those who took part in transferring the partnership property, it is not claimed that credit was ever extended to the corporation by any one having knowledge of the scheme for issuing nonassessable stock in payment for property worth materially less than the par value of the stock. Of course, as respects persons who might have given credit with knowledge of the scheme, a different question would be presented. This is recognized in the Gates Case, 57 Ohio St. 78, 48 N. E. 285, 63 Am. St. Rep. 705; also by this court in Rickerson Roller Mill Co. v. Farrell Foundry & Machine Co., 75 Fed. 554, 560, 23 C. C. A. 302. We therefore hold that, upon the hypothesis of the referee's findings, the balance of $10,000 found to be due from Bauman would be recoverable by the trustee (certainly ratably with other similar obligations of stockholders as far as necessary to meet corporate debts) in an appropriate suit brought for the benefit of the bankrupt

estate.

[4] The Right of Set-Off. Can Bauman's liability be enforced by the trustee through the exercise of the right of set-off in a case like this? At first blush it would seem that the language of section 68a of the Bankruptcy Act, in connection with the rule in the Gates Case, would admit of the set-off claimed here; for section 68a extends to "all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor," and, as stated, the Ohio rule treats such liability as a debt due to the corporation. However we think the true interpretation of section 68, cls. "a" and "b", and of such rule is that, after the corporation becomes insolvent, any sum due upon a stock subscription is impressed with the character of a trust in favor of all the creditors alike, except only such as may have given credit to the company with knowledge of the scheme of stock issue. Hence to apply such an unpaid subscription as a set-off to an ordinary claim held by the subscriber against the corporation would be to appropriate the rights of the other creditors in the subscription debt to the exclusive benefit of the person owing it; or, on the other hand, it might, as respects his costockholders, subject him to the payment of more than his ratable share of the bankrupt's debts. It cannot be said, then, that the debts in question are in their nature both mutual and in the same right; nor that after the bankruptcy there was any reason for enforcing stockholders' liability or Bauman's ratable share thereof except for the equal benefit of all the creditors.

In Sawyer v. Hoag, supra, 17 Wall. at page 622, 21 L. Ed. 731, when passing upon a provision of the Bankruptcy Act of 1867 (14 Stat. p. 526, § 20), similar to section 68 of the present act, Justice Miller said:

"This section was not intended to enlarge the doctrine of set-off, or to en able a party to make a set-off in cases where the principles of legal or equitable set-off did not previously authorize it. The debts must be mutual; must be in the same right. The case before us is not of that character. The debt which the appellant owed for his stock was a trust fund devoted to the payment of all the creditors of the company. As soon as the company became insolvent, and this fact became known to the appellant, the right of set-off for an ordinary debt to its full amount ceased. It became a fund belonging equally in equity to all the creditors, and could not be appropriated by the debtor to the exclusive payment of his own claim."

To the same effect are Scammon v. Kimball, Assignee, 92 U. S. 366, 367, 23 L. Ed. 483; Scovill v. Thayer, supra, 105 U. S. 153, 26 L. Ed. 968; Babbitt v. Read (C. C.) 173 Fed. 712, 715; In re Howe Mfg. Co. (D. C.) 193 Fed. 524, 527; 1 Loveland on Bankr. (4th Ed.) p. 661, and note 4; Collier on Bankr. (8th Ed.) p. 796, and notes. And the rule that "unpaid subscriptions to the stock of a corporation constitute a trust fund for the benefit of its creditors" is stated in Fogg v. Blair, 139 U. S. at page 125, 11 Sup. Ct. 476, 35 L. Ed. 104, to be "the settled doctrine of this court"; and, further, in Scovill v. Thayer, 105 U. S. 156, 26 L. Ed. 968, it was held:

"Upon the bankruptcy of the company his obligation was to pay to the assignees, upon demand, such an amount upon his unpaid stock as would be sufficient, with the other assets of the company, to pay its debts. He was under no obligation to pay any more, and he was under no obligation to pay anything until the amount necessary for him to pay was at least approximately ascertained. Until then his obligation to pay did not become complete."

We have still to consider an important case recently decided by the Supreme Court of Ohio. It is Niles, Assignee, v. Olszak (87 Ohio St. -, 100 N. E. 820, decided December 17, 1912, which holds:

"A stockholder in a savings and loan association organized under the laws of this state is entitled, when the association becomes insolvent, to set off, as against its assignee for the benefit of creditors, a claim for money which he has on deposit with the association against his liability for the unpaid part of his stock subscription."

That case is the nearest approach to this one of any other decided by the Supreme Court of Ohio, and so dispenses with the need of referring to other decisions of the court. We think the learned judge announcing the opinion pointed out facts which render the decision inapplicable here, when he said:

*

"The stock was not issued under the pretense of being or purporting to be fully paid, when in fact it was not paid for. There was no contrivance to release the debt for the stock, and substitute a loan therefor. It is not a case in which a corporation had held itself out to the public as having a larger paid-up capital than it actually had. * * * The statute prescribes that no such association shall commence business until at least one-half of each subscription has been fully paid up. There is no claim that this was not done, and the presumption is that it was done. The finding of facts shows that the association was duly organized under the statute. There is no claim that it ever pretended that any more than 50 per cent. of each subscription had been paid in, or that any one ever gave credit on the faith that all of its stock had been paid in full. * It is common knowledge that many of the subscribers to the stock of such savings associations make their deposits therein with the intention and understanding that such deposits shall be made and used for the purpose of paying for the stock.

Thus it may be fairly inferred that all creditors of the savings bank were chargeable with knowledge that only 50 per cent. of its capital stock had been paid in, and that it was understood that the deposits should be applied to the payment of the balance due on the subscriptions. This in principle agrees with what we have already pointed out as recognized by the same court in the Gates Case, and by this court in Rickerson Roller Mill Co. v. Farrell Foundry & Machine Co.,

respecting the rights of persons who extend credit to a corporation with knowledge of the arrangement under which its stock subscriptions have been made. It may well be that as to all such persons the unpaid subscriptions do not constitute a trust fund, in the sense that it is not open to set-off.

Furthermore, any suit rightly to enforce payment of unpaid stock subscriptions would have to be of a plenary character (In re Haley, 158 Fed. 74, 85 C. C. A. 404 [C. C. A. 6th Cir.]; In re Remington Automobile & Motor Co., 153 Fed. 345, 347, 82 C. C. A. 421 [C. C. A. 2d Cir.]); and it does not appear that Bauman is a party to the present suit, although he appeared as a witness and so had notice of it. We are thus led to believe that the set-off was not permissible.

[5] What, then, should be done with the claim of Steinle? We have felt bound under the present record to assume that Bauman is solvent. If the claim be allowed and permitted now to share in the assets, according to the undisputed statement of counsel for appellee, Steinle would receive a sum nearly equal to the amount found by the referee to be due from Bauman upon his subscription. Still, if Bauman could meet his unpaid balance, not to speak of the liability of any of his costockholders, no ultimate loss to the other creditors would ensue. If, on the other hand, Bauman should not be able to pay anything remaining due on his subscription, Steinle (who stands no better than Bauman) would profit at the expense of the other creditors. In the latter event, however, the reasons for denying the setoff (or at least its equivalent in the nature of an equitable defense) against the Steinle claim would cease; for nothing would be gained by suit upon the subscription, and so nothing could be lost by the general creditors by applying whatever sum is really due from Bauman toward payment of the Steinle claim. Rolling Mill Co. v. Ore & Steel Co., 152 U. S. 615, 616, 14 Sup. Ct. 710, 38 L. Ed. 565.

Since it would be obviously inequitable to permit the Steinle claim to share ratably in the assets before properly disposing of the question of Bauman's obligation and his ability to pay it (In re Wiener & Goodman Shoe Co. (C. C.) 96 Fed. 949, 950, and In re Duryea Power Co. (D. C.) 159 Fed. 783, 784, the underlying principles of which we regard as applicable), we are constrained to hold that the order of the court below allowing the claim should be reversed, with costs; that all proceedings upon the Steinle claim be stayed, and all dividends that would accrue on such claim, if allowed, be withheld and preserved, until the Bauman debt and its availability be finally settled. If such debt be collected by the trustee, Steinle's claim shall be allowed in full; if by reason of his insolvency Bauman's debt is not collectible in whole or in part, Steinle's claim shall be accordingly reduced and the remainder allowed. An order will be entered reversing the cause, and remanding it for further proceedings, not inconsistent with this. opinion.

COOPER v. MILLER.

(Circuit Court of Appeals, Sixth Circuit. February 4, 1913.)

No. 2,258.

1. BANKRUPTCY (§ 440*)-REVIEW-MODE-APPEAL.

Where an order appealed from involved both the rejection and the allowance of claims each for more than $500, and a controversy of fact concerning the financial condition of the bankrupt at the time claimant received certain disputed payments, and whether claimant had reasonable cause to believe that such payments would, if enforced, effect a preference, the order was reviewable by appeal, authorized by Bankruptcy Act July 1, 1898, c. 541, § 25a (3), 30 Stat. 553 (U. S. Comp. St. 1901, p. 3432), and not by a petition to revise.

[Ed. Note.-For other cases, see Bankruptcy, Cent. Dig. § 915; Dec. Dig. 440.*

Appeal and review in bankruptcy cases, see note to In re Eggert, 43 C. C. A. 9.]

2. BANKRUPTCY (§ 164*)-CLAIMS-PREFERENCES.

Where claimant, shortly after he became president and manager of a hotel company, and within four months prior to bankruptcy, knew that the company was insolvent, and with such knowledge loaned to it $4,000 with which to pay taxes, etc., and thereafter he received payments on such debt prior to bankruptcy, such payments constituted a preference, which the trustee was entitled to recover; claimant being also precluded from proving the balance of the debt against the estate until the preferential payments had been returned.

[Ed. Note. For other cases, see Bankruptcy, Cent. Dig. § 267; Dec. Dig. § 164.*]

Appeal from, and Petition to Review, an Order of the District Court of the United States for the Western District of Kentucky; Walter Evans, Judge.

Petition by A. R. Cooper, trustee in bankruptcy of the New Galt House, against W. Scott Miller, to expunge certain claims because of an alleged preference. From a decree affirming a referee's order denying the claimant's right of subrogation and lien, but reversing so much of the order as disallowed a certain balance as a general claim, etc., the trustee appeals, and files a petition for review. Reversed and remanded on the appeal, and petition to revise dismissed.

Gifford & Steinfeld, of Louisville, Ky., for appellant.

Sheild & Campbell and Camden R. McAtee, all of Louisville, Ky., for appellee.

Before WARRINGTON and DENISON, Circuit Judges, and McCALL, District Judge.

WARRINGTON, Circuit Judge. The only question contested is whether the trustee can treat as a voidable preference, and so recover of Miller, $2,056.50 which he, as president and manager of the bankrupt company, within four months of the bankruptcy, paid out of its funds to himself on account of a loan previously made by him to the company. The New Galt House Company, a corporation, was ad*For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

judged bankrupt and the trustee was elected in April, 1911. Miller became president and manager of the company April 1, 1910. He owned over 300 shares of its capital stock, and, while president, appears to have assisted the company by loans of money in different amounts to the extent of $10,000. Certain taxes of the city of Louisville were assessed against the property of the bankrupt as of September 1, 1909; one sum being for $3,073.68, and the other for $32.90, aggregating $3,106.58. When these taxes became due the company was unable to pay them, and Miller was unable to borrow money in its name. He borrowed $4,000 in his own name, and gave the money to the company to pay the taxes and "other debts," and on June 29, 1910, the company paid the taxes. December following, Miller, in his official capacity, executed a demand note in the name of the company in his own favor individually for the amount of the taxes so paid, and in April, 1911, made proof in bankruptcy of the note, claiming that the taxes were paid at the instance and request of the officers of the corporation to avoid accumulation of penalties and interest, crediting the company with two payments made upon the note, one January 9, 1911, of $1,406.50, and the other January 13, 1911, of $650, or $2,056.50, stating that all interest had been paid to April 1, 1911, and leaving a balance due of $1,050.08. As to this sum he asserted a lien upon the property of the bankrupt, claiming subrogation to all rights of the city of Louisville for collection of such taxes.

It would seem that this proof of claim, and also of two other claims, one for $4,000 and another for $6,000, had been formally allowed by the referee; but, as the court below remarked, the record is confusing as to the two claims last mentioned. However, it is not important to consider any of the claims, except the one concerning the taxes and the effect of the two payments mentioned as having been made on account of the sum advanced by Miller for that purpose. On petition and amendment thereto of the trustee to re-examine and disallow this latter claim as respects the alleged lien, the referee disallowed the balante of $1,050.08 as a preferred claim, and ordered appellee to return the payments (amounting to $2,056.50), which were received by him, as stated, from the company on account of the total taxes paid; holding in substance that Miller was a volunteer, and entitled only to the rights of a general creditor as to the $4,000 loaned to the company at the time the taxes were paid, that the orders previously made allowing that claim, and also the additional claim of Miller for $6,000, be set aside, and the claims disallowed, and, further, that Miller could "have no claim against the estate allowed until such return is made." [1] The court below affirmed the order of the referee denying the right of subrogation and lien, but reversed the other order, and directed the referee to enter an order allowing the balance of $1,050.08 as a general claim in addition to another one found to have been previously allowed as a general claim in favor of Miller for $6,893.42. Within ten days an appeal was prayed and allowed, but only to the order reversing the referee; and since that order distinctly involved both rejection and allowance of claims each for more than $500, also a controversy of fact touching the financial condition of the bankrupt at