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consent of the bankrupt, diverted a part of the funds to another purpose.2 And where a mortgage was given by an insolvent debtor within the four months' period to secure a pre-existing debt owing to the mortgagee, who was in ignorance of the mortgagor's insolvency, an intent to hinder, delay or defraud other creditors must be shown. in order to avoid the mortgage.2 264 But a mortgage made to secure a much greater amount than that really due, with the specific intent and purpose on the part of both mortgagor and mortgagee to hinder, delay and defraud other creditors of the mortgagor, is invalid in equity not only as to the fictitious debts secured, but as to the genuine indebtedness.265 The organization of a corporation or partnership by one who does not know whether he is solvent or insolvent, and the transfer thereto of his property, is not, of itself, to be regarded as hindering or delaying creditors.268

267

(3) ACTUAL FRAUD NECESSARY.-Actual fraud, as distinguished from constructive fraud based upon the failure to file or record, must appear. An agreement to withhold a mortgage from record is not of itself conclusive upon the question of fraud, but is a circumstance constituting more or less cogent evidence of a want of good faith.268

(4) EVIDENCE OF INTENT. (I) In general.- Whether a conveyance was made with intent to hinder, delay and defraud creditors is a question of fact.20 There must be some evidence of actual fraud

269

263. Angle v. Bankers' Surety Co. (C. C. A., 2d Cir.), 41 Am. B. R. 90, 244 Fed. 401.

264. Coder v. Arts, 213 U. S. 223, 22 Am. B. R. 1, 53 L. Ed. 772, 29 Sup. Ct. 436; In re Kullberg (D. C., Minn.), 23 Am. B. R. 758, 176 Fed. 585.

265. McMahon v. Pithan (Sup. Ct., Iowa), 33 Am. B. R. 125, 147 N. W. 920.

266. Matter of Braus (C. C. A., 2d Cir.), 40 Am. B. R. 668, 248 Fed. 55; Matter of Stringer (C. C. A., 2d Cir.), 41 Am. B. R. 510, 253 Fed. 352.

267. McAtee v. Shade (C. C. A., 8th Cir.), 26 Am. B. R. 151, 185 Fed. 442. 268. Rogers v. Page (C. C. A., 6th Cir.), 15 Am. B. R. 502, 140 Fed. 596, 72 C. C. A. 164. See In re Shaw (D. C., Me.), 17 Am. B. R. 196, 146 Fed. 243; In re Hickerson (D. C., Idaho), 20 Am. B. R. 682, 162 Fed. 345, holding that an agreement to withhold a chat

tel mortgage from record is evidence of fraudulent intent; In re Duggan (C. C. A., 5th Cir.), 25 Am. B. R. 479, 183 Fed. 405, affg. 25 Am. B. R. 105, 182 Fed. 252; Matter of National Boat & Engine Co. (D. C., Me.), 33 Am. B. R. 154, 216 Fed. 208.

Scheme to remove property beyond the reach of creditors.- Where the bankrupt made four conveyances simultaneously as part of a scheme to put his real estate beyond the reach of his creditors in view of his imminent and inevitable bankruptcy and the grantees knew or should have known of such intent and kept the conveyances from record, with the intent to assist in its accomplishment, such conveyances should be set aside. Cowan v. Burchfield (D. C., Ala.), 25 Am. B. R. 293, 180 Fed. 614.

269. Matter of McKane (D. C. N. Y.), 19 Am. B. R. 103, 155 Fed. 674;

in order to invalidate a conveyance; mere suspicion of wrongdoing is insufficient.270 In determining whether the result of a number of transactions was the consummation of a preconceived purpose to hinder, delay or defraud creditors, the court will not separately and independently regard each step which, of itself, might be innocent, but will consider the transactions in connection with what else appears, especially when they are in close consecutive association.271 The rule that persons who do not meet their obligations as they mature in the ordinary course of business are "insolvent," within the meaning of bankruptcy and insolvency acts does not apply to all persons but does apply to traders. Hence where the bankrupt was a trader the fact that he was unable to pay his debts as they matured and became due and payable in the ordinary course of business as persons carrying on trade usually do is a fact to be given its full weight by the jury in determining whether the payments made by him were made with intent to hinder and delay his creditors.272 Where a debtor mortgages his entire stock of goods and uses the money to pay a portion of his creditors it will be presumed that he intended to hinder, delay, and defraud his other creditors.273 Other illustrative cases under the present law are cited in the foot-note.

Clingman v. Miller (C. C. A., 8th Cir.), 20 Am. B. R. 360, 160 Fed. 326; Maires v. Metal & Machinery Co. (D. C., N. Y.), 33 Am. B. R. 422, 220 Fed. 115. 270. Johnson v. Barrett (D. C., Ga.), 38 Am. B. R. 464, 237 Fed. 112.

271. Amundson v. Folsom (C. C. A., 8th Cir.), 33 Am. B. R. 318, 219 Fed. 122; Calkins v. Lichtig (C. C. A., 6th Cir.), 42 Am. B. R. 306, 251 Fed. 844; Dwelling Building & Loan Ass'n v. MacHenry (C. C. A., 3d Cir.), 45 Am. B. R. 487, 263 Fed. 702.

272. Holbrook v. International Trust Co. (Sup. Jud. Ct., Mass.), 33 Am. B. R. 808, 107 N. E. 665.

273. In re Walden Bros. Clothing Co. (D. C., Ga.), 29 Am. B. R. 80, 199 Fed. 315. But in this case on appeal the court held (C. C. A., 5th Cir.), 29 Am. B. R. 673, that where a transfer of a bankrupt's entire stock of goods, which was made for a present fair consideration, is sought to be impugned on the ground that it was made to

274

hinder, delay and defraud creditors, so far as the purchaser is concerned, actual fraud as distinguished from constuctive fraud, must be shown.

274. Carter v. Goodykoontz (D. C., Ind.), 2 Am. B. R. 224, 94 Fed. 108; Johnson v. Wald (C. C. A., 5th Cir.), 2 Am. B. R. 84, 93 Fed. 640; In re Steininger (C. C. A., 5th Cir.), 6 Am. B. R. 68, 107 Fed. 669; In re Hugill Mercantile Co. (D. C., Ohio), 3 Am. B. R. 686, 100 Fed. 616; In re Kellogg (Ref., N. Y.), 6 Am. B. R. 389, affd. 7 Am. B. R. 270, 112 Fed. 52; In re Shepherd (Ref., Ill.), 6 Am. B. R. 725; Calkens v. Lichtig (C. C. A., 6th Cir.), 42 Am. B. R. 306, 251 Fed. 844; Crawford v. Broussard (C. C. A., 5th Cir.), 44 Am. B. R. 187, 260 Fed. 122; Matter of Sola (C. C. A., 1st Cir.), 44 Am. B. R. 372, 261 Fed. 822.

Cross-reference. See also under section 3, ante, subtitle 'Proof of intent."

(II) Defendants as witnesses for plaintiff.—Where a trustee in bankruptcy brings an action to set aside an alleged fraudulent transfer and introduces the defendants as his witnesses, he is not entitled to impeach their testimony by proving them unworthy of belief generally, but their testimony as to the bona fides of the transaction is not entitled to be believed if their other testimony and the inferences necessary to be drawn from it show that their statements as to the good faith of the transaction are not true.2

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(III) Burden of proof.- The rule is that one who alleges fraud takes upon himself the burden of proving it.276 Circumstances of the transaction may be shown; if sufficient to show that the entire intent was to delay, hinder or defraud, the transaction should be set aside; if it is attempted to prove the intent by evidence apart from the face of the instrument attacked, the burden of proof is usually imposed upon the party attacking.277

f. Purchasers in good faith and for present fair consideration.— This saves valid transfers,278 as subsection d does valid liens. A purchaser is not in good faith if he has knowledge of the insolvent's insolvency, or where facts are shown which place upon the purchaser the duty of making inquiries as to the insolvent's financial condition, and he fails to make them,279 as where the sale consists of the transfer of the entire stock of merchandise owned by a retail merchant.280 But

275. Campbell v. Berryman (D. C., Ga.), 42 Am. B. R. 661, 256 Fed. 402.

276. In re Kayser (C. C. A., 3d Cir.), 24 Am. B. R. 174, 177 Fed. 383; Jackson v. Sedgwick (D. C., N. Y.), 26 Am. B. R. 836, 189 Fed. 508; Potter v. American Printing & Litho. Co. (Ia. Sup. Ct.) 40 Am. B. R. 854, 165 N. W. 1044; Jacobs v. Van Sickel (D. C., N. J.), 10 Am. B. R. 519, 123 Fed. 340: Johnstone v. Babb (C. C. A., 4th Cir.), 38 Am. B. R. 715, 240 Fed. 668, 153 C. C. A. 466; Osley v. Adams (C. C. A., 5th Cir.), 46 Am. B. R. 40, 268 Fed. 114; In re Grocers' Baking Co. (D. C., Ala.), 46 Am. B. R. 150, 266 Fed. 900.

Burden of proof. In an action by one claiming to be the owner of property transferred by a bankrupt to recover the proceeds of the sale of the property made by the trustee, the burden is upon the plaintiff to aver and prove that he was a purchaser in good

faith and for a present fair consideration. Crawford v. Broussard (C. C. A., 5th Cir.), 43 Am. B. R. 603, 260 Fed. 122; rehearing denied, 44 Am. B. R. 187, 260 Fed. 122; Watson v. Adams (C. C. A., 6th Cir.), 39 Am. B. R. 473, 242 Fed. 441.

277. In re Elleston (D. C., W. Va.), 23 Am. B. R. 530, 174 Fed. 859; In re Kayser (C. C. A., 3d Cir.), 24 Am. B. R. 174, 177 Fed. 383; Crawford v. Broussard (C. C. A., 5th Cir.), 44 Am. B. R. 187, 260 Fed. 122.

278. Compare Tiffany v. Lucas, 15 Wall. 410; Sedgwick v. Wormser, Fed. Cas. 12,626; Curran v. Munger, Fed. Cas. 3,487.

279. Spencer v. Nekemoto (D. C., Hawaii), 24 Am. B. R. 517.

280. In re Moody (D. C., Iowa), 14 Am. B. R. 272, 134 Fed. 628; In re Knopf (D. C., S. Car.), 16 Am. B. R. 432, 144 Fed. 245; Dokken v. Page

a creditor's passive receipt of payment is not of itself sufficient to make it fraudulent.281 A transfer without any consideration is, of course, fraudulent,282 but if the consideration is a "present fair consideration" and passes to the bankrupt and goes into his estate, the transfer is valid, unless there is clear and convincing proof of fraud.283 The general rule is that a present consideration does not

necessarily consist of money. It may consist in the substitution of one security for another,284 or the giving up of value which could have been secured at the time, for a postponement.285 If part of the consideration for a mortgage is present and made in good faith, such a mortgage will be good to that extent.286 But where there is an entire absence of good faith, the fresh consideration does not save the mortgage; it is void even as to that.287 Marriage is a proper and valuable consideration for the transfer of property under this section,288 unless, of course, the woman was already married.289 A mortgage for a past consideration by a bankrupt who knows that he is hopelessly insolvent is void notwithstanding the mortgagee may

tor of an insolvent bank to secure the payment of his note to another bank which had loaned money for the payment of the creditors of the insolvent bank, made for a present and fair consideration, and taken in good faith by the purchaser, is not invalid under section 67-e of the bankruptcy act, although the director knew of his own insolvency when he made the convey

ance.

In

A chattel mortgage given upon the payment of cash, which cash goes into the hands of the bankrupt and is used for the purposes of his estate and of which his creditors have the benefit, is a valid mortgage under § 67-e of the bankruptcy law even if made within four months of the filing of the petition, if no actual fraud be shown. re Mahland (D. C., N. Y.), 26 Am. B. R. 81, 184 Fed. 743; Lake View State Bank v. Jones (C. C. A., 7th Cir.), 40 Am. B. R. 148, 242 Fed. 821. As to assignment of book accounts made by parol as security for purchase price of goods delivered prior to four months period, see In re Stiger (D. C., N. J.), 29 Am. B. R. 253, 202 Fed. 791.

284. First State Bank V. Sibley County Bank (Minn. Sup. Ct.), 90 Minn. 456, 105 N. W. 485; Shaffer v. Fritchery, 4 N. B. R. 548. See also section 60, ante, subtitle "Past, present or future consideration."

285. Hagan v. McNiel (C. C. A., 4th Cir.), 41 Am. B. R. 792, 253 Fed. 716.

286. In re Wolf (D. C., Iowa), 3 Am. B. R. 558, 98 Fed. 84; City Nat. Bank v. Bruce (C. C. A., 4th Cir.), 6 Am. B. R. 311, 109 Fed. 69, affg. In re Alverson (Ref., S. Car.), 5 Am. B. R. 855; Stedman v. Bank of Monroe (C. C. A., 8th Cir.), 9 Am. B. R. 4, 117 Fed. 237; In re Davidson (D. C., Ia.), 5 Am. B. R. 528, 109 Fed. 882; In re Durham (D. C., Md.), 8 Am. B. R. 115, 114 Fed. 750; In re Sawyer (D. C., Mass.), 12 Am. B. R. 269, 130 Fed. 384, where a chattel mortgage given in security for the payment of notes to a certain amount was sustained as to the amount actually loaned at the time the mortgage was executed; In re Dismal Swamp Contracting Co. (D. C., Va.), 14 Am. B. R. 175, 135 Fed. 415; Angle v. Bankers' Trust Co. (D. C., N. Y.), 32 Am. B. R. 71, 210 Fed. 289.

287. In re Hugill (D. C., Ohio), 3 Am. B. R. 686, 100 Fed. 616. See also a case somewhat analogous, In re Barrett (Ref., N. Y.), 6 Am. B. R. 48. Compare also In re Soudans Mfg. Co. (C. C. A., 7th Cir.), 8 Am. B. R. 45, 113 Fed. 804.

288. Robertson v. Schlotzhauer (C. C. A., 7th Cir.), 40 Am. B. R. 237, 243 Fed. 324.

289. Hosmer v. Tiffany (N. Y. Sup. Ct.), 115 App. Div. 303, 100 N. Y. Supp. 797.