determined by the local laws of the State. Thompson v. Fairbanks, 196 U. S. 516; Humphrey v. Tatman, 198 U. S. 91; York Manufacturing Company v. Cassell, 201 U. S. 344. That such a contract is a conditional sale and is valid without record is the law of Arkansas. Triplett v. Mansur & Tebbetts Implement Co., 68 Arkansas, 230. The trustee has no higher rights in this regard than the bankrupt. York Manufacturing Co. v. Cassell, supra.

It follows that, so far as the identified goods and notes and accounts are concerned, the intervenor, the Dry Goods Company, must prevail.

It has turned out, according to the finding of facts, that some small fraction of the goods and about one-half of the notes and accounts which were delivered by the Newtons to the Dry Goods Company, as and for the goods, notes and accounts which were the property of that company, were not in fact such, and the question therefore arises whether, under the circumstances disclosed in the findings, the trustee is entitled to avail himself of these facts. We think it was rightly held by the court below that he was not. There seems to be no reason for a nice consideration of the powers of receivers and trustees. When the receiver was appointed he found all the property in dispute in the hands of the Dry Goods Company, to which it had been delivered by the Newtons, as and for the property of the company, and by which it had been received as its own property. When the receiver made his demand for it the return was at first refused. The parties in the controversy, then being at arm's length, agreed that if the Dry Goods Company would give up the advantages of possession and instead of converting the goods, notes and accounts into cash in its own way and on its own account, permit the receiver to do so, then those goods should be deemed part of those delivered. under the contract and the notes and accounts the proceeds of other goods delivered under the contract. This arrangement was approved by the referee. The trustee has taken the property under it and has never offered to return the property, or

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any part of it. The property has in large part been sold or otherwise disposed of in the course of the bankruptcy administration. Under these circumstances we are of opinion that the trustee, the appellant in this case, was bound by the agreement of the receiver, that all the property in dispute should be conclusively deemed that which passed under the original conditional contract or the proceeds thereof.

Judgment affirmed.

JOSEPH WILD & COMPANY v. PROVIDENT LIFE AND TRUST COMPANY, TRUSTEE OF WATKINSON & COMPANY, BANKRUPTS:

APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE ' THIRD CIRCUIT.

No. 190. Argued April 29, 1909.-Decided May 24, 1909.

Where a creditor, who had no knowledge of the debtor's insolvency, has a claim upon an open account for goods sold and delivered during the period of four months before the adjudication in bankruptcy, the account being made of debts and credits, leaving a net amount due from the bankrupt estate, the payments made under such circumstances do not constitute preferences which the creditor iş bound to surrender before proving his claim. Yaple v. DahlMillikan Grocery Co., 193 U. S. 526, followed; Pirie v. Trust Co., 182 U. S. 438, distinguished.

153 Fed. Rep. 562, reversed.

THE facts are stated in the opinion.

Mr. Max L. Powell and Mr. Harris S. Sparhawk for appellants:

The appellants were wholly ignotant of the insolvency of the bankrupts and there was no intent on the part of the bankrupts to prefer appellants. After insolvency and before bank

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ruptcy, the bankrupts' estate by reason of their dealings with appellants was enriched to the amount of $2,565.92.

To this extent it presents exactly the same situation found in Jaquith v. Alden, 189 U. S. 78, in which it was held that where all the goods were sold and delivered after the bankrupt's property had actually become insufficient to pay his debts, his estate was increased in value thereby to an amount in excess of the payments made.

This was not the fact in Pirie v. Chicago Trust Co., 182 U. S. 438, in which case, the estate of the insolvent as it existed at the date of insolvency was diminished by the payment.

The attention of the court is directed to the importance that is given to the date of insolvency in these last two cases, as the only method of determining whether or not a particular creditor has obtained a greater percentage of his debt than any other creditor of the same class is to ascertain if during a period of insolvency the bankrupts' estate has been enriched by reason of the transactions in their entirety. The running, account between the insolvent and the creditor may be variable, and during insolvency may show at times a diminishing of the estate; but if in the entirety of the transactions the estate is enriched, then the payments are not preferential.

In the case now before the court no sale was made after the payment. It must be remembered it was payment on a running account. The first payment by insolvents was followed by sales, all were within a period of insolvency, and are to be considered as parts of one continuous bona fide transaction kept alive by extension of new credits.

The object of the bankrupt act, so far as creditors are concerned, is to secure equality of distribution among them of the property of the bankrupt. Such object could not be secured if there were no provisions against preferences. Pirie v. Chicago Title & Trust Co., supra. A preference is a transfer of property which enables one of the creditors of a bankrupt to obtain a greater percentage of his debt than any other creditors

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of the same class. Where a running account, with no knowledge of insolvency on the part of the creditor, and no intent to prefer, comprised within a period of insolvency, shows a net gain to the estate and a consequent loss to the creditor, that creditor has not been preferred, for that creditor does not receive a greater percentage of his debt than other creditors in the same class.

Mr. Arthur G. Dickson for appellees:

The history of the subject shows that the return of the innocently received preference by subsequent credits was an essential part of the theory which permitted the retention of the payments that had been received by the creditor during insolvency and within four months of bankruptcy. It is true that, in Jaquith v. Alden, 189 U. S. 78, the sale which was the last of the transactions was not large enough to be by itself a return of the payment just previously received, but it was at least a partial return thereof. Furthermore, the payments and sales were very closely inter-related, so that this court was able to regard all of the transactions as one continuing course of dealing, where payments had had the effect of inducing new sales. In Jaquith v. Alden there were, first, two sales, then two payments; next three sales, then a payment, and, lastly, a sale. The payments, therefore, kept the account alive and helped to increase the estate by inducing the extension of additional credits.

In the present case, the first sale was paid for and then there followed a number of sales. If the transactions had stopped there, this case would not be before this court. There was, however, a subsequent payment of a part of the account. This payment did not induce any subsequent credits; it was not so intermingled with other payments and sales as to entitle the creditor to ask that it be taken as part of a continuing transaction by which the estate was benefited. Its only effect was to reduce the estate, to take a part of the assets which then belonged to all of the creditors of the bankrupts and to give it to

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one of them. No reasoning, however plausible, can rob this payment of that effect and it was, therefore, under the bankruptcy act of 1898, a preference.

The decision of the Circuit Court of Appeals in this case was in accord with its own previous opinion in the case of Gans v. Ellison, 114 Fed. Rep. 734.

"If, then, a creditor innocently preferred has given return credits afterwards, he has surrendered his preference to the extent of such return credits. To effectuate justice, both sides of the account are to be considered, in the case of a creditor who innocently has received preferences, and afterwards in good faith has given the debtor further credit, without security, for property which has become a part of the debtor's estate." See also Kimball v. Rosenham Co., 114 Fed. Rep. 85; In re Colton Export Co., 121 Fed. Rep. 663.

Although Circuit Judge Gray, in delivering the opinion in this case, admitted "that the authorities are not harmonious and do not satisfactorily dispose of the precise question here presented, there is no real difference of opinion between the judges of different circuits. In no case, with the exception of In re Topliff, 114 Fed. Rep. 323 (District Court of Massachusetts), has there been a decision enabling a creditor, whose last transaction with the bankrupt during insolvency and within four months of bankruptcy, has been the receipt of a payment, to retain such payment. In every other case in which the creditor has been permitted to retain payments received during insolvency and within the four months' period, those payments have been succeeded by new credits extended to the bankrupt.

For a history of the question herein involved see the following cases: McKay v. Lee, 105 Fed. Rep. 923; In re Ryan, 105 Fed. Rep. 760; In re Southern Overall Mfg. Co., 111 Fed. Rep. 518; Kahn v. Export & Com. Co., 115 Fed. Rep. 290; In re E. O. Thompson's Sons, 6 A. B. R. 663; aff'd in 7 A. B. R. 214, and Gans v. Ellison, 114 Fed. Rep. 734; Peterson v. Nash Brothers, 112 Fed. Rep. 311; In re Beswick, 7 A. B. R.