This

It is not a matter simply of observation, but he performed a surgical operation to remedy a tearing of the cervix of the uterus, which he states was of a nature that could not have been produced except by childbirth, unless it was deliberately produced by a surgeon. experience with Dr. Perkins occurred in 1898 and 1899, within seven years after Mrs. Dorrance claims that she was confined and gave birth to the defendant.

Over against this testimony of Dr. Perkins stands the testimony of the three physicians appointed by the court to make a physical examination of Mrs. Dorrance. As to the testimony of these three physicians we make these observations: (a) Their examination was made 24 years after the birth of the child in question, when the evidence of the birth of the child, if the event actually occurred, would have become much less distinct than when Dr. Perkins had Mrs. Dorrance under his observation and treatment. (b) Dr. Perkins had by his surgery greatly changed the condition of Mrs. Dorrance's generative organs, so that the doctors appointed by the court were really not giving testimony which was the result of observing Mrs. Dorrance's condition, if she in fact did give birth to a child in 1891. The laceration of the uterus, which would have been the most trustworthy index of the birth, had without any question been removed by Dr. Perkins' surgery, so that about all the examining physicians had to guide them were the so-called striæ of the abdomen and the condition of the breasts. Even the doctors themselves testified that the changes of 25 years would greatly dim these symptoms. Dr. Perkins had also been compelled to remove both ovaries and the fallopian tubes in order to save Mrs. Dorrance from the results of venereal diseases with which she had been infected by her husband. These major operations must in the nature of things have so far changed the physical condition of Mrs. Dorrance as to greatly impair the testimony of the doctors appointed by the court. We therefore consider their evidence less trustworthy than the positive evidence given by Dr. Perkins as the result of his peculiar opportunities to know whereof he spoke.

These are, in our judgment, the controlling factors in the decision of the case. There are hundreds of minor circumstances tending both to confirm and refute these main features, and which could not even be stated without extending the opinion to lengths which we do not deem necessary. Our conclusion is that the master's report is sound, and rests upon a just and careful weighing of all the evidence in the

case.

The decree of the trial court is therefore reversed, with directions to enter a decree in accordance with the findings and conclusions of the

master.

(264 F.)

BOISE v. TALCOTT et al.

(Circuit Court of Appeals, Second Circuit. February 18, 1920.)

No. 121.

1. Bankruptcy 178(1)-Contract making one factor and selling agent not In fraud of creditors.

A contract whereby T. was made sole factor and selling agent of a corporation in financial difficulties, and made advances to the corporation, and had supervision of its accounts and credits, held not in fraud of creditors, and to give the factor a valid lien, against corporation's trustee in bankruptcy, to the extent of his advances, in view of his actual possession and control of the goods, and the publicity and notice given of the manner in which the business was being carried on.

2. Bankruptcy 151-Trustee takes title subject to claims, liens, and equities. A trustee in bankruptcy takes the property of the bankrupt, not as an innocent purchaser, but as the debtor had it at the time of the petition, subject to all valid claims, liens, and equities.

3. Factors 44-Contract construed to entitle factor to commissions on accounts assigned to him.

A contract making T. sole factor and selling agent for a corporation in financial difficulties, and providing that he should receive 10 per cent. on sales for his services, and requiring him to collect accounts at his own expense, entitled him to commissions on accounts receivable for merchandise purchased prior to his entry into the business, which were assigned to, and checked up and collected by, him.

4. Interest 60-Carrying balance on Interest-bearing account into new account not compounding of interest.

Under a contract making one sole factor and selling agent for a corporation, and providing that interest should be charged and credited on the account current between the parties, where accounts were rendered monthly, and interest charged on the accounts current, and the balance on each account was carried forward and started on the next account, in accordance with the usual custom of merchants, there was no basis for the claim that interest was thereby compounded.

5. Account stated 8-Accounts rendered, and not objected to, impeachable only for fraud or mistake.

Where a factor rendered daily statements and monthly accounts to the principal, which were not objected to, the rule applied that where an account is rendered between business men, and no objection is made at the time, it can only be successfully impeached for fraud or mistake.

Appeal from the District Court of the United States for the Southern District of New York.

Suit by Edward B. Boise, as trustee of the estate in bankruptcy of Daly & Schaefer, Incorporated, against J. Frederick Talcott, Grace Van Norden, and Henrietta E. Talcott, as executor and executrices under the last will and testament of James Talcott, deceased. Decree for complainant. Complainant appeals. Affirmed.

See, also, 212 Fed. 268.

Erwin, Fried & Czaki, of New York City (Marion Erwin and Frederick M. Czaki, both of New York City, of counsel), for appellant. Gleason, Vogel & Proskauer, of New York City (Joseph M. Proskauer and Wesley S. Sawyer, both of New York City, of counsel), for appellees.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

Before ROGERS and MANTON, Circuit Judges, and LEARNED HAND, District Judge.

MANTON, Circuit Judge. James Talcott, since deceased, on December 28, 1908, entered into a contract with Daly & Schaefer, Incorporated, by the terms of which Talcott became the sole factor and selling agent of Daly & Schaefer, Incorporated, then in financial difficulties, and subsequently adjudicated a bankrupt. The appellees are the executors of James Talcott, deceased.

Under the terms of this contract, it was agreed that Talcott would make loans to the bankrupt up to 40 per cent. of the net cost of the goods in his possession and up to 75 per cent. of the net value of the. outstanding accounts assigned to him, after first deducting his charges, which were fixed at 10 per cent. These charges were considered discounts. For the service as factor and selling agent, Talcott was to receive 10 per cent. on the first $170,000 in sales and 5 per cent. on all other sums in excess thereof. Commissions were to be computed on the net sales. Interest was to be charged by both sides in their calculations on the account current at the rate of 6 per cent. per annum. It was agreed that Talcott would supervise all accounts and credits. and keep the accounts of the business in the main store at No. 180 Franklin street. He was to collect the accounts at his own expense and pay the rent of the premises used for the business. He was to have exclusive possession and control of the merchandise and accounts. The right to lease gave him also the exclusive possession and control of the building. Upon this building it was agreed that he placed the sign, reading "James Talcott, Factor for Daly & Schaefer, Inc." Two officers of Daly & Schaefer, Incorporated, guaranteed the contract on its behalf. The contract ran for one year, and it was provided that it might be continued thereafter.

This action is brought, charging that this contract was made to carry out a scheme or means of defrauding the creditors. It is charged, in the complaint, that the contract was but a blind, and was contrary to the real intent, design, and purpose of the parties thereto, and was used as a cover adopted to disguise the real purpose and intent of the parties. The charge is that the bankrupt continued in the exclusive possession, custody, and control of the premises and occupied it and had control of the property in its possession at the time of making the agreement, and, in effect, continued to carry on the business. as the bankrupt; that no notice was given to the creditors that a factoring contract, or any other lien, existed in favor of Talcott. The general charge is that the contract was preconceived with the intent and desire to hinder, delay, and defraud creditors, and it is charged that in carrying out this plan credits were extended to the corporation. The prayer for relief asks that the contract be adjudicated void, and that the benefits which the defendants derived therefrom be refunded, and that it be adjudicated that the defendants have no lien, possessory or otherwise, in the merchandise or accounts receivable that were due and owing under the contract pursuant to the defense interposed at a trial had in the District Court, it was decreed that these charges were

(264 F.)

not well founded, that the contract was valid and binding, and that Talcott obtained a lien as a factor, and was entitled to the payments pursuant to the terms of the contract, for commissions as such factor.

A special master was appointed to pass on the accounts. He reported an amount due to the complainant of $5,367.24. This has since been confirmed by the District Court. From a final decree, this appeal has been taken.

[1] The trial court found that there was no bad faith, and that the evidence did not warrant the claim of a secret lien, and found, on the contrary, that in pursuance to the terms of the agreement large sums of money, amounting to approximately $430,780 were advanced from time to time, pursuant to the agreement, in good faith. Further, the court found that a valid lien on the goods comprising the stock on hand at the time the bankruptcy proceedings were instituted and that which was bought by the bankrupt during the continuance of the factor's agreement and consigned in writing to Talcott. The court said such a lien was well recognized as a possessory lien, and that there was actual possession of the property by the lienor. We agree in the conclusion reached that Talcott had a valid lien on the property, which is the subject of this controversy, and also that such liens were created pursuant to a factor's agreement, and were valid to the extent of the advances made. Talcott was a factor and banker in the dry goods. trade. It appears that in December, 1918, the firm of Salen & Schroeder were financing Daly & Schaefer, Incorporated. The former was a copartnership engaged in business in New York and Parts. They bought on commission, and assumed the credit or liability, paying the bills of the sellers, and collecting the amounts from the parties for whom they bought. Daly & Schaefer, Incorporated, was engaged in the same business. Salen & Schroeder subordinated any claim they might have to Talcott's lien, and this prior to the commencement of the relationship between Talcott and Daly & Schaefer, Incorporated. Since Salen & Schroeder are the principal creditors, it is of importance to note that they, by this conduct, became fully cognizant of the factor's agreement. When the contract was extended, Salen & Schroeder executed a second subordination agreement. Pursuant to the contract, Talcott entered into possession, leased the premises, paid the rent therefor, placed signs in conspicuous places at the entrance to the building, reading, as the contract provided: "James Talcott, Factor for Daly & Schaefer, Inc." These signs were 2 feet 934 inches by 2 feet 1 inch. A representative of Talcott was constantly at the place of business; books were kept and accounts rendered monthly. Notice of the factor's control of the business was indicated by a notice prominently posted in the place of business that

"No goods are to be shipped from these premises by any one except the representative of James Talcott. This order must be strictly complied with."

A further notice that

"No goods are to be shipped from these premises unless shipping ticket there of has first been checked by Mr. Gus Blum as representative of James Talcott. This rule must be strictly complied with."

Notice of the change and the relationship were given to the prominent commercial agencies and written notice was given to the customers. The management and conduct of the business was cared for by Talcott's representative, Mr. Blum. The evidence is replete with this constant supervision. When goods were consigned to merchants, both by the bills and by the receipts, it was plain to them that Talcott was in charge of the business as factor. The accounts which were collected and the statements which were rendered all indicate such a change and a relationship pursuant to the contract. Indeed, it is hard to conceive how the trade could have been more pointedly and carefully notified of the existence of the contract and the possession and management by Talcott. The same may be said as to the foreign creditors. Such notices as were necessary to send to foreign creditors; and the statements rendered, indicate the same result. Nor do we think that the testimony of creditors taken in France and Belgium indicate that any of the creditors in these foreign countries extended credit because of any apparent ownership, where there was a secret lien.

This method of financing an embarrassed commercial concern in this line is common, and the right to do so is recognized by the courts. Sexton v. Kessler & Co., 172 Fed. 535, 97 C. C. A. 161, 40 L. R. A. (N. S.) 639. Where, as here, Talcott had actual possession and control of the goods, and sufficient publicity and notice thereof was given as of the transactions carried on in due course of business, it was held that, when good faith is established, a valid lien will be upheld in favor of the lender against the borrower or general owner. First Nat. Bank of New Kensington v. Penn. Trust Co., 124 Fed. 968, 60 C. C. A. 100; Phila. Warehouse Co. v. Winchester (C. C.) 156 Fed. 600. Transactions of this kind are viewed on the broadest equitable principles, and a court will not hesitate to effectuate the actual intent of the transaction honestly had with a bankrupt. Gage Lumber Co. v. McEldowney, 207 Fed. 255, 124 C. C. A. 641; In re Cattus, 183 Fed. 733, 106 C. C. A. 171.

Ownership of securities, where there has been no change of possession, will be protected, if they are set apart and marked in such a way as to give notice to the public. Sexton v. Kessler & Co., supra. And it is only where there is some active concealment, and an attempt to mislead any one interested to know the truth, that the courts will interfere. And this was held where the trustee in bankruptcy sought to have paid over to him proceeds of accounts receivable, alleged to have been assigned to him by the bankrupt. Greey v. Dockendorff, 231 U. S. 513, 34 Sup. Ct. 166, 58 L. Ed. 339.

[2] A trustee in bankruptcy takes the property of the bankrupt, not as an innocent purchaser, but as the debtor had it at the time of the petition, subject to all valid claims, liens and equities. Zartman v. First Nat. Bank of Waterloo, 216 U. S. 134, 30 Sup. Ct. 368, 54 L. Ed. 418.

In the principal case relied upon by the appellant (Ommen v. Talcott, 188 Fed. 401, 112 C. C. A. 239), the circumstances were different. There the bankrupt paid the rent and kept the keys, and the court concluded that there was nothing to show that the defendant or any