now before us, and as the observations there made respecting the Pueblos were evidently based upon statements in the opinion of the territorial court, then under review, which are at variance with other recognized sources of information, now available, and with the longcontinued action of the legislative and executive departments, that case cannot be regarded as holding that these Indians or their lands are beyond the range of Congressional power under the Constitution.

Being a legitimate exercise of that power, the legislation in question does not encroach upon the police power of the State or disturb the principle of equality among the States. United States v. Holliday, United States v. 43 Gallons of Whiskey, United States v. Kagama, Hallowell v. United States and Ex parte Webb, supra.

The judgment is accordingly reversed, with directions to overrule the demurrer to the indictment and to proceed to the disposition of the case in regular course.

VOL. CCXXXI-4

Reversed.

NATIONAL CITY BANK OF NEW YORK v. HOTCHKISS, AS TRUSTEE IN BANKRUPTCY OF HASKINS.

HOTCHKISS, AS TRUSTEE IN BANKRUPTCY OF HASKINS, v. NATIONAL CITY BANK OF NEW YORK.

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

Nos. 459, 460. Argued October 17, 20, 1913.-Decided November 3, 1913.

Courts may go far in giving financial transactions between banks and customers any form which will carry out the mutually understood intent, Sexton v. Kessler, 225 U. S. 90; but if the intent is doubtful or inconsistent with the legal effect of dominant facts it will fail. An understanding that the proceeds of a loan made by a bank to a customer and placed to the credit of his general account are to be used to take up certain securities does not, in the absence of any special agreement to that effect, create a lien upon those securities, and the delivery of such securities to the bank with notice of the customer's impending insolvency is an illegal preference under the Bankruptcy Act.

A trust cannot be established in an aliquot share of a man's whole property, as distinguished from a particular fund, by showing that trust monies have gone into it.

Although a loan may be made for a specified purpose, if the lender places it in the stream of the borrower's general property there is no right of subrogation.

A general creditor may increase the bankrupt's estate by his advances and lose the right to take them back.

Time may sometimes be disregarded when it is insignificant, but not where it has sufficed to materially change the financial positions of the parties.

These cases are distinguished from Gorman v. Littlefield, 229 U. S. 19, and other cases in which there was a specific res which identified the fund and separated it from the general mass of the estate.

A notice to a bank demanding securities for a loan made to the bank

231 U. S.

Argument for National City Bank.

rupt that bankruptcy was impending and that it was receiving a preference is sufficient to show that the bank had cause to believe that it was obtaining a preference.

Under an agreement, made in a suit by a receiver against a bank to recover securities in specie as an illegal preference, that the bank should hold them pending the decision of the suit with a power to sell in its discretion which had not been exercised, held that the bank was only liable for the securities and not for their value at the time the agreement was made.

201 Fed. Rep. 664; 120 C. C. A. 92, affirmed.

THE facts, which involve the determination 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. John A. Garver for appellant in No. 459 and for appellee in No. 460:

The law presumes an agreement or transaction to be legal, when it is capable of a construction which makes it valid. Jones on Evidence (2d ed.), § 85; King v. Hawkins, 10 East, 211; Curtis v. Gokey, 68 N. Y. 300, 304; Ormes v. Dauchy, 82 N. Y. 443.

So as to securing a just debt. Getts v. Janesville Co., 163 Fed Rep. 417; Re Neill Co., 170 Fed. Rep. 481, 484; Re Leech, 171 Fed. Rep. 622; Sexton v. Kessler, 172 Fed. Rep. 535, 537.

The right to recover a preference is exclusively statutory. The common law favors the diligent creditor. Tompkins v. Hunter, 149 N. Y. 117, 121; Dodge v. McKechnie, 156 N. Y. 514, 520; Huntley v. Kingman, 152 U. S. 527, 532.

A trustee in bankruptcy has, therefore, no power to avoid a preference, except on the precise grounds specified in the statute; and, as the right given is in derogation of the common law, it must be strictly pursued. Plowden, Comm. 113; Sutherland, Stat. Con., § 371; Atkins v. Kinnan, 20 Wend. 241, 249, 250.

Argument for National City Bank.

231 U.S.

A remedy which is given by statute must be strictly followed. East Tenn. &c. R. Co. v. Southern Tel. Co., 112 U. S. 306, 310; Campbellsville Lumber Co. v. Hubbert, 112 Fed. Rep. 718, 724-750; affd., 191 U. S. 70; Matter of Bryce, 16 Daly, 443.

A transaction, such as this, which does not diminish the fund distributable among the creditors is not repugnant to the statute. County Bank v. Massey, 192 U. S. 138, 147; Bank of Newport v. Herkimer Bank, 225 U. S. 178, 184; Gorman v. Littlefield, 229 U. S. 19, 25; Continental Trust Co. v. Chicago Title Co., 229 U. S. 435.

This rule applies even where the account is not active and where two payments have been made without any intermediate sale. Re Sagor, 121 Fed. Rep. 658; Jaquith v. Alden, 189 U. S. 78; Yaple v. Dahl-Milliken Co., 193 U. S. 526; Wild v. Provident Trust Co., 214 U. S. 292, 296. There are no other creditors of the same class.

A payment is objectionable under § 60 only when it has the effect of enabling one creditor to obtain a greater percentage of his claim than other creditors of the same class. Swartz v. Fourth Natl. Bank, 117 Fed. Rep. 1; Crooks v. People's Bank, 46 App. Div. 335.

The classification referred to in § 60a is not the same as that providing for a priority in the payment of debts in § 646. As to differences in classification, see Re Belknap, 129 Fed. Rep. 646; Re Barrett, 6 Am. Bkcy. Rep. 199; Re Harpke, 116 Fed. Rep. 295, 297; Re Denning, 114 Fed. Rep. 219, 221; Gomila v. Wilcombe, 151 Fed. Rep. 470. There is no proof that the bankrupts intended to give preference.

Prior to the amendment of 1910, the trustee in bankruptcy was required to prove, in a suit of this kind, that the creditor knew that the bankrupt actually intended to give a preference. Hardy v. Gray, 144 Fed. Rep. 992; Re First Natl. Bank, 155 Fed. Rep. 100 (C. C. A. 6th); Bank v. Graves, 156 Fed. Rep. 168; Tumlin v. Bryan, 165

231 U. S.

Argument for National City Bank.

Fed. Rep. 166; Re Leech, 171 Fed. Rep. 622; In re Sayed, 185 Fed. Rep. 962; Kimmerle v. Farr, 189 Fed. Rep. 295; Debus v. Yates, 193 Fed. Rep. 435. As to the effect of the amendment, see Alexander v. Redmond, 180 Fed. Rep. 192, and cases cited in brief for appellant, in Mechanics Bank v. Ernst (post, p. 64).

Defendant did not have reasonable cause to believe it was obtaining a preference. Irish v. Citizens' Trust Co., 163 Fed. Rep. 880.

The conduct of defendant's officers in asking for the securities on that day is entirely consistent with the understanding and usage of the business, and is in direct accord with the written contract, that clearance loans shall be taken care of before the close of business hours.

Subrogation exists. The tendency is to extend subrogation to every possible case for the protection of one advancing money for discharging obligations carrying security. Matthews v. Fidelity Title Co., 52 Fed. Rep. 687, 689.

Subrogation is allowed in every instance in which one party pays a debt for which another is primarily liable, and which, in equity and good conscience, the latter should have discharged. Stevens v. King, 84 Maine, 291; Dunlop v. Adams, 174 N. Y. 411, 416; Atlantic Trust Co. v. Kinderhook Co., 17 App. Div. 212; Louis v. Bauer, 33 App. Div. 287, 293; Peters v. Meyer, 72 App. Div. 585; Gans v. Thieme, 93 N. Y. 225; Pease v. Egan, 131 N. Y. 262, 273; Moorehouse v. Bklyn. Heights Co., 185 N. Y. 520, 524; Title Guarantee Co. v. Haven, 196 N. Y. 487; Lidderdale v. Robinson, 2 Brock. 159, 168.

The only exception is that it will not be applied to defeat the superior or equal equities of third persons. 4 Pom. Eq. Juris. (3d Ed.), § 1419, note; Union Tr. Co. v. Monticello R. R. Co., 63 N. Y. 311, 314.

The bankruptcy courts should apply the doctrine recognized in the state courts. Hewitt v. Berlin Works, 194 U. S. 296; Thompson v. Fairbanks, 196 U. S. 516;