the amount of Armstrong's debts secured by mortgages was $147,500. This statement was in fact incorrect, and, if Thomas had investigated the value of the property, had examined the records of the mortgages upon the lands, and had inquired of the creditors named in the statement, he would have discovered that Armstrong was insolvent. He made no investigation or inquiry of any one but Armstrong. testified that at this time his general understanding was that Armstrong owned a great deal of property and was heavily in debt with a good substantial margin, and Wattles testified that he understood. and believed that Armstrong had a very large excess of assets over his liabilities, and that he was perfectly good for all he owed. Armstrong had substantially the same property, and owed substantially the same debts on June 13, 1904, that he had and owed on July 14, 1904, when he verified his schedules in bankruptcy, and, according to these schedules he owed about $290,000, and his property was worth only about $190,000. Upon this evidence the referee found that the bank and its officers "were in possession of such facts as would have put a reasonably prudent man upon inquiry which, if made, would have shown that the bankrupt was insolvent," and the court below reversed that finding, and concluded that Armstrong did not intend to give the bank a preference, and that neither the bank nor any of its officers had reasonable cause to believe that it was intended to give a preference by means of the mortgages.

The finding of the court upon this question of fact is presumptively correct, and it should be sustained unless some obvious error of law or serious mistake of fact intervened in the consideration of the case. The fact that the referee who saw and heard the witnesses and who enjoyed the best opportunity to judge of the credibility of their testimony came to a different conclusion detracts much, however, from the strength of this presumption. As Armstrong was insolvent when he gave the mortgages, their necessary effect was to enable one of his creditors to obtain a greater percentage of its debt than others of the same class, and they therefore created a preference under section 60a.

Nearly all of the property of this debtor was real estate. According to his statement made on June 13, 1904, he owed $195,400, and had real estate with a very limited amount of personal property estimated at only $254,740 with which to pay it. It is common knowledge that lands and other real estate are converted into money and ` applied to the payment of debts by those who owe 75 per cent. of their estimated value with much difficulty, and the nature of this property, the large amount of the indebtedness in proportion to the estimated value of the real estate, and the known difficulty of converting such property into money to pay debts, were obvious danger signals, which would not have failed to incite a creditor of ordinary prudence to searchingly investigate the solvency of the debtor.

Notice of facts which would incite a man of ordinary prudence to an inquiry under similar circumstances is notice of all the facts which a reasonably diligent inquiry would disclose. The bank knew that Armstrong had stated that he owed only $36,000 in December, 1903,

that he had given a mortgage to Arts for $98,503.32 in May, 1904, and that he had stated on June 13, 1904, that he owed $147,500 secured by mortgages upon his lands and $47,900 that was unsecured. According to these two statements which he had given to the bank, his indebtedness had increased $159,400 between December 24, 1903, and June 13, 1904, and his assets less than $9,000. Two such statements would inevitably incite the ordinary creditor to inquire what had become of the $150,000 which the increased indebtedness indicated that the debtor had received and had not added to his property during these six months, and such an inquest would have developed the fact at once that Armstrong's statements were not true.

He had given a mortgage of $98,503.32 to Arts, and he had informed the bank that he owed Arts only $60,000 to $70,000. The alleged fact that a debtor had given a mortgage to one of his creditors for about $30,000 more than he owed him would have stimulated a creditor of reasonable prudence to an investigation of the actual amount of this debt, and a very simple inquiry addressed to the creditor would have developed the fact that Armstrong had not told the truth here. His statement of December 24, 1903, his mortgage to Arts, and his statement of June 13, 1904, demonstrated the fact that he had not truthfully set forth his indebtedness, and constituted full notice to this bank that his indebtedness was more than he had declared it to be. In the face of this knowledge, it took these mortgages which, in the aggregate, covered substantially all the unexempt property the debtor owned except a few hogs and horses. The real estate was already mortgaged according to Armstrong's second statement for $147,500, and it took mortgages upon this land and a chattel mortgage upon his tools, machinery, and crops. The inevitable effect of these incumbrances was to deprive the unsecured creditors of every means of collecting their debts; for these mortgages withdrew from attachment and execution substantially all the debtor's unexempt property. The legal presumption is that parties intend the inevitable effect of their acts, and, in view of all these facts, the conclusion is irresistibly borne in upon our minds that the court below committed a serious mistake of fact in the examination of this case, and that the bank on July 13, 1904, when it took these mortgages, had reasonable cause to believe that it was intended thereby to give it a preference over other creditors of the same class.

The decree below must accordingly be reversed, and the case must be remanded to the court below for further proceedings not inconsistent with the views expressed in this opinion; and it is so ordered.

FIDELITY & DEPOSIT CO. v. AGNEW.

(Circuit Court of Appeals, Third Circuit. April 10, 1907.)

No. 31, March Term, 1906.

1. PRINCIPAL AND SURETY-WORKING CONTRACT-PAYMENTS ON ARCHITECT'S ESTIMATES-DISCHARGE OF SURETY.

The provision in a building or working contract that the contractor or builder shall be paid as the work progresses according to the amount of materials furnished or work performed, upon estimates to be made by the supervising architect or engineer, whether a percentage is to be retained therefrom until the whole is done or not, redounds to the benefit of a surety or guarantor of the party who is to fulfill the contract; and, upon payment being made in disregard of it, there is such a departure from the contract upon which the undertaking of the surety or guarantor is based that he is released.

[Ed. Note. For cases in point, see Cent. Dig. vol. 40, Principal and Surety, §§ 283-285.

2. SAME ESTIMATES OF ARCHITECT-APPROVAL OF INVOICES.

Where, under an agreement to furnish material for the construction of a building, to be paid for in monthly installments, upon estimates made by the architect in charge of the work of the material on the ground de livered during the preceding month, of which 10 per cent. was to be retained until 30 days after all the material had been delivered and accepted, and satisfactory proof made that there were no liens, the only evidence as to such estimates was that the supervising architect approved the invoices on which the material was billed from the quarry, after going over them at the end of each month with the contractor of the building, or his representative, in a suit against the surety on the bond given to the contractor by the materialmen for the performance of their agreement, held, that the defendant was entitled to a verdict.

3. CONTRACTS--ESTIMATES BY ARCHITECT-REQUISITES OF.

Under such an agreement, the estimates to be made by the architect there provided for necessarily involved, not only an approximate judgment upon inspection by the architect or his representative of the quantity and value of the material delivered, having regard to its character as to which there may be a difference, but the relative value of it to the total quantity which had been contracted for.

4. PRINCIPAL AND SURETY-INEFFICIENCY OR MISTAKES OR ARCHITECT FAILURE TO ACT KNOWLEDGE OF-INFORMAL CERTIFICATES.

No doubt in such a case the builder to whom the material is to be furnished is not chargeable with the inefficiency or mistakes of the architect, provided an attempt at an estimate is really made; and, in the absence of notice to the contrary, an approval of the invoices may be sufficient for him to act upon, without a formal certificate, nothing being said about that in the agreement. But not only may the deficiencies be so gross as to put him on inquiry, but where to his certain knowledge the only basis for the architect's approval is the invoices on which the material was shipped and the representations made at the time by the builder himself or his representative, being thus fully advised as to how such approvals are obtained, they are only available to him for what they stand.

5. SAME-ADVANCE PAYMENTS-LOANS ON ACCOUNT OF MATERIAL TO BE DE

LIVERED.

Where, early in the performance of an agreement of the character specified, and when but little material had been delivered, the materialmen, needing money, applied to the builder for an advance, to be paid back by the shipment of material, and, the builder not being able to accommodate them himself, it was arranged that they should execute a note, which he indorsed and had discounted at the bank where he did business, the materialmen receiving the proceeds, and the understanding being that it

should be met by the shipment of material, no payment thereafter being made to the materialmen, but the value of the material shipped by them being accounted for to the bank by the builder and there credited, and the first loan which was paid being succeeded by others from time to time, all of which were finally met in this way, held, that the transaction could not be treated as merely an accommodation loan, to which the builder lent the security of his name, but that it constituted an advance of money upon the agreement, to be repaid by a delivery of material; the materialmen as the result having put into their hands a large sum in advance and anticipation of deliveries, in disregard of the agreement, depriving the surety of the protection and incentive of restricted payments to its prejudice, thereby releasing it from its undertaking.

6. SAME-AGREEMENT TO INDEMNIFY AND SAVE HARMLESS.

While, in a bond for the fulfillment by materialmen of an agreement to furnish certain material to one who was constructing a building, a provision to indemnify and save harmless from all damages in the premises may impose something more than the mere obligation to see to the fulfillment of the agreement so far as concerns the delivery of material, the obligation is none the less one of suretyship, imposing the reciprocal duty on the other party to not depart from it to the surety's detriment. In Error to the Circuit Court of the United States for the District of New Jersey.

Norman Grey and John G. Johnson, for plaintiff in error. John Harding, of Griggs & Harding, for defendant in error. Before DALLAS and GRAY, Circuit Judges, and ARCHBALD, District Judge.

ARCHBALD, District Judge. The provision in a building or working contract that the contractor or builder shall be paid as the work progresses according to the amount of materials furnished or work performed, upon estimates to be made by the supervising architect or engineer, whether a percentage is to be retained therefrom, until the whole is done or not, redounds to the benefit of a surety or guarantor of the party who is to fulfill the contract; and, upon payment being made in disregard of it, there is such a departure from the contract upon which the undertaking of the surety or guarantor is based that he is released. The purpose of such a stipulation is to guard against the consequences of a default, in case the principal contract proves a losing one, or the contracting party for any reason fails to comply, the percentage retained, where that is provided for, affording additional security, as well as holding out an incentive; and when it is not observed, and advance or overpayments are made, it is so obviously to the prejudice of the surety that it operates as a discharge as matter of law. Steam Navigation Co. v. Bolt, 6 Com. Bench N. S. 550; Calvert v. London Dock Co., 2 Keen, 639; Prairie State Bank v. U. S., 164 U. S. 227, 17 Sup. Ct. 142, 41 L. Ed. 412; Shelton v. American Surety Co. (C. C.) 127 Fed. 736, affirmed 131 Fed. 210, 66 C. C. A. 94; Welch v. Hubschmitt, 61 N. J. Law, 57, 38 Atl. 824; Village of Chester v. Leonard, 37 Atl. 397, 68 Conn. 495; Fitzpatrick v. McAndrews, 12 Pa. Co. Ct. Rep. 353. This is too well established to be controverted, and the only question is how far it applies here.

The bond upon which suit is brought was given by the Avondale Marble Company, as principal, with the Fidelity & Deposit Company

of Maryland, as surety, to W. H. H. Van Houten, in the sum of $66,000, for the faithful performance of an agreement entered into by the marble company, to furnish and deliver marble and granite for the new courthouse, in process of construction at Paterson, N. J., of which Mr. Van Houten was the contractor or builder. By the agreement referred to it was, among other things, stipulated that "the sum to be paid by the party of the second part [Van Houten] to the party of the first part [the marble company] for the said materials shall be one hundred and ten thousand dollars" (subject to deductions as therein provided), and that the said sum should be paid in current funds on or about the 5th day of each and every month, "upon estimates made by the architect in charge of said work, of the material on the ground, delivered during the preceding month," the marble company to be paid 90 per cent. of the amount of these estimates, and 30 days after the architect should have accepted all the material the retained 10 per cent. to be paid to the marble compar upon its furnishing satisfactory evidence that no liens existed thereon. The marble and granite was to be delivered f. o. b. at the quarry, at Avondale, Chester county, Pa., and shipped to Van Houten, the contractor, with the cost of the freight from the quarry to the city of Paterson "to be allowed and deducted" by him from the contract price; and upon failure to deliver it, as required by the agreement, he was to be at liberty, upon five days' written notice, to supply the material and deduct the cost from the moneys due. The complaint of the surety is that, instead of adhering to the terms of the agreement and paying upon estimates of the architect as the work went on, no estimates, or at least none worthy of the name, were made, with the result that, with the knowledge of the contractor, payments were allowed which were greatly in excess of the material delivered; and, further, that, when but a fraction of the agreement had been performed, the marble company, needing money to conduct its operations, was favored with. large advances to be met by future deliveries, this arrangement continuing down to the close of the transaction, the restrictions provided by the agreement being thereby virtually abrogated. Instructions appropriate to these issues were asked at the trial, and, in view of the undisputed evidence with regard to them, the request was made by the surety that a verdict be directed in its favor. This was refused, and, the case having been submitted to the jury, a verdict of some $40,000 was rendered against it, upon which the record is now brought here for review.

The question whether estimates were in fact made was for the jury under proper instructions, provided there was evidence upon which to predicate it. But, unfortunately, all that there was upon this subject was that Mr. Reed, the supervising architect, approved the invoices, on which the material was billed from the quarry by the marble company, after going over them at the end of each month with the contractor or his son, who had charge of this part of his father's business. This was clearly not a compliance with the agreement. An estimate such as is there spoken of necessarily involved, not only an approximate judgment, upon inspection by the architect or his representative,