e That all conveyances, transfers, assignments, or incumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned, or encumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or incumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the State, Territory, or District in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property

as soon as the title thereto vests in the mortgagor, "if the agreement [mortgage] is founded on good and valuable consideration, unless it infringes some rule of law, or will prejudice the rights of third persons" (Barnard v Norwich & Worcester R. R. Co., 14 B. R. 469, citing Pennock v. Coe, 23 How. 117, 138; Mitchell v. Winslow, 2 Story, 630, 644. See also Brett v. Carder, 14 B R. 301, reviewing authorities and distinguishing Moody v. Wright, 54 Mass. 17, from Mitchell v. Winslow, supra). There are certain liens which do not seem to be affected by the bankruptcy law, and which the bankruptcy court will recognize and enforce. Among such is a vendor's lien for the purchase price (In re Hutto, 3 B R. 787), a conveyance of property within four months pursuant to a prior contract under which the transferee advanced the money with which the property was acquired (Sabin v. Camp [D. C], 98 Fed. Rep. 974), a corporation's lien for unpaid stock when a statute and the articles of association authorize the creation thereof (In re DunKerson, 4 Biss. 227), a mortgagee's equitable lien for rents and profits when the security is insufficient (In re Snedaker, 4 B. R. 168; in re Sacchi, 6 B. R. 497; s. c. 43 How. Pr. 250; in re Bennett, 12 B. R. 257), an attorney's lien upon papers prepared for a client (In re N. Y Mail Steamship Co., 12 B. R. 74; Rogers v. Winsor, 6 B. R.

shall pass to the assignee' and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt. ƒ That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate; and thereupon the same may pass to and shall be preserved 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

246), a pledgee's lien upon pawned property (Jerome v. McCarter, 15 B. R. 546; Yeatman v. Savings Inst., 95 U. S. 764; Clark v. Iselin, 21 Wall. 360; s. c. 11 B. R. 337), though the property pledged may be taken by the trustee into his possession and the creditor can effectually enforce his lien in the bankruptcy court (In re Cobb [D. C.], 96 Fed. Rep. 821), not being obliged to follow the course of procedure prescribed by the State statute under which the lien arises (In re Falls City Shirt Co. et al. [D. C.], 98 Fed. Rep. 592), a workman's lien for labor performed upon goods which are in his possession (In re Lowensohn [D. C.], 100 Fed. Rep. 776), and a lessor's lien for rent when authorized by a State statute (Marshall v. Knox, 16 Wall. 551; s. c. 8 B. R. 97), though the lien will be waived if the landlord has taken security for the debt on which the lien is founded (In re Wolf [D. C.], 98 Fed. Rep. 74), and ignored if the State law does not recognize it (In re Ruppel [D. C.], 97 Fed. Rep. 778). The lien must be for rent due, a lien for that to accrue in the future being invalidated by the adjudication in bankruptcy (In re Jefferson [D. C.], 1 N. B. News, 288; s. c. 93 Fed. Rep. 948). The trustee may sell mortgaged property, under the order of the court, subject to such liens as may burden it (In re Booth [D. C.], 98 Fed. Rep. 943), or free of liens when it appears that such sale will be to the interest of the general creditors (In re Styer [D. C.], 98 Fed. Rep. 290).

1"'Assignee" should read "trustee" (1 N. B. News, 42).

"The payment of money by a debtor on a valid pre-existing debt, under circumstances which do not make it technically a preference, is not a "transfer of property" in such sense that the same may be recovered for the benefit of the estate within the meaning of this paragraph (Blakey v. Boonville Nat. Bank [D. C.], 95 Fed. Rep. 267).

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.'

1The subject-matter of this and that of paragraph is substantially the same, paragraph ƒ making void all the liens which paragraph declares shall be dissolved. The presence of these two provisions in the same Act would ordinarily give rise to the conclusion that Congress meant to distinguish between classes of liens. It is difficult to find such a distinction, and had such been the intention, it is probable that the same would have been expressed in more comprehensive language. The presence of these two paragraphs is more likely to be due to inadvertence than to intention. Paragraph c was in the House bill and ƒ in the Senate bill.

Each in

the respective bills was intended, it is said, to cover the same subject-matter. Both paragraphs appeared in the House bill, which became the present bankruptcy Act, after the conference between the House and Senate committees. A distinction has been sought to the effect that the provisions of this paragraph did not apply to both voluntary and involuntary proceedings, but the courts hold that they do (In re Vaughan [D. C.], 97 Fed. Rep. 560; in re Dobson [D. C.], 98 Fed. Rep. 86; in re Rhoads [D. C.], 98 Fed. Rep. 399; in re Lesser et al. [D. C.], 100 Fed. Rep. 433). The real difference between the two paragraphs is to be found in the fact that one refers to liens obtained through legal proceedings against an insolvent debtor within four months prior to the filing of a petition in bankruptcy against him, and the other to liens created by the act of the bankrupt himself (In re Emslie et al. [C. C. A.], 102 Fed. Rep. 291). The liens affected by this paragraph include only such as are obtained through strictly legal proceedings, and not such as arise out of quasi legal proceedings, as mechanics' liens (In re Emslie et al. [C. C. A.], 102 Fed. Rep. 291, over-ruling same case in [D. C.] 97 Fed Rep. 929; s. c. 98 Fed. Rep. 716. See also in re Kavanaugh [D. C.], 99 Fed. Rep. 928).

Whether the adjudication in bankruptcy, of itself, dissolves the liens specified in paragraph or renders null and void those designated in paragraph ƒ is a question that must be hereafter settled by the weight of authorities. Thus far, it has been held that an adjudication in bankruptcy dissolves such liens without further proceedings (Bear et al. v. Chase [C. C. A.], 99 Fed. Rep. 920; in re Kemp, or Fed. Rep. 689). Should the weight of authority, however, favor the conclusion that the adjudication did not, of itself, so operate, but that further proceedings must be taken to establish the questions of fact specified in these paragraphs, then another question arises as to whether such further proceedings should be taken in the court of bankruptcy or in the courts where the proceedings out of which the liens grew were had. There were several cases that arose under the former Act relative to these questions, but they cannot be cited as direct precedents since they were under a statute very different as to the point involved from the present, the same having reference only to liens of attachment, and providing that they should be dissolved on the qualification of the assignee, no question of fact being involved (Act of 1867, 14; R. S. 85044). The former Act, though, did contain provisions similar to those of paragraphs e and ƒ with reference to liens arising through means other than legal proceedings (Act of 1867, 835). The decisions under the former Act relative to the dissolution and nullification of liens tend to the conclusion that before such liens become affected proceedings other than the mere adjudication must be had and that the same should be prosecuted before the court having jurisdiction of the proceedings from which the lien arose (See Ballin v. Ferst, 55 Geo. 546; Kent y. Downing, 10 B. R. 538; Johnson v. Bishop, 1 Woolworth, 324; S c. 8 B. R. 533; Marshall v. Knox, 8 B. R. 97; s. c. 16 Wall. 551; Valliant v. Childress, 11 B. R. 317; s. c. 21 Wall. 643; Bracken v.

SEC. 68. Set-offs and Counterclaims.'-a In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.

2

Johnston, 15 B. R. 106; in re Housberger, 2 B. R. 92; s. c. 2 Ben. 504; Dickerson v. Spaulding, 15 B. R. 313; s. c. 7 Hun, 288). There can be little doubt but that such a conclusion will be ultimately reached as to the proceedings under the present Act. The language of paragraph seems to imply this, for it provides that under certain conditions, which cannot be made apparent by the adjudication, the lien shall not be dissolved, but that the trustee shall be subrogated to the rights of the holder of such lien. It will at least be necessary, before a creditor can be deprived of his lien, to give him a right to contest the question as to whether the bankrupt was insolvent at the time the lien attached and whether it operates as a preference, otherwise the Act itself would be void in authorizing the appropriation of private property without due process of law.

It has been held under this paragraph, that the title of a bona fide purchaser at an execution sale, an execution having been issued and a levy having been made within the four months, will not be affected, though the proceeds of such sale belong to the bankrupt's estate (In re Kenney [D. C.], 95 Fed. Rep. 427; s. c. I N. B. News, 401; s. c [on rehearing] 97 Fed. Rep. 554). The same conclusion was reached where perishable property taken on attachment was sold and the proceeds paid into court (Bear et al. v. Chase [C. C. A.], 99 Fed. Rep. 920; Batts v. Hammond et al. [C. C. A.], 99 Fed. Rep. 916).

1 For analogous provisions, see Act of 1800, 42; of 1841, 85; of 1867, 20, 21; R. S. 25073.

"Under the former Act, it was said that the subject of the analogous section was only a declaration of the general doctrine of set-off, and that it was not intended to enlarge the doctrine of set-off, or to enable the party to make a set-off in cases where the principles of legal or equitable set-off did not previously authorize it" (Sawyer v. Hoag [U. S. Supreme Ct.], 9 B. R. 145; S. c. 17 Wall. 610). This decision is important in that it fixes the limitations of the Act and emphasizes the fact that set-offs coming within its purview are not only those founded on statutory provisions, but such also as courts of equity recognize. Any mutual debt, demand or claim (31[11]) provable in bankruptcy (863) and authorized by principles of law or equity may be set-off under this section (Sawyer v. Hoag, supra; Sheldon v. Rothschild, 8 Taunt. 157; Munger v. Albany Bank, 85 N. Y. 580; Bittlestone v. Temmis, 1 C. B. 380; Collins v. Jones, 10 B. & C. 777; ex p. Wagstaff, 13 Ves. 65; ex p. Prescott, 1 Atk 230; Drake v. Rollo, 3 Biss. 273; S. c. 4 B. R. 689; in re City Bank, 6 B. R. 71; in re Dillon, [D. C.], 100 Fed. Rep. 627), unless the same comes within the inhibition of paragraph b. This includes claims liquidated under the provisions of 8636, unliquidated claims not being provable or allowable as set-offs (Bell v. Carey, 8 C. B. 887). It is immaterial that the debt may not be due, as required by most statutory provisions, since such debts are provable (863[1]; Collins v. Jones; ex p. Wagstaff; Sheldon v. Rothschild, singuli supra). The former bankruptcy Act provided that a creditor who had proved a claim in bankruptcy could not thereafter bring suit therefor against the bankrupt (Act of 1867, 21). Under that provision it was held that the creditor could not set-off the amount so allowed against the trustee in an action to recover of such creditor a debt which he owed to the bankrupt. This holding was upon the conclusion that such off-set would amount to a cross-suit (Russell v. Owen, 61 Mo. 185; s. c. 15 B. R. 322, citing Brown v. Bank, 6 Bush [Ky.], 198). The

b A set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable

effect of this decision under that Act was a waiver of the amount that might have been off-set, by failure on the creditor's part to show, in his proof of claim, that the bankrupt had an unsatisfied claim against him. The provisions of the former Act were substantially the same as those of the present relative to off-sets, though the present Act contains no provisions, as did the former, prohibiting the creditor from enforcing his allowed claim. In view of this, the holding in Russell v. Owen may not be applicable to the present Act, though there can be but little question that the same ruling would be applied for failing to disclose his indebtedness to the bankrupt as he is commanded to do by the language of this section which provides that the account shall be stated."

The feature with which most trouble is likely to be met in the consideration of set-offs is that of mutual debts and mutual credits. While the questions have come up under former Acts, the courts do not seem to have attached a fixed definition to either term, having rested their conclusions largely on the facts in each individual case. To be mutual, the debts and credits must be in the same right" (Sawyer v. Hoag, 9 B. R. 145; s. c. 17 Wall. 610). What seems to be meant by this is that the debts and credits must be due from and owing to persons between whom the relation of debtor and creditor exists to such an extent that the one seeking to setoff could recover on his claim in an action brought in his own name (West v. Pryer, 2 Bing. N. C. 455; ex p. Bailey, 1 M D. & D 263; ex p. Prescott, 1 Atk. 231; Jenkins v. Armour, 6 Biss. 312; s. c. 14 B. R. 276; Drake v. Rollo, 3 Biss. 276; s. C. 4 B. R. 689; Scammon v. Kimball, 8 B. R. 337; s. c 5 Biss. 431; Munger v. Albany Bank, 85 N. Y. 580; Key v. Flint, 8 Taunt. 23; Sparhawk v. Drexel, 12 B. R. 450; in re Catline, 3 B. R. 540; Rose v. Hart, 8 Taunt. 499; Murray v. Riggs, 15 Johns. Rep. 571; in re Dow, ex p. Whiting, 14 B. R. 307 and cases there cited; Groom v. West, 8 Ad & E 758; Russell v. Bell, 8 Mees. & W. 277). That relation is not present in a case where payments are made from time to time to apply on a running account (In re Christensen [D C.], 101 Fed. Rep. 802). The courts do not place any limitation upon the manner in which the debt to be set-off must have arisen other than that it must be such as is provable in bankruptcy. A banker may set-off against deposits claims which he may have against a depositor for loans (In re Bank of Madison, 9 B. R. 184; in re Petrie, 7 B. R. 332; Denman v. Boylston, 5 Cush. 194; in re Myers et al. [D. C.], 99 Fed. Rep. 691), and he may set-off such claims, not only against deposits, but also against any proceeds coming into his hands from collections (In re Farnsworth, 14 B. R. 148). This right was based upon the theory that the full amount of the deposits and funds in the banker's hands did not belong to the bankrupt, but only the amount that exceeded the indebtedness to the bank. Where the banker treated the whole of the deposits as belonging to the bankrupt and accepted a check against such deposit on the eve of bankruptcy, knowing the depositor to be insolvent, he waived his right to off-set and such check was declared a preference the amount of which the trustee was entitled to recover (Traders' Bank v. Campbell, 6 B. R. 353; s c. 14 Wall. 87). This right of a creditor to set-off claims against property in his hands is not confined to bankers alone. Any "creditor, who at the time of the bankruptcy has in his hands goods or chattels of the bankrupt with a power of sale, or choses in action with a power of collection, may sell the goods or collect the claims and set them off against any debt which the bankrupt owes him (at the time of bankruptcy), and this although the power to sell or collect would have been revocable by the bankrupt before his bankruptcy; in other words, the very fact of bankruptcy, in such cases, gives a sort of lien which did not exist before" (In re Dow, ex p. Whiting, 14 B. R. 307). The right to sell the goods or chattels, however, must