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United States v. Seventy-eight Cases of Books.

the jury may properly decide according to the preponderance of the evidence.

The jury returned as their verdict that the books were forfeited to the United States.

[After the sale of the books forfeited, and the payment of the proceeds into the registry of the court, the attorney for Hubbard & Heaton, auctioneers in Cincinnati, moved the court for an order for the payment to said Hubbard & Heaton of $3,000, for money advanced by them to the claimant Shaw, after the books were in possession of the auctioneers for sale in Cincinnati, and before the seizure. But the counsel for the United States urged, that it was not competent for the court to order the payment of Hubbard & Heaton's claim from the proceeds in the registry, and that the entire amount must be deposited to the credit of the United States, and that the claim of Hubbard & Heaton could only be paid on the allowance and order of the secretary of the treasury.-REPORTER.]

Where packages of books were fraudulently imported into the United States and placed in the possession of auctioneers to be sold, and advances were made by them on said books without knowledge of or reason to suspect any fraud in such importation, and before the United States had made its election to proceed for a forfeiture, or to sue for the value of the property: Held, that such advances were a lien upon the proceeds of the sale of the books in the registry of the court, and that an order for payment should be made.

Where such lien exists, and the fund from which it ought to be paid is within the jurisdiction of the court, there is no necessity for requiring the person having such lien to apply to the secretary of the treasury for payment.

Warner M. Bateman, District Attorney, and Henry Stanbery, for United States.

Lewis H. Bond, for interveners.

United States v. Seventy-eight Cases of Books.

OPINION OF THE COURT:

The claim of Hubbard & Heaton, for the sum advanced by them to Shaw, is admitted to be just and equitable, and that when made they had no knowledge of or reason to suspect any fraud in the importation by Shaw. It was paid to Shaw after the employment of Hubbard & Heaton as auctioneers, and after the books were placed in their possession for sale, and before their seizure for the fraud in their importation. There would seem to be no doubt that Hubbard & Heaton have an equitable lien on the fund in the registry, and that the order for its payment should be made. The case of Caldwell v. The United States, reported in 8 Howard, decides that a bona fide claim upon property before seizure, or before the government has made its election to proceed for a forfeiture, or sue for its value, may be paid out of the proceeds. Hubbard & Heaton's claim is within the principle decided by the Supreme Court in the case referred to.

But it is insisted by the counsel of the United States, that under an act of Congress passed in 1867, that the entire proceeds must be paid into the treasury, including all charges and expenses incident to the proceeding. This provision applies only to the legal charges and expenses incident to the case, and does not extend to a private claim on the proceeds, based on a legal lien. That Hubbard & Heaton's claim is such a lien, there can be no doubt. And the fund from which it ought to be paid being within the jurisdiction of the court, the order for its payment may be entered. There would seem to be no necessity for requir ing them to be at the trouble and incur the expense of an application to the secretary of the treasury for payment.

Ahl v. Thorner.

(DISTRICT COURT.)

DANIEL AHL, JR., AND ALEXANDER BUCHMAN, ASSIGNEES IN BANKRUPTCY OF SUGARMAN & FRANK, v. SAMUEL THORNER.

A payment by the maker of a promissory note to an indorser, the maker knowing his insolvency at the time, and the indorser receiving such payment, having reasonable cause to believe the maker to be insolvent, is a fraudulent preference of such indorser within the meaning of section 35 of the bankrupt act; and the assignee in bankruptcy may sue for and recover the amount so paid, for the benefit of all the creditors.

Moulton, Bateman & Johnson, for plaintiffs.

Long & Hoeffer, for defendant.

OPINION OF THE COURT:

This is a petition in chancery, prosecuted by said Ahl and Buchman, as assignees in bankruptcy, to recover from the defendant, Thorner, the sum of $4,990, which they allege to have been paid by said Sugarman & Frank to Thorner, in fraud of the bankrupt law of the United States.

The material facts involved may be comprehensively stated as follows: In July, 1867, the said Sugarman & Frank were doing business in Memphis, in the State of Tennessee, as partners; some time during that month, at the request of Sugarman, the said Thorner, residing at Cincinnati, and the brother-in-law of said Sugarman, and then a member of the firm of Heidelbach, Seasongood & Co., indorsed the promissory note of Sugarman & Frank for $5,000, payable to the order of Thorner ninety days after date. This note was discounted by Espy, Heidelbach & Co., bankers at Cincinnati. Not being paid at maturity, on October 21, 1867, a renewed note for the same sum, at ninety days, was given by Sugarman & Frank, and indorsed

Ahl v. Thorner.

by Thorner. This note, by its terms, would have been due January 23, 1868. On the 16th of that month the defendant Thorner received from Sugarman & Frank bills or drafts on a house in New York for $5,300, with instructions to apply them to the note held by Espy, Heidelbach & Co. These bills or drafts were accepted by said bankers in payment of said note, and the note was taken up and canceled. The difference between the proceeds of the drafts or bills remitted to Thorner, and the sum due on Sugarman & Frank's note, was paid by direction of Sugarman to his wife, then living at Cincinnati.

The bill sets forth that on May 11, 1868, a petition was filed in this court by certain creditors of the said Sugarman & Frank, alleging various acts of bankruptcy by them, and praying that they might be adjudged bankrupts. And on the 21st of September, in the year last named, the firm, and the individual members of the firm, were decreed to be bankrupts, and the said Ahl & Buchman were duly appointed and qualified as their assignees. They allege in their bill that at the time Sugarman & Frank remitted to Thorner the drafts to pay the note for $5,000 held by Espy, Heidelbach & Co., they were insolvent, and that Thorner had just cause to believe them to be insolvent, and that, therefore, the payment of the note was an unlawful preference to Thorner, and illegal and void as in violation of the bankrupt act. And the assignees allege a right to recover from Thorner the sum so paid, to be applied to the claims of the firm creditors of Sugarman & Frank.

Before referring to the evidence, and with a view to a more intelligent application of the law to the facts, it may be well to notice briefly the provisions of section 35 of the bankrupt act, so far as they apply to the transactions in question. That section declares: "That if any person, being insolvent, or in contemplation of insolvency, within four months before the filing of the petition by or against him, with a view to give a preference to any creditor, or person having a claim against him, or who is under any

liability for him,

Ahl v. Thorner.

makes any payment, pledge, the person

assignment, transfer, or conveyance,

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receiving such payment, pledge, assignment, transfer, or conveyance, having reasonable cause to believe such person is insolvent, and that such payment, pledge, assignment, or conveyance is made in fraud of the provisions of this act, the same shall be void, and the assignee may recover the property, or the value thereof, from the person so receiving it, or so to be benefited thereby." The section then provides, that if any person being insolvent, or in contemplation of insolvency within six months before the filing of the petition by or against him, shall make any payment or transfer of property to a person having reasonable cause to believe him to be insolvent, or to be acting in contemplation of insolvency, and that such payment, transfer, etc., is made with a view to prevent his property from coming to his assignee, or prevent the same from being distributed under the act, or in any way to impede, impair, delay, or defeat the operation of the act, the same shall be void, and the assignee may recover the property or the value as assets of the bankrupt.

In deciding whether the transaction involved is within the prohibitions of section 35, and therefore void, the following inquiries necessarily arise:

1. Was the firm of Sugarman & Frank insolvent, or acting in contemplation of insolvency in the payment of their note, on which Thorner was liable as indorser.

2. Was the note paid with a view to a preference to Thorner over other creditors of Sugarman & Frank.

3. Had Thorner reasonable cause to believe that Sugarman & Frank were insolvent.

4. Was Thorner under such a liability as indorser for the firm, as that the payment of the note inured to his benefit within the meaning of said section of the bankrupt act.

I. As to the insolvency of the firm of Sugarman & Frank, on January 16, 1868, when Thorner paid their note to Espy, Heidelbach & Co., with the proceeds of the drafts

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