(13 Eliz. c. 5). In re Mullen (D. C.) 101 Fed. 413, at page 416; Lansing Boiler & E. Works v. Joseph T. Ryerson & Son, 128 Fed. 701, 63 C. C. A. 253; Loveland on Bankruptcy (2d Ed.) § 158, and cases cited.

It may be affirmed to be true, as a general proposition, that under any state system of jurisprudence it is necessary, in order to set aside a conveyance or transfer of property as fraudulent against creditors, that the fraud must have been participated in by the vendee or purchaser as well as the vendor. If there are some exceptions, or apparent exceptions, they are not important. This rule that, to render a transfer or conveyance fraudulent as to creditors, it is necessary that the transferee or vendee should have participated in the fraud, is the law both of Tennessee and Alabama. But however this may be, as I have just said, the creditor's right is passed to and vested in the trustee by operation of the bankruptcy law, subject to the limitation that the right of a bona fide purchaser or holder must not be disturbed or divested. The purpose to guard the rights of a bona fide purchaser or holder is everywhere manifested on the face of the bankruptcy act, as amended by the act of 1903. This protection of the rights of a bona fide purchaser is necessary in order to uphold sound commercial policy and confidence, and to avoid inflicting upon the innocent the unnecessary and harsh disadvantage of frequent and serious loss. The right which the trustee may enforce in a suit like this is such right as the creditor would have had in regard to the same transaction as it stood at the time of filing the petition in bankruptcy, and prior thereto, and is subject to the limitation found in the common law, and expressly declared in the bankruptcy act—that the transfer may not be set aside, and the property or its value recovered from an innocent purchaser or holder. This is manifestly the doctrine under which the present bill is proceeding and must proceed, and under which the result must be determined.

These preliminary observations have seemed necessary in order to clear away some confusion as to the ground on which the trustee is standing in the assertion of the right here presented, and the remedy which is being pursued under express authority of the bankruptcy

statute.

I do not conceive that section 70, subsec. 5, is materially in point in regard to any question here to be considered or decided. That section is concerned only with furnishing a definition and prescribing a test to determine what property shall pass by operation of law from the bankrupt to the trustee, so as to become a part of the estate for administration and distribution among the creditors. Its purpose is to distinguish between what passes and what does not pass, as regards specific property and property rights, without regard to the condition of the property-whether in possession or in action. With reference to its condition, the property might be found in adverse possession of a third person, or to have been fraudulently transferred, or under an invalid pledge or lien, in all of which cases suit by the trustee would or might become necessary in order to bring in the property or its proceeds, but these several conditions were provided for elsewhere and in other sections of the act; and it was provided in subsection 4, immediately preceding subsection 5, that prop

erty transferred by the bankrupt in fraud of his creditors should pass to the trustee; and section 70e also authorizes the trustee to sue for the property or its value.

Coming back to the test prescribed by subsection 5, it is provided that whatever property was transferable by the bankrupt, or which might have been levied upon and sold under judicial process against the bankrupt, passes to the trustee. This is the whole scope and purpose of subsection 5. For example, exempt property would not pass. A right of dower by a wife is no part of the property, and would not pass to her trustee, and an estate by curtesy in a wife's property does not pass to the trustee of her husband during her lifetime. The effect of this clause is to transfer the greater part of the assets of the bankrupt, and it has been held that a contingent interest in an estate in remainder, and the income of a life estate under a will, or Indian lands under an allotment act of Congress, do not pass. There would have been no reason or motive in Congress, if the power existed, to enact that property or property rights of the bankrupt which were not in any manner transferable or leviable at law should go to the trustee, and constitute a part of his estate for distribution among the creditors, because such property would not be subject to judicial process if bankruptcy had never taken place. Other sections of the bankruptcy act, as clause 4 of section 70 and section 70e, deal with the case of property fraudulently transferred or disposed of under such circumstances as that creditors might have set aside the transaction if bankruptcy had not occurred. These observations seem sufficient to show that the issues here presented for determination do not in any wise arise under clause 5, and do not call for its interpretation or application.

Subsection 4 of section 70 and section 70e may be read in connection with section 1, subsecs. 23 and 25 (30 Stat. 544, 545 [U. S. Comp. St. 1901, p. 3420]). Collier on Bankruptcy (4th Ed.) p. 510; Loveland on Bankruptcy (2d Ed.) pp. 381, 382, 384, and, in regard to clause 5, pp. 394–408. See, also, Brandenburg on Bankruptcy (3d Ed.) § 1146, and particularly sections 1148 and 1152.

Furthermore, such property as the trustee takes under clause 5 of section 70, and whether he takes it in possession or in action, is taken in the "same plight and condition" as it was in the hands of the bankrupt, and affected by any lien or equity by which it would have been affected in the possession of the bankrupt if bankruptcy had not occurred. It is hardly to be doubted that this is so, and that the rule in Yeatman v. Savings Institution, 95 U. S. 764, 24 L. Ed. 589, would apply; and, indeed, this must be regarded as expressly so decided in the late case of Hewit v. Berlin Machine Works, 194 U. S. 302, 24 Sup. Ct. 690, 48 L. Ed. 986, in which subsection 5 was under consideration. When, however, the trustee is proceeding to assert rights which passed to and became vested in him under the bankruptcy act, not from the bankrupt himself, but from creditors, and as the representative of creditors, under section 70, cl. 4, and section. 70e, different considerations and different rules apply, and he may then assert any right which the creditor might have asserted on the facts as they were at the time of the filing of the petition in bank

ruptcy; and the trustee may impeach or set aside any act or transac tion of the bankrupt, and recover property or its proceeds, just as creditors might have done if bankruptcy had not occurred, and the rights and remedies of the creditors had not been vested in the trus

tee.

While other sections may be profitably read and studied in connection with section 70, cl. 4, and section 70e, we are, in a case like the one at bar, dealing with a creditor's right under the law of the state as it existed before the filing of the petition or adjudication, and which creditor's right vested in the trustee by operation of the bankruptcy act, to be enforced as the representative of creditors; and, as we have seen, the bankruptcy law adopts the law of the state as defining and determining the rights of the creditors. It is quite clear, therefore, that we are mainly and specially concerned with section 70, cl. 4, and with section 70e, under which the law of the state is to furnish the rule of decision, and the bankruptcy act itself, in section 1, subsec. 25, furnishes a definition of such transfers as may be set aside; the act declaring in that regard that:

""Transfer' shall include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift or security."

So, also, I do not think that section 67a is applicable to the contention here, but is limited to transfers invalid under the bankruptcy law itself, when made within the four-months limitation.

The claims made by the defendant banks are not under chattel mortgages, or any other instruments which under the law of Tennessee are invalid for want of registration; and, if their claims can be sustained either as pledges or as equitable liens, they are claims which, under the law of Tennessee, are not required to be recorded, and the want of recordation would not invalidate or affect them. The registration of such a claim would not sustain it, and the failure to do so would not defeat it, under the law of the state. Ex parte

Fitz, 2 Lowell (U. S.) 519, Fed. Cas. No. 4,837; Arendale v. Morgan & Co., 5 Sneed, 703.

And these remarks lead us up to the question whether or not the warehouse receipts in question in this case were legally sufficient to constitute a valid pledge or equitable lien on the property claimed under these warehouse receipts, and which property it is the object of the present bill to recover, and for that purpose to have the warehouse receipts set aside and declared invalid, and this contention may now be taken up.

The leading facts in connection with these warehouse receipts, and the methods under which they were issued, and the course of dealing with the property subsequent to the issuance of the warehouse receipts, are not, as I think, in serious dispute, and are not facts about which there is any serious question in the evidence. Certainly this may be affirmed to be true in regard to the substantial and important facts found in the record. The relation between the bankrupt car company and the warehouse companies issuing these warehouse receipts at the time the receipts were issued and subsequently will appear by a very brief statement of the facts, and these facts will be

sufficiently suggestive of the system under which it was attempted to carry on the business. The bankrupt company was engaged in the business of manufacturing and selling railway cars and equipment, and for that purpose owned large plants and premises on which to operate and maintain the machinery necessary in such a manufacturing establishment, with large adjacent premises on which to store and place a large accumulation of material, which it was necessary to keep constantly on hand in conducting such a business. By a system. of leasing, the bankrupt company undertook to confer upon the warehousing companies the right, by lease, to use any or all of that part of its premises commonly set apart for storing material as a warehouse yard for the purpose of conducting a warehouse business. The effect of the contracts was to vest in each party certain rights in the premises. In the bankrupt company was the right and possession, so far as necessary and proper, for the operation of its machinery and for taking in material and transporting out manufactured products. In the warehouse companies was vested the right to the use of the premises not so needed by the manufacturing company, for the purpose of placing thereon, as a warehousing place, the material in its various form, such as would be required from day to day and from time to time by the bankrupt company in the operation of its manufacturing establishment. The use made of the premises. might be said to be joint, for the purposes of each party, or exclusively to each party, so far as its business required, if we speak of the theoretical or abstract right established by these contracts of lease. In point of fact, there was no fence or inclosure around the parts or portions of the premises used for warehousing purposes, which separated them from those parts of the premises occupied by the building and machinery of the manufacturing company, and in the necessary operation of the manufacturing plant in all of its details. Under the system adopted, it was contemplated that the warehousing companies would sufficiently mark off the premises which were to be used by them for warehouse or storage purposes, by a system of placarding, or of putting up signboards, with such letters and characters as would indicate those used for storage purposes; and when, in the course of business, material was placed upon the premises, and a warehouse receipt issued therefor, the material, generally in bulk, along with or close by other material, was to be distinguished by stakes, cards, and tags; and a record of the different shipments and lots of material piled or stacked upon the premises was supposed to be kept at the office of the warehouse custodian, who was a person selected by agreement for the purpose of representing the warehouse companies in the matter of carrying on and looking after the warehouse portion of the premises, and the material stacked or stored upon such premises. Between the system of placarding and tagging, with the office records kept by the warehouse custodian, it was supposed that any person interested to inquire, or prosecuting an inquiry with reasonable diligence and intelligence, could ascertain the fact that certain material was on the warehouse premises, and in the possession or under the control of companies other than the manufacturing company, and that the ma

terial covered at any time by any outstanding warehouse receipts could be ascertained by this system of tagging and marking, together with the records kept in the office of the warehouse custodian, constantly on the premises.

It is not to be doubted that the system was irregularly maintained in some of its details, if, indeed, it was at any time entirely perfect. and that there were slipshod methods that finally entered into the system of warehouse keeping which was actually undertaken to be maintained on these premises. While this is so, the evidence abundantly establishes that there was at no time a warehouse receipt issued, except when the property called for by that warehouse receipt was upon the premises, and by agreement in possession of the warehouse custodian, and that there was sufficient effort on the part of the warehouse custodian at all times to keep an amount of material and supplies in stacks and in piles on the warehouse premises of the kind, value, and quantity called for by any and by all of the warehouse receipts outstanding at any given time, and, if at any time the material appeared to be running below this limit, demand was made that the deficiency should be made good, which was done; and this system continued down until a very short time before these bankruptcy proceedings were instituted, when, for a short while prior thereto at least two or three weeks-there was suffered to occur a shortage in the kind, quantity, and value of the material necessary to answer the claims of all the outstanding warehouse receipts.

It is not disputed that the warehousing system would be good if properly and carefully maintained in its essential details. The objection is that the system, in its essential details, calculated to furnish reasonable safeguards, and to give notice of the real condition of affairs as they at any time existed, was disregarded. This contention on behalf of plaintiffs is thus stated by one of plaintiffs' eminent counsel:

"Suffice it to say that had that 'paper system' been their actual system, this cause would not be before this court for adjudication, nor would these trustees be the representatives here of more than a million dollars of general creditors, but for the fraud of the ‘actual system' by which alone was made possible the false credit obtained by the bankrupt."

It is conceded, and could not be controverted, that the creditor banks now holding these warehouse receipts took the same in good faith, and without any knowledge, and in the absence of facts which would put them upon inquiry, as to any failure or slipshod methods in regard to carrying out the full details of the system of warehousing, as described and defined by the evidence and papers found in this record.

In its last analysis, the contention here is not so much over the system of warehousing theoretically adopted and theoretically followed by these warehousing companies, and its sufficiency in law to constitute a pledge, as over the disregard shown in respect of the details of that system on the part of the warehousing companies, and the warehouse custodian, their representative on the ground, as well as certain inspectors who made trips in behalf of the warehousing companies to these premises from time to time for the purpose of