debtor's stock in trade was sold under judgment and execution, and the court held that the debtor was bound by the result as to the valuation of the goods, and could not prove his solvency by higher estimates of their value if they had been free from levy and sold at retail, or in the ordinary course of business. In Duncan v. Landis, 106 F. 839, 45 C. C. A. 666 (1901), the Court of Appeals of the Third Circuit, speaking through Judge Gray, said: "We think that the present market value of the property in question would be a fair valuation of the same, but there is nothing in this section of the act that authorizes that market value to be ascertained by what a purchaser would give who desired to take advantage of the necessities and embarrassments of the owner, in order to procure the same at a price less than its real or market value."

The term "fair valuation," as used in the Bankruptcy Act, means the fair cash value or the fair market value of the property as between one who wants to purchase and one who wants to sell the property. If the bankrupt had wanted to sell its property, the price it could have obtained for it upon the market from parties who wanted to buy and would give its fair value is the fair valuation which the statute refers to. The price which the property would bring or does bring when forced off at auction under the hammer cannot be regarded as always fixing its fair market value.

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On September 22, 1910, there was due and unpaid on the mortgage which the bankrupt had given on its plant $18,567.51. The mortgage was foreclosed, and on October 15, 1910, sold to defendant at the referee's sale for $14,000. In making up the bankrupt's schedule of assets the president of the bankrupt testified: "We put our plant in at $25,000. We also placed in our schedule here the machinery, tanks, and equipment used in the conduct of the business at Tonawanda, N. Y., $5,000, so that the plant and equipment is in the bankruptcy schedules at $30,000; office furniture and fixtures are in at $500; that is what I thought the property would bring under a forced sale."

Bankrupts are not inclined to underestimate the value of the real estate they schedule. It appears that some time in 1908, before Alexander became connected with the bankrupt, a proposition was made to sell him the plant for $25,000. The purchase was not made, and apparently for the reason that Alexander could not borrow the money to pay for it. We are able to get some idea of the fair market value of the real estate from the testimony of the trustee. His testimony follows: "I made an effort to sell the real estate and plant at Tonawanda. We obtained from the Board of City Despatch of New York a list of responsible cider and vinegar manufacturers in the United States; there were about 600 on the list, and we sent them advertisements of the property and when it was to be sold. The date fixed for the sale was June 24, 1910; the usual advertisement of that sale was given. We received no bids at the time of the sale; then I adjourned the sale in order to obtain private bids. I did not obtain any. The property was afterwards foreclosed by the defendant, so that I have at the present time converted into cash all the assets to the bankrupt."

The value of the accounts receivable entered on the statement of September 1, 1909, at $48,205.47, was much in excess of their real value. The testimony showed that in December, 1909, Alexander made a trip through the country to collect accounts. This he did upon the suggestion of the president of the defendant bank. Alexander

testified: "I found in collecting these accounts a great many of them shrunk a great deal. *** The debtors disputed the accounts. In straightening up these accounts and collecting them, we made concessions; we simply had to settle on the basis of the man's understanding and agreement as to the manner in which they [the goods] were purchased."

And Swanton, in his testimony, referring to this attempt of Alexander to get in the accounts, said: "I should say that the falling off in the amount of the accounts that were assigned to the bank directly, concerning which no question is raised here, was discovered on that trip of Mr. Alexander's to be somewhere between 30 and 40 per cent. I do not recall exactly what the gross amount in dollars of the losses amounted to. My recollection is that it was about $20,000.”

There were several explanations given for this condition respecting the accounts. One was that in making sales Mr. Gregory, the former president, had agreed to allow certain discounts unknown to the home office; also that Gregory had agreed with the purchasers to furnish salesmen to push the goods in certain localities. This statement, therefore, made by the bankrupt as of September 1, 1909, cannot be accepted either as to the value of the real estate or as to the value of the accounts. The testimony shows that, whatever the accounts receivable may have been worth, such of them as were permitted to reach the hands of the trustee in bankruptcy amounted, along with his other receipts, to only $879.78. Of that amount $232 was realized from the sale of personalty; from "cash in drawer at plant" was realized 37 cents; from balance in bank was received $10.82. Common carriers paid back $166.50. There was a rebate on insurance of $128.25, and a returned premium of $6.72. The Merchants Despatch paid in $17.75 for damage to cider. All these several items aggregated $562.41. There are only three small items credited as having been received from "accounts," and they aggregate $79.47.

This is a very illuminating statement. Whatever may have been the value of the accounts receivable, that value had gone to this defendant and to the Robertsons. There was nothing left for the trustee, and nothing left for the general creditors, who had received nothing. The trustee testified that accounts which he had not collected he had found uncollectible. He said: "Some of the reasons were that the goods were of no value, and there were misrepresentations as to the quality of the goods; the goods were received in broken casks and a large amount of leakage."

In view of the fact that after the payments made to defendants and the payments made to the Robertsons there still remains an indebtedness of $41,909.52, with nothing in the hands of the trustee except a balance of $144.18, which is not enough to defray the expenses of administration, we feel convinced, not only that the financial statement made by the bankrupt on September 1, 1909, did not place a fair valuation on the assets, but that it placed a much exaggerated value thereon. And we are also convinced that upon a fair valuation the assets were much below the total amount of the debts. In Grandison v. Robertson we said that this bankrupt was in our opinion insolvent from the time it began business in July, 1908. There is nothing in the present record which changes that conviction. But, however, that may be, there certainly is no doubt that insolvency existed for four months. prior to the filing of the petition in bankruptcy.

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SECTION 1.-KNOWLEDGE OF INTENT TO PREFER While the idea is more or less prevalent among business men that all preferences can be recovered by the trustee of the bankrupt estate, this is not true. The act has provided that certain kinds of preferences are recoverable. In all cases, for it to be recovered, it must have been obtained within four months before the filing of the petition of bankruptcy. If the preference is received within the four months period, whether or not it is recoverable depends upon many facts, such as intention of the parties, whether or not it was given for a present consideration, and whether the preference arose by reason of a right of set-off.

Federal Bankruptcy Act, § 60 (U. S. Comp. St. § 9644): Preferred Creditors.-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 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 creditors 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.

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 person 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 avoidable by the trustee and he may recover. the property or its value from such person. 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 concurrent jurisdiction.

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 recoverable 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 determined by the court, and the excess may be recovered by the trustee for the benefit of the estate.

A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person 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 the estate of such person the same, shall not be dissolved; but the trustee 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.

NICHOLS v. ELKEN et al. SAME v. FARMERS' & MERCHANTS' NAT. BANK OF HATTON, N. D. SAME v. HEGGE.

(Circuit Court of Appeals of the United States, Eighth Circuit, 1915. 225 F. 689, 140 C. C. A. 563.)

REED, District Judge. As each case involves substantially the same question, they may be disposed of in one opinion.

Irving Tilden was adjudicated a bankrupt by the District Court of the United States for the District of North Dakota, November 29, 1909 (whether upon his own petition or the petition of creditors does not appear), and the plaintiff, George E. Nichols, was in due time appointed trustee of his estate. At the time of his adjudication the bankrupt

lived in Fargo, N. D., and previously lived in Hatton, that state, not far from Fargo. He was a building contractor, and for some time had been engaged in buying real estate at or near Hatton and Fargo and building thereon, or otherwise improving the same, and selling it. In such dealing he had incurred liabilities to banks for borrowed money, and to others for building material and other purposes, to the amount of some $85,000, which he was unable to pay, and was insolvent, and had been for some time prior to the adjudication in bankruptcy. Among the banks to whom he had become indebted in quite large amounts was the Farmers' & Merchants' National Bank of Hatton, N. D., the defendant in one of these cases, and to the defendants M. L. Elken and G. L. Elken, a copartnership doing business under the name of Elken Bros., one of whom was an officer of said bank, and to the defendant O. M. Hegge, of Hatton. He also became indebted to the First National Bank of Fargo for nearly $7,000, beginning in July, 1909, of which bank the appellant trustee is, and was when such indebtedness was incurred, the cashier; also to other banks in Fargo and nearby cities.

About November 1, 1909, the bankrupt paid from his estate to the defendants Elken Bros., some $2,000 to apply upon his indebtedness to them; and to the defendant Farmers' & Merchants' National Bank $1,571 upon his liabilities to that bank, and to the defendant Hegge $450. The trustee, by proper petition or bill of complaint in each of the cases, alleged these several payments to be voidable preferences under the Bankruptcy Act, and asks judgment or decree against them, respectively, for the amount of the payment to each. Each defendant admits the adjudication of Tilden as a bankrupt and the payment by him to them respectively of the amounts and at the time as alleged, but denies that it was a preference or otherwise in violation of the Bankruptcy Act, denies knowledge of or reasonable cause to believe that Tilden was insolvent when such payments were made, and each alleges that it was received by him or it in good faith as a payment upon the indebtedness of Tilden to them respectively.

That Tilden was insolvent when these payments were made to the several defendants cannot be successfully controverted under the testimony. The only question for determination therefore is: "Did the several defendants, or the person acting for them in the receipt of such payments, know or have reasonable cause to believe that Tilden was insolvent, and that a preference to the respective defendants would be the result of such payments? This is a question of fact, which must be determined from the evidence applicable to the respective cases.

It was agreed that the testimony taken should apply as far as applicable to all three of the cases, the same as though taken in each case separately. George E. Nichols, the complainant, testified that he was appointed trustee in bankruptcy of Irving Tilden December 16, 1909; that the schedules showed his liabilities to be about $85,000; that from his assets he had collected some $3,400, and had paid upon claims allowed against his estate some $2,100; that aside from the claims involved in these suits he knew of no other assets; that it is pretty hard to state for how long the bankrupt had been insolvent, but he would say six or eight months before his adjudication; that a large part of the assets turned over to him as trustee were equities in lands which the bankrupt had bought on contracts and made small payments thereon; that the balance due was so large that the bankrupt could not raise mon