Argued December 1, 1908. Decided Janu- Law & Proc. p. 661; Taylor, Jurisdiction,

§§ 244, 248; Holmgren v. Werner, 51 La. Ann. 1476, 26 So. 384; Abat v. Michel, 1 Mart. N. S. 240; 2 Cyc. Law & Proc. pp. 662, 664, 669-671, 676, g; Butler v. Gage, 138 U. S. 52, 34 L. ed. 869, 11 Sup. Ct. Rep. 235; Clark v. Pennsylvania, 128 U. S. 395, 32 L. ed. 487, 9 Sup. Ct. Rep. 113; Union Mut. L. Ins. Co. v. Kirchoff, 169 U. S. 103, 42 L. ed. 677, 18 Sup. Ct. Rep. 260.

The writ should be dismissed for want of jurisdiction for the further reason that

See same case below, 117 La. 821, 42 So. where the highest court of a state having

itors of a partnership are preferred as to the partnership assets over the individual creditors of the members of the firm. Civil Code, 2823. This privilege does not, however, conversely exist, since it has been held from an early day in that state that individual creditors of members of the firm have no preference on the individual assets of the estate of the members of a firm, and therefore the partnership creditors and the individual creditors have a concurrent right to payment out of the individual estates. Morgan v. His Creditors, 8 Mart. N. S. 599, 20 Am. Dec. 262; Flower v. Their Creditors, 3 La. Ann. 189.

On February 2, 1905, three corporationswhich, for the sake of brevity, we shall designate as the wooden ware, the fertilizing, and the elevator companies-sued in a state district court the firm of O. Guillory & Company, the senior member, O. Guillory, individually, and the purchasers at the respective sales above mentioned. As to the first company, the cause of action was based upon an alleged open account for the purchase *price of goods sold to the firm [499 prior to the making of the sales by the senior partner of his individual property above mentioned. As to the two other corporations, the action was based upon notes As a result of the common pledge which held by the corporations, signed by the inall creditors are presumed to have upon dividual members of the firm, and averred the property of their debtors, the law of to have been given for the price of merchanLouisiana gives to every creditor an action dise bought, also prior to said sales, from to revoke any contract made in fraud of their the corporations by the firm, it being alleged 498] common right of pledge. Civil Code, that the notes signed by the individual 1970-1977. As a consequence it is per- members had been received by the corporamissible to attack, even collaterally, any tions as cumulative, and not in any wise mere fraudulent and simulated (that is, as a novation of the firm obligation to pay fictitious and unreal) transfer of his prop- the price of the goods by it bought. The erty by a debtor. See authorities collected sales were attacked as fraudulent simuin 2 Hennen's Digest, verbo "Obligations," lations, or, if not unreal, as subject to be 7, p. 1031. This right, however, even in revoked, because they were made at a time case of bad faith, does not enable a cred- when the firm was notoriously embarrassed itor to avoid a real contract of a debtor or insolvent, to the knowledge of the purunless the act has operated to the injury chasers, and were not within the excepted and prejudice of creditors who were such at class, because they were, in substance, not the time the act sought to be revoked was what they purported to be, but were givings done. Civil Code, 1937. Every contract, in payment of the individual property of however, is deemed to have been in fraud O. Guillory in order to prefer the purchasers. of creditors and prejudicial to their rights amount of the debts, for a revocation of the The prayer was for a judgment for the "when the obligee knew that the obligor sales, for a direction that they be sold by was in insolvent circumstances, and when such contract gives to the obligee, if he be rendered, the payments to be made by judicial decree to pay the judgments to be a creditor, any advantage over other cred-preference out of the proceeds arising from itors of the obligor." Civil Code, 1984. the sale. From this rule are excepted sales of property or other contracts made in the usua) course of business, and all payments of a just debt in money. Civil Code, 1986. But this exception does not include the giving "in payment to one creditor, to the prejudice of the others, any other thing than the sum of money due." Civil Code, 2658.

The cause was put at issue by general denials filed for the firm, for O. Guillory individually, and for the purchasers. Before trial, in consequence of an adjudication in bankruptcy as to Guillory & Company, made on April 28, 1905, a petition was filed in the cause by W. J. Sandoz, alleging himself to be "the duly appointed and qualified In 1903 the commercial firm of O. Guil-trustee of the bankrupt estate of O. Guillory lory & Company, composed of Olivrel Guil- & Company." It was alleged that "since lory, Olivrel E. Guillory, and Ambrois Lafleur, carried on business in the state of Louisiana. In 1904 the senior member, Olivrel Guillory, sold various parcels of real estate, which were his individual property, as follows: One sale to J. A. Fontenot, another to Alexandre Miller, and a third to John A. and Samuel Haas. All these sales were, apparently, on their face not susceptible of being assailed by creditors, because in form they were embraced within the excepted class to which we have referred. 302

the institution of this suit the said O. Guillory & Company have made application for and been adjudged bankrupts in the district court of the United States for the western district of Louisiana." And it was further averred that, under the bankrupt law of the United States, "the trustee succeeds to the rights of the creditors who may have brought actions to annul any transactions affecting the property of the bank-[500 rupts, and the law makes it his duty to prosecute the same for the benefit of the said bank

The in decreeing the sale to Miller to the extent of $3,000 to be revocable as a prejudicial preference, and, at the same time, relegating to the bankruptcy court the determination of whether there were any individual creditors who could have been prejudiced; thus decreeing a preference and yet declining to determine a question which was essential to be ascertained before a preference could be adjudged.

rupt estate in his capacity as trustee."
prayer of the petition was that Sandoz, as
trustee, "be made a party plaintiff in this
suit and duly authorized to prosecute the
same to final judgment for the benefit of
said bankrupt estate of 0. Guillory &
Company." The state court, after notice to
the parties, entered an order substituting
Sandoz as party plaintiff in his capacity
"as trustee of the estate of O. Guillory &
Company . . . with authority to prose-
cute the same to final judgment for the
benefit of said bankrupt estate."

Sandoz, trustee, was thereafter the sole plaintiff, and prosecuted an appeal to the supreme court to reverse a judgment of the trial court sustaining the sales. The supreme court, for reasons given in an elaborate opinion, held the sale to Fontenot to have been simulated, and sustained the validity of the Haas and Miller sales. It was found that Olivrel Guillory had made the sales of his individual property principally for the purpose of assisting the firm, which was embarrassed as the result of a decline in the price of cotton held by the firm; that, at the time, Guillory had no individual debts whatever, except one of $3,000, due to Miller, and another of $6,000, which was assumed and provided for in the Haas sale. Granting a rehearing asked by trustee Sandoz, a different conclusion was reached as to the Miller sale. The court found that, when that sale was made, Guillory owed Miller $3,000, and although the price of $7,500 was actually paid to Guillory, yet, as immediately after the sale Guillory had paid the three thousand dollar debt which he owed to Miller, "the transaction was an indirect preference of the son-in-law (Miller) over other creditors by a disguised giving in payment." 117 La. 821, 42 So. 329. This writ of error sued out by Miller was allowed by the chief justice of the state court.

Our jurisdiction is challenged, first, because it is urged no Federal question was set up or claimed in the trial court, and therefore no such question was cognizable by the supreme court; second, because no Federal question was raised in or decided by the supreme court; third, even if incidentally a Federal question may have been passed upon below, nevertheless the court based its conclusions upon a non-Federal ground, broad enough to sustain its judgment. The first question is involved in the second, because, if the court below decided a Federal question, we may not decline to review its action in so doing upon the assumption that the court transcended its powers under the state law by passing on a question which it had no right to examine, because not raised in the trial court. The second contention embraces an irrelevant element,-that is, that no Federal question was raised in the court below, since, if such a question was expressly decided by the court, our duty to review may likewise not be avoided by assuming that the court decided a question not raised in the cause.

*The proposition, therefore, reduces [502 itself to this: Did the court below expressly decide a Federal question adversely to the plaintiff in error?

In its opinion on the rehearing the court

said:

"The trustee in bankruptcy was, on his own petition, made a party plaintiff, and was authorized by order of court to proseBy the assignments of error it is con- cute the suit to final judgment for the tended, first, that the court erred in testing, benefit of the bankrupt estate. Neither the at the instance of Sandoz, trustee, the capacity of the trustee nor his right to stand 501]*validity of the sale to Miller by the in judgment have been questioned. It is state law instead of by the bankrupt law of argued, however, by counsel for Miller, that the United States, which was alone control- the partnership alone was adjudged a bankling; second, under the bankrupt law of the rupt, and not the members as individuals, United States the court erred in holding that and that, as Miller, under the bankrupt act the transfer by Guillory of his individual of 1898 [30 Stat. at L. 544, chap. 541, U. S. property to pay Miller, his individual Comp. Stat. 1901, p. 3418], is entitled to be creditor, was revocable, although there was paid by preference over partnership creditno other individual creditor to be prejudiced ors out of the net proceeds of the individual thereby; and, third, that, in any event, the estate of O. Guillory, plaintiffs were not court erred in holding that prejudice could prejudiced by the payment of the note held have resulted under the bankrupt law to by Miller out of the individual assets of the individual creditors by the sale to Miller debtor. The answer to this contention is without ascertaining whether there were that the petition of the bankrupt shows such creditors who could have been preju- that O. Guillory filed schedules of his indiced. In other words, that the court erred dividual debts and of his individual

property. 'Where a firm goes into bank- which would arise for consideration if that ruptcy, it is a proceeding against cach and subject had been decided by the court below. every member; and both the firm and in- Re Stokes, 106 Fed. 312; Dickas v. Barnes, dividual assets must be administered in 5 L.R.A. (N.S.) 654, 72 C. C. A. 261, 140 bankruptcy. Collier Bankr. p. 60. Hence. Fed. 849; Re Bertenshaw, 157 Fed. 363. all rights of preference must be determined While 5 of the bankrupt act expressly by the court having jurisdiction of the in-authorizes an adjudication in bankruptcy solvency."

against a firm, the controlling provisions following are the direct antithesis of the rule prevailing in the state of Louisiana.

Thus, subdivision f of § 5 commands that "the net proceeds of the partnership property shall be appropriated to the payment of the partnership debts, and the net[504 proceeds of the individual estate of each partner to the payment of his individual debts. Should any surplus remain of the property of any partner after paying his individual debts, such surplus shall be added to the partnership assets and be applied to the payment of the partnership debts." To enforce these provisions the act compels (subdiv. d) the keeping of separate accounts of the partnership property and of the property belonging to the individual partners; the payment (subdiv. e) of the bankrupt expenses as to the partnership and as to the individual property proportionately; and permits (subdiv. g) the proof of the claim of the partnership estate against the individual

In view of the statement that no question was raised "as to the capacity of the trustee and his right to stand in judgment," and the fact that the record does not contain the full proceedings had in the bankruptcy court, and the further fact that no question as to the capacity of the trustee is raised in the assignment of errors, we take it that the intimation made by the court concerning the effect of the adjudication of a firm as being also an adjudication of the individual estates of the members was but a method of reasoning resorted to by the court to sustain its decision concerning the right of the trustee to avail of the state law under the circumstances of the case, irrespective of the rule as to preferences provided in the 503]bankrupt *law, and, further, to support its conclusion that it was its duty to abstain from determining whether there were individual creditors who were prejudiced, and to remit that question to the court in which the bankruptcy proceedings were pending.estate, and vice versa, and directs the marBut thus limiting the passage referred to, it nevertheless results that the court below both considered and necessarily decided two distinct Federal questions: First, the right of the trustee to avoid a preference under the state law, although it was contended that the exertion of such power was in conflict with the bankrupt law; and, second, that the preference might be avoided under the state law at the instance of the trustee without establishing that there were credit-"if, being insolvent, he has, within four ors of the individual estate. So far as the third contention concerning jurisdiction, it is apparent from what we have just said that it is without merit. While it is true that the court applied the state law in test- enforcement of such ing the existence of the preference, such be to enable any one of his creditors to obapplication of that law is obviously not tain a greater percentage of his debt than alone broad enough to sustain its conclusion any other of such creditors of the same that the trustee, under the bankrupt law, class." It is obvious that if, at the time of had the right to avail of the preference the alleged preferential transfer to Miller, under the state law, and this is also true there were no other creditors of the individconcerning the ruling that there was power ual estate of Guillory than Miller, under to determine the preference under the state the rule laid down by the bankrupt act, the law without previously ascertaining the transfer to him of assets of the individual existence under the bankrupt act of indi-estate, in payment of an individual debt, vidual creditors.

We come, then, to the merits. Eliminating, as we have done, the expressions of the court below as to the effect of the adjudication in bankruptcy of the partnership upon the estates of the individual members, we need not approach the very grave question

shaling of the assets of the partnership estate and the individual estates, "so as to prevent preferences and secure the equitable distribution of the property of the several estates."

Now, by 60 of the bankruptcy law, as amended by the act of 1903 [32 Stat. at L. 799, chap. 487, § 13, U. S. Comp. Stat. Supp. 1907, p. 1031], it is provided that a person shall be deemed to have given a preference

months before the filing of the petition, or
after the filing of the petition, and before
the adjudication,
made a transfer
of any of his property, and the effect of the
transfer will

.

did not constitute a preference. That it might have constituted a preference under the state law results from the difference in the classification made by the state law, on the one hand, and the bankruptcy law on the other. So, also, it is evident, having regard to the separation between the part

nership and individual estates made by the, the suit to judgment, was obliged to prove bankrupt act and the method of distribu505]tion of those estates, *that, if there were no individual creditors, and the sum paid to Miller was returned to the estate as a preference, it would be his right to at once receive back, by way of distribution, that which he was obliged to pay in upon the theory that it was a preference.

the existence of the facts which were essential under the state law, since, to hold otherwise, would be but to decide that he could recover without proof of his right to do so. But as, under the state law, creditors of the partnership had a coequal right to payment with the individual creditors of a member of the firm out of his individual estate, it follows that, even if there had been no individual creditor but Miller, recovery was justified because of the prejudice suffered by the partnership creditors as the result of the giving in payment made by Guillory to Miller. In view of the distinction between the estates of partnerships and the estates of the members of the firm, which

The questions, then, to be decided, are these: 1st, was the trustee authorized by the bankrupt law to avoid the sale to Miller to the extent of the $3,000 which constituted the giving in payment under the state law? And, 2d, if so, was it incumbent on the trustee, under the bankrupt act, to such recovery to show the existence of individual creditors at the time the giv- is made by the bankrupt law, and the mething in payment to Miller took place, whood of distribution for which that law prowere prejudiced thereby; and, if not, was vides, of course the trustee will hold the the trustee obliged to show the existence of fund as an asset of the estate of the indiindividual creditors at the time of the ad-vidual member, and primarily for the benejudication in bankruptcy, who would be prejudiced in the distribution of the bank rupt estate if the giving in payment to Miller was not annulled?

fact does not establish that there was a necessity, in order to avoid the preference under the state law, to make proof that, at the time of the alleged giving in payment, there were other individual creditors who were prejudiced. While the power in the state court to pass on the question of preference involved the duty of deciding whether, at the time of the assailed transaction, there were creditors to be prejudiced, that duty did not involve ascertaining what creditors at the time of the adjudication in bankruptcy, were entitled to participate in the distribution. The one was within the province *of the state court for the purpose [507 of the case before it; the other was a different question, depending on independent considerations exclusively cognizable in the bankruptcy court. The state court was, therefore, right in so deciding.

fit of his creditors. Although, on proof of the claims against such individual estate, if it be that Miller is the only individual creditor, he will be entitled, by way As the suit by the creditors was brought of distribution, to the full amount paid in within four months before the adjudication by him because of the method of distriin bankruptcy, their right to a lien or pref-bution ordained by the bankrupt law, that erence arising from the suit was annulled by the provisions of subdivision f of § 67 of the bankrupt law. But that section authorized the trustee, with the authority of the court, upon due notice, to preserve liens arising from pending suits for the benefit of the bankrupt estate, and to prosecute the suits to the end for the accomplishment of that purpose. First Nat. Bank v. Staake, 202 U. S. 141, 50 L. ed. 967, 26 Sup. Ct. Rep. 580. It is inferable that the parties proceeded upon the erroneous conception that the state court, where the suit was pending, was competent to authorize the trustee; but, as no question on that subject was made below or is here raised, we may not reverse the judgment in favor of the trustee because of the absence of authority from the bankrupt court, when presumably the want of authority would have been supplied had its absence been challenged. Assuming, therefore, that the trustee was properly authorized, it follows that he was entitled to preserve and enforce the privilege or lien which arose in favor of the creditors, 506] resulting from their pending action, even although the cause of action arose from the state law, and the application of that law was essential to secure the relief sought. To the accomplishment of this end the bankrupt law was cumulative and did not abrogate the state law. See Keppel v. Tiffin Sav. Bank, 197 U. S. 356, 49 L. ed. 790, 25 Sup. Ct. Rep. 443. Undoubtedly, the trustee, in prosecuting

Affirmed.

UNITED STATES, Plff. in Err.,

V.

EDGAR M. BIGGS, Charles H. Freeman,
Charles D. McPhee, and John J. Mc
Ginnity.

(See S. C. Reporter's ed. 507-522.) Appeal in criminal case- review on behalf of government.

1. Interpretation is included in the term NOTE. On the right of the state to ap peal in a criminal case-see note to People ex rel. Hodson v. Miner, 19 L.R.A. 342.