67 where new sales succeed payments, and the net result is to increase the value of the estate, that payments made by an insolvent debtor on a running account are not to be considered as preferences.64 Where the transferee pays a present, fair consideration for the property, there is no preference.65 The repayment by the president of a bankrupt corporation from its assets, to himself as agent of another corporation, of money which he had stolen from the funds of the latter and applied to the uses and purposes of the former, does not constitute a preference.66 A transfer of firm property in payment of an individual partner's debt is a preference, but the firm must be adjudged bankrupt before a suit can be brought to avoid it.68 A deposit of money in a bank, upon an open account, subject to check, is not a transfer constituting a preference, although the bank as a creditor has the right to set off its claim against the depositor.69 A post-dated check constitutes a transfer at the time of its payment, and the question of preference under the statute is to be determined by the conditions existing at such time.70 An absolute transfer of an account against an insolvent debtor made in good faith to a person who afterwards purchases goods from the debtor and gives in payment therefor the account thus transferred to him, is not a 64. Joseph Wild & Co. v. Provident L. & T. Co., 18 Am. B. R. 500, 153 Fed. 562, aff'g In re Watkinson, 17 Am. B. R. 56. 65. Weeks v. Spooner, 142 N. C. 479, 55 S. E. 432. 66. McNaboe v. Columbian Mfg. Co., 18 Am. B. R. 684, 153 Fed. 967. 67. In re Gillette et al., 5 Am. B. R. 119, 104 Fed. 769; In re Beerman, 7 Am. B. R. 431, 112 Fed. 662. 68. Withrow v. Fowler, Fed. Cas. 17,919. Compare In re Hines, 16 Am. B. R. 495, 144 Fed. 142; Amsinck v. Bean, 22 Wall. (U. S.) 395. 69. New York Co. Nat. Bank v. Massey, 192 U. S. 138, 11 Am. B. R. 42; West v. Bank of Lahoma, 16 Am. B. R. 733; In re Hill Co. (C. C. A.), 12 Am. B. R. 221, 130 Fed. 315. As to whether a payment of a clearing house check by a clearing house association is a preference, see Rector v. City Deposit Bank Co., 15 Am. B. R. 336, 200 U. S. 405. 70. In re Lyon, 10 Am. B. R. 25 (C. C. A.), 121 Fed. 723, aff'g 7 Am. B. R. 412. If a bank received a bankrupt's check for an amount to be applied on account of a matured note held by the bank, it constitutes a voidable preference. Ridge Ave. Bank v. Sundheim, 16 Am. B. R. 863, 145 Fed. 798. transaction especially prohibited by the Bankruptcy Act.71 But if such a transaction was entered into for the purpose of indirectly evading the provisions of the act and procuring an undue preference to the creditor, it is voidable.72 The rule is the same as 74 to preferences generally obtained indirectly.73 The question of the validity of the transaction will probably be deemed in every instance one of good faith, although as has already been indicated good faith alone would not be sufficient to preserve the transfer, if it in fact constituted a preference.75 It is always to be borne in mind that, under the present law, many transfers are preferences in name but not in fact. To be the latter, the remedy prescribed in subdivision b must at least be available. In other words, the transfers must be voidable. Under the present law, only those cases which include the element of reasonable cause to believe76 are, therefore, still in point. The others, since the changes made in section 57g, are of value only by way of possible suggestion.77 § 9. Effect, a greater percentage. As already indicated, intent, save as evidence of a reasonable cause to believe, is immaterial; it has given place to the new element, resultant inequality. It is the result or effect of the act done which is declared against and which is the supreme test.78 71. North v. Taylor, 6 Am. B. R. 233, 61 App. Div. (N. Y.) 253, 70 N. Y. Supp. 338; Hackney v. Raymond Bros., Clarke Co., 10 Am. B. R. 213 (Neb.); Lyon v. Clarke (Mich.), 88 N. W. 1046. 72. Hackney v. Raymond Bros., Clarke Co., supra. 73. Frank v. Musliner, 9 Am. B. R. 229, 76 App. Div. (N. Y.) 617; In re Beerman, 7 Am. B. R. 431, 112 Fed. 663. 74. See cases cited in last two preceding notes. 75. Morgan v. First Nat. Bank (C. C. A.), 16 Am. B. R. 639, 145 Fed. 466; Matter of Gesas (C. C. A.), If the effect of the transfer is 16 Am. B. R. 872, 146 Fed. 734. 77. Collier, Bankr., 6th ed., 78. Crooks v. The People's Bank, to enable the creditor to receive out of the debtor's estate a larger percentage of his claim than other creditors of the same class, it constitutes a preference.79 But the "greater percentage" refers only to creditors of the same class. For this reason the payment of wages is not a preference.80 A transfer having the effect of a preference under section 60a is "one intended to give a preferunder section 60b, which avoids such a transfer when received with reasonable cause to believe it was so intended.81 ence 82 § 10. Creditors only may be preferred.-Though the words person" " and "creditor" are used interchangeably in subsection a of section 60, it is clear that only a creditor can receive a preference.8 A payment or transfer to any one other than a creditor, unless for the latter's benefit, falls within the remedies indicated by section 67, subdivision e, and section 70, subdivision e. The elements of voidable preferences and fraudulent transfers are somewhat different. It is, therefore, important, at the outset of a suit to recover, to decide whether the proposed defendant is a creditor or not. Pleading, proof, and possibly judgment will depend upon such decision.83 It appearing that when a mortgage was executed and filed the mortgagee was not 3 Am. B. R. 238, 29 Misc. Rep. (N. Y.) 30, 60 N. Y. Supp. 305. 79. In re Douglass Coal & Coke Co., 12 Am. B. R. 539, 131 Fed. 769; Brittain Dry Goods Co. v. Bertenshaw, 11 Am. B. R. 629 (Kan. Sup. Ct.); Matter of Cotton Export, etc., Co., 10 Am. B. R. 14 (C. C. A.), 121 Fed. 663; In re Belknap, 12 Am. B. R. 326, 129 Fed. 643, a distress for rent by a landlord does not enable the landlord to obtain a greater percentage of his debt than other creditors of the same class, where there is but one landlord. 80. In re Keller, 6 Am. B. R. 334. Compare Swarts v. Bank, 8 Am. B. R. 673, 117 Fed. 1. 81. In re John J. Coffey, 19 Am. B. R. 148. 82. In re Hines, 16 Am. B. R. 495, 144 Fed. 147; Wood v. United States, 16 Am. B. R. 21, 143 Fed. 424; Swarts v. Siegel, 8 Am. B. R. 220, 114 Fed. 1001. Teller of bank cashing his own check.-Where, three days before the closing of a bank, its receiving and paying teller, with full knowledge of the bank's insolvency, and claiming to be a creditor, pays himself, by cashing his own check drawn against the funds of the bank, the transaction constitutes a preference recoverable by the trustee in bankruptcy of the bank. In re Plant, 17 Am. B. R. 272, 148 Fed. 37. 83. Collier, Bankr., 6th ed., p. 482. a creditor, such mortgage may not be attacked.84 A customer of a stock broker, who bought stock on a margin and held the same as pledgee to secure him for the amount due thereon by his customer, is not a creditor, and is not preferred when the broker transfers to him the stock upon the payment of the amount due thereon.85 Many of the more valuable illustrative cases under the present law are collated in the note below.86 84. In re Clifford, 14 Am. B. R. 281, 136 Fed. 475. 85. Richardson v. Shaw (C. C. A., N. Y.), 16 Am. B. R. 842, 147 Fed. 659. See In re Swift, 7 Am. B. R. 374, where the Massachusetts rule is discussed. 86. The following have been held not to be preferences, even within the four months' period: The payment of wages (In re Read, 7 Am. B. R. 111; In re Abraham Steers Lumber Co., supra; In re Feuerlicht, 8 Am. B. R. 550. Contra, In re Proctor. 6 Am. B. R. 660; In re Kohn, 2 N. B. N. Rep. 367); the payment of checks given by a corporation to its president for present advances with which to pay wages (In re Union, etc., Co., 7 Am. B. R. 472, 112 Fed. 774); the renewal of notes more than four months old (Chattanooga Bank v. Rome Iron Co., 4 Am. B. R. 441, 102 Fed. 755); the payment of interest on notes (In re Keller, 6 Am. B. R. 621, 110 Fed. 348); the payment of installments of rent (In re Barrett, 6 Am. B. R. 199. Compare In re Lange, 3 Am. B. R. 231); the avails of book accounts assigned as collateral to a present loan (Young v. Upson, 8 Am. B. R. 377, 115 Fed. 192); the collection and application of the avails of collateral security given before the period (In re Little, 6 Am. B. R. 681, 110 Fed. 621); the proceeds of a pledged fire insurance policy (In re West Norfolk Lumber Co., 7 Am. B. R. 648, 112 Fed. 759. See also McDonald v. Dascam, 8 Am. B. R. 543, 116 Fed. 276); a payment to an official successor under order of court (Fry v. Penn Trust Co., 5 Am. B. R. 51); a payment in pursuance of a valid executory contract more than four months old (Sabin V. Camp, 3 Am. B. R. 578, 98 Fed. 974. Apparently contra. In re Sheridan, 3 Am. B. R. 554, 98 Fed. 406); pay. ments to a surety who afterward pays the bankrupt's debt (In re New, 8 Am. B. R. 566, 116 Fed. 116); where a sheriff still has in his hands money collected on an execution (In re Kenney, 3 Am. B. R. 353, 97 Fed. 554. Compare, however, In re Blair, 4 Am. B. R. 220 102 Fed. 987); where a banker applies a deposit due the bankrupt on the notes of the latter (In re Elsasser, 7 Am. B. R. 215; In re Hill Co., 12 Am. B. R. 221 [C. C. A.], 130 Fed. 315; New York Co. Nat. Bank v. Massey, 192 U. S. 138, 11 Am. B. R. 42); and where a mortgage is taken as security by a lender who knows that the borrower is hard pressed, the latter using the money to pay his debts (In re Pearson, 2 Am. B. R. 482. See also In re Harpke, 8 Am. B. R. 335, 116 Fed. 295); payment of interest on dower (In re Riddle's Sons, 10 Am. B. R. 204, 122 Fed. 559). 11. What preferences are voidable; subs. b.-Under the amendatory act of 1903, a preference is a name only, unless it may be avoided. Unlike section 35 of the former law, which makes preferences void per se,87 section 60b of the present act makes preferences voidable merely. A valid title thus passes to the transferee at the time of the preference and recovery must be had.88 This is in line with the policy of the law, as evidenced by section 70a, to pro The following have been held preferences: Attachments (In re Burlington Malting Co., 6 Am. B. R. 369 109 Fed. 777; In re Schenkein, 7 Am. B. R. 162, 113 Fed. 421; though, whether this will continue to be held under the changed conditions resulting from the amendments of 1903, may be doubted); a payment to a third person to relieve an indorser, the third person not having reasonable cause to believe, etc. (Landry v. Andrews, 6 Am. B. R. 281. Compare In re Dundas, 7 Am. B. R. 129, 111 Fed. 500); a payment on indorsed notes, the indorser being good (Swartz v. Bank, 8 Am. B. R. 673, 117 Fed. 1); a transfer of all the bankrupt's assets to a liquidator (In re Wertheimer, 6 Am. B. R. 187); a cash sale of property to an outsider and payment in full of several creditors (Boyd v. Lemon Gale Co., 8 Am. B. R. 81, 114 Fed. 647); the taking back of goods, whether hypothecated or sold, and the application of their value on account or in full (In re Silberstein Klingman, supra; Stahl, 4 Am. B. R. 626); payment after insolvency by means of a postdated check (In re Lyon, 7 Am. B. R. 412, 114 Fed. 326; affirmed, 10 Am. B. R. 25, 121 Fed. 793); a loan by a banker to the bankrupt of the amount of the latter's deposit (In re Cobb, 3 Am. B. R. 129, 96 Fed. 821); deposits made in cancellation of V. over drafts (In re Keller, supra); a payment on the bankrupt's note after its sale to and discount by a bank (In re Waterbury Furniture Co., 8 Am. B. R. 79, 114 Fed. 225); the making of a lease (Carter v. Goodykoontz, 2 Am. B. R. 224, 94 Fed. 108); repayment of a loan out of a certain fund under into an agreement entered when the loan was made (Torrance v. Winfield Nat. Bank, 11 Am. B. R. 185); agreement that chattel mortgage executed prior to four months shall be lien on certain specified articles made within said period (First Nat. Bank v. Johnson, 10 Am. B. R. 208). See also In re Colton, etc., Co., 8 Am. B. R. 257, 115 Fed. 158; In re Metzger, etc., Co., 8 Am. B. R. 307, 114 Fed. 957; Swarts v. Siegel, 8 Am. B. R. 690, 117 Fed. 13. The practitioner should, however, note that the provocation for many of these decisions-the necessity of surrender of " innocent" partial payments-is now gone. None of them are now valuable unless they show the all-essential element of voidable "reasonable preferences. cause to believe that a preference was intended." 87. Zahm v. Fry, Fed. Cas. No. 18,198; Rison v. Knapp, Fed. Cas. No. 11,861; Atkins v. Spear, 49 Mass. 490. 88. In re Phelps, 3 Am. B. R. 396. |