by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect: Provided, 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 for inquiry.

(c) PAYMENT OF CLAIMS

The nature and extent of the rights and powers of the trustee with respect to the bankrupt's property have been outlined in the above paragraphs. When these rights have been exercised to their fullest extent, the trustee then has in his possession all of the property to which creditors may look as a source of payment. By reason of the title to such property which the law vests in him, the trustee has a complete power of disposition of the property, subject only to the approval of the court. We have yet remaining for consideration the question of the duty of the trustee with respect to the payment of claims.

Provable claims are divided into three classes: (1) Claims having a priority; (2) secured claims; (3) unsecured claims. Claims entitled to priority of payment are specified in section 64 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 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.

(b) The debts to have priority, except as herein provided, and to be paid in full out of the 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 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 involuntary 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 workmen, clerks, traveling or city salesmen, 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.

A secured creditor is one who, either directly or indirectly, has a right with respect to specific property belonging to the bankrupt, either by way of mortgage, pledge or other lien. If such right was acquired by the secured creditor bona fide or if in any event it was acquired before the four months' period commenced to run, such creditor will be paid the value of this right and as to the balance of his claim, he will share pro rata with unsecured crediSection 57 (h) provides: The value of securities held by secured creditors shall be determined 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.

After secured creditors have been paid, the value of their securities they and all general creditors are paid pro rata out of the remaining assets of the estate. Creditors are allowed one year subsequent to the date of the adjudication within which claims. must be filed. Creditors who have received preferences, fraudulent conveyances and liens which, under sections previously discussed, may be avoided by the trustee, must, under section 57 (g) surrender such rights as a condition precedent to their right to receive dividends from the estate. If such preferences, conveyances and liens are not recoverable by the trustee, because the claimant is a bona fide purchaser or has acquired such interests. before the beginning of the four months' period, they need not surrender such rights, but may participate with all other creditors for the full amount of their respective claims. If a creditor of a bankrupt whose claim is secured by the individual undertaking of another person does not prove his claim, the surety is given the right by section 57 (i) to prove in the name of the creditor.

SECTION 11.-RECEIVERSHIPS

A receiver is a person appointed by a court, upon whom are conferred certain rights and duties with respect to property which is the subject of litigation. His chief duty is to preserve such property from loss pending the outcome of the suit. There exists, obviously, a great variety of situations where two or more parties are interested in the same property. When these interests become sharply antagonistic, and litigation between the contending claimants results, the property may be so situated that the very fact of its being the subject of a judicial proceeding will make its

protection by a disinterested party necessary. The possibility of a fraudulent disposition of the property during the pendency of the suit often serves as a ground for the appointment of a receiver. So also, in the absence of a possible fraudulent disposition of the properties involved, the fact that they are being employed in some productive enterprise will be sufficient to warrant the appointment of a receiver. The mere fact that the property affected by the liti gation is yielding income may make it advisable that a receiver be appointed and directed to care for the principal and income until the controversy is terminated. Broadly speaking, therefore, the court will appoint a receiver to assume the possession of property over which the court has acquired jurisdiction whenever, as a business proposition, it seems necessary or desirable to do so, in order to insure its preservation and proper employment during the time that the litigation is pending.

It thus appears that the application for the appointment of a receiver generally will not be an independent suit, for it is not the ultimate remedy sought by the complainant. The appointment of the receiver, for the most part, is incidental to some other relief sought. Accordingly, in suits to foreclose mortgages, or by beneficiaries of a trust against the trustee, by stockholders against directors or against third parties in the name of the corporation, by creditors to reach equitable assets of their debtor, or in connection with the settlement of decedents' estates, in bankruptcy proceedings after the filing of the petition and before the appointment and qualification of the trustee, receivers may be appointed by the court to assume control over the property which is involved in the action. The remedy, perhaps, is most frequently invoked by creditors, but it is not exclusively a creditors' remedy.

We shall not attempt to survey the extent of a receiver's powers, rights, and duties with respect to the property entrusted to his care, or to define his relations toward the parties involved and to the court. It is sufficient to observe that the receiver assumes possession of the property and is directed to manage and protect it, and to perform any other acts which the court may deem necessary to protect the interests of all parties concerned. A receiver does not usually take title to the property, as does a trustee in bankruptcy. Generally the position of the receiver is not defined so particularly as that of a trustee in bankruptcy. There is but one. kind of trustee in bankruptcy, and, in every bankruptcy proceeding, the ultimate end sought is substantially like that of every other bankruptcy proceeding. This is not the case with respect to receivers. There are various kinds of receivers, and the suits in connection with which their appointment may be had may be widely variant in the ultimate relief sought. Courts possessing the jurisdiction of courts of equity have worked out a fairly well defined system of rules with respect to receiverships. Statutes which deal with special matters very commonly contain provisions with reference to the appointment of receivers. The position of at

receiver appointed under a special statute, in some respects, would differ from that of a receiver appointed under the general jurisdiction of courts of equity. But in all cases the receiver is chiefly the business representative of the court, and is usually selected for that position because of his known capacity in dealing with business situations like that then before the court.

One of the most important uses of a receivership proceeding is in connection with the foreclosure of corporate mortgages and the reorganization of corporations through judicial proceedings. It is in this respect that a receivership bears closer resemblance to a bankruptcy proceeding than is true in other cases of appointments of receivers. There is this important distinction: A bankruptcy proceeding more frequently results in an actual and permanent suspension of the business of the bankrupt concern, and its tangible properties are sold for what they will bring on the market. In a reorganization proceeding, usually associated with the foreclosure of mortgages or other suits instituted by creditors, the primary object is to preserve the business as a going concern, and to this end all of the various steps in the proceeding are directed. The bankruptcy proceeding is chiefly relied upon and is better suited to the winding up of an insolvent business, which is involved in such financial straits that it has passed beyond the point of successful reorganization. A receivership proceeding, on the other hand, as an incident to creditors' suits, by reason of its flexibility, is more suited to the reorganization of the business enterprise than a proceeding in bankruptcy. The receivership proceeding, in its relation to the procedure of reorganization of going business concerns will be taken up in more detail in connection with our study of the law of corporations in Part 6.

SECTION 1.-INTRODUCTION

In this chapter a few cases have been inserted dealing with certain special types of contracts. It is not to be understood, however, that the contracts of bailment and of suretyship are so far special that they are governed by rules of law different from the rules applicable to contracts generally. The general principles of the law of contracts which we have already stated do apply to these contracts. But there are some special circumstances which must be taken into consideration. The contract of bailment, for example, involves a transfer of possession of personal property from the bailor to the bailee. The law of property, therefore, contributes something to the sum total of legal relations between. the parties. An owner of property or a party in rightful possession thereof possesses a great many rights, privileges, and powers with respect to such property which are not dependent upon contract. Parties may add to or subtract from these relations. The situation, therefore, between a bailor and bailee, is a composite one, created out of the law of property and of contracts. Similarly, with respect to the contract of suretyships, the surety has loaned. his credit to another person. He has assumed a duty to discharge that which, from a business standpoint, is purely a duty of another person. The law must take this aspect of the transaction into consideration. There is every reason to suppose that a person who has assumed the obligation of discharging another person's duty would be entitled to greater consideration than the principal debtor. This the law does accord to him. The business situation creates a legal situation, which does not find its counterpart in contracts which arise out of other kinds of transactions. In this sense the contract of suretyship is a special type of contract. In working out the relations of the parties, the doctrines first recognized by courts of equity play a more active part than they do in many other kinds of contracts. The purpose, therefore, in giving independent treatment to these important types of commercial contracts, is to ascertain the nature and extent of the rights and duties of the parties thereto. Such rights and duties are rarely de