The facts set forth, which are not controverted, are that Mr. Smith was a stockholder in the bankrupt corporation, and a resolution was passed by the stockholders requesting each stockholder to subscribe 15 per cent. of additional stock to pay off outstanding claims. It was agreed at the time that no subscription paid in should be used unless every stockholder paid his part-a like subscription-which they did. not do. Mr. Smith paid $40 with this understanding. There is no provision in the bankrupt act giving debts of this character priority, but it is provided in the act that, when not otherwise provided, the rules in equity shall control, and the claim should be allowed, not as a priority, but on the ground that the bankrupt corporation had no title to the $40; hence the trustee acquired none. The facts being established or agreed, the general principle of merger, or mixing with other assets, which generally enters into and complicates such claims, does not arise. The bankrupt corporation, through its stockholders, agreed the money should not be used unless every stockholder made or paid a like subscription; hence justice and equity require this money should be returned on a failure of the express condition on which it was paid. There being no demand for the return of the amount prior to the petition in bankruptcy, however, which was very soon after the subscription, the claim for interest cannot be allowed.

This ruling applies to a like claim of Mrs. O. M. Winder for an amount paid under the same circumstances and on the same condition.

In re WHITE MOUNTAIN PAPER CO.

(District Court, D. New Hampshire. October 13, 1903.)

No. 826.

1. BANKRUPTCY-MANUFACTURING CORPORATIONS-COMMENCEMENT OF BUSINESS. Under Bankr. Act July 1, 1898, c. 541, 30 Stat. 544 [U. S. Comp. St. 1901, p. 3418], providing that any corporation engaged principally in manufacturing or mercantile pursuits may be declared a bankrupt, a corporation organized for the purpose of manufacturing paper from wood pulp, which had purchased woodland and other property for the commencement of its business, was subject to bankruptcy proceedings within the statute, though it had never in fact started its factory. 2. SAME DISSOLUTION OF CORPORATION.

Where, after involuntary bankruptcy proceedings had been begun against a corporation, a decree was entered in another state dissolving the corporation, such decree did not affect the bankruptcy proceedings. Alexander & Green, for alleged bankrupt.

Sargent, Niles & Morrill and E. N. Goding, for petitioning creditors.

ALDRICH, District Judge. The question whether the present bankruptcy law operates upon this corporation under the circumstances disclosed by the master's report is in its nature a jurisdictional

¶ 1. What persons are subject to bankruptcy law, see note to Mattoon Nat. Bank v. First Nat. Bank, 42 C. C. A. 4.

question, and may be taken at once to an appellate court, where the question can be authoritatively determined. The question is new, and, however I decide it, the party against whom the decision is rendered will doubtless at once take the question there. It is best, therefore, I think, in view of the magnitude of the interests and the imperative importance of an early, final determination of the question whether the bankruptcy court has jurisdiction, that I should not delay the ultimate result by holding the case for exhaustive examination, but decide the question at once upon my impressions, to the end that the desired result may be reached at the earliest possible moment.

It seems to me, upon first impression, that the question whether the corporation was one within the meaning of the bankruptcy law does not depend upon the fact as to whether the corporation was, at the particular time of the petition, actually engaged in turning machinery in the actual process of manufacturing. My impression would be that the language "engaged principally in manufacturing

* pursuits" was used for the purpose of describing the kind of a corporation which may be put into bankruptcy, and that it was not intended that the operation of the bankruptcy law upon a corporation of a kind within the meaning of the statute should depend upon the question whether it was actually engaged in manufacturing at the particular time when the petition is filed. It seems to be well enough established that a suspended concern which has been engaged in manufacturing, or trading, or mercantile pursuits, is subject to the bankruptcy law, and this view is not sustained because the concerns were actually engaged in such pursuits, but because the concerns were principally engaged in a pursuit of a kind within the statute. In other words, the authorities relate to the character of the pursuit, rather than to the question whether the statutory pursuit had been developed to a stage necessary to make the law operative.

Neither party has called my attention to any authority (and it is said there are none) upon the point in question, viz., whether a corporation organized for the purpose of engaging principally in manufacturing, as was the case here, and which becomes insolvent while prosecuting the enterprise in its formative stages and before its machinery has actually engaged itself in producing a manufactured product, is subject to involuntary bankruptcy. The authorities presented by those who oppose the bankruptcy proceeding relate chiefly to the question whether the pursuit actually engaged in in the given. case was principally manufacturing, trading, or mercantile, and the view seems to be generally accepted that the operations when under way must relate principally to the kind of business described by the statute; but such authorities, as it seems to me, do not come to the precise question involved here, and it is for this reason that the point was not taken in any of the cases called to my attention that the corporation in question, though organized for and in pursuit of a business within the terms of the statute, had not reached the stage of actually engaging in the process of changing an unmanufactured product into a manufactured product, and therefore that the corporation was not subject to the operation of the bankruptcy law.

In this case it is found by the master, and it is in fact conceded,

"that the corporation was in fact organized for the purpose of the manufacture and sale of paper made from wood pulp." It is also found that in pursuance of this purpose the corporation had acquired something like 400,000 acres of timber land from which mills were to be supplied with wood to be manufactured into pulp and paper, and that it had cut from its lands considerable quantities of timber into four foot lengths, known as "pulp wood lengths," and had floated the same in the Saco river towards its mills, some of which were nearly completed at the time of the petition; that it had provided itself with material and equipments and had commenced the construction of pipe lines for the purpose of bringing water from Berwick, Me., a distance of some 10 miles; that the trench had been excavated and the pipe distributed for a distance of three miles; and that various expenditures, which need not be specifically enumerated, had been made in the prosecution of the general plan of prosecuting a manufacturing business as its principal business, but it is conceded that no wood had been ground into pulp or manufactured into paper. In my hasty examination of the question, I have queried whether counsel have not, in discussing this question, lost sight of the significance of the word "pursuits," as used in the statute. The statute is, "any corporation engaged principally in manufacturing, trading, printing, publishing, mining or mercantile pursuits." Now, the question, perhaps, is whether the statute applies itself only to corporations actually engaged in the process of manufacturing, or whether it applies itself to corporations engaged in manufacturing pursuits. Was it intended by Congress that a corporation organized for the purpose of engaging in a business of a kind within the provisions of the bankruptcy law, and creating indebtedness while in the line. of a statutory pursuit, should not be subject to its provisions until it had actually set its saws or its crushers in motion for a few minutes, and then that the law should operate upon all indebtedness, including that created in the formative period of the enterprise; or, on the other hand, was it intended by Congress to enlarge the limited meaning under strict and narrow construction of the words "engaged in manufacturing" by connecting them with the word "pursuits," to the end that a corporation, pursuing through its formative stages a business of the kind described by the statute, should be subject to the operation of the bankruptcy law, though not having actually engaged in turning the machinery which produces the contemplated manufactured product? I hesitate to adopt the former view. It does not seem, upon first impression, to be reasonable. I do not deal with what is known as the "Kennett Phase" of the situation, because it seems to me that that is rather an incident of the principal business, and therefore would not render the corporation subject to bankruptcy if the construction of the statute for which the corporation contends is sustained. The report of the master, however, on that phase of the case, is made a part of the record, and, so far as the facts are concerned, I find them to be as reported by the master.

A further question relates to a proceeding in New Jersey in the state courts under a state statute to dissolve a corporation. It appears that the order in New Jersey dissolving the corporation was

subsequent to the proceeding in bankruptcy here, and, viewing the bankruptcy law as paramount, it does not seem to me that that proceeding should be accepted as defeating the bankruptcy proceeding, provided the jurisdiction of the federal court was properly invoked in respect to the corporation in question. And the question whether jurisdiction was properly invoked depends upon the jurisdictional question about which I have stated my impression.

There being no question as to insolvency, I shall adjudge the corporation bankrupt, but, having decided the question speedily upon first impression for the purpose of advancing it without delay to the appellate court, I shall suspend all further orders in this case, except such as are necessary to preserve property, provided the aggrieved party promptly goes forward until the jurisdictional question is authoritatively determined.

GREGORY v. ATKINSON et al

(District Court, E. D. Missouri, E. D. January 23, 1904.)
No. 3,683.

1. BANKRUPTCY-FRAUDULENT TRANSFERS-VACATION-ACTION BY TRUSTEE

FEDERAL COURTS-JURISDICTION.

Bankr. Act July 1, 1898, c. 541, § 23, subd. "b," 30 Stat. 552 [U. S. Comp. St. 1901, p. 3431], provides that suits by the trustee shall be brought or prosecuted in the courts where the bankrupt whose estate is being administered might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property transferred to accomplish a preferential payment within four months of the institution of bankruptcy proceedings authorized by section 60b, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445], or to set aside transfers constituting a fraudulent disposition of property within four months of the institution of bankruptcy proceedings under section 67e, 30 Stat. 564 [U. S. Comp. St. 1901, p. 3448]. Section 70e, 30 Stat. 566 [U. S. Comp. St. 1901, p. 3452], declares that the trustee may avoid fraudulent transfers by the bankrupt which any creditor might have avoided, and for that purpose any court of bankruptcy, or any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction. Held, that where defendants in an action by a trustee in bankruptcy to set aside alleged fraudulent transfers not creating a preference, nor made within four months of bankruptcy, did not consent to be sued in a federal court, such court had no jurisdiction of the action.

Thos. H. Cobbs and Jos. S. McIntyre, for complainant.
Fry & Rogers, for defendants.

ADAMS, District Judge. This is a bill filed by the trustee of the estate of James M. Beagles in this court to annul certain policies of insurance upon the lives of two of the sons of the bankrupt, which by their terms became payable to the bankrupt in the year 1904. The transfers complained of were made in the year 1901 by the bankrupt with intent, as alleged, to hinder, delay, and defraud his creditors. The defendants Atkinson and Locke are the transferees of the policies, and the defendant insurance company is alleged to have. aided and assisted the bankrupt in his unlawful purpose and intent.

The bankrupt was adjudicated such, upon his voluntary petition, on March 18, 1903-two years, at least, after the alleged fraudulent transfers were made.

The question for decision is whether this court has jurisdiction of the action. It is conceded that the right of action is not founded upon the provisions of section 60, subd. "b," or section 67, subd. "e," Act July 1, 1898, c. 541, 30 Stat. 562, 564 [U. S. Comp. St. 1901, pp. 3445, 3448]. There is no claim that the transfers were made either to accomplish a preferential payment within four months of the institution of bankruptcy proceedings, within the meaning of section 6ob, or to work a fraudulent disposition of property within four months of the institution of bankruptcy proceedings, within the meaning of section 67e. The trustee is proceeding, under the provisions of section 70e, 30 Stat. 566 [U. S. Comp. St. 1901, p. 3452], to avoid transfers which creditors might have avoided under the state laws if bankruptcy proceedings had not intervened.

The last-mentioned section reads as follows.

"(e) The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property transferred or its value from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. For the purpose of such recovery any court of bankruptcy as hereinabove defined and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction."

Counsel for trustee contend that this last clause, which was added to the section by the amendatory act of February 5, 1903, c. 487, 32 Stat. 797, confers jurisdiction upon this court in all cases of fraudulent conveyances within the purview of state statutes made by the bankrupt at any time prior to the institution of bankruptcy proceedings. If attention be given to section 70e only, their contention would doubtless be sound; but the entire act must be considered, to arrive at the true construction of any of its provisions.

Section 23, subd. "b," 30 Stat. 552 [U. S. Comp. St. 1901, p. 3431], is as follows:

"Suits by the trustee shall be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section 60, sub. 'b,' and section 67, sub. ‘e.'"

Prior to the amendment of 1903 the District Court could entertain jurisdiction over suits brought by trustees in bankruptcy to set aside fraudulent conveyances, by the proposed defendant's consent, and not otherwise. Such was the construction placed on the act by the Supreme Court of the United States. Bardes v. Hawarden Bank, 178 U. S. 524, 539, 20 Sup. Ct. 1000, 44 L. Ed. 1175. In the light of the opinion in that case, Congress amended subdivision "b" of section 23 by adding the words, "except suits for the recovery of property under section 6ob, and section 67e." By this section as amended, Congress, in my opinion, intended to, and did, confer jurisdiction without the consent of the proposed defendant in cases contemplated in the exception, namely, those for the recovery of preferential pay