not if, when acquired, the agent was acting in his own interest.16 In order to make the words "or his agent acting therein " applicable, the person whose knowledge is to be imputed to another must be (a) an agent, and (b) he must be an agent authorized or empowered to act in respect of the preference, and (c) he must actually perform the duties of his agency in respect of the preference.17 This general rule extends to such agents, as attorneys at law,18 but not where the attorney acquired it while acting as attorney for the debtor.19 It also extends to sub-agents,30 but not, it seems, to attorneys of such sub-agents.21

§ 14. Recovery.—Where all the elements of a voidable preference as outlined in preceding sections exist, the property affected or its value may be recovered by the trustee,22 although there are no creditors having claims in judgment and entitled to bring creditor's suit.23 Only the trustee should sue, but, if the trustee refuses to sue, it has been held that a creditor may be permitted to do so for the benefit of all.24 It seems to be a defect in the bankruptcy law that when one creditor or a combination of creditors at their own expense proceed and recover, they must share with others the fruits of their zeal.25 The amendatory act of 1903, however, saves them their reasonable expenses,

16. Crooks v. People's Nat. Bank, 3 Am. B. R. 238, 46 App. Div. (N. Y.) 335, 61 N. Y. Supp. 604. See also Crooks v. People's Nat. Bank, 5 Am. B. R. 754, 72 App. Div. (N. Y.) 331, 76 N. Y. Supp. 92, 495, aff'd 177 N. Y. 68, 69 N. E. 228; Henry v. Allen, 151 N. Y. 1.

17. McNaboe v. Columbian Mfg. Co., 18 Am. B. R. 684 (C. C. A.), 153 Fed. 967.

18. In re Dunavant, 3 Am. B. R. 41, 96 Fed. 542; In re Ebert, 1 Am. B. R. 340; Rogers v. Palmer, 102 U. S. 263; Vogle v. Lathrop, Fed. Cas. No. 16,985; Brown V. Jefferson County Bank, 9 Fed. 258.

19. In re Ebert, supra; The Distilled Spirits, 11 Wall. (U. S.) 356; Mayer v. Hermann, Fed. Cas. No. 9,344.

20. Storrs v. City of Utica, 17 N. Y. 104.

21. Hoover v. Wise, 91 U. S. 308. 22. In re Ansley Bros., 18 Am. B. R. 457, 153 Fed. 983.

23. Mitchell v. Mitchell, 17 Am. B. R. 382, 147 Fed. 280.

24. In re Rothchild, 5 Am. B. R. 587; Glenny v. Langdon, 98 U. S. 20.

25. For an unsuccessful attempt to cure this defect, see In re McNamara, 2 N. B. N. Rep. 341.

a matter of little importance when there are assets.26 The recovery must be against the person receiving the preference or to be benefited thereby. Where the proceeds of an execution sale have been paid to a judgment creditor, before the filing of an involuntary petition, the remedy is by action by the trustee against the creditor for having received a preference.27 Since the amendatory act of 1903 all suits to avoid preferences may be brought either in the District Court or in the State court which would have had jurisdiction had not bankruptcy intervened. Such suits are analogous to judgment creditors' suits to set aside fraudulent conveyances, and are, therefore, properly within the equity jurisdiction of the court.28 While not strictly necessary, trustee to ask permission to

good practice seems to require the bring a suit to avoid a preference.29 The practice in such suits is regulated by the rules applicable to the court in which they are brought. Actions to recover back property are clearly "matters in controversy" which are not "proceedings in bankruptcy," 30 but matters outside bankruptcy proceedings proper,31 and it is doubtful whether a jury trial can be had as a matter of right. The District Court does not try equity causes by jury; nor does the Circuit Court, in which, even in actions at law, a jury may be dispensed with by consent.32 Careful pleading is essential. Valuable discussions on practice will be found in the cases cited in the note below.33 The power of the bankruptcy court in a

26.

Bankr. Act, 1898, section 64b (2), as amended.

27. In re Bailey, 16 Am. B. R. 289, 144 Fed. 214; Benjamin v. Chandler, 15 Am. B. R. 439, 142 Fed. 217.

28. Parker v. Black, 16 Am. B. R. 202, 143 Fed. 560, aff'd 18 Am. B. R. 15; Off v. Hakes (C. C. A.), 16 Am. B. R. 696, 142 Fed. 364; Pond v. New York Exchange Bank, 10 Am. B. R. 343, 124 Fed. 992; Lawrence v. Lowrie, 13 Am. B. R. 267; Wall v. Cox, 5 Am. B. R. 727, 101 Fed. 403. See chap. XXIV, infra.

29. In re Mersman, 7 Am. B. R. 46. But see Chism v. Bank, 5 Am. B. R. 56.

30. See Bardes v. Bank, 178 U. S. 524, 4 Am. B. R. 163.

31. Compare In re Baudouine, 3 Am. B. R. 651, 101 Fed. 574, rev'g 3 Am. B. R. 55, 96 Fed. 536. And see In re Russell, 3 Am. B. R. 658, 101 Fed. 248.

32. Collier, Bankr., 6th ed., p. 260. See also Bankr. Act, 1898, section 19. 33. Crooks v. People's Nat. Bank. 3 Am. B. R. 238, 46 App. Div. (N. Y.) 335, 61 N. Y. Supp. 604; Martin

suit by a trustee under section 60b as amended, to set aside preferences, is not limited to the mere avoidance of the preferences and decreeing that the trustee recover the property or its value, but as a court of equity it may enforce the equitable rights of the defendant as against other creditors of the bankrupt, but such creditors not being parties to the suit, though in some sense represented by the trustee, are only conditionally bound by the decree therein.33a

§ 15. Property or its value; damages; costs.-The option of suing for the property or for its value rests with the trustee. These words are doubtless merely expressive of the rule of law. The judgment should include interest from the date of the preference.34 In most cases, the value, i. e., damages, is demanded. This in effect satisfies the title which passed through the preference.35 Suits to recover the property in specie should only be brought where it can be identified and is found in the hands of the person preferred. If a transfer be made within the four months period in part for a present consideration and in part payment of an antecedent indebtedness, a recovery may be had for the balance of the value of the property transferred after deducting the value of the present consideration.36 Where the preference consists of suffering or permitting a judgment which has become a lien, the trustee has, it is thought, the option of suing under section 60b or under section 67e,37 and perhaps, under section 70e.38 Though the words" recover the property or its value "39 do not exactly describe the purpose of such a suit where the transaction amounts to a preference, or the words "recover and reclaim the same by legal

v. Bigelow, 7 Am. B. R. 218; Brown v. Guichard, 7 Am. B. R. 515; Richter v. Nimmo, 6 Am. B. R. 680; Hicks v. Langhorst, 6 Am. B. R. 178; In re Nelson, 1 Am. B. R. 63, 98 Fed. 76; Chism v. Bank, supra.

33a. Allen v. McMannes, 19 Am. B. R. 276.

34. Traders' Nat. Bank v. Camp

bell, 14 Wall. (U. S.) 87.

35. Compare Winslow v. Clark, 47 N. Y. 261.

36. In re Manning, 10 Am. B. R. 500, 123 Fed. 181.

37. In re Mersman, 7 Am. B. R. 46; In re Adams, 1 Am. B. R. 94.

38. In re Gray, 3 Am. B. R. 647. 39. Section 60b.

proceedings,"40 the purpose, where the transaction is a fraudulent transfer, the prayer of the bill or complaint may be easily adapted to the circumstances and may be to annul the lien or to recover possession of the property if seized on execution, or otherwise as the facts require. In any event, the pleading should show a demand and refusal to restore.41 If the suit is for value, the judg ment, if granted, should be for the worth of the property, not the amount realized under the execution sale by the preferential transferee.42 He is also entitled to the gross proceeds. 43 Nor can the court allow by way of reduction of damages such amounts as the preferred creditor has paid to other creditors out of the avails of the property transferred.** If the latter includes exempt articles, their value cannot be included in the judgment.45 Costs are regulated by the law and rules of practice applicable to the court where the suit is brought.46

c

16. Set-off of a subsequent credit. Prior to the amendments of 1903 there was a conflict of authority as to the meaning and application of the word "recoverable" in subdivision e of section 60. The question was whether this had reference to a voidable preference only or also to a mere preference in fact. If the former, then subsequent credits after a payment in due course of trade could not be set off, and the creditor not only found the door of the court shut to him if he refused to surrender, but the estate to be distributed increased by his goods sold, perhaps, on the strength of the confidence inspired by such payment. On the other hand, some courts gave a wide meaning to the subsection and declared it applicable even to the technical preference defined in subsection a. The authorities each way are cited in the note below.47 The cases

40. Section 67a.

41. In re Phelps, 3 Am. B. R. 396; Schuman v. Flickenstein, Fed. Cas. No. 12,826.

42. Clarion Bank v. Jones, 21 Wall. (U. S.) 325.

43. Traders' Nat. Bank v. Campbell, 14 Wall. (U. S.) 87.

44. North v. House, Fed. Cas. No. 10,310.

45. Grow v. Ballard, Fed. Cas. No. 5,848; Brock v. Terrell, Fed. Cas. No. 1,914.

46. Compare Collins v. Gray, Fed. Cas. No. 3,013.

47. Compare Kimball v. Rosenham

which attempt to enlarge its meaning all turn on the manifest inequity of doing otherwise. Such inequity no longer exists. Only voidable preferences need now be surrendered. The word "recoverable" in subsection c is clearly to be connected with "recover" in subsection b. Standing alone, subsection a is nothing but an explanation or definition of a preference. The latter is not recoverable, unless the element of reasonable cause to believe appears. Only against a preference so recoverable then may subsequent credits granted the debtor be set off. The cases holding this doctrine are thought still to be in point.48 It should, however, be noticed that to entitle to the set off, the credit must be "in good faith," "without security,"49 and result in "property which becomes a part of the debtor's estate;" also, that any payments on the new credit must be deducted before the set-off is allowed. the creditor acted in good faith, extended credit without security, and the money or property actually passed into the debtor's possession, he is entitled to the set-off, and he need not show that the money or property remained in the debtor's possession until his bankruptcy.50 The rule stated in this subsection is an extension of that phrased in section 68a, where mutuality of debt is required.51

Co., 7 Am. B. R. 718; Morey Mfg. Co. v. Scheffer, 7 Am. B. R. 670, 114 Fed. 447; Gans v. Ellison, 8 Am. B. R. 153, 114 Fed. 734; Kahn v. Export, etc., Co.. 8 Am. B. R. 157, 115 Fed. 290; McKey v. Lee, 5 Am. B. R. 267, 105 Fed. 923; In re Ryan, 5 Am. B. R. 396, 105 Fed. 760; In re Sechler, 5 Am. B. R. 579; In re Southern, etc., Co., 6 Am. B. R. 633, 111 Fed. 518; In re Thompson's Sons, 6 Am. B. R. 663, aff'd 7 Am. B. R. 214, 112 Fed. 651; In re Soldosky, 7 Am. B. R. 123, 111 Fed. 511; with contra, In re Christensen, 4 Am. B. R. 202, 101 Fed. 812; In re Arndt. 4 Am. B. R. 773, 104 Fed. 234; In re Keller, 6 Am. B. R. 334; In re Oliver, 6 Am.

If

B. R. 626, 109 Fed. 784; In re Steers Lumber Co., 6 Am. B. R. 315, 110 Fed. 738, aff'd 7 Am. B. R. 332, 112 Fed. 406; In re Bailey, 7 Am. B. R. 26; In re Jones, 10 Am. B. R. 513, 123 Fed. 128. See also In re Topliff, 8 Am. B. R. 241, 114 Fed. 323, containing a summary of cases pro and

con.

48. Collier, Bankr., 6th ed., p. 491. 49. Compare In re Tanner, 6 Am. B. R. 196.

50. Kaufman v. Tredway (U. S. Sup. Ct.), 12 Am. B. R. 682; In re Morrow, 13 Am. B. R. 392.

51. See an effort to connect the two in In re Ryan, 5 Am. B. R. 396, 105 Fed. 760.