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debtor being adjudicated a bankrupt, in which case the invalidity of the judgment relates back to the time the judgment was rendered, and nullifies such judgment and all subsequent proceedings thereon.82

§ 26. Invalid liens by attachment.-An attachment lien is within the terms of subsection c as well as subsection f.83 The provisions of a State insolvency law, preferring a claim for costs incurred in an attachment, are suspended by this section.84 Exempt property constitutes no part of the estate passing to the trustee, and where such property is subject to an attachment lien, such lien is unaffected by the bankruptcy of the debtor.85 Even if the judgment antedates the law, and the attachment is within the four months period, it is dissolved.86 Where the lien is by attachment on mesne process made before such four months period and followed by a judgment and levy within it, the attachment is not dissolved by subsection f.87 The construction to be drawn from the language of section 67f is that it is the lien created by a levy or a judgment, or an attachment or otherwise that is invalidated, and that where the lien is obtained, more than four months prior to the filing of the petition in bankruptcy, it is not only not to be deemed null and void on adjudication, but its validity is recognized; when the lien is obtained within the four months period, the property of the bankrupt is discharged there

82. Clark v. Larremore, 188 U. S. 486, 9 Am. B. R. 476; Mohr v. Mattox (Ga. Sup.), 12 Am. B. R. 330; McKenney v. Cheney (Ga. Sup.), 11 Am. B. R. 54; Kinmouth v. Braeutigan (N. J. Eq.), 10 Am. B. R. 83, 52 Atl. 226; In re Breslauer, 10 Am. B. R. 33, 121 Fed. 910.

83. Wood v. Carr (Ky. Ct. App.), 10 Am. B. R. 577; In re Kemp, 4 Am. B. R. 242, 101 Fed. 689; In re Higgins, 3 Am. B. R. 364, 97 Fed. 775.

84. In re Copper King, 16 Am. B. R. 148, 143 Fed. 649.

85. Jewett Bros. v. Huffman (N. D. Sup. Ct.), 13 Am. B. R. 738. Compare Matter of Downing, 15 Am. B. R. 423, 139 Fed. 590.

86. Peck Lumber Co. v. Mitchell, 95 Fed. 258. Contra, In re De Lue, 1 Am. B. R. 387, 91 Fed. 510.

87. Pepperdine v. Bank of Seymour, 10 Am. B. R. 570 (Mo. App.); In re Blair, 6 Am. B. R. 206, 108 Fed. 529.

from, but not otherwise.88 Where the plaintiff in an action obtains a valid attachment upon property of the bankrupt, more than four months prior to the commencement of the bankruptcy proceedings, he should be permitted to prosecute the action to judgment and satisfy the same by an execution sale.89

27. Invalid liens by creditor's bill.-Prior to 1903, while it was well settled that the beginning of a creditor's suit to reach equitable assets of the debtor gave such creditor at least an inchoate lien, the authorities were quite equally divided as to whether, when the suit ante-dated the four months period, such a lien was dissolved.90 It was then settled by the Supreme Court that if the creditor's suit was commenced more than four months prior to the filing of the petition in bankruptcy, he acquired a lien upon the equitable assets of the bankrupt which was superior to the title of the trustee in bankruptcy thereto, and although the judgment was entered within the four months, the lien was not affected by section 67f, and the bankruptcy court had no power to enjoin further proceedings in the suit.91 A judgment creditor of an alleged bankrupt should not be permitted, however, to obtain a preference by obtaining, upon the same day the petition in bank

88. Metcalf v. Barker, 187 U. S. 165, 9 Am. B. R. 36. Prior to this decision the weight of authority was to the effect that attachments made before such four months' period were in the same category as those actually within four months of bankruptcy. In re Johnson, 6 Am. B. R. 202, 108 Fed. 373; In re Lesser, 5 Am. B. R. 326. Compare also In re Lesser, 3 Am. B. R. 815, 100 Fed. 433, aff'd 5 Am. B. R. 320, and both rev'd in Metcalf v. Barker, supra. Other cases, more or less affected by this decision, are: Matter of Downing, 15 Am. B. R. 423, 139 Fed. 590; Powers Dry Goods Co. v. Nelson, 7 Am. B. R. 506; Watschke v. Thompson, 7 Am. B. R. 504; In re Sheu

kein, 7 Am. B. R. 162, 113 Fed. 421; In re Burlington Malting Co., 6 Am. B. R. 369, 109 Fed. 777; Botts v. Hammond, 3 Am. B. R. 775, 99 Fed. 916; Schmilovitz v. Bernstein, 47 Atl. 884.

89. In re Snell, 11 Am. B. R. 35, 125 Fed. 154.

90. Thus, compare In re Lesser, 3 Am. B. R. 815, 100 Fed. 433, aff'd 5 Am. B. R. 320, and rev'd in Metcalf v. Barker, infra, and In re Adams, 1 Am. B. R. 94, with Taylor v. Taylor, 3 Am. B. R. 211, and Doyle v. Heath, 4 Am. B. R. 705.

91. Metcalf v. Barker, 187 U. S. 165, 9 Am. B. R. 36. Compare In re Porterfield, 15 Am. B. R. 11, 138 Fed. 192.

ruptcy was filed, a lien, in proceedings instituted under New York Code of Civil Procedure, section 1391, upon a trust fund of which the alleged bankrupt was beneficiary, although the State law provides that in the case of certain trusts the surplus of the income beyond the sum necessary for the education and support of the beneficiary shall be liable in equity to the claims of creditors in the same manner as other personal property not reachable by an execution at law.92

§ 28. Suits to annul liens.-The distinction here between subsection f and subsection c is not important. Although the former makes the liens it condemns void, and declares that "the lien shall be deemed wholly discharged," when the lien has resulted in possession adverse to the trustee, a suit is usually necessary; but application addressed to the State court will sometimes be enough.93 The forum for such suits is elsewhere considered.94 The amendments of 1903 make it optional with the trustee to sue in the Federal court or in the State court. The practice is governed by the law and rules applicable to the court in which the suit is brought. The trustee usually applies to the referee for permission to bring such a suit.

§ 29. Preserving liens. Here the statute is sufficiently explicit. If the creditor has a void or voidable lien, the court may order it preserved for the benefit of the estate. Thus, in those States where the filing of a creditor's bill does not create a lien that survives the bankruptcy, the court may order the trustee to intervene and ask to be substituted as plaintiff. Likewise, "the court may order such conveyance as shall be necessary to carry the purposes of this section into effect." Subsection f makes two distinct provisions for the disposition of the property of an insolvent attached within four months prior to the filing of a petition in bankruptcy against him. First, such attachments shall be declared null and void, and

92. In re Tiffany, 13 Am. B. R. 310, 133 Fed. 799.

93. Hardt v. Schuylkill, etc., Co.,

8 Am. B. R. 479.

94. Under discussion of section 23, chapter XXIV, infra.

the property affected shall be deemed released and shall pass to the trustee of the estate of the bankrupt; or, second, the court may order that the right acquired by attachment shall be preserved for the benefit of the estate. In the latter case so much of the value of the property attached as is represented by the attachments passes to the trustee for the benefit of the entire body of creditors, that is, "for the benefit of the estate,"-in other words the statute recognizes the lien of the attachment, but distributes it among all the creditors.95

§ 30. Saving clause. The proviso at the end of subsection f corresponds to subsection d, which has reference to liens other than through legal proceedings, as well as to a clause in the body of subsection e, saving bona fide transactions from the penalties attending fraudulent transfers. It is also expressive of the law, and was seemingly inserted for reasons of caution only. That neither the plaintiff in nor the sheriff holding under a void attachment is a bona fide purchaser for value has already been held.96

95. First Nat. Bank v. Staake, 15 Am. B. R. 639, 202 U. S. 141, aff'g 13 Am. B. R. 281.

96. In re Kaupisch Creamery Co.,

5 Am. B. R. 790, 107 Fed. 93; Jones v. Stevens, 5 Am. B. R. 571, 48 Atl. 170. Compare also note 10, section 2, this chapter.

CHAPTER XXIII.

PREFERRED CREDITORS.

Section 1. Statutory provision.

2. What is a preference-History and comparative legislation.
3. The present definition; The elements of a preference. Subs. a.
4. Being insolvent.

5. Within four months.

6. Running of time where the evidence of transfer must or may be

recorded.

7. Procured or suffered a judgment.

8. Made a transfer of his property.

9. Effect, a greater percentage.

10. Creditors only may be preferred.

11. What preferences are voidable. Subs. b.

12. Reasonable cause to believe a preference intended.

13. Belief or knowledge of agent or attorney.

14. Recovery.

16. Property or its value-Damages-Costs.

16. Set-off of a subsequent credit. Subs. c.

17. Preference to bankrupt's attorney. Subs. d.

Section 1. Statutory provision.-The Bankruptcy Act of 1898 provides as follows:

§ 60. Preferred creditors.-(a) A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication,* procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.*

* Amendments of 1903 in italics.

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