within the terms of the statute making void conveyances intended to hinder or delay creditors.' Sabin v. Columbia River Lumber & Fuel Co., 34 Pac. 692, 695, 25 Or. 15, 42 Am. St. Rep. 756; Lampson v. Arnold, 19 Iowa, 479, 484, 485; Stewart v. Dunham, 115 U. S. 61, 66, 5 Sup. Ct. 1163, 29 L. Ed. 329. A transfer made in good faith to pay or to secure an honest antecedent debt by an insolvent within four months of the filing of a petition in bankruptcy by or against him constitutes no evidence of an intent on his part to hinder, delay, or defraud other creditors, within the meaning of section 67e of the bankruptcy law, notwithstanding the fact that its necessary effect is to hinder and delay them, and to deprive them of the opportunity they might otherwise have had to collect their claims in full.

"There is no other substantial evidence in this case of any purpose on the part of Armstrong to hinder, delay, or defraud any of his creditors. He honestly owed the entire debt he secured. He owed a banker, who for years had loaned him money whenever he desired it, without security. A part of his debt was due, and a portion had not yet matured. His creditor was ill, and his sons feared for his life. He owed him more than the entire capital of his bank, and the cashier feared that if this fact were known it might cause a run upon the institution He was requested to protect and secure an obligation he could not immediately pay. He did so with no apparent purpose or intention except to honestly secure the payment of that which he undoubtedly would have paid as he had promised if the money to do so had been at his disposal. His act was free from fraud or unlawful intent, and the finding of the court upon this question must be affirmed.

"3. Was the mortgage voidable by the trustee although the mortgagee did not have reasonable cause to believe that there was an intention to give a preference thereby under section 60b and although the mortgagor had no intent or purpose on his part to hinder, delay, or defraud his creditors, or any of them, under section 67e,

because the mortgage was given to secure a pre-existing debt within four months of the filing of a petition in bankruptcy? Counsel for the trustee argue that an affirmative answer should be given to this question because sections 60a and 60b have no application to liens voluntarily created, and section 67e avoids mortgages for a pre-existing debt although the mortgagor had no intent to hinder, delay, or defraud his creditors. The portions of these sections pertinent to their argument are:

"Sec. 60. Preferred Creditors.-a. A person shall be deemed to have given a preference if, being insolvent, he has 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. b. If a bankrupt shall have given a preference within four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee and he may recover the property or its value from such

66

person."

"'Sec. 67. Liens. d. Liens given or accepted in good faith and not in contemplation of, or in fraud upon this act and for a present consideration, which have been recorded according to law,, if record thereof was necessary in order to impart notice, shall not be affected by this act.

666

"'e. That all conveyances, transfers, assignments or incumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act subsequent to the passage of this act, and within four months of the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor.'

"The following, and many other authorities cited by counsel to sustain their contention, have been examined by the court: City National Bank v. Bruce, 109 Fed. 69, 48 C. C. A. 236; In re Sanderlin (D. C.), 109 Fed. 857; In re Jones (D. C.), 118 Fed. 673; In re Belding (D. C.), 116 Fed. 1016; In re Wolf (D. C.), 98 Fed. 84; In re Pease (D. C.), 129 Fed. 447, 448; In re Gutwillig, 92 Fed. 337, 34 C. C. A. 337; Keppel v. Tiffin Savings Bank, 197 U. S. 356, 25 Sup. Ct. 443, 49 L. Ed. 790; Pollock v. Jones, 124 Fed. 163, 61 C. C. A. 557. But the word 'transfer' in section 60a both by the express terms of the bankruptcy law and by the authoritative decision includes 'the sale and every other and different mode of disposing of, or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift or security.' Section 1, par. 25; Pirie v. Chicago Title & Trust Co., 182 U. S. 438, 444, 21 Sup. Ct. 906, 45 L. Ed. 1171; In re Ed. W. Wright Lumber Co. (D. C.), 114 Fed. 1011, 1013. A mortgage is a security and a transfer, and subject to the provisions of section 60a and section 60b. Such a mortgage or transfer as constitutes a preference under section 60a is not voidable under section 60b by the plain words of that section, and by its adjudicated construction unless the creditor who receives it, or is benefited by it, or his agent, has reasonable cause to believe that it was intended thereby to give a preference. Pirie v. Chicago Title & Trust Co., 182 U. S. 438, 21 Sup. Ct. 906, 45 L. Ed. 1171; McNair v. McIntyre, 113 Fed. 113, 114, 51 C. C. A. 89, 90; Hussey v. RichardsonRoberts Dry Goods Co. (C. C. A.), 148 Fed. 598, 599; Pittsburg Plate Glass Co. v. Edwards (C. C. A.), 148 Fed. 377.

"And finally, mortgages or transfers, to secure preexisting debts made within four months of the filing of a petition in bankruptcy, are legal and valid, unless voidable by reason of some provision of the bankruptcy law, or of some state law, notwithstanding the fact that they create preferences. They are valid unless avoided; not void unless validated. The provision of section 67d,

that liens for present considerations given and accepted in good faith shall not be affected by the bankruptcy law, does not strike down or render voidable those given and accepted for past considerations, and section 67e, which declares that all transfers made or given by a person adjudged a bankrupt within four months before the filing of the petition 'with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void,' is necessarily limited by the force of its terms to those transfers which are given with that intent only, and it leaves those given and accepted without such an intent unaffected by it and valid. A transfer or mortgage made by a person adjudged a bankrupt to secure a pre-existing debt within four months of the filing of the petition is not voidable under section 67e, unless it was either made with the intent on his part to hinder, delay or defraud his creditors, or some of them, or is held void as against his creditors by the laws of the state, territory, or district in which the property is situated. The result is that the mortgage to Arts was properly sustained by the court below."

Question 813: (1) What is a preference? Within what time must it be made in order to be voidable by the trustee? What must be true of the creditor to whom a preferential transfer is made in order to make him subject to an order to surrender the preference?

(2) Is a preference of one creditor over another in itself a fraudulent conveyance?

(3) If a lien is given to secure an indebtedness entered into at the time the lien is given voidable under the bankruptcy law if given within four months prior to the filing of the petition in bankruptcy and if the creditor knows the debtor is insolvent ?

(4) Answer the same question in case of a lien given to secure a past indebtedness.

(5) When will a lien given to secure a past indebtedness when the lien is taken within the four months be not voidable?

(Note: It is the idea of a voidable preference that there be an existing indebtedness that is then paid, so that the paid creditor knowing or having reasonable cause to know that a

preference is intended, gets a greater percentage of his claim than other creditors would get if the estate were then divided among them. A preference must deplete the estate. Hence, a payment to a creditor having full security is not a preference; hence, also, transactions in which value for value is given cannot be preferences, as payments by an insolvent for considerations received, or sales by him, even though in his exigency he sells for a low price.)

§ 845. (Bankruptcy, Sec. 55.) Fraudulent conveyances.

(Note: See Coder v. Arts, supra, and Githens v. Shiffler, supra.)

(Note: A fraudulent conveyance which is fraudulent in fact or fraudulent in law is voidable by the trustee in bankruptcy if the creditors could have avoided it under the laws of the state, no matter whether made within or before the four months period. In other words, the bankruptcy proceeding will not deprive the creditors of rights which they would have had had bankruptcy proceedings not intervened. Stellwegen v. Crum, 245 United States, 605.

It is essential, of course, to the voidability of the transfer that the person to whom it is made be chargeable with knowledge or notice of the fraud intended, for if he is a purchaser for value and without notice he acquires a good title. In this connection it is to be remembered that a conveyance may be constructively or legally fraudulent though in fact it is not fraudulent as, for instance, where a bulk sales law is not observed, or there is retention of possession after sale.)

§ 846. (Bankruptcy, Sec. 56.) Property held by bankrupt claimed by third persons.

(See In re Columbus Buggy. Co., Case No. 267, supra.)

§ 847. (Bankruptcy, Sec. 57.) Property held by third person belonging to bankrupt.

(Note: The trustee can recover any property belonging to the bankrupt which any other person has in his possession not held under a valid right or lien good against the creditors. Inasmuch as possession is usually equivalent to recording, any third person having possession by way of pledge or to maintain