On this question of fact presented by this question I think the proof is with the defendant, and I find such written guaranty was given and surrendered at the time stated. The legal effect, if any, will be considered later.

The Ruddy & Saunders Construction Company, now the bankrupt, was organized about October 20, 1910, and existed under and pursuant to the laws of the state of New York, and had its principal place of business at Troy, Rensselaer county, N. Y., but carried on and did business in other places, in the construction and repair of state roads mainly, if not wholly, and it purchased machinery, tools, and implements for carrying on such work. Mr. Powers, the defendant, was and is an attorney at law, residing at Troy aforesaid, and he acted as attorney for the said company in regard to its organization and its suits, but claims he had nothing to do with the control or management of its financial affairs, and was not acquainted with its financial management or condition, and had little, if any, substantial information or knowledge regarding same. He insists that he did not know of its financial condition, or that it was seriously involved financially, before or at the time he received the payments above stated and referred to, and claims he had no reasonable cause to believe it was insolvent, or that the receipt and retention of such payments by him, or any of them, would result in his receiving a greater percentage of his debt or debts and claim or claims than other creditors of the said company of the same class would receive. The defendant claims he was sick when the payments, or the main ones, were made, and that he had not had occasion to inquire into the financial affairs or condition of the company, and that nothing had occurred to put him on inquiry.

The plaintiff, on the other hand, insists that the evidence discloses such a state of facts as must have brought home to his knowledge the financial condition of this company, or, at least, must have put him, as a reasonable man, of not only ordinary intelligence, but of much more than ordinary intelligence, and one of legal learning, on inquiry, and that he was and is chargeable with the information he actually had, and such as he might and would have obtained, had he made inquiry. The plaintiff claims that Mr. Powers had to do with and took an active part in the organization of this company, and knew its only capital was limited to $10,000; that at the dates mentioned he was called upon by it to loan it money to carry on its business, and that such requests for loans were frequent between June 1, 1915, and January 26, 1916, three of them being in January, 1916, and amounting to $4,761, and when that made June 1, 1915, of $8,610 had not been paid; that Mr. Powers also knew the fact that the company had no credit with the banks, and had been denied loans by the banks in Troy and Albany; that Mr. Powers knew that one or more of these loans made by him was sought and made to enable the company to meet its pay roll; that in at least one instance the company was sued, and Mr. Powers had to do with the settlement of the suit; that the defendant, Mr. Powers, had such knowledge of the financial condition of the company that he refused to make to it the loans of money re

quested without the personal obligation and security of the father of some of those composing the company and with whom he was on terms of friendly intimacy; that in the winter and spring of 1916 Mr. Powers several times requested, and even demanded, payment of the moneys due him; that his account for legal services alone had then run up to some $5,000; that Mr. Powers knew, when he was demanding payment, that the company had not theretofore been able to pay either the notes or account for services, and that the payment of such large sums of money in such quick succession must put a heavy financial burden and drain on the corporation, and that his insistence showed a distrust of and lack of confidence in its financial ability, soundness, and responsibility; that a little inquiry would have disclosed the entire situation, and would have shown what was the fact, that to make these payments and others which were made the company was selling substantially all of its disposable property, machinery, tools, claims, and accounts, including the money which had been reserved by the state as security for the soundness of work done for it, and was in fact disabling itself from doing further business, and that in this way it had reduced its only remaining assets to about $5,000, and left over $30,000 of its indebtedness unpaid and unprovided for.

The evidence shows, and I must find, that this company did dispose of its property as stated, and did pay certain of its creditors, not including Mr. Powers, to the amount of over $20,000, to the exclusion. of others, and that at the time of its bankruptcy its only property remaining did not exceed $5,000 in value, and that its then remaining unpaid and unsecured indebtedness was in excess of $30,000. That the corporation was insolvent, and knew it was insolvent, within the meaning and intent of section 66 of the Stock Corporation Law of the state of New York (Consol. Laws, c. 59), and within the meaning and intent of the national bankruptcy Act, is fully established by the evidence and beyond controversy. It is also fully shown that the officers of this company intended, when the payments to Mr. Powers and others were made, and when it so disposed of its property and turned the same into money, to pay certain of its creditors in full to the exclusion of other of its creditors of the same class. This intent was carried out. The officers are presumed to have intended the natural and well-known consequences of their own acts, knowingly done.

[1] Reasonable cause to believe is not a mere suspicion or surmise, but knowledge at the time of facts of a nature or character calculated to induce a belief in the mind of an ordinarily intelligent and prudent man that the payments made would work and effect a preference; that is, facts calculated to induce a belief that the person or corporation making them was insolvent within the meaning of the law, owing debts he or it was unable to pay in full, and that he, the person securing the payments or payment made, was getting his pay in full (in this case) when others of the same class would only receive a part of their just claims. A person has reasonable cause to believe when such a state of facts is brought to his notice and attention respecting the affairs and pecuniary condition of his debtor as would lead a prudent business man of intelligence to the conclusion

that the debtor was then insolvent, and that the payment then made to him (such creditor) would, if retained, operate to give him a greater percentage of his debt than other creditors of the same class would receive.

[2] If a person or a corporation is actually insolvent (within the meaning of the law) when a payment or payments are made to one or more creditors to the exclusion of others, and the means of knowledge of such insolvency are at hand and ascertainable on reasonable inquiry, and such facts and circumstances were known to the creditor receiving the payinent as clearly ought to have put a prudent business man of intelligence on inquiry, he is charged with reasonable cause to believe if it also appears that he might, by reasonable activity and inquiry in informing himself, have ascertained the fact that the receipt and retention of such payment would operate to give him a greater percentage of his claim than other creditors of such debtor of the same class would receive. There must be either actual knowledge, or knowledge of such facts and circumstances as would put a reasonable man of ordinary intelligence on inquiry under circumstances where, if he did inquire, he might and probably would obtain the necessary knowledge. The above statements as to the law are sustained by the following cases, and others: Grant v. National Bank, 97 U. S. 81, 24 L. Ed. 971 (under act of 1867); Nichols et al. v. Farmers', etc., 225 Fed. 689, 140 C. C. A. 563; Brookheim v. Greenbaum (D. C.) 225 Fed. 635, affirmed 225 Fed. 763, 141 C. C. A. 89 (C. C. A. 2d Circuit); Rosenman v. Coppard, 228 Fed. 114, 142 C. C. A. 520 (C. C. A. 5th Circuit, citing Grant v. National Bank, supra); Aronin v. Security Bank of N. Y., 228 Fed. 888, 143 C. C. A. 286; In re States Printing Co., 238 Fed. 775, 151 C. C. A. 625; In re Gaylord (D. C.) 225 Fed. 234.

He

We are led to inquire, therefore, in determining whether or not Mr. Powers had reasonable cause to believe that the corporation was insolvent, and that the receipt by him of the moneys paid on the notes and account for services and the retention thereof would operate to give him a greater percentage of his claim or claims than other creditors of the company of the same class would receive, just what knowledge the evidence shows he did have and what the circumstances and surroundings known to him were. He drew the incorporation papers of the Ruddy & Saunders Construction Company, and knew the amount of its capital stock paid in, and that it was $10,000 only. knew the business in which the company was engaged, and that the purchase of machinery, tools, etc., was necessary to carry on that business. He was friendly with the De Lees, who were interested therein, and had done business for at least one of them, the father. He knew that the company had trouble at the bank where it was doing or had done business, and could not obtain credit there, as it desired at least, and that it came to him for loans of money aggregating at least $13,000, and which loans were made at different times and in various sums, and that they were not paid when due, and that some of the later loans were made after a demand for payment of prior loans, which request for payment had not been complied with.

1

He knew there were eight or ten banks in the city of Troy alone. The defendant says the first loan he made to this construction company was July 31, 1914, for $4,000, and says of his talk with De Lee when the loan was made:

"I think he said something about having some trouble with the bank; that is the reason he wanted to borrow it. I haven't any distinct recollection. He had asked for some loans, I think it was, and they had refused to loan him to the extent he wanted."

This was, of course, notice that this company could not get a loan of $4,000 at the bank where it had done business. Mr. Powers made no inquiry at this time into the financial condition or situation of the company, but did exact a paper from the father pledging his individual credit for not only that loan, but any subsequent loans he might make the company, and says that De Lee, the father, stated that

"He had some trouble with the bank, and he said he had to raise money to carry on his business, and they got money from time to time from the state, and he would pay off this indebtedness just as he had been in the habit of paying them off at the bank."

For that loan, made July 31, 1914, Mr. Powers took the note of the company, also the separate guaranty signed by the father. Mr. Powers says he supposed the company was getting estimates from the state from time to time. May 12, 1915, Mr. Powers loaned this company $2,500 more, and June 12, 1915, $3,000 more, making a total of $8,500. Mr. Powers says that, instead of paying him as the company received estimates from the state, it borrowed this additional money, and that when he made the loans he made no inquiry as to the assets or affairs of the company. Mr. Powers further says that in January, 1916, he asked Mr. P. E. De Lee for payment, and that at that time. the company was owing him the $8,610 note and nearly $5,000 for services; the last charge for services to make up the $5,000 having been made January 13, 1916. Mr. Powers says De Lee said they would pay him soon, but that he made no further inquiries. A few days later the company borrowed $2,000 more, and he made no inquiries. Within four days thereafter Mr. Powers loaned the company $1,000 more, and he made no inquiries. Then January 24, 1916, he loaned the company $800 more, the prior loans not having been paid, and he made no inquiries. Then February 1, 1916, Mr. Powers loaned the company $1,000 more, and made no inquiries. Mr. Powers says on one of these occasions De Lee said he wanted the money for pay rolls for the men, but he did not ask what he wanted it for on other occasions. The payments on notes between February 8, 1916, and February 29, 1916, aggregated $13,824.15, and those on legal services were made March 1, 1916, $4,000, and March 2, 1916, $1,000. Mr. Powers says he was confined to his room when the payments were made as does his stenographer, and that she indorsed the checks and deposited them to the credit of Mr. Powers. Mr. Powers says he was informed of the payments the same day when made, or the next day, and hence he had no talk or communication with the one making the payments.

There is nothing to contradict this testimony, and hence there is no evidence of knowledge gained by Mr. Powers at the time the payments were made. On this branch of the case his knowledge must be found from what had transpired before that time. In addition to what has been stated, it appears that Mr. Powers, during all this time from the organization of the company,, had been its attorney in all its litigated suits, and had paid and settled one suit on a claim on a money demand against it. It is insisted by the plaintiff that these friendly relations between the parties, coupled with the relation of attorney and client, the loans of money as stated under the circumstances stated and for the purpose named, so far as appears, and the fact that this indebtedness had increased or run up to $18,000 without payment of any part, and the further fact that the company had been sued on at least one money demand, show that Mr. Powers, as an intelligent man and attorney, was put on inquiry-was put in possession of knowledge of facts and circumstances which called upon him to make inquiry and which indicated financial embarrassments.

It seems improbable and almost incredible that Mr. Powers, considering the friendly relations, the close relations of attorney and client, and frequent requests for loans without any payment, would make these large and frequent loans of money, and not inquire or be consulted about or in reference to the business or financial condition of the company. With such relations existing, it would seem not only natural, but probable, that the officers of the construction company would consult as to its financial and business relations and conditions with Mr. Powers, its general attorney in all litigated suits, and who was intimate and friendly with some of the members of the company. On the other hand, it may be argued that under such circumstances the officers of the company would be desirous to conceal the actual conditions from Mr. Powers, and would do that, and that Mr. Powers, relying on the written guaranty of P. E. De Lee, would feel perfectly safe, and not deem himself called upon to make any inquiries whatever, or under any necessity for doing so.

[3] We come to another question in this case, and one which to me seems decisive under the proven facts, and which stand substantially uncontradicted.

The indebtedness of the Ruddy & Saunders Construction Company was in excess of $70,000 at the time these notes and the account for legal services due to Mr. Powers were paid. Its total assets of every name and nature, kind, and description did not exceed $40,000 or $45,000 in value. The company was insolvent in fact; that is, its property and assets of all kinds was insufficient by more than $25,000 at any fair valuation to pay its indebtedness, and it had been doing business at a loss. It was owing thousands of dollars on notes and other demands past due, which it was unable to pay. Some, if not all, of the notes due Powers were past due, and demand of payment had been made, and payment had not been made, although promised. To do and continue business it was necessary for this company to have machinery and tools-we may say, suitable equipment. The company, by its officers, knew all these facts. With this condition of