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Debtor's Collusion in Preferential Transfers.

[Ch. VI.

mand for it. He is further entitled to the gross proceeds. (Cookingham v. Morgan, 7 Blatch. 480; Traders' Nat. Bank v. Campbell, 14 Wall. 87; s. c. below, 2 Biss. 423.)

Debtor's Collusion in Preferential Transfers.-In the case of Fox v. Gardner (21 Wall. 475), the United States Supreme Court held that where a debtor, knowing that his creditor is insolvent, accepts a draft drawn on him by such creditor, the draft being drawn and accepted for the purpose of giving a preference, the transaction is a fraud on the Bankrupt Act, and the assignee in bankruptcy can recover from the acceptor the amount of the draft. In rendering its opinion the court said: "The language of the statute authorizing the assignee to recover the property or the value of it from the person receiving it or so to be benefited,' does not create a qualification or limitation of power. There is no implication that the party paying is not also liable. The words are those of caution merely, and give the assignee no power that he would not possess had they been omitted from the statute. In the present case the property or value attempted to be transferred belonged originally to the bankrupt. On the adjudication of bankruptcy the possession and ownership of the same were transferred to the assignee. The attempted transfer by the bankrupt was fraudulent and void. It follows logically that the debtor yet holds it for the assignee, and that the assignee may sue him for its recovery." (Citing Bolander 2. Gentry, 36 Cal. 105; Hanson v. Herrick, 100 Mass. 323.) Though a valid agreement to substitute another person as creditor may be made and pleaded as a discharge of a debt in the nature of a payment, it is not payment in fact, and is binding only when the contract is fair and honest. If a debtor agree to pay not his creditor, but a creditor of his creditor, the consideration of his paying the substituted creditor is his release from the indebtedness due to his original creditor. If his promise to pay the substituted creditor is made knowing that it is to accomplish a purpose forbidden by law, the consideration for his release fails, it being an illegal consideration. It is an attempt to pay a debt in a manner the law forbids, and it is

60.] Annulling Fraudulent Transfers-Set-off

Re-Examination of Fee.

therefore no payment. The debt still remains. The right of the assignee in bankruptcy to recover from the debtor in such case is a right to collect an indebtedness which is unpaid and still due and owing to the bankrupt.

Annulling Fraudulent Transfers.-It may not be improper to add by way of caution that the trustee may bring action as the representative of the creditors to annul any transfer, which, because of its being fraudulent as to creditors, may be annulled independently of the Bankruptcy Act. See sections 67 and 70 post; also in re Gray (3 Am. B. R. 647; 47 N. Y. App. Div. 554), in which Barrett, J., carefully discusses this question; and see in re Adams (1 Am. B. R. 94), and note.

Set-off Against New Unsecured Credit Given in Good Faith. Section 60c.-It has been recently held in very thoughtful opinions (In re Christensen, 4 Am. B. R. 202; 101 Fed. 802), both by Referee James and by Judge Shiras of the Northern District of Iowa, that this subdivision of the section applies only to cases where the preferred creditor is compelled against his will to return what he has received and is therefore limited to proceedings taken under subdivision "b" and does not apply to a case where he seeks to enforce a claim which the trustee resists under section 57g on the ground of preference. The opinions of both referee and judge are very conclusive on this subject.

Re-examination of Fee Paid to Attorney, etc. Section 60d.Compare on this subject section 64b (3) on what are reasonable attorney's fees. It follows from this section that prior payment for attorney's services is authorized by the Act. In the case of In re Kross (3 Am. B. R. 187; 96 Fed. 816), Brown, J., used the following language:

"While by the general terms of the act, the debtor is required to turn over all his unexempt property to the trustee. an exception is here created in favor of an attorney. to a reasonable amount. for services to be rendered to the debtor in bankruptcy; although this is valid so far only as subsequently approved by the court. The charges to be "approved" are, I cannot doubt,

Re-Examination of Fee Paid to Attorney, etc.

[Ch. VI. for the same services which the "fee" is designed to be allowed for under section 64, subd. b, par. 3. Both paragraphs are to be construed together, so that it becomes immaterial in the result whether the attorney obtains his compensation in the first instance from the bankrupt under section 60, refunding what, if anything, is disallowed by the court, or whether he waits for an allowance by the court under section 64. The latter is evidently the more convenient and desirable practice; and considering that prior payment for an attorney's services to the bankrupt is expressly allowed by section 60, I cannot agree to any such construction of the act as would deprive the attorney of a proper compensation for a necessary service, merely because he did not take it out of the estate at his own estimate in advance."

CHAPTER VII.

ESTATES.

SEC. 61. Depositories for Money.-a Courts of bankruptcy shall designate, by order, banking institutions as depositories for the money of bankrupt estates, as convenient as may be to the residences of trustees, and shall require bonds to the United States, subject to their approval, to be given by such banking institutions, and may from time to time as occasion may require, by like order increase the number of depositories or the amount of any bond or change such depositories.

No Analogous Provisions in Former Acts.

Cross-reference.-As to the duty of the trustee to deposit all funds in the designated depositories, and as to the requirement that all disbursements shall be made only by check or draft on the designated depositories, compare section 47a (3 & 4).

See G. O. 29 which is as follows:

XXIX. PAYMENT OF MONEYS DEPOSITED.

No moneys deposited as required by the act shall be drawn from the depository unless by check or warrant, signed by the clerk of the court, or by a trustee, and countersigned by the judge of the court, or by a referee designated for that purpose, or by the clerk or his assistant under an order made by the judge, stating the date, the sum, and the account for which it is drawn; and an entry of the substance of such check or warrant, with the date thereof, the sum drawn for, and the account for which it is drawn, shall be forthwith made in a book kept for that purpose by the trustee or his clerk; and all checks and drafts shall be entered in the order of time in which they are drawn, and shall be numbered in the case of each estate. A copy of this general order shall be furnished to the depository, and also the name of any referee or clerk authorized to countersign said checks.

SEC. 62. Expenses of Administering Estates.-a The actual and necessary expenses incurred by officers in the administration of estates shall, except where other provisions are made for their

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payment, be reported in detail, under oath, and examined and approved or disapproved by the court. If approved, they shall be paid or allowed out of the estates in which they were incurred.

Analogous Provisions of Former Acts.

R. S. § 5099; act of 1867. § 28; act of 1800, § 29; also R. S. §§ 5127A, 5127B.

Cross References. For provisions of the Act and of the General Orders providing for compensation and disbursements of referee and trustee, see chapter 5, sections 40-48. By G. O. 35 the expenses incurred by referees in the performance of their duties must be allowed by special order of the judge.

It is difficult to lay down any general rule as to how far the trustee or referee should incur expenses in the administration of the estate.

The circumstances of each particular case must be considered, and it is then in the sound discretion of the court to allow a reasonable sum to be paid for such services as were needed and were properly rendered. In in re Noyes (6 N. B. R. 277; Fed. Cas. 10,371), Judge Longyear of the U. S. District Court for the Eastern District of Michigan said:

"

It would be difficult, and I think impracticable, to prescribe any general rule defining the circumstances under which, and the extent to which, an assignee is at liberty to charge the assets of the estate in his hands for professional and clerical services in the execution of his trust. This must be left to be decided in each individual case according to its peculiar exigencies. The assignee is not at liberty to charge the assets of the estate in his hands for professional or clerical services rendered him in the execution of his trust, until the same shall have been first duly allowed by the court. The assignee may, of course, apply to the court in the first instance for authority to employ professional or clerical assistance. but in such case the court could do but little more than grant such authority in general terms, leaving the instances in and to which such assistance may be employed, largely to the discretion of the assignee, as emergencies shall arise, making such assistance necessary.

Such authority the assignee already possesses under his general powers, subject, however, to the control of the court; such power must be used by him cautiously, and in the exercise of a sound discretion, and with the understanding that any abuse of it will be corrected by the court when applied to for authority to charge the estate for such assistance."

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