In re RYAN. (District Court, N. D. Illinois, N. D. July 26, 1900.) No. 2,657. 1. BANKRUPTCY-PREFERENCES-SET-OFF. Under Bankr. Act 1898, § 68a, providing that in cases of mutual debts or credits between the estate of a bankrupt and a creditor the account shall be stated between them, and only the balance allowed or paid, cash payments on account, made within four months of the filing of the petition, are not such debts or credits as entitle the creditor to state the account, and hold the bankrupt only for the balance found. 2. SAME-NEW CREDIT. Bankr. Act 1898, § 60c, providing that if a creditor has been preferred, and afterwards in good faith gives the debtor further credit, without security, for property which becomes part of the bankrupt estate, the amount of such new credit, unpaid at the time of the adjudication, may be set off against the amount otherwise recoverable from such creditor, is not restricted to cases where the trustee sues the creditor to recover the amount of the preference, but the creditor may claim the setoff where the trustee merely refuses to allow the claim till the surrender of the preference. In Bankruptcy. Newman, Northrup & Levinson, for trustee. KOHLSAAT, District Judge. I am of the opinion that the mutual debits and credits contemplated by section 68a, Bankr. Act, do not include cash payments on account within four months of the filing of the petition against the bankrupt, and that the referee's finding herein that creditors should be permitted to have an accounting of all transactions between them and the bankrupt, both prior to and during such four months, and to have their claims allowed for the balance shown by such accounting, is not sustainable. With reference to section 60c, I do not think that the word "recoverable," in the last line thereof, should be held to dominate the meaning of the entire section. The whole paragraph, until this word is reached, covers as well the creditor who receives a preference without, as one who receives a preference with, reasonable cause to believe it to be intended as such. Reasoning from general business experience, it is extremely difficult to imagine a case in which a creditor would give a debtor further credit "in good faith" after a knowledge of the latter's insolvency. Giving the word "recoverable" its strict legal signification, the decision of Judge Shiras in Re Christensen (D. C.) 101 Fed. 802, is undoubtedly correct; but the wording of the entire section is so general and untechnical that I am impressed with the belief that the word "recoverable" therein was intended to convey its lay meaning, and was not used in its strict legal sense. The injustice which would follow a construction differentiating between creditors who voluntarily surrender their preferences, in favor of the one who would be compelled to do so at the end of a lawsuit if he did not make the surrender voluntarily, should certainly have weight in the mind of the court in aiding it to arrive at the meaning of congress as em braced in the entire section. The ruling of the referee is reversed, with directions to proceed in the matters in question herein in accordance with the above construction of section 600. BANKRUPTCY-BASIS OF ADJUDICATION-CLAIM FOR BREACH OF WARRANTY. A claim for damages for breach of warranty, though based on a contract, is not one founded on a contract, within Bankr. Act 1898, § 63, subd. "a," cl. 4, so as to permit it to be the basis of an adjudication in bankruptcy, but is such an unliquidated claim as, after such an adjudication, may, under section 63, subd. "b," be liquidated as directed by the court. Petition of George S. Nicholas for Adjudication of Involuntary Bankruptcy. F. M. Simonton, for petitioner. LOCKE, District Judge. The foundation of the claim upon which the petition for adjudication of involuntary bankruptcy against the defendant corporation, as stated in the petition, is an alleged warranty contained in a contract for sale of cigars made in June, 1898. The allegation of the petition is that at that time a contract was made for the sale of certain cigars, to be made of clear Havana. This contract appears by the petition to have been in force for a year and seven months, during which time it is alleged that upward of $70,000 worth of cigars were bought, accepted, received, and paid for. Nine months after the termination of said contract it is claimed that there was a breach of warranty for all of that time, and that the goods accepted and paid for were not made of clear Havana, but to a certain extent of domestic tobacco, and were worth 20 per cent. less than those warranted to be delivered. The only question is, is this a provable claim that would justify a court of bankruptcy in declaring the corporation a bankrupt, and permitting this creditor to come in and elect a trustee to take possession of the assets of the bankrupt and control the defense of this suit, it being admitted in argument that there are no other creditors of any importance? The ancient rule and practice was that a breach of an alleged warranty, although based on a contract, was not an action for the performance or fulfillment of the contract, but was an action on the case sounding in tort, and could only be presented as such. Stuart v. Wilkins, 1 Doug. 18; Schuchardt v. Allen, 1 Wall. 359, 17 L. Ed. 642. In this case there was no contract, expressed or implied, that the defendant would pay to the petitioner any amount of money. It is only the force of law that gives damages for the breach of a warranty in such a case. I consider that it should be classed with actions for tort, deceit, or fraud, rather than contract, such as is contemplated in section 63, subd. "a," cl. 4, of the law of bankruptcy. The result of this petition, if the defendant should be adjudicated a bankrupt and a trus tee elected by the petitioner, would be to place the control of the defense of the suit for damages now pending in the hands of the petitioner, so as to work great injustice and hardship to the defendant, and prevent any defense being made. I know of no way contemplated in bankruptcy by which such an unliquidated claim can be proven. It is the duty of the referee to allow and approve all provable claims; but certainly it would not be within his power to allow or approve this claim. It is true that, had the defendant in this case been adjudicated a bankrupt, the petitioner might present his claim, and under subdivision "b" of said section 63 it would be the duty of the court to determine how this claim, although unliquidated, might be thereafter proven and allowed against the estate; but I do not consider that the law contemplated that such an unliquidated claim as this, not capable of proof by any practice in bankruptcy, should be made the basis of an adjudication in bankruptcy. It is therefore ordered that the demurrer to the petition herein be, and the same is hereby, sustained, and that all action thereupon and adjudication thereunder be suspended until the claim alleged by the complaining creditor be reduced to judgment. In re WELLS. (District Court, W. D. Arkansas, Ft. Smith Division. December 28, 1900.) 1. BANKRUPTCY-GOODS EXEMPT-PURCHASE PRICE-TRUSTEE'S TITLE. Const. Ark. art. 9, § 2, provides that specific articles not exceeding $500 in value may be selected for exemption. Bankr. Law 1898, § 70a, provides that the trustee of the bankrupt's estate shall be vested with the bankrupt's title, except as to exempt property. Sand. & H. Dig. §§ 4727, 4728, forbid exemption for the vendor's debt for the purchase price. Held, that the trustee in bankruptcy did not acquire title to goods claimed as exempt by the bankrupt, though the purchase price thereof had not been paid. 2. SAME-VENDOR'S LIEN-NOT ENFORCEABLE IN BANKRUPTCY COURT. Where a bankrupt claimed exemptions under Const. Ark. art. 9, § 2, which states the exemptions allowed to the head of a family, the fact that the purchase price of the goods claimed as exempt had not been paid would give the seller no right to enforce his vendor's lien in a court of bankruptcy. In Bankruptcy. L. & A. Scharff sold to the bankrupt certain liquors, which, when Wells was adjudged a bankrupt, remained in his stock in unbroken packages, and unpaid for. Wells claimed this liquor as exempt. The trustee set it apart to him as a part of his exemptions. L. & A. Scharff and two other creditors of the bankrupt excepted to the action of the trustee in that behalf on two grounds: (1) Because the purchase money for the exempted property had not been paid; (2) because the bankrupt has not made a full, complete, and fair disclosure of the property belonging to his said estate, as required under the provisions of the bankrupt law. The referee sustained the action of the truste, and the creditors appealed. Martin & Winchester, for creditors. B. T. Duval, for bankrupt. ROGERS, District Judge. Chapter 3, § 6, Bankr. Law 1898, is as follows: "This act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the state laws in force at the time of the filing of the petition in the state wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition." Article 9, §§ 1, 2, of the state constitution of 1874 are as follows: "Section 1. The personal property of any resident of this state who is not married or the head of a family, in specific articles to be selected by such resident, not exceeding in value the sum of two hundred dollars in addition to his or her wearing apparel, shall be exempt from seizure on attachment, or sale on execution, or other process from any court issued for the collection of any debt by contract: provided, that no property shall be exempt from execution for debts contracted for the purchase money therefor while in the hands of the vendee. “Sec. 2. The personal property of any resident of this state who is married or the head of a family, in specific articles to be selected by such resident, not exceeding in value the sum of five hundred dollars in addition to his or her wearing apparel, and that of his or her family, shall be exempt from seizure on attachment, or sale on execution, or other process from any court on debt by contract." Sections 4727, 4728, Sand. & H. Dig., are as follows: "Sec. 4727. In any action brought in the courts of this state for the recovery of money contracted for property in possession of the vendee, it shall not be lawful to include said property in any schedule intended to protect said property, or exempt it from seizure on attachment or sale on execution or other process issued from any court for the collection of any debt upon the claim of the plaintiff. "Sec. 4728. In any such action the court or clerk shall issue, on petition of the plaintiff, duly verified, describing the property and stating its value, at or after the commencement of such action, an order, which may be embodied in the original summons, stating the name of the court and the style of the action, and directing the sheriff or other officer to take the property described in the petition, and hold the same subject to the orders of the court." It was held in Friedman v. Sullivan, 48 Ark. 213, 2 S. W. 785, that *the provision in section 1, art. 9, of the constitution of 1874, "that no property shall be exempt from execution for debts contracted for the purchase money thereof while in the hands of the vendee," applies also to the second section in that article, and excludes all classes of persons from exemption of such property from execution. Section 70a, Bankr. Law 1898, is as follows: "The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt.” Section 47a, Bankr. Law 1898, provides that: "Trustees shall respectively * (11) set apart the bankrupt's exemptions and report the items and estimated value thereof to the court as soon as practicable after their appointment.” The property claimed by Wells as exempt was manifestly his property from the date of its purchase. No effort is made to show that it was obtained by him by misrepresentation or fraud. Indeed, the effort in this proceeding to prevent him from holding the property as exempt by enforcing the vendor's lien in effect affirms the sale of it; and, if it had been sold to him, it was his, subject to the vendor's right to enforce a lien for the purchase money. Such was the legal status of the property at the time the trustee of his estate was ap pointed and qualified. By the trustee's appointment and qualification, did he become vested with the title of the property? The bankrupt law (section 70a) answers that question. It says: * "The trustee of the estate of the bankrupt, upon his appointment and qualification, * shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt." What property is exempt to the bankrupt? Chapter 3, § 6, Bankr. Law, supra, answers that. It is the same that is exempt under the state laws. What is exempt under the laws of the state? The state constitution answers that question (article 9, § 2), viz.: "Specific articles to be selected by such resident, not exceeding in value $500.00, in addition to his or her wearing apparel, and that of his or her family." Wells selected and claimed this very property as exempt, and it was set apart to him by the trustee as such. The title to this property did not, therefore, pass to the trustee. It never became vested in him. By the very terms of the bankrupt act the title remained in Wells, or, at least, did not pass to the trustee. It did pass to the possession of the trustee for a specific purpose,-that of preparing a complete inventory of the bankrupt's estate,-and to set apart the exemptions according to the provisions of the forty-seventh section of the act, with the estimated value of each article. Rule 17, Sup. Ct., General Orders in Bankruptcy. 18 Sup. Ct. vi. But the title to the exempted property did not change. In re Bass, 3 Woods, 382, Fed. Cas. No. 1,091, referred to in 1 Am. Bankr. R. 165, 91 Fed. 745, in the case of In re Camp, Mr. Justice Bradley used this language: "In other words, it is made as clear as anything can be that such exempted property constitutes no part of the assets in bankruptcy. The agreement of the bankrupt in any particular case to waive the right to the exemption makes no difference. He may owe other debts in regard to which no such agreement has been made. But, whether so or not, it is not for the bankrupt court to inquire. The exemption is created by the state law, and the assignee acquires no title to the exempt property. If the creditor has a claim against it, he may prosecute that claim in a court which has jurisdiction over the property, which the bankrupt court has not. Nor does it make any difference that the homestead was not ascertained or set out in severalty until after the proceedings in bankruptcy were commenced, or until after the conveyance to the assignee was executed. Whenever properly claimed and designated, the exemption protects it; and the exemption created by the bankrupt act relates back to the conveyance, and limits its operation. Though not designated when the conveyance was executed, it was capable of being designated; and on the principle that 'id certum est quod certum reddi potest' it is as much entitled to the benefit of the exemption as if it had been designated and set apart before the bankruptcy occurred. And here it is proper to remark that the assignee in this case misconceived his duty and powers when he assumed to judge that the bankrupt was not entitled to a homestead. That is for the court to say, and not for him. It was his business to report to the court whether the property claimed as homestead was or was not within the limit of value which the laws of Georgia allow for that purpose. Unless the court had this information, it cannot determine whether the property claimed is fairly within the allowance for homestead or not, and whether it has jurisdiction over the property or not. What equities might arise if there were several creditors, and some of them had a lien or claim against the homestead property and the others not, it is not necessary to decide. Those who |