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(7) By a transfer to a bank of a large amount of accounts to secure a debt, leaving other creditors unpaid. Anniston Iron & Supply Co. v. Anniston Rolling Mill Co. (D. C.) 125 Fed. 974.

It will be noticed that in each of the above seven cases the transfer was either of a large portion of the debtor's property, as compared with the total value thereof, or it was made for the exclusive benefit of one creditor, or it was a sale of the entire assets of the debtor, with an exclusive appropriation of the proceeds of such sale to the benefit and payment of a few creditors to the exclusion of others, or it was a security by way of mortgage or deed of trust covering a large amount of property, and securing a large debt for the exclusive benefit of one creditor, to the detriment of others; and, so far as I have been able to ascertain by an investigation of the cases under the act of 1867, in which the doctrine ("that insolvency being shown, and the effect of the payment or transfer being to create a preference, that intent will be presumed so to do") is laid down, they are cases analogous to those above cited; and it is apparent from the most casual examination of these cases that what the courts mean by the holding that where the insolvency is shown, and the effect of the transfer as well, the intent of the debtor will be presumed in such cases, is that such is the only logical or reasonable deduction that can be drawn from the act of the debtor with respect to the particular transaction, and that a mere denial on his part of any intent in the particular case to create the preference complained of is wholly inconsistent with his conduct in relation thereto. In other words, in each and all of the above cases it must have been well recognized by the bankrupt himself that in making the particular transfer or payment involving so large a proportion of his assets, and appropriating the same to the exclusive benefit of a single creditor, he must necessarily have known that such creditor was obtaining an undue advantage thereby over the rights of others, and that, in the face of such a condition as this, he cannot be heard to say that he did not undertake such a result. Is the contention of "necessary effect" analogous to the case at bar, and should the same inference of intent be drawn? The payments here in question were, in so far as the proof shows, of maturing debts in the ordinary course of business and in one instance that of the C. D. Kenny Company-the payment in full of one account was followed by a subsequent sale; and this may have also been true in the case of Muxen & Co., although the proof does not make this clear. Both the witness Greenwood and the witness Muxen testified that these bills were paid in the ordinary course of business, and there is nothing in the record to show that they were paid before maturity, or out of the usual course of business, or that these two creditors were singled out in any way as special recipients of the bankrupt's favor. If it had been intended to make it an act of bankruptcy for a merchant, although insolvent, to make payments to his creditors in the ordinary course of business, nothing else appearing to show an intent to prefer, it seems to me that the law would have so provided. It is true that the answer of the defendant, in so far as it sets up the defense that "all of said payments were made in good faith, in ignorance of the fact that defendant was insolvent, but in the bona fide belief that it was solvent and would be able to continue its business," is not specifically made out, because, as before stated, the defendant has made no proof whatever in this case to sustain this issue, except the depositions of the creditors, or their agents, who were the recipients of the preferences complained of, but I think it does sufficiently appear from their testimony, nothing else appearing to the contrary, that each and all of said payments were made in the usual course of business; and the complainants have, with respect to this issue, rested their case solely upon the proof of the fact that the company was insolvent at the time of the payment, and the insistence that the payment in question operated as a preference, and, having failed to prove any specific intent on the part of the defendant to prefer, I do not think the law authorizes, in a case like this, the presumptive evidence of such intent essential to make it an act of bankruptcy.

It has been held by the Court of Appeals in the case of Clark v. Henne & Meyer et al. (C. C. A.) 127 Fed. 288, that evidence that a debtor, who was a merchant, while insolvent, and within four months prior to the filing of the petition in bankruptcy against him, made various payments of bills maturing,

is insufficient to establish an act of bankruptcy, where there was no evidence that he intended thereby to give a preference or contemplated bankruptcy, nor that the creditors receiving such payments did not thereafter extend credit to him for larger amounts. It is true that the court really decided this case upon another specific act of bankruptcy charged in the petition, and held that the particular act of bankruptcy alleging preferences by way of payments to certain creditors could not be maintained, because the petition failed to set out the names of the creditors or the amounts paid; but they, however, stated that, if the petition had been specific on this point, it could not, nevertheless, have been maintained, because of the lack of proof of any intent to prefer, and also because of their failure to show that subsequent credit was not extended by the alleged preferred creditors on the faith of said payments. There is no proof here in this case that subsequent credit was not extended on the faith of the payments complained of, but the inference, if not the direct proof, is to the contrary.

In the case of In re Bloch et al. (Circuit Court of Appeals of the Second Circuit) 109 Fed. 790, 48 C. C. A. 650, an involuntary petition alleging this ground of bankruptcy was filed, and denied by the answer when the case was tried by a jury. The lower court charged that "if at the date of actual insolvency the alleged bankrupt paid a considerable debt [in this case, a debt of $2,000 out of a total liability of $20,356.79] by a transfer of accounts of the amount of $2.431, which in fact constituted a preference, he must be held to have intended the consequence of his act, and the intent to prefer was conclusively established." This was held to be error, since, though the fact of a payment by an insolvent which operates as a preference is prima facie evidence of an intent to prefer, such evidence may be overcome by proof of ignorance of insolvency, and that the debtor's affairs were such that he could reasonably expect to pay all his debts. While in this case there is no affirmative proof by defendant to rebut the presumption of intent, upon which presumption alone complainants can rely to establish the act of bankruptcy, and while the defendants do not show their ignorance of their insolvency, or that their affairs were such that they could reasonably expect to pay all their debts, I nevertheless do not think that a presumption of intent to prefer should be indulged against an insolvent debtor by the mere act of paying certain creditors small sums in the usual course of business, and apparently in the effort to keep its business going, unless there is other and further evidence showing a specific intent to thereby give such creditors an undue preference over others, although such might be the effect of the payment. But however this might be, the complainants, in my judgment, have failed to establish this act of bankruptcy, because there is no affirmative proof of a competent character by them showing that the necessary effect of the payments complained of was to give such creditors, receiving same, a greater percentage of their debts than other creditors of the same class, but, on the other hand, the defendant proves payments of a similar character made to complainants themselves, and likewise in the usual course of business. From this evidence the master can only conclude that it was the effort of the defendant to treat all of its creditors alike, and to make no discrimination between them, and that, if such discriminations were made, it was merely incidental to the attempt to keep the business going, and not in pursuance of any expressed design. It was essential, in order to maintain this act of bankruptcy, to show that the necessary effect of the payments in question was to give the creditors receiving them a greater percentage of their debts than other creditors in their class. The proof failing to show that similar payments have not likewise been made to all creditors, but the evidence being rather to the contrary, the complainants cannot rely upon this ground of bankruptcy.


It is insisted by counsel for defendant that complainants cannot maintain their petitions, either original or amended, because they have received preferences, and have not offered to surrender the same, and that, there being only three creditors before the court, there is a want of the jurisdictional number necessary to maintain the petition, and that, having received similar payments as the creditors Kenny and Muxen, they are estopped to allege this as an act of bankruptcy. Before the amended act of 1903, it was almost universally

ruled, with possibly one exception, that an involuntary petition could not be maintained by creditors who had received preferences within four months, at least, without the surrender thereof, whether such preferences existed by way of payments, deeds of trust, attachments, or other liens. See In re Rogers Milling Co. (D. C.) 102 Fed. 687; In re Miller (D. C.) 104 Fed. 764; In re Burlington Malting Co. (D. C.) 109 Fed. 777; In re Schenkein (D. C.) 113 Fed. 421; First Nat. Bank of New Kensington v. Pennsylvania Trust Co., 124 Fed. 968, 60 C. C. A. 100.

With respect to preferences obtained by way of "attachments or other legal proceedings" instituted within four months, this is still the law, since such preferences so obtained are especially made void by section 67f of the act of July 1, 1898, c. 541, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3450]. But the amended act of February 5, 1903, c. 487, § 12, 32 Stat. 799 [U. S. Comp. St. Supp. 1903, p. 415], repeals so much of the provisions of section 57g of the original law (Act July 1, 1898, c. 541, 30 Stat. 560 [U. S. Comp. St. 1901, p. 3443]), as required a creditor to surrender an innocent payment as a condition precedent to the right to file his claim. The payments in question received by these petitioners are presumptively innocent payments of the character which it is not now necessary to refund, under the amended law, since the defendant itself avers that they were made in the ordinary course of business, and there is no evidence that petitioners had a reasonable cause to believe the defendant to be insolvent at the date of their receipt, in which event alone could they be made to refund the same at the suit of the trustee under section 60b, Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445].

Section 59b, 30 Stat. 561 [U. S. Comp. St. 1901, p. 3445], which provides for the filing of involuntary petitions by creditors, only requires that they shall have provable claims, and, as well stated by District Judge Ray in the case of In re Hornstein (D. C.) 122 Fed. 266, the proof of the claim, and the allowance thereof, are separate and distinct matters, and a creditor's claim is provable, and he may join in an involuntary petition, notwithstanding the fact that he has received a preference. Although it appears that this case arose since the passage of the amended law, and the judge required the petitioning creditors to surrender their preferences before their claims were allowed, I am nevertheless of the opinion that since their claims are undoubtedly provable, and since, furthermore, their allowance could not be objected to on the sole ground that they had received innocent preferences, they are not required to even surrender them as a condition precedent to maintaining an involuntary petition. If the contrary be the law, it works a manifest injustice between creditors, since it is quite apparent that the C. D. Kenny Company and A. Muxen & Co. could not be required to surrender their innocent payments, and the necessary effect of the insistence that complainants should refund, or have their petition dismissed, would be to give Kenny & Co. and Muxen & Co. an undue advantage, by the retention of their preferential payments received under exactly similar circumstances.

I therefore think that not only have the creditors filing this petition provable claims, in the sense of section 59b, but they likewise have allowable claims, within the meaning of that term as used in other sections of the law, and that, nothing else appearing, they have a right to maintain this petition. If it is attempted to rest the doctrine of estoppel upon the proposition that, having received preferences of a like character to the Kenny Company and Muxen & Co., they should be debarred from complaining of the preference to Kenny and Muxen as acts of bankruptcy, it is sufficient to say that, in so far as I have been able to investigate, an estoppel of this character only arises as against a person participating or conniving in the alleged act of bankruptcy complained of. In other words, the creditor cannot take advantage of the preferences made to himself; the law being as well settled in bankruptcy as in equity that a person who has become a party to, and taken benefit from a fraudulent conveyance, is estopped thereby to claim the same as an act of bankruptcy. In re Williams, Fed. Cas. No. 17,706. And the same doctrine has been applied in the case of creditors who have assented to the making of a general assignment. They cannot thereafter allege it as an act of bankruptcy But I do not think the mere fact that a party has received a preference pre cludes him from complaining of another and distinct preference to another

person. They are separate and distinct transactions and acts of bankruptcy, and the acceptance of the payment to himself cannot be an estoppel on his right to complain of a payment to others, unless involved in the same transaction.

For the reasons stated, it is respectfully recommended that the petition be dismissed.

Wheeler & Trimble and Sidney B. Wright, for petitioning creditors. Brown & Spurlock, for defendant Douglas Coal & Coke Co.

CLARK, District Judge. In regard to this case, it is only necessary to say shortly that in view of the language of the act of Congress, and the changes which were deliberately made in the provisions of the act while it was before the Senate judiciary committee, I am constrained to affirm the ruling of the referee, and for the reasons which he states. There is no doubt in this case about insolvency being established, in the legal sense; but Congress has used such language as makes it necessary that a receivership in a state court, in order to constitute an act of bankruptcy, must have been established, or the receiver appointed, on the ground of the corporation's insolvency. It is very much open to doubt whether Congress has not here used language which makes necessary a result which Congress itself intended to avoid. Looking to the practical bearing of the question, there is much reason to believe that Congress intended to make the appointment of a receiver in a state court conclusive as a ground of bankruptcy, without requiring this court to inquire into the grounds on which the receivership was created; but the language of the amendatory act is perfectly plain, in requiring that the existence of a receivership in a state court, in order to be a ground of bankruptcy, must have been on account of the insolvency of the corporation, and this leaves open in any case to inquiry by this court the grounds on which the appointment of a receiver was made, and, if the appointment was made on any other ground than that of insolvency, it does not constitute an act of bankruptcy. Now, in the case here considered, the appointment was on account of breaches of covenants-covenants like the covenant to keep down taxes, and the like—and, although these particular acts or defaults strongly tend to show insolvency, they justify the appointment of a receiver, regardless of insolvency; and it seems that, in form, at least, the receivership was established on the ground of breaches of these covenants. I do not think the payments which were made, and which are here called in question, constitute a preference or an act of bankruptcy.

The ruling of the referee is accordingly affirmed, in view of the natural and necessary construction which must be placed upon the language used in the act of Congress. It is accordingly so ordered.

NOTE. Since the decision in the principal case of In re Douglas Coal & Coke Company the opinion of the Circuit Court of Appeals for the Fourth Circuit in the Case of Blue Mountain Iron & Steel Co., 131 Fed. 57, has been published, and the doctrine of the opinion in this case appears to be in substantial accord with the ruling in Re Douglas Coal & Coke Company.

MARRA. SAN JACINTO & P. V. IRR. DIST. et al. (two cases).

(Circuit Court, S. D. California, S. D. April 27, 1904.)
Nos. 1,086, 1,087.

1. IRRIGATION DISTRICTS-BONDS-PAYMENT-REMEDIES-MANDAMUS-RECEIVER. Act Cal. March 7, 1887, p. 29, c. 34, as amended by Act March 20, 1891, p. 142, c. 127, providing for the organization of irrigation districts, authorizes such districts to issue bonds for the construction of necessary works; and section 17 (page 37) provides that the bonds and interest thereon shall be paid by revenue derived from an annual assessment upon the real property of the district, and that all real property therein shall be and remain liable to be assessed for such payment as provided in the act. Held, that where an irrigation district, duly organized, issued and sold bonds under such act, the remedy of a holder thereof, after having recovered judgment and securing a return of an execution against the property of the district unsatisfied, was to compel the officers of the district by mandamus to levy an assessment against the property of the district, and not by a suit in equity for the appointment of a receiver.

The following is the opinion of Circuit Judge ROSS on an application for leave to intervene in the suit in equity, as hereinafter referred


The oral application made on behalf of the California Cattle Company to intervene in this suit in equity is denied, without prejudice to another application of a similar nature based upon a proper showing. The bill, I think, presents a proper cause for the appointment of a receiver of the property of the defendant corporation. If it be true that the complainant is a bona fide owner of valid bonds issued by the defendant irrigation district, while acting as such under the laws of the state, and that property acquired and owned by it is in the hands of strangers, holding and claiming the same adversely, a failure to appoint a receiver may result in depriving the complainant of rights to which he may be entitled; whereas, if it shall be hereafter found, upon proper judicial inquiry, that the alleged rights of the complainant are not well founded, the parties in the possession of such property may very readily be protected.

A receiver will therefore be appointed in case No. 1,087, upon the execution of a bond by the complainant, with sufficient sureties, to be approved by the court, in the sum of $10,000, as security for the costs of the receivership. The parties in interest may suggest for the consideration of the court some proper person for the position.

John G. North and John W. Lane, for complainant.
Geo. J. Denis and Frank W. Burnett, for defendants.

ROSS, Circuit Judge. A consideration of the objections made to the proposed order of appointment of a receiver and a further consideration of the bill of complaint in this cause satisfies me that the court was in error in its ruling made and entered on the 28th day of March, 1904, providing for such an appointment.

On the 7th of March, 1887, the Legislature of California passed an act entitled "An act to provide for the organization and government of irrigation districts, and to provide for the acquisition of water and other property, and for the distribution of water thereby for irrigation purposes" (St. Cal. 1887, p. 29, c. 34), which was amended and supple

1. Mandamus to enforce payment of judgment against municipality, see note to Ho't County v. National Life Ins. Co. of Montpelier, Vt., 25 C. C. A. 475.

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