Argument for Appellant.

196 U.S.

roll, on which the name of each laborer, the amount he had earned and the value of the supplies he had received from Harrison, appeared. The company deducted from the earnings of each laborer the value of the supplies the laborer had received and sent him a check for the balance. At the same time it sent to Harrison a check for the aggregate amount of the supplies which he had furnished to the laborers.

"4. Four months before the filing of the petition in bankruptcy, or October 24, 1902, Harrison owed the tie company more than $20,000.

"5. Between December 27, 1902, and February 24, 1903, the company refused to pay to Harrison, retained and credited on its claim against him $2,210.73, which was due him for supplies he had furnished to the laborers subsequent to November 30, 1902.

"6. At all times, when the amounts which aggregate $2,210.73 became due and were retained by the company, Harrison was insolvent, the tie company knew that fact, and it intended by retaining these amounts to secure to itself a preference over the other creditors of the insolvent, but Harrison had no such intention.

"7. After the company had retained several hundred dollars of the amount due Harrison for the supplies, it advanced to him $75 under a new and further credit."

An appeal to this court was allowed by the presiding circuit judge of the Circuit Court of Appeals.

Mr. Joseph Wheless, Mr. George M. Block, Mr. F. H. Sullivan and Mr. Charles Erd, for appellant:

This court has jurisdiction of this appeal upon the finding of facts and conclusions of law below. Act of 1898, § 25b; General Orders in Bankruptcy, XXXVI; Pirie v. Chicago Title & Trust Co., 182 U. S. 438; New York County Bank v. Massey, 192 U. S. 138.

The bankrupt had no intention to prefer appellant, and without such intention on his part there could be no preference

arising from his sale of goods to appellant's employés. Act of 1898, § 57g, as amended February 5, 1903, and 60b; Act of 1841, 82; Act of 1867, Rev. Stat. §§ 5084, 5128; Buckingham v. McLean, 13 How. 169; Wilson v. City Bank, 17 Wall. 487; Clark v. Iselin, 21 Wall. 375; Barbour v. Priest, 103 U. S. 293; Rice v. Grafton Mills, 117 Massachusetts, 228.

The sale of the supplies here in question, by the bankrupt, resulted in an indebtedness from appellant to him, was not payment of, nor security for, appellant's demand, and hence was not a preference, but a case of mutual debts to be set off, the one against the other. Opinion of Circuit Court of Appeals in this case; Hendrick v. Lindsay, 93 U. S. 149; Hecht v. Caughron, 46 Arkansas, 132; Century Digest vol. II, tit. Contracts, § 798; Act of 1898, § 1, def. 25 and 68; New York County Bank v. Massey, supra.

Mr. John M. Moore, Mr. C. F. Henderson, Mr. H. L. Ponder, Mr. M. M. Stuckey and Mr. S. M. Stuckey, for appellee.

This court does not have jurisdiction of this appeal. Hutchinson v. Otis, 123 Fed. Rep. 14; Denver National Bank v. Klug, 186 U. S. 202; Holden v. Stratton, 191 U. S. 115.

An intention on the part of the bankrupt to give a preference by means of a transfer he makes is not indispensible to the existence of a voidable preference. Act of 1898, §§ 57g, 60a, 60b; Ch. 487, §§ 12, 13; Collier on Bankruptcy, 4th ed., pp. 387, 537; Swarts v. Fourth National Bank, 117 Fed. Rep. 1, S. C., 54 C. C. A. 387; Opinion of Circuit Court of Appeals in this case.

The sale of supplies by bankrupt to the laborers and the appellant deducting the amount of them from the pay rolls and retaining same did not create an indebtedness from appellant to bankrupt, but was a voidable transfer of bankrupt's property and a preference, and was not a case of mutual debts to be set off the one against the other. Act of 1898, § 1 (def. No. 25), 60a, 60b and 68; In re Christainsen, 101 Fed. Rep. 802; In re Ryan, 105 Fed. Rep. 760; Libbey v. Hopkins, 104 U. S.

303; Re Tacoma Shoe & Leather Co., 3 Nat. B. N. & Rep. 9; Sawyer v. Hoag, 17 Wall. 610, 622.

MR. JUSTICE WHITE, after making the foregoing statement, delivered the opinion of the court.

Before coming to the merits we dispose of an objection to the jurisdiction.

The appeal was prosecuted under clause b (1) of section 25 of the bankrupt act of July 1, 1898, 30 Stat. 544, 553, providing that from any final decision of a Court of Appeals, allowing or rejecting a claim under the act, an appeal may be had "where the amount in controversy exceeds the sum of two thousand dollars, and the question involved is one which might have been taken on appeal or writ of error from the highest court of a State to the Supreme Court of the United States."

The provision of the Revised Statutes regulating the revision of judgments and decrees of state courts, which is relied upon, in conjunction with the portion of the bankruptcy act just quoted, is that portion of section 709, which authorizes the reëxamination of a final judgment or decree in any suit in the highest court of a State in which a decision in the suit can be had "where any title, right, privilege, or immunity is claimed under statute of . . . the United States, and the decision is against the title, right, privilege, or immunity specially set up or claimed, by either party, under such . . statute,

any

The appellee does not question that this appeal is from a decree rejecting a claim, within the meaning of the statute, and that the requisite jurisdictional amount is involved, but the particular objection urged is that a right was not claimed under an act of Congress, nor was a right of that nature denied by the lower court.

The objection is not tenable. It clearly appears from the record that in the claim filed on behalf of the tie company there

was embodied, as an integral part thereof, as a proper credit or set-off, the sum retained from the wages of employés for supplies furnished by the bankrupt, and the rejection of the claim was based upon the denial of the right to set-off. As the right of set-off is controlled by the provisions of section 68 of the bankrupt act, the assertion of such a right, in a proceeding in bankruptcy, as was the case here, is necessarily based upon those provisions of the act of Congress, and in this case the construction of such statutory provision was undoubtedly involved. That the Circuit Court of Appeals understood that reliance was had by the tie company upon the set-off clauses of the act is shown by its opinion, where, after sustaining the claim of the trustee that the credits in question constituted a preference, it prefaced a particular discussion of the contention, as to a right of set-off, by the following statement:

"Finally, it is said that this $2,210.73 was a credit to Harrison, and that the company should be permitted to set it off against his debt to it, and should be allowed to prove its claim for the balance remaining without restriction, on the ground that these claims were mutual debts and credits under section 68 of the bankrupt law."

The record, we think, sufficiently presented a claim of Federal right, Home for Incurables v. New York, 187 U. S. 155, and the objection to the jurisdiction is therefore overruled. Passing to the merits of the controversy:

We must, at the outset, in the light of the facts found below, determine the exact relation existing between the bankrupt and the tie company, in order to fix the true import of the transactions by which the tie company, in making its claim against the bankrupt estate, asserted a right to retain and set off the sums which, in its proof of claim, it described as deductions from pay rolls."

We think the findings establish that Harrison sold the goods, not to the tie company, but to the laborers, and therefore the result of the sale was to create an indebtedness for the price

alone between Harrison and the employés. This is not only the necessary consequence of the facts stated, but likewise conclusively flows from the nature of the proof of claim made by the tie company, since that proof, so far as the items concerning the price of the goods sold to the employés are concerned, based the indebtedness by the tie company to Harrison, not upon any supposed original obligation on the part of the tie company towards Harrison to pay for the goods, but upon the "deductions from pay rolls," made by the tie company in paying its employés. The effect of this was to trace and limit the origin of the debt due by the tie company to Harrison solely to the fact that the tie company had deducted, in paying its employés, money due to Harrison by the employés which, from the fact of the deduction, the tie company had become bound to pay to Harrison. We think, also, the facts found establish that the course of dealing between Harrison and the tie company concerning the deductions from pay rolls was that the tie company, when it made the deductions, was under an obligation to remit the money collected from the laborers for account of Harrison to him, irrespective of any debt which he might owe the tie company. This follows from the finding that, although there was a debt existing between Harrison and the tie company, the course of dealing between them was that when the tie company made deductions from the wages of the laborers of sums of money due by them to Harrison the tie company regularly remitted the proceeds of the deductions to Harrison. This conclusion, moreover, is the result of the finding that Harrison had no intention to give the tie company a preference, for if Harrison, being insolvent, to the knowledge of the company, within the prohibited period, gave to the tie company authority to collect the sums due to him by the laborers for goods sold them, with the right, or even the option, to apply the money to a prior debt due by Harrison to the company, the necessary result of the transaction would have been to create a voidable preference. And if the inevitable result of the transaction would have been to