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diction of a court of equity because the complainant has a plain and adequate remedy at law and is not entitled to the relief prayed for, Confining the allegations of the bill to the facts pleaded and reducing these facts to their last analysis we are convinced that the only cause of action stated is for the recovery of damages based on fraud. That the complainant has a complete and adequate remedy at law we have no doubt and we see no reason for the interposition of a court of equity. There can be no dispute as to what the actual agreement between the parties was because it was reduced to writing, and the reciprocal obligations of the parties are stated in concise and unambiguous language.

In substance R. T. Wilson & Co. agreed to pay the complainant 25 cents on a dollar for the bonds and 10 cents on a dollar for the stock, for all bonds and stock which he brought in, or caused to be brought in, to the firm. The amount due under this contract was fully paid. The accusation against the defendant is that the complainant was induced to enter into the contract by the false and fraudulent statements of the defendant that his firm was to be paid 25 cents and 10 cents, respectively, on the bonds and stock by the Illinois Company and that he would pay complainant the exact sum he received from the Illinois Company. Is it not manifest, if the complainant succeeds in proving the false representations and the averment that more than the contract price was paid by the Illinois Company to the firm of R. T. Wilson & Co., that when he has been paid the difference between what he did receive and what he should have received he will no longer have a cause of complaint against the defendant? It is argued that the amount received from the Illinois Company is unknown and that it is necessary to invoke the powers of a court of equity to compel a discovery in this regard. Assuming for the moment that the difficulty of obtaining testimony affords a reason for turning a complaint in an action at law into a bill in equity, we are unable to see, in the present situation, why there should be any greater difficulty in the one case than in the other. The defendant knows how much he received from the Illinois Company and that company knows how much it paid for the bonds and stock. The books of the company and of the firm undoubtedly contain entries of the transactions. The process of the court will compel the attendance of witnesses and the production of books as effectually in a common-law action as in a suit in equity.

The fact that the bill deals in large figures and states a seemingly complicated transaction tends to obscure the real issue between the parties. Let us test it by a simple illustration, for the principle is the same whether one bond or a thousand bonds are involved. A. agrees to pay $250 to B. for a bond the face value of which is $1,000. A. fraudulently represents that he has an agreement with C. by which C. is to pay $250 for such bonds; that no one else can afford to pay more than $210 and that if B. will sell he will be given the full benefit of the agreement with C. and receive whatever sum C. pays to A. Relying on this representation B. accepts the offer and the sale is consummated. Subsequently he learns that C. paid A. $300 for the bond. Is it not too plain for debate that, on these facts, B.'s remedy is an action at law

to recover damages, the measure of which should not exceed the sum of $50? A court of equity has no jurisdiction of such a controversy.

The decree is affirmed.

TOWNSEND, Circuit Judge, heard the argument, participated in the consultations and voted to affirm.

In re FIRST NAT. BANK OF LOUISVILLE, KY. FIRST NAT. BANK OF LOUISVILLE, KY., V. HOLT. (Circuit Court of Appeals, Sixth Circuit. June 17, 1907.)

Nos. 1,654, 1,655. 1. BANKRUPTCY-MODE OF REVIEW-ORDERS MADE IN BANKRUPTCY PROCEED

INGS.

An order made by a court of bankruptcy affirming an order of a referee setting aside an allowance of a secured claim, and requiring the creditor to pay to the trustee the amount of an unlawful preference, is one made in the bankruptcy proceedings proper, and is reviewable on petition for review, under Bankr. Act July 1, 1898, c. 541, § 24b, 30 Stat. 553 [U. S. Comp. St. 1901, p. 3432].

[Ed. Note.--For cases in point, see Cent. Dig. vol. 6, Bankruptcy, § 915.

Appeal and review in bankruptcy cases, see note to In re Eggert, 43

C. C. A. 9.] 2. SAME-VOIDABLE PREFERENCES--INTENT TO GIVE PREFERENCE.

To render a preferential payment received by a creditor from bis debtor within four mo his prior to the latter's bankruptcy voidable under Bankr. Act July 1, 1898, c. 541, $ 60b, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445), as amended by Act Feb. 5, 1903, c. 487, § 13, 32 Stat. 799 [U. S. Comp. St. Supp. 1905, p. 689], the bankrupt must not only have been insolvent when the payment was made, but must have intended it as a preference, and, if in fact made in the ordinary course of business, without thought of injuring other creditors and in the belief in his ability to pay them all, the creditor receiving it cannot be charged with reasonable cause to believe

that a preference was intended. 3. SAME.

The making of a present loan is a sufficient consideration for a transfer of collateral to secure not only such loan, but also a prior indebtedness, and, where such a transfer was made in good faith when the debtor was solvent, the right of the creditor to the securities attached at that time and collections subsequently made by it thereon and applied on the prior debt after the debtor became insolvent and within four months prior

to its bankruptcy do not constitute voidable preferences. Appeal from the District Court of the United States for the Western District of Kentucky.

Lawrence S. Leopold, for First Nat. Bank.
Herman H. Nettelroth, for trustee.
Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

SEVERENS, Circuit Judge. This case comes here by two methods for review—one by petition for review of an order made in the bankruptcy proceedings in Re R. M. Martin Company, and the other by an appeal from the same order in the respect that it is a decree in an

independent controversy arising in the course of a bankruptcy proceeding. The order complained of is one made by the referee and approved by the district judge setting aside an allowance of a secured claim of the First National Bank of Louisville, and requiring it to pay to the trustee $1,000 which, it was held, the bank had received from the bankrupt through an uniawful preference. The order was therefore one made in the bankruptcy proceedings proper, and not in an independent controversy arising in such proceedings, and is reviewable here upon the petition for review under section 21b of the Act of July 1, 1998 (30 Stat. 553, c. 541 (U. S. Comp. St. 1901, p. 3432]). Accordingly the appeal is dismissed.

The secured claim of the bank was for the sum of $16,200, which, of course, did not include the $1,000 in question. The facts as found by the referee and reported to the district judge for review are substantially as follows: In July, 1904, the bankrupt had become indebted to the bank to the amount of $10,000. It was not secured; and, being in want of more funds to continue its business, the bankrupt entered into an agreement with the bank to which one Johnson, the secretary of the bankrupt, was a third party, and which agreement, after reciting the desire of the bankrupt to procure a loan for use in its business upon the security of its book accounts with its customers and the undertaking of the bank to make such loan, witnessed that:

“Said second party shall execute and deliver to the order of said bank its note of even date herewith, for the amount of such loan and advance, and interest thereon, payable after date thereof, and as security for the payment of said note, said second party hereby sells, assigns and transfers to said bank and its assigns, the following accounts now outstanding upon said second party's books, and all moneys due and to become due thereon."

Here follows a list of accounts, giving names and addresses of debtors and the amounts and dates when due, and a receipt and agreement by Johnson as follows:

"Received of the First National Bank, Louisville, Ky., for collection, sundry, accounts receivable assigned to it by the R. M. Martin Company, Louisville, Ky., as per foregoing list.

"All collections of said accounts to be turned over to said bank as they are received by me.

"Charles L. A. Johnson."

Then the agreement proceeds to stipulate that:

"Said third party agrees, upon request of said bank, to collect the amount of said accounts, or any of them, as the agent of said bank, without any charge against said bank for such collections, and all payments on such accounts shall be entered in said book, and said third party shall immediately pay over and deliver to said bank or its assignees, the amounts of such collections, to be applied to the extinguishment of said note, and all checks, drafts and moneys so collected by said third party shall be and remain the property of said bank until a sufficient amount has been collected, and paid over to pay the total amount of said note and interest, and any other indebtedness of said second party to said bank and after said note and all other indebtedness of said second party to said bank shall have been fully paid and extinguished, the remainder of said accounts, if any, shall revert to, and become the property of said second party.

“In case of the insolvency or bankruptcy of said second party before the payment of said note and interest, or, in the event of any breach of any of the provisions of this contract by either said second party or said third party,

the agency, of said third party for the collection of such accounts shall at once cease and determine, without notice, and said bank shall then proceed to collect the remainder of such accounts so far as possible, and apply the proceeds thereof to the payment of said note and interest, to the payment of any other indebtedness of said second party to said bank, and after deducting the expense of collecting said accounts, shall hold the surplus, if any, subject to the order of said second party or its assigns.

"In witness whereof, the parties hereto have executed this agreement the day and year first above written.

"R. M. Martin Co.,
"By R. M. Martin, President,

"C. L. A. Johnson, Treasurer." And from time to time thereafter, whenever the bankrupt required more funds, similar loans were made by the bank and upon like security and a like agreement with regard to the accounts of the bankrupt and the application of their proceeds. The particular advances by the bank were paid out of these proceeds and $4,000 of the old debt of $10,000 were also paid. Johnson kept an account in his own name with the bank of his deposits made from collections, but without any distinction of the particular accounts from which the deposits came. From time to time these deposits were turned over to the bank by check, the method being, as we understand, first by Johnson's check to the bankrupt and then by the check of the bankrupt to the bank.

During the four months preceding the filing of the petition in bankruptcy loans were made by the bank in this way to the amount of $16,200. One of these loans was of $2,000 made December 16, 1905. On the 13th of that month Johnson checked out of his account $1,000 to the bankrupt, and the bankrupt gave its check to the bank for that amount. The referee states the circumstances as follows:

“It was assumed by the bank that the remainder of the pledged accounts which were still uncollected would suffice to discharge the entire contemporaneously secured indebtedness, and it was then agreed that said Johnson, agent, should pay out of his deposit account the sum of $1,000 to the R. M. Martin Company, and that the R. M. Martin Company should thereupon pay $1,000 to said bank upon said old indebtedness aforesaid. The evidence shows that a check was drawn by Johnson, agent, for $1,000 payable to said bankrupt company. Said check was deposited by said company in its account with said bank, and thereupon said company drew its check against its account in said bank for $1,000 and thereby paid said sum to said bank, which gave credit upon said old debt therefor."

The referee further states that the evidence shows "that on and after December 1, 1905, the R. M. Martin Company was insolvent," and “that the officers of said bank had reasonable cause to believe that said company was then insolvent.” From the facts that the evidence did not show whether the $1,000 paid by Johnson on December 13, 1905, was collected from accounts pledged after December 1, 1905, or whether it was realized from accounts pledged before that date, and that Johnson had so commingled his collections that separation of the proceeds was rendered impossible, the referee concluded that the presumption should be that the payment was made from the proceeds of the newly assigned accounts, upon the principle applied to the willful commingling of goods. We find nothing in the case as stated by the referee which would justify the application of such a rule. There is no reason for supposing that the commingling of the col

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lections was in disregard of the agreement of the parties or was made with any wrongful intention. It was not reasonable to charge the parties with knowledge that bankruptcy was impending or that some other condition was likely to arise in which it would be necessary to have so careful a record. But we shall not pursue this subject further, because of the graver error into which the referee fell. Nor do we need to settle the rights of the parties upon the footing of mutual credits between banks and their customers. The facts found did not justify the conclusion that there was any preference which was voidable by the trustee, even if it should be found that the payment of the $1,000 operated in the circumstances to effect a preference, as the referee thought it did.

The question whether this was a voidable preference which must be surrendered before the bank can be permitted to prove its claim depends upon the construction and effect of section 57g of the act. Before the amendment of that subdivision and of section 60a and section 60b, there was ground for holding that section 570 made voidable all preferences which were declared such by section 60a. Before the amendment section 57g was not restricted, and so was open to the inference of a wide reference to section 60a for a complement, and that the two provisions by their association would render any payment or transfer a voidable preference which if made in the circumstances mentioned in section 60a, would enable the particular creditor to obtain an advantage over other creditors of the same class. This was so held in Pirie v. Chicago T. & T. Co., 182 U. S. 438, 21 Sup. Ct. 906, 45 L. Ed. 1171, in a cause which arose prior to the amendment. But upon a recognition of the embarrassments which business men might suffer upon that rule of law in the collection of their debts, Congress in 1903, passed the amendment. And the amendment of section 57g makes only those preferences voidable which are made so by section 60b, or by 67e, which latter refers only to conveyances made with intent to defraud creditors or rendered invalid by some statute of the state; and that reference need not be further noticed. Section 60b, thus referred to, makes transfers voidable by the trustee when the creditor has reasonable cause to believe that the debtor intends thereby to create a preference. The nearest approach toward this requirement here is that for two weeks the debtor had been insolvent, and the officers of the bank had reasonable cause to believe the company was insolvent. A man is insolvent, as that term is defined by the fifteenth subdivision of section 1 of the 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. But, to make the reception of payment a preference, the creditor must have had reasonable cause to believe that the debtor was intending to give him a preference over other creditors, and we incline to think, with the Circuit Court of Appeals for the First Circuit (Hardy v. Gray, 144 Fed. 922, 925, 75 C. C. A. 562), that the reasonable implication of the language is that the debtor himself must have intended the preference. The very word signifies the doing of a thing with a purpose to give

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