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e. That all conveyances, transfers, assignments, or incumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned, or incumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or incumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the State or Territory, or district in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt.? For the purpose

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same day to release securities for sale, and was made out of the proceeds of such securities. Hotchkiss v. National City Bank, 200 Fed. 287; aff'd C. C. A., 201 Fed. 664. See Ernst v. Mechanics' & Metal Nat. Bank of N, Y., 200 Fed. 295. Contra, Vitzthus v. Large, 162 Fed. 685; Re Empire Cork Co., 193 Fed. 225. Payment to a creditor who has an inchoate lien is not a preference to the extent thereof. Re Lynn Camp Coal Co., 168 Fed. 998. See Hurley v. A. T. & S. F. R. R. Co., 213 U. 8. 126, 53 L. ed. 729; Sieg v. Greene, 225 Fed. 955. Even though the amount was not ascertained or liquidated until within the four months. Johnson v. Root Mfg. Co., 241 U. 8. 160. An annuity company may be required to return the consideration for an annuity bought by the bankrupt in fraud of credi. ' tors, although at the time when it received the money it has issued a contract to pay the annuity. Smith v. Mutual Life Ins. Co. of N. Y., 178 Fed. 510. A chattel mortgage, given to secure a contemporaneous loan, will not be set aside. Re Wolf, 98 Fed. 84; Martin v. Hulen & Co., 149 Fed. 982, 79 C. C. A., 492, 17 Am. B. R. 510. Nor one given to secure a previous loan if promised when the loan was made. Re Metropolitan Dairy Co., C. C. A. 224 Fed. 444. Nor one for future advances, so far as this and subse

quent advances are concerned. City Nat. Bank of Greenville v. Bruce, C. C. A., 109 Fed. 69; Stedman v. Bank of Monroe, C. C. A., 117 Fed. 237; Re Sayed, 185 Fed. 962; Chap

v. Hunt, C. C. A., 254 Fed. 768. The same rule applies to a chattel mortgage upon property to be subsequently acquired, given to secure the purchase price thereof. Re Chantler Cloak & Suit Co., 151 Fed. 952. See Meservey v. Roby, C. C. A., 198 Fed. 844; Re Thomas, 199 Fed. 214; Re Martin, C. C. A., 200 Fed. 940; Templeton v. Wollens, C. C. A., 200 Fed. 257. A release of other persons from liability is not such a present consideration as will support what would otherwise be a voidable preference. Burgoyne v. McKillip, 182 Fed. 452. It was held that in an action to recover the value of a preference, the defendant's agent had guaranteed part of the indebtedness upon which the preferential payment was applied, Plummer v. Myers, 137 Fed. 660; Ernst v. Mechanics' & Metals Nat. Bank, 201 Fed. 664; Gage Lumber Co. v. McEldowney, C. C. A., 207 Fed. 215; Hagan v. McNeil, C. C. A., 253 Fed. 716; but see Sabien v. Camp, 98 Fed. 974; Harvey v. Stowe, 219 Fed. 17; Re Opava, 235 Fed. 785; Re Star Spring Bed Co., 257 Fed. 176; Re Kerlin, C. C. A., 209 Fed. 42.

6 It has been held that to avoid a transfer of property under $ 67e, the plaintiff must show actual, as distinguished from constructive, fraud. Meservey v. Roby, C. C. A., 198 Fed. 844. That property cannot be recovered by the trustee although its transfer by the bankrupt justified a denial of his discharge. Lewis v. Julius, C. C. A., 212 Fed. 225. In the absence of any State law upon the subject, it seems that a voluntary conveyance made by a debtor to his wife or children while he was insolvent, but in ignorance of that fact, may be set aside. Adams v. Riley, 122 U. $. 382, 30 L. ed. 1207; Re Steele, 98 Fed. 78. But see Vetterlein v. Barnes, 124 U. S. 169, 31 L. ed. 400; Re Smith, 9 Fed. 592. In the following cases transfers by the bankrupt to his wife were held to be invalid. Re Smith, 100 Fed. 795; Pollock v. Simon, 205 Fed. 1005 (an engagement ring); Re Snodgrass, 209 Fed. 325; Woodford v. Rice, 207 Fed. 473 (purchase in wife's name); English v. Brown, C. C. A., 219 Fed. 248; Klinger V. Hyman, C. C. A., 223 Fed. 257; Owens v. Daniel, C. C. A., 230 Fed. 101; Manders v. Wilson, C. C. A., 235 Fed. 78; Hursey v. Lane, C. C. A., 238 Fed. 913; Watson V. Adams, C. C. A., 242 Fed. 441; Re Victor, 246 Fed. 727;

Smith v. Tostevin, C. C. A., 247 Fed. 102; Re Hawkins, 243 Fed. 792.

In the following cases such transfers were held to be valid, Stowe v. Harvey 241 U. S. 199; Getman v. Lippert, 171 Fed. 536; Re Kayser, C. C. A., 177 Fed. 383; Neumann v. Blake, C. C. A., 178 Fed. 916 (payments for household and family expenses including a set of furs); Re Simon, 197 Fed. 102 (a border case); Re Cox, 199 Fed. 952 (where a wife's claim for salary was sustained although she had kept the books and omitted reference thereto in the index which referred to other accounts against him); Johnson v. Wilson, 217 Fed. 99; English v. Brown, 219 Fed. 248; Marshall v. Nevins, C. C. A., 242 Fed. 476; Baldwin v. Kingston, 247 Fed. 163; Robertson v. Schlotzhauer, C. C. A., 243 Fed. 324; Young v. Evants, C. C. A., 251 Fed. 181. That suit to compel a stock. holder to pay corporate debts, because of participation in a fraudu. lent over-valuation of the assets in payment for stock, does not fall within the statute and cannot be brought in a court of bankruptcy without the consent of the defendant. Re Haley, C. C. A., 158 Fed. 74. See 8 643, supra.

6 See infra, § 649.
7 This

invalidates such liens created when the bankrupt was insolvent, irrespective of knowledge by the lienor of such insolvency. Cook v. Robinson, C. C. A., 194 Fed. 785, 792. See Grant V. Nat. Bank of Auburn, 197 Fed. 581. The statute does not impair the vendor's right of stoppage in transitu; Re Burke & Co., 140 Fed. 971, 15 Am. B. R. 495; Re Portuondo Co., 135 Fed. 592; and to retain possession in case of the buyer's insolvency before he has shipped the goods, Re Portuondo Co., 135 Fed. 592; nor his right to rescind a sale for fraud, Re Weil, 111 Fed. 897; Re O'Connor, 114 Fed. -777; Re Patterson & Co., 125 Fed. 562. But the return of goods bought but not paid for when there is no legal ground for a rescission of the sale may be set aside as a preference. Re Connolly 204 Fed. 479. See infra, $ 649a. It has been held that repayment of money paid by an agent without authority is not a preference. Field v. Hafnia, 236 Fed. 599. Where the creditor had notice that the money which he advanced was to be used in making preferential payment, his security was set aside. Re Thweatt, 199 Fed. 319; Lumpkin v. Foley, c. C. A., 204 Fed. 372; Re Anderson, 252

Fed. 272. When the mortgagee or purchaser for a present consideration had no reasonable cause to be. lieve that the borrower was insolvent, it was not set aside because be knew that the proceeds were to be used to pay the latter's debts, Dean v. Davis, 242 U. S. 438; Van Iderstine v. National Discount Co., C. C. A., 174 Fed. 518; Re Kull. berg, 176 Fed. 585. To constitute a voidable preference, it is not essential that the transfer be made directly to the creditor. It may be made to another for his benefit and, if preferential, a circuity of arrangement will not avail to save him; Nat. Bank of Newport, N. Y. v. Nat. Herkimer County Bank of Little Falls, 225 U. S. 178, 56 L. ed. 1042; Johnson v. Hanley, Hoye Co., 188 Fed. 752; Re Hawkins, 243 Fed. 792; Re Harrison Bros., 202 Fed. 343; Re Sutherland Co., 245 Fed. 663; Chapman v. Hunt, 248 Fed. 166; Smith v. Tostevin, C. C. A., 247 Fed. 102; First Nat. Bank of Scottdale v. Blackburn, C. C. A., 256 Fed. 257. Payments by a bankrupt upon a note, which its indorsers would otherwise have paid, were held to be a preference. Swarts v. Fourth Nat. Bank, C. C. A., 117 Fed. 1; Kobusch v. Hand, C. C. A., 156 Fed. 660; Huttig Mfg. Co. v. Edwards, C. C. A., 160 Fed. 619;

of such recovery any Court of Bankruptcy hereinbefore defined, Smith v. Coury, 247 Fed. 168; Bank v. Pruett (Tenn.), 96 S. W. Chapman v. Hunt, 248 Fed. 160. 334. See XVII Harv. Law Rev., But not if the indorser did not ad- 205, and cases cited. It was held vise, nor procure the payment, nor that money collected through a pref. know thereof until after it had erential lien can be recovered in been made, Reber v. Skulman, C. C. the same manner as if it had been A., 183 Fed. 564. A recovery cannot directly paid by the bankrupt. Re be had from one indorser because Belding, 116 Fed. 1016. “A comof a preference given to a prior pany was hiring laborers to gather indorser, who is financially re- ties. The insolvent was operating sponsible. Page v. Moore, 179 Fed. stores and supplying the men. For 988. It was held that, the indorser many months an inspector had sent who, after the bankruptcy, pays the a pay roll once in about two weeks balance has no greater rights than to the company, upon which the the original holder of the note; but name of each laborer, his earnings, that the holder of a note partly paid and the amount furnished him by by the indorser may prove the whole the insolvent appeared. The comface of the note against the maker. pany had uniformly deducted the Swarts v. Fourth Nat. Bank, C. C. price of the supplies from the earn. A., 117 Fed. 1. The cases are in ings of each man, had sent him a conflict as to whether the payee of check for the balance, and had sent a note, who has been compelled to the insolvent check for the supplies surrender a payment as a fraudulent furnished. The insolvent owed the preference, can still hold sureties company more than $20,000, when, thereupon. That he may do so, al- within four months of the filing of though he has known of the debtor's the petition in bankruptcy, it reinsolvency, is held in Hooker tained the amount owing the insolBlount, 44 Tex. Civ. App. 162, 97 vent for the supplies furnished for S. W. 1083. See Petty v. Cook, (L. three months and credited him with R.) 6 Q. B. 790; Williams v. Gil- this amount, $2,210.73, on its claim christ, 11 N. H. 535; West Phila. against him. Held: that this was Nat. Bank v. Field, 140 Pa. St. 473. not a preference, and could not be The safer practice for a creditor is set off against its claim; but that it to notify the surety of the facts and received the money thus, retained ask what he shall do; and if the as trustee for the bankrupt and the latter does not advise a course to court below had power to protect pursue, to proceed and receive the the bankrupt's estate in respect to payment without prejudice, Nor. dividends to the corporation in case thern Bank of Kentucky v. Cooke, it should not discharge its obliga13 Bush (Ky.) 340; since if the tions. Western Tie & Timber Co. former refuses to accept a payment v. Brown, 196 U. 8. 502, 49 L. ed. tendered at maturity of the note 571. So held of fire insurance and bankruptcy does not follow, the when contemporaneous with the surety is to that extent discharged, preferential security expressed to Smith v. Old Dominion B. & L. be for the benefit of the mortgagor, Ass'n, 119 N. C. 257; Second Nat. with a provision that any loss should

V.

and any State court which would have had jurisdiction if bankbe payable to the mortgagee, as Reber v. Louis Shulman & Bro., 179 his interest might appear, the pre- Fed. 574; Alter v. Clark, 193 Fed. mium having been paid by the 153; Re F. M. & S. Q. Carlile, 199 mortgagee. Brown City Sav. Bank Fed. 612. It has been held that the v. Windsor, C. C. A., 198 Fed. 28. passive receipt of a payment on acAs regards a newspaper route, see count for a loan without a request Re Martin, C. C. A., 200 Fed. 940. or independent action to collect the A bankrupt, within four months same, in the absence of notice of prior to his bankruptcy, contracted insolvency, does not justify the setto sell certain real estate and to give

ting aside of the transaction. a clear title thereto. The property Wright v. Sampler, 152 Fed. 196. was encumbered by liens which the See Re Oppenheimer, 140 Fed. 51. purchaser undertook to pay out of The payment of a loan upon demand the purchase money, but before does not constitute a preference, these payments were completed or when there is no proof that the the property was conveyed defend- creditor had reasonable cause to beant, who held judgment notes of the lieve that the debtor was insolvent. bankrupt, entered judgment, thus Re Pfaffinger, 154 Fed. 523; but not obtaining a lien on the property if the payment was made upon an which the purchaser paid in order open account, in which the bankto clear the title, although this pay- rupt’s interest was subsequently inment, together with those made to creased by at least the amount thus remove the prior liens, exceeded the paid. Jaquith v. Alden, 189 U. S. purchase price. It was held that 78, 47 L. ed. 717; Re Dickson, C. C. such payment to defendant consti- A., 111 Fed. 726; Kimball v. E. A, tuted a voidable preference to the Rosenham Co., C. C. A., 114 Fed. full amount received. Benjamin v. 85; C. S. Morey Mercantile Co. v. Chandler, 142 Fed. 217. A pay- Schiffer, C. C. A., 114 Fed. 447; Re ment on account of an antecedent Maher, 144 Fed. 503. Cf. Wild & debt, made while the bankrupt was Co. v. Provident Life & Tr. Co., 214 insolvent within the four months, U. S. 292, 53 L. ed. 1003. It was can be recovered by the trustee in held: that an increase of a bank. bankruptcy, if the creditor had rea- rupt's estate as a net result of sonable cause to believe that it was transactions between the bankrupt intended thereby to give a prefer- and a creditor within four months ence; Pirie v. Chicago Title & Trust prior to the bankruptcy, where the Co., 182 U. S. 438, 45 L. ed. 1171. last transaction was a payment on The burden of proof, that the cred- account of the indebtedness, was itor had reasonable cause to believe not sufficient to relieve the creditor of the intention to give a prefer- from surrendering this last payment ence, rests upon the trustee in bank- as preferential before he was perruptcy, when he sues or objects to mitted to prove the balance of his the allowance of a claim. Calhoun claim, when the account ran far County Bank v. Cain, C. C. A., 152 back beyond the four months' Fed. 983; Re Pfaffinger, 154 Fed. period, and the transactions ended 523; Re Sanger, 169 Fed. 722; with a large payment on account of

Fed. Prac. Vol. III-79

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