and go upon the town, under penalty of being charged with a dishonest or covinous purpose. Even, therefore, if we had a right to infer that from the beginning they contemplated all that was subsequently done-which is quite a stretch of inference-it cannot be regarded as a fraudulent withdrawal of their property out of the reach of creditors to sell with that in view; otherwise any disposition by an insolvent debtor would be open to that charge if every dollar derived from it was not turned over impartially to his creditors. This is not the standard of the law, however it may be of morals or ideal honesty; and, while a man may not connive with others to get his property out of the way by sale or otherwise, yet a fair and open disposition of it on a full consideration cannot be given any such character although it may incidentally have the effect of leaving nothing which creditors can get hold of, and even though the debtor do this to meet some of his obligations rather than others.

"The only thing that remains is the fact that the defendants did not carry out their promise to pay the plaintiffs out of the proceeds of the sale. This, of course, would have been as much of a preference, and as objectionable to the bankrupt law, which the plaintiffs seek to invoke, as the payment of the rent or of the debt for which their father was surety. But, passing by this feature of it, there is nothing in the mere failure to keep their promise that can be laid hold of to make out a fraudulent motive in the transaction. The negotiations for the sale were then in progress, and could not, therefore, have been gotten up by the defendants, nor carried through by them, to get their property out of the way under pressure of this particular claim.

"All this is said, of course, with reference to the act of bankruptcy alleged in the petition. Had a transfer of property with intent to prefer been charged, we should have had a very different question to deal with; but, as the case stands, there is nothing to warrant the conclusion that the sale was not an honest one. The money which the defendants received from it was their own in

law, and the fact that they exercised their proprietary rights in disposing of it afforded no evidence of a fraudulent purpose.

"The rule is made absolute, and a new trial awarded."

Question 793: (1) D, being insolvent (but not bankrupt) sells his property to X. Is the sale fraudulent, or in any manner forbidden by the bankruptcy law?

(2) D, being insolvent (but not yet bankrupt) owes X, Y and Z. He pays X his entire claim. Did the common law forbid this? Does the bankruptcy law? Is the payment a fraudulent conveyance?

(Note: The bankruptcy act makes a transfer, concealment or removal "with intent to hinder, delay or defraud his creditors, or any part of them," an act of bankruptcy. This provision incorporates into the bankruptcy law the law of fraudulent conveyances built up by the common law. That is to say, the bankruptcy act attempts no definition of its own, but adopts the definition already existing. Fraudulent conveyances are fruitful sources of litigation by creditors. The law will not permit a debtor to transfer his property in fraud of creditors and if the transferee is a party to the fraud or chargeable with knowledge or notice of it, it may be set aside. However, in inquiring whether such a transfer is fraudulent from the viewpoint of the commission of an act of bankruptcy the question whether it can be taken away from the transferee is immaterial. That point comes up later in the proceedings. Now it is alleged as an act of bankruptcy whereby to get the debtor into the bankruptcy court.

It is well established that a sale by an insolvent even for an insufficient price is not in itself a fraudulent transfer although great inadequacy of price may be an element in the proof. So, a mortgage or pledge by an insolvent is not a fraudulent transfer. The idea in fraudulent transfers is that of getting the property out of the way of the reach of creditors by making a disposition for no value, or for value upon a secret trust to reconvey to the debtor when the trouble is over, or to get assets in fluid form with actual intent to defeat or hinder creditors.

It was seen in the law of sales that certain transactions are made fraudulent by statute, as non-observance of bulk-sales acts, retention of possession by vendor, etc.)

(2) Insolvency as Element in This Act of Bankruptcy.

(Note: Insolvency is not an element in this act of bankruptcy, although solvency at the time of filing the petition is a defense against the proceedings. But in determining the solvency of the debtor, the property which he has fraudulently transferred, concealed or removed is not to be considered as has been seen. Therefore a debtor in this way might be insolvent and yet the estate by recovery of fraudulent conveyances might become solvent, that is, pay out in full.)

§ 829. (Bankruptcy, Sec. 39.) Preferential payments or transfers.

Case 794. Bankruptcy Law, Sec. 3, a, (2).

"[Acts of bankruptcy by a person shall consist of his having]

"(2) Transferred, while insolvent, any portion of his property, to one or more of his creditors with intent to prefer such creditors over his other creditors."

Question 794: What is the act of bankruptcy secondly recited?

(Note: Preferring a creditor has a twofold aspect in bankruptcy. It is (1) an act of bankruptcy if preference was intended and (2) a transaction that may be set aside if the creditor preferred knew or had reasonable cause to know that a preference was intended. The second aspect we consider in Chapter 108.

Having preferred a creditor is no bar to discharge. There is nothing morally wrong, and outside of the bankruptcy act, nothing legally wrong in preferring one creditor over another. As a matter of fact an insolvent person can hardly escape preferring creditors. Preferences are made acts of bankruptcy and can be set aside by the trustee in bankruptcy for the reason that it is the purpose of the bankruptcy act to accomplish an equal distribution among the general creditors of an insolvent person. To permit preferences would defeat this prime object. To be an act of bankruptcy the following elements are essential in alleged preferences:

(1) The debtor must be insolvent when the preference is made.

(2) There must be an existing debt. creditor unless there is a credit existing. actions are not preferences;

One cannot prefer a Therefore cash trans

(3) The debtor must intend to prefer. If he knows he is insolvent, his payment of a substantial debt is a preference for he must be presumed to know the natural and probable consequences of his act. Yet if he can show that he did not know he was insolvent he has rebutted the intention.

See further as to preferences, Chapter 106.

§ 830. (Bankruptcy, Sec. 40.) Preferences secured through legal proceedings as acts of bankruptcy.

Case 795. Bankruptcy Law, Sec. 3 a (3).

"[Acts of bankruptcy by a person shall consist of his having]

"(3) Suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference."

Question 795: What is the act of bankruptcy, thirdly recited?

(Note: This act of bankruptcy is for the purpose of preventing a creditor getting a preference within four months prior to the filing of the petition through legal proceedings. The entry of a judgment against an insolvent debtor is not an act of bankruptcy. But if the judgment creditor through his legal proceedings, as by levy of execution and 'sale proceeds to obtain a preference, the "suffering or permitting" of such preference by the bankrupt is an act of bankruptcy which other creditors may take advantage of. If the debtor does not prevent the "sale or final disposition" at least five days before the same, he thereby "suffers or permits it" within the meaning of the bankruptcy law. This was decided early in the history of the act of 1898 in Wilson v. Nelson, 183 United States, 191 (1901). In that case Nelson, the debtor in 1885 gave his promissory note containing an irrevocable power of attorney to confess judgment against him thereon. On November 21, 1898, the holder caused a judgment to be confessed. Execution was im

mediately issued to the sheriff who levied upon Nelson's goods and sold the same, leaving Nelson with no assets to pay his debts. This judgment was entered and levy made without Nelson's knowledge or consent. Against him it was a valid proceeding and not subject to be set aside, or vacated by him. On December 10, 1898, other creditors of Nelson filed a petition in bankruptcy against him alleging the above facts as the act of bankruptcy. Issue was joined on this question and went to the United States Supreme Court on certificate. The court held that the failure to vacate or discharge this preference was an act of bankruptcy.)

§ 831.

(Bankruptcy, Sec. 41.) General assignments for benefit of creditors and receiverships as acts of bankruptcy.

Case 796. Bankruptcy Law, Sec. 3 a (4).

"[Acts of bankruptcy by a person shall consist of his having]

"(4) Made a general assignment for the benefit of his creditors, or, being insolvent, applied for a receiver or trustee for his property or because of insolvency a receiver or trustee has been put in charge of his property under the laws of a State, of a Territory, or of the United States."

Question 796: What is the act of bankruptcy partly recited?

§ 832. (Bankruptcy, Sec. 42.) Admission of insolvency and consent to bankruptcy.

Case 797. Bankruptcy Law, Sec. 3 (a) 5.

"[Acts of bankruptcy by a person shall consist of his having]

"(5) Admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground."

Question 797: What is the last recited act of bankruptcy?