have thus brought the matter to the referee's attention but the action of the referee was well warranted as the proof of the claim within itself disclosed the fact that it was a claim which should not have been allowed priority.

Aside from what is hereinabove said as the matter is here submitted, it is now held that the claim sought to be established as one which should have priority is not so entitled and can be allowed to be filed only as a claim of a general creditor and to share in the general estate.

An order will be accordingly entered.

IN THE MATTER OF DAHNKE-WALKER MILLING COMPANY, BANKRUPT.

U. 8. District Court, Western District of Tennessee, Eastern Division,

April, 1924.

No. 1087.

PROOF AND ALLOWANCE OF DEBTS AND CLAIMS-PROOF BY SECURED CREDITORS -RIGHTS OF SECURED CREDITORS IN GENERAL-NOVATION NOT SHOWN BY ACCEPTANCE OF PERSONAL NOTE OF CORPORATION OFFICERS AS SECURITY FOR CLAIM AGAINST TRUSTEE.

Where a bank had a claim against a corporation for credit extended on the faith of fictitious bills of lading and upon discovery of the fraud demanded security for the indebtedness and received from three officials of the corporation their individual notes to the amount of the claim, the acceptance of the notes did not amount to a novation so as to prevent the bankrupt from proving its claim against the corporation.

(See Collier, 13th Ed., p. 1144; Am. B. R. Digest, § 785.)

WHAT DEBTS AND CLAIMS ARE PROVABLE-PROVABILITY WHERE SEVERAL ARE LIABLE-CREDITORS MAY PROVE CLAIM AGAINST CORPORATION AND ALSO AGAINST ESTATE OF OFFICERS OF CORPORATION ON INDIVIDUAL NOTES GIVEN AS SECURITY FOR CORPORATE DEBT.

Where a bank extended credit to a corporation upon drafts which were drawn with bills of lading attached, which bills of lading were fictitious, and upon discovery of the fraud obtained from officers of the corporation their individual notes for the amount of the credit, the bank may, upon the subsequent bankruptcy of the corporation and of the officers, prove its claim against the corporation and also against the individual bankrupts. (See Collier, 13th Ed., p. 1378; Am. B. R. Digest, § 816.)

SAME-ULTRA VIRES ACTS OF CORPORATION-BANK MAY PROVE CLAIMS FOR CREDIT GIVEN TO BANKRUPT ALTHOUGH LOAN WAS IN EXCESS OF AMOUNT AUTHORIZED BY LAW.

A bank is not estopped from presenting its claim against a bankrupt corporation because it appears that the corporation had been extended the full amount of credit allowed by law before the loan represented by the claim was extended.

(See Collier, 13th Ed., p. 1415; Am. B. R. Digest, § 850.)

Petition to review order of referee denying the right of a claimant to file its claim. Order reversed.

Pierce & Fry and W. H. Swiggert, for claimant.

Lannon & Lannon and W. M. Miles, for trustee.

Ross, District Judge:

The bankrupt, Dahnke-Walker Milling Company, was a Tennessee corporation engaged in the grain and milling business at Union City, Tennessce. For quite a long while prior to the creation of the indebtedness in question, it had been a custom of the bankrupt in conducting its business to ship grain, draw a draft with bill of lading attached, take the drafts to the Third National Bank at Union City, where it would receive credit therefor. A short while prior to the bankruptcy proceedings the bankrupt became involved and one of its officers presented to the Third National Bank drafts with bills of lading attached, which bills of lading were forgeries or more properly stated, were fictitious. No such shipments had been made as represented by the bills of lading and no foundation existed for the amounts for which the drafts were drawn. In ignorance of the falsity of these claims the Third National Bank passed credit to the Dahnke-Walker Milling Company to the extent of about $10,000 before discovering that the bills of lading and draft were fictitious. Upon being apprized of the facts that a draft for about $3,000 had been returned the president of the bank went to the president of the Dahnke-Walker Milling Company and made inquiry concerning the matter and was then informed as to the character of the draft and bill of lading. Further inquiry revealed the fact that the bank had advanced credit on a considerable number of these

drafts. The president then demanded security for the indebtedness thus created, whereupon three of the officials of the DahnkeWalker Milling Company executed to the bank their note for $10,000. The Dahnke Walker Milling Company was soon thereafter adjudicated a bankrupt, and the bank filed in that procceding the note mentioned, upon which it sought to have itself established as one of the creditors of the bankrupt. The note bore a small credit leaving the amount claimed by the bank, the sum of $9,462.16. The trustee in bankruptcy duly excepted to the allowance of this claim on the ground that by accepting the note the bank had released its claim against Dahnke-Walker Milling Company. The matter was heard before the referee, Hon P. W. Maddox, and an order entered denying the bank the right to file its claim as a creditor. Petition for review was filed and the matter is now presented for determination.

While the Dahnke-Walker Milling Company bankruptcy proceedings were pending, George Dahnke, the president thereof, and J. A. Coble, who jointly signed the note with him and one G. S. Allen, became bankrupt. Allen became a fugitive from justice. A short time after the bankruptcy proceedings as to George Dahnke were instituted, he died. The bank has also filed its claim in each of the bankruptcy proceedings against George Dahnke and J. A. Coble seeking to hold their estates individually liable on said note.

The record clearly discloses that at the time the credit was extended to the Dahnke-Walker Milling Company by the bank on the fictitious evidences presented by the bills of lading and drafts mentioned the bank had no knowledge whatsoever as to their character. It is equally clear from the record that when the nature of the dealing was made known to the bank and the note of George Dahnke, J. A. Coble and G. S. Allen executed, the bank had no intention whatever of releasing its claim against the Dahnke-Walker Milling Company and that it accepted the note merely as security for the indebtedness. It is earnestly. insisted by the trustee that the acceptance of the note was an extinguishment of the original indebtedness and worked a novation as to the parties.

Such extinguishment and novation would not have arisen except by agreement of the parties or by such acts on their part as

clearly indicated an intention to cancel the original debt and accept the note in payment or substitution thereof. The record negatives any such intention either by express agreement or by acts. The burden of showing a novation rests upon the trustee. He has not met this burden in any sense. Grocery Co. v. Marshal, 131 Tenn. 275; Alder v. Buckley, 1 Swan (Tenn.) 72-3; Sharp v. Fly, 4 Baxt. (Tenn.) 393; Dies v. Bank, 129 Tenn. 95; 20 R. C. L. 670, L. R. A. 1918a 79, and authorities cited; Ill. Car & Equipment Co. v. Linstroth Wagon Co., 112 Fed. 737; AngloAmerican Land Mortgage & Agency Co. v. Lombard, 132 Fed. 721; In re Ransford (C. C. A., 6th Cir.), 28 Am. B. R. 78, 194 Fed. 658; U. S., etc., v. Ill. Surety Co. et al. (C. C. A., 7th Cir.), 38 Am. B. R. 880, 226 Fed. 653.

The bank did not surrender the fictitious bills of lading and drafts. They were sent to the officers of the Dahnke-Walker Milling Company upon their request for inspection and without any knowledge on the part of the bank were by such officers destroyed. The bank was no party to this act and endeavored to retain them as evidence of the origin of its indebtedness. In no event could it be charged with the unwarranted acts in this regard of the officers of the Dahnke-Walker Milling Company in view of the facts disclosed by the record.

It is further insisted that the bank cannot be permitted to file its claim against Dahnke-Walker Milling Company and seek also to have it filed against the individual bankrupts. It had a right so to do and its claim cannot be repelled by reason of that act. Reynolds v. N. Y. Trust Co. (C. C. A., 1st Cir.), 26 Am. B. R. 698, 188 Fed. 613; In re McCoy (C. C. A., 7th Cir.), 17 Am. B. R. 760, 150 Fed. 106, appeal dismissed; Chapman v. Bowen, 207 U. S. 89, 18 Am. B. R. 844, 28 Sup. Ct. 32, 52 L. Ed. 116, 3 R. C. L. 213; Robinson v. Seaboard Natl. Bank C. C. A., 3d Cir.), 41 Am. B. R. 263, 247 Fed. 667 (certiorari denied by U. S. Supreme Court); A. Leschen & Sons Rope Co. v. Mayflower Gold Mining & Reduction Co., 35 L. R. A. (N. S.) 1.

The only other objection to the claim is that the bank is estopped to now present this claim against Dahnke Walker Milling Company because it appears in the record that Dahnke-Walker Milling Company had been extended the full amount of its credit on the books of the bank and the bank sought to evade the law

by accepting the note and having the entries on its book show credit to other parties as individuals for an indebtedness which it insists was the indebtedness of the Dahnke-Walker Milling Company. While this may have been very irregular it would not preclude it from filing the claim in question.

In view of the facts disclosed in the record and the law I am constrained to reverse the finding of the referee and to hold that the claim in question may be filed and prosecuted against the estate of Dahnke-Walker Milling Company.

ELLIOTT FREDERICK, TRUSTEE IN BANKRUPTCY OF JACOB SURLOFF V. ISAAC SURLOFF et als.

U. S. District Court, Western District of Pennsylvania, September, 1924.

No. 395.

SUITS AND ACTIONS BY AND AGAINST TRUSTEE-NATURE AND FORM OF REMEDY IN GENERAL-EQUITABLE ACTION PROPER WHERE DISCOVERY AND INJUNC TION SOUGHT IN ADDITION TO MONEY JUDGMENT.

A proceeding in equity is the proper remedy where the trustee in bankruptcy is seeking not merely a judgment for property fraudulently concealed or transferred but is also seeking discovery and injunction.

(See Collier, 13th Ed., p. 1567; Am. B. R. Digest, § 645.)

SAME-PARTIES-NO MISJOINDER OF PARTIES SHOWN IN EQUITABLE ACTION TO RECOVER ASSETS FRAUDULENTLY TRANSFERRED THOUGH ONLY DISCOVERY SOUGHT AGAINST ONE PARTY.

A defendant is properly joined in a bill in equity which alleges a conspiracy to conceal the assets of a bankrupt from his trustee, although nothing is sought from the defendant other than discovery.

(See Collier, 13th Ed., p. 1568; Am. B. R. Digest, § 667.)

Motion to dismiss bill in equity against several defendants for conspiracy to conceal assets of bankrupt. Motion denied.

Abraham Seder, for plaintiff.

McCreery & Wolf, Lowrie C. Barlon, Morris G. Levy, and Simon Sher, for defendants.

GIBSON, District Judge:

The plaintiff in the instant matter has filed a bill in equity against the defendants, wherein he has alleged a conspiracy on the