tobacco in their possession," how much more would it be the fact that the respondents would not have a lien for their charges on tobacco, the possession of which had already been surrendered.

Again; from time to time, the respondents certified that they had no mortgage or lien on the tobacco in their possession, and while the purpose for which such certificate was made might be material in considering the question of estoppel as to these respondents, these purposes certainly are not material when considering these statements as evidence of the construction put upon the redrying contracts by the respondents themselves. For the purpose of showing how the parties to this contract regarded it, these statements are convincing evidence that the respondents themselves did not then consider that they had a lien.

In the case of Stoddard Woolen Manufactory v. Huntley, 8 N. H. 441, 31 Am. Dec. 198, there was an agreement to dress cloth and deliver it as it was finished, payment to be made once in three months. The court held that such a contract precluded the idea of a lien. In Wiles Laundering Co. v. Hahlo, 105 N. Y. 234, 11 N. E. 500, 59 Am. Rep. 496, there was a contract to launder and deliver collars and cuffs manufactured by the defendant, Hahlo, and return the goods as fast as laundered, and to receive payment the first of each month, and in this case lien was denied. In Tucker v. Taylor, 53 Ind. 94, the same principle was declared, because the delivery of the property worked on was made before payment and there was a consequent extension of credit to the owner of the property which extinguished the lien.

It is evident that to allow the respondents to assert their lien on the tobacco in their possession, or to offset the debt due from the Co-operative Association against the claim for this tobacco, would result in giving them a preference over the general creditors of the association, and also over the lien or mortgage creditors, a thing to which they are clearly not entitled. Again to allow the respondents either to assert a lien or to set off their claim would completely destroy the security represented by the tobacco in their possession to a creditor holding a lien or mortgage. This would be inequitable and unjust, in view of all the circumstances surrounding this transaction.

The claim advanced by the respondents, that clause D, as far as it governs payments due them, was never complied with by the Co-operative Association, has, as we see it, no effect upon the questions here considered.

To begin with, the requirement of payment on Monday for all tobacco redried and redelivered for the preceding week was in most instances impossible of being complied with. The association covered a large stretch of territory, these redrying plants of respondents were scattered, and it would have been a physical impossibility to report to the proper officer of the Co-operative Association and receive payment on Monday for all tobacco redelivered up to and including the preceding Saturday. The evidence shows that this condition of payment on Monday for the week preceding was seldom, if ever, complied with, and yet no protest was made by the respondents or any of them, until after the proceedings looking to a receivership of the Co-operative Association were inaugurated. [5] The respondents waived any breach of this contract by the Co-operative Association, by proceeding under the contract, without protest, in the face of the repeated failure of the Co-operative Association to comply with conditions respecting payment, conditions which were physically incapable of fulfillment. The effect of this waiver by the respondents of the breach respecting payment applies with especial force when the interests of third parties holding either mortgages or liens are considered.

The question of whether or not the respondents had a lien for work done upon the particular tobacco held in their possession is not before us, they having been paid for that, but the conclusion seems plain that they did not have a lien upon the tobacco in their possession for work done on tobacco already redelivered. In considering the claim of respondents to offset their debt against the tobacco in their possession or to recoup, the learned judge below in his opinion said:

"The contention that the redriers should be allowed to assert their claims as offsets, and to hold the tobacco until they are paid, is merely an effort to accomplish by indirection that which may not be accomplished directly. It is equivalent to saying that one who has no lien will be given all of the benefits of a lien. It goes almost without saying that a court of equity will not allow set-off where it would be inequitable so to do. In the present case to allow the claim of set-off (which would be exactly the same in effect as allowing a claim of possessory lien) would pro tanto defeat the claim of the Intermediate Credit Bank which has a lien, and would give to the redriers, who are mere common creditors, a priority of payment over other common creditors, as well as a priority over the costs and expenses of the receivership."

[6] Speaking of the allowance of set-off in equity, it is said in 24 Ruling Case Law, p. 805: "But there will be a grant of the remedy only for the purpose of securing an equitable result, and not where its allowance would work an injustice to others having equal equities. A fortiori, a set-off will not be allowed in equity where its allowance would work an injustice to others having superior equities."

To allow the claim of set-off would be to give the respondents priority over the other creditors of the Co-operative Association, both general creditors and lien creditors, and in view of our holding that the respondents had no lien, this would be inequitable. In 24 Ruling Case Law, p. 806, under the title "SetOff and Counterclaim," § 14, relied upon by attorneys for respondents, it is said: "It is well settled that the insolvency of a party against whom a set-off is claimed constitutes a sufficient ground for the allowance of a setoff not otherwise available, except in those cases where by special circumstances there are other rights superior to those of the debtor invoking the remedy."

In this case there are other rights held by the trial judge to be superior to the rights of the respondents, and it is admitted that there are other creditors of the Co-operative Association whose rights are at least equal to those of the respondents when their lien is denied. "In equity set-off will only be allowed for the purpose of securing an equitable result, and will not be allowed when it works an injustice to others having equal equities." 24 R. C. L. p. 805.

Under the circumstances of this case, a debt due from the association to the respondents cannot be set off or recouped against a demand, in equity, for the possession of property held by respondents that belongs to the association. Section 6145 of the Code of Virginia of 1919 is certainly not applicable to this case, and the fact that the lending bank sent money to pay the claims of the respondents, should the court so order, can have no effect on the principles here discussed.

Insolvency of the Co-operative Association is alleged in the answer of the respondents to the rule, and the evidence is not conclusive on this point. If the association is insolvent, certainly the respondents, having by contract and by their acts negatived a lien on the property in their possession, are clearly not entitled to a preference over the other creditors. If the association is solvent and has property enough to pay all creditors, whether the members receive anything or not,

then the respondents will be paid their claim in full and will not be hurt.

In view of our conclusion as to the lien of the respondents, it is not necessary to here consider the question of estoppel raised by the receivers. This is not a question between the respondents and the Co-operative Association, but between the respondents and the other creditors, both lien and general, of the association. Whether solvent or insolvent, the members of the association cannot receive anything until all debts of the association are paid.

[7] It must be remembered that the receivers, while standing in the place of the Cooperative Association, have an additional duty as officers of the court, and that upon them rests the burden of standing impartially between all the parties concerned, with the further obligation, in so far as they possibly can, to protect the rights of all parties. "It is as much the duty of a receiver, in administering an estate, to protect valid preferences and priorities as it is to make a just distribution among the general creditors." 23 R. C. L. under title "Receivers," § 118, and cases there cited.

We find the decrees of the District Court free from error, and they are accordingly affirmed.

VIRGINIA SECURITIES CORPORATION v. PATRICK ORCHARDS, Inc., et al. BLACKFORD v. BUFORD et al. JENNINGS et ux. v. PATRICK ORCHARDS, Inc., et al.

Circuit Court of Appeals, Fourth Circuit. June 3, 1927.

Nos. 2599-2601.

1. Bankruptcy 224-Referee may enter order authorizing trustee to obtain funds for preservation of bankrupt estate (Bankruptcy Act [Comp. St. §§ 9585-9656]).

Though petition by trustee in bankruptcy to obtain funds to protect and preserve bankrupt property should be addressed to judge of court, rather than referee, orders of referee thereon are justified under the Bankruptcy Act (Comp. St. §§ 9585-9656).

2. Bankruptcy 272—Trustee must use every

reasonable means to avoid deterioration of apple orchards comprising bankrupt estate.

Where bankrupt property consisted of apple orchards, which were of a perishable character, and value thereof likely to diminish, unless trees were sprayed and cultivated, it was duty of trustee to use every reasonable means at hand to avoid deterioration.

Where bankrupt estate consisted of apple orchards, which were of a perishable character, and likely to deteriorate unless trees were sprayed and cultivated, costs and expenses incurred by trustee in preserving such property between date of bankruptcy and delivery to purchaser constituted proper charge against purchase price received on sale thereof.

4. Bankruptcy 267 (2)-Generally expenses of foreclosure and administration are paid out of general estate.

Generally expenses of foreclosure and administration of bankruptcy are paid out of general estate, rather than out of fund derived from sale of mortgage or lien property.

5. Bankruptcy 267 (5)-Foreclosure and administration expenses held chargeable against mortgaged property, where there was no general fund, and expense was for benefit of property.

Where there was no general fund in bankrupt estate, and expense of foreclosure and administration was incurred wholly for benefit and advantage of mortgaged property, such expenditure was properly chargeable against it, particularly where mortgage or lien creditor voluntarily sought to avail himself of administrative functions of court to realize on his security.

6. Bankruptcy 267 (2)-Bankrupt property subject to lien may be charged with expenses of enforcing lien, where creditor avails himself of instrumentalities of bankruptcy court. Where lien creditor avails himself of instrumentalities of bankruptcy court in enforcement of his lien, proceeds of property on which lien exists may be charged with expenses necessary in enforcement of lien, as well as in preservation of property.

7. Appeal and error 1008(1)-District Judge's finding will be sustained, unless plainly wrong or without supporting evidence.

Finding of fact by District Judge, after review of evidence, must be sustained, unless plainly wrong or without supporting evidence. 8. Estoppel 83(3)-Misrepresentations by assignor of vendor's lien notes, inducing mortgage on property, estopped corporate assignee to extent of stock transferred to assignor's family without consideration.

Misrepresentations by assignor of vendor's lien notes to another, whom he had induced to accept mortgage on same property, that there were no liens against it, held to constitute estoppel as against corporation to whom notes were assigned to extent of stock held by members of assignor's family and transferred to them without consideration, since equity in case of fictitious transfer of securities will not permit mere intervention of corporate entity to establish rights which otherwise would be de

nied.

That creditor of corporation gave up right to collect his debt, and accepted second mortgage on some of properties, in reliance on misrepresentations that there were no liens against such property, held sufficient to invoke doctrine of estoppel.

10. Payment

39(1)-Allocation of payments made in behalf of consolidated company before bankruptcy by one seeking to float loan held binding.

Where person seeking in behalf of consolidated company, prior to its bankruptcy, to float loan to pay entire indebtedness, made certain threatening foreclosure, the allocation of such payments to creditors who were pressing and payments as made by creditor was binding on person making such payments.

11. Bills and notes 426-Bonds 113Ordinarily payment by one primarily liable extinguishes obligation on note or bond.

Ordinarily payment by one primarily liable on note or bond extinguishes obligation thereof, irrespective of intentions to contrary.

12. Corporations 474-Bonds taken up by company and transferred as collateral for note representing loan of money to take up bonds held not paid.

Where directors of consolidated company, on indorsing note for an amount sufficient to take up certain bonds then due, intended that bonds should not be paid, but that they should be transferred as collateral, and they were transferred for such purpose, in accordance with agreement, and deposited with bank as security for note indorsed, payment of bonds did not result, and obligation thereof was not extinguished, since question of whether there was payment or transfer depends on parties' intention.

Appeals from the District Court of the United States for the Western District of Virginia, at Lynchburg, in Bankruptcy; Henry Clay McDowell, Judge.

In the matter of the bankruptcy of the Patrick Orchards, Inc. From a decree determining priority of claims, the Virginia Securities Corporation, R. C. Blackford, and C. M. Jennings and wife separately appeal; the first and last appeals being opposed by Patrick Orchards, Inc., and others, and the second by W. Erskine Buford, trustee, and others. Affirmed.

No. 2599:

E. J. Harvey, of Danville, Va. (Harris, Harvey & Brown, of Danville, Va., on the brief), for appellant.

born & Hobart, of Roanoke, Va., and W. E. W. L. Welborn, of Roanoke, Va. (WelRoss, of Bluefield, W. Va., on the brief), for appellees.

No. 2600:

C. F. Cocke, of Roanoke, Va. (Cocke & Hazlegrove, of Roanoke, Va., on the brief), for appellant.

Kennon C. Whittle, of Martinsville, Va. (Whittle & Whittle, of Martinsville, Va., on the brief), for appellees.

No. 2601:

W. E. Ross, of Bluefield, W. Va., and W. L. Welborn, of Roanoke, Va. (Welborn & Hobart, of Roanoke, Va., on the brief), for appellants.

Kennon C. Whittle, of Martinsville, Va. (Whittle & Whittle, of Martinsville, Va., on the brief), for appellees Davis and Buford. C. F. Cocke, of Roanoke, Va. (Cocke & Hazlegrove, of Roanoke, Va., on the brief), for appellee Blackford.

Before PARKER and NORTHCOTT, Circuit Judges, and GRONER, District Judge.

GRONER, District Judge. These are appeals from a decree of the District Court for the Western District of Virginia in a bankruptcy case, in which the claims of the several parties appealing are wholly unalike. They were, however, heard together on one record, embraced in one decree in the court below, and will be so dealt with in one opinion here. The relevant facts proved in the court below, applicable alike to all appellants are these:

The bankrupt was an orchard company. Its assets consisted of six large orchards, located in Patrick county, Virginia, on which were growing some 81,000 apple trees. Until the latter part of 1923 the six orchards were separately incorporated, although the stock of the six companies was largely owned by Col. Stedman who resided in Patrick county. Some of the orchards were in a state of productivity; some were not. All the companies were in debt, and in need of money for current operating expenses. With a view to relieving this situation Col. Stedman caused a new company to be formed, to which the six properties were conveyed, and which in turn assumed the liabilities of the six companies. Among these liabilities at the time of the formation of the consolidated company was an indebtedness of $110,000 secured by a first deed of trust on four of the orchards. There were vendor's lien notes outstanding on the other two orchards aggregating approximately $13,500 and there was a later deed of trust covering all six orchards, securing appellants Mr. and Mrs. C. M. Jennings the sum of $23,595.53. There were also

creditors holding bonds of the consolidated company in a large amount, and general creditors holding claims approximating $15,000. The assets other than the real estate were of small value.

The adjudication was on a voluntary petition on June 17, 1925, and in due time the creditors were convened and a trustee elected. Shortly thereafter appraisers were appointed and filed their report, estimating the value of the real estate at $498,100 and the value of the personal estate at a little less than $4,000, or an aggregate valuation of all of the assets in excess of $500,000. Prompt steps were taken to dispose of the property, and at a meeting of the creditors,

held about a month and a half after the bankruptcy, a consent order was entered directing the sale of the properties free of liens. The real estate was offered for sale in separate units on September 17 following, and the aggregate of the several bids was $132,250. Objection was made by some of the unsecured creditors to the confirmation of the sale, but no objection was made by the lien creditors. The referee declined to set aside the sale, but instead confirmed it, and, on petition to the District Court to review his action, that court on December 12 reversed the order confirming the sale and directed that the property should be resold after 60 days' advertisement. By general agreement of the creditors there was some delay in readvertising, because to have done so at once would have brought the sale in midwinter; but on April 6, 1926, it was again offered for sale and brought in the aggregate $162,275. No objection to this sale was made, and it was confirmed. The purchase price has been paid, and a distribution thereof to the parties entitled thereto has been delayed until the questions involved in this appeal may be finally determined.

These questions may in general terms be stated as follows: First, the right of the trustee to charge against the purchase price of the real estate the costs and expenses of preserving the property between the date of the bankruptcy and delivery to the purchaser, the expenses of sale, and also a part of the costs of administration; second, the validity and priority of the claim of the Virginia Securities Corporation; third, the validity and priority of the claim of R. C. Blackford; and fourth, the validity and priority of the claim of E. J. Davis. These are to be disposed of in the order named.

[1] The property surrendered by the bankrupt to the trustee consisted of over 3,000 acres of land on which were growing 81,000

eree.

[2-5] A painstaking examination of the record fully justifies our conclusion that in each instance in which expense was incurred the reasons for the same were fully set out in the trustee's petition, were properly submitted to and acquiesced in by the creditors, including the lien creditors, were in fact necessary, and in the end doubtless resulted in increasing the price ultimately received at the sale of the property. The property had been appraised at above $500,000. The appraisement was thought to represent some thing like the fair value of the estate. If this expectation had been realized, the creditors of all classes would have been paid in full, and there would have been a considerable remainder to turn back to the bankrupt corporation. The property was itself of a perishable character. Unless sprayed and cultivated, the trees rapidly deteriorate, and the value of the property greatly diminishes. It was the duty of the trustee under such circumstances to use every reasonable means at hand to avoid this last named result. The lien creditors voluntarily came into the bankruptcy proceedings and asked to have the property sold believing, doubtless, that this would be the most satisfactory as well as the most economical method of administration.

The several steps thereafter taken to this end, as well as the expenditure of money in the upkeep and preservation of the properties pending sale, were matters as to which all had full knowledge, and as to which none protested until the second sale of the prop

20 F. (21)-6

erty, and the allocation of the purchase price to the several liens according to their priorities developed the fact that appellants Mr. and Mrs. Jennings, as holders of the second mortgage note, would receive nothing on account of their debt. We think not only that this protest came too late, but in the circumstances, it is wholly without merit. The general rule with regard to the expenses of foreclosure and administration in bankruptcy is to pay such expenses out of the general estate, if there is one, rather than out of the fund derived from the sale of mortgage or lien property; but where there is no general fund, as was the case here, or where the expense has been incurred wholly for the benefit and the advantage of the mortgaged property, as also is the case here, such expenditure is properly chargeable against it, and particularly is this true where the mortgage or lien creditor voluntarily chooses to avail himself of the administrative functions of the court in bankruptcy to realize on his security. This question has been so fully covered by previous decisions of this and other courts that we deem it unnecessary to do more than refer to some of the cases. See In re Barber (D. C.) 97 F. 547; In re Torchia (D. C.) 185 F. 576; Id. (C. C. A.) 188 F. 207; In re Chambersburg (D. C.) 190 F. 411; In re West (D. C.) 232 F. 903; In re Rauch (D. C.) 226 F. 982; The Bethulia (D. C.) 200 F. 879; Gugel v. Bank (C. C. A.) 239 F. 676.

[6] Here, as has already been said, practically the whole estate in process of administration was real estate, on all of which there were different classes of liens, but as to which there was a reasonable expectation that the proceeds of sale would pay the same in full and leave a substantial equity. To determine this question it was necessary that the property should be sold and pending its sale that it should be preserved. To accomplish this the lienholders had the benefit of the services of the trustee and of his counsel. Proper orders looking to the sale of the property had to be drawn and presented, and the property in the meantime had to be maintained in a high state of cultivation, in order to preserve it from serious deterioration and loss. All of these things were for the benefit primarily of the lienholders, who had sought and invoked the aid of the court in the collection of their debts. By coming into bankruptcy, they lost none of their rights; but when a lien creditor avails himself of the instrumentalities of the court in the enforcement of the lien, then the proceeds of