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accept it if it would be unprofitable; but it has been held that this doctrine does not apply to a judgment.26
8 644. Right of trustee to set aside preferences, liens and conveyances. By § 67 of the Bankruptcy Law. "c. A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person, shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent 1 and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such
that the trustee in such a case is only liable for the value of the use of the premises while he occupies them, subject to his right to occupy, free of charge, for an unexpired portion of a term, for which a landlord holds a provable claim and that he does not thereby accept the lease. He cites Bray v. Cobb, 100 Fed. 270, 3 Am. B. R. 788; reversed on another point, Cobb v. Overman, C. C. A., 109 Fed. 65, 54 L.R.A. 369, 6 Am. B. R. 324, and Re Jefferson, 93 Fed. 948, 2 Am. B. R. 206. See supra, § 313.
But see Commonwealth v. Franklin Ins. Co., 115 Mass. 278; People v. National Trust Co., 82 N. Y. 283; People v. Universal Life Ins. Co., 30 Hun (37 N. Y. S. C. R.) 142; Wells v. Higgins, 132 N. Y. 459. In such a case it was held that the trustee might remain in possession of the premises a reasonable time in order to ascertain whether it was expedient to
the lease; that month was not unreasonable; and that in such a case, where that time was required for the proper packing and safe removal of the bankrupt's property thereupon, the lease was not assumed and the estate was liable only for a asonable sum for the use and occupation of the premises. Re Chambers, Calder & Co., 98 Fed. 865. Cf. Re Grimes, 96 Fed. 529; Bray v. Cobb, 100 Fed. 270; Re Secor, 18 Fed. 319; Re Rubel, 166 Fed. 131. It has been held that a delay of five days in the payınent of the first month's
rent by the trustee, does not authorize a forfeiture of the lease. Re Gutman, 197 Fed. 472. For a case where it was held that a lease was terminated before the bankruptcy, see Re Van Da Grift Motor Car Co., 192 Fed. 1015. For a subsequent termination, see Re Desmond & Co., 198 Fed. 581. It has been said that it is the duty of a trustee who claims a leasehold, either to sell it at an upset price for the balance of the rent for the term, which he should pay to the lessor, or to condition the sale upon a bond of indemnity; and that if he cannot obtain a bid subject to these conditions, he should surrender the lease. Re Gutman, 197 Fed. 472. A leasehold owned by the bankrupt passes to the trustee. Gazlay v. Williams, 210 U. S. 41, 52 L. ed. 950; Crowe v. Baumann, 190 Fed. 399. The trustee receives it by operation of law; and neither the bank. ruptcy, nor the sale by the trustee of the bankrupt's interest, is a ground for re-entering under a covenant in the lease providing for its termination upon its assignment by the lessee, or a sale of its interest under execution or other legal process when there is no right to a re-entry in case of a transfer by operation of law. Gazlay v. Williams, 210 U. S. 42, 52 L. ed. 950. See infra, 88 647, 649.
26 Dolan v. Koupal, N. Y. Sup. Ct., Sp. Tm., per Bijur, J., N.Y.L.J, March 27, 1916.
§ 644. 1 A bankrupt was insolvent at the time of the transfer if the property that he then owned, at a fair valuation, was insufficient to pay the debts that he then owed. Paper v. Stern, C. C. A., 198 Fed. 642; Stephens v. Union Sav. Bank & Trust Co., C. C. A., 250 Fed. 192, held solvent; Moran y. Morgan, C. C. A., 252 Fed. 719, held insolvent. See § 622, supra.
When he is then engaged in business, his property must be valued as that of a going concern and not as what it was worth as dead property after bankruptcy had intervened and the business was closed. Re Klein, C. C. A., 197 Fed. 241. In determining the solvency of a bankrupt, when a conveyance by him is attacked as made with intent to defraud his creditors, the value of the property conveyed is not to be computed; but if the same conveyances are attacked as preferences not fraudulent, the value of such property is to be considered in determining the question of solvency when the same
was made. Food Co. v. Meier, C. C. A., 153 Fed. 74.
2 Dreyer v. Kicklighter, 228 Fed. 744; Brent v. Simpson, C. C. A., 238 Fed. 285. It has been held that a mortgage within the four months'
period, although given to secure prior indebtedness, is still good if the mortgagee did not have reasonable cause to believe that it was intended to create a preference. Coder v. Arts, 213 U. S. 223, 53 L. ed. 772, affirming C. C. A., 152 Fed. 943; McNair v. McIntyre, C. C. A., 113 Fed. 113; Re Sam Q. Lorch & Co., 199 Fed. 944. Contra, Re W. W. Mills Co., 162 Fed. 42. The fact that the grantee or payee had no personal knowledge of the actual insolvency is no defense to an action to recover the preference. Plummer v. Myers, 137 Fed. 660. Knowledge of an attorney who acted in the preferential transaction is imputable to his client, Farmers' State Bank y. Freeman, C. C. A., 249 Fed. 579. Notice to a township trustee of the insolvency of a debtor to the town is notice to the township. Painter v. Napoleon Tp., 190 Fed. 637. It was held that a corporation was not chargeable with knowledge of the insolvency of the bankrupt acquired by its president as a stockholder thereof, Benner v. Blummer-Frank Drug Co., 198 Fed. 362; contra Grandison v. National Bank of Commerce of Rochester, C. C. A., 231 Fed. 800; nor where its general manager fraudulently transferred its funds to the account of
lien was sought and permitted in fraud of the provisions of the bankrupt a corporation of which advising him that the latter was in he was president and controlling failing circumstances and desired to stockholder and subsequently effect a compromise with his credistored part of the same. High v. tors; Benjamin v. Chandler, 142 Opalite Tile Co., C. C. A., 184 Fed. Fed. 217; but see Re Varley & 450; nor where the bankrupt was Bauman Clothing Co., 191 Fed. 459; treasurer of the corporation, Arthur also that checks previously givv. Harrington, 211 Fed. 815. But en by the bankrupt had been dissee Collett v. Bronx Nat. Bank, 200 honored and the creditor had pracFed. 111. Knowledge by the presi- tically ceased selling the bankrupt dent is knowledge of the corporation goods some time before and had rewhen he has no conflicting interest, peatedly pressed for payment of his Arthur v. Harrington, 211 Fed. 815. account. Pittsburgh Plate Glass Co. It has been said that it is imma- v. Edwards, C. C. A., 148 Fed. 377. terial how the agent obtained his See also Parker v. Black, 143 Fed. knowledge, whether through confi- 560; Hardy v. Gray, C. C. A., 144 dential relations with the bankrupt Fed. 922; Hotchkiss V. National or personal interest that prevented City Bank, 200 Fed. 287; aff'd c. him from disclosing his knowledge C. A., 201 Fed. 664; Ernst v. Meto his principal. Campbell v. Bal- chanics' & Metals Nat. Bank of N. comb, C. C. A., 183 Fed. When the Y. 200 Fed. 295. See Fowler State bankrupt transfers his entire stock Bank, of Fowler, Kan. v. White, C. of goods to the creditor in payment C. A., 198 Fed. 631; Re Thomas of the claim, it will be presumed 199 Fed. 214; Ernst v. Mechanics' that a preference was intended and & Metals Nat. Bank of N, Y., 200 accepted; Re Knopf, 146 Fed. 109; Fed. 295; Citizens' Tr. Co., of PatAllen v. McMannes, 156 Fed. 615; erson, N. J. v. Tilt, C. C. A., 200 Re Thweatt, 199 Fed. 319. The Fed. 410. Where, after informasame rule was applied when the tion that a debtor, who was slow in creditor took nearly all the bills re- payments, had placed a chattel ceivable and a large part of the as- mortgage on his stock, the creditor sets of the debtor, Tilt v. Citizens' sent an attorney to investigate, the Tr. Co., 191 Fed. 441. But see Dox- latter was informed by the banksee v. Waddick, 122 Ia. 599; Bank rupt that he did not have sufficient v. Jewelry Co., 123 la. 432; Myers capital to meet his bills, but was v. Fultz, 124 Ia. 437; Burnham v. doing a profitable business, entirely Fort Dodge Grocery Co., s. C., 144 solvent and had an offer for his Iowa. 577. It so held, al- stock in cash and land, amounting though the creditor held a mortgage to a sum largely in excess of his inthereupon, which both parties pre- debtedness which he could accept sumed to be valid, but it was not at once the attorney advised its acallowed. Allen v. McMannes, 156 ceptance and meantime took a chatFed. 615. It is sufficient evidence of tel mortgage upon the stock for the knowledge by the grantee of the amount of the claim; it was held bankrupt's insolvency that he had that this could not be set aside as a previously received a circular letter preference. Hussey V. Richardson
this act; or if the dissolution of such lien would militate against
Roberts Dry Goods Co., C. C. C., 148 Fed. 598. Re Klein, C. C. A., 197 Fed. 241. The question whether the grantee or payee had reasonable notice of the bankrupt's insolvency depends upon whether the facts that he knew were such as would have excited the attention of an ordinarily intelligent man and put such a man upon inquiry, Wright v. Sampter, 152 Fed. 196; Hamilton Nat. Bank of Chicago v. Balcomb, C. C. A., 177 Fed. 155; Re Sanger, 169 Fed. 722; Gering of Leyda, C. C. A., 186 Fed. 110; Stern v. Paper, 183 Fed. 228; Coleman v. Decatur Egg Case Co., C. C. A., 186 Fed. 136; Ragan v. Donovan, 189 Fed. 138; Re The Leader, 190 Fed. 624, 629; Alexander v. Redmond, C. C. A., 180 Fed. 92; Re Thomas Deutschle & Co. 182 Fed. 435, where the creditors had refused the delivery of goods which they had shipped until they received a certified check for the price. In determining the question, the court will take judicial notice of business customs. McGirr Humphreys Grocery Co., 192 Fed. 55; Jacob Y. Shantz & Son Co., 205 Fed. 425; Northern Neck State Bank v. Smith, C. C. A., 205 Fed. 894; Re Starkweather & Albert, 206 Fed. 797; R. H. Herron Co. v. Moore, C. C. A., 208 Fed. 134; Arthur v. Harrington, 211 Fed. 215; Aronin v. Security Bank of New York, C. C. A., 228 Fed. 888; Re States Printing Co., C. C. A., 238 Fed. 775; Farmers' State Bank v. Freeman, C. C. A., 249 Fed. 579; Fifth Nat. Bank of City of New York v. Lyttle, C. C. A., 250 Fed. 362; Whitmore v. Swank, C. C. A., 252 Fed. 135; Re Anderson, 252 Fed. 272; Egner Parshelsky
Bros., Inc., 254 Fed. 907; McGill v. Commercial Credit Co., 243 Fed. 637. A mere suspicion by the creditor that the debtor is insolvent, without any evidence legal or moral to support it, Stucky V. Masonic Sav. Bank, 108 U. S. 74, 27 L. ed. 640; Sparks v. Marsh, 177 Fed. 739; Re Houghton Web Co., 185 Fed. 213; Re Thomas Deutschle & Co., 182 Fed. 435, where the creditor knew that notes of the bankrupt had frequently gone to protest during the past year. Debus v. Yates, 193 Fed. 427; Paper v. Stern, C. C. A., 198 Fed. 642; Re F. M. & S. Q. Carlisle, 199 Fed. 612; Beall v. Bank of Bowden, 219 Fed. 316; Brookheim v. Greenbaum, 225 Fed. 635; Nichols v. Elken, C. C. A., 225 Fed. 689; Roseman v. Coppard, C. C. A., 228 Fed. 114; Re Salmon, C. C. A., 249 Fed. 300; Smith v. Powers, 255 Fed. 582; even if he knows that the latter is “behind in his payments” to his creditors, Re Eggert, 98 Fed. 843; S. C., C. C. A., 102 Fed. 735; Sharpe v. Allender, C. C. A., 170 Fed. 589; does not constitute a reasonable cause for belief in the insolvency within the meaning of the statute. In the following cases it was held that the grantee did not have reasonable notice of insolvency. Pyle v. Texas Transport & Terminal Co., 238 U. S. 90; Re Frasin, C. C. A., 201 Fed. 86; Carey v. Donohue, C. C. A., 209 Fed. 328; Re Chicago Car Equipment Co., C. C. A., 211 Fed. 638; Hyman v. Third Nat. Bank of Jersey City, 216 Fed. 685; Clifford v. Morrill, 230 Fed. 189; Re Gaylord, 225 Fed. 234; Re French, 231 Fed. 258; Grandison v. Robertson, C. C. A., 231 Fed. 785;
the best interests of the estate of such person the same shall not be dissolved; but the trustee of the estate of such person, for the benefit of the estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened.”8
“d. Liens given or accepted in good faith and not in contemplation of or in fraud upon this Act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall to the extent of such present consideration only not be affected by this Act." 4
Grandison v. National Bank of Com-
830 St. at L. 544, 564, § 67c, as amended Feb. 5, 1903, ch. 487, $16, 32 St. at L. 800, and June 25, 1910, ch, 412, § 12, 36 St. at L. 842. Cf. See 8 643, supra.
4 30 St. at L. 544, 564, 8 67d, as amended Feb. 5, 1903, ch. 487, 8 16, 32 St. at L. 800, and June 25, 1910, ch. 412, § 12, 36 St. at L. 842. Continental Tr. Co. v. Chicago Title Co., 229 U. S. 435; Greey v. Dockendorff, 231 U. S. 513; Withoft v. Andrews, 217 Fed. 421; Nat. Bank of Goldsboro v. Hill, 226 Fed. 102; Marsh v. Leseman, C. C. A., 242 Fed. 48; Lake View State Bank v. Jones, C. C. A., 242 Fed. 826; Angle v. Bankers' Surety Co., C. C. A., 244 Fed. 401; Dean v. Davis, 242 U. S. 43; Steadman v. Bank of Monroe, 117 Fed. 237; Re Watson, 201 Fed. 962; Keystone Warehouse Co.' v. Bissell, C. C. A., 203 Fed. 652; Re Cotton Mfg. Sales Co., 209 Fed. 630; Angle v. Bankers' Surety Co., 210 Fed. 289; Re Alabama Coal & Coke Co., 210 Fed. 940; National
Bank of Goldsboro v. Hill, 226 Fed. 202; Howland v. Metropolitan Bank, 228 Fed. 542; Re Knox Automobile Co., 229 Fed. 241; Re Friedman, 241 Fed. 603; Re Mobile Chair Mfg. Co., 245 Fed. 216; Re Corbitt, 248 Fed. 988; Illinois Parlor Frame Co. v. Goldman, C. C. A., 257 Fed. 300. But see Re Braus, 237 Fed. 139; Dean v. Davis, C. C. A., 212 Fed. 89. A conveyance or pledge made within the four months under a previous parol agreement to secure an antecedent debt was sustained. Re Sheridan, 98 Fed. 406; Re Smith, 176 Fed. 426; Cf. Hurley v. Atchison, Topeka & Santa Fe Railroad, 213 U. S. 126, 53 L. ed. 729; Re Metropolitan Dairy Co., C. C. A., 224 Fed. 444; Chapman v. Hunt, 248 Fed. 160; Moran v. Morgan, C. C. A., 252 Fed. 719 (where a previous agreement was within the statute of frauds). It has been held that the payment to a bank, when it has reasonable cause to believe that the payer is insolvent, can be recovered as a preference, although it was made in payment of a clear. ance loan, to be paid before the closing of banking hours on the