227 U.S.

Argument for Appellant.

Henry VII, c. 4; Cadogan v. Kennett, 2 Cowp. 432; Graham v. Furber, 14 C. B. 410; Coder v. Arts, 213 U. S. 223.

In determining whether the conveyance is fraudulent the chief factor is the intended disposition of the consideration. Coder v. Arts, supra.

As part of the money the bankrupts received from the appellee they applied to their own uses to the exclusion of their creditors, the decree of the Circuit Court of Appeals is clearly erroneous to that extent.

Though the bankrupts used $3,000 of the funds received from the appellee to prefer a favored creditor, the transaction is none the less fraudulent. Coder v. Arts, supra; Sergeant v. Blake, 160 Fed. Rep. 57, 61; Ex parte Stubbins, 17 Ch. Div. 58. In re Maher, 144 Fed. Rep. 503; In re Bloch, 142 Fed. Rep. 674; Githens v. Schiffler, 112 Fed. Rep. 505, distinguished. See also New's Trustee v. Hunting, 1 Q. B. 607; 2 Q. B. 19; In re Lake, 1 K. B. 710; In re Blackpool Motor Car Co., Ltd., 1 Ch. 77; Ex parte Taylor, 18 Q. B. D. 295; Ex parte Luck, 49 L. T. 810; McNaboe v. Columbian Co., 153 Fed. Rep. 967; Clarke v. Rogers, 183 Fed. Rep. 518; Hunt on Fraudulent Conveyances, 2d London ed., 1897, p. 165; Roberts v. Johnson, 151 Fed. Rep. 567; In re Pease, 129 Fed. Rep. 446; In re Berrman, 112 Fed. Rep. 663; Ex parte Mendell, 1 Low. 506; Crafts v. Belden, 99 Massachusetts, 535; In re McLam, 97 Fed. Rep. 922; Natl. Bank of Newport v. Natl. Herkimer Co. Bank, 225 U. S. 178.

The Circuit Court of Appeals erred in refusing to grant a new trial, instead of dismissing the bill.

The appellate court had the power to grant a new trial. Edwin v. Thomas, 2 Vern. 75; Stace v. Mabot, 2 Vesey Sr. 553; Lord Faulconberg v. Pierce, Amb. 210; Cleeve v. Gascoigne, Amb. 323: East India Co. v. Bazett, 1 Jac. 91; Watt v. Starke, 101 U. S. 247.

A new trial should have been granted. Allen v. Blunt, 3 Story, 742; Clyde v. Richmond & Danville R. R., 72 Fed. VOL. CCXXVII-37

Argument for Appellee.

227 U.S.

Rep. 121; Cohen v. United States, 157 Fed. Rep. 651, 655; 207 U. S. 596; McLaughlin v. Potomac Bank, 7 How. 220; Eltho v. Lear, 7 Pet. 130; Gas Co. v. Peoria, 200 U. S. 48, 54; Barber v. Coit, 118 Fed. Rep. 272; Ill. Cent. R. R. v. Illinois, 146 U. S. 387; Stand. Comp. Scale Co. v. Compuling Scale Co., 145 Fed. Rep. 627; Chi. R. R. v. Tompkins, 176 U. S. 167.

Mr. Chester H. Fuller, with whom Mr. William J. Wallace was on the brief, for appellee:

The court can in an equity case, at its discretion, submit the facts to the consideration of the jury; but when this is done the verdict is merely advisory, and it is the duty of the court to give an independent judgment upon its own consideration of the testimony. Oilwell Supply Co. v. Hall, 128 Fed. Rep. 875; Johnson v. Harmon, 94 U. S. 371; Watt v. Stark, 101 U. S. 247; Basey v. Gallagher, 20 Wall. 670.

There was no cause of action proved and the direction by the Circuit Court of Appeals to dismiss the bill of complaint was correct.

Neither under the Bankruptcy Act nor the laws of the State of New York, in any view that might be taken of the evidence, was any cause of action established against this defendant.

Payment by a failing debtor of a legitimate debt, even though he thereby intends to create a preference, is not a fraud under the Bankruptcy Act and does not come within the provisions of § 67e or § 70e of the Bankruptcy Act. Section 67e applies only to transfers which are fraudulent at common law and does not apply to preferential transfers. In re Bloch, 142 Fed. Rep. 674, 676, 677; Githens v. Schiffler, 112 Fed. Rep. 505; Coder v. Arts, 152 Fed. Rep. 943; In re Maher, 144 Fed. Rep. 503, 509; Tompkins v. Hunter, 149 N. Y. 117; Delaney v. Valentine, 154 N. Y. 692, 700; Shotwell v. Dixon, 163 N. Y. 43; Dodge

v. McKechnie, 156 N. Y. 514, 520; Ex parte Stubbins, Re Wilkinson, 17 Ch. Div. 58, 68.

There was no evidence of want of good faith on the part of defendant or to justify a finding that the defendant knew or had reason to believe at the time it made loans to the bankrupt that he was insolvent.

It makes no difference whether or not a man has present obligations which he cannot meet, so long as the actual value of his property is in excess of his liabilities. In re Hines, 144 Fed. Rep. 142; In re Andrews, Hardy v. Gray, 144 Fed. Rep. 922.

In reply to the statements in appellant's brief, conplainant's evidence showed that all of this money was used to pay creditors.

As to what appellant calls the additional badges of fraud, they did not exist in fact and the nature and methods of defendant's business afford not the slightest evidence of any bad faith.

Whether or not the use of the borrowed money to pay preferred debts was a fraudulent act so as to render the assignment of the accounts subject to attack under § 67e of the Bankruptcy Act, the view taken by the Circuit Court of Appeals was correct and the authorities cited by the appellant do not support his claim that there was any error in that position. In re Beerman, 112 Fed. Rep. 663; Roberts v. Johnson, 151 Fed. Rep. 567; In re Pease, 129 Fed. Rep. 448, distinguished.

MR. JUSTICE LAMAR delivered the opinion of the court.

Van Iderstine, Trustee of Fellerman & Son, brought suit in the United States District Court for the Southern District of New York to set aside a transfer of accounts made to the National Discount Company as security for a loan, alleging that it was a fraudulent conveyance, and that the lending company was charged with notice of Feller

man's intent to defraud. It is unnecessary to state the facts further than to say that Fellerman and his firm were insolvent, though rated at $50,000 to $75,000 in the Commercial Reports. Having been recommended by another Inerchant, he applied to the Discount Company to learn the terms on which he could borrow with book accounts as security. He was informed as to the method of doing business and the terms on which it would lend money, which, besides interest, included its customary charge of 5% of the face of the accounts for services in connection with correspondence, collections and the like. He returned in a few days with a number of accounts and applied for a loan of $3,000, stating that he was pressed for funds and needed the money for the purpose of paying a note which matured that day. The accounts were transferred, the money was advanced and Fellerman used it to take up a note, in bank, which had been endorsed by his son-in-law. Two or three days afterwards another loan of $1,000 on similar security was made, and the parties are at issue as to whether the money was used for paying a debt or went into the general funds of the firm and was checked out for other purposes. The day following the last loan a petition in bankruptcy was filed, and after adjudication a Trustee was elected. He then brought this suit to have the transfer set aside and to compel the Discount Company to account for the collections made by it.

The District Judge called in a jury to pass upon the disputed fact. After the introduction of the evidence, which was very conflicting, the court charged the law relating to fraudulent conveyances and the necessity of showing that there had been an intent on the part of Fellerman to defraud, and that the Discount Company had knowledge of such purpose. He, however, refused to charge that it was not fraudulent for the company to advance money to be used by Fellerman in paying legitimate debts,

and instead instructed them that a preference was as much within the terms of the act as though Fellerman had concealed the money from his creditors. The jury made no special finding, but rendered a general verdict in favor of the Trustee. It was approved by the District Judge, who refused to grant a new trial and entered a judgment against the company.

The Circuit Court of Appeals (174 Fed. Rep. 518) made a statement of fact in which it found that it was doubtful if Fellerman intended to defraud; but if he did the Discount Company did not know thereof and was not charged with knowledge by any of the circumstances surrounding the transaction, or by the fact that Fellerman borrowed on hard terms upon the security of book accounts. It therefore reversed the judgment of the District Court and directed that the complaint be dismissed. The Trustee then brought the case here by appeal.

The general verdict of the jury cannot be treated as a finding that there was an intent to defraud of which the Discount Company had knowledge. For whatever view they may have taken on that issue, the verdict in favor of the Trustees was practically demanded by the instructions given. For the District Court charged in effect that the transfer was to be treated as a fraudulent conveyance if the Discount Company made the loan with the knowledge that the money was to be used in paying an existing debt. The finding can therefore be treated as the jury's observance of the instructions, since it was admitted that Fellerman in applying for the loan stated that he needed the money for the purpose of paying a debt due that day in bank. In the absence of any other special finding in the case, and bearing in mind that the verdict of the jury was only advisory, the case being one in equity, we agree with the Circuit Court of Appeals, which held that the Discount Company had no knowledge of any intent on the part of Fellerman to defraud. If so its de