On these facts the complainants claim that the entry of Isatisfaction of the said mortgage was without authority of law and in violation of their rights as owners and pledgors of the said stock; second, that as said stock was pledged by said complainants as a further and additional security for the payment of the said $4,000 debt, the primary security for which was the mortgage aforesaid, it was the duty of said corporation to exhaust its remedy on said mortgage before resorting to the application of the said stock to the payment of said debt; third, that, upon the application of the said stock to the payment of the said $4,000 debt, the complainants were entitled to receive from the said corporation an assignment and transfer of the said bond and mortgage, and to be subrogated to all the said corporation's rights and interests in the same; fourth, that upon the state of the said mortgaged premises the complainants were entitled to receive from the fund in the hands of the assignee the said $4,000, with the interest on the same from the said nineteenth of July, 1876, less such payments as may have been made by said assignee for monthly dues on the said stock.

On the other hand, the defendant, the assignee of the bankrupt, claims-First, that there was no valid or legal sale of the said stock by said bankrupt to the complainants, because, by the terms of the transfer, all monthly dues paid in up to that time were only payments on account of the principal of the said mortgage, and that therefore the complainants did not acquire any right or title, either in law or equity, to the said 20 shares of stock, or any part thereof; and, further, that upon the said corporation applying the said stock to the payment of the principal of the said mortgage all sums due thereon became, and were, paid in full, extinguished, and discharged, and it became the duty of the said corporation to enter satisfaction on the record of the said mortgage, and to deliver up said bond and mortgage to the assignee.

The defendant further claims that the complainants, by reason of the terms of the said assignment and transfer of the said stock, are estopped from denying that the said stock

was not properly so appropriated; or that the said debt on bond and mortgage is not paid, extinguished, and discharged; or that said entry of satisfaction should be decreed to be void; or that said bond and mortgage should be assigned and delivered up to them; or that said mortgage should be decreed to be a lien upon said purchase money; or that any sum should be paid to them by this defendant by reason of any allegations in the bill contained.

The defendant further claims that on the first of August, 1873, the bankrupt, being insolvent, or in contemplation of insolvency, within four months before the filing of a petition in bankruptcy against him, with a view of giving a preference to the said complainants, did make an assignment of the said 20 shares of stock to them,-they, the said complainants receiving the said assignment, then having reasonable cause to believe the said Graves was then insolvent,-and that such assignment was made in fraud of the provisions of the bankrupt act, and that by reason thereof the said sale of stock was and is void; and, further, such alleged sale was not made in the usual and ordinary course of business of the said debtor, Thomas J. Graves; and also alleging that the complainants, having reasonable cause to believe the said bankrupt to be insolvent, or to be in contemplation of insolvency, by reason of the accceptance of the assignment as aforesaid, hindered and impeded the operation of the said bankrupt acts. This is substantially the defence of the assignee of the bankrupt.

The Aid Loan has put in an answer admitting the sale and facts as stated by the complainants, but denying that they ever acquired any right, title, or interest, in law or equity, in the said stock by reason of the transfer of Graves, the bankrupt, to them. The Aid Loan has no pecuniary interest in this suit; its mortgage is paid and satisfied; it has no claim on the shares of stock aforesaid whatever, and the case. will be considered on bill of complainants, the answer of assignee, and testimony taken in the cause. It is proper to observe that this Aid Loan stock, the subject of the present

controversy, has a marketable value, and is as much the subject of purchase and sale as any other stock, and its ownership carries with it all the rights or obligations which attach to it by virtue of the rules and regulations of the said loan association, and there is no rule of law to make its purchase and sale an exception from that of any other stock.

Throwing aside, for the present, all questions which may arise under the bankrupt law, we think the sale of these 20 shares by the bankrupt to the complainants was valid, and gave them all the rights appertaining to such stock, after the payment of all fines and dues, as was consistent with the terms of the transfer to the incorporation as a collateral security for the payment of a debt. This court cannot admit the correctness of the position assumed by the defendant's solicitor, that no interest in this stock passed by the transfer to the complainants, on the ground that monthly dues were, by the terms of the collateral assignment, to be appropriated to the payment of the mortgage; for, had the corporation exercised the option of proceeding against the mortgaged premises, the primary security for the payment of its debt, -and thereby released the stock, to whom could it be said that the stock belonged? Manifestly, to the party pledging it, and who had brought it to its maturity by the payment of its monthly dues, and not to a third party who had contributed no value toward its purchase. If the defendant's position be true, the Aid Loan, in such case, would be appropriating the money of a stranger to the payment of its own debt, without affording him the opportunity of recovering the money advanced by him for its benefit. The Aid Loan had the right to elect to proceed against either security for the payment of the sum of $4,000 secured by the bond and mortgage; and there was nothing in the terms of the pledge of the said stock as collateral security which impaired that right. Having chosen to rely on the fund pledged as collateral security, i. e., the stock, and having appropriated the same to that purpose, it became their duty to turn over to the owner of the stock the primary security, i. e., the mortgage, in order that

the security might avail himself of a remedy well settled in courts of equity of being subrogated to the rights of the principal creditor. In the judgment of this court the Aid Loan, without warrant of law, permitted this mortgage to be satisfied. But as this money arising from the appropriation of the shares of stock went to relieve the estate of the bankrupt from so much indebtedness, and the said real estate was afterwards sold by the order of this court, and the proceeds of the said sale are in the hands of the assignee, it is but just and equitable that this fund should be made answerable for the amount of indebtedness due the owners of these shares of stock, and involuntarily contributed to them to the benefit of the estate. So there is no difficulty in disposing of this case as far as regards the ownership of these shares of stock, and the rights of the parties in relation to them.

But the more serious questions for the consideration of the court are-First, is this purchase void in toto by reason of its infringement of the provisions of the bankrupt laws of the United States in force at the time of this contract; and, second, if not void in toto, how far void? This transfer of stock was made on the first day of August, 1873, and its validity or invalidity must be determined by the laws of the United States in force at that time. There is nothing in the enactment of June 22, 1874, to require any other construction of the bankrupt law of March, 1867, than that already given by the courts, and we must look to those decisions as to its real meaning, rather than to speculations as to what ought or ought not to be the degree of liberality with which a creditor's and debtor's conduct should be treated by the courts. court thinks that the law of March 2, 1867, governs this case. Sections 5128, 5129, U. S. Rev. St. The inquiry, therefore, will be as to "reasonable cause to believe," (the words used in the act of 1867,) and not as to the actual knowledge, "that a fraud in the act was intended," as required by the amendment of June 22, 1874.

This

The leading case on this point is that of Toof v. Martin, 13 Wall. 40. This case gives a construction to the act of 1867

regarding "a reasonable cause to believe," and contains the following language: "The statute, to defeat the conveyances, does not require that the creditors should have had absolute knowledge on the point. It only requires that they should have had reasonable cause to believe that such was the fact, and reasonable cause they must be considered to have had, when such a state of facts was brought to their notice in respect to the affairs and pecuniary condition of the bankrupts, as would have led prudent business men to the conclusion that they could not meet their obligations as they matured in the ordinary course of business.' This case was followed by Buchanan v. Smith, 16 Wall. 308, and by Dutcher v. Wright, 94 U. S. 557, both supreme court cases, in which the same reasoning is followed in quite as strong language. In both of these cases, and in others, viz., Merchants' Nat. Bank of Cincinnati v. Cook, 95 U. S. 346, and Wager v. IIall, 16 Wall. 601, the supreme court have decided that inability to pay debts as they matured, in the ordinary course of business or daily transactions, constituted insolvency in the sense of the bankrupt act.

There are other decisions on the proper construction of the act of June 22, 1874, amending the bankrupt act, which, in the judgment of this court, do not govern this case, as the transactions show the subject of inquiry, as already intimated, occurred before the passage of that act. The amendment in question added to the words "reasonable cause to believe that the debtor was insolvent, and that such conveyance, etc., is made in fraud of the provisions of the said act," the following, viz., "and knew that a fraud in this act was intended." So that the evidence of knowledge, actual or constructive, was the subject of inquiry by the courts, instead of "reasonable cause to believe."

The case of Grant v. First Nat. Bank of Monmouth, 97 U. S. 80, has been cited by the complainants and commented upon at length. The main point of this decision is that "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