should be distributed among those who have failed to prove their claims, but whose claims have been taken up on the schedule of the bankrupt. In re Haynes, 2 N. B. R. 227; 11 Fed. Cas. 914.

E. was a member of the firms of E. & B., and E., J. & E. The latter was adjudged bankrupt on the petition of the former, and a dividend had been declared. Though no individual debts had been proved against E., it was held that the share of the dividend which he would be entitled to as a member of the firm of E., J. & E. should be retained by the assignee, to await the action of his separate creditors. In re Ellis et al., 5 Ben. 421; 8 Fed. Cas. 548.

The holder of a note made by the bankrupt proved it for the full amount. An indorser, who held collateral security, paid the note and sold the collateral for less than the amount of the note. Held, that the indorser should take dividends only on the balance. In re Baldwin, 19 N. B. R. 52; 2 Fed. Cas. 508.

When the makers and indorsers of commercial paper all become bankrupt, and the holders, by order of the court, receive a percentage from the estate of the makers, they are only entitled to receive from the estate of the indorsers the difference between such amount and their whole claim. In re Howard et al., 4 N. B. R. 571; 12 Fed. Cas. 625.

In the case cited, the court held that assignees were not obliged to pay interest upon dividends which had been contested in good faith from the time that like dividends were declared upon undisputed debts; but expressed the opinion that they might be required to pay such interest as had been earned upon funds set apart to meet the disputed claim. Hersey v. Fosdick, 20 Fed. Rep. 44.

A bank that had suspended payments reopened its doors, and announced that new deposits would be held separate in trust for the new accounts, and that it would apply its assets as fast as they could be collected to the payment of former accounts. Sometime after, it was adjudicated a bankrupt in involuntary proceedings. The court held that the new depositors could only share with the old creditors. In re Mutual B. F. S. & B. S. Bank, 2 Hughes, 374; 17 Fed. Cas. 1075.

A bankrupt firm had been in the habit of borrowing money for a bank and delivering to it the notes of customers indorsed by the firm. The bank proved its claim for the aggregate of all the notes given by the bankrupt's firm, and a dividend of 30 per cent. was declared. In the meantime, the bank had collected a sum of money on the customers' notes. It was held that this did not reduce the claim upon which the dividend was payable; also that the bank's claim was not secured within the meaning of section 5075, R. S. In re Weeks, 8 Ben. 265; 29 Fed. Cas. 575. Two persons who had purchased notes of the bankrupts for and on their behalf presented proof of their claims, and they were disallowed. The bankrupt estate was sufficient to pay all the debts. The court ordered a decree to be entered as follows: (1) For the payment in full of the proved debts with interest; (2) for the payment into court of the unproved debts with interest; (3) for the payment of costs, charges, etc.; (4) for the

payment to the persons who had purchased claims against the bankrupts of the amounts paid by them respectively for the claims, with interest; and (5) for the transfer of the rest of the estate by the assignee to the bankrupts. In re Lathrop, 5 N. B. R. 199; 14 Fed. Cas. 1173.

One member of a firm made, and another indorsed a note. The holder recovered judgment against the maker only. Subsequently the firm became bankrupts. The owner of the judgment proved it as a claim against the joint estate of the firm, on the ground that the firm had received the proceeds of the note. After a dividend had been declared, he proved the same judgment as a claim against the judgment debtor, and claimed a dividend from both the joint estate and the individual estate of the latter. It was held that he could recover only from the individual estate. In re Herrick, 13 N. B. R. 312; 12 Fed. Cas. 42.

Judge Wallace, of the United States district court of New York, used this language: "Where there are two classes of creditors having a common debtor, who has several funds, and one class of the creditors can resort to all the funds, while the other can resort only to part of them, the former shall take payment out of the fund to which they can resort exclusively so that both classes may be protected; and if the former resort to the fund given to both classes, to the loss of the latter, the latter are entitled to be substituted to the extent of the deprivation to which they have been subjected, in the place of the former." In re Foot et al., 8 Ben. 228; 9 Fed. Cas. 355.

A partnership creditor cannot invoke the aid of equity to prevent the application of a dividend in the hands of an assignee in bankruptcy to the debt of an individual creditor when both creditors have attached such dividend under process from a state court. Gilbert v. Quinby et al., 1 Fed. Rep. 111.

Trustees appointed, under the Act of 1867 (section 5103, R. S.), distributed the proceeds of the sale of property made in pursuance of an order of the district court, which was later affirmed by the circuit court. It was held that creditors were concluded by such distribution. Merchants' Bank v. Slagle, 106 U. S. 558.

LIENS.

§ 67. Liens.- (a.) Claims which for want of record or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate.

(b.) Whenever a creditor is prevented from enforcing his rights as against a lien created, or attempted to be created, by his debtor, who afterwards becomes a bankrupt, the trustee of the estate of such bankrupt shall be subrogated to and may enforce such rights of such creditor for the benefit of the estate.

(c.) A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne

process or a judgment by confession, which was begun against a person. within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that .such lien was sought and permitted in fraud of the provisions of this Act; or if the dissolution of such lien would militate against the best interests of the estate of such person the same shall not be dissolved, but the trustee of the estate of such person, for the benefit of the estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened.

(d.) Liens given or accepted in good faith and not in contemplation of or in fraud upon this Act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by this Act.

(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 incumbered 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 shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt.

(f.) 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 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.

Liens by Mortgage, when Valid.

The proper proceeding to have an unrecorded mortgage enforced as a lien superior to a prior recorded mortgage is by a bill in equity or an action at law. Barstow v. Peckham et al., 5 N. B. R. 92; 2 Fed. Cas. 951. It was held by Judge Emmons in a case not fully reported, that a court of bankruptcy would protect mortgages upon vessels without regard to liens under state laws. The Ironsides, 15 Int. Rev. Rec. 59; 13 Fed. Cas. 106.

A chattel mortgage that is void as to some of the property sought to be recovered may nevertheless be valid as to the other property. In re Perrin et al., 7 N. B. R. 283; 19 Fed. Cas. 261.

It is competent for the court of bankruptcy to grant leave to a mortgagee to bring an action of foreclosure against the bankrupt and have the mortgaged property sold. McHenry v. La Société Française, 95 U. S. 58. A mortgage covering real and personal property will be enforced first as to the former where there are other liens on the personal property. MeLean v. LaFayette Bank et al., 4 McLean, 430; 16 Fed. Cas. 280 (1848).

A mortgage which was partly a preference was sustained as to that part which was not subject to such objection. Whiston v. Smith et al., 2 Low. 101; 29 Fed. Cas. 944.

It is not of itself a fraud for a firm to give a mortgage which includes a debt incurred by one of the partners in behalf of the firm. Wait v. Bulls Head Bank, 19 N. B. R. 500; 28 Fed. Cas. 1338.

The failure of a mortgagee to prove his debt in bankruptcy does not deprive him of his lien, and he can enforce it after the close of the proceedings. Wicks et al v. Perkins, 1 Woods, 383; 29 Fed. Cas. 1146.

A mortgage, executed more than four months before bankruptcy proceedings, given to secure advances already made as well as advances to be thereafter made, is valid against the assignee of the bankrupt mortgagor. Schulze v. Bolting, 8 Biss. 174; 17 N. B. R. 167; 21 Fed. Cas. 754 (1878).

A covenant in a mortgage to keep mortgaged property insured constitutes an equitable lien, and is valid against the assignee in bankruptcy of the mortgagor. In re Sands Ale Brewing Co., 6 N. B. R. 101; 21 Fed. Cas. 251 (1872).

Judge Swing, of the district court of Ohio, decided that as a chattel mortgage is valid without being recorded as between mortgagor and mortgagee, the former's assignee in bankruptcy cannot dispute its validity. Douglass v. Vogeler, 6 Fed. Cas. 53.

A mortgage upon a stock of merchandise was held to be good in so far as it secured a loan made at the time of the execution, and invalid in so far as it was given to secure a pre-existing debt. In re Stowe, 6 N. B. R. 429; 23 Fed. Cas. 199.

The assignee of a chattel mortgage took the mortgaged property from the possession of the bankrupt after the appointment of an assignee in bankruptcy. Held, that the property or its value must be restored to the assignee, notwithstanding the mortgage was a valid security. In re Rosenberg, 3 Ben. 366; 20 Fed. Cas. 1196.

A valid chattel mortgage which covered property partly in New York and partly in New Jersey, and was recorded in the former, but not in the latter state, was held to be good as to the New York property, though of no efficacy as to the property in New Jersey. In re Soldiers' Business, Messenger & Dispatch Co., 3 Ben. 204; 22 Fed. Cas. 781.

A mortgage given by the bankrupt before the commencement of proceedings to secure payment for goods to be sold to him by the mortgagee was held to be valid against the assignee in bankruptcy, to the extent of the goods sold on the faith of the mortgage. Marvin v. Chambers, 12 Blatchf. 495; 16 Fed. Cas. 927.

After adjudication, but without the appointment of an assignee, the bankrupt settled with his creditors, and gave them a mortgage. A year later, new proceedings were commenced against the bankrupt. It was held that the mortgage was valid, and the court granted an order for its foreclosure. Robinson v. Hall et al., 8 Ben. 61; 20 Fed. Cas. 1011.

The alleged bankrupt having leased a large house, and fitted it up for a sanitarium, executed a chattel mortgage to secure the parties who supplied the wares and fixtures. He was not shown to be insolvent at