without invoice or examination, in connection with other circumstances, may show that a sale was fraudulent.87 It has been held that the words " conveyance, transfer, assignment or incumbrance" apply to a transfer of property, real or personal, rather than to a payment of money upon a pre-existing debt.88 § 11. Scope of subsection. This subsection is in effect less favorable to the debtor than the provisions in the law of 1867. That act avoided a conveyance made within four months "with a view to give a preference" to a person "having reasonable cause to believe" the bankrupt to be insolvent, and that the conveyance was being made in fraud of the act. The present act avoids such conveyances by the bankrupt made "with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them." The purpose and intent of the bankrupt only is looked at, and if contrary to the act is sufficient to avoid the conveyance. 89 The former law interdicted transfers only, while transfers under the present act has been given an enlarged meaning.90 The present subsection includes encumbrances, too, that is, mortgages, pledges, and the like, as distinguished from judgments, attachments, and other liens through legal proceedings, at least so far as such liens result from the voluntary act of the debtor. § 12. Insolvency not essential.-Unlike fraudulent preferences, fraudulent transfers may, it seems, be made at a time when the transferrer is solvent.91 But, intent to hinder, delay, or defraud being necessary, insolvency will usually be an element of proof. § 13. "Within four months prior to filing the petition."-The meaning of these words is discussed elsewhere.92 If the period 87. Dokken v. Page, supra. 88. Blakey v. Boonville Nat. Bank, 2 Am. B. R. 459, 95 Fed. 267. 89. In re McLam, 3 Am. B. R. 245, 97 Fed. 922. 90. Bankr. Act, 1898, sec. 1(25). 91. Pollock v. Jones, 10 Am. B. R. 616, 124 Fed. 163. Compare In re Soudans Mfg. Co., 8 Am. B. R. 45, 113 Fed. 804; In re McLam, 3 Am. B. R. 245, 97 Fed. 922. 92. Chap XXIII, sec. 5, infra. has elapsed, there may still be a remedy under the State law, as pointed out by section 70e.93 The words quoted do not apply where the fraudulent transaction amounted to a voluntary gift ;94 nor where the transfer was made more than four months before the petition in bankruptcy was filed.95 14. "With intent to hinder, delay, or defraud."-These words have their immemorial meaning.96 They have already been considered in previous sections.97 The cases under the former law are thought to be still applicable, although in that statute they were used in defining an act of bankruptcy.98 Knowledge of, or participation in, the fraud by the creditor to whom the transfer was made is held by some authorities to be necessary,99 while others hold that it is not material.1 An agreement to withhold a mortgage from record is not of itself conclusive upon the question of fraud, but is a circumstance constituting more or less cogent evidence of a want of good faith.2 An intent to defraud is the test; if the transaction was in good faith, there is no fraud.3 Illustrative cases under the present law are cited in the note below1 and 93. Compare In re Grahs, 1 Am. B. R. 465; In re Adams, 1 Am. B. R. 94; In re Taylor, 95 Fed. 956. 94. In re Schenck, 8 Am. B. R. 727, 116 Fed. 554. 95. Little v. Holly Brooks Hardware Co., 13 Am. B. R. 422, 133 Fed. 874. 96. Githens V. Schiffer Bros., 7 Am. B. R. 453, 112 Fed. 505. 97. Chapter XXI, section 13. 98. Sedgwick v. Place, Fed. Cas. No. 12,620; In re Cowles, Fed. Cas. No. 3,297; In re McKibben, Fed. Cas. No. 8,859; In re Williams, Fed. Cas. No. 17,703; Curran v. Munger, Fed. Cas. 3,487. 99. Wright v. Sampter, 18 Am. B. R. 355, 152 Fed. 196; Stich v. Berman, 15 Am. B. Rep. (N. Y.) 104, R. 466, 40 Misc. N. Y. Supp.; In re Bloch, 15 Am. B. R. 751, 142 1. Sherman v. Luckhardt, 11 Am. B. R. 26, 67 Kan. 682, 74 Pac. 277; In re McLam, 3 Am. B. R. 245. 2. Rogers v. Page, 15 Am. B. R. 502, 140 Fed. 596, 72 C. C. A. 164. See In re Shaw, 17 Am. B. R. 196. 3. In re Bloch, 15 Am. B. R. 748, 142 Fed. 674, where a member of a firm pledges his life insurance policies to secure certain creditors with the understanding that they were not firm assets, fraudulent intent is not shown; In re Benjamin, 15 Am. B. R. 351, 140 Fed. 320; In re Longbottom, 15 Am. B. R. 437, 142 Fed. 291; In re Hill, 15 Am. B. R. 490, 140 Fed. 984. 4. In re Kellogg, 6 Am. B. R. 389, aff'd 7 Am. B. R. 270, 112 Fed. 52; under subsequent sections. It is questionable whether the Bankruptcy Act has laid down a new rule in respect of the voidability of fraudulent conveyances, by wholly sweeping away the requirement that the transferee or grantee, to merit condemnation, shall have either actual notice of the fraudulent intent, have participated in the fraud, or had notice of some fact calculated to put him on inquiry and leading to a discovery of such fraudulent intent.5 § 15. "Except purchasers in good faith and for a present fair consideration."-Valid transfers are protected by this clause, 6 but property conveyed by the debtor within four months prior to the filing of the petition cannot be retained by the purchaser unless he is a purchaser not only in good faith, but for a present fair consideration. A transfer of all the bankrupt's property to a person with knowledge of the bankrupt's financial condition is not in good faith. A purchaser is not in good faith who makes no effort to determine whether an insolvent may make a transfer which will not be in violation of the act. Evidence of good faith on the part of the transferee should be admitted. 10 A sale on credit is not necessarily void.11 A conveyance in fulfilment of a contract previously made is valid;12 but past services, rendered without expectation of compensation, are an insufficient consideration. 13 In re Shepherd, 6 Am. B. R. 725; In 5. Wright v. Sampter, supra. 6. Compare Tiffany v. Lucas, 15 Wall. (U. S.) 410; Sedgwick v. Wormser, Fed. Cas. No. 12,626; Curran v. Munger, Fed. Cas. No. 3,487. 7. Friedman v. Verchofsky, 105 Ill. App. 414; O'Sullivan's Trustee v. Douglass, 30 Ky. L. Rep. 366, 98 S. W. 990, assignment of salary held fraudulent, no consideration passing. 8. In re Moody, 14 Am. B. R. 272, 134 Fed. 628. 9. In re Knopf, 16 Am. B. R. 272, 134 Fed. 628. See also Dokken v. Page, 17 Am. B. R. 228. 10. Joseph v. Raff, 82 App. Div. (N. Y.) 47, 81 N. Y. Supp. 546, aff'd 176 N. Y. 611, 68 N. E. 1118. 11. Unmack v. Douglass, 75 Conn. 633, 55 Atl. 12. 12. Mercer v. Mercer, 24 Ky. L. Rep. 2469, 74 S. W. 285. 13. Brescheimer V. Houston (Iowa), 96 N. W. 756. 14 The consideration must be so inadequate as to shock the moral sense to render a sale fraudulent. Inadequacy of consideration is immaterial when the purchaser knew of the debtor's insolvency.15 One acquiring payment of his debt is a "purchaser" because he acquires the payment otherwise than by descent. 16 One is not a purchaser in good faith if he purchases with knowledge of the fraudulent intent of the seller, or under such circumstances as should put him on inquiry as to the object for which the vendor sells.17 § 16. Transfers and encumbrances under State laws.-The last sentence of the subsection adopts all State laws which interdict fraudulent conveyances or transfers and liens, provided the acts complained of are within four months of the bankruptcy.18 Since section 70e is broader and applies the period of limitation fixed by the State law, this sentence is of little importance. 19 § 17. Suits to recover property. Although all fraudulent transfers or encumbrances are declared null and void by section 67e and, by section 70a (4) the title to property affected thereby vests in the trustee, yet a suit to recover will often be necessary. This is invariably so, where possession is not in the bankrupt. If 14. Dunlop v. Thomas, 28 Wash. 521, 68 Pac. 909. 15. Bonnie v. Perry, 117 Ky. 459, 25 Ky. L. Rep. 1560, 78 S. W. 208. 16. Wright v. Sampter, 18 Am. B. R. 355, 152 Fed. 196. 17. Houck v. Christy, 18 Am. B. R. 330 (C. C. A.), 152 Fed. 612, where, within the four months period, the bankrupt, a country merchant, sells out his entire property, consisting of a store building and lot, a stock of general merchandize, book accounts and a homestead, for 75 per cent. of its fair value, the purchaser having knowledge that the bankrupt had been recently incumbering his property for a small amount, and that the transaction was unusual, was chargeable with all the knowledge that reasonable inquiry might have disclosed. 18. Matter of Farrell Co., 9 Am. B. R. 341, where the provisions of the New York statute, L. 1902, chap. 528, entitled "An act to regulate the sale of merchandise in bulk," are wilfully and deliberately ignored by an alleged bankrupt, upon such a sale made by him within the four months' period, the transfer is void under subsection e of section 69; Matter of Robertshaw Mfg. Co., 13 Am. B. R. 409, 133 Fed. 556. 19. Collier, Bankr. (6th ed.), 563. in his possession, it may be reached summarily.20 Not so where a third party is interested, save with his consent.21 The trustee must then proceed by suit in the proper tribunal,22 and show facts bringing the case within the provisions of this subsection.23 The words added to this subsection by the amendment of 1903 are the same as those added to section 60b and section 70e. They refer to any suit which may be brought under the subsection, and not merely to a suit based on a State law. The meaning and purpose of the amendment are elsewhere discussed.24 The amendatory act has conferred jurisdiction upon District Courts concurrent with State courts to set aside transfers made by a bankrupt within the four months period, which are alleged to be null and void as to creditors by a State law.25 20. In re Denell, 4 Am. B. R. 60, 100 Fed. 633. Compare, on power to commit for contempt, In re McCormick, 3 Am. B. R. 340; In re Schlesinger, 3 Am. B. R. 342; In re Mayer, 3 Am. B. R. 533. 21. Bardes v. Bank, 178 U. S. 524, 4 Am. B. R. 163, and note. 22. See, generally, under sections 2 and 23, Bankr. Act, chapter XXIV, sections 22-32. Proceedings to recover. See Breckons v. Snyder, 15 Am. B. R. 112, 211 Pa. St. 176, 60 Atl. 575. Creditors may sue to set aside conveyance. Shoe Mfg. Co. v. Billings (Or.), 80 Pac. 422. But trustee to sue rather than creditors without lien. Davis v. Vandiver (Ala.), 38 So. 850. And trustee may sue though creditors have not secured judgment. Crary v. Kurtz (Iowa), 105 N. W. 590. Demand not necessary before recovery. Goldberg v. Harlan, 33 Ind. App. 465, 67 N. E. 707. Pleading. Shelley v. Nolen (Tex. Civ. App.), 88 S. W. 524. Burden of proof on trustee. Halbert v. Franke, 91 Minn. 204, 97 N. W. 976; Eason v. Garrison, 36 Tex. Civ. App. 574, 82 S. W. 800. But see Lawrence v. Lowrie, 133 Fed. 995. Solvency presumed on appeal where no allegation or proof of insolvency. Schilling v. Curran, 30 Mont. 370, 76 Pac. 998. 23. Collier, Bankr., 6th ed., 563. See also Collier, Bankr., 6th ed., 488, as to suits to set aside voidable preferences, which is largely applica ble here. 24. See chapters XXIII, XXIV. 25. Johnston v. Forsyth Mercantile Co., 11 Am. B. R. 669, 127 Fed. 845. See McNulty v. Feingold, 12 Am. B. R. 338, a trustee in bankruptcy may maintain a suit in equity in a district court for an accounting of money collected by defendants on accounts fraudulently assigned to them by bankrupts, although the face value of such accounts is known to the trustee. As to actions by trustees to set aside fraudulent conveyances, see Schmitt v. Dahl, 11 Am. B. R. 226 (Minn. Sup.); Kohout v. Chaloupka, 11 Am. B. R. 265 (Neb. Sup.). |