and the only function, of the proviso of § BANKRUPTCY 175-FRAUDULENT TRANS3, and the claim that, by construction, powFER-KNOWLEDGE OF TRANSFEREE “HINDER, DELAY OR DEFRAUD." er may be found in it to suspend § 2, is too forced and unnatural to be seriously con sidered. This reading of the two sections makes them stand together as an expression of a consistent congressional purpose "to promote the safety of employees and travelers on railroads" on and after July 1st, 1911, by requiring that the safety appliances described in § 2 of the act shall be secure and efficient from that date, and by requiring, as § 3 provides, that these appliances shall be brought as speedily as may be to a uniform standard of location, size, and usefulness, to be prescribed by the Interstate Commerce Commission. While the question we have considered has not been presented to this court before in precisely the form in which we have it here, yet § 2 of the act was treated by this court as in full force as of September 4, 1912, in Texas & P. R. Co. v. Rigsby, 241 U. S. 33, 60 L. ed. 874, 36 Sup. Ct. Rep. 482, and the supreme court of the state of Minnesota in Coleman v. Illinois C. R. Co. 132 Minn. 22, 155 N. W. 763, and the supreme court of Iowa in Cook v. Union P. R. Co. Iowa, -, 158 N. W. 521, while arriving at their conclusions by somewhat different analyses of the sections of the Act of April 14, 1910, have given to them precisely the meaning and effect which we are giving to them in this decision. It results that the judgment of the Supreme Court of Mississippi is affirmed. (242 U. S. 438) CLAUDE M. DEAN, Appt., V. R. BEALE DAVIS, Jr., Trustee, etc. BANKRUPTCY 165(3) PREFERENCESTRANSFER TO THIRD PERSON. 1. No preferential transfer forbidden by the Bankrupt Act of July 1, 1898 (30 Stat. at L. 562, chap. 541) § 60b, as amended by the Act of Feb. 5, 1903 (32 Stat. at L. 800, chap. 487, § 13, and Act June 25, 1910, 36 Stat. 842, c. 412, § 11, Comp. Stat. 1913, § 9644), when made within four months of the bankruptcy proceedings, results from the giving of a mortgage by the bankrupt to secure notes representing moneys contemporaneously advanced by the mortgagee to take up other notes given by the bankrupt, which the bank discounting and holding them claimed bore forged indorsements, although the mortgagee knew that the mortgagor was insolvent. If anyone was preferred, it was the bank, not the mortgagee. [Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. §§ 259, 260; Dec. Dig. 165(3).] 2. A mortgage of all the mortgagor's property, given to secure notes, overdue when the mortgage was recorded, which represent moneys advanced to take up other notes given by the mortgagor, bearing indorsements that the bank discounting and holding them claimed to be forgeries, must fraud the creditors of the mortgagor, withbe deemed to be one to hinder, delay, or dein the meaning of the Bankrupt Act of July 1, 1898 (30 Stat. at L. 564, chap. 541, Comp. Stat. 1913, § 9651), § 67e, avoiding, "except as to purchasers in good faith and for a present fair consideration," every transfer made by the bankrupt "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," where the mortgagee knew that the mortgagor was insolvent and was making a preferential payment to avoid a threatened criminal prosecution, and must have known that suspension of his business and bankruptcy would result from giving and recording such mortgage. [Ed. Note-For other cases, see Bankruptcy, Cent. Dig. §§ 247, 248; Dec. Dig. 175. For other definitions, see Words and Phrases, Second Series, Hinder, Delay or Defraud.] BANKRUPTCY 306-APPEAL - REVERSIBLE ERROR ISSUES OBJECTION NOT RAISED BELOW. 3. A decree granting relief under the provisions of the Bankrupt Act of July 1, 1898 (30 Stat. at L. 564, chap. 541, Comp. Stat. 1913, § 9651), § 67e, avoiding fraudulent transfers by a bankrupt, will not be disturbed by the Federal Supreme Court on the ground that the bill was framed under § 60b of that act, as amended by the Act of Feb. 5, 1903 (32 Stat. at L. 800, chap. 487, § 13, and Act June 25, 1910, 36 Stat. 842, c. 412, § 11, Comp. Stat. 1913, § 9644), avoiding preferential transfers, where this objection was not raised in either of the two lower courts, and the issue of fraudulent transfer was presented by the pleadings, was fully tried, and was found against the appellant. [Ed. Note.-For other cases, see Bankruptcy, Dec. Dig. 306.] [No. 70.] Argued and submitted November 6 and 7, 1916. Decided January 8, 1917. PPEAL from the United States Circuit AP Court of Appeals for the Fourth Circuit to review a decree which affirmed a decree of the District Court for the Eastern District of Virginia, setting aside a mortgage given by a bankrupt within four months of the bankruptcy proceedings. Affirmed. See same case below, 128 C. C. A. 658, 212 Fed. SS. The facts are stated in the opinion. Messrs. Wyndham R. Meredith and C. V. Meredith for appellant. Messrs. Richard B. Davis and Bartlett Roper, Jr., for appellee. For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes Mr. Justice Brandeis delivered the opin-, to await the ultimate determination of the ion of the court: rights of the parties. It yielded only $1,634,-leaving nothing for the general creditors if the mortgage is held valid. Davis, the trustee in bankruptcy, brought a bill in equity to set aside the mortgage. The district court granted the relief prayed for; and its decree was affirmed by the cir the facts to be in substance as above stated and held the mortgage void under § 67e as having been made by Jones "with the intent and purpose on his part to hinder, delay or defraud his creditors," to one not a "purchaser in good faith" within the meaning of the act. The circuit court of appeals The Bankruptcy Act (as amended Feb. 5, 1903 [32 Stat. at L. 800, chap. 487, § 13, and Act June 25, 1910, 36 Stat. 842, c. 412, § 11, Comp. Stat. 1913, § 9644]) provides in § 60b that if a debtor has, within four months before the filing of the petition in bankruptcy, made a transfer which the person receiv-cuit court of appeals. Both courts found ing the same has reason to believe was intended to give a preference, the transfer shall be voidable, and the trustee in bankruptcy may recover the property or its value. The act also provides in § 67e, 30 Stat. at L. 564, chap. 541, Comp. Stat. 1913, § 9651, that if a debtor, within four months before the filing of the petition in bank-held the mortgage void also as a preference ruptcy, makes any transfer "with the intent under § 60b (128 C. C. A. 658, 212 Fed. and purpose on his part to hinder, delay or 88). The case comes to this court upon defraud his creditors, or any of them," it appeal; Dean contending that the mortshall be null and void except as to purchas-gage is not invalid under either § 60b or g ers in good faith and for a present fair consideration; and that it shall be the duty of the trustee to recover the same. R. Crawley Jones was a farmer and owner of a country store. A bank, having discounted his notes bearing indorsements which it later concluded had been forged, demanded that Jones take up the notes. Fearing arrest, he appealed through his father to his brother-in-law, Dean, for a loan of $1,600, promising to secure it by a mortgage of all his property, which he represented was worth more than five times that amount. Dean provided the money, and on September 3, 1909, acting in conjunction with Jones's father, "took up" the notes. Most of them were not yet due. A mortgage deed of trust dated September 3 was executed September 10, and recorded September 11. It covered practically all of Jones's property, including the stock in trade and accounts, store furnishings and fixtures, household furniture and goods, live stock, crops standing and cut, and the farm itself, the last subject to a prior deed of trust. Four mortgage notes were given, payable respectively in seven, thirty, sixty, and ninety days; with a proviso that upon default on any one all should become payable. The first note-and hence all-was overdue when the mortgage was recorded. On that day Dean directed that possession of the property be taken, which was done on September 13 (the 12th being Sunday). Jones was at the time deeply insolvent and had many unsecured creditors. Some of these immediately challenged the validity of the mortgage. Within a few days an involutary petition in bankruptcy was filed and Jones was adjudicated a bankrupt. The mortgaged property was converted into cash under an agreement with general creditors that it should be deposited 67e. The mortgage was not voidable as a prefcrence under § 60b. Preference implies paying or securing à pre-existing debt of the person preferred. The mortgage was given to secure Dean for a substantially contemporary advance. The bank, not Dean, was preferred. The use of Dean's money to accomplish this purpose could not convert the transaction into a preferring of Dean, although he knew of the debtor's insolvency. Mere circuity of arrangement will not save a transfer which effects a preference from being invalid as such. National Bank v. National Herkimer County Bank, 225 U. S. 178, 184, 56 L. ed. 1042, 1046, 32 Sup. Ct. Rep. 633. But a transfer to a third person is invalid under this section as a preference only where that person was acting on behalf of the creditor, as in Re Beerman, 112 Fed. 663, and Walters v. Zimmerman, 208 Fed. 62, 136 C. C. A. 409, 220 Fed. 805. Here Dean acted on the debtor's behalf in providing the money and taking up the notes. But under § 67e the basis of invalidity is much broader. It covers every transfer made by the bankrupt "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" “except as to purchasers in good faith and for a present fair consideration." As provided in § 67d, only "liens given or accepted in good faith and not in contemplation of or in fraud upon this act" are unassailable. A transfer, the intent (or obviously necessary effect) of which is to deprive creditors of the benefits sought to be secured by the Bankruptcy Act, "hinders, delays or defrauds creditors" within the meaning of § 67e. Van Iderstine v. National Discount Co. 227 U. S. 575, 582, 57 L. ed. 652, 654, 33 Sup. Ct. Rep. 343, points out the distinction, Iderstine Case, and Coder v. Arts, 213 U. S. between the intent to prefer and the intent 223, 244, 53 L. ed. 772, 781, 29 Sup. Ct. Rep. to defraud. A transaction may be invalid 436, 16 Ann. Cas. 1008, upon which apboth as a preference and as a fraudulent pellant particularly relies. In each of these transfer. It may be invalid only as a prefer- cases this court refused to hold fraudulent ence or only as a fraudulent transfer. Mak- in law a transfer which the circuit court of ing a mortgage to secure an advance with appeals had found to be innocent in fact. which the insolvent debtor intends to pay a In the Van Iderstine Case, where a pledge pre-existing debt does not necessarily imply was held valid, the circuit court of appeals an intent to hinder, delay, or defraud credi- had expressly found that the pledgee was tors. The mortgage may be made in the ex- without knowledge of the debtor's fraudu pectation that thereby the debtor will lent intent, if such there was. In Coder v. extricate himself from a particular difficulty | Arts, where a mortgage was held valid, the and be enabled to promote the interest of all circuit court of appeals had found that, in other creditors by continuing his business. making the mortgage, the debtor had no The lender who makes an advance for that intent to hinder, delay, or defraud creditors. purpose with full knowledge of the facts and this court said that, "in view of the may be acting in perfect "good faith." But finding of the circuit court of appeals, it where the advance is made to enable the may be that [he] though including in the debtor to make a preferential payment with conveyance a large amount of his property, bankruptcy in contemplation, the transac- acted in good faith, with a view to preservtion presents an element upon which fraud ing his estate and enabling him to meet his may be predicated. The fact that the money indebtedness." This court, while declaring advance is actually used to pay a debt does itself bound by the facts so found, was carenot necessarily establish good faith. It is ful to express its dissent from the view a question of fact in each case what the in- "that the giving of the mortgage and its tent was with which the loan was sought effect upon other creditors could not be conand made. sidered as an item of evidence in determining the question of fraud." We cannot say that the facts found by the district court and affirmed by the circuit Dean contends also that relief should not court of appeals were not supported by the have been granted under § 67e because the evidence, nor that these courts erred in con- bill was framed under § 60b. The objection cluding upon this evidence that the mortgage was not taken in the district court, although was made with the purpose and intent to the question of invalidity under § 67e was hinder, delay, or defraud Jones's creditors, elaborately discussed on demurrer to the and that Dean was not, as against general bill as well as upon final hearing. Twentycreditors, "a purchaser in good faith." five other errors were assigned on the apJones knew that he was insolvent. He knew peal to the circuit court of appeals. This that he was making a preferential payment. objection was not raised then. It was inHe must have known that suspension of his sisted only that the evidence did not warbusiness and bankruptcy would result from rant the finding of fraudulent intent. Secgiving and recording a mortgage of all his tion 60b seems to have been mainly in the property to secure a note which had ma- mind of the pleader when the bill of comtured before the mortgage was executed. plaint was drafted, but not exclusively, for The lower courts were justified in conclud-it alleges that the plaintiff as trustee was ing that he intended the necessary consequences of his act; that he willingly sacrificed his property and his other creditors to avert a threatened criminal prosecution; and that Dean, who, knowing the facts, cooperated in the bankrupt's fraudulent purpose, lacked the saving good faith. The conclusion reached by the lower courts is supported by many decisions of the several district courts and circuit courts of appeal, which are referred to in the margin. It is in harmony with both the Van 1 Cases holding that a mortgage is a fraudulent conveyance where taken as security for a loan which the lender knows is to be used to prefer favored creditors, in fraud of the act: Parker v. Sherman, 129 C. C. A. 437, 212 Fed. 917 (C. C. A. 2d C.); Re Soforenko, 210 Fed. 562 (D. C. Mass.); | said bankrupt in fraud of his creditors." entitled "to recover property transferred by The answer expressly alleges that the mortgage was accepted "without any intent or purpose of aiding said Jones to defraud, delay, or hinder his creditors, and not in contemplation of or in fraud of the Bankruptcy Act, or any of its provisions, believing him to be solvent, and that he would continue his business." The issue of fraudulent transfer was presented by the pleadings, Johnson v. Dismukes, 122 C. C. A. 552, 204 Fed. 382 (C. C. A. 5th C.); Lumpkin v. Foley, 122 C. C. A. 542, 204 Fed. 372 (C. C. A. 5th C.); Re Lynden Mercantile Co. 156 Fed. 713 (D. C. Wash.); Roberts v. Johnson, 81 C. C. A. 47, 151 Fed. 567 (C. C. A. 4th C.); Re Pease, 129 Fed. 446 (D. was fully tried, and was found against the CARRIERS appellant. No error was committed. Decree affirmed. (242 U. S. 448) 158(1)-LIMITING LIABILITY -AGREED VALUATION-RATIO OF RECOVERY. 3. A recovery at the ratio of $100 per ton for the lost freight is the limit of the damages recoverable for the loss of a part of an interstate shipment of 25 tons of cop WESTERN TRANSIT COMPANY, Plff. in per, under a bill of lading which contains a Err., V. A. C. LESLIE & COMPANY, Limited. CARRIERS 158(1)-LIMITING LIABILITY —AGREED VALUE-LIABILITY AS WARE HOUSEMAN. 1. A released-valuation clause in an interstate bill of lading, based upon a difference in the carrier's tariffs on file with the Interstate Commerce Commission, is valid and controlling, although the loss occurs while the freight is in the carrier's warehouse at an intermediate point, conformably to the provisions of one of such tariffs, which confers the right in transit of free storage and diversion at that point, the bill of lading reciting that the shipment is to be held at that point for orders, and providing that every service to be performed thereunder is subject to all the conditions therein contained. [Ed. Note.-For other cases, see Carriers, Cent. Dig. § 663; Dec. Dig. 158 (1).] CARRIERS~141 LIABILITY AS WAREHOUSEMAN-BILL OF LADING--NEW CON TRACT. - 2. No new contract of warehousing, wholly independent of the contract of carriage, was created by a letter from the carrier to an interstate shipper, who had then enjoyed nearly two months' storage at an intermediate point, which stated that the goods were held there in storage subject to a circular therein inclosed, which was a copy of the carrier's tariff on file with the Interstate Commerce Commission, giving the right in transit to free storage and diversion at that point. [Ed. Note.-For other cases, see Carriers, Cent. Dig. §§ 611, 6112; Dec. Dig. 141.] C. Mich.). See also Walters v. Zimmerman, | s. c. on appeal, 208 Fed. 62 (D. C. Ohio), 136 C. C. A. 409, 220 Fed. 805 (C. C. A. 6th C.). Cases upholding the mortgage security because the lender did not know that the insolvent borrower intended to make improper payments to favored creditors-thus indicating that the mortgage would be fraudulent if such additional fact were shown: Grinstead v. Union Sav. & T. Co. 111 C. C. A. 398, 190 Fed. 546 (C. C. A. 9th C.); Powell v. Gate City Bank, 102 C. C. A. 55, 178 Fed. 609 (C. C. A. 8th C.); Re Kullberg, 176 Fed. 585 (D. C. Minn.); Ohio Valley Bank Co. v. Mack, 24 L.R.A. (N.S.) 184, 89 C. C. A. 605, 163 Fed. 155 (C. C. A. 6th C.); Stedman v. Bank of Monroe, 54 C. C. A. 269, 117 Fed. 237 (C. C. A. 8th C.); Re Soudan Mfg. Co. 51 C. C. A. 476, 113 Fed. 804 (C. C. A. 7th C.). released-valuation clause of $100 per net ton, based upon a difference in the carrier's freight rates on file with the Interstate Commerce Commission. [Ed. Note.-For other cases, see Carriers, Cent. Dig. § 708; Dec. Dig. 158(1).1 [No. 104.] Argued and submitted December 19 and 20, 1916. Decided January 8, 1917. I IN ERROR to the Supreme Court, Appellate Division, Fourth Department, of the State of New York, to review a judgment which affirmed a judgment of a Special Term of the Supreme Court in and for the County of Erie, in that state, affirming a judgment of the City Court of Buffalo in favor of an interstate shipper, for the full value of a freight loss, notwithstanding a released-valuation clause in the bill of lading. Reversed and remanded for further Proceedings. See same case below in appellate division, error. Messrs. Daniel J. Kenefick and Charles B. Sears for defendant in error. Mr. Justice Brandeis delivered the opinion of the court: The Western Transit Company, operating steamers between Buffalo and other points on the Great Lakes, formed, with the New preferences, is void under § 67e because its necessary effect is to hinder, delay, or defraud creditors in their rights and remedies under the Bankruptcy Act. Re Gutwillig, 90 Fed. 475, 34 C. C. A. 377, 63 U. S. App. 191, 92 Fed. 337; Davis v. Bohle, 34 C. C. A. 372, 92 Fed. 325; Rumsey & S. Co. v. Novelty & Mach. Mfg. Co. 99 Fed. 699. See Randolph v. Scruggs, 190 U. S. 533, 536, 47 L. ed. 1165, 1169, 23 Sup. Ct. Rep. 710; George M. West Co. v. Lea Bros. 174 U. S. 590, 596, 43 L. ed. 1098, 1100, 19 Sup. Ct. Rep. 836. It is difficult to reconcile the following cases or dicta in them with the great weight of authority and the decisions of this court: Re Baar, 130 C. C. A. 292, 213 Fed. 628 (C. C. A. 2d C.); Re Hersey, 171 Fed. 1004 (D. C. Iowa); Sargent v. Blake, 17 L.R.A. (N.S.) 1040, 87 C. C. A. 213, 160 Fed. 57, 15 Ann. Cas. 58 (C. C. A. 8th C.); Re Bloch, In accord with this view are also the de- 74 C. C. A. 250, 142 Fed. 674 (C. C. A. 2d cisions which hold that a general assignment C.); Githens v. Shiffler, 112 Fed. 505 (D. C. for the benefit of creditors, though without | Pa.). For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes 30¢ per ton." value not expressed The shipper insists that it is enforcing the liability of the Transit Company not as carrier, but as warehouseman; and that the terms of its obligation as warehouseman are fixed, not by the bill of lading and the tariff provision quoted above, but wholly by the letter of November 26, 1908, and the circular therein referred to, which are copied in the margin.1 York Central Railroad, a "lake and rail" Copper ingots line between Michigan and New York city. Among the privileges and facilities offered by this line was the right "in transit of free storage and diversion at Buffalo." That is, the shipper, instead of sending his goods from Michigan through to New York city, was entitled, without the payment of any extra charge, to have them stored at Buffalo for a period, to await further orders, and be forwarded later to New York. The shipper was also given the privilege of "di- The Transit Company filed with the Inversion," that is, of changing the ultimate terstate Commerce Commission, in addition destination of the stored goods upon proper to its general tariffs covering "lake and adjustment of the rate. On September 23, rail" rates, a separate tariff known as I. C. 1908, A. C. Leslie & Company, Limited, C. No. 236, covering specifically storage the plaintiff below, delivered to the Western and diversion privileges at Buffalo, as set Transit Company, the defendant below, at forth in the circular copied in the margin. Houghton, Michigan, for shipment over this The filing of this tariff was required by the line to New York city, 25 tons of copper act (see Goldenberg v. Clyde S. S. Co. 20 ingots, with direction to store the same Inter. Com. Rep. 527), since the genupon arrival at Buffalo to await further eral tariff did not specify the detail of the shipping directions. The copper arrived storage and diversion privileges. The Act there September 30, and was placed in the to Regulate Commerce, as amended, proTransit Company's warehouse. Nearly four vides expressly (§ 1) that the term "transmonths later about one ton of it was stolen portation" includes storage. And § 6 (Comp. from the warehouse. An action was St. 1913, § 8569) provides that a carrier must brought by the shipper in the city court of file with the Interstate Commerce CommisBuffalo to recover its value. The Transitsion tariffs "showing all the rates, fares, and Company denied all liability; but the court charges for transportation," and "shall also found that the loss was due to its negli- state separately all....storage charges,.... gence, and held the company liable for the all privileges or facilities granted or alfull value of the copper lost. The judgment of the city court was affirmed by the 1 The Western Transit Company, N. Y. C. & H. R. R. Line of Steamers. supreme court of New York at special term, and also by the appellate division of that Buffalo, N. Y., Nov. 26, 1908. court. (165 App. Div. 947, 150 N. Y. Supp. Messrs. A. C. Leslie & Company, 1073.) Applications for an appeal to the court of appeals of New York having been denied, both by the appellate division and by the chief judge of the court of appeals, a writ of error to this court was granted on the ground that the decision below involved a Federal question, namely: the construction and effect of the bill of lading and of tariffs filed under the Act to Regulate Commerce as amended. (Act June 29, 1906, chap. 3591, 34 Stat. at L. 584, Comp. Stat. 1913, § 8563.) The question before this court relates solely to the measure of damages. The shipper contends that it is entitled to the full value of the copper lost, which was $271.38. The carrier contends that the damages recoverable are limited to $94.10; that is, the value not to exceed $100 a ton. In support of this limitation it relies upon the fact that freight was paid at the rate of 18 cents per ton under a bill of lading and a tariff which names the following rates from Houghton, Michigan, to New York city: "Copper ingots value not to exceed $100 a ton, 18¢ per ton. Gentlemen: Montreal, Que. would advise you that we have in store here, Replying to your letter of 24th, instant, lot 1036 ingot bars of copper, marked M. M. 102, as well as lot of 979 ingot bars, marked M. M. 97. This copper came forward in our steamer, Buffalo, which unloaded here September 30th, and will be held here subject to our storage circular I. C. C. No. 236, copy of which I inclose. (Signed) D. Yours truly, Edwin T. Douglass, General Manager. I. C. C. No. 236, Superseding I. C. C. No. 231. The Western Transit Company, New York Copper and Copper Matte, Pig Lead and falo. The Western Transit Company will accept shipments of copper and copper matte, pig lead and spelter for storage and diversion at Buffalo, under the following rules: 1. The Western Transit Company, at request of owners, will furnish free storage |