. 606; Ex parte Lennox, 16 Q. B. D. 315; Re [1892] 2 Q. B. 633; Re Easton, 10 Morrell, 111 ; Re Hawkins, [1895] 1 Q. B. 404. J 538 MERRILL V. NATIONAL BANK OF JACKSONVILLE. [CHAP. VL onlj' an excessive assessment of damages, I must reject the evidence, and admit the proof for the full amount of the judgment. The costs are part of the debt and can be proved, judgment having been recovered before the bankruptcy ; and so can the interest, which, by a statute of Massachusetts, all judgments bear. Debt admitted to proof. 1 SECTION II. SECURED CLAIMS. MERRILL v. NATIONAL BANK OF JACKSONVILLE. SUPREME COURT OF THE UNITED STATES, OCTOBER 20, 1898- FEBRUARY 20, 1899. [Reported in 173 United Slates, 131.] MR. CHIEF JUSTICE FULLER delivered the opinion of the court. The inquiry on the merits is, generally speaking, whether a secured creditor of an insolvent national bank may prove and receive dividends upon the face of his claim as it stood at the time of the declaration of insolvency, without crediting either his collaterals, or collections made therefrom after such declaration, subject alwaj's to the proviso that dividends must cease when from them and from collaterals realized, the claim has been paid in full. Counsel agree that four different rules have been applied in the dis- tribution of insolvent estates, and state them as follows : "Rule 1. The creditor desiring to participate in the fund is required first to exhaust his securit}' and credit the proceeds on his claim, or to credit its value upon his claim and prove for the balance, it being op- tional with him to surrender his security and prove for his full claim. " Rule 2. The creditor can prove for the full amount, but shall re- ceive dividends only on the amount due him at the time of distribution of the fund; that is, he is required to credit on his claim, as proved, all sums received from his security, and may receive dividends only on the balance due him. " Rule 3. The creditor shall be allowed to prove for, and receive dividends upon, the amount due him at the time of proving or sending in his claim to the official liquidator, being required to credit as pay- ments all the sums received from his security prior thereto. ''Rule 4. The creditor can prove for, and receive dividends upon, 1 Partridge v. Dearborn, 2 Low. 286 ; Catlin v. Hoffman, 9 B. R. 342 ; Re Ulfelder Clothing Co., 3 Am. B. R. 425 (referee), ace. See also Fowler v. Dillon, 1 Hughes, 232 But Re Burns. 1 B. R. 174, McKinsey v. Harding, 4 B. R. 286, hold that a judgment can only bo attacked in the court which rendered it. SECT. II.] MERRILL V. NATIONAL BANK OF JACKSONVILLE. 539 the full amount of his claim, regardless of any sums received from his collateral after the transfer of the assets from the debtor in insolvency, provided that he shall not receive more than the full amount due him." The Circuit Court and the Circuit Court of Appeals held the fourth rule applicable, and decreed according!}-. This was in accordance with the decision of the Circuit Court of Ap- peals for the Sixth Circuit, in Chemical National Bank v. Armstrong, 16 U. S. App. 465, Mr. Justice Brown, Circuit Judges Taft and Lurton, composing the court. The opinion was delivered by Judge Taft, and discusses the question on principle with a full citation of the authorities. We concur with that court in the proposition that assets of an insolvent debtor are held under insolvency proceedings in trust for the benefit of all his creditors, and that a creditor on proof of his claim, acquires a vested interest in the trust fund; and, this being so, that the second rule before mentioned must be rejected, as it is based on the denial, in effect, of a vested interest in the trust fund, and concedes to the creditor simply a right to share in the distributions made from that fund according to the amount which may then be due him, requiring a readjustment of the basis of distribution at the time of declaring every dividend, and treating, erroneously as we think, the claim of the creditor to share in the assets of the debtor, and his debt against the debtor, as if they were one and the same thing. The third and fourth rules concur in holding that the creditor's right to dividends is to be determined by the amount due him at the time his interest in the assets becomes vested, and is not subject to subsequent change, but they differ as to the point of time when this occurs. In Kellock's Case. L. R. 3 Ch. App. 769, it was held that the cred- itor's interest in the general fund to be distributed vested at the date of presenting or proving his claim ; and this rule has been followed in many jurisdictions where statutory provisions have been construed to require an affirmative election to become a beneficiary thereunder. For instance, the cases in Illinois construing the assignment act of that State, which are well considered and full to the point, hold that the in- terest of each creditor in the assigned estate " only vests in him when he signifies his assent to the assignment by filing his claim with the assignee." Levy v. Chicago National Bank, 158 111. 88; Furness v. Union National Bank, 147 111., 570. On the other hand, the Supreme Court of Pennsylvania in Miller's Appeal, 35 Penn. St. 481, and many subsequent cases, has held, neces- sarily in view of the statutes of Pennsylvania regulating the matter, that the interest vests at the time of the transfer of the assets in trust. In that case the debtor executed a general assignment for the benefit of creditors. Subsequently the assignor became entitled to a legacy which was attached by a creditor, who realized therefrom 82,402.87. It was held that such creditor was notwithstanding entitled to a dividend out of the assigned estate on the full amount of his claim at the time of the execution of the assignment. Mr. Justice Strong, then a member of 540 MERRILL V. NATIONAL BANK OF JACKSONVILLE. [CHAP. VI. the State tribunal, said : " By the deed of assignment, the equitable ownership of all the assigned property passed to the creditors. They became joint proprietors, and each creditor owned such a proportional part of the whole as the debt due to him was of the aggregate of the debts. The extent of his^interest was fixed b}' the deed of trust. It was, indeed, only equitable ; but whatever it was, he took it under the deed, and it was only as a part owner that he had any standing in court when the distribution came to be made. ... It amounts to very little to argue that Miller's recovery of the $2,402.87 operated with precisely the same effect as if a voluntary payment had been made by the as- signor after his assignment ; that is, that it extinguished the debt to the amount recovered. No doubt it did, but it is not as a creditor that he is entitled to a distributive share of the trust fund. His rights are those of an owner by virtue of the deed of assignment. The amount of the debt due to him is important only so far as it determines the extent of his ownership. The reduction of that debt, therefore, after the crea- tion of the trust, and after his ownership had become vested, it would seem, must be immaterial." Differences in the language of voluntary assignments and of statutory provisions naturally lead to particular differences in decision, but the principle on which the third and fourth rules rest is the same. In other words, those rules hold, together with the first rule, that the creditor's right to dividends is based on the amount of his claims at the time his interest in the assets vests by the statute, or deed of trust, or rule of law, under which they are to be administered. The first rule is commonly known as the bankruptcy rule, because enforced by the bankruptcy courts in the exercise of their peculiar jur- isdiction, under the bankruptcy acts, over the property of the bankrupt, in virtue of which creditors holding mortgages or liens thereon might be required to realize on their securities, to permit them to be sold, to take them on valuation, or to surrender them altogether, as a condition of proving against the general assets. The fourth rule is that ordinarily laid down by the chancery courts, to the effect that, as the trust created by the transfer of the assets by wo/ operation of law or otherwise, is a trust for all creditors, no creditor can equitably be compelled to surrender any other vested right he has iu the assets of his debtor in order to obtain his vested right under the trust. It is true that, in equity, a creditor having a lien upon two funds ma}- be required to exhaust one of them in aid of creditors who can only resort to the other, but this will not be done when it trenches on the rights or operates to the prejudice of the party entitled to the double fund. Story, Eq. Jur. (13th ed.) 633; In re Bates, 118 III., 524. And it is well established that in marshalling assets, as respects creditors, no part of his security can be taken from a secured creditor until he is completely satisfied. Leading Cases in Equity, White & Tudor, Vol. II., Part 1, 4th Amer. ed., pp. 258, 322. In Greenwood v, Taylor, 1 Russ. & Myl. 185, Sir John Leach ap- SECT. II.] MERRILL V. NATIONAL BANK OF JACKSONVILLE. 541 plied the bankruptcy rule in the administration of a decedent's estate, and remarked that the rule was " not founded, as has been argued, upon the peculiar jurisdiction in bankruptcy, but rests upon the gen- eral principles of a court of equity in the administration of assets ; " and referred to the doctrine requiring a creditor having two funds as security, one of which he shares with others, to resort to his sole security first. But Greenwood v. Taylor was in effect overruled by Lord Cottenham in Mason v. Bogg, 2 Myl. & Cr. 443, 488, and ex- pressly so by the Court of Appeal in Chancery in Kellock's case ; and the application of the bankruptcy rule rejected. In Kellock's Case, Lord Justice W. Page Wood, soon afterwards Lord Chancellor Hatherly, said : " Now in the case of proceedings with reference to the administration of the estates of deceased persons, Lord Cottenham put the point very clearly, and said : * A mortgagee has a double security. He has a right to proceed against both, and to make the best he can of both. Why he should be deprived of this right because the debtor dies, and dies in- solvent, is not very eas}' to see.' " Mr. De Gex, who argued this case very ably, sa} r s that the whole case is altered by the insolvency. But where do we find such a rule established, and on what principle can such a rule be founded, as that where a mortgagor is insolvent the contract between him and his mort- gagee is to be treated as altered in a way prejudicial to the mortgagee, and that the mortgagee is bound to realize his security before proceed- ing with his personal demand. " It was strongly pressed upon us, and the argument succeeded before Sir J. Leach in Greenwood v. Taylor, that the practice in bankruptcy furnishes a precedent which ought to be followed. But the answer to that is, that this court is not to depart from its own established practice, and vary the nature of the contract between mortgagor and mortgagee by analog}' to a rule which has been adopted by a court having a peculiar jurisdiction, established for administering the property of traders unable to meet their engagements, which property that court found it proper and right to distribute in a particular manner, different from the mode in which it would have been dealt with in the Court of Chancery. . . . We are asked to alter the contract between the parties by depriving the secured creditor of one of his remedies, namely, the right of standing upon bis securities until they are redeemed." And it was the established rule in England prior to the Judicature Act, 38 and 39 Viet., c. 77, that in an administration suit a mort- gagee might prove his whole debt and afterwards realize his secur- ity for the difference, and so as to creditors with security, where a company was being wound up under the Companies Act of 1862. 1 Daniel's Ch. Pr. 384 ; In re Withernsea Brick Works, L. R. 16 Ch. Div. 337. Certainly the giving of collateral does not operate of itself as a pay- ment or satisfaction either of the debt or any part of it, and the 542 MKRRILL V. NATIONAL BANK OF JACKSONVILLE. [CHAP. VL debtor who has given collateral security, remains debtor, notwithstand- ing, to the full amount of the debt ; and so in Lewis v. United States, 92 U. S. 618, 623, it was ruled that: "It is a settled principle of equity that a creditor holding collaterals is not bound to apply them before enforcing his direct remedies against the debtor." Doubtless the title to collaterals pledged for the security of a debt vests in the pledgee so far as necessary to accomplish that purpose, but the obligation to which the collaterals are subsidiary remains the same. The creditor can sue, recover judgment, and collect from the debtor's general property, and apply the proceeds of the collateral to any balance which may remain. Insolvency proceedings shift the creditor's remedy to the interest in the assets. As between debtor and creditor, moneys received on collaterals are applicable by way of pay- ment, but as under the equity rule the creditor's rights in the trust fund are established when the fund is created, collections subsequently made from, or payments subsequentl}" made on, collateral, cannot oper- ate to change the relations between the creditor and his co-creditors in respect of their rights in the fund. As Judge Taft points out, it is because of the distinction between the right in personam and the right in rein that interest is onl}' added up to the date of insolvencj', although after the claims as allowed are paid in full, interest accruing may then be paid before distribution to stockholders. In short, the secured creditor is not to be cut off from his right in the common fund because he has taken security which his co-creditors have not. Of course, he cannot go beyond payment, and surplus assets or so much of his dividends as are unnecessary to pay him must be ap- plied to the benefit of the other creditors. And while the unsecured creditors are entitled to be substituted as far as possible to the rights of secured creditors, the latter are entitled to retain their securities until the indebtedness due them is extinguished. The contractual relations between borrower and lender, pledging collatei'als, remain, as is said by the New York Court of Appeals in People v. Remington, 121 N. Y. 328, 336, " unchanged when insol- vency has brought the general estate of the debtor within the jurisdic- tion of a court of equity for administration and settlement." The creditor looks to the debtor to repay the money borrowed, and to the collateral to accomplish this in whole or in part, and he cannot be de- prived either of what his debtor's general ability to pay may yield, or of the particular security he has taken. We cannot concur in the view expressed b}* Chief Justice Parker in Amory^i Francis, 16 Mass. 308, 311, (1820) that "the property pledged is in fact securit}' for no more of the debt than its value will amount to ; and for all the rest the creditor relies upon the personal credit of his debtor, in the same manner he would for the whole, if no security were taken." We think the collateral is security for the whole debt and every part SECT. II.] MERRILL V. NATIONAL BANK OF JACKSONVILLE. 543 of it, and is as applicable to any balance that remains after payment from other sources as to the original amount due ; and that the assump- tion is unreasonable that the creditor does not rely on the responsibility of his debtor according to his promise. The ruling in Amory v. Francis was disapproved, shortly after it was made, by the Supreme Court of New Hampshire, in Moses v. Ranlet, 2 N. H. 488, (1822) Woodbury J., afterwards Mr. Justice Wood bury of this court, delivering the opinion, and is rejected by the preponderance of decisions in this country, which sustain the conclusion that a creditor, with collateral, is not on that account to be deprived of the right to prove for his full claim against an insolvent estate. Man}- of the cases are referred to in Bank v. Armstrong, and these and others given in the Encyclo. of Law and Eq. 2d ed. vol. 3, p. 141. Does the legislation in respect to the administration of national banks require the application of the bankruptcy rule ? If not, we are of opinion that the equity rule was properly applied in this case. By section 5234 of the Revised Statutes, and section 1 of the act of June 30, 1876, c. 156, 19 Stat. 63, the Comptroller of the Currency is authorized to appoint a receiver to close up the affairs of a national banking association when it has failed to redeem its circulation notes, when presented for payment ; or has been dissolved and its charter for- feited ; or has allowed a judgment to remain against it unpaid for thirty days ; or whenever the Comptroller shall have become satisfied of its insolvenc}' after examining its affairs. Such receiver is to take possession of its effects, liquidate its assets, and pay the money derived therefrom to the Treasurer of the United States. Section 5235 of the Revised Statutes requires the Comptroller, after appointing such receiver, to give notice by newspaper advertisement for three consecutive months, " calling on all persons who may have claims against such association to present the same, and to make legal proof thereof." By section 5242, transfers of its property by a national banking association after the commission of an act of insolvency, or in con- templation thereof, to prevent distribution of its assets in the manner provided by the chapter of which that section forms a part, or with a view to preferring any creditor except in payment of its circulating notes, are declared to be null and void. Section 5236 is as follows : " From time to time, after full provision has first been made for re- funding to the United States any deficiency in redeeming the notes of such association, the Comptroller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satisfaction, or adjudicated in a court of com- petent jurisdiction, and, as the proceeds of the assets of such associa- tion are paid over to him, shall make further dividends on all claims previously proved or adjudicated; and the remainder of the proceeds, if any, shall be paid over to the shareholders of such association, or 544 MERRILL V. NATIONAL BANK OF JACKSONVILLE. [CHAP. Vt their legal representatives, in proportion to the stock by them respect- ively held." In Cook County National Bank v. United States, 107 U. S. 445, it was ruled that the statute furnished a complete code for the distribution of the effects of an insolvent national bank ; that its provisions are not to be departed from ; and that the bankrupt law does not govern distri- bution thereunder. The question , now before us was not treated as involved and was not decided, but the case is in harmony with Bank v. Colby, 21 Wall. 609, and Scott v. Armstrong, 146 U. S. 499, which proceed on the view that all rights, legal or equitable, existing at the time of the commission of the act of insolvency which led to the ap- pointment of the receiver, other than those created by preference for- bidden by section 5242, are preserved ; and that no additional right can thereafter be created, either by voluntary or involuntary proceed- ings. The distribution is to be " ratable" on the claims as proved or adjudicated, that is, on one rule of proportion applicable to all alike. In order to be " ratable " the claims must manifestly be estimated as of the same point of time, and that date has been adjudged to be the date of the declaration of insolvenc}-. White v. Knox, 111 U. S. 784. * The set-off took effect as of the date of the declaration of insolvencj-, but outstanding collaterals are not payment, and the statute does not make their surrender a condition to the receipt by the creditor of his share in the assets. The rule in bankruptc}* went upon the principle of election ; that is to say, the secured creditor " was not allowed to prove his whole debt, unless he gave up any security held by him on the estate against which he sought to prove. He might realize his security himself if he had power to do so, or he might apph' to have it realized by the Court of Bankruptcy, or by some other court having competent jurisdiction, and might prove for any deficiency of the proceeds to satisfy his demand ; but if he neglected to do this and proved for his whole debt, he was bound to give up his securit} 7 ." Robson, Law Bank, 336. But it was only under bankrupt laws that such election could be compelled. Tay- loe v. Thompson, 5 Pet. 358, 369. And we are unable to accept the suggestion that compulsion under those laws was the result merely of the provision for ratable distribu- tion, which onl}' operated to prevent preferences, and to make all kinds of estates, both real and personal, assets for the payment of debts, and to put specialty and simple contract creditors on the same footing ; and so give to all creditors the right to come upon the common fund. Equalit} 1 between them was equity, but that was not inconsistent with the common law rule awarding to diligence, prior to insolvenc\-, its appropriate reward ; or with conceding the validity of prior contract rights. We repeat that it appears to us that the secured creditor is a creditor to the full amount due him, when the insolvency is declared, just as f The court here stated the cases of White v. Knox and Scott v. Armstrong. SECT. II.] MERRILL V. NATIONAL BANK OF JACKSONVILLE. 545 much as the unsecured creditor is, and cannot be subjected to a differ- ent rule. And as the basis on which a\l creditors are to ,draw dividends is the amount of their claims at the time of the declaration of insol- vency, it necessarily results, for the purpose of fixing that basis, that it is immaterial what collateral any particular creditor may have. The secured creditor cannot be charged with the estimated value of the col- lateral, or be compelled to exhaust it before enforcing his direct rem- edies against the debtor, or to surrender it as a condition thereto, though the receiver may redeem or be subrogated as circumstances may require. Whatever Congress ma}- be authorized to enact by reason of posses- sing the power to pass uniform laws on the subject of bankruptcies, it is very clear that it did not intend to impinge upon contracts exist- ing between creditors and debtors, by anything prescribed in reference to the administration of the assets of insolvent national banks. Yet it is obvious that the bankruptcy rule converts what on its face gives the secured creditor an equal right with other creditors into a preference against him, and hence takes away a right which lie already had. This a court of equity should never do, unless required by statute at the time the indebtedness was created. The requirement of equality of distribution among creditors by the national banking act involves no invasion of prior contract rights of an}* such creditors, and ought not to be construed as having, or being intended to have, such a result. Our conclusion is that the claims of creditors are to be deter- ininedfls of {.he date of the declaration of insolvency, irrespective of the~question whether particular creditors have security or not. When secured creditors have received payment in full, their right to dividends, and their right to retain their securities cease, but collections therefrom--- " lire not otherwise material. Insolvency gives unsecured creditors no "greater rights than they had before, though through redemption or sub- rogation or the realization of a surplus they may be benefited. The case was rightly decided by the Circuit Court of Appeals ; its decree in No. 54 is Affirmed, and the decree of the Circuit Court entered July 27, 1896, in pursuance of the mandate of that court, also af- firmed, and the case remanded accordingly. 1 1 Mr. Justice WHITE delivered a dissenting opinion, with which Justices HARLAV and MCKENNA concurred. In the course of this the decisions in the State courts were collected and classified as follows : " As the case before us is to be controlled by the act of Congress, it would appear unnecessary to advert to State decisions construing local statutes; but inasmuch as those decisions were referred to and cited as authority, I will briefly notice them. Thev divide themselves into four classes: 1. Those which maintain that where ratable distribution is required, the creditor must account for his security before proving. Amory v. Francis, (1820) 16 Mass. 308; Farnum . Boutelle, (1847) 13 Met. 159; Vanderveer v. Conover, (1838) 1 Hair. 487; Bell v. Fleming's Executors, (1858) 1 Beasley, (12 N. J. Kq.) 13, 25 ; Whittaker v. Amwell National Bank, (1894) 52 N. J Eq. 400; Fields v. Creditors of Wheatley, (1853) 1 Sneed, (Tenn.) 351; Winton v. 546 MERRILL V. NATIONAL BANK OF JACKSONVILLE. [CHAP. VI. Eltlridge, (1859) 3 Head, (Tenn.) 361; Wurtz v. Hart, (1862) 13 Iowa, SIC; Searle, Kx'or, v. Brumback, Assignee, (1862) 4 Western Law Monthly, (Ohio) 330; In re Fnisch, (1892) 5 Wash. 344; National Union Bank i?. National Mechanics Bank, (1895) 80 Maryland, 371; American National Bank v. Branch, (1896) 57 Kansas, 327 ; Investment Co. v. Richmond National Bank, (1897) 58 Kansas, 414. 2. Those oases which, on the contrary, decide that to allow the creditor to prove for his whole claim without deduction of security, is not incompatible with ratable distribution, and hold that the security need not be taken into account. Findlay v. Hosmer, (1817) 2 Conn. 350; Moses v. Ranlet, (1822) 2 N. H. 488 ; West v. Bank of Rutland, (1847; 19 Vermont, 403; Walker v. Baxter, (1854) 26 Vermont, 710, 714; In the matter of Bates, (1886) 118 Illinois, 524; Furness v. Union National Bank, (1893) 147 Illinois, 570; Levy v. Chicago National Bank, (1895) 158 Illinois, 88; Allen v. Danielson, (1837) 15 R. I., 480; Greener. Jackson Bank, (1895) 18 R. I. 779; People v. Reming- ton, (1890) 121 N. Y. 328 ; Third National Bank of Detroit v. Haug, (1890) 82 Michi- gan, 607 ; Kellogg v. Miller, (1892) 22 Oregon, 406: Winston v. Biggs, (1895) 117 N. C. 206. 3. Those cases which, whilst seemingly denying the obligation of the secured creditor to account for his security, yet, practically, work out a contrary result by re- quiring deduction upon collaterals as collected, and affording remedies to compel prompt realization ^of collaterals. In re Estate of McCune, (1882) 76 Missouri, 200; State V.Nebraska Savings Bank, (1894) 40 Nebraska, 342 ; Jamison v. Alder-Goldman Commission Co., (1894) 59 Arkansas, 548, 552; Philadelphia Warehouse Co. v. Annis- ton Pipe Works, (1895) 106 Alabama, 357 ; Erie v. Lane, (1896) 22 Colorado, 273. 4. Those which originated in purely local statutes and which hold that the secured creditor can prove for the whole amount without reference to either the bankruptcy or the chancery rule. Shunk'sand Freedley's Appeals, (1845) 2 Penn. St. 304; Morris 17. Olwine, (1854) 22 Penn. St. 441, 442; Keim's Appeal, (1856) 27 Penn. St. 42; Miller's Appeal, (1860) 35 Penn. St. 481 ; Patten's Appeal, (1863) 45 Penn. St. 151. And see a reference to the cases in Pennsylvania, in Boyer's Appeal, (1894) 163 Penn. St. 143. I supplement the compilation heretofore made by a reference to some State statutes and decisions referring to statutes which expressly provide that the claimants upon an insolvent estate can only prove for the balance due, after deduction of any security held. Indiana: Combs v. Union Trust Co., 146 Ind. 688, 691 ; Kentucky : Statutes, 1894, (Barbour & Carroll's ed.) c. 7, 74, p. 193; Bank of Louisville v. Lockridge, 92 Kentucky, 472 ; Massachusetts: Act of April 23, 1838, c. 163, 3; General Statutes, 1860, ch. 118, 27; Michigan: 2 How. St. 8824, p. 2156 ; Min- nesota : By statute March 8, 1860, the security is made the primary fund, to which resort must be had before a personal judgment can be obtained against the debtor for a deficit, Swifts. Fletcher, 6 Minn. 550; New Hampshire: Laws 1862, ch. 2594; South Carolina : Piester v. Piester, 22 S. C. 139; Wheat v. Dingle, 32 S. C. 473; Texas: Civil Stats. 1897, art. 83; Acts 1879, ch. 53, 13 ; Willis v. Holland, (1896) 36 S. W. Rep. 329." Mr. Justice GRAY also delivered a dissenting opinion, in the course of which he said : " The English bankrupt acts in force at the time of the Declaration of Independ- ence, so far as they touched the distribution of a bankrupt's estate among his creditors, were the statute of 13 Eliz. (1571) c. 7, 2, which directed the estate to be applied to the ' true satisfaction and payment of the said creditors, that is to say, to every of the said creditors a portion, rate and rate like, according to the quantity of his or their debts ;' and the stMtute of 21 James L, (1623) c. 19, 8 (or 9), which made more specific provisions against allowing any creditors, whether ' having security ' or not to prove ' for any more than a ratable part of their just and due debts with the other creditors of the said bankrupt.' As appears on the face of this provision, the word 'security' was evidently there used, not as including a mortgage or other instrument executed by the debtor by way of pledging part of his property as collateral security for the payment of a debt, but merely as designating a bond or writing which was evi- dence of the debt itself as a direct personal obligation ; and the objects of the provision would appear to have been to put all debts, whether by specialty or by simple contract, upon an equal footing in the ratable distribution of a bankrupt's estate, and to perrai* SECT. II.] MEKRILL V. NATIONAL BANK OF JACKSONVILLE. 547 the real amount only of any debt, and not any larger sum named in a bond or other speciality, to be proved in bankruptcy. 4 Statutes of the Realm, 539, 1228 ; 2 Cooke's Bankrupt Laws, (4th ed.) [18] [33]; 1 Ib. 119; Bac. Ab. Obligations, A; 3 Bl. Com. 439. " Neither of those statutes contained any provision whatever for deducting the value of collateral security and proving the rest of the debt. Yet, from the earliest period of which there are any reported cases, it was uniformly held without vouch- ing in any provision of the bankrupt acts, other than those directing a ratable distri- bution among all the creditors and had long before the American Revolution become the settled practice in the Court of Chancery, that a creditor could not retain collateral security received by him from the bankrupt and prove for his whole debt, but must have his collateral security sold and prove for the rest of the debt only. The authori- ties upon this point are collected in the opinion of Mr. Justice White, 173 U. S. 153. " After the American Revolution, the provision of the statute of James I. was thrice re-enacted, with little modification. Stats. 5 Geo. IV., (1824) c. 98, 103 ; 6 Geo. IV., (1825) c. 16, 108; 12 & 13 Viet. (1849) c. 106, 184. But the rule estab- lished by the decisions and practice of the Court of Chancery, as to the proof of secured debts, was never expressly recognized in any of the English bankrupt acts until 1869, when provisions to that effect were inserted in the statute of 32 & 33 Viet, c. 71, 40. And there is no trace of a different rule in England, in proceedings in equity for the distribution of the estate of any insolvent debtor or corporation, until more than sixty years after the Declaration of Independence. Amory v. Francis, (1820) 16 Mass. 308, 311 ; Greenwood v. Taylor, (1830) 1 Russ. & Myl. 185; Mason v. Bogg, (1837) 2 Myl. & Cr. 443. In 1868, indeed, the Court of Chancery declined to apply the bankruptcy rule to proceedings under the wiuding-up acts. Kellock's Case, L. R. 3 Ch. 769. But Parliament, by the Judicature Acts of 1873 and 1875, applied that rule to such proceedings. Stats. 36 aud 37 Viet. c. 66, 25 (1) ; 38 & 39 Viet. c. 77, 10. And Sir George Jessel, M. R., has pointed out the absurdity of having different rules in the cases of living and of dead bankrupts. In re Hopkins, (1881) 18 Ch. D. 370, 377. "The first bankrupt act of the United States, enacted in 1800, was in great part copied from the earlier bankrupt acts of England, and condensed the provisions, above mentioned, of the statutes of Elizabeth and of James I., in this form : ' In the distribution of the bankrupt's effects, there shall be paid to every of the creditors a portion-rate, according to the amount of their respective debts, so that every creditor having security for his debt by judgment, statute, recognizance or specialty, or having an attachment under any of the laws of the individual States, or of the United States, on the estate of such bankrupt, (provided there be no execution executed upon any of the real or personal estate of such bankrupt, before the time he or she became bank- rupts,) shall not be relieved upon any such judgment, statute, recognizance, specialty or attachment, for more than a ratable part of his debt with the other creditors of the bankrupt.' Act of April 4, 1800, c. 19, 31 ; 2 Stat. 30. That provision must have received the same construction that had been given by the English judges to the statutes therein re-enacted. Tucker v. Oxley, (1809) 5 Cranch, 34, 42; Scott p. Arm- strong, (1892) 146 U. S. 493, 511. "The bankrupt act of 1841, which is well known to have been drafted by Mr. Justice Story, omitted that section, and made no specific provision whatever as to the proof of secured debts; but simply provided that ' all creditors coming in and proving their debts under such bankruptcy, in the manner hereinafter prescribed, the same being bonafide debts, shall be entitled to share in the bankrupt's property ami effects, pro ruta, without any priority or preference whatsoever, except only for debts due by such bankrupt to the United States, and for all debts due by him to persons who, by the laws of the United States have a preference, in consequence of having paid moneys as his sureties, which shall be first paid out of the assets.' Act of August 19, 1841, c. 9, 5 ; 5 Stat. 444. " Yet Mr. Justice Story, both in the Circuit Court and in this court, laid it down, as an undoubted rule, that a secured creditor could prove only for the rest of the debt after deducting the value of the security given him by the bankrupt himself of his own 548 IN KE ROUSE, HAZARD & CO. [CHAP. VI. SECTION III. CLAIMS HAVING PRIORITY. IN RE ROUSE, HAZARD & CO. (INCORPORATED). CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT, JANUARY 3, 1899. [Reported in 91 Federal Reporter, 97.] BEFORE WOODS, JENKINS, and SHOW ALTER, Circuit Judges. JENKINS, Circuit Judge, delivered the opinion of the court. [This was a petition to review an order of the District Court for the Northern District of Illinois, allowing priority to certain claims for labor against the bankrupt corporation. These claims had accrued within three months prior to August 31, 1898, when the bankrupt cor- poration made a general assignment for the benefit of creditors. The petition in bankruptcy was filed November 1, 1823. By the law of Illinois, wages for labor earned within three months prior to the making of a general assignment are given priority over other claims.] The question here is one of construction of the bankrupt law of the United States, and is this : Whether the Congress, having spoken by a particular provision (section 64 b, cl. 4) with respect to the priority to be allowed labor claimants, and having subsequently in the same Act (section 64 b, cl. 5) spoken generally with respect to the recognition of the priorities allowed by the laws of the State or the United States, the latter general provision overrides or enlarges the prior special pro- vision. The bankrupt act, 03- its terms, went into full force and effect upon its passage, July 1, 1898, and, notwithstanding the provision that no voluntary petition should be filed within one month of the passage of the Act, and that no petition for involuntary bankruptcy should be filed within four months of the passage of the Act, the bankrupt law was operative from the date of its passage, and was effective from that date to supersede the insolvency laws of the several States. Manu- facturing Co. v. Hamilton (Mass.), 51 N. E. 529; Blake v. Francis- Valentine Co., 89 Fed. 691 ; In re Bruss-Ritter Co. (E. D. Wis.), 90 property. In re Babcock, 3 Story, (1844) 393, 399, 400 ; In re Christy, (1845) 3 How. 293, 315. "The omission by that eminent jurist, when framing the act of 1841, of all specific provisions on the subject as unnecessary, and his repeated judicial declarations, after he had been habitually administering that act for three or four years, recognizing that rule as still iu force, compel the inference that a general enactment for the ratable distribution of the estate of an insolvent among all the creditors had the effect of pre- venting any individual creditor, while retaining collateral security on part of tho estate, from proving for his whole debt." SECT. III.] IN RE ROUSE, HAZARD & CO. 549 Fed. 651. It is probably true that the Congress could constitutionally in the bankrupt act recognize the varying systems of the, several States with respect to exemptions of propert}- (Darling v. Berrj-, 4 McCrary, 407, 13 Fed. 659) ; and it may be possible that like recognition of the varying laws of the several States in regard to priority of paj'ment of debts would not impair or destroy the uniformity of the system of bankruptcy authorized by the Constitution. We do not find occasion now to consider that subject. The question recurs, What was the real intention of the Congress as expressed in clauses 4 and 5 of section 646? In the first clause Congress addresses itself to the subject of labor claims, and particularly provides that all wages that have been earned within three months before the date of the commencement of proceedings in bankruptcy, not to exceed $300 to each claimant, shall be awarded priority of payment. It recognized, it must be assumed, the various provisions of law in the several States with respect to this subject. It found them not to be in harmony, and in some States, as, notably, in Illinois, the laws upon that subject not to be consistent with each other. It found limitation as to time different in the different States. It found that in some of the States priority of payment was unlimited as to amount, and in some limited to so small a sum as $50. With this divergence within its knowledge, the Congress spoke to the subject specially and particularly, and limited the amount to $500, and as to time, to wages earned within three months before the commencement of proceedings. Can, then, the general provision of the law following immediately thereafter, allowing priority of payment for all debts owing to any person who, by the laws of the States or the United States, is entitled to priority, be held to enlarge the prior pro- vision so that the statute should be read that, in any event, the laborer should be entitled to priority of payment in respect of wages earned within three months prior to proceedings, and in amount not exceeding $t!00, and that wherever the laws of the State of the residence of the bankrupt grant the laborer priority of payment without limit as to time or amount, or impose a limit in excess of that imposed by the bankrupt act, he shall be entitled to a further priority in payment according to the law of the particular State? We think not. It is not to be sup- posed, unless the language of the Act clearly so speaks, that the Con- gress intended that in the administration of the Act there should be a marked contrariety in the priority of payment of labor claims dependent upon locality. It is an elemental'}* principle of construction that where there are in one Act or several Acts contemporaneously passed specific provisions relating to a particular subject, they will govern in respect to that subject as against general provisions contained in the same Act. [The court here referred to Sutherland, Statutory Construction, 158; State v. Inhabitants of Trenton, 38 N. J. L. 67 ; Taylor v. Corporation of Oldham, 4 Ch. D. 398 ; Attorney-General v. Lamplough, 3 Ex. D. 214; Dwarris, Statutes, p. 658; Felt v. Felt, 19 Wia. 193; States 550 IN RE WESTLUND. [CHAP. VI. Goetze, 22 Wis. 363, 365 ; Hoey v. Gilroy, 129 N. Y. 138 ; Stockett v. Bird's Adm., 18 Md. 484.] Our conclusion is that Congress having spoken specificalby to the subject of priority of pa3*ment of labor claims, what it has said upon that subject expresses the particular intent of the lawmaking power, and that provision is not to be tolled or enlarged by any general prior or subsequent provision in that Act. That which is given in particular is not affected by general words. So that the statute providing for the priority of payment of debts referred to in clause 5 must be construed to mean other debts and different debts than those specified in clause 4. We are not unmindful of the particular hardship which our conclusion, it is said, will work out here. It arises from the fact that under the law proceedings in bankruptcy, except by voluntary act of the bank- rupt, could not be commenced in time to fully protect these labor claimants. We regret that this is so. It is a misfortune arising from the provisions of the Act, but to remedy this particular wrong we can- not override a recognized canon of construction of statute law. IN RE WESTLUND. DISTRICT COURT FOR THE DISTRICT OF MINNESOTA, FEBRUARY 14, 1900. [Reported in 99 Federal Reporter, 399.] LOCHREN, District Judge. In this case creditors who were owners by assignment of claims for labor performed for the bankrupt within three months before the date of the commencement of the bankruptcy proceedings, each separate claim so assigned being less than $300, duly filed and made proof of such claims ; and the question certified by the referee for decision is whether such claims so owned are debts having priority. The answer to this question depends upon the proper construction of that clause of section 64 b of the bankruptcy act which gives priority to " wages due to workmen, clerks, or servants, which have been earned within three months before the date of the commence- ment of proceedings, not to exceed three hundred dollars to each claim- ant." This language requires that a debt for wages, to have priority, must be due to the wage-earner. If the claimant entitled to priority might be an assignee, there would be no reason why such claimant should be restricted to $300, as he might be the owner of many small claims, each less than that amount, but aggregating more. The clause referred to is intended to favor the class whose reliance for the main- tenance of themselves and families is generally upon their wages as earned. There is nothing in the nature of security or lien for the pa}-- ment of the wages which could pass to an assignee. No right to pri- ority arises or exists until the proceeding in bankruptcy is instituted, SECT. IV.] EX PARTE WAGSTAFF. 551 and then the wages assigned are not " due to workmen, clerks, or ser- vants," but to their assignees, and are outside the language of this clause. If debts for wages so assigned can be allowed priority, they ma}' come in conflict, or at least in competition, with other claims foi wages due and owing to the same workmen, clerks, or servants, earned within the same three months, and lessen the laments, if the assets will not pay in full all debts having priority. It must be held, there- fore, that debts of a bankrupt for labor and services which at the commencement of the proceedings in bankruptcy are not due to the workmen, clerks, or servants, but to assignees, have no priority. 1 SECTION IV. MUTUAL DEBTS AND CREDITS. Ex PARTE WAGSTAFF. CHANCERY, AUGUST 11, 1806. [Reported in 13 Vesey, 65.] THE petition stated, that the petitioners had various dealings in trade with James and William Kershaw : the petitioners being in the habit of purchasing goods from the Kershaws, receiving remittances for their use, and accepting bills drawn on the petitioners ; by means of which several dealings mutual accounts subsisted between them. On the 29th June, 1804, a Commission of Bankruptcy issued against James and William Kershaw. At that time the petitioners were in advance for money paid by them for the use of the bankrupts, exceeding the amount of their remittances, received and applied to their credit, with interest, the sum of 2,277 17s. 6<7. The petitioners were also at that time under acceptance of a bill of exchange, drawn on them by the bank- rupts, but not due at the date of the Commission, to the amount of 399 6s. ; which bill became due, and was paid by the petitioners on the 5th of July, 1804. The petitioners were at the time of the bank- ruptcy indebted to the bankrupts for goods sold the sum of 360 ; the stipulated credit for which had not then expired ; the goods having been purchased on credit, to expire on the 21st of May, 1805. The petitioners were also indebted to the bankrupts on a prior account for money had and received to their use, the sum of 3 13s. 3d. The petitioners applied to prove the sum of 2,277 17s. 6rf. : but the assignees contended that the two sums of 360 and 3 13s. 3d. ought to be deducted ; and that the amount of the bill, not being due or paid till after the bankruptcy, could not be debited in account 1 Shropshire v. Bush, 204 U. S. 186, contra. 552 EX PARTE WHITING. RE DOW. [CHAP. VI. against the bankrupts ; but was a debt accruing after the bankruptcy, and not barred by the certificate. The petition was therefore pre- sented ; insisting, that the amount of that bill, though not due till after the bankruptcy, was an item of credit to the bankrupts in the mutual account between them and the petitioners; and, that the petitioners had a right to apply in account hi the nature of set-off what was due from them to the bankrupts for goods and otherwise to their protec- tion, against and towards the extinguishment of their acceptance, and to prove the sum of 2,277 17s. 60?. ; and praying accordingly. The Lord CHANCELLOR [ERSKINE]. The bankrupt, being a creditor of the petitioners, drew a bill upon them before the bankruptcy ; which bill the}- accept. Is not that a mutual account : mutual credit to all intents and purposes? The order directed the proof to be admitted. 1 Ex PARTE WHITING. RE DOW ET AL. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, MARCH, 1876. [Reported in 2 Lowell, 472.] LOWELL, J. The facts, as I understand them, are, that in 1874 the firm of Dow, Hunt, & Co., the bankrupts, of which firm A. C. Gushing was a partner, borrowed $3,000 of a savings-bank, for which the}-, as a firm, and Gushing and the petitioner, Whiting, individually, gave their joint and several promissory note. This note the petitioner paid to the bank in full, after the failure of Dow, Hunt, & Co., but before their bankruptcy. The parties differ in their mode of looking at this note. The petition represents- it as signed by Dow, Hunt, & Co., and Gush- ing, as principals, and by the petitioner as surety, while the answer represents it to be the note of Dow, Hunt, & Co. as principals, and Gushing and the petitioner as co-sureties, and alleges that the money went to the firm exclusively. Upon the face of the note I should suppose that the answer puts the contract correctly, and I shall so 1 Ex parte Prescot, 1 Atk. 230 ; Sheldon v. Rothschild, 8 Taunt. 156 ; Smith n. Hodson.4 T. R. 211 ; Atkinson v. Elliott, 7 T. R. 378; Alsager v. Currie, 12 M. & W. 751 ; Marks r. Barker, 1 Wash. C. C. 178 ; Catlin v. Foster, 1 Sawy. 37 ; Drake v. Rollo, 3 Biss. 273; Ex parte Howard Bank, 2 Low. 487 ; Re City Bank, 6 B R. 71 ; Re Kalter, 2 N. B. N. 264 (referee), ace. Except in bankruptcy, no right of set-off is allowed in England unless both debts are due, even though one of the parties is insolvent. Re Commercial Bank of India, L. R. 1 Ch. 538. In this country the set-off is generally allowed where the debt clue from the insolvent has matured, though the debt due to him has not. Where, how- ever, the debt due from the insolvent has not matured, the weight of authority is against the allowance of a set-off, but there are recent decisions which strongly support the bankruptcy rule as one of general application where one of the parties is insolvent See 17 L. R. A. 456 n., and an essay by James L. Bishop in 1 Columbia L. Rev. 391. SECT. IV.] EX PARTE WHITING. HE DOW. 553 consider the case for the purposes of the present decision, though it is a point upon which evidence outside of the note is of 'course admis- sible. In 1875, the petitioner lent $1,396 to the firm of Dow, Hunt, & Co. , and Gushing transferred to him eight shares of the capital stock of the Hingham Steamboat Compan}' as collateral security, which Whiting promised to return on payment of the $1,396 with interest. This debt was overdue and unpaid at the time of the bankruptcy. This stock is worth more than $1,396 and interest, and the assignee has offered to pay the amount of that debt upon a reconveyance of the stock. The question is, whether Mr. Whiting can hold the surplus proceeds of the shares by way of set-off against Cushing's other debt to him, for con- tribution as co-surety of the note above mentioned. I have had occasion more than once to look carefully at the cases on the subject of mutual credit in bankruptcy ; and while the decisions in this country agree entire!}-, as far as they go, with those made in England, the subject has been more fully considered in that country, as is natural, the bankrupt law having been in force there for a much greater length of time. The leading cases on the subject are Rose v. Hart, 8 Taunt. 499 ; Young v. Bank of Bengal, 1 Moore, P. C. 150, much more full}' reported 1 Deacon, 622 ; Naoroji u. Chartered Bank of India, L. R. 3 C. P. 444 ; Astley v. Gurney, L. R. 4 C. P. (Ex. Ch.) 714. All those cases should be studied. The result of them is, that a creditor who, at the time of the bankruptcy, has in his hands goods or chattels of the bankrupt with a power of sale, or choses in action with a power of collection, may sell those goods or collect those claims, and set them off against the debt the bankrupt owes him ; and this, although the power to sell or to collect were revocable by the bank- rupt before his bankruptcy ; or, in other words, the occurrence of bank- ruptcy in such cases gives a sort of lien which did not exist before. This has been the law ever since Rose v. Hart, 8 Taunt. 499. Before that decision, it was admitted even in cases where there was no power of sale. Young v. Bank of Bengal, ubi supra, adds this limitation, and this onl}', that if the right to sell the pledge does not arise until after the bankruptcy, then there is no set-off for the surplus ; for the reason that the assignee might redeem instantly before an}* such power ex- isted, and the creditors shall not be prejudiced by any failure or neglect to redeem ; or, to put it in another way, that the rights of the parties are fixed at the date of the bankruptcy.. I have not overlooked the fact that in Young v. Bank of Bengal a good deal is said about the agreement to return the surplus. In this case there is an agreement to return the shares when the debt is paid. I do not consider the case cited to stand on this ground, but on that already mentioned, that the credit did not exist at the date of the bank- ruptcy. See that case explained by Parkc, B.,one of the judges who decided it, in Alsager v. Currie, 12 M. & W. 751, and by the judges in the late cases above cited. I apprehend that, when shares are con- veyed in this way as collateral security, the law implies a promise to 554 EX PARTE WHITING. RE DOW. [CHAP. VL return them on the payment of the debt, and its expression cannot properly affect the case. In all the cases there has been either an express or an implied promise by the agent or other person having the property, that he would faithfully account for it and pay over its pro- ceeds ; but this does not prevent a set-off in bankruptc}-. And the weight of authority is that a promise of this sort does not bar a set-off, either under the ordinary statutes or under the bankrupt act, unless the property has been intrusted to the agent for a particular purpose inconsistent with such an application of the surplus, so that this would be a fraud or breach of trust. See Key v. Flint, 8 Taunt. 21 ; Bu- chanan v. Findlay, 9 B. & C. 738, for cases of this sort ; and, for the general rule, Cornforth v. Rivett, 2 M. & S. 510 ; Eland v. Carr, 1 East, 375 ; Atkinson v. Elliott, 7 T. R. 378. In this case, the debt of $1,396 was overdue and unpaid, and by a statute of Massachusetts Mr. Whiting had a right to sell the shares after giving a certain notice. This law enters into the contract of the parties ; and though there is no evidence of a power of sale conferred by Mr. Gushing (the form of the transfer was not put in evidence), yet the}- will be taken to have understood that there would be a power of sale in accordance with the statute. On the day of the bankruptcy, Gushing was indebted to the petitioner for one-half the note of the firm actually paid by his co-surety, the petitioner, two weeks or more before that time. This makes out a case of mutual credit upon the authori- ties cited and the others which have followed them : a debt due from Gushing to the petitioner, and choses in action of Cushing's, with a present power of sale in the petitioner's hands. I understood that both parties submitted the matter to my decision, and accordingly I have decided it. It was said at the argument that the petitioner did not care to prove against Cushing's separate estate, as there could be no dividend. If so, it would not be necessary to de- cide the whole case now. When one partner has pledged his shares for the debt of the firm, proof may be made in full against the assets of the firm, because it is only when the proof is against the same estate which furnished the securitj- that a sale and application of the security is required by the bankrupt law. Petition granted. 1 1 Marks v. Barker, 1 Wash. C. C. 178 ; Catlin v. Foster, 1 Sawy. 37 ; Ex parts Caylus, 1 Low. 550 ; Re McVay, 1 3 Fed. Rep. 443, ucc. Brown v. New Bedford Inst. for Savings, 137 Mass. 265 ; Tallman v. New Bedford Bank, 138 Mass. 330 (con/. Hathaway v. Fall River Bank, 131 Mass. 16), contra. See also 1 Columbia Law Rev. 377, SECT. IV.] LIBBY V. HOPKINS. 555 LIBBY v. HOPKINS. SUPREME COURT OP THE UNITED STATES, OCTOBER TERM, 1881 [Reported in 104 United States, 303.] ERROR to the Supreme Court of the State of Ohio. -The suit was brought in the Superior Court of Cincinnati by A. T. Stewart & Co., of which firm the plaintiffs in error are the survivors, against Lewis C. Hopkins and wife, and Isaac M. Jordan, trustee in bankruptcy of Hopkins. It appears from the record that A. T. Stewart & Co., merchants, of the City of New York, loaned, June 6, 1866, Hopkins, a merchant of Cincinnati, Ohio, $100,000, and took his promissoiy note of that date therefor, payable on demand with interest from date, to secure the paj'inent of which he executed and delivered to them several mortgages on real estate in Cincinnati and its vicinity. Both before and after that date he bought of them large quantities of goods, and as a matter of convenience kept with them two accounts, one a cash and the other a merchandise account. They were his bankers. All his re- mittances were sent to them and credited to him in the cash account. By drafts thereon he paid his debts for merchandise to them and other New York merchants, and in order to replenish it he borrowed the $100,000 above mentioned, and it was carried to his credit in that account. On May 4, 1867, he paid on his note $25,000. On Nov. 12, 1867, he remitted to Stewart & Co. $10,000 ; on Dec. 27, 1867, $1 7,000 ; on the 28th of the same month, $10,000; and on the 30th, $48,025. He directed these remittances to be applied to the payment of his note, and to be credited thereon. It is now no longer disputed that the first three of these remittances were so applied. The last two, with the interest thereon, constitute the sum now in controversy. On Jan. 1, 1868, Hopkins suspended business, insolvent. At that time he owed A. T. Stewart & Co. $231,515 on account, and unsecured. His liabilities to others amounted to more than $500,000. A petition in bankruptc}' was filed against him February 29. He was adjudicated a bankrupt March 30. On April 30 Jordan was appointed trustee. As to the foregoing facts there is no dispute. In August, 1868, on what day the record does not show, Stewart & Co. commenced this suit for the foreclosure of the mortgages, claiming as due the full amount of the note, less the payment of $25,000. The answer, besides other defences not pertinent to anj r contention now raised, averred that Hopkins had paid on the note, not only the said sum of $25,000, but also the remittances above mentioned, mak- ing the total amount paid thereon $110,025; and after alleging that said payments were made in fraud of the Bankrupt Act, demanded, by way of counterclaim, a judgment against Stewart & Co. therefor. 556 LIBBY V. HOPKINS. [CHAP. VI. The reply admitted that Hopkins requested Stewart & Co. to credit the remittances on his mortgage debt, and averred that they were held subject to liis order, and continued to be so held, up to the time when the rights of Jordan, trustee, attached, subject to such law of offset as is provided in the Bankrupt Act. It nowhere appeared in the plead- ings that Hopkins was indebted to the plaintiffs on any unsecured claim, or in ain* other way, except upon the note for $100,000. No unsecured debt of Hopkins was pleaded as a set-off or otherwise. The Superior Court found that the mortgages were valid, and the first lien <>i the premises therein described, and that there was due thereon, including interest, the sum of $75,957.06. It rendered a final decree that unless that sum with interest be paid within one hundred and eighty days therefrom to Stewart & Co., the mortgaged premises should be sold. The court further found that when Hopkins made the last two remit- tances, of $10,000 and $48,025, respectively, it was with the intent and the express instruction in writing to Stewart & Co. to apply them in discharging the mortgage claim ; that Stewart & Co. refused to do so, but assumed, without his authority or consent, to apply, and did apply them to liis credit on the general account against him for merchandise ; that Stewart & Co. had no right to make such application ; and that the remittances remained in their hands as his moneys from the several da\-s of tlirir payment until Feb. 29, 1868, when the title of Jordan as trustee attached thereto. It also found that the said two several sums were not subject to any claim of set-off or cross-demand, or of mutual debts or credits, on the part of Stewart & Co., under section 20 of the Bankrupt Act, or otherwise. The court, therefore, rendered a decree in favor of Jordan, trustee, against Stewart & Co. for $58,025, the aggregate of the last two re- mittances, with interest, amounting in all to $75,981.36. The case was carried, by the petition in error of Stewart & Co., and the cross-petition in error of Jordan, trustee, to the Supreme Court of Ohio, by which the decree of the Superior Court was affirmed. Stewart & Co. thereupon brought the case here by writ of error. Some of the members of the firm have died, and Libby and another are its surviving members. Mr. Aaron F. Perry, for the plaintiffs in error. Mr. Jackson A. Jordan and Mr. Isaac Dayton, contra. Mr Justice WOODS, after stating the facts, delivered the opinion of the court. The only question to which our attention is directed by the plaintiffs is that of set-off under the twentieth section of the act of March 2, 1867, c. 176 (14 Stat. 517), which is as follows: "In all cases of mutual debts or mutual credits between the parties, the account be- tween them shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid, but no set-off shall be allowed of a claim in its nature not provable against the estate: Provided, that SECT. IV.] LIBBY V. HOPKINS. 557 no set-off shall be allowed in favor of am- debtor to the bankrupt of a claim purchased by or transferred to him after the filing of the peti- tion." This provision was in force at the time of the trial, and is now substantial!}- incorporated in section 5073 of the Revised Statutes. The contention of the plaintiffs is that the}' were entitled under this section to set off an unsecured account due them from Hopkins against the $58,025 remitted to them by him with directions to credit it on his mortgage debt, and which they refused so to apply. Waiving the difficulty that they have not pleaded that account as a set-off, we shall consider the question made by them. That account is a claim provable against the bankrupt estate, and it was not purchased by or transferred to them after the filing of the petition in bankruptcy. The controversy is, therefore, reduced to this issue : Were that account and the money transmitted by Hopkins to them, and held and not applied by them to the mortgage debt, mutual credits, or mutual debts which could be set off against each other under the twentieth section of the Bankrupt Act? The plaintiffs insist that the term " mutual credits " is more compre- hensive than the term u mutual debts" in the statutes relating to set- off ; that credit is synonymous witlrtrust, and the trust or credit need not be money on both sides ; that where there is a deposit of property on one side without authority to turn it into money, no debt can arise out of it ; but where there are directions to turn it into money it may become a debt, the reason being that when turned into money it be- comes like any other mutual debt. They say that the first of the two remittances under consideration is not proved to have been other than money, but as it was only $10,000, its application to the note could riot be required. The larger remittance was in drafts, and their application could not be required. But there was authority to turn them into money, and that to get the money on them it was necessary that the drafts should be indorsed by the plaintiffs, and that the indorsement to and collection by them put the money received in the same plight :iis if the drafts had been sent to them for collection. We cannot assent to these views, and they receive but little support from the adjudged cases. Ex parte Deeze, 1 Atk. 228, arose under the twenty-eighth section of the statute 5 Geo. II. c. 30, which provides that, " when it shall appear to the said commissioners [in bankruptcy] or the major part of them, that there hath been mutual credit given by the bankrupt and any other person, or mutual .debts between the bankrupt and any other person, at any time before such person became bankrupt, the said commissioners, or the major part of them, or the assignees of such bankrupt's estate, shall state the account between them, and one debt be set against another, and what shall appear to be due on either side on the balance of said account, and on setting such debts against one another, and no more shall be claimed on either side respectively." In that case, a packer claimed to retain goods not only for the price of 558 LIBBY V. HOPKINS. [CHAP. VI. packing them, but for a sum of 500 lent to the bankrupt on his note. Lord Hardwieke determined that he had such right on the ground of mutual credits, holding that the words " mutual credits " have a larger effect than " mutual debts," and that under them man}- cross-claims might be allowed in cases of bankruptcj', which in common cases would be rejected. But this ruling was subsequently made narrower by Lord Hard- wieke himself, in Ex parte Ockenden, id. 235, and was in effect over- ruled in Rose v. Hart, 8 Taunt. 499. In that case trover was brought for cloths deposited by the bankrupt previously to his bankruptcy, with the defendant, a fuller, for the purpose of being dressed. It was held that the defendant was not entitled to detain them for his general balance for such work done by him for the bankrupt previously to his bankruptc}', for there was no mutual credit within that section. And the court declared that the term " mutual credits " in the act meant only such as must in their nature terminate in debts. The rule established in this case, as to the nature of the credits which can be the subject of set-off, has been declared in other cases. Smith v. Hodson, 4 T. R. 211 ; Easum v. Cato, 5 Barn. & Aid. 861. The effect of the authorities is, that" the term " mutual credits " includes onlj" such where a debt may have been within the contemplation of the parties. These authorities make it clear that, even under the Bankrupt Act of 5 Geo. II., the plaintiffs would have no right to the set-off claimed by them. And they lose sight of the controlling fact that the money and the drafts which they turned into monej* were remitted, with ex- press directions to apply them on a specific debt. Without the consent of Hopkins they could never be changed into a debt due to him from the plaintiffs, and that consent has never been given. Whether or not he had the right to direct the application is imma- terial. There was no legal obstacle to the application as directed. The fact that he gave the direction imposed on the plaintiffs the obliga- tion to apply the money as directed, or to return it to him. They had no better right to refuse to make the application and to retain the money and set off against it the debt due to them from Hop- kins, than if they had been directed to pay the mone}' on a debt due from him to another of his creditors, or than they had to apply to the payment of his debt to them money which he left with them as a special deposit. Hopkins sent them the money and drafts, upon the faith and trust that they would be applied according to his instructions. The refusal so to apply them did not change the relations of the parties to this fund, nor make that a debt which before such refusal was a trust. To so hold would be to permit a trustee to better his condition b}- a refusal to execute a trust which he had assumed. Winslow v. Bliss, 3 Lans. N. Y. 220, and Scammon v. Kimball, 92 U. S. 362, cited by the plaintiffs to support their contention, are cases where a bank or banker was SECT. IV.] LIBBY V. HOPKINS. 559 allowed to set off the money of a depositor against a debt due from him to the bank. The answer to these authorities is that the relation between a bank and its general depositor is that of debtor and creditor. When he deposits moneys with the bank, it becomes his debtor to the amount of them. Foley v. Hill, 2 H. L. Gas. 28 ; Bank of the Republic r. Millard, 10 Wall. 152; Bollard v. Randall, 1 Gray (Mass.), 605. When, therefore, he becomes indebted to the bank, it is a case of mutual debt and mutual credit, which may well be set off against each other. But in this case there was no deposit. The relation of banker and depositor did not arise, consequently there was no debt. When A. sends money to B., with directions to apply it to a debt due from him to B., it cannot be construed as a deposit, even though B. may be a banker. The reason is plain. The consent of A. that it shall be con- sidered a deposit, and not a payment, is necessaiy and is wanting. Another answer to the contention of the plaintiffs is found in the language of the twentieth section of the Bankrupt Act of March 2, 1867, c. 176, which differs materially from that of the twenty-eighth section of 5 Geo. II. c. 30. In our act the term " credits " and " debts " are used as correlative. What is a debt on one side is a credit on the other, so that the term " credits " can have no broader meaning than the term " debts." We find no warrant in the language of the section or its context for extending the term " credits " so as to include trusts. Generally we know that "credit" and "trust" are not synon\"maus terms. They have distinct and well-settled meanings, and we see no reason why they should be confounded in interpreting the twentieth section of the Bankrupt Act. To authorize a set-off there must be mutual credits or mutual debts. The remitting of certain monej- assets by Hopkins to the plaintiffs, to be applied by them according to his instructions, did not make them his debtors, but his trustees. So that there were in the case no mutual credits or debts. The indebtedness was all on the side of Hopkins. The plaintiffs owed him nothing. They held his money in trust to app!}' it as directed by him. The)' refused to make the application as he directed. They held it, therefore, subject to his order. They continued so to hold it until the rights of the trustee in bankruptcy attached, and until he sought to re- cover it by his counter-claim filed in this case. The only contention of the plaintiffs set up in this court is that the Supreme Court of Ohio approved of the action of the Superior Court of Cincinnati, in refusing to allow the plaintiffs to set off the unsecured debt due to them by Hopkins against funds intrusted to them by him for an entirely different purpose. We are of opinion that the decision of the Superior Court was correct. The judgment of the Supreme Court of Ohio must, therefore, be Affirmed. 560 MORGAN V. WORDELL. [CHAP. YI. MORGAN v. WORDELL. SUPREME JUDICIAL COURT OF .MASSACHUSETTS, OCTOBER 22, 1900- APRIL 1, 1901. [Reported in 178 Massachusetts, 350.] HOLMES, C. J. This is a suit by a trustee in bankvuptcj- against a debtor of the bankrupt. The debtor claims a set-off on the ground that since the bankruptcy he has paid debts due from a former part- nership consisting of himself, the bankrupt, and one McGuire, from which debts the bankrupt had covenanted to save his partners harm- less. It is objected that the covenant runs to the two other partners jointly, but it is sufficiently plain that there are several covenants to each. The more serious objection is that the principal debt paid is one which has been disallowed by final judgment when offered by the cred- itors, H. B. Claflin & Company, for proof against the estate, on the ground that they received a preference, and that a claim offered in the defendant's name in respect of the pa3 - raent also has been disallowed. As it was assumed on both sides that the provision in section 68 b of the United States Bankruptcy Act concerning set-off is more than a rule of procedure, and governs in this court as well as in the courts of the United States, we shall make the same assumption for the purposes of this case, without argument. See Hunt v. Holmes, 16 Nat. Bankr. Reg. 101, 105 ; Partridge v. Insurance Co., 15 Wall. 573, 580. We shall assume further, as a corollary, that if a set-off is to be maintained it must be brought within the words of the section referred to. Those words are: "A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate." These words are universal in form, and we do not see how a set-off can be claimed in this case outside of them. If, then, the defendant claims by .virtue of the rights of a quasi- surety (Fisher v. Tifft, 127 Mass. 313, 314), who has paid and therefore is subrogated to the claim of a joint creditor of himself and the debtor (section 57 1), the trouble is that he has to take the claim of Claflin & Company as he finds it, and he finds it a claim which is not provable against the estate, because Claflin & Company have received prefer- ences which have not been surrendered. Section 57e ordered to be paid by the assignee into court and paid over to the purchaser, who thereupon offered to rescind the purchase and waive all further claim to the property. This court held that the summary proceeding was properly entertained ; that the purchaser had no title in the property superior to the bankrupt's estate ; and that the equities between him and the creditors might be determined by the District Court, bringing in the assignee if necessary. In that case it was observed that the remark in Brinies r Bank, that the powers conferred on the courts of bankruptcy after the filing of a petition in bankruptcy, and in ). howovi-r. Judge Blatchford overruled hia own decisions in AV Kimball, 2 Ben. 138, and /.' (ilaner, 2 Ben. 180. 596 IN RE MARCUS. [CHAP. VIII. " Witness my hand at Boston, in said district, this seventeenth day of May, A. D. 1900. JAMES M. OLMSTEAD." The bankrupt applied to the District Court, sitting in bankruptc} T , to be discharged from the arrest, and a discharge was ordered, and this petition was brought to revise that adjudication. The record shows that, in ordering the discharge,- the court relied on the writ of protec- tion, though apparently its specific terms were not brought to its attention, and that it did not rely' on the provision in the bankrupt act of July 1, 1898 (section 9 a), which exempts a bankrupt from arrest when in attendance upon a court of bankruptcy, or when engaged in the performance of a duty imposed by the act, nor on the broad powers asserted for courts of bankruptcy by the Circuit Court of Appeals for the Sixth Circuit in Wagner v. IL S. (C. C. A.), 104 Fed. 133. The bankrupt was adjudicated such on his own petition, filed before the judgment for costs was rendered, as already said. Therefore the costs were not provable against his estate, and consequently they were within the letter of the express exceptions in section 9 , so far as they relate to arrests on civil process when issued upon a debt or claim from which a discharge in bankruptc}* is not a release. Section 63 a directs specifically what taxable costs are provable, and its provisions with reference thereto must be held to cover that entire subject-matter, and to exclude such costs from being considered in connection with those parts of the act which relate to provable " unliquidated claims." In this particular we agree with the conclusions of Judge Lowell, sit- ting in the District Court for the District of Massachusetts, reported in He Marcus (D. C.), 104 Fed. 331. We also agree with the conclu- sions there expressed, that, ordinarity, a bankrupt re not entitled to be protected from arrest on an execution of the character of that now before us. We also concur in the construction and effect there given to the writ of protection in that case, which we are advised was the same in form as the writ of protection in the case at bar, in that it relates only to actions on claims or debts which are provable. We are not called upon to determine what should be our action if the court below had undertaken to proceed on the broad principles asserted in Wagner v. U. S., or had held that the bankrupt should be discharged from arrest because he was in attendance on the court, or engaged in the performance of some duty imposed on him. Under the circumstances, the arrest cannot be regarded as illegal, the bankrupt should not have been discharged therefrom, and this petition is well grounded. Let there be a decree for the petitioner, with costs against the re- spondents. 1 1 Similarly no relief can be had against arrest in an action to collect a debt created by fraud or by misappropriation of the debtor while acting in a fiduciary capacity ; since such debts though provable are not barred by a discharge. Re Devoe, 1 Low. 251 ; Re Seymour, 1 Ben. 348 ; Re Kimball, 2 Ben. 38 ; ~Re Patterson, 2 Ben. 155 ; Re Glaser, 2 Ben. 180 ; Re Pettis, 2 B. R. 44 ; Barter v. Harlan, 2 B. R. 236 ; Re Alsberg, 16 B. R. 116. SECT. II.] IN KE HATCH. 597 SECTION IL EXEMPTIONS. IN RE HATCH. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA, JUNE 19, 1900. [Reported in 102 Federal Reporter, 280.] SHIRAS, District Judge. From the facts certified by the referee in this case, it appears that on the 1st day of March, 1899, the bankrupt, James H. Hatch, executed and delivered to E. D. Mahon a chattel mortgage upon certain personal property, including one bay mare and a lumber wagon, to secure the payment of a debt of $125 ; that this mort- gage was not filed for record or recorded as required by the provisions of the Code of Iowa ; that on the 30th day of March, 1900, James H. Hatch was duly adjudged a bankrupt upon his own petition, and a trustee of his estate was appointed and qualified ; that upon the appli- cation of the bankrupt the property exempt to him was set apart, there being included therein the bay mare and lumber wagon covered by the mortgage to E. D. Mahon ; that the said E. D. Mahon filed her claim, based upon the note held by her and the chattel mortgage, and asked that the same be allowed as a preferred claim against the property in- cluded in the mortgage ; that upon a hearing had before the referee it was ordered kb that said claim be denied as a secured or preferred claim, but the same shall stand as a common claim, and be, and the same is, allowed as such for $72.75," the referee holding that the failure to record the mortgage rendered it invalid, under section 67 a of the bank- rupt act. It further appears that on the 26th da}' of May, 1900, E. D. Mahon filed a petition before the referee, asking that an order be made requiring the bankrupt to turn over and deliver to the trustee the bay mare and wagon set apart as exempt property, in order that the trustee might sell the same, and apply the proceeds to the payment of the claim due the petitioner. Upon the hearing on this petition the referee entered an order to the effect " that on demand the bankrupt, James II. Hatch, shall surrender and deliver to Edgar Daggctt, trustee herein, the said mare, Nell, and the said lumber wagon ; the said trustee to sell the same at public auction, first posting ten days' notice of the time and place of said sale, or at private sale, for not less than seventy- five per cent of the appraisal ; the proceeds, less expense of taking, keeping, and selling, or so much thereof as may be necessarj-, to be paid to the said E. D. Mahon." To this order the bankrupt excepted, and now presents the question of the validity of the order to this court for determination 598 LOCKWOOD V. EXCHANGE BANK. [CHAP. VIII. By the provisions of section 70 of the bankrupt act it is declared that there shall be vested in the trustee the title of the bankrupt as it existed at the date of the adjudication, to the various kinds of property enu- merated in the section, " except in so far as it is to property which is exempt." As the bay mare and the lumber wagon in controversy were set apart to the bankrupt as property exempt under the provisions of the Code of Iowa, it follows that the trustee is not vested with the title to this property, nor has he an}- equity therein as the representative of the general creditors. The trustee cannot assert any right to the prop- ert}', nor show any ground for asking an order for a sale thereof. The actual possesion of the property is held by the bankrupt, and since the same was segregated from the estate, and assigned to the bankrupt as exempt, it has ceased to be within either the actual or constructive possession of the court of bankruptcy. The situation is not one, there- fore, which enables the creditor to invoke the jurisdiction of the court on the ground that, as the propert}' is in the possession of the court, it can take jurisdiction over claims sought to be enforced against the prop- erty. The order excepted to is therefore reversed, and the referee is directed to enter an order dismissing the petition, for the reason stated. 1 LOCKWOOD v. EXCHANGE BANK SUPREME COURT OF THE UNITED STATES, APRIL 7-JuNE 1, 1903 [Reported in 190 United States, 294.] MR. JUSTICE WHITE delivered the opinion of the court. The general exemption of property from levy or sale, authorized by article 9, sec. 1, par. 1, of the present constitution of the State of Georgia (that of 1877), is "realty or personalty, or both, to the value in the aggregate of sixteen hundred dollars." By article 9, sec. 3, par. 1, of the same constitution a debtor is vested with power to waive or renounce in writing this right of exemption, " except as to wearing apparel, and not exceeding three hundred dollars' worth of household and kitchen furniture, and provisions." The mode of enforcement of a waiver of exemption is provided for in section 2850 of the Code of 1895, reading as follows : 1 The opinion is slightly abbreviated. Re Bass, 3 Woods, 382 ; Rix v. Capitol Bank, 2 Dill. 367 ; Re Camp, 91 Fed. Rep. 745; Re Hill, 96 Fed. Rep. 185 ; Re Grimes, 96 Fed. Rep. 529; Woodruff v. Cheeves, 105 Fed. Rep. 601 (C. C. A.) ; Re Little, 110 Fed. Rep. 621, ace. See also Re Poleman, 5 Biss. 526; Re Stevens, 5 B. R. 298 ; Re Preston, 6 B. R. 545; Byrd v. Harrold, 18 B. R. 433. Re Garden, 93 Fed. Rep. 423; Re Woodruff, 96 Fed. Rep. 317 (reversed 105 Fed Rep. 601 ) ; Re Sisler, 96 Fed. Rep. 402, contra. SECT. II.] LOCKWOOD V. EXCHANGE BANK. 599 " In all cases when any defendant in execution has applied for, and had set apart a homestead of realt}- and personalty, or either, or where the same has been applied for and set apart out of his property, as pro- vided for by the constitution and laws of this State, and the plaintiff in execution is seeking to proceed with the same, and there is no prop- erty except the homestead on which to levy, upon the ground that his debt falls within some one of the classes for which the homestead is bound under the constitution, it shall and may be lawful for such plain- tiff, his agent or attorney, to make affidavit before any officer authorized to administer oaths, that, to the best of his knowledge and belief, the debt upon which such execution is founded is one from which the homestead is not exempt, and it shall be the duty of the officer in whose hands the execution and affidavit are placed to proceed at once to levy and sell, as though the property had never been set apart. The defendant in such execution may, if he desires to do so, den}* the truth of the plaintiff's affidavit, by filing with the levying officer a counter affidavit." The question presented on the record before us may be stated in similar language to that which was used by the district judge the correctness of whose decision in the case at bar is now for review in the course of his opinion in In re Woodruff, 96 Fed. Rep. 317, as fol- lows (p. 318) : " Has the bankruptcy court jurisdiction to protect or enforce against the bankrupt's exemption the rights of creditors not having a judgment or other lien, whose promissory notes or other like obligations to pay , contain a written waiver of the homestead and exemption authorized and prescribed by the constitution of the State, or are such creditors ^j^^^ ( to be remitted to the State courts for such relief as ma\ r be there , ,.,., J K.t ***&. obtained ? t^ytJL^f Tin: provisions of the bankruptcy act of 1898, which control the con- sideration of the question just propounded, are as follows : By clause 11 of section 2 courts of bankruptcy are vested with jurisdiction "to determine all claims of bankrupts to their exemptions." Section 6 provides as follows: " SEC. 6. This act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition." By clause 8 of section 7 the bankrupt is required to schedule all his property and to make " a claim for such exemptions as he may be entitled to." By clause 1 1 of section 47 it is made the duty of the trustees to " set apart the bankrupt's exemptions and report the items and estimated value thereof to the court as soon as practicable after their appointment." By section 67 it is provided, among other things, that the property of the debtor fraudulently conveyed, etc., " shall, if he be adjudged a bankrupt, and the same is not exempt from execution 600 LOCKWOOD V. EXCHANGE BANK. [CHAP. VIII. and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt," etc. In section 70 is enu- merated the property of the bankrupt which is to vest in the trustee, as of the date of the adjudication in bankruptcy, " except in so far as it is to property which is exempt" Under the bankruptcy act of 1867 it was held that property generally exempted by the State law from the claims of creditors was not part of the assets of the bankrupt and did not pass to the assignee, but that such property must be pursued by those having special claims against it in the proper State tribunals. Thus, speaking of the act of 1867, Mr. Justice Bradley (In re Bass, 3 Woods, 382, 384) said : " Not only is all property exempted b}' State laws, as those laws stood in 1871, expressly excepted from the operation of the convey- ance to the assignee, but it is added in the section referred to, as if ex industria, that ' these exceptions shall operate as a limitation upon the conveyance of the property of the bankrupt to his assignee, and in no case shall the property hereby excepted pass to the assignee or the title of the bankrupt thereto be impaired or affected by any of the provisions of this title.' "In other words, it is made as clear as anything can be, that such exempted property constitutes no part of the assets in bankruptcy. The_agreement of the bankrupt in any particular case to waive the right to the exemption makes no difference. He may owe other debts in regard to which no such agreement has been made. But whether so or not, it is not for the bankrupt court to inquire. The exemption is created by the State law, and the assignee acquires no title to the exempt property. If the creditor has a claim against it he must prosecute that claim in a court which has jurisdiction over the property, which the bankrupt court has not." "We think that the terms of the bankruptcy act of 1898, above set out, as clearly evidence the intention of Congress that the title to the property of a bankrupt generally exempted by State laws should re- main in the bankrupt and not pass to his representative in bankruptcy, as did the provisions of the act of 1867, considered in In re Bass. The fact that the act of 1898 confers upon the court of bankruptc}" authority to control exempt property in order to set it aside, and thus exclude it from the assets of the bankrupt estate to be administered, affords no just ground for holding that the court of bankruptcy must administer and distribute, as included in the assets of the estate, the very property which the act in unambiguous language declares shall not pass from the bankrupt or become part of the bankruptcy assets. The two provisions of the statute must be construed together and both be given effect. Moreover, the want of power in the court of bankruptcy to admin- ister exempt property is besides shown by the context of the act, since throughout its text exempt property is contrasted with property not exempt, the latter alone constituting assets of the bankrupt estate sub- ject to administration. The act of 1898, instead of manifesting the SECT. II.] LOCKWOOD V. EXCHANGE BANK. 601 purpose of Congress to adopt a different rule from that which was applied, as we have seen with reference to the act of 1867, on the contrary exhibits the intention to perpetuate the rule, since the pro- vision of the statute to which we have referred in reason is consonant only with that hypothesis. Though it be conceded that some inconvenience ma} 1 arise from the construction which the text of the statute requires, the fact of such inconvenience would not justify us in disregarding both its letter and spirit. Besides, if mere arguments of inconvenience were to have weight, the fact cannot be overlooked that the contrary construction would produce a greater inconvenience. The difference, however, between the two is this, that in the latter case that is, causing the exempt property to form a part of the bankruptcy assets the inconvenience would be irremediable, since it would compel the ad- ministration of the exempt property as part of the estate in bank- ruptcy, whilst in the other, the rights of creditors having no lien, as in the case at bar, but having a remedy under the State law against the exempt property, may be protected by the court of bankruptcy, since, certainly, there would exist in favor of a creditor holding a waiver note, like that possessed by the petitioning creditor in the case at bar, an equit}- entitling him to a reasonable postponement of the discharge of the bankrupt, in order to allow the institution in the State court of such proceedings as might be necessary to make effective the rights possessed by the creditor. As in the case at bar, the entire property which the bankrupt owned is within the exemption of the State law, it becomes unnecessary to consider what, if any, remedy might be available in the court of bank- ruptcy for the benefit of general creditors, in order to prevent the cred- itor holding the waiver as to exempt property from taking a dividend on his whole claim from the general assets, and thereafter availing himself of the right resulting from the waiver to proceed against exempt property. The judgment of the District Court is reversed, and the proceeding is remanded to that court with directions to overrule the excep- tions to the trustee's assignment of homestead and exemption, and to withhold the discharge of the bankrupt, if he be othenvise entitled thereto, until a reasonable time has elapsed for the ex- cepting creditor to assert in a /State tribunal his alleged right to subject the exempt property to the satisfaction of his claim. 602 KE MUSSEY. [CHAP 1 . VIII. SECTION III. DISCHARGE. RE MUSSEY. DISTRICT COURT FOR THE DISTRICT OP MASSACHUSETTS, JANUARY 15, 1900. [Reported in 99 Federal Reporter, 71.] LOWELL, District Judge. This was a voluntary petition filed July 3, 1899. On October 27, 1897, the bankrupt had filed a voluntary petition in insolvency, upon which proceedings are now pending. She has now applied for her discharge in bankruptcy, and certain creditors who proved their claims in the insolvency proceedings ask that the dis- charge granted her shall expressly exempt from its operation all claims proved in insolvenc}', or within the jurisdiction of the insolvency court, and also such claims as were created by her fraud. It was held in Re Rhutassel (D. C.) 96 Fed. 597, that the only issue tendered 03- the petition for a discharge is the right to the discharge, and that the only facts properly pleadable in opposition thereto are those which show that the bankrupt is entitled to no discharge whatsoever. " The issue upon the effect of a discharge will arise when a creditor seeks to en- force a judgment or claim, and the debtor pleads his discharge in bar thereof." See also In re Thomas (D. C.) 92 Fed. 912. The dis- cretion of this court cannot determine the effect of a discharge in bankruptcy upon debts proved in insolvency. These debts are either barred b\" the discharge as matter of law, or else, as matter of law, remain unaffected thereby. The question of law is raised upon the creditors' suit to enforce these debts more conveniently than upon the petition for discharge, and so it is more convenient that the discharge shall be in the usual form, and that its scope shall be left for future determination. The same considerations apply to debts created by the bankrupt's fraud. Alleged fraud raises an issue of fact, which will be determined upon the creditors' suit to enforce the debt alleged to be created by fraud more conveniently than upon the bankrupt's applica- tion for his discharge. The discharge will therefore be granted in the usual form. 1 i Re. Rathbone, 2 Ben. 138; Re Rosenfield, 1 B. R. 575; Re Wright, 2 B. R. 41 ; Re Clarke, 2 B. R. 110; Re Elliott, 2 B. R. 1 10; Re Stokes, 2 B. R. 212 ; Re Tracy, 2 B. R. 298; Re Thomas, 92 Fed. Rep. 912; Re Rhutassel, 96 Fed. Rep. 597; Re Marshall Paper Co., 102 Fed. Rep. 872 (C. C. A.) ; Re McCarty, 111 Fed. Rep. 151, ace. See also Chapman v. Forsyth, 2 How. 202. In Re Tinker, 99 Fed. Rep. 79, this doctrine was applied though there was but one debt on the bankrupt's schedule and that would not be barred. Con/1 Re Maples, 105 Fed. Rep. 919. SECT. III.] WAY V. HOWE. 603 WAY v. HOWE. SUPREME JUDICIAL COURT OF MASSACHUSETTS, NOVEMBER, 1871. [Reported in 108 Massachusetts, 503.] GRAY, J. This case presents the question whether a certificate of discharge, granted by the District Court of the United States under the bankrupt act of 1867, c. 176, can be impeached in a State court (in an action brought upon a debt which was provable against the estate in bankruptcy and which was of a nature to be barred by a valid discharge) on account of a fraudulent conveyance of property by the bankrupt. It is not doubted that Congress, under the power to establish a uniform system of bankruptcy, may prescribe the conditions upon which a certificate of discharge shall be granted, and the extent and degree of its effect ; and that the question before us is therefore to be deter- mined by the provisions of the statute. Payson v. Payson, 1 Mass. 283. Burnside v. Brigham, 8 Met. 75. Those provisions, so far as the}- are material to the question at issue, are as follows : [The court here stated the substance of sections 1, 21, 29, 31, 32, 33, 34.] The words "with the exceptions aforesaid" in section 34, like the words " except as hereinafter provided" in section 32, clearly refer to those debts which by the intermediate section are declared not to be barred by any discharge under the act. With this reservation, section 34 explicitly declares that "a discharge duly granted under this act" (that is to say, by the court and in the manner already pointed out) "shall release the bankrupt from all debts, claims, liabilities, and demands which were or might have been proved against his estate in bankruptcy," and " may be pleaded as a full and complete discharge to all suits brought thereon," as well as that "the certificate shall be conclusive evidence in favbr of such bankrupt of the fact and regularity of such discharge." The only restriction upon these sweeping and comprehensive words is to be found in the ensuing proviso in the same section, which allows any creditor, whose debt was either proved or provable against the estate in bankruptcy, to apply to the court of bankruptcy within two years afterwards, and upon alleging and proving either of the causes mentioned in section 29, and also proving his ignorance thereof until after the granting of the discharge, to obtain a judgment setting aside and annulling it. If he fails to prove cither such fraudulent act of the bankrupt, or such ignorance on his own part, judgment is to be rendered in favor of the bankrupt, and the validity of the discharge is not affected. The decisions under the insolvent laws of this Commonwealth, or the earlier bankrupt acts of the United States, are inapplicable to this case ; because the former contained no provision for entirely setting 604 WAY v. HOWE. [CHAP. vin. aside or annulling a discharge once granted, and therefore its invalidity for an)* of the causes specified in them could only be alleged and proved whenever the discharge was pleaded in any action on a debt ; and in the latter the right to impeach the discharge in any such action was expressly reserved. St. 1838, c. 163, 10; Gen. Sts. c. 118, 87, 88 : U. S. Sts. 1800, c. 19, 34 ; 1841, c. 9, 4. The intention of Congress, in the bankrupt act of 1867, in omitting any such reservation in sections 29 and 34, and in giving a new proceed- ing by which an)- creditor, whose debt was proved or provable, may, upon proving a fraudulent act of the bankrupt, have the discharge set aside and annulled, if that act was unknown to him before the discharge was granted, but not otherwise, appears to us to have been, that the question of the discharge of the bankrupt from all debts and claims whatever (except of those classes which are declared not to be affected by any certificate of discharge) should be finally and conclusively settled by the court of bankruptcy within a moderate time, leaving the bank- rupt, if he prevails on such trial of that issue, free from future suit, molestation, or embarrassment on account thereof; and that every creditor should be obliged to try the question of the validity of the discharge, if at all, while the facts upon which it depends are compara- tively recent, and in such a manner as to enure to the benefit of all the creditors if the discharge is annulled, and should not be allowed to wait until the period prescribed by the general statutes of limitations has nearly expired, and the bankrupt has perhaps established himself anew in business and suffered the means of disproving the charges against him to pass beyond his reach, and then bring a suit to which the other creditors are not parties, and thus harass him on account of his old debts, and obtain an inequitable advantage over them. It follows, that the remedy given by application to a district court of the United States under section 34 of the bankrupt act is exclusive of any other mode of impeaching the validity of a discharge, either in the federal or in the State courts, on account of a fraudulent conveyance by the bankrupt in violation of the bankrupt act. Simms v. Slacum, 3 Cranch, 300, 308 ; Crocker v. Marine National Bank, 101 Mass. 240, and authorities cited. This conclusion is supported by an able judgment of the Supreme Court of Maine in Corey v. Ripley, 57 Maine, 69, and by a decision of the Court of Appeals of New York in Ocean National Bank v. Olcott, 46 N. Y. 12. See also Lynn v. Hamilton, 5 Vroom, 305. The opposing decision in Beardsley v. Hall, 36 Conn. 270, appears to have been made without a thorough examination of the provisions of the act of Congress. We are therefore of opinion that it was rightly ruled by the Superior Court that the defendant's discharge in bankruptcy could not be impeached or invalidated in this action for the cause stated in the replication. Exceptions overruled. 1 1 Commercial Bank v. Bnckner, 20 How. 108; Gates v. Parish, 47 Ala. 157 ; Mil- hous v. Aicardi, 51 Ala. 594; Payne v. Able, 7 Bash. 344; Thurmond v. Andrews, 10 SECT. III.] y BLUTHENTHAL V. JONES. 605 BLUTHENTHAL v. JONES. SUPREME COURT OF THE UNITED STATES, DECEMBER 18, 1907- JANUARY 6, 1908. [Reported in 208 United States, 64.] MR. JUSTICE MOODY delivered the opinion of the court : This is a writ of error to the Supreme Court of the State of Florida. The plaintiffs in error, judgment creditors of Miles C. Jones, the in- testate of the defendant in error, sought to enforce the judgment. The question is whether Jones was discharged from the debt by a discharge in bankruptcy granted to him on November 7, 1903, by the District Court for the Southern District of Florida. The debt was provable, and, it is conceded, would be barred by the discharge, were it not that in the year 1900, Jones filed his petition in bankruptcy in *"' the District Coui't for the Southern District of Georgia, and on objec- tion by the plaintiffs in error, then having the same claim as is now in question, a discharge was refused. Though the plaintiffs in error were notified of the proceedings on the second petition for bankruptcy and their debt was scheduled, they did not prove their claim or par- ticipate in any way in those proceedings. They now claim that their debt was not affected by the discharge on account of the adjudication in the previous proceedings. Section 1 of the Bankruptcy Act defines a discharge as " the release of a bankrupt from all of his debts which are provable in bankruptcy, except such as are excepted by this act." Section 14 of the amended act, which was applicable to the second proceedings, provides that after due hearing the court shall discharge the bankrupt, unless he has committed one of the six acts specified in that section. Sec-_ tionlTjif the amended act provides that a discharge in bankruptcy shall release a bankrupt from all of his provable debts, with four specified exceptions, which do not cover this case. The discharge appears to have been regularly granted, and, as the debt in question is not one which, by the terms of the statute, is excepted from its operation, on the face of the statute the bankrupt was discharged from the debt due to them. There is no reason shown in this record why the discharge did not have the effect which it purported to have. Bush. 400; Corey v. Ripley, 57 Me. 69; Bailey v. Corruthers, 71 Me. 172; Talbott v. Suit, 68 Md. 443; Black v. Blazo, 117 Mass. 17; Fuller v. Pease, 144 Mass. .390; II< im v. Chapman, 171 Mass. 347 ; Stevens . Brown, 49 Miss. 597 ; Brown v. Covenant Mut. L. I. Co., 86 Mo. 51 ; Seymour v. Street, 5 Neb. 85; Parker v. Atwood, 52 N. H. 181 ; Linn v. Hamilton, 34 N. J. L. 305; Ocean Nat. Bank v. Olcott, 46 N. Y. 12; Smith v. Ramsey, 27 Ohio St. 339 ; Ravi v. Lapham, 27 Ohio St. 452; Howland v. Carson, 28 Ohio St. 625; Alston v. Robinctt, 37 Tex. 56. Ace. Beardsley r. Hall, 36 Conn. 270, contra. 606 POLLET V. COSEL. [CHAP. VIII. Undoubtedly, as in all other judicial proceedings, an adjudication refusing a discharge in bankruptcy, finally determines, for all time and in all courts, as between those parties or privies to it, the facts upon which the refusal was based. But courts are not bound to search the records of other courts and give effect to their judgments. If there has been a conclusive adjudication of a subject in some other court, it is the duty of him who relies upon it to plead it or in some manner bring it to the attention of the court in which it is sought to be enforced. Plaintiffs in error failed to do this. When an applica- tion was made by the bankrupt in the District Court for the Southern District of Florida, the judge of that court was, by the terms of the statute, bound to grant it, unless upon investigation it appeared that the bankrupt had committed one of the six offenses which are specified in section 14 of the Bankruptcy Act as amended. An objecting credi- tor might have proved upon that application that the bankrupt had committed one of the acts which barred his discharge, either by the production of evidence or by showing that in a previous bankruptcy proceeding it had been conclusively adjudicated, as between him and the bankrupt, that the bankrupt had committed one of such offenses. If that adjudication had been proved, it would have taken the place of other evidence and have been final upon the parties to it. But nothing of this kind took place. The plaintiffs in error intentionally remained away from the court and allowed the discharge to be granted without objection. Since the debt due to the plaintiffs in error was a debt provable in the proceedings before the District Court of Florida, and was not one of the debts exempted by the statute from the operation of the dis- charge, it was barred by that discharge. The Supreme Court of the State of Florida so held, and its judgment must be affirmed. 1 POLLET v. COSEL. CIRCUIT COURT OP APPEALS FOR THE FIRST CIRCUIT, MAT, 1910. [Reported in 179 Federal Reporter, 488.] Before COLT, PUTNAM and LOWELL, Circuit Judges. PUTNAM, Circuit Judge : This was an appeal by a bankrupt against an order of the District Court in bankruptcy giving him only a qualified discharge. The bank- rupt petitioned for discharge, and the creditor, now the appellee, duly filed his specification of objections thereto, setting out the proceedings in a previous bankruptcy where he had been a creditor. The result 1 The opinion is slightly abbreviated. SECT. III.] POLLET V. COSEL. 607 was a judgment giving a limited discharge, the limitation being cov- ered by the following words : "Excepting also such debts as were provable in certain proceedings in bankruptcy in the District Court of the United States for the Southern District of New York, wherein on May 18, 1905, said Robert S. Pollet was duly adjudged a bankrupt." This exception reserved from this discharge the debt of the appellee. In the prior proceedings the discharge was not in form refused, but the petition therefor was dismissed on the ground that the bankrupt had failed to prosecute, and to appear for examination ; laches being apparently specifically assigned. We are of the opinion that the judgment of the District Court ap- pealed from was correct ; and, aside from our own conclusions in the matter, we should feel called on to sustain it in accordance with our practice of following the courts of appeals in other circuits. At the outset we note the fact that section 14 of the Bankruptcy Statute of 1898 provides that: " Any person may, after the expiration of one month, within the next twelve months subsequent to being adjudged a bankrupt, file an application for a discharge." It also provides that, if it appears that the bankrupt was unavoid- ably prevented from filing his application within 12 months, "it may be filed within but not after the expiration of the next six months." Here is a positive limitation of 18 months given by statute within which an application for a discharge may be made. If the position of the bankrupt in this case is correct, it amounts to a repeal of this statutory limitation. The fact that it is by indirection, instead of by a delayed application in the original proceeding, is immaterial, because in the indirect form the result would be quite as effectual to the defeat of the clear letter and intention of the statute as if otherwise accom- plished.. However, we do not let the case rest on this proposition, because the authorities to which we will refer are conclusive on more general grounds. The bankrupt relies on Bluthenthal v. Jones, 208 U. S. 64, 66. There is nothing in it which helps him. The opinion used the following phraseology : "Undoubtedly, as in all other judicial proceedings, an adjudication refusing a discharge in bankruptcy finally determines, for all time and in all courts, between those parties or privies to it, the facts upon which the refusal is based." This would be sufficient to bar the appellant here, if there had been an adjudication on the prior proceeding, or anything beyond a mere dismissal. Where there is only a mere dismissal for want of prosecu- tion, it is so often held that parties are not fully estopped thereby that the language we have quoted does not necessarily apply here. Never- theless, the questions we have here, in one form or another, have been before Circuit Courts of Appeals in other circuits three times : First, y 608 HILL V. HARDING. [CHAP. VIII. in Re Feigenbaum, in the Second Circuit, 121 Fed. 69 ; second, in Kuntz v. Young, in the Eighth Circuit, 131 Fed. 719 ; and, third, again in the Second Circuit, in Re Kuffler, 151 Fed. 12. In the first case a discharge had been refused. In the second and third cases the peti- tion for a discharge had been dismissed for want of prosecution, the same as here. And yet the same result was reached practically in each case, all in support of the judgment of the District Court now appealed from. In the last case the precise form of discharge which was granted here was approved in advance. Therefore, both on principle and on authority, we accept the conclusions of the District Court. The judgment appealed from is affirmed, and the appellee recovers his costs of appeal. 1 HILL v. HARDING. SUPREME COURT OF THE UNITED STATES, APRIL 16-MAY 13, 1889. {Reported in 130 United States, 699.] THIS was an action of assumpsit, commenced by Harding and others against Hill in an inferior court of the State of Illinois, in accordance ith the statutes of the State, by attachment of the defendant's real estate. The attachment was dissolved, in accordance with those stat- utes, by the defendant giving bond, or, more strictly speaking, entering into a recognizance, with sureties, conditioned to pay to the plaintiffs "the amount of the judgment and costs which ma} 7 be rendered against him in this suit on a final trial hereof, within ninety days after such judgment shall be rendered." After verdict for the plaintiffs, and before judgment thereon, and on proceedings in bankruptcy commenced more than four months after the attachment, the defendant was ad- judged a bankrupt under the Bankrupt Act of the United States, and far\ applied to the State court, under section 5, 106 of the Revised Statutes, for a stay of proceedings to await the determination of the court in bank- ruptcy upon the question of his discharge. The application was denied, and judgment rendered against the defendant on the verdict, and upon a bill of exceptions, stating these facts, that judgment was affirmed by ^X^ the Supreme Court of the State. 93 Illinois, 77. Upon a former writ of error, this court reversed the judgment of that court, and remanded the case to it for further proceedings, upon the ground that the defend- ant was entitled to the stay applied for, without considering the ques- 1 The opinion is slightly abbreviated. The refusal of a discharge under the Federal Act of 1867 (Re Hermann, 102 Fed. 753, 106 Fed. 987), or under a state insolvency law (Dean v. Justices, 173 Mass. 453), will not prevent the discharge, under the present Federal law, of debts provable in the former proceedings. HILL V. HARDING. 609 \A\ V (>^, tion whether the court in which the suit was pending might, after the defendant had obtained his discharge in bankruptcy, gender a special judgment in favor of the plaintiff for the purpose of charging the sure- ties on the recognizance given to dissolve the attachment. 107 U. S. 631, 635. The case was then remanded by the Supreme Court of Illinois to the i/iferior court with a direction that, upon its satisfactorily appearing that the defendant since the verdict had obtained his discharge in bankruptcy, a judgment should be entered for the plaintiff and against the defendant upon the verdict, with a perpetual stay of execution. The inferior court thereupon denied a motion of the defendant for leave to file a formal plea setting up his discharge in bankruptcy ; admitted in evidence a copy of that discharge, offered by the plaintiff and ob- jected to by the defendant as not duly verified ; refused the defendant's request for a trial by jury on the question of his discharge in bank- ruptcy ; denied a motion to enter a judgment in his favor, releasing him from all liability subsequent to the commencement of the proceed- ings in bankruptcy, on account of all causes of action involved in this suit ; and ordered judgment on the verdict, pursuant to the mandate of the Supreme Court of the State, with a perpetual stay of execution. Upon the bill of exceptions the judgment and order were affirmed by the Supreme Court of Illinois. 116 Illinois, 92. The defendant sued out this writ of error. Mr. George W. Brandt, for plaintiff in error. Mr. John M. Glover and Mr. William II. JBarnum, for defendants in error. Mr. Justice GRAY, after stating the case as above reported, delivered the opinion of the court. The question presented b}' this writ of error is quite distinct from that which arose when the case was before this court at a former term, as reported in 107 U. S. 631. The only point then decided was that the defendant, on his application made after verdict and before judgment, was entitled to a stay of proceedings to await the determi- nation of the court in bankruptcy upon the question of his discharge. The question not then passed upon, and now presented, is whether, since he has obtained his discharge in bankruptcy, there is anything in the provisions of the Bankrupt Act to prevent the State court from rendering judgment on the verdict against him, with a perpetual stay of execution, so as to prevent the plaintiffs from enforcing the judg- ment against him, and leaving them at liberty to proceed against the sureties in the bond or recognizance given to dissolve an attachment made more than four months before the commencement of the proceed- ings in bankruptcy. Such attachments being recognized as valid by the Bankrupt Act (Rev. Stat. 5044), a discharge in bankruptcy does not prevent the attaching creditors from taking judgment against the debtor in such limited form as may enable them to reap the benefit of their attach- 610 HILL V. HARDING. [CHAP. VIII. ment. When the attachment remains in force, the creditors, notwith- standing the discharge, may have judgment against the bankrupt, to be levied only upon the property attached. Peck v. Jenness, 7 How. 612, 623 ; Doe v. Childress, 21 Wall. 642. 1 When the attachment has been dissolved, in accordance with the statutes of the State, by the defendant's entering into a bonder recognizance, with sureties, condi- tioned to pa}- to the plaintiffs, within a certain number of days after any judgment rendered against him on a final trial, the amount of that judgment, the question whether the State court is powerless to render even a formal judgment against him for the single purpose of charging such sureties, or, in the phrase of Chief Justice Waite in Wolf v. Stix, 99 U. S. 1, 9, whether "the judgment is defeated by the bankruptcy of the person for whom the obligation is assumed," depends not upon any provision of the Bankrupt Act, but upon the extent of the authority of the State court under the local law. Whether that authority is exercised under the settled practice of the court, 2 as in Illinois, or only by virtue of an express statute, 3 as in Massachusetts, there is nqthinjg in the Bankrupt Act to prevent the rendering of such a judgment. The bond or recognizance takes the place of the attachment as a surety for the debt of the attaching creditors ; the}- cannot dispute the election, given to the debtor by statute, of substituting the new security for the old one ; and the giving of the bond or recognizance, by dis- solving the attachment, increases the estate to be distributed in bank- ruptcy. The judgment is not against the person or property of the bankrupt, and has no other effect than to enable the plaintiff to charge the sureties, in accordance with the express terms of their contract, and with the spirit of that provision of the Bankrupt Act which declares that ' no discharge shall release, discharge, o*r affect any person liable for the same debt for or with the bankrupt, either as partner, joint contractor, indorser, surety, or otherwise." Rev. Stat. 5118; In re Albrecht, 17 Bankr. Reg. 287; Hill v. Harding, 116 111. 92; Barnstable Savings Bank v. Higgins, 124 Mass. 115. 1 Samson v. Burton, 5 Ben. 325, 341 ; May r. Courtnay, 47 Ala. 185; Ingraham v. Phillips, 1 Day, 117 ; Daggett v. Cook, 37 Conn. 341 ; Alsop v. White, 45 Conn. 499 ; Bowman v. Harding, 56 Me. 559; Perry v. Somerby, 57 Me. 552; Belfast Savings Bank v. Lancey, 93 Me. 422, 429 ; Davenport v. Tilton, 10 Met. 320 ; Bates v. Tappan, 99 Mass. 376; Bosworth v. Pomeroy, 112 Mass. 293; Stockwell v. Silloway, 113 Mass. 382 ; Johnson v. Collins, 116 Mass. 392 ; Kittredge v. Warren, 14 N. H. 509 ; Kittredge r. Emerson, 15 N. H. 227 ; Batchelder v. Putnam, 54 N. H. 84; Stoddard v. Locke, 43 Yt. 594, ace. Conf., Williams v. Atkinson, 36 Tex. 16. 2 Re Martin, 105 F. 753 ; Re Albrecht, 17 B. R. 287; Hill v. Harding, 116 111. 92; Kendrick v. Warren, 110 Md. 47 ; Fisse v. Einstein, 5 Mo. App. 78 ; Zollar v. Janvrin, 49 N. H. 114 ; Batchelder v. Putnam, 54 N. H. 84 ; Holyoke v. Adams, 1 Hun, 223 ; Farrell v. Finch, 40 Ohio St. 337. Where the attachment was made within four months a judgment with stay of execu- tion was refused against sureties on the attachment bond. House v. Schnadig, 235 111. 301 ; Crook Homer Co. v. Gilpin, 112 Md. 1. See also Klipstein v. Allen-Miles Co., 136 Fed. 385 (Ga. C. C. A.). 8 Wolf v. Stix, 99 U. S. 1 ; Odell v. Wootten, 38 Ga. 324 ; Payne v. Able, 7 Bush. 344 ; Carpenter v. Tnrrell, 100 Mass. 450; Barnstable Savings Bank v. Higgins, 124 Mass. 115 ; Goyer Co. v. Jones, 79 Miss. 253 ; Martin v. Kilbourne (Tenn.), 1 Cent. L. J. 94. SECT. III.] CILLEY V. COLBY. 611 If the bond was executed before the commencement of proceedings in bankruptcy, the discharge of the bankrupt protects him from liability to the obligees, so that, in an action on the bond against him and his sureties, any judgment recovered by the plaintiffs must be accompanied with a perpetual stay of execution against him ; but his discharge does not prevent that judgment from being rendered generally against them. Wolf v. Stix, above cited. If the sureties should ultimately pa}' the amount of any such judgment, and thereby acquire a claim to be reim- bursed by their principal the amount so paid (which is a point not now in issue), it would be because his liability to them upon such a claim did not exist" at the time of the commencement of the proceedings in bankruptcy, and therefore could not be proved in bankruptcy nor barred by the discharge, and consequently would not be affected by any provision of the Bankrupt Act. The courts of Illinois, in the judgment rendered in this case, having assumed the validity of the defendant's discharge in bankruptcy, he has not been prejudiced by the rulings denying leave to file after verdict a formal plea of the discharge in bankruptcy, and admitting in evidence an unverified cop}' of the discharge, and refusing his request for a trial by jury upon that issue. Judgment affirmed.^ CILLF.Y v. COLBY. SUPREME COURT OF NEW HAMPSHIRE, JUNE, 1881. [Reported in 61 New Hampshire, 63.] ASSUMPSIT, on a note dated July 14, 1876, signed by the defendant as surety. The principal filed his petition in bankruptcy February 6, 1877. The plaintiff proved his claim, and voted for assignee. Subse- quently the bankrupt submitted to his creditors a proposition for a composition of 10 per cent in satisfaction of their claims, under sec- tion 17 of the amendment to the bankrupt act approved June 22, 1874. The creditors passed a resolution accepting the proposition, the plain- tiff voting to ratify and confirm it. His signature was necessary to make the required amount and confirm the resolution. The composi- tion was accepted, and ordered to be recorded. The 10 per cent was paid, and the creditors, including the plaintiff, signed a receipt in full payment and liquidation of their respective claims in composition in bankruptcy, November, 1877. S. L. Bowers, for the plaintiff. Edes <& Newton, for the defendant. STANLET, J. The defendant is liable, unless the plaintiffs vote in favor of a resolution accepting the proposition of 10 per cent, to be 1 Re Rosenthal, 108 Fed. Rep. 368, ace. 612 PHELPS V. BORLAND. [CHAP. VIII. paid to the creditors in discharge of their claims against the principal, has the effect to release him. In a composition, no actual discharge of the principal is given ; but the payment of the amount offered, and its acceptance by the creditor, is in effect a discharge, for by it all right of action against the bankrupt is barred. " No discharge shall release, discharge, or affect any person liable for the same debt for or with the bankrupt, either as partner, joint contractor, indorser, surety, or otherwise." U. S. Rev. St. 5,118. The voluntary discharge of the principal by the creditor discharges the surety ; but proceedings in bankruptcy, even though the creditor participates therein, do not have the effect of a voluntary discharge. It is not the act of the creditor alone that makes the composition valid. A majority in number and amount must concur in consenting, and the court must also give its consent. If the plaintiff's consent was necessary, and if his withhold- ing it would have prevented the bankrupt from obtaining his discharge, it does not follow that his signature alone was effectual. It was the concurrent act of a majority in number of the creditors and in amount of their debts, with the assent of the court, that made the composition effectual. Unless these three conditions had coexisted, there would have been no valid composition. Guild v. Butler, 122 Mass. 498; Farwell v. Raddin, 129 Mass. 7; Hill v. Trainer, 49 Wis. 537. The same construction is given by the English courts to their statute of compositions, from which our own was, no doubt, copied. Browne v. Carr, 7 Bing. 508; Ellis v. Wilmot, L. R. 10 Ex. 10; Simpson v. Heuning, L. R. 10 Q. B. 406 ; Ex parte Jacobs, L. R. 10 Ch. 211. Judgment for the plaintiff. 1 PHELPS v. BORLAND. COURT OF APPEALS OF NEW YORK, NOVEMBER, 1886. [Reported in 103 New York, 406.] FINCH, J. The defendant, a citizen of this counfoy, drew a bill of exchange to his own order at sixty days' sight upon Johnston & Co., who were English merchants residing in Liverpool. The defendant sold it to the plaintiffs, who were American bankers, residing in New York. The bill was duly accepted by Johnston & Co., payable in 1 In none of the cases cited by the court was it found as a fact that except for the plaintiff's assent the bankrupt would not have received a discharge. The fact that the plaintiff assented to a discharge in bankruptcy has generally been held not to release a surety. Browne v. Carr, 7 Bing. 508; Megrath v. Gray, L. R. 9 C. P. 216; Ellis v. Wilmot, L. R. 10 Ex. 10; Ex p there, and to have the issue tried ; in the third place, he may be very ( willing to have the amount in dispute liquidated in that proceeding, in which case it becomes a debt to be paid pro rata with his other debts-^ by the assignee in bankruptcy. Jf for any of these reasons, or for others, he permits the case to proceed to judgment in the State court, by failing to procure a stay of proceedings under the provisions of this section of the bankrupt law, or the assignee in bankruptcy does not intervene, as he may do, Hill v. Harding, 107 U. S. 631, he does not thereby forfeit his right to plead his final discharge in bankruptcy, if he shall obtain it, at any appropri- ate stage of the proceedings against hfm in the State court. And if, as in the present case, his final discharge is not obtained until after judgment has been rendered against him in the State court, he may produce that discharge to the State court and obtain the stay of execu' tion which he asks for now. See McDougald v. Reid, 5 Ala. 810. 628 BOYNTON V. BALL. [CHAP. VIII. In Rogers v. The Western Marine and Fire Ins. Co., 1 La. Ann. 161, the court, in a similar case, says : "The proposition that Rogers should have pleaded the pendency of the bankrupt proceedings in the original suit, and cannot disturb the execution of the judgment which is final, is untenable. The discharge in bankruptcy was posterior to the rendition of this judgment, and operated with the same force upon the debt after it assumed the form of a judgment as it would have done had the debt remained in its original form of a promissory note." These and many other decisions under the bankrupt law of 1841 are to be found in the brief of the plaintiff in error. The same principle is decided in Cornell v. Dakin, 38 N. Y. 253, and in several cases in the District and Circuit Courts of the United States. There is a very able review of the subject by Judge Hillyer of the United States District Court of Nevada, in the case of Stansfield, reported in 4 Sawyer, 334. The same thing was held by the Court of Appeals of New York, in Palmer v. Hussey, 87 N. Y. 303, 310, which was affirmed in this court on writ of error in Palmer v. Hussey, 119 U. S. 96. It follows from these considerations that The Supreme Court of Illinois was in error in failing to give due effect to Boynton's discharge in bankruptcy, and its judg- ment is reversed, and the case is remanded to that court for further proceedings in accordance with this opinion. 1 1 " The early English practice gave the creditor an election to prove in bankruptcy or prosecute his action ; and if he obtained judgment and execution, he could dispute the validity of the proceedings in bankruptcy by seizing the property in the hands of the assignees, a practice which led to a vast amount of litigation and uncertainty. He might, instead of seizing property, take the debtor in execution. But it was en- acted, as early as 1730, that if a creditor did obtain such a judgment and take the debtor in execution, or detain him in prison, after he had received his certificate, he should be discharged on motion. Stat. 5 Geo. II. ch. 30, 13. And this was con- tinued in force until 1869. The English practice has had an undue weight in some of the decisions in this country. See the arguments in Dresser v. Brooks, 3 Barb. 429. The law was so in England ; but it was the statute itself which provided for the case, and not any general rule in bankruptcy. It is easy to see, by studying the English cases, that this practice was established by statute to meet the very difficulty which our statute meets by granting a stay of actions until the question of discharge is determined. The statute of 1869 will work an entire change of the practice in Eng- land, and bring it to the true position. It gives the court of bankruptcy full power to stay actions ; and no summary motion will hereafter be made, nor any judgment be obtained in that country, excepting such as will not be discharged by the certificate." Re Gallison, 2 Low. 72, 74. The English Act of 1883, section 10 (2), gives the bank- ruptcy court power to stay any action, execution, or other legal process against the bankrupt at any time after the presentation of a bankruptcy petition. Under the United States Acts of 1841 and 1867 the law was in conflict prior to the decision of Boynton v. Ball. In accord with that decision were Re Brown, 5 Ben. 1 ; Anderson v. Anderson, 65 Ga. 518 (con/. Adams v. Dickson, 72 Ga. 846) ; Rogers v. Western Ins. Co., 1 La. Ann. 161 ; McDonald v. Ingraham, 30 Miss. 389; Dresser v. Brooks, 3 Barb. 429 ; Fox v. Woodruff, 9 Barb. 498 ; Johnson v. Fitzhugh, 3 Barb. Ch. 360; Clark v. Rowling, 3 N. Y. 216; McDonald v. Davis, 105 N. Y. 508; Dawson v. Hartsfield, 79 N. C. 334 ; Dick v. Powell, 2 Swan, 632 ; Stratton v. Perry, 2 Tenn. SECT. III.] KINMOUTH V. BRAEUTIGAM. 629 KINMOUTH v. BRAEUTIGAM. SUPREME COURT OF NEW JERSEY, JUNE 12, 1900. [Reported in 46 Atlantic Reporter, 769.] THIS action was begun on October 29, 1898. A voluntary petition in bankruptcy was filed by the defendant on November 23, 1898. The plaintiff recovered judgment on December 27, 1898, and on January 12, 1899, the plaintiff was adjudicated a bankrupt. The plaintiff now moved to vacate the judgment. ' COLLINS, J. This motion was heard by me in vacation, under sec- tion 295 of the practice act. It involves the interpretation of the fol- lowing provisions of the United States bankrupt act of 1898, viz. : [The court here quoted section 1 (1) and section 67/'.] It is argued on behalf of the motion that the words, " at any time within four months prior to the filing of a petition in bankruptcy," mean at any time after a date that is four months prior to the filing of the petition, even although the lien is obtained subsequent to such filing. I cannot assent to this construction. The words are perfectly plain, and have no inclusion of a judgment obtained after the filing of the petition. The way to prevent judgment in a pending action is to stay the suit until the adjudication in bankruptcy, and a sufficient time afterwards to afford opportunity to obtain and plead a discharge. Pos- sibly, if default be made, the court will, upon discharge being granted, open the judgment in order to allow it to be pleaded ; but it will not vacate a judgment regularby obtained, because of the possibility of a subsequent discharge. It should be added that the avoiding of a judgment, under the quoted provision, is not matter of right. Judicial Ch. 633 ; Harrington v. McNaughton, 20 Vt. 293 ; Stockwell v. Woodward, 52 Vt. 228, 234. See also Imlay v. Carpentier, 14 Cal. 173; Betts v. Bagley, 12 Pick. 572; Wyman v. Mitchell, 1 Cow. 316. Contrary decisions were /? Galliaon, 2 Low. 72; Re Williams, 2 B. R. 229; Re Crawford, 3 B. H. 698; Re Mansfield, 6 B. H. 388; Roden v. Jaco, 17 Ala. 344 (conf. Trimble v. Williamson, 49 Ala. 525, 528) ; Steadman v. Lee, 61 Ga. 58; (<"onf. Anderson v. Anderson, 65 Ga. 518; Adams v. Dickson, 72 Ga. 846); Boynton v. Ball, 105 III. 627; Bowen r. Eichel, 91 Ind. 22; Hnl brook i>. Foss, 27 Me. 441; Pike v. McDonald, 32 Me. 418; Uran v. Houdlette, 36 Me. 15; Palmer u. Merrill, 57 Me. 26; Woodbury v. Perkins, 5 Cnsb. 86; Bradford v. Rice, 102 Mass. 472 ; Cutter v. Evans, 115 Mass. 27 ; McCarthy v. Goodwin, 8 Mo. App. 380; Kellogg v. Schuyler, 2 Denio, 73; Wise's Appeal, 99 Pa. 193. The decision of Boynton v. Ball fixed the law, and it has been followed in lit, Marshall Paper Co., 95 Fed. Rep. 419. 424; Tefft . Knox. 37 Kan. 37 ; Pine Hill Coal Co. v. Harris Co., 86 Ky. 421 ; Huntington r. Samulerx, 166 Mass. 92; Williiinm v. Humphreys, 50 N. J. L. 500; Whyte v. McGovern, 51 N. J. L. 356; Locheimor v. Stewart, 91 Tenn. 385 ; Courtney v. Beale, 84 Va. 692 ; Zumbro v. Stump, 38 W. Va. 325. Section 63 (5) of the Act of 1898 is evidently intended to prevent any question as to what judgments recovered after bankruptcy are provable and discharged. See R* Marshall Paper Co., 95 Fed. Rep. 419, 424. 630 HENNEQUIN V. CLEWS. [CHAP. VIIL discretion is to be invoked, and the trustee in bankruptcy has a right to be heard. It may be, further, that the administering of the relief to be accorded is exclusively with the federal court having cognizance of the bankruptcy proceeding, and that that court, not the court in. which judgment is rendered, is the one to " deem" the judgment null and void, or preserve it for the trustee. The motion is denied, with, costs. HENNEQUIN v. CLEWS. SUPREME COURT OF THE UNITED STATES, MARCH 13-MAY 15, 1884. [Reported in 111 United States, 676.] IN October, 1871, Henry Clews & Co. opened a line of credit on their London house of Clews, Habicht & Co., for 6,000 in favor of Hennequin & Co., a firm doing business in New York and Paris, authorizing the latter to draw from time to time bills of exchange on the London house at ninety days from date, with the privilege of re- newal, it being agreed that Hennequin & Co. should remit to Clews r Habicht & Co., a few days before the maturity of each bill, the neces- sary funds to meet and pay the same, so that Clews, Habicht & Co. should not have to advance any money to pay it. In consideration of such accommodation acceptances, Hennequin & Co. deposited with Clews & Co. certain collateral securities, for the purpose of securing them, in case Hennequin & Co. failed to remit the requisite funds to pay the said bills of exchange, amongst which collaterals were twentj'-nine Toledo railroad mortgage bonds, for 1,000 each. Clews & Co. used the said bonds by depositing them with third parties as collateral security to raise money for their own purposes, although not called upon to make any advances to pay the bills of Hennequin & Co., all of which were protected and paid according to agreement. After the bills were all retired, Hennequin & Co. demanded a return of the collaterals ; but Clews & Co. having failed in business, did not return them. Thereupon, to recover the bonds, or their value, and damages, this suit was brought in the Superior Court of New York City by Hennequin & Co. against Clews & Co. and the parties with whom they had deposited the bonds. The suit was dismissed as to the latter parties, and Clews & Co., amongst other things, pleaded that on the 18th of November, 1874, they were adjudged bankrupts under the laws of the United States, and that a trustee was appointed, who succeeded to all their interest in said securities ; and by a supplemental answer, filed afterward, they pleaded their discharge in bankruptcy. The following is a copy of the substantial part of this answer, namely r "The supplemental answer as amended of the defendants Henry Clews and Theodore S. Fowler to the complaint in this action, served SECT. III.] HENNEQUIN V. CLEWS. 631 by leave of the court first had and obtained, shows to the court that subsequent to the service of the original answer herein, in pursuance of the bankruptcy proceedings mentioned in said answer and the order of the court of bankruptcy, the District Court of the United States for the Southern District of New York, sitting as a court of bankruptcy, did make an order and grant to said defendants certificates of dis- charge under seal of said court on the 24th day of December, 1875, discharging the above-named defendants and each of them from all debts and claims which by the Revised Statutes, title Bankruptcy, are made provable against the estate of said defendants which existed on the 18th day of November, 1874, excepting such debts, if any, as are by said law excepted from the operation of a discharge in bank- ruptcy. . . . And the defendants further allege that the claim and indebtedness set forth in the plaintiffs' complaint herein, is one that was discharged by the operation of said bankruptcy discharge, and was provable in said bankruptcy proceedings, and was not one which was exempt from the operation of the bankruptcy statutes." Copies of the certificates of discharge were annexed to the answer. The parties thereupon went to trial, and the facts disclosed by the evidence were substantially in accordance with the above statement. The certificates of discharge of the defendants were given in evidence under objections ; and the plaintiff asked to go to the jury on the ques- tion, as to whether the debt was created by fraud, and also on the ques- tion whether it was a debt created by the defendants while acting in a fiduciary character ; both of which requests were refused, and the court directed the jury to render a verdict for the defendants ; to all which rulings and directions plaintiffs duly excepted. Judgment being entered for the defendant, the plaintiffs appealed to the Court of Ap- peals of New York, which affirmed the judgment, and remitted the record to the Superior Court. The plaintiffs sued out this writ of error. Mr. C. Bairibridge Smith, for plaintiff in error. Mr. William A. Abbott, for defendant in error. Mr. Justice BRADLEY delivered the opinion of the court. He stated the facts in the foregoing language, and continued : We have to decide the question, whether a discharge in bankruptcy under the act of 1867 operates to discharge the bankrupt from a debt or obligation which arises from his appropriating to his own use collat- eral securities deposited with him as security for the payment of money or the performance of a duty, and his failure or refusal to return the same after the money has been paid or the duty performed ? or, whether a debt or obligation thus incurred is within the meaning of the 33d section of said act 5,117 Rev. Stat., which declares that " no debt created by the fraud or embezzlement of the bankrupt, or by his defal- cation as a public officer, or while acting in any fiduciary character, shall be discharged under this act?" The New York courts decided that the effect of the discharge in bankruptcy was to discharge the 632 HENNEQUIN V. CLEWS. [CHAP. VIII. debt, holding that the debt was not created by fraud, nor by embezzle- ment, nor whilst the bankrupt was acting in a fiduciar} 7 character. The question first came up for discussion in the case upon an order for arresting the defendants, on a charge that the debt was fraudulent^ contracted. After obtaining their discharge in bankruptcy, the defend- ants moved to vacate the order of arrest, which motion the Superior Court denied ; but the Court of Appeals reversed this judgment, and granted the motion. The opinion of the court on this occasion is re- ported in 77 N. Y. 427, and wa referred to as the ground of judgment when the case finally came up on its merits. The question, so far as relates to the principle involved, is not a new one. It came up for consideration under the bankrupt act of 1841, which withheld the benefits of the act from all debts " created by the bankrupt in consequence of a defalcation as a public officer, or as exec- utor, administrator, guardian, or trustee, or while acting in any other fiduciary capacity:" 5 Stat. 441, 1; and which further declared (amongst other things) that no person should be entitled to a discharge who should " apply trust funds to his own use." Ib. 4. In the case of Chapman v. Forsyth, 2 How. 202, these clauses were brought before this court for examination. The case was an action of assumpsit for the proceeds of 15'0 bales of cotton shipped to and sold by the defend- ants as brokers or factors of the plaintiff. One of the defendants pleaded a discharge in bankruptcy, and the judges of the Circuit Court were divided in opinion on the question whether a commission mer- chant or factor, who sells for others, is indebted in a fiduciary capacity within the act, if he withholds the money received for property sold by him, and if the propert}' is sold, and the money received on the owner's account. The opinion of this court was delivered by Mr. Justice McLean, and the above question was answered in the following terms: " If the act embrace such a debt, it will be difficult to limit its application. It must include all debts arising from agencies ; and, in- deed, all cases where the law implies an obligation from the trust re- posed in the debtor. Such a construction would have left but few debts on which the law could operate. In almost all the commercial transac- tions of the country, confidence is reposed in the punctuality and in- tegrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the first section of the act. The cases enumerated, ' the defalcation of a public officer,' 'executor,' 'administrator,' 'guardian,' or ' trustee,' are not cases of implied, but special trusts, and the ' other fiduciary capacity ' mentioned, must mean the same class of trusts. The act speaks of technical trusts, and not those which the law implies from the contract. A factor is not, therefore, within the act. This view is strengthened, and, indeed, made conclusive by the provision of the fourth section, which declares that no ' merchant, banker, factor, broker, underwriter, or marine insurer,' shall be entitled to a discharge, ' who has not kept proper books of accounts.' In answer to the second question, then, SECT. III.] HENNEQUIN V. CLEWS. 633 we say, that a factor, who owes his principal money received on the sale of his goods, is not a fiduciary debtor within the meaning of the act. This decision was, of course, authoritative ; it was not only followed, but approved by the highest courts of several of the States. In Hay- man v. Pond, 7 Mete. (Mass.) 328, the Supreme Court of Massachu- setts, speaking through Chief Justice Shaw, after referring to the decision in Chapman v. Forsyth, said: " We have no doubt that this is the true construction of the law." In Austill v. Crawford, 7 Ala. 335, and in Commercial Bank v. Buckner, 2 La. Ann. 1023, the same views were expressed, though the contrary was held in Matteson v. Kellogg, 15 111. 547, and in Flagg v. Ely, 1 Edmonds, N. Y. Select Cas. 206. Under the act of 1867 a series of diverse rulings by different courts arose on the subject ; one class treating agents, factors, commission merchants, &c., as acting in a fiduciary character under the act, on the view that the act was conceived in broader and more general terms than the act of 1841 ; the other class taking the view that the act of 1867 used the phrase, " acting in any fiduciary character," in the sense which it had received by construction in the act of 1841. The cases on both sides of the question are collected in Bump's Law of Bank- ruptcy, under section 33 of the original Bankrupt Act of 1867, section 5,117 of the Revised Statutes, pp. 742-745, 10th edition. Those tak- ing the first view are In re Sej'mour, 1 Ben. 348 ; In re Kimball, 2 Ben. 554 ; s. c. 6 Blatch. 292; Whitaker v. Chapman, 3 Lans. 155 ; Lemcke v. Booth, 47 Mo. 385 ; Gray v. Farran, 2 Cincin. Sup. Ct. 226 ; Treadwell v. Holloway, 12 Bank. Reg. 61 ; Meader v. Sharp, 54 Geo. 125; s. c. 14 Bank. Reg. 492; Benning v. Bleakley, 27 La. Ann. 257. Those taking the other view are Woolsey v. Cade, 15 Bank. Reg. 238 ; Owsley v. Cobin, Ib. 489 ; Cronan v. Cotting, 104 Mass. 245. We have examined these cases, and others bearing on the subject, but do not deem it necessary to refer to them more par- ticularly, inasmuch as the question has recently been fully considered by this court, and the decision in Chapman v. Forsyth has been followed. We refer to the case of Neal v. Clark, 95 U. S. 704, reversing the de- cision of the Court of Appeals of Virginia in Jones v. Clark, 25 Gratt. 642. This case involved the meaning and application of the word " fraud," in the clause under consideration, "no debt created by fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or while acting in any fiduciary character, shall be dis- charged," &c. An executor sold certain bonds which he had received on the sale of the property belonging to the estate, the proceeds of which the will directed him to distribute in a certain way- The sale of the bonds was held by the State court to have been a misappropriation of them, amounting to a devantf.tvit y in which Neal, the purchaser, was held to be a participant and liable to account for the value of the bonds 634 HENNEQUIN V. CLEWS. [CHAP. VIII. purchased ; not because he was guilty of any actual fraud, but because, in view of the circumstances attending his purchase, he had committed constructive fraud. Neal had in the meantime obtained his discharge in bankruptcy, which he pleaded in bar to a recover}' against him ; but the State court held that " fraud," in the 33d section of the bankrupt act (of 1867) included both constructive and actual fraud, and over- ruled his plea. We reversed the judgment of the State court on this point, and decided that Neal was entitled, under the circumstances of the case, to the benefit of his discharge in bankruptcy. Adopting and applying the reasoning of the court in Chapman v. Fors3"th, we said, " that in the section of the law of 1867 which sets forth the classes of debts which are exempted from the operation of a discharge in bank- ruptcy, debts created by ' fraud ' are associated directly with debts created by ' embezzlement.' Such association justifies, if it does not imperatively require, the conclusion that the ' fraud ' referred to in that section means positive fraud, or fraud in fact, involving moral turpi- tude or intentional wrong, as does embezzlement ; and not implied fraud, or fraud in law, which may exist without the imputation of bad faith or immorality." The question came before us again in Wolf v. Stix, 90 U. S. 1, in which a sale of goods to Wolf b}* an insolvent firm was set aside as fraudulent against creditors, and Wolf and his sureties were then sued on the bond given by him for a return of the goods when attached at the commencement of the proceedings. Wolf having in the meantime become bankrupt, and obtained his discharge, pleaded the same in bar of the action. We held the plea to be a good one to the action on the bond. The present case is not precisely like either that of Chapman v. Forsyth or Neal v. Clark ; but is very difficult to distinguish it, in principle, from the cases of commission merchants and factors failing to account for the proceeds of property committed to them for sale. There is no more there is not so much of the character of trustee, in one who holds collateral securities for a debt, as in one who receives money from the sale of his principal's property money which belongs to his principal alone, and not to him, and which it is his duty to turn over to his principal without delay. The creditor who holds a collat- eral, holds it for his own benefit under contract. He is in no sense a trustee. His contract binds him to return it when its purpose as secur- ity is fulfilled ; but if he fails to do so, it is only a breach of contract, and not a breach of trust. A mortgagee in possession is bound by contract, implied if not expressed, to deliver up possession of the mortgaged premises when his debt is satisfied ; but he is not regarded as guilty of breach of trust if he neglects or refuses to do so, but onh r of a breach of contract. The English authorities are more in accord with the decisions in this country which take a different view from our own on this question. The Debtor's Act of 1869, 32 & 33 Viet, ch. 62, abolished imprison- SECT. III.] HENNEQUIN V. CLEWS. 635 ment for debt, except in the case of statutory penalties, and when arising from the default of a trustee or person acting in, a fiduciary capacity, who has been ordered by a court of equity to pay money in his possession or under his control ; and except defaults of attorneys and solicitors, and some other special delinquents. The Bankrupt Act of the same date, 32 & 33 Viet, ch. 71, declares that the order of dis- charge of a bankrupt shall not release him from any debt or liability in- curred or forborne by means of any fraud or breach of trust. Section 49. Under these statutes, where an agent failed to pa}- over moneys collected for his principal, Sir George Jessel said, " no doubt this debt was in- curred by fraud." Pashler v. Vincent, 8 Chan. Div. 825. The same doctrine was held in Marris v. Ingram, 13 Chan. Div. 838, where a son was in the management of his father's farm, and sold part of the stock and received the proceeds. After his father's death, being ordered to pa)' over the money, and failing to do so, he was held to be a person acting in a fiduciary capacity. In Middleton v. Chichestcr, 19 Weekly Reporter, 369, Lord Hatherly said that " the exceptions [in the Debt- or's Act] are all referable, not to debts paj'able simpliciter, but to debts contracted in a manner in some degree subject to observation as being worthy of being treated with punishment. ... In every case we find some shade of misconduct ; something of the character of delinquency, though varying in description." For other English cases arising under the acts referred to, see Ex parte Wood, Re Chapman, 21 W. R. 71 ; Ex parte Hooson, 21 W. R. 152 ; s. c. L. R. 8 Ch. 231 ; Cobham v. Dalton, L. R. 10 Ch. 655 ; In re Deere, Atty., Ib. 658; Ex parte Halford, In re Jacobs, L. R. 19 Eq. 436 ; Phosphate Co. v. Hartmouut, 25 W. R. 743 ; Earl of Lewes v. Barnett, 6 Ch. Div. 252 ; Barrett v. Hammond, 10 Ch. Div. 285 ; Ex parte Hemming, In re Chatterton, 13 Ch. Div. 163 ; Fisher's Dig. Supp. by Chitty, tit. Debtor's Act, Col. 1287. It is evident that the English courts regard many transactions as frauds or breaches of trust under their statutes, which we do not hold to be such under our bankrupt acts. Perhaps the liberal construction made in favor of the certificate of discharge in this country is due to the peculiar modes and habits of business prevailing amongst our peo- ple. It is, no doubt, true, as said in Chapman v. Forsyth, that a con- struction of the excepting clauses which would make them include debts arising from agencies and the like, would leave but few debts on which the law would operate. At all events, we think that the previous deci- sions of this court, and of the State courts in the same direction, accord with the true spirit and meaning of the act of Congress, and with the necessities of our business conditions and arrangements. The judgment of the Court of Appeals of the State of New York is Affirmed. 1 1 Strang v. Bradner, 114 U. S. 559 ; Palmer v. Hussey, 119 U. S. 96; Noble v. Hammond, 129 U. S. 69 ; Upshur v. Briscoe, 138 U. 8. 365 ; Crawford v. Burke, 195 U. S. 176; Re Adler, 144 Fed. 659, 152 Fed. 422; Crosby v. Miller, 25 R. I. 172. 636 LEITCH V. NORTHERN PACIFIC RAILWAY CO. [CHAP. VIII. LEITCH v. NORTHERN PACIFIC RAILWAY COMPANY. MINNESOTA SUPREME COURT, MAY 26, 1905. [Reported in 103 Northwestern Reporter, 704.] START, C. J. This is an appeal b}- the defendant from a judgment of the municipal court of the cit3 r of St. Paul. There is no dispute as to the facts upon which the judgment is based. They are substantially these: On Februar}' 4, 1903, Mr. O. G. Ayers, who was then in the employment of the defendant, hereafter referred to as the " debtor," borrowed of the plaintiff $40, and gave his promissory note therefor to the plaintiff, and at the same time executed to the plaintiff a writing, the here material provisions of which are as follows, namely : " For a valuable consideration, the receipt of which is hereby acknowledged, I do hereby transfer, assign, set over to J. M. Leitch, all wages and claim for wages, or any moneys due, or to become due me from my respective employer, viz., Northern Pacific Railway Company, or any other company, firm or corporation, person or persons, I may now, or may hereafter be employed b}', until ni}* indebtedness to J. M. Leitch has been paid in full. I do hereby constitute and appoint the said J. M. Leitch my attorne}-, in my name to take all legal measures which may be necessary for the complete recovery and enjoyment of the claim hereb}^ assigned, and I hereby authorize and empower, and direct the Northern Pacific Railway Co. , or any other company, firm, corpo- ration, person or persons I ma} r now or hereafter be employed by, to pa\* the said demand and claim for wages, or mone}*s due me to the said J. M. Leitch and hereby authorize and empower him to execute such receipts as may be required. And also to endorse for me my name to nay checks or warrants which ma^y be issued to me for such salary or mone\'s due me and receipt for same in my name." The de- fendant was notified of the execution of this instrument on February 29, 1904, and a copy thereof was filed with it. The debtor continued in the employment until April 26, 1904, when he quit. The record does not disclose the terms of his employment, but it may be inferred that it was under one contract. He was fully paid for all of his services rendered prior to the month of February, 1904, before March 1st fol- lowing. Sufficient wages, however, were earned by the debtor between the date of the filing of the copy of the instrument with the defendant on February 29, 1904, and the time he quit work, to satisfy the plain- tiff's claim. On June 3, 1903, the debtor filed his petition in bank- ruptcy, with a complete schedule of his debts and liabilities, including the debt to the plaintiff, as evidenced by the promissory note which the plaintiff is attempting to collect by this action to recover from the de- fendant $45.75 due to the debtor for wages. In November the debtor was duly discharged in bankruptcy from all of his debts existing at the time of his filing his petition not specifically exempted from the opera- SECT. III.] LEITCH V. NORTHERN PACIFIC RAILWAY CO. 637 tion of the bankruptcy act. Upon these facts the trial court directed judgment for the plaintiff for the amount claimed. The only question for our decision is whether such facts justify the decision of the trial court. A solution of this question depends upon the effect of the debtor's discharge in bankruptcy upon the alleged as- signment of his wages. Did it release him from the liability of having his wages, earned after his discharge, collected by the plaintiff by virtue of the assignment and applied to the payment of his debt? If the plaintiff had a valid lien at the time of the debtor's discharge upon his wages thereafter to be earned as security for the payment of his debt, then the discharge would not affect such vested security. This conclusion follows from the admitted proposition that a discharge in bankruptcy only relieves the debtor from all legal obligation to pay the debt, and from all liability of having his future-acquired property and earnings seized to pay the debt; but all valid and existing liens on specific property or trusts therein securing the debt are not impaired by the discharge. Evans v. Staale, 88 Minn. 253, 92 N. W. 951. The case cited was one where the creditor at the time the bankruptcy proceedings were initiated had the vested right to enforce a trust in certain land the legal title to which was held by a third party for the payment of his debt against the bankrupt. It was held that the right to enforce the trust was not affected by the debtor's discharge. The deci- sion, however, is not relevant to the question whether the plaintiff herein had a valid lien at the time of his debtor's discharge upon his wages thereafter to be earned. In the case of Wenham v. Mallin, 103 111. App. 609, relied upon by the plaintiff, it does not appear whether the wages which it was sought to subject to the payment of a debt from which the debtor had been discharged in bankruptcy were earned after such dis- charge. 1 The decision in that case is based upon the admitted propo- sition that valid liens on property are not affected by a discharge in bankruptcy, and the statement that the creditor had a vested property right in the wages of his debtor to secure the payment of his debt which was not affected by a discharge in bankruptcy. The case is not strictly in point. The plaintiff also relies upon the decisions of this court sus- taining the validity of chattel mortgages on crops to be grown or on property to be acquired. Minn. Linseed Co. v. Maginis, 32 Minn. 193, 20 N. W. 85 ; Miller v. McCormick Co., 35 Minn. 399, 29 N. W. 52; Ludlum v. Rothschild, 41 Minn. 218, 43 N. W. 137; Hogan v. Elevated Co., 66 Minn. 344, 69 N. W. 1. Apparently the cases are in point, but not in fact. There is a fundamental distinction between a mortgage on specific crops to be sown or definitely described chattels to be acquired and a mortgage on the future earnings of a debtor a mere expectancy, depending upon a variety of vague contingencies. Again, there are reasons of public policy which differentiates a inort- i The decision was affirmed in Mallin v. Wonham, 209 111. 252. It in a probable inference from the facts stated in the case that the litigation concerned wages earned after the discharge in bankruptcy. 638 LEITCH V. NORTHERN PACIFIC RAILWAY CO. [CHAP. VIII. gage on chattels to be acquired and one on wages to be earned. When a necessitous wage-earner is compelled to mortgage his future earnings, he mortgages not his chattels, but the means whereby he may live and maintain his family. The State necessarily has an interest in such contracts, and it is contrary to a wise public policy to give effect to them, except to a limited extent. The rule on principle and deducible from the decisions of this court is that an assignment of wages to be earned in the future under an existing contract of employment to secure a present debt or future advances is valid as an agreement, and takes effect as an assignment as the wages are earned, but an assignment of wages to be earned, without limit as to amount or tune, are void. O'Connor v. Meehan, 47 Minn. 247, 49 N, W. 982 ; Steinbach v. Brant, 79 Minn. 383, 82 N. W. 651, 79 Am. St. Rep. 494 ; Baylor v. Butterfass, 82 Minn. 21, 84 N. W. 640. Tested by this rule, it logi- cally follows that the plaintiff, when the debtor filed his petition in bankruptcy, and when he received his discharge, had no lien on or vested security in the wages of the debtor thereafter to be earned by virtue of his contract, which was to take effect as an assignment when the wages were earned. The plaintiff then had at most a mere expect- ancy, depending on contingencies. We accordingly hold that the dis- charge in bankruptcy released the debtor from any liability of having his wages thereafter earned applied in payment of the debt from which he had been discharged. It is urged by the plaintiff that the discharge of the debtor is per- sonal to himself, and that it is not available to the defendant as a de- fence. This is a misapplication of the rule, for the debtor is not a party to this action, and the defendant primarity owes the wages to him, and must, for its own protection, put the plaintiff to the proof of his claim to recover them, and bring to the attention of the court the fact of the debtor's discharge in bankruptc}". It is also urged b\- the plaintiff that the validity of the assignment was conceded b\ the defendant on the trial of the action, and that he cannot question its validity in this court. We do not so understand the record, but, however this ma}' be, the question of the effect of the debtor's discharge necessaril}* involved the quescion of the scope and effect of the assignment. It follows that the facts admitted by the pleadings and found by the trial court do not sustain its judgment, and that the judgment must be reversed, and the case remanded, with directions to the trial court to amend its conclusions of law so as to direct judgment for the defendant on the merits. So ordered. 1 * Re Home Discount Co., 147 Fed. 538; Re Karns, 148 Fed 143 ; Re Lineberry, 183 Fed. 338; Levi v. Loevenhart, 138 Ky. 133, ace. See also Re Sims, 176 Fed. 645. Mallin v. Wenham, 209 111. 252 ; Citizens' Loan Assoc. v. Boston & Maine R., 196 Mass. 528, contra. y SECT. III.] BIRKETT V. COLUMBIA BANK. 639 BIRKETT v. COLUMBIA BANK. , SUPREME COURT OF THE UNITED STATES, OCTOBER 28-NovEMBER 28, 1904. [Reported in 195 United States, 345.] THIS is an action on a promissory note for $750. The defence is discharge in bankruptcy. The making of the note was admitted, and the only question presented is the effect of the discharge! The facts as found by the court are : Plaintiff in error and one Calvin Russell, who died before the commencement of this action, were partners doing business under the name of Russell & Birkett, and in that name made and delivered to the Manhattan Railway Advertising Company a promissory note for $750. The latter company indorsed the note to defendant in error, of which Russell & Birkett had knowledge before its maturity. On April 13, 1899, the firm of Russell & Birkett and plaintiff in error, upon their own petition, were adjudicated bankrupts in the United States District Court for the Northern District of New York, and were discharged September 12, 1899. The claim of defendant in error was not scheduled, either as a debt of the firm or of plaintiff in error, in time for proof and allowance with the name of the defendant in error, though defendant in error was known at the time of filing the schedules to be the owner and holder thereof by plaintiff in error, and that defendant in error had no notice or actual knowledge or other knowledge of the proceedings in bankruptc} 7 prior to the discharge of the bankrupts. No notice of the proceedings in bankruptc}" was at any time given to defendant in error by, or by the direction of, the bankrupts or either of them. It was decided that the claim of defendant in error was not barred by the dis- charge in bankruptcy, and judgment was directed for defendant in error. Mr. John Murray Downs, with whom Mr. Thomas Carmody and Mr. Robert G. Scherer were on the brief, for plaintiff in error. Mr. Julius J. Frank for defendant in error. Mr. Justice MCKENNA, after making the foregoing statement, delivered the opinion of the court. The judgment was successively confirmed by the Appellate Division of the Supreme Court and the Court of Appeals. 174 N. Y. 112. Thereupon judgment was entered in the Supreme Court in accordance with the direction of the Court of Appeals. This writ of error was then sued out. Section 7 of the Bankrupt Law of 1898 devolves a number of duties upon the bankrupt, all directed to the purpose of a full and unreserved exposition of his affairs, property, and creditors. Among his duties he is required to " preparo, make oath to, and file in the court, within ten days ... a schedule of his property, showing the amount and kind of property, the location thereof, its money value in detail, and a list of his creditors, showing their residences, if known, if un- known, that fact to be stated, the amounts due each of them, the BIRKETT V. COLUMBIA BANK. [CHAP. VIII. consideration thereof, the security held b}' them, if any, and a claim for such exemptions as he may be entitled to, all in triplicate, one copy of each for the clerk, one for the referee, and one for the trus- tee. . . ." To the neglect of this duty the law attaches a punitive consequence. Section 17 provides : " A discharge in bankruptcy shall release a bankrupt of all of his~ provable debts, except such as ... have not been duty scheduled in time for proof and allowance, with the name of the creditor if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy. . . ." But plaintiff in error urges that defendant in error did have actual knowledge of the proceedings in bankruptcy, and that Congress con- templated that there might be an intentional or inadvertent omission of the names of creditors from the schedule of debts, and provided against it by other provisions of the law, especially by that which makes it the duty of the referee to give notice to creditors (sec. 38), and by that which imposes the duty on the bankrupt to appear at the meeting of creditors for examination. The finding of the trial court is that defendant " had no notice or actual knowledge, or other knowledge, of said proceedings in bank- ruptcy prior to the discharge of the bankrupt therein." This is made more definite as to time by the Court of Appeals. Defendant in error, upon making an inquiry by letter November 6, 1899, about Russell & Birkett, was informed that they had gone through bankruptcy, and subsequently (November 17) the Northern District was given as the district of the proceedings. The discharge was September 12, 1899. Knowledge, therefore, it is contended, came to defendant in error in time to prove its claim (section 65), and to move to revoke the dis- charge of the bankrupt (section 15). It is hence argued that defendant in error must be held to have had "actual knowledge of the pro- ceedings in bankruptcy," as those words of section 17 must be con- strued. We do not think so, nor is that construction supported by the other provisions of the law urged by plaintiff in error. Actual knowl- edge of the proceedings contemplated by the section is a knowledge in time to avail a creditor of the benefits of the law in time to give him an equal opportunity" with other creditors not a knowledge that may come so late as to deprive him of participation in the administra- tion of the affairs of the estate or to deprive him of dividends (section 65). The provisions of the law relied upon by plaintiff in error are for the benefit of creditors, not of the debtor. That the law should give a creditor remedies against the estate of a bankrupt, notwith- standing the neglect or default of the bankrupt, is natural. The law would be, indeed, defective without them. It would also be defective if it permitted the bankrupt to experiment with it to so manage and use its provisions as to conceal his estate, deceive or keep his creditors in ignorance of his proceeding without penalty to him. It is easy to see what results such looseness would permit what preference could be accomplished and covered by it. Judgment affirmed. SECT. III.] McKEE V. PREBLE. 641 McKEE v. PREBLE. NEW YORK SUPREME COURT, APPELLATE DIVISION, DECEMBER 20, 1912. [Reported in 154 New York Appellate Division, 156.] SCOTT, J. : Plaintiff recovered a judgment against defendants on May 25, 1900. On April 2, 1904, defendants filed a petition in bankruptcy, the sched- ules giving plaintiff's residence as 212 Ninth Avenue in the city of New York, which was his place of business. The plaintiff's residence up to May 1, 1904, was Ridgewood, N. J., and after that date was at 238 West Twenty-first Street in New York City. The city directories for 1904 and 1905 correctly gave his residence as above stated. Plaintiff swears positively that he never received notice of defendants' bank- ruptcy. The rule appears to be well established that a debt is not "duly scheduled" within the meaning of the Bankruptcy Act where the office or business address is given instead of the residence. (Col- lier Bankruptcy [8th ed.], 181 ; Weidenfeld v. Tillinghast, 54 Misc. Rep. 90; Haack v. Theise, 51 id. 3; Vaughn v. Irwin, 49 id. 611; Sutherland v. Lasher, 41 id. 249; affd., 87 App. Div. 633; 30 U. S. Stat. at Large, 548, 7, subd. 8 ; Id. 550, 17, subd. 3, as amd. by 32 id. 798, 5.) If the debtor did not know the creditor's residence it was his duty to make a reasonable effort to ascertain it, and in the present case he could easily have found it by consulting the city direc- tory. We are, therefore, of the opinion that the order canceling the judgment should have been vacated. 1 1 A portion only of the opinion is printed. In Miller v. Guasti, 226 U. S. 170, a debt was held not discharged when the credi- tor's address was scheduled " Unknown California," and in fact the exact address was known to the bankrupt. If the street number of an address in a large city could be ascertained and is not given, there is not the " due scheduling " which the law requires. Kreitlein v. Ferger, 52 Ind. App. 199 ; Cagliostro v. Indelle, 58 N. Y. Misc. 44. 642 IN RE HOXIE. [CHAP. vin. IN RE HOXIE. UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE. [Reported in 180 Federal Reporter, 508.] HALE, District Judge : The bankrupts were duly adjudicated on the 15th day of March, 1910. At the first meeting of creditors, claims of 44 creditors, amounting to $9,146.59, were filed. Claims of certain other creditors, duly scheduled, have not yet been presented for allowance. Ap- praisers have been appointed, and have filed their reports, showing the value of the assets of the bankrupts to be : Real estate, $5,300, which is under mortgage for more than that amount ; personal prop- erty, 04,481.95. The appraisers report that the basis of their valua- tion is partly at cost price and partly at possible selling value. After the bankrupts filed their schedule and were examined they offered a composition at the rate of 15 per cent. A majority in number of all the creditors whose claims have been allowed, namely, 29 creditors, representing $5,362.06, have accepted in writing the offer of compo- sition. The referee reports the above facts. He recommends that the composition will be for the best interests of the creditors ; that it is made in good faith, and not procured by any means, promises, or acts prohibited by the bankruptcy law ; and that the bankrupts have not been guilty of any act, or of any failure in duty, which would be a bar to their discharge. He also assigns certain reasons which have influenced him in coming to his conclusion. It is provided by section 12d of the Bankruptcy Act that the judge shall confirm a composition if satisfied (1) that it is for the best in- terests of the creditors. There being no question of the bankrupts having been guilty of any act or of any failure in duty which would be a bar to their discharge, and the offer and acceptance having been in good faith, the single question before the court is whether or not the confirmation of the composition is for the best interests of all the creditors. The English rule appears to be that the approval of the majority of the creditors to the offer is final. Under our statute such approval is evidence, prima facie, that the composition is for the best interests of the creditors ; and the burden is upon those who attack the com- position. The same rule prevailed under the Bankruptcy Act of 1867. In exparte Jewett, 2 Low. 393, Judge LOWELL said: "In the absence of fraud and concealment, the question for the court seems to be, not whether the debtor might have offered more, but whether his estate would pay more in bankruptcy." SECT. III.] IN RE HOXIE. 643 Substantially the same issue is before the court under the present act. Adler v. Jones (C. C. A., 6th Cir.), 109 Fed. 967'; United States ex rel. Adler v. Hammond (C. C. A., 6th Cir.), 104 Fed. 862; In re Waynesboro Drug Co. (D. C., Ga.), 157 Fed. 101. Certain creditors object to the confirmation of the composition, and file specifications of objections. The examination of the bankrupts, and all papers relating to the estate, are before me. It is for the court to determine whether the non-assenting creditors have met the burden of showing that the offer of composition is inadequate, and that a substantially larger sum may reasonably be expected to result from the administration of the assets under the regular course of bankruptcy proceedings. A sum less than $1,500 is required to carry out the offer of composition. The appraisal shows assets amounting to about $4,500. The learned counsel for the bankrupts urge that the evidence shows the appraisal to be largely in excess of the avail- able value of the property. It is not necessary to discuss in detail the different views taken by counsel touching this matter, or the tes- timony relating to it. It is in evidence that since the adjudication the business of the bankrupt firm continues to be carried on, and that many of the creditors who have accepted the offer continue to supply the bankrupts with goods, and to do business with them. It is urged that they are willing to accept the offer for the reason that their profits in future from the conduct of the business will fully repay them for their losses in bankruptcy. I do not esteem it to be my duty to dis- cuss the evidence in detail, or to decide what induced the assenting creditors to assent. The bankruptcy law does not make their decision conclusive, but only prima facie. Their assent does not relieve the court from passing on the question whether the composition is for the best interests of all the creditors. This question is addressed to the judicial discretion of the court, and from its conclusion either party ma}- appeal. Adler v. Hammond, supra. Upon a careful review of the examination of the bankrupts, the schedules, and all the evidence before me, I cannot avoid the conclu- sion that the non-assenting creditors have met the burden of showing that the acceptance of the composition will not be for the best interests of all the creditors. The whole testimony leads me to the conclusion that the assets should produce nearly double the offer of 15 per cent. It is with hesitation that I come to a conclusion opposed to that of the painstaking and competent referee, who assigns some very good reasons for coming to his conclusion. Some of the reasons which he assigns, however, are not tenable, and would enlarge the inquiry be- yond its legitimate scope. The offer of composition is not confirmed. 644 ALLEN . Morse, 8 Mass. 127; Champion . Buckingham, 165 Mass. 76 ; Craig r. Seitz, 63 Mich. 727 ; Higgins r. Dale, 28 Minn. 126;' Me Willie v. Kirkpatrick, 28 Miss. 802; Wislizenus v. O'Fallon, 91 Mo. 184; Underwood v. Eastman, 18 N. H. 582 ; Wiggin v. Hodgdon, 63 N. H. 39 ; Shippey v. Henderson, 14 Johns. 178; Graham v. O'Hern, 24 Hun, 221 ; Tompkins v. llazen, 30 N. Y. App. Div. 359 (con/ 8. c. 165 N. Y. 18) ; Fraley v. Kelly, 88 N. C. 227 ; Earnest v Parker, 4 Rawlc, 452; Murphy v. Crawford, 114 Pa. 496; Harris r. Peck, 1 R. I. 262 ; Lanier r. Tolleson, 20 S. C. 57 ; Moseley r. Coldwell, 3 Bax. 208 ; Farmers v. Flint. 17 Vt. 508. The new promise must, however, be clear and free from ambiguity. Expression! of expectation or of good intentions are insufficient. Mucklow v. St. George, 4 Taunt. 13: Lynbuy v. Weightman, 5 Esp. 198; Brook v. Wood, 13 Price, f.67 ; Hearing v. Moffitt, 6 Ala. 776; Shockey v. Mills, 71 Ind. 288; Bartlett v. Peck, 5 La. Ann. 669; Unitod Society v. Winkley" 7 Gray, 460; Bigelow v. Norrifl, 139 Mass. 12; Smith v. Stani-hfield (Minn.), 87 N. W. Rep. 917; Stewart v. Reckless, 4 Zab. 427; Roosevelt v. Mark, 6 Johns. Ch. 266; Yoxtheimer v. Keyser, 11 Pa. 364; Brown v. Collier, 8 Humph. 510; Moseley v. Coldwell, 3 Bax. 208. Conf. Bolton v. King, 105 Pa. 78; Taylor v. Nixon, 4 Sneed, 352. Part payment does not revive the obligation. Tolle v. Smith, 98 Ky. 464 ; Merriam v. Bayley, 1 Gush. 77; Inst. for Savings i>. Littlefield, 6 Cush. 210; Jacobs v. Car- penter, 161 Mass. 16; Stark r Stinson, 23 N. H. 259; Lawrence v. Harrington, 122 N. Y. 408; Wheeler r. Simmons, 60 Hun, 404. A conditional promise is effectual, but the condition must happen : Besford . 648 ALLEN & CO. V. FEKGUSON. [CHAP. VIII. Saunders, 2 H. Bl. 116; Campbell v. Sewell, 1 Chitty, 609; Dearing v. Moffitt, 6 Ala. 776 ; Branch Bank v. Boykin, 9 Ala. 320 ; Mason v. Hughart, 9 B. Mon. 480 ; Carson v. Osborn, 10 B. Mon. 155 ; Tolle v. Smith, 98 Ky. 464 ; Yates, Adm., v. Hollings- worth, 5 Har. & J. 216; Randidge v. Lyman, 124 Mass. 361 ; Elwell v. Cumner, 136 Mass. 102 ; Scouton v. Eislord, 7 Johns. 36 ; Kingston v. Wharton, 2 S. & R. 208 ; Taylor v. Nixon, 4 Sneed, 352 ; Sherman v. Hobart, 26 Vt. 60 ; or be waived : Tomp- kins v. Hazen, 51 N. Y. Supp. 1003. , It has been held in a few cases that some express acceptance of the condition on the part of the creditor is necessary. Craig v. Brown, 3 Wash. C. C. 503 ; Samuel v. Cravens, 10 Ark. 380 ; Smith v. Stauchfield, 84 Minn. 343. A new promise is valid though made before the discharge is granted. Roberts v. Morgan, 2 Esp. 736 ; Brix v. Braham, 1 Bing. 281 ; Earle v. Oliver, 2 Ex. 71 ; Kirkpatrick v. Tattersall, 13 M. & W. 766 ; Zavelo v. Reeves, 227 U. S. 625 ; Lanagin v. Nowland, 44 Ark. 84; Knapp v. Hoyt, 57 la. 591 ; Corliss v. Shepherd, 28 Me. 550; Otis v. Gazlin, 31 Me. 567; Old Town Nat. Bank v. Parker (Md.) 87 Atl. 1105; Lerow v. Wilmarth, 7 Allen, 463 ; Wiggin v. Hodgdon, 63 N. H. 39 ; Stilwell v. Coope, 4 Denio, 225 ; Fraley v. Kelly, 67 N. C. 78 ; Hornthal v. McRae, 67 N. C. 21 ; Hill v. Trainer, 49 Wis. 537. But see contra, Thornton v. Nichols, 119 Ga. 50; Ogden v. Redd, 13 Bush, 581 ; Graves v. McGuire, 79 Ky. 532 ; Holt v. Akarman, 84 N. J. L. 371. And it has been held valid in Pennsylvania, though made before bankruptcy proceedings have been begun. Kingston v. Wharton, 2 S. & R. 208; Haines v. Stauffer, 13 Pa. 541. These cases would probably not be followed elsewhere. Thornton v. Nichols, 119 Ga. 50 ; Reed v. Frederick, 8 Gray, 230 ; Lowell on Bankruptcy, 249. Doubtless it would be within the power of Congress to enact provisions in the Federal Bankruptcy Act in regard to the matter, but as there is no such provision, each state may apply its own rule. Holt v. Akarman, 84 N. J. L. 371. See also Zavelo v. Reeves, 227 U. S. 625. LAW ITWTVTCPSTTY OF f.ATJFOttNTA