times as may seem best to the officers of" the bank; that the rights of both parties "shall attach to the proceeds realized from the sale" and "the amount realized from the sale of the said securities shall stand in lieu of the securities and shall represent the amount of the liability" of the bank to the trustee in bankruptcy in case of judgment against it. "The making of this stipulation shall not alter the rights or claims of any of the parties, nor change the jurisdiction of any court it being the intention of the stipulation that the securities in the possession of the National City Bank shall be converted into money at the best prices obtainable, and that all rights of the parties shall remain as against the proceeds of the sale of the said securities the same as they existed against the securities themselves at the time of making this stipulation."

It seems that no sale took place. The decree was for a delivery of the securities with all interest and dividends thereon received and in default thereof for $161,740.62 with interest from the date of the master's report. But as the securities have declined a good deal below their value at the time of conversion and again below their value at the date of the foregoing agreement, the trustee claims the right to take the sum named, with corrections. This was answered sufficiently by Judge Hand in the District Court. As he observed, the suit was in equity to recover the securities in specie. After the agreement the bank was authorized to hold them until it thought it wise to sell. If it had sold, there can be no doubt that the plaintiff's claim would have been limited to the proceeds, by the words of the contract. Its judgment not to sell, exercised for the benefit of both parties, cannot have been intended to put it in a worse position. Such an understanding would have deprived the plaintiff of the judgment of the bank.

Decree affirmed.

Argument for Appellant.

231 U. S

MECHANICS' AND METALS NATIONAL BANK OF THE CITY OF NEW YORK v. ERNST ET AL., AS TRUSTEES IN BANKRUPTCY OF HUMPHREY.

APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

No. 446. Argued October 20, 1913. Decided November 3, 1913.

National City Bank v. Hotchkiss, ante, p. 50, followed to effect that

the delivery by the bankrupt of securities to a bank to secure a clearance loan constituted an illegal preference.

This court approves the findings of the court below that the bank knew of the impending bankruptcy when it demanded and accepted security for an existing loan.

An unusual proceeding in the banking business, such as an officer leaving the bank and going to the customer's office and demanding additional security for a loan made earlier the same day, indicates knowledge of the impending bankruptcy of such customer.

A general promise to give security on demand puts the creditor in no better position than an agreement to pay money and does not justify a delivery of securities after knowledge of impending bankruptcy. It is an illegal preference.

A deposit made after the bank's officers have forbidden payment of checks against the bankrupt's deposit account is a payment and a preference and a set-off cannot be allowed.

200 Fed. Rep. 295, affirmed.

THE facts, which involve the determination of the question of whether the delivery of securities by a broker immediately preceding his bankruptcy to a bank to secure its loan was an illegal preference, are stated in the opinion.

Mr. Lewis H. Freedman, with whom Mr. Adrian H. Larkin and Mr. Leland B. Garretson were on the brief, for appellant:

231 U.S.

Argument for Appellant.

Under the agreement when the loan was made, as amplified and modified by the general custom, appellant acquired an equitable lien upon, or right in or to, the money constituting the "day" or "clearance" loan and in or to all securities or proceeds of whatever nature realized, cleared or obtained possession of by the bankrupt Fiske & Co. by the use of such loan in so far as such securities or proceeds were or could be identified as so realized, cleared or reduced to possession.

"A general custom is the common law itself, or a part of it." Written contracts, by implication, incorporate custom into them. Underwood v. Greenwich Ins. Co., 161 N. Y. 413, 423; Newhall v. Appleton, 114 N. Y. 140; Walls v. Bailey, 49 N. Y. 464; Botany Works v. Wendt, 22 Misc. Rep. 156; Hostetter v. Park, 137 U. S. 30, 40; Robinson v. United States, 13 Wall. 363; Hazard v. New England Ins. Co., 8 Pet. 557; Hartshorne v. Union Ins. Co., 36 N. Y. 172.

There was an equitable lien, and equity regards as done that which ought to be done. Pom. Eq. Jur., 3d ed., § 1235; Walker v. Brown, 165 U. S. 654, 664; Goodnough Co. v. Galloway, 156 Fed. Rep. 504, 510; Howard v. Delgado, 121 Fed. Rep. 26, 30; Chattanooga Bank v. Rome Iron Co., 102 Fed. Rep. 755, 758; Ingersoll v. Coram, 211 U. S. 335, 368; Hovey v. Elliott, 118 N. Y. 124; Holroyd v. Marshall, 10 H. L. C. 191.

One may by express agreement create a charge or claim in the nature of a lien on property of which he is the owner or possessor, and equity will establish and enforce such charge or claim not only against the party who stipulated to give it, but also against third persons, who are either volunteers, or who take the estate on which the lien is agreed to be given, with notice of the stipulations. Ketchum v. St. Louis, 101 U. S. 306; Hauslet v. Harrison, 105 U. S. 401; Carr v. Hamilton, 129 U. S. 252; Fourth Street Bk. v. Yardley, 165 U. S. 634; Walker v. Brown, 165 U. S. 654;

Argument for Appellant.

231 U. S.

Ingersoll v. Coram, 211 U. S. 335; Hurley v. Atchison &c. Ry. Co., 213 U. S. 126; Sexton v. Kessler, 225 U. S. 90; Dressel v. Lumber Co., 119 Fed. Rep. 531; First National Bank v. Penn. Trust Co., 124 Fed. Rep. 968; Fisher v. Zollinger, 149 Fed. Rep. 54; Union Trust Co. v. Bulkeley, 150 Fed. Rep. 510; Mills v. Virginia-Carolina Co., 164 Fed. Rep. 168; Re Farmers Supply Co., 170 Fed. Rep. 502; Goodnough Co. v. Galloway, 171 Fed. Rep. 940; Re National Cash Register Co., 174 Fed. Rep. 579.

If such a contract is shown to exist payments made in pursuance thereof will not be invalidated as preferences by the operation of the Bankruptcy Act. Humphrey v. Tatman, 198 U. S. 91; Thompson v. Fairbanks, 196 U. S. 516; Re Perlhefter, 177 Fed. Rep. 299, 303.

The agreement creating the lien may be either verbal or in writing. Riddle v. Hudgins, 58 Fed. Rep. 490; National Bank v. Rogers, 166 N. Y. 380; Hamilton Trust Co. v. Clemes, 163 N. Y. 423; Am. Sugar Co. v. Fancher, 145 N. Y. 552; Hovey v. Elliott, 118 N. Y. 124; Coats v. Donnell, 94 N. Y. 168; Spring v. Short, 90 N. Y. 538; Husted v. Ingraham, 75 N. Y. 251; Payne v. Wilton, 74 N. Y. 348; McCaffrey v. Woodin, 65 N. Y. 459; Parshall v. Eggert, 54 N. Y. 18; Rochester Bank v. Jones, 4 N. Y. 497.

Sexton v. Kessler, 225 U. S. 90, governs this case.

Appellee was entitled to set off the fifty-four thousand dollar deposit.

The moment the checks composing that deposit were received by appellant and passed to the credit of the brokers the funds became appellant's property and the relation of debtor and creditor was created and the right of set-off established. New York County Bank v. Massey, 192 U. S. 138; National Bank v. Burkhart, 100 U. S. 686; Cassidy v. Uhlman, 170 N. Y. 505, 515; Joyce v. Auten, 179 U. S. 591; Scott v. Armstrong, 146 U. S. 499; Straus v. T. N. Bank, 122 N. Y. 379.

The case involves no question of actual fraud and

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Argument for Appellant.

appellees failed to establish by a preponderance of evidence that appellant received a voidable preference.

The burden is on the trustee to prove by a preponderance of evidence every element necessary to constitute a preference. Barbour v. Priest, 103 U. S. 293; Kimmerle v. Farr, 189 Fed. Rep. 295; In re Leech, 171 Fed. Rep. 622. The insolvent's estate must have been diminished as a result of the transaction. Coder v. Arts, 213 U. S. 223; aff'g 152 Fed. Rep. 949; Hardy v. Gray, 144 Fed. Rep. 922; Calhoun Bank v. Cain, 152 Fed. Rep. 983; Tumlin v. Bryan, 165 Fed. Rep. 166; In re Neill-Pinckney Co., 170 Fed. Rep. 481; Sparks v. Marsh, 177 Fed. Rep. 739; Kimmerle v. Farr, 189 Fed. Rep. 295; Remington on Bank., §§ 1276 et seq.; Collier on Bank. (9th ed.), 790-791.

The debtor must have been insolvent within the meaning of the statute, and insolvency in that sense has a different meaning from that ordinarily understood, namely, an inability to meet maturing obligations. Pirie v. Chicago Title Co., 182 U. S. 438, 451; McDonald v. ClearWater Short Line, 164 Fed. Rep. 1007; Hardy v. Gray, 144 Fed. Rep. 922; Re Klein, 197 Fed. Rep. 241; Butler Paper Co. v. Goembel, 143 Fed. Rep. 295; Remington, § 1343; Collier (9th ed.), 8.

The payment must have been in satisfaction of or on account of an antecedent debt. Coder v. Arts, 152 Fed. Rep. 943; S. C., 213 U. S. 223.

Payment within four months of the filing of the petition must be established, and insolvency as defined by the statute must have existed at the time when the payment was made. Tumlin v. Bryan, 165 Fed. Rep. 166, 168; Rutland County Bank v. Graves, 156 Fed. Rep. 168; Butler Paper Co. v. Goembel, 143 Fed. Rep. 295; In re Rome Planing Co., 96 Fed. Rep. 812; Troy Wagon Works v. Vastbinder, 130 Fed. Rep. 232, 234.

The inhibition of the statute applies only to preferences given when the debtor is insolvent in fact, and a lien per