payment, and that plaintiff could recover of the guarantor. The court said:

"Of the fact of money being passed as a payment there can be no doubt; but I think the plaintiff was at liberty to show that what appeared at the time to be a good and satisfactory payment was perfectly illusory; that the money which he had received from W. Hitchcock could not be appropriated by him to his own use, but that it belonged to the assignees."

Stearns on Suretyship (2d Ed.) 136, after stating the general rule that payment discharges the surety, says:

"While this proposition is self-evident, yet it must be observed that, in contemplation of law, nothing amounts to payment or satisfaction which has no value, and if that which is taken in payment is not that which it purports to be, or the use or retention of it is prohibited by law, or for any reason becomes a nullity, then the so-called payment or substitution is not a satisfaction of the original contract, and in the absence of actual or constructive waiver of these infirmities in the medium of payment, the original contract, although surrendered, will be revived, and the liability of the surety or guarantor restored."

In this case the evidence shows, and I find: (1) That Patrick E. De Lee was a stockholder in this construction company, and from 1912, certainly, down to March 1, 1916, was its president, and signed its checks as such, and borrowed money for it of different banks when he could get it, and also of several different persons, including all these loans made by Mr. Powers, for the payment of which latter he gave this written guaranty, when unable to borrow further at the banks; that Patrick E. De Lee, as president, signed the checks for payments down to March 1, 1916, and knew the financial condition. of the company of which he, was president, and of which his son, John E. De Lee, was general manager, and its insolvency; that he knew that Mr. Powers was being preferred by the payments made by the company to Powers, and intended to prefer him, and also knew that he (De Lee) would be benefited by such preferential payments if they stood; and that Patrick E. De Lee was not an innocent party in such

transactions.

In the Van Norden Case, supra, the court took pains to state that— "So far as appears the indorser [who was released] was not a party to the transaction whereby they [the notes] were taken up and protest lost."

Just what or how much importance the court gave to this fact it is impossible to know, as the Court of Appeals says nothing further on that subject; but it is fair to assume the fact stated had to do with the decision made and was regarded as important, else the statement would not have been made. In the instant case, as we have seen, Patrick E. De Lee, who gave the guaranty, and who, it is claimed, was released therefrom, did have to do with and was a party to the transactions whereby the guaranty was taken up or surrendered and destroyed. However, I do not think this fact necessarily changes the legal aspect of the case, as the payments to Mr. Powers were not valid payments, and no act necessary to bind De Lee on his guaranty was omitted, and he remains bound thereby. His knowledge and partici

pation, however, has much to do with the equities of the case. I think his participation in the transaction and knowledge of the facts prevent his claiming that the guaranty became inoperative. When Mr. Powers refunds to the estate in bankruptcy the sums received by him, he can recover of Patrick E. De Lee, the guarantor, whose rights have in no way been impaired. Mr. Powers will have no difficulty in establishing the guaranty, as Mr. De Lee testified he gave it, and that it was only surrendered because of the payments made by the construction company to Mr. Powers.

I am requested to find, not only that Mr. Powers had actual knowledge of the insolvency of the Ruddy & Saunders Construction Company at the time he received such payments, and even before, but that his participation in the organization of the corporation and his knowledge of the amount of its capital stock; knowledge of litigations in which he earned $5,000 doing trial work for the company in its litigations; knowledge of the fact the corporation was unable to obtain such loans as it desired at the bank; the frequent and large loans the company obtained of Mr. Powers and his knowledge of the purpose of some of them; the fact that such loans were not paid on request or demand, but were increased thereafter as stated; the fact that his bill for services, and no part thereof, was paid during a term of years; his knowledge that the company had once been sued on a just and valid claim, which Mr. Powers paid for the company; and his knowledge of the fact that when he made the first loan of $4,000 to the corporation he declined to make it without the personal guaranty of Patrick E. De Lee for that and subsequent loans, which the guaranty itself shows were contemplated-gave to Mr. Powers such knowledge and information as to the financial status of the corporation as would put a man of ordinary prudence and intelligence, saying nothing of a skilled and experienced attorney, familiar with the law, on inquiry, and that if he had inquired, as was his duty, he would have received and had actual knowledge of the fact that such corporation was insolvent immediately before the payments were made, and therefore at the time the payments were made, and that he was and is therefore chargeable with knowledge of such insolvency and of the fact that the receipt and retention of such payments would operate as a preference; that is, operate to give to him a greater percentage of his claims than other creditors of the company of the same class would receive.

The difficulty in so finding is that there is no proof that Mr. Powers knew of the amount of the indebtedness of the corporation, or that it was large, and the proof is he was confined to his room when the payments were made, and hence was unable to make inquiries at those particular times. Still he knew of each of them within a day or two, and his agent, who received the payments, and had authority to do so, and to indorse his name on the checks, and deposit same, might have inquired; but there is no evidence that she had reason to inquire. As I view the case, it is unnecessary to pass on that question. These payments were made by the bankrupt company in direct

violation of section 67e of the Bankruptcy Act; that is, first, in violation of section 66 of the Stock Corporation Law of the State of New York, and, secondly, the transfer of these sums of money to Mr. Powers in payment of pre-existing debts were made and given by this bankrupt company, so adjudged on the 24th day of April, 1916, on petition filed April 9, 1916, with the intent and purpose on its part to hinder, delay, and defraud its creditors, who were left unpaid, and Mr. Powers was not a purchaser in good faith and for a present fair consideration. The payments were made to a favored few of the friends and relatives of the corporation, or its officers and stockholders, and to its attorney, who was a close friend of the former president, who was the father of other stockholders.. It was the intent and purpose to pay some in full and leave others entirely without payment, who were equally entitled to consideration. To do this the corporation stripped itself of all its available assets and voluntarily disabled itself from doing further business. The careful selection of those who were paid to the exclusion of others plainly shows an intent and purpose to so dispose of the property of the corporation as to make it impossible for those unpaid ever to obtain payment of their claims.

Coder v. Arts, 213 U. S. 223, 239, 245, 29 Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. 1008, very clearly points out the difference between transfers of property, voidable and recoverable by the trustee, because constituting preferences, and those void and recoverable because made with intent to hinder, delay, or defraud creditors, or some of them. The property and assets of a corporation constitute a trust fund in the hands of its officers and directors, first, for properly conducting and carrying on its business; second, for the payment of its creditors, and all its creditors, pro rata, unless some be entitled to preference; and, third, for payment of the balance, if any, on dissolution to its stockholders. This is the general law, and in effect the statute law of the state of New York. This now bankrupt was a corporation subject to the applicable statutes, and any designed and intended disposition of the money and property of this corporation by its officers, they knowing its insolvency and inability to pay all creditors, and intending to put it out of business, contrary to and in violation of those statutes, for the purpose of paying certain creditors, favored by such officers of the corporation, to the exclusion of other creditors, who stood on an equal basis in law and equity, constituted a transfer of its property with intent to hinder, delay, or defraud its creditors, or some of them, within the meaning of section 67e of the act. If this is not so, we have here a new kind of fraud on creditors, a new mode of disposing of property, which, while it actually hinders and delays, and also defrauds, certain creditors, does not constitute a hindering, delaying, or defrauding of creditors, within the meaning and intent of the Bankruptcy Act, for the reason it is a new kind of fraud.

I think the courts ought to be able in affording remedies, to keep pace with those bankrupt concerns which seek to evade the provisions

of the statute, when the words and plain intent of the statute cover and reach the acts done. With the creation of numerous corporations has sprung up the necessity for and the enactment of many new statutes defining the duties, etc., of their officers, and defining what acts shall be and what shall not be lawful. When acts in violation of such statutes are done by such officers with intent to hinder and delay or defraud creditors, or some of them, such unlawful and injurious acts should come under the terms and words of the statute, when clearly they come within its intent and spirit. In short, it seems to me that a conveyance by a corporation of substantially all its property, after converting it into money, not in due course of its business, but in destruction of its business, to certain favored creditors, to the exclusion of other creditors, and in violation of the statutes of the state forbidding such preferences and transfers, all being intended, and such being the purpose, constitutes a transfer of property made to hinder, delay, or defraud creditors. This is the language of the statute, and clearly the unpaid creditors to the extent of over $30,000 are hindered and delayed in the enforcement of their just claims. I am, of course, mindful of the fact that at common law mere preferences are lawful, and under the decision of Coder v. Arts, supra, a mere preference is not a hindering or a delaying or a defrauding of creditors, or any of them. But such is not this case.

There will be a decree in favor of the plaintiff and against the defendant for the sum of $18,824.15, with interest on $1,001.70 from February 8, 1916, interest on $12,822.45 from February 29, 1916, interest on $4,000 from March 1, 1916, and on $1,000 from March 2, 1916, with costs and disbursements to be taxed by the clerk. There will be a provision in the decree to the effect that Mr. Powers may prove his claims on all such notes and on the account for services, and that his dividend be ascertained as nearly as possible, and that he only pay the amount due, less such dividend.

THE WANOLA.

(District Court, D. Massachusetts. February 26, 1919.)

No. 1527.

1. SALVAGE 9-NATURE OF SERVICE.

Service, incidental to salvage of cargo, in moving to Boston hull of vessel wrecked on beach at Point Allerton, held salvage service.

2. SALVAGE 30-AMOUNT OF AWARD-MOVING WRECKED VESSEL.

A salvage award of $500 made for moving to Boston, from beach at Point Allerton, hull of wrecked vessel worth $3,000, incidental to salving, under contract, the cargo, for which service salvor had been paid.

In Admiralty. Libel for salvage by Arnette E. Betts against the schooner Wanola; William Levy, claimant. Decree for libelant.

George L. Dillaway, of Boston, Mass., for libelant.

Goodwin, Proctor & Ballantine and Fitz-Henry Smith, Jr., all of Boston, Mass., for claimant.

HALE, District Judge. The libelant, doing business under the name of Betts Bros. & Co., and as surviving partner, brings this libel for salvage services rendered to the Wanola, a three-masted schooner driven on the beach and wrecked in January, 1917, at Point Allerton, just outside Boston Harbor.

At the time of her stranding the schooner was loaded with a cargo of coal. The Scott Wrecking Company was employed in salving the schooner and cargo; it succeeded in saving a portion of the coal, and then stripped the schooner, taking everything that was movable. On January 17 the cargo was abandoned to the underwriters. The hull was sold at public auction to William Levy for the sum of $420. Levy now appears as claimant. On January 23, under an agreement with the underwriters, Betts Bros. & Co. proceeded to save the cargo for 75 per cent. of its value. The libel alleges that they agreed also with the representatives of the owners of the schooner to attempt to save the hull of said schooner "on a salvage basis"; that, in doing the salvage service, they employed two lighters, valued at $7,500, and other equipment, valued at $1,500, and employed three tugs, of a value of $43,000; that they now seek to recover $1,500 as the amount agreed upon between the parties for the salvage service, alleging also that, even if the court should not find such agreement, under the testimony, there should be a recovery of as much as $1,500 for the services.

The answer denies that any agreement was ever made fixing the amount of the compensation, or that there was ever any agreement of any kind made "concerning the salving of the hull of said schooner on a salvage or other basis." It alleges that the work on the vessel was done under agreement with the owners of the cargo for the benefit of the cargo, not for the benefit, or at the request, of the claimant. It also alleges that, after the claimant had purchased the schooner in its wrecked condition, on the beach, the representative of the claimant re

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