Opinion of the court. As to subject-matter, the bill does not pray that the transfers of the notes and credits which have been described may be decreed to be void, and does not seek the recovery of this property or its value, either in its language, or its intendment, or in any possible construction that can be given to it. Even, therefore, if all the parties to the transfers of property which, or its value, the bill ought to have sought to recover back, had been brought before the court by the bill, and the bill had not become fatally multifarious thereby, still it would be defective in not praying in terms for the recovery of the property which was transferred; or, failing that, in not in terms alleging its value, and in terms praying the recovery of that value. I have examined all the cases of suits founded upon the 35th section of the Bankruptcy Act, which have as yet been reported as decided by the Supreme Court of the United States; and with only two exceptions, in which there was plainly no necessity for its so being, the proceeding was by bill and brought in equity, because the bills all prayed the court to set aside the transfers or payments they complained of as void, and it was necessary to make all the persons connected with the transactions, parties to the proceedings. These cases are: Toof v. Martin, 13 Wall., 41; Traders' Bank v. Campbell, 14 Wall., 87; Tiffany v. Lucas, 15 Wall., 410; Buchanan v. Smith, 16 Wall., 277; Wager v. Hall, 16 Wall., 584; Allen v. Massey, 17 Wall., 352; Wilson v. City Bank, 17 Wall., 473; Bartholow v. Bean, 18 Wall., 635; Cook v. Tullis, 18 Wall., 332; Tiffany v. Boatman's Int., 18 Wall., 376; Mays v. Fritton, 20 Wall., 414; Bayley v. Glover, 21 Wall. 342; Clark v. Islen, 21 Wall., 360; Michaels v. Post, 21 Wall., 398; Watkins v. Taylor, 21 Wall., 378; Burnhisel v. Firman, 22 Wall., 170; Amsinck v. Bean, 22 Wall, 395; Sawyer v. Turpin, 1 Otto, 114. One of the points decided in Smith v. Mason, 14 Wall., 419, is, that as strangers to a bankruptcy proceeding could not properly be affected by the summary process used in a bankruptcy court, and yet are necessary parties where it is sought to set aside transactions under the 35th section, in which they have participated, plenary proceedings must be brought for that purpose in the district or circuit court, or other court of terms. I am bound, therefore, in view of all these con Opinion of the court. siderations, to hold that on the principles of pleading, and the law and evidence of this case, the bill is, in its form and scope, on the issue joined, fatally defective, and must be dismissed. 2. I think it proper, however. though technically unnecessary, to pass also upon the case presented, with reference to its merits. I shall suppose the case to stand upon the transactions represented by the check for $14,499, dated on the 4th of June, 1872, which was used to take up the four notes of several of the Bains, which have been mentioned, to pay off balances on three notes of Bilisoly, and to take up the note of J. B. Campbell. The taking up of these four last-named notes, which were debts of persons wholly irresponsible, and which were worth nothing to the society in strict right, and which were voluntarily paid by some one or more of the Bains, was an unqualified benefit to the society, cannot be complained of, could not have worked a preference as against the creditors of the society, and may as well be dismissed from consideration, and I do dismiss them. The notes of the Bains which they were allowed to take up in the same transaction, and which aggregated in principal and interest $13,317.94, were worth dollar for dollar; and the question on the merits of the case is, whether or not, under the circumstances under which they were taken up, the transaction was void under the provisions of the 35th section of the Bankruptcy Act, Section 5128 of the Revised Statutes. I am confronted in the consideration of this question by the orders of the bankruptcy courts, adjudicating the Portsmouth Saving Fund Society a bankrupt, the order in bankruptcy of the Circuit Court having expressly recited the transaction of the society with J. G. Holladay as an act of bankruptcy, and that transaction having been had on the 4th of June, 1872, the same day on which the check of Bain & Bro., for $14,499, was used for taking up the notes which have been described. The bankruptcy courts, however, acted on a more or less technical view of the case, and on a very limited presentation of facts compared with the thorough development of them which now enlightens this court. The parties benefited by the transaction were not before the courts of bankruptcy. The case is now before a court of equity, which considers every transaction Opinion of the court. in the light of its merits more than its technical features, and which renders its decrees in accordance with the dictates of substantial equity and justice. No actual fraud is pretended. The case is confessedly one of constructive fraud, and is heard in a court that will not subordinate the ends of justice to merely technical considerations. I do not consider myself precluded, therefore, by the orders of the courts of bankruptcy referred to, from considering and deciding this case with respect to its merits and irrespectively of the orders which were made by those courts. In order that the transfer of the notes of the Bains, which are under consideration, should be void under Section 35 of the Bankruptcy Act, 5128 of the Revised Statutes, certain facts must coexist. 1. The society must have been insolvent within four months before the petition in bankruptcy was filed on 17th of June, 1872. 2. The transfer must have effected a preference, and have been made for the purpose of so doing. 3. The persons receiving benefit by the preference must have had reasonable cause to believe the insolvency of the society. 4. And also to know that the object of the transfer was to give them a preference. Toof v. Martin, 13 Wall., 40; Clark v. Islen, 21 Wall., 360, and Mays v. Fritton, 20 Wall., 414. I shall examine the case only with reference to the society's knowledge of its insolvency, and to the question whether the transaction of 4th June, 1872, was made for the purpose of securing a preference for the Bains. The other points are conceded. The term insolvency is not always used in the same sense. It is sometimes employed to denote the insufficiency of the entire property and assets of an individual to pay his debts. This is its general and popular meaning. Toof v. Martin, 12 Wall., 40. This is the sense in which the term insolvency is used when applied to persons who are not traders, and are not engaged in mercantile, banking, and financial pursuits, carried on principally by the means of negotiable paper. As to persons engaged in pursuits carried on by the use of such instruments, the term insolvency means an inability to pay off or take up that sort of paper in the ordinary course of business. Now this society of Portsmouth had long ceased to be engaged Opinion of the court. in the latter sort of business; and for seven years preceding the filing of the petition in bankruptcy against it, had been engaged in the sole business of liquidating its affairs. Whether it was insolvent, therefore, was simply a question whether its assets could be so managed as to liquidate its debts. All persons had been dealing with it for seven years on that basis; and as against any of those persons it would be grossly unjust to treat the question of the society's insolvency upon any other basis of inquiry. The orders in the courts of bankruptcy against it were based on the belief of those courts that up to June 17th, 1872, it was a bank engaged in the business of banking, whose solvency was to be determined by the inquiry whether it was paying over its counter all obligations to depositors and note-holders as they were presented. The evidence which has now been taken in this cause shows that the courts of bankruptcy were misinformed on that head. The society had not been a bank carrying on the business of banking since 1862. Whether the society was insolvent, therefore, in the sense stated by the Supreme Court as above, was a question which must be admitted to have been undetermined up to the 12th June, 1872, when the committee, which eight days before had been appointed to look into its affairs, and to report with reference to this very question of doubt, made their report. It is the bankrupt who must know his insolvency. Up to that time it had been a mooted question, even among the officers and directors of the society, whether the corporation would be able to pay itself out of debt. The committee which was commissioned to thoroughly investigate, inquire into, and report upon the question of insolvency, was appointed on the 4th June, 1872, the date of the transfer of the four notes of the Bains on the check of Bain & Bro., which is now under consideration, and, of course, had not then reported. The society, therefore, did not then know its insolvency; and the next and the vital inquiry is, whether the transaction of June 4th, 1872, was made for the purpose, on the part of the society, of giving a preference to those Bains who owed the notes. It is in evidence that the notes of the Bains had been consid Opinion of the court. ered as settled by the large deposits bought for the purpose, which had stood as an offset against them to the credit of Bain & Bro. since as early as the summer of 1870. These deposits had been bought and placed to their credit for the purpose, and the notes had been left with the cashier, who, being the father of its members, possessed the unqualified confidence of the firm, in pursuance of the standing resolution of the board which had been in force since 1865, and which had somewhat the effect of a contract of the society with its customers, "that the cashier should receive the notes of the institution and checks for deposits in payment of any debts due the institution." This resolution was general, had been acted upon by the society, and not only by the Bains, but by nearly all the debtors of the society, and was still in force on June 4th, 1872. Inasmuch, therefore, as the transaction had really been made in 1870, when no intention of giving or procuring a preference could have been entertained, the motive existing at that time was the real motive of the transaction, and gives interpretation to what was done on June 4th, 1872, both as to the society and as to the Bains. It is also proved in evidence that the final entries which were made on the 4th of June, 1872, were made in consequence of the committee having been raised that day, and that they were made for the purpose, on the part of the cashier of the society, of placing the books of the society in a condition, cleared of all closed transactions, to show the real status of its affairs, so that the committee would have to consider only unsettled affairs affecting the question of its solvency or insolvency. Finally, the idea and motive of giving or securing a preference is negatived by the fact that part of the especial transaction under consideration was the voluntary settlement by Bain & Bro. of four debts due from Bilisoly and Campbell, aggregating about $1000, which were worthless to the society, and could never have been collected from the persons owing them, the gratuitous settlement of them showing that a preference was not in the mind or motive of Bain & Bro. or of the society. The circumstances of the case all go to show the truth of the evidence I have mentioned. Instead of proving an intent to give |