the time of the delivery of the pledge to sustain the transaction as a preference.

The original bill filed by Jeralds' trustee in bankruptcy set up the bankruptcy of Jeralds, and it was admitted in the answer and is not questioned in the petition of the bank. In effect, petitioner bank adopts and ratifies the proceedings in the cause by which the fund in court has been realized, and prays to be paid its pro rata as a preference as the holder of the pledged note of $3,000. The issue was therefore fairly presented as to whether or not the petitioner was entitled to receive from the bankrupt's funds this priority payment.

It is well recognized that a transfer made within four months of the filing of the petition in bankruptcy, when the debtor is insolvent and when the creditor has reasonable cause so to believe, these conditions concurring, constitutes a preference. And it is also well settled that, if a transfer is made partly for a present consideration and partly for an antecedent or pre-existing debt, as in the present case, only so much of the transfer as is applicable to the present consideration will be sustained, the remainder being set aside as a preference. 2 Collier (12th Ed.), p. 890.

Adopting the theory of the bank, this pledge was made to secure $2,000 advanced at the time, which was paid, and the collateral note "was then taken by the bank and put up behind certain other indebtedness due from Jeralds to said bank," this other indebtedness being long pre-existing. So far, then, as petitioner now seeks to assert a claim for priority as the holder of this collateral, it is on account of this antecedent debt. The pledge having been made within four months, the debtor being insolvent, it is not necessary in such a case to show knowledge, or reasonable cause for knowledge or belief, on the part of the creditor. Supported by ample authority Mr. Collier (12th Ed., p. 910) thus states the rule:

"It is not necessary for a creditor to know or have reasonable cause to believe that the debtor was insolvent, where a mortgage or pledge is made within the four months period to secure an antecedent debt."

But, even if this exception to the general rule did not exist, there are circumstances-such as the fact that this bank had itself been carrying for two years Jeralds' old past-due notes

which under the rule would probably be sufficient to charge the bank with notice of his insolvency at the time the pledge was taken. Moreover, the Moreover, the "discretion " or option reserved to the cashier to apply this collateral to other debts held by the bank was not in fact exercised until after payment of the $2,000 note due November 1st, and actually paid later, and the petition in bankruptcy had been filed against Jeralds in October. This fixes his insolvency as at least of this date, and also was notice to all.

It was within the discretion of the chancellor, having reached the conclusion that a preference would result from the allowance of the claim of petitioning bank, to dismiss the petition; and, in view of the conclusion reached by this court, as above indicated, that he is sustained by the record, it is unnecessary to discuss other questions presented by counsel, or by the opinion of the Court of Civil Appeals.

The decree of the chancellor and of the Court of Civil Appeals is affirmed.

TOLEDO FENCE & POST COMPANY, DEFENDANT-APPELLANT, v. JAMES W. LYONS, TRUSTEE OF FLOYD J. SMITH, COMPLAINANT APPELLEE.*

U. 8. Circuit Court of Appeals, Sixth Circuit, June, 1923.

No. 3904.

SUITS BY AND AGAINST TRUSTEE-JURISDICTION OF BANKRUPTCY COURTSACTION TO SET ASIDE FRAUDULENT TRANSFER MAY BE BROUGHT IN BANKRUPTCY COURT.

The District Court, being a court of bankruptcy, has jurisdiction of an action by a trustee to set aside a fraudulent transfer, under section 70 of the Bankruptcy Act, although there is no diverse citizenship. (See Collier, 13th Ed., p. 748; Am. B. R. Digest, § 656.)

SAME JURISDICTION OF BANKRUPTCY COURTS-JURISDICTION BY CONSENT ALTHOUGH NO DIVERSE CITIZENSHIP.

Although there is no diversity of citizenship, the District Court has jurisdiction of an action by a trustee in bankruptcy to recover a debt in excess of $3,000 due the bankrupt, where the defendant has consented to such jurisdiction.

(See Collier, 13th Ed., pp. 742, 745; Am. B. R. Digest, § 658.)

290 Fed. 637.

SAME JURISDICTION OF BANKRUPTCY COURTS-WHAT AMOUNTS TO CONSENT OR WAIVER.

A defendant consents to the trial of suit by a trustee in bankruptcy in a bankruptcy court where it appears before the court without objection and obtains an adjournment and thereafter, on the adjourned day, is heard on the merits.

(See Collier, 13th Ed., p. 761; Am. B. R. Digest, § 659.)

Appeal by defendant from an interlocutory order of the District Court of the United States for the Western Division of the Northern District of Ohio appointing a receiver. Remanded for addition to record.

Before KNAPPEN, DENISON, and DONAHUE, Circuit Judges.

Charles A. Seiders, for appellant.

Gustavus Ohlinger, for appellee.

DENISON, Circuit Judge:

This is an appeal from an interlocutory order appointing a receiver for the appellant corporation. The trustee in bankruptcy of Smith filed the bill in the court below, as commencement of a plenary suit against the corporation, alleging that Smith had been and was its chief and controlling stockholder and general manager; that it had become indebted to him upon various transactions to the amount of about $19,000 net balance; that more than four months before bankruptcy and with the intent to defraud his creditors, Smith had canceled and discharged this $19,000 debt (as to parts of it upon inadequate consideration and as to other parts upon none); that the corporation was in imminent danger of insolvency; and praying that the trustee have an accounting and a recovery of the full balance honestly due and that a receiver be appointed. There was no allegation that the corporation owed any debts except this one, or that its assets and business were being mismanaged to its prejudice. The record shows no affidavits in support of the application. Manifestly the mere facts that the bankrupt is the controlling manager and stockholder of the corporation, and that he has increased its apparent. assets at his personal expense, do not tend to justify a receiver

ship, taking the corporate management away from the directors. The order appointing the receiver recited that it appeared to the court "that the grounds for the appointment of a receiver set forth in the bill filed herein exist and that a receiver should be forthwith appointed." Recital in an order that the propriety of a receivership appeared to the court, even in the lack of any record showing how it appeared, is doubtless entitled to due weight in aid of the presumption that there was no error. Such effect is somewhat weakened in this case by the accompanying reference to the dependence upon the insufficient allegations of the bill; but we think it unnecessary and inadvisable to determine, upon the present unsatisfactory record, the validity of the appointment. Counsel state that proof was taken in open court tending to support the order, and that the position then taken by defendant was such as to excuse more formal allegations or proof. An order will be entered directing that within ten days, or such brief further time as the District Court may allow, the trustee may cause to be settled a narrative of the proof which was taken, and, if so advised, may amend his bill, with its prayer for receivership, so as to meet such proof, and that a supplementary return may then be made to this court, whereupon this question will be considered and decided.

However, the permitting of any further steps implies that the jurisdiction of the court below appeared by the bill, or could appear by some amendment which the facts will permit. The appellant denies the existence or the possibility of such jurisdiction; and this subject must therefore be met.

The denial goes, first, to the jurisdiction of the court below as a court of equity; and rests upon the decision of this court in Warmath v. O'Daniel (C. C. A., 6th Cir.), 20 Am. B. R. 101, 159 Fed. 87, 86 C. C. A. 277, 16 L. R. A. (N. S.) 414, to the effect that the remedy at law may be so adequate as to bar a proceeding in equity, even though a fraud is involved or a conveyance is to be set aside. This attack upon the equity jurisdiction of the court below must be overruled, for this, if for no other reason: One of the transactions attacked as fraudulent was that by which the bankrupt had received from the corporation assets worth about $4,000, and in exchange had canceled a debt of about

$10,000 from it to him. These assets could not now be returned, and a suitable credit on the debt must be made as an equitable condition of rescinding. Fixing the proper conditions of such a rescission is, to say the least, so far within the powers and peculiarly fit for the machinery of a court of equity that, even if the remedy at law were "adequate," that objection must be made at the first opportunity or it is waived. Here it was not made, so far as the record shows, until the assignments of error were filed; and then only vaguely.

The denial goes, second, to the jurisdiction of the court as a federal court. The argument is that when a suit is merely one by a trustee to recover by adverse proceedings a debt from defendant to the bankrupt, and where there is no diverse citizenship, a federal court has no jurisdiction. This result, in a case where there is no consent, is plainly required by Bankruptcy Act, § 23 (b) (Comp. St. § 9607), unless this case is within that provision, (e), of section 70 of the Bankruptcy Act (section 9654) which provides that

"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 so transferred, or its value, from the person to whom it was transferred. For the purpose of such recovery any court of bankruptcy as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.

Whatever doubt may have existed as to whether the seeming effect of this grant of jurisdiction was limited by the apparently inconsistent restriction of section 23 (Harris v. Bank, 216 U. S. 382, 23 Am. B. R. 632, 30 Sup. Ct. 296, 54 L. Ed. 528) has been removed by the 1910 amendment of section 23, bringing the two sections into harmony; and since the court below is a court of bankruptcy under section 1 (8) (section 9585), as well as the successor of the Circuit Court, it follows that there was jurisdiction, if the suit is one to recover from the person to whom it was transferred, property or its value, which had been transferred by the bankrupt to defraud his creditors. It is not to be doubted that the debt from the corporation to Smith was " property," capable of being transferred by conveyance or transaction which his creditors could avoid. Such difficulty as there is in the ap