the mortgages were created. For this machinery the property in question was substituted. It could not be removed without destroying the property as a creamery plant, although it will leave the building practically unhurt for future use in conjunction with that or similar machinery as a creamery plant. The machinery could not be used, except in conjunction with that or some similar building. It was therefore at law a fixture. Cunningham v. Cureton, 96 Ga. 489, 23 S. E. 420; Brigham v. Overstreet, 128 Ga. 447, 458, 57 S. E. 484, 10 L. R. A. (N. S.) 452, 11 Ann. Cas. 75.

We think that the case is unlike that of Holt v. Henley, Trustee, 232 U. S. 637, 34 S. Ct. 459, 58 L. Ed. 767, and that under the implications of that case this property would be governed by the rule therein laid down. In that case the rule is, where the addition to the premises covered by the mortgage is not in its nature an essential, indispensable part of the completed structure contemplated by that instrument, and its removal would not affect the integrity of that structure, the mortgagee takes just such interest in the addition as the mortgagor acquired; no more, no less. In this case the referee found as a fact that each part of this property was an essential and indispensable part of the completed structure contemplated by the mortgage. In the Henley Case it was found that the system, though useful and valuable, could be removed and the work still go on. It is not so here, and although we do not think it is necessary to hold with the referee that the statute of Georgia is different from the common law in regard to fixtures, we think that the mortgages of the bank were superior to

the reservations of title in this case. Tippett & Wood v. Barham, 180 F. 76, 80, 103 C. C. A. 430, 37 L. R. A. (N. S.) 119. The judgment should be affirmed.

In re SOLOF et al.

SABIN v. WESTERN DRY GOODS CO. (Circuit Court of Appeals. Ninth Circuit. November 3, 1924.)

No. 4323.

1. Bankruptcy 166(4)-Reasonable cause to believe payment would effect a preference must be more than ground for suspicion.

To constitute reasonable cause to believe that a payment made by a debtor would effect a preference there must be more than ground for suspicion.

2. Bankruptcy 166(4)-Mercantile creditor receiving payments in usual course of business held not chargeable with reasonable cause to believe preference would result.

Where bankrupts for years had conducted credit standing, and had during the four months an extensive mercantile business, with good prior to bankruptcy paid out in bills $168,000, and purchased merchandise on credit to the amount of $111,000, a mercantile creditor which during that time received 26 payments in the usual course of business held not chargeable with reasonable cause to believe that a preference would be effected thereby.

3. Bankruptcy 228-Court not bound by finding of referee from admitted or established facts.

Where the finding of a referee is a deduction from established facts or uncontradicted evidence, the judge is at liberty to draw his own inferences and deduce his own conclusions.

Appeal from the District Court of the United States for the District of Oregon; Robert S. Bean, Judge.

In the Matter of Max and Esther Solof, as individuals and as copartners doing business as the People's Cash Store, bankrupts. From an order of the District Court allowing the claim of the Western Dry Goods Company, R. L. Sabin, trustee, appeals. Affirmed.

Sidney Teiser, of Portland, Or., for appellant.

Wm. B. Layton, of Portland, Or., and Nelson R. Anderson, of Seattle, Wash., for appellee.

Before GILBERT, ROSS, and RUDKIN, Circuit Judges.

RUDKIN, Circuit Judge. The Western Dry Goods Company, a wholesale dry goods house of Seattle, Wash., filed a claim for approximately $20,000 against the bankrupt estate of Max and Esther Solof, doing business under the name and style of the People's Cash Store, at Eugene and Salem in the state of Oregon. The trustee in bankruptcy objected to the allowance of the claim on the ground that certain payments received by the claimant within four months prior to the filing of the petition in bankruptcy constituted voidable preferences. The referee sustained the objection and disallowed the claim until such time as the preferences should be surrendered. On petition for revision, the court below set aside the decision of the referee and allowed the claim as presented. From the latter order the present appeal is prosecuted.

A person is deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition or after the filing of the petition and before

the adjudication, made a transfer of any of his property, and the effect of the enforcement of such transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class, and if the person receiving the transfer or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of the transfer would affect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person. Bankruptcy Act, §§ 60a, 60b (Comp. St. § 9644). It is further provided that the claims of creditors who have received voidable preferences shall not be allowed unless such preferences are first surrendered. Section 57g (section 9641).

In discussing the questions of insolvency and reasonable cause to believe that a preference was intended, the court below said:

"It is difficult if not impossible to ascertain from the record with any degree of accuracy the financial status of the bankrupts at any time within the four months' period, although reasoning back from the value of the assets as inventoried by the receiver, the claims filed against the estate, and various estimates and deductions from the imperfect books of the bankrupts offered in evidence it fairly appears that they were during that period insolvent, but in my judgment the evidence does not show that the claimant had reasonable cause to so believe at the time it received such payments nor that they would constitute a preference."

[1] We will assume, as did the court below, that insolvency was proven, and direct our attention to the remaining question in the case. In this connection, we are admonished that reasonable cause to believe means something more than reasonable cause to suspect.

"It is not enough that a creditor has some cause to suspect the insolvency of his debtor; but he must have such a knowledge of facts as to induce a reasonable belief of his debtor's insolvency, in order to invalidate a security taken for his debt. To make mere suspicion a ground of nullity in such a case would render the business transactions of the community altogether too insecure. It was never the intention of the framers of the act to establish any such rule. A man may have many grounds of suspicion that his debtor is in failing circumstances, and yet have no cause for a well-grounded belief of the fact. He may be unwilling to

trust him further; he may feel anxious about his claim, and have a strong desira to secure it—and yet such belief as the act requires may be wanting. Obtaining additional security, or receiving payment of a debt, under such circumstances is not prohibited by the law. Receiving payment is put in the same category, in the section referred to, as receiving security. Hundreds of men constantly continue to make payments up to the very eve of their failure, which it would be very unjust and disastrous to set aside. And yet this could be done in a large proportion of cases if mere grounds of suspicion of their insolvency were sufficient for the purpose." Grant v. First National Bank, 97 U. S. 80, 24 L. Ed. 971. See, also, Stucky v. Masonic Savings Bank, 108 U. S. 74, 2 S. Ct. 219, 27 L. Ed. 640.

True, the court was there discussing the question of reasonable cause to believe a person insolvent, but the same considerations apply to the question of reasonable cause to believe that a preference was intended. Tumlin v. Bryan, 165 F. 166, 91 C. C. A. 200, 21 L. R. A. (N. S.) 960. The court there said:

"But a belief that a debtor is insolvent is a very different thing from the belief referred to by the statute-'reasonable cause to believe that it was intended' by the payments to give a preference. It may often happen that one, though in fact insolvent, will continue his business and make payments in the usual way, without a thought of preferring one creditor to another, and with the hope and belief that he would finally be able to pay all. If these payments were made by the firm, without the thought of injuring other creditors, and in the belief that it would be able to pay them all, the defendant cannot be charged with reasonable cause to believe that a preference was intended. When a debtor pays, and a creditor receives, the amount of a just debt, the natural presumptions are in favor of the good faith of the transaction. To let the mere fact of the bankruptcy of the debtor within four months make the transaction involved voidable would be to create uncertainty and uneasiness as to the probable result of every settlement between debtor and creditor. Reasonable cause to believe that a preference was intended cannot be held to be proved by circumstances that would merely excite suspicion. And circumstances may seem suspicious after the bankruptcy occurs that would not appear unusual at the time

of their occurrence, and would then have presented no 'reasonable cause' on which to found a belief of intended preference. Merchants and other business men constantly continue to make payments up to the very eve of failure, and it would be disastrous to have them set aside on slight proof or mere suspicion."

[2] These decisions are controlling here. Counsel for appellant directs our attention to a large number of, what he terms, "badges of reasonable cause to believe," such as information contained in a financial statement; advice to the debtor to make no large payments to creditors; to make payments on a pro rata basis only; refusal to ship further goods; accepting return of merchandise; information that creditors were pressing; protested checks and trade acceptances; requirement that payments be made in cash or by cashier's check; extensions requested; failure to inspect books when the opportunity presented itself; and an intimate knowledge of the business affairs of the debtors. All these circumstances may, and doubtless do, indicate that the creditor was apprehensive as to its claim; but they do not necessarily prove that it had reasonable cause to believe that a preference was intended. Other testimony in the case throws some light on the general situation. The bankrupts had conducted a large and extensive business for some years prior to bankruptcy. So far as the record discloses, no question as to their financial standing arose until late in the year 1922 or early in 1923. They continued to conduct their business in the usual and ordinary course, up to the filing of the involuntary petition against them. During the four months' period, or between February 1 and June 6, 1923, they paid to creditors on open account, notes payable, and trade acceptances, the sum of approximately $168,000, and purchased merchandise, on credit, to the amount or value of approximately $111,000. Were creditors to whom these vast sums were paid all preferred, and were wholesalers selling merchandise on credit to a concern of known insolvency or even of questionable solvency? These questions suggest their own answer. It may be urged that the appellee had knowledge of facts not possessed by other creditors, but we are not convinced that such was the case. event, it cannot be said that a creditor receiving approximately 50 per cent. of its claim, in 26 different payments running over a period of four months, had reasonable

In any

cause to believe that a preference would result or was intended.

[3] Certainly the trial court was justified in finding to the contrary. But it is said that the finding on conflicting testimony by the referee who heard the parties and witnesses testify, observed their demeanor, saw their manner of testifying, and noted their general appearance and actions on the stand, should not be set aside by the reviewing judge who had none of these opportunities. No doubt, findings by a referee in bankruptcy are presumptively correct and will not be disturbed, unless they are clearly against the weight of the evidence, or some obvious error of law has intervened in its application. This rule, however, has little application to inferences to be drawn from admitted facts. In the present case, if every controverted question of fact was resolved in favor of the trustee, the question still remained, was a preference intended, and the court was fully as competent to determine that question as was the referee, and had the same opportunities. In Ohio Valley Bank Co. v. Mack, 163 F. 155, 89 C. C. A. 605, 24 L. R. A. (N. S.) 184, Judge Lurton said: "Much in both cases must depend upon the character of the finding. If it be a deduction from established fact, the finding would not carry any great weight, for the judge, having the same facts, may as well draw inferences or deduce a conclusion as the referee." So in Walter v. Atha (C. C. A.) 262 F. 75, it was held that while a finding of fact by a referee on conflicting evidence will not be disturbed, unless there is cogent evidence of mistake, yet, if the finding be a deduction from established facts or uncontradicted evidence, the judge is at liberty to draw his own inferences and deduce his own conclusions. See, also, Baumhauer v. Austin, 186 F. 260, 108 C. C. A. 306.

We find no error in the record, and the order of the court below is therefore affirmed.

OLIVER v. GARLICK. SAME v. KITCHENS et al. BANK OF SPARTA et al. v. OLIVER et al.

(Circuit Court of Appeals. Fifth Circuit.
October 11, 1924.)
Nos. 4269-4271.

1. Bankruptcy 461-Appeals held perfected within statutory time.

Where judge filed paper, styled an opinion, on September 28, but did not enter final

orders on review of rulings of referee in bankruptcy till December 15, held, appeals perfected

within statutory time after December 15 would not be dismissed.

2. Bills and notes 337-One acquiring mercantile paper before maturity for value acquires good title, notwithstanding knowledge of facts causing suspicion of transferor's rights.

One acquiring mercantile paper for value before maturity from one apparently the owner obtains good title, though he may know facts causing him to suspect transferor had no interest in or authority to use it for his own benefit, and though by ordinary diligence he could have ascertained those facts.

3. Bills and notes 362-Purchasers of notes

held to acquire good title, notwithstanding seller's knowledge of facts adversely affect ing such title.

Purchasers of notes from bank for value before maturity held to acquire goood title thereto, though bank knew that its transferors had acquired notes without paying value for

them.

4. Payment 39 (6)-Proceeds of insurance on property covered by trust deed securing notes held improperly applied by bank on indebtedness other than notes.

Where proceeds of insurance on property were paid to trustee named in trust deed seeuring notes, and by him turned over to a bank holding part of such notes, held such proceeds should be applied on notes, and not on other unsecured indebtedness.

Appeals from the District Court of the United States for the Southern District of Georgia; Samuel H. Sibley, Judge.

In the matter of the bankruptcy of the Tennille Yarn Mills. From a judgment allowing claims of Carrol Garlick, as executor of the estate of G. H. Williams, deceased, and C. W. Kitchens and W. C. McCarver, administrators of the estate of I. J. Gay, and denying a claim of the Bank of Sparta and T. R. Bennett, Superintendent of Banks of Georgia, W. B. Oliver, trustee in bankruptcy, and the last-named claimant appeal. Judgments affirmed.

James M. Hull, Jr., of Augusta, Ga. (Hull, Barrett & Willingham, of Augusta, Ga., on the brief), for Oliver and others. E. H. Callaway, of Augusta, Ga., and John A. Sibley, of Atlanta, Ga. (Callaway & Howard, of Augusta, Ga., on the brief), for Garlick, Kitchens, and McCarver.

John A. Sibley, of Atlanta, Ga., and Jos. E. Pottle, of Milledgeville, Ga. (Allen & Pottle, of Milledgeville, Ga., and Spalding, MacDougald & Sibley, of Atlanta, Ga., on the brief), for Bennett and Bank of Sparta. Before WALKER, BRYAN, and KING, Circuit Judges.

KING, Circuit Judge. These were three claims in the matter of Tennille Yarn Mills, bankrupt, presented as secured debts, all of which were disallowed by the referee. On

objection, the District Judge reversed the ruling of the referee as to the claims of G. H. Williams and I. J. Gay. A paper, subsequently styled by the judge an opinion, so holding, was filed on the 28th of September, 1923. On the 15th day of December, final orders were entered in each of said claims, reversing the referee as to the claims of Williams and Gay, and affirming him as to the claim of the Bank of Sparta.

[1] A motion was made in this court to dismiss the Williams and Gay appeals, as not taken within the time prescribed by the statute from the 28th of September. As the judge treated said writing of September 28th as an opinion, granted subsequently final judgments which are appealed from in this matter, and as we are affirming said judgments, we accept the judge's construction of said writing of September 28th, and treat the appeals as properly taken from the final judgments of December 15th, and the motion to dismiss the appeals in the Williams and Gay cases is overruled.

The claims propounded in said Williams and Gay cases are based on bonds of the Tennille Yarn Mills, which were purchased by them, respectively, from the Jefferson County Bank and the Bank of Gough. It appears that said banks obtained said papers from one Robert Holmes, who was president of the Tennille Yarn Mills, in exchange for certain individual notes of Holmes and others, which they held and to which the state banking officials were making exceptions, and that said banks knew that said Holmes had obtained said notes of said Yarn Mills without paying for the same. It further appears that said Williams and Gay, respectively, purchased said notes for full value from said respective banks, and while it appears from the evidence that Williams and Gay knew that the banks had received said paper in exchange for said Holmes' and others' notes, it does not appear that they knew that Holmes had taken said papers from said Yarn Mills without paying for the same. The notes of the Yarn Mills which these parties took were a series of $75,000 of notes of $1,000 each, payable to bearer, secured by a mortgage or deed of trust upon its property made to Walker and one B. Ohlman, as trustee. Gay were president and vice president, respectively, of the banks, but it does not appear that they were active in the management thereof.

[2] It has been decided by this court that "it has been settled in the courts of the

United States since the leading case of Goodman v. Simonds, 20 How. 343, that one who acquires mercantile paper before maturity from another, who is apparently the owner, giving a consideration for it, obtains a good title, though he may know facts and circumstances that would cause him to suspect, or would cause one of ordinary prudence to suspect, that the person from whom he obtained it had no interest in or authority to use it for his own benefit, and though by ordinary diligence he could have ascertained those facts. Swift v. Smith, 102 U. S. 442; King v. Doane, 139 U. S. 166, 11 Sup. Ct. Rep. 465." Bank of Edgefield v. Farmers' Co-operative Mfg. Co., 52 Fed. 98, 103, 2 C. C. A. 637, 646.

In the present case it was uncontradicted that both Williams and Gay paid full value for the notes of the Yarn Mills purchased by them. W. C. Marion, who as its cashier represented the Jefferson County Bank and acquired these notes for the Jefferson County Bank, testified: "To the best of my recollection I didn't tell Capt. Williams that Holmes and his associates had not paid for them. He and his lawyer at Louisville went over the bonds and security deed, a certified copy, and were satisfied that they were in the proper shape."

C. W. Kitchens, its cashier, who secured these Yarn Mills notes for the Bank of Gough, and who sold them to Gay, testified: "I supposed that the notes belong to Mr. Hollis, Mr. Holmes, and his associates. Mr. Gay knew none of

the facts or circumstances at all."

[3] The Supreme Court of the United States has held: "That fact [payment of the full value thereof] being established, he will be entitled to recover, unless it is proved that he purchased with actual notice of defect in title, or in bad faith, implying guilty knowledge or willful ignorance." King v. Doane, 139 U. S. 166, 173, 11 S. Ct. 465, 467 (35 L. Ed. 84). This not being shown in this case, we think the title of Williams and Gay to these Yarn Mills notes is established.

[4] As to the claim of the Bank of Sparta, the deed of trust securing these notes contained a clause making the insurance thereon payable, in the case of loss, as interest should appear, to the trustee, Ohlman. A fire occurred by which the mortgaged property was damaged. Ohlman, as trustee, collected a sum of insurance in excess of $20,000, and the check therefor,

which was payable to him as trustee, was procured by Holmes, the president of said bank, to be indorsed by Ohlman, trustee, and delivered to the Bank of Sparta. The bank applied the sum in payment of debts other than the mortgage notes which it held. The referee and the court below held that the bank had no such right, and that the same should have been applied by it, and would be in this contest applied, to the payment of said Yarn Mills notes which were thus paid. We think that this ruling was correct, and we therefore affirm the judgment of the court below, holding that the Bank of Sparta is not entitled to recover on this claim. The court below treated this application of this sum to these Yarn Mills notes as reviving the debt of the bank, paid by the application of the sum of money now applied to the notes, and ruled that the bank is entitled to an unsecured claim for the amount of said revived debt. This, we think, accorded to the bank the full measure of its rights.

Judgment in said three cases affirmed.

PROSSER v. CHAPMAN.

In re PROSSER'S ESTATE. (Circuit Court of Appeals, Fourth Circuit. October 21, 1924.)

No. 2235.

1. Fraudulent conveyances 95(10)-Conveyance by insolvent husband to wife held fraudulent as to creditors.

A verbal promise by a husband to convey property to his wife in consideration of her release of her dower right in other property sold by him held not a good consideration for such conveyance made some years later and after the husband had contracted debts which were unpaid and had become insolvent.

2. Appeal and error 694(1)-Findings of fact by master concurred in by trial court held not reviewable where evidence is not in the record.

Where a District Court on review of the evidence taken before a special master has concurred in a finding of fact by the master, such finding is not reviewable by the appellate court, where the evidence is not brought up in the record.

3. Bankruptcy 303(1)-Conveyance of property by bankrupt to wife while insolvent held presumptively fraudulent.

A transaction between bankrupt when notoriously insolvent, and his wife, under which the wife claims ownership and possession of property as against the trustee of the husband's estate in bankruptcy, is presumptively fraudulent, and at least calls upon the wife to maintain her legal right to the property by the plainest proof.