resent the firm, and may recover the joint assets from the representative of the deceased partner. It follows that they may be made bankrupt in respect to partnership acts, and that their assignee has all the rights of an assignee of the firm.1

§ 92. No Preference by Exchange of Securities. - If a creditor has a lien, mortgage, or pledge upon the property of the debtor, it is not a preference to take in exchange a fresh or different security of equal value after knowledge of the debtor's insolvency, though the first security had not been recorded; nor if the old security were believed by both parties, or by either, to be good, though not so, would there be an intent to prefer, or reasonable cause to believe such intent, as the case might be.2

At law, it may be that an old and good security would be held merged in the new and (in itself) bad one; but this is never the case in equity.

§ 93. Trustees as Debtors. In England an insolvent trustee may make good a defalcation of the trust property, without committing a preference. The courts say that the relation of debtor and creditor does not exist in such a case.5 In Massachusetts and under the late act of Congress such an act (the other requisites concurring) was held a preference. The singularity of these decisions is apparent when we consider that in England such a defalcation causes a provable debt, while in Massachusetts it does not; so that in the jurisdiction in which the cestui que trust is a creditor for the purpose of proof

1 Ex parte Hall, De G. 332.

2 Stewart v. Platt, 101 U. S. 731; Sawyer v. Turpin, 91 U. S. 114; s. c. 2 Lowell, 29 Fed. Cas. No. 12,410; 1 Holmes, 226, Fed. Cas. No. 12,409; Tiffany v. Lucas, 8 N. B. R. 49; Reber v. Gundy, 13 Fed. Rep. 53; Catlin v. Hoffman, 9 N. B. R. 342, Fed. Cas. No. 2521; Tiffany v. Boatman's Institution, 18 Wall. 375; Cook v. Tullis, 18 Wall. 332; Re Tweedale (1892), 2 Q. B. 216; Burnhisel v. Firman, 22 Wall. 170; Ex parte Packard, 1 Lowell, 523, Fed. Cas. No. 10,650; Vogle v.

Lathrop, 4 N. B. R. 439, Fed. Cas. No.
16,985; Re York & Hoover, 3 N. B. R.
661, Fed. Cas. No. 18,138; Stevens v.
Blanchard, 3 Cush. 169; Williams v.
Coggeshall, 11 Cush. 442.
3 See infra, § 95.
4 See infra, § 95.

5 Ex parte Stubbins, 17 Ch. D. 58; Ex parte Taylor, 18 Q. B. D. 295.

6 Bush v. Moore, 133 Mass. 198; Gibson v. Dobie, 5 Biss. 198, Fed. Cas. No. 5394. See infra, § 466. 7 Infra, §§ 179, 180.

he is not one for the purpose of preference, and in that in which he is not a creditor for proof he is one for preference.

Where a deed by its terms granted to a debtor an estate in his own right, it was held that he might make a valid declaration of trust after the trustees' title had accrued, if the fact corresponded with the declaration.1

§ 94. Void means voidable by the Assignees. The statutes usually declare that the preference shall be void. This means voidable by the assignees. The assignees may ratify the act, either directly or by conduct inconsistent with its avoidance; as if they settle an account with the creditor, after knowledge or means of knowledge of the preference, and thereby treat it as valid, or bring indebitatus assumpsit for money received, instead of a special action on the case. So the creditor may give a good title to a bona fide purchaser without notice, but not to one who has notice.4

On the ground that the act of preference is only voidable, it was held in the leading case of Young v. Billiter,5 that where chattels had been transferred to a creditor by way of fraudulent preference, and he had sold them before the assignees' title accrued, they could not sue him in trover. Some judges expressed a doubt whether he could be sued at all; but it is clear, and has now been decided, that special assumpsit would lie for the money.

Very able judges have sometimes overlooked this distinction that preferences can only be avoided by the assignees. In sev

1 Gardner v. Rowe, 2 Sim. & Stu. 346.

2 Smith v. Hodson, 4 T. R. 211; Brewer v. Sparrow, 7 B. & C. 310; Bartlett v. Walker, 65 Vt. 594; Sawyer v. Levy, 162 Mass. 190; Butler v. Hildreth, 5 Met. 49; Snow v. Lang, 2 Allen, 18; Harvey v. Varney, 98 Mass. 118. [A creditor may compel an assignee to set aside a preference in a clear case.

9 Allen, 492; White v. Garden, 10 C. B. 919; Holbrook v. Basset, 5 Bosworth, 147; Re Pusey, 7 N. B. R. 45, Fed. Cas. No. 11,478; Zahm v. Fry, 9 N. B. R. 546, Fed. Cas. No. 18,198.

4 Walbrun v. Babbitt, 16 Wall. 577. 5 8 H. L. 682 (reversing 6 E. & B. 1); and see Stevenson v. Newnham, 13 C. B. 285; Nicholson v. Gooch, 5 E. & B. Car v. Sears Co., 38 Atl. 999; Brook v. Mitchell, 6 Bing. N. C. Rep. (R. I.) 1056.] 349; Nixon v. Jenkins, 2 H. Bl. 135; Jones v. Fort, 9 B. & C. 764.

3 Hoyt v. Shelden, 3 Bosworth, 267; Penniman v. Cole, 8 Met. 496; Burt v. Perkins, 9 Gray, 317; Gardner v. Lane,

6 Heilbut v. Nevill, L. R. 4 C. P. 354, 5 C. P. 478.

eral cases in Massachusetts it was held that a creditor might set aside the preference of another creditor by action, because the preference was contrary to the policy of the law, and void.1 But these cases have been explained as depending upon a particular statute, afterwards repealed, and their reasoning was pronounced unsound.2 So in a very learned opinion it was held, rightly, that a general assignment was a fraud on the act; but the unsound conclusion was reached that the grantee under such an assignment was not authorized to collect debts, there being no bankruptcy. On this point the decision was properly

reversed.4

It is entirely settled that no one but assignees can impeach a preference or any other act or deed which is fraudulent solely by virtue of the law of bankruptcy. If there is a bankruptcy, the right of the assignees is exclusive in all cases of fraud. What I now mean is, that if there is no bankruptcy, there can be no impeachment at all of any act which is a fraud on the bankrupt law only.6

§ 95. Effect of Avoidance; Merger. At law, a mortgage or security which is vitiated because a part of the consideration is illegal is voidable in toto; and when so avoided an earlier security or title for which it was exchanged, or which was merged in it, will not revive. This rule may not hold when equitable defences are admitted in actions at law.

1 Wyles v. Beals, 1 Gray, 233; Edwards v. Mitchell, ib. 239; Bowles v. Graves, 4 Gray, 117; Grocers' Bank v. Simmons, 12 Gray, 440; Stanfield v. Simmons, ib. 442.

Stone, 4 Gill, 38; Berkeley School v. Jarvis, 32 Conn. 412; Keane v. Goldsmith, 14 La. An. 349; Whitworth v. Gaugain, 3 Hare, 416; Triebert v. Burgess, 11 Md. 452; Johnson v. Osenton,

2 Nat. Mechanics' Bank v. Eagle L. R. 4 Ex. 107; Nunn v. Wilsmore, 8 Sugar Refinery, 109 Mass. 38.

T. R. 521; Meux v. Howell, 4 East, 1;

3 Shryock v. Bashore, 13 N. B. R. Gardner v. Gambrill, 86 Md. 658. See 481.

4 s. c. 82 Penn. St. 159.

5 See § 94, ante, and Priest v. Brown, 100 Cal. 626; Greenthal v. Lincoln, 67 Conn. 372.

6 Seaman v. Stoughton, 3 Barb. Ch. 344; Harding v. Stevenson, 6 Har. & J. 264; Penniman v. Cole, 8 Met. 496; Burt v. Perkins, 9 Gray, 317; Gardner v. Lane, 9 Allen, 492; Wheeler v.

infra, § 466.

7 Denny v. Dana, 2 Cush. 160; Blodgett v. Hildreth, 11 Cush. 311; Paine v. Waite, 11 Gray, 190; Forbes v. Howe, 102 Mass. 427; Re Jordan, 9 N. B. R. 416; Re Wynne, Chase, 227, Fed. Cas. No. 18,117; Goodrich v. Wilson, 119 Mass. 429; Bucknam v. Goss, 13 N. B. R. 337, Fed. Cas. No. 2097.

In equity a good title will not merge in a bad one. Therefore if an old mortgage is given up in exchange for a new one, which is in itself a voidable preference, the creditor may still hold under the former; and so if the new mortgage is bad as to certain additional chattels covered by it, he may hold those which were embraced in the old mortgage. So rights of dower and homestead, though released by the wife in the course of a voidable transaction, will revive when it is avoided.2 So a mortgage which is partly for an old debt and partly for a present advance, will be good to the extent of the latter, though set aside as to the former.3

There may be positive fraud by the bankrupt or by his wife, that is, fraud at common law, which will estop them from claiming a benefit when the conveyance is avoided by creditors.* So if the preferred creditor is concerned in acts which are fraudulent at common law as well as under the bankrupt law, or if a preference is deliberately contrived under the forms of law, he will not be permitted to qualify his wrong-doing and assert an older title. Thus, in Traders' Bank v. Campbell,5 a banking company had on deposit a sum which they might have set off against the debt of the insolvent depositor; but as this sum was small, and they wished to obtain a preference, they contrived with the debtor an attachment and seizure of this fund and of other property. When the seizure was set aside the court refused to permit them to reassert the right of set-off. Some cases are reported in which a debtor in failing circumstances contrived with a creditor that the former should buy

1 Avery v. Hackley, 20 Wall. 407; Re Kahley, 4 N. B. R. 378, Fed. Cas. No. 7593; Burnhisel v. Firman, 22 Wall. 170; Ex parte Harvey, 3 Dea. 547, 4 Dea. 52, Mont. & Ch. 261; Whiston v. Smith, 2 Lowell, 101 Fed. Cas. No. 17,523; Barron v. Morris, 14 N. B. R. 371, Fed. Cas. No. 1055; Brett v. Carter, 2 Lowell, 458, Fed. Cas. No. 1844; White v. Gainer, 2 Bing. 23.

2 Re Montgomery, 12 N. B. R. 321, Fed. Cas. No. 9732; Ex parte Mutton, L. R. 14 Eq. 178; Ex parte Hodgkin,

ib. 746; Ex parte Harris, L. R. 19 Eq. 253.

8 Cox v. Wilder, 2 Dillon, 45, Fed. Cas. No. 3308; Smith v. Kehr, 7 N. B. R. 97, 2 Dillon, 50, Fed. Cas. No. 13,071; Fisher v. Henderson, 8 N. B. R. 175, Fed. Cas. No. 4820; Corbett v. Woodward, 5 Sawyer, 403, Fed. Cas. No. 3223.

4 Re Graham, 2 Biss. 449, Fed. Cas. No. 5660; Keating v. Keefer, 5 N. B. R. 133, Fed. Cas. No. 7635.

5 14 Wall. 87.

goods of third persons on credit, and turn them over at once to the latter by way of preference. The assignees recovered of the creditor the value of the goods, though the fraud was really perpetrated on the seller.1 The court was so indignant with the fraud that they disregarded this point.

§ 96. Courts in which Preference may be recovered. Under the act of 1867 the courts of the State and of the United States had full concurrent jurisdiction of all suits to avoid preferences. In some States it was held that the law of preference was penal, and that the courts of the State would not lend their assistance to recover penalties imposed by a federal law.2 These decisions were unsound. The law is not penal; it merely gives a title to assignees to recover for the general good of creditors property which has been diverted from the assets. When a law of Congress has created a right or title, the State courts are bound to enforce it, unless Congress has given exclusive jurisdiction to the courts of the United States.* On the other hand, the assignees may sue a creditor or a sheriff in the federal courts for goods or money held or obtained by means of a judgment which was a preference, though they might have applied in a summary way to the State courts having possession of the fund.5

The remedy to set aside a deed or conveyance, or to recover anything except a mere payment of money, is, in the courts. of the United States and of England, cognizable in equity, concurrently with the courts of law. Nearly all the cases here

1 Martin v. Pewtress, 4 Burr. 2477; Ex parte Reader, L. R. 20 Eq. 763. See Nudd v. Burrows, 91 U. S. 426; Sage v. Wynkoop, 16 N. B. R. 363, Fed. Cas. No. 12,215.

2 Bingham v. Claflin, 7 N. B. R. 412; Voorhies v. Frisbie, 25 Mich. 476. For the jurisdiction of State courts under the act of 1898, see infra, § 486.

8 Cook v. Waters, 9 N. B. R. 155; Tinker v. Van Dyke, 14 N. B. R. 112, Fed. Cas. No. 14,058.

4 Otis v. Hadley, 112 Mass. 100; Rohrer's Appeal, 62 Penn. St. 498.

5 Traders' Bank v. Campbell, 14 Wall. 87; Claflin v. Houseman, 93 U. S. 130.

See Hayward v. Dimsdale, 17 Ves. 111; Pratt v. Curtis, 2 Lowell, 87, Fed. Cas. No. 11,375; Sill v. Solberg, 6 Fed. Rep. 468; Harmanson v. Bain, 15 N. B. R. 173, Fed. Cas. No. 6072, and cases cited; Bean v. Brookmire, 1 Dillon, 151, Fed. Cas. No. 1169, 2 Dillon, 108, Fed. Cas. No. 1170; Verselius v. Verselius, 9 Blatch. 189, Fed. Cas. No. 16,925; Shrenkeisen v. Miller, 9 Ben. 55, Fed. Cas. No. 12,480.