take up its floated indebtedness, and conveyed its property in trust to secure them, with the idea of thereby placing itself in a better position to carry on its business, this could not be held to be an act of bankruptcy, though the corporation at the time might have been insolvent."1

This first act of bankruptcy does not add, as several of the others do, the qualification that the act must be done while insolvent. However, paragraph "c" of section 3 provides that it shall be a complete defense to any proceeding instituted under the first subdivision of the section to allege and prove that the party proceeded against was not insolvent, as defined in this act, at the time of filing the petition against him. In West Co. v. Leao2 the Supreme Court decided that the subdivision in paragraph "c" referred simply to this provision relating to transfers to hinder, delay, and defraud creditors, and not to any of the others; hence, under this decision, solvency is a complete defense to a petition alleging such a conveyance by the debtor as is contemplated under this first subdivision.

SAME-ILLEGAL PREFERENCES

42. It is an act of bankruptcy for a person to transfer, while insolvent, any portion of his property to one or more of his creditors, with intent to prefer such creditors over his other creditors. In this act of bankruptcy the intent of the debtor alone is material.

This act is described in section 3 as consisting of having "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."

61 In re Union Pac. R. Co., Fed. Cas. No. 14,376. See "Bankruptcy," Dec. Dig. (Key-No.) § 57; Cent. Dig. §§ 57, 66, 69–79.

62 174 U. S. 590, 19 Sup. Ct. cy," Dec. Dig. (Key-No.) § 54;

836, 43 L. Ed. 1098. See "BankruptCent. Dig. §§ 54, 84, 85.

In considering this as an act of bankruptcy, independent of the question how far it is voidable, the intent of the debtor alone is material. If he intended a preference, the fact that the creditor was not aware of such intent, or had not such reasonable cause to suspect it as to charge him with knowledge, will not affect the act as an act of bankruptcy, however good a defense it may be to an attempt to set it aside as to the creditor.68 When a debtor transfers property to cover a debt, and its necessary effect is to give the creditor a preference, the intent to prefer will be inferred, as that is a natural consequence of the act. Preferences of this sort may be accomplished as well by a payment in money as by a transfer of any other kind of property.65

64

It is to be noted that intent is necessary in both the acts of bankruptcy so far described.

SAME SUFFERING PREFERENCES BY LEGAL

PROCESS

43. It is an act of bankruptcy for a person to suffer or permit, while insolvent, any creditor to obtain a preference through legal proceedings, and not at least five days before a sale or final disposition of any property affected by such preference to vacate or discharge such preference.

As the policy of the bankrupt law is an equitable distribution of a bankrupt's estate among his creditors, it is

63 In re Rome Planing Mill Co. (D. C.) 96 Fed. 812. See "Bankruptcy," Dec. Dig. (Key-No.) § 58; Cent. Dig. §§ 57, 72–79, 83.

64 Johnson v. Wald, 93 Fed. 640, 35 C. C. A. 522; In re Smith (D. C.) 176 Fed. 426. See "Bankruptcy," Dec. Dig. (Key-No.) § 58; Cent. Dig. §§ 57, 72-79, 83.

65 In re Ft. Wayne Electric Corp., 99 Fed. 400, 39 C. C. A. 582. But not an innocent payment in the usual course of business. In re Morgan & Williams (D. C.) 184 Fed. 938. See "Bankruptcy," Dec. Dig. (Key-No.) § 58; Cent. Dig. §§ 57, 72-79, 83.

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necessary to secure it not only against the acts of the bankrupt himself, but also against the attempt of his creditors to secure priority over each other. This is the object of this section, and, being its object, it is an act of bankruptcy, if such a result is brought about by the creditors, though the bankrupt himself is not privy to their act, and merely suffers them to proceed. Under this section an intent of the debtor is unnecessary, which sharply distinguishes it from the two preceding sections, and also from the corresponding section of the bankrupt act of 1867. This clause of the act came under the consideration of the Supreme Court in Wilson v. Nelson. There a debtor, long before the filing of a petition in bankruptcy, and indeed before the enactment of the bankrupt law, had given a creditor an irrevocable power of attorney to confess judgment upon a promissory note. After the bankrupt act went into effect, the creditor executed this power of attorney, and proceedings were instituted, alleging that the act of the debtor in permitting the execution of this power of attorney was an act of bankruptcy. The court sustained this contention, although the debtor had merely passively acquiesced, and in fact was powerless to do anything. The opinion was based upon the language of the present act, and distinguished cases decided under the old act, which it held were no longer in point. Prior to this decision, some decisions of inferior courts had held that in the case of a power of attorney given under similar circumstances, and afterwards executed, the act of the debtor in permitting it was not an act of bankruptcy, but these cases must now be considered as overruled.

Care must be taken, however, to distinguish this case from a procedure to foreclose a lien created before the act, or so long before the filing of the petition as not to

66 183 U. S. 191, 22 Sup. Ct. 74, 46 L. Ed. 147. See "Bankruptcy," Dec. Dig. (Key-No.) § 59; Cent. Dig. §§ 81, 82.

be subject to attack. In such case the fact that the lien is foreclosed afterwards does not make it an act of bankruptcy on the part of the debtor. The distinction is due. to the fact that no lien arises at the time of giving a power of attorney to confess judgment, and the mere giving of that power of attorney does not enable a creditor to obtain a preference, as it may never be executed, whereas, in proceedings to foreclose a lien, the lien is already in existence, and the obtaining of the preference would date back to the time of executing the lien, and not, as in the case of a power of attorney, to the time of executing the power of attorney. Under this clause, however, the mere appointment of a receiver for a corporation would not be an act of bankruptcy, as no final disposition of the property would be made by such appointment.68 Creditors who wish to proceed under this section do not have to wait until an actual sale, or disposition of the property. If a sale has been advertised, they can proceed within five days before the advertisement is to be carried out. No actual participation by the debtor is necessary, but mere passive submission is an act of bankruptcy under this clause, if the result is that the creditor secures the preference.70

67

69

67 In re Chapman (D. C.) 99 Fed. 395; In re Ferguson (D. C.) 95 Fed. 429; METCALF BROS. v. BARKER, 187 U. S. 165, 23 Sup. Ct. 67, 47 L. Ed. 122. See "Bankruptcy," Dec. Dig. (Key-No.) § 59; Cent. Dig. §§ 81, 82.

68 In re Baker-Ricketson Co. (D. C.) 97 Fed. 489. See "Bankruptcy," Dec. Dig. (Key-No.) § 59; Cent. Dig. §§ 81, 82.

69 In re Rome Planing Mill Co. (D. C.) 96 Fed. 812. An advertisement of a sale in attachment proceedings to save expense does not come under this provision, as it only substitutes money for property and does not diminish the debtor's estate. In re Crafts-Riordon Shoe Co. (D. C.) 185 Fed. 931. The title of the trustee is transferred to the proceeds. Jones v. Springer, 226 U. S. 148, 33 Sup. Ct. 64, 57 L. Ed. See "Bankruptcy," Dec. Dig. (Key-No.) § 59; Cent. Dig. §§ 81, 82.

70 In re Reichman (D. C.) 91 Fed. 624; In re Cliffe (D. C.) 94 Fed. 354; In re Tupper (D. C.) 163 Fed. 766, 772. See "Bankruptcy," Dec. Dig. (Key-No.) § 59; Cent. Dig. §§ 81, 82.

The language of this clause is conditioned upon the debtor not having, at least five days before a sale or final disposition of any property affected by such preference, vacated or discharged such a preference. The privilege of vacating or discharging thus given to the debtor would seem, however, to be rather an empty one. If he goes and pays off the creditor, and releases the property, and is insolvent when he does it, that would be an act of bankruptcy of itself. Hence, if he is actually insolvent, about the only thing he can do is to file a petition in bankruptcy himself; and this procedure is hinted at in the decisions."1 But even that privilege cannot be exercised by some corporations, so that, if such a corporation is insolvent, nothing remains but to let matters take their course. Either an individual or a corporation can defend on the ground of solvency, if the facts sustain it, for in this subdivision insolvency is a necessary requisite.

SAME ASSIGNMENTS AS AN ACT OF BANKRUPTCY

44. It is an act of bankruptcy for a person to make a general assignment for the benefit of his creditors, or, being insolvent, to apply for a receiver or trustee for his property, or when, because of insolvency, a receiver or trustee is put in charge of his property under the laws of a state, of a territory, or of the United States.

In the act as originally passed, any one committed an act of bankruptcy who made a general assignment for the benefit of his creditors. To this the amendment of Febru

71 WILSON v. NELSON, 183 U. S. 191, 22 Sup. Ct. 74, 46 L. Ed. 147; In re Moyer (D. C.) 93 Fed. 188; In re Tupper (D. C.) 163 Fed. 766, 771. See “Bankruptcy,” Dec. Dig. (Key-No.) § 59; Cent. Dig. §§ 81, 82.

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